Document:

Ex-4.3 7 3/4% Secured Convertible Note 2/28/05

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Exhibit 4.3

7 3/4% CONVERTIBLE SECURED NOTE

			
	$6,440,000
	 	February 28, 2005

N-3

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNLESS (I)
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW WITH RESPECT THERETO, (II) PURSUANT TO RULE 144 OF THE SECURITIES ACT OR (III) UPON
THE ADVICE OF COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER, REGISTRATION UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER.

THIS PROMISSORY NOTE IS SUBORDINATED TO CERTAIN SENIOR INDEBTEDNESS OF THE ISSUERS IN THE MANNER
AND TO THE EXTENT SET FORTH IN THE INTERCREDITOR AGREEMENT (AS DEFINED BELOW).

     FOR VALUE RECEIVED, NATIONSHEALTH, INC., a Delaware corporation (the “Company”),
NATIONSHEALTH HOLDINGS, L.L.C., a Florida limited liability company and a wholly-owned subsidiary
of the Company (“NH LLC”) and UNITED STATES PHARMACEUTICAL GROUP, L.L.C., a Delaware
limited liability company and an indirect wholly-owned subsidiary of the Company (jointly and
severally with the Company and NH LLC, the “Issuers”), hereby promise to pay to the order
of OTQ LLC (the “Holder”), at c/o MHR Fund Management LLC, 40 West 57th Street, 24th Floor,
New York, New York 10019, the principal amount of Six Million Four Hundred Forty Thousand Dollars
($6,440,000) in lawful money of the United States of America, on the terms set forth in Section 2
hereof. This Promissory Note (this “Note”) is being issued by the Issuers along with
substantially identical convertible notes also designated as 7 3/4% Convertible Secured Notes (the
“Other Notes,” and together with this Note, the “Notes”) pursuant to that certain
Investment Unit Purchase Agreement, dated February 28, 2005 (the “Purchase Agreement”),
between the Issuers and the holders thereto (together with the Holder, the “Holders”) in an
aggregate principal amount of $15,000,000. The obligations under the Notes are secured by a
security interest in the assets of the Issuers pursuant to Section 4 of the Notes for the benefit
of the Holders.

     1. Definitions. The following terms shall have the meanings ascribed to them below:

     “Additional Shares of Common Stock” shall have the meaning specified in Section
3(d)(iv).

 

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     “Affiliate” shall mean, as to any Person, any other Person (a) that, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is under common
control with, such Person, (b) who is a director or officer (i) of such Person, (ii) of any
Subsidiary of such Person, or (iii) of any Person described in clause (a) above with respect to
such Person, or (c) which, directly or indirectly through one or more intermediaries, is the
beneficial or record owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, as the same is in effect on the date hereof) of ten percent (10%) or more of any class of
the outstanding voting stock, securities or other equity or ownership interests of such Person. For
purposes of this definition, the term “control” (and the correlative terms, “controlled by” and
“under common control with”) shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies, whether through ownership of
securities or other interests, by contract or otherwise. “Affiliate” shall include any Subsidiary.

     “Business Day” shall mean any day, other than a Saturday or Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law, regulation or
executive order to close.

     “Capital Lease” shall mean, as to any Person, a lease of any interest in any kind of
property or asset by that Person as lessee that is, should be or should have been recorded as a
“capital lease” in accordance with GAAP.

     “Collateral” shall have the meaning specified in Section 4(a).

     “Collateral Agent” means MHR Capital Partners LP.

     “Conversion Amount” shall mean the portion of the principal amount of this Note being
converted plus any accrued and unpaid interest thereon through the Conversion Date each as
specified in the notice of conversion in the form attached as Exhibit A hereto (the
“Notice of Conversion”).

     “Conversion Date” shall mean, for any conversion, the date specified in the Notice of
Conversion so long as the copy of the Notice of Conversion is faxed (or delivered by other means
resulting in notice) to the Company at or before 11:59 p.m., New York City time, on the Conversion
Date indicated in the Notice of Conversion; provided, however, that if the Notice
of Conversion is not so faxed or otherwise delivered before such time, then the Conversion Date
shall be the date the Holder faxes or otherwise delivers the Notice of Conversion to the Company.

     “Conversion Price” shall mean $6.56 per share of common stock, par value $.0001 per
share of the Company (“Common Stock”), subject to adjustment as set forth herein.

     “Conversion Shares” shall have the meaning specified in Section 3(a).

     “Convertible Securities” shall have the meaning specified in Section 3(d)(iv)(A).

     “Customer Acquisition and Related Costs” shall mean costs incurred by the Company in
the development of its customer base related to marketing activities, which costs include, without
limitation, advertising, promotion, call center and data collection expenses.

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     “Credit Agreement” shall mean the Amended and Restated Revolving Credit and Security
Agreement, dated as of June 29, 2004, among the Issuers and CapitalSource Finance LLC, as it may be
amended from time to time.

     “Delivery Period” shall have the meaning specified in Section 3(c).

     “Daily Market Price” shall mean, as of any date of determination, the closing sale
price for the Common Stock, for the Trading Day of such date of determination (subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or similar events during such
Trading Day and further subject to adjustment as provided herein) on the principal United States
securities exchange or trading market where the Common Stock is listed or traded as reported by
Bloomberg, or if the foregoing does not apply, the closing sale price for the Common Stock in the
OTC Bulletin Board for such security as reported by Bloomberg, or, if no sale price is reported for
such security by Bloomberg, the closing sale price as reported in the “pink sheets” by the Pink
Sheets LLC, in each case for such date or, if such date was not a Trading Day for such security, on
the next preceding date which was a Trading Day. If the Daily Market Price cannot be calculated
for such security as of either of such dates on any of the foregoing bases, the Daily Market Price
of such security on such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Holders of a majority of the principal amount and interest
of the Notes outstanding and reasonably acceptable to the Company, with the costs of such appraisal
to be borne by the Company.

     “Disregarded Securities” shall have the meaning specified in Section 3(d)(iv)(E).

     “DTC” shall have the meaning specified in Section 3(c).

     “DTC Transfer” shall have the meaning specified in Section 3(c).

     “EBITDA” shall mean, the sum for any period, without duplication, of the following for
the Issuers and each Subsidiary, on a consolidated basis: Net Income, plus, (a) Interest Expense,
(b) taxes on income, whether paid, payable or accrued, (c) depreciation expense, (d) amortization
expense, (e) all other non-cash, non-recurring charges and expenses, excluding accruals for cash
expenses made in the ordinary course of business, and (f) loss from any sale of assets, other than
sales in the ordinary course of business, all of the foregoing determined in accordance with GAAP,
minus (a) gains from any sale of assets, other than sales in the ordinary course of business and
(b) other extraordinary or non-recurring gains.

     “Event of Default” shall have the meaning specified in Section 2(d).

     “Extraordinary Event” shall have the meaning specified in Section 3(d)(iii).

     “First Priority Lien Indebtedness” shall mean the Indebtedness of the Issuers under
the Credit Agreement and any other Senior Indebtedness of the Issuers secured by a first priority
Lien on any assets or property of the Issuers.

     “GAAP” shall mean generally accepted accounting principles in the United States of
America in effect from time to time as applied by nationally recognized accounting firms.

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     “Governmental Authority” shall mean any federal, state, municipal, national, local or
other governmental department, court, commission, board, bureau, agency or instrumentality or
political subdivision thereof, or any entity or officer exercising executive, legislative, or
judicial, regulatory or administrative functions of or pertaining to any government or any court,
in each case, whether of the United States or a state, territory or possession thereof, a foreign
sovereign entity or country or jurisdiction or the District of Columbia.

     “Hedge Agreement” means any and all transactions, agreements or documents now existing
or hereafter entered into by the Company or its Subsidiaries, which provide for an interest rate,
credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction,
currency swap, cross currency rate swap, currency option, or any combination of, or option with
respect to, these or similar transactions, for the purpose of hedging exposure to fluctuations in
interest or exchange rates, loan, credit exchange, security or currency valuations or commodity
prices.

     “Indebtedness” of any Person shall mean, without duplication, (a) all obligations for
borrowed money, (b) all obligations evidenced by bonds, debentures, notes or other similar
instruments and all reimbursement or other obligations in respect of letter of credit, bankers
acceptances, interest rate swaps, hedges, derivatives or other financial products, (c) all
obligations as a lessee under Capital Leases, (d) all obligations or liabilities of others secured
by a Lien on any asset of a Person or its Subsidiaries, irrespective of whether such obligation or
liability is assumed, (e) all obligations to pay the deferred purchase price of assets, (f) all
obligations owing under Hedge Agreements, and (g) any obligations guaranteeing or intended to
guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with
recourse) any obligation of any other Person that constitutes Indebtedness under any of clauses (a)
through (f) above. For the avoidance of any doubt, Indebtedness does not include trade payables
incurred in the ordinary course of business and repayable in accordance with customary trade
practices and any obligations as a lessee under leases that are not Capital Leases.

     “Intercreditor Agreement” shall have the meaning specified in Section 4(f).

     “Interest Expense” shall mean, for any period, total interest expense (including
attributable to Capital Leases in accordance with GAAP), fees with respect to all outstanding
Indebtedness including capitalized interest but excluding commissions, discounts and other fees
owed with respect to letters of credit and bankers’ acceptance financing and net costs under
Interest Rate Agreements.

     “Interest Rate Agreement” shall mean any interest rate swap, cap or collar agreement
or other similar agreement or arrangement designed to hedge the position with respect to interest
rates.

     “Landlord Waiver and Consent” shall mean a waiver/consent in form and substance
satisfactory to the Holders from the owner/lessor of any premises not owned by the Issuers at which
any of the Collateral is now or hereafter located for the purpose of providing the Collateral Agent
(for the benefit of the Holders) access to such Collateral, in each case as such may be modified,
amended or supplemented from time to time.

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     “Lien” shall mean any interest in an asset securing an obligation owed to, or a claim
by, any Person other than the owner of the asset, irrespective of whether (a) such interest is
based on the common law, civil law, statute, or contract, (b) such interest is recorded or
perfected, and (c) such interest is contingent upon the occurrence of some future event or events
or the existence of some future circumstance or circumstances. Without limiting the generality of
the foregoing, the term “Lien” includes the lien, hypothecation or security interest arising from a
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment
from security purposes and also includes reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting property.

     “LTM EBITDA” shall mean for any fiscal quarter with respect to the Issuers, the sum of
the consolidated EBITDA of the Issuers and each Subsidiary for such fiscal quarter and for each of
the three consecutive fiscal quarters immediately preceding such fiscal quarter.

     “Mandatory Repurchase Notice” shall have the meaning specified in Section 5(d)(i).

     “Maturity Date” shall have the meaning specified in Section 2(b).

     “Minimum Conversion Price” shall have the meaning specified in Section 3(d)(iv).

     “Net Income” shall mean, the net income (or loss) determined in conformity with GAAP
as currently applied by the Company consistent with past practice, including, without limitation,
the expensing of Customer Acquisition and Related Costs, provided that there shall be
excluded (i) the income (or loss) of any Person in which any other Person (other than any Issuer)
has a joint interest, except to the extent of the amount of dividends or other distributions
actually paid to an Issuer by such Person, (ii) the income (or loss) of any Person accrued prior to
the date it becomes an Issuer or is merged into or consolidated with an Issuer or that Person’s
assets are acquired by an Issuer, and (iii) the income of any Subsidiary of an Issuer to the extent
that the declaration or payment of dividends or similar distributions of that income by that
Subsidiary is not at the time permitted by operation of the terms of the charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that
Subsidiary.

     “Options” shall have the meaning specified in Section 3(d)(iv)(A).

     “Permitted Liens” means the following: (i) Liens with respect to the Notes, (ii) Liens
with respect to Senior Indebtedness allowed to be incurred by the Company under Section 6(c), (iii)
Liens imposed by law for taxes (other than payroll taxes), assessments or charges of any
Governmental Authority for claims not yet due or which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or other appropriate provisions
are being maintained by such Person in accordance with GAAP to the satisfaction of the Holders of a
majority of the principal and interest of the Notes outstanding, in their sole discretion, (iv) (A)
statutory Liens of landlords (provided that any such landlord has executed a Landlord
Waiver and Consent in form and substance satisfactory to the Holders of a majority of

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the principal and interest of the Notes outstanding) and of carriers, warehousemen
(provided that any such warehousemen have executed a Warehouse Waiver and Consent in form
and substance satisfactory to the Holders of a majority of the principal and interest of the Notes
outstanding), mechanics, materialmen, and (B) other Liens imposed by law or that arise by operation
of law in the ordinary course of business from the date of creation thereof, in each case only for
amounts not yet due or which are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves or other appropriate provisions are being maintained by such
Person in accordance with GAAP to the satisfaction of the Holders of a majority of the principal
and interest of the Notes outstanding, in their sole discretion, (v) Liens (A) incurred or deposits
made in the ordinary course of business (including, without limitation, surety bonds and appeal
bonds) in connection with workers’ compensation, unemployment insurance and other types of social
security benefits or to secure the performance of tenders, bids, leases, contracts (other than for
the repayment of Indebtedness), statutory obligations and other similar obligations, or (B) arising
as a result of progress payments under government contracts, (vi) purchase money Liens, including,
without limitation, UCC-1 notice filings by equipment lessors and the like, in connection with the
purchase by such Person of equipment in the normal course of business and (vii) Liens junior to the
Lien under the Notes.

     “Person” shall mean an individual, a partnership, a corporation, a limited liability
company, a business trust, a joint stock company, a trust, an unincorporated association, a joint
venture, or any other entity of whatever nature.

     “Put Payment” shall have the meaning specified in Section 5(d)(i).

     “RGGPLS Cure” shall have the meaning specified in Section 6(e).

     “Senior Indebtedness” means all First Priority Lien Indebtedness and any other
Indebtedness of the Issuers, including the Notes, unless the instrument under with such
Indebtedness is incurred expressly provides that it is pari passu or subordinated in right of
payment to the Notes.

     “Subsidiary” shall mean, (i) as to the Issuers, any Person in which more than 50% of
all equity, membership, partnership or other ownership interests is owned directly or indirectly by
an Issuer or one or more of its Subsidiaries, and (ii) as to any other Person, any Person in which
more than 50% of all equity, membership, partnership or other ownership interests is owned directly
or indirectly by such Person or by one or more of such Person’s Subsidiaries.

     “Tax Put Right” shall have the meaning specified in Section 5(f).

     “Trading Day” shall mean any day on which the principal United States securities
exchange or trading market where the Common Stock is then listed or traded, is open for trading.

     “Trigger Issuance” shall have the meaning specified in Section 3(d)(iv).

     “Warehouse Waiver and Consent” shall mean a waiver/consent in form and substance
satisfactory to the Holders from any warehouseman, fulfillment house or other person owning a
facility not owned by the Issuers at which any inventory is now or hereafter located for

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the purpose of providing the Collateral Agent (for the benefit of the Holders) access to such
inventory, in each case as such may be modified, amended or supplemented from time to time.

     “Warrants” shall have the meaning as defined in the Warrant Agreement, dated as of
August 25, 2003, between the Company (formerly Millstream Acquisition Corporation), and Continental
Stock Transfer & Trust Company (the “Warrant Agreement”).

     2. Payments of Interest and Principal. Subject to the provisions of Section 3 below,
payments of principal plus interest on the unpaid principal balance of this Note outstanding from
time to time shall be payable in accordance with the following:

          (a) Interest. During the period commencing on the date hereof and terminating on the
Maturity Date, interest on the unpaid principal amount of this Note shall accrue at a rate equal to
7 3/4% per annum, compounded monthly, computed on the basis of actual days elapsed over a 360-day
year, and shall be payable monthly (commencing on February 28, 2005 and thereafter on the 28th of
each month) in cash up to and including the Maturity Date, subject to a ten (10) day grace period;
provided that if a required interest payment is not paid within such ten (10) day grace
period, interest shall be compounded from the date that such interest was due and payable without
regard to such grace period.

          (b) Principal. The principal balance outstanding on this Note, and any accrued and
unpaid interest thereon, shall be due and payable to the Holder on February 28, 2012 (the
“Maturity Date”). Contemporaneously with the repayment of this Note, the Holder shall
surrender this Note, duly endorsed, at the office of the Company.

          (c) Payments. All payments of principal, interest, fees and other amounts due
hereunder shall be made by the Issuers in lawful money of the United States of America by wire
transfer or by any other method approved in advance by the Holder to the account of the Holder at
the address of the Holder set forth in Section 10 hereof or at such other place designated by the
Holder in writing to the Company.

          (d) Acceleration of the Maturity Date. Notwithstanding anything to the contrary
contained herein, this Note shall become due and payable together with all accrued interest due on
the outstanding principal amount hereunder, at the option of the Holders of at least 25% of the
principal amount and interest outstanding exercised, by written notice to the Company, in the case
of clauses (i) to (ix) below and without notice or any other action by such Holders in the case of
clauses (x) or (xi) below, in the event (each an “Event of Default”) that (i) the Issuers
fail to pay the principal of or interest on this Note as and when due, subject to a ten (10) day
grace period; (ii) the Issuers shall default in the performance of or otherwise breach any of its
representations and warranties, covenants or other obligations set forth in the Purchase Agreement
or any of the Transaction Documents (as defined in the Purchase Agreement), and if such default is
capable of cure, such default remains uncured beyond any applicable cure period; (iii) the
Collateral Agent (on behalf of the Holders) shall not have the right to enforce its remedies under
Section 4 of this Note; (iv) the Holder shall not have a perfected security interest in the
Collateral pursuant to the terms set forth herein; (v) the Company’s Common Stock (including any
Conversion Shares (as defined below) once registered for sale under the Securities Act of 1933) is
suspended from trading on any of, or is not listed (and authorized) for

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trading on at least one of, the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market, the Nasdaq SmallCap Market or is not eligible for trading on the OTC
Bulletin Board for an aggregate of ten (10) Trading Days in any nine month period; (vi) the Company
fails when required to remove any restrictive legend of any certificate relating to Conversion
Shares, Redemption Warrants or any other securities issuable in accordance with the terms of the
Notes or the exercise or conversion of the Redemption Warrants or any other convertible securities
issuable in accordance with the terms of the Notes, issued to the Holders, and any such failure
continues uncured for ten (10) Business Days after the Company has been notified of such failure in
writing by the Holder; (vii) the Issuers fail to pay, when due, or within any applicable grace
period, any payment with respect to any Indebtedness of the Issuers having an outstanding principal
amount in excess of $250,000 (including, without limitation, any of the Other Notes), other than
payments contested by the Issuers in good faith, or otherwise is in breach or violation of any
agreement for Indebtedness in an amount in excess of $250,000 which breach or violation permits the
other party thereto to declare a default or otherwise accelerate amounts due thereunder and which
breach or violation is not waived or otherwise cured, including, without limitation, by exercise of
the RGGPLS Cure pursuant to Section 6(e); (viii) the entry of a final judgment against any of the
Issuers, which is not subject to appeal by the Issuers, in an amount in excess of $250,000, or the
attachment or seizure of or levy upon any property of the Issuers valued in excess of $250,000 to
satisfy an obligation of the Issuers; (ix) the Company provides notice to any Holder of the Notes,
including by way of public announcement, at any time, of its intention not to issue, or otherwise
refuses to issue, Conversion Shares to any Holder of the Note upon conversion in accordance with
the terms of the Notes; (x) any of the Issuers shall file a petition under bankruptcy, insolvency
or debtor’s relief law or make an assignment for the benefit of its creditors or (xi) proceedings
shall be instituted against any of the Issuers before a court of competent jurisdiction under any
federal or state bankruptcy law that (X) is for relief against the Issuers in an involuntary case
brought with respect to the Issuers in such court, (Y) seeks to appoint a custodian, receiver or
other similar official for all or substantially all the Issuers’ property or (Z) seeks to liquidate
the Issuers, and such proceedings remain unstayed and in effect for sixty (60) days. In the event
that the payment of principal and interest due hereunder is accelerated pursuant to this Section
2(d), interest shall continue to accrue at 10 3/4% per annum as of the date of such acceleration
until such date as the Holder is paid in full under this Note.

     3. Conversion.

          (a) Conversion at the Option of the Holder. The Holder may, at any time and from time
to time on or after the date hereof, convert all or any part of the outstanding principal amount of
this Note, plus all accrued interest thereon through the Conversion Date, into a number of fully
paid and nonassessable shares of Common Stock (“Conversion Shares”) upon surrender of the
Note. The number of shares of Common Stock issuable upon surrender of the Note shall be determined
in accordance with the following formula:

Conversion Amount

Conversion Price

          (b) Mechanics of Conversion. In order to effect a conversion pursuant to this Section
3, the Holder shall: (a) fax (or otherwise deliver) a copy of the fully executed

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Notice of Conversion to the Company and (b) surrender or cause to be surrendered this Note,
duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to
the Company. Upon receipt by the Company of a facsimile copy of a Notice of Conversion from a
Holder, the Company shall within two (2) business days send, via facsimile, a confirmation to such
Holder stating that the Notice of Conversion has been received, advising the Holder of any
additional documentation required by the transfer agent for the Common Stock to issue the
Conversion Shares in the manner provided in the Notice of Conversion (the “Additional
Documentation”) and the name and telephone number of a contact person at the Company regarding
the conversion. The Company shall not be obligated to issue Conversion Shares upon a conversion
unless either this Note is delivered to the Company as provided above, or the Holder notifies the
Company that such certificates have been lost, stolen or destroyed and delivers the documentation
to the Company required by Section 13.

          (c) Delivery of Conversion Shares Upon Conversion. Upon the surrender of this Note
accompanied by a Notice of Conversion and any Additional Documentation, the Company shall, no later
than the later of (a) the second Business Day following the Conversion Date and (b) the third
Business Day following the date of such surrender (or, in the case of lost, stolen or destroyed
certificates, after provision of indemnity pursuant to Section 13) (the “Delivery Period”),
issue and deliver to the Holder or its nominee (x) that number of Conversion Shares issuable upon
conversion of the portion of this Note being converted and (y) a new Note in the form hereof
representing the balance of the principal amount hereof not being converted, if any. If the
Company’s transfer agent is participating in the Depositary Trust Company (“DTC”) Fast
Automated Securities Transfer program, and so long as the certificates therefor do not bear a
legend and the Holder thereof is not then required to return such certificate for the placement of
a legend thereon, the Company shall cause its transfer agent to electronically transmit the
Conversion Shares to the Holder by crediting the account of the Holder or its nominee with DTC, as
specified in the Notice of Conversion, through its DTC Deposit Withdrawal Agent Commission System
(“DTC Transfer”). If the aforementioned conditions to a DTC Transfer are not satisfied,
the Company shall deliver to the Holder physical certificates representing the Conversion Shares.
Further, the Holder may instruct the Company to deliver to the Holder physical certificates
representing the Conversion Shares in lieu of delivering such shares by way of DTC Transfer.

          (d) Adjustment to Conversion Price. The Conversion Price in effect at any time shall
be subject to adjustment from time to time upon the happening of certain events, as follows:

               (i) Common Stock Dividends; Common Stock Splits; Reverse Common Stock Splits. If the
Company, at any time while this Note is outstanding, (A) shall pay a stock dividend on its Common
Stock, (B) subdivide outstanding shares of Common Stock into a larger number of shares, or (C)
combine outstanding shares of Common Stock into a smaller number of shares, the Conversion Price
shall be multiplied by a fraction the numerator of which shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding before such event and the denominator of
which shall be the number of shares of Common Stock outstanding after such event. Any adjustment
made pursuant to this Section 3(d)(i) shall become effective immediately after the record date for
the determination of stockholders entitled to

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receive such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.

               (ii) Subscription Rights. If the Company, at any time while this Note is outstanding,
shall fix a record date for the distribution to all of the holders of Common Stock evidence of its
indebtedness or assets or rights, options, warrants or other securities entitling them to subscribe
for, purchase, convert to, exchange for or to otherwise acquire any security (excluding those
referred to in Section 3(d)(i) above), then in each such case the Conversion Price at which this
Note shall thereafter be exercisable shall be determined by multiplying the Conversion Price in
effect immediately prior to the record date fixed for determination of shareholders entitled to
receive such distribution by a fraction, the denominator of which shall be the average Daily Market
Price of the Common Stock for the ten (10) Trading Days prior to the record date mentioned above,
and the numerator of which shall be such average Daily Market Price of the Common Stock for the ten
(10) Trading Days prior to such record date less the then fair market value at such record date of
the portion of such evidence of indebtedness or assets or rights, options, warrants or other
securities so distributed applicable to one outstanding share of Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding twenty percent (20%) of the net assets of the Issuers, such fair market
value shall be determined by an appraiser selected by the Holders of a majority of the principal
amount and interest of the Notes outstanding and reasonably acceptable to the Company. The Company
shall pay for all such appraisals. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date mentioned above.

               (iii) Other Events. In case of (A) any reclassification of the Common Stock into
other securities of the Company, (B) any compulsory share exchange pursuant to which the Common
Stock is converted into other securities, cash or property or (C) any merger or consolidation with
or into any persons, or any sale or other disposition of all or substantially all of the assets of
the Issuers to any person (each of (A), (B) or (C), an “Extraordinary Event”), the Holder
shall have the right thereafter to convert this Note into shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common Stock following such
Extraordinary Event, that the Holder would have been entitled to receive had it converted this Note
immediately prior to such Extraordinary Event (without taking into account any limitations or
restrictions on the convertibility of the Notes). In the case of an Extraordinary Event, the terms
of any such Extraordinary Event shall include such terms so as to continue to give to the Holder
the right to receive the securities, cash or property set forth in this Section 3(d)(iii) upon any
conversion following such Extraordinary Event. This provision shall similarly apply to successive
Extraordinary Events. For the avoidance of doubt, nothing contained in this clause (iii) shall be
construed to impair the Issuers’ or Holders’ rights under Section 5, including, without limitation,
under Section 5(b).

               (iv) Issuance of Additional Shares of Common Stock. Except as provided in subsection
(v) hereof, if and whenever the Company shall issue or sell, or is, in accordance with any of
subsections (iv)(A) through (iv)(H) hereof, deemed to have issued or sold, any Additional Shares of
Common Stock for a consideration per share less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then and in each such case (a “Trigger Issuance”)
the then-existing Conversion Price shall be reduced, as of the

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close of business on the effective date of the Trigger Issuance, to the lowest price per share
at which any share of Common Stock was issued or sold or deemed to be issued or sold in the Trigger
Issuance. Notwithstanding anything to the contrary contained herein, the Company shall not be
required to make the full adjustment set forth in this subsection (iv) or in subsection (vi) below
to the Conversion Price if such adjustment would result in a Conversion Price lower than $3.40,
which amount shall be subject to adjustment when the Conversion Price is adjusted pursuant to
Section 3(d)(i)(A), (B) or (C) or Section 3(d)(vii), to the same extent as such adjustment to the
Conversion Price (the “Minimum Conversion Price”). In the event that an adjustment made
under this subsection would result in the Conversion Price being less than the Minimum Conversion
Price, the Conversion Price shall be the Minimum Conversion Price and the Conversion Price shall
not be adjusted further pursuant to this subsection (iv) or subsection (vi) below. Notwithstanding
anything to the contrary contained herein, the Company shall not take any action which would cause
an adjustment pursuant to Section 3(d) to reduce the Conversion Price to a price below which the
Conversion Shares issuable upon conversion of the Notes when combined with the shares of Common
Stock issued to the Holders pursuant to the Purchase Agreement would exceed 19.9% of the
outstanding Common Stock measured as of the date hereof, unless and until the Company shall take
all corporate action necessary, including, without limitation, obtaining stockholder approval, in
order that the Company may validly and legally issue fully paid and nonassessable Conversion Shares
at the Conversion Price as so adjusted.

     For purposes of this subsection (iv), “Additional Shares of Common Stock” shall mean
all shares of Common Stock issued by the Company or deemed to be issued pursuant to this subsection
(iv), other than Excluded Issuances (as defined in subsection (v) hereof).

     For purposes of this subsection (iv), the following subsections (iv)(A) to (iv)(H) shall also
be applicable (subject, in each such case, to the provisions of subsection (v) hereof) and to each
other subsection contained in this subsection (iv):

     (A) Issuance of Rights or Options. In case at any time the Company
shall in any manner grant (directly and not by assumption in a merger or otherwise)
any warrants or other rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible into or exchangeable
for Common Stock (such warrants, rights or options being called “Options”
and such convertible or exchangeable stock or securities being called
“Convertible Securities”) whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus (y) the aggregate
amount of additional consideration payable to the Company upon the exercise of all
such Options, plus (z), in the case of such Options which relate to Convertible
Securities, the aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock

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issuable upon the exercise of such Options or upon the conversion or exchange
of all such Convertible Securities issuable upon the exercise of such Options) shall
be less than the Conversion Price in effect immediately prior to the time of the
granting of such Options, then the total number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the total amount
of such Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of granting of
such Options and thereafter shall be deemed to be outstanding for purposes of
adjusting the Conversion Price. Except as otherwise provided in subsection (iv)(D),
no adjustment of the Conversion Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such Options or upon
the actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.

     (B) Issuance of Convertible Securities. In case the Company shall in
any manner issue (directly and not by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the sum (which sum shall constitute the applicable consideration) of
(x) the total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus (y) the aggregate amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (ii) the total number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities) shall be less than
the Conversion Price in effect immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have been issued for
such price per share as of the date of the issue or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding for purposes of
adjusting the Conversion Price, provided that (a) except as otherwise
provided in subsection (iv)(D), no adjustment of the Conversion Price shall be made
upon the actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities and (b) no further adjustment of the Conversion Price shall
be made by reason of the issue or sale of Convertible Securities upon exercise of
any Options to purchase any such Convertible Securities for which adjustments of the
Conversion Price have been made pursuant to the other provisions of subsection (iv).

     (C) Change in Warrant Price or Amount. Notwithstanding the provisions
of subsection (v), if the exercise price provided for in the Warrants on the date
hereof is below the Conversion Price and (i) such exercise price is reduced, the
then-existing Conversion Price shall be reduced, as of the close of business on the
effective date of such reduction in exercise price by an amount equal to the product
of (x) the original exercise price minus (y) the reduced exercise price and (2) a
fraction, the numerator of which is the number of shares

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of Common Stock acquired upon exercise, if any, of the Warrants and the
denominator of which is the aggregate number of shares of Common Stock that may be
acquired upon exercise of all of the Warrants or (ii) the Company amends the terms
of the Warrants to increase the number of shares of Common Stock that may be
acquired upon exercise of the Warrants, the then-existing Conversion Price shall be
reduced, as of the close of business on the effective date of amendment by an amount
equal to the product of (1) (x) the original exercise price minus (y) the product of
the original exercise price and a fraction, the numerator of which is the old number
of shares for which the Warrants were exercisable immediately prior to such
amendment and the denominator of which is the new number of shares for which the
Warrants are exercisable immediately following such amendment and (2) a fraction,
the numerator of which is the number of shares of Common Stock acquired upon
exercise, if any, of the Warrants and the denominator of which is the aggregate
number of shares of Common Stock that may be acquired upon exercise of all of the
Warrants; provided, however, that the Conversion Price shall not be
reduced below the Minimum Conversion Price.

     (D) Change in Option Price or Conversion Rate. Upon the happening of
any of the following events, namely, if the purchase price provided for in any
Option referred to in subsection (iv)(A) hereof, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities referred
to in subsections (iv)(A) or (iv)(B), or the rate at which Convertible Securities
referred to in subsections (iv)(A) or (iv)(B) are convertible into or exchangeable
for Common Stock shall change at any time (including, but not limited to, changes
under or by reason of provisions designed to protect against dilution), the
Conversion Price in effect at the time of such event shall forthwith be readjusted
to the Conversion Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the case may be, at
the time initially granted, issued or sold.

     (E) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor will be the amount received by the Company therefor,
after deduction of all underwriting discounts or allowances in connection with such
issuance, grant or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of which shall be
other than cash, including in the case of a strategic or similar arrangement in
which the other entity will provide services to the Company, purchase services from
the Company or otherwise provide intangible consideration to the Company, the amount
of the consideration other than cash received by the Company (including the net
present value of the consideration expected by the Company for the provided or
purchased services) will be the fair market value of such consideration, except
where such consideration consists of securities, in which case the amount of
consideration received by the Company will be the average Daily Market Price for the
ten (10) Trading Days with respect to such securities

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thereof prior to the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with any merger or consolidation in
which the Company is the surviving Company, the amount of consideration therefor
will be deemed to be the fair market value of such portion of the net assets and
business of the non-surviving Company as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. Notwithstanding anything to
the contrary contained herein, if Common Stock, Options or Convertible Securities
are issued, granted or sold in conjunction with each other as part of a single
transaction or in a series of related transactions, and one or more of such
securities are issued, granted or sold for a price below fair market value (when the
aggregate value of such securities is compared with the aggregate amount of
consideration received by the Company therefor), any Holder of the Notes may elect
to determine the amount of consideration deemed to be received by the Company
therefor by deducting the difference between the fair value of and the amount paid
for any type of securities issued, granted or sold in such transaction or series of
transactions (the “Disregarded Securities”). If the Holder makes an
election pursuant to the immediately preceding sentence, no adjustment to the
Conversion Price shall be made pursuant to this subsection (iv)(E) for the issuance
of the Disregarded Securities or upon any conversion or exercise thereof. For
example, if the Company were to issue convertible notes having a face value of
$1,000,000 and warrants to purchase shares of Common Stock at an exercise price
equal to the market price of the Common Stock on the date of issuance of such
warrants in exchange for $1,000,000 of consideration, the fair value of the warrants
would be subtracted from the $1,000,000 of consideration received by the Company for
the purposes of determining the price per share of Common Stock issuable upon
conversion of the convertible notes and for purposes of determining any adjustment
to the Conversion Price hereunder as a result of the issuance of the Convertible
Securities. The Holders of a majority of the principal amount and interest of the
Notes outstanding shall calculate, using standard commercial valuation methods
appropriate for valuing such assets, the fair market value of any consideration
other than cash or securities; provided, however, that if the
Company does not agree to such fair market value calculation within three (3)
Business Days after receipt of such calculation along with reasonably detailed
supporting documentation from the Holders, then such fair market value will be
determined in good faith by an investment banker or other appropriate expert of
national reputation selected by the Holders of a majority of the principal amount
and interest of the Notes outstanding (which investment banker or other expert shall
not have been engaged or otherwise employed by any of the Holders within one (1)
year of the date of such engagement hereunder) and reasonably acceptable to the
Company, with the costs of such appraisal to be borne by the Company.

     (F) Other Action Affecting Conversion Price. If the Company takes any
action affecting the Common Stock after the date hereof that would be covered by
this Section 3, but for the manner in which such action is taken or structured,
which would in any way diminish the value of the Notes then the Conversion Price
shall be adjusted in such manner as the Board of Directors of

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the Company shall in good faith determine to be equitable under the
circumstances.

     (G) Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the case may be,
provided, however, that any such adjustment in the Conversion Price
shall be reversed or shall not become effective, as applicable, if the Company
abandons the action to which the record date pertains.

     (H) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account of
the Company or any of its wholly-owned Subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof) shall be considered an
issue or sale of Common Stock for the purpose of this subsection (iv).

               (v) Notwithstanding anything to the contrary contained herein, the Company shall not be
required to make any adjustment of the Conversion Price in the case of the issuance of (A) Options
to acquire up to 100,000 shares of Common Stock (subject to equitable adjustment by the Board, in
its good faith determination, for any of the events described in Section 3(d)(i)(A), (B) or (C))
regardless of the price paid for such Options or the exercise price thereof; (B) Common Stock,
Options or Convertible Securities issued to employees or directors of the Company in connection
with their service as directors of the Company or their employment by the Company pursuant to an
equity compensation plan approved by the Board of Directors of the Company, in an aggregate amount
not to exceed that currently authorized under such plans as of the date hereof (subject to
equitable adjustment by the Board, in its good faith determination, for any of the events described
in Section 3(d)(i)(A), (B) or (C)), (C) Common Stock, Options or Convertible Securities issued to
employees or directors of the Company in connection with their service as directors of the Company
or their employment by the Company pursuant to an equity compensation plan approved by the Board of
Directors of the Company or the compensation committee of the Board of Directors of the Company and
consistent with past practice, in an aggregate amount not to exceed 3% of the fully diluted
outstanding shares of Common Stock; provided that it is understood that this clause shall
not limit the number of shares of Common Stock, Options or Convertible Securities that the Company
may issue pursuant to its equity compensation plans and only relates to the effect of the
adjustments to the Conversion Price upon such issuance, (D) Common Stock, Options or Convertible
Securities issued or sold in connection with the Company’s acquisition of assets of any person,
directly or indirectly, by way or merger, consolidation, asset purchase, stock purchase or other
business combination, in an aggregate amount not to exceed 2,000,000 shares of Common Stock
(including any shares of Common Stock issuable upon exercise or conversion of Options or
Convertible Securities); provided that such issuance or sale shall be subject to the

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provisions of Section 3(d)(vi); (E) Common Stock upon the conversion or exercise of the
Warrants and any other warrants outstanding on the date hereof as disclosed in the Disclosure
Schedules (as defined in the Purchase Agreement), except as set forth in subsection (iv)(C) above,
and (F) Common Stock upon the conversion or exercise of the Notes or any Redemption Warrants; and
(G) Common Stock, Options or Convertible Securities approved by holders of a majority in principal
amount of the Notes outstanding on the date of such approval (collectively, “Excluded
Issuances”).

               (vi) Weighted Average Adjustment for Business Combination Issuances. (i) In the event
that at any time or from time to time the Company shall issue or sell Common Stock, Options or
Convertible Securities subject to clause (D) of Section 3(d)(v) without consideration or for
consideration per share that is less at the day of such issuance or sale than the Daily Market
Price, the Conversion Price in effect immediately prior to each such issuance or sale will
immediately (except as provided below) be reduced to the price determined by multiplying the
Conversion Price, in effect immediately prior to such issuance or sale, by a fraction, (1) the
numerator of which shall be (x) the number of shares of Common Stock outstanding immediately prior
to such issuance or sale plus (y) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such additional shares of Common
Stock so issued or sold would purchase at the Daily Market Price on the last Trading Day
immediately preceding such issuance or sale and (2) the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such issue or sale; provided,
however, that the Conversion Price shall not be reduced below the Minimum Conversion Price.

               (vii) Partial Redemption of Notes Pursuant to Section 5(c). Upon the happening of a
partial redemption of the Note pursuant to Section 5(c), the Conversion Price in effect immediately
prior to such redemption shall be reduced to the price determined by multiplying the Conversion
Price, in effect immediately prior to the redemption, by a fraction, the numerator of which shall
be the principal amount of the Note outstanding immediately after the partial redemption and the
denominator of which shall be the principal amount of the Note immediately prior to the partial
redemption.

          (e) Fractional Shares. Upon a conversion hereunder, the Company shall not be required
to issue stock certificates representing fractions of shares of the Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a share based on the
closing bid price at such time. If the Company elects not, or is unable, to make such a cash
payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.

          (f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to Section 3, the Company, at its own expense, shall promptly compute
such adjustment or readjustment and prepare and furnish to each Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time of the Holder,
furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii)
the Conversion Price at the time in effect and (iii) the number of shares of

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common stock and the amount, if any, of other securities or property which at the time would
be received upon conversion of the Note.

     4. Security; Remedies. Unless otherwise defined in this Note, each of the defined
terms used in this Section 4 shall have the meanings ascribed to them in the Credit Agreement as of
the date hereof.

          (a) To secure the payment and performance of the Notes, each Issuer hereby grants to the
Collateral Agent (for the benefit of the Holders) a continuing security interest in and Lien upon,
and pledges to the Collateral Agent (for the benefit of the Holders), all of its right, title and
interest in and to the following (collectively and each individually, the “Collateral”),
which security interest is intended to be a security interest, which is subordinate to any Liens
securing Senior Indebtedness permitted to be incurred pursuant to Section 6(c):

               (i) all of such Issuer’s tangible personal property, including without limitation all present
and future Inventory and Equipment (including items of equipment which are or become Fixtures), now
owned or hereafter acquired;

               (ii) all of such Issuer’s intangible personal property, including without limitation all
present and future Accounts, contract rights, Permits, General Intangibles, Chattel Paper,
Documents, Instruments, Deposit Accounts, Investment Property, Letter-of-Credit Rights, Supporting
Obligations, rights to the payment of money or other forms of consideration of any kind, tax
refunds, insurance proceeds, now owned or hereafter acquired, and all intangible and tangible
personal property relating to or arising out of any of the foregoing;

               (iii) all of such Issuer’s present and future Government Contracts and rights thereunder and
the related Government Accounts and proceeds thereof, now or hereafter owned or acquired by such
Issuer; provided, however, that the Holder shall not have a security interest in
any rights under any Government Contract of such Issuer or in the related Government Account where
the taking of such security interest is a violation of an express prohibition contained in the
Government Contract (for purposes of this limitation, the fact that a Government Contract is
subject to, or otherwise refers to, Title 31, § 203 or Title 41, § 15 of the United States Code
shall not be deemed an express prohibition against assignment thereof) or is prohibited by
applicable law, unless in any case consent is otherwise validly obtained; and

               (iv) any and all additions and accessions to any of the foregoing, and any and all
replacements, products and proceeds (including insurance proceeds) of any of the foregoing.

          (b) Notwithstanding the foregoing provisions of this Section 4, such grant of a security
interest shall not extend to, and the term “Collateral” shall not include, any General
Intangibles of Issuers to the extent that (i) such General Intangibles are not assignable or
capable of being encumbered as a matter of law or under the terms of any license or other agreement
applicable thereto (but solely to the extent that any such restriction shall be enforceable under
applicable law) without the consent of the licensor thereof or other applicable party thereto, and
(ii) such consent has not been obtained; provided, however, that the foregoing
grant of a security interest shall extend to, and the term “Collateral” shall include, each
of the

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following: (a) any General Intangible which is in the nature of an Account or a right to the
payment of money or a proceed of, or otherwise related to the enforcement or collection of, any
Account or right to the payment of money, or goods which are the subject of any Account or right to
the payment of money, (b) any and all proceeds of any General Intangible that is otherwise excluded
to the extent that the assignment, pledge or encumbrance of such proceeds is not so restricted, and
(c) upon obtaining the consent of any such licensor or other applicable party with respect to any
such otherwise excluded General Intangible, such General Intangible as well as any and all proceeds
thereof that might theretofore have been excluded from such grant of a security interest and from
the term “Collateral.”

          (c) Upon the execution and delivery of this Agreement, and upon the proper filing of the
necessary financing statements, recordation of the Collateral Patent, Trademark and Copyright
Assignment in the United States Patent and Trademark Office and/or the United States Copyright
Office without any further action, the Holder will have a good, valid and perfected Lien and
security interest in the Collateral, which is subordinate to any Liens securing Senior Indebtedness
permitted to be incurred pursuant to Section 6(c) and subject to no transfer or other restrictions
or Liens of any kind in favor of any other Person except for Permitted Liens. No financing
statement relating to any of the Collateral is on file in any public office except those (i) on
behalf of the Holders, (ii) in connection with Permitted Liens and/or (iii) those being terminated.

          (d) Collateral Administration.

               (i) All Collateral (except Deposit Accounts) will at all times be kept by Issuer at the
locations set forth on Schedule 4(d) and shall not, without thirty (30) calendar days prior written
notice to the Collateral Agent, be moved therefrom unless the Collateral Agent has entered into the
necessary documents to perfect and enforce its security interest therein at such new location, and
in any case shall not be moved outside the continental United States.

               (ii) Issuer shall keep accurate and complete records of its Accounts and all payments and
collections thereon and shall submit such records to the Collateral Agent on such periodic basis as
the Collateral Agent may request. Following the occurrence and during the continuance of an Event
of Default, if requested by the Collateral Agent, Issuer shall execute and deliver to the
Collateral Agent formal written assignments (or, in the case of Medicaid/Medicare Account Debtors,
documents necessary to comply with the Federal Assignment of Claims Act) of all of its Accounts
weekly or daily as the Collateral Agent may request, including all Accounts created since the date
of the last assignment, together with copies of claims, invoices and/or other information related
thereto. To the extent that collections from such assigned accounts exceed the outstanding
principal amount together with any accrued interest due on the Notes and all First Priority Lien
Indebtedness, such excess amount shall not accrue interest in favor of Issuer, but shall be
available to Issuer upon Issuer’s written request.

               (iii) Following an occurrence or during the continuance of an Event of Default, any of the
Collateral Agent’s officers, employees, representatives or agents shall have the right, at any time
during normal business hours, in the name of the Collateral Agent, any designee of the Collateral
Agent or Issuers, to verify the validity, amount or any other

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matter relating to any Accounts or Inventory of Issuer. Issuers shall cooperate fully with
the Collateral Agent in an effort to facilitate and promptly conclude such verification process.

               (iv) To expedite collection, Issuer shall endeavor in the first instance to make collection of
its Accounts for the Collateral Agent. The Collateral Agent shall have the right at all times after
the occurrence and during the continuance of an Event of Default to notify (a) Account Debtors
owing Accounts to Issuer other than Medicaid/Medicare Account Debtors that their Accounts have been
assigned to the Collateral Agent and to collect such Accounts directly in its own name and to
charge collection costs and expenses, including reasonable attorney’s fees, to Issuer, and (b)
Medicaid/Medicare Account Debtors that Issuer has waived any and all defenses and counterclaims it
may have or could interpose in any such action or procedure brought by the Collateral Agent to
obtain a court order recognizing the collateral assignment or security interest and lien of the
Collateral Agent in and to any Account or other Collateral and that the Collateral Agent is seeking
or may seek to obtain a court order recognizing the collateral assignment or security interest and
lien of the Collateral Agent in and to all Accounts and other Collateral payable by
Medicaid/Medicare Account Debtors.

               (v) As and when determined by the Collateral Agent in its sole discretion but not more often
than four (4) times per year prior to the occurrence and continuance of an Event of Default, the
Collateral Agent will perform the searches described in clauses (a), (b) and (c) below against
Issuer, all at Issuer’s expense: (a) UCC searches with the Secretary of State of the jurisdiction
of organization of each Issuer and the Secretary of State and local filing offices of each
jurisdiction where Issuer maintain their respective executive offices, a place of business or
assets; (b) lien searches with the United States Patent and Trademark Office and the United States
Copyright Office; and (c) judgment, federal tax lien and corporate and partnership tax lien
searches, in each jurisdiction searched under clause (a) above.

               (vi) Issuer (a) shall provide prompt written notice to its current bank to transfer all items,
collections and remittances to the Concentration Account, (b) shall provide prompt written notice
to each Account Debtor (other than Medicaid/Medicare Account Debtors) that the Collateral Agent has
been granted a lien and security interest in, upon and to all Accounts applicable to such Account
Debtor and shall direct each Account Debtor to make payments to the appropriate Lockbox Account,
and Issuer hereby authorizes the Collateral Agent, upon any failure to send such notices and
directions within ten (10) calendar days after the date of this Agreement (or ten (10) calendar
days after the Person becomes an Account Debtor), to send any and all similar notices and
directions to such Account Debtors, and (c) shall do anything further that may be lawfully required
by the Collateral Agent to create and perfect the Collateral Agent’s lien on any collateral and
effectuate the intentions of the Loan Documents. At the Collateral Agent’s request, Issuer shall
immediately deliver or make arrangements to deliver to the Collateral Agent all items for which the
Collateral Agent must receive possession to obtain a perfected security interest and all notes,
certificates, and documents of title, Chattel Paper, warehouse receipts, Instruments, and any other
similar instruments constituting Collateral.

          (e) Power of Attorney. The Collateral Agent is hereby irrevocably made, constituted
and appointed the true and lawful attorney for Issuer (without requiring the Holder to act as such)
with full power of substitution to do the following: (i) endorse the name of any such Person upon
any and all checks, drafts, money orders, and other instruments for the

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payment of money that are payable to such Person and constitute collections on its or their
Accounts; (ii) execute in the name of such Person any financing statements, schedules, assignments,
instruments, documents, and statements that it is or they or are obligated to give the Collateral
Agent under any of the Transaction Documents (as defined in the Purchase Agreement); and (iii) do
such other and further acts and deeds in the name of such Person that the Collateral Agent may deem
necessary or desirable to enforce any Account or other Collateral or to perfect the Collateral
Agent’s security interest or Lien in any Collateral. In addition, if any such Person breaches its
obligation hereunder to direct payments of Accounts or the proceeds of any other Collateral to the
appropriate Lockbox Account, the Collateral Agent, as the irrevocably made, constituted and
appointed true and lawful attorney for such Person pursuant to this paragraph, may, by the
signature or other act of any of the Collateral Agent’s officers or authorized signatories (without
requiring any of them to do so), direct any federal, state or private payor or fiscal intermediary
to pay proceeds of Accounts or any other Collateral to the appropriate Lockbox Account.

          (f) Intercreditor Agreement. This Note and all rights, remedies and obligations under
this Note are subject to the Intercreditor Agreement, dated as of the date hereof, by and among the
Holders, the Collateral Agent and Capital Source Finance LLC in the form attached hereto as
Exhibit B (the “Intercreditor Agreement”). The parties to this Agreement and all
Persons claiming any right under or in respect of this Agreement are bound by and (to the extent
provided in the Intercreditor Agreement) entitled to the benefit of the Intercreditor Agreement.

          (g) Acknowledgement of Joint and Several Liability. Each Issuer acknowledges that it
is jointly and severally liable for all of the obligations under the Notes. Each Issuer expressly
understands, agrees and acknowledges that (i) Issuers are all Affiliated entities by common
ownership, (ii) each Issuer desires to have the availability of one common issuance of Notes
instead of separate issuances, (iii) each Issuer has requested that the Holder purchase the Note on
the terms herein provided, (iv) Holders will be relying on a Lien upon, all of Issuers’ assets even
though the proceeds of any particular Note may not be advanced directly to a particular Issuer, (v)
each Issuer will nonetheless benefit by the issuance of the Notes to the Holders, and (vi) all of
the representations, warranties, covenants, obligations, conditions, agreements and other terms
contained in the Transaction Documents relating to the Notes shall be applicable to and shall be
binding upon each Issuer.

     5. Redemption.

          (a) Optional Redemption.

               (i) On or prior to the first anniversary of the date hereof, under certain circumstances and
in accordance with certain procedures to be agreed upon between the Issuers and the Holders, the
Issuers shall at the option of the Holder (delivered by notice to the Issuers at least two (2)
Business Days prior to the redemption date) (a) pay to the Holder, the outstanding principal amount
of the Note, plus accrued and unpaid interest thereon, through the redemption date (the “Par
Redemption Price”), and issue to the Holder a warrant to purchase the number of shares of
Common Stock equal to the number of Conversion Shares that the Holder would have been entitled to
receive had it converted the Note immediately prior to such

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redemption date (without taking into account any limitations or restrictions on the
convertibility of the Note), which shall have an exercise price equal to the applicable Conversion
Price and shall be exercisable until the Maturity Date, substantially in the form attached as
Exhibit C (the “Redemption Warrant”), or (b) pay to the Holder an amount equal to
110% of the aggregate outstanding principal amount of the Notes, plus accrued and unpaid interest
thereon, if any, through the redemption date (the “Premium Redemption Price”).

               (ii) At any time after the first anniversary of date hereof, under certain circumstances and
in accordance with certain procedures to be agreed upon between the Issuers and the Holders, the
Issuers shall at the option of the Holder (delivered by notice to the Issuers at least two (2)
Business Days prior to the redemption date) (a) pay to the Holder the Par Redemption Price and
issue to the Holder a Redemption Warrant, or (b) pay to the Holder the Premium Redemption Price.

          (b) Redemption upon Change of Control. Notwithstanding anything to the contrary
contained herein, prior to the occurrence of a Change of Control or in anticipation of a Change of
Control, the Issuers shall notify the Holders thereof. Upon the occurrence of or in anticipation
of a Change of Control contemplated by clauses (i) or (iii) in the definition of Change of Control
below, the Issuers shall have the option to redeem all, or any portion, of the outstanding Notes by
paying to the Holder the Premium Redemption Price. Upon the occurrence or in anticipation of any
Change of Control, in the event that the Issuers had the option, but do not elect such option, or
in the event that the Holder has the sole option, the Holder shall have the option to cause the
Issuers (or the surviving corporation) to (a) redeem all, or any portion, of the outstanding Notes
by paying to the Holder the Premium Redemption Price and/or (b) have the surviving corporation in
such Change of Control assume the Notes.

     A “Change of Control” shall be deemed to have occurred when (i) any person (as defined
in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision to either of
the foregoing), other than a person who currently beneficially owns 25% or more of the combined
voting power of Common Stock, becomes the beneficial owner (as the term “beneficial owner” is
defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of
a majority of the combined voting power of the Common Stock; (ii) there shall have occurred under
the Credit Agreement, any indenture or other instrument evidencing any indebtedness or preferred
equity of the Company any “change of control” (or similar term as defined in such indenture or
other evidence of indebtedness or preferred equity) obligating the Company to repurchase, redeem or
repay all or any part of the indebtedness or capital stock provided for therein; (iii) the Company
merges or consolidates with or into another Person as a result of which the stockholders of the
Company immediately prior to the consummation of such transaction do not own at least 50% of the
outstanding voting securities of the remaining, consolidated or successor entity, as the case may
be, or the Company sells or disposes of all or substantially all of its assets to any Person; (iv)
the liquidation, dissolution, or the winding up of the affairs of the Company; or (v) during any
calendar year, individuals who at the beginning of such period constituted the Company’s board of
directors (and any new members of such board of directors whose election by the Company’s board of
directors or whose nomination for election by the Company’s stockholders was approved by a vote of
a majority of the members of such board of directors then still in office who either were directors

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at the beginning of such period or whose election or nomination for election was previously so
approved), cease for any reason to constitute a majority of the Company’s board of directors.

          (c) Partial Redemption.

               (i) On February 28, 2010, and from time to time thereafter, the Issuers shall redeem that
portion of the Notes as is necessary to ensure that the Notes shall not be considered an
“applicable high yield discount obligation” within the meaning of Sections 163(e)(5) and 163(i) of
the Internal Revenue Code of 1986, as amended or any successor provisions thereof.

               (ii) The Notes shall be redeemed on a pro-rata basis and in portions of the principal of Notes
that have denominations of $1,000 principal amount or multiples thereof. Notes in denominations
larger than $1,000 principal amount may be redeemed in part but only in whole multiples of $1,000.

               (iii) Upon the partial redemption of the Note, the Issuers shall (i) pay to the Holder a
percentage of the Par Redemption Price equal to the Par Redemption Price multiplied by a fraction,
the numerator of which shall be the principal amount of the Note being redeemed and the denominator
of which shall be the principal amount of the Note immediately prior to the redemption date, and
(ii) issue a new Note in the form hereof representing the balance of the principal amount hereof
not redeemed and change the Conversion Price in accordance with Section 3(d)(vii) such that such
new Note will be convertible into the number of shares of Common Stock equal to the number of
Conversion Shares that the Holder would have been entitled to receive had it converted the Note
immediately prior to such redemption.

          (d) Mandatory Redemption Upon Warrant Redemption.

               (i) Upon a redemption of the outstanding Warrants pursuant to Section 6 of the Warrant
Agreement which results in the exercise of at least three quarters of the Warrants outstanding as
of the date hereof (as may be adjusted pursuant to stock splits, dividends, combinations or other
adjustments pursuant to Section 4 of the Warrant Agreement) for cash, the Holders, by sending
written notice within 60 days after the Warrant redemption date (“Mandatory Repurchase
Notice”), shall have the right to require the Issuers to repurchase shares of Common Stock
equal to such number of shares of Common Stock that would be receivable upon conversion of the
Notes in an amount up to $5,000,000 in the aggregate. The price per share of such Common Stock
shall be the average Daily Market Price of Common Stock during the ten (10) Trading Days preceding
such Mandatory Repurchase Notice (the “Put Payment”); provided, however, in
no event shall the Put Payment be less than $8.50 per share; provided, further,
that in no event shall the aggregate Put Payment for all of such shares of Common Stock exceed 25%
of the cash proceeds of the Warrants exercised pursuant to the redemption.

               (ii) Upon the receipt of notice from a Holder of a Mandatory Repurchase Notice, the Company
shall promptly, but in no event later than two (2) business days after the receipt thereof, deliver
a copy of such notice to the other Holders. For a period of five (5) Business Days following its
receipt of such Mandatory Repurchase Notice, each other Holder shall have the right and option (but
not the obligation) to also exercise a Put Payment right by

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delivering a Mandatory Repurchase Notice. If the Holders electing to exercise their Put
Payment right elect to put more than the aggregate amount of shares that the Company is required to
repurchase pursuant to Section 5(d)(i), then each Holder delivering a Mandatory Repurchase Notice
shall be entitled to require the Company to repurchase that number of shares of Common Stock
calculated by multiplying the aggregate number of shares of Common Stock that the Company is
required to repurchase pursuant to Section 5(d)(i) by a fraction the numerator of which is equal to
the number of shares of Common Stock elected to be repurchased from such Holder and the denominator
of which is equal to the total number of shares of Common Stock elected to be repurchased by all
Holders that elect to exercise their Put Payment right. Each Mandatory Repurchase Notice shall
include the number of shares of Common Stock desired to be put to the Company and the value thereof
as of the date of such notice.

          (e) Redemption Procedures.

               (i) Notice to Holders Upon Redemption. In the case of a redemption pursuant to
Sections 5(a), 5(b) or 5(c), at least 30 days prior to a redemption date of Notes, except in the
case of Section 5(c) for which at least 60 days prior to such redemption date of Notes, the Company
shall mail a notice of redemption by first-class mail to each Holder of Notes at such Holder’s
registered address.

          The notice shall identify the amount Notes to be redeemed and shall state:

   (A) the redemption date;

   (B) the applicable subsection of Section 5 pursuant to which the redemption
will occur;

   (C) if applicable, the Redemption Price and the number of shares into which the
Redemption Warrant will be exercisable, on the redemption date;

   (D) if applicable, the Premium Redemption Price on the redemption date;

   (E) if redemption will occur pursuant to Section 5(c), the Notes or portions of
Notes to be redeemed, the Redemption Price and the new Conversion Price that will be
in effect for each of the remaining Notes;

   (F) that Notes called for redemption must be surrendered to the Company to
collect the consideration (or if to an agent of the Company, the name and address of
the agent where the Notes must be surrendered); and

   (G) that, unless the Company defaults in making such redemption payment
interest on the Notes (or portion thereof) called for redemption ceases to accrue on
and after the redemption date.

               (ii) Such notice shall be accompanied by a certificate of an officer of the Company and a
written opinion from legal counsel from the Company to the effect that such redemption will comply
with the conditions herein.

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               (iii) Once notice of redemption is mailed, Notes called for redemption become due and payable
on the redemption date. Upon surrender to the Company, the consideration shall be delivered as
stated in the notice. Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.

               (iv) Holders shall be required to surrender the Notes being purchased by the Company, with an
appropriate form duly completed, to the Company at the address specified in the notice of
redemption. Holders whose Notes are purchased only in part shall be issued new Notes equal in
principal amount to the unpurchased portion of the Securities surrendered.

               (v) If any Note surrendered for redemption in the manner provided herein shall not be so paid
on the redemption date due to the failure of the Company to deliver the required consideration,
interest shall continue to accrue from the redemption date until such consideration is delivered,
with such consideration being based on the unpaid principal and, to the extent lawful, on any
interest not paid on such unpaid principal, in each case at the date and in the manner provided in
the Notes which were to be redeemed.

               (vi) Any redemption shall be conditioned upon and occur either concurrently with or
immediately prior to or after the consummation of the transaction, including without limitation a
Change of Control, related to such redemption.

               (vii) Holders shall have the right to convert the Notes or any portion thereof in accordance
with Section 3 at any time prior to the actual redemption of the Notes or applicable portion of the
Notes, including without limitation, during the thirty (30) day (or, in the case of Section 5(c),
sixty (60) day) notice period under this Section 5(e).

          (f) Tax Put Right.

               (i) For 30 days following a redemption in which the Holder receives Redemption Warrants, (A)
the Holder shall have a right (the “Tax Put Right”) by written notice to the Company (which
such notice shall include the number of shares of Common Stock desired to be put to the Company and
the value thereof as of the date of such notice) to require the Issuers to purchase an amount of
shares of Common Stock from the Holder, based on the average Daily Market Price during the ten (10)
Trading Days prior to such redemption, that is equal to an amount of up to $5,000,000 in the
aggregate for all such redemptions for all Holders of all Notes and (B) if the amount received by
the Holder after exercising its rights up to the maximum aggregate amount pursuant to clause (A)
is, when combined with the consideration received by the Holder upon redemption of the Convertible
Notes, still insufficient to pay the income taxes relating to the redemption, the receipt of the
Redemption Warrants and the exercise of the Tax Put Right, then, upon receipt of written notice
from the Holder (or any other Holder of Notes) of such insufficiency, the Company shall use
commercially reasonable efforts to file one registration statement for all Holders of Notes
(regardless of the number of redemptions) as soon as reasonably practicable after such redemption
but in any event within thirty (30) days after such redemption and cause such registration
statement to be declared effective as soon as practicable after such filing but in any event within
sixty (60) days after such filing, failing

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which the Holders of all Notes shall have an additional Tax Put Right in the amount of up to
$2,500,000 in the aggregate for all such redemptions.

               (ii) Upon the receipt of notice from a Holder that such Holder has elected to exercise its Tax
Put Right, the Company shall promptly, but in no event later than two (2) business days after the
receipt thereof, deliver a copy of such notice to the other Holders. For a period of five (5)
Business Days following its receipt of a Tax Put Right notice, each other Holder shall have the
right and option (but not the obligation) to also exercise a Tax Put Right by delivering written
notice thereof (which such notice shall include the number of shares of Common Stock desired to be
put to the Company and the value thereof as of the date of such notice). If the Holders electing
to exercise their Tax Put Right elect to put more than the aggregate amount of shares that the
Company is required to repurchase pursuant to Section 5(f)(i), then each Holder delivering a Tax
Put Right notice shall be entitled to require the Company to repurchase that number of shares of
Common Stock calculated by multiplying the aggregate number of shares of Common Stock that the
Company is required to repurchase pursuant to Section 5(f)(i) by a fraction the numerator of which
is equal to the number of shares of Common Stock elected to be repurchased from such Holder and the
denominator of which is equal to the total number of shares of Common Stock elected to be
repurchased by all Holders that elect to exercise their Tax Put Right.

     6. Covenants.

          (a) Reservation of Conversion Shares. The Company agrees that it will at all times
reserve and keep available out of its authorized shares of Common Stock, free from preemptive
rights, solely for the purpose of issue upon conversion of the Notes and issuances of shares of
Common Stock in accordance with the terms hereof. The Company agrees that the Conversion Shares
shall, when issued, be duly and validly issued and fully paid and non-assessable.

          (b) Required Registration. The Company agrees that if any Conversion Shares require
registration with or approval of any governmental authority under any Federal or state law, or any
national securities exchange, before such shares may be issued upon conversion, the Company will
use its best efforts to cause such shares to be duly registered or approved, as the case may be.

          (c) Limitation on Senior Indebtedness. The Issuers agree that so long as any Notes
shall remain outstanding, the Issuers and their Subsidiaries, on a consolidated basis, shall not
directly or indirectly incur, create, assume, guarantee, become liable, contingently or otherwise,
with respect to, or otherwise become responsible for the payment of, including, without limitation,
by way of assumption or acquisition in a business combination (each event, an “incurrence”)
any Indebtedness other than (i) the Notes, (ii) Senior Indebtedness (not including the Notes) not
to exceed $20,000,000 in the aggregate; provided, however, if the Issuers achieve
an LTM EBITDA of $10,000,000 for two (2) consecutive quarters, the Issuers shall be permitted to
incur up to $25,000,000 in Senior Indebtedness (not including the Notes) in the aggregate; and
(iii) any Indebtedness that is by its terms expressly subordinated to the Notes, including without
limitation, in right of payment or Lien priority on terms satisfactory to the

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Holders of a majority of the principal amount and interest of the Notes outstanding, in their
sole discretion.

          (d) Limitation on Liens. The Issuers shall not create, incur, assume or suffer to
exist any Lien upon, in or against, or pledge of, any of the Collateral or any of its properties or
assets or any of its authorized but unissued or treasury shares, securities or other equity or
ownership or partnership interests, whether now owned or hereafter acquired, except for Permitted
Liens.

          (e) Right to Cure Default of First Priority Lien Indebtedness. The Issuers agree
that, upon any default, breach, violation, event, fact or circumstance under any First Priority
Lien Indebtedness (including a Default or Event of Default under the Credit Agreement, as defined
therein) which, with the giving of applicable notice or passage of time or both, would permit the
holder of such Indebtedness to declare a default or otherwise accelerate amounts due thereunder,
which the Issuers have not cured within the permitted time period and RGGPLS Holding Inc. or an
RGGPLS Permitted Assignee (as defined below) have not elected, within five (5) Business Days of any
such event, to repay, refinance or replace such Indebtedness or otherwise cure or provide funding
to the Company for the purposes of curing such default (the “RGGPLS Cure”), MHR Fund
Management LLC, its Affiliates, and any Person, directly or indirectly, managed or controlled by
MHR Fund Management LLC or its Affiliates, including without limitation, MHR Capital Partners LP
and OTQ LLC (collectively “MHR”) shall have the right, but not the obligation, to fund the
repayment of such Indebtedness (including, without limitation, by way of purchasing interests in
the loans under the Credit Agreement) or otherwise cure such default within five (5) Business Days
of the earlier of (i) the expiration of the RGGPLS Cure period above and (ii) the receipt of notice
from RGGPLS Holding, Inc. or any RGGPLS Permitted Assignee that it has elected not to pursue an
RGGPLS Cure. The Company shall give MHR written notice of any such default promptly after the
occurrence thereof, but in no event later than two (2) Business Days after the occurrence of any
such default. For purposes of the foregoing, an “RGGPLS Permitted Assignee” shall mean the
surviving entity in a reorganization or recapitalization of RGGPLS, including without limitation,
by way of merger or consolidation with or into another person or entity, if the percentage interest
of the members or stockholders, as the case may be, in the equity interests of the surviving entity
following consummation of such transaction is substantially the same (on a relative basis) as each
such stockholder’s percentage interest in RGGPLS immediately prior to the consummation of such
transaction.

          (f) No Dividends on Capital Stock. The Issuers agree that so long as any Notes shall
remain outstanding, the Company shall not declare or pay any cash dividends or otherwise make any
distributions of cash, property or other assets with respect to capital stock of the Company
without the written consent of each of the Holders.

     7. Transfer of Note. Upon due presentment for registration of transfer of this Note,
the Company will execute, register and deliver in exchange a new Note equal in aggregate principal
amount to the then unpaid principal amount of this Note, dated the date to which interest has been
paid and registered in the name of the transferee.

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     8. Governing Law. This Note shall be governed by and construed in accordance with the
domestic substantive laws of the State of New York, without giving effect to any choice or conflict
of law provision or rule that would cause the application of the laws of any other jurisdiction.

     9. Jurisdiction. The Issuers irrevocably consent to the jurisdiction of the United
States federal courts and the state courts located in the County of New York, State of New York in
any suit or proceeding based on or arising under this Note and irrevocably agrees that all claims
in respect of such suit or proceeding may be determined in such courts. The Issuers irrevocably
waive the defense of an inconvenient forum to the maintenance of such suit or proceeding. The
Issuers further agree that service of process upon the Issuers mailed by first class mail shall be
deemed in every respect effective service of process upon the Issuers in any such suit or
proceeding. The Issuers agree that a final non-appealable judgment in any such suit or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner. Nothing herein shall affect the right of the Holder to institute suit and
conduct an action in any other appropriate manner, jurisdiction or court or to serve process in any
other manner permitted by law.

     10. Notices. All notices and other communications given to any party hereto pursuant
to this Note shall be in writing and shall be delivered, or mailed first class postage prepaid,
registered or certified mail, addressed as follows:

	 	 	 	 	 	 	 
	 	 	(a)	 	If to the Issuers, to:
	 
	 	 	 	 	 	 
	

	 	 	 	 	 	NationsHealth, Inc.
	

	 	 	 	 	 	13650 N.W. 8th Street
	

	 	 	 	 	 	Suite 109
	

	 	 	 	 	 	Sunrise, FL 33325
	

	 	 	 	 	 	Fax number: (954) 903-5005
	

	 	 	 	 	 	Attention: President
	 
	 	 	 	 	 	 
	

	 	 	 	 	 	with a copy to:
	 
	 	 	 	 	 	 
	

	 	 	 	 	 	McDermott Will & Emery LLP
	

	 	 	 	 	 	201 South Biscayne Blvd.
	

	 	 	 	 	 	Miami, Florida 33131
	

	 	 	 	 	 	Fax number: (305) 347-6500
	

	 	 	 	 	 	Attention: Ira J. Coleman, Esq.
	 
	 	 	 	 	 	 
	 	 	(b)	 	If to the Holder, to:
	 
	 	 	 	 	 	 
	

	 	 	 	 	 	MHR Fund Management LLC
	

	 	 	 	 	 	40 West 57th Street, 24th Floor,
	

	 	 	 	 	 	New York, NY 10019
	

	 	 	 	 	 	Fax number: (212) 262-9356
	

	 	 	 	 	 	Attention: Hal Goldstein and Emily Fine

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	 	 	 	 	 	with a copy to:
	 
	 	 	 	 	 	 
	

	 	 	 	 	 	Stroock & Stroock & Lavan LLP
	

	 	 	 	 	 	180 Maiden Lane
	

	 	 	 	 	 	New York, NY 10038
	

	 	 	 	 	 	Fax number: (212) 806-6006
	

	 	 	 	 	 	Attention: Patricia M. Perez, Esq.

Each such notice or other communication shall for all purposes be treated as being effective or
having been given when delivered, if delivered personally, by e-mail or facsimile with confirmation
of receipt or by overnight courier or, if sent by mail, at the earlier of its actual receipt or
three (3) days after the same has been deposited in a regularly maintained receptacle for the
deposit of United States mail, addressed and postage prepaid as aforesaid.

     11. Company’s Waivers. The Issuers, to the extent permitted by law, waive and agree
not to assert or take advantage of any of the following: (a) any defense based upon an election of
remedies by the Holder which may destroy or otherwise impair any subrogation or other rights of the
Issuers or any guarantor or endorser of this Note; (b) any duty on the part of the Holder to
disclose any facts or other data the Holder may now or hereafter know; (c) acceptance or notice of
acceptance of this Note by the Issuers; (d) presentment and/or demand for payment of this Note or
any indebtedness or obligations hereby promised; and (e) protest and notice of dishonor with
respect to this Note or any indebtedness or performance of obligations arising hereunder.

     12. Amendment; Waiver. All amendments or waivers of any of the terms hereof
(including, without limitation, any waiver of acceleration of the Maturity Date) and any payment of
this Note with any consideration other than cash, shall be made or effected only with the written
consent of the Holders of a majority of the principal amount and interest of the Notes outstanding.
No failure or delay on the part of any Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any other right, power
or privilege.

     13. Replacement of Note. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Note by the Holder, the Company
shall issue a replacement instrument, at the Company’s expense, representing such Note in lieu of
such lost, stolen, destroyed, or mutilated instrument, provided that the Holder agrees to
indemnify the Company for any losses incurred by the Company with respect to such lost instrument
(other than the cost of issuing the new instrument).

     14. Headings. The headings of the sections of this Note are inserted for convenience
only and do not constitute a part of this Note.

     15. Ranking. The Notes shall rank senior in right of payment or pari passu to any
Indebtedness and future Indebtedness of the Issuers other than the Senior Indebtedness permitted by
Section 6(c) and in the Intercreditor Agreement.

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     16. Assignability. This Note shall be binding upon the Issuers and their successors
and assigns and shall inure to the benefit of the Holder and its successors and assigns.
Notwithstanding anything to the contrary contained herein or in the Transaction Documents, this
Note may be pledged and all rights of the Holder under this Note may be assigned to any Affiliate
or to any other person or entity without the consent of the Issuers, subject to the Securities Act
of 1933.

     17. Cost of Collection. If default is made in the payment of this Note, the Issuers
shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

     18. Remedies Cumulative. The remedies provided in this Note shall be cumulative and
in addition to all other remedies available under this Note, at law or in equity (including a
decree of specific performance and/or other injunctive relief), and nothing herein shall limit a
Holder’s right to pursue actual damages for any failure by the Issuers to comply with the terms of
this Note. The Issuers acknowledge that a breach by them of their obligations hereunder will cause
irreparable harm to the Holder of the Note and that the remedy at law for any such breach may be
inadequate. The Issuers therefore agree, in the event of any such breach or threatened breach,
that the Holder of the Note shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic loss and without any
bond or other security being required.

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     IN WITNESS WHEREOF, the Company has caused this Note to be signed and to be dated the day and
year first above written.

	 	 	 	 	 
	 	NATIONSHEALTH, INC.

 	 
	 	By:	  /s/  Glenn Parker	 
	 	 	Name:	 Glenn Parker, M.D.	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	NATIONSHEALTH HOLDINGS, L.L.C.

 	 
	 	By:	  /s/  Glenn Parker	 
	 	 	Name:	 Glenn Parker, M.D.	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	UNITED STATES PHARMACEUTICAL GROUP, L.L.C.

 	 
	 	By:	  /s/  Glenn Parker	 
	 	 	Name:	 Glenn Parker, M.D.	 
	 	 	Title:  	 	 

[Signature Page to Note]

 

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EXHIBIT A

	 	 	 	 	 
	

	 	 	 	NOTICE OF CONVERSION
	 

	 	To:
	 	NationsHealth, Inc.
	

	 	 	 	13650 N.W. 8th Street
	

	 	 	 	Sunrise, FL 33325
	

	 	 	 	Fax number: (954) 903-5005
	

	 	 	 	Attention: President

The undersigned hereby irrevocably elects to convert $___principal amount of the Note
(the “Conversion”), into shares of common stock (“Common Stock”) of NationsHealth,
Inc. (the “Company”) according to the conditions of the 7 3/4% Convertible Secured
Promissory Note dated February 28, 2005 (the “Note”), as of the date written below. A copy
of the Note is attached hereto (or evidence of loss, theft or destruction thereof).

[The Company shall electronically transmit the Common Stock issuable pursuant to this Notice of
Conversion to the account of the undersigned or its nominee (which is ___) with DTC
through its Deposit Withdrawal Agent Commission System (“DTC Transfer”).]

In the event of partial exercise, please reissue an appropriate Note(s) for the principal balance
which shall not have been converted.

Check Box if Applicable:

	 	 	 
	o

	 	In lieu of receiving the shares of Common Stock issuable pursuant to this Notice of
Conversion by way of DTC Transfer, the undersigned hereby requests that the Company issue
and deliver to the undersigned or its nominee (if applicable) physical certificates
representing such shares of Common Stock.

Date of Conversion:                                                            

Applicable Conversion Price:                                                             

Amount of Accrued and Unpaid Interest

on the Principal Amount to be converted,

if any:           
                                                                      

Default Amount to be converted, if any:

Number of Shares of

Common Stock to be Issued:                                        

Signature:                                                                           
     

Name:                                                                              
  

Address:                                                                                

 

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EXHIBIT B

Senior Subordination
Agreement

(referred to as the
Intercreditor Agreement)

 

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EXHIBIT C

Form of Redemption Warrant

 

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WARRANT AGREEMENT

Dated as of ___________ __, ____

by and between

NATIONSHEALTH, INC.

and

[____________________________]

as Warrant Agent

 

 

 

 

 

TABLE OF CONTENTS1

	 	 	 	 	 
	 	 	Page	 
	TABLE OF CONTENTS
	 	 	i	 
	SECTION 1. Appointment of Warrant Agent
	 	 	1	 
	SECTION 2. Warrant Certificates
	 	 	1	 
	SECTION 3. Execution of Warrant Certificates
	 	 	1	 
	SECTION 4. Registration and Countersignature
	 	 	2	 
	SECTION 5. Registration of Transfers and Exchanges
	 	 	2	 
	SECTION 6. Terms of Warrants; Exercise of Warrants
	 	 	3	 
	SECTION 7. Reports
	 	 	4	 
	SECTION 8. Payment of Taxes
	 	 	5	 
	SECTION 9. Mutilated or Missing Warrant Certificates
	 	 	5	 
	SECTION 10. Reservation of Warrant Shares
	 	 	5	 
	SECTION 11. Obtaining Stock Exchange Listings
	 	 	7	 
	SECTION 12. Adjustment of Exercise Price and Number of Warrant Shares Issuable
	 	 	7	 
	SECTION 13. No Dilution or Impairment
	 	 	16	 
	SECTION 14. Fractional Interests
	 	 	16	 
	SECTION 15. Notices to Warrant Holders
	 	 	16	 
	SECTION 16. Merger, Consolidation or Change of Name of Warrant Agent
	 	 	18	 
	SECTION 17. Warrant Agent
	 	 	18	 
	SECTION 18. Change of Warrant Agent
	 	 	19	 
	SECTION 19. Notices to the Company and Warrant Agent
	 	 	20	 
	SECTION 20. Supplements and Amendments
	 	 	21	 
	SECTION 21. Successors
	 	 	21	 
	SECTION 22. Termination
	 	 	21	 
	SECTION 23. Governing Law: Jurisdiction
	 	 	21	 
	SECTION 24. Benefits of This Agreement
	 	 	21	 
	SECTION 25. Counterparts
	 	 	22	 
	SECTION 26. Further Assurances
	 	 	22	 
	 
	 	 	 	 
	EXHIBIT A — Form of Initial Warrant Certificate       A-1
	 	 	 	 

	1	 	This Table of Contents does not constitute a part of
this Agreement or have any bearing upon the interpretation of any of its terms
or provisions.

 

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     WARRANT AGREEMENT
dated as of [____________] [___], [_____], between NATIONSHEALTH, INC., a
Delaware corporation (the “Company”), and [__________________], as Warrant Agent
(the “Warrant Agent”).

     WHEREAS, pursuant to the terms and conditions of those certain 7 3/4% Convertible Secured
Notes of the Company, dated as of February 28, 2005 (the “Notes”), the Company is required
under certain circumstances to issue the warrants, as hereinafter described (the
“Warrants”), to purchase shares of Common Stock, par value $.0001 per share (the
“Common Stock”), of the Company (the “Warrant Shares”); and

     WHEREAS, each Warrant entitles the holder of the Warrant, upon exercise to receive from the
Company, as adjusted as provided herein, one fully paid and nonassessable share of Common Stock of
the Company at the Exercise Price (as defined herein); and

     WHEREAS, the Warrants shall bear the legend set forth in the form of Warrant Certificate in
Exhibit A attached hereto (the “Warrant Legend”) subject to the terms of the Warrant
Agreement; and

     WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the
Warrant Agent is willing so to act, in connection with the issuance of Warrant certificates and
other matters as provided herein.

     NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth,
the parties hereto agree as follows:

          SECTION 1. Appointment of Warrant Agent. The Company hereby appoints the Warrant
Agent to act as agent for the Company in accordance with the instructions set forth hereinafter in
this Agreement, and the Warrant Agent hereby accepts such appointment.

          SECTION 2. Warrant Certificates. The certificates evidencing the Warrants to be
delivered pursuant to this Agreement shall be in registered form only and shall be substantially in
the form set forth in Exhibit A attached hereto.

          SECTION 3. Execution of Warrant Certificates. Warrant certificates shall be signed on
behalf of the Company by its Chairman of the Board, Chief Executive Officer, President or Vice
President and Secretary or an Assistant Secretary under its corporate seal. Each such signature
upon the Warrant certificates may be in the form of a facsimile signature of the present or any
future Chairman of the Board, Chief Executive Officer, President or Vice President and Secretary or
Assistant Secretary and may be imprinted or otherwise reproduced on the Warrant certificates and
for that purpose the Company may adopt and use the facsimile signature of any person who shall have
been Chairman of the Board, Chief Executive Officer, President or Vice President and Secretary or
Assistant Secretary, notwithstanding the fact that at the time the Warrant certificates shall be
countersigned and delivered or disposed of he or she shall have ceased to hold such office, so long
as, and the Company hereby represents that, under the Company’s charter and by-laws, any Warrants
or Warrant Shares so issued would be validly issued. The seal of the Company may be in the form of
a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Warrant
certificates.

 

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     In case any officer of the Company who shall have signed any of the Warrant certificates shall
cease to be such officer before the Warrant certificates so signed shall have been countersigned by
the Warrant Agent, or disposed of by the Company, such Warrant certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased to be such officer
of the Company; so long as, and the Company hereby represents that, under the Company’s charter and
by-laws, any Warrants or Warrant Shares so issued would be validly issued; and any Warrant
certificate may be signed on behalf of the Company by any person who, at the actual date of the
execution of such Warrant certificate, shall be a proper officer of the Company to sign such
Warrant certificate, although at the date of the execution of this Warrant Agreement any such
person was not such officer, so long as, and the Company hereby represents that, under the
Company’s charter and by-laws, any Warrants or Warrant Shares so issued would be validly issued.

     Warrant certificates shall be dated the date of countersignature by the Warrant Agent and
shall represent one or more whole Warrants. The maximum number of Warrants that may be issued
hereunder is equal to the maximum number of such Warrants that are required to be issued pursuant
to the Notes.

          SECTION 4. Registration and Countersignature. The Warrant Agent, on behalf of the
Company, shall number and register the Warrant certificates in a register as they are issued by the
Company.

     Warrant certificates shall be manually countersigned by the Warrant Agent and shall not be
valid for any purpose unless so countersigned. The Warrant Agent shall, upon written instructions
of the Chairman of the Board, Chief Executive Officer, President, Vice President and Secretary or
Assistant Secretary of the Company, initially countersign and deliver Warrants entitling the
holders thereof to purchase not more, nor less, than the number of Warrant Shares referred to above
in the second recital hereof (but subject to adjustment as hereinafter provided) and shall
countersign and deliver Warrants as otherwise provided in this Agreement.

     The Company and the Warrant Agent may deem and treat the registered holder(s) of the Warrant
certificates as the absolute owner(s) thereof (notwithstanding any notation of ownership or other
writing thereon made by anyone), for all purposes, and neither the Company nor the Warrant Agent
shall be affected by any notice to the contrary except as provided in Section 5 hereof.

          SECTION 5. Registration of Transfers and Exchanges. This Warrant certificate is
freely transferable to any Person subject to the requirements of applicable law. The Warrant Agent
shall from time to time register the transfer of any outstanding Warrant certificates upon the
records to be maintained by it for that purpose, upon surrender thereof accompanied by a written
instrument or instruments of transfer in form satisfactory to the Warrant Agent, duly executed by
the registered holder or holders thereof or by the duly appointed legal representative thereof or
by a duly authorized attorney. Upon any such registration of transfer, a new Warrant certificate
shall be issued to the transferee(s) and the surrendered Warrant certificate shall be cancelled by
the Warrant Agent. Cancelled Warrant certificates shall thereafter be disposed of by the Company
in accordance with applicable law.

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     Warrant certificates may be exchanged at the option of the holder(s) thereof, when surrendered
to the Warrant Agent at its office for another Warrant certificate or other Warrant certificates of
like tenor and representing in the aggregate a like number of Warrants. Warrant certificates
surrendered for exchange shall be cancelled by the Warrant Agent. Such cancelled Warrant
certificates shall then be disposed of by the Company in accordance with applicable law.

     No service charge shall be made for any transfer or exchange of Warrant certificates, but the
Company may require payment of a sum sufficient to cover any stamp or other governmental charge or
tax that may be imposed in connection with any such transfer or exchange.

     The Warrant Agent is hereby authorized to countersign, in accordance with the provisions of
this Section 5, the new Warrant certificates issued pursuant to the provisions of this Section 5.

          SECTION 6. Terms of Warrants; Exercise of Warrants. Subject to the terms of this
Agreement, each Warrant holder shall have the right, which may be exercised from the date of
original issuance of the Warrant certificates pursuant to the terms of this Agreement and prior to
5:00 p.m. New York city time on the February 28, 2012 (the “Expiration Date”), to exercise
each Warrant and receive from the Company the number of fully paid and nonassessable Warrant Shares
which the holder may at the time be entitled to receive on exercise of such Warrants and payment of
the Exercise Price (as herein defined) then in effect for such Warrant Shares. Each Warrant, when
exercised will entitle the holder thereof to purchase one fully paid and nonassessable share of
Common Stock at the Exercise Price. Each Warrant not exercised prior to the Expiration Date shall
become void and all rights thereunder and all rights in respect thereof under this Agreement shall
cease as of such time, except as expressly provided otherwise in this Agreement.

     A Warrant may be exercised upon surrender to the Company at the principal corporate trust
office of the Warrant Agent referred to in Section 19 (the “Warrant Agent Office”) of the
certificate or certificates evidencing the Warrants to be exercised with the form of election to
purchase on the reverse thereof duly filled in and signed, which signature shall be guaranteed by
an “eligible guarantor” as defined in the regulations promulgated under the Securities and Exchange
Act of 1934, as amended (the “Exchange Act”), and upon payment to the Warrant Agent for the
account of the Company of the exercise price of $[INSERT THE THEN-CURRENT CONVERSION PRICE OF NOTE]
(the “Exercise Price”), as adjusted as herein provided, for each Warrant Share then
exercised. Payment of the aggregate Exercise Price shall be made (i) in United States dollars or
(ii) by certified or official bank check payable to the order of the Company. In lieu of payment
of the Exercise Price as aforesaid, the holder of a Warrant may request the payment of
“Spread”, which shall be delivered by the Company by delivering Common Stock with an
aggregate current market price (as of the date of delivery of request by holder to the Company
pursuant to Section 19) equal to the difference between the current market price per share of
Common Stock less the Exercise Price multiplied by the number of Warrants being exercised.

     Subject to the provisions of Section 8 hereof, upon such surrender of Warrants and payment of
the Exercise Price, the Company shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the holder and in such name or names, as the

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Warrant holder may designate, a certificate or certificates for the number of full Warrant
Shares issuable upon the exercise of such Warrants together with cash as provided in Section 14
hereof; provided, however, that if any consolidation, merger or lease or sale of
assets is proposed to be effected by the Company as described in Section 12(c) hereof, or a tender
offer or an exchange offer for shares of Common Stock of the Company shall be made, upon such
surrender of Warrants and payment of the Exercise Price as aforesaid, the Company shall, as soon as
possible, but in any event not later than two business days thereafter, issue and cause to be
delivered the full number of Warrant Shares issuable upon the exercise of such Warrants in the
manner described in this sentence together with cash as provided in Section 14 hereof. Such
certificate or certificates shall be deemed to have been issued and any person so designated to be
named therein shall be deemed to have become a holder of record of such Warrant Shares as of the
date of the surrender of such Warrants and payment of the Exercise Price. No fractional shares
shall be issued upon exercise of any Warrants in accordance with Section 14 hereof.

     The Warrants shall be exercisable, at the election of the holders thereof, either in full or
from time to time in part (in whole shares) and, in the event that a certificate evidencing
Warrants is exercised in respect of fewer than all of the Warrant Shares issuable on such exercise
at any time prior to the date of expiration of the Warrants, a new certificate evidencing the
remaining Warrant or Warrants will be issued, and the Warrant Agent is hereby irrevocably
authorized to countersign and to deliver the required new Warrant certificate or certificates
pursuant to the provisions of this Section and of Section 4 hereof, and the Company, whenever
required by the Warrant Agent, will supply the Warrant Agent with Warrant certificates duly
executed on behalf of the Company for such purpose.

     All Warrant certificates surrendered upon exercise of Warrants shall be cancelled by the
Warrant Agent. Such cancelled Warrant certificates shall then be disposed of by the Company in
accordance with applicable law. The Warrant Agent shall account promptly to the Company with
respect to Warrants exercised and concurrently pay to the Company all monies received by the
Warrant Agent for the purchase of the Warrant Shares through the exercise of such Warrants.

     The Warrant Agent shall keep copies of this Agreement, the SEC Reports (as defined below) and
any notices given or received hereunder available for inspection by the holders of the Warrants
during normal business hours at its office. The Company shall supply the Warrant Agent from time
to time with such numbers of copies of this Agreement as the Warrant Agent may request.

          SECTION 7. Reports. So long as any of the Warrants remain outstanding, the Company
shall cause copies of all quarterly and annual financial reports and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) that the Company is required to file with the SEC pursuant to Section 13 or
15(d) of the Exchange Act in effect on the date of this Agreement (“SEC Reports”) to be
filed with the Warrant Agent and mailed to the holders of Warrants who have previously delivered to
the Company or the Warrant Agent a written request for SEC Reports, in each case, within 15 days
after filing with the SEC. If the Company is not subject to the requirements of Section 13 or
15(d) of the Exchange Act, the Company shall nevertheless continue to cause SEC Reports, in form
and substance (including footnotes) substantially the same as those that it would be required to
file pursuant to Section 13 or 15(d) of the Exchange Act as in effect on the date of

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this Agreement if it were then subject to the requirements of either such Section, to be so
filed with the SEC for public availability (unless the SEC will not accept such a filing) and with
the Warrant Agent and mailed to the holders of Warrants, in each case, within the same time periods
as would have applied (including under the preceding sentence) had the Company then been subject to
the requirements of Section 13 or 15(d) of the Exchange Act. The Company shall make all such
information available to investors, securities analysts and broker dealers who request it in
writing.

          SECTION 8. Payment of Taxes. No service charge shall be made to any holder of a
Warrant for any exercise, exchange or registration of transfer of Warrant certificates, and the
Company will pay all documentary stamp taxes attributable to the initial issuance of Warrant Shares
upon the exercise of Warrants; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant certificates or any certificates for Warrant Shares in a name other than that
of the registered holder of a Warrant certificate surrendered upon the exercise of a Warrant, and
the Company shall not be required to issue or deliver such Warrant certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company the amount of such
tax or shall have established to the reasonable satisfaction of the Company that such tax has been
paid.

          SECTION 9. Mutilated or Missing Warrant Certificates. If any of the Warrant
certificates shall be mutilated, lost, stolen or destroyed, the Company shall issue and the Warrant
Agent shall countersign, in exchange and substitution for and upon cancellation of the mutilated
Warrant certificate, or in lieu of and substitution for the Warrant certificate lost, stolen or
destroyed, a new Warrant certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence reasonably satisfactory to the Company and the Warrant
Agent of such loss, theft or destruction of such Warrant certificate and such indemnity and
security therefor as is customary and reasonably satisfactory to them, if requested. Applicants
for such substitute Warrant shall also comply with such other reasonable regulations As the Company
or the Warrant Agent may prescribe.

          SECTION 10. Reservation of Warrant Shares. The Company will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its authorized but unissued
Common Stock, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon
exercise of Warrants, the maximum number of shares of Common Stock which may then be deliverable
upon the exercise of all outstanding Warrants.

     The Company or the transfer agent for the Common Stock and every subsequent transfer agent for
any shares of the Company’s capital stock issuable upon the exercise of any of the rights of
purchase represented by the Warrants as aforesaid (the “Transfer Agent”) will be
irrevocably authorized and directed at all times to reserve such number of authorized shares as
shall be required for such purpose. The Company will keep a copy of this Agreement on file with
the Transfer Agent for any shares of the Company’s capital stock issuable upon the exercise of the
rights of purchase represented by the Warrants. The Warrant Agent is hereby irrevocably authorized
to requisition from time to time from such Transfer Agent the stock certificates required to honor
outstanding Warrants upon exercise thereof in accordance with the terms of this Agreement. The
Company will supply such Transfer Agent with duly executed certificates for such purposes and will
provide or otherwise make available any cash which may be payable as provided in Section 14 hereof.
The Company will furnish such Transfer Agent a copy of all

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notices of adjustments and certificates related thereto, transmitted to each holder pursuant
to Section 15 hereof.

     Before taking any action which would cause an adjustment pursuant to Section 12 hereof to
reduce the Exercise Price below the then par value (if any) of the Warrant Shares, the Company will
expeditiously take all corporate action necessary, in the opinion of its counsel (which may be
counsel employed by the Company), in order that the Company may validly and legally issue fully
paid and nonassessable Warrant Shares at the Exercise Price as so adjusted.

     The Company covenants that all Warrant Shares which may be issued upon exercise of Warrants
will be, upon payment of the Exercise Price and issuance thereof, fully paid, nonassessable, free
of preemptive rights and free from all taxes, liens, charges and security interests with respect to
the issue thereof, provided that until (i) the Warrant Shares have been transferred pursuant to
Rule 144 under the Securities Act (“Rule 144”), (ii) the Warrant Shares may be transferred
pursuant to Rule 144(k) under the Securities Act, or (iii) a registration statement under the
Securities Act is effective relating to the transfer of such Warrant Shares, certificates
evidencing the Warrant Shares may bear the following or a substantially similar legend:

“THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED UNLESS (I) THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW WITH RESPECT THERETO, (II) PURSUANT
TO RULE 144 OF THE SECURITIES ACT OR (III) UPON THE ADVICE OF
COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER, REGISTRATION UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW IS NOT
REQUIRED IN CONNECTION WITH SUCH TRANSFER”

     The Company agrees that the legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Warrant Shares upon which it is
stamped if (a) such Warrant Shares may be transferred pursuant to an effective registration
statement under the Securities Act; (b) such holder provides the Company with reasonable assurances
that such Warrant Shares can be transferred pursuant to Rule 144; or (c) such holder receives
advice of counsel reasonably acceptable to the Company to the effect that a sale or transfer of
such Warrant Shares may be made without registration under the Securities Act. In the event the
above legend is removed from any Warrant Shares and thereafter the effectiveness of a registration
statement covering such Warrant Shares is suspended or the Company determines that a supplement or
amendment thereto is required by applicable securities laws, then upon reasonable advance written
notice to the holders of Warrant Shares, the Company may require that the above legend be placed on
any such Warrant Shares that cannot then be sold pursuant to an effective registration statement or
pursuant to Rule 144 and the holders thereof shall cooperate in the replacement of such legend.
Such legend shall thereafter be removed when

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such Warrant Shares may again be transferred pursuant to an effective registration statement
or pursuant to Rule 144.

          SECTION 11. Obtaining Stock Exchange Listings. The Company shall also from time to
time take all action necessary so that the Warrant Shares, immediately upon their issuance upon the
exercise of Warrants, will be listed on the Nasdaq Stock Market National Market or such other
principal securities exchanges, interdealer quotation systems and markets within the United States
of America, if any, on which other shares of Common Stock are then listed or quoted.

          SECTION 12. Adjustment of Exercise Price and Number of Warrant Shares Issuable. The
Exercise Price and the number of Warrant Shares issuable upon the exercise of each Warrant are
subject to adjustment from time to time upon the occurrence of the events enumerated in this
Section 12.

          For purposes of this Section 12:

          “Common Stock” means the Common Stock and any other stock of the Company, however
designated, for which the Warrants may be exercisable.

          “Holder” shall mean a beneficial holder of a Warrant.

          “Daily Market Price” shall mean, as of any date of determination, the closing sale
price for the Common Stock, for the Trading Day of such date of determination (subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or similar events during such
Trading Day and further subject to adjustment as provided herein) on the principal United States
securities exchange or trading market where the Common Stock is listed or traded as reported by
Bloomberg, or if the foregoing does not apply, the closing sale price for the Common Stock in the
OTC Bulletin Board for such security as reported by Bloomberg, or, if no sale price is reported for
such security by Bloomberg, the closing sale price as reported in the “pink sheets” by the Pink
Sheets LLC, in each case for such date or, if such date was not a Trading Day for such security, on
the next preceding date which was a Trading Day. If the Daily Market Price cannot be calculated
for such security as of either of such dates on any of the foregoing bases, the Daily Market Price
of such security on such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Holders holding a majority of the Warrants outstanding and
reasonably acceptable to the Company, with the costs of such appraisal to be borne by the Company.

          “Existing Warrants” shall have the meaning as defined in the Warrant Agreement, dated
as of August 25, 2003, between the Company (formerly Millstream Acquisition Corporation), and
Continental Stock Transfer & Trust Company (the “Existing Warrant Agreement”).

          “Purchase Agreement” shall mean the Investment Unit Purchase Agreement, dated
February 28, 2005, between the and certain subsidiaries and the holders thereto

          “Trading Day” shall mean any day on which the principal United States securities
exchange or trading market where the Common Stock is then listed or traded, is open for trading.

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          (a)      Common Stock Dividends; Common Stock Splits; Reverse Common Stock Splits. If the
Company, at any time while this Warrant is outstanding, (1) shall pay a stock dividend on its
Common Stock, (2) subdivide outstanding shares of Common Stock into a larger number of shares, or
(3) combine outstanding shares of Common Stock into a smaller number of shares, the Exercise Price
shall be multiplied by a fraction the numerator of which shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding before such event and the denominator of
which shall be the number of shares of Common Stock outstanding after such event. Any adjustment
made pursuant to this Section 12(a) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a subdivision, combination or
re-classification.

          (b)      Subscription Rights. If the Company, at any time while this Warrant is
outstanding, shall fix a record date for the distribution to all of the holders of Common Stock
evidence of its indebtedness or assets or rights, options, warrants or other securities entitling
them to subscribe for, purchase, convert to, exchange for or to otherwise acquire any security
(excluding those referred to in Section 12(a) above), then in each such case the Exercise Price at
which this Warrant shall thereafter be exercisable shall be determined by multiplying the Exercise
Price in effect immediately prior to the record date fixed for determination of shareholders
entitled to receive such distribution by a fraction, the denominator of which shall be the average
Daily Market Price of the Common Stock for the ten (10) Trading Days prior to the record date
mentioned above, and the numerator of which shall be such average Daily Market Price of the Common
Stock for the ten (10) Trading Days prior to such record date less the then fair market value at
such record date of the portion of such evidence of indebtedness or assets or rights, options,
warrants or other securities so distributed applicable to one outstanding share of Common Stock as
determined by the Board of Directors in good faith; provided, however, that in the
event of a distribution exceeding twenty percent (20%) of the net assets of the Company, such fair
market value shall be determined by an appraiser selected by the Holders holding a majority of the
Warrants outstanding and reasonably acceptable to the Company. The Company shall pay for all such
appraisals. Such adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.

          (c)      Other Events. In case of (1) any reclassification of the Common Stock into other
securities of the Company, (2) any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property or (3) any merger or consolidation with or into
any persons, or any sale or other disposition of all or substantially all of the assets of the
Company to any person (each of (1), (2) or (3), an “Extraordinary Event”), each Holder
shall have the right thereafter to convert this Warrant into shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common Stock following such
Extraordinary Event, that the Holder would have been entitled to receive had it converted this
Warrant immediately prior to such Extraordinary Event (without taking into account any limitations
or restrictions on the convertibility of the Warrants). In the case of an Extraordinary Event, the
terms of any such Extraordinary Event shall include such terms so as to continue to give to the
Holder the right to receive the securities, cash or property set forth in this Section 12(c) upon
any conversion following such Extraordinary Event. This provision shall similarly apply to
successive Extraordinary Events.

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          (d)      Issuance of Additional Shares of Common Stock. Except as provided in subsection
(e) hereof, if and whenever the Company shall issue or sell, or is, in accordance with any of
subsections (d)(1) through (d)(8) hereof, deemed to have issued or sold, any Additional Shares of
Common Stock for a consideration per share less than the Exercise Price in effect immediately prior
to the time of such issue or sale, then and in each such case (a “Trigger Issuance”) the
then-existing Exercise Price shall be reduced, as of the close of business on the effective date of
the Trigger Issuance, to the lowest price per share at which any share of Common Stock was issued
or sold or deemed to be issued or sold in the Trigger Issuance. Notwithstanding anything to the
contrary contained herein, the Company shall not be required to make the full adjustment set forth
in this subsection (d) or in subsection (f) below to the Exercise Price if such adjustment would
result in a Exercise Price lower than $3.40, which amount shall be subject to adjustment when the
Exercise Price is adjusted pursuant to Section 12(a)(1), (2) or (3), to the same extent as such
adjustment to the Exercise Price (the “Minimum Exercise Price”). In the event that an
adjustment made under this subsection would result in the Exercise Price being less than the
Minimum Exercise Price, the Exercise Price shall be the Minimum Exercise Price and the Exercise
Price shall not be adjusted further pursuant to this subsection (d) or subsection (f) below.
Notwithstanding anything to the contrary contained herein, the Company shall not take any action
which would cause an adjustment pursuant to Section 12 to reduce the Exercise Price to a price
below which the Warrant Shares issuable upon exercise of the Warrants when combined with the shares
of Common Stock issued to the Holders pursuant to the Purchase Agreement would exceed 19.9% of the
outstanding Common Stock measured as of the date of the execution of the Purchase Agreement, unless
and until the Company shall take all corporate action necessary, including, without limitation,
obtaining stockholder approval, in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares at the Exercise Price as so adjusted.

          For purposes of this subsection (d), “Additional Shares of Common Stock” shall mean
all shares of Common Stock issued by the Company or deemed to be issued pursuant to this subsection
(d), other than Excluded Issuances (as defined in subsection (e) hereof).

          For purposes of this subsection (d), the following subsections (d)(1) to (d)(8) shall also be
applicable (subject, in each such case, to the provisions of subsection (e) hereof) and to each
other subsection contained in this subsection (d):

1. Issuance of Rights or Options. In case at any time the Company shall in
any manner grant (directly and not by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible into or exchangeable
for Common Stock (such warrants, rights or options being called “Options”
and such convertible or exchangeable stock or securities being called
“Convertible Securities”) whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus (y) the aggregate

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amount of additional consideration payable to the Company upon the exercise of all
such Options, plus (z), in the case of such Options which relate to Convertible
Securities, the aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be less
than the Exercise Price in effect immediately prior to the time of the granting of
such Options, then the total number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total amount of such
Convertible Securities issuable upon the exercise of such Options shall be deemed to
have been issued for such price per share as of the date of granting of such Options
and thereafter shall be deemed to be outstanding for purposes of adjusting the
Exercise Price. Except as otherwise provided in subsection (d)(4), no adjustment of
the Exercise Price shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such Options or upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible Securities.

2. Issuance of Convertible Securities. In case the Company shall in any
manner issue (directly and not by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert any such
Convertible Securities are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange (determined by
dividing (i) the sum (which sum shall constitute the applicable consideration) of
(x) the total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus (y) the aggregate amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (ii) the total number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities) shall be less than
the Exercise Price in effect immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have been issued for
such price per share as of the date of the issue or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding for purposes of
adjusting the Exercise Price, provided that (a) except as otherwise provided in
subsection (d)(4), no adjustment of the Exercise Price shall be made upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities and (b) no further adjustment of the Exercise Price shall be made by
reason of the issue or sale of Convertible Securities upon exercise of any Options
to purchase any such Convertible Securities for which adjustments of the Exercise
Price have been made pursuant to the other provisions of subsection (d).

3. Change in Warrant Price or Amount. Notwithstanding the provisions of
subsection (e), if the exercise price provided for in the Existing Warrants on the
date hereof is below the Exercise Price and (i) such exercise price is reduced, the
then-existing Exercise Price shall be reduced, as of the close of business on the

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effective date of such reduction in exercise price by an amount equal to the product
of (x) the original exercise price of the Existing Warrants minus (y) the reduced
exercise price of the Existing Warrants and (2) a fraction, the numerator of which
is the number of shares of Common Stock acquired upon exercise, if any, of the
Existing Warrants and the denominator of which is the aggregate number of shares of
Common Stock that may be acquired upon exercise of all of the Existing Warrants or
(ii) the Company amends the terms of the Existing Warrants to increase the number of
shares of Common Stock that may be acquired upon exercise of the Existing Warrants,
the then-existing Exercise Price shall be reduced, as of the close of business on
the effective date of amendment by an amount equal to the product of (1) (x) the
original exercise price of the Exercise Warrants minus (y) the product of the
original exercise price of the Existing Warrants and a fraction, the numerator of
which is the old number of shares for which the Existing Warrants were exercisable
immediately prior to such amendment and the denominator of which is the new number
of shares for which the Existing Warrants are exercisable immediately following such
amendment and (2) a fraction, the numerator of which is the number of shares of
Common Stock acquired upon exercise, if any, of the Existing Warrants and the
denominator of which is the aggregate number of shares of Common Stock that may be
acquired upon exercise of all of the Existing Warrants; provided,
however, that the Exercise Price shall not be reduced below the Minimum
Exercise Price.

4. Change in Option Price or Conversion Rate. Upon the happening of any of
the following events, namely, if the purchase price provided for in any Option
referred to in subsection (d)(1) hereof, the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred to in
subsections (d)(1) or (d)(2), or the rate at which Convertible Securities referred
to in subsections (d)(1) or (d)(2) are convertible into or exchangeable for Common
Stock shall change at any time (including, but not limited to, changes under or by
reason of provisions designed to protect against dilution), the Exercise Price in
effect at the time of such event shall forthwith be readjusted to the Exercise Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially granted,
issued or sold.

5. Calculation of Consideration Received. If any Common Stock, Options or
Convertible Securities are issued, granted or sold for cash, the consideration
received therefor will be the amount received by the Company therefor, after
deduction of all underwriting discounts or allowances in connection with such
issuance, grant or sale. In case any Common Stock, Options or Convertible
Securities are issued or sold for a consideration part or all of which shall be
other than cash, including in the case of a strategic or similar arrangement in
which the other entity will provide services to the Company, purchase services from
the Company or otherwise provide intangible consideration to the Company, the amount
of the consideration other than cash received by the Company (including the net
present value of the consideration expected by the Company for the

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provided or purchased services) will be the fair market value of such consideration,
except where such consideration consists of securities, in which case the amount of
consideration received by the Company will be the average Daily Market Price for the
ten (10) Trading Days with respect to such securities thereof prior to the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the surviving
Company, the amount of consideration therefor will be deemed to be the fair market
value of such portion of the net assets and business of the non-surviving Company as
is attributable to such Common Stock, Options or Convertible Securities, as the case
may be. Notwithstanding anything to the contrary contained herein, if Common Stock,
Options or Convertible Securities are issued, granted or sold in conjunction with
each other as part of a single transaction or in a series of related transactions,
and one or more of such securities are issued, granted or sold for a price below
fair market value (when the aggregate value of such securities is compared with the
aggregate amount of consideration received by the Company therefor), any Holder of
the Warrants may elect to determine the amount of consideration deemed to be
received by the Company therefor by deducting the difference between the fair value
of and the amount paid for any type of securities issued, granted or sold in such
transaction or series of transactions (the “Disregarded Securities”). If
the Holder makes an election pursuant to the immediately preceding sentence, no
adjustment to the Exercise Price shall be made pursuant to this subsection (d)(5)
for the issuance of the Disregarded Securities or upon any conversion or exercise
thereof. For example, if the Company were to issue convertible notes having a face
value of $1,000,000 and warrants to purchase shares of Common Stock at an exercise
price equal to the market price of the Common Stock on the date of issuance of such
warrants in exchange for $1,000,000 of consideration, the fair value of the warrants
would be subtracted from the $1,000,000 of consideration received by the Company for
the purposes of determining the price per share of Common Stock issuable upon
conversion of the convertible notes and for purposes of determining any adjustment
to the Exercise Price hereunder as a result of the issuance of the Convertible
Securities. The Holders holding a majority of the Warrants outstanding shall
calculate, using standard commercial valuation methods appropriate for valuing such
assets, the fair market value of any consideration other than cash or securities;
provided, however, that if the Company does not agree to such fair
market value calculation within three (3) Business Days after receipt of such
calculation along with reasonably detailed supporting documentation from the
Holders, then such fair market value will be determined in good faith by an
investment banker or other appropriate expert of national reputation selected by the
Holders holding a majority of the Warrants outstanding (which investment banker or
other expert shall not have been engaged or otherwise employed by any of the Holders
within one (1) year of the date of such engagement hereunder) and reasonably
acceptable to the Company, with the costs of such appraisal to be borne by the
Company.

6. Other Action Affecting Exercise Price. If the Company takes any action
affecting the Common Stock after the date hereof that would be covered by this

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Section 12, but for the manner in which such action is taken or structured, which
would in any way diminish the value of the Warrants then the Exercise Price shall be
adjusted in such manner as the Board of Directors of the Company shall in good faith
determine to be equitable under the circumstances.

7. Record Date. In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(ii) to subscribe for or purchase Common Stock, Options or Convertible Securities,
then such record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of the granting
of such right of subscription or purchase, as the case may be, provided,
however, that any such adjustment in the Exercise Price shall be reversed or
shall not become effective, as applicable, if the Company abandons the action to
which the record date pertains.

8. Treasury Shares. The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of the
Company or any of its wholly-owned Subsidiaries, and the disposition of any such
shares (other than the cancellation or retirement thereof) shall be considered an
issue or sale of Common Stock for the purpose of this subsection (d).

          (e)      Excluded Issuances. Notwithstanding anything to the contrary contained herein,
the Company shall not be required to make any adjustment of the Exercise Price in the case of the
issuance of (1) Options to acquire up to 100,000 shares of Common Stock (subject to equitable
adjustment by the Board, in its good faith determination, for any of the events described in
Section 12(a)(1), (2) or (3)) regardless of the price paid for such Options or the exercise price
thereof; (2) Common Stock, Options or Convertible Securities issued to employees or directors of
the Company in connection with their service as directors of the Company or their employment by the
Company pursuant to an equity compensation plan approved by the Board of Directors of the Company,
in an aggregate amount not to exceed that currently authorized under such plans as of the date of
the execution of the Purchase Agreement (subject to equitable adjustment by the Board, in its good
faith determination, for any of the events described in Section 12(a)(1), (2) or (3), (3) Common
Stock, Options or Convertible Securities issued to employees or directors of the Company in
connection with their service as directors of the Company or their employment by the Company
pursuant to an equity compensation plan approved by the Board of Directors of the Company or the
compensation committee of the Board of Directors of the Company and consistent with past practice,
in an aggregate amount not to exceed 3% of the fully diluted outstanding shares of Common Stock;
provided that it is understood that this clause shall not limit the number of shares of
Common Stock, Options or Convertible Securities that the Company may issue pursuant to its equity
compensation plans and only relates to the effect of the adjustments to the Exercise Price upon
such issuance, (4) Common Stock, Options or Convertible Securities issued or sold in connection
with the Company’s acquisition of assets of any person, directly or indirectly, by way or merger,
consolidation, asset purchase, stock purchase or other business combination, in an aggregate amount
not to exceed 2,000,000 shares of Common Stock (including any shares of Common Stock issuable upon
exercise or conversion of Options or Convertible Securities); provided that

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such issuance or sale shall be subject to the provisions of Section 12(f); (5) Common Stock
upon the conversion or exercise of the Exercise Warrants and any other warrants outstanding on the
date of the execution of the Purchase Agreement as disclosed in the Disclosure Schedules (as
defined in the Purchase Agreement), except as set forth in subsection (d)(3) above, and (6) Common
Stock upon the conversion or exercise of the Warrants or any Redemption Warrants; and (7) Common
Stock, Options or Convertible Securities approved by Holders holding a majority of the Warrants
outstanding on the date of such approval (collectively, “Excluded Issuances”).

          (f)      Weighted Average Adjustment for Business Combination Issuances. (i) In the event
that at any time or from time to time the Company shall issue or sell Common Stock, Options or
Convertible Securities subject to clause (4) of Section 12(e) without consideration or for
consideration per share that is less at the day of such issuance or sale than the Daily Market
Price, the Exercise Price in effect immediately prior to each such issuance or sale will
immediately (except as provided below) be reduced to the price determined by multiplying the
Exercise Price, in effect immediately prior to such issuance or sale, by a fraction, (1) the
numerator of which shall be (x) the number of shares of Common Stock outstanding immediately prior
to such issuance or sale plus (y) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such additional shares of Common
Stock so issued or sold would purchase at the Daily Market Price on the last Trading Day
immediately preceding such issuance or sale and (2) the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such issue or sale; provided,
however, that the Exercise Price shall not be reduced below the Minimum Exercise Price.

          (g)      Fractional Shares. Upon a conversion hereunder, the Company shall not be required
to issue stock certificates representing fractions of shares of the Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a share based on the
closing bid price at such time. If the Company elects not, or is unable, to make such a cash
payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.

          (h) Voluntary Reduction.

     The Company from time to time may, as the Board of Directors deems appropriate, reduce the
Exercise Price by any amount for any period of time if the period is at least 20 days and if the
reduction is irrevocable during the period; provided, however, that in no event may
the Exercise Price be less than the par value of a share of Common Stock.

     Whenever the Exercise Price is reduced, the Company shall mail to Holders a notice of the
reduction. The Company shall mail the notice at least 15 days before the date the reduced Exercise
Price takes effect. The notice shall state the reduced Exercise Price and the period it will be in
effect.

     A reduction of the Exercise Price pursuant to this Section 12(h), other than a reduction which
the Company has irrevocably committed will be in effect for so long as any Warrants are
outstanding, does not change or adjust the Exercise Price otherwise in effect for all other
purposes of this Section 12.

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          (i)      Warrant Agent’s Disclaimer.

     The Warrant Agent has no duty to determine when an adjustment under this Section 12 or Section
13 should be made, how it should be made or what it should be. The Warrant Agent has no duty to
determine whether any provisions of a supplemental Warrant Agreement under Section 12(c) are
correct. The Warrant Agent makes no representation as to the validity or value of any securities
or assets issued upon exercise of Warrants. The Warrant Agent shall not be responsible for the
Company’s failure to comply with this Section 12 or Section 13.

          (j)      When Issuance or Payment May Be Deferred.

     In any case in which this Section 12 shall require that an adjustment in the Exercise Price be
made effective as of a record date for a specified event, the Company may elect to defer until the
occurrence of such event (i) issuing to the holder of any Warrant exercised after such record date
the Warrant Shares and other capital stock of the Company, if any, issuable upon such exercise over
and above the Warrant Shares and other capital stock of the Company, if any, issuable upon such,
exercise on the basis of the Exercise Price and (ii) paying to such holder any amount in cash in
lieu of a fractional share pursuant to Section 14 hereof; provided, however, that
the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such
holder’s right to receive such additional Warrant Shares, other capital stock and cash upon the
occurrence of the event requiring such adjustment.

          (k)      Adjustment in Number of Shares.

     Upon each adjustment of the Exercise Price pursuant to this Section 12, each Warrant
outstanding prior to the making of the adjustment in the Exercise Price shall thereafter evidence
the right to receive upon payment of the adjusted Exercise Price that number of shares of Common
Stock (calculated to the nearest hundredth) obtained from the following formula:

N  =    x —

where:

	 	 	 	 	 
	N1

	 	=
	 	the adjusted number of Warrant Shares issuable upon
exercise of a Warrant by payment of the adjusted Exercise Price.
	

	 	 	 	 
	N

	 	=
	 	the number of Warrant Shares previously issuable upon exercise
of a Warrant by payment of the Exercise Price prior to adjustment.
	

	 	 	 	 
	E1

	 	=
	 	the adjusted Exercise Price.
	

	 	 	 	 
	E

	 	=
	 	the Exercise Price prior to adjustment.

          (l)      Form of Warrants.

     Irrespective of any adjustments in the Exercise Price or the number or kind of shares
purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.

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          SECTION 13. No Dilution or Impairment. (a) If any event shall occur as to which the
provisions of Section 12 are not strictly applicable but the failure to make any adjustment would
adversely affect the purchase rights represented by the Warrants in accordance with the essential
intent and principles of such Section, then, in each such case, the holders of a majority of the
number of outstanding Warrants may appoint a firm of independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company) reasonably
acceptable to the Company, which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in Section 12, necessary to
preserve, without dilution or impairment, the purchase rights, represented by this Warrant. Upon
receipt of such opinion, the Company will promptly mail a copy thereof to the Warrant Agent and the
holders of the Warrants and shall make the adjustments described therein. The Company shall pay
all costs associated with such opinion.

          (b)      The Company will not, by amendment of its certificate of incorporation or through any
consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities
or any other action, avoid or seek to avoid the observance or performance of any of the terms of
the Warrants, but will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to protect the rights
of the holder of the Warrants against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (i) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock on the exercise of the Warrants from time to time outstanding and (ii) will
not take any action which results in any adjustment of the Exercise Price if the total number of
Warrant Shares issuable after the action upon the exercise of all of the Warrants would exceed the
total number of shares of Common Stock then authorized by the Company’s certificate of
incorporation and available for the purposes of issue upon such exercise. A consolidation, merger,
reorganization or transfer of assets involving the Company covered by Section 12(c) shall not be
prohibited by or require any adjustment under this Section 13. No provision of this Agreement
shall be deemed to prevent or restrict a bona fide transaction the principal purpose of which is to
change the domicile of the Company.

          SECTION 14. Fractional Interests. The Company shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be presented
for exercise in full at the same time by the same holder, the number of full Warrant Shares which
shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 14, be issuable on the exercise of
any Warrants (or specified portion thereof), the Company shall notify the Warrant Agent in writing
of the amount to be paid in lieu of the fraction of a Warrant Share and concurrently pay or provide
to the Warrant Agent for repayment to the Warrant holder an amount in cash equal to the product of
(i) such fraction of a Warrant Share and (ii) the difference of the current market price of a share
of Common Stock over the Exercise Price.

          SECTION 15. Notices to Warrant Holders. Upon any adjustment of the Exercise Price
pursuant to Section 12 hereof, the Company shall within 15 days thereafter (i) cause to be filed
with the Warrant Agent a certificate of a firm of independent public accountants of recognized
national standing selected by the Board of Directors of the Company (which may be the regular
auditors of the Company) and reasonably acceptable to the registered holders of a

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majority of the then outstanding Warrants setting forth the Exercise Price after such
adjustment and setting forth in reasonable detail the method of calculation and the facts upon
which such calculations are based and setting forth the number of Warrant Shares (or portion
thereof) issuable after such adjustment in the Exercise Price, upon exercise of a Warrant and
payment of the adjusted Exercise Price, and (ii) cause to be given to each of the registered
holders of the Warrant certificates at such registered holder’s address appearing on the Warrant
register written notice of such adjustments by first-class mail, postage prepaid. Where
appropriate, such notice may be given in advance and included as a part of the notice required to
be mailed under the other provisions of this Section 15.

     In case:

          (a)      The Company shall authorize the issuance to all holders of shares of Common Stock of
options, warrants or other rights (howsoever classified) to subscribe for or purchase shares of
Common Stock or of any other subscription rights or warrants; or

          (b)      The Company shall authorize the distribution to all holders of shares of Common Stock of
evidences of its indebtedness or assets; or

          (c)      of any consolidation or merger to which the Company is a party and for which approval of
any shareholders of the Company is required, or of the conveyance or transfer of the properties and
assets of the Company substantially as an entirety, or of any reclassification or change of Common
Stock issuable upon exercise of the Warrants (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a subdivision or
combination), or a tender offer or exchange offer for shares of Common Stock; or

          (d)      of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or

          (e)      The Company proposes to take any action (other than actions of the character described in
Section 12(a)) which would require an adjustment of the Exercise Price pursuant to Section 12;
then, in each case, the Company shall cause to be filed with the Warrant Agent and shall cause to
be given to each of the registered holders of the Warrant certificates at his address appearing on
the Warrant register, at least 30 days prior to the applicable record date hereinafter specified,
or 30 days prior to the consummation of the applicable transaction in the case of events for which
there is no record date, by first-class mail, postage prepaid, a written notice stating (i) the
date as of which the holders of record of shares of Common Stock to be entitled to receive any such
rights, options, warrants or distribution are to be determined, or (ii) the initial expiration date
set forth in any tender offer or exchange offer for shares of Common Stock, or (iii) the date on
which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up
is expected to become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such shares for
securities or other property, if any, deliverable upon such reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up. The failure to give the
notice required by this Section 15 or any defect therein shall not affect the legality or validity
of any distribution, right, option, warrant, consolidation, merger, conveyance, transfer, lease,
dissolution, liquidation or winding up, or the vote upon any action.

          Nothing contained in this Agreement or in any of the Warrant Certificates shall be construed
as conferring upon the holders thereof the right to vote or to consent or to receive

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notice as shareholders in respect of the meetings of shareholders or the election of Directors
of the Company or any other matter, or any rights whatsoever as shareholders of the Company.

          SECTION 16. Merger, Consolidation or Change of Name of Warrant Agent. Any corporation
into which the Warrant Agent may be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, conversion or consolidation to which the Warrant Agent
shall be a party, or any corporation succeeding to all or substantially all of the corporate trust
or agency business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder
without the execution or filing of any paper or any further act on the part of any of the parties
hereto. If, at the time such successor to the Warrant Agent by merger or consolidation succeeds to
the agency created by this Agreement, any of the Warrant certificates shall have been countersigned
but not delivered, any such successor to the Warrant Agent may adopt the countersignature of the
original Warrant Agent; and if, at that time any of the Warrant certificates shall not have been
countersigned, any such successor to the Warrant Agent may countersign such Warrant certificates
either in the name of the predecessor Warrant Agent or in the name of the successor to the Warrant
Agent; and in all such cases such Warrant certificates shall have the full force and effect
provided in the Warrant certificates in this Agreement.

          SECTION 17. Warrant Agent. The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of which the Company and
the holders of Warrants, by their acceptance thereof, shall be bound:

          (a)      The statements contained herein and in the Warrant Certificates shall be taken as
statements of the Company. The Warrant Agent assumes no responsibility for the correctness of any
of the same except such as describe the Warrant Agent or action taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution of the Warrant
certificates except as herein otherwise provided.

          (b)      The Warrant Agent shall not be responsible for any failure of the Company to comply with
any of the covenants contained in this Agreement or in the Warrant certificates to be complied with
by the Company.

          (c)      The Warrant Agent may consult at any time with counsel satisfactory to it (who may be
counsel for the Company) and the Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant certificate in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with the opinion or the advice of such
counsel.

          (d)      The Warrant Agent shall incur no liability or responsibility to the Company or to any
holder of any Warrant certificate for any action taken in reliance on any Warrant certificate,
certificate of shares, notice, resolution, waiver, consent, order, certificate, or other paper,
document or instrument believed by it to be genuine and to have been signed, sent or presented by
the proper party or parties. The Warrant Agent shall not be bound by any notice or demand, or any
waiver, modification, termination or revision of this Agreement or any of the terms hereof, unless
evidenced by a writing between the Company and the Warrant Agent.

          (e)      The Company agrees to pay to the Warrant Agent reasonable compensation for all services
rendered by the Warrant Agent in the execution of this Agreement, to reimburse the Warrant Agent
for all expenses (including reasonable counsel fees), taxes (including withholding taxes) and
governmental charges and other charges of any kind and

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nature incurred by the Warrant Agent in the execution, delivery and performance of its
responsibilities under this Agreement and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and counsel fees, for anything done or
omitted by the Warrant Agent in the execution, delivery and performance of its responsibilities
under this Agreement except as a result of its negligence or bad faith.

          (f)      The Warrant Agent, shall be under no obligation to institute any action, suit or legal
proceeding or to take any other action likely to involve expense unless the Company or one or more
registered holders of Warrant certificates shall furnish the Warrant Agent with reasonable security
and indemnity for any costs and expenses which may be incurred, but this provision shall not affect
the power of the Warrant Agent to take such action as it may consider proper, whether with or
without any such security or indemnity. All rights of action under this Agreement or under any of
the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrant
certificates or the production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as
Warrant Agent and any recovery of judgment shall be for the ratable benefit of the registered
holders of the Warrants, as their respective rights or interests may appear.

          (g)      Except as required by law, the Warrant Agent, and any stockholder, director, officer or
employee of the Warrant Agent, may buy, sell or deal in any of the Warrants or other securities of
the Company or become pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as fully and freely as
though it were not Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant
Agent from acting in any other capacity for the Company or for any other legal entity.

          (h)      The Warrant Agent shall act hereunder solely as agent for the Company, and its duties
shall be determined solely by the express provisions hereof. The Warrant Agent shall not be liable
for anything which it may do or refrain from doing in connection with this Agreement, except for
its own negligence or bad faith, provided, that, in no event shall the Warrant Agent be liable for
special, indirect or consequential loss or damage of any kind whatsoever (including but not limited
to lost profits), even if the Warrant Agent has been advised of the likelihood of such loss or
damage and regardless of the form of action.

          (i)      The Warrant Agent shall not at any time be under any duty or responsibility to any holder
of any Warrant certificate to make or cause to be made any adjustment of the Exercise Price or
number of the Warrant Shares or other securities or property deliverable as provided in this
Agreement, or to determine whether any facts exist which may require any of such adjustments, or
with respect to the nature or extent of any such adjustments, when made, or with respect to the
method employed in making the same. The Warrant Agent shall not be accountable with respect to the
validity or value or the kind or amount of any Warrant Shares or of any securities or property
which may at any time be issued or delivered upon the exercise of any Warrant or with respect to
whether any such Warrant Shares or other securities will when issued be validly issued and fully
paid and nonassessable, and makes no representation with respect thereto.

          SECTION 18. Change of Warrant Agent. If the Warrant Agent shall become incapable of
acting as Warrant Agent or shall resign as provided below, the Company shall

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appoint a successor to such Warrant Agent. If the Company shall fail to make such appointment
within a period of 30 days after it has been notified in writing of such incapacity by the Warrant
Agent or by the registered holders of a majority of Warrant certificates, then the registered
holder of any Warrant certificates may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Pending appointment of a successor to such
Warrant Agent, either by the Company or by such a court, the duties of the Warrant Agent shall be
carried out by the Company. The registered holders of a majority of the unexercised Warrants shall
be entitled at any time to remove the Warrant Agent and appoint a successor to such Warrant Agent.
Such successor to the Warrant Agent need not be approved by the Company or the former Warrant
Agent. After appointment the successor to the Warrant Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer to the successor to
the Warrant Agent any property at the time held by it hereunder and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Failure to give any notice provided
for in this Section 18, however, or any defect therein, shall not affect the legality or validity
of the appointment of a successor to the Warrant Agent.

     The Warrant Agent may resign at any time and be discharged from the obligations hereby created
by so notifying the Company in writing at least 30 days in advance of the proposed effective date
of its resignation. If no successor Warrant Agent accepts the engagement hereunder by such time,
the Company shall act as Warrant Agent.

          SECTION 19. Notices to the Company and Warrant Agent. Any notice or demand authorized
by this Agreement to be given or made by the Warrant Agent or by the registered holder of any
Warrant certificate to or on the Company shall be sufficiently given or made when and if deposited
in the mail, first class or registered, postage prepaid, addressed (until another address is filed
in writing by the Company with the Warrant Agent), as follows:

NationsHealth, Inc.

13650 N.W. 8th Street

Suite 109

Sunrise, FL 33325

Fax number: (954) 903-5005

Attention: President

with a copy to:

McDermott Will & Emery LLP

201 South Biscayne Blvd.

Miami, Florida 33131

Fax number: (305) 347-6500

Attention: Ira J. Coleman, Esq.

     Any notice pursuant to this Agreement to be given by the Company or by the registered
holder(s) of any Warrant certificate to the Warrant Agent shall be sufficiently given when and if
deposited in the mail, first-class or registered, postage prepaid, addressed (until another address
is filed in writing by the Warrant Agent with the Company) to the Warrant Agent at the Warrant
Agent Office as follows:

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[_______________]

Fax Number:

Attention:

     Notice may also be given by facsimile transmission (effective when receipt is acknowledged) or
by overnight delivery service (effective the next business day).

          SECTION 20. Supplements and Amendments. The Company and the Warrant Agent may from
time to time supplement or amend this Agreement without the approval of any holders of Warrant
certificates in order to cure any ambiguity or to correct or supplement any provision contained
herein which may be defective or inconsistent with any other provision herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company and the Warrant
Agent may deem necessary or desirable and which shall not in any way adversely affect the interests
of the holders of Warrant certificates. Any amendment or supplement to this Agreement that has an
adverse effect on the interests of holders shall require (i) the written consent of registered
holders of a majority of the then outstanding Warrants (excluding Warrants held by the Company or
any of its affiliates; provided that MHR Fund Management LLC and any of its affiliates
(“MHR”) shall not be considered affiliates of the Company for purposes of this exclusion)
and (ii) for so long as MHR beneficially owns any Warrants or 25% or more of the then outstanding
principal amount of the Notes, if any, the written consent of MHR. In addition to the foregoing,
any amendment pursuant to which the then applicable Exercise Price would be increased or the number
of Warrant Shares then purchasable upon exercise of Warrants would be decreased, will require the
consent of (i) each holder of a Warrant affected and (ii) for so long as MHR beneficially owns 25%
or more of the then outstanding principal amount of the Notes, if any, MHR.

          SECTION 21. Successors. All the covenants and provisions of this Agreement by or for
the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.

          SECTION 22. Termination. This Agreement shall terminate at 5:00 p.m., New York, New
York time on the Expiration Date. Notwithstanding the foregoing, this Agreement will terminate on
such earlier date on which all outstanding Warrants have been exercised. The provisions of Section
18 hereof shall survive such termination, and the provisions of Section 19 hereof shall survive for
30 days after such termination.

          SECTION 23. Governing Law: Jurisdiction. This Agreement and each Warrant certificate
issued hereunder shall be deemed to be a contract made under the laws of the State of New York and
for all purposes shall be governed by and construed in accordance with the internal laws of said
State. The parties hereto irrevocably consent to the jurisdiction of the courts of the State of
New York and any federal court located in such state in connection with any action, suit or
proceeding arising out of or relating to this Agreement.

          SECTION 24. Benefits of This Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the Warrant Agent and the
registered holders of the Warrant certificates any legal or equitable right, remedy or claim

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under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, the Warrant Agent and the registered holders of the Warrant certificates.

          SECTION 25. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to be an original, and
all such counterparts shall together constitute but one and the same instrument.

     SECTION 26. Further Assurances. From time to time on and after the date hereof, the
Company shall deliver or cause to be delivered to the Warrant Agent such further documents and
instruments and shall do and cause to be done such further acts as the Warrant Agent shall
reasonably request (it being understood that the Warrant Agent shall have no obligation to make
such request) to carry out more effectively the provisions and purposes of this Agreement, to
evidence compliance herewith or to assure itself that it is protected hereunder.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of
the day and year first above written.

	 	 	 	 	 
	 	 	NATIONSHEALTH, INC.
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	 
	

	 	 	 	Name:

Title:
	 
	 	 	 	 
	 	 	[______________________________]
	 	 	     as Warrant Agent
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	 
	

	 	 	 	Name:

Title:

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EXHIBIT A

Form of Warrant Certificate

[Face]

EXERCISABLE ON OR AFTER THE DATE OF THIS CERTIFICATE AND ON OR BEFORE FEBRUARY 28, 2012.

 

			
	No.                     
	 	                                                            Warrants

Warrant Certificate

NATIONSHEALTH, INC.

     This Warrant Certificate certifies that                                                                                                                                             
                                                                                                                                                                                     or registered assigns, is the registered holder
of                                                                                                                                             
Warrants expiring on February 28, 2012 (the “Warrants”), to purchase shares of the Common Stock,
par value $.0001 (the “Common Stock”), of NationsHealth, Inc., a Delaware corporation (the
“Company”). Each Warrant entitles the holder upon exercise at any time from 9:00 a.m. on the date
of this Warrant certificate to 5:00 p.m. New York, New York time, on February 28, 2012 to receive
from the Company one fully paid and nonassessable share of Common Stock (each a “Warrant Share”)
for each Warrant at the initial exercise price (the “Exercise Price”) of $[INSERT THE THEN-CURRENT
CONVERSION PRICE OF NOTE] per share payable (i) in United States dollars or (ii) by certified or
official bank check to the order of the Company. The Exercise Price and number of Warrant Shares
issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain
events set forth in the Warrant Agreement. All capitalized terms not defined herein shall have the
meanings assigned to such terms in the Warrant Agreement.

     No Warrant may be exercised after 5:00 p.m., New York, New York Time on February 28, 2012, and
to the extent not exercised by such time such Warrants shall become void.

     Reference is hereby made to the further provisions of this Warrant Certificate set forth on
the reverse hereof and such further provisions shall for all purposes have the same effect as
though fully set forth at this place.

     This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent, as such
term is used in the Warrant Agreement.

     This Warrant Certificate shall be governed and construed in accordance with the internal laws
of the State of New York.

     IN WITNESS WHEREOF, NationsHealth, Inc. has caused this Warrant Certificate to be signed by
the undersigned Chairman of the Board, Chief Executive Officer, President or Vice President and the
undersigned Secretary or Assistant Secretary and has caused its corporate seal to be affixed
hereunto or imprinted hereon.

	 	 	 	 	 
	Dated:
	 	 	 	 
	 	 	NATIONSHEALTH, INC.
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	 
	

	 	 	 	Name:
	

	 	 	 	Title:
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	 
	

	 	 	 	Name:
	

	 	 	 	Title:

	 	 	 	 	 
	Countersigned:	 	(seal)
	 
	 	 	 	 
	 
	 	 
	as Warrant Agent	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	

	 	 	 	 
	Authorized Officer	 	 

 

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Form of Warrant Certificate

[Reverse]

“THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED UNLESS (I) THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAW WITH RESPECT THERETO, (II) PURSUANT
TO RULE 144 OF THE SECURITIES ACT OR (III) UPON THE ADVICE OF
COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER, REGISTRATION UNDER THE
SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW IS NOT
REQUIRED IN CONNECTION WITH SUCH TRANSFER”

     The Company agrees that the legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Warrant upon which it is stamped if
(a) such Warrant may be transferred pursuant to an effective registration statement under the
Securities Act; (b) such holder provides the Company with reasonable assurances that such Warrant
can be transferred pursuant to Rule 144; or (c) such holder receives advice of counsel reasonably
acceptable to the Company to the effect that a sale or transfer of such Warrant may be made without
registration under the Securities Act. In the event the above legend is removed from any Warrant
and thereafter the effectiveness of a registration statement covering such Warrant is suspended or
the Company determines that a supplement or amendment thereto is required by applicable securities
laws, then upon reasonable advance written notice to the holders of Warrant Shares, the Company may
require that the above legend be placed on any such Warrant that cannot then be sold pursuant to an
effective registration statement or pursuant to Rule 144 and the holders thereof shall cooperate in
the replacement of such legend. Such legend shall thereafter be removed when such Warrant may
again be transferred pursuant to an effective registration statement or pursuant to Rule 144.

By accepting a Warrant Certificate bearing the legend above, each holder shall be bound by all of
the terms and provisions of the Warrant Agreement (a copy of which is available on request to the
Company or the Warrant Agent) as fully and effectively as if such holder had signed the same.

     The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of
Warrants expiring on February 28, 2012, entitling the holder upon exercise to receive shares of
Common Stock of the Company (the “Common Stock”), and are issued or to be issued pursuant to a
Warrant Agreement dated as of [                    ] [     ], [     ] (the “Warrant Agreement”), duly executed
and delivered by the Company to [                                        ], as warrant agent (the “Warrant Agent”),
which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument
and is hereby referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the holders (the words
“holders” or “holder” meaning the registered holders or registered holder) of the Warrants.

     The holder of the Warrants evidenced by this Warrant Certificate may exercise them by
surrendering this Warrant Certificate, with the form of election to purchase set forth below on
this Warrant Certificate properly completed and executed, together with payment of the Exercise
Price in accordance with the provisions set forth on the face of this Warrant Certificate. In the

 

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event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised
shall be less than the total number of Warrants evidenced hereby, there shall be issued to the
holder hereof or his assignee a new Warrant Certificate evidencing the number of Warrants not
exercised.

     The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price
and the number of shares of Common Stock issuable upon exercise of this Warrant, in each case, set
forth on the face hereof may, subject to certain conditions, be adjusted. If the Exercise Price is
adjusted, the Warrant Agreement provides that the number of shares of Common Stock issuable upon
the exercise of each Warrant may be adjusted. No fractions of a share of Common Stock will be
issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined
as provided in the Warrant Agreement.

     Warrant Certificates, when surrendered at the principal corporate trust office of the Warrant
Agent by the registered holder thereof in person or by legal representative or attorney duly
authorized in writing, may be exchanged, in the manner and subject to the limitations provided in
the Warrant Agreement, but without payment of any service charge, for another Warrant Certificate
or Warrant Certificates of like tenor evidencing in the aggregate a like number of Warrants.

     Upon due presentation for registration of transfer of this Warrant Certificate at the
principal corporate trust office of the Warrant Agent a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be
issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations
provided in the Warrant Agreement, without charge except for any tax or other governmental charge
imposed in connection therewith.

     The Company and the Warrant Agent may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other
writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the Warrant Agent shall
be affected by any notice to the contrary. Neither the Warrants nor this Warrant Certificate
entitles any holder hereof to any rights of a stockholder of the Company.

 

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Form of Election to Purchase

(To Be Executed Upon Exercise Of Warrant)

     The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant
Certificate, to receive shares of Common Stock and herewith tenders payment for such shares to the
order of NationsHealth, Inc. in the amount of $[INSERT THE THEN-CURRENT CONVERSION PRICE OF NOTE]
per share of Common Stock in accordance with the terms hereof, in cash or by certified or official
bank check to the order of the Company.

REQUEST FOR PAYMENT OF SPREAD

	 	o  	Please check if the undersigned, in lieu of tendering
the cash payment, as aforesaid, hereby requests the
payment of “Spread” within the meaning of Section 6 of
the Warrant Agreement.	 

     The undersigned requests that a certificate for such shares be registered in the name
                                                            , whose address is                                          and that
shares be delivered to                                                              whose address is
                                                                                                                        .

     If said number of shares is less than all of the shares of Common Stock purchasable hereunder,
the undersigned requests that a new Warrant Certificate representing the remaining balance of such
shares be registered in the name of                                                              whose address is
                                                            , and that such Warrant Certificate be delivered to
                                                            , whose address is                                                             .

Date:                                                             

Your Signature:                                                                                

(Sign exactly as your name appears on the face of this Warrant)

Signature Guarantee:

 

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ASSIGNMENT FORM

     To assign this Warrant, fill in the form below: (I) or (we) assign and transfer this
Warrant to

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint                                                              to transfer this Warrant on the books of the
Company. The agent may substitute another to act for him.

Date:                                                             

Your Signature:                                                                                 

(Sign exactly as your name appears on the face of this Warrant)

Signature Guarantee:Ex-10.1 Investment Unit Purchase Agreement

 

Exhibit 10.1

INVESTMENT UNIT PURCHASE AGREEMENT

     THIS
AGREEMENT (this “Agreement”) is made as of February 28, 2005, by and among NationsHealth,
Inc., a Delaware corporation (the “Company”). NationsHealth Holdings, L.L.C., a Florida limited
liability company and a wholly-owned subsidiary of the Company (“NH LLC”), United States
Pharmaceutical Group, L.L.C., a Delaware limited liability company and an indirect wholly-owned
subsidiary of the Company (“USPG,” and together with the Company and NH LLC, the “Issuers”) and
MHR Capital Partners LP, OTQ LLC and MHR Capital Partners (100) LP (each such holder, including
the successors and assigns of any such holder, a “Holder” and, all such holders and their
respective successors and assigns collectively, the “Holders”) and MHR Capital Partners LP, as
collateral agent.

     WHEREAS, the Issuers have agreed to sell to each Holder, and each Holder has agreed to
purchase from the Company, upon the terms and conditions hereafter provided, the number of
investment units (each, a “Unit”) set opposite such Holder’s name on the signature pages hereto,
with each such Unit consisting of (x) $1,000 principal amount of 7 3/4% Convertible Secured Notes
in the form attached as Exhibit A hereto (the “Notes”) and (y) 119.048 shares (the
“Shares”) of common stock, $.0001 par value per share, of the Company (the “Common Stock”); and

     WHEREAS, the aggregate number of Units that Issuers are selling to all the Holders is 15,000,
consisting in the aggregate of (x) $15,000,000 in principal amount of Notes and (y) 1,785,714
Common Shares.

     NOW THEREFORE, in consideration of the mutual covenants and conditions set forth herein, the
sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

     1. Purchase and Issuance of Units; Closing.

          (a) Subject to the terms and conditions set forth in this Agreement, the Issuers
agree to sell to each Holder the number of Units set opposite such Holder’s name on the
signature page hereto and the Holder agrees to pay to the Issuers a per Unit price of $1,000 and the
aggregate purchase price set below such Holder’s name on the signature page hereto (the “
Purchase Price”).

          (b) The closing (the “Closing”) shall take place at the offices of Stroock &
Stroock & Lavan LLP on the date hereof simultaneously with the execution of this Agreement.

          (c) At the Closing, the Issuers will deliver to the Holders the following:

               (1) duly executed original counterparts to this Agreement and the
other Transaction Documents (as defined herein);

               (2) evidence satisfactory to the Holders of the perfection of a security
interest in the Company’s assets and each Subsidiary’s assets, all as more particularly
described in

 

 

the Notes, including without limitation that all filings shall have been made and all fees
payable, if any, in connection therewith shall have been paid by the Company;

               (3) duly executed Notes and validly issued Common Shares;

               (4) a certificate addressed to the Holders, executed by the Chief
Executive Officer of the Company after reasonable investigation, dated as of the time of Closing to
the effect and that: the representations and warranties of the Company and the Subsidiaries are
true and correct as of the time of Closing (except for representations and warranties that speak as
of a specific date, which representations and warranties shall be true and correct as of such
date);

               (5) copies of each consent or approval of each person or entity whose
consent or approval is required under any contract or agreement to which the Company or any of its
Subsidiaries is a party in connection with this Agreement and the Transactions Documents and which
consent or approval is not otherwise expressly referenced in this
Section 1(c), except those for
which the failure to obtain such consent or approval, individually or in the aggregate, is not
reasonably likely to have a Material Adverse Effect (as defined herein) or is not reasonably likely
to prevent or to materially impair the ability of the parties to consummate this Agreement or any
of the Transaction Documents;

               (6) an opinion of the Company’s counsel, dated as of the date of
Closing, in form, scope and substance reasonably satisfactory to the Holders as to: (i) due
incorporation; (ii) power and authority to execute transactions; (iii) due authorization of
transaction and Transaction Documents; (iv) due execution of Transaction Documents, issuance and
delivery; (v) no violation of charter and bylaws or any of the following: (a) the Amended and
Restated Revolving Credit and Security Agreement, dated as of June 29, 2004, among the Issuers and
CapitalSource Finance LLC, as amended, (b) the Warrant Agreement, dated as of August 25, 2003,
between the Company (formerly Millstream Acquisition Corporation), and Continental Stock Transfer &
Trust Company, (c) the Stockholders Agreement, dated as of March 9, 2004, among the Company
(formerly Millstream Acquisition Corporation), RGGPLS Holding, Inc. and GRH Holdings, Inc., (d)
the Registration Rights Agreement dated as of July 22, 2003, among the Company and the investor
parties listed on the signature pages thereto, (e) the Registration Rights Agreement dated as of
March 9, 2004, as amended as of June 2, 2004, among the Company and the investor parties listed on
the signature pages thereto, (f) the Service Agreement, dated as of March 30, 2004, between USPG
and Professional Claim Services, Inc. d/b/a Wellpoint Pharmacy Management and (g) Medical Benefit
Distribution Agreement, dated as of October 1, 2003, between Becton Dickinson and Company and USPG;
(vi) valid and binding and enforceable obligation; (vii) no violation of applicable laws; (viii) no
registration under federal securities laws required; (ix) no consent, order, approval or
authorization of governmental authority necessary; (x) Shares validly issued and fully paid; and
(xi) Common Stock duly reserved for issuance and upon conversion of the Notes will be validly
issued, fully paid and free of preemptive rights;

               (7) a copy of the certificate of incorporation, by-laws or other
applicable organizational documents of each Issuer and a copy of resolutions, duly adopted by
the

-2-

 

Board of Directors or other governing body of each Issuer, which shall be in full force and effect
at the time of the Closing, authorizing the execution, delivery and performance by such Issuer of
this Agreement and the Transaction Documents, and the consummation by such Issuer of the
transactions contemplated hereby and thereby, certified as such by the Secretary or Assistant
Secretary of such Issuer;

               (8) good standing certificates as of a recent date for each of the Issuers
from the Secretary of State of such Issuer’s jurisdiction of organization;

               (9) A copy of duly executed waivers and consents from the Company
and any and all third parties that have registration rights with respect to the Company’s
securities, including the Registration Rights Agreement, dated as of July 22, 2003, by and among
Millstream Acquisition Corporation (currently the Company) and the other signatories thereto and
the Registration Rights Agreement, dated as of March 9, 2004, as amended as of June 2, 2004, by and
among Millstream Acquisition Corporation (currently the Company), RGGPLS Holding, Inc., GRH
Holdings, L.L.C. and Becton Dickenson and Company (the “Existing Registration Rights
Agreements”) that the Holders pursuant to the Registration Rights Agreement shall be able to
participate on the basis set forth in the Registration Rights Agreement in the sale of securities
with such third parties with respect to any (i) demands for registration made by such third
parties, and prior to the Company selling any securities pursuant to such registration statement,
including by way of reduction of any shares offered in a demand registration pursuant to Sections
2.1.4 of the Existing Registration Rights Agreements and (ii) piggyback registrations, including by
way of reduction of any shares offered in a piggyback registration pursuant to Sections 2.2.2 of
the Existing Registration Rights Agreements; and

               (10) a copy of a duly executed Existing Senior Lender Waiver and
Consent (as defined herein).

          (d) At the Closing, the Holders will deliver to an account designated by the Company, by wire
transfer in immediately available funds, an amount equal to the aggregate Purchase Price.

     2. Representations and Warranties of the Company. The Company and each of its
Subsidiaries (as defined below) hereby jointly and severally represents and warrants to the
Holders as of the date hereof, except as set forth in the schedules delivered herewith
(collectively, the “Disclosure Schedules”), as follows:

          (a) Organization, Good Standing and Qualification. Each of the Company and its Subsidiaries
is a corporation or a limited liability company duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation and has all requisite corporate power
and other authority to carry on its business as now conducted and to own its properties. Each of
the Company and its Subsidiaries is duly qualified to do business as a foreign corporation or
limited liability company, as applicable, and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property makes such qualification or
leasing

-3-

 

necessary unless the failure to so qualify has not and could not reasonably be expected to have a
Material Adverse Effect (as defined below). For purposes of this agreement, “Subsidiary” shall
mean, (i) as to the Company, any person or entity in which more than 50% of all equity, membership,
partnership or other ownership interests is owned directly or indirectly by the Company and/or one
or more of its Subsidiaries (each a Subsidiary, and collectively the “Subsidiaries”). As of the
date hereof, the Company’s subsidiaries are reflected on Schedule 2(a) hereto.

          (b) Authorization. Each of the Company and each Subsidiary has full corporate
or other power and authority and has taken all requisite action necessary under applicable law
governing its internal affairs and under its governing documents to authorize (i) the
execution and
delivery of this Agreement, the Intercreditor Agreement, dated as the date hereof, between the
Holders and Capital Source Finance LLC in the form attached hereto as Exhibit B,
(the
“Intercreditor Agreement”), the Amendment and the Waiver and Consent, dated as of the date
hereof, between the Company and CapitalSource Finance LLC in the form attached hereto as
Exhibit C (together, the “Existing Senior Lender Amendment, Waiver and Consent”), the
Registration
Rights Agreement, dated as of the date hereof, between the Holders and the Company in the form
attached here as Exhibit D (the “Registration Rights Agreement”), the
Stockholders Agreement,
dated as of the date hereof, among the Holders, the Company and the other signatories thereto
in the
form attached hereto as Exhibit E (the
“Stockholders Agreement”) and any other
documents,
instruments or certificates contemplated by the foregoing (collectively with this Agreement,
the
Notes, the Intercreditor Agreement, the Existing Senior Lender Amendment, Waiver and Consent,
the Registration Rights Agreement and the Stockholders Agreement, the “Transaction
Documents”),
(ii) the performance of all obligations of the Company and each Subsidiary, as applicable,
under the
Transaction Documents, and (iii) the delivery of the Shares and the issuance and delivery of
the
Notes, the Redemption Warrants (as defined in the Notes) and any other convertible securities
issuable in accordance with the terms of the Notes, and the shares of Common Stock issuable
upon
the conversion of the Notes or exercise or conversion of the Redemption Warrants or any other
convertible securities issuable in accordance with the terms of the Notes (such shares,
including the
same that may be issued in accordance with the antidilution provisions in Section 3(d) of the
Notes
or any similar provisions which may exist in the Redemption Warrants or any other convertible
securities issuable under the Notes, the “Conversion Shares”, and together with the Shares,
the Notes
and the Redemption Warrants and any other convertible securities issuable in accordance with
the
terms of the Notes, the “Securities”)). The Transaction Documents constitute the legal,
valid and
binding obligations of the Company and each Subsidiary party thereto, enforceable against the
Company and each Subsidiary in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general applicability,
relating to
or affecting creditors’ rights generally.

          (c) Capitalization. Schedule 2(c) sets forth (a) the authorized capital stock of the
Company on the date hereof; (b) the number of shares of capital stock issued and outstanding
on the
date hereof; (c) the number of shares of capital stock issuable pursuant to the Company’s
stock
plans; (d) the number of shares of capital stock issuable and reserved for issuance pursuant
to
securities exercisable for, or convertible into or exchangeable for any shares of capital
stock of the
Company and (e) the pro forma capitalization of the Company on a fully diluted basis giving
effect

-4-

 

to (i) the issuance of the Shares and the Conversion Shares, (ii) any adjustments in other
securities resulting from such issuance, and (iii) the exercise or conversion of all outstanding
securities. All of the issued and outstanding shares of the Company’s capital stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of preemptive rights and
were issued in full compliance with applicable law. All of the issued and outstanding shares of
capital stock of each Subsidiary have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, were issued in full compliance with applicable law
and are owned by the Company, beneficially and of record, subject to no lien, encumbrance or other
adverse claim. No person is entitled to preemptive or similar statutory or contractual rights with
respect to any securities of the Company. Except as described herein and on Schedule 2(c), (i)
there are no outstanding warrants, options, convertible securities or other rights, agreements or
arrangements of any character under which the Company or any of its Subsidiaries is or may be
obligated to issue any equity securities of any kind and except as expressly contemplated by this
Agreement, (ii) neither the Company nor any of its Subsidiaries is currently in negotiations for
the issuance of any equity securities of any kind (other than the Units), (iii) there are no
agreements or arrangements under which the Company or a Subsidiary is obligated to register the
sale of any of its or their securities under the Securities Act of 1933, as amended (the
“Securities Act”) and (iv) there are no voting agreements, buy sell agreements, or right of first
purchase agreements among the Company and any of the securityholders of the Company.

               The Company has furnished to the Holders true and correct copies of the Company’s Certificate
of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s
By-laws as in effect on the date hereof (the “By-laws”), and all other instruments and agreements
governing securities convertible into or exercisable or exchangeable for capital stock of the
Company and each of its Subsidiaries.

          (d) Valid Issuance. The Company has duly authorized and reserved a sufficient
number of shares of Common Stock for issuance of the Conversion Shares. The Shares are, and,
if
and when issued, the Redemption Warrants, any other convertible securities issuable in
accordance
with the terms of the Notes and the Conversion Shares will be, validly issued, fully paid and
non
assessable free and clear of all taxes, liens, encumbrances and restrictions, except for
restrictions on
transfer set forth in this Agreement, the other Transaction Documents or imposed by applicable
securities laws and the sale or issuance thereof will not be subject to preemptive rights or
other
similar rights and will not impose personal liability upon the holder thereof.

          (e) Consents. Except as set forth on Schedule 2(e), and assuming the accuracy of
the representations of the Holders in Section 3, the execution, delivery and performance by
the
Company and the Subsidiaries of the Transaction Documents, the offer and sale or future
issuance,
as applicable, of the Securities, the granting of the security interests pursuant to the Notes
and the
exercise of the rights granted to the Holders therein require no consent of, action by or in
respect of,
or filing with, any person, governmental body, agency, or official (including, without
limitation, any
board of directors or stockholder approval) other than (i) the Existing Senior Lender
Amendment,
Waiver and Consent, (ii) consents, actions or filings that have been made prior to the date
hereof
which are in full force and effect, and (iii) post-sale filings pursuant to applicable state
and federal

-5-

 

securities laws which the Company undertakes to file within the applicable time periods. The
granting of the security interest in the Collateral (as defined in the Notes) pursuant to the
Notes and Intercreditor Agreement and the exercise of the rights granted to the Holders therein
(including, without limitation, the disposition of the Collateral) do not require the consent,
authorization or approval of any Governmental Authority.

          (f) Delivery of SEC Filings; Business. The Company has provided or made
available to the Holders via EDGAR copies of the Company’s most recent Annual Report on Form
10-KSB for the fiscal year ended December 31, 2003 (the “2003 10-KSB”), and all other reports
furnished or filed by the Company pursuant to the Securities Exchange Act of 1934, as amended
(the
“Exchange Act”) since the filing of the 2003 10-KSB and prior to the date hereof (all of the
foregoing and all exhibits included therein and financial statements thereto and documents
incorporated by reference therein collectively, being referred to herein as the “SEC
Filings”). The
SEC Filings are the only filings required of the Company pursuant to the Exchange Act for such
period. The Company and its Subsidiaries are engaged only in the business described in the
SEC
Filings and the SEC Filings contain a complete and accurate description in all material
respects of
the business of the Company and its Subsidiaries, taken as a whole.

          (g) No Material Adverse Effect. Since December 31, 2003, except as described
on Schedule 2(g) and as identified and described in the SEC Filings, there has not been:

               (1) any change in the consolidated assets, liabilities,
financial
condition or operating results of the Company from that reflected in the financial statements
included in the 2003 10-KSB, except for changes in the ordinary course of business, in each case
which have not and could not reasonably be expected to have a Material Adverse Effect (as defined
herein), individually or in the aggregate;

               (2) any declaration or payment of any dividend, or any authorization
or payment of any distribution, on any of the capital stock of the Company, or any redemption or
repurchase of any securities of the Company;

               (3) any material damage, destruction or loss, whether or not covered
by insurance to any assets or properties of the Company or its Subsidiaries;

               (4) any waiver, not in the ordinary course of business, by the
Company or any Subsidiary of a material right or of a material debt owed to it;

               (5) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company or a Subsidiary, except in the ordinary course of business
and which is not material to the assets, properties, financial condition, operating results or
business of the Company and its Subsidiaries taken as a whole (as such business is presently
conducted and as it is proposed to be conducted);

-6-

 

               (6) any change or amendment to the Company’s Certificate of
Incorporation or By-laws, or material change to any material contract or arrangement by which the
Company or any Subsidiary is bound or to which any of their respective assets or properties is
subject;

               (7) any material labor difficulties or labor union organizing activities
with respect to employees of the Company or any Subsidiary;

               (8) any transaction entered into by the Company or a Subsidiary other
than in the ordinary course of business;

               (9) the loss of the services of any key employee, or material change in
the composition or duties of the senior management of the Company or any Subsidiary;

               (10) the loss, or threatened loss in writing, of any customer which has
had or could reasonably be expected to have a material adverse effect on (i) the assets,
liabilities, results of operations, condition (financial or otherwise) or business of the Company
and its subsidiaries taken as a whole or (ii) on the ability of the Company to perform its
obligations under the Transaction Documents (collectively, a “Material Adverse Effect”); or

               (11) any other event or condition of any character that has had or could
reasonably be expected to have a Material Adverse Effect.

          (h) SEC Filings.

               (1) At the time of filing thereof, the SEC Filings complied as to form
in all material respects with the requirements of the Exchange Act and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were made, not
misleading.

               (2) During the preceding two years, each registration statement and
any amendment thereto filed by the Company (or its predecessors) pursuant to the Securities Act and
the rules and regulations thereunder, as of the date such statement or amendment became effective,
complied as to form in all material respects with the Securities Act and did not contain any untrue
statement of a material fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the circumstances under which
they were made, not misleading; and each prospectus filed pursuant to Rule 424(b) under the
Securities Act, as of its issue date and as of the closing of any sale of securities pursuant
thereto did not contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.

          (i) No Conflict, Breach, Violation or Default. The execution, delivery and performance
of the Transaction Documents by the Company, the issuance and sale of the Securities,

-7-

 

the granting of the security interest pursuant to the Notes, and the exercise of the rights granted
to the Holders herein or therein do not and will not conflict with or result in a breach or
violation of any of the terms and provisions of, constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration of obligations, impairment of rights or cancellation under (i)
the Certificate of Incorporation or the By-laws, or any governing documents of any Subsidiary, each
as in effect on the date hereof (copies of which have been provided to the Holders before the date
hereof) or as hereafter amended, or (ii)(a) any statute, rule, regulation or order of any
governmental agency or body (including without limitation, the Sarbanes-Oxley Act of 2002) or any
court, or other governmental, administrative, regulatory or self-regulatory authority domestic or
foreign, having jurisdiction over the Company, any Subsidiary or any of their respective assets or
properties (each such authority, a “Governmental Authority”), or (b) upon receipt of the consents
set forth on Schedule 2(e), any agreement, or instrument to which the Company or any Subsidiary is
a party or by which the Company or a Subsidiary is bound or to which any of their respective assets
or properties is subject, except in the case of (i) and (ii) above for such conflicts, violations
defaults or rights which could not reasonably be expected to have a Material Adverse Effect.
Neither the Company nor any Subsidiaries is in violation of its Certificate of Incorporation,
By-laws or other governing documents and, except as provided in Schedule 2(i), neither the Company
nor any Subsidiary is in default (and no event has occurred which, with notice or lapse of time or
both, would put the Company or any Subsidiary in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which the Company or
Subsidiary is a party, except for actual or possible violations, defaults or rights that would not,
individually or in the aggregate, have a Material Adverse Effect. Each of the Company and its
Subsidiaries is (i) in compliance with all laws, statutes, rules, regulations, ordinances and
tariffs of any Governmental Authority applicable to the Company or its Subsidiaries’ business,
assets or operations, including, without limitation, applicable requirements of the Standards for
Privacy of Individually Identifiable Health Information which were promulgated pursuant to the
Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”), Employee
Retirement Income Security Act of 1974, as amended and the rules and regulations thereunder
(“ERISA”), and all applicable statutes, laws, ordinances, rules and regulations of any Governmental
Authority with respect to regulatory matters primarily relating to patient healthcare, healthcare
providers and healthcare services (including without limitation Section 1128B(b) of the Social
Security Act, as amended, 42 U.S.C. Section 1320a-7(b) (Criminal Penalties Involving Medicare or
State Health Care Programs), commonly referred to as the “Federal Anti-Kickback Statute,”
and the Social Security Act, as amended, Section 1877, 42 U.S.C. Section 1395nn (Prohibition
Against Certain Referrals), commonly referred to as “Stark Statute”) (collectively, “Healthcare
Laws”) and (ii) not in violation of any law, ordinance or regulation of any Governmental Authority
or other board or tribunal, except in the case of (i) and (ii) above as set forth on Schedule 2(i)
or where noncompliance or violation could not reasonably be expected to have a Material Adverse
Effect. To the Company’s knowledge, there is no event, fact, condition or circumstance which, with
notice or passage of time, or both, would constitute or result in any noncompliance with, or any
violation of any of the foregoing laws, in each case except where such noncompliance or such
violation could not reasonably be expected to

-8-

 

have a Material Adverse Effect. To the knowledge of the Company, the Issuers have not received any
written notice that they or any of their Subsidiaries are not in compliance in any respect with
any of the requirements of any of the foregoing or that there is any ongoing investigation by a
Governmental Authority with respect to the foregoing, except as set forth on Schedule 2(i) or
where such noncompliance or investigation could not reasonably be expected to have a Material
Adverse Effect. The Issuers have (a) not engaged in any non-exempt prohibited transaction as
defined in Section 406 of ERISA and Section 4975 of the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder, (b) not failed to meet any applicable
minimum funding requirements under Section 302 of ERISA in respect of its plans and no funding
requirements have been postponed or delayed, (c) no knowledge of any amounts due but unpaid to the
Pension Benefit Guaranty Corporation, or of any event or occurrence which would cause the Pension
Benefit Guaranty Corporation to institute proceedings under Title IV of ERISA to terminate any of
the employee benefit plans, (d) no fiduciary responsibility under ERISA for investments with
respect to any plan existing for the benefit of persons other than its employees or former
employees, or (e) not withdrawn, completely or partially, from any multi-employer pension plans so
as to incur liability under the MultiEmployer Pension Plan Amendments of 1980. With respect to the
Issuers, there exists no event described in Section 4043 of ERISA, excluding Subsections
4043(b)(2) and 4043(b)(3) thereof, for which the thirty (30) day notice period contained in 12 C.F.R.
2615.3 has not been waived. The Issuers have maintained all records required to be maintained by
the Food and Drug Administration, Drug Enforcement Agency and State Boards of Pharmacy and the
federal and state Medicare and Medicaid programs as required by the Healthcare Laws, HIPAA or
ERISA and, to the Company’s knowledge, there are no presently existing circumstances which would
reasonably be expected to result in violations of the Healthcare Laws, HIPAA or ERISA, except as
set forth on Schedule 2(i) or where such failure, circumstance or violation could not reasonably
be expected to have a Material Adverse Effect.

          (j) Medicare or Medicaid Program Liability. Except as disclosed in the SEC Filings, there has
been no event, fact, condition or circumstance or series thereof (i) in or for which any Issuer has
or could reasonably be expected to become liable or otherwise responsible for any amount owed or
owing to any Medicaid or Medicare program by a provider under common ownership with such Issuer or
any provider owned by such Issuer pursuant to any applicable law, ordinance, rule, decree, order or
regulation of any Governmental Authority after the failure of any such provider to pay any such
amount when owed or owing, (ii) in which Medicaid or Medicare payments to any Issuer are lawfully
set-off against payments by such Issuer or any other Issuer to satisfy any liability of or for any
amounts owed or owing to any Medicaid or Medicare program by a provider under common ownership with
such Issuer or any provider owned by such Issuer pursuant to any applicable law, ordinance, rule,
decree, order or regulation of any Governmental Authority, or (iii) any of the foregoing under
clauses (i) or (ii), in each case pursuant to statutory or regulatory provisions that are similar
to any applicable law, ordinance, rule, decree, order or regulation of any Governmental Authority
referenced in clauses (i) and (ii) above or successor provisions thereto, except in the case of
(i), (ii) and (iii) above where such extent, fact, condition or circumstance could not reasonably
be expected to result in such a liability or set-off which would have a Material Adverse Effect.

-9-

 

          (k) Tax Matters. The Company and each Subsidiary has timely prepared and filed all Tax
Returns with all appropriate governmental agencies and timely paid all taxes owed by it in each
case in accordance with all applicable laws. The charges, accruals and reserves on the books of
the Company in respect of Taxes for all fiscal periods are adequate in all material respects, and
there are no material unpaid assessments against the Company or any Subsidiary nor, to the
Company’s knowledge, any basis for the assessment of any additional Taxes for any fiscal period or
audits by any federal, state or local Tax authority except for any assessment that is not material
to the Company and its Subsidiaries, taken as a whole. All Taxes and other assessments and levies
that the Company or any Subsidiary is required to withhold or to collect for payment have been
duly withheld and collected and paid to the proper Governmental Authority or third party when due.
There are no Tax liens or claims pending or, to the Company’s knowledge, threatened against the
Company or any Subsidiary or any of their respective assets or property. There are no outstanding
Tax sharing agreements or other such arrangements between the Company and any Subsidiary or other
corporation or entity. Neither the Company nor any of the Subsidiaries has executed a waiver with
respect to the statute of limitations relating to Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency. There is no action, suit, proceeding, audit or claim
now proposed or pending against or with respect to the Company or any of its Subsidiaries in
respect of any Taxes.

          As used in this Agreement, (i) the term “Tax” (including, with correlative meaning, the terms
“Taxes” and “Taxable”) includes all federal, state, local and foreign income, profits, franchise,
gross receipts, environmental, customs duty, capital stock, severances, stamp, payroll, sales,
employment, unemployment, disability, use, property, withholding, excise, production, value added,
occupancy and other taxes, charges, fees, levies, duties or assessments of any nature whatsoever,
together with all interest, penalties and additions imposed with respect to such amounts and any
interest in respect of such penalties and additions, and (ii) the term “Tax Return” includes any
return, report, form or similar statement (including elections, declarations, disclosures,
schedules, estimates and information returns) required to be supplied to a Tax authority relating
to any Taxes.

          (l) Title to Properties. Except as disclosed in the SEC Filings and Schedule 2(1), the
Company and each Subsidiary has good and marketable title in fee simple to all real properties and
good and marketable title to all other properties and assets owned by it, in each case free from
liens, encumbrances and defects that would affect the value thereof or interfere with the use made
or currently planned to be made thereof by them; and the Company and each Subsidiary holds any
leased real or personal property under valid, subsisting and enforceable leases with no exceptions
that would interfere with the use made or currently planned to be made thereof by them, in each
case except where the failure would not be expected to have a Material Adverse Effect.

          (m) Certificates, Authorities and Permits. Except as set forth on Schedule 2(i), the Company
and each Subsidiary possess adequate certificates, authorities, licenses, approvals or permits
issued by appropriate governmental agencies or bodies necessary to conduct the business now
operated by it, and neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate, authority or permit

-10-

 

that, if determined adversely to the Company or such Subsidiary, could reasonably be expected to
have a Material Adverse Effect, individually or in the aggregate.

          (n) No Labor Disputes. No material labor dispute with the employees of the Company or
any Subsidiary exists or, to the Company’s knowledge, is imminent.

          (o) Intellectual Property.

               (1) “Intellectual Property” means all of the following: (i)
patents,
patent applications, patent disclosures and inventions (whether or not patentable and whether or
not reduced to practice); (ii) trademarks, service marks, trade dress, trade names, corporate
names, logos, slogans and Internet domain names, together with all goodwill associated with each of
the foregoing; (iii) copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; (v) trade secrets, confidential information and know-how
(including but not limited to ideas, formulae, compositions, manufacturing and production processes
and techniques, research and development information, drawings, specifications,
scientific, technical, and engineering data object and source codes, designs, business and
marketing plans, and customer and supplier lists and related information); and (vi) proprietary
computer software (including but not limited to data, data bases and documentation). Schedule
2(o) sets forth a list of all material registered Intellectual Property of the Company and its
Subsidiaries and such list contains a description of the owner, title (in the case of patents and
copyrights), or mark (in the case of trademarks or servicemarks), registration or application
number, if in existence, and country of registration or application of each listed item.

               (2) All of the licenses and sublicenses and consent, royalty or other
agreements concerning Intellectual Property which are necessary for the conduct of Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to
be conducted to which the Company or any Subsidiary is a party or by which any of their assets are
bound (other than generally commercially available, non-custom, off-the-shelf software application
programs having a retail acquisition price of less than $10,000 per license) (collectively,
“License Agreements”) are valid and binding obligations of the Company or its Subsidiaries that are
parties thereto and, to the Company’s knowledge, the other parties thereto, enforceable in
accordance with their terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors’ rights generally, and neither the Company nor any of its
Subsidiaries nor, to the Company’s knowledge, any other party thereto, is in material violation or
breach of any such License Agreement, and no action or failure to act by the Company or any of its
Subsidiaries constitutes (with or without due notice or lapse of time or both) a material default
by the Company or any of its Subsidiaries thereunder.

               (3) The Company and its Subsidiaries own or have the valid right to
use all of the Intellectual Property necessary for the conduct of the Company’s and each of its
Subsidiaries’ businesses substantially as currently conducted or as currently proposed to be

-11-

 

conducted and for the ownership, maintenance and operation of the Company’s and its Subsidiaries’
properties and assets.

               (4) Except as set forth on Schedule 2(o), all Intellectual Property
owned by the Company and its Subsidiaries that is necessary for the conduct of the Company’s and
each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to
be conducted is valid and enforceable and owned by them free and clear of all liens, encumbrances,
adverse claims or obligations to license all such owned Intellectual Property, other than licenses
entered into in the ordinary course of the Company’s and its Subsidiaries’ businesses. The Company
and its Subsidiaries have a valid and enforceable right to use all other Intellectual Property that
is necessary for the conduct of the Company’s and each of its Subsidiaries’ respective businesses
as currently conducted or as currently proposed to be conducted. The Company and its Subsidiaries
have the right to use all of the owned and licensed Intellectual Property which is necessary for
the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted
or as currently proposed to be conducted in all jurisdictions in which they conduct their
businesses.

               (5) The Company and each of its Subsidiaries have taken reasonable
steps to maintain, police and protect the Intellectual Property which it owns and which is
necessary for the conduct of Company’s and each of its Subsidiaries’ respective businesses as
currently conducted or as currently proposed to be conducted, including the execution of
appropriate confidentiality agreements and intellectual property and work product assignments and
releases. The conduct of the Company’s and its Subsidiaries’ businesses as currently conducted does
not infringe or otherwise impair or conflict with (collectively, “Infringe” or “Infringement”) any
Intellectual Property rights of any third party, and, to the Company’s knowledge, the Intellectual
Property rights of the Company and its Subsidiaries that are necessary for the conduct of Company’s
and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed
to be conducted are not being infringed by any third party, except to the extent such Infringements
do not have a Material Adverse Effect. Except as disclosed in the SEC Filings, there is no
litigation or order pending or outstanding or, to the Company’s knowledge, threatened or imminent,
that seeks to limit or challenge or that concerns the ownership, use, validity or enforceability of
any Intellectual Property of the Company and its Subsidiaries and the Company’s and its
Subsidiaries’ use of any Intellectual Property owned by a third party. Except as Disclosed in the
SEC Filings, neither the Company nor any of the Subsidiaries has entered into any consent
agreement, indemnification agreement, forbearance to sue or settlement agreement with respect to
the validity of the Company’s or its Subsidiaries’ ownership or right to use its Intellectual
Property and, to the best knowledge of the Company, there is no reasonable basis for any such claim
to be successful.

               (6) The consummation of the transactions contemplated hereby will
not result in the alteration, loss, impairment of or restriction on the Company’s or any of its
Subsidiaries’ ownership or right to use any of the Intellectual Property (including, without
limitation, property used pursuant to License Agreements) which is necessary for the conduct of
Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as
currently proposed to be conducted.

-12-

 

               (7) Except in compliance with applicable confidentiality obligations,
there has been no material disclosure of any of the Company’s or its Subsidiaries’ confidential
information or trade secrets to any third party.

          (p) Environmental Matters. Except as disclosed in the SEC Filings, neither the Company nor any
Subsidiary is in violation of any statute, rule, regulation, decision, law (including, without
limitation, common law) code, injunction, permit, governmental agreement or governmental
restriction, or order of any governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or toxic substances
(collectively, “Environmental Laws”), owns or operates any real property contaminated with any
substance that is subject to any Environmental Laws, is liable for any off-site disposal or
contamination pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim has had or could reasonably
be expected to have a Material Adverse Effect, individually or in the aggregate; and there is no
pending or, to the Company’s knowledge, threatened investigation that might lead to such a claim.

          (q) Litigation. Except as disclosed in the SEC Filings and Schedule 2(q), there are no pending
or, to the knowledge of the Company, threatened actions, suits, proceedings, inquiries or
investigations against or affecting the Company, its Subsidiaries or any of its or their properties
or their respective directors or officers in their capacities as such, except for actions, suits,
proceedings, inquiries or investigations which could not reasonably be expected to have a Material
Adverse Effect. To the best knowledge of the Company, after reasonable investigation, there are no
facts which, if known by a potential claimant or Governmental Authority, could give rise to a claim
or proceeding which, if asserted or conducted with results unfavorable to the Company or any of the
Subsidiaries, could reasonably be expected to have a Material Adverse Effect.

          (r) Financial Statements. The financial statements included in each of the SEC Filings present
fairly, in all material respects, the consolidated financial position of the Company as of the
dates shown and its consolidated results of operations and cash flows for the periods shown, and
such financial statements have been prepared in conformity with United States generally accepted
accounting principles (“GAAP”) applied on a consistent basis (except as may be disclosed therein or
in the notes thereto). Except as set forth in the financial statements of the Company included in
the SEC Filings filed prior to the date hereof or as described on Schedule 2(r), neither the
Company nor any of its Subsidiaries has incurred any liabilities, contingent or otherwise, except
(i) those incurred in the ordinary course of business, consistent (as to amount and nature) with
past practices since the date of such financial statements, and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required under GAAP to be
reflected in such financial statements, none of which, individually or in the aggregate, have had
or could reasonably be expected to have a Material Adverse Effect.

          (s) Insurance Coverage. The Company and each Subsidiary maintain in full force and effect
insurance coverage that is customary for comparably situated companies for the

-13-

 

business being conducted and properties owned or leased by the Company and each Subsidiary. No
default or event has occurred that could give rise to a default under any such policy.

          (t) Brokers and Finders. No person will have, as a result of the transactions contemplated by
this Agreement, any valid right, interest or claim against or upon the Company, any Subsidiary or
the Holders for any commission, fee or other compensation pursuant to any agreement, arrangement
or understanding entered into by or on behalf of the Company.

          (u) No Directed Selling Efforts or General Solicitation. Neither the Company nor any person
acting on its behalf has conducted any general solicitation or general advertising (as those terms
are used in Rules 501 through 508 of the Securities Act (“Regulation D”)) in connection with the
offer or sale of the Securities.

          (v) No Integrated Offering. Neither the Company nor any of its Affiliates (as defined below),
nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales
of any Company security or solicited any offers to buy any security, under circumstances that
would adversely affect reliance by the Company on Section 4(2) of the Securities Act for the
exemption from registration for the offer and sale of the Securities hereunder. For purposes of
this Agreement, “Affiliate” shall have the meaning as defined in Rule 12b-2 of the Exchange Act.

          (w) Questionable Payments. Neither the Company nor any of its Subsidiaries nor, to the
Company’s knowledge, any of their respective current or former shareholders, directors, officers,
employees, agents or other persons acting on behalf of the Company or any Subsidiary, has on
behalf of the Company or any Subsidiary or in connection with their respective businesses: (a)
used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity; (b) made any direct or indirect unlawful payments to any
governmental officials or employees from corporate funds; (c) established or maintained any
unlawful or unrecorded fund of corporate monies or other assets; (d) made any false or fictitious
entries on the books and records of the Company or any Subsidiary; or (e) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

          (x) Disclosures. The information relating to or concerning the Company, set forth in this
Agreement or provided to the Holders in connection with the transactions contemplated by the
Transaction Documents do not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. To the Company’s knowledge, there is no
fact that has specific application to the Issuers (other than general economic or industry
conditions) and that could reasonably be expected to have a Material Adverse Effect that has not
been set forth in the SEC Filings, this Agreement or the Disclosure Schedules.

          (y) Transactions with Affiliates. Except as disclosed on Schedule 2(y) or the SEC Filings,
none of the officers or directors of the Company and, to the Company’s knowledge, none of the
employees of the Company is presently a party to any transaction with the Company or a

-14-

 

Subsidiary or to a presently contemplated transaction (other than for services as employees,
officers and directors) that would be required to be disclosed pursuant to Item 404 of Regulation
S-K promulgated under the Securities Act, without regard to the dollar thresholds contained in
such Item.

          (z) Acknowledgment Regarding Holders’ Purchase of the Securities. The
Company acknowledges and agrees that no Holder is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to this Agreement or the transactions
contemplated hereby, the relationship between the Company and each Holder is “arms-length” and any
statement made by any Holder or any of its representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such Holder’s purchase
of the Securities and has not been relied upon by the Company, its officers or directors in any
way. The Company further acknowledges that the Company’s decision to enter into this Agreement has
been based solely on an independent evaluation by the Company and its representatives.

          (aa) Takeover Statutes. No “fair price,” “moratorium,” “control share acquisition” or other
similar anti-takeover statute or regulation (including Section 203 of the Delaware General
Corporation Law (the “DGCL”)) or any anti-takeover provision in the Certificate of Incorporation
or By-Laws is applicable to the execution of the Transaction Documents or the other transactions
contemplated hereby. Assuming the accuracy of the Holders’ representations and warranties
contained in Section 3, the Board of Directors of the Company has taken all action so that the
Holders will not be prohibited from entering into a “business combination” with the Company as an
“interested stockholder” (in each case as such term is used in Section 203 of the DGCL) as a
result of the execution of this Agreement or the consummation of the Transaction Documents or
other transactions contemplated hereby.

          (bb) Fraudulent Transfer. Immediately following the Closing, neither the Company nor its
Subsidiaries shall be insolvent (as such term is defined in the Uniform Fraudulent Transfer Act)
and no transfer of property is being made by any of the Company or any of the Subsidiaries in
connection with the transactions contemplated by this Agreement or the other Transaction Documents
with the intent to hinder, delay, or defraud either present or future creditors of any of the
Company or any of its Subsidiaries.

     3. Holders’ Representations. In connection with the Holders’ acquisition of the Units,
each of the Holders, severally but not jointly, represents to the Company the following:

          (a) Organization and Existence. The Holder is a validly existing corporation,
limited partnership or limited liability company and has all requisite corporate, partnership
or limited
liability company power and authority to enter into and perform its obligations under this
Agreement
and the other Transaction Documents, and invest in the Securities.

          (b) Authorization. The execution, delivery and performance by the Holder of the
Transaction Documents have been duly authorized and the Transaction Documents each constitute
the valid and legally binding obligation of the Holder, enforceable against the Holder in
accordance

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with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability, relating to or affecting creditors’ rights
generally.

          (c) No Conflict. The execution, delivery and performance of the Transaction
Documents by the Holder do not and will not conflict with or result in a breach or violation
of any of
the terms and provisions of, constitute a default (or an event that with notice or lapse of
time or both
would become a default) under, or give to others any rights of termination, amendment,
acceleration
of obligations, impairment of rights or cancellation under (i) the limited partnership or
limited
liability company agreement, as the case may be, of the Holder, each as in effect on the date
hereof
or as hereafter amended, or (ii)(a) any statute, rule, regulation or order of any Governmental
Authority, or (b) any material agreement, or instrument to which the Holder is a party or by
which
the Holder is bound or to which any of their respective assets or properties is subject.

          (d) Purchase Entirely for Own Account. The Securities to be received by the
Holder hereunder will be acquired for the Holder’s own account, not as nominee or agent, and
not
with a view to the resale or distribution of any part thereof in violation of the Securities
Act, and the
Holder has no present intention of selling, granting any participation in, or otherwise
distributing the
same in violation of the Securities Act. The Holder is not a registered broker dealer or
entity
engaged in the business of being a broker dealer. Notwithstanding anything in this Section
3(d) to
the contrary, by making the representations herein, the Holder does not agree to hold the
Securities
for any minimum or other specific term and reserves the right to dispose of the Securities at
any time
in accordance with or pursuant to a registration statement or an exemption from the
registration
requirements under the Securities Act.

          (e) Investment Experience. The Holder acknowledges that it can bear the
economic risk and complete loss of its investment in the Securities and has such knowledge and
experience in financial or business matters that it is capable of evaluating the merits and
risks of the
investment contemplated hereby.

          (f) Disclosure of Information. The Holder has had an opportunity to receive all
information related to the Company that it has requested and to ask questions of and receive
answers
from the Company regarding the Company, its business and the terms and conditions of the sale
of
the Securities to be received by the Holder hereunder. The Holder acknowledges review of
copies of
the SEC Filings. Neither such inquiries nor any other due diligence investigation conducted by
the
Holder shall modify, amend or affect the Holder’s right to rely on the Company’s
representations
and warranties contained in this Agreement, except as expressly set forth herein.

          (g) Restricted Securities. The Holder acknowledges and understands that the
Units, including the underlying Notes and the Shares constitute, and that the Redemption
Warrants,
any other convertible securities issuable in accordance with the terms of the Notes and the
Conversion Shares, if issued, will constitute, “restricted securities” under the Securities
Act and must
be held indefinitely unless a registration statement under the Securities Act is effective
with respect
to the transfer of such securities or an exemption from such registration is available.

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          (h) Legends. It is understood that until (i) the Securities have been transferred pursuant to
Rule 144 under the Securities Act (“Rule 144”), (ii) the Securities may be transferred pursuant to
Rule 144(k) under the Securities Act, or (iii) a registration statement under the Securities Act
is effective relating to the transfer of such Securities, certificates evidencing the Notes,
Common Shares, and, if issued, the Redemption Warrants, any other convertible securities issuable
in accordance with the terms of the Notes and the Conversion Shares, may bear the following or a
substantially similar legend:

          “THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE
STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNLESS (I) THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE SECURITIES LAW WITH RESPECT THERETO, (II)
PURSUANT TO RULE 144 OF THE SECURITIES ACT OR (III) UPON THE
ADVICE OF COUNSEL REASONABLY ACCEPTABLE TO THE ISSUER,
REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER”

          The Company agrees that the legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Securities upon which it is stamped if
(a) such Security may be transferred pursuant to an effective registration statement under the
Securities Act; (b) such holder provides the Company with reasonable assurances that such Security
can be transferred pursuant to Rule 144; or (c) such holder provides the Company with an opinion of
counsel, in form, substance and scope customary for opinions of counsel in comparable transactions,
to the effect that a sale or transfer of such Security may be made without registration under the
Securities Act. In the event the above legend is removed from any Security and thereafter the
effectiveness of a registration statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required by applicable securities laws, then
upon reasonable advance written notice to the Holders, the Company may require that the above
legend be placed on any such Security that cannot then be sold pursuant to an effective
registration statement or pursuant to Rule 144 and the Holders shall cooperate in the replacement
of such legend. Such legend shall thereafter be removed when such Security may again be transferred
pursuant to an effective registration statement or pursuant to Rule 144.

          (i) Accredited Investor. The Holder is, and was at the time the Securities were offered to
the Holder, an accredited investor as defined in Rule 501(a) of the Securities Act.

          (j) Brokers and Finders. No person will have, as a result of the transactions contemplated by
this Agreement, any valid right, interest or claim against or upon the Company, any

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Subsidiary or the Holder for any commission, fee or other compensation pursuant to any agreement,
arrangement or understanding entered into by or on behalf of the Holder.

          (k) Taxes. The Holder understands that the Holder’s investment in the Company may result in
tax consequences. The Holder shall rely solely on the determinations of its tax advisors or its
own determinations, and not on any statements or representations by the Company or any of its
agents, with regard to all such tax matters.

     4. Covenants.

          (a) Taxes.

               (1) The Issuers and the Holders agree that the amount of original issue
discount with respect to the Notes and the applicable yield to maturity of the Notes is as set
forth on Schedule 4(a) hereto and shall report the Notes consistent with such agreed upon tax
treatment in all Tax Returns supplied to any Tax authority.

               (2) Any sales, transfer and other similar Taxes and any recording and
filing fees that may be imposed by reason of the issuance, sale, transfer and/or delivery of any
Securities by the Issuers to the Holders shall be borne and paid by the Issuers.

          (b) Form D; Blue Sky Laws. The Company shall file with the Securities and
Exchange Commission a Form D with respect to the Securities as required under Regulation D and
provide a copy thereof to the Holders promptly after such filing. The Company shall, on or
before
the time of Closing, take such action as the Company shall reasonably determine is necessary
to
qualify the Securities for sale to the Holders pursuant to this Agreement under applicable
securities
or “blue sky” laws of the states of the United States or obtain exemption therefrom, and shall
provide
evidence of any such action so taken to the Holders on or prior to the time of Closing. Within
two
(2) business days after the time of Closing, the Company shall file a Form 8-K concerning this
Agreement and the transactions contemplated hereby, which filing shall contain all material
information relating to the Company and the transactions entered into herewith.

          (c) Reporting Status. So long as any Holder beneficially owns any of the
Securities, the Company shall (i) timely file all reports required to be filed with the
Securities and
Exchange Commission (the “SEC”) pursuant to the Exchange Act, (ii) take such further action as
any Holder may reasonably request to make available adequate current public information with
respect to the Company meeting the current public information requirements of Rule 144(c)
under
the Securities Act, to the extent required to enable such Holder to sell Securities held by
the Holder
without registration under the Securities Act within the limitation of the exemptions provided
by (A)
Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (B) any
similar rule or regulation hereafter adopted by the SEC. The Company shall not terminate its
status
as an issuer required to file reports under the Exchange Act even if the Exchange Act or the
rules
and regulations thereunder would permit such termination. In addition, the Company shall take
all
actions necessary to meet the “registrant eligibility” requirements set forth in the general
instructions

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of Form S-3 of the Securities Act or any successor form thereto, to continue to be eligible to
register the resale of its Common stock on a registration statement on Form S-3 of the Securities
Act.

          (d) Use of Proceeds. The Company shall use the proceeds from the sale of the
Units as set forth in Schedule 4(d).

          (e) Expenses. The Company shall pay to the Holders at the Closing
reimbursement for all reasonable out-of-pocket fees and expenses incurred by the Holders in
connection with the negotiation, preparation, execution and delivery of this Agreement and the
other
agreements to be executed in connection herewith, whether incurred before or after the date
hereof,
including, without limitation the reasonable fees and expenses of legal advisors and
accountants
representing the Holders (the “Expenses”).

          (f) Financial Information. The Company shall make available via EDGAR or
the Company’s website within one (1) day after filing or release, as the case may be, the
following
reports to the Holders until the Holders transfer, assign or sell all of their Securities: (i)
a copy of its
Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy statements and any
Current Reports on Form 8-K; and (ii) copies of all press releases issued by the Company or
any of
its subsidiaries.

          (g) Reservation of Shares. The Company currently has authorized and reserved
for the purpose of issuance sufficient shares of capital stock to provide for the issuance of,
and full
conversion or exercise of, the Securities as contemplated hereby, and as otherwise required by
the
Notes (collectively, the “Issuance Obligations”). In the event such number of shares
becomes
insufficient to satisfy the Issuance Obligations, the Company shall take all necessary action
to
authorize and reserve such additional shares of capital stock necessary to satisfy the
Issuance
Obligations.

          (h) Listing. The Company will use its best efforts to continue the listing and trading of its
Common Stock on the OTC Electronic Bulletin Board (the “Bulletin Board”) or on the NASDAQ National
Market (“NNM”), the Nasdaq SmallCap Market (the “SmallCap Market”) the New York Stock Exchange
(“NYSE”) or the American Stock Exchange (“AMEX”) and will comply in all respects with the
reporting, filing and other obligations under the bylaws or rules of the National Association of
Securities Dealers, Inc. (the “NASD”), such exchanges, or such electronic system, as applicable.
The Company shall promptly provide to the Holders copies of any notices it receives regarding the
continued eligibility of the Common Stock (or any securities exercisable for or convertible into
the Common Stock) for trading in a market over the counter or, if applicable, any securities
exchange or automated quotation system on which securities of the same class or series issued by
the Company are then listed or quoted, if any.

          (i) No Integrated Offerings. The Company shall not make any offers or sales of any security
(other than the Securities) under circumstances that would require registration under the
Securities Act of the Securities being offered or sold hereunder or cause this offering of the

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Securities to be integrated with any other offering of securities by the Company for purposes of
any stockholder approval provision applicable to the Company or its securities.

          (j) Legal Compliance. The Company shall conduct its business and the business of the
Subsidiaries in compliance with all laws, ordinances or regulations of governmental entities
applicable to such businesses, except where the failure to do so would not have a Material Adverse
Effect.

     5. Transfer Agent Instructions.

          (a) The Company shall instruct its transfer agent to issue certificates, registered in
the name of each Holder or its nominee, for the Conversion Shares in such amounts as specified
from time to time by the Holders to the Company upon conversion of the Notes.

          (b) The Company warrants that no instruction other than such instructions
referred to in this Section 5, and stop transfer instructions to give effect to 3(g) hereof in
the case of
the transfer of the Notes, or the Common Shares, the Redemption Warrants or the Conversion
Shares
prior to registration of the Common Shares, the Redemption Warrants or the Conversion Shares
under the Securities Act or without an exemption therefrom, will be given by the Company to
its
transfer agent and that the Securities shall otherwise be freely transferable on the books and
records
of the Company as and to the extent provided in this Agreement and the Transaction Documents.

          (c) Upon the written opinion of counsel reasonably acceptable to the Company to
the effect that the Securities to be sold or transferred may be sold or transferred pursuant
to an
exemption from registration, or if the Holders provide the Company with reasonable assurances
that
such Securities may be sold under Rule 144, the Company shall permit the transfer and, in the
case
of the Notes and Common Shares purchased hereunder and the Redemption Warrants and
Conversion Shares, promptly instruct its transfer agent to issue one or more certificates in
such name
and in such denominations as specified by the Holders.

     6. Security. As security for its performance of its obligation under the Notes, the
Company and its Subsidiaries hereby grants a security interest in substantially all of the
assets of the
Company and its Subsidiaries, as set forth in the Notes and the Intercreditor Agreement.

     7. Collateral Agent.

          (a) Appointment of Collateral Agent. MHR Capital Partners LP (“MHR”) is hereby appointed to
act on behalf of all the Holders as collateral agent (the “Collateral Agent”) under this Agreement
and the Notes. The provisions of this Section 7 are solely for the benefit of Collateral Agent and
the Holders and no other person shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement and the Notes,
Collateral Agent shall act solely as agent of the Holders and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust with or for the
Issuers or any other person. The Collateral Agent shall have no duties or

-20-

 

responsibilities except for those expressly set forth in this Agreement and the Notes. The duties
of the Collateral Agent shall be mechanical and administrative in nature and the Collateral Agent
shall not have, or be deemed to have, by reason of this Agreement, any other Transaction Document
or otherwise a fiduciary relationship in respect of any Holder. Except as expressly set forth in
this Agreement and the Notes, the Collateral Agent shall not have any duty to disclose, and shall
not be liable for failure to disclose, any information relating to any of the Issuers or any of
their respective Subsidiaries that is communicated to or obtained by MHR or any of its Affiliates
in any capacity. Neither the Collateral Agent nor any of its Affiliates nor any of their
respective officers, directors, employees, agents or representatives shall be liable to any Holder
for any action taken or omitted to be taken by it hereunder or under any other Transaction
Document, or in connection herewith or therewith, except for damages caused by its or their own
gross negligence or willful misconduct.

     If the Collateral Agent shall request instructions from the Holders holding a majority of the
outstanding principal amount of the Notes (the “Required Holders”) or all affected Holders with
respect to any act or action (including failure to act) in connection with this Agreement or the
Notes, then the Collateral Agent shall be entitled to refrain from such act or taking such action
unless and until such Collateral Agent shall have received instructions from the Required Holders
or all affected Holders, as the case may be, and the Collateral Agent shall not incur liability to
any person by reason of so refraining. The Collateral Agent shall be fully justified in failing or
refusing to take any action hereunder or under the Notes (a) if such action would, in the opinion
of the Collateral Agent, be contrary to law or the terms of this Agreement or the Notes, (b) if
such action would, in the opinion of such Agent, expose the Collateral Agent to any liabilities
under any environmental laws, rules or ordinances or (c) if the Collateral Agent shall not first
be indemnified to its satisfaction against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action. Without limiting the foregoing,
no Holder shall have any right of action whatsoever against the Collateral Agent as a result of
the Collateral Agent acting or refraining from acting hereunder or under the Notes in accordance
with the instructions of Required Holders or all affected Holders, as applicable.

          (b) Collateral Agent’s Reliance, Etc. Neither the Collateral Agent nor any of its Affiliates
nor any of their respective directors, officers, agents or employees shall be liable to any Holder
for any action taken or omitted to be taken by it or them under or in connection with this
Agreement or the Notes, except for damages caused by its or their own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, the Collateral Agent: (a) may treat
the payee of any Note as the holder thereof until the Collateral Agent receives written notice of
the assignment or transfer thereof signed by such payee and in form reasonably satisfactory to the
Collateral Agent; (b) may consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted to be taken by it in
good faith in accordance with the advice of such counsel, accountants or experts; (c) makes no
warranty or representation to any Holder and shall not be responsible to any Holder for any
statements, warranties or representations made in or in connection with this Agreement or the
Notes; (d) shall not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of this Agreement or the Notes on the part of any of
the Issuers or to inspect the Collateral (including the books and records) of any of the Issuers;
(e) shall not be responsible to

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any Holder for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or the Notes or any other instrument or document furnished
pursuant hereto or thereto; and (f) shall incur no liability under or in respect of this Agreement
or the Notes by acting upon any notice, consent, certificate or other instrument or writing (which
may be by telecopy, telegram, cable or telex) believed by it to be genuine and signed or sent by
the proper party or parties.

     (c) MHR and Affiliates. With respect to its or its Affiliates ownership of Notes,
MHR shall have the same rights and powers under this Agreement and the Notes as any other
Holder and may exercise the same as though it were not the Collateral Agent; and the term “Holder” or
“Holders” shall, unless otherwise expressly indicated, include MHR in its individual capacity.
Similarly, the fact that MHR acts as Collateral Agent shall not in any way impair the rights
and powers under this Agreement or the Notes of any Holders who are Affiliates of MHR. MHR and its
Affiliates may lend money to, invest in, and generally engage in any kind of business with,
any of the Issuers, any of their Affiliates and any person who may do business with or own securities
of any of the Issuers or any such Affiliate, all as if MHR were not the Collateral Agent and without
any duty to account therefor to Holders.

     (d) Indemnification. The Holders agree to indemnify the Collateral Agent (to the
extent not reimbursed by the Issuers and without limiting the obligations of Issuers
hereunder),
ratably according to their respective pro rata ownership of the principal amount of
outstanding
Notes, from and against any and all liabilities, obligations, losses, damages, penalties,
actions,
judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may
be
imposed on, incurred by, or asserted against the Collateral Agent in any way relating to or
arising
out of this Agreement or the Notes or any action taken or omitted to be taken by the
Collateral Agent
in connection therewith; provided, that no Holder shall be liable for any portion of
such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements
resulting from the Collateral Agent’s gross negligence or willful misconduct. Without
limiting the
foregoing, each Holder agrees to reimburse the Collateral Agent promptly upon demand for its
ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by
the
Collateral Agent in connection with the preparation, execution, delivery,
administration,
modification, amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement
and the
Notes, to the extent that the Collateral Agent is not reimbursed for such expenses by the
Issuers.

     (e) Successor Agents. The Collateral Agent may resign at any time by giving not
less than five (5) days’ prior written notice thereof to the Holders. By a vote of the
Required
Holders, the Holders may remove the Collateral Agent at any time by giving not less than
thirty (30)
days’ prior written notice thereof to the Collateral Agent. Upon any such resignation or
removal, the
Required Holders shall have the right to appoint a successor Collateral Agent. If no
successor
Collateral Agent shall have been so appointed by the Required Holders and shall have accepted
such
appointment within such thirty (30) days or five (5) after the date of notice of resignation
or removal
was given, as applicable, then the Collateral Agent may, on behalf of the Holders, appoint a
successor Collateral Agent, which shall be a Holder, if a Holder is willing to accept such

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appointment. If no successor Collateral Agent has been appointed pursuant to the foregoing, within
thirty (30) days or five (5) after the date of notice of resignation or removal was given, as
applicable, such resignation or removal shall become effective and the Required Holders shall
thereafter perform all the duties of such Collateral Agent hereunder until such time, if any, as
the Required Holders appoint a successor Collateral Agent as provided above. Any successor
Collateral Agent appointed by Required Holders hereunder shall be subject to the approval of the
Issuers, such approval not to be unreasonably withheld or delayed; provided, that such
approval shall not be required if a Default or an Event of Default has occurred and is continuing.
Upon the acceptance of any appointment as Collateral Agent, as applicable, hereunder by a successor
Collateral Agent, such successor Collateral Agent shall succeed to and become vested with all the
rights, powers, privileges and duties of the resigning Collateral Agent. Upon the earlier of the
acceptance of any appointment as Collateral Agent, hereunder by a successor Collateral Agent or the
effective date of such Collateral Agent’s resignation or removal, such Collateral Agent shall be
discharged from its duties and obligations under this Agreement and the Notes, except that any
indemnity rights or other rights in favor of such Collateral Agent shall continue. After any
Collateral Agent’s resignation or removal hereunder, the provisions of this Section 7 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was acting as such
Collateral Agent under this Agreement and the Notes.

     8. General Provisions.

          (a) Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the domestic substantive laws of the State of New York, without
giving effect to any choice or conflict of law provision or rule that would cause the
application of the
laws of any other jurisdiction. The parties hereto irrevocably consent to the jurisdiction
of the
United States federal courts and the state courts located in the County of New York, State of
New
York located in the Southern District of the State of New York solely in respect of any suit
or
proceeding based on or arising under this Agreement and irrevocably agree that all claims in
respect
of such suit or proceeding may be determined in such courts. The parties hereto irrevocably
waive
the defense of an inconvenient forum to the maintenance of such suit or proceeding. The
parties
hereto further agree that mailing of process or other papers in connection with any such
action or
proceeding in the manner provided in the Section on notices below or in such other manner as
may
be permitted by law shall be valid and sufficient service thereof. The parties hereto agree
that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced
in
other jurisdictions by suit on such judgment or in any other lawful manner.

          (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES,AND THEREFORE EACH SUCH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY
OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES
AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH

-23-

 

OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

          (c) Entire Agreement. This Agreement, including Exhibits and the Disclosure
Schedules, and the other Transaction Documents, as well as the other documents contemplated
thereby constitute the entire agreement between the parties with respect to the subject matter
hereof.
This Agreement may only be modified or amended in writing signed by the Company and each of
the Holders.

          (d) Severability. In case any provision of the Agreement is declared invalid,
illegal or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not
in any way be affected or impaired thereby.

          (e) Notices. All notices, demands or other communications given hereunder shall
be effected in the manner provided for in the notice provision of the Notes.

          (f) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together shall constitute
one
instrument.

          (g) Further Assurances. 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.

          (h) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of
the parties and their successors and permitted assigns. The Company shall not assign this
Agreement or any rights or obligations hereunder. Notwithstanding the foregoing, each Holder may
assign its rights hereunder to any of its Affiliates, without the consent of the Company or to any
other person or entity with the consent of the Company, which consent shall not be unreasonably
withheld; provided that any such assignment of rights must be in connection with a
transfer of a Security permitted hereunder or pursuant to the terms of such Security. This
provision shall not limit any Holder’s right to transfer the Securities pursuant to the terms of
the Transaction Documents or to assign the Holder’s rights under the Transaction Documents to any
such transferee. In addition, and notwithstanding anything to the contrary contained in the
Transaction Documents, the Securities may be pledged and all rights of the Holders under this
Agreement or any other agreement or document related to the transactions contemplated hereby may
be assigned, without further consent of the Company, to a bona fide pledgee in connection with the
Holders’ margin or brokerage account.

-24-

 

          (i) Survival. The representations and warranties of the Company in Section 2 and elsewhere in
this Agreement and the agreements and covenants set forth in Sections 4, 7 and 8 hereof shall
survive until the earlier of (i) seven (7) years following the Closing or (ii) the payment in full
of, or the conversion of, all of the outstanding Notes, notwithstanding any due diligence
investigation conducted by or on behalf of the Holders. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or remedies the Holders
may have under applicable U.S. federal or state securities laws.

          (j) Indemnification. (1) The Company and each Subsidiary, on a joint and several basis,
(each, an “Indemnifying Party”) shall indemnify, defend and hold harmless each Holder and each
such Holder’s Affiliates and each of their respective officers, directors, managers, partners,
stockholders, employees, lenders, advisors, agents and other representatives and any Affiliate of
the foregoing, and each of their respective successors and permitted assigns (each, an
“Indemnified Party”) from and against, and shall promptly reimburse each Indemnified Party for,
all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs
and expenses, including, without limitation, interest, court costs and reasonable attorneys’ fees
and expenses (including, without limitation, reasonable expenses of investigation and reasonable
attorneys’ and accountants’ fees and expenses in connection with any action, suit or proceeding,
including those incurred upon any appeal) arising or resulting from or in connection with (x) any
misrepresentation or any breach of warranty, covenant or agreement contained in this Agreement or
in any of the other Transaction Documents, (y) any claim or demand for commission or other
compensation by any broker, finder, agent or similar intermediary claiming to have been employed
by a Holder or any of its controlled Affiliates, (z) Holder’s holding a lien on the assets of the
Company or its Subsidiaries or with respect to the execution, delivery, enforcement, performance
and administration of, or in any other way arising out of or relating to any of the collateral
documents with respect to such lien, or any actions or failures by the Company to act with respect
to any of the foregoing, (collectively, “Indemnified Liabilities”), except that any such
Indemnified Liability shall be reduced in proportion to the amount (finally determined by a court
of competent jurisdiction) to be attributable to such Indemnified Party’s negligence, bad faith,
or willful misconduct. The rights of the Indemnified Parties under this Section 9(j) shall be in
addition to (a) any cause of action or similar right of any Indemnified Party against the Company
or other persons, or (b) any liabilities the Company or any of its Subsidiaries may be subject to
pursuant to any applicable law.

               (2) Each Indemnified Party entitled to indemnification hereunder will (a) give prompt written
notice to the Indemnifying Party of any claim with respect to which it seeks indemnification or
contribution pursuant to this Agreement and (b) permit such Indemnifying Party to assume the
defense of such claim with counsel selected by the Indemnifying Party and reasonably satisfactory
to the Indemnified Party; provided, however, that any Indemnified Party entitled to indemnification
hereunder shall have the right to employ separate counsel and to participate in the defense of such
claim, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party
unless (x) the Indemnifying Party has agreed in writing to pay such fees and expenses, (y) the
Indemnifying Party shall have failed to assume the defense of such claim within 20 days of delivery
of the written notice of the Indemnified Party with respect to such claim or failed to

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employ counsel selected by such Indemnifying party and reasonably satisfactory to such Indemnified
Party or (z) in the reasonable judgment of such Indemnified Party, based upon advice of its
counsel, a conflict of interest may exist between such Indemnified Party and the Indemnifying Party
with respect to such claims (in which case, if the Indemnified Party notifies the Indemnifying
Party in writing that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense of such claim on
behalf of such Indemnified Party); provided, further, that an Indemnifying Party who is not
entitled to, or elects not to, assume the defense of a claim on behalf of all Indemnified Parties
shall not be obligated to pay the fees and expenses of more than one counsel (in addition to local
counsel) for all Indemnified Parties. If the Indemnifying Party assumes the defense of the claim,
it shall not be subject to any liability for any settlement or compromise made by the Indemnified
Party without its consent (but such consent shall not be unreasonably withheld). In connection with
any settlement negotiated by an Indemnifying Party, no Indemnifying Party shall, and no Indemnified
Party shall be required by an Indemnifying Party to, (i) enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff to the Indemnified
Party of a release from all liability in respect to such claim or litigation (ii) enter into any
settlement that attributes by its terms liability to the Indemnified Party, or (iii) consent to the
entry of any judgment that does not include as a term thereof a full dismissal of the litigation or
proceeding with prejudice. In addition, without the consent of the Indemnified Party (which consent
will not be unreasonably withheld), no Indemnifying Party will be permitted to consent to entry of
any judgment or enter into any settlement which provides for any action on the part of the
Indemnified Party other than the payment of money damages which are to be paid in full by the
Indemnifying Party. If an Indemnifying Party fails or elects not to assume the defense of a claim
pursuant to clause (y) above, or is not entitled to assume or continue the defense of such claim
pursuant to clause (z) above, the Indemnified Party shall have the right without prejudice to its
right of indemnification hereunder to, in its discretion exercised in good faith and upon advice of
counsel, to contest, defend and litigate such claim and may settle such claim, either before or
after the initiation of litigation, at such time and upon such terms as the Indemnified Party deems
fair and reasonable, provided that at least 10 days prior to any settlement, written notice of its
intention to settle is given to the Indemnifying Party. If requested by the Indemnifying Party, the
Indemnified Party agrees (at no expense to the Indemnified Party) to cooperate with the
Indemnifying Party and its counsel in contesting any claim that the Indemnifying Party elects to
contest.

          (k) Third Party Beneficiaries. Except as provided in Section 7(j), this Agreement is not
intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

          (I) Publicity. The Company and the Holders each shall consult with each other prior to
issuing any press releases or making any public statement with respect to this Agreement or the
other Transaction Documents and the transactions contemplated hereby and thereby and, shall not
issue any such press release or make any such public statement with respect thereto unless the
text of the statement shall first have been agreed to by the parties hereto.

-26-

 

          (m) Rules of Construction. The table of contents and headings herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be deemed to limit or
otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a
Section or Annex or Exhibit, such reference shall be to a Section or Annex of or Exhibit to this
Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are
used in this Agreement, they shall be deemed to be followed by the words “without limitation.” This
Agreement shall be construed as if it is drafted by all the parties hereto and no presumption or
burden of proof will arise favoring or disfavoring any party by virtue of authorship of any of the
provisions of this Agreement if an ambiguity or question of intent or interpretation arises. For
purposes of this agreement “knowledge” shall mean, when applied to a natural person, that such
individual has or at any time had (i) actual knowledge of the item or matter, (ii) constructive
knowledge of the item or matter, either by operation of law or because the individual, by
responsibility or position, should have conducted a reasonable inquiry which, if performed, would
have likely resulted in such individual gaining actual knowledge of the item or matter, or (iii)
received written notice of the fact or matter. The Issuers shall be deemed to have “knowledge” if
Arthur Spector — Chairman of the Board, Glenn M. Parker — Director and Chief Executive Officer,
Lewis Stone — Director, President and Chief Information Officer, Robert Gregg — Director and Chief
Operating Officer, Timothy Fairbanks — Director and Chief Financial Officer, or Gregory Couto
—Executive Vice President of Operations, or any persons who have served in such capacities,
has or at any time had “knowledge.”

[Signature Page Follows]

-27-

 

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first set forth above.

	 	 	 	 	 	 	 
	COMPANY:	 	NATIONSHEALTH, INC.	 	 
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ Glenn Parker	 	 
	

	 	 	 	 	 	 
	 	 	Name:	 	 
	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	SUBSIDIARIES:	 	NATIONSHEALTH HOLDINGS, L.L.C.	 	 
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ Glenn Parker	 	 
	

	 	 	 	 	 	 
	 	 	Name:	 	 
	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	UNITED STATES PHARMACEUTICAL	 	 
	 	 	GROUP, L.L.C.	 	 
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ Glenn Parker	 	 
	

	 	 	 	 	 	 
	 	 	Name:	 	 
	 	 	Title:	 	 

[Signature Page to Investment Unit Purchase Agreement]

 

 

	 	 	 	 	 	 	 
	HOLDERS and	 	MHR CAPITAL PARTNERS LP, Individually and as	 	 
	COLLATERAL AGENT:

	 	 	 	Collateral Agent	 	 
	

	 	By:
	 	MHR Advisors LLC, its general partner	 	 
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ Hal Goldstein	 	 
	

	 	 	 	 	 	 
	

	 	 	 	Name: Hal Goldstein 	 	 
	

	 	 	 	Title: Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Number of Units:
7,551	 	 
	 
	 	 	 	 	 	 
	 	 	Purchase Price:
$7,551,403	 	 
	 
	 	 	 	 	 	 
	 	 	OTQ LLC	 	 
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ Hal Goldstein	 	 
	

	 	 	 	 	 	 
	

	 	 	 	Name: Hal Goldstein	 	 
	

	 	 	 	Title: Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Number of Units:
6,440	 	 
	 
	 	 	 	 	 	 
	 	 	Purchase Price:
$6,440,000	 	 
	 
	 	 	 	 	 	 
	 	 	MHR CAPITAL PARTNERS (100) LP	 	 
	

	 	By:
	 	MHR Advisors LLC, its general partner	 	 
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ Hal Goldstein	 	 
	

	 	 	 	 	 	 
	

	 	 	 	Name: Hal Goldstein	 	 
	

	 	 	 	Title: Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Number of Units:
1,009	 	 
	 
	 	 	 	 	 	 
	 	 	Purchase Price:
$1,008,597	 	 

[Signature Page to Unit Purchase Agreement]

 

 

Schedule 4(a) 

Original Issue Discount and Applicable Yield to Maturity

	 	 	 	 	 
	Original Issue Discount:
	 	$	5,803,571	 
	 
	Issue Price:
	 	$	9,196,430	 
	 
	Yield to Maturity:
	 	 	19.667	%

 

 

EXHIBIT A 

Form of Note

 

 

EXHIBIT B 

Form of Senior Subordination Agreement

(referred to as the Intercreditor Agreement)

 

 

EXHIBIT C 

Form of Existing Senior Lender Amendment, Waiver and Consent

 

 

EXHIBIT D 

Form of Registration Rights Agreement

 

 

EXHIBIT E 

Form of Stockholders Agreement

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