Document:

Exhibit 10.2

 

EXHIBIT A

 

FORM OF NOTE

 

THE SECURITIES REPRESENTED HEREBY
HAVE NOT 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 APPLICABLE STATE
SECURITIES LAWS OR (B) AN APPROPRIATE EXCEPTION UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS 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.  ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTION 4(c)(viii) HEREOF.

 

SENIOR SECURED CONVERTIBLE NOTE

 

	
  April 26, 2006

  	
  $[                   ]

  

 

FOR
VALUE RECEIVED, MEDICOR LTD., a Delaware corporation (the “Company”), hereby
promises to pay to the order of [                         ]
or registered assigns (the “Holder”)
the principal amount of [                           ]
United States Dollars ($[                ])
when due, whether upon maturity, acceleration, redemption or otherwise, and to
pay interest (“Interest”)
on the unpaid principal balance hereof on each Interest Payment Date (as
defined in Section 3(a)) and upon maturity, or earlier upon conversion,
acceleration or redemption pursuant to the terms hereof, at the Applicable Interest
Rate (as defined in Section 3(a)). 
Interest on this Senior Secured Convertible Note (this “Note”)
payable on each Interest Payment Date and upon maturity, or earlier upon
conversion, acceleration or redemption pursuant to the terms hereof, shall accrue
from the Issuance Date (as defined in Section 3(a)) and shall be computed
on the basis of a 360-day year and actual days elapsed.

 

1.             Securities
Purchase Agreement; Other Notes. 
This Note is issued pursuant to the Securities Purchase Agreement, dated
as of April 26, 2006 (as
the same may be amended, supplemented or otherwise modified from time to time,
the “Securities Purchase Agreement”).  This Note and all Other Notes (as defined in Section 3(a))
issued by the Company pursuant to the Securities Purchase Agreement and all
notes issued in exchange therefor or replacement thereof are collectively
referred to in this Note as the “Notes.”

 

2.             Payments.  All payments of principal of, and interest
on, this Note (to the extent such principal or interest is not converted into
Shares (as defined in Section 3(a)), in accordance with the terms hereof)
shall be made in lawful money of the United States of America by wire transfer
of immediately available funds to such account as the Holder may from time to
time designate by written notice in accordance with the provisions of this
Note.  The 

 

 

Company has no right, but under certain circumstances may have an
obligation, to make payments of principal of this Note in cash prior to the
Maturity Date (as defined in Section 3(a)).  Whenever any amount expressed to be due by
the terms of this Note is due on any day that is not a Business Day (as defined
in Section 3(a)), the same shall instead be due on the next succeeding day
that is a Business Day (unless in the case of interest, such next succeeding
Business Day would be in the following calendar month, in which case such
payment will be made on the immediately preceding Business Day).  Each capitalized term used herein, and not
otherwise defined, shall have the meaning ascribed thereto in the Securities
Purchase Agreement.

 

3.             Definitions.

 

(a)           Certain
Defined Terms.  For purposes of this
Note, the following terms shall have the following meanings:

 

“€” means Euros.

 

“£” means Pound
Sterling.

 

“3-Month
LIBOR Rate” means the London Interbank Offered Rate of LIBOR with
respect to a three-month period for deposits of Dollars as reported by
Bloomberg Financial Markets (or any successor thereto, “Bloomberg”) at approximately 10:00 a.m.
(New York City time) through its “LIBOR Rates” function (accessed by typing “LR”
[GO] on a Bloomberg terminal, and looking at the row entitled “3 MONTH” and
under the column entitled “DOLLAR LIBOR”) (or such other page as may
replace that page on that service, or such other service as may be selected
jointly by the Company and the holders of at least a majority of the aggregate
principal amount of the Notes then Outstanding).  If such rate appears on the Bloomberg LIBOR
Rates page on any date of determination of the 3-Month LIBOR Rate (a “LIBOR Determination Date”), the 3-Month
LIBOR Rate for such date of determination will be such rate.  If on any LIBOR Determination Date such rate
does not appear on the Bloomberg LIBOR Rates page, the Company and such holders
of the Notes will jointly request each of four major reference banks in the
London interbank market, as selected jointly by the Company and the holders of
at least a majority of the aggregate principal amount of the Notes then Outstanding,
to provide the Company with its offered quotation for United States dollar
deposits for the upcoming three-month period, to prime banks in the London
interbank market at approximately 4:00 p.m., London time on any such LIBOR
Determination Date and in a principal amount that is representative for a
single transaction in Dollars in such market at such time.  If at least two reference banks provide the
Company with offered quotations, 3-Month LIBOR Rate on such LIBOR Determination
Date will be the arithmetic mean of all such quotations.  If on such LIBOR Determination Date fewer
than two of the reference banks provide the Company with offered quotations, 3-Month
LIBOR Rate on such LIBOR Determination Date will be the arithmetic mean of the
offered per annum rates that three major banks in New York City selected jointly
by the Company and the holders of at least a majority of the aggregate
principal amount of the Notes then Outstanding quote at approximately 11:00 A.M.
in New York City on such LIBOR Determination Date for three-month Dollar loans
to leading European banks, in a principal amount that is representative for a
single transaction in Dollars in such market at such time.  If these New York City quotes are not
available, then the 3-Month LIBOR 

 

2

 

Rate determined on such LIBOR Determination Date will continue to be
the 3-Month LIBOR Rate as then currently in effect on such LIBOR Determination
Date.

 

“Affiliate” has the meaning ascribed to such
term in Rule 12b-2 of the General Rules and Regulations under the
1934 Act; provided, that for purposes of this Note no holder hereof
shall be deemed an Affiliate of the Company by virtue of holding this Note.

 

“Allocation
Percentage” means, with respect to each holder of Notes as of the
date of any determination, a fraction of which the numerator is the aggregate
principal amount of the Notes held by such holder on such date, and of which
the denominator is the aggregate principal amount of the Notes Outstanding on
such date.

 

“Applicable
Interest Rate” initially shall mean the per annum interest rate
equal to the sum of (a) the 3-Month LIBOR Rate in effect on the LIBOR
Determination Date that is two Business Days preceding the Issuance Date and (b) six
percent (6.00%); provided, however, that on each Interest Payment
Date, such rate shall be adjusted to the per annum interest rate equal to the
sum of (a) the 3-Month LIBOR Rate in effect on the LIBOR Determination
Date that is two Business Days preceding such Interest Payment Date and (b) six
percent (6.00%).  Each Applicable
Interest Rate will be applicable as of and after the Interest Payment Date to
which it relates to, but not including, the next succeeding Interest Payment
Date.

 

“Approved
Stock Plan” means any employee benefit plan that has been approved
by the board of directors and stockholders of the Company prior to the date of
the Securities Purchase Agreement and listed on Schedule 3(c) thereto,
pursuant to which the Company’s securities may be issued to any employee,
officer or director for services provided to the Company.

 

“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; provided that if such date is a LIBOR Determination Date, it shall
also be a day on which banks in London, England are open for dealings in U.S.
Dollars in the London Interbank Market.

 

“Capital
Lease Obligation” means, as to any Person, any obligation that is
required to be classified and accounted for as a capital lease on a balance
sheet of such Person prepared in accordance with GAAP and the amount of such
obligation shall be the capitalized amount thereof, determined in accordance
with GAAP.

 

“Capital Expenditures” means for any period,
with respect to any Person, the aggregate of all expenditures by such Person
and its Subsidiaries for the acquisition or leasing (pursuant to a capital
lease) of fixed or capital assets or additions to equipment (including
replacements, capitalized repairs and improvements during such period) that
should be capitalized under GAAP on a consolidated balance sheet of such Person
and its Subsidiaries.

 

“Change of
Control” means (i) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company (including, for the avoidance of
doubt, the sale of all or substantially all of the assets of the Company’s
Subsidiaries in the aggregate) to any Person or group of related Persons (as 

 

3

 

defined in Section 13(d) of the Securities Exchange Act of
1934, as amended (the “1934 Act”), (ii) the approval by the holders
of the Company’s capital stock of any plan or proposal to effect the
liquidation, dissolution or winding up of the Company, (iii) any Person or
group of related Persons (other than Permitted Holders) shall become the beneficial
owner (as defined in Rule 13d-3 under the 1934 Act) of the outstanding
Shares representing more than 50% of the aggregate voting power of all classes
of the voting securities of the Company or (iv) the consolidation, merger
or other business combination of the Company with or into another Person (other
than (A) a consolidation, merger or other business combination in which
holders of the Company’s voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, a majority of
the combined voting power of the surviving entity or entities entitled to vote
generally for the election of a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (B) pursuant to a migratory merger effected solely for the
purpose of changing the jurisdiction of incorporation of the Company).

 

“Common Stock” means (A) the Company’s
common stock, $0.001 par value per share, and (B) any capital stock
resulting from a reclassification of such common stock.

 

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

 

“Conversion
Amount” means either (A) in the case of a conversion pursuant
to Section 4, the sum of (1) the Principal to be converted, redeemed
or otherwise with respect to which the determination is being made and (2) the
Interest Amount with respect to the amount referred to in the immediately
preceding clause (1), or (B) in the case of an Interest Conversion (as
defined in Section 8), the Interest Conversion Amount.

 

“Conversion
Price” means, as of any Conversion Date or other date of
determination, the Fixed Conversion Price; provided that for purposes of
an Interest Conversion pursuant to Section 8, the Conversion Price shall
mean 93% of the Weighted Average Price of the Common Stock on each of the five (5) Trading
Days ending on the Trading Day immediately preceding the Interest Conversion
Date applicable to any such Interest Conversion for which such determination is
being made.

 

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

 

“Default” means any event or circumstance that
is, or with the giving of notice or lapse of time or both, would be an Event of
Default.

 

“Dollars”
or “$” means United
States Dollars.

 

4

 

“Eurosilicone Agreement” means that certain
Agreement for the Sale and Purchase of the Shares of Laboratories Eurosilicone
SA, dated May 17, 2004, by and among the Company and the sellers named
therein, which agreement has not been amended, supplemented or otherwise
modified since such date.

 

“Excluded
Taxes” means, with respect to the Holder, or any other recipient of
payment to be made by or on account of any obligations of the Company or any of
its Subsidiaries under the Notes, the Securities Purchase Agreement or under
any other Transaction Document, (A) income or franchise taxes imposed on
(or measured by) its net income by the United States of America or any other
jurisdiction under the laws of which such recipient is organized, its principal
offices are located, it is resident for tax
purposes or to which it has a connection giving rise to such taxes other than
by reason of the transactions contemplated by this Agreement, including the holding
of the Notes, and enforcing its rights thereunder (B) any branch profits
taxes imposed by the United States of America or any similar tax imposed by any
other jurisdiction in which the Holder or recipient is treated as doing
business, (C) any Taxes imposed by reason of a Holder or recipient failing
to provide forms or certifications it is legally able to provide that would
reduce or eliminate such Taxes and that are reasonably requested by the Company.

 

“Exempted
Issuances” means (A) Shares issued or deemed to have been
issued by the Company pursuant to an Approved Stock Plan; (B) Shares
issued or deemed to have been issued upon the conversion, exchange or exercise
of any Option or Convertible Security outstanding on the date prior to the Issuance
Date and set forth in Schedule 3(c) to the Securities Purchase
Agreement, provided that the terms of such Option or Convertible
Security are not amended or otherwise modified on or after the date of the
Securities Purchase Agreement, and provided that the conversion price,
exchange price, exercise price or other purchase price is not reduced, adjusted
or otherwise modified and the number of Shares issued or issuable is not
increased (whether by operation of, or in accordance with, the relevant
governing documents or otherwise) on or after the date of the Securities
Purchase Agreement; and (C) Shares issued or deemed to have been issued by
the Company upon conversion of the Notes or exercise of the Warrants.

 

“Fixed
Conversion Price” means, as of any Conversion Date or other date of
determination, $4.00, subject to adjustment as provided herein.

 

“Forced Conversion” means an Interest
Conversion or a Company Conversion, as applicable.

 

“Forced Conversion Date” means an Interest
Conversion Date or a Company Conversion Date, as applicable.

 

“Forced Conversion Notice” means an Interest
Conversion Notice or a Company Conversion Notice, as applicable.

“Forced Conversion Notice Date” means an
Interest Conversion Notice Date or a Company Conversion Notice Date, as
applicable.

 

5

 

“Fundamental Conditions” when used in reference
to a Forced Conversion, means, as of any date of determination, (i) a
Registration Statement shall have been effective for at least forty-five (45)
days prior to such date and shall continue to be effective and available for
the sale of not less than 150% of the Registrable Securities issuable upon
conversion of all of the outstanding Notes and exercise of all of the
outstanding Warrants, in accordance with the Registration Rights Agreement, and
no Grace Period (as defined in the Registration Rights Agreement) applicable to
such Registration Statement shall be in effect nor shall there have been any
Grace Period which is not an Allowable Grace Period (as defined in the Registration
Rights Agreement) applicable to such Registration Statement; (ii) with
respect to any Interest Conversion, the aggregate Interest Conversion Amount of
all the Notes shall not exceed fifteen (15%) of the product of (A) the
arithmetic average of the daily dollar trading volume (as reported by
Bloomberg) of the Common Stock on its Principal Market over the twenty (20)
consecutive Trading Days ending on and including the date that is immediately
preceding the Interest Conversion Notice Date, multiplied by (B) the
number of expected Trading Days during the Interest Conversion Period to which
the Interest Conversion Notice relates, as set forth therein; (iii) on
each day during the period beginning forty-five (45) days prior to the Forced
Conversion Notice Date and ending on and including the applicable Forced
Conversion Date, the Common Stock
shall be listed on the American Stock Exchange or another nationally recognized
stock exchange or quoted on The NASDAQ Stock Market, Inc. (“NASDAQ”)
and the Common Stock shall not have been suspended from trading on any such
market or exchange nor shall delisting or suspension by any such market or
exchange have been threatened either (A) in writing by such market or
exchange or (B) by falling below the minimum listing maintenance
requirements of such market or exchange; (iv) during the period beginning
on and including the Issuance Date and ending on and including the Forced
Conversion Date, there shall not have occurred either (x) the public
announcement of a pending, proposed or intended Change of Control that has not
been abandoned, terminated or consummated and publicly disclosed as such at
least twenty (20) Trading Days prior to the Forced Conversion Date or (y) any
other Triggering Event (as defined in Section 5(c)) or an Event of Default
(as defined in Section 13(a)); (v) during the period beginning on the
Issuance Date and ending on and including the Forced Conversion Date, the
Company shall have delivered Shares upon conversion of the Notes and upon
exercise of the Warrants on a timely basis as set forth in Section 4(c)(ii) of
the Notes and Section 3(a) of the Warrants; (vi) on each day
during the period beginning ninety (90) days prior to the Forced Conversion
Notice Date and ending on and including the applicable Forced Conversion Date,
the Company and its Subsidiaries otherwise shall have been in material compliance
with in all respects and shall not have materially breached or been in breach
of any provision or covenant of the Notes or any other Transaction Documents;
and (vii) the Company shall have obtained all requisite approvals (if any)
of its stockholders for the issuance of the Shares to the holders of the Notes
and the Warrants.

 

“GAAP” means United States generally accepted
accounting principles.

 

“Governmental Authority” means the government
of any nation, state or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.

 

6

 

“Guarantee and Collateral Agreement” means that
certain Guarantee and Collateral Agreement among the Company, certain of its
Subsidiaries (the “Guarantors”) and the Collateral Agent (as defined in
the Securities Purchase Agreement) pursuant to which (i) the Company and the
Guarantors have granted the holders of the Notes a first priority security
interest, subject to Permitted Liens, in the collateral described therein and (ii) the
Guarantors have guaranteed for the benefit of the holders of the Notes, the obligations
of the Company under this Note and the other Transaction Documents as the same
may be amended, supplemented or otherwise modified from time to time.

 

“Indebtedness”
of any Person means, without duplication (A) all indebtedness for borrowed
money, (B) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services (other than unsecured account trade
payables that are (i) entered into or incurred in the ordinary course of
the Company’s and its Subsidiaries’ business, (ii) on terms that require
full payment within ninety (90) days, (iii) not unpaid in excess of
fifteen (15) days beyond invoice due date or are being contested in good faith
and as to which such reserve as is required by GAAP has been made and (iv) not
exceeding at any one time an aggregate among the Company and its Subsidiaries
of $500,000), (C) all
reimbursement or payment obligations with respect to letters of credit, banker’s
acceptances, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures, redeemable capital stock or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in
the event of default are limited to repossession or sale of such property), (F) all
Capital Lease Obligations, (G) all indebtedness referred to in clauses (A) through
(F) above secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or in
any property or assets (including accounts and contract rights) owned by any
Person, even though the Person that owns such assets or property has not
assumed or become liable for the payment of such indebtedness and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (G) above.

 

“Indemnified
Taxes” means Taxes other than Excluded Taxes.

 

“Interest
Amount” means, with respect to any Principal, all accrued and unpaid
Interest (including any Default Interest as defined in Section 8(a)) on
such Principal through and including such date of determination.

 

“Interest
Payment Date” means (i) September 30 and March 31 of
each year (or if such date is not a Business Day, the immediately preceding
Business Day), beginning with September 30, 2006, (ii) the Maturity
Date and (iii) each other date on which any Principal of this Note is paid
in accordance with the terms of this Note.

 

“Issuance
Date” means the original date of issuance of this Note pursuant to
the Securities Purchase Agreement, regardless of any exchange or replacement
hereof.

 

7

 

“Liens”
means, with respect to any asset, any mortgage, lien, pledge, hypothecation,
charge, security interest, encumbrance or adverse claim of any kind and any restrictive
covenant, condition, restriction or exception of any kind that has the
practical effect of creating a mortgage, lien, pledge, hypothecation, charge,
security interest, encumbrance or adverse claim of any kind
(including any of the foregoing created by, arising under or evidenced by any
conditional sale or other title retention agreement, the interest of a lessor
with respect to a Capital Lease Obligation, or any financing lease having
substantially the same economic effect as any of the foregoing).

 

“Maturity Date” means March 31, 2011.

 

“New Securities” means any authorized but
unissued securities of the Company other than (i) Exempted Issuances; (ii) securities
issued pursuant to the acquisition of another Person by the Company or its
Subsidiaries by merger, purchase of all or substantially all of the assets of
such Person or other transaction whereby the Company shall become directly or
indirectly the owner of more than 50% of the aggregate voting power of all
classes of the voting securities of such Person; (iii) shares of Common
Stock or Preferred Stock issued pursuant to any pro rata stock split or stock
dividend; and (iv) shares of Common Stock or Preferred Stock issued
pursuant to a Qualified Public Offering.

 

“Options”
means any rights, warrants or options to subscribe for or purchase Shares or
Convertible Securities.

 

“Other
Notes” means all of the senior secured convertible notes, other than
this Note, that have been issued by the Company pursuant to the Securities
Purchase Agreement and all notes issued in exchange therefor or replacement
thereof.

 

“Outstanding”
when used with reference to the Notes, means, as of any date of determination,
any Note, or portion thereof (a) which is held by any Person other than
the Company or its Affiliates and (b) for which all principal and other
amounts due thereunder have not been repaid in full by the Company.

 

“Permitted Holders” means the Donald K. McGhan,
Jim J. McGhan, Nikki M. Pomeroy and 1991 III Equity Performance II, LP and
their respective Affiliates.

 

“Permitted
Lien” means (a)  Liens created by the Security Documents; (b) Liens
existing on the date of this Agreement not otherwise described in any other
clause of this definition and set forth on Schedule 3(bb) to the
Securities Purchase Agreement; (c) Liens for taxes, assessments or other
governmental charges not at the time due and payable so long as the Company and
its Subsidiaries maintain adequate reserves in accordance with GAAP in respect
of such taxes and charges; (d) statutory liens of landlords and Liens
arising in the ordinary course of business in favor of carriers, warehousemen,
mechanics, suppliers, repairmen and materialmen, or other similar Liens imposed
by law, which remain payable without penalty or which are being contested in
good faith by appropriate proceedings diligently prosecuted, which proceedings
have the effect of preventing the forfeiture or sale of the property subject
thereto, and in each case for which adequate reserves in accordance with GAAP
are being maintained; (e) Liens arising in the ordinary course of business
in connection with worker’s compensation, 

 

8

 

unemployment compensation, unemployment insurance and other types of
social security (excluding Liens arising under ERISA); (f) attachments,
appeal bonds (and cash collateral securing such bonds), judgments and other
similar Liens, for sums not exceeding $500,000 in the aggregate for the Company
and its Subsidiaries, arising in connection with court proceedings, provided
that the execution or other enforcement of such Liens is effectively stayed; (g) easements,
rights of way, restrictions, minor defects or irregularities in title and other
similar Liens arising in the ordinary course of business and not materially
detracting from the value of the property subject thereto and not interfering
in any material respect with the ordinary conduct of the business of the
Company or any Subsidiary; (h) Liens arising solely by virtue of any
statutory or common law provision relating to banker’s liens, rights of set-off
or similar rights and remedies and burdening only deposit accounts or other
funds maintained with a creditor depository institution, provided that
no such deposit account is a dedicated cash collateral account or is subject to
restrictions against access by the depositor in excess of those set forth by
regulations promulgated by the Board of Governors of the Federal Reserve System
and no such deposit account is intended by the Company or any Subsidiary to provide
collateral to the depository institution; and (i) Liens, including capital
leases, solely securing tangible personal property material to the business
that has been purchased through the incurrence of Indebtedness in an amount not
to exceed $250,000 at any one time outstanding.

 

“Person”
means any individual, firm, corporation, partnership, limited liability
company, trust, incorporated or unincorporated association, joint venture,
joint stock company, Governmental Authority or other entity of any kind, and
shall include any successor (by merger or otherwise) of such entity.

 

“Principal”
means the outstanding principal amount of this Note as of any date of
determination.

 

“Principal
Market” means, with respect to the Common Stock or any other
security, the principal securities exchange or trading market for the Common
Stock or such other security.

 

“promptly” shall mean as soon as reasonably
possible, and in any event within two (2) Business Days.

 

“Qualified Public Offering” means a bona fide
firm commitment underwritten public offering of the Company’s equity securities
pursuant to an effective registration statement under the 1933 Act, and in
which the underwriting is lead managed by an internationally recognized
investment banking firm (which has been approved by the holders of Notes
representing at least a majority of the aggregate principal amount of the Notes
then Outstanding) in which the net price per share (after deduction of
underwriting discounts and commissions) is equal to or greater than $8.00
(subject to adjustments for stock splits, stock dividends, combinations,
reclassifications and other events) and which results in gross proceeds of at
least $75,000,000.

 

“Registrable
Securities” for purposes of this Note means Shares issued or
issuable upon conversion of the Notes and exercise of the Warrants, and any
shares of capital stock issued or issuable with respect to such Shares as a
result of any stock split, stock dividend, 

 

9

 

recapitalization, exchange or similar event or otherwise, without
regard to any limitations on conversions of the Notes or exercise of the
Warrants.

 

“Registration
Rights Agreement” means that certain Registration Rights Agreement,
dated as of April 26, 2006, among the Company and the initial holders of
the Notes relating to the filing of registration statements covering, among
other things, the resale of the Registrable Securities, as such agreement may
be amended from time to time as provided in such agreement.

 

“Registration
Statement” means a registration statement or registration statements
filed under the 1933 Act pursuant to the Registration Rights Agreement covering
the resale of the Registrable Securities.

 

“SEC”
means the United States Securities and Exchange Commission, or any successor
thereto.

 

“Security
Documents” means the Guarantee and Collateral Agreement and any
other agreements, documents and instruments executed concurrently herewith or
at any time hereafter pursuant to which the Company, its Subsidiaries or any
other Person either (i) guarantees payment or performance of all or any
portion of the obligations hereunder or under any other instruments delivered
in connection with the transactions contemplated hereby and by the Securities
Purchase Agreement and/or (ii) provides, as security for all or any
portion of such obligations, a Lien on any of its assets in favor of the
Holder, as any or all of the same may be amended, supplemented, restated or
otherwise modified from time to time.

 

“Shares”
means shares of Common Stock.

 

“Subsidiary”
means any entity in which the Company, directly or indirectly, owns twenty
percent (20%) or more of the outstanding capital stock, equity or similar
interests or voting power of such entity as of the date of the execution of the
Securities Purchase Agreement or at any time thereafter.

 

“Taxes” means any federal, state, provincial,
county, local, foreign and other taxes (including, without limitation, income,
profits, windfall profits, alternative, minimum, accumulated earnings, personal
holding company, capital stock, premium, estimated, excise, sales, use,
occupancy, gross receipts, franchise, ad valorem, severance, capital levy,
production, transfer, withholding, employment, unemployment compensation,
payroll and property taxes, import duties and other governmental charges and
assessments), whether or not measured in whole or in part by net income, and
including deficiencies, interest, additions to tax or interest, and penalties
with respect thereto.

 

“Trading
Day” means any day on which the Common Stock is traded on its
Principal Market; provided that “Trading Day” shall not include any day
on which the Principal Market is open for trading for less than 4.5 hours.

 

“Warrants”
means the warrants issued to the original buyers of the Notes pursuant to the
Securities Purchase Agreement and all warrants issued in exchange or
substitution therefor or replacement thereof.

 

10

 

“Weighted
Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on its Principal Market during
the period beginning at 9:30 a.m. New York City time (or such other time
as its Principal Market publicly announces is the official open of trading) and
ending at 4:00 p.m. New York City time (or such other time as its
Principal Market publicly announces is the official close of trading) as
reported by Bloomberg through its “Volume at Price” functions, or if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30 a.m. New York City time
(or such other time as such over-the-counter market publicly announces is the
official open of trading), and ending at 4:00 p.m. New York City time (or
such other time as such over-the-counter market publicly announces is the
official close of trading) as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg for
such hours, the average of the highest closing bid price and the lowest closing
ask price of any of the market makers for such security as reported in the “pink
sheets” by the National Quotation Bureau, Inc.  If the Weighted Average Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Weighted Average Price of such security on such date shall be the fair market
value as mutually determined by the Company and the holders of Notes representing
at least a majority of the aggregate principal amount of the Notes then
Outstanding as to which such determination is being made.  If the Company and the holders of the Notes
representing at least a majority of the aggregate principal amount of the Notes
then Outstanding as to which such determination is being made are unable to
agree upon the fair market value of the Common Stock, then such dispute shall
be resolved pursuant to Section 4(c)(iii) below with the term “Weighted
Average Price” being substituted for the term “Conversion Price.”  All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during any period during which the Weighted
Average Price is being determined.

 

4.             Conversion of this
Note.  This Note shall be converted
into Shares on the terms and conditions set forth in this Section 4.

 

(a)           Conversion
at Option of the Holder.  Subject to
the provisions of Section 7, at any time or times on or after the Issuance
Date, the Holder shall be entitled to convert all or any part of the Principal
(and the Interest Amount relating thereto) into fully paid and nonassessable
Shares in accordance with this Section 4, at the Conversion Rate (as
defined in Section 4(b)).  The
Company shall not issue any fraction of a Share upon any conversion.  If the issuance would result in the issuance
of a fraction of a Share, then the Company shall round such fraction of a Share
up or down to the nearest whole share (with 0.5 rounded up).  If any Principal remains outstanding on the
Maturity Date, then all such Principal (and the Interest Amount relating
thereto) shall be repaid as of such date in accordance with Section 4(c)(vii).

 

(b)           Conversion
Rate.  The number of Shares issuable
upon a conversion of any portion of this Note pursuant to Section 4 shall
be determined according to the following formula (the “Conversion Rate”):

 

11

 

Conversion Amount

Conversion Price

 

(c)           Mechanics
of Conversion.  The conversion of
this Note shall be conducted in the following manner:

 

(i)            Holder’s
Delivery Requirements.  To convert a
Conversion Amount into Shares on any date (the “Conversion Date”), the Holder shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m.
New York City time on such date, a copy of an executed conversion notice in the
form attached hereto as Exhibit I (the “Conversion Notice”) to the Company (attention:  Corporate Secretary) and (B) if required
by Section 4(c)(viii), surrender to a common carrier for delivery to the
Company, no later than three (3) Business Days after the Conversion Date,
the original Note being converted (or an indemnification undertaking reasonably
acceptable to the Company with respect to this Note in the case of its loss,
theft or destruction).  Such Conversion
Notice shall specify whether and in what amounts the Conversion Amount relates
to (i) a conversion at the election of the Holder pursuant to Section 4(a) at
the Fixed Conversion Price, (ii) an Interest Conversion pursuant to Section 8
or (iii) a Company Conversion pursuant to Section 9, and any such
conversion shall be applied as so specified.

 

(ii)           Company’s
Response.  Upon receipt by the
Company of a copy of a Conversion Notice, the Company (I) shall promptly send,
via facsimile, a confirmation of receipt of such Conversion Notice to the
Holder and the Company’s designated transfer agent (the “Transfer Agent”), which
confirmation shall constitute an instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms herein and (II) on or
before the second (2nd) Business Day following the date of receipt by
the Company of such Conversion Notice (the “Share Delivery Date”) (A) provided that the
Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities
Transfer Program and provided that the Holder is eligible to receive
Shares through DTC, credit such aggregate number of Shares to which the Holder
shall be entitled to the Holder’s or its designee’s balance account with DTC
through its Deposit Withdrawal Agent Commission system, or (B) if the
foregoing shall not apply, issue and deliver to the address as specified in the
Conversion Notice, a certificate, registered in the name of the Holder or its
designee, for the number of Shares to which the Holder shall be entitled.  If this Note is submitted for conversion, as
may be required by Section 4(c)(viii), and the Principal represented by
this Note is greater than the Principal being converted, then the Company
shall, as soon as practicable and in no event later than three (3) Business
Days after receipt of this Note (the “Note Delivery Date”) and at its own expense, issue and deliver
to the Holder a new Note representing the Principal not converted and cancel
this Note.

 

(iii)          Dispute
Resolution.  In the case of a dispute
as to the determination of the Conversion Price or the arithmetic calculation
of the Conversion Rate, the Company shall instruct the Transfer Agent to issue
to the Holder the Shares representing the number of Shares that is not disputed
and shall transmit an explanation of the disputed determinations or arithmetic
calculations to the Holder via facsimile within two (2) Business Days of
receipt of the Holder’s Conversion Notice or other date of determination.  If the Holder and the Company are unable to
agree upon the determination of the Conversion Price or arithmetic calculation
of the Conversion Rate within one (1) Business Day of such disputed
determination or arithmetic calculation being transmitted to the Holder, then
the Company shall promptly (and in any event within two (2) Business Days)
submit via facsimile (A) the disputed 

 

12

 

determination of the Conversion Price to an independent, reputable
investment banking firm agreed to by the Company and the holders of the Notes
representing at least a majority of the aggregate principal amounts of the
Notes then Outstanding as to which such determination is being made, or (B) the
disputed arithmetic calculation of the Conversion Rate to the Company’s
independent, outside accountant, as the case may be.  The Company shall direct 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
two (2) 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.  The costs and expenses of the investment bank
or accountant engaged pursuant to this Section 4(e)(iii) shall be
borne by the Company.

 

(iv)          Record
Holder.  The Person or Persons
entitled to receive the Shares issuable upon a conversion of this Note shall be
treated for all purposes as the legal and record holder or holders of such
Shares on the Conversion Date.

 

(v)           Company’s
Failure to Timely Convert.

 

(A)          Cash
Damages.  If within three (3) Business
Days after the Company’s receipt of the facsimile copy of a Conversion Notice the
Company shall fail to issue and deliver a certificate to the Holder for, or
credit the Holder’s or its designee’s balance account with DTC with, the number
of Shares to which the Holder is entitled upon the Holder’s conversion of any
Conversion Amount, or if the Company fails to issue and deliver a new Note
representing the Principal to which such Holder is entitled on or before the
Note Delivery Date pursuant to Section 4(c)(ii), then in addition to all
other available remedies that the Holder may pursue hereunder and under the
Securities Purchase Agreement (including indemnification pursuant to Section 8
thereof or at law or in equity), the Company shall pay additional damages to
the Holder for each day after the Share Delivery Date such conversion is not
timely effected and/or each day after the Note Delivery Date such Note is not
delivered in an amount equal to 0.5% of the sum of (a) in the event the
Company has failed to issue and deliver or credit the Shares to the Holder on
or prior to the Share Delivery Date, the product of (I) the number of Shares
not issued to the Holder or its designee on or prior to the Share Delivery Date
and to which the Holder is entitled and (II) the Weighted Average Price of the
Common Stock on the Share Delivery Date (such product is referred to herein as
the “Share Product Amount”)
and (b) in the event the Company has failed to deliver a Note to the
Holder on or prior to the Note Delivery Date, the product of (y) the number of
Shares issuable upon conversion of the Principal represented by the Note as of
the Note Delivery Date and (z) the Weighted Average Price of the Common Stock
on the Note Delivery Date (such product is referred to herein as the “Note
Product Amount”); provided that in no event shall cash damages
accrue pursuant to this Section 4(c)(v)(A) with respect to the Share
Product Amount or the Note Product Amount during the period, if any, in which the
Conversion Price or the arithmetic calculation of the Conversion Rate is
subject to a bona fide dispute that is subject to and being resolved pursuant
to, and in compliance with the time periods and other provisions of, the
dispute resolution provisions of Section 4(c)(iii), provided that
the Shares and/or the Note are delivered to the Holder within two (2) Business
Days of the resolution of such bona fide dispute.  Alternatively, subject to 

 

13

 

Section 4(c)(iii), at the election of the Holder made in the
Holder’s sole discretion, the Company shall pay to the Holder, in lieu of the
additional damages referred to in the preceding sentence (but in addition to
all other available remedies that the Holder may pursue hereunder and under the
Securities Purchase Agreement (including indemnification pursuant to Section 8
thereof or at law or in equity)), 120% of the amount by which (A) the
Holder’s total purchase price (including brokerage commissions, if any) for the
Shares purchased to make delivery in satisfaction of a sale by the Holder of
the Shares to which the Holder is entitled but has not received upon a
conversion exceeds (B) the net proceeds received by the Holder from the
sale of the Shares to which the Holder is entitled but has not received upon
such conversion.  If the Company fails to
pay the additional damages set forth in this Section 4(c)(v)(A) within
five (5) Business Days of the date incurred, then the Holder entitled to
such payments shall have the right at any time, so long as the Company
continues to fail to make such payments, to require the Company, upon written
notice, to promptly issue, in lieu of such cash damages, the number of Shares
equal to the quotient of (X) the aggregate amount of the damages payments
described herein divided by (Y) the Conversion Price in effect on such
Conversion Date as specified by the Holder in the Conversion Notice.

 

(B)           Notice
of Void Conversion; Adjustment to Conversion Price.  If for any reason the Holder has not received
all of the Shares prior to the tenth (10th) Business Day after the Share
Delivery Date with respect to a conversion of this Note, other than due to the
pendency of a dispute being resolved in accordance with Section 4(c)(iii) (a
“Conversion Failure”),
then the Holder, upon written notice to the Company, may void its Conversion
Notice with respect to, and retain or have returned, as the case may be, any
portion of this Note that has not been converted pursuant to the Holder’s
Conversion Notice; provided that the voiding of the Holder’s Conversion
Notice shall not affect the Company’s obligations to make any payments that
have accrued prior to the date of such notice pursuant to Section 4(c)(v)(A) or
otherwise.

 

(C)           Redemption.  In the event of a Conversion Failure, the
Holder, upon written notice to the Company, may require that the Company
redeem, in accordance with Section 5, all of the Principal, including the
Principal previously submitted for conversion and with respect to which the
Company has not delivered Shares; provided that the Holder shall not be
entitled to require redemption of any Principal pursuant to this clause (C) solely
as a result of a Conversion Failure caused by any Principal being the subject
of a bona fide dispute that is subject to and being resolved pursuant to, and
in compliance with the time periods and other provisions of, the dispute
resolution provisions of Section 4(c)(iii), provided the Shares are
delivered to the Holder promptly following the resolution of such bona fide
dispute.

 

(vi)          Pro Rata
Conversion.  In the event the Company
receives a Conversion Notice from more than one holder of the Notes for the
same Conversion Date and the Company can convert some, but not all, of such
Notes, then, subject to Section 7, the Company shall convert from each
holder of the Notes electing to have Notes converted at such time a pro rata
amount of such holder’s Note submitted for conversion based on the principal
amount of the Note submitted for conversion on such date by such holder
relative to the aggregate principal amount of the Notes submitted for
conversion on such date.

 

14

 

(vii)         Mechanics
of Maturity Date Repayment.  If any
Principal remains outstanding on the Maturity Date, then the Holder shall
surrender this Note, duly endorsed for cancellation, to the Company, and such
Principal shall be repaid by the Company as of the Maturity Date by payment on
the Maturity Date to the Holder of an amount equal to the sum of (A) 100%
of such Principal plus (B) the Interest Amount with respect to such
Principal.

 

(viii)        Book-Entry.  Notwithstanding anything to the contrary set
forth herein, upon conversion or redemption of this Note in accordance with the
terms hereof, the Holder shall not be required to physically surrender this
Note to the Company unless all of the Principal is being converted or
redeemed.  The Holder and the Company shall
each maintain records showing the Principal converted or redeemed and the dates
of such conversions or redemptions or shall use such other method, reasonably
satisfactory to the other, so as not to require physical surrender of this Note
upon each such conversion or redemption. 
In the event of any dispute or discrepancy, such records of the Company establishing
the Principal to which the Holder is entitled shall be controlling and
determinative in the absence of demonstrable error.  Notwithstanding the foregoing, if this Note
is converted or redeemed as aforesaid, the Holder may not transfer this Note
unless the Holder first physically surrenders this Note to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the
Holder a new Note of like tenor, registered as the Holder may request,
representing in the aggregate the remaining Principal represented by this
Note.  The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion or redemption of any portion
of this Note, the Principal of this Note may be less than the principal amount
stated on the face hereof.

 

(d)           Taxes.  The Company shall pay any and all Taxes
(excluding income taxes, franchise taxes or other taxes levied on gross
earnings, profits or the like of the Holder) that may be payable with respect
to the issuance and delivery of Shares upon the conversion of this Note.

 

(e)           Adjustments
to Fixed Conversion Price.  The Fixed Conversion Price, and the number
and type of securities to be received upon conversion of this Note, shall be
adjusted from time to time as provided in this Section 4(e).

 

(i)            In the event that the Company shall at any
time or from time to time, on or after the Issuance Date and prior to the
conversion of this Note, (A) pay a dividend or make a distribution payable
in Shares on any class of shares of capital stock of the Company, (B) subdivide
its outstanding Shares into a greater number of shares, (C) combine its
outstanding Shares into a smaller number of shares or (D) issue any shares
of capital stock by reclassification of its Shares, the Fixed Conversion Price
in effect at the opening of business on the day following the date fixed for
the determination of stockholders entitled to receive such dividend or
distribution or at the opening of business on the day following the day on
which such subdivision, combination or reclassification becomes effective, as
the case may be, shall be adjusted so that the holder of any Notes thereafter
surrendered for conversion shall be entitled to receive the number of Shares
that such holder would have owned or have been entitled to receive after the
happening of any of the events described above had such Notes been converted
immediately prior to the record date in the case of a dividend or distribution
or the effective date in the case of a subdivision, combination or
reclassification.  An adjustment made
pursuant to 

 

15

 

this Section 4(e)(i) shall become
effective immediately upon the opening of business on the day next following
the record date (subject to Section 4(e)(viii) below) in the case of
a dividend or distribution and shall become effective immediately upon the
opening of business on the day next following the effective date in the case of
a subdivision, combination or reclassification.

 

(ii)           In the event that the Company shall at any time
or from time to time, on or after the Issuance Date and prior to the conversion
of this Note, (A) issue Shares, Convertible Securities, or Options
entitling the recipient thereof to subscribe for or purchase Shares, at a price
per share or (B) amend or otherwise modify the terms of any Convertible
Securities or Options to a price per share (such issuance, subscription or
purchase price or amended or modified price being referred to as the “New
Issue Price”), in either case, less than the Fixed Conversion Price then in
effect, then the Fixed Conversion Price in effect at the opening of business on
the day next following such issuance shall be adjusted to equal the New Issue
Price.  Such adjustment shall become
effective immediately upon the opening of business on the day next following
such issuance.  In determining whether
any Shares are issued or issuable, or Convertible Securities or Options entitle
the holders of Notes to subscribe for or purchase Shares at less than such
Fixed Conversion Price, there shall be taken into account any consideration
received by the Company upon issuance of any such securities, the conversion of
any such Convertible Securities and upon exercise of such Options the value of
such consideration, if other than cash, to be determined in good faith by the
board of directors of the Company (the “Board of Directors”) in the
exercise of their fiduciary duty, with the concurrence of the holders of at least
a majority of the aggregate principal amount of the Notes then Outstanding.  Notwithstanding the foregoing or any other
provision herein to the contrary, no adjustment to the Fixed Conversion Price
will be required as a result of any Exempted Issuance.

 

(iii)          In
case the Company shall at any time or from time to time, on or after the Issuance Date and prior
to conversion of this Note, distribute to all holders of Shares (including any
such distribution made in connection with a merger or consolidation in which the
Company is the resulting or surviving Person and the Common Stock is not
changed or exchanged) cash, evidences of indebtedness of the Company, any
Subsidiary or another issuer, securities of the Company (including Convertible
Securities), any Subsidiary or another issuer or other assets (excluding
dividends payable in Shares for which adjustment is made under another
paragraph of this Section 4(e) and any distribution in connection
with an Exempted Issuance) or Options to subscribe for or purchase of any of
the foregoing, then, and in each such case, the Fixed Conversion Price
then in effect shall be adjusted (and any other appropriate actions shall be
taken by the Company) by multiplying the Fixed Conversion Price in effect
immediately prior to the date of such distribution by a fraction (x) the
numerator of which shall be the Weighted Average Price of the Common Stock for
the five (5) consecutive Trading Days immediately prior to the date of
distribution less the then fair market value (as determined by the Board of
Directors in the exercise of their fiduciary duties with the concurrence of the holders of at least a majority of
the aggregate principal amount of the Notes then Outstanding) of the portion of
the cash, evidences of indebtedness, securities or other assets so distributed
or of such Options to subscribe applicable to one Share and (y) the denominator
of which shall be the Weighted Average Price of the Common Stock for the five (5) consecutive
Trading Days immediately prior to the date of distribution (but such fraction
shall not be greater than one).  Such
adjustment shall be made whenever any such distribution is made and shall
become effective retroactively to a 

 

16

 

date immediately following the close of business on the record date for
the determination of stockholders entitled to receive such distribution.

 

(iv)          In the event that the Company shall at any
time or from time to time, on or after the Issuance Date and prior to the
conversion of this Note, make a payment of cash or other consideration to the
holders of Shares in respect of a tender offer or exchange offer, other than an
odd-lot offer, and the value of the sum of (i) the aggregate cash and
other consideration paid for such Shares, and (ii) any other consent or
other fees paid to holders of Shares in respect of such tender offer or
exchange offer expressed as an amount per share of Common Stock validly
tendered or exchanged pursuant to such tender offer or exchange offer, exceeds
the Weighted Average Price of the Common Stock on the Trading Day immediately prior
to the date any such tender offer or exchange offer is first publicly announced
(the “Announcement Date”), then the Fixed Conversion Price shall be
adjusted in accordance with the formula:

 

R’ = R x     O’ x P   

 F + (P x O)

 

For
purposes of the foregoing formula:

 

R = the Fixed Conversion Price in effect at the expiration
time of the tender offer or exchange offer that is the subject of this Section 4(e)(iv) (the
“Expiration Time”);

 

R’ = the Fixed Conversion Price in effect immediately
after the Expiration Time;

 

F = the fair market value (as determined by the Board
of Directors in the exercise of their fiduciary duties with the concurrence of the holders of at least a majority of
the aggregate principal amount of the Notes then Outstanding) of the aggregate
value of all cash and any other consideration paid or payable for Shares
validly tendered or exchanged (including any consent or other fees) and not
withdrawn prior to the Expiration Time (the “Purchased Shares”);

 

O = the number of Shares outstanding immediately after
the Expiration Time less any Purchased Shares;

 

O’ = the number of Shares outstanding immediately
after the Expiration Time, plus any Purchased Shares; and

 

P = the Weighted Average Price of the Common Stock on
the Trading Day next succeeding the Announcement Date.

 

Such decrease, if any,
shall become effective
immediately upon the opening of business on the day next following the Expiration
Time.  In the event that the Company is
obligated to purchase shares pursuant to any tender offer, but the Company is
prevented by applicable law from effecting any such purchases or all such
purchases are rescinded, the Fixed Conversion Price shall again be adjusted to
the Fixed Conversion Price that would then be in effect if such tender 

 

17

 

or
exchange offer had not been made.  If the
application of this Section 4(e)(iv) to any tender or exchange offer
would result in an increase in the Fixed Conversion Price, no adjustment shall
be made for such tender or exchange offer under this Section 4(e)(iv).

 

(v)           No
adjustment in the Fixed Conversion Price shall be required unless such
adjustment would require a cumulative decrease of at least $0.01 in such price;
provided, however, that any adjustments that by reason of this Section 4(e) are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment until made.  All
calculations under this Section 4(e)(v) shall be made to the nearest
cent (with $.005 being rounded upward) or to the nearest one-tenth of a share
(with.05 of a share being rounded upward), as the case may be.

 

(vi)          Whenever the Fixed Conversion Price is
adjusted as herein provided, the Company shall promptly file with the Transfer
Agent an officer’s certificate setting forth the Fixed Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment, which certificate shall be conclusive evidence of the correctness
of such adjustment absent manifest error. 
Promptly after delivery of such certificate, the Company shall prepare a
notice of such adjustment of the Fixed Conversion Price setting forth the
adjusted Fixed Conversion Price and the effective date of such adjustment and
shall mail such notice of such adjustment of the Fixed Conversion Price to the
holders of the Notes at such holder’s last address as shown on the stock
records of the Company.

 

(vii)         In any case in which Section 4(e) provides
that an adjustment shall become effective on the day next following the record
date for an event, the Company may without penalty defer until the occurrence
of such event issuing to the holders of any Notes converted after such record
date and before the occurrence of such event the additional Shares issuable
upon such conversion by reason of the adjustment required by such event over
and above the Shares issuable upon such conversion before giving effect to such
adjustment.

 

(viii)        If any action or transaction would require
adjustment of the Fixed Conversion Price pursuant to more than one subsection of
this Section 4(e), only one adjustment shall be made, and such adjustment
shall be the amount of adjustment that has the highest absolute value.

 

(ix)           If, at any
time and from time to time on or after the Issuance Date and prior to the
conversion of this Note, any event occurs of the type contemplated by the
provisions of this Section 4(e) but not expressly provided for by
such provisions (including the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company’s Board of
Directors will make an appropriate adjustment in the Fixed Conversion Price so
as to protect the rights of the Holder; provided that no such adjustment will
increase the Fixed Conversion Price as otherwise determined pursuant to this Section 4(e).

 

18

 

5.             Redemption at
Option of the Holder.

 

(a)           2010
Option.  At any time on or after March 31,
2010, the Holder shall have the right, at the Holder’s option to require the
Company to redeem all or a portion of the Principal at a price (the “Optional
Redemption Price”) equal to the sum of (i) 100% of such Principal plus
(ii) the Interest Amount with respect to such Principal.

 

(b)           Redemption
Option Upon Triggering Event.  In
addition to all other rights of the Holder contained herein, after a Triggering
Event (as defined in Section 5(c)), the Holder shall have the right, at
the Holder’s option, to require the Company to redeem all or a portion of the
Principal at a price (the “Redemption
Price”) equal to the sum of (i) 120% of such Principal plus (ii) the
Interest Amount with respect to such Principal.

 

(c)           Triggering
Event.  A “Triggering Event” shall be deemed to have occurred at such
time as any of the following events:

 

(i)            Upon the
Holder’s receipt of a Notice of Change of Control (as defined below);

 

(ii)           the
failure of any Registration Statement (as defined in the Registration Rights
Agreement), including any post-effective amendment, required to be filed
pursuant to Section 3(a) or Section 3(b) of the
Registration Rights Agreement to be declared effective by the SEC on or prior
to the date that is forty-five (45) days after the applicable Effectiveness
Deadline (as defined in the Registration Rights Agreement);

 

(iii)          while
a Registration Statement filed pursuant to Section 3(a), 3(b) or Section 3(e) of
the Registration Rights Agreement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness
of such Registration Statement lapses for any reason (including the issuance of
a stop order) or is unavailable to the Holder for sale of Registrable
Securities in accordance with the terms of the Registration Rights Agreement,
and such lapse or unavailability continues for a period of five (5) consecutive
Trading Days or for more than an aggregate of ten (10) Trading Days in any
365-day period (other than days during the period from the filing of a
post-effective amendment as required pursuant to the Registration Rights
Agreement until the effectiveness of such post-effective amendment or an
Allowable Grace Period (as defined in the Registration Rights Agreement));

 

(iv)          the Common
Stock is not listed on the OTC Bulletin Board or listed on a national
securities exchange or quoted on the NASDAQ National Market (or successor
thereto) or the NASDAQ Capital Market, or if the Common Stock has been listed
on a national securities exchange or quoted on the NASDAQ National Market (or
successor thereto) or the NASDAQ Capital Market, the trading of the Common
Stock on such exchange or market is terminated or suspended for a period of
five (5) consecutive Trading Days or for more than an aggregate of ten (10) Trading
Days in any 365-day period;

 

(v)           the
Company’s or the Transfer Agent’s notice to any holder of the Notes, including
by way of public announcement, at any time, of its intention not to comply with
a request for conversion of any Notes into Shares that is tendered in
accordance 

 

19

 

with the provisions of the Notes (excluding, however, a notice that
relates solely to a bona fide dispute that is subject to and being resolved
pursuant to, and in compliance with the time periods and other provisions of
the dispute resolution provisions of Section 4(c)(iii), provided
neither such dispute nor such notice is publicly disclosed);

 

(vi)          a
Conversion Failure;

 

(vii)         upon
the Company’s receipt of a Conversion Notice, the Company not being obligated
to issue Shares upon such conversion due to the provisions of Section 7.

 

(viii)        except
as provided in clause (ix) below, the Company or any of its Subsidiaries
breaches any representation, warranty, covenant or other term or condition of
the Securities Purchase Agreement, the Registration Rights Agreement, the Warrants,
this Note, the Security Documents or any other agreement, document, certificate
or other instrument delivered in connection with the transactions contemplated
thereby and hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 3(a) of the Securities
Purchase Agreement) and except, in the case of a breach of a covenant or other
term that is curable, only if such breach continues for a period of at least
twenty (20) days; or

 

(ix)           the
Company does not comply with the provisions of Section 11 hereof, Section 4(j)
of the Securities Purchase Agreement or Section 8 of the Registration
Rights Agreement or any other Event of Default occurs and is continuing.

 

(d)           Mechanics
of Redemption Upon Notice of Change of Control.  No sooner than thirty (30) nor later than
fifteen (15) Business Days prior to the consummation of a Change of Control,
but not prior to the public announcement of such Change of Control, the Company
shall deliver written notice thereof via facsimile and overnight courier (a “Notice of Change of Control”) to
the Holder.  At any time during the
period beginning after receipt of a Notice of Change of Control (or, in the
event a Notice of Change of Control is not delivered at least twenty (20)
Business Days prior to a Change of Control, at any time on or after the date
which is twenty (20) Business Days prior to a Change of Control) and ending on
the date that is two (2) Business Days prior to the consummation of such
Change of Control, the Holder may require the Company to redeem all or a
portion of the Principal by delivering written notice thereof via facsimile and
overnight courier (a “Notice of
Redemption Upon Change of Control”) to the Company, which Notice of
Redemption Upon Change of Control shall indicate (i) the Principal that
the Holder is submitting for redemption and (ii) the applicable Redemption
Price, as calculated pursuant to Section 5(b).  The Company shall deliver the Redemption
Price simultaneously with the consummation of the Change of Control; provided
that, if required by Section 4(c)(viii), this Note shall have been so
delivered to the Company.  The Company
shall not enter into any binding agreement or other arrangement with respect to
a Change of Control unless the Company provides that the payments provided for
in this Section 5(d) shall have priority to payments to stockholders
in connection with such Change of Control and the Company complies with such
provision.

 

(e)           Mechanics
of Other Redemptions at Option of Holder. 
Within one (1) Business Day after the occurrence of a Triggering
Event (other than upon the Holder’s 

 

20

 

receipt of a Notice of Change of Control), the Company shall deliver
written notice thereof via facsimile and overnight courier (“Notice of Triggering Event”) to
the Holder and each holder of the Other Notes. 
At any time after either (x) March 31, 2010 in the case of a redemption
pursuant to Section 5(a) or (y) the earlier of the Holder’s receipt
of a Notice of Triggering Event and the Holder’s becoming aware of a Triggering
Event in the case of a redemption pursuant to Section 5(b), the Holder may
require the Company to redeem up to all of the Principal by delivering written
notice thereof via facsimile and overnight courier (“Notice of Redemption at Option of Holder”) to the Company,
which Notice of Redemption at Option of Holder shall indicate (i) the
Principal that the Holder is submitting for redemption, (ii) the
applicable Optional Redemption Price or Redemption Price, as the case may be,
as determined and calculated pursuant to Sections 5(a) or 5(b) above
and (iii) in the case of a redemption pursuant to Section 5(b), the
nature of the Triggering Event to the extent the Holder did not receive a
Notice of Triggering Event; provided that a Notice of Redemption at
Option of Holder with respect to a redemption pursuant to Section 5(b) may
only be sent during the period beginning on and including the date of the
Triggering Event and ending on and including the date which is the later of (I)
twenty (20) Business Days after the date on which the Holder receives a Notice
of Triggering Event from the Company with respect to such Triggering Event and
(II) five (5) Business Days after the date on which such Triggering Event
is cured and the Holder receives written notice from the Company confirming
such Triggering Event has been cured.

 

(f)            Payment
of Redemption Price other than in Connection with a Change of Control.  Upon the Company’s receipt of a Notice(s) of
Redemption at Option of the Holder from any holder of the Other Notes, the
Company shall promptly notify the Holder by facsimile of the Company’s receipt
of such notice(s).  Each holder that has
sent such a notice shall, if required pursuant to Section 4(c)(viii),
promptly submit to the Company such holder’s Note that such holder has elected
to have redeemed.  The Company shall
deliver the applicable Optional Redemption Price or Redemption Price to the
Holder within five (5) Business Days after the Company’s receipt of a
Notice of Redemption at Option of Holder, provided that the Holder’s Note shall
have been so delivered to the Company. 
If the Company is unable to redeem all of the Notes submitted for
redemption, the Company shall (i) redeem a pro rata amount from each
holder of the Notes based on the principal amount of the Notes submitted for
redemption by such holder relative to the aggregate principal amount of the
Notes submitted for redemption by all holders of the Notes and (ii) in
addition to any remedy the Holder may have under this Note, the Securities
Purchase Agreement and the Security Documents, pay to the Holder interest at a
rate equal to the lesser of 2.0% per month (prorated for partial months) or the
highest lawful interest rate in respect of the unpaid Optional Redemption Price
or Redemption Price, as the case may be, until paid in full or until delivery
of a Void Optional Redemption Notice (as defined in Section 5(g)).

 

(g)           Void
Redemption.  In the event that the
Company does not pay the Optional Redemption Price or the Redemption Price, as
the case may be, within the time period set forth in Section 5(f), at any
time thereafter and until the Company pays such unpaid Optional Redemption Price
or Redemption Price in full, the Holder shall have the option to, in lieu of
redemption, require the Company to promptly credit to the Holder the Principal
that was submitted for redemption by the Holder under this Section 5 and
for which the Optional Redemption Price or the Redemption Price (together with
any interest thereon) has not been paid (or return any or all of the Note or
any portion thereof representing such Principal) by sending

 

21

 

written notice thereof to the
Company via facsimile (the “Void
Optional Redemption Notice”). 
Upon the Company’s receipt of such Void Optional Redemption Notice, (i) the
Notice of Redemption at Option of Holder shall be null and void with respect to
the Principal subject to the Void Optional Redemption Notice, (ii) the
Company shall promptly return or credit to the Holder any Principal or Note, as
applicable, subject to the Void Optional Redemption Notice and (iii) the
Fixed Conversion Price with respect to all the Principal shall be adjusted to
the lesser of (A) the Fixed Conversion Price as in effect on the date on
which the Void Optional Redemption Notice is delivered to the Company and (B) the
lowest Weighted Average Price of the Common Stock during the period beginning
on and including the date on which the Notice of Redemption at Option of Holder
is delivered to the Company and ending on and including the date on which the
Void Redemption Notice is delivered to the Company.

 

(h)           Disputes;
Miscellaneous.  In the event of a
bona fide dispute as to the determination of the arithmetic calculation of the
Optional Redemption Price or Redemption Price, such dispute shall be resolved
pursuant to Section 4(c)(iii) above, with the term “Optional
Redemption Price” or “Redemption Price” being substituted for the term “Conversion
Rate.”  The Holder’s delivery of a Void
Optional Redemption Notice and exercise of its rights following such notice
shall not affect the Company’s obligations to make any payments that have accrued
prior to the date of such notice.  In the
event of a redemption pursuant to this Section 5 of less than all of the
Principal, the Company shall promptly cause to be issued and delivered to the
Holder a replacement note representing the remaining Principal that has not
been redeemed, if required pursuant to Section 4(c)(viii).

 

6.             Other Rights of
the Holder.

 

(a)           Reorganization,
Reclassification, Consolidation, Merger or Sale.  Any recapitalization, reorganization,
reclassification, consolidation, merger, self tender offer for all or
substantially all Shares, sale of all or substantially all of the Company’s
assets to another Person or other transaction that is effected in such a way
that holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as “Organic Change.”  In
addition to the rights of the Holder under Section 5, prior to the
consummation of any (i) sale of all or substantially all of the Company’s
assets to an acquiring Person (including, for the avoidance of doubt, the sale
of all or substantially all of the assets of the Company’s Subsidiaries in the
aggregate) or (ii) other Organic Change following which the Company is not
a surviving entity, the Company will secure from the Person purchasing such
assets or the successor resulting from such Organic Change (in each case, the “Acquiring Entity”) a written
agreement, in form and substance satisfactory to the holders representing at
least a majority of the aggregate principal amount of the Notes then
Outstanding, to deliver to the Holder in exchange for this Note, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to this Note and satisfactory to the holders representing at
least a majority of the aggregate principal amount of the Notes then
Outstanding.  Subject to Section 4(e),
prior to the consummation of any other Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders
representing at least a majority of the aggregate principal amount of the Notes
then Outstanding) to ensure that the Holder will thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may be) the
Shares immediately theretofore acquirable and receivable upon the conversion of
this Note 

 

22

 

(without regard to any
limitations or restrictions on conversion) such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of Shares that would have been
acquirable and receivable upon the conversion of this Note as of the date of
such Organic Change (without taking into account any limitations or
restrictions on the conversion of this Note).

 

7.             Limitations on
Conversion.

 

(a)           4.99%
Limitation.  The Company shall not
effect any conversion of this Note and the Holder shall not have the right to
convert Principal or any Interest Amount in excess of that portion of the
Principal Amount or any Interest Amount that, upon giving effect to such
conversion, would cause the aggregate number of Shares beneficially owned by the
Holder and its Affiliates to exceed 4.99% (the “Maximum Percentage”) of
the total outstanding Shares following such conversion or issuance of Interest
Shares; provided, however, that following the Company Conversion
Notice Date (as defined in Section 9(b)) the Maximum Percentage shall be
of no further force and effect on the Company Conversion Date, solely for
purposes of effecting a Company Conversion pursuant to Section 9.  For purposes of the foregoing proviso, the
aggregate number of Shares beneficially owned by the Holder and its Affiliates
shall include the Shares issuable upon conversion of this Note, with respect to
which the determination of such proviso is being made, but shall exclude the
Shares that would be issuable upon (i) conversion of the remaining,
unconverted Principal and any Interest Amount with respect thereto beneficially
owned by the Holder and its Affiliates and (ii) exercise, conversion or
exchange of the unexercised, unconverted or unexchanged portion of any other
securities of the Company (including the Warrants and any other warrants or
convertible preferred stock) subject to a limitation on conversion, exercise or
exchange analogous to the limitation contained herein beneficially owned by the
Holder and its Affiliates.  Except as set
forth in the preceding sentence, for purposes of this Section 7,
beneficial ownership shall be calculated in accordance with Section 13(d) of
the 1934 Act.  For purposes of this Section 7(a),
in determining the number of outstanding Shares the Holder may rely on the
number of outstanding Shares as reflected in (1) the Company’s most recent
quarterly report on Form 10-QSB or 10-Q, or annual report on Form 10-KSB
or 10-K, 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 for
the common stock setting forth the number of Shares outstanding.  Upon the written request of the Holder, the
Company shall promptly, but in no event later than two (2) Business Days
following the receipt of such request, confirm in writing to the Holder the
number of Shares outstanding as of the date of such request.  In any case, the number of outstanding Shares
shall be determined after giving effect to the conversion, exercise or exchange
of securities of the Company, including the Notes and the Warrants by the
Holder and its Affiliates since the date as of which such number of outstanding
Shares was reported.  For purposes of
determining the maximum number of Shares that the Company may issue to the
Holder pursuant to Section 7(a) upon conversion of this Note on a
particular Conversion Date other than a Company Conversion Date pursuant to Section 9,
the Holder’s delivery of a Conversion Notice with respect to such conversion
shall constitute a representation (on which the Company may rely without
investigation) by the Holder that, upon the issuance of the Shares to be issued
to it on such Conversion Date or Forced Conversion Date, the shares of Common
Stock beneficially owned by the Holder and its Affiliates shall not exceed the
Maximum Percentage of the total 

 

23

 

outstanding Shares immediately
after giving effect to such conversion, as determined in accordance with this Section 7(a).  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, however,
that (i) any such increase will not be effective until the date which is
sixty one (61) days 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 Notes.

 

(b)           The
Company shall not be obligated to issue any Shares upon conversion of this Note
if the issuance of such Shares would exceed that number of Shares which the
Company may issue upon conversion of the Notes and upon exercise of the
Warrants (the “Exchange Cap”)
without breaching the Company’s obligations under the rules or regulations
of the Principal Market, if at the time of any determination the Common Stock
is listed on a national securities exchange or quoted on NASDAQ, except that
such limitation shall not apply in the event that the Company (a) obtains
Stockholder Approval, 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 holders representing at least a majority of
the aggregate principal amount of the Notes then Outstanding.  Until such Stockholder Approval or written
opinion is obtained, no purchaser of any of the Notes pursuant to the
Securities Purchase Agreement (each, a “Purchaser”) shall be issued, at any time, upon conversion of
any of the Notes, a number of Shares greater than the difference of (i) the
product of (A) the Exchange Cap, multiplied by (B) the Allocation
Percentage of such Purchaser as of the Issuance Date (the “Cap Allocation Amount”), minus (ii) the
aggregate number of (x) Conversion Shares that have been issued prior to such
time upon conversion of any Notes prior to the date of such determination and
(y) Warrant Shares that have been issued to such Purchaser prior to such time
upon exercise of any Warrants.  In the
event that any Purchaser shall sell or otherwise transfer any of such Purchaser’s
Notes, the transferee shall be allocated a pro rata portion of such Purchaser’s
Cap Allocation Amount.  In the event that
any holder of Notes shall convert all of such holder’s Notes and exercise all
of such holder’s Warrants into a number of Shares in an amount which, in the
aggregate, is less than such holder’s Cap Allocation Amount, then the
difference between such holder’s Cap Allocation Amount and the number of Shares
actually issued to such holder upon conversion of such holder’s Notes and
exercise of such holder’s Warrants shall be allocated to the respective Cap
Allocation Amounts of the remaining holders of Notes and Warrants, on a pro
rata basis in proportion to the aggregate number of Shares issuable upon
conversion of the Notes (at the then prevailing Conversion Price) and exercise
of the Warrants (at the then prevailing exercise prices), if any, then held by
each such holder, without regard to any limitations on conversion or exercise.

 

8.             Interest.

 

(a)           Interest
shall be payable on each Interest Payment Date, including the Maturity Date, to
the record holder of this Note on such Interest Payment Date, in cash or, provided
that each of the Fundamental Conditions are satisfied, by converting such
Interest equal to the entire Interest Amount (the “Interest Conversion Amount”) to Shares (“Interest Shares”)
by giving the record holder an Interest Conversion Notice (as defined below) in
accordance with, and subject to the conditions and requirements of, this Section 8
(an “Interest Conversion”).  The Company may not elect an Interest
Conversion with respect to Interest payable on the Maturity 

 

24

 

Date or on any other Interest
Payment Date occurring less than thirty-one (31) Trading Days prior to the
Maturity Date.  If the Company does not
elect an Interest Conversion with respect to such Interest, such Interest shall
be paid in cash.  Any accrued and unpaid
Interest which is not paid within five (5) Business Days of such accrued
and unpaid Interest’s Interest Payment Date shall bear interest at a rate equal
to the lesser of 2.0% per month (prorated for partial months) or the highest
lawful rate per annum from such Interest Payment Date until the same is paid in
full (the “Default Interest”). 
The Company shall pay any and all Taxes (excluding income taxes,
franchise taxes or other taxes levied on gross earnings, profits or the like of
the Holder) that may be payable with respect to the issuance and delivery of
Interest Shares.

 

(b)           Exercise
of Interest Conversion.  The Company
may exercise its right to elect an Interest Conversion by delivering to the
Holder written notice thereof (an “Interest Conversion Notice”) at least
five (5) Business Days prior to the applicable Interest Payment Date.  If the Company elects an Interest Conversion,
then it must simultaneously take the same action with respect to all of the
Other Notes.  An Interest Conversion
shall be irrevocable by the Company.  The
Interest Conversion Notice shall indicate (I) the number of consecutive Trading
Days during which the Holder must convert its Interest Conversion Amount (the “Interest Conversion Period”),
which shall be at least ten (10) Trading Days and no more than twenty (20)
Trading Days, as selected by the Company, and shall be the same as any Interest
Conversion Period set forth in any Interest Conversion Notice given pursuant to
any Other Notes on the same day, (II) the date of the first Trading Day of the
Interest Conversion Period, (III) the date of the last Trading Day of the
Interest Conversion Period, which is the last date by which the Holder must
convert its Interest Conversion Amount (the “Final Interest Conversion
Date”), (IV) the Interest Conversion Amount (such Interest Conversion
Amount with respect to each such holder is referred to as its “Pro Rata Interest Conversion Amount”),
(V) each holder’s Pro Rata Interest Conversion Amount and (VI) the Allocation
Percentage of each Holder as of the Interest Conversion Notice Date.  The date on which the Holder receives an
Interest Conversion Notice is referred to as the “Interest Conversion Notice
Date.”

 

(c)           Mechanics
of Interest Conversion.  If the
Company has exercised its right to an Interest Conversion in accordance with Section 8(a) and
the Fundamental Conditions are satisfied (or waived in writing by the Holder),
on the Company Conversion Notice Date and at each time the Holder delivers a
Conversion Notice with respect to any portion of the Pro Rata Interest
Conversion Amount (an “Interest Conversion
Date”), then, subject to Section 7, the Holder shall convert
the Pro Rata Interest Conversion Amount, in
whole or in part and at such time or times as the Holder, in its sole
discretion determines, during the Interest Conversion Period; provided, however,
that the Holder shall not be permitted to convert during the Interest
Conversion Period, any portion of the Interest Conversion Amount that exceeds
the product of (i) the Holder’s Allocation Percentage as of the Interest
Conversion Notice Date and (ii) twenty percent (20%) of the sum of the
daily dollar trading volume (as reported by Bloomberg) of the Common Stock on
its Principal Market on each of the Trading Days during the Interest Conversion
Period (such limitation, the “Volume Conversion Restriction Amount”).  In the event any Pro Rata Interest Conversion
Amount has not been converted by the Holder prior to the end of the Interest
Conversion Period, then, subject to the limitations set forth in Sections 7
and 8(d), the remaining Pro Rata Conversion Amount shall be converted as
of the Interest Conversion Date, as if the Holder had delivered a Conversion
Notice pursuant to Section 4 with respect to such Pro Rata Interest
Conversion Amount on the Interest Conversion 

 

25

 

Date but without the Holder
being required to actually deliver such Conversion Notice, provided that the
Fundamental Conditions are satisfied (or waived in writing by the Holder) on
the Interest Conversion Date (and, for the avoidance of doubt, on each day
during the Interest Conversion Period). 
In the event that the Fundamental Conditions are not satisfied on the
Interest Conversion Date (or on any other day during the Interest Conversion
Period), then the Interest Conversion shall be null and void with respect to
all or any part designated by the Holder of the unconverted Pro Rata Interest
Conversion Amount and the Company shall pay such amount in cash within five (5) Business
Days in accordance with Section 8(a). 
Notwithstanding anything contained herein to the contrary, no notice
delivered by the Company to any Holder regarding a Fundamental Condition shall
contain any material non-public information.

 

(d)           Notwithstanding
anything contained in this Section 8 to the contrary, on the Final
Interest Conversion Date, (i) the Holder shall not be required (but shall
be permitted subject to clause (ii) of this Section 8(d)) to convert
(and shall not be deemed, solely as a result of Section 8(c), to have
converted) any portion of the Pro Rata Interest Conversion Amount on the
applicable Final Interest Conversion Date in excess of the difference between (A) the
product of (I) the Holder’s Allocation Percentage as of the Interest Conversion
Notice Date and (II) ten percent (10%) of the sum of the daily dollar trading
volume (as reported by Bloomberg) of the Common Stock on its Principal Market
on each of the Trading Days during the Interest Conversion Period, minus (B) any
Pro Rata Interest Conversion Amount converted by the Holder during the Interest
Conversion Period and (ii) the Holder shall neither be required nor
permitted to convert (and shall not be deemed, solely as a result of Section 8(c) to
have converted) any portion of the Pro Rata Interest Conversion Amount on the applicable
Final Interest Conversion Date in excess of the difference between (A) the
applicable Volume Conversion Restriction Amount, minus (B) any Pro Rata
Interest Conversion Amount converted by the Holder during the Interest
Conversion Period.  Following the Final
Interest Conversion Date, the Interest Conversion shall be null and void with
respect to the unconverted Pro Rata Interest Conversion Amount and the Company
shall pay such amount in cash within five (5) Business Days in accordance
with Section 8(a).

 

9.             Company Conversion.

 

(a)           General.  The Company shall have the right, in
accordance with the terms and subject to the conditions of this Section 9
and provided that (i) the Fundamental Conditions are satisfied, (ii) the
Company shall have consummated a Qualified Public Offering and (iii) the
Weighted Average Price of the Common Stock shall have been at least $8.00
(subject to adjustments for stock splits, stock dividends combinations,
reclassifications and other events) on each of the twenty (20) consecutive
Trading Days immediately preceding the Company Conversion Date (as defined
below) (clauses (i), (ii) and (iii) collectively, the “Company
Conversion Conditions”), to require that all of the Principal, together
with the Interest Amount with respect thereto, due to the Holder upon maturity
of this Note be converted to Shares at the applicable Conversion Price (a “Company Conversion”).

 

(b)           Exercise
of Company Conversion.  The Company
may exercise its right to elect a Company Conversion by delivering to the
Holder written notice thereof (a “Company
Conversion Notice”).  The date
on which the Holder receives the Company Conversion Notice is referred to as
the “Company Conversion Notice Date”).  If the Company 

 

26

 

elects a Company Conversion,
then it must simultaneously take the same action with respect to all of the
Other Notes and the Subordinated Sirius Note. 
The Company Conversion Notice shall be irrevocable by the Company.  The Company shall require conversion of a
conversion amount from each holder of Notes equal to the product of (I) the
aggregate principal amount of Notes then Outstanding, together with the
Interest Amount thereon, multiplied by (II) such holder’s Allocation Percentage
(such Conversion Amount with respect to each such holder is referred to as its “Pro Rata Conversion Amount”).  The Company Conversion Notice shall indicate
(I) the date of conversion, which date be shall be at least twenty (20)
Trading Days after the closing date of a Qualified Public Offering and at least
five (5) Trading Days after the Company Conversion Notice Date (the “Company
Conversion Date”), (II) the aggregate principal amount of Notes then
Outstanding, together with the Interest Amount thereon and (III) each holder’s
Pro Rata Conversion Amount.

 

(c)           Mechanics
of Company Conversion.  If the
Company has exercised its right to Company Conversion in accordance with Section 9(a) and
the Company Conversion Conditions are satisfied (or waived in writing by the
Holder), the Holder will convert its Pro Rata Conversion Amount, together with
any Interest Amount with respect thereto accruing through and including the
Company Conversion Date on such Company Conversion Date.  In the event that the Company Conversion
Conditions are not satisfied on the Company Conversion Date, then the Company
Conversion shall be null and void with respect to all or any part designated by
the Holder of the unconverted Pro Rata Conversion Amount and the Holder shall
be entitled to all the rights of a holder of this Note with respect to such
amount of the Pro Rata Conversion Amount and, accordingly, shall be subject to
all the other provisions of this Note, including that if such amount remains
outstanding on the Maturity Date, then the Company shall repay the Principal
represented by such amount in accordance with Section 4(c)(vii).  Notwithstanding anything contained herein to
the contrary, no Company Conversion Notice shall contain any material
non-public information.

 

10.           Right of First Refusal.

 

(a)           The
Company hereby grants to the Holder a right of first refusal to purchase any
New Securities that the Company may, from time to time, propose to issue and
sell; provided, however, that at the time of any such offer or
sale the Holder shall qualify as an “accredited investor” as that term is
defined in Rule 501(a) of the 1933 Act.  Such right of first refusal shall allow the
Holder to purchase pro rata among such other holders of the Notes so electing
to purchase the New Securities (determined immediately prior to such issuance
and sale of New Securities and based upon each holder’s Allocation Percentage)
proposed to be issued.  In the event a
holder of the Notes does not purchase any or all of its pro rata portion of New
Securities, each of the remaining holders of the Notes shall have the right to
purchase its pro rata portion (determined at such time) of such unpurchased New
Securities until all of the New Securities are purchased, or until no other
holder of the Notes desires to purchase any additional New Securities, in which
case the Company may sell such unpurchased New Securities to prospective
purchasers on the terms described in the New Issue Notice (as defined below)
for a period of seventy-five (75) days, but thereafter may sell additional New
Securities only after delivering another New Issue Notice as described
herein.  The right of first refusal
granted hereunder shall terminate if unexercised within fifteen (15) Business
Days after receipt of the 

 

27

 

New Issue Notice.  Notwithstanding anything contained herein to
the contrary, no New Issue Notice shall contain any material non-public
information.

 

(b)           In the
event that the Company proposes to undertake an issuance of New Securities, it
shall give the Holder written notice of its intention (the “New Issue Notice”),
describing the class and number of securities it intends to issue as New
Securities, the purchase price therefor (which shall be payable solely in cash)
and the terms upon which the Company proposes to issue the same.  Each holder of Notes shall have fifteen (15)
Business Days from the date of its receipt of the New Issue Notice to elect to
purchase all or any portion of such holder’s pro rata portion of such New
Securities (calculated as described in Section 9(a)) for the purchase
price and upon the terms specified in the New Issue Notice by giving written
notice to the Company, stating therein the quantity of New Securities to be
purchased.

 

11.           Covenants.

 

(a)           Corporate
Existence.  From the Issuance Date
and for so long as any of the Notes are outstanding, the Company shall, and
shall cause each of its Subsidiaries to (i) conduct its operations in the
ordinary course of business consistent with past practice, (ii) maintain
its corporate existence and (iii) maintain and protect all material
Intellectual Property used in the business of the Company and its Subsidiaries.

 

(b)           Reservation
of Shares.

 

(i)            The
Company shall, so long as any of the Notes or Warrants are outstanding, take
all action necessary to reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of
the Notes and the exercise of the Warrants, such number of Shares as shall from
time to time be sufficient to effect the conversion of all of the principal
amount then Outstanding under the Notes (together with accrued and unpaid
Interest thereon) and the exercise of all then outstanding Warrants; provided
that the number of Shares so reserved shall at no time be less than 200% of the
number of Shares for which the Notes are at any time convertible and 150% of
the number of Shares for which the Warrants are at any time exercisable
(without regard to any limitations on conversions or exercises) (the “Required Reserve Amount”).  The initial number of Shares reserved for
conversions of the Notes and exercises of the Warrants and each increase in the
number of Shares so reserved shall be allocated pro rata among the holders of
the Notes or holders of the Warrants, as applicable, based on the principal
amount of the Notes held by each holder at the time of issuance of the Notes
(or, in the case of the Warrants, the number of Warrants then held by each
holder of the Warrants) or increase in the number of reserved Shares, as the
case may be.  In the event the Holder (or
any holder of the Warrants) shall sell or otherwise transfer any portion of the
Holder’s Notes (or any portion of such holder’s Warrants), each transferee
shall be allocated a pro rata portion of the number of Shares reserved for such
transferor.  Any Shares reserved and
allocated to any Person that ceases to hold any Notes or any Warrants, as
applicable, shall be allocated to the remaining holders of the Notes (or in the
case of the Warrants, the remaining holders of the Warrants), pro rata based on
the principal amount of the Notes (or in the case of the Warrants, the number
of Warrants) then held by such holders.

 

28

 

(ii)           Insufficient
Authorized Shares.  If at any time
while any of the Notes remain outstanding the Company does not have a
sufficient number of authorized and unreserved Shares to satisfy its obligation
to reserve for issuance upon conversion of the Notes or exercise of the
Warrants at least a number of Shares equal to the Required Reserve Amount, then
the Company shall immediately take all action necessary to increase the Company’s
authorized Shares to an amount sufficient to allow the Company to reserve the
Required Reserve Amount for the Notes and the Warrants then outstanding.

 

(c)           Limitations
on Indebtedness; Liens.  From the
Issuance Date and for so long as any of the Notes are outstanding, subject in
all respects to the provisions of Section 11(p) hereof, the Company shall
not, and shall not permit any of its Subsidiaries to, (a) issue, incur,
assume, maintain, suffer to exist or extend the term of any Indebtedness,
except for (i) Indebtedness under the Notes, (ii) Indebtedness (A) the
holders of which agree in writing to be subordinate and junior in right of
payments to the Notes on terms and conditions acceptable to the Purchasers,
including expressly agreeing not to take, demand or receive from the Company,
any payment of (whether as principal, interest or any other amount) or security
for the whole or any part of such Indebtedness, including any letter of credit
or similar credit support facility to support the payment thereof, (B) which
does not mature or otherwise require or permit redemption or repayment prior to
or on the first anniversary of the Maturity Date, and (C) which is not
secured by any of the assets of the Company or any of its Subsidiaries (“Permitted Subordinated Indebtedness”)
in an amount not to exceed $10,000,000 (it being understood that for purposes
of this Section 11(c)(ii), a guaranty, which is expressly subordinate and
junior in right of payments to the Notes, by any Guarantor of any Permitted
Subordinated Indebtedness of the Company shall not be included in the
calculation of the maximum amount of Permitted Subordinated Indebtedness
permitted under this Section 11(c)(ii)), (iii) the two Subsequent
Payments (as defined in the Eurosilicone Agreement) due under the Eurosilicone
Agreement, (iv) the principal due under that certain Loan Agreement dated September 10,
2004, by and between BNP Paribas and ES Holdings SAS, a Subsidiary of the
Company; provided such agreement is not amended, supplemented or otherwise
modified on or after the Issuance Date (the “BNP Facility”), (v) the
Subordinated Notes or (vi) Indebtedness of a Subsidiary to the Company or
any other Subsidiary permitted by Section 11(e); (b) issue any
capital stock of the Company or any Subsidiary redeemable prior to or on the
one-year anniversary of the Maturity Date of any Notes then Outstanding; (c) directly
or indirectly, create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by the Company or any of its Subsidiaries other
than a Permitted Lien, or (d) redeem, retire, defease or otherwise repay
or prepay in cash any principal of any Indebtedness (other than Indebtedness
under the Notes, principal due under the BNP facility or the two Subsequent
Payments due under the Eurosilicone Agreement). 
The provisions of this Section 11(c) are in furtherance of Section 11(p)
hereof, and in no way limit the other restrictions on or obligations of the
Company pursuant thereto or otherwise.

 

(d)           Restrictions
on Issuance of Securities.  From the
date hereof and for so long as any of the Notes or Warrants are outstanding,
the Company shall not in any manner issue or sell any Options or Convertible
Securities that are convertible into or exchangeable or exercisable for shares
of Common Stock other than Exempted Issuances.

 

29

 

(e)           Restriction
on Loans; Investments; Subsidiary Equity. 
From the Issuance Date and for so long as any of the Notes are
outstanding, the Company shall not, and shall not permit any of its
Subsidiaries to, (i) except for Permitted Investments (as defined below),
make any loans to, or investments in, any other Person, including through
lending money, deferring the purchase price of property or services (other than
trade accounts receivable on terms of ninety (90) days or less), purchasing any
note, bond, debenture or similar instrument, providing any letter of credit,
guaranteeing (or taking any action that has the effect of guaranteeing) any
obligations of any other Person, or acquiring any equity securities of, or
other ownership interest in, or making any capital contribution to any other
Person (provided, however, that the Company and its Subsidiaries
may make investments in any domestic Subsidiary; and provided that the
Company and any domestic Subsidiary may make investments in any foreign
Subsidiary; provided  further, that any investments in a foreign
Subsidiary shall be in the form of debt securities that are unsubordinated
(except with respect to the Notes) to the maximum extent possible), (ii) issue,
transfer or pledge any capital stock or equity interest in any Subsidiary to
any Person other than the Company, any domestic Subsidiary or any wholly-owned
foreign Subsidiary or (iii) permit any foreign Subsidiary other than
Integrated International Incorporated to own, directly or indirectly, any
capital stock of, or equity interest in, a domestic Subsidiary.  “Permitted
Investments” means (a) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States or issued by any agency
thereof and backed by the full faith and credit of the United States, in each
case maturing within 180 days from the date of acquisition; (b) certificates
of deposit, time deposits, eurodollar time deposits or overnight bank deposits
having maturities of six months or less from the date of acquisition issued by
any commercial bank organized under the laws of the United States or any state
thereof having combined capital and surplus of not less than $500,000,000; (c) commercial
paper of an issuer rated at least A-1 by Standard & Poor’s Ratings
Services (“S&P”) or P-1 by Moody’s Investors Service, Inc. (“Moody’s”),
or carrying an equivalent rating by a nationally recognized rating agency, if
both of the two named rating agencies cease publishing ratings of commercial
paper issuers generally, and maturing within six months from the date of
acquisition; (d) repurchase obligations of any commercial bank satisfying
the requirements of clause (b) of this definition, having a term of not
more than 30 days, with respect to securities issued or fully guaranteed or
insured by the United States; (e) securities with maturities of 180 days
or less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least AA by S&P or Aa by Moody’s; (f) securities with
maturities of six months or less from the date of acquisition backed by standby
letters of credit issued by any commercial bank satisfying the requirements of
clause (b) of this definition; or (g) shares of money market mutual
or similar funds which invest exclusively in assets satisfying the requirements
of clauses (a) through (f) of this definition or money market funds
that ( i) comply with the criteria set forth in Securities and Exchange
Commission Rule 2a-7 under the Investment Company Act of 1940, as amended,
(ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have
portfolio assets of at least $5,000,000,000.

 

(f)            Restriction
on Purchases or Payments.  From the
Issuance Date and for so long as any of the Notes are outstanding, the Company
shall not, and shall not permit any of its Subsidiaries to, (i) declare,
set aside or pay any dividends on or make any other 

 

30

 

distributions (whether in cash,
stock, equity securities or property) in respect of any capital stock or split,
combine or reclassify any capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for any
capital stock or set any record date with respect to any of the foregoing; provided,
however, that any Subsidiary may declare, set aside or pay any dividends
on or make any other distributions (whether in cash, stock, equity securities
or property) in respect of any of its capital stock that is held solely by the
Company or by a Subsidiary, (ii) purchase, redeem or otherwise acquire,
directly or indirectly, any shares of the Company’s capital stock or the
capital stock of any of its Subsidiaries, except as long as no Event of Default
has occurred and is continuing, repurchases of unvested shares at cost in
connection with the termination of the employment relationship with any
employee pursuant to stock option or purchase agreements in effect on the
Issuance Date and set forth on Schedule 3(c) to the Securities
Purchase Agreement or (iii) grant, issue or sell any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to the record holders of any class of its capital stock.  From the Issuance Date and for so long as any
of the Notes or Warrants are outstanding, the Company and its Subsidiaries
shall not enter into any agreement which would limit or restrict the Company’s
or any of its Subsidiaries’ ability to perform under, or take any other
voluntary action to avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed by it under, this Note, the Securities
Purchase Agreement, the Registration Rights Agreement, the Warrants and the
Guarantee and Collateral Agreement.

 

(g)           Restrictions
on Capital Expenditures.  From the
Issuance Date and for so long as any of the Notes are outstanding, the Company
and its Subsidiaries shall not authorize or make any Capital Expenditures in
excess of $500,000 per year in the aggregate.

 

(h)           Disposition
of Assets.  From the Issuance Date
and for so long as any of the Notes are Outstanding, the Company shall not, and
shall not cause or permit any of its Subsidiaries to, sell, transfer, assign,
dispose, consign, lease or remove from their respective business locations any
property or assets except that, until the holders of at least a majority of the
Notes then Outstanding give the Company notice to the contrary during the
existence of any Event of Default in the case of clauses (ii) and (iii) below,
the Company or any Subsidiary may (i) sell inventory in the ordinary
course of its business consistent with past practice (any sale or exchange of
inventory in satisfaction of Indebtedness of the Company or any Subsidiary
shall not be deemed a sale of inventory in the ordinary course of business); (ii) sell
or dispose of obsolete assets which the Company or such Subsidiary has
determined, in good faith, not to be useful in the conduct of its business and
which, in any fiscal year, do not have an aggregate fair market value in excess
of $50,000 (with respect to such sales or dispositions by the Company and its
Subsidiaries in the aggregate); and (iii) sell or dispose of accounts in
the course of collection in the ordinary course of business consistent with
past practice.

 

(i)            Mergers,
Consolidations, Acquisitions.  In
addition to the other rights the Holder has hereunder, from the Issuance Date
and for so long as any of the Notes are outstanding, the Company shall not sell
all or substantially all of the assets of the Company (including, for the
avoidance of any doubt, all or substantially all of the assets of the Company’s
Subsidiaries in the aggregate), except in the event of an Organic Change where
(x) the Acquiring Entity (A) assumes the Company’s obligations
hereunder and under the agreements and instruments entered into in connection
herewith and (B) is a publicly traded corporation whose 

 

31

 

common stock is quoted on or
listed for trading on the American Stock Exchange or another nationally
recognized stock exchange or the NASDAQ National Market (or a successor
thereto), and (y) immediately before and immediately after giving effect
to such transaction, no Triggering Event or Event of Default shall have
occurred and be continuing.

 

(j)            Affiliate
Transactions.  From Issuance Date and
for so long as any of the Notes are outstanding, the Company shall not, and
shall cause each of its Subsidiaries not to, enter into or be a party to any
agreement or transaction with any Affiliate (other than a wholly-owned
Subsidiary), including transfer of any assets to any such Affiliate, except in
the ordinary course of the Company or such Affiliate’s business and upon fair
and reasonable terms that are no less favorable to the Company or such
Affiliate, as the case may be, than such Person would obtain in a comparable
arms’-length transaction with a Person not an Affiliate of the Company, and on
terms consistent with the business relationship of the Company or such
Subsidiary and such Affiliate prior to the date of this Note, if any.

 

(k)           SEC
Filings.  From the Issuance Date and
for so long as any of the Notes or Warrants are outstanding, (i) the
Company shall timely file with the SEC, within the time periods specified in
the SEC’s rules and regulations, all quarterly and annual financial
information required to be filed with the SEC on Forms 10-Q or 10-QSB and 10-K
or 10-KSB, all current reports required to be filed with the SEC on Form 8-K
and any other information required to be filed with the SEC; (ii) the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise permit such termination and (iii) the
Company shall deliver (A) copies of all such filings with the SEC to each
holder of Notes then Outstanding within one (1) day after the filing
thereof with the SEC, unless the foregoing are filed with the SEC through EDGAR
and are immediately available to the public through EDGAR and (B) facsimile
copies of all press releases issued by the Company or any of its Subsidiaries
on the same day as the release thereof, except to the extent any such release
is available through Bloomberg Financial Markets (or any successor thereto)
contemporaneously with such issuance.

 

(l)            Compliance
with Laws.  From the Issuance Date
and for so long as any of the Notes are outstanding, the Company will comply,
and cause each Subsidiary to comply, in all material respects with all
applicable laws, ordinances, rules, regulations and requirements of
Governmental Authorities (including ERISA and the rules and regulations
thereunder and all Environmental Laws) except where the necessity of compliance
therewith is contested in good faith by appropriate proceedings diligently
conducted.

 

(m)          Maintenance
of Assets; Insurance.  From the
Issuance Date and for so long as any of the Notes are outstanding, the Company
will keep, and will cause each Subsidiary to keep, all assets useful and
necessary in its business in good working order and condition, ordinary wear
and tear excepted; will maintain, and will cause each Subsidiary to maintain
(either in the name of the Company or in such Subsidiary’s own name), with
financially sound and reputable insurance companies, product liability
insurance and insurance on all their assets in at least such amounts and
against at least such risks as are usually insured against in the same general
area by companies of established repute engaged in the same or a similar
business; and will furnish to the holders of the Notes, upon reasonable written
request from the Collateral Agent, full information as to the insurance
carried.

 

32

 

(n)           Payment
of Taxes.  From the Issuance Date and
for so long as any of the Notes are outstanding, the Company will, and will
cause each of its Subsidiaries to, pay and discharge, before the same shall
become delinquent, all income and all other material Taxes, assessments and
other governmental charges or levies, imposed upon them or any of their
properties or assets or in respect of their businesses or incomes except for
those being contested in good faith by proper proceedings diligently conducted
and against which adequate reserves, in accordance with GAAP, have been
established.

 

(o)           Use of
Proceeds.  The Company will only use
the proceeds from the sale of the of the Notes and the Warrants as follows: (x)
the U.S. dollar equivalent of £15,000,000 of such proceeds to fund the Company’s
acquisitions of Biosil Limited and Nagor Limited pursuant to the Share Purchase
Agreement and (ii) to pay expenses and commissions related to the sale of
the Notes and the Warrants and (y) the balance of the net proceeds for
general corporate purposes including working capital, in each case as more
specifically described and in the amounts indicated in Schedule 4(d) to
the Securities Purchase Agreement.  Such
proceeds shall be held in the Company’s account established with UBS Financial
Services Inc. with the account number MO-28570-54 until used by the Company in
accordance with the terms of this Section 11(o).

 

(p)           Other
Indebtedness.  Payments of principal
and other payments due under this Note shall not be subordinated to any
obligations of the Company and shall rank senior to all other Indebtedness
other than (i) payments of (A) principal and interest due under the
BNP Facility and (B) the two Subsequent Payments (as defined in the
Eurosilicone Agreement) due under the Eurosilicone Agreement; provided, however,
that the aggregate amount of all such payments shall not exceed €16,400,000 and
(ii) trade accounts payable of the Company and other Indebtedness that, in
each case, is preferred by operation of law. 
The Company will not (x) amend, supplement, modify or waive any
compliance with either the Subordinated Sirius Note or the Subordinated
Integrated Note or (y) permit the assignment or transfer of some or all of the
rights under either the Subordinated Sirius Note or the Subordinated Integrated
Note without the prior written consent (which consent shall not be unreasonably
withheld) of the holders of the Notes representing at least a majority of the
principal amount of all the Notes then Outstanding.

 

(q)           Isle of
Man Facility.  Within sixty (60) days
of the closing of the Company’s acquisition of Nagor Limited, (i) the
Company shall cause Nagor Limited to, and Nagor Limited shall, pledge to the
Collateral Agent, and grant the Collateral Agent, in each case for the benefit
of the Collateral Agent and the holders of the Notes, a security interest in
substantially all of the property and assets of Nagor Limited (including the
facility located at Global House, Isle of Man Business Park, Cooil Road,
Douglas in the Isle of Man) in order to secure the obligations of the Company
under the Notes, the Securities Purchase Agreement and the other Transaction
Documents and (ii) Nagor Limited shall execute and deliver such documents
(including customary legal opinions, title documents and certificates),
containing customary terms and provisions and in form and substance acceptable
to the Collateral Agent evidencing such pledge and grant of a security
interest.

 

(r)            [Lockup.  Except as otherwise permitted under section 11(p),
on the Issuance Date, and for a period of three hundred and sixty (360) days
thereafter, the 

 

33

 

Company shall use its
commercially reasonable efforts to prevent any director or executive officer of
the Company or any Subsidiary or any Affiliate of any such director or
executive officer from (i) effecting a public sale of any Shares or any
security convertible into or exchangeable for the Shares or (ii) offering
to sell, contracting to sell, granting any option to purchase or entering into
any similar transaction with regard to the Shares or any security convertible
into or exchangeable for Shares which has the same economic effect as a sale of
such Shares. The foregoing sentence shall not apply to transactions relating to
Shares or other securities acquired in open market transactions after the
Issuance Date, bona fide gifts or the transfer of any or all Shares or other
securities owned by such persons by will or intestate succession.] (1)

 

12.           Voting Rights.  The holders of the Notes shall have no voting
rights in respect of the Shares prior to conversion, except as required by law
and as expressly provided in this Note.

 

13.           Defaults and
Remedies.

 

(a)           Events
of Default.  An “Event of Default” is (i) default
in payment of any Principal of this Note, any Redemption Price or any Change of
Control Redemption Price, when and as due; (ii) default in payment of any
Interest on this Note that is not included in an amount described in the
immediately preceding clause (i) that is not cured within two (2) Business
Days from the date such Interest was due; (iii) any default in the
observance or performance of any covenant or agreement contained in clauses (c) through
(j) of Section 11; (iv) failure by the Company to comply with any
other provision of this Note or any other Transaction Document in all material
respects within ten (10) days after the earlier of (x) the Company’s
receipt of notice to comply with such provision or (y) the Company becoming
aware of such default; (v) any representation, warranty, certification or
statement of fact made or deemed made by or on behalf of the Company in this
Note, the Securities Purchase Agreement, any Transaction Document or in any
certificate or other document delivered pursuant hereto or thereto, shall be
incorrect in any material respect when made or deemed made; (vi) any
default in payment of at least $500,000, individually or in the aggregate,
under or acceleration prior to maturity, or any event or circumstances arising
such that, any Person is entitled, or could, with the giving of notice and/or lapse
of time and/or the fulfillment of any condition and/or the making of any
determination, become entitled, to require repayment before its stated maturity
of, or to take any step to enforce any security for, any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness of at least $500,000 by the Company or any of its
Subsidiaries, whether such Indebtedness now exists or shall be created
hereafter; (vii) any of the Transaction Documents or any subordination
provisions in any subordinated indebtedness shall cease, for any reason, to be
in full force and effect, or the Company or any of its Subsidiaries shall so
assert; (viii) any Lien created by any of the Transaction Documents shall
cease to be enforceable and of the same effect and priority purported to be
created thereby, or the Company or any of its Subsidiaries shall so assert
(other than in accordance with the Transaction Documents); (ix) if the
Company or any of its Subsidiaries pursuant to or within the meaning of any
Bankruptcy Law (as defined below); (A) 

 

(1)   Note
to Draft:  This provision will not be
included in the Promethean Note.

 

34

 

commences a voluntary case; (B) consents
to the entry of an order for relief against it in an involuntary case; (C) consents
to the appointment of a Custodian of it or any of its Subsidiaries for all or
substantially all of its property; (D) makes a general assignment for the
benefit of its creditors; or (E) admits in writing that it is generally
unable to pay its debts as the same become due; (x) an involuntary case or
other proceeding is commenced directly against the Company or any of its
Subsidiaries seeking liquidation, reorganization or other relief with respect
to it or its Indebtedness under any Bankruptcy Law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and such involuntary
case or other Bankruptcy Law proceeding remains undismissed and unstayed for a
period of thirty (30) days, or an order of relief is entered against the
Company or any of its Subsidiaries as debtor under the Bankruptcy Laws as are
now or hereafter in effect; or (xi) one or more judgments, non interlocutory
orders or decrees shall be entered by a U.S. state or federal or a foreign
court or administrative agency of competent jurisdiction against any the
Company or any of its Subsidiaries involving in the aggregate a liability (to
the extent not covered by independent third party insurance as to which the
insurers has not denied coverage) as to any single or related series of
transactions, incidents or conditions, of $500,000 or more, and the same shall
remain unsatisfied, unvacated, unbonded or unstayed pending appeal for a period
of thirty (30) days after the entry thereof. 
The term “Bankruptcy Law”
means Title 11, U.S. Code, or any similar federal, state or foreign law for the
relief of debtors.  The term “Custodian” means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy
Law.  Within five (5) Business Days
after the occurrence of any Event of Default set forth in clause (vi), (ix),
(x) or (xi) above, the Company shall deliver written notice thereof to the
Holder.

 

(b)           Remedies.  If any Event of Default has occurred and is
continuing, the holders of a majority of the principal amount of Notes then
outstanding may, upon written notice to the Company, except in the case of
events described in Sections 13(a)(ix) or 13(a)(x), in which case no
notice shall be required, (i) declare all of the Principal then
outstanding together with the Interest Amount with respect to such Principal
and all other amounts, including the amounts due under Sections 4(c)(v)(A) and
5(b), owing or payable hereunder and under the Other Notes (the “Acceleration Amount”) immediately
due and payable, in cash, all without presentment, demand, protest or further
act or notice of any kind, all of which are expressly waived by the Company and
(ii) exercise any and all rights and remedies available to the holder of
this Note under this Note, the Securities Purchase Agreement, at law or in
equity.  In addition to any remedy the
Holder may have under this Note and the Securities Purchase Agreement, such
Acceleration Amount shall bear interest at a rate equal to the lesser of 2.0%
per month (prorated for partial months) or the highest lawful interest rate
until paid in full.  Nothing in this Section 12
shall limit any other rights the Holder may have under this Note, the Security
Documents or the Securities Purchase Agreement, including Sections 3 and 4 of
this Note.

 

(c)           Void
Acceleration.  In the event that the
Company does not pay the Acceleration Amount within five (5) Business Days
of this Note becoming due under Section 13(b), at any time thereafter and
until the Company pays such unpaid Acceleration Amount in full, the Holder
shall have the option to, in lieu of redemption, require the Company to promptly
return this Note (to the extent this Note has been previously delivered to the
Company), in whole or any portion thereof, to the Holder, by sending written
notice thereof to the Company via facsimile (the “Void Acceleration Notice”). 
Upon the Company’s receipt of 

 

35

 

such Void Acceleration Notice, (i) the
acceleration pursuant to Section 13(b) shall be null and void with
respect to the portion of this Note subject to such Void Acceleration Notice, (ii) the
Company shall promptly return the portion of this Note (to the extent this Note
has been previously delivered to the Company) subject to such Void Acceleration
Notice and (iii) the Fixed Conversion Price with respect to all of the
Principal shall be adjusted to the lesser of (A) the Fixed Conversion
Price as in effect on the date on which the Void Acceleration Notice is
delivered to the Company and (B) the lowest Weighted Average Price of the
Common Stock during the period beginning on and including the date on which
this Note became due under Section 13(b) and ending on and including
the date on which the Void Acceleration Notice is delivered to the Company.

 

14.           Notice of Certain
Events.  The Company will give
written notice to the Holder at least ten (10) Business Days prior to the
date on which the Company closes its books or takes a record (i) with
respect to any dividend or distribution upon the Common Stock, (ii) with
respect to any pro rata subscription offer to holders of Common Stock or (iii) for
determining rights to vote with respect to any Organic Change, dissolution or
liquidation, provided that such information shall be made known to the
public prior to or in conjunction with such notice being provided to the
Holder.  The Company will also give
written notice to the Holder at least ten (10) Business Days prior to the
date on which any Organic Change, dissolution or liquidation will take place, provided
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.

 

15.           Vote to Change the
Terms of the Notes.  The written
consent of the Company and the holders representing at least a majority of the
principal amount then Outstanding under all of the Notes shall be required for
any change in the Notes (including this Note) and upon receipt of such consent,
each Note shall be deemed amended thereby.

 

16.           Lost or Stolen Notes.  Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note and, in the case of loss, theft or destruction, of an
indemnification undertaking by the Holder to the Company in customary form and
reasonably satisfactory to the Company and, in the case of mutilation, upon
surrender and cancellation of this Note, the Company shall execute and deliver
a new Note of like tenor and date; provided, however, the Company
shall not be obligated to re-issue a Note if the Holder contemporaneously
requests the Company to convert this Note in its entirety into Shares as
permitted hereunder.

 

17.           Remedies,
Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note, at
law or in equity (including a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit the Holder’s right to pursue actual damages for any failure by the
Company to comply with the terms of this Note. 
The Company covenants to the Holder that there shall be no
characterization concerning this instrument other than as expressly provided
herein.  Amounts set forth or provided
for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder thereof
and shall not, 

 

36

 

except as expressly provided herein,
be subject to any other obligation of the Company (or the performance
thereof).  The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the
Holder and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, the Holder shall be entitled, in
addition to all other available remedies, to an injunction restraining any breach,
without the necessity of showing economic loss and without any bond or other
security being required.

 

18.           Specific Shall Not
Limit General; Construction.  No
specific provision contained in this Note shall limit or modify any more
general provision contained herein.  This
Note shall be deemed to be jointly drafted by the Company and all buyers of
Notes pursuant to the Securities Purchase Agreement and shall not be construed
against any Person as the drafter hereof.

 

19.           Failure or
Indulgence Not Waiver.  No failure or
delay on the part of the Holder in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.

 

20.           Notice.  Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this Note
must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such
communications shall be:

 

If to the Company:

 

MediCor Ltd.

4560 South Decatur Blvd., Suite 300

Las Vegas, Nevada 89103-5253

Facsimile: (702) 932-4561

Attention: General Counsel/Secretary

 

With copy to:

 

Clifford Chance US LLP

31 West 52nd Street

New York, New York 10019

Facsimile: (212) 878-8000

Attention: Alejandro E. Camacho

 

If to a Holder, to it at the address and facsimile number set forth on
the Schedule of Purchasers attached to the Securities Purchase
Agreement, with copies to such Holder’s representatives as set forth on such
schedule, or, in the case of a Holder or any other party named above, at such
other address and/or facsimile number and/or to the attention of such other
Person as the 

 

37

 

recipient party has specified by written notice given to each other
party in accordance with this Section 20 five (5) days prior to
the effectiveness of such change. 
Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or deposit with a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.

 

21.           Transfer of this
Note.  The Holder may assign or
transfer some or all of its rights hereunder, subject to compliance with the
1933 Act and the provisions of Section 2 of the Securities Purchase
Agreement without the consent of the Company.

 

22.           Payment of
Collection, Enforcement and Other Costs. 
If (a) this Note is placed in the hands of an attorney for
collection or enforcement or is collected or enforced through any legal
proceeding; or (b) an attorney is retained to represent the Holder in any
bankruptcy, reorganization, receivership of the Company or other proceedings
affecting Company creditors’ rights and involving a claim under this Note, then
the Company shall pay the costs incurred by the Holder for such collection,
enforcement or action, including reasonable attorneys’ fees and disbursements.

 

23.           Cancellation.  After all Principal and other amounts at any
time owed under this Note have been paid in full or converted into Shares in
accordance with the terms hereof, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued.

 

24.           Note Exchangeable
for Different Denominations.  Subject
to Section 4(c)(viii), in the event of a conversion or redemption pursuant
to this Note of less than all of the Principal, the Company shall promptly
cause to be issued and delivered to the Holder, upon tender by the Holder of
this Note, a new Note of like tenor representing the remaining Principal that
has not been so converted or redeemed. 
This Note is exchangeable, upon the surrender hereof by the Holder at
the principal office of the Company, for a new Note or Notes containing the
same terms and conditions and representing in the aggregate the Principal, and
each such new Note will represent such portion of such Principal as is
designated by the Holder at the time of such surrender.  The date the Company issued this Note shall
be the Issuance Date hereof regardless of the number of times a new Note shall
be issued.

 

25.           Taxes.

 

(a)           Payments
Free of Taxes.  Any and all payments
by or on account of any obligation of the Company or any of its Subsidiaries
under the Notes, the Securities Purchase Agreement or any other Transaction
Document shall be made without any set-off, counterclaim or deduction and free
and clear of and without deduction for any Indemnified Taxes; provided that if
the Company or any of its Subsidiaries shall be required to deduct any Indemnified
Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 25(a)), the
Holder receives an amount equal to the sum it would have 

 

38

 

received had no such deductions
been made, (ii) the Company or such Subsidiary, as applicable, shall make
such deductions and (iii) the Company or such Subsidiary shall pay the full
amount deducted to the relevant Governmental Authority in accordance with
applicable law; provided, further, that if the Company or any of its
Subsidiaries is required to make an additional payment to the Holder under this
Section 25(a), and if the Holder is entitled to a cash refund or credit
against cash Taxes payable which is both identifiable and quantifiable by the
Holder as being attributable to the imposition of such Indemnified Taxes (a “Tax Refund”), and such Tax Refund
may be obtained without increased liability or obligation to the Holder
(including any obligation of the Holder to file Tax returns in jurisdictions
where it would not otherwise be obligated to file Tax returns), then, upon the
written request of the Company, the Holder shall apply for such Tax Refund and,
to the extent such Tax Refund is received by the Holder, shall reimburse the
Company or such Subsidiary for such amount as the Holder shall determine to be
the proportion of the Tax Refund attributable to such additional payment as
will leave the Holder after the reimbursement in the same position as it would
have been if the additional payment had not been required; provided
that, if any Tax Refund reimbursed by the Holder to the Company or such
Subsidiary is subsequently disallowed, the Company shall repay the Holder such
amount (together with interest and any applicable penalty payable to the Holder
to the relevant taxing authority) promptly after the Holder notifies the
Company of such disallowance.  The
Company agrees to reimburse the Holder for the Holder’s reasonable
out-of-pocket expenses, if any, incurred in complying with any request
hereunder and agrees that all costs incurred by the Holder in respect of this Section 25(a) may
be deducted from the amount of any reimbursement to the Company or any of its
Subsidiaries in respect of any Tax Refund pursuant to this Section 25(a).  Nothing in this Section 25(a) shall
require the Holder to disclose to the Company any of its Tax returns or any
other Tax-related information that it deems to be confidential.

 

(b)           Indemnification
by the Company.  The Company shall
indemnify the Holder, within thirty (30) days after written demand therefor,
for the full amount of any Indemnified Taxes paid by the Holder, on or with
respect to any payment by or on account of any obligation of the Company or any
of its Subsidiaries under the Notes, the Securities Purchase Agreement and the
other Transaction Documents (including Indemnified Taxes imposed or asserted on
or attributable to amounts payable under this Section 25) arising
therefrom or with respect thereto, whether or not such Indemnified Taxes were
correctly or legally imposed or asserted by the relevant Governmental
Authority.  A certificate of the Holder
as to the amount of such payment or liability under this Section 25 shall
be delivered to the Company and shall be conclusive absent demonstrable error.

 

26.           Waiver of Notice.  To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement
of this Note, the Security Documents and the Securities Purchase Agreement and
the other Transaction Documents.

 

27.           Governing Law;
Jurisdiction.  This Note shall be
construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Note shall be
governed by, the internal laws of the State of New York, including Section 5-1401
of the New York General Obligations Law. 
Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the City 

 

39

 

of New York, borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper.  Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law.

 

28.           WAIVER OF JURY TRIAL.  THE COMPANY, ON BEHALF OF ITSELF AND ITS
SUBSIDIARIES, AND THE HOLDER OF THIS NOTE HEREBY IRREVOCABLY WAIVE ANY RIGHTS
THEY MAY HAVE TO, AND AGREE NOT TO REQUEST, A TRIAL BY JURY IN RESPECT OF
ANY ACTION BASED UPON, OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION
CONTEMPLATED HEREBY.

 

29.           Effect of Redemption
or Conversion; No Prepayment.  Upon
payment of the Redemption Price or the Change of Control Redemption Price, each
in accordance with the terms hereof with respect to any portion of the
Principal of this Note, or delivery of Shares upon conversion of any portion of
the Principal in accordance with the terms hereof, such portion of the
Principal of this Note shall be deemed paid in full and shall no longer be
deemed Outstanding for any purpose. 
Except as specifically set forth in this Note, including Section 4,
the Company does not have any right, option, or obligation, to pay any portion
of the Principal at any time prior to the Maturity Date.

 

30.           Purchase of Notes by
the Company.  The Company shall not,
and shall not permit any Subsidiary or Affiliate to,  voluntarily purchase or acquire any portion
of any Note, unless concurrently with such action, the Company, such Subsidiary
or Affiliate makes an offer to all Holders to acquire the same portion of their
Notes on the same terms.  So long as
there is at least $25,000,000 in Principal, this Section 30 may not be
amended except with the written consent of the holders of two-thirds (2/3) of
the aggregate principal amount of all the Notes then Outstanding.

 

31.           Other Payments to
Holders of Notes.  The Company will
not directly or indirectly pay or cause to be paid any remuneration, whether by
way of supplemental or additional interest, fee or otherwise, or grant any
security, to any holder of Notes or the Subordinated Sirius Note as
consideration for or as an inducement to the entering into by any holder of
Notes or the Subordinated Sirius Note or any waiver or amendment of any of the
terms and provisions hereof or thereof unless such remuneration is concurrently
paid, or security is concurrently granted, on the same terms, ratably to each
holder of Notes then outstanding that consented to such waiver or amendment.

 

32.           Payment Set Aside.  To the extent that the Company makes a
payment or payments to the Holder hereunder or the Holder enforces or exercises
its rights hereunder, and 

 

40

 

such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, by a trustee, receiver or any other person under any law
(including any bankruptcy law, U.S. state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.

 

33.           Interpretative
Matters.  Unless the context
otherwise requires, (a) all references to Sections, Schedules or Exhibits
are to sections, schedules or exhibits contained in or attached to this Note, (b) each
accounting term not otherwise defined in this Note has the meaning assigned to
it in accordance with GAAP, (c) words in the singular or plural include
the singular and plural and pronouns stated in either the masculine, the
feminine or neuter gender shall include the masculine, feminine and neuter and (d) the
use of the word “including” in this Note shall be by way of example
rather than limitation.  If a stock
split, stock dividend, stock combination or other similar event occurs during
any period over which an average price is being determined, then an appropriate
adjustment will be made to such average to reflect such event.

 

*
* * * * *

 

41

 

IN
WITNESS WHEREOF, the Company has caused this Note to be
executed on its behalf by the undersigned as of the     
day of April 2006.

 

 

	
   

  	
  MEDICOR LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

EXHIBIT I

 

MEDICOR LTD.
CONVERSION NOTICE

 

Reference is made to the
Convertible Note (the “Note”) of MEDICOR
LTD., a Delaware corporation (the “Company”), in the original
principal amount of $          .  In accordance with and pursuant to the Note,
the undersigned hereby elects to convert the Conversion Amount (as defined in
the Note) of the Note indicated below into shares of Common Stock, par value
$0.001 per share (the “Common Stock”), of the Company, as of the date
specified below.  Capitalized terms used
herein and not otherwise defined shall have the respective meanings set forth
in the Note.

 

Date
of Conversion:

 

Aggregate
Conversion Amount to be converted at the Fixed Conversion Price (as defined in
the Note):      

 

Principal,
applicable thereto, to be converted:

 

Aggregate
Conversion Amount to be converted pursuant to a Company Conversion (as defined
in the Note):

 

Principal,
applicable thereto, to be converted:

 

Aggregate
Interest Conversion Amount to be converted pursuant to a Company Conversion:

 

Please confirm the following information:

 

Conversion
Price: 

 

Number
of shares of Common Stock to be issued:

 

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

 

	
  Issue to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Facsimile Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Authorization:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  
												

 

i

 

DTC
Participant Number and Name (if electronic book entry transfer):

 

Account
Number (if electronic book entry transfer):

 

ii

 

ACKNOWLEDGMENT

 

The Company hereby
acknowledges this Conversion Notice and hereby directs [Transfer Agent] to
issue the above indicated number of shares of Common Stock in accordance with
the Transfer Agent Instructions dated                
      , 200   from the Company and
acknowledged and agreed to by U.S. Stock Transfer Corp.

 

 

	
   

  	
  MEDICOR LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

iiiExhibit
10.3

 

EXECUTION
COPY

 

REGISTRATION
RIGHTS AGREEMENT

 

THIS REGISTRATION
RIGHTS AGREEMENT (this “Agreement”), dated as of April 26, 2006, by and among MediCor
Ltd., a Delaware corporation, with headquarters located at 4560 S. Decatur
Blvd., Suite 300, Las Vegas, Nevada 89103 (the “Company”), and the undersigned Purchasers (each, a “Purchaser” and collectively, the “Purchasers”).

 

RECITALS

 

WHEREAS, in
connection with the Securities Purchase Agreement, dated April 26, 2006,
by and among the parties hereto (the “Securities Purchase Agreement”), the Company has agreed, upon
the terms and subject to the conditions of the Securities Purchase Agreement,
to issue and sell at the Closing (as defined in the Securities Purchase
Agreement) to the Purchasers (i) senior secured convertible notes of the
Company in an aggregate principal amount of $50,000,000 (including accrued and
unpaid interest thereon and as any of the same may be amended, restated or
modified and in effect from time to time, the “Notes”), which will be convertible into shares of the Company’s
common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms of the Notes (the
shares of Common Stock issuable upon conversion of the Notes being referred to
herein as the “Conversion Shares”),
and (ii) warrants to acquire shares of Common Stock, equal to the quotient
of (a) 25% of the original aggregate principal amount of the Notes
purchased by the Purchasers at the Closing, divided by (b) the Warrant
Exercise Price as of the Closing Date (such warrants, together with any
warrants or other securities issued in exchange or substitution therefor or
replacement thereof, and as any of the same may be amended and restated or
modified and in effect from time to time, the “Warrants”; the shares of Common Stock issuable upon exercise
of the Warrants being referred to as the “Warrant Shares”); and

 

WHEREAS, in order to
induce the Purchasers to purchase the Notes and the Warrants pursuant to the
Securities Purchase Agreement, the Company has agreed to grant certain
registration rights with respect to the Registrable Securities (as hereinafter
defined) as set forth in this Agreement).

 

NOW,
THEREFORE, in consideration of the premises and the mutual
covenants set forth herein and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:

 

Section 1.               Definitions. Capitalized terms used herein
without definition shall have their respective meanings set forth in the Securities
Purchase Agreement.  As used in this
Agreement, the following terms shall have the following meanings:

 

“1933 Act” means
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute.

 

“1934 Act” means
the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, or any similar successor statute.

 

 

“Effectiveness Deadline” means (a) the
Initial Effectiveness Deadline or (y) an Additional Effectiveness Deadline or
(z) a Post Effective Period Deadline (each as defined below), as applicable.

 

“Filing Deadline” means the Initial
Filing Deadline or an Additional Filing Deadline (each as defined below), as
applicable.

 

“Investor”
means a Purchaser, any transferee or assignee thereof to whom a Purchaser
assigns its rights under this Agreement and who agrees to become bound by the
provisions of this Agreement in accordance with Section 10 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 10.

 

“Person” means any individual,
firm, limited liability company, partnership, joint venture, corporation,
trust, unincorporated organization, government (or any department, agency or
political subdivision thereof), or other entity of any kind, including any
successor of such entity.

 

“Register,”
“registered,” and “registration” refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering securities
on a continuous or delayed basis (“Rule 415”),
and the declaration or ordering of effectiveness of such Registration
Statement(s) by the United States Securities and Exchange Commission (the “SEC”).

 

“Registrable Securities” means (i) the
Conversion Shares issued or issuable upon conversion of the Notes (including
any principal thereof or interest thereon), (ii) the Warrant Shares issued
or issuable upon exercise of the 
Warrants and (iii) any shares of capital stock issued or issuable
with respect to the Conversion Shares, the Notes, the Warrant Shares and
the  Warrants as a result of any stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise, without regard to
any limitations on conversions of Notes or exercises of Warrants; provided,
however, that any such Registrable Securities shall cease to be Registrable
Securities when (a) a Registration Statement with respect to the sale of
such securities becomes effective under the 1933 Act and such securities are
disposed of in accordance with such Registration Statement, (b) such
securities are sold in accordance with Rule 144 (as defined in Section 9),
(c) such securities become transferable without any restrictions in
accordance with Rule 144(k) (or any successor provision) or (d) such
securities have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfers have been delivered by the
Company and subsequent public distribution of such securities shall not require
registration or qualification under the 1933 Act.

 

“Registration Statement” means a
registration statement or registration statements of the Company filed under
the 1933 Act covering the Registrable Securities.

 

“Trading Day” means any day on
which the Common Stock is traded on the principal securities exchange or
securities market on which the Common Stock is then traded;

 

2

 

provided that “Trading Day” shall not include
any day on which the Common Stock is scheduled to trade, or actually trades, on
such exchange or market for less than 4.5 hours.

 

Section 2.               Registration.

 

(a)           Initial Mandatory Registration.  The Company shall prepare, as soon as
practicable but in no event later than ten (10) days after the Closing
Date (the “Initial Filing Deadline”),
file with the SEC a Registration Statement on Form S-3, covering the
resale of all of the Registrable Securities. 
In the event that Form S-3 is unavailable for such a registration,
the Company shall use such other form as is available for such a registration,
subject to the provisions of Section 2(e). 
The Registration Statement prepared pursuant hereto shall register for
resale at least that number of shares of Common Stock equal to the sum of
(x) 150% of the number of Warrant Shares issuable upon exercise of all the
outstanding Warrants as of the second Trading Day immediately preceding the
date the Registration Statement is initially filed with the SEC and (y) 200%
of $50,000,000 divided by the then applicable Fixed Conversion Price (as
defined in the Notes).  The Company shall
use its best efforts to have the Registration Statement declared effective by
the SEC as soon as practicable, but in no event later than the date which is two
hundred and seventy days (270) days after the original date of issuance of the
Notes (the “Initial Effectiveness
Deadline”).

 

(b)           Allocation of Registrable
Securities.  The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of such Registrable Securities
held by each Investor at the time the Registration Statement covering such
initial number of Registrable Securities or increase thereof is declared
effective by the SEC.  In the event that
an Investor sells or otherwise transfers any of such Investor’s Registrable
Securities, each transferee shall be allocated a pro rata portion of the then
remaining number of Registrable Securities included in such Registration
Statement for such transferor.  Any
shares of Common Stock included in a Registration Statement and which remain
allocated to any Person which ceases to hold any Registrable Securities covered
by such Registration Statement shall be allocated to the remaining Investors,
pro rata based on the number of Registrable Securities then held by such
Investors which are covered by such Registration Statement.  For purposes hereof, the number of
Registrable Securities held by an Investor includes all Registrable Securities
issuable upon the conversion of Notes and the exercise of Warrants held by such
Investor, without regard to any limitations on conversion of the Notes or
exercise of the Warrants.

 

(c)           Legal Counsel.  Subject to Section 6 hereof, the Purchasers
holding securities representing a majority of the Registrable Securities shall
have the right to select one legal counsel to review any offering pursuant to
this Section 2 (“Legal Counsel”),
which shall be Paul, Weiss, Rifkind, Wharton & Garrison, LLP or such
other counsel as thereafter designated by the holders of securities
representing at least a majority of the Registrable Securities.  The Company shall reasonably cooperate with
Legal Counsel in performing the Company’s obligations under this Agreement.

 

(d)           Ineligibility for Form S-3.  In the event that Form S-3 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall

 

3

 

undertake to register the Registrable Securities on Form S-3 as
soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has
been declared effective by the SEC.

 

(e)           Sufficient Number of Shares
Registered.  In the event the number
of shares available under the Registration Statement filed pursuant to Section 2(a) is
insufficient to cover all of the Registrable Securities required to be covered
by the Registration Statement or an Investor’s allocated portion of such Registrable
Securities pursuant to Section 2(b), the Company shall, as soon as
practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises (the “Additional
Filing Deadline”), amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable),
or both, so as to register for resale at least that number of shares of Common
Stock is equal to the sum of (x) 150% of the number of Warrant Shares
issuable upon exercise of all the outstanding Warrants as of the Trading Day
immediately preceding the date of the filing of such amendment or new
Registration Statement with the SEC and (y) 200% of  the principal amount of the Notes then
outstanding divided by the then applicable Fixed Conversion Price.  The Company shall use its best efforts to
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof, but in any event not later
than sixty (60) days following the filing thereof (the “Additional Effectiveness Deadline”).  For purposes of the foregoing provision, the
number of shares available under the Registration Statement shall be deemed “insufficient
to cover all of the Registrable Securities” if as of any date of determination
the number of shares of Common Stock is equal to the sum of (x) 100% of
the number of Warrant Shares issuable as of such time upon exercise of all the
outstanding Warrants and (y) 125% of the principal amount of the Notes
then outstanding divided by the then applicable Fixed Conversion Price. The
calculations set forth in this paragraph shall be made without regard to any
limitations on the conversion of the Notes or exercise of the Warrants, and
such calculations shall assume that the Notes and the Warrants are then
convertible and exercisable, respectively, into shares of Common Stock at the
then prevailing Conversion Rate and Warrant Exercise Price (as defined in the Warrants),
respectively.

 

(f)            Effect
of Failure to File and Obtain and Maintain Effectiveness of Registration
Statement.  If (i) a Registration
Statement covering Registrable Securities and required to be filed by the
Company pursuant to Section 2(a) or Section 2(e) of this Agreement is not (A)
filed with the SEC on or before the applicable Filing Deadline or (B) declared
effective by the SEC on or before the applicable Effectiveness Deadline, (ii)
the Company fails to timely perform its obligations set forth in clauses (a)
through (g) of Section 3 of this Agreement or (iii) on any day after a
Registration Statement has been declared effective by the SEC sales of all the
Registrable Securities required to be included on such Registration Statement
cannot be made (other than during the period (the “Post Effective Period”)
beginning on the first day on which a post-effective amendment is required to
be filed by the Company pursuant to the undertakings referred to in Rule 415 of
the 1933 Act and ending on the earlier of (x) the thirtieth (30)th
day after such date and (y) the date on which such post-effective amendment is
declared effective by the SEC (a “Post Effective Period Deadline”) or an
Allowable Grace Period (as defined below)) pursuant to such Registration
Statement (including because of a failure to keep such Registration Statement
effective, to disclose such information as is necessary for sales to be made
pursuant to

 

4

 

such Registration Statement or to register sufficient shares of Common
Stock, as determined in accordance with Section 2(e)) (any such failure or
breach being referred to as an “Event”,
and the date on which such Event occurs being referred to as the “Event Date”)
then, in addition to any other rights the holders of Notes or Warrants
may have hereunder or under applicable law, on each monthly anniversary of each
such Event Date beginning with the first monthly anniversary of the applicable
Event Date (if the applicable Event shall not have been cured by such date and
if it has been cured, a pro rata amount of the amount that would otherwise be
payable pursuant to this section 2(f) for the period from the Event
Date or the last monthly anniversary of such Event Date to the date such Event
Date has been cured) until the applicable Event is cured (each a “Liquidated
Damages Payment Date”), the Company shall pay to each holder of Notes or
Warrants an amount in cash, as partial liquidated damages and not as a penalty,
with respect to each Liquidated Damages Payment Date, equal to the product of (i) 1.5%
multiplied by the sum of (A) the principal amount of the Notes held by
such holder and (B) the total Aggregate Exercise Price (as defined in the
Warrants) of all Warrants held by such holder, multiplied by (ii) a
fraction, the numerator of which shall be the number of total calendar days
which have passed since the immediately preceding Liquidated Damages Payment
Date and the denominator of which shall be 30 calendar days.  If the Company fails to pay any partial
liquidated damages pursuant to this Section 2(f) in full in a timely
manner, such payments shall bear interest at the rate of 1.00% per month
(prorated for partial months) until paid in full.

 

Section 3.               Related Obligations.  At such time as the Company is obligated to
file a Registration Statement with the SEC pursuant to Section 2(a) or 2(e), the Company will use its best efforts to effect the registration
of the Registrable Securities in accordance with the intended method of
disposition thereof and, pursuant thereto, the Company shall have the following
obligations:

 

(a)           The Company shall promptly prepare
and file with the SEC a Registration Statement with respect to the applicable
Registrable Securities (but in no event later than the applicable Filing
Deadline) and use its best efforts to cause such Registration Statement
relating to the Registrable Securities to become effective as soon as
practicable after such filing (but in no event later than the applicable
Effectiveness Deadline).  No later than
the first Business Day after such Registration Statement becomes effective, the
Company will file with the SEC the final prospectus included therein pursuant
to Rule 424 (or successor thereto) promulgated under the 1933 Act.  Other than during any Post-Effective Period, the
Company shall keep each Registration Statement effective pursuant to Rule 415
at all times until the earlier of (i) the date as of which the Investors
may sell all of the Registrable Securities covered by such Registration
Statement without restriction pursuant to Rule 144(k) (or successor
thereto) promulgated under the 1933 Act or (ii) the date on which the
Investors shall have sold all the Registrable Securities covered by such Registration
Statement (the “Registration Period”).  Such Registration Statement (including any
amendments or supplements thereto and any prospectuses (preliminary, final,
summary or free writing) contained therein or related thereto shall not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.  The term “best efforts” shall mean, among other
things, that the Company (i) shall file a pre-effective amendment and
otherwise respond in writing to comments made by the SEC in respect of a
particular Registration Statement within five (5) Business Days

 

5

 

after the receipt of comments by or notice from the SEC that such
amendment is required in order for such Registration Statement to be declared
effective and (ii) shall submit to the SEC, within two (2) Business
Days after the Company learns that no review of a particular Registration
Statement will be made by the staff of the SEC or that the staff has no further
comments on the Registration Statement, as the case may be, a request for
acceleration of effectiveness of such Registration Statement to a time and date
not later than 48 hours after the submission of such request.

 

(b)           The Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with such Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during such
Registration Period, comply with the provisions of the 1933 Act with respect to
the disposition of all Registrable Securities of the Company covered by such
Registration Statement.

 

(c)           The Company shall (A) permit
Legal Counsel to review and comment upon (i) the Registration Statement at
least three (3) Business Days prior to its filing with the SEC, and (ii) all
amendments and supplements to all Registration Statements (except for Annual
Reports on Form 10-KSB or Form 10-K, Quarterly Reports on Form 10-QSB
or Form 10-Q and Current Reports on Form 8-K and any similar or
successor reports) within a reasonable number of days prior to their filing
with the SEC, and (B) not file any document, registration statement,
amendment or supplement described in the foregoing clause (A) in a
form to which Legal Counsel reasonably objects within a reasonable time prior
to filing.  The Company shall not submit
a request for acceleration of the effectiveness of a Registration Statement or
any amendment or supplement thereto without providing prior notice thereof to
Legal Counsel and each Investor.  The
Company shall furnish to Legal Counsel, without charge, (i) promptly after
the same is prepared and filed with the SEC, one copy of any Registration
Statement (which may be an electronic copy) and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated
therein by reference and all exhibits that have not been filed via  the SEC’s Electronic  Data Gathering Analysis and Retrieval system
(“EDGAR”) and (ii) upon the effectiveness of any Registration
Statement, one copy of the prospectus included in such Registration Statement
and all amendments and supplements thereto. 
The Company shall reasonably cooperate with Legal Counsel in performing
the Company’s obligations pursuant to this Section 3.

 

(d)           The Company shall furnish to each
Investor whose Registrable Securities are included in any Registration
Statement, without charge, (i) promptly after the same is prepared and
filed with the SEC, at least one copy of such Registration Statement and any
amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference that have not been filed via EDGAR,
all exhibits and each preliminary prospectus, (ii) upon the effectiveness
of any Registration Statement, at least one copy of the prospectus included in
such Registration Statement and all amendments and supplements thereto and (iii) such
other documents, including copies of any prospectus (preliminary, final,
summary or free writing), as such Investor may reasonably request from time to
time in order to facilitate the disposition of the Registrable Securities owned
by such Investor.

 

6

 

(e)           The Company shall use its best
efforts to (i) register and qualify, unless an exemption from registration
and qualification applies, the resale by the Investors of the Registrable
Securities covered by a Registration Statement under the securities or “blue
sky” laws of all applicable states of the United States, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all other actions reasonably necessary or advisable
to qualify the Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to (x) qualify to do business in any jurisdiction where
it would not otherwise be required to qualify but for this Section 3(e) or
(y) subject itself to service of process in suits (other than those
arising out of the offer and sale of the Registrable Securities) general
taxation in any such jurisdiction.  The
Company shall promptly notify Legal Counsel and each Investor who holds
Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or “blue sky” laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.

 

(f)            The Company shall notify Legal
Counsel and each Investor in writing of the happening of any event, as promptly
as practicable, and in any event within forty-eight hours, after becoming aware
of such event, as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omission to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading (provided that in no event shall such notice contain
any material, nonpublic information), and promptly prepare and file with the
SEC a supplement or amendment to such Registration Statement to correct such
untrue statement or omission, and deliver at least one copy of such supplement
or amendment to Legal Counsel and each Investor.  The Company shall also promptly notify Legal
Counsel and each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and
each Investor by facsimile on the same day of such effectiveness and by
overnight mail), (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or related
information, and (iii) of the Company’s reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.

 

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

 

(h)           At the reasonable request (in the
context of the securities laws) of any Investor, the Company shall furnish to
such Investor, on the date of the effectiveness of the

 

7

 

Registration Statement and thereafter from time to time on such dates
as an Investor may reasonably request (i) a letter, dated such date, from
the Company’s independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the Investors,
and (ii) an opinion, dated as of such date, of counsel representing the
Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering, addressed
to the Investors.

 

(i)            At the reasonable request (in the
context of the securities laws) of any Investor, the Company shall make
available for inspection during regular business hours by (i) any
Investor, (ii) Legal Counsel and (iii) one firm of accountants or
other agents retained by the Investors (collectively, the “Inspectors”), all pertinent
financial and other records, and pertinent corporate documents and properties
of the Company (collectively, the “Records”),
as shall be reasonably deemed necessary by each Inspector, and cause the
Company’s officers, directors and employees to supply all information which any
Inspector may reasonably request; provided, however, that each Inspector shall
agree to hold in strict confidence and shall not make any disclosure (except to
an Investor) or use of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of
such Records is ordered pursuant to a final, non-appealable subpoena or order
from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector has knowledge.  Each
Investor agrees that it shall, upon learning that disclosure of such Records is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.  Each Inspector which exercises its rights
under this Section 3(i) shall be obligated to execute a
non-disclosure agreement containing such reasonable terms as the Company may
request.  The fees and expenses of the
Inspectors shall be borne by the applicable Investor.

 

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

 

(k)           The Company shall use its best
efforts to (i) remain eligible for quotation of its securities on the NASDAQ
Stock Market, Inc. (“NASDAQ”) OTC Bulletin

 

8

 

Board and to cause all of the Registrable Securities covered by a
Registration Statement to be quoted thereon, so long as such Registrable
Securities are not listed on a registered national securities exchange, or
quoted on NASDAQ, (ii) cause all the Registrable Securities covered by a
Registration Statement to be listed on each securities exchange or trading
market on which securities of the same class or series issued by the Company
are listed, and (iii) without limiting the generality of the foregoing,
arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. (“NASD”) as such with respect to such Registrable
Securities.  The Company shall pay all
fees and expenses in connection with satisfying its obligation under this Section 3(k).

 

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

 

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

 

(n)           If requested by an Investor, the
Company shall (i) as soon as reasonably practicable incorporate in a
prospectus supplement or post-effective amendment such information as an
Investor requests to be included therein relating to the sale and distribution
of Registrable Securities, including information with respect to the number of
Registrable Securities being offered or sold, the purchase price being paid
therefor and any other terms of the offering of the Registrable Securities to
be sold in such offering; (ii) as soon as reasonably practicable make all
required filings of such prospectus supplement or post-effective amendment
after being notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment; and (iii) as soon as practicable,
supplement or make amendments to any Registration Statement if reasonably
requested by an Investor of such Registrable Securities.

 

(o)           [Intentionally Omitted.]

 

(p)           The Company shall make generally
available to its security holders as soon as practical, but not later than
ninety (90) days after the close of the period covered thereby, an earnings
statement (in form complying with the provisions of Rule 158 under the
1933 Act) covering a twelve (12)-month period beginning not later than the
first day of the Company’s fiscal quarter next following the effective date of
a Registration Statement.

 

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

 

(r)            Within two (2) Business Days
after a Registration Statement which covers applicable Registrable Securities
is ordered effective by the SEC, the Company shall deliver, and shall cause
legal counsel for the Company to deliver, to the transfer agent for such
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in

 

9

 

such Registration Statement) confirmation that such Registration
Statement has been declared effective by the SEC in substantially the form
attached hereto as Exhibit A, provided that if the Company changes
its transfer agent, it shall immediately deliver any previously delivered
notices under this Section 3(r) and any subsequent notices to such new
transfer agent.

 

(s)           If required, the Company shall make
such filings with the NASD (including providing all required information and
paying required fees thereto) as and when reasonably requested by any Investors
and make all other filings and reasonably promptly take all other actions
reasonably necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement, including
responding to any comments received from the NASD.

 

(t)            Notwithstanding anything to the
contrary in Section 3(f), at any time after the applicable Registration
Statement has been declared effective by the SEC, the Company may delay the
disclosure of material non-public information concerning the Company the
disclosure of which at the time is not, in the good faith opinion of the Board
of Directors of the Company and its counsel, in the best interest of the
Company and, in the opinion of counsel to the Company, otherwise required (a “Grace Period”); provided, that the
Company shall promptly (i) notify the Investors in writing of the existence
of material non-public information giving rise to a Grace Period (provided that
in each notice the Company shall not disclose the content of such material
non-public information to the Investors) and the date on which the Grace Period
will begin, and (ii) notify the Investors in writing of the date on which
the Grace Period ends; and, provided further, that (A) no Grace Period
shall exceed fifteen (15) consecutive days, (B) during any 365-day period
such Grace Periods shall not exceed an aggregate of thirty (30) days and (C) the
first day of any Grace Period must be at least five (5) Trading Days after
the last day of any prior Grace Period (a Grace Period that satisfies all of
the requirements of this Section 3(t) being referred to as an “Allowable Grace Period”).  For purposes of determining the length of a
Grace Period above, the Grace Period shall begin on and include the date the
holders receive the notice referred to in clause (i) and shall end on and
include the later of the date the holders receive the notice referred to in
clause (ii) and the date referred to in such notice.  The provisions of Section 3(f) hereof
shall not be applicable during the period of any Allowable Grace Period.  Upon expiration of the Grace Period, the
Company shall again be bound by the provisions of Section 3(f) with
respect to the information giving rise thereto unless such material non-public
information is no longer applicable.

 

Section 4.               Obligations of the Investors.

 

(a)           At least seven (7) Business Days
prior to the first anticipated filing date of a Registration Statement and at
least five (5) Business Days prior to the filing of any amendment or
supplement to a Registration Statement, the Company shall notify each Investor
in writing of the information, if any, the Company requires from each such
Investor if such Investor elects to have any of such Investor’s Registrable
Securities included in such Registration Statement or, with respect to an
amendment or a supplement, if such Investor’s Registrable Securities are included
in such Registration Statement (each an “Information Request”). Provided that the Company shall have
complied with its obligations set forth in the preceding sentence, it shall be
a condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular

 

10

 

Investor that such Investor shall promptly furnish to the Company,
within a reasonable time period prior to filing, in response to an Information
Request, such information regarding itself, the Registrable Securities held by
it and the intended method of disposition of the Registrable Securities held by
it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.  Any Investor that sells Registrable
Securities pursuant to a Registration Statement shall be required to be named
as a selling stockholder in the related prospectus and, if required, to deliver
or cause to be delivered a prospectus to purchasers.

 

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

 

(c)           Each Investor agrees that, upon
receipt of any notice from the Company of the happening of any event of the
kind described in Section 3(g) or the first sentence of 3(f), written
notice from the Company of an Allowable Grace Period or written notice from the
Company that a previously effective Registration Statement is no longer
effective, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(g) or
the first sentence of 3(f) or receipt of notice that no supplement or
amendment is required or that the Allowable Grace Period has ended or that the
Registration Statement is effective. 
Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Securities Purchase Agreement
in connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor’s receipt
of a notice from the Company of the happening of any event of the kind
described in Section 3(g) or the first sentence of 3(f) and for
which the Investor has not yet settled.

 

Section 5.               Expenses of Registration.  All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings
or qualifications pursuant to Sections 2 and 3, including all
registration, listing and qualifications fees, printers and accounting fees,
and fees and disbursements of counsel for the Company shall be paid by the Company.  The Company shall also reimburse the
Investors for the reasonable fees and disbursements of Legal Counsel in
connection with registration, filing or qualification pursuant to Sections 2
and 3 of this Agreement up to a maximum amount of $35,000.

 

Section 6.               Indemnification.  In the event any Registrable Securities are
included in a Registration Statement under this Agreement:

 

(a)           To the fullest extent permitted by
law, the Company will, and hereby does, indemnify, hold harmless and defend
each Investor, the directors, officers, partners, members, managers, employees,
agents, representatives of, and each Person, if any, who controls any Investor
within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified

 

11

 

Person”), against
any losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, reasonable attorneys’ fees, amounts paid in settlement or expenses,
joint or several, (collectively, “Claims”)
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto (“Indemnified
Damages”), to which any of them may become subject insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon: (i) any untrue statement or
alleged untrue statement of a material fact in a Registration Statement or any
post-effective amendment thereto or in any filing made in connection with the
qualification of the offering under the securities or other “blue sky” laws of
any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final, summary or free writing prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, (iii) any
violation or alleged violation by the Company of the 1933 Act, the 1934 Act,
any other law, including any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any breach,
default or violation of this Agreement by the Company (the matters in the
foregoing clauses (i) through (iv), collectively, “Violations”).  Subject to Section 6(c), the Company
shall reimburse the Indemnified Persons, promptly as such expenses are incurred
and are due and payable, for any legal fees or other expenses reasonably incurred
by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(a) and
the contribution agreement contained in Section 7: (i) shall not
apply to a Claim by an Indemnified Person arising out of or based solely upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person for such
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto or
any preliminary, final, summary or free writing prospectus or any amendment
thereof or supplement thereto, if such Registration Statement or preliminary,
final, summary or free writing prospectus was timely made available by the
Company pursuant to Section 3(d) and (ii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld.  Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.

 

(b)           Each Investor covered by a
Registration Statement agrees to severally and not jointly indemnify, hold
harmless and defend, to the same extent and in the same manner as is set forth
in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement, and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each an “Indemnified Party”), against any
Claim or Indemnified Damages to which any of them may become subject, under the

 

12

 

1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified
Damages arise out of or are based upon any Violation by such Investor, in each
case to the extent, and only to the extent, that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement or any such amendment thereof or supplement thereto or any related
preliminary, final, summary or free writing prospectus or any amendment thereof
or supplement thereto; and, subject to Section 6(c), such Investor shall reimburse
the Indemnified Parties, promptly as such expenses are incurred and are due and
payable, for any legal fees or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) and the
agreement with respect to contribution contained in Section 7 shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the aggregate liability
of the Investor in connection with any Violation shall not exceed the net
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to the Registration Statement giving rise to such Claim.  Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.

 

(c)           Promptly after receipt by an
Indemnified Person or Indemnified Party under this Section 6 of notice of
the commencement of any action or proceeding (including any governmental action
or proceeding) involving a Claim, such Indemnified Person or Indemnified Party
shall, if a Claim in respect thereof is to be made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written
notice of the commencement thereof, and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly notified, to assume control
of the defense thereof with counsel mutually satisfactory to the indemnifying
party and the Indemnified Person or the Indemnified Party, as the case may be.
In any such proceeding, any Indemnified Person or Indemnified Party may retain
its own counsel, but, except as provided in the following sentence, the fees
and expenses of that counsel will be at the expense of that Indemnified Person
or Indemnified Party, as the case may be, unless (i) the indemnifying
party and the Indemnified Person or Indemnified Party, as applicable, shall
have mutually agreed to the retention of that counsel, (ii) the
indemnifying party does not assume the defense of such proceeding in a timely
manner or (iii) in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel for the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such Indemnified Person
or Indemnified Party and any other party represented by such counsel in such proceeding.  In the event the Company is the indemnifying
party, the Company shall pay reasonable fees for up to one separate legal
counsel for the Investors, and such legal counsel shall be selected by the
Investors holding at least a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates.  The Indemnified Party or Indemnified Person
shall cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or Claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or
Claim.  The indemnifying party shall keep
the Indemnified Party or Indemnified Person fully apprised at all times as to
the status of the defense or any settlement negotiations with respect thereto.

 

13

 

No indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its prior written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay or
condition its consent.  No indemnifying
party shall, without the prior written consent of the Indemnified Party or
Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise with respect to any pending or threatened action
or claim in respect of which indemnification or contribution may be or has been
sought hereunder (whether or not the Indemnified Party or Indemnified Person is
an actual or potential party to such action or claim) which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such Claim or litigation. 
Following indemnification as provided for hereunder, the indemnifying
party shall be subrogated to all rights of the Indemnified Party or Indemnified
Person with respect to all third parties, firms or corporations relating to the
matter for which indemnification has been made. 
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying
party is prejudiced in its ability to defend such action.

 

(d)           The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or Indemnified
Damages are incurred.

 

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

 

Section 7.               Contribution.  To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which
it would otherwise be liable under Section 6 to the fullest extent
permitted by law; provided, however, that: 
(i) no Person involved in the sale of Registrable Securities which
Person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) in connection with such sale, shall be entitled to contribution
from any Person involved in such sale of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any
seller of Registrable Securities shall be limited to an amount equal to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities pursuant to the Registration Statement giving rise to such action or
claim for indemnification less the amount of any damages that such seller has
otherwise been required to pay in connection with such sale.

 

Section 8.               Reports under the 1934 Act.  With a view to making available to the
Investors the benefits of Rule 144 promulgated under the 1933 Act or any
other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration (“Rule 144”),
the Company agrees to:

 

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

 

14

 

(b)           file with the SEC in a timely manner
all reports and other documents required of the Company under the 1934 Act so
long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company’s obligations under Section 4(c) of
the Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and

 

(c)           furnish to each Investor so long as
such Investor owns Registrable Securities, promptly upon request, (i) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144 and the 1934 Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may
be reasonably requested to permit the investors to sell such securities
pursuant to Rule 144 without registration.

 

Section 9.               Assignment of Registration Rights.  The rights under this Agreement shall be
automatically assignable by the Investors to any transferee of all or any
portion of Registrable Securities if: (i) the Investor agrees in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
transfer or assignment; (ii) the Company is, within a reasonable time
after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities
with respect to which such registration rights are being transferred or
assigned; (iii) immediately following such transfer or assignment the
further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at
or before the time the Company receives the written notice contemplated by
clause (ii) of this sentence, the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein, and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.

 

Section 10.             Amendment of Registration Rights.  Provisions of this Agreement may be amended
and the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investors who then hold at least a majority of the
Registrable Securities.  Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon
each Investor and the Company.  No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. 
No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.

 

Section 11.             Miscellaneous.

 

(a)           The provisions of this Agreement
shall apply to the full extent set forth herein with respect to (i) the
shares of Common Stock, (ii) any and all shares of voting common stock of
the Company into which the shares of Common Stock are converted, exchanged or
substituted in any recapitalization or other capital reorganization by the
Company and (iii) any and all equity securities of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in conversion of, in
exchange for or in substitution of, the shares of Common Stock and shall

 

15

 

be appropriately adjusted for any stock dividends, splits, reverse
splits, combinations, recapitalizations and the like occurring after the date
hereof.  The Company shall cause any
successor or assign (whether by merger, consolidation, sale of assets or
otherwise) to enter into a new registration rights agreement with the Investors
on terms substantially the same as those remaining under this Agreement as a
condition of any such transaction.

 

(b)           A Person is deemed to be a holder of
Registrable Securities whenever such Person owns or is deemed to own of record
such Registrable Securities.  If the Company
receives conflicting instructions, notices or elections from two or more
Persons with respect to the same Registrable Securities, the Company shall act
upon the basis of instructions, notice or election received from the registered
owner of such Registrable Securities.

 

(c)           Any notices, consents, waivers or
other communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such
communications shall be:

 

If to the Company:

 

MediCor Ltd.

4560 South Decatur Blvd., Suite 300

Las Vegas, Nevada  89103-5253

Facsimile:               (702) 932-4561

Attention:              General
Counsel/Secretary

 

With copy to:

 

Clifford Chance U.S. LLP

31 West 52nd Street

New York, New York 10019

Facsimile:               (212) 878-8000

Attention:              Alejandro E. Camacho

 

If to a Purchasers, to its address and facsimile
number set forth on the Schedule of Purchasers attached hereto, with
copies to such Purchaser’s representatives as set forth on the Schedule of
Purchasers, or, in the case of a Purchasers or other party named above, to such
other address and/or facsimile number and/or to the attention of such other
person as the recipient party has specified by written notice given to each
other party in accordance with this Section 11(c) at least five (5) days
prior to the effectiveness of such change. 
Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a courier or overnight courier service
shall be rebuttable evidence of personal service, receipt by facsimile or
deposit with a nationally recognized overnight delivery service in accordance
with

 

16

 

clause (i), (ii) or (iii) above,
respectively.  Notwithstanding the
foregoing, the Company or its counsel may transmit versions of any Registration
Statement (or any amendments or supplements thereto) to Legal Counsel in satisfaction
of its obligations under Section 3(c) to permit Legal Counsel to
review such Registration Statement prior to filing (and solely for such purpose)
by email to dcifu@paulweiss.com, provided that delivery and receipt of such
transmission shall be confirmed by electronic, telephonic or other means.

 

(d)           Failure of any party to exercise any
right or remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver thereof.

 

(e)           All questions concerning the
construction, validity, enforcement and interpretation of this Agreement 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 (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.  Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding
is improper.  Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner
permitted by law.  If any provision of
this Agreement shall be invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall not affect the validity or enforceability
of the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

(f)            This Agreement and the other
Transaction Documents constitute the entire agreement among the parties hereto
with respect to the subject matter hereof and thereof.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
and therein.  This Agreement and the
other Transaction Documents supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
The Company shall not enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Investors in this Agreement.

 

(g)           Subject to the requirements of Section 9,
this Agreement shall inure to the benefit of and be binding upon the permitted
successors and assigns of each of the parties hereto.

 

17

 

(h)           The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

(i)            This Agreement may be executed in
two or more identical counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been
signed by each party and delivered to each other party; provided that a
facsimile signature shall be considered due execution and shall be binding upon
the signatory thereto with the same force and effect as if the signature were
an original, not a facsimile signature.

 

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

 

(k)           All consents and other determinations
to be made by the Investors pursuant to this Agreement shall be made, unless
otherwise specified in this Agreement, by Investors holding at least a majority
of the Registrable Securities, determined as if all of the Notes and the
Warrants then outstanding have been converted into or exercised for Registrable
Securities without regard to any limitations on conversion of the Notes or the
exercise of the Warrants.  Any consent or
other determination approved by Investors as provided in the immediately
preceding sentence shall be binding on all Investors.

 

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

 

(m)          Each Purchaser and each holder of the Registrable
Securities shall have all rights and remedies set forth in the Transaction
Documents and all rights and remedies that such Purchaser and holder has been
granted at any time under any other agreement or contract and all of the rights
that such Purchaser and holder has under any law.  Any Person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security or proving actual
damages), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.

 

(n)           This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and, to the extent provided in Sections 6(a) and 6(b) hereof,
each Investor, the directors, officers, partners, members, managers, employees,
agents, representatives of, and each Person, if any, who controls any Investor
within the meaning of the 1933 Act and the 1934 Act and each of the Company’s
directors, each of the Company’s officers who signs the Registration Statement,
and each Person, if any, who controls the Company within the meaning of the
1933 Act and the 1934 Act, and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.

 

18

 

(o)           Unless the context otherwise
requires, (i) all references to Sections, Schedules or Exhibits are
to sections, schedules or exhibits contained in or attached to this
Agreement, (ii) each accounting term not otherwise defined in this
Agreement has the meaning assigned to it in accordance with GAAP, (iii) words
in the singular or plural include the singular and plural and pronouns stated
in either the masculine, the feminine or neuter gender shall include the
masculine, feminine and neuter and (iv) the use of the word “including” in
this Agreement shall be by way of example rather than limitation.

 

* * * * * *

 

19

 

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

 

	
   

  	
  MEDICOR LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Theodore R. Maloney

  	
   

  
	
   

  	
   

  	
  Name: Theodore R.
  Maloney

  
	
   

  	
   

  	
  Title: Chief Executive
  Officer

  

 

20

 

	
   

  	
  SILVER OAK CAPITAL, L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Michael L. Gordon

  	
   

  
	
   

  	
   

  	
  Name: Michael L. Gordon

  
	
   

  	
   

  	
  Title: Managing Member

  
	
   

  	
   

  
	
   

  	
  PORTSIDE GROWTH AND OPPORTUNITY

  FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Jeff Smith

  	
   

  
	
   

  	
   

  	
  Name: Jeff Smith

  
	
   

  	
   

  	
  Title: Authorized
  Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HFTP INVESTMENT L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: Promethean Asset
  Management L.L.C.

  
	
   

  	
  Its: Investment Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Robert J. Brantman

  	
   

  
	
   

  	
   

  	
  Name: Robert J.
  Brantman

  
	
   

  	
   

  	
  Title: Partner &
  Authorized Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GAIA OFFSHORE MASTER FUND, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: Promethean Asset
  Management L.L.C.

  
	
   

  	
  Its: Investment Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Robert J. Brantman

  	
   

  
	
   

  	
  Name: Robert J.
  Brantman

  
	
   

  	
  Title: Partner &
  Authorized Signatory

  

 

21

 

SCHEDULE OF PURCHASERS

 

	
  Investor’s
  Name

  	
   

  	
  Investor
  Address and Facsimile Number

  	
   

  	
  Investor’s
  Legal Representative’s

  Address and Facsimile Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SILVER
  OAK CAPITAL, L.L.C.

  	
   

  	
  c/o Angelo,
  Gordon & Co., L.P.

  245 Park Avenue

  New York, New York 10167

  Attention:  Gary I. Wolf

  Facsimile:  (212) 867-6449

  	
   

  	
  Paul, Weiss,
  Rifkind, Wharton & Garrison LLP

  1285 Avenue of the Americas

  New York, New York 10019

  Attention:  Douglas A. Cifu, Esq.

  Facsimile:  (212) 757-3990

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  HFTP
  INVESTMENT L.L.C.

  	
   

  	
  c/o Promethean
  Asset Management L.L.C.

  55 Fifth Avenue

  17th Floor

  New York, New York 10003

  Attention:  Robert J. Brantman

  Facsimile:  (212) 758-9620

  	
   

  	
  Katten Muchin
  Rosenman LLP

  525 W. Monroe Street 

  Chicago, Illinois 60661-3693 

  Attention:  Mark D. Wood, Esq.

  Facsimile:  (312) 902-1061

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GAIA
  OFFSHORE MASTER FUND, LTD.

  	
   

  	
  c/o Promethean
  Asset Management L.L.C.

  55 Fifth Avenue

  17th Floor

  New York, New York 10003

  Attention:  Robert J. Brantman

  Facsimile:  (212) 758-9620

  	
   

  	
  Katten Muchin
  Rosenman LLP

  525 W. Monroe Street 

  Chicago, Illinois 60661-3693 

  Attention:  Mark D. Wood, Esq.

  Facsimile:  (312) 902-1061

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PORTSIDE
  GROWTH AND OPPORTUNITY FUND

  	
   

  	
  c/o Ramius
  Capital Group, LLC 

  666 Third Avenue, 26th Floor 

  New York, NY 10017

  Attention:  Jeff Smith

                    Owen
  Littman

  Facsimile:  (212) 201-4802

  	
   

  	
  c/o Ramius
  Capital Group, LLC 

  666 Third Avenue, 26th Floor 

  New York, NY 10017

  Attention:  Owen Littman

  Facsimile:  (212) 201-4802

  

 

 

EXHIBIT A

 

FORM OF NOTICE OF
EFFECTIVENESS

OF REGISTRATION
STATEMENT

 

U.S. Stock Transfer Corp. 

1745 Gardena Ave.

Glendale, CA  91204-2991

Facsimile:  (818) 502-0674

Attention:  Richard Tilton

 

Re:          MediCor Ltd.

 

Ladies and Gentlemen:

 

We are counsel to MediCor
Ltd., a Delaware corporation (the “Company”),
and have represented the Company in connection with that certain Securities
Purchase Agreement (the “Securities
Purchase Agreement”) entered into by and among the Company and the
Purchasers named therein (collectively, the “Holders”) pursuant to which the Company issued to the Holders
convertible notes (the “Notes”),
convertible into shares of the Company’s common stock, $0.001 par value per
share (the “Common Stock”),
and warrants to acquire shares of Common Stock, subject to adjustment (the “Warrants”).  Pursuant to the Securities Purchase
Agreement, the Company also has entered into a Registration Rights Agreement
with the Holders (the “Registration
Rights Agreement”) pursuant to which the Company agreed, among other
things, to register the Registrable Securities (as defined in the Registration
Rights Agreement), including the shares of Common Stock issuable upon
conversion of the Notes and exercise of the Warrants, under the Securities Act
of 1933, as amended (the “1933 Act”).  In connection with the Company’s obligations
under the Registration Rights Agreement, on                            
       , 200    , the
Company filed a Registration Statement on Form [S-     ] (File No. 333-                 )
(the “Registration Statement”)
with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names each
of the Holders as a selling stockholder thereunder.

 

In connection with the
foregoing, we advise you that a member of the SEC’s staff has advised us by
telephone that the SEC has entered an order declaring the Registration
Statement effective under the 1933 Act at [ENTER
TIME OF EFFECTIVENESS] on [ENTER
DATE OF EFFECTIVENESS] and we have no knowledge, after telephonic
inquiry of a member of the SEC’s staff, that any stop order suspending its
effectiveness has been issued or that any proceedings for that purpose are
pending before, or threatened by, the SEC and the Registrable Securities are
available for resale under the 1933 Act pursuant to the Registration Statement.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  [ISSUER’S
  COUNSEL]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  

 

 

[LIST NAMES OF HOLDERS]

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