Document:

NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE
HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.  NOTICE IS
HEREBY GIVEN TO THE HOLDER OF THESE SECURITIES THAT THESE SECURITIES AND THE
TERMS HEREOF ARE AMENDED BY THAT CERTAIN AMENDMENT AGREEMENT BY AND BETWEEN THE
COMPANY AND HIGHBRIDGE INTERNATIONAL LLC, DATED AS OF JANUARY 9, 2007 (THE “AMENDMENT
AGREEMENT”).

IPARTY
CORP.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.:         1R  

Number of Shares of Common Stock: 2,083,334

Date of
Issuance:  September 15, 2006 (“Issuance Date”)

iParty Corp., a Delaware
corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, HIGHBRIDGE INTERNATIONAL LLC, the
registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms
set forth below, to purchase from the Company, at the Exercise Price (as
defined below) then in effect, upon surrender of this Warrant to Purchase
Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the date hereof,
but not after 11:59 p.m., New York time, on the Expiration Date (as defined
below), TWO MILLION EIGHTY THREE THOUSAND THREE HUNDRED THIRTY FOUR (2,083,334)
fully paid nonassessable shares of Common Stock (as defined below) (the “Warrant
Shares”).  Except as otherwise
defined herein, capitalized terms in this Warrant shall have the meanings set
forth in Section 15.  This Warrant is one
of the Warrants to purchase Common Stock (including replacement warrants issued
pursuant to the Amendment Agreement, the “SPA
Warrants”) and amends, supplements, modifies and completely restates
and supersedes the warrants, dated as of the Subscription Date (the “Existing Warrants”), issued by the Company

 

to the Holder for
the exercise of 2,083,334 shares of Common Stock, but shall not, except as
specifically amended hereby or as set forth in the Amendment Agreement,
constitute a release, satisfaction or novation of any of the obligations under
the Existing Warrants or any other Transaction Document (as defined in the
Amendment Agreement).  This Warrant is
one of an issue of warrants issued pursuant to Section 1 of the Amendment
Agreement, dated as of January 9, 2007, by and between the Holder and the
Company.

1.             EXERCISE OF WARRANT.

(a)           Mechanics of Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the Holder on any day on or after the date
hereof, in whole or in part, by (i) delivery of a written notice, in the
form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this
Warrant and (ii) (A) payment to the Company of an amount equal to the
applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the “Aggregate
Exercise Price”) in cash or by wire transfer of immediately
available funds or (B) by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in Section 1(d)).  The Holder shall not be required to deliver
the original Warrant in order to effect an exercise hereunder.  Execution and delivery of the Exercise Notice
shall have the same effect as cancellation of the original Warrant and issuance
of a new Warrant evidencing the right to purchase the remaining number of
Warrant Shares, if any.  On or before the
first (1st)
Business Day following the date on which the Company has received each of the
Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise) (the “Exercise Delivery Documents”),
the Company shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the Company’s
transfer agent (the “Transfer Agent”).  On or before the third (3rd) Business Day following the date on
which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall
(X) provided that the Transfer Agent is participating in The Depository Trust
Company (“DTC”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account
with DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise.  Upon delivery of the Exercise
Notice and (x) the Aggregate Exercise Price referred to in clause (ii)(A)
above, or (y) notification to the Company of a Cashless Exercise referred to in
Section 1(d), the Holder shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised, irrespective of the date of delivery of the
certificates evidencing such Warrant Shares. 
If this Warrant is submitted in connection with any exercise pursuant to
this Section 1(a) and the number of Warrant Shares represented by this Warrant
submitted for exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company shall as soon as practicable and in
no event later than three Business Days after any exercise and at its own
expense, issue a new Warrant (in accordance with Section 7(d))

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representing the
right to purchase the number of Warrant Shares purchasable immediately prior to
such exercise under this Warrant, less the number of Warrant Shares with
respect to which this Warrant is exercised. 
No fractional shares of Common Stock are to be issued upon the exercise
of this Warrant, but rather the number of shares of Common Stock to be issued
shall be rounded up to the nearest whole number.  The Company shall pay any and all taxes which
may be payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant; provided, however, the Company shall
not be required to pay any taxes which may be payable in connection with or in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder, and the
Holder shall be responsible for all other tax liability that may arise as a
result of holding or transferring this Warrant.

(b)           Exercise Price.  For purposes of this Warrant, “Exercise Price” means $0.475, subject to adjustment as
provided herein.

(c)           Company’s Failure to Timely
Deliver Securities.  If the Company
shall fail for any reason or for no reason to issue to the Holder within three
(3) Trading Days of receipt of the Exercise Delivery Documents, a certificate
for the number of shares of Common Stock to which the Holder is entitled and
register such shares of Common Stock on the Company’s share register or
to credit the Holder’s balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise of this Warrant, then, in lieu of any other monetary remedies
available to the Holder, the Holder shall have the option to require that (i)
the Company pay in cash to the Holder on each day after such third Trading Day that the issuance of such shares of Common
Stock is not timely effected an amount equal to 1.0% of the product (the “Sale Price”) of (A) the sum of the number
of shares of Common Stock not issued to the Holder on a timely basis and to
which the Holder is entitled, and (B) the Closing Sale Price of the shares of
Common Stock on the Trading Day immediately preceding the last possible date
which the Company could have issued such shares of Common Stock to the Holder
without violating Section 1(a), provided, however, that the aggregate amount of
the daily payments under this sentence shall not exceed 10.0% of the Sale
Price, or, (ii) if after such third (3rd)
Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
shares of Common Stock issuable upon such exercise that the Holder had
anticipated receiving from the Company hereunder (a “Buy-In”),
the Company shall promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common Stock within
three (3) Business Days after the Holder’s request and pay cash to the Holder
in an amount equal to the excess (if any) of the Holder’s total purchase price
(including reasonable brokerage commissions, if any) for the shares of Common
Stock so purchased (the “Buy-In Price”)
over the product of (A) such number of shares of Common Stock, times (B) the
Closing Bid Price on the date of such exercise.

(d)           Cashless Exercise.  Notwithstanding
anything contained herein to the contrary, if a Registration Statement (as
defined in the Registration Rights Agreement) covering the Warrant Shares that
are the subject of the Exercise Notice (the “Unavailable
Warrant Shares”) is not available for the resale of such Unavailable
Warrant Shares, the Holder

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may, in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the “Net
Number” of shares of Common Stock determined according to the following formula
(a “Cashless Exercise”):

	
  Net Number = 

  	
  (A x B) - (A x C)

  	
   

  
	
   

  	
  B

  	
   

  

 

For purposes of the foregoing formula:

A= the total number of
shares with respect to which this Warrant is then being exercised.

B= the Closing Sale Price
of the shares of Common Stock (as reported by Bloomberg) on the date
immediately preceding the date of the Exercise Notice.

C= the
Exercise Price then in effect for the applicable Warrant Shares at the time of
such exercise.

(e)           Disputes.  In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the
Warrant Shares, the Company shall promptly issue to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance
with Section 12.

(f)            Limitations on Exercises; 

(i)            Beneficial
Ownership.  The Company shall not
effect the exercise of this Warrant, and the Holder shall not have the right to
exercise this Warrant, to the extent that after giving effect to such exercise,
such Person (together with such Person’s affiliates) would beneficially own in
excess of 4.99% (the “Maximum Percentage”)
of the shares of Common Stock outstanding immediately after giving effect to
such exercise.  For purposes of the
foregoing sentence, the aggregate number of shares of Common Stock beneficially
owned by such Person and its affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of
Common Stock which would be issuable upon (x) exercise of the remaining,
unexercised portion of this Warrant beneficially owned by such Person and its
affiliates and (y) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by such
Person and its affiliates (including, without limitation, any convertible notes
or convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein.

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Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”).  For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in (1) the Company’s
most recent Form 10-K, Form 10-Q, Current Report on Form 8-K or other public
filing with the Securities and Exchange Commission, as the case may be, (2) a
more recent public announcement by the Company or (3) any other notice by the
Company or the Transfer Agent setting forth the number of shares of Common
Stock outstanding.  For any reason at any
time, upon the written or oral request of the Holder, the Company shall within
one Business Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. 
In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of
the Company, including the SPA Warrants, by the Holder and its affiliates since
the date as of which such number of outstanding shares of Common Stock was
reported.  By written notice to the
Company, the Holder may, from time to time, increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% specified in such
notice; provided that (i) any such increase will not be effective until the
sixty-first (61st)
day after such notice is delivered to the Company, and (ii) any such increase
or decrease will apply only to the Holder and not to any other holder of SPA
Warrants.

(ii)           Principal
Market Regulation.  The Company shall
not be obligated to issue any shares of Common Stock upon exercise of this
Warrant if the issuance of such shares of Common Stock would exceed that number
of shares of Common Stock which the Company may issue upon exercise of this
Warrant without breaching the Company’s obligations under the rules or
regulations of the Principal Market (the “Exchange Cap”), except that such limitation shall not apply
in the event that the Company (A) obtains the approval of its shareholders as
required by the applicable rules of the Principal Market for issuances of
shares of Common Stock in excess of such amount or (B) obtains a written
opinion from outside counsel to the Company that such approval is not required,
which opinion shall be reasonably satisfactory to the Required Holders.  Until such approval or written opinion is
obtained, no Buyer (as defined in the Securities Purchase Agreement) shall be
issued, upon exercise of any SPA Warrants shares of Common Stock in an amount
greater than the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the total number of shares of Common Stock issued to such
Buyer pursuant to the Securities Purchase Agreement on the Issuance Date and
the denominator of which is the aggregate number of shares of Common Stock
issued to the Buyers pursuant to the Securities Purchase Agreement on the
Issuance

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Date (with respect to each Buyer, the “Exchange Cap Allocation”). 
In the event that any Buyer shall sell or otherwise transfer any of such
Buyer’s SPA Warrants, the transferee shall be allocated a pro rata portion of
such Buyer’s Exchange Cap Allocation, and the restrictions of the prior
sentence shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee.  In the event that any holder of SPA Warrants
shall exercise all of such holder’s SPA Warrants into a number of shares of
Common Stock which, in the aggregate, is less than such holder’s Exchange Cap
Allocation, then the difference between such holder’s Exchange Cap Allocation
and the number of shares of Common Stock actually issued to such holder shall
be allocated to the respective Exchange Cap Allocations of the remaining
holders of SPA Warrants on a pro rata basis in proportion to the shares of
Common Stock underlying the SPA Warrants then held by each such holder.  In the event that the Company is prohibited
from issuing any Warrant Shares for which an Exercise Notice has been received
as a result of the operation of this Section 1(f)(ii), the Company shall pay
cash in exchange for cancellation of such Warrant Shares, at a price per
Warrant Share equal to the difference between the Closing Sale Price and the
Exercise Price as of the date of the attempted exercise.

(g)           Insufficient Authorized Shares.  If at any time while any of the Warrants
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 exercise of the Warrants at least a number of shares of Common
Stock equal to 130% (the “Required Reserve Amount”) of the number of shares of Common
Stock as shall from time to time be necessary to effect the exercise of all of
the Warrants then outstanding (an “Authorized Share Failure”), then the Company shall
immediately 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 Warrants 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 ninety (90) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock.  In
connection with such meeting, the Company shall provide each stockholder with a
proxy statement and shall use its best efforts to solicit its stockholders’
approval of such increase in authorized shares of Common Stock and to cause its
board of directors to recommend to the stockholders that they approve such
proposal.

2.     ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.  The Exercise Price and the number of Warrant
Shares shall be adjusted from time to time as follows:

(a)           Adjustment upon Issuance of shares
of Common Stock.  If and whenever on
or after the Subscription Date the Company issues or sells, or in accordance
with this Section 2 is deemed to have issued or sold, any shares of Common
Stock (including the

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issuance or sale of shares of
Common Stock owned or held by or for the account of the Company, but excluding
Excluded Securities for a consideration per share less than a price (the “Applicable Price”) equal to the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale (the
foregoing a “Dilutive Issuance”), then
immediately after such Dilutive Issuance, the Exercise Price then in effect
shall be reduced to an amount equal to the product of (A) the Exercise
Price in effect immediately prior to such Dilutive Issuance and (B) the
quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Exercise Price in effect immediately prior to such Dilutive
Issuance and the number of Common Stock Deemed Outstanding immediately prior to
such Dilutive Issuance plus (II) the consideration, if any, received by
the Company upon such Dilutive Issuance, by (2) the product derived by
multiplying (I) the Exercise Price in effect immediately prior to such
Dilutive Issuance by (II) the number of Common Stock Deemed Outstanding
immediately after such Dilutive Issuance. 
Upon each such adjustment of the Exercise Price hereunder, the number of
Warrant Shares shall be adjusted to the number of shares of Common Stock
determined by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares acquirable upon exercise of
this Warrant immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.  For purposes of determining the adjusted
Exercise Price under this Section 2(a), the following shall be applicable:

(i)            Issuance
of Options.  If the Company in any
manner grants any Options and the lowest price per share for which one share of
Common Stock is issuable upon the exercise of any such Option or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for such
price per share.  For purposes of this
Section 2(a)(i), the “lowest price per share for which one share of Common
Stock is issuable upon exercise of such Options or upon conversion, exercise or
exchange of such Convertible Securities” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option and upon conversion, exercise or exchange
of any Convertible Security issuable upon exercise of such Option.  No further adjustment of the Exercise Price
or number of Warrant Shares shall be made upon the actual issuance of such
shares of Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities.

(ii)           Issuance of
Convertible Securities.  If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon the
conversion,

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exercise or exchange thereof is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share.  For the purposes of this Section 2(a)(ii),
the “lowest price per share for which one share of Common Stock is issuable
upon the conversion, exercise or exchange” shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to one share of Common Stock upon the issuance or sale of the
Convertible Security and upon conversion, exercise or exchange of such
Convertible Security.  No further
adjustment of the Exercise Price or number of Warrant Shares shall be made upon
the actual issuance of such shares of Common Stock upon conversion, exercise or
exchange of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustment of this Warrant has been or is to be made pursuant to other
provisions of this Section 2(a), no further adjustment of the Exercise Price or
number of Warrant Shares shall be made by reason of such issue or sale.

(iii)          Change in Option
Price or Rate of Conversion.  If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price and the number of
Warrant Shares in effect at the time of such increase or decrease shall be
adjusted to the Exercise Price and the number of Warrant Shares which would
have been in effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the case may be, at
the time initially granted, issued or sold. 
For purposes of this Section 2(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the date of issuance of this
Warrant are increased or decreased in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the shares of
Common Stock deemed issuable upon exercise, conversion or exchange thereof
shall be deemed to have been issued as of the date of such increase or
decrease.  No adjustment pursuant to this
Section 2(a) shall be made if such adjustment would result in an increase of
the Exercise Price then in effect or a decrease in the number of Warrant
Shares.

(iv)          Calculation of
Consideration Received.  In case any
Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Options by the parties thereto,

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the Options will be deemed to have been issued for a consideration of
$0.01.  If any shares of Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the net amount received by the Company therefor.  If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Closing Sale Price of such security on the date of receipt.  If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is attributable
to such shares of Common Stock, Options or Convertible Securities, as the case
may be.  The fair value of any
consideration other than cash or securities will be determined jointly by the
Company and the Required Holders.  If
such parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will
be determined within five (5) Business Days after the tenth day following the
Valuation Event by an independent, reputable appraiser jointly selected by the
Company and the Required Holders.  The
determination of such appraiser shall be final and binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
by the Company.

(v)           Record Date.  If the Company takes a record of the holders
of shares of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in shares of Common Stock, Options or
in Convertible Securities or (B) to subscribe for or purchase shares of
Common Stock, Options or Convertible Securities, then such record date will be
deemed to be the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.

(b)           Adjustment upon Subdivision or
Combination of Common Stock.  If the
Company at any time on or after the Subscription Date 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
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of Warrant Shares will be
proportionately increased.  If the
Company at any time on or after the Subscription Date  combines (by combination, reverse stock split
or otherwise) one or more classes of its

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outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to
such combination will be proportionately increased and the number of Warrant
Shares will be proportionately decreased. 
Any adjustment under this Section 2(b) shall become effective at the
close of business on the date the subdivision or combination becomes effective.

(c)           Other Events.  If any dilutive event occurs of the type
contemplated by the provisions of this Section 2 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
but not if granted to employees or directors under any Approved Stock Plan),
then the Company’s Board of Directors will make an appropriate adjustment, in
accordance with the terms of this Warrant, in the Exercise Price and the number
of Warrant Shares so as to protect the rights of the Holder; provided that no
such adjustment pursuant to this Section 2(c) will increase the Exercise Price
or decrease the number of Warrant Shares as otherwise determined pursuant to
this Section 2.

3.     RIGHTS
UPON DISTRIBUTION OF ASSETS.  If the
Company shall declare or make any dividend or other distribution of its assets
(or rights to acquire its assets) to holders of shares of Common Stock, by way
of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a “Distribution”),
at any time after the issuance of this Warrant, then, in each such case:

(a)           any Exercise Price in effect
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to receive the
Distribution shall be reduced, effective as of the close of business on such
record date, to a price determined by multiplying such Exercise Price by a
fraction of which (i) the numerator shall be the Closing Bid Price of the
shares of Common Stock on the Trading Day immediately preceding such record
date minus the value of the Distribution (as determined in good faith by the
Company’s Board of Directors) applicable to one share of shares of Common
Stock, and (ii) the denominator shall be the Closing Bid Price of the shares of
Common Stock on the Trading Day immediately preceding such record date; and

(b)           the number of Warrant Shares shall be
increased to a number of shares equal to the number of shares of Common Stock
obtainable immediately prior to the close of business on the record date fixed
for the determination of holders of shares of Common Stock entitled to receive
the Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding paragraph (a); provided that in the event that the
Distribution is of shares of Common Stock (or common stock) (“Other Shares of Common Stock”) of a company whose common
shares are traded on a national securities exchange or a national automated
quotation system, then the Holder may elect to receive a warrant to purchase
Other Shares of Common Stock in lieu of an increase in the number of Warrant
Shares, the terms of which shall be identical to those of this Warrant, except
that such warrant shall be exercisable into the number of shares of Other
Shares of Common Stock that would have been payable to the Holder

 

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pursuant to the Distribution had the Holder exercised this Warrant
immediately prior to such record date and with an aggregate exercise price
equal to the product of the amount by which the exercise price of this Warrant
was decreased with respect to the Distribution pursuant to the terms of the
immediately preceding paragraph (a) and the number of Warrant Shares calculated
in accordance with the first part of this paragraph (b).

4.     PURCHASE RIGHTS;
FUNDAMENTAL TRANSACTIONS.

(a)           Purchase Rights. 
In addition to any adjustments pursuant to Section 2 above, if at any
time the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to
the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
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 shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.

(b)           Fundamental
Transactions.  (1)         The
Company shall not enter into or be party to a Fundamental Transaction unless
(x) the Successor Entity assumes in writing all of the obligations of the
Company under this Warrant and the other Transaction Documents in accordance
with the provisions of this Section (4)(b)(1) pursuant to written agreements in
form and substance satisfactory to the Required Holders and approved by the
Required Holders prior to such Fundamental Transaction, including agreements to
deliver to each holder of Warrants
in exchange for such Warrants
a security of the
Successor Entity evidenced by a written instrument substantially similar
in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value
for the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital
stock of the Successor Entity equivalent to the shares of Common Stock
acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental
Transaction, and reasonably satisfactory to the Required Holders and (y) the Successor Entity
(including its Parent Entity) is a publicly traded corporation whose
Common Stock is quoted on or listed for trading on an Eligible Market.  Upon
the occurrence of any such 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 Warrant 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 Warrant with the same effect as if such Successor Entity had been
named as the Company herein.  Upon
consummation of such Fundamental Transaction, the Successor Entity shall
deliver to the Holder confirmation that there shall be issued upon exercise of
this Warrant at any time
after the consummation of the Fundamental Transaction, in lieu of the shares of
the Common Stock (or other securities, cash, assets or other property) issuable
upon the exercise of the Warrant prior to such Fundamental Transaction, such
shares of publicly traded Common Stock (or their equvalent) of the Successor
Entity, as adjusted in accordance with the

 11
 

 

Provisions of this
Warrant.  In addition to and not
in substitution for any other rights hereunder, prior to the consummation of
any 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 insure that
the Holder will thereafter have the right to receive upon an exercise of this
Warrant at any time after the consummation of such Fundamental Transaction but
prior to the Expiration Date in lieu of (x) the shares of the Common Stock (or
other securities, cash, assets or other property) purchasable upon the exercise
of the Warrant prior to such Fundamental Tranaction and (y) the Common Stock of
the Successor Entity, 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 Fundamental Transaction had the Warrant been exercised immediately
prior to such Fundamental Tranaction.  Provision
made pursuant to the preceding sentence shall be in a form and substance
reasonably satisfactory to the Required Holders.  The provisions of this Section shall apply
similarly and equally to each such successive Fundamental Transactions and
Corporate Events and shall be applied without regard to any limitations on the
exercise of this Warrant.

(2)           Notwithstanding
the provisions of Section 4(b)(1), the Company shall have the right to require
that Holder waive the requirements of Section 4(b)(1) (the “Waiver”) in exchange for a payment of cash in an amount
equal to the value of the remaining unexercised portion of this Warrant on the
date of such Fundamental Transaction, which value shall be determined by use of
the Black Scholes Option Pricing Model, with the Waiver becoming effective, and
this Warrant cancelled, concurrently with such payment of such cash amount (the
“Fundamental Transaction Amount”) to the Holder on the Fundamental Transaction
Closing Date.  Notwithstanding anything
to the contrary in this Section 4(b), but subject to Section 1(f), until such
time that the Holder receives the Fundamental Transaction Amount (at which
point this Warrant shall be cancelled), this Warrant may be exercised, in whole
or in part, by the Holder (x) prior to the Fundamental Transaction Closing
Date, into Common Stock pursuant to Section 1, or (y) upon (which may be
expressly conditioned upon the closing of the Fundamental Transaction) or after
the Fundamental Transaction Closing Date, into any such shares of stock,
securities, cash, assets or any other property whatsoever (including warrants
or other purchase or subscription rights, if applicable) which the Holder would
have been entitled to receive upon the happening of such Fundamental Tranaction
had the Warrant been exercised immediately prior to such Fundamental
Transaction Closing Date.

5.     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 Warrant, and will at all times in good faith carry out all
the provisions of this Warrant and take all action as may be required to protect
the rights of the Holder.  Without
limiting the generality of the foregoing, the Company (i) shall not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect,
(ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of

 12
 

 

Common Stock upon
the exercise of this Warrant, and (iii) shall, so long as any of the SPA
Warrants are outstanding, 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 exercise of the SPA Warrants, 130% of the number
of shares of Common Stock as shall from time to time be necessary to effect the
exercise of the SPA Warrants then outstanding (without regard to any
limitations on exercise).

6.     WARRANT
HOLDER NOT DEEMED A STOCKHOLDER. 
Except as otherwise specifically provided herein, the Holder, solely in
such Person’s capacity as a holder of this Warrant, shall not be
entitled to vote or receive dividends or be deemed the holder of share capital
of the Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in such Person’s capacity as
the Holder of this Warrant, any of the rights of a shareholder of the Company
or any right to vote, give or withhold consent to any corporate action (whether
any reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of
the Warrant Shares which such Person is then entitled to receive upon the due exercise
of this Warrant.  In addition, nothing
contained in this Warrant shall be construed as imposing any liabilities on the
Holder to purchase any securities (upon exercise of this Warrant or otherwise)
or as a shareholder of the Company, whether such liabilities are asserted by
the Company or by creditors of the Company. 
Notwithstanding this Section 6, the Company shall provide the Holder
with copies of the same notices and other information given to the shareholders
of the Company generally, contemporaneously with the giving thereof to the
shareholders.

7.     REISSUANCE
OF WARRANTS.

(a)           Transfer of Warrant.  If this Warrant is to be transferred, the
Holder shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.

(b)           Lost, Stolen or Mutilated Warrant.  Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, 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
Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.

(c)           Exchangeable for Multiple Warrants.  This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate

 13
 

 

the right to purchase the number of Warrant
Shares then underlying this Warrant, and each such new Warrant will represent
the right to purchase such portion of such Warrant Shares as is designated by
the Holder at the time of such surrender; provided, however, that no Warrants
for fractional shares of Common Stock shall be given.

(d)           Issuance of New Warrants.  Whenever the Company is required to issue a
new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall
be of like tenor with this Warrant, (ii) shall represent, as indicated on the
face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the
number of Warrant Shares then underlying this Warrant), (iii) shall have an
issuance date, as indicated on the face of such new Warrant which is the same
as the Issuance Date, and (iv) shall have the same rights and conditions as
this Warrant.

8.             NOTICES. 
Whenever notice is required to be given under this Warrant, unless
otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Warrant, including
in reasonable detail a description of such action and the reason
therefore.  Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the Exercise Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment and (ii)
at least fifteen days prior to the date on which the Company closes its books
or applicable record date (A) with respect to any dividend or distribution upon
the shares of Common Stock, (B) with respect to any grants, issuances or sales
of any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to the Holder.  Failure to
deliver notice hereunder, or any defect in any notice hereunder, shall not
affect the validity of the corporate actions required to be described in such
notice under this Section 8.

9.             AMENDMENT AND WAIVER.  Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any
SPA Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder.  No such amendment shall be effective to the
extent that it applies to less than all of the holders of the SPA Warrants then
outstanding.

10.           GOVERNING LAW.  This Warrant shall be governed by and
construed and enforced in accor­dance with, and all questions concerning the
construction, validity, interpretation and performance of this Warrant shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule

 14
 

 

(whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.

11.           CONSTRUCTION; HEADINGS.  This Warrant shall be deemed to be jointly
drafted by the Company and all the Buyers and shall not be construed against
any person as the drafter hereof.  The
headings of this Warrant are for convenience of reference and shall not form
part of, or affect the interpretation of, this Warrant.

12.           DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the
Warrant Shares, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within two Business Days of receipt of
the Exercise Notice 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 of the Exercise
Price or the Warrant Shares within three Business Days of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within two Business Days submit via facsimile (a) the disputed
determination of the Exercise Price to an independent, reputable investment
bank selected by the Company and approved by the Holder (which approval shall
not be unreasonably withheld or delayed) or (b) the disputed arithmetic calculation
of the Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause at its expense 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 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.

13.           REMEDIES, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF.  The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and 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 right of
the Holder right to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant. 
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 of this Warrant 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.

14.           TRANSFER.  This Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement.

15.           CERTAIN DEFINITIONS.  For purposes of this Warrant, the following
terms shall have the following meanings:

                                (a)           “Approved Stock Plan” means any employee benefit plan
which has been approved by the Board of Directors of the Company, pursuant to
which the Company’s

 15
 

 

securities and any stock appreciation rights or
similar phantom stock rights may be issued to any employee, officer or director
for services provided to the Company.

                                (b)           “Bloomberg”
means Bloomberg Financial Markets.

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

                                (d)           “Closing
Bid Price” and “Closing Sale Price”
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the Principal Market,
as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the
closing trade price, as the case may be, then the last bid price or last trade
price, respectively, of such security prior to 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded
as reported by Bloomberg, or if the foregoing do not apply, the last closing
bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.).  If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or
the Closing Sale Price, as the case may be, of such security on such date shall
be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 12.  All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.

                                (e)           “Common
Stock” means (i) the Company’s shares of Common Stock, par
value $0.001 per share, and (ii) any share capital into which such Common
Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.

                                (f)            “Common
Stock Deemed Outstanding” means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 2(a)(i)
and 2(a)(ii) hereof regardless of whether the Options or Convertible Securities
are actually exercisable at such time, but excluding any shares of Common Stock
owned or held by or for the account of the Company or issuable upon exercise of
the SPA Warrants.

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

 16
 

 

(h)           “Eligible Market”
means the Principal Market, The New York Stock Exchange, Inc., the NASDAQ
Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market.

(i)            “Excluded Securities” means any Common Stock issued or
issuable: (i) in connection with any Approved Stock Plan; (ii) upon the
exercise of the Warrants; (iii) upon conversion, exercise or exchange of any
Options or Convertible Securities which are outstanding on the day immediately
preceding the Subscription Date, provided that the terms of such Options or
Convertible Securities are not amended, modified or changed on or after the
Subscription Date; or (iv) pursuant to a bona fide firm commitment underwritten
public offering with a nationally recognized underwriter which generates gross
proceeds to the Company of $10,000,000 or more (other than an “at-the-market
offering” as defined in Rule 415(a)(4) under the 1933 Act) or equity lines.

(j)            “Expiration
Date” means the date sixty (60) months after the Issuance Date or,
if such date falls on a day other than a Business Day or on which trading does
not take place on the Principal Market (a “Holiday”), the
next date that is not a Holiday.

(k)           “Fundamental Transaction”
means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, or (iii) allow another Person to make 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 (iv) 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 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), or (v) reorganize, recapitalize
or reclassify its Common Stock.

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

(m)          “Parent Entity”
of a Person means an entity
that, directly or indirectly, controls the applicable Person and whose common
stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such
Person or Parent Entity, the Person or Parent Entity with the largest public
market capitalization as of the date of consummation of the Fundamental
Transaction.

(n)           “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.

 17
 

 

(o)           “Principal Market”
means the American Stock Exchange.

(p)           “Registration Rights
Agreement” means that certain registration rights agreement by and
among the Company and the Buyers.

(q)           “Required Holders”
means the holders of the SPA Warrants representing at least a majority of
shares of Common Stock underlying the SPA Warrants then outstanding.

(r)            “Securities Purchase
Agreement” means that certain Securities Purchase Agreement dated as
of the Subscription Date by and among the Company and the Buyers referred to
therein, as the same may be amended, modified or supplemented from time to time
in accordance with the terms thereof.

(s)           “Subscription Date”
means September 15, 2006.

(t)            “Successor
Entity” means the
Person (or, if so elected by the Required Holders, the Parent Entity) formed
by, resulting from or surviving any Fundamental Transaction or the Person (or,
if so elected by the Required Holders, the Parent Entity) with which such
Fundamental Transaction shall have been entered into.

(u)           “Trading Day”
means any day on which the Common Stock are traded on the Principal Market, or,
if the Principal Market is not the principal trading market for the Common
Stock, then on the principal securities exchange or securities market on which
the Common Stock are then traded.

[Signature
Page Follows]

 18

 

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

	
  

  	
   

  	
   

  	
  iPARTY CORP.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
  /s/ SAL PERISANO

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Sal Perisano

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  

 

 

 

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

iPARTY CORP.

The undersigned holder hereby exercises the right to
purchase                              
of the shares of Common Stock (“Warrant
Shares”) of iParty Corp., a Delaware corporation (the “Company”), evidenced by the attached
Warrant to Purchase Common Stock (the “Warrant”).  Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

1.  Form of
Exercise Price.  The Holder intends that
payment of the Exercise Price shall be made as:

                  a “Cash Exercise” with respect to                                       
Warrant Shares; and/or

                  a “Cashless Exercise” with respect to                                 
Warrant Shares.

2.  Payment of
Exercise Price.  In the event that the
holder has elected a Cash Exercise with respect to some or all of the Warrant
Shares to be issued pursuant hereto, the holder shall pay the Aggregate
Exercise Price in the sum of $                      
to the Company in accordance with the terms of the Warrant.

3.  Delivery
of Warrant Shares.  The Company shall
deliver to the holder                 
Warrant Shares in accordance with the terms of the Warrant.

Date:                
     ,           

	
  

  	
   

  
	
    Name of Registered Holder

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
			

 

ACKNOWLEDGMENT

The
Company hereby acknowledges this Exercise Notice and hereby directs Continental Stock Transfer & Trust Co.
to issue the above indicated number of shares of Common Stock in accordance
with the Transfer Agent Instructions dated September      ,
2006 from the Company and acknowledged and agreed to by Continental Stock Transfer & Trust Co.

	
  

  	
  iPARTY CORP.

  
	
   

  	
   

  
	
  

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:Exhibit
4.1

GEOKINETICS INC.

2002 STOCK AWARDS PLAN

(as amended through November 30, 2006)

Purpose.  The purpose of the
GEOKINETICS INC. 2002 STOCK AWARDS PLAN (the “Plan”) is to provide a means
through which GEOKINETICS INC., a Delaware corporation (the “Company”),
and its subsidiaries, may attract, retain and motivate employees, directors and
persons affiliated with the Company and to provide a means whereby such persons
can acquire and maintain stock ownership, thereby strengthening their concern
for the welfare of the Company. A further purpose of the Plan is to provide
such participants with additional incentive and reward opportunities designed
to enhance the profitable growth and increase stockholder value of the Company.
Accordingly, the Plan provides for granting Incentive Stock Options, options
that do not constitute Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock Awards, Phantom Stock Awards, or any combination of the
foregoing, as is best suited to the particular circumstances as provided
herein.

Definitions.  The following definitions
shall be applicable throughout the Plan unless specifically modified by any
paragraph:

                                (a)           “Affiliates”
means any “parent corporation” of the Company and any “subsidiary” of the
Company within the meaning of Code Sections 424(e) and (f), respectively, and
any entity which directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with the Company.

(b)           “Award”
means, individually or collectively, any Option, Restricted Stock Award,
Phantom Stock Award or Stock Appreciation Right.

(c)           “Board”
means the Board of Directors of the Company.

(d)           “Change
of Control” means the occurrence of any of the following events:
(i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly- owned subsidiary of the Company),
(ii) the Company sells, leases or exchanges all or substantially all of
its assets to any other person or entity (other than a wholly-owned
subsidiary of the Company), (iii) the Company is to be dissolved and
liquidated, (iv) any person or entity, including a “group” as contemplated
by Section 13(d)(3) of the 1934 Act, acquires or gains ownership or
control (including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company’s voting stock (based upon voting power), or
(v) as a result of or in connection with a contested election of directors,
the persons who were directors of the Company before such election shall cease
to constitute a majority of the Board.

(e)           “Change
of Control Value” shall mean (i) the per share price offered to
stockholders of the Company in any merger, consolidation, reorganization, sale
of assets or dissolution transaction, (ii) the price per share offered to
stockholders of the Company in any tender offer or exchange offer whereby a
Change of Control takes place, or (iii) if a Change of Control occurs other
than pursuant (i) or (ii) above, the Fair Market Value per share of
the shares into which Awards are exercisable, as determined by the Committee,
whichever is applicable. In the event that the consideration offered to
stockholders of the Company consists of anything other than cash, the Committee
shall determine the fair cash equivalent of the portion of the consideration
offered which is other than cash.

 

(f)            “Code”
means the Internal Revenue Code of 1986, as amended. Reference in the Plan to
any section of the Code shall be deemed to include any amendments or successor
provisions to any section and any regulations under such section.

(g)           “Committee”
means the Board or any Compensation Committee of the Board which shall be
constituted (i) as to permit the Plan to comply with Rule 16b-3, and
(ii) solely of “outside directors,” within the meaning of
Section 162(m) of the Code and applicable interpretive authority
thereunder.

(h)           “Company”
means Geokinetics Inc.

(i)            “Director”
means an individual elected to the Board by the stockholders of the Company or
by the Board under applicable corporate law who is serving on the Board on the
date the Plan is adopted by the Board or is elected to the Board after such
date.

(j)            An “employee”
means any person (including an officer or a Director) in an employment
relationship with the Company or any parent or subsidiary corporation (as
defined in Section 424 of the Code).

(k)           “1934
Act” means the Securities Exchange Act of 1934, as amended.

(l)            “Fair
Market Value” means, as of any specified date, the mean of the high
and low sales prices of the Stock (i) reported by any interdealer
quotation system on which the Stock is quoted on that date or (ii) if the
Stock is listed on a national stock exchange, reported on the stock exchange
composite tape on that date; or, in either case, if no prices are reported on
that date, on the last preceding date on which such prices of the Stock are so
reported. If the Stock is traded over the counter at the time a determination
of its Fair Market Value is required to be made hereunder, its fair market
value shall be deemed to be equal to the average between the reported high and
low or closing bid and asked prices of Stock on the most recent date on which
Stock was publicly traded. In the event Stock is not publicly traded at the
time a determination of its value is required to be made hereunder, the
determination of its fair market value shall be made by the Committee in such
manner as it deems appropriate.

(m)          “Holder”
means a Participant who has been granted an Award.

(n)           “Incentive
Stock Option” means an incentive stock option within the meaning of
Section 422(b) of the Code.

(o)           “Nonqualified
Stock Option” means an option granted under Section 7 of the
Plan to purchase Stock that does not constitute an Incentive Stock Option.

(p)           “Option”
means an Award granted under Section 7 of the Plan and includes both
Incentive Stock Options to purchase Stock and Nonqualified Stock Options to
purchase Stock.

(q)           “Option
Agreement” means a written agreement between the Company and a
Holder with respect to an Option.

(r)            “Participant”
means individually or collectively, an employee, member of the Board of
Directors or person affiliated with the Company or any of its Affiliates, who
participates in the Plan.

 2
 

 

(s)           “Phantom
Stock Award” means an Award granted under Section 10 of the
Plan.

(t)            “Phantom
Stock Award Agreement” means a written agreement between the Company
and a Holder with respect to a Phantom Stock Award.

(u)           “Reload
Option” means the grant of a new Option to a Holder who exercises an
Option(s) as provided in Section 7(f) of the Plan.

(v)           “Restricted
Stock Agreement” means a written agreement between the Company and a
Holder with respect to a Restricted Stock Award.

(w)          “Restricted
Stock Award” means an Award granted under Section 9 of the
Plan.

(x)            “Rule 16b-3”
means Rule 16b-3 promulgated by the Securities and Exchange Commission
under the 1934 Act, as such may be amended from time to time, and any successor
rule, regulation or statute fulfilling the same or a similar function.

(y)           “Spread”
means, in the case of a Stock Appreciation Right, an amount equal to the
excess, if any, of the Fair Market Value of a share of Stock on the date such
right is exercised over the price designated in such Stock Appreciation Right.

(z)            “Stock”
means the Common Stock par value, $.01 per share, of the Company.

(aa)         “Stock
Appreciation Right” means an Award granted under Section 8 of
the Plan.

(bb)         “Stock
Appreciation Rights Agreement” means a written agreement between the
Company and a Holder with respect to an Award of Stock Appreciation Rights.

 3.  Effective Date and Term.  The Plan shall be effective upon its adoption
by the Board, provided that the Plan has been or is approved by the
stockholders of the Company within twelve months of its adoption by the Board.
No further Awards may be granted under the Plan on or after the date which is
ten years following the effective date. The Plan shall remain in effect until
all Awards granted under the Plan have been satisfied or expired.

 4.  Administration.  The Plan shall be administered by the Board
or by the Committee as authorized by the Board (hereinafter where the term “Committee”
is used “Board” shall be substituted, if no Committee has been established).
Subject to the provisions of the Plan, the Committee shall have sole authority,
in its discretion, to determine which Participant shall receive an Award, the
time or times when such Award shall be made, whether an Incentive Stock Option,
Nonqualified Option or Stock Appreciation Right shall be granted, the number of
shares of Stock which may be issued under each Option, Stock Appreciation Right
or Restricted Stock Award, and the value of each Phantom Stock Award. In making
such determinations the Committee may take into account the nature of the
services rendered by the respective Participants, their present and potential
contributions to the Company’s success and such other factors as the Committee
in its discretion shall deem relevant. The Committee shall have such additional
powers as are delegated to it by the other provisions of the Plan. Subject to
the express provisions of the Plan, the Committee is authorized to construe the
Plan and the respective agreements executed thereunder, to prescribe such rules
and regulations relating to the Plan as it may deem advisable to carry out the
Plan, and to determine the terms, restrictions and provisions of each Award,
including such terms, restrictions and provisions as shall be requisite in the
judgment of the Committee to cause designated Options to qualify as Incentive
Stock Options, and to make all other determinations necessary or advisable for
administering the Plan. The Committee may correct any defect or supply any
omission or reconcile any 

 3
 

 

inconsistency in any
agreement relating to an Award in the manner and to the extent it shall deem
expedient to carry it into effect. The determinations of the Committee on the
matters referred to in this Section 4 shall be conclusive.

 5.  Shares Subject to the Plan.  Subject to Section 11, the aggregate
number of shares of Stock that may be issued under the Plan shall be 800,000
shares. The Stock to be offered pursuant to the grant of an Award may be
authorized but unissued Stock or Stock previously issued and outstanding and
reacquired by the Company. Shares of Stock shall be deemed to have been issued
under the Plan only to the extent actually issued and delivered pursuant to an
Award. To the extent that an Award lapses or the rights of its Holder terminate
or the Award is paid in cash, any shares of Stock subject to such Award shall
again be available for the grant of an Award. Separate stock certificates shall
be issued by the Company for those shares acquired pursuant to the exercise of
an Incentive Stock Option and for those shares acquired pursuant to the
exercise of a Nonqualified Stock Option.

 6.  Eligibility.  Awards may be granted only to persons who, at
the time of grant, are employees, members of the Board or persons affiliated
with the Company or any of its Affiliates. An Award may be granted on more than
one occasion to the same person, and, subject to the limitations set forth in
the Plan, such Award may include an Incentive Stock Option or a Nonqualified
Stock Option, a Stock Appreciation Right, a Restricted Stock Award, a Phantom
Stock Award or any combination thereof.

 7.  Stock Options.

(a)  Option
Period.  The term of each
Option shall be as specified by the Committee at the date of grant.

(b)  Limitations
on Exercise of Option.  An
Option shall be exercisable in whole or in such installments and at such times
as determined by the Committee.

(c)  Special
Limitations on Incentive Stock Options.  Incentive Stock Options may only be granted
to employees of the Company and a parent or subsidiary thereof which is an
Affiliate. To the extent that the aggregate Fair Market Value (determined at
the time the respective Incentive Stock Option is granted) of Stock with
respect to which Incentive Stock Options are exercisable for the first time by
an individual during any calendar year (under all “incentive stock option”
plans of the Company and its parent and subsidiary corporations) exceeds
$100,000, the Incentive Stock Options covering shares of Stock in excess of
$100,000 (but not Incentive Stock Options covering Stock up to $100,000) shall
be treated as Nonqualified Stock Options as determined by the Committee. The
Committee shall determine, in accordance with applicable provisions of the
Code, Treasury Regulations and other administrative pronouncements, which of an
optionee’s Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the optionee of such determination
as soon as practicable after such determination. No Incentive Stock Option
shall be granted to an individual if, at the time the Option is granted, such
individual owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporation, within the meaning of Section 422(b)(6) of the Code, unless
(i) at the time such Option is granted the option price is at least 110%
of the Fair Market Value of the Stock subject to the Option and (ii) such
Option by its terms is not exercisable after the expiration of five years from
the date of grant.

(d)  Option
Agreement.  Each Option shall
be evidenced by an Option Agreement in such form and containing such provisions
not inconsistent with the provisions of the Plan as the Committee from time to
time shall approve, including, without limitation, provisions to qualify an
Incentive Stock Option under Section 422 of the Code. An Option Agreement
may provide for the payment of the option price, in whole or in part, by the
delivery of a number of shares of Stock (plus cash if necessary) having a 

 4
 

 

Fair Market Value equal
to such option price. Payment in full or in part may also be made by reduction
in the number of shares of Stock issuable upon the exercise of an Option, based
on the Fair Market Value of the shares of Stock on the date the Option is
exercised. Each Option Agreement shall provide that the Option may not be
exercised earlier than 30 days from the date of grant and shall specify
the effect of termination of employment or service on the exercisability of the
Option. Moreover, an Option Agreement may provide for a “cashless exercise” of
the Option by establishing procedures whereby the Holder, by a properly-executed
written notice, directs (i) an immediate market sale or margin loan
respecting all or a part of the shares of Stock to which he is entitled upon
exercise pursuant to an extension of credit by the Company to the Holder of the
option price, (ii) the delivery of the shares of Stock from the Company
directly to a brokerage firm and (iii) the delivery of the option price
from the sale or margin loan proceeds from the brokerage firm directly to the
Company. Such Option Agreement may also include, without limitation, provisions
relating to (i) vesting of Options, subject to the provisions hereof
accelerating such vesting on a Change of Control, (ii) tax matters
(including provisions (y) permitting the delivery of additional shares of
Stock or the withholding of shares of Stock from those acquired upon exercise
to satisfy federal or state income tax withholding requirements and (z) dealing
with any other applicable employee wage withholding requirements), and
(iii) any other matters not inconsistent with the terms and provisions of
this Plan that the Committee shall in its sole discretion determine. The terms
and conditions of the respective Option Agreements need not be identical.

(e)  Option Price
and Payment.  The price at
which a share of Stock may be purchased upon exercise of an Option shall be
determined by the Committee, but such purchase price shall not be less than, in
the case of Incentive Stock Options, the Fair Market Value of Stock subject to
an Option on the date the Option is granted and (ii) such purchase price
shall be subject to adjustment as provided in Section 11. The Option or
portion thereof may be exercised by delivery of an irrevocable notice of
exercise to the Company. The purchase price of the Option or portion thereof
shall be paid in full in the manner prescribed by the Committee.

(f)  Reload
Options.  The Committee shall
have the authority to and, in its sole discretion may, specify at or after the
time of grant of a Nonqualified Stock Option, that a Holder shall be
automatically granted a Reload Option in the event such Holder exercises all or
part of an original option (“Original Option”) within five years of the date of
grant of the Original Option, by means of, in accordance with Section 7(d)
of this Plan, (i) a cashless exercise, (ii) a reduction in the number
of shares of Stock issuable upon such exercise sufficient to pay the purchase
price and the applicable withholding taxes, based on the Fair Market Value of
the shares of Stock on the date the Option is exercised, or
(iii) surrendering to the Company already owned shares of Stock in full or
partial payment of the purchase price under the Original Option and the applicable
withholding taxes. The grant of Reload Options shall be subject to the
availability of shares of Stock under this Plan at the time of exercise of the
Original Option and to the limits provided for in Section 5 of this Plan.
The Committee shall have the authority to determine the terms of any Reload
Options granted.

(g)  Stockholder
Rights and Privileges.  The
Holder shall be entitled to all the privileges and rights of the stockholder
only with respect to such shares of Stock as have been purchased under the
Option and for which certificates of stock have been registered in the Holder’s
name.

(h)  Options and
Rights in Substitution for Stock Options Granted by Other Corporations.  Options and Stock Appreciation Rights may be
granted under the Plan from time to time in substitution for stock options held
by individuals employed by corporations who become employees as a result of a
merger or consolidation of the employing corporation with the Company or any
subsidiary, or the acquisition by the Company or a subsidiary of the assets of
the employing corporation, or the acquisition by the Company or a subsidiary of
stock of the employing corporation with the result that such employing
corporation becomes a subsidiary.

 5
 

 

 8.  Stock Appreciation Rights.

(a)  Stock
Appreciation Rights.  A Stock
Appreciation Right is the right to receive an amount equal to the Spread with
respect to a share of Stock upon the exercise of such Stock Appreciation Right.
Stock Appreciation Rights may be granted in connection with the grant of an
Option, in which case the Option Agreement will provide that the Stock
Appreciation Right shall be cancelled when and to the extent the related Option
is exercised and that exercise of Stock Appreciation Rights will result in the
surrender of the right to purchase the shares under the Option as to which the
Stock Appreciation Rights were exercised. Alternatively, Stock Appreciation
Rights may be granted independently of Options in which case each Award of
Stock Appreciation Rights shall be evidenced by a Stock Appreciation Rights
Agreement which shall contain such terms and conditions as may be approved by
the Committee. The Spread with respect to a Stock Appreciation Right shall be
payable in cash, shares of Stock with a Fair Market Value equal to the Spread
or in a combination of cash and shares of Stock, at the election of the Holder.
With respect to Stock Appreciation Rights that are subject to Section 16
of the 1934 Act, however, the Committee shall, except as provided in
Section 11(c), retain sole discretion (i) to determine the form in
which payment of the Stock Appreciation Right will be made (i.e., cash,
securities or a combination thereof) or (ii) to approve an election by a
Holder to receive cash in full or partial settlement of Stock Appreciation
Rights. Each Stock Appreciation Rights Agreement shall provide that the Stock
Appreciation Rights may not be exercised earlier than 30 days from the
date of grant and shall specify the effect of termination of employment on the
exercisability of the Stock Appreciation Rights.

(b)  Other Terms
and Conditions.  At the time
of such Award, the Committee, may in its sole discretion, prescribe additional
terms, conditions or restrictions relating to Stock Appreciation Rights,
including but not limited to rules pertaining to termination of employment (by
retirement, disability, death or otherwise) or termination of service of a
Holder prior to the expiration of such Stock Appreciation Rights. Such
additional terms, conditions or restrictions shall be set forth in the Stock
Appreciation Rights Agreement made in conjunction with the Award. Such Stock
Appreciation Rights Agreements may also include, without limitation, provisions
relating to (i) vesting of Awards, subject to the provisions hereof accelerating
vesting on a Change of Control, (ii) tax matters (including provisions
covering applicable wage withholding requirements), and (iii) any other
matters not inconsistent with the terms and provisions of this Plan, that the
Committee shall in its sole discretion determine. The terms and conditions of
the respective Stock Appreciation Rights Agreements need not be identical.

(c)  Award Price.  The award price of each Stock Appreciation
Right shall be determined by the Committee, but such award price (i) shall
not be less than the Fair Market Value of a share of Stock on the date the
Stock Appreciation Right is granted (or such greater exercise price as may be
required if such Stock Appreciation Right is granted in connection with an
Incentive Stock Option that must have an exercise price equal to 110% of the
Fair Market Value of the Stock on the date of grant pursuant to
Section 7(c)), and (ii) shall be subject to adjustment as provided in
Section 11.

(d)  Exercise
Period.  The term of each
Stock Appreciation Right shall be as specified by the Committee at the date of
grant.

(e)  Limitations
on Exercise of Stock Appreciation Right.  A Stock Appreciation Right shall be
exercisable in whole or in such installments and at such times as determined by
the Committee.

 9.  Restricted Stock Awards.

(a)  Forfeiture
Restrictions to be Established by the Committee.  Shares of Stock that are the subject of a
Restricted Stock Award shall be subject to restrictions on disposition by the
Holder and 

 6
 

 

an obligation of the
Holder to forfeit and surrender the shares to the Company under certain
circumstances (the “Forfeiture Restrictions”). The Forfeiture Restrictions
shall be determined by the Committee in its sole discretion, and the Committee
may provide that the Forfeiture Restrictions shall lapse upon (i) the
attainment of business objectives established by the Committee that are based
on (1) the price of a share of Stock, (2) the Company’s earnings per
share, (3) the Company’s revenue, (4) the revenue of a business unit
of the Company designated by the Committee, (5) the return on stockholders’
equity achieved by the Company, (6) the Company’s pre-tax cash flow from
operations, or (7) similar criteria established by the Committee,
(ii) the Holder’s continued employment with the Company for a specified
period of time, or (iii) other measurements of individual, business unit
or Company performance. Each Restricted Stock Award may have different
Forfeiture Restrictions, in the discretion of the Committee. The Forfeiture
Restrictions applicable to a particular Restricted Stock Award shall not be
changed except as permitted by Section 9(b) or Section 11.

(b)  Other Terms
and Conditions.  Stock awarded
pursuant to a Restricted Stock Award shall be represented by a stock
certificate registered in the name of the Holder of such Restricted Stock
Award. The Holder shall have the right to receive dividends with respect to
Stock subject to a Restricted Stock Award, to vote Stock subject thereto and to
enjoy all other stockholder rights, except that (i) the Holder shall not
be entitled to delivery of the stock certificate until the Forfeiture
Restrictions shall have expired, (ii) the Company shall retain custody of
the Stock until the Forfeiture Restrictions shall have expired, (iii) the
Holder may not sell, transfer, pledge, exchange, hypothecate or otherwise
dispose of the Stock until the Forfeiture Restrictions shall have expired, and
(iv) a breach of the terms and conditions established by the Committee
pursuant to the Restricted Stock Agreement, shall cause a forfeiture of the
Restricted Stock Award. At the time of such Award, the Committee may, in its
sole discretion, prescribe additional terms, conditions or restrictions
relating to Restricted Stock Awards, including, but not limited to, rules
pertaining to the termination of employment (by retirement, disability, death
or otherwise) or termination of service of a Holder prior to expiration of the
Forfeiture Restrictions. Such additional terms, conditions or restrictions
shall be set forth in a Restricted Stock Agreement made in conjunction with the
Award. Such Restricted Stock Agreement may also include, without limitation,
provisions relating to (i) subject to the provisions hereof accelerating
vesting on a Change of Control, vesting of Awards, (ii) tax matters
(including provisions (y) covering any applicable employee wage
withholding requirements and (z) prohibiting an election by the Holder
under Section 83(b) of the Code), and (iii) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee
shall in its sole discretion determine. The terms and conditions of the
respective Restricted Stock Agreements need not be identical.

(c)  Payment for
Restricted Stock.  The
Committee shall determine the amount and form of any payment for Stock received
pursuant to a Restricted Stock Award, provided that in the absence of such a
determination, a Holder shall not be required to make any payment for Stock
received pursuant to a Restricted Stock Award, except to the extent otherwise
required by law.

(d)  Agreements.  At the time any Award is made under this
Section 9, the Company and the Holder shall enter into a Restricted Stock
Agreement setting forth each of the matters as the Committee may determine to
be appropriate. The terms and provisions of the respective Restricted Stock
Agreements need not be identical.

 10.  Phantom Stock Awards.

(a)  Phantom Stock
Awards.  Phantom Stock Awards
are rights to receive an amount equal to the Fair Market Value of Stock over a
specified period of time, which vest over a period of time or upon the
occurrence of an event (including without limitation a Change of Control) as
established by the Committee, without payment of any amounts by the Holder
thereof (except to the extent otherwise 

 7
 

 

required by law). Each
Phantom Stock Award may have a maximum value established by the Committee at
the time of such Award.

(b)  Award Period.  The Committee shall establish, with respect
to and at the time of each Phantom Stock Award, a period over which or the
event upon which the Award shall vest with respect to the Holder.

(c)  Awards
Criteria.  In determining the
value of Phantom Stock Awards, the Committee shall take into account a
Participant’s responsibility level, performance, potential, other Awards and
such other considerations as it deems appropriate.

(d)  Payment.  Following the end of the vesting period for a
Phantom Stock Award, the Holder of a Phantom Stock Award shall be entitled to
receive payment of an amount, not exceeding the maximum value of the Phantom
Stock Award, based on the then vested value of the Award. Payment of a Phantom
Stock Award may be made in cash, Stock or a combination thereof as determined
by the Committee. Payment shall be made in a lump sum or in installments as prescribed
by the Committee in its sole discretion. Any payment to be made in Stock shall
be based on the Fair Market Value of the Stock on the payment date. Cash
dividend equivalents may be paid during or after the vesting period with
respect to a Phantom Stock Award, as determined by the Committee and as
provided in the Phantom Stock Award Agreement. If a payment of cash is to be
made on a deferred basis, the Committee shall establish whether interest shall
be credited, the rate thereof and any other terms and conditions applicable
thereto.

(e)  Termination
of Employment or Service.  A
Phantom Stock Award shall terminate if the Holder does not remain continuously
in the employ or in the service of the Company at all times during the
applicable vesting period, except as may be otherwise determined by the
Committee or as set forth in the Award at the time of grant.

(f)  Agreements.  At the time any Award is made under this
Section 10, the Company and the Holder shall enter into a Phantom Stock
Award Agreement setting forth each of the matters contemplated hereby and such
matters described in this Section 10 as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.

 11. 
Recapitalization and Reorganization.

(a)           The shares with respect to which
Awards may be granted are shares of Stock as presently constituted, but if, and
whenever, prior to the expiration of an Award theretofore granted, the Company
shall effect a subdivision or consolidation by the Company of the shares of
Stock, then the number of shares of Stock with respect to which such Award may
thereafter be exercised or satisfied, as applicable, (i) in the event of
an increase in the number of outstanding shares, shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares,
shall be proportionately reduced, and the purchase price per share shall be
proportionately increased.

(b)           If the Company recapitalizes or
otherwise changes its capital structure, thereafter upon any exercise or
satisfaction, as applicable, of an Award theretofore granted, the Holder shall
be entitled to (or entitled to purchase, if applicable) under such Award, in
lieu of the number of shares of Stock then covered by such Award, the number
and class of shares of stock and securities to which the Holder would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to
such recapitalization, the Holder had been the holder of record of the number
of shares of Stock then covered by such Award.

 8
 

 

(c)           In the event of a Change of Control,
all outstanding Awards shall immediately vest and become exercisable or
satisfiable, as applicable. The Committee, in its discretion, may determine
that upon the occurrence of a Change of Control, each Award other than an
Option outstanding hereunder shall terminate within a specified number of days
after notice to the Holder, and such Holder shall receive, with respect to each
share of Stock subject to such Award, cash in an amount equal to the excess, if
any, of the Change of Control Value over the exercise price, if any, applicable
to the Award. Further, in the event of a Change of Control, the Committee, in
its discretion shall act to effect one or more of the following alternatives
with respect to outstanding Options, which may vary among individual Holders
and which may vary among Options held by any individual Holder:
(i) determine a limited period of time on or before a specified date
(before or after such Change of Control) after which specified date all
unexercised Options and all rights of Holders thereunder shall terminate,
(2) require the mandatory surrender to the Company by selected Holders of
some or all of the outstanding Options held by such Holders (irrespective of
whether such Options are then exercisable under the provisions of the Plan) as
of a date, before or after such Change of Control, specified by the Committee,
in which event the Committee shall thereupon cancel such Options and the
Company shall pay to each Holder an amount of cash per share equal to the
excess, if any, of the Change of Control Value of the shares subject to such
Option over the exercise price(s) under such Options for such shares,
(3) make such adjustments to Options then outstanding as the Committee
deems appropriate to reflect such Change of Control (provided, however, that
the Committee may determine in its sole discretion that no adjustment is
necessary to Options then outstanding) or (4) provide that thereafter upon
any exercise of an Option theretofore granted the Holder shall be entitled to
purchase under such Option, in lieu of the number of shares of Stock then
covered by such Option the number and class of shares of stock or other
securities or property (including, without limitation, cash) to which the
Holder would have been entitled pursuant to the terms of the agreement of
merger, consolidation or sale of assets and dissolution if, immediately prior to
such merger, consolidation or sale of assets and dissolution the Holder has
been the holder of record of the number of shares of Stock then covered by such
Option. The provisions contained in this paragraph shall not terminate any
rights of the Holder to further payments pursuant to any other agreement with
the Company following a Change of Control.

(d)           In the event of changes in the
outstanding Stock by reason of recapitalization, reorganizations, mergers,
consolidations, combinations, exchanges or other relevant changes in
capitalization occurring after the date of the grant of any Award and not
otherwise provided for by this Section 11, any outstanding Awards and any
agreements evidencing such Awards shall be subject to adjustment by the
Committee at its discretion as to the number and price of shares of Stock or
other consideration subject to such Awards. In the event of any such change in
the outstanding Stock, the aggregate number of shares available under the Plan
may be appropriately adjusted by the Committee, whose determination shall be
conclusive.

(e)           The existence of the Plan and the
Awards granted hereunder shall not affect in any way the right or power of the
Board or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company’s capital
structure or its business, any merger or consolidation of the Company, any
issue of debt or equity securities ahead of or affecting Stock or the rights
thereof, the dissolution or liquidation of the Company or any sale, lease,
exchange or other disposition of all or any part of its assets or business or
any other corporate act or proceeding.

(f)            Any adjustment provided for in
Subparagraphs (a), (b), (c) or (d) above shall be subject to any required
stockholder action.

(g)           Except as hereinbefore expressly
provided, the issuance by the Company of shares of stock of any class or
securities convertible into shares of stock of any class, for cash, property, 

 9
 

 

labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe therefore or
the granting of any later Awards under the Plan or any other stock plan, or
upon conversion of shares of obligations of the Company convertible into such
shares or other securities, and in any case whether or not for fair value,
shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number of shares of Stock subject to Awards theretofore granted
or the purchase price per share, if applicable.

 12.  Amendment and Termination.  The Board in its discretion may terminate the
Plan at any time with respect to any shares for which Awards have not
theretofore been granted. The Board shall have the right to alter or amend the
Plan or any part thereof from time to time; provided that no change in any
Award theretofore granted may be made which would impair the rights of the
Holder without the consent of the Holder (unless such change is required in
order to cause the benefits under the Plan to qualify as performance-based
compensation within the meaning of Section 162(m) of the Code and
applicable interpretive authority thereunder).

 13.  Miscellaneous.

(a)  No Right to
An Award.  Neither the
adoption of the Plan by the Company nor any action of the Board or the
Committee shall be deemed to give a Participant any right to be granted an
Award to purchase Stock, a right to a Stock Appreciation Right, a Restricted
Stock Award or a Phantom Stock Award or any of the rights hereunder except as
may be evidenced by an Award or by an Option Agreement, Stock Appreciation
Rights Agreement, Restricted Stock Agreement or Phantom Stock Award Agreement
on behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of funds or assets to assure the payment of any Award.

(b)  No Employment
Rights Conferred.  Nothing
contained in the Plan shall (i) confer upon any Participant any right to
continue as an employee or person affiliated with the Company or any subsidiary
or (ii) interfere in any way with the right of the Company or any
subsidiary to terminate his or her employment or consulting arrangement at any
time.

(c)  Other Laws;
Withholding.  The Company
shall not be obligated to issue any Stock pursuant to any Award granted under
the Plan at any time when the shares covered by such Award have not been
registered under the Securities Act of 1933 and such other state and federal
laws, rules or regulations as the Company or the Committee deems applicable
and, in the opinion of legal counsel for the Company, there is no exemption
from the registration requirements of such laws, rules or regulations available
for the issuance and sale of such shares. No fractional shares of Stock shall
be delivered, nor shall any cash in lieu of fractional shares be paid. The
Company shall have the right to deduct in connection with all Awards any taxes
required by law to be withheld and to require any payments required to enable
it to satisfy its withholding obligations.

(d)  No
Restriction on Corporate Action. 
Nothing contained in the Plan shall be construed to prevent the Company
or any subsidiary from taking any corporate action which is deemed by the
Company or such subsidiary to be appropriate or in its best interest, whether
or not such action would have an adverse effect on the Plan or any Award made
under the Plan. No Participant, beneficiary or other person shall have any claim
against the Company or any subsidiary as a result of any such action.

(e)  Restrictions
on Transfer.  Except as
otherwise determined by the Committee in cases other than in connection with
Incentive Stock Options, an Award shall not be transferable otherwise than by
will or the laws of descent and distribution or pursuant to a “qualified
domestic relations order” as 

 10
 

 

defined by the Code or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder, and shall be exercisable during the Holder’s lifetime
only by such Holder or the Holder’s guardian or legal representative.

(f)  Rule 16b-3.  It is intended that the Plan and any grant of
an Award made to a person subject to Section 16 of the 1934 Act meet all
of the requirements of Rule 16b-3. If any provision of the Plan or any
such Award would disqualify the Plan or such Award under, or would otherwise
not comply with, Rule 16b-3, such provision or Award shall be construed or
deemed amended to conform to Rule 16b-3.

(g)  Section 162(m).  If the Plan is subject to Section 162(m)
of the Code, it is intended that the Plan comply fully with and meet all the
requirements of Section 162(m) of the Code so that Options and Stock Appreciation
Rights granted hereunder and, if determined by the Committee, Restricted Stock
Awards, shall constitute “performance-based” compensation within the
meaning of such section. If any provision of the Plan would disqualify the Plan
or would not otherwise permit the Plan to comply with Section 162(m) as so
intended, such provision shall be construed or deemed amended to conform to the
requirements or provisions of Section 162(m); provided that no such
construction or amendment shall have an adverse effect on the economic value to
a Holder of any Award previously granted hereunder.

(h)  Governing
Law.  This Plan shall be
construed in accordance with the laws of the State of Delaware.

 

 11

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