SUCH
PERSON OR ANY OF ITS AFFILIATES AND (B) EXERCISE OR CONVERSION OF THE
UNEXERCISED OR UNCONVERTED PORTION OF ANY OTHER SECURITIES OF ISSUER (INCLUDING,
WITHOUT LIMITATION, ANY WARRANTS) SUBJECT TO A LIMITATION ON CONVERSION OR
EXERCISE ANALOGOUS TO THE LIMITATION CONTAINED HEREIN BENEFICIALLY OWNED BY SUCH
PERSON OR ANY OF ITS AFFILIATES.
EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE,
FOR PURPOSES OF THIS SECTION 3.5, BENEFICIAL OWNERSHIP WILL BE CALCULATED IN
ACCORDANCE WITH SECTION 13(D) OF THE EXCHANGE ACT.
FOR PURPOSES OF THIS
SECTION 3.5, IN DETERMINING THE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK, A
HOLDER MAY RELY ON THE NUMBER OF SHARES OF OUTSTANDING COMMON STOCK AS REFLECTED
IN (1) ISSUER'S MOST RECENT FORM 8-K, FORM 10-Q, FORM 10-QSB, FORM 10-K OR
FORM 10-KSB AS THE CASE MAY BE, (2) A MORE RECENT PUBLIC ANNOUNCEMENT BY ISSUER,
OR (3) ANY OTHER NOTICE BY ISSUER OR ITS TRANSFER AGENT SETTING FORTH THE NUMBER
OF SHARES OF COMMON STOCK OUTSTANDING.
UPON THE WRITTEN REQUEST OF ANY HOLDER,
ISSUER WILL PROMPTLY, BUT IN NO EVENT LATER THAN 2 BUSINESS DAYS FOLLOWING THE
RECEIPT OF SUCH NOTICE, CONFIRM ORALLY AND IN WRITING TO ANY SUCH HOLDER THE
NUMBER OF SHARES OF COMMON STOCK THEN OUTSTANDING.
IN ANY CASE, THE NUMBER OF
OUTSTANDING SHARES OF COMMON STOCK WILL BE DETERMINED AFTER GIVING EFFECT TO
CONVERSIONS OF PREFERRED SHARES BY SUCH HOLDER AND ITS AFFILIATES SINCE THE DATE
AS OF WHICH SUCH NUMBER OF OUTSTANDING COMMON STOCK WAS REPORTED.
BY WRITTEN
NOTICE TO ISSUER, THE HOLDER MAY INCREASE OR DECREASE THE MAXIMUM PERCENTAGE TO
ANY OTHER PERCENTAGE NOT IN EXCESS OF 9.99% SPECIFIED IN SUCH NOTICE, BUT
(I) ANY SUCH INCREASE WILL NOT BE EFFECTIVE UNTIL THE SIXTY-FIRST (61ST) DAY
AFTER SUCH NOTICE IS DELIVERED TO ISSUER, AND (II) ANY SUCH INCREASE OR DECREASE
WILL APPLY ONLY TO THE HOLDER AND NOT TO ANY OTHER HOLDER.
4
3.6
SHAREHOLDER APPROVAL
UNLESS AND UNTIL SHAREHOLDER APPROVAL HAS BEEN
OBTAINED AND DEEMED EFFECTIVE, THE ISSUER SHALL NOT UPON THE CONVERSION OF THIS
NOTE ISSUE SHARES OF COMMON STOCK TO THE EXTENT THAT SUCH ISSUANCE, TOGETHER
WITH ALL PREVIOUS ISSUANCES OF COMMON STOCK PURSUANT TO THE EXERCISE OF ALL
WARRANTS AND THE CONVERSION OF ALL NOTES ISSUED PURSUANT TO THE PURCHASE
AGREEMENT, WOULD IN THE AGGREGATE EXCEED A NUMBER OF SHARES OF COMMON STOCK
EQUAL TO MORE THAN 19.99% OF
THE ISSUER'S
ISSUED AND OUTSTANDING COMMON STOCK
ON THE CLOSING DATE.
4.
REGISTRATION RIGHTS.
THE COMMON STOCK ISSUABLE ON CONVERSION OF
THIS NOTE, IS SUBJECT TO REGISTRATION PURSUANT TO A REGISTRATION RIGHTS
AGREEMENT, DATED AS OF THE DATE OF THIS NOTE, AMONG ISSUER, THE PLACEMENT AGENT
FOR THE SECURITIES CONTEMPLATED UNDER THE PURCHASE AGREEMENT, HOLDER AND THE
OTHER PURCHASERS UNDER THE PURCHASE AGREEMENT.
5.
SECURITY.
REPAYMENT OF THIS NOTE IS SECURED, PARI PASSU WITH
HOLDERS OF ALL OTHER NOTES ISSUED PURSUANT TO THE PURCHASE AGREEMENT, BY A
SECURITY INTEREST (SECOND IN PRIORITY ONLY TO A SECURITY INTEREST IN THE ASSETS
HELD BY WESTERN COMMERCIAL