Exhibit 10.2


CONVERSION
AND REGISTRATION RIGHTS AGREEMENT


CONVERSION
AND REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of August 14, 2006,
by and between A.D.A.M., Inc., a Georgia corporation (the “Company”), and CapitalSource Finance LLC, a
Delaware limited liability company and its successors and assigns (each a “Purchaser”).


PRELIMINARY STATEMENT


A.            In connection with the Credit Agreement of even date
herewith by and among the Company, the Purchaser and certain other parties
(such Credit Agreement, as the same may be amended, modified, supplemented or
restated from time to time, hereinafter is referred to as the “Credit Agreement”), the Company has agreed,
upon the terms and subject to the conditions of the Credit Agreement and this
Agreement, to grant the Purchaser the right to convert all or any portion of
the Convertible Term Loan into shares of the Company’s  common stock, par value $0.01 per share (the “Common Stock”), on the terms set forth in
this Agreement.


B.            To induce the Purchaser to execute and deliver the Credit
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the “Securities Act”), and applicable state
securities laws.


NOW,
THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Investors hereby agree as follows:


1.             DEFINITIONS.


As
used in this Agreement, the following terms shall have the following meanings:


(a)           “Closing
Price” with respect to a share of Common Stock on any day shall mean
the closing sale price regular way on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices,
regular way, in each case on the Principal Market, or, if not quoted or listed
or admitted to trading on any national securities exchange or quotation system,
the average of the closing bid and asked prices of the Common Stock on the
over-the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similar generally accepted reporting
service.


(b)           “Common
Shares” means the shares of Common Stock issued or issuable pursuant
to the terms of this Agreement.


(c)           “Conversion
Price” means $6.37 per share of Common Stock, as such amount may be
adjusted from time to time pursuant to Section 2(c) below.


(d)           “Convertible
Term Loan” means the “Convertible Term Loan”, as defined in the
Credit Agreement.









 



(e)           “Delay
Payment Rate” means (i) during the first three weeks of a Damages
Accrual Period, an amount per week (or portion thereof) per share of Common
Stock equal to 0.5% of the higher of the Conversion Price or the Market Price
of such share, (ii) during the next three weeks of a Damages Accrual Period, an
amount per week (or portion thereof) per share of Common Stock equal to 1% of
the higher of the Conversion Price or the Market Price of such share, and (iii)
during the remainder of a Damages Accrual Period, an amount per week (or
portion thereof) per share of Common Stock equal to 2% of the higher of the
Conversion Price or the Market Price of such share.


(f)            “Delivery
Delay Payment Rate” means an amount per day (or portion thereof) per
share of Common Stock equal to 0.5% of the higher of the Conversion Price or
the Market Price of such share.


(g)           “Fundamental
Transaction” means any of (i) any reclassification or change of the
outstanding shares of Common Stock (other than a subdivision or combination,
including a reverse stock split), (ii) any consolidation, merger or combination
of the Company with another Person as a result of which holders of Common Stock
shall be entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock, (iii)
any statutory exchange, as a result of which holders of Common Stock generally
shall be entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock, or (iv)
any sale or conveyance of all or substantially all of the assets of the
Company.  Notwithstanding the foregoing, a
transaction will not be deemed to constitute a Fundamental Transaction if its
sole purpose is to change the state of incorporation of the Company or to
create a holding company that will be owned in the same proportions by the
persons or entities that held the Company’s securities immediately prior to
such transactions.


(h)           “Investor”
means (i) a Purchaser, (ii) any other holder of any portion of the Convertible
Term Loan, and (iii) any transferee or assignee of a Purchaser or such other
holder to whom a Purchaser or holder assigns its rights under this Agreement
and who agrees to become bound by the provisions of this Agreement in
accordance with Section 10.


(i)            “Market
Price” means, with respect to a share of Common Stock on a
particular day, the average of the Closing Prices for Common Stock over the
thirty (30) day period ending one (1) Trading Day prior to the date of
determination.


(j)            “Person”
means a corporation, a limited liability company, an association, a
partnership, an organization, a business, an individual, a governmental or
political subdivision thereof or a governmental agency.


(k)           “Principal
Market” means the NASDAQ Capital Market or if the Common Stock is
not traded on such market, then the principal securities exchange or trading
market for the Common Stock.


(l)            “Register,”
“registered,” and “registration” refer to a registration
effected by preparing and filing one or more Registration Statements (as
defined below) in compliance with the Securities Act and pursuant to Rule 415
under the Securities Act or any successor rule providing for offering
securities on a continuous or delayed basis (“Rule
415”), and the 



 2
 






 



declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange Commission
(the “SEC”).


(m)          “Registrable
Securities” means (i) the Common Shares, (ii) any shares of capital
stock issued or issuable with respect to the Common Shares as a result of any
stock split, stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on the issuance of the Common Shares and
(iii) any securities of the Company issued upon the reclassification of any of
the foregoing.


(n)           “Registration
Delay” means the occurrence of any of (i) a Registration Statement
in connection with a Demand Registration covering all of the Registrable
Securities required to be covered thereby is not filed with the SEC on or
before the deadline described in the last sentence of Section 3(a) or is not
declared effective by the SEC on or before the deadline described in the last
sentence of Section 3(a), (ii) on any day during the Registration Period (other
than during an Allowable Grace Period, as defined in Section 4(r)), any
Registrable Security required to be included in such Registration Statement
cannot be sold pursuant to such Registration Statement as a matter of law or
because the Company has failed to perform its obligations under this Agreement
within the applicable time period required for such performance (including,
without limitation, because of a failure to keep such Registration Statement
effective, to disclose such information as is necessary for sales to be made
pursuant to such Registration Statement or to register a sufficient number of
shares of Common Stock), or (iii) a Grace Period (as defined in Section 4(r))
exceeds the length of an Allowable Grace Period.


(o)           “Registration
Statement” means a registration statement or registration statements
of the Company filed under the Securities Act covering the Registrable
Securities.


(p)           “Share
Delivery Delay” means the failure of the Company to issue and
deliver any shares to be issued pursuant to Section 2 in the manner and within
the timeframe set forth in Section 2(b).


(q)           “Trading
Day” means (x) a day on which the Principal Market is open for
business or (y) if the applicable security is not so listed on a Principal
Market or admitted for trading or quotation, any day that is not (i) a Saturday
or a Sunday, or (ii) a day on which banking institutions in the State of
Maryland are authorized or obligated by law or regulation to close.


2.             CONVERSION


(a)           An Investor may at any time, and from
time to time, convert all or any portion of the then-outstanding principal
balance of the Convertible Term Loan held by such Investor into that number of
shares of fully paid and nonassessable shares of Common Stock equal to the
amount of the principal being converted divided by the Conversion Price.  An Investor may exercise its conversion right,
in whole or in part, any number of times while the Convertible Term Loan
remains outstanding.


(b)           In order to effect a conversion
pursuant to Section 2(a), an Investor shall deliver a written notice of its
intention to convert all or any portion of the principal amount of the
Convertible Term Loan (a “Notice of
Conversion”) to the Company. 
The Company shall, as 



 3
 






 



soon as practicable but in no event later than five
(5) Trading Days after the delivery of the Notice of Conversion, (i) issue and
deliver the number of shares of Common Stock to which the Investor shall be
entitled by, at the option of the Investor, either (A) if the Company is able
to do so, crediting such number of shares to the Investor’s or its designee’s
balance account with The Depository Trust Company through its Deposit Withdrawal
Agent Commission system, or (B) issuing and delivering to the address specified
in the Notice of Conversion, a certificate or certificates in such
denominations as may be requested in the Notice of Conversion, registered in
the name of the Investor or its designee, and (ii) if requested by the
Investor, issue and deliver a promissory note in the form specified in the
Credit Agreement in the amount of any unconverted portion of the Convertible
Term Loan held by such Investor.  The
conversion will be deemed to have been made on the date the Notice of
Conversion is delivered to the Company. 
The Investor will be treated for all purposes as the record holder or
holders of the Common Shares on the date of such delivery of the Notice of
Conversion.  The Company will pay any and
all taxes (other than taxes based upon income) and other governmental charges
that may be imposed with respect to the issuance and delivery of the Common
Shares on any conversion hereunder.  No
fractional shares of Common Stock are to be issued on any conversion hereunder,
but the Company will instead round down to the next whole number the number of
shares of Common Stock to be issued on the conversion.


(c)           If at any time or from time to time
after the date hereof:


(i)            the Company effects a subdivision of
the outstanding Common Stock, the Conversion Price in effect immediately before
that subdivision shall be proportionately decreased.  Conversely, if at any time or from time to
time after the date hereof the Company combines the outstanding shares of
Common Stock into a smaller number of shares, the Conversion Price in effect
immediately before the combination shall be proportionately increased.  Any adjustment under this Section 2(c)(i)
shall become effective at the close of business on the date the subdivision or
combination becomes effective;


(ii)           the Company pays a dividend or other
distribution in additional shares of Common Stock, the Conversion Price that is
then in effect shall be decreased by multiplying such Conversion Price then in
effect by a fraction, (A) the numerator of which is the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance, and (B) the denominator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance plus the number of shares of Common Stock issuable in payment of such
dividend or distribution.  If the Company
fixes a record date to determine which holders of Common Stock are entitled to
receive such dividend or other distribution, the Conversion Price shall be
fixed as of the close of business on such record date and the number of shares
of Common Stock shall be calculated immediately prior to the close of business
on such record date;


(iii)          the Common Stock is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this 



 4
 






 



Section 2(c)), in any
such event the Investors shall then have the right to convert the Convertible
Term Loan into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the maximum number of shares of Common Stock into which such
Convertible Term Loan could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof; and


(iv)          there is a capital reorganization of
the Common Stock or the merger or consolidation of the Company with or into
another corporation or another entity or person (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 2(c)), as a part of such capital
reorganization, provision shall be made so that the Investors shall thereafter
be entitled to receive upon conversion of the Convertible Term Loan the number
of shares of stock or other securities or property of the Company to which a
holder of the number of shares of Common Stock deliverable upon conversion
would have been entitled on such capital reorganization, subject to adjustment
in respect of such stock or securities by the terms thereof.  In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 2 with
respect to the rights of the Investor after the capital reorganization to the
end that the provisions of this Section 2 (including adjustment of the
applicable Conversion Price then in effect and the number of shares issuable
upon conversion) shall be applicable after that event and be as nearly
equivalent as practicable.


(d)           In each case of an adjustment or
readjustment of the Conversion Price or other terms under Section 2(c), the
Company, at its expense, shall compute such adjustment or readjustment in
accordance with the provisions thereof and promptly prepare a certificate
showing such adjustment or readjustment, and shall deliver such notice to each
Investor.  The certificate shall set
forth such adjustment or readjustment, showing in reasonable detail the facts
upon which such adjustment or readjustment is based, including a statement of
(i) the Conversion Price at the time in effect, and (ii) the type and amount,
if any, of other property which at the time would be received upon conversion
of the Convertible Term Loan.


(e)           Prior to the exercise of the
conversion right hereunder, the Investor will not be entitled to vote or be
deemed the holder of any of the capital stock of the Company issuable upon such
conversion, nor will anything contained herein be construed to confer on the
Investor the rights of a stockholder of the Company or the right to vote for
the election of directors or on any matter submitted to stockholders at any
meeting thereof, or give or withhold consent to any corporate action or to
receive notice of meetings or other actions affecting stockholders, or to
receive dividends or subscription rights or otherwise, by virtue of having the
conversion rights hereunder.


(f)            The Company shall not, by amendment
of its Articles of Incorporation, by-laws, 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 to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 2 and in the taking of 



 5
 






 



all the action as may be reasonably necessary or
appropriate in order to protect the rights of the Investors to convert the
Convertible Term Loan hereunder.


(g)           Upon (i) any taking by the Company of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Fundamental Transaction or other capital
reorganization of the Company, any reclassification or recapitalization of the
capital stock of the Company, or any voluntary or involuntary dissolution, liquidation
or winding up of the Company, subject to the requirements of applicable law,
including, but not limited to, Regulation FD, the Company shall deliver to each
Investor at least ten (10) days prior to the record date or transaction
specified therein a notice specifying (A) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution, (B) the date on which any such Fundamental
Transaction, reorganization, reclassification, recapitalization, dissolution,
liquidation or winding up is expected to become effective, and (C) the date, if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock
(or other securities) for securities or other property deliverable upon such
Fundamental Transaction, reorganization, reclassification, recapitalization,
dissolution, liquidation or winding up.


(h)           The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the Convertible
Term Loan, such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of the entire Convertible Term
Loan.  If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the entire Convertible Term Loan, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purpose.


(i)            The Company hereby represents to
each Investor that, and shall at all times ensure that, all Common Shares
issued pursuant to this Agreement will, upon issuance, be validly issued, fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issuance thereof, and shall not be subject to preemptive rights or other
similar rights of stockholders of the Company.


(j)            If a Share Delivery Delay occurs,
the Company shall pay to the applicable Investor (the “Delivery Delay Payments”), as liquidated
damages and not as a penalty, and calculated for each share of Common Stock to
which the Share Delivery Delay relates, an accruing amount per each such share
equal to the Delivery Delay Payment Rate for each day (or portion thereof)
during the Delivery Damages Accrual Period, plus any actual losses incurred by
such Investor resulting from such Share Delivery Delay (including those
incurred with respect to any “short” positions required to be covered). The
Delivery Delay Payments shall accrue from the first day of the applicable Share
Delivery Delay through the date it is cured (the “Delivery Damages Accrual Period”), and shall be payable in
cash to the applicable Investor on the last business day of each calendar
week.  The parties hereto agree that the
liquidated damages provided for in this Section 2(i) constitute a reasonable
estimate of the damages that may be incurred by an Investor by reason of Share
Delivery Delay.



 6
 






 



3.             REGISTRATION.


(a)           Demand Registrations.  The Company shall use its best efforts to
qualify and maintain its qualification for registration of resales on Form S-3
or any comparable or successor form or forms, including taking such action as
is necessary to enable the Investors to utilize Form S-3 for the resale of
Registrable Securities.  At any time the
Company is qualified for the use of Form S-3, the Investors shall have the
right to request registrations on Form S-3 (a “Demand
Registration”), with such requests to be in writing (a “Demand Notice”) and shall state the number
of shares of Registrable Securities to be disposed of and the intended plan of
disposition of such shares by such Investors; provided, however, that the
Company shall not be obligated to effect any such Demand Registration (i) if
the Investors, together with the holders of any other securities of the Company
entitled to inclusion in such Demand Registration, propose to sell Registrable
Securities and such other securities (if any) on Form S-3 at an aggregate price
to the public of less than $1,000,000, 
or (ii) if, in the preceding twelve-month period, the Company has
effected two (2) such Demand Registrations under this Section 3(a) in such
period.  A Demand Registration shall be
an underwritten registration only with the Company’s prior written consent,
which consent shall not be unreasonably withheld or delayed.  If a request complying with the requirements
of this Section 3(a) is delivered to the Company:


(i)            the Company shall (A) promptly give
written notice of the proposed registration to all other Investors, (B) within
forty-five (45) days after receipt of the Demand Notice (the “Filing Deadline”), file with the SEC a
Registration Statement on Form S-3 covering the resale of all of the
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Investors joining in such
request as are specified in a written request received by the Company within
fifteen (15) days after the written notice from the Company referenced above is
mailed or delivered, and (C) cause such Registration Statement to be declared
effective by the SEC as soon as possible, but in no event later than the
earlier of (1) the tenth business day after the SEC advises the Company that
either (x) it will not review such Registration Statement or (y) it has no
further comments with respect to such Registration Statement, and (2) one
hundred thirty five (135) days after the Demand Notice (the earlier of such
dates, the “Effectiveness Deadline”);
and


(ii)           if the registration is for an
underwritten offering:


(1)           the right of any Investor to
participate in an underwritten registration shall be conditioned upon such
Investor’s participation in such underwriting and the inclusion of such
Investor’s Registrable Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Investors and such Investor
with respect to such participation and inclusion) to the extent provided in
this Agreement.  An Investor may elect to
include in such underwriting all or a part of the Registrable Securities such
Investor holds (subject to the other provisions of this Agreement); and


(2)           if the Company shall request
inclusion in any registration pursuant to Section 3(a) of securities being sold
for its own account (or for the account of other persons (other than Investors)
having piggyback registration rights) in any registration pursuant to Section
3(a), the Investors may offer to include such securities in the underwriting
and may 



 7
 






 



condition such offer on
their acceptance of the further applicable provisions of this Agreement.  The Company shall (together with all
Investors and other persons proposing to distribute their securities through
such underwriting) enter into an underwriting agreement in customary form with
the representative of the underwriter or underwriters selected for such underwriting
by a majority in interest of the Investors participating (subject to the
approval of the Company, which approval shall not be unreasonably withheld or
delayed).  Notwithstanding any other
Investors that marketing factors require a limitation on the number of shares
to be underwritten, the number of shares to be included in the underwriting or
registration shall be allocated (A) first, pro rata among the participating
Investors in accordance with their respective ownership of Registrable
Securities, and (B) second, if additional shares may still be included, among
the Company and such other persons in such manner as the Company and such
persons shall agree. If a person who has requested inclusion in such
registration as provided above does not agree to the terms of any such
underwriting, such person shall be excluded therefrom by written notice from
the Company, the underwriter(s) or the Investors.  Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall also be withdrawn
from such registration.  If shares are so
withdrawn from the registration and if the number of shares to be included in
such registration was previously reduced as a result of marketing factors
pursuant to this Section 3(a), then the Company shall offer to all holders who
have retained rights to include securities in the registration the right to
include additional securities in the registration in an aggregate amount equal
to the number of shares so withdrawn, with such shares to be allocated among
such persons requesting additional inclusion in accordance with the priority
set forth above.


If at the time of any
request for a Demand Registration pursuant to this Section 3, (a) a
registration of the Company’s securities under the Securities Act has become
effective within the past ninety (90) days or (b) (i) the Company’s Board of
Directors determines in good faith that such Demand Registration would
reasonably be expected to have a material adverse effect on the Company, as a
whole, or any proposal or plan by the Company or any of its subsidiaries to
engage in any acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer, reorganization or similar
transaction and (ii) the Company furnishes to such holders of Registrable
Securities a certificate signed by the President of the Company stating that,
in the good faith judgment of the Company’s Board of Directors, it would have
such a material adverse affect, then the Company may direct that such request
be delayed for a period not in excess of sixty (60) days from the earlier of
the effective date of such offering, the date of commencement of such other
material activity or the date of the request by the Investors requesting such
Demand Registration, as the case may be; provided, that such right to delay a
request pursuant to this paragraph to be exercised by the Company not more than
once in any three hundred sixty-five (365) day period.


(b)           Piggy-Back Registrations.  If the Company proposes to file with the SEC
a Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its shares of Common  Stock (other than on Form S-4 or Form S-8 (or
their equivalents at such time) relating to securities to be issued solely in
connection with any acquisition of any entity or business or to equity
securities issuable in connection with stock option or other employee benefit
plans approved by the board of directors of the Company) the Company shall
promptly send to each Investor written notice of the Company’s intention to
file a Registration Statement and of such Investor’s rights under this Section
3(b) and, if within fifteen 



 8
 






 



(15) days after receipt of such notice, such Investor
shall so request in writing, the Company shall include in such Registration
Statement all or any part of the Registrable Securities such Investor requests
to be registered, subject to the priorities set forth in this Section 3(b)
below.  No right to registration of
Registrable Securities under this Section 3(b) shall be construed to limit any
registration required under Section 3(a). 
The obligations of the Company under this Section 3(b) may be waived by
Investors holding a majority of the Registrable Securities.  If an offering in connection with which an
Investor is entitled to registration under this Section 3(b) is an underwritten
offering, then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement,
on the same terms and conditions as other shares of Common Stock included in
such underwritten offering.  If a
registration pursuant to this Section 3(b) is to be an underwritten public
offering and the managing underwriter(s) advise the Company in writing, that in
their reasonable good faith opinion, marketing or other factors dictate that a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement is necessary to facilitate and not adversely affect the
proposed offering, then the Company shall include in such registration: (1)
first, all securities the Company proposes to sell for its own account and (2)
second, up to the full number of securities proposed to be registered for the
account of the Investors entitled to registration under this Section 3(b), pro
rata among such Investors on the basis of the number of Registrable Securities
that each of them requested to be included in such registration.  The Company shall have the right to postpone
or withdraw any registration effected pursuant to this Section 3(b) without
obligation to any holder of Registrable Shares.


(c)           Allocation of Registrable
Securities.  The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC.  In the event that an Investor
sells or otherwise transfers any of such Investor’s Registrable Securities,
each transferee shall be allocated a pro rata portion of the then remaining
number of Registrable Securities included in such Registration Statement for
such transferor.  Any shares of Common
Stock included in a Registration Statement and which remain allocated to any
Person which ceases to hold any Registrable Securities covered by such
Registration Statement shall be allocated to the remaining Investors, pro rata
based on the number of Registrable Securities then held by such Investors which
are covered by such Registration Statement.


(d)           Legal Counsel.  Subject to Section 6 of this Agreement, the
Investors holding at least a majority of the Registrable Securities shall have
the right to select one legal counsel to review and comment upon any
registration pursuant to this Agreement (“Legal
Counsel”), which shall be such counsel as is designated by the
holders of a majority of Registrable Securities and of which the Company and
its counsel have been given prior notice. The Legal Counsel shall not represent
any Investor that sends such counsel written notice that such Investor does not
wish such counsel to represent it in connection with the matters discussed in
this Section 3(d).  The Investors, other
than any Investor that delivers the notice discussed in the preceding sentence,
hereby waive any conflict of interest or potential conflict of interest that
may arise as a result of the representation of such Investors by the Legal
Counsel in connection with 



 9
 






 



the subject matter of this Agreement.  These provisions will not prohibit any other
counsel to an Investor from reviewing and commenting on any registration filed
pursuant to this Agreement at no cost to the Company.  The Company shall reasonably cooperate with
Legal Counsel in performing the Company’s obligations under this Agreement.


(e)           Ineligibility for Form S-3.  In the event that Form S-3 is not available
for any registration of Registrable Securities hereunder, the Company shall (i)
register the sale of the Registrable Securities on another appropriate form
reasonably acceptable to the holders of a majority of the Registrable
Securities and (ii) undertake to register subsequently the Registrable
Securities on Form S-3 as soon as such form is available, provided that the
Company shall maintain the effectiveness of the prior Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.


(f)            Failure to File, Obtain and
Maintain Effectiveness of Registration Statement.  If a Registration Delay occurs the Company
shall pay to each holder of Registrable Securities (the “Registration Delay Payments”), as
liquidated damages and not as a penalty, and calculated for each share of
Common Stock required to be covered for resale at such time pursuant to the
terms of Section 3(a) then outstanding that is a Registrable Security and not
covered for resale at such time pursuant to the terms of a Registration
Statement, an accruing amount per each such share equal to the Delay Payment
Rate for each week (or portion thereof) during the Damages Accrual Period;
provided that such Registration Delay Payments shall be paid only to the Investors
that have complied with their obligations under Section 5 of this Agreement
with respect thereto. The Registration Delay Payments shall accrue from the
first day of the applicable Registration Delay through the date it is cured
(the “Damages Accrual Period”),
and shall be payable in cash to the record holders of the Registrable
Securities entitled thereto on the last business day of each calendar
month.  The parties hereto agree that the
liquidated damages provided for in this Section 3(f) constitute a reasonable
estimate of the damages that may be incurred by holders of Registrable
Securities by reason of the failure of the Registration Statement to be filed
or declared effective or available for effecting resales of Registrable
Securities in accordance with the provisions hereof.


4.             RELATED OBLIGATIONS.


At such time as the
Company is obligated to file a Registration Statement with the SEC pursuant to
Section 3(a), the Company will use its commercially reasonable best efforts to
effect the registration of the Registrable Securities in accordance with the
intended plan of distribution thereof and, pursuant thereto, the Company shall
have the following obligations:


(a)           The Company shall promptly prepare
and file with the SEC a Registration Statement with respect to the Registrable
Securities (but in no event later than the Filing Deadline) and use its
commercially reasonable best efforts to cause such Registration Statement
relating to the Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the applicable
Effectiveness Deadline).  The Company
shall keep each Registration Statement effective pursuant to Rule 415 at all
times until the earlier of (i) the date as of which all of the Investors may
sell all of the Registrable Securities covered by such Registration Statement
without restriction pursuant to Rule 144(k) promulgated under the 



 10
 






 



Securities Act (or successor thereto), (ii) the date
on which the Investors shall have sold all the Registrable Securities covered
by such Registration Statement either pursuant to the Registration Statement or
in one or more transactions in which the acquirer obtained unlegended
certificates representing the Registrable Securities so purchased, or (iii) the
third anniversary of the effectiveness of such Registration Statement (the “Registration Period”), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein (in the case of any prospectus only, in light of
the circumstances under which they were made) not misleading.


(b)           The Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement, which prospectus is to be filed pursuant to
Rule 424 promulgated under the Securities Act, as may be necessary to keep such
Registration Statement effective at all times during the Registration Period,
and, during such period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by such Registration Statement until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended plan of
distribution by the seller or sellers thereof as set forth in such Registration
Statement.  In the case of amendments and
supplements to a Registration Statement which are required to be filed pursuant
to this Agreement (including pursuant to this Section 4(b)) by reason of the
Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous
report under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company shall have
incorporated such report by reference into the Registration Statement, if
applicable, or shall file such amendments or supplements with the SEC on the
same day on which the Exchange Act report is filed which created the
requirement for the Company to amend or supplement the Registration Statement.


(c)           The Company shall (a) permit Legal
Counsel and any legal counsel for a particular Investor to review and comment
upon those sections of (i) the Registration Statement which are applicable to
the Investors at least five (5) business days prior to its filing with the SEC
and (ii) all other Registration Statements and all amendments and supplements
to all Registration Statements which are applicable to the Investors (except
for Proxy Statements, Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K and any similar or successor reports) within
a reasonable number of days prior to the their filing with the SEC and (b) not
file any document in a form to which Legal Counsel or such legal counsel
reasonably objects.  The Company shall
furnish to Legal Counsel, without charge, (i) any correspondence from the SEC
or the staff of the SEC to the Company or its representatives relating to any
Registration Statement, provided the Legal Counsel shall keep such
correspondence confidential and shall not provide copies thereof to any
Investor without the Investor’s express prior written consent, (ii) promptly
after the same is prepared and filed with the SEC, one copy of any Registration
Statement and any amendment(s) thereto, including financial statements and
schedules and all exhibits and (iii) upon the effectiveness of any Registration
Statement, one copy of the prospectus included in such Registration Statement
and all amendments and supplements thereto. 
The Company shall reasonably cooperate with Legal Counsel and such other
legal counsel in performing the Company’s obligations pursuant to this Section
4.


 



 11














 


 


(d)           The Company shall furnish to each
Investor whose Registrable Securities are included in any Registration
Statement, without charge, (i) promptly after the same is prepared and filed
with the SEC, at least one copy of such Registration Statement and any
amendment(s) thereto, including financial statements and schedules, and all
exhibits and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents, including copies of any preliminary or final prospectus, as
such Investor may reasonably request from time to time in order to facilitate
the disposition of the Registrable Securities owned by such Investor.  The Company shall comply with the
requirements of Rule 153 and 172 with respect to the filing of a final
prospectus with the SEC.


(e)           The Company shall use its
commercially reasonable best efforts to (i) register and qualify (if necessary)
the Registrable Securities covered by a Registration Statement under all other
securities or “blue sky” laws of such jurisdictions in the United States, (ii)
prepare and file in those jurisdictions, such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be reasonably necessary to maintain the effectiveness
thereof during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period, and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for
sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (w) make any
change in the Company’s Articles of Incorporation or by-laws that the Company’s
board of directors determines in good faith to be contrary to the best
interests of the Company and its shareholders, 
(x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 4(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. 
The Company shall promptly notify Legal Counsel and each Investor who
holds Registrable Securities of the receipt by the Company of any notification
with respect to the suspension of the registration or qualification of any of
the Registrable Securities for sale under the securities or “blue sky” laws of
any jurisdiction in the United States or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.


(f)            As promptly as practicable after
becoming aware of such event or development, the Company shall notify Legal
Counsel and each Investor in writing of the happening of any event as a result
of which the prospectus included in a Registration Statement, as then in
effect, includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and promptly prepare a supplement or amendment to such Registration
Statement to correct such untrue statement or omission, and deliver ten (10)
copies of such supplement or amendment to Legal Counsel and each Investor (or
such other number of copies as Legal Counsel or such Investor may reasonably
request).  The Company shall also
promptly notify Legal Counsel and each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to
Legal Counsel and each Investor by facsimile on the same day of such
effectiveness), (ii) of any request by the SEC for amendments or supplements to
a 



 12
 






 



Registration Statement or related prospectus or
related information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.


(g)           The Company shall use its
commercially reasonable best efforts to prevent the issuance of any stop order
or other suspension of effectiveness of a Registration Statement, or the
suspension of the qualification of any of the Registrable Securities for sale
in any jurisdiction and, if such an order or suspension is issued, to obtain
the withdrawal of such order or suspension at the earliest possible moment and
to notify Legal Counsel and each Investor who holds Registrable Securities
being sold of the issuance of such order and the resolution thereof or its
receipt of actual notice of the initiation or threat of any proceeding for such
purpose.


(h)           In the event of an underwritten
offering in accordance with and pursuant to the terms of this Agreement, at the
reasonable request of any Investor and at such Investor’s expense, the Company
shall use its commercially reasonable best efforts to furnish to such Investor,
on the date of the effectiveness of the Registration Statement and thereafter
from time to time on such dates as an Investor may reasonably request (i) a
letter, dated such date, from the 
Company’s independent certified public accountants in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, and (ii) an opinion, dated as
of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the Investors.


(i)            The Company shall, upon reasonable
notice and during normal business hours, make available for inspection by (i)
any Investor, (ii) Legal Counsel and any other legal counsel representing an
Investor and (iii) one firm of accountants or other agents retained by the
Investors (collectively, the “Inspectors”)
all pertinent financial and other records, and pertinent corporate documents
and properties of the Company (collectively, the “Records”), which are requested for any purpose reasonably
related to the Investors’ rights and/or the Company’s obligations under this
Agreement, and cause the Company’s officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector which is not a party hereto shall agree in writing prior to
obtaining access to any Records, and each Investor hereby agrees, to hold in
strict confidence and shall not make any disclosure (except to an Investor
similarly bound by the terms hereof) or use of any Record or other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the Securities Act, (b) the release of
such Records is ordered pursuant to a final, non-appealable subpoena or order
from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector has knowledge.  Neither the
Company nor any Inspector of a particular Investor shall provide any confidential
information to any other Investor unless such Investor is first informed of the
confidential nature of such information and given a reasonable opportunity to
determine whether to accept disclosure of such confidential information.  The Company shall not be required to disclose
any confidential information in such Records to any Inspector until and unless
such Inspector shall have entered into confidentiality agreements with the
Company with respect 



 13
 






 



thereto, substantially in the form of this Section 4(i).
Each Investor receiving the Records agrees that it shall, if permitted by
applicable law, upon learning that disclosure of such Records is sought in or
by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company prior to making any such disclosure
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential.  Each Investor undertaking
an inspection pursuant to this Section 4(i) shall, and shall instruct its other
Inspectors to, use commercially reasonable efforts to perform any such
inspection in a manner designed to not materially disrupt the business
activities of the Company.


(j)            The Company shall hold in confidence
and not make any disclosure of information concerning an Investor provided to
the Company unless (i) disclosure of such information is necessary to comply
with federal or state securities laws, (ii) the disclosure of such information
is necessary to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other final, non-appealable order from a court or governmental body
of competent jurisdiction, (iv) such information has been made generally
available to the public other than by disclosure in violation of this Agreement
or any other agreement or (v) such Investor consents to the form and content of
any such disclosure.  The Company agrees
that it shall, if permitted by applicable law, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor prior to making any such disclosure and allow
such Investor, at the Investor’s expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such information.


(k)           The Company shall use its
commercially reasonable best efforts either to (i) cause all the Registrable
Securities covered by a Registration Statement to be listed on each securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure designation and
quotation of all the Registrable Securities covered by the Registration
Statement on The NASDAQ Capital Market. 
The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 4(k).


(l)            The Company shall cooperate with the
Investors who hold Registrable Securities being offered and, to the extent
applicable, to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legend) representing the Registrable Securities to
be offered pursuant to a Registration Statement and enable such certificates to
be in such denominations or amounts, as the case may be, as the Investors may
reasonably request and registered in such names as the Investors may request.


(m)          The Company shall provide a transfer
agent and registrar of all such Registrable Securities not later than the
effective date of such Registration Statement.


(n)           If requested by an Investor, the
Company shall (i) as soon as practicable incorporate in a prospectus supplement
or post-effective amendment, as necessary, such information as an Investor
requests to be included therein relating to the Investor and the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to 



 14
 






 



the number of Registrable Securities being offered or
sold, the purchase price being paid therefor and any other terms of the
offering of the Registrable Securities to be sold in such offering; and (ii) as
soon as practicable make all required filings of such prospectus supplement or
post-effective amendment after being notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment.


(o)           The Company shall use its
commercially reasonable best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to consummate the disposition of such Registrable Securities within the United
States.


(p)           The Company shall otherwise use its
commercially reasonable best efforts to comply with all applicable rules and
regulations of the SEC in connection with any registration hereunder.


(q)           Within two (2) business days after a
Registration Statement which covers applicable Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel for the Company to deliver, to the transfer agent for such Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) confirmation that such Registration
Statement has been declared effective by the SEC.


(r)            Notwithstanding anything to the
contrary in this Section 4, at any time after the applicable Registration
Statement has been declared effective by the SEC, the Company may delay the
disclosure of material non-public information concerning the Company the disclosure
of which at the time is not, in the good faith opinion of the Board of
Directors of the Company and its counsel, in the best interest of the Company
and, in the opinion of counsel to the Company, otherwise required (a “Grace Period”); provided, that the Company
shall promptly (i) notify the Investors in writing of the existence of material
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material non-public
information to the Investors) and the date on which the Grace Period will
begin, and (ii) notify the Investors in writing of the date on which the Grace
Period ends; and, provided further, that (A) no Grace Periods shall exceed
forty-five (45) consecutive days, and (B) during any consecutive three hundred
sixty-five (365) day period, such Grace Periods shall not exceed an aggregate
of sixty (60) days (an “Allowable Grace
Period”).  For purposes of
determining the length of a Grace Period above, the Grace Period shall begin on
and include the date the holders receive the notice referred to in clause (i)
and shall end on and include the later of the date the holders receive the
notice referred to in clause (ii) and the date referred to in such notice.  The provisions of Section 4(g) hereof shall
not be applicable during the period of any Allowable Grace Period.  Upon expiration of the Grace Period, the
Company shall again be bound by the first sentence of Section 4(f) with respect
to the information giving rise thereto unless such material non-public
information is no longer applicable.



 15
 






 



5.             OBLIGATIONS OF THE INVESTORS.


(a)           At least fifteen (15) days prior to
the first anticipated filing date of a Registration Statement, the Company
shall notify each Investor in writing of the information the Company requires
from each such Investor if such Investor elects to have any of such Investor’s
Registrable Securities included in such Registration Statement.  It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request, in each case within fifteen (15) days of being notified by
the Company of its necessity.


(b)           Each Investor by such Investor’s
acceptance of the Registrable Securities agrees to cooperate with the Company
as reasonably requested by the Company in connection with the preparation and
filing of any Registration Statement hereunder, unless such Investor has
notified the Company in writing of such Investor’s election to exclude all of
such Investor’s Registrable Securities from such Registration Statement.


(c)           Each Investor agrees that, upon
receipt of any notice from the Company of the happening of any event of the
kind described in Section 4(g) or the first sentence of 4(f), such Investor
will immediately discontinue disposition of Registrable Securities pursuant to
any Registration Statement(s) covering such Registrable Securities until such
Investor’s receipt of the copies of the supplemented or amended prospectus
contemplated by Section 4(g) or the first sentence of 4(f) or receipt of notice
that no supplement or amendment is required. 
Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement
in connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor’s receipt
of a notice from the Company of the happening of any event of the kind
described in Section 4(g) or the first sentence of Section 4(f) and for which
the Investor has not yet settled.


(d)           As promptly as practicable after
becoming aware of such event, each Investor shall notify the Company in writing
of the happening of any event as a result of which the information provided in
writing by such Investor to the Company expressly for use in the Prospectus
included in a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.


(e)           Each Investor hereby agrees that it
shall not sell or otherwise transfer or dispose of any of the Common Shares held
by such Investor prior to August 14, 2007, other than to an “Affiliate” or “Related
Fund” (each as defined in the Credit Agreement).  In addition, each Investor agrees that, for
so long as such Investor is subject to the volume limitations pursuant to Rule
144 promulgated under the Securities Act, such Investor will not, in any
particular month, sell or otherwise transfer or dispose of Common Shares for an
aggregate sale price that exceeds an amount equal to 25% of the aggregate
dollar amount of all sales of the Common Stock on the Principal Market during
the then-preceding month; provided, that such foregoing restrictions 



 16
 






 



shall not apply to any sale, transfer or disposition
of Common Shares (i) to an investment bank or similar institution reasonably acceptable
to the Company, (ii) to a “Qualified Institutional Buyer” (as defined in the
Securities Act), (iii) under a Registration Statement pursuant to Section 3(a)
or 3(b) of this Agreement, or (iv) to an Affiliate or Related Fund.


6.             EXPENSES OF REGISTRATION.


All expenses incurred in
connection with registrations, filings or qualifications pursuant to Sections 3
and 4 of this Agreement, including, without limitation, all registration,
listing and qualifications fees, printers and accounting fees, transfer agent
fees and fees and disbursements of counsel for the Company (but excluding
underwriting discounts and commissions, which shall be the responsibility of
the Investors participating in such registration), shall be paid by the
Company.  The Company shall also
reimburse the Investors for the reasonable and documented fees and
disbursements of Legal Counsel in connection with registration, filing or
qualification pursuant to Sections 3 and 4 of this Agreement, which
reimbursement of fees and disbursements of Legal Counsel shall not exceed
$10,000 per registration.  The Company
shall pay all of the Investors’ reasonable costs (including fees and
disbursements of the Legal Counsel) incurred in connection with the successful
enforcement of the Investors’ rights under this Agreement. Notwithstanding the
foregoing, each seller of Registrable Securities shall pay all fees and
disbursements of all counsel (other than the Legal Counsel) retained by such
seller and all selling expenses, including, without limitation, all
underwriting discounts, selling commissions, transfer taxes and other similar
expenses, to the extent required by applicable law.


7.             INDEMNIFICATION.


In the event any
Registrable Securities are included in a Registration Statement under this
Agreement:


(a)           To the fullest extent permitted by
law, the Company will, and hereby does, indemnify, hold harmless and defend
each Investor, the directors, officers, partners, employees, agents,
representatives of, and each Person, if any, who controls any Investor within
the meaning of the Securities Act or the Exchange Act (each, an “Investor Indemnified Person”), against any
losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, reasonable attorneys’ fees, amounts paid in settlement or expenses,
joint or several, (collectively, “Claims”)
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto (“Indemnified
Damages”), to which any of them may become subject insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or any
post-effective amendment thereto or in any filing made in connection with the
qualification of the offering under the securities or other “blue sky” laws of
any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the 



 17
 






 



final prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other
law, including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any violation by the
Company of the terms of this Agreement (the
matters in the foregoing clauses (i) through (iv) being, collectively, “Violations”).  Subject to Section 7(c), the Company shall
reimburse the Investors and each such controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or
disbursements or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. 
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 7(a): (i) shall not apply
to a Claim by an Investor Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Investor Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 4(d);
(ii) shall not be available to the extent such Claim is based on a failure of
the Investor to deliver or to cause to be delivered the prospectus made
available by the Company, (A) if such prospectus was timely made available by
the Company pursuant to Section 4(d) and (B) the Company had notified the
Investor that such prospectus was required to be delivered by the Investor as a
result of the Company’s failure to comply with the conditions of Rule 172(c)
under the Securities Act; (iii) shall not apply to amounts paid in settlement
of any Claim, if such settlement is effected without the prior written consent
of the Company, which consent shall not be unreasonably withheld; and (iv)
shall not apply to sales by such Investor under an outdated or defective
prospectus after the Company has notified such Investor in writing that the
prospectus is outdated or defective and prior to the receipt of notice by such
Investor from the Company that sales may be resumed and/or the use of the
applicable prospectus may be resumed and provided that a corrected prospectus
would have avoided such Claims..  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Investor Indemnified Person and shall survive the
transfer of the Registrable Securities by the Investors pursuant to Section 10.


(b)           In connection with any Registration
Statement in which an Investor is participating, each such Investor agrees to
severally and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 7(a), the Company, each
of its directors, each of its officers who signs the Registration Statement,
each of the Company’s agents or representatives, and each Person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act (each an “Company Indemnified Party”),
against any Claim or Indemnified Damages to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim or Indemnified Damages arise out of or are based upon: (i) such
Investor’s failure to comply with the prospectus delivery requirements of the
Securities Act after being advised by the Company that it has not satisfied the
conditions of Rule 172 and that such Investor is, as a consequence, required to
deliver a prospectus in connection with any disposition of Registrable
Securities and has provided the Investor with a reasonably sufficient number of
copies of a current prospectus to be 



 18
 






 



used in connection with any such dispositions or (ii)
any untrue statement of a material fact contained in any Registration
Statement, any prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent that, (1) such untrue statements or
omissions are based upon information regarding such Investor or its plan of
distribution that was furnished in writing to the Company by such Investor
expressly for use therein, or (2) sales by such Investor under an outdated or
defective prospectus after the Company has notified such Investor in writing
that the prospectus is outdated or defective and prior to receipt of notice by
such Investor from the Company that sales may be resumed and/or the use of the
applicable prospectus may be resumed and provided that a corrected prospectus
would have avoided such Claims.  Subject
to Section 7(d), such Investor will reimburse any legal or other expenses
reasonably incurred by a Company Indemnified Party in connection with
investigating or defending any such Claim; provided, however that (x) the
indemnity agreement contained in this Section 7(b) and the agreement with
respect to contribution contained in Section 8 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld, and (y) an Investor shall be liable under this Section 7(b) for only
that amount of a Claim or Indemnified Damages as does not exceed the net
proceeds to such Investor as a result of the sale of the Registrable Securities
pursuant to the Registration Statement giving rise to such liability.  Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Company
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 10. 
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 7(b) with respect to any
prospectus shall not inure to the benefit of any Company Indemnified Party if
the untrue statement or omission of material fact contained in the prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.


(c)           Promptly after receipt by an Investor
Indemnified Person or Company Indemnified Party under this Section 7 of notice
of the commencement of any action or proceeding (including any governmental
action or proceeding) involving a Claim, such Investor Indemnified Person or
Company Indemnified Party shall, if a Claim in respect thereof is to be made
against any indemnifying party under this Section 7, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Investor Indemnified
Person or the Company Indemnified Party, as the case may be; provided, however,
that an Investor Indemnified Person or Company Indemnified Party shall have the
right to retain its own counsel with the fees and expenses of not more than one
counsel for such Investor Indemnified Person or Company Indemnified Party to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Investor Indemnified Person or Company Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential conflicting interests
between such Investor Indemnified Person or Company Indemnified Party and any
other party represented by such counsel in such proceeding.  In the case of an Investor Indemnified
Person, legal counsel referred to in the immediately preceding sentence (the “Investor  Legal
Counsel”) shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration 



 19
 






 



Statement to which the Claim relates.  The Investor Legal Counsel shall not
represent any Investor Indemnified Person that sends such counsel written
notice that such Investor Indemnified Person does not wish such counsel to
represent it in connection with the matters discussed in this Section.  The Investor Indemnified Persons, other than
any Investor Indemnified Person that delivers the notice discussed in the
preceding sentence, hereby waive any conflict of interest or potential conflict
of interest that may arise as a result of the representation of such Investor
Indemnified Persons by the Investor Legal Counsel in connection with the
subject matter of the Claim.  The Company
Indemnified Party or Investor Indemnified Person shall cooperate with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Company Indemnified Party or
Investor Indemnified Person which relates to such action or claim.  The indemnifying party shall keep the Company
Indemnified Party or Investor Indemnified Person apprised as to the status of
the defense or any settlement negotiations with respect thereto.  No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its prior
written consent, which consent shall not be unreasonably withheld.  No indemnifying party shall, without the
prior written consent of the Company Indemnified Party or Investor Indemnified
Person, consent to entry of any judgment or enter into any settlement or other
compromise which (i) does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Company Indemnified Party or
Investor Indemnified Person of a release from all liability in respect of such
claim or litigation, (ii) requires any admission of wrongdoing by the Company
Indemnified Party or Investor Indemnified Party or (iii) obligates or requires
a Company Indemnified Party or Investor Indemnified Party to take, or refrain
from taking, any action.  Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Company Indemnified Party or Investor
Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made.  The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Investor Indemnified Person or Company Indemnified Party under this Section 7,
except to the extent that the indemnifying party is materially prejudiced in
its ability to defend such action.


(d)           The indemnification required by this
Section 7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.


(e)           The indemnity agreements contained
herein shall be in addition to (i) any cause of action or similar right of the
Company Indemnified Party or Investor Indemnified Person against the
indemnifying party or others, and (ii) any liabilities the indemnifying party
may be subject to pursuant to the law.


8.             CONTRIBUTION.


If for any reason the
indemnification provided for in Section 7 hereof is unavailable to a Company
Indemnified Party or an Investor Indemnified Party or insufficient to hold it
harmless, other than as expressly specified therein, then the indemnifying
party shall contribute to the amount paid or payable by the Company Indemnified
Party or the Investor Indemnified Party, as applicable, as a result of Claims
in such proportion as is appropriate to reflect the relative fault of 



 20
 






 



the indemnified party and
the indemnifying party, as well as any other relevant equitable
considerations.  No person guilty of
fraudulent misrepresentation within the meaning of Section 11(f) of the
Securities Act shall be entitled to contribution from any person not guilty of
such fraudulent misrepresentation.  In no
event shall the contribution obligation of a holder of Registrable Securities
be greater in amount than the dollar amount of the proceeds (net of all
expenses paid by such holder in connection with any claim relating to this
Section 8 and the amount of any damages such holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission) received by it upon the sale of the Registrable Securities
giving rise to such contribution obligation.


9.             REPORTS UNDER THE EXCHANGE ACT.


With a view to making
available to the Investors the benefits of Rule 144 promulgated under the
Securities Act or any other similar rule or regulation of the SEC that may at
any time permit the Investors to sell securities of the Company to the public
without registration (“Rule 144”),
the Company agrees to:


(a)           make and keep public information
available, as those terms are understood and defined in Rule 144;


(b)           file with the SEC in a timely manner
all reports and other documents required of the Company under the Securities
Act and the Exchange Act so long as the Company remains subject to such
requirements (it being understood that nothing herein shall limit the Company’s
obligations under the Securities Purchase Agreement) and the filing of such
reports and other documents is required for the applicable provisions of Rule
144; and


(c)           furnish to each Investor so long as
such Investor owns Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements
of Rule 144, the Securities Act and the Exchange Act and (ii) such other
information as may be reasonably requested to permit the Investors to sell such
securities pursuant to Rule 144 without registration.


10.          ASSIGNMENT.


The rights under this
Agreement shall be automatically assignable by an Investor to any transferee of
all or any portion of Registrable Securities if: (i) the Investor agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment; (ii) the Company is, within a 
reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such rights are being transferred or
assigned; (iii) the transferee or assignee agrees in writing with the Company
to be bound by all of the provisions contained herein; and (iv) such transferee
would be, after giving effect to the proposed transfer, the beneficial owner of
at least Seventy Five Thousand (75,000) Registrable Securities.  No transferee of rights under this Agreement
shall be entitled to include any Registrable Securities on a Registration
Statement unless it previously has provided the Company the written notice
referred to in clause (ii) of the preceding sentence.


 



 21














 


11.          AMENDMENT.


Provisions of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
then hold more than sixty six and two-thirds percent (66-2/3%) of the
Registrable Securities; provided, that an amendment to a provision of Section 2
or any defined term contained therein shall instead require the written consent
of the Company and Investors who then hold more than sixty six and two-thirds
percent (66-2/3%) of the outstanding principal balance of the Convertible Term
Loan.  Any amendment or waiver effected
in accordance with this Section 11 shall be binding upon each Investor and the
Company.


12.          LEGENDS.


(a)           Each certificate representing Common
Shares shall (unless otherwise permitted by the provisions of this Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following:


THE SHARES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD OR TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER SUCH ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED.


(b)           The Company shall promptly reissue
unlegended certificates at the request of any holder thereof if (A) such shares
are registered pursuant to a Registration Statement, or (B) the holder shall
have obtained an opinion of counsel, at such holder’s expense (which counsel
may be counsel to the Company) and reasonably acceptable to the Company, to the
effect that the securities proposed to be disposed of may lawfully be so
disposed of without registration, qualification or other compliance with any
legend.


(c)           Any legend endorsed on an instrument
pursuant to applicable state securities laws and any stop-transfer instructions
with respect to such securities shall be removed upon receipt by the Company of
an order of the appropriate blue sky authority authorizing such removal.


13.          MISCELLANEOUS.


(a)           A particular Investor’s registration
rights under this Agreement shall expire upon the later of (i) the third
anniversary of the final repayment and/or conversion of the Convertible Term
Loan, and (ii) the first date on which all Registrable Securities held by such
Investor (and its affiliates) may be sold pursuant to Rule 144 during any
ninety (90) day period.


(b)           For the purposes of determining the
rights of the parties hereto, including the right to approve matters pursuant
to the terms hereof, a Person is deemed to be a holder of Registrable
Securities whenever such Person owns or is deemed to own of record such
Registrable Securities or holds a conversion right exercisable for such
Registrable Securities.  When the number
of Registrable Securities shall be determined, the number shall be deemed to
include not only outstanding Common Shares but also any Common Shares issuable
pursuant to the terms of this 



 22
 






 



Agreement.  If
the Company receives conflicting instructions, notices or elections from two or
more Persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from the
registered owner of such Registrable Securities.


(c)           Any notice or request under this
Agreement shall be given to any party to this Agreement at such party’s address
set forth beneath its signature on the signature page to this Agreement, or at such
other address as such party hereafter may specify in a notice given in the
manner required under this Section 13(c). 
Any notice or request hereunder shall be given only by, and shall be
deemed to have been received upon:  (i)
registered or certified mail, return receipt requested, on the date on which
such notice or request is received as indicated in such return receipt, (ii)
delivery by a nationally recognized overnight courier, one (1) Trading Day
after deposit with such courier, or (iii) facsimile transmission, upon
communication from the recipient acknowledging receipt (whether automatic or
manual from recipient), as applicable.


(d)           Failure of any party to exercise any
right or remedy under this Agreement or otherwise, or delay by a party in exercising
such right or remedy, shall not operate as a waiver thereof.  If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the remainder
of this Agreement in that jurisdiction or the validity or enforceability of any
provision of this Agreement in any other jurisdiction.


(e)           This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Maryland without
giving effect to its choice of law provisions that would result in the
application of the laws of a different jurisdiction.  Any judicial proceeding against any party
with respect to this Agreement may be brought in any federal court of competent
jurisdiction located in Baltimore City, Maryland or any state court of
competent jurisdiction located in Montgomery County, Maryland.  By execution and delivery of this Agreement,
each party (i) accepts the non-exclusive jurisdiction of the aforesaid courts and
irrevocably agrees to be bound by any judgment rendered thereby, (ii) waives
personal service of process, (iii) agrees that service of process upon it may
be made by certified or registered mail, return receipt requested, pursuant to
Section 13(c), and (iv) waives any objection to jurisdiction and venue of any
action instituted hereunder and agrees not to assert any defense based on lack
of jurisdiction, venue, convenience or forum nonconveniens.  Nothing shall affect the right of any
Investor to serve process in any manner permitted by law or shall limit the
right of any Investor to bring proceedings against the Company in the courts of
any other jurisdiction having jurisdiction. 
Any judicial proceedings against any Investor involving, directly or
indirectly, this Agreement shall be brought only in a federal court of
competent jurisdiction located in Baltimore City, Maryland or a state court of
competent jurisdiction located in Montgomery County, Maryland.


(f)            EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
ARISING UNDER THIS AGREEMENT OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT, TORT OR 



 23
 






 



OTHERWISE.  EACH
PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT
MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR
RESPECTIVE RIGHTS TO TRIAL BY JURY.


(g)           This Agreement, the Credit Agreement
and the other Loan Documents (as defined in the Credit Agreement) constitute
the entire agreement among the parties hereto with respect to the subject
matter hereof and thereof.  There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein.  This
Agreement, the Credit Agreement and the other Loan Documents supersede all
prior agreements and understandings among the parties hereto with respect to
the subject matter hereof and thereof.


(h)           Subject to the requirements of
Section 10, this Agreement shall inure to the benefit of and be binding upon
the permitted successors and assigns of each of the parties hereto.


(i)            The captions in this Agreement are
intended for convenience and reference only and shall not affect the meaning or
interpretation of this Agreement.


(j)            This Agreement may be executed in
two or more counterparts (which taken together, shall constitute one and the
same instrument) and by facsimile transmission, which facsimile signatures
shall be considered original executed counterparts.  Each party to this Agreement agrees that it
will be bound by its own facsimile signature and that it accepts the facsimile
signature of each other party.


(k)           Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.


(l)            All consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made, unless otherwise specified in this Agreement, by Investors holding a
majority of the Registrable Securities, determined as if all of the Common
Shares issuable pursuant to this Agreement had been issued.


(m)          The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent and no rules of strict construction will be applied against any party.


(n)           This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.



 24
 






 



(o)           Each Investor represents and warrants
to the Company as follows:


(i)            On the date hereof and on each date
that such Investor exercises the conversion right set forth in Section 2, such
Investor is an “accredited investor” as defined in Regulation D of the
Securities Act.


(ii)           The Convertible Term Loan is being
acquired by such Investor for investment for its own account, not as a nominee
or agent, and not with a view to the distribution of any part thereof, and not
with any present intention to distribute any of the Common Shares issuable
thereunder.  Such Investor has no present
intention of selling, granting any participation in or otherwise distributing
any of the Common Shares in a manner contrary to the Securities Act or to any
applicable state securities laws.


(iii)          Such Investor is further aware that
the shares of Common Shares issued, or to be issued, to it are “restricted
securities” under federal securities laws in that they are being, or will be,
acquired from the Company in a transaction not involving a public offering and
that under such laws such shares may be resold only in compliance with the
Securities Act.  Such Investor represents
that it is familiar with Rule 144, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.


 


[remainder of this
page intentionally left blank]


 



 25














 


 


IN WITNESS WHEREOF, the parties have executed this Conversion and
Registration Rights Agreement as of the date first set forth above.


 


	
  THE COMPANY:

  	
  A.D.A.M., Inc.

  
	
   

  	
  a Georgia corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin S. Noland

  
	
   

  	
  Name:

  	
  Kevin S. Noland

  
	
   

  	
  Title:

  	
  CEO

  
	
   

  	
   

  	
   

  
	
   

  	
  1600 RiverEdge
  Parkway, Suite 100

  Atlanta, Georgia 30328

  Attn: Kevin Noland

  FAX: (770) 988-0611

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PURCHASER:

  	
  CAPITALSOURCE FINANCE
  LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  4445 Willard Avenue,
  12th Floor

  Chevy Chase, Maryland 20815

  Attn: Corporate Finance Group, Portfolio Manager

  FAX: (301) 841-2313

  
	
   

  	
   

  	
   

  
	
   

  	
  With a copy (which
  shall not constitute notice) to:

  
	
   

  	
   

  	
   

  
	
   

  	
  Bell, Boyd &
  Lloyd LLC

  70 W. Madison, Suite 3100

  Chicago, Illinois 60602

  Attn: Michael L. Owen

  FAX: (312) 345-9064

  



 


 


A.D.A.M., Inc.
Conversion and Registration Rights Agreement