Document:

Exhibit 10.17.5

 

AMENDMENT
NO. 5

TO
AMENDED AND RESTATED CREDIT AGREEMENT

 

THIS AMENDMENT NO. 5 TO
AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is entered into as of July
31, 2009, between SouthWest Water Company, a Delaware corporation (“Borrower”),
and Bank of America, N.A., as Administrative Agent, with reference to the Amended
and Restated Credit Agreement dated as of February 15, 2008 (as amended, the
“Credit Agreement”), among Borrower, the Lenders described therein, and the Administrative
Agent.  Capitalized terms not otherwise
defined herein are used with the meanings set forth for those terms in the
Credit Agreement.

 

The parties hereto enter
into this Amendment with reference to the following facts:

 

A.                                 Pursuant to Amendment No. 3 to Amended
and Restated Credit Agreement dated as of June 17, 2009 (“Amendment No. 3”),
between the Borrower and the Administrative Agent (with the consent of the
Required Lenders), Borrower is required to deliver the financial statements
required under Sections 6.01(b) and 6.02(a) of the Credit Agreement
with respect to the fiscal quarters ended September 30, 2008, and March 31,
2009, on or prior to August 3, 2009.

 

B.                                  Pursuant to Sections 6.01(b) and 6.02(a) of
the Credit Agreement, the Borrower is required to deliver the financial
statements described therein with respect to the fiscal quarter ended June 30,
2009, on or prior to August 15, 2009.

 

C.                                     The
Borrower has informed the Administrative Agent and the Lenders that it will not
be able to deliver the required financial statements with respect to the fiscal
quarters ended September 30, 2008, March 31, 2009, and June 30,
2009 prior to the applicable deadlines (collectively, the “Anticipated Defaults”).

 

D.                                 Borrower has requested that the Lenders (i) waive
the Anticipated Defaults, (ii) extend the time by which the required
financial statements with respect to the fiscal quarters ended September 30,
2008, and March 31, 2009 must be delivered to August 28, 2009, and (iii) extend
the time by which the required financial statements with respect to the fiscal
quarter ended June 30, 2009 must be delivered to September 18, 2009.

 

E.                                   The Administrative Agent, acting with the
consent of the Required Lenders pursuant to Section 10.01 of the Credit
Agreement, has agreed to waive the Anticipated Defaults and to otherwise amend
the Credit Agreement and the other Loan Documents on the terms set forth in
this Amendment.

 

NOW, THEREFORE, Borrower and
Administrative Agent, acting with the consent of the Required Lenders pursuant
to Section 10.01 of the Credit Agreement, agree as follows:

 

1.                                     Representations and Warranties. 
Borrower represents and warrants to Administrative Agent and the Lenders
that:

 

(a)                               after giving effect to this Amendment, no
Default or Event of Default has occurred and remains continuing;

 

(b)                               after giving effect to this Amendment, except
for representations or warranties which are inaccurate as a direct result of
the correction and restatement of the Subject Financial Statements, and except
as set forth in the Schedules to the Credit Agreement, each of 

 

-1-

 

the representations and
warranties set forth in Article V of the Credit Agreement are true and
correct as of the date of this Agreement (other than those representations
which relate solely to a prior date, each of which was true as of that date) provided
that Schedules 5.06 and 5.09 are updated in the manner attached to Amendment No. 2
to Amended and Restated Credit Agreement dated as of May 28, 2009, between
the Borrower and the Administrative Agent; and

 

(c)                               neither Borrower nor any of its
Subsidiaries is in default of any indenture, loan or credit or similar
agreement governing Indebtedness in a principal amount which exceeds $1,000,000
in any manner which entitles the holder of such Indebtedness, or which would
entitle the holder of such Indebtedness with the giving of any notice, the
passage of time (including any cure period), or both, to require the payment of
any such Indebtedness prior to the date upon which such Indebtedness would
otherwise be due and payable.

 

2.                                     Waiver.  In reliance
upon the agreements, representations and warranties set forth in this
Amendment, the Lenders hereby waive the Anticipated Defaults.  The Lenders’ waiver of the Anticipated Defaults
constitutes a one-time waiver of the specific Anticipated Defaults described in
this Amendment, shall not constitute a waiver of any other or future Defaults
or Events of Default, whether or not similar to the Anticipated Defaults, and shall
not be construed as a waiver of the Borrower’s obligation to deliver the financial
statements as set forth in Section 3 of this Amendment.

 

3.                                     Covenant Regarding Financial Statements.

 

(a)                               Notwithstanding any provision to the contrary
in the Credit Agreement, Borrower shall have through August 28, 2009, to
deliver the financial statements and Compliance Certificates required under
Sections 6.01(b) and 6.02(a) of the Credit Agreement, respectively,
with respect to each of the fiscal quarters ended September 30, 2008, and March 31,
2009.

 

(b)                               Notwithstanding any provision to the contrary
in the Credit Agreement, Borrower shall have through September 18, 2009,
to deliver the financial statements and Compliance Certificate required under
Sections 6.01(b) and 6.02(a) of the Credit Agreement, respectively,
with respect to the fiscal quarter ended June 30, 2009.

 

The Borrower acknowledges
and agrees that each failure by the Borrower to comply with any covenant set
forth in this Section 3 shall in each case constitute an immediate Event
of Default under the Credit Agreement with respect to which the Administrative
Agent and the Lenders shall have all rights and remedies set forth therein and
at law.

 

4.                                     Conditions to Effectiveness. 
The effectiveness of this Amendment shall be subject to the prior
satisfaction of the following conditions precedent, in each case in form and
substance satisfactory to the Administrative Agent:

 

(a)                               the Administrative Agent shall have received a
consent of the Guarantors in the form of Exhibit A hereto executed by each
of the parties thereto;

 

(b)                               the Administrative Agent shall have received the
written consent of the Required Lenders as required under Section 10.01 of
the Credit Agreement in the form of Exhibit B hereto; and

 

(c)                               the Administrative Agent shall have received,
for the account of each Lender which has executed a consent hereto prior to 3:00 p.m.
(Los Angeles time) on July 31, 

 

-2-

 

2009 (or any extension of such deadline announced
via the Intralinks system), an amendment fee in an amount equal to 0.075% of
such Lender’s Commitment under the Credit Agreement.

 

5.                                     Effectiveness of the Credit Agreement.  Except as hereby expressly
amended, the Credit Agreement remains in full force and effect, and is hereby
ratified and confirmed in all respects.

 

6.                                     Counterparts.  This Amendment may be executed
in any number of counterparts and all of such counterparts taken together shall
be deemed to constitute one and the same instrument.

 

[Signature
Page Follows]

 

-3-

 

IN WITNESS WHEREOF, the
parties hereto have caused this Amendment to be duly executed and delivered as
of the date first written above.

 

	
   

  	
   

  	
  SOUTHWEST WATER COMPANY, a Delaware
  corporation,

  
	
   

  	
   

  	
  as Borrower

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Mark Swatek

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Mark Swatek

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  CEO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BANK OF AMERICA, N.A.,

  
	
   

  	
   

  	
  as Administrative Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Ken Puro

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Ken Puro

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Vice President

  	
   

  
									

 

 

Signature Page

 

 

Exhibit A
to Amendment

 

CONSENT OF GUARANTORS

 

This Consent of Guarantors (this
“Consent of Guarantors”) is delivered with reference to (a) the Amended
and Restated Credit Agreement dated as of February 15, 2008 (as heretofore
amended, restated, extended, supplemented, or otherwise modified, the “Credit
Agreement”), among SouthWest Water Company, a Delaware corporation (“Borrower”),
the lenders from time to time party thereto (collectively, the “Lenders”), and
Bank of America, N.A., as Administrative Agent (“Administrative Agent”) and (b) the
Amended and Restated Continuing Guaranty dated as of February 15, 2008,
made by each of the undersigned Guarantors (as heretofore amended, restated,
extended, supplemented, or otherwise modified, the “Guaranty”).  Capitalized terms not otherwise defined
herein are used with the meanings set forth for those terms in the Credit
Agreement.

 

Each of the undersigned Guarantors
(i) consents to and approves Borrower’s execution and delivery of the
attached Amendment No. 5 to Amended and Restated Credit Agreement (the “Amendment”),
(ii) agrees that such Amendment does not and shall not limit or diminish
in any manner the obligations of such Guarantor under the Guaranty and that
such obligations would not be limited or diminished in any manner even if such
Guarantor had not executed this Consent of Guarantors, (iii) reaffirms the
Guaranty, and (iv) agrees that the Guaranty remains in full force and
effect and is hereby ratified and confirmed.

 

Dated as of  ______________, 2009.

 

	
   

  	
   

  	
  ECO RESOURCES, INC.,

  	
   

  
	
   

  	
   

  	
  a Texas corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  OPERATIONS
  TECHNOLOGIES, INC.,

  	
   

  
	
   

  	
   

  	
  a Georgia corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SWWC SERVICES, INC.,

  	
   

  
	
   

  	
   

  	
  a Delaware corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  

 

 

Exhibit A

 

 

	
   

  	
   

  	
  METRO-H2O, LTD.,

  
	
   

  	
   

  	
  a Texas limited
  partnership

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By: Metro-H2O
  Utilities, Inc.

  
	
   

  	
   

  	
   

  	
  Its: General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  METRO-H2O UTILITIES,
  INC.,

  	
   

  
	
   

  	
   

  	
  a Texas corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SWWC ENTERPRISES, INC.,

  	
   

  
	
   

  	
   

  	
  a Delaware corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SWWC UTILITIES, INC.,

  	
   

  
	
   

  	
   

  	
  a Delaware corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CDC MAINTENANCE, INC.,

  	
   

  
	
   

  	
   

  	
  a Texas corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  NEW MEXICO UTILITIES,
  INC.,

  	
   

  
	
   

  	
   

  	
  a New Mexico
  corporation,

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

Exhibit A

 

 

Exhibit B
to Amendment

 

CONSENT OF LENDER

 

Reference is hereby made to
the Amended and Restated Credit Agreement dated as of February 15, 2008
(as heretofore amended, restated, extended, supplemented, or otherwise
modified, the “Credit Agreement”), among SouthWest Water Company, a Delaware
corporation (“Borrower”), the lenders from time to time party thereto
(collectively, the “Lenders”), and Bank of America, N.A., as Administrative
Agent (“Administrative Agent”).  Capitalized terms not otherwise defined herein
are used with the meanings set forth for those terms in the Credit Agreement.

 

The undersigned Lender
hereby consents to the execution and delivery of an Amendment No. 5 to Amended
and Restated Credit Agreement by Administrative Agent on its behalf,
substantially in the form of the most recent draft thereof presented to the
undersigned Lender.

 

Dated as of  ______________, 2009.

 

	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [Name of Lender]

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:Exhibit
4.9

 

SENIOR
UNSECURED CONVERTIBLE NOTE

 

NEITHER THE
ISSUANCE AND SALE OF THIS NOTE NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE OR PROVINCIAL SECURITIES
LAWS.  THIS NOTE AND THE SHARES OF COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THIS NOTE OR THE SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION OF THIS NOTE UNDER THE SECURITIES ACT, OR (B) AN OPINION
OF COUNSEL (SELECTED BY THE HOLDER AND REASONABLY ACCEPTABLE TO THE COMPANY),
IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT THIS NOTE AND THE
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE
OFFERED FOR SALE, SOLD, ASSIGNED OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM
REGISTRATION; PROVIDED THAT SUCH OPINION OF COUNSEL SHALL NOT BE REQUIRED IN
CONNECTION WITH ANY SUCH SALE, ASSIGNMENT OR TRANSFER TO AN INSTITUTIONAL
ACCREDITED INVESTOR THAT IS PRIOR TO SUCH SALE, ASSIGNMENT OR TRANSFER A HOLDER
OF ADDITIONAL NOTES  (AS SUCH TERM IS
DEFINED IN THIS NOTE) OR AN AFFILIATE OF THE HOLDER OF THIS NOTE, OR (C) IN
THE CASE OF A HOLDER RESIDENT IN CANADA OR OTHERWISE SUBJECT TO THE PROVINCIAL
SECURITIES LAWS OF CANADA, A PROSPECTUS QUALIFYING THE DISTRIBUTION OF THIS
NOTE OR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTES OR AN
EXEMPTION THEREFROM, OR (II) THE HOLDER PROVIDES THE COMPANY WITH
ASSURANCE (REASONABLY SATISFACTORY TO THE COMPANY) THAT SUCH NOTE OR THE SHARES
OF COMMON STOCK ISSUABLE UPON THE CONVERSION OF THE NOTE CAN BE SOLD, ASSIGNED
OR TRANSFERRED PURSUANT TO RULE 144.

 

ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING, WITHOUT LIMITATION, SECTIONS 3(c)(iii) AND 17(a) HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE
AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF
THIS NOTE.

 

THIS NOTE
HAS BEEN ISSUED PURSUANT TO THE NOTE AND WARRANT PURCHASE AGREEMENT (AS SUCH
TERM IS DEFINED IN THIS NOTE), ARTICLE FIVE OF WHICH CONTEMPLATES CERTAIN
RESTRICTIONS ON VOTING WITH RESPECT TO BOARD OF DIRECTOR NOMINEES ANY ASSIGNEE
OR TRANSFEREE OF THIS NOTE SHALL BE SUBJECT TO THE RESTRICTIONS SET FORTH IN
ARTICLE FIVE OF THE NOTE AND WARRANT PURCHASE AGREEMENT.

 

 

PHARMATHENE,
INC.

 

SENIOR
UNSECURED CONVERTIBLE NOTE

 

	
  Issuance Date: July 28, 2009

  	
   

  	
  Principal: U.S. $[•]

  
	
  No.

  	
   

  	
  (subject to Section 3(c)(iii) hereof)

  

 

FOR VALUE
RECEIVED, PharmAthene, Inc., a Delaware corporation (the
“Company”), hereby promises to pay
to [NAME OF HOLDER] or registered assigns (“Holder”)
the amount set out above as the Principal (as reduced pursuant to the terms
hereof pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the
Maturity Date (as defined below), acceleration, redemption or otherwise (in
each case in accordance with the terms hereof) and to accrue interest (“Interest”) on any outstanding Principal at
the Interest Rate (as defined below), from July 28, 2009 (the “Issuance Date”) until the same becomes due
and payable, whether upon the Maturity Date, acceleration, conversion,
redemption or otherwise (in each case, in accordance with the terms
hereof).  This Senior Unsecured
Convertible Note (including all Senior Unsecured Convertible Notes issued in
exchange, transfer or replacement hereof, this “Note” and such other Senior Unsecured Convertible Notes, the “Additional Notes”) is one of an
issue of Senior Unsecured Convertible Notes issued pursuant to the Note and
Warrant Purchase Agreement (as defined below) (collectively, the “Notes”).

 

Certain capitalized terms used herein are
defined in Section 27.

 

(1)                                  MATURITY.  On the Maturity Date, the Holder shall
surrender this Note to the Company and the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid Interest
and accrued and unpaid Late Charges (as defined below), if any.  The “Maturity
Date” shall be July 28, 2011.

 

(2)                                  INTEREST;
INTEREST RATE.  Interest on
this Note shall commence accruing on the Issuance Date and shall be computed on
the basis of a 360-day year comprised of twelve 30-day months and shall be
payable entirely in cash with respect to the unpaid balance of any Principal
upon the repayment thereof.  Prior to the
payment of Interest upon repayment, Interest on this Note shall accrue at the
Interest Rate and shall be payable by way of inclusion of Interest in the
Conversion Amount in accordance with Section 3(b)(i).  If an Event of Default occurs and such Event
of Default is subsequently cured, the adjustment referred to in Section 27(xvi)
shall cease to be effective as of the date of such cure; provided that
the Interest as calculated at such increased rate during the continuance of
such Event of Default shall continue to apply to the extent relating to the
days after the occurrence of such Event of Default through and including the
date of cure of such Event of Default. 
All payments of Interest on the Notes shall be made on a pro rata basis
in accordance with each Holder’s percentage ownership of then outstanding
Notes.

 

 

(3)                                  CONVERSION OF
NOTES.  This Note shall be convertible
into shares of Common Stock, on the terms and conditions set forth in this Section 3.

 

(a)                                  Conversion
Right.  At any time or times on or
after the Issuance Date, the
Holder shall be entitled to convert any portion of the outstanding and unpaid
Conversion Amount (as defined below) into fully paid and nonassessable shares
of Common Stock in accordance with Section 3(c), at the Conversion Rate
(as defined below).  The Company shall
not issue any fraction of a share of Common Stock upon any conversion.  If the issuance would result in the issuance
of a fraction of a share of Common Stock equal to or in excess of one half of
one share, the Company shall round such fraction of a share of Common Stock up
to the nearest whole share.  The Company
shall pay any and all stock transfer, stamp, documentary and similar taxes
(excluding any taxes on the income or gain of the Holder) that may be payable
with respect to the issuance and delivery of shares of Common Stock to the
Holder upon conversion of any Conversion Amount.

 

(b)                                 Conversion Rate.  The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to Section 3(a) (the
“Conversion
Rate”) shall be
determined by dividing (x) such Conversion Amount by (y) the
Conversion Price.

 

(i)                                     “Conversion Amount” means the sum of (A) the
portion of the Principal to be converted, redeemed or otherwise with respect to
which this determination is being made, (B) accrued and unpaid Interest
with respect to such Principal and (C) accrued and unpaid Late Charges
with respect to such Principal and Interest.

 

(ii)                                  “Conversion Price” means, as of any
Conversion Date (as defined below) or other date of determination, $2.541667,
subject to adjustment as provided herein (including, without limitation,
adjustment pursuant to Section 6).

 

(c)                                  Mechanics of
Conversion.

 

(i)                                     Optional
Conversion.  To convert
any Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A) transmit
by facsimile (or otherwise deliver), for receipt on or prior to 4:00 p.m.,
New York Time, on such date, a copy of an executed notice of conversion in the
form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if required by
Section 3(c)(iii), cause this Note to be delivered to the Company as soon
as practicable on or following such date. 
On or before 4:00 p.m., New York Time, on the first (1st) Business Day following the
date of receipt of a Conversion Notice, the Company shall transmit by facsimile
a confirmation of receipt of such Conversion Notice to the Holder (at the
facsimile number provided in the Conversion Notice) and the Company’s transfer
agent, if any (the “Transfer Agent”).  On or before 4:00 p.m., New York Time,
on the third (3rd) Business Day
following the date of receipt of a Conversion Notice (the “Share Delivery  Date”), the Company shall issue and deliver to the address as
specified in the Conversion Notice, a certificate, registered in the name of
the Holder or its designee, for the number of shares of Common Stock to which
the Holder shall be entitled.  If this
Note is physically surrendered for conversion as required by Section 3(c)(iii) and
the outstanding Principal of this Note is greater than the Principal portion of
the Conversion Amount being 

 

2

 

converted, then the Company shall as soon as
practicable and in no event later than three (3) Business Days after
receipt of this Note and at its own expense, issue and deliver to the Holder a
new Note (in accordance with Section 17(d)), representing the outstanding
Principal not converted.  The Person or
Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.

 

(ii)                                  Company’s
Failure to Timely Convert.  If,
at any time, the Company shall fail to issue a certificate to the Holder upon
conversion of any Conversion Amount on or prior to the date which is seven (7) Business
Days after the Conversion Date (a “Conversion
Failure”), then (A) the Company shall pay damages to the Holder
for each day of such Conversion Failure in an amount equal to 1.5% of the
product of (I) the sum of the number of shares of Common Stock not issued
to the Holder on or prior to the Share Delivery Date and to which the Holder is
entitled, and (II) the Closing Sale Price of the Common Stock on the Share
Delivery Date and (B) the Holder, upon written notice to the Company, may
void its Conversion Notice with respect to, and retain or have returned, as the
case may be, any portion of this Note that has not been converted pursuant to
such Conversion Notice; provided that the voiding of a Conversion Notice
shall not affect the Company’s obligations to make any payments which have
accrued prior to the date of such notice pursuant to this Section 3(c)(ii) or
otherwise.

 

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

 

(iv)                              Pro Rata
Conversion; Disputes.  In the
event that the Company receives a Conversion Notice from more than one Holder
of Notes for the same Conversion Date and the Company can convert some, but not
all, of such portions of the Notes submitted for conversion, the Company shall
convert from each Holder of Notes electing to have Notes converted on such date
a pro rata amount of each such Holder’s portion of its Notes submitted for
conversion based on the Principal amount of Notes submitted for conversion on
such date by such Holder relative to the aggregate Principal amount of all
Notes submitted for conversion on such date. 
In the event of a dispute between the Company and any Holders of Notes
that are subject to any such Conversion Notice or among any Holders of Notes
that are subject to any such Conversion Notice as to the number of shares of
Common Stock issuable to the Holder in connection with a conversion of this
Note, the Company shall issue to the Holder the number of shares of Common
Stock not in dispute and resolve such dispute in accordance with Section 22.

 

(v)                                 [Intentionally
Omitted].

 

3

 

(4)                                  RIGHTS UPON
EVENT OF DEFAULT.

 

(a)                                  Event of
Default.  Each of the following events
shall constitute an “Event of Default”:

 

(i)                                     the Company’s
failure to pay to the Holder any amount of Principal when and as due under this
Note (including, without limitation, the Company’s failure to pay any
Redemption Price);

 

(ii)                                  the Company’s
failure to pay to the Holder any amount of Interest, Late Charges or other
amounts (other than the amounts specified in clause (i)) when and as due under
this Note if such failure continues for a period of at least thirty (30)
Business Days;

 

(iii)                               any
acceleration prior to maturity of any Indebtedness referred to in clause (a) or
(b) of the definition thereof of the Company or any of its Subsidiaries
which individually or in the aggregate is equal to or greater than $250,000
principal amount of Indebtedness (following the expiration of all applicable
grace periods);

 

(iv)                              the Company or
any of its Material Subsidiaries, pursuant to or within the meaning of Title
11, U.S. Code, or any similar Federal, foreign or state law for the relief of
debtors (collectively, “Bankruptcy Law”),
(A) commences a voluntary case, (B) consents to the entry of an order
for relief against it in an involuntary case, (C) consents to the
appointment of a receiver, trustee, assignee, liquidator or similar official (a
“Custodian”), (D) makes a
general assignment for the benefit of its creditors or (E) admits in writing
that it is generally unable to pay its debts as they become due;

 

(v)                                 a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that
is not vacated, set aside or reversed within sixty (60) days that (A) is
for relief against the Company or any of its Material Subsidiaries in an
involuntary case, (B) appoints a Custodian of the Company or any of its
Material Subsidiaries or (C) orders the liquidation of the Company or any
of its Material Subsidiaries;

 

(vi)                              a final
judgment or judgments for the payment of money aggregating in excess of
$5,000,000 are rendered against the Company or any of its Subsidiaries and
which judgments are not, within sixty (60) days after the entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within sixty
(60) days after the expiration of such stay; provided, however, that any
judgment which is covered by insurance or an indemnity from a credit worthy
party shall not be included in calculating the $5,000,000 amount set forth
above so long as the Company provides the Holder a written statement from such
insurer or indemnity provider (which written statement shall be reasonably
satisfactory to the Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company will receive the proceeds of such
insurance or indemnity within sixty (60) days of the issuance of such judgment;

 

(vii)                           the Company
breaches any covenant or agreement or materially breaches any representation or
warranty in any Transaction Document (except for Section 14(f) of the
Notes and Section 5.2 of Note and Warrant Purchase Agreement), and such
breach continues for a period of at least thirty (30) days after written notice
thereof from one or more Holders to the Company; or

 

4

 

(viii)                        if at any time
while at least thirty percent (30%) of the aggregate Principal amount of the
Notes remain outstanding (x) the Board of Directors fails to include two (2) Directors
designated pursuant to Article SIXTH of the Company’s Amended and Restated
Certificate of Incorporation (“Noteholder  Directors”), provided
that the Company shall have thirty (30) Business Days following the
resignation, removal or death or disability of a Noteholder Director to appoint
a successor Noteholder Director, unless such failure is the result of the
failure by the Holders to notify the Company of the name of the replacement
Noteholder Directors, in which event the thirty (30) Business Day period shall
be extended until a date which is ten (10) Business Days after notice of
the name and background of the replacement Noteholder Directors is given to the
Company, or (y) without the consent of each of the persons then serving as
Noteholder Directors, the Board of Directors exceeds nine (9) directors,
or the Compensation Committee or Nominating Committee (or other committees
serving similar functions) exceeds three (3) members, or (z) the
Noteholder Directors are not afforded the right to appoint two (2) members
of each of the Compensation Committee and Nominating Committee (or committees
serving similar functions).

 

(b)                                 Rights Upon
Event of Default.  Promptly
after the occurrence of an Event of Default with respect to this Note, the
Company shall deliver written notice thereof (an “Event of
Default Notice”) to the Holder. 
If an Event of Default with respect to the Company described in Sections
4(a)(iv), 4(a)(v) or 4(a)(viii) has occurred, all the Notes then
outstanding shall automatically become immediately due and payable.  If any Event of Default described in Sections
4(a)(i), 4(a)(ii), 4(a)(iii), 4(a)(vi) or 4(a)(vii) has occurred and
is continuing, Holders of not less than a majority of the aggregate Principal
amount of the Notes then outstanding (the “Required
Holders”) may at any time at its or their option, by notice
or notices to the Company (an “Event of Default Payment
Notice”), declare all the Notes then outstanding to be immediately
due and payable.  Upon any Notes becoming
due and payable under this Section 4(b), whether automatically or by
declaration, such Notes will forthwith mature and the entire unpaid Principal,
plus all accrued and unpaid Interest and Late Charges, shall become immediately
due and payable (the “Event of Default Price”).  Payments required by this Section 4(b) shall
be made in accordance with the provisions of Section 12.

 

(5)                                  RIGHTS UPON
FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

 

(a)                                  Assumption.  The
Company shall not enter into or be party to a Fundamental Transaction unless
the Successor Entity assumes in writing all of the obligations of the Company
under this Note and the other Transaction Documents in accordance with the
provisions of this Section 5(a) pursuant to written agreements on or
prior to such Fundamental Transaction, including the agreement to
deliver to each Holder of Notes in exchange for such Notes a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to the Notes, including,
without limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of the Notes held by such Holder (the “Successor Note”).  Upon the occurrence of any Fundamental Transaction, the Successor
Entity shall succeed to, and be substituted for (so that from and after the
date of such Fundamental Transaction, the provisions of this Note referring to
the “Company” shall refer instead to the Successor Entity), and may exercise
every right and power of the Company and shall assume all of the obligations of
the Company under this Note with the same effect as if 

 

5

 

such
Successor Entity had been named as the Company herein, until such time as the
Successor Note is delivered.  Upon
consummation of a Reclassification or Fundamental Transaction as a
result of which holders of Common Stock shall be entitled to receive stock, securities, cash, assets or any other property with respect to or in
exchange for such Common Stock, the Company or Successor
Entity, as the case may be, shall deliver to the Holder confirmation that there
shall be issued upon conversion or redemption of this Note at any time after the consummation of such Reclassification
or Fundamental Transaction, in lieu of the
shares of Common Stock (or other securities, cash, assets or other
property) issuable upon the conversion or
redemption of the Notes prior to such Reclassification or Fundamental Transaction, such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon
the happening of such Reclassification or Fundamental Transaction had this Note been converted immediately prior to
such Reclassification or Fundamental
Transaction, as adjusted in accordance with the provisions of this Note.  The provisions of this Section shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or redemption of
this Note.

 

(b)                                 Redemption upon
Change of Control.  No sooner
than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Change of Control (but not prior to the public announcement
of such Change of Control), the Company shall deliver written notice thereof to
the Holder (a “Change of Control Notice”).  If at any time during the period (the “Change of Control Measuring Period”)
beginning after the Holder’s receipt of a Change of Control Notice and ending
on the date of the consummation of such Change of Control (or, in the event a
Change of Control Notice is not delivered at least ten (10) days prior to
a Change of Control, at any time on or after the date which is ten (10) days
prior to a Change of Control and ending ten (10) days after the
consummation of such Change of Control), the Holder may require the Company to
redeem all (but not less than all) of this Note (“Optional Change of Control Redemption”) by delivering written notice
thereof (“Optional
Change of Control Redemption Notice”) to the Company, provided, however, the Company
shall not be required to redeem any amount pursuant to such notice unless the
Required Holders submit Optional Change of Control Redemption Notices.  An Optional Change of Control Redemption
required by this Section 5 shall be made in accordance with the provisions
of Section 12.  If this Note is
subject to redemption pursuant to this Section 5 it shall be redeemed by
the Company at a price equal to the Conversion Amount (the “Change of Control Redemption Price”).  Notwithstanding anything to
the contrary in this Section 5, until the Change of Control Redemption
Price (together with any interest thereon) is paid in full, the Conversion
Amount submitted for redemption under this Section 5(b) (together
with any interest thereon) may be converted, in whole or in part, by the Holder
into shares of Common Stock pursuant to Section 3.

 

(c)                                  Redemption of
Illiquid Consideration After Conversion.  Following the Company’s entry into a
definitive agreement relating to a Fundamental Transaction, the Company will
notify each Holder not later than the 10th day following
the effective date of such Fundamental Transaction of the determination by the
Company’s board of directors, made in good faith, of the fair market value of
the Illiquid Consideration at the time of such Fundamental Transaction, and
each Holder shall have the right, exercisable for thirty (30) days following
the delivery of such notice, to require the Company to redeem all or any part
of the Illiquid Consideration received upon conversion of its Notes for cash in
the amount of such 

 

6

 

fair market value; provided that such
notice shall specify in reasonable detail the basis for such determination.  In the event that the Holder disagrees with
such determination of fair market value, the Holder may require that such fair
market value be determined in accordance with the provisions of Section 22.

 

(6)                                  RIGHTS UPON
ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

 

(a)                                  Purchase Rights.  If the Company at any time, or from time to
time, grants, issues or sells any (i) Options, (ii) Convertible
Securities or (iii) rights to purchase stock, warrants, securities or
other property, pro rata to all record holders of any class of Common Stock
(the “Purchase
Rights”), then the
person who is the Holder as of the Stock Record Date (as defined below) will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights (the “Stock Record Date”).

 

(b)                                 Other Corporate
Events.  In addition to and not in
substitution for any other rights hereunder, prior to the consummation of any
Reclassification or Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate
provision to ensure that the Holder will thereafter have the right to receive
upon a conversion of this Note, (i) in the event that the Common Stock
remains outstanding after any such Corporate Event, in addition to the shares
of Common Stock receivable upon such conversion, such securities or other
assets to which the Holder would have been entitled with respect to such shares
of Common Stock had such shares of Common Stock been held by the Holder upon
the consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in
the event that the Common Stock is no longer outstanding after any such
Corporate Event, in lieu of the shares of Common Stock otherwise receivable
upon such conversion, such securities or other assets received by the holders
of shares of Common Stock in connection with the consummation of such Corporate
Event in such amounts as the Holder would have been entitled to receive had
such shares of Common Stock been held by the Holder upon the consummation of
such Corporate Event (without taking into account any limitations or
restrictions on the convertibility of this Note).  The provisions of this Section shall
apply similarly and equally to successive Corporate Events and shall be applied
without regard to any limitations on the conversion or redemption of this
Note.  Notwithstanding this Section (6)(b),
in no event shall the Company be obligated to distribute any Purchase Rights
pursuant to this Section (6)(b) if and to the extent that it has
distributed such Purchase Rights to the Holder pursuant to Section (6)(a).

 

7

 

(7)                                  RIGHTS UPON
ISSUANCE OF OTHER SECURITIES.

 

(a)                                  Record Date.  If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the 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.

 

(b)                                 Adjustment of
Conversion Price upon Subdivision or Combination of Common Stock; Stock
Dividends.  If the
Company at any time, or from time to time, subdivides (by any stock split,
stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced.  If the Company
at any time, or from time to time, combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares of Common
Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.  Any adjustment under this Section 7(b) shall
become effective at the close of business on the date the subdivision or
combination becomes effective or, in the case of a stock dividend or
distribution, the date of such event.

 

(c)                                  (i)                                     Adjustment of
Conversion Price upon Cash Dividends and Distributions.  If the Company at any time, or from time to
time, pays a dividend or makes a distribution in cash to the record holders of
any class of Common Stock, then immediately after the close of business on the
day that the Common Stock trades ex-distribution, the Conversion Price then in
effect shall be reduced to an amount equal to the product of (i) the
Conversion Price in effect immediately prior to such dividend or distribution
and (ii) the quotient determined by dividing (A) the Closing Sale
Price of the Common Stock on the day that the Common Stock trades
ex-distribution by (B) the sum of (1) the Closing Sale Price of the
Common Stock on the day that the Common Stock trades ex-distribution plus (2) the
amount per share of such dividend or distribution.  The Company shall not be required to give
effect to any adjustment in the Conversion Price pursuant to this Section 7(c) unless
and until the net effect of one or more adjustments (each of which shall be
carried forward until counted toward an adjustment), determined in accordance
with this Section 7(c), shall have resulted in a change of the Conversion
Price by at least 1%, and when the cumulative net effect of more than one
adjustment so determined shall be to change the Conversion Price by at least
1%, such change in the Conversion Price shall thereon be given effect.

 

(ii)                                  Adjustment of
Conversion Price upon Distributions of Capital Stock, Indebtedness or Other
Non-Cash Assets.  If the
Company at any time, or from time to time, distributes any shares of capital
stock of the Company (other than Common Stock), evidences of indebtedness or
other non-cash assets (including securities of any person other than the
Company but excluding (1) dividends or distributions paid exclusively in
cash or (2) dividends or distributions referred to in Section 7(b))
to the record holders of any class of Common Stock, then the Conversion Price
then in effect shall be reduced to an amount equal to the product of (A) the
Conversion Price then in effect and (B) a fraction of which the numerator 

 

8

 

shall
be the Closing Sale Price share of the Common Stock on the record date fixed
for determination of stockholders entitled to receive such distribution less
the fair market value on such record date (as determined by the Board of
Directors) of the portion of the capital stock, evidences of indebtedness or
other non-cash assets so distributed applicable to one share of Common Stock
(determined on the basis of the number of shares of Common Stock outstanding on
the record date) and of which the denominator shall be the Closing Sale Price
per share of the Common Stock on such record date.  Notwithstanding the foregoing, if the
securities distributed by the Company to the record holders of any class of
Common Stock consist of capital stock of, or similar equity interests in, a
Subsidiary or other business unit, the Conversion Price shall be decreased so
that the same shall be equal to the rate determined by multiplying the
Conversion Price in effect on the record date with respect to such distribution
by a fraction the numerator of which shall be the average Closing Sale Price of
one share of Common Stock over the Spinoff Valuation Period and of which the
denominator shall be the sum of (x) the average Closing Sale Price of one
share of Common Stock over the ten consecutive Trading Day period (the “Spinoff Valuation Period”) commencing on
and including the fifth Trading Day after the date on which “ex-dividend
trading” commences on the Common Stock on the Eligible Market or such other
national or regional exchange or market on which the Common Stock is then
listed or quoted and (y) the average Closing Sale Price over the Spinoff
Valuation Period of the portion of the securities so distributed applicable to
one share of Common Stock, such adjustment to become effective immediately
prior to the opening of business on the fifteenth Trading Day after the date on
which “ex-dividend trading” commences.

 

(d)                                 Other Events;
Other Dividends and Distributions.  If any event occurs of the type contemplated
by the provisions of this Section 7 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company’s board of directors shall make in good faith an adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 7.

 

(e)                                  Notice of
Adjustment.  Whenever
the Conversion Price is adjusted pursuant to this Section 7, the Company
shall promptly mail notice of such adjustment to each Holder, which notice
shall set forth the Conversion Price after adjustment, the date on which such
adjustment became effective and a brief statement of the facts resulting in
such adjustment.

 

(8)                                  COMPANY’S RIGHT
OF REDEMPTION.

 

(a)                                  Call Redemption.  At any time from and after the first
anniversary of the Issuance Date (the “Call Redemption
Eligibility Date”), the Company shall have the right to redeem, from
time to time, all or any portion of the Conversion Amount then remaining under
this Note, as designated in the Call Redemption Notice, as of the Call
Redemption Date (a “Call Redemption”).  The portion of this Note
subject to redemption pursuant to this Section 8(a) shall be redeemed
by the Company at a price equal to the Conversion Amount being redeemed (the “Call  Redemption
Price”, and together with the Change of Control Redemption Price, “Redemption Prices”) on the date specified by the Company in
the Call Redemption Notice (the “Call
Redemption Date”), which date shall not be less than thirty (30) nor
more than sixty (60) days after the Call Redemption Notice Date.  The Company may exercise its
right

 

9

 

to require redemption under this Section 8(a) by
delivering a written notice thereof to all of the Holders of Notes and the
Transfer Agent (the “Call Redemption Notice” and the date
such notice is sent is referred to as the “Call Redemption Notice
Date”).  Each such Call
Redemption Notice shall be irrevocable.  The Call
Redemption Notice shall state the aggregate Conversion Amount of the Notes
which the Company has elected to be subject to Call Redemption from all of the
Holders of the Notes pursuant to this Section 8(a) (and analogous
provisions under the Additional Notes). 
All Conversion Amounts converted by the Holder after the Call Redemption
Notice Date shall reduce the Conversion Amount of this Note required to be
redeemed on the Call Redemption Date. 
Redemptions made pursuant to this Section 8(a) shall be made
in accordance with Section 12.  For the avoidance of doubt, notwithstanding
the foregoing, the Holder shall be entitled to convert any portion
of the outstanding and unpaid Conversion Amount into fully paid and
nonassessable shares of Common Stock in accordance with Section 3 from and
after any Call Redemption Notice Date until any Call Redemption Date in respect
of such Conversion Amount.

 

(b)           Pro Rata Redemption Requirement.  If the Company elects to cause a redemption
of all or any portion of the Conversion Amount of this Note pursuant to Section 8(a),
then it must simultaneously take the same action with respect to the Additional
Notes and the payment in respect of such redemption shall be made on a pro rata
basis in accordance with each Holder’s percentage ownership of then outstanding
Notes.

 

(9)           [Intentionally Omitted].

 

(10)         NONCIRCUMVENTION. 
The Company hereby covenants and agrees that the Company will not, by
amendment of its Certificate of Incorporation, Bylaws or through any
reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.

 

(11)         RESERVATION OF AUTHORIZED SHARES.

 

(a)           Reservation. 
The Company shall initially reserve out of its authorized and unissued
shares of Common Stock a number of shares of Common Stock for each of the Notes
equal to 140% of the Conversion Rate with respect to the Conversion Amount of
each such Note as of the applicable Issuance Date.  So long as any of the Notes are outstanding,
the Company shall take all action necessary to reserve and keep available out
of its authorized and unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the Notes, 140% of the number of shares of
Common Stock as shall from time to time be necessary to effect the conversion
of all of the Notes then outstanding; provided that at no time shall the number
of shares of Common Stock so reserved be less than the number of shares
required to be reserved by the previous sentence (without regard to any
limitations on conversions) (the “Required Reserve Amount”).  The initial number of
shares of Common Stock reserved for conversions of the Notes and each increase
in the number of shares so reserved shall be allocated pro rata among the
Holders of the Notes based on the Principal amount of the Notes held by each
Holder at the Closing (as defined in the Note and Warrant Purchase Agreement)
or increase in

 

10

 

the number of reserved shares, as the case
may be (the “Authorized Share Allocation”).  In the event that a
Holder shall sell or otherwise transfer any of such Holder’s Notes, each
transferee shall be allocated a pro rata portion of such Holder’s Authorized
Share Allocation.  Any shares of Common
Stock reserved and allocated to any Person which ceases to hold any Notes shall
be allocated to the remaining Holders of Notes, pro rata based on the
outstanding Principal amount of the Notes then held by such Holders.

 

(b)           Insufficient Authorized Shares.  If at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall take all
action necessary to increase the Company’s authorized shares of Common Stock to
an amount sufficient to allow the Company to reserve the Required Reserve
Amount for the Notes then outstanding. 
Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than seventy-five (75) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock.  In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
its commercially reasonable efforts to solicit its stockholders’ approval of
such increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal.

 

(12)         PAYMENT OF EVENT OF DEFAULT PRICE /
HOLDER’S REDEMPTIONS.

 

(a)           Mechanics. 
The Company shall deliver the applicable Event of Default Price to the
Holder (x) in the case of an Event of Default under Section 4(a)(iv),
4(a)(v), or 4(a)(viii) immediately and (y) in the case of any other
Event of Default, within five (5) Business Days after the Company’s
receipt of the Event of Default Payment Notice. 
If the Holder has submitted an Optional Change of Control Redemption
Notice in accordance with Section 5(b) or Section 9,
respectively, the Company shall deliver the applicable Redemption Price to the
Holder concurrently with the consummation of the applicable transaction if such
notice is received by the Company on or prior to the third (3rd) Business Day preceding the
consummation of such transaction and otherwise within five (5) Business
Days after the Company’s receipt of such notice (assuming the applicable
transaction is consummated).  The Company
shall deliver the Call Redemption Price to the Holder on or before the Call
Redemption Date.  In the event
that the Company receives an Event of Default Payment Notice or Optional Change
of Control Redemption Notice (each a “Redemption Notice”)
and does not pay the applicable Redemption Price to the Holder within the time
period required, at any time thereafter and until the Company pays such unpaid
Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any
portion of this Note representing the Conversion Amount that was submitted for
redemption and for which the applicable Redemption Price (together with any Late
Charges thereon) has not been paid by delivery of a written notice (a “Redemption Voiding Notice”) to the Company
at any time prior to such payment in full. 
Upon the Company’s receipt of such Redemption Voiding Notice, (x) the
Redemption Notice to which such Redemption Voiding

 

11

 

Notice applies shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately
return this Note, or issue a new Note (in accordance with Section 17(d))
to the Holder representing such Conversion Amount and (z) the Conversion
Price of this Note or such new Notes shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Redemption Notice is
voided and (B) the lowest Closing Bid Price of the Common Stock during the
period beginning on and including the date on which the Redemption Notice is
delivered to the Company and ending on and including the date on which the
Redemption Notice is voided.  The Holder’s
delivery of a Redemption Voiding Notice and exercise of its rights following
such notice shall not affect the Company’s obligations to make any payments of
Late Charges which have accrued prior to the date of such notice with respect
to the Conversion Amount subject to such notice.

 

(b)           Redemption by Other Holders.  Upon the Company’s receipt of notice from any
of the holders of the Additional Notes for redemption or repayment as a result
of an event or occurrence substantially similar to the events or occurrences
described in Section 4(b), Section 5(b) or Section 9 (each,
an “Other Redemption Notice”), the
Company shall promptly forward to the Holder by facsimile a copy of such
notice.  If the Company receives a
Redemption Notice and one or more Other Redemption Notices during the seven (7) Business
Day period beginning on and including the date which is three (3) Business
Days prior to the Company’s receipt of the Holder’s Redemption Notice and
ending on and including the date which is three (3) Business Days after
the Company’s receipt of the Holder’s Redemption Notice and the Company is
unable to redeem all Principal, interest and other amounts designated in such
Redemption Notice and such Other Redemption Notices received during such seven (7) Business
Day period, then the Company shall redeem a pro rata amount from each holder of
the Notes (including the Holder) based on the aggregate Principal amount of the
Notes submitted for redemption pursuant to such Redemption Notice and such
Other Redemption Notices received by the Company during such seven Business Day
period.

 

(13)         VOTING RIGHTS. 
The Holder shall have no voting rights as the Holder of this Note,
except as required by law, including, but not limited to, the General
Corporation Law of the State of Delaware, and as expressly provided in this
Note, the Company’s Certificate of Incorporation or any other Transaction
Documents.

 

(14)         OTHER COVENANTS.

 

(a)           Corporate
Existence.  Subject to Section 5, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights and franchises; provided that
the Company shall not be required to preserve its corporate existence or any
such right or franchise if the Company shall determine that the preservation
thereof is no longer desirable in the conduct of its business and that the loss
thereof is not disadvantageous in any material respect to the Holders of the
Notes.

 

(b)           [Intentionally Omitted].

 

(c)           Listing.  The
Company shall promptly secure the listing of all of the Registrable Securities
(as defined in the Registration Rights Agreement) upon each national securities
exchange and automated quotation system, if any, upon which the Common Stock is

 

12

 

then listed (subject to official notice of
issuance) and shall maintain such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents.  The Company shall maintain the Common Stock’s
authorization for quotation on the principal exchange or market in which it is
listed.  Neither the Company nor any of
its Subsidiaries shall take any action which would be reasonably expected to
result in the delisting or suspension of the Common Stock on the principal
market in which it is listed.  The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 14(c).

 

(d)           Reports by the
Company.  The Company covenants to make available to the
Holder, within 15 days after the Company is required to file the same with the
SEC, copies of the annual reports and of the information, documents, and other
reports (or copies of such portions of any of the foregoing as the SEC may from
time to time by rules and regulations prescribe) which the Company may be
required to file with the SEC pursuant to Section 13 or Section 15(d) of
the Exchange Act, or if the Company is not required to file information,
documents, or reports pursuant to either of such sections, then to deliver to
the Holder, in accordance with rules and regulations prescribed from time
to time by the SEC, such of the supplementary and periodic information,
documents, and reports which may be required pursuant to Section 13 of the
Exchange Act; or, in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules and
regulations.  At any time when the
Company is not subject to Section 13 or 15(d) of the Exchange Act,
upon request of Holder and prospective purchasers of this Note or the shares
issuable upon conversion hereof, the Company will promptly furnish or cause to
be furnished to such Holder and prospective purchasers, copies of the
information required to be delivered to such Holder and prospective purchasers
of such securities pursuant to Rule 144A(d)(4) under the Securities
Act (or any successor provision thereto) in order to permit compliance with Rule 144A
in connection with resales by such holders of such securities.  The Company will pay the expenses of printing
and distributing to such holders and prospective purchasers all such
documents.  Delivery of such reports,
information and documents to the Holder is for informational purposes only and
the Holder’s receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company’s compliance with any of its covenants
hereunder.  Holder acknowledges that the
Company’s provision of such documents on the EDGAR website shall be deemed “delivery”
of said documents for purposes of this Section 14(d).

 

(e)           Waiver of Usury Defense.  The Company covenants (to
the extent that it may lawfully do so) that it shall not assert, plead (as a
defense or otherwise) or in any manner whatsoever claim (and shall actively
resist any attempt to compel it to assert, plead or claim) in any action, suit
or proceeding that the interest rate on the Notes violates present or future
usury or other laws relating to the interest payable on any Indebtedness and
shall not otherwise avail itself (and shall actively resist any attempt to
compel it to avail itself) of the benefits or advantages of any such laws.

 

(f)            Registration Rights.  The Company agrees that the Holders from time
to time of Registrable Securities (as defined in the Registration Rights
Agreement, dated July 28, 2009 by and among the Company and the investor
signatories thereto, as may be amended and/or restated from time to time (the “Registration Rights Agreement”) are entitled to the benefits
of the Registration Rights Agreement. 
Further, if (i) the Registration Statement

 

13

 

(as defined in Registration Rights Agreement)
required by Section 2(a) of the Registration Rights Agreement, covering
the Registrable Securities required to be covered thereby is (A) not filed
with the SEC on or before thirty (30) days after the Closing Date (as defined
in Registration Rights Agreement) (a “Filing Failure”)
or (B) not declared effective by the SEC on or before the date that is
ninety (90) days (one hundred and twenty (120) days if the Registration
Statement is reviewed by the SEC) after the Closing Date (an “Effectiveness Failure”) or (ii) after the effective
date of such Registration Statement, after the second (2nd) consecutive
Business Day (other than during an allowable blackout period pursuant to Section 3(g) of
the Registration Rights Agreement (“Blackout Period”))
on which sales of all of the Registrable Securities required to be included on
such Registration Statement cannot be made pursuant to such Registration
Statement (including, without limitation, because of a failure to keep such
Registration Statement effective, to disclose such information as is necessary
for sales to be made pursuant to such Registration Statement or to maintain the
listing of the Common Stock) (a “Maintenance Failure”),
then, as relief for the damages to any Holder by reason of any such delay in or
reduction of its ability to sell the Registrable Securities, the Company shall
pay to each Holder of Registrable Securities relating to such Registration
Statement an amount in cash equal to (A) one percent (1.0%) of the
aggregate Principal amount of such Holder’s Notes relating to the Registrable
Securities included in such Registration Statement on each of the following
dates:  (i) the day of a Filing
Failure; (ii) the day of an Effectiveness Failure; and (iii) the
initial day of a Maintenance Failure, and (B) one percent (1.0%) of the
aggregate Principal amount of such Holder’s Notes relating to the Registrable
Securities included in such Registration Statement on each of the following
dates:  (i) on every thirtieth
(30th) day after the initial day of a Filing Failure (prorated for periods
totaling less than thirty (30) days) until such Filing Failure is cured; (ii) on
every thirtieth (30th) day after the initial day of an Effectiveness Failure
(prorated for periods totaling less than thirty (30) days) until such
Effectiveness Failure is cured; (iii) on every thirtieth (30th) day after
the initial day of a Maintenance Failure (prorated for periods totaling less
than thirty (30) days) until such Maintenance Failure is cured.  The payments to which a Holder shall be
entitled pursuant to this Section 14(f) are referred to herein as “Registration Default Payments.”  Registration Default Payments shall be paid
on the earlier of (I) the last day of the calendar month during which such
Registration Default Payments are incurred and (II) the third (3rd)
Business Day after the event or failure giving rise to the Registration Default
Payments is cured.  In the event the
Company fails to make Registration Default Payments in a timely manner, such
Registration Default Payments shall bear interest at the rate of one and
one-half percent (1.5%) per month (prorated for partial months) until paid in
full.  If the Company has declared a
Blackout Period, a Maintenance Failure shall be deemed not to have occurred and
be continuing in relation to the Registration Statement during the period specified
in Section 3(g) of the Registration Rights Agreement.  Registration Default Payments shall be
payable from the first day any Blackout Period exceeds the period specified in Section 3(g) of
the Registration Rights Agreement. 
Registration Default Payments shall cease to accrue at the end of the
Effectiveness Period (as defined in Registration Rights Agreement); provided
that the foregoing shall not affect the Company’s obligation to make
Registration Default Payments for any period prior to such time.  Whenever in this Note there is mentioned, in
any context, the payment of interest on, or in respect of, any Note, such
mention shall be deemed to include mention of the payment of liquidated damages
on Notes constituting Registrable Securities as contemplated in the
Registration Rights Agreement to the extent that, in such context, such
liquidated damages are, were or would be payable in respect thereof pursuant to

 

14

 

this Section 14(f).  For the avoidance of doubt, the Registrable
Securities required to be included in any Registration Statement referred to in
this Section 14(f) shall be determined according to the provisions of
the Registration Rights Agreement, including all references to exceptions
therein in such provisions related to the “Rule 415 Amount,” as
applicable.

 

(g)           Compliance With Laws.  The Company and its Subsidiaries shall at all
times be in compliance with the Foreign Corrupt Practices Act; the PATRIOT Act,
and all other applicable U.S. and non-U.S. anti-money laundering laws and
regulations; and the laws, regulations and Executive Orders and sanctions
programs administered by the OFAC, including, without limitation, the
Anti-Money Laundering/OFAC Laws.

 

(15)         VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES.  Any provision of this Note may be amended,
waived or modified and, prior to the Closing under the Note and Warrant
Purchase Agreement, this Note may be terminated, upon the written consent of
the Company and the Required Holders. Neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of Interest, fees or otherwise, to any Holder for
or as inducement to any consent, waiver or amendment of any of the terms or provisions
of the Notes unless such consideration is offered to be paid or is paid to all
Holders (on a pro rata basis in accordance with each Holder’s percentage
ownership of then outstanding Notes).  So
long as any Notes remain outstanding, at no time shall the Company or any of
its Subsidiaries, directly or indirectly, purchase or offer to purchase any of
the outstanding Notes or exchange or offer to exchange for any consideration
(including, without limitation, for cash, securities, property or otherwise) any
outstanding Notes unless the Company or such Subsidiary, as applicable,
purchases, offers to purchase, exchanges or offers to exchange the outstanding
Notes of all of the Holders for the same consideration (on a pro rata basis in
accordance with each Holder’s percentage ownership of then outstanding Notes)
and on identical terms.

 

(16)         TRANSFER.  This
Note and the shares of Common Stock issuable upon conversion of this Note may
not be offered for sale, sold, transferred or assigned (i) in the absence
of (a) an effective registration statement for this Note or the shares of
Common Stock issuable upon conversion of this Note, or (b) an opinion of
counsel (selected by the Holder and reasonably acceptable to the Company), in a
form reasonable acceptable to the Company, that this Note and the shares of
Common Stock issuable upon conversion of this Note may be offered for sale,
sold, assigned or transferred pursuant to an exemption from registration; provided
that such opinion of counsel shall not be required in connection with any such
sale, assignment or transfer to an institutional accredited investor that  is
prior to such sale, assignment or transfer  is
a holder of Additional Notes or an affiliate of the Holder, or (c) in the
case of a Holder resident in Canada or otherwise subject to the provincial
securities laws of Canada, a prospectus qualifying the distribution of this
Note or the shares of Common Stock issuable upon conversion of this Note or an
exemption therefrom, or (ii) the Holder provides the Company with
assurance (reasonably satisfactory to the Company) that such Note or the shares
of Common Stock issuable upon the conversion of this Note can be sold, assigned
or transferred pursuant to Rule 144; provided, however, that
in no event may this Note be offered for sale, sold, assigned or transferred to
a Competitor.  This Note
has been issued pursuant to the Note and Warrant Purchase Agreement, Article Five
of which contemplates certain restrictions on voting with 

 

15

 

respect to director nominees.  Any assignee or transferee
of this Note shall be subject to the restrictions set forth in Article Five
of the Note and Warrant Purchase Agreement.

 

(17)         REISSUANCE OF THIS NOTE.

 

(a)           Transfer. 
This Note is issued in registered form pursuant to Treasury Regulations
section 1.871-14(c)(1).  The Company (or
its agent) will maintain a record of the Holders of the Notes, and of Principal
and Interest thereon as required by that regulation.  The Note may be transferred or otherwise
assigned only by surrender of this Note and issuance of a new Note in
accordance with this Section 17, and neither this Note nor any interests
therein may be sold, transferred or assigned to any Person except upon
satisfaction of the conditions specified in this Section 17.  If this Note is to be transferred or
assigned, the Holder shall surrender this Note to the Company, whereupon the
Company will forthwith issue and deliver upon the order of the Holder a new
Note (in accordance with Section 17(d)), registered as the Holder may
request, representing the outstanding Principal being transferred by the Holder
and, if less than the entire outstanding Principal is being transferred, a new
Note (in accordance with Section 17(d)) to the Holder representing the
outstanding Principal not being transferred. 
The Holder and any assignee, by acceptance of this Note, acknowledge and
agree that, by reason of the provisions of Section 3(c)(iii) following
conversion or redemption of any portion of this Note, the outstanding Principal
represented by this Note may be less than the Principal stated on the face of
this Note.

 

(b)           Lost, Stolen or Mutilated Note.  Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with Section 17(d))
representing the outstanding Principal.

 

(c)           Note Exchangeable for Different Denominations.  This Note is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Note or
Notes (in accordance with Section 17(d) and in Principal amounts of
at least $100,000) representing in the aggregate the outstanding Principal of
this Note, and each such new Note will represent such portion of such
outstanding Principal as is designated by the Holder at the time of such
surrender.

 

(d)           Issuance of New Notes.  Whenever the Company is required to issue a
new Note pursuant to the terms of this Note, such new Note (i) shall be of
like tenor with this Note, (ii) shall represent, as indicated on the face
of such new Note, the Principal remaining outstanding (or in the case of a new
Note being issued pursuant to Section 17(a) or Section 17(c),
the Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance,
does not exceed the Principal remaining outstanding under this Note immediately
prior to such issuance of new Notes), (iii) shall have an issuance date,
as indicated on the face of such new Note, which is the same as the Issuance
Date of this Note, (iv) shall have the same rights and conditions as this
Note, and (v) shall represent accrued Interest and Late Charges on the
Principal and Interest of this Note, from the Issuance Date.

 

16

 

(18)         REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES
AND INJUNCTIVE RELIEF.  The remedies
provided in this Note shall be cumulative and in addition to all other remedies
available under this Note and any of the other Transaction Documents at law or
in equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the Holder’s right to pursue actual and
consequential damages for any failure by the Company to comply with the terms
of this Note.  Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder and
shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof).  The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder and that
the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, the Holder shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.

 

(19)         PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS.  If (a) this Note is placed in the hands
of an attorney for collection or enforcement or is collected or enforced
through any legal proceeding or the Holder otherwise takes action to collect
amounts due under this Note or to enforce the provisions of this Note or (b) there
occurs any bankruptcy, reorganization, receivership of the Company or other
proceedings affecting Company creditors’ rights and involving a claim under
this Note, then the Company shall pay the costs incurred by the Holder for such
collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, but not limited
to, reasonable attorneys’ fees and disbursements.

 

(20)         CONSTRUCTION; HEADINGS.  This Note shall be deemed to be jointly
drafted by the Company and the initial Holders of this Note and shall not be
construed against any person as the drafter hereof.  The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note.

 

(21)         FAILURE OR INDULGENCE NOT WAIVER.  No failure or delay on the part of the Holder
in the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.

 

(22)         DISPUTE RESOLUTION. 
In the case of a dispute as to the determination of the Closing Bid
Price, the Closing Sale Price, the fair market value of Illiquid Consideration,
or, the arithmetic calculation of the Conversion Rate or the Redemption Price,
the Company shall submit the disputed determinations or arithmetic calculations
via facsimile within three (3) Business Days of receipt, or deemed
receipt, of the Conversion Notice or Redemption Notice or other event giving
rise to such dispute, as the case may be, to the Holder.  If the Holder and the Company are unable to
agree upon such determination or calculation within five (5) Business Days
of such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within one Business Day submit via facsimile (a) the
disputed determination of the Closing Bid Price, the Closing Sale Price, or
fair market value of Illiquid Consideration, to an independent, reputable
investment bank selected by the Company and

 

17

 

reasonably satisfactory to the Required
Holders or (b) the disputed arithmetic calculation of the Conversion Rate
or the Redemption Price to the Company’s independent, outside accountant.  The Company, at the Company’s expense, shall
cause the investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten (10) Business Days from the time it receives the
disputed determinations or calculations. 
Such investment bank’s or accountant’s determination or calculation, as
the case may be, shall be binding upon all parties absent demonstrable error.

 

(23)         NOTICES; PAYMENTS.

 

(a)           Notices. 
Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with the
Note and Warrant Purchase Agreement.  The
Company shall provide the Holder with prompt written notice of all actions
taken pursuant to this Note, including in reasonable detail a description of
such action and the reason therefore. 
Without limiting the generality of the foregoing, the Company will give
written notice to the Holder of any adjustment of the Conversion Price, setting
forth in reasonable detail, and certifying, the calculation of such adjustment.

 

(b)           Payments. 
Whenever any payment of cash is to be made by the Company to any Person
pursuant to this Note, such payment shall be made in lawful money of the United
States of America by a check drawn on the account of the Company and sent via
overnight courier service to such Person at such address as previously provided
to the Company in writing (which address, in the case of each of the initial
Holders of this Note, shall initially be as set forth on the Schedule of
Holders attached to the Note and Warrant Purchase Agreement); provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder’s wire transfer instructions.  Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is paid
in full, the extension of the due date thereof shall not be taken into account
for purposes of determining the amount of Interest due on such date.  Any amount of Principal or other amounts due
under the this Note or the Transaction Documents, other than Interest, which is
not paid when due shall result in a late charge being incurred and payable by
the Company in an amount equal to interest on such amount at the rate of five
percent (5%) per annum from the date such amount was due until the same is paid
in full (“Late Charge”).

 

(24)         CANCELLATION. 
After all Principal, accrued Interest and other amounts at any time owed
on this Note have been paid in full, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.

 

(25)         WAIVER OF NOTICE. 
To the extent permitted by law, the Company hereby waives demand,
notice, presentment, protest and all other demands and notices (other than the
notices expressly provided for in this Note) in connection with the delivery,
acceptance, default or enforcement of this Note and the Note and Warrant
Purchase Agreement.

 

(26)         GOVERNING LAW. 
This Note shall be construed and enforced in accordance with, and all
questions concerning the construction, validity, interpretation and

 

18

 

performance of this Note shall be governed
by, the internal laws of the State of Delaware, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.

 

(27)         CERTAIN DEFINITIONS.  For purposes of this Note, the following
terms shall have the following meanings:

 

(i)            “Bloomberg”
means Bloomberg Financial Markets.

 

(ii)           “Business Day”
means any day other than Saturday, Sunday or other day on which commercial
banks in The City of New York are authorized or required by law to remain
closed.

 

(iii)          “Change of Control”
means any Fundamental Transaction other than (A) a consolidation or merger
with or into another Person in which the beneficial owners of the Company’s
then outstanding voting securities immediately prior to such transaction
beneficially own securities representing fifty percent (50%) or more of the
aggregate voting power of then outstanding voting securities of the resulting
or acquiring corporation (or any parent thereof), or their equivalent if other
than a corporation, in such transaction, or (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.

 

(iv)          “Closing Bid Price”
and “Closing Sale Price” mean, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00 p.m., New York Time, as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or,
if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the “pink
sheets” by Pink Sheets LLC (formerly the National Quotations Bureau, Inc.).  If the Closing Bid Price or the Closing Sale
Price cannot be calculated for a security on a particular date on any of the
foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case
may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder.  If the Company and the Holder are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 23. 
All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during
the applicable calculation period.

 

(v)           “Common Stock”
means the shares of the Company’s  common
stock, par value $0.0001  per
share, and any other securities of the Company which may be issued or issuable
with respect to, in exchange for, or in substitution of, such shares of

 

19

 

common stock (including without limitation,
by way of recapitalization, reclassification, reorganization, merger or
otherwise).

 

(vi)          “Competitor”
means any Person, company or other organization, however organized, conducting
business anywhere in the world that is directly competitive with the business
of the Company.

 

(vii)         “Contingent Obligation”
means, as to any Person, any direct or indirect liability, contingent or
otherwise, of that Person with respect to any indebtedness, lease, dividend or
other obligation of another Person if the primary purpose or intent of the
Person incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such liability will be protected (in whole or in part)
against loss with respect thereto.

 

(viii)        “Continuing
Directors” means, as of any date of determination, any member of the
Board of Directors who (i) was a member of such Board of Directors on the
Issuance Date or (ii) becomes a member of such Board of Directors
subsequent to that date and was appointed, nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board of Directors at the time of such
appointment, nomination or election.

 

(ix)           “Convertible Securities”
means any stock or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for Common Stock.

 

(x)            “Eligible Market”
means The New York Stock Exchange, Inc. (“NYSE”), including the NYSE Amex,
or Nasdaq.

 

(xi)           “Exchange Act”
means the United States Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder.

 

(xii)          “Fundamental Transaction”
means (1) that the Company shall,
directly or indirectly, in one or more related transactions, (a) consolidate
or merge with or into (whether or not the Company is the surviving corporation)
another Person or Subsidiary of another Person, or (b) sell, assign,
transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company to another Person, or (c) be the
subject of a purchase, tender or exchange offer that is accepted by the holders
of more than the 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (d) consummate a
stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person
whereby such other Person or parent of such other Person acquires more than the
50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making
or party to, such stock purchase agreement or other business
combination), (2) any time the
Company’s Continuing

 

20

 

Directors do not constitute a majority of the
Company’s board of directors (or, if applicable, a Successor
Entity”), or (3) a Termination of Trading.

 

(xiii)         “GAAP”
means United States generally accepted accounting principles, consistently
applied or successor conventions.

 

(xiv)        “Illiquid Consideration”
means any non-cash consideration issuable upon conversion of the Notes
following a Fundamental Transaction that does not have a readily-ascertainable
market value.

 

(xv)         “Indebtedness”
of any Person means, without duplication (a) all indebtedness for borrowed
money, (b) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services including, without limitation, “capital
leases” in accordance with GAAP (other than trade payables entered into in the
ordinary course of business), (c) all reimbursement or payment obligations
with respect to letters of credit, surety bonds and other similar instruments, (d) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (e) all indebtedness created or arising
under any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (f) all monetary obligations under
any leasing or similar arrangement which, in connection with GAAP, consistently
applied for the periods covered thereby, is classified as a capital lease, (g) any
amount raised by acceptance under any acceptance credit facility, (h) receivables
sold or discounted (other than within the framework of factoring,
securitization or similar transaction where recourse is only to such
receivables or proceeds), (i) any derivative transaction, (j) any counter-indemnity obligation in respect of a
guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or
financial institution (excluding commercial letters of credit issued in the
ordinary course of business), (k) all indebtedness referred to in
clauses (a) through (j) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, lien, pledge, charge, security interest or other encumbrance
upon or in any property or assets (including accounts and contract rights) owned
by any Person, even though the Person which owns such assets or property has
not assumed or become liable for the payment of such indebtedness, and (l) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (a) through (k) above.

 

(xvi)        “Interest Rate”
means ten percent (10%) per annum, provided,  however, that upon
an Event of Default the Interest Rate shall automatically increase to fourteen
percent (14%) per annum.

 

(xvii)       “Material
Subsidiary” means (a) PharmAthene Canada, Inc., (b) PharmAthene
UK Limited or (c) any “Significant Subsidiary,” existing from time to
time, as such term is defined in Rule 1-02 of Regulation S-X of the
Securities Act.

 

21

 

(xviii)      “Note
and Warrant Purchase Agreement” means that certain note and warrant
purchase agreement dated as of July 24, 2009 by and among the Company and
Holders, as the same may be amended and/or restated from time to time.

 

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

 

(xx)          “Person” means
an individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, any other entity  and a government or any department or agency
thereof.

 

(xxi)         “Principal Market”
means the principal stock exchange or trading market for the Common Stock, if
any.

 

(xxii)        “Reclassification”
means any reclassification or change of shares of Common Stock issuable upon
conversion of the Notes (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).

 

(xxiii)       “Required
Holders” means the Holders of Notes representing at least a majority
of the aggregate Principal amount of the Notes then outstanding.

 

(xxiv)       “Rule 144(k)”
means Rule 144(k) promulgated under the Securities Act and any
successor provision thereto.

 

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

 

(xxvi)       “Securities
Act” means the Securities Act of 1933, as amended.

 

(xxvii)      “Subsidiary”
means with respect to any Person, any corporation, association or other
business entity of which more than 50% of the total voting power of equity
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees or other governing body thereof is
at the time owned or controlled by such Person (regardless of whether such
equity is owned directly or through one or more other Subsidiaries of such
Person or a combination thereof).

 

(xxviii)     “Successor
Entity” means the
Person, which may be the Company, formed by, resulting from or surviving any
Fundamental Transaction or the person with which such Fundamental Transaction
shall have been made.  In the event that
the Person resulting from or surviving any Fundamental Transaction is a
Subsidiary, Successor Entity shall be the parent of such Subsidiary.

 

(xxix)       “Termination
of Trading” shall be deemed to have occurred of the shares of Common
Stock are not listed on the NYSE, including the NYSE Amex, nor approved for
trading on Nasdaq or any other U.S. securities exchange.

 

22

 

(xxx)        “Trading Day”
means any day on which the Common Stock is traded on the Principal Market;
provided that “Trading Day” shall not include any day on which the Common Stock
is scheduled to trade on such exchange or market for less than 4.5 hours or any
day that the Common Stock is suspended from trading during the final hour of
trading on such exchange or market (or if such exchange or market does not
designate in advance the closing time of trading on such exchange or market,
then during the hour ending at 4:00:00 p.m., New York Time).

 

(xxxi)       “Transaction
Documents” means the Note, the Note and Warrant Purchase Agreement,
warrants issued under the Note and Warrant Purchase Agreement, the Registration
Rights Agreement and any other documents or agreements executed in connection
with the transactions contemplated hereunder or thereunder.

 

[Signature Page Follows]

 

23

 

IN WITNESS WHEREOF, the Company
has caused this Note to be duly executed as of the Issuance Date set out above.

 

 

	
   

  	
  PHARMATHENE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

EXHIBIT
I

 

PHARMATHENE,
INC.

CONVERSION NOTICE

 

Reference is made to the Convertible Note
(the “Note”) issued to the undersigned by
PharmAthene, Inc. (the “Company”).  In accordance with and pursuant to the Note,
the undersigned hereby elects to convert the Conversion Amount (as defined in
the Note) of the Note indicated below into shares of Common Stock par value
$0.0001 per share (the “Common Stock”)
of the Company, as of the date specified below.

 

 

	
  Date
  of Conversion:

  	
   

  
	
   

  	
   

  
	
  Aggregate Conversion Amount to be converted:

  	
   

  
	
   

  	
   

  
	
  Please
  confirm the following information:

  
	
   

  
	
  Conversion
  Price:

  	
   

  
	
   

  	
   

  
	
  Number
  of shares of Common Stock to be issued:

  	
   

  
	
   

  	
   

  
					

Please
issue the Common Stock into which the Note is being converted in the following
name and to the following address:

	
   

  
	
  Issue
  to:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Facsimile
  Number:

  	
   

  
	
   

  	
   

  
	
  Authorization:

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  
	
   

  	
   

  
	
  Account
  Number:

  	
   

  
	
    (if
  electronic book entry transfer)

  	
   

  
	
   

  	
   

  
	
  Transaction
  Code Number:

  	
   

  
	
    (if
  electronic book entry transfer)

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