Document:

Note Purchase Agreement

CONFORMED COPY

ENERGIZER HOLDINGS, INC.

$300,000,000

Senior Notes

 

$50,000,000 3.44% Senior Notes, Series 2004-A, due November 9, 2007

$200,000,000 3.96% Senior Notes, Series 2004-B, due November 9, 2009

$50,000,000 4.38% Senior Notes, Series 2004-C, due November 9, 2011

 

_________

NOTE PURCHASE AGREEMENT

_________

Dated as of November 1, 2004

Series 2004-A PPN: 29266R F* 4

Series 2004-B PPN: 29266R F@ 2

Series 2004-C PPN: 29266R F# 0

	

	 	 	 
	

	

TABLE OF CONTENTS

Section                                                                                      Page

1.AUTHORIZATION OF NOTES1

1.1.The Notes

1.2.Additional Interest

2.SALE AND PURCHASE OF NOTES

3.CLOSING

4.CONDITIONS TO CLOSING

4.1.Representations and Warranties

4.2.Performance; No Default

4.3.Compliance Certificates

4.4.Opinions of Counsel

4.5.Purchase Permitted By Applicable Law, etc

4.6.Sale of Other Notes

4.7.Payment of Special Counsel Fees

4.8.Private Placement Numbers

4.9.Changes in Corporate Structure

4.10.Subsidiary Guaranty

4.11.Proceedings and Documents.

5.REPRESENTATIONS AND WARRANTIES OF THE COMPANY

5.1.Organization; Power and Authority

5.2.Authorization, etc

5.3.Disclosure

5.4.Organization and Ownership of Shares of Subsidiaries

5.5.Financial Statements

5.6.Compliance with Laws, Other Instruments, etc

5.7.Governmental Authorizations, etc.

5.8.Litigation; Observance of Statutes and Orders

5.9.Taxes

5.10.Title to Property; Leases

5.11.Licenses, Permits, etc

5.12.Compliance with ERISA

5.13.Private Offering by the Company

5.14.Use of Proceeds; Margin Regulations

5.15.Existing Indebtedness

5.16.Foreign Assets Control Regulations, Anti-Terrorism Order, etc 

5.17.Status under Certain Statutes

5.18.Solvency of Subsidiary Guarantors

5.19.Environmental Matters

6.REPRESENTATIONS OF THE PURCHASERS.

6.1.Purchase for Investment

6.2.Source of Funds

7.INFORMATION AS TO COMPANY

7.1.Financial and Business Information.

7.2.Officer’s Certificate

7.3.Inspection

8.PREPAYMENT OF THE NOTES.

8.1.No Scheduled Prepayments

8.2.Optional Prepayments with Make-Whole Amount

8.3.Allocation of Partial Prepayments

8.4.Maturity; Surrender, etc

8.5.Purchase of Notes

8.6.Make-Whole Amount

9.AFFIRMATIVE COVENANTS

9.1.Compliance with Law

9.2.Insurance

9.3.Maintenance of Properties

9.4.Payment of Taxes and Claims

9.5.Corporate Existence, etc

10.NEGATIVE COVENANTS

10.1.Consolidated Indebtedness; Indebtedness of Restricted Subsidiaries.

10.2.Liens.

10.3.Sale of Assets.

10.4.Mergers, Consolidations, etc.

10.5.Disposition of Stock of Restricted Subsidiaries.

10.6.Designation of Restricted and Unrestricted Subsidiaries.

10.7.Restricted Subsidiary Guaranties

10.8.Nature of Business.

10.9.Transactions with Affiliates

11.EVENTS OF DEFAULT

12.REMEDIES ON DEFAULT, ETC

12.1.Acceleration

12.2.Other Remedies

12.3.Rescission

12.4.No Waivers or Election of Remedies, Expenses, etc

13.REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES

13.1.Registration of Notes

13.2.Transfer and Exchange of Notes

13.3.Replacement of Notes

14.PAYMENTS ON NOTES.

14.1.Place of Payment

14.2.Home Office Payment

15.EXPENSES, ETC

15.1.Transaction Expenses

15.2.Survival

16.SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT

17.AMENDMENT AND WAIVER

17.1.Requirements

17.2.Solicitation of Holders of Notes

17.3.Binding Effect, etc

17.4.Notes held by Company, etc

18.NOTICES

19.REPRODUCTION OF DOCUMENTS

20.CONFIDENTIAL INFORMATION

21.SUBSTITUTION OF PURCHASER

22.RELEASE OF SUBSIDIARY GUARANTOR

23.MISCELLANEOUS

23.1.Successors and Assigns

23.2.Payments Due on Non-Business Days

23.3.Severability

23.4.Construction

23.5.Counterparts

23.6.Governing Law

	 

SCHEDULE A    --    Information Relating to Purchasers

SCHEDULE B    --    Defined Terms

SCHEDULE B-1    --    Investments

SCHEDULE 4.9    --    Changes in Corporate Structure

SCHEDULE 5.3    --    Disclosure Materials

SCHEDULE 5.4    --    Subsidiaries of the Company and Ownership of Subsidiary Stock

SCHEDULE 5.5    --    Financial Statements

SCHEDULE 5.11    --    Licenses, Permits, etc.

SCHEDULE 5.14     --    Use of Proceeds

SCHEDULE 5.15    --    Indebtedness

SCHEDULE 10.2    --    Liens

EXHIBIT 1 (a)    --    Form of Series 2004-A Note

EXHIBIT 1 (b)    --    Form of Series 2004-B Note

EXHIBIT 1 (c)    --    Form of Series 2004-C Note

EXHIBIT 1 (d)    --    Form of Subsidiary Guaranty

EXHIBIT 4.4(a)    --    Form of Opinion of Counsel for the Company and the 

                                                Subsidiary   Guarantors

EXHIBIT 4.4(b)    --    Form of Opinion of Special Counsel for the Purchasers

	

	 	 	 
	

	

ENERGIZER HOLDINGS, INC.

533 Maryville University Drive

St. Louis, MO 63141

(314) 985-2087

Fax: (314) 985-2220

$300,000,000

Senior Notes

$50,000,000 3.44% Senior Notes, Series 2004-A, due November 9, 2007

$200,000,000 3.96% Senior Notes, Series 2004-B, due November 9, 2009

$50,000,000 4.38% Senior Notes, Series 2004-C, due November 9, 2011

Dated as of November 1, 2004

TO EACH OF THE PURCHASERS LISTED IN

 THE ATTACHED SCHEDULE A:

Ladies and Gentlemen:

  ENERGIZER HOLDINGS, INC., a Missouri corporation (the “Company”), agrees with you as follows:

	1.  	AUTHORIZATION OF NOTES.

 

1.1.  The Notes. 

 

  The Company has authorized the issue and sale of $300,000,000 aggregate principal amount of its Senior Notes consisting of (i) $50,000,000 aggregate principal amount of its 3.44% Senior Notes, Series 2004-A, due November 9, 2007 (the “Series 2004-A Notes”); (ii) $200,000,000 aggregate principal amount of its 3.96% Senior Notes, Series 2004-B, due November 9, 2009 (the “Series 2004-B Notes”); and (iii) $50,000,000 aggregate principal amount of its 4.38% Senior Notes, Series 2004-C, due November 9, 2011 (the “Series 2004-C Notes” and, together with the Series 2004-A Notes and the Series 2004-B Notes, the “Notes,” such term to include any such Notes issued in substitution therefor pursuant to Section 13 of this Agreement). The Notes will be substantially in the forms set out in Exhibits 1(a), 1(b) and 1(c), with such changes therefrom, if any, as may be approved by the purchasers of such Notes, or series thereof, and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. Subject to Section 22, the Notes will be guaranteed by each Subsidiary that is now or in the future becomes a signatory to the Bank Guarantees (individually, a “Subsidiary Guarantor” and collectively, the “Subsidiary Guarantors”) pursuant to a guaranty substantially in the form of Exhibit 1(d) (the “Subsidiary Guaranty”).

 

1.2.  Additional Interest. 

 

  If the Debt to EBITDA Ratio at any time exceeds 3.5 to 1.00, as evidenced by an Officer’s Certificate delivered pursuant to Section 7.2(a), the interest rate payable on each series of Notes shall be increased by 0.75%, commencing on the first day of the first fiscal quarter following the fiscal quarter in respect of which such Certificate was delivered and continuing until the Company has provided an Officer’s Certificate pursuant to Section 7.2(a) demonstrating that, as of the end of the fiscal quarter in respect of which such Certificate is delivered, the Debt to EBITDA Ratio is not more than 3.5 to 1.0. Following delivery of an Officer’s Certificate demonstrating that the Debt to EBITDA Ratio did not exceed 3.5 to 1.0, the additional 0.75% interest shall cease to accrue or be payable for any fiscal quarter subsequent to the fiscal quarter in respect of which such Certificate is delivered. 

 

	2.  	SALE AND PURCHASE OF NOTES.

 

  Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and each of the other purchasers named in Schedule A (the “Other Purchasers”), and you and the Other Purchasers will purchase from the Company, at the Closing provided for in Section 3, Notes of the series and in the principal amount specified opposite your name in Schedule A at the purchase price of 100% of the principal amount thereof. Your obligation hereunder and the obligations of the Other Purchasers are several and not joint obligations and you shall have no liability to any Person for the performance or non-performance by any Other Purchaser hereunder.

	3.  	CLOSING.

 

  The sale and purchase of the Notes to be purchased by you and the Other Purchasers shall occur at the offices of Gardner Carton & Douglas LLP, 191 North Wacker Drive, Suite 3700, Chicago, Illinois 60606-1698, at 9:00 a.m., Chicago time, at a closing (the “Closing”) on November 9, 2004 or on such other Business Day thereafter on or prior to November 15, 2004 as may be agreed upon by the Company and you and the Other Purchasers. At the Closing the Company will deliver to you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $500,000 as you may request) dated the date of the Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number 12331-33027 at Bank of America, San Francisco, California, ABA No. 121000358. If at the Closing the Company fails to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment.

	4.  	CONDITIONS TO CLOSING.

 

  Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions:

4.1.  Representations and Warranties.

 

  The representations and warranties of the Company in this Agreement shall be correct when made and correct in all material respects at the time of the Closing.

4.2.  Performance; No Default.

 

  The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Schedule 5.14) no Default or Event of Default shall have occurred and be continuing. 

4.3.  Compliance Certificates.

 

(a)  Officer’s Certificate. The Company shall have delivered to you an Officer’s Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.

 

(b)  Secretary’s Certificate. The Company shall have delivered to you a certificate certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes and the Agreement.

 

4.4.  Opinions of Counsel.

 

  You shall have received opinions in form and substance satisfactory to you, dated the date of the Closing (a) from Bryan Cave LLP, counsel for the Company and the Subsidiary Guarantors, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company instructs its counsel to deliver such opinion to you) and (b) from Gardner Carton & Douglas LLP, your special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request.

4.5.  Purchase Permitted By Applicable Law, etc.

 

  On the date of the Closing your purchase of Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation U, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer’s Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted.

4.6.  Sale of Other Notes.

 

  Contemporaneously with the Closing, the Company shall sell to the Other Purchasers and the Other Purchasers shall purchase the Notes to be purchased by them at the Closing as specified in Schedule A.

4.7.  Payment of Special Counsel Fees.

 

  Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4, to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing.

4.8.  Private Placement Numbers.

 

  Private Placement Numbers issued by Standard & Poor’s CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained by Gardner Carton & Douglas LLP for each series of the Notes.

4.9.  Changes in Corporate Structure.

 

  Except as specified in Schedule 4.9, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5. 

4.10.  Subsidiary Guaranty.

 

  Each Subsidiary Guarantor shall have executed and delivered the Subsidiary Guaranty in favor of you and the Other Purchasers and you shall have received a copy of a fully executed counterpart thereof.

4.11.  Proceedings and Documents. 

 

  All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request.

	5.  	REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

  The Company represents and warrants to you that:

5.1.  Organization; Power and Authority.

 

  The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Notes and to perform the provisions hereof and thereof.

5.2.  Authorization, etc.

 

  This Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

  The Subsidiary Guaranty has been duly authorized by all necessary corporate action on the part of each Subsidiary Guarantor and upon execution and delivery thereof will constitute the legal, valid and binding obligation of each Subsidiary Guarantor, enforceable against each Subsidiary Guarantor in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

5.3.  Disclosure.

 

  The Company, through its agents, Banc of America Securities LLC and Banc One Capital Markets, Inc., has delivered to you and each Other Purchaser a copy of a Private Placement Memorandum, dated October 2004 and the supplemental financial information referred to therein (the “Memorandum”), relating to the transactions contemplated hereby. Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents, certificates or other writings identified in Schedule 5.3 and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since September 30, 2003, there has been no change in the financial condition, operations, business or properties of the Company or any Subsidiary except changes that individually or in the aggregate would not reasonably be expected to have a Material Adverse Effect. 

5.4.  Organization and Ownership of Shares of Subsidiaries.

 

(a)  Schedule 5.4 is (except as noted therein) a complete and correct list of the Company’s Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary.

 

(b)  All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4).

 

(c)  Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact.

 

5.5.  Financial Statements.

 

  The Company has delivered to you and each Other Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial condition of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments).

5.6.  Compliance with Laws, Other Instruments, etc.

 

  The execution, delivery and performance by the Company of this Agreement and the Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Restricted Subsidiary under, any Material agreement, or corporate charter or By-Laws, to which the Company or any Restricted Subsidiary is bound or by which the Company or any Restricted Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Restricted Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Restricted Subsidiary.

  The execution, delivery and performance by each Subsidiary Guarantor of the Subsidiary Guaranty will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of such Subsidiary Guarantor under, any agreement, or corporate charter or by-laws, to which such Subsidiary Guarantor is bound or by which such Subsidiary Guarantor or any of its properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to such Subsidiary Guarantor or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to such Subsidiary Guarantor.

5.7.  Governmental Authorizations, etc.

 

  No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes or the execution, delivery or performance by each Subsidiary Guarantor of the Subsidiary Guaranty.

5.8.  Litigation; Observance of Statutes and Orders.

 

(a)  Except as disclosed in the Memorandum, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

 

(b)  Neither the Company nor any Subsidiary is in default under any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including Environmental Laws and the USA Patriot Act) of any Governmental Authority, which default or violation, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

 

5.9.  Taxes.

 

  The Company and its Subsidiaries have filed all income tax returns that are required to have been filed in any jurisdiction, and have paid all taxes, to the extent such taxes are payable by them, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended September 30, 1995.

5.10.  Title to Property; Leases.

 

  The Company and its Subsidiaries have good and sufficient title to their respective Material properties, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement, except for those defects in title and Liens that, individually or in the aggregate, would not have a Material Adverse Effect. All Material leases are valid and subsisting and are in full force and effect in all material respects. 

5.11.  Licenses, Permits, etc.

 

  Except as disclosed in Schedule 5.11, the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that are Material, without known conflict with the rights of others, except for those conflicts that, individually or in the aggregate, would not have a Material Adverse Effect.

 

5.12.  Compliance with ERISA.

 

(a)  The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and would not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in Section 3 of ERISA), and no event, transaction or condition has occurred or exists that would reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material.

 

(b)  The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans) that is a defined benefit pension plan qualified under Code Section 401(a), determined as of the end of such Plan’s most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan’s most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities. The term “benefit liabilities” has the meaning specified in Section 4001 of ERISA and the terms “current value” and “present value” have the meaning specified in Section 3 of ERISA.

 

(c)  The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under Section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material.

 

(d)  The expected postretirement benefit obligation (determined as of the last day of the Company’s most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by Section 4980B of the Code) of the Company and its Subsidiaries is not Material or has been disclosed in the most recent audited consolidated financial statements of the Company and its Subsidiaries.

 

(e)  The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax would be imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you.

 

5.13.  Private Offering by the Company.

 

  Neither the Company nor anyone acting on its behalf has offered the Notes, the Subsidiary Guaranty or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than you, the Other Purchasers and not more than 25 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes or the execution and delivery of the Subsidiary Guaranty to the registration requirements of Section 5 of the Securities Act.

5.14.  Use of Proceeds; Margin Regulations.

 

  The Company will apply the proceeds of the sale of the Notes for general corporate purposes, including repayment of Indebtedness as set forth in Schedule 5.14. No part of the proceeds from the sale of the Notes will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 5% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 5% of the value of such assets. As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U.

5.15.  Existing Indebtedness.

 

  Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Subsidiaries as of September 30, 2004 (except as otherwise indicated), since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any Restricted Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Restricted Subsidiary that is outstanding in an aggregate principal amount in excess of $5,000,000 and no event or condition exists with respect to any Indebtedness of the Company or any Restricted Subsidiary that is outstanding in an aggregate principal amount in excess of $5,000,000 and that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment.

 

5.16.  Foreign Assets Control Regulations, Anti-Terrorism Order, etc .

 

  Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate (a) the Trading with the Enemy Act, as amended, (b) any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto or (c) to the knowledge of the Company, the Anti-Terrorism Order. Without limiting the foregoing, neither Company nor any Subsidiary (i) is a blocked person described in Section 1 of the Anti-Terrorism Order or (ii) engages in any dealings or transactions, or is otherwise associated, with any such person.

5.17.  Status under Certain Statutes.

 

  Neither the Company nor any Restricted Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended by the ICC Termination Act, as amended, or the Federal Power Act, as amended.

5.18.  Solvency of Subsidiary Guarantors.

 

  After giving effect to the transactions contemplated herein, (i) the present fair salable value of the assets of each Subsidiary Guarantor is in excess of the amount that will be required to pay its probable liability on its existing debts as said debts become absolute and matured, (ii) each Subsidiary Guarantor has received reasonably equivalent value for executing and delivering the Subsidiary Guaranty, (iii) the property remaining in the hands of each Subsidiary Guarantor is not an unreasonably small capital, and (iv) each Subsidiary Guarantor is able to pay its debts as they mature.

5.19.  Environmental Matters.

 

  Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing,

(a)  neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect;

 

(b)  neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and

 

(c)  all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect.

 

	6.  	REPRESENTATIONS OF THE PURCHASERS.

 

6.1.  Purchase for Investment.

 

  You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes.

6.2.  Source of Funds.

 

  You represent that at least one of the following statements is an accurate representation as to each source of funds (a “Source”) to be used by you to pay the purchase price of the Notes to be purchased by you hereunder:

(a)  the Source is an “insurance company general account” (as the term is defined in the United States Department of Labor’s Prohibited Transaction Exemption (“PTE”) 95-60) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the National Association of Insurance Commissioners (the “NAIC Annual Statement”)) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchaser’s state of domicile; or

 

(b)  the Source is a separate account that is maintained solely in connection with such Purchaser’s fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or

 

(c)  the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or

 

(d)  the Source constitutes assets of an “investment fund” (within the meaning of Part V of PTE 84-14 (the “QPAM Exemption”)) managed by a “qualified professional asset manager” or “QPAM” (within the meaning of Part V of the QPAM Exemption), no employee benefit plan’s assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of “control” in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this clause (d); or

 

(e)  the Source constitutes assets of a “plan(s)” (within the meaning of Section IV of PTE 96-23 (the “INHAM Exemption”)) managed by an “in-house asset manager” or “INHAM” (within the meaning of Part IV of the INHAM exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of “control” in Section IV(h) of the INHAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such INHAM and (ii) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the Company in writing pursuant to this clause (e); or

 

(f)  the Source is a governmental plan; or

 

(g)  the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (g); or

 

(h)  the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.

 

As used in this Section 6.2, the terms “employee benefit plan”, “governmental plan” and “separate account” shall have the respective meanings assigned to such terms in Section 3 of ERISA.

	7.  	INFORMATION AS TO COMPANY.

 

7.1.  Financial and Business Information.

 

  The Company will deliver to each holder of Notes that is an Institutional Investor:

(a)  Quarterly Statements -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of,

 

(i)  a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and

 

(ii)  consolidated statements of earnings and stockholders’ equity of the Company and its Subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, and

 

(iii)  consolidated statements of cash flows of the Company and its Subsidiaries for such quarter or (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter,

 

setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial condition of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company’s Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a);

(b)  Annual Statements -- within 105 days after the end of each fiscal year of the Company, duplicate copies of,

 

(i)  a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and

 

(ii)  consolidated statements of income, changes in stockholders’ equity and cash flows of the Company and its Subsidiaries, for such year,

 

setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial condition of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, provided that the delivery within the time period specified above of the Company’s Annual Report on Form 10-K for such fiscal year (together with the Company’s annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(b);

(c)  Unrestricted Subsidiaries -- if, at the time of delivery of any financial statements pursuant to Section 7.1(a) or (b), Unrestricted Subsidiaries account for more than 10% of (i) the consolidated total assets of the Company and its Subsidiaries reflected in the balance sheet included in such financial statements or (ii) the consolidated revenues of the Company and its Subsidiaries reflected in the consolidated statement of income included in such financial statements, an unaudited balance sheet for all Unrestricted Subsidiaries taken as whole as at the end of the fiscal period included in such financial statements and the related unaudited statements of income, stockholders’ equity and cash flows for such Unrestricted Subsidiaries for such period, together with consolidating statements reflecting all eliminations or adjustments necessary to reconcile such group financial statements to the consolidated financial statements of the Company and its Subsidiaries;

 

(d)  SEC and Other Reports -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Restricted Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (other than a Registration Statement on Form S-8) that shall have become effective (without exhibits except as expressly requested by such holder), and each final prospectus and all amendments (other than one relating sole to employee benefit plans) thereto filed by the Company or any Restricted Subsidiary with the Securities and Exchange Commission;

 

(e)  Notice of Default or Event of Default -- promptly, and in any event within five Business Days after a Responsible Officer obtains actual knowledge of the existence of any Default or Event of Default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto;

 

(f)  ERISA Matters -- promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto:

 

(i)  with respect to any Plan, any reportable event, as defined in Section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or

 

(ii)  the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or

 

(iii)  any event, transaction or condition that would result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, would reasonably be expected to have a Material Adverse Effect; and

 

(g)  Requested Information -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes.

 

7.2.  Officer’s Certificate.

 

  Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or (b) shall be accompanied by a certificate of a Senior Financial Officer setting forth:

(a)  Covenant Compliance -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.1 through Section 10.9, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and

 

(b)  Event of Default -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Restricted Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including any such event or condition resulting from the failure of the Company or any Restricted Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto.

 

7.3.  Inspection.

 

  The Company will permit the representatives of each holder of Notes that is an Institutional Investor:

(a)  No Default -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company’s officers, and, with the consent of the Company (which consent will not be unreasonably withheld), to visit the other offices and properties of the Company and each Restricted Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and

 

(b)  Default -- if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances, and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested.

 

	8.  	PREPAYMENT OF THE NOTES.

 

8.1.  No Scheduled Prepayments.

 

  No regularly scheduled prepayments are due on the Notes prior to their stated maturity.

8.2.  Optional Prepayments with Make-Whole Amount.

 

  The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes of any series, in an amount not less than $1,000,000 in the aggregate in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes of the series to be prepaid written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes of such series to be prepaid on such date, the principal amount of each Note of such series held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes of the series to be prepaid a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date.

8.3.  Allocation of Partial Prepayments.

 

  In the case of each partial prepayment of the Notes of a series, the principal amount of the Notes of such series to be prepaid shall be allocated among all of the Notes of such series at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. 

8.4.  Maturity; Surrender, etc.

 

  In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note.

8.5.  Purchase of Notes.

 

 The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes of any series except (a) upon the payment or prepayment of the Notes of a series in accordance with the terms of this Agreement and the Notes or (b) pursuant to an offer to purchase made by the Company or an Affiliate pro rata to the holders of all Notes of a series at the time outstanding upon the same terms and conditions. Any such offer shall provide each holder with sufficient information to enable it to make an informed decision with respect to such offer, and shall remain open for at least 30 Business Days. If the holders of more than 25% of the principal amount of the Notes of a series then outstanding accept such offer, the Company shall promptly notify the remaining holders of such fact and the expiration date for the acceptance by holders of Notes of such series of such offer shall be extended by the number of days necessary to give each such remaining holder at least ten Business Days from its receipt of such notice to accept such offer. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes.

8.6.  Make-Whole Amount.

 

  The term “Make-Whole Amount” means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:

  “Called Principal” means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.

  “Discounted Value” means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal.

  “Reinvestment Yield” means, with respect to the Called Principal of any Note, .50% over the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as the “PX-1 Screen” on the Bloomberg Financial Market Service (or such other display as may replace the PX-1 Screen on Bloomberg Financial Market Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury security with the maturity closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the maturity closest to and less than the Remaining Average Life.

  “Remaining Average Life” means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.

  “Remaining Scheduled Payments” means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1.

  “Settlement Date” means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires.

	9.  	AFFIRMATIVE COVENANTS.

 

  The Company covenants that so long as any of the Notes are outstanding:

9.1.  Compliance with Law.

 

  The Company will, and will cause each Subsidiary to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations would not, individually or in the aggregate, reasonably be expected to have a materially adverse effect on the business, operations, affairs, financial condition, properties or assets of the Company and its Restricted Subsidiaries taken as a whole.

9.2.  Insurance.

 

  The Company will, and will cause each Restricted Subsidiary to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated.

9.3.  Maintenance of Properties.

 

  The Company will and will cause each Restricted Subsidiary to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance would not, individually or in the aggregate, reasonably be expected to have a materially adverse effect on the business, operations, affairs, financial condition, properties or assets of the Company and its Restricted Subsidiaries taken as a whole.

9.4.  Payment of Taxes and Claims.

 

  The Company will, and will cause each Subsidiary to, file all income tax or similar tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies payable by any of them, to the extent such taxes and assessments have become due and payable and before they have become delinquent, provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a materially adverse effect on the business, operations, affairs, financial condition, properties or assets of the Company and its Subsidiaries taken as a whole.

9.5.  Corporate Existence, etc.

 

  The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.3 and 10.4, the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Restricted Subsidiaries (unless merged into the Company or a Wholly-Owned Restricted Subsidiary) and all rights and franchises of the Company and its Restricted Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect a particular corporate existence, right or franchise could not, individually or in the aggregate, have a materially adverse effect on the business, operations, affairs, financial condition, properties or assets of the Company and its Restricted Subsidiaries taken as a whole.

	10.  	NEGATIVE COVENANTS.

 

  The Company covenants that so long as any of the Notes are outstanding:

10.1.  Consolidated Indebtedness; Indebtedness of Restricted Subsidiaries. 

 

  The Company will not permit:

(a)  the Debt to EBITDA Ratio to be greater than 3.5 to 1.0 at any time; provided that, for any period of not more than four successive fiscal quarters, such ratio may be greater than 3.5 to 1.0, but in no event greater than 4.0 to 1.0, if the Company pays the additional interest provided for in Section 1.2; and

 

(b)  any Restricted Subsidiary to incur any Indebtedness if, after giving effect thereto and to the application of the proceeds therefrom, Priority Debt outstanding would exceed 20% of Consolidated Total Capitalization. For purposes of this Section 10.1(b), any unsecured Indebtedness of a Restricted Subsidiary that is a Subsidiary Guarantor shall be deemed to have been incurred by such Subsidiary at the time it ceases to be a Subsidiary Guarantor.

 

10.2.  Liens. 

 

  The Company will not, and will not permit any Restricted Subsidiary to, permit to exist, create, assume or incur, directly or indirectly, any Lien on its properties or assets, whether now owned or hereafter acquired, except:

(a)  Liens existing on property or assets of the Company or any Restricted Subsidiary as of the date of this Agreement that are described in Schedule 10.2;

 

(b)  Liens for taxes, assessments or governmental charges not then due and delinquent or the nonpayment of which is permitted by Section 9.4;

 

(c)  encumbrances in the nature of leases, subleases, zoning restrictions, easements, rights of way and other rights and restrictions of record on the use of real property and defects in title arising or incurred in the ordinary course of business, which, individually and in the aggregate, do not materially impair the use or value of the property or assets subject thereto or which relate only to assets that in the aggregate are not material;

 

(d)  Liens incidental to the conduct of business or the ownership of properties and assets (including landlords’, lessors’, carriers’, warehousemen’s, mechanics’, materialmen’s and other similar liens) and Liens to secure the performance of bids, tenders, leases or trade contracts, or to secure statutory obligations (including obligations under workers compensation, unemployment insurance and other social security legislation), surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money;

 

(e)  any attachment or judgment Lien, unless the judgment it secures has not, within 60 days after the entry thereof, been discharged or execution thereof stayed pending appeal, or has not been discharged within 60 days after the expiration of any such stay;

 

(f)  Liens securing Indebtedness of a Restricted Subsidiary to the Company or to another Restricted Subsidiary and Liens securing Indebtedness of the Company to a Restricted Subsidiary;

 

(g)  Liens (i) existing on property at the time of its acquisition by the Company or a Restricted Subsidiary and not created in contemplation thereof, whether or not the Indebtedness secured by such Lien is assumed by the Company or a Restricted Subsidiary; or (ii) on property created contemporaneously with its acquisition or within 180 days of the acquisition or completion of construction thereof to secure or provide for all or a portion of the purchase price or cost of construction of such property after the date of Closing; or (iii) existing on property of a Person at the time such Person is merged or consolidated with, or becomes a Restricted Subsidiary of, or substantially all of its assets are acquired by, the Company or a Restricted Subsidiary and not created in contemplation thereof; provided that in the case of clauses (i), (ii) and (iii) such Liens do not extend to additional property of the Company or any Restricted Subsidiary (other than property that is an improvement to or is acquired for specific use in connection with the subject property) and, in the case of clause (ii) only, that the aggregate principal amount of Indebtedness secured by each such Lien does not exceed the lesser of the fair market value (determined in good faith by one or more officers of the Company to whom authority to enter into such transaction has been delegated by the board of directors of the Company) or cost of acquisition or construction of the property subject thereto;

 

(h)  Liens incurred in connection with Asset Securitization Transactions;

 

(i)  Liens resulting from extensions, renewals or replacements of Liens permitted by paragraphs (a), (f), (g) and (h), provided that (i) there is no increase in the principal amount or decrease in maturity of the Indebtedness secured thereby at the time of such extension, renewal or replacement, (ii) any new Lien attaches only to the same property theretofore subject to such earlier Lien and (iii) immediately after such extension, renewal or replacement no Default or Event of Default would exist; and

 

(j)  Liens securing Indebtedness not otherwise permitted by paragraphs (a) through (h) above, provided that, at the time of creation, assumption or incurrence thereof and immediately after giving effect thereto and to the application of the proceeds therefrom, Priority Debt outstanding does not exceed 20% of Consolidated Total Capitalization.

 

10.3.  Sale of Assets. 

 

  Except as permitted by Section 10.4, the Company will not, and will not permit any Restricted Subsidiary to, sell, lease, transfer or otherwise dispose of, including by way of merger (collectively a “Disposition”), any assets, including capital stock of Restricted Subsidiaries, in one or a series of transactions, to any Person, other than (a) Dispositions in the ordinary course of business, (b) Dispositions by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or another Restricted Subsidiary or (c) Dispositions not otherwise permitted by clauses (a) or (b) of this Section 10.3, provided that the aggregate net book value of all assets so disposed of in any fiscal year pursuant to this Section 10.3(c) does not exceed 15% of Consolidated Total Assets as of the end of the immediately preceding fiscal year. Notwithstanding the foregoing, the Company may, or may permit any Restricted Subsidiary to, make a Disposition (including the sale of receivables in an Asset Securitization Transaction) and the assets subject to such Disposition shall not be subject to or included in the foregoing limitation and computation contained in clause (c) of the preceding sentence to the extent that (i) such assets were acquired or constructed not more than 180 days prior to the date of Closing and are leased back by the Company or any Restricted Subsidiary, as lessee, within 180 days of the acquisition or construction thereof, or (ii) the net proceeds from such Disposition are within one year of such Disposition (A) reinvested in productive assets by the Company or a Restricted Subsidiary or (B) applied to the payment or prepayment of any outstanding Indebtedness of the Company or any Restricted Subsidiary that is not subordinated to the Notes. Any prepayment of Notes pursuant to this Section 10.3 shall be in accordance with Sections 8.2 and 8.3 without regard to the minimum prepayment requirements of Section 8.2.

10.4.  Mergers, Consolidations, etc. 

 

  The Company will not, and will not permit any Restricted Subsidiary to, consolidate with or merge with any other Person or convey, transfer, sell or lease all or substantially all of its assets in a single transaction or series of transactions to any Person except that:

(a)  the Company may consolidate or merge with any other Person or convey, transfer, sell or lease all or substantially all of its assets in a single transaction or series of transactions to any Person, provided that:

 

(i)  the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance, transfer, sale or lease all or substantially all of the assets of the Company as an entirety, as the case may be, is a solvent corporation organized and existing under the laws of the United States or any state thereof (including the District of Columbia), and, if the Company is not such corporation, such corporation (y) shall have executed and delivered to each holder of any Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes and (z) shall have caused to be delivered to each holder of any Notes an opinion of independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; and

 

(ii)  immediately before and after giving effect to such transaction, no Default or Event of Default shall exist; and

 

(b)  Any Restricted Subsidiary may (x) merge into the Company (provided that the Company is the surviving corporation) or another Wholly-Owned Restricted Subsidiary or (y) sell, transfer or lease all or any part of its assets to the Company or another Wholly-Owned Restricted Subsidiary, or (z) merge or consolidate with, or sell, transfer or lease all or substantially all of its assets to, any Person in a transaction that is permitted by Section 10.3 or, as a result of which, such Person becomes a Restricted Subsidiary; provided in each instance set forth in clauses (x) through (z) that, immediately before and after giving effect thereto, there shall exist no Default or Event of Default; 

 

No such conveyance, transfer, sale or lease of all or substantially all of the assets of the Company shall have the effect of releasing the Company or any successor corporation that shall theretofore have become such in the manner prescribed in this Section 10.4 from its liability under this Agreement or the Notes.

10.5.  Disposition of Stock of Restricted Subsidiaries. 

 

  The Company (i) will not permit any Restricted Subsidiary to issue its capital stock, or any warrants, rights or options to purchase, or securities convertible into or exchangeable for, such capital stock, to any Person other than the Company or another Restricted Subsidiary (other than directors’ qualifying shares, shares satisfying local ownership requirements or shares for any similar statutory purposes) and (ii) will not, and will not permit any Restricted Subsidiary to, sell, transfer or otherwise dispose of any shares of capital stock of a Restricted Subsidiary if such sale would be prohibited by Section 10.3. If a Restricted Subsidiary at any time ceases to be such as a result of a sale or issuance of its capital stock, any Liens on property of the Company or any other Restricted Subsidiary securing Indebtedness owed to such Restricted Subsidiary, which is not contemporaneously repaid, together with such Indebtedness, shall be deemed to have been incurred by the Company or such other Restricted Subsidiary, as the case may be, at the time such Restricted Subsidiary ceases to be a Restricted Subsidiary.

10.6.  Designation of Restricted and Unrestricted Subsidiaries. 

 

  The Company may designate any Restricted Subsidiary as an Unrestricted Subsidiary and any Unrestricted Subsidiary as a Restricted Subsidiary; provided that, (a) if such Subsidiary initially is designated a Restricted Subsidiary, then such Restricted Subsidiary may be subsequently designated as an Unrestricted Subsidiary and such Unrestricted Subsidiary may be subsequently designated as a Restricted Subsidiary, but no further changes in designation may be made, (b) if such Subsidiary initially is designated an Unrestricted Subsidiary, then such Unrestricted Subsidiary may be subsequently designated as a Restricted Subsidiary and such Restricted Subsidiary may be subsequently designated as an Unrestricted Subsidiary, but no further changes in designation may be made, (c) immediately before and after designation of a Restricted Subsidiary as an Unrestricted Subsidiary there exists no Default or Event of Default and (d) a Subsidiary Guarantor may not be designated an Unrestricted Subsidiary. If a Restricted Subsidiary at any time ceases to be such as a result of a redesignation, any Liens on property of the Company or any other Restricted Subsidiary securing Indebtedness owed to such Restricted Subsidiary that is not contemporaneously repaid, together with such Indebtedness, shall be deemed to have been incurred by the Company or such other Restricted Subsidiary, as the case may be, at the time such Restricted Subsidiary ceases to be a Restricted Subsidiary.

 

10.7.  Restricted Subsidiary Guaranties.

 

  The Company will not permit any Restricted Subsidiary to become a party to the Bank Guarantees or to directly or indirectly guarantee any of the Company’s obligations under the Credit Agreement unless such Restricted Subsidiary is, or concurrently therewith becomes, a party to the Subsidiary Guaranty.

 

10.8.  Nature of Business. 

 

  The Company will not, and will not permit any Restricted Subsidiary to, engage in any business if, as a result, the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, would then be engaged would be substantially changed from the general nature of the business in which the Company and its Restricted Subsidiaries, taken as a whole, are engaged on the date of this Agreement as described in the Memorandum; provided, that the foregoing shall not be deemed to prohibit acquisitions by the Company or its Restricted Subsidiaries as long as the acquired companies are consumer products companies or other companies operating in businesses similar to or related to the current and future businesses conducted by the Company and its Subsidiaries, as well as suppliers to or distributors of products similar to those of the Company and its Subsidiaries.

10.9.  Transactions with Affiliates.

 

  The Company will not and will not permit any Restricted Subsidiary to enter into directly or indirectly any Material transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Restricted Subsidiary), except upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would be obtainable in a comparable arm’s-length transaction with a Person not an Affiliate.

	11.  	EVENTS OF DEFAULT.

 

  An “Event of Default” shall exist if any of the following conditions or events shall occur and be continuing:

(a)  the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or

 

(b)  the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or

 

(c)  the Company defaults in the performance of or compliance with any term contained in or Sections 10.1 through 10.9; or

 

(d)  the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note; or

 

(e)  any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or

 

(f)  (i) the Company or any Significant Restricted Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount in excess of $30,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Significant Restricted Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness that is outstanding in an aggregate principal amount in excess of $30,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared, due and payable before its stated maturity or before its regularly scheduled dates of payment; or

 

(g)  the Company or any Significant Restricted Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or

 

(h)  a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any Significant Restricted Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Significant Restricted Subsidiary, or any such petition shall be filed against the Company or any Significant Restricted Subsidiary and such petition shall not be dismissed within 60 days; or

 

(i)  a final judgment or judgments for the payment of money aggregating in excess of $30,000,000 are rendered against one or more of the Company and its Significant Restricted Subsidiaries, which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or

 

(j)  if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under Section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA Section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate “amount of unfunded benefit liabilities” (within the meaning of Section 4001(a)(18) of ERISA) under all Plans determined in accordance with Title IV of ERISA, shall exceed $30,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, would reasonably be expected to have a Material Adverse Effect; or

 

(k)  any Subsidiary Guarantor that is a Significant Restricted Subsidiary defaults in the performance of or compliance with any term contained in the Subsidiary Guaranty or the Subsidiary Guaranty ceases to be in full force and effect as a result of acts taken by the Company or any Subsidiary Guarantor, except as provided in Section 22, or is declared to be null and void in whole or in material part by a court or other governmental or regulatory authority having jurisdiction or the validity or enforceability thereof shall be contested by any of the Company or any Subsidiary Guarantor or any of them renounces any of the same or denies that it has any or further liability thereunder.

 

As used in Section 11(j), the terms “employee benefit plan” and “employee welfare benefit plan” shall have the respective meanings assigned to such terms in Section 3 of ERISA.

	12.  	REMEDIES ON DEFAULT, ETC.

 

12.1.  Acceleration.

 

(a)  If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable.

 

(b)  If any other Event of Default has occurred and is continuing, any holder or holders of a majority or more in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable.

 

(c)  If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable.

 

  Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (w) all accrued and unpaid interest thereon and (x) any applicable Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event any Notes are prepaid or are accelerated as a result of an Event of Default is intended to provide compensation for the deprivation of such right under such circumstances.

12.2.  Other Remedies.

 

  If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise.

12.3.  Rescission.

 

  At any time after any Notes have been declared due and payable pursuant to clause (b) or (c) of Section 12.1, the holders of more than 67% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and any Make-Whole Amount on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and any Make-Whole Amount and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon.

12.4.  No Waivers or Election of Remedies, Expenses, etc.

 

  No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys’ fees, expenses and disbursements.

	13.  	REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

 

13.1.  Registration of Notes.

 

  The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor, promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes.

13.2.  Transfer and Exchange of Notes.

 

  Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company’s expense (except as provided below), one or more new Notes (as requested by the holder thereof) of the same series in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Note established for such series. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $500,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $500,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2.

13.3.  Replacement of Notes.

 

  Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and

(a)  in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser or another Institutional Investor holder of a Note with a minimum net worth of at least $50,000,000, such Person’s own unsecured agreement of indemnity shall be deemed to be satisfactory), or

 

(b)  in the case of mutilation, upon surrender and cancellation thereof,

 

the Company at its own expense shall execute and deliver, in lieu thereof, a new Note of the same series, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon.

	14.  	PAYMENTS ON NOTES. 

 

14.1.  Place of Payment.

 

  Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Chicago, Illinois at the principal office of Bank of America in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction.

14.2.  Home Office Payment.

 

  So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2.

	15.  	EXPENSES, ETC.

 

15.1.  Transaction Expenses.

 

  Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys’ fees of one special counsel for you and the Other Purchasers collectively and, if reasonably required, local or other counsel) incurred by you and each Other Purchaser or holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the reasonable costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (b) the costs and expenses, including financial advisors’ fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you).

15.2.  Survival.

 

  The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement.

	16.  	SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

 

  All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof.

	17.  	AMENDMENT AND WAIVER.

 

17.1.  Requirements.

 

  This Agreement, the Notes and the Subsidiary Guaranty may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20.

17.2.  Solicitation of Holders of Notes.

 

(a)  Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes.

 

(b)  Payment. 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 as consideration for or as an inducement to the entering into by any holder of Notes or any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment.

 

(c)  Consent in Contemplation of Transfer. Any consent made pursuant to this Section 17 by a holder of Notes that has transferred or has agreed to transfer its Notes to the Company, any Subsidiary or any Affiliate of the Company and has provided or has agreed to provide such written consent as a condition to such transfer shall be void and of no force or effect except solely as to such holder, and any amendments effected or waivers granted or to be effected or granted that would not have been or would not be so effected or granted but for such consent (and the consents of other holders of Notes that were acquired under the same or similar conditions) shall be void and of no force or effect except solely as to such holder.

 

17.3.  Binding Effect, etc.

 

  Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term “this Agreement” or “the Agreement” and references thereto shall mean this Agreement as it may from time to time be amended or supplemented.

17.4.  Notes held by Company, etc.

 

  Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding.

	18.  	NOTICES.

 

  All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent:

(i)  if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing,

 

(ii)  if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or

 

(iii)  if to the Company, to the Company at its address set forth at the beginning hereof to the attention of the Office of the Treasurer, or at such other address as the Company shall have specified to the holder of each Note in writing.

 

Notices under this Section 18 will be deemed given only when actually received.

	19.  	REPRODUCTION OF DOCUMENTS.

 

  This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it would contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction.

	20.  	CONFIDENTIAL INFORMATION.

 

  For the purposes of this Section 20, “Confidential Information” means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified in writing when received by you as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any Person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential Information to (i) your directors, trustees officers, employees, agents, attorneys and Affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20.

	21.  	SUBSTITUTION OF PURCHASER.

 

  You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate’s agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word “you” is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word “you” is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement.

	22.  	RELEASE OF SUBSIDIARY GUARANTOR.

 

  You and each subsequent holder of a Note agree to release any Subsidiary Guarantor from the Subsidiary Guaranty (i) if such Subsidiary Guarantor ceases to be such as a result of a Disposition permitted by Section 10.3 or (ii) at such time as the banks party to the Credit Agreement release such Subsidiary from the Bank Guarantees; provided, however, that you and each subsequent holder will not be required to release a Subsidiary Guarantor from the Subsidiary Guaranty upon such Subsidiary’s release from the Bank Guarantees if (A) a Default or Event of Default has occurred and is continuing, (B) such Subsidiary Guarantor is to become a borrower under the Credit Agreement or (C) such release is part of a plan of financing that contemplates such Subsidiary Guarantor guaranteeing any other Indebtedness of the Company. Your obligation to release a Subsidiary Guarantor from the Subsidiary Guaranty is conditioned upon your prior receipt of a certificate from a Senior Financial Officer of the Company stating that none of the circumstances described in clauses (A), (B) and (C) above are true.

	23.  	MISCELLANEOUS.

 

23.1.  Successors and Assigns.

 

  All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not.

23.2.  Payments Due on Non-Business Days.

 

  Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day.

23.3.  Severability.

 

  Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.

23.4.  Construction.

 

  Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.

23.5.  Counterparts.

 

  This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.

23.6.  Governing Law.

 

  This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of Illinois excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State.

	

	 	 	 
	

	

  If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company.

Very truly yours,

ENERGIZER HOLDINGS, INC.

By: /s/ William C. Fox

Name: William C. Fox

Title: Vice President and TreasurerExhibit 10.45

 

SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (the “Agreement”),
dated as of November 10, 2004, by and among BroadVision,
Inc., a Delaware corporation, with headquarters located at 585 Broadway,
Redwood City, CA 94063 (the ”Company”),
and the investors listed on the Schedule of Buyers attached hereto
(individually, a “Buyer” and
collectively, the “Buyers”).

 

WHEREAS:

 

A.                                   The Company and each Buyer is executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act of 1933, as amended
(the “1933 Act”), and Rule 506 of
Regulation D (“Regulation D”)
as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act.

 

B.                                     The Company has authorized a new series of
senior subordinated secured convertible notes of the Company, which notes shall
be convertible into the Company’s common stock, $.0001 par value per share (the ”Common Stock”),
in accordance with the terms of such notes.

 

C.                                     Each Buyer wishes to purchase, and the
Company wishes to sell, upon the terms and conditions stated in this Agreement,
(i) that aggregate principal amount of notes, in
substantially the form attached hereto as Exhibit A (as amended or modified
from time to time, collectively, the “Initial
Notes”), set forth opposite such Buyer’s name in column (3) on the
Schedule of Buyers (which aggregate amount for all Buyers shall be $16,000,000)
(as converted, collectively, the “Initial
Conversion Shares”), (ii) warrants, in substantially the form
attached hereto as Exhibit B (the “Warrants”),
to acquire up to that number of additional shares of Common Stock set forth
opposite such Buyer’s name in column (4) of the Schedule of Buyers (as
exercised, collectively, the ”Warrant
Shares”) and (iii) a right, in substantially the form attached
hereto as Exhibit C (the “Additional
Investment Rights”), to acquire up to that principal amount of
additional notes, in substantially the form attached hereto as Exhibit D
(as amended or modified from time to time, collectively, the “Additional Notes” and together with the
Initial Notes and any senior subordinated secured convertible notes issued in
replacement of the Initial Notes or the Additional Notes in accordance with the
terms thereof, the “Notes”), set
forth opposite such Buyer’s name in column (5) on the Schedule of Buyers (such
Additional Notes as converted, the “Additional
Conversion Shares” and together with the Initial Conversion Shares,
the “Conversion Shares”).

 

D.                                    The Notes bear interest that, at the option
of the Company, subject to certain conditions, may be paid in shares of Common
Stock (the “Interest Shares”).

 

E.                                      Contemporaneously with the execution and
delivery of this Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement, substantially in the form attached hereto as Exhibit
E (as amended or modified from time to time in accordance with its terms,
the “Registration Rights Agreement”),
pursuant to which the Company has agreed to provide certain registration rights
with respect to the Conversion Shares, the Warrant Shares and

 

 

the Interest Shares under the 1933 Act and the
rules and regulations promulgated thereunder, and
applicable state securities laws.

 

F.                                      The Notes, the Conversion Shares, the
Interest Shares, the Warrants, the Warrant Shares and the Additional Investment
Rights collectively are referred to herein as the “Securities”.

 

G.                                     The Notes will be (i)
subordinated to the Senior Indebtedness (as defined in the Notes), but will
rank senior to or pari  passu
with all other outstanding and future indebtedness of the Company, (ii) secured
by a perfected security interest in all of the assets of the Company and in all
of the assets of the “Existing Subsidiaries”
as evidenced by (and as defined in) the Pledge and Security Agreement in favor
of Portside Growth & Opportunity  Fund,
a company organized under the laws of the Cayman Islands, in its capacity as
collateral agent (in such capacity, the “Senior Agent”) for the Buyers hereto
and for the other holders of the Securities, in the form attached hereto as Exhibit
F (as amended or modified from time to time, the “Pledge and Security Agreement”) which
security interest shall be senior to all other security interests therein,
except those security interests securing the Senior Indebtedness, and (iii)
guaranteed by the Guarantee of each of the Existing Subsidiaries, in the form
attached hereto as Exhibit G (such Guaranty, together with the Pledge
and Security Agreement, as each may amended or modified from time to time,
collectively, the “Security Documents”).

 

NOW, THEREFORE, the Company and each Buyer hereby agree as
follows:

 

1.                                       PURCHASE AND SALE OF NOTES, WARRANTS AND
ADDITIONAL INVESTMENT RIGHTS.

 

(a)                                  Purchase of Notes, Warrants and Additional
Investment Rights.

 

(i)                                     Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 6 and 7 below, the Company shall issue and
sell to each Buyer, and each Buyer severally, but not jointly, agrees to
purchase from the Company on the Closing Date (as defined below), (A) one or
more Notes with an aggregate principal amount as is set forth opposite such
Buyer’s name in column (3) on the Schedule of Buyers, (B) one or more Warrants
to acquire up to that number of Warrant Shares as is set forth opposite such
Buyer’s name in column (4) on the Schedule of Buyers and (C) Additional
Investment Rights to acquire up to that principal amount of Additional Notes as
is set forth opposite such Buyer’s name in column (5) on the Schedule of Buyers
(the “Closing”).

 

(ii)                                  Closing.  The date and time of the
Closing (the “Closing Date”) shall
be 10:00 a.m., New York City time, on November     ,
2004 (or such later date as is mutually agreed to by the Company and each
Buyer) after notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below, at the offices of Schulte Roth
& Zabel LLP, 919 Third Avenue, New York, New York
10022.

 

(iii)                               Purchase Price.  The
aggregate purchase price for the Notes, the Warrants and the Additional
Investment Rights to be purchased by each Buyer at the Closing (the “Purchase Price”) shall be the amount set
forth opposite such Buyer’s name in column (6) of the Schedule of Buyers.  Each Buyer shall pay $1.00 for each $1.00 of
principal amount of Initial Notes and related Warrants and Additional
Investment Rights to be purchased by such Buyer at the Closing.

 

2

 

(b)                                 Form of Payment.  On
the Closing Date, (i) each Buyer shall pay its
Purchase Price to the Company for the Initial Notes, the Warrants and the
Additional Investment Rights to be issued and sold to such Buyer at the
Closing, by wire transfer of immediately available funds in accordance with the
Company’s written wire instructions, and (ii) the Company shall deliver to
each Buyer (A) the Initial Notes (allocated in the principal amounts as such
Buyer shall request) which such Buyer is then purchasing, (B) the Warrants
(allocated in the amounts as such Buyer shall request) such Buyer is purchasing
and (C) the Additional Investment Rights (allocated in the amounts as such
Buyer shall request) such Buyer is purchasing, in each case duly executed on
behalf of the Company and registered in the name of such Buyer or its designee.

 

2.                                       BUYERS’ REPRESENTATIONS AND WARRANTIES.

 

Each
Buyer represents and warrants with respect to only itself that: 

 

(a)                                  No Sale or Distribution.  Such
Buyer is acquiring the Notes, the Warrants and the Additional Investment
Rights, and upon conversion of the Notes and exercise of the Warrants (other
than pursuant to a Cashless Exercise (as defined in the Warrants)) and
Additional Investment Rights, will acquire the Conversion Shares issuable upon conversion of the Notes, the Warrant Shares issuable upon exercise of the Warrants and the Additional
Notes issuable upon exercise of the Additional
Investment Rights, for its own account and not with a view towards, or for
resale in connection with, the sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act; provided, however,
that by making the representations herein, such Buyer does not agree to hold
any of the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant
to a registration statement or an exemption under the 1933 Act.  Such Buyer is acquiring the Securities
hereunder in the ordinary course of its business.  Such Buyer does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Securities.

 

(b)                                 Accredited Investor Status.  Such
Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D.

 

(c)                                  Reliance on Exemptions.  Such
Buyer understands that the Securities are being offered and sold to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying in
part upon the truth and accuracy of, and such Buyer’s compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Securities.

 

(d)                                 Information.  Such Buyer and its advisors,
if any, have been furnished with all materials relating to the business,
finances and operations of the Company and materials relating to the offer and
sale of the Securities that have been requested by such Buyer.  Such Buyer and its advisors, if any, have
been afforded the opportunity to ask questions of the Company.  Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or
its representatives shall modify, amend or affect such Buyer’s right to rely on
the Company’s representations and warranties contained herein.  Such Buyer understands that its

 

3

 

investment in the Securities involves a high degree of
risk and is able to afford a complete loss of such investment.  Such Buyer has sought such accounting, legal
and tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.

 

(e)                                  No Governmental Review.  Such
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.

 

(f)                                    Transfer or Resale.  Such
Buyer understands that except as provided in the Registration Rights
Agreement:  (i)
the Securities have not been and are not being registered under the 1933 Act or
any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder,
(B) such Buyer shall have delivered to the Company an opinion of counsel, in a
generally acceptable form, to the effect that such Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) such Buyer provides the Company with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended,
(or a successor rule thereto) (collectively, “Rule
144”); (ii) any sale of the Securities made in reliance on Rule 144
may be made only in accordance with the terms of Rule 144 and further, if Rule
144 is not applicable, any resale of the Securities under circumstances in
which the seller (or the Person (as defined in Section 3(s)) through whom the
sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.

 

(g)                                 Legends.  Such Buyer understands that
the certificates or other instruments representing the Notes, Warrants and
Additional Investment Rights and, until such time as the resale of the
Conversion Shares and the Warrant Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Conversion Shares and the Warrant Shares, except
as set forth below, shall bear any legend as required by the “blue sky” laws of
any state and a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock certificates):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE]  [EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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

 

4

 

ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such Securities are registered for resale under the 1933
Act, (ii) in connection with a sale, assignment or other transfer, such holder
provides the Company with an opinion of counsel, in a generally acceptable
form, to the effect that such sale, assignment or transfer of the Securities
may be made without registration under the applicable requirements of the 1933
Act, or (iii) such holder provides the Company with reasonable assurance that
the Securities can be sold, assigned or transferred pursuant to Rule 144 or
Rule 144A.

 

(h)                                 Validity; Enforcement.  This
Agreement, the Registration Rights Agreement and the Security Documents to
which such Buyer is a party have been duly and validly authorized, executed and
delivered on behalf of such Buyer and shall constitute the legal, valid and
binding obligations of such Buyer enforceable against such Buyer in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

 

(i)                                     No Conflicts.  The
execution, delivery and performance by such Buyer of this Agreement, the
Registration Rights Agreement and the Security Documents to which such Buyer is
a party and the consummation by such Buyer of the transactions contemplated
hereby and thereby will not (i) result in a violation
of the organizational documents of such Buyer or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Buyer is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws) applicable to such Buyer, except in the case of clauses
(ii) and (iii) above, for such conflicts, defaults, rights or violations which
would not, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the ability of such Buyer to perform its obligations
hereunder.

 

(j)                                     Residency.  Such Buyer is a resident of
that jurisdiction specified below its address on the Schedule of Buyers.

 

(k)                                  Ownership of Common Stock. 
Neither such Buyer nor any of its affiliates beneficially owns any
Common Stock of the Company as of the date hereof.

 

5

 

(l)                                     Agents.  Such Buyer acknowledges that
it has been informed by the Company that each Agent (as defined in Section
3(g)) makes a market in the Company’s securities and that Kaufman Bros. L.P.,
provides research coverage on the Company.

 

3.                                       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The
Company represents and warrants to each of the Buyers that:

 

(a)                                  Organization and Qualification. 
Except as set forth on Schedule 3(a), the Company and its “Subsidiaries” (which for purposes of this
Agreement means any entity in which the Company, directly or indirectly, owns
50% or more of the outstanding capital stock or holds an equity or similar
interest representing 50% or more of the outstanding equity or similar interest
of such entity) are entities duly organized and validly existing and, to the
extent legally applicable, in good standing under the laws of the jurisdiction
in which they are formed, and have the requisite power and authorization to own
their properties and to carry on their business as now being conducted.  Except as set forth on Schedule 3(a),
each of the Company and its Subsidiaries is duly qualified as a foreign entity
to do business and, to the extent legally applicable, is in good standing in
every jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect.  As used in this
Agreement, “Material Adverse Effect”
means any material adverse effect on the business, properties, assets,
operations, results of operations or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby and in the Security Documents or by the agreements and
instruments to be entered into in connection herewith or therewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). 
The Company has no Subsidiaries except as set forth on Schedule 3(a).

 

(b)                                 Authorization; Enforcement; Validity.  The
Company has the requisite power and authority to enter into and perform its
obligations under this Agreement, the Notes, the Registration Rights Agreement,
the Security Documents, the Irrevocable Transfer Agent Instructions (as defined
in Section 5(b)), the Warrants, the Additional Investment Rights and the Voting
Agreement (as defined in Section 4(q)) (collectively, the “Transaction Documents”) and to issue the
Securities in accordance with the terms hereof and thereof.  The execution and delivery of the Transaction
Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation,
the issuance of the Notes, the Warrants and the Additional Investment Rights,
the reservation for issuance and the issuance of the Conversion Shares  issuable upon
conversion of the Notes, the reservation for issuance and issuance of Warrant
Shares issuable upon exercise of the Warrants, and
the granting of a security interest in the Collateral (as defined in the
Security Documents) have been duly authorized by the Company’s Board of
Directors and, other than the filings specified in Section 3(e), no further
filing, consent, or authorization is required by the Company, its Board of
Directors or its stockholders.  This
Agreement and the other Transaction Documents of even date herewith have been
duly executed and delivered by the Company, and constitute the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar

 

6

 

laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.  As of the date of issuance of any Additional
Notes, such Additional Notes shall have been duly executed and delivered by the
Company, and shall constitute the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the
enforcement of applicable creditor’s rights and remedies.

 

(c)                                  Issuance of Securities.  The
issuance of the Notes, the Warrants and the Additional Investment Rights are
duly authorized and are free from all taxes, liens and charges with respect to
the issue thereof.  As of the Closing, a
number of shares of Common Stock shall have been duly authorized and reserved
for issuance which equals or exceeds 150% of the aggregate of the maximum
number of shares Common Stock:  (i) issuable as Interest Shares
pursuant to the terms of the Notes as of the trading day immediately preceding
the Closing Date, (ii) issuable upon conversion
of the Notes pursuant to Section 3 of the Notes as of the trading day
immediately preceding the Closing Date and (iii) issuable
upon exercise of the Warrants as of the trading day immediately preceding the
Closing Date.  Upon issuance or
conversion in accordance with the Notes or exercise in accordance with the
Warrants, as the case may be, the Interest Shares, the Conversion Shares and
the Warrant Shares, respectively, will be validly issued, fully paid and nonassessable and free from all preemptive or similar
rights, taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock.  Assuming the accuracy of each of the representations
and warranties set forth in Section 2 of this Agreement, the offer and
issuance by the Company of the Initial Notes, Warrants and Additional
Investment Rights is exempt from registration under the 1933 Act.

 

(d)                                 No Conflicts.  The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Notes, the Warrants
and the Additional Investment Rights, the granting of a security interest in
the Collateral (as defined in the Security Documents) and reservation for
issuance and issuance of the Interest Shares, the Conversion Shares and the
Warrant Shares) will not (i) result in a violation of
any certificate of incorporation, certificate of formation, any certificate of
designations or other constituent documents of the Company or any of is
Subsidiaries, any capital stock of the Company or any of its Subsidiaries or
bylaws of the Company or any of its Subsidiaries or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) in any material respect under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the Nasdaq
National Market (the “Principal Market”))
applicable to the Company or any of its Subsidiaries or by which any property
or asset of the Company or any of its Subsidiaries is bound or affected,
except, in the case of clause (iii), for such violations as would not be
reasonably expected to have a Material Adverse Effect.

 

(e)                                  Consents.  The Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any

 

7

 

regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof, except for the following consents,
authorizations, orders, filings and registrations (none of which is required to
be filed or obtained before the Closing): 
(i) the filing of appropriate UCC financing
statements with the appropriate states and authorities pursuant to the Pledge
and Security Agreement, (ii) the filing with the SEC of one or more
Registration Statements in accordance with the requirements of the Registration
Rights Agreement and (iii) the filing of a listing application for the
Conversion Shares, Interest Shares and Warrant Shares with the Principal
Market, which shall be done pursuant to the rules of the Principal Market.  The Company and its Subsidiaries are unaware
of any facts or circumstances that might prevent the Company from obtaining or effecting any of the registration, application or filings
pursuant to the preceding sentence.  The
Company is not in violation of the listing requirements of the Principal Market
and has no knowledge of any facts that would reasonably lead to delisting or
suspension of the Common Stock in the foreseeable future.

 

(f)                                    Acknowledgment Regarding Buyer’s Purchase of
Securities.  The Company acknowledges and agrees that each
Buyer is acting solely in the capacity of arm’s length purchaser with respect
to the Transaction Documents and the transactions contemplated hereby and
thereby.  The Company further
acknowledges that no Buyer is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby, and any advice given by a
Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer’s purchase of the Securities.  The Company further represents to each Buyer
that the Company’s decision to enter into the Transaction Documents has been
based solely on the independent evaluation by the Company and its representatives.

 

(g)                                 No General Solicitation; Placement Agent’s
Fees.  Neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Securities.  The Company acknowledges that it has engaged
Thomas Weisel Partners LLC and Kaufman Bros., L.P. as
placement agents (the “Agents”) in
connection with the sale of the Securities. 
Other than the Agents, the Company has not engaged any placement agent
or other agent in connection with the sale of the Securities.

 

(h)                                 No Integrated Offering.  None
of the Company, its Subsidiaries, any of their affiliates, and any Person
acting on their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under circumstances
that would require registration of any of the Securities under the 1933 Act or
cause this offering of the Securities to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of
the Company are listed or designated. 
None of the Company, its Subsidiaries, their affiliates and any Person
acting on their behalf will take any action or steps referred to in the
preceding sentence that would require registration of any of the Securities
under the 1933 Act or cause the offering of the Securities to be integrated
with other offerings.

 

8

 

(i)                                     Dilutive Effect.  The
Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Notes and the Warrant
Shares issuable upon exercise of the Warrants will
increase in certain circumstances.  The
Company further acknowledges that its obligation to issue Conversion Shares
upon conversion of the Notes in accordance with this Agreement and the Notes
and its obligation to issue the
Warrant Shares upon exercise of the Warrants in accordance with this Agreement
and the Warrants is, in each case, absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.

 

(j)                                     Application of Takeover Protections; Rights
Agreement.  The Company and its board of directors have
taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Certificate of Incorporation or the laws of the jurisdiction of its
formation which is or could become applicable to any Buyer as a result of the
transactions contemplated by this Agreement, including, without limitation, the
Company’s issuance of the Securities and any Buyer’s ownership of the
Securities.  The Company has not adopted
a stockholder rights plan or similar arrangement relating to accumulations of
beneficial ownership of Common Stock or a change in control of the Company.

 

(k)                                  SEC Documents; Financial Statements. 
During the two (2) years prior to the date hereof, the Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements, notes and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the “SEC Documents”).  The Company has delivered to the Buyers or
their respective representatives true, correct and complete copies of the SEC
Documents not available on the EDGAR system (other than any correspondence
filed by the Company with the SEC, including without limitation, any
confidential treatment requests).  As of
their respective dates, the SEC Documents complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.  As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto.  Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be
condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results
of its operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end
audit adjustments).  No other information
provided by or on behalf of the Company to the Buyers which is not included in
the SEC Documents, including, without limitation, information referred to in
Section 2(d) of this Agreement, contains any untrue statement of a material
fact or omits to state any material fact

 

9

 

necessary in order to make the statements therein, in
the light of the circumstance under which they are or were made, not
misleading.

 

(l)                                     Absence of Certain Changes. 
Since December 31, 2003, there has been no material adverse change and
no material adverse development in the business, properties, operations,
condition (financial or otherwise) or results of operations of the Company or
its Subsidiaries.  Except as disclosed in
Schedule 3(l), since December 31, 2003, the Company has not (i) declared or paid any dividends, (ii) sold any assets,
individually or in the aggregate, in excess of $100,000 outside of the ordinary
course of business or (iii) had capital expenditures, individually or in the
aggregate, in excess of $500,000.  The
Company has not taken any steps to seek protection pursuant to any bankruptcy
law nor does the Company have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings or any actual
knowledge of any fact that would reasonably lead a creditor to do so.  Except as disclosed in Schedule 3(l),
the Company and its Subsidiaries, individually and on a consolidated basis, are
not as of the date hereof, and after giving effect to the transactions
contemplated hereby to occur at the Closing, will not be Insolvent (as defined
below).  For purposes of this Section
3(l), “Insolvent” means, with
respect to any Person (as defined in Section 3(s)), (i)
the present fair saleable value of such Person’s assets is less than the amount
required to pay such Person’s total Indebtedness (as defined in Section 3(s)),
(ii) the Company is unable to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured, (iii) such Person intends to incur or believes that it will incur
debts that would be beyond its ability to pay as such debts mature or (iv) such
Person has unreasonably small capital with which to conduct the business in
which it is engaged as such business is now conducted and is proposed to be
conducted.

 

(m)                               No Undisclosed Events, Liabilities,
Developments or Circumstances.  No event, liability, development or
circumstance has occurred or exists, or is contemplated to occur with respect
to the Company or its Subsidiaries or their respective business, properties,
operations or financial condition, that would be required to be disclosed by
the Company under applicable securities laws on a registration statement on
Form S-1 filed with the SEC relating to an issuance and sale by the Company of
its Common Stock and which has not been publicly announced.

 

(n)                                 Conduct of Business; Regulatory Permits. 
Neither the Company nor its Subsidiaries is in violation of any term of
or in default under its Certificate of Incorporation or Bylaws or their
organizational charter or certificate of incorporation or bylaws,
respectively.  Neither the Company nor
any of its Subsidiaries is in violation of any judgment, decree or order or any
statute, ordinance, rule or regulation applicable to the Company or its
Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct
its business in violation of any of the foregoing, except for possible
violations which would not, individually or in the aggregate, have a Material
Adverse Effect.  Without limiting the
generality of the foregoing, the Company is not in violation of any of the
rules, regulations or requirements of the Principal Market and has no knowledge
of any facts or circumstances that would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future.  Since December 31, 2003, (i) the Common Stock has been designated for quotation on
the Principal Market, (ii) trading in the Common Stock has not been suspended
by the SEC or the Principal Market and (iii) the Company has received no
communication, written or oral, from the SEC or the Principal

 

10

 

Market regarding the
suspension or delisting of the Common Stock from the Principal Market.  The
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate regulatory authorities necessary to conduct
their respective businesses, except where the failure to possess such
certificates, authorizations or permits would not have, individually or in the
aggregate, a Material Adverse Effect, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.

 

(o)                                 Foreign Corrupt Practices. 
Neither the Company, nor any of its Subsidiaries, nor any director,
officer, agent, employee or other Person acting on behalf of the Company or any
of its Subsidiaries has, in the course of its actions for, or on behalf of, the
Company (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds; (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.

 

(p)                                 Sarbanes-Oxley Act.  The
Company is in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and
all applicable rules and regulations promulgated by the SEC thereunder
that are effective as of the date hereof, except where such noncompliance would
not have, individually or in the aggregate, a Material Adverse Effect.

 

(q)                                  Transactions With
Affiliates.  Except as set forth in the SEC Documents
filed at least two days prior to the date hereof and other than the grant of
stock options disclosed on Schedule 3(r), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for ordinary course
services as employees, officers or directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any such officer, director or employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity
in which any such officer, director, or employee has a substantial interest or
is an officer, director, trustee or partner.

 

(r)                                    Equity Capitalization.  As
of the date hereof, the authorized capital stock of the Company consists of (i) 2,000,000,000 shares of Common Stock, of which as of the
date hereof, 33,743,008 are issued and outstanding, 10,436,668 shares are
reserved for issuance pursuant to the Company’s stock option and purchase plans
and 709,628 shares are reserved for issuance pursuant to securities (other than
the Notes and the Warrants) exercisable or exchangeable for, or convertible
into, shares of Common Stock and (ii) 10,000,000 shares of preferred stock,
$.0001 par value per share, of which as of the date hereof none of which is
issued and outstanding or reserved for issuance.  All of such outstanding shares have been, or
upon issuance will be, validly issued and are fully paid and nonassessable. 
Except as disclosed in Schedule 3(r): (i)
none of the Company’s share capital is subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of

 

11

 

any character whatsoever relating to, or securities
or rights convertible into, or exercisable or exchangeable for, any share
capital of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional share capital of the Company or any
of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any share capital of the
Company or any of its Subsidiaries; (iii) there are no outstanding debt
securities, notes, credit agreements, credit facilities or other agreements,
documents or instruments evidencing Indebtedness (as defined in
Section 3(s)) of the Company or any of its Subsidiaries or by which the
Company or any of its Subsidiaries is or may become bound; (iv) there are no
financing statements securing obligations in any material amounts, either
singly or in the aggregate, filed in connection with the Company; (v) there are
no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the 1933 Act (except the Registration Rights Agreement); (vi) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or “phantom stock” plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company’s or
its Subsidiaries’ respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect.  The Company has made available to the Buyer
true, correct and complete copies of the Company’s Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”), and the
Company’s Bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and the terms of all securities
convertible into, or exercisable or exchangeable for, shares of Common Stock
and the material rights of the holders thereof in respect thereto.

 

(s)                                  Indebtedness and Other Contracts. 
Except as disclosed in Schedule 3(s), neither the Company nor any
of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the reasonably foreseeable violation of which, or reasonably
foreseeable default under which, by the other party(ies)
to such contract, agreement or instrument could reasonably be expected to
result in a Material Adverse Effect, (iii) is in violation of any term of or in
default under any contract, agreement or instrument relating to any
Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness,
the performance of which, in the judgment of the Company’s officers, has or is
expected to have a Material Adverse Effect. 
Schedule 3(s) provides a detailed description of the material
terms of any such outstanding Indebtedness. 
For purposes of this Agreement: 
(x) “Indebtedness” of any
Person means, without duplication (A) all indebtedness for borrowed money, (B)
all obligations issued, undertaken or assumed as the deferred purchase price of
property or services, including (without limitation) “capital leases” in
accordance with generally accepted accounting principals (other than trade
payables entered into in the ordinary course of business), (C) all
reimbursement or

 

12

 

payment obligations with respect to letters of
credit, surety bonds and other similar instruments, (D) all obligations
evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (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 mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any
Person, even though the Person which owns such assets or property has not
assumed or become liable for the payment of such indebtedness, and (H) all
Contingent Obligations in respect of indebtedness or obligations of others of
the kinds referred to in clauses (A) through (G) above; (y) “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; and (z) “Person”
means an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.

 

(t)                                    Absence of Litigation. 
Except as set forth in Schedule 3(t), there is no action, suit,
proceeding, inquiry or investigation before or by the Principal Market, any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company, threatened against or affecting
the Company, the Common Stock or any of the Company’s Subsidiaries or any of
the Company’s or the Company’s Subsidiaries’ officers or directors in their
capacities as such.

 

(u)                                 Insurance.  The Company and each of its
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company and
its Subsidiaries are engaged.  Neither
the Company nor any such Subsidiary has been refused any insurance coverage
sought or applied for and neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.

 

(v)                                 Employee Relations.  (i)  Except as
disclosed in Schedule 3(v), neither the Company nor any of its Subsidiaries is
a party to any collective bargaining agreement or employs any member of a
union.  The Company and its Subsidiaries
believe that their relations with their employees are good.  Except as disclosed in Schedule 3(v), no
executive officer of the Company (as defined in Rule 501(f) of the 1933 Act)
has notified the Company

 

13

 

that such officer intends to leave the Company or
otherwise terminate such officer’s employment with the Company.  No executive officer of the Company, to the
knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters.

 

(ii)                                  The Company and its Subsidiaries are in
compliance with all federal, state, local and foreign laws and regulations
respecting labor, employment and employment practices and benefits, terms and
conditions of employment and wages and hours, except where failure to be in
compliance would not, either individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.

 

(w)                               Title.  The Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries.   Any real property and
facilities held under lease by the Company and any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its Subsidiaries.

 

(x)                                   Intellectual Property Rights.  The
Company and its Subsidiaries own or possess adequate rights or licenses to use
all trademarks, service marks and all applications and registrations therefor, trade names, patents, patent rights, copyrights,
original works of authorship, inventions, trade secrets and other intellectual
property rights (“Intellectual Property
Rights”) necessary to conduct their respective businesses as now
conducted.  Except as set forth in Schedule
3(x), none of the Company’s registered, or applied for, Intellectual
Property Rights have expired or terminated or have been abandoned, or are
expected to expire or terminate or expected to be abandoned, within three years
from the date of this Agreement.  The
Company does not have any knowledge of any infringement by the Company or its
Subsidiaries of Intellectual Property Rights of others.  There is no claim, action or proceeding being
made or brought, or to the knowledge of the Company, being threatened in
writing, against the Company or its Subsidiaries regarding its Intellectual
Property Rights.  The Company is unaware
of any facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings.  The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights.

 

(y)                                 Environmental Laws.  The
Company and its Subsidiaries (i) are in compliance
with any and all Environmental Laws (as hereinafter defined), (ii) have
received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i),
(ii) and (iii), the failure to so comply could be reasonably expected to have,
individually or in the aggregate, a Material

 

14

 

Adverse Effect.  The
term “Environmental Laws” means
all federal, state, local or foreign laws relating to pollution or protection
of human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, “Hazardous Materials”)  into
the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

 

(z)                                   Subsidiary Rights. 
Except as set forth in Schedule 3(z), the Company or one of its
Subsidiaries has the unrestricted right to vote, and (subject to limitations
imposed by applicable law) to receive dividends and distributions on, all
capital securities of its Subsidiaries as owned by the Company or such
Subsidiary.

 

(aa)                            Tax Status.  Except as set forth in Schedule
3(aa), the Company and each of its Subsidiaries (i) has made or filed all foreign, federal and state income
and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (ii) has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and (iii) has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim.

 

(bb)                          Internal Accounting
Controls.  The
Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management’s general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference.

 

(cc)                            Ranking of Notes. 
Except as set forth on Schedule (cc), and except for Indebtedness
relating to equipment financings secured only by financed equipment (none of
such Indebtedness exceeding $50,000 in each instance or $100,000 in the
aggregate), no Indebtedness of the Company is senior to or ranks pari  passu with the
Notes in right of payment, whether with respect of payment of redemptions,
interest, damages or upon liquidation or dissolution or otherwise.

 

(dd)                          Manipulation of Price.  The
Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to
cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate

 

15

 

the sale or resale of any of the Securities, (ii)
sold, bid for, purchased, or paid any compensation for soliciting purchases of,
any of the Securities (other than to the Agents), or (iii) paid or agreed to
pay to any person any compensation for soliciting another to purchase any other
securities of the Company.

 

(ee)                            Disclosure.  The Company confirms that
neither it nor any other Person acting on its behalf has provided any of the
Buyers or their agents or counsel with any information that constitutes
material, nonpublic information.  The
Company understands and confirms that each of the Buyers will rely on the
foregoing representations in effecting transactions in securities of the
Company.  All disclosure provided to the
Buyers regarding the Company, its business and the transactions contemplated
hereby, including the Schedules to this Agreement, furnished by or on behalf of
the Company is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading.  Each press
release issued by the Company during the twelve (12) months preceding the date
of this Agreement did not at the time of release contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.  No event or circumstance has occurred or
information exists with respect to the Company or any of its Subsidiaries or its
or their business, properties, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.

 

(ff)                                Schedule 3(ff) sets forth the Cash Balances of the Company
as of September 30, 2004 and the pro forma Cash Balances after taking into
account the Closing and the payments required in connection with the
restructuring of certain of the Company’s leases  listed on Schedule 3(ff) in the respective amounts
shown therein.  For purposes of this
Section, “Cash Balances” shall
mean, at any date, the difference between (A) aggregate amount of all cash and
cash equivalents (not including restricted cash) and short term investments
shown or reflected on the Company’s balance sheet as at such date minus (B) the unpaid principal balance of
the Permitted Indebtedness (as defined in the Notes) on such date.

 

4.                                       COVENANTS.

 

(a)                                  Best Efforts.  Each
party shall use its best efforts timely to satisfy each of the conditions to be
satisfied by it as provided in Sections 6 and 7 of this Agreement.

 

(b)                                 Form D and Blue Sky.  The
Company agrees to file a Form D with respect to the Securities as required
under Regulation D and to provide a copy thereof to each Buyer promptly after
such filing.  The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable securities or “Blue Sky” laws of the states of the United
States (or to obtain an exemption from such qualification), and shall provide
evidence of any such action so taken to the Buyers on or prior to the Closing
Date.  The Company shall make all filings
and reports relating to the offer and sale of the Securities required under
applicable securities or “Blue Sky” laws of the states of the United States
following the Closing Date; provided, however, that the Company

 

16

 

shall not for any such purpose be required to
qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction.

 

(c)                                  Reporting Status. 
Until the date on which the Investors (as defined in the Registration
Rights Agreement) shall have sold all the Conversion Shares, Warrant Shares  and Interest Shares and none of the Notes, Warrants or Additional Investment Rights
is outstanding (the “Reporting Period”),
and other than in accordance with the Notes, Warrants and the Additional
Investment Rights, the Company shall timely file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall continue to
timely file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would otherwise no longer
require such filings.

 

(d)                                 Use of Proceeds.  The
Company will use the proceeds from the sale of the Securities for general
working capital purposes and to fund the Company’s lease restructuring
efforts.  The Company will not use the
proceeds from the sale of the Securities for the (i)
repayment of any outstanding Indebtedness of the Company or any of its
Subsidiaries or (ii) redemption or repurchase of any of its equity
securities.  

 

(e)                                  Financial Information.  The
Company agrees to send the following to each Investor during the Reporting
Period (i) unless the following are filed with the
SEC through EDGAR and are available to the public through the EDGAR system,
within one (1) Business Day after the filing thereof with the SEC, a copy of
its Annual Reports on Form 10-K or 10-KSB, any interim reports or any
consolidated balance sheets, income statements, stockholders’ equity statements
and/or cash flow statements for any period other than annual, any Current
Reports on Form 8-K and any registration statements (other than on Form S-8) or
amendments filed pursuant to the 1933 Act, (ii) on the same day as the release
thereof, facsimile copies of all press releases issued by the Company or any of
its Subsidiaries, and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders; provided, however, that the Company shall have no obligation
hereunder to provide copies of any correspondence filed with the SEC,
including, without limitation, any confidential treatment requests. For purposes
of this Agreement, “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.

 

(f)                                    Listing.  The Company shall promptly
secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement) upon each national
securities exchange and automated quotation system, if any, upon which the
Common Stock is then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed and in
accordance with the Notes, Warrants and Additional Investment Rights, such
listing of all Registrable Securities from time to
time issuable under the terms of the Transaction Documents.  The Company shall maintain the Common Stocks’
authorization for quotation on the Principal Market.  Neither the Company nor any of its
Subsidiaries shall take any action which would be reasonably expected to result
in the delisting or suspension of the Common Stock on the Principal Market;
provided, however, that the Company makes no covenant regarding the trading
price of the Common Stock.  The Company

 

17

 

shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(f).

 

(g)                                 Fees.  Subject to Section 8 below, at
the Closing, the Company shall pay an expense allowance to Portside Growth
& Opportunity Fund (a Buyer) or its designee(s) (in addition to any other expense
amounts paid to any Buyer prior to the date of this Agreement) to cover
expenses reasonably incurred by Portside Growth & Opportunity Fund or any
professionals engaged by Portside Growth & Opportunity Fund in relation to
due diligence and investment documentation, in an amount not to exceed
$100,000, which amount shall be withheld by such Buyer from its Purchase Price
at the Closing.  The Company shall also
reimburse Portside Growth & Opportunity Fund for the costs of performing
UCC, tax and judgment lien searches and searches with the United States Patent
and Trademark Office, in an amount not to exceed $3,000, which costs shall not
be deducted from the expense reimbursement set forth in the immediately
preceding sentence.  The Company shall be
responsible for the payment of any placement agent’s fees, financial advisory
fees, or broker’s commissions (other than for Persons engaged by any Buyer)
relating to or arising out of the transactions contemplated hereby, including,
without limitation, any fees or commissions payable to the Agents.  The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without
limitation, reasonable attorney’s fees and out of pocket expenses) arising in
connection with any claim relating to any such payment.  Except as otherwise set
forth in the Transaction Documents, each party to this Agreement shall bear its
own expenses in connection with the sale of the Securities to the Buyers.

 

(h)                                 Pledge of Securities.  The
Company acknowledges and agrees that the Securities may be pledged by an
Investor (as defined in the Registration Rights Agreement) in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities.  The pledge of
Securities shall not be deemed to be a transfer, sale or assignment of the
Securities hereunder, and no Investor effecting a pledge of Securities shall be
required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Transaction
Document, including, without limitation, Section 2(f) hereof; provided that an
Investor and its pledgee shall be required to comply
with the provisions of Section 2(f) hereof in order to effect a sale, transfer
or assignment of Securities to such pledgee.  The Company hereby agrees to execute and
deliver such documentation as a pledgee of the
Securities may reasonably request in connection with a pledge of the Securities
to such pledgee by an Investor.

 

(i)                                     Disclosure of Transactions and Other Material
Information.  On or before 8:30 a.m., New York time, on the
Closing Date, the Company shall file a Current Report on Form 8-K describing
the terms of the transactions contemplated by the Transaction Documents in the
form required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules to this
Agreement), the form of each of the Notes, the form of Warrant, the form of
Additional Investment Right, the Registration Rights Agreement, the Voting
Agreement and the Security Documents) as exhibits to such filing (including all
attachments, the “8-K Filing”).  From and after the filing of the 8-K Filing
with the SEC, no Buyer shall be in possession of any material, nonpublic
information received from the Company, any of its Subsidiaries or any of its
respective officers, directors, employees or agents, that
is not disclosed in the 8-K Filing.  The

 

18

 

Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors,
employees and agents, not to, provide any Buyer with any material, nonpublic
information regarding the Company or any of its Subsidiaries from and after the
filing of the 8-K Filing with the SEC without the express written consent of
such Buyer.  If a Buyer has, or believes
it has, received any such material, nonpublic information regarding the Company
or any of its Subsidiaries, it shall provide the Company with written notice
thereof.  The Company shall, within five
(5) Trading Days of receipt of such notice, make public disclosure of such
material, nonpublic information.  In the
event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Buyer shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material, nonpublic information without the prior approval by the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents.  No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents for any
such disclosure.  Subject to the
foregoing, neither the Company nor any Buyer shall issue any press releases or
any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled,
without the prior approval of any Buyer, to make any press release or other
public disclosure with respect to such transactions (i)
in substantial conformity with the 8-K Filing and contemporaneously therewith
and (ii) as is required by applicable law and regulations (provided that in the
case of clause (i) each Buyer shall be consulted by
the Company in connection with any such press release or other public
disclosure prior to its release).

 

(j)                                     Restriction on Redemption and Cash Dividends.  So
long as any Notes or Additional Investment Rights are outstanding, the Company
shall not, directly or indirectly, redeem, or declare or pay any cash dividend
or distribution on, the Common Stock without the prior express written consent
of the holders of Notes representing not less than a majority of the aggregate
principal amount of the then outstanding Notes.

 

(k)                                  Additional Notes; Variable Securities;
Dilutive Issuances.  So long as any Buyer beneficially owns any
Securities, the Company will not issue any Notes other than to the Buyers as
contemplated hereby and the Company shall not issue any other securities that
would cause a breach or default under the Notes.  For so long as any Notes, Additional
Investment Rights or Warrants remain outstanding, the Company shall not, in any
manner, issue or sell any rights, warrants or options to subscribe for or
purchase Common Stock or directly or indirectly convertible into or
exchangeable or exercisable for Common Stock at a price which varies or may
vary with the market price of the Common Stock, including by way of one or more
reset(s) to any fixed price unless the conversion, exchange or exercise price
of any such security cannot be less than the then applicable Conversion Price
(as defined in the Notes) with respect to the Common Stock into which any Note
is convertible or the then applicable Exercise Price (as defined in the
Warrants) with respect to the Common Stock into which any Warrant is
exercisable.  For so long as any Notes,
Warrants or Additional Investment Rights remain outstanding, the Company shall
not, in any manner, enter into or affect any Dilutive Issuance (as defined in
the Notes) if the effect of such Dilutive Issuance is to cause the Company to
be required to issue upon

 

19

 

conversion of any Note or exercise of any Warrant
any shares of Common Stock in excess of that number of shares of Common Stock
which the Company may issue upon conversion of the Notes, including the
Additional Notes, and exercise of the Warrants without breaching the Company’s
obligations under the rules or regulations of the Principal Market.

 

(l)                                     Corporate Existence.  So
long as any Buyer beneficially owns any Securities, the Company shall not be
party to any Fundamental Transaction (as defined in the Notes) unless the
Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes, the Warrants and the Additional Investment
Rights.

 

(m)                               Reservation of Shares.  The
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, after the Closing Date, 150% of the
number of Interest Shares issuable pursuant to the
terms of the Notes, shares of Common Stock issuable
upon conversion of all of the Notes (including the Additional Notes) and shares
of Common Stock issuable upon exercise of the
Warrants.

 

(n)                                 Conduct of Business.  The
business of the Company and its Subsidiaries shall not be conducted in
violation of any law, ordinance or regulation of any governmental entity,
except where such violations would not result, either individually or in the
aggregate, in a Material Adverse Effect.

 

(o)                                 Additional Issuances of Securities.

 

(i)                                     For purposes of this Section 4(o), the
following definitions shall apply.

 

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

 

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

 

(3)                                  “Common
Stock Equivalents” means, collectively, Options and Convertible
Securities.

 

(ii)                                  From the date hereof until the date that is
90 Trading Days (as defined in the Notes) following the Effective Date (as
defined in the Registration Rights Agreement) (the “Trigger Date”), the Company will not, directly or indirectly,
offer, sell, grant any option to purchase, or otherwise dispose of (or announce
any offer, sale, grant or any option to purchase or other disposition of) any
of its or its Subsidiaries’ equity or equity equivalent securities, including
without limitation any debt, preferred stock or other instrument or security
that is, at any time during its life and under any circumstances, convertible
into or exchangeable or exercisable for shares of Common Stock or Common Stock
Equivalents (any such offer, sale, grant, disposition or announcement being
referred to as a “Subsequent Placement”).

 

(iii)                               From the Trigger Date until the date that the
Buyers no longer hold any Notes or Additional Investment Rights, the Company
will not, directly or indirectly, effect any Subsequent Placement unless the
Company shall have first complied with this Section 4(o)(iii).

 

20

 

(1)                                  The Company shall deliver to each Buyer a
written notice (the ”Offer Notice”)
of any proposed or intended issuance or sale or exchange (the ”Offer”) of the securities being offered
(the “Offered Securities”) in a
Subsequent Placement, which Offer Notice shall (w) identify and describe the
Offered Securities, (x) describe the price and other terms upon which they
are to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (y) identify the persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (z) offer to issue and sell to or
exchange with such Buyers a pro rata portion of 30% of the Offered Securities
allocated among such Buyers (a) based on such Buyer’s pro rata portion of the
aggregate principal amount of Notes purchased hereunder (the “Basic Amount”), and (b) with respect to
each Buyer that elects to purchase its Basic Amount, any additional portion of
the Offered Securities attributable to the Basic Amounts of other Buyers as
such Buyer shall indicate it will purchase or acquire should the other Buyers
subscribe for less than their Basic Amounts (the “Undersubscription Amount”).

 

(2)                                  To accept an Offer, in whole or in part, such
Buyer must deliver a written notice to the Company prior to the end of the
tenth (10th) Business Day after such Buyer’s receipt of the Offer
Notice (the “Offer Period”),
setting forth the portion of such Buyer’s Basic Amount that such Buyer elects
to purchase and, if such Buyer shall elect to purchase all of its Basic Amount,
the Undersubscription Amount, if any, that such Buyer
elects to purchase (in either case, the “Notice
of Acceptance”).  If the Basic
Amounts subscribed for by all Buyers are less than the total of all of the
Basic Amounts, then each Buyer who has set forth an Undersubscription
Amount in its Notice of Acceptance shall be entitled to purchase, in addition
to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, that if the Undersubscription Amounts subscribed for exceed the
difference between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the “Available Undersubscription Amount”), each Buyer who has
subscribed for any Undersubscription Amount shall be
entitled to purchase only that portion of the Available Undersubscription
Amount as the Basic Amount of such Buyer bears to the total Basic Amounts of
all Buyers that have subscribed for Undersubscription
Amounts, subject to rounding by the Company to the extent its deems reasonably
necessary.

 

(3)                                  The Company shall have ten (10) Business Days
from the expiration of the Offer Period above to offer, issue, sell or exchange
all or any part of such Offered Securities as to which a Notice of Acceptance
has not been given by the Buyers (the “Refused
Securities”), but only to the offerees
described in the Offer Notice (if so described therein) and only upon terms and
conditions (including, without limitation, unit prices and interest rates) that
are not more favorable to the acquiring person or persons or less favorable to
the Company than those set forth in the Offer Notice.

 

(4)                                  In the event the Company shall propose to
sell less than all the Refused Securities (any such sale to be in the manner
and on the terms specified in Section 4(o)(iii)(3)
above), then each Buyer may, at its sole option and in its sole discretion,
reduce the number or amount of the Offered Securities specified in its Notice

 

21

 

of
Acceptance to an amount that shall be not less than the number or amount of the
Offered Securities that such Buyer elected to purchase pursuant to Section
4(o)(iii)(2) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities the
Company actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Buyers pursuant to Section 4(o)(iii)(3)
above prior to such reduction) and (ii) the denominator of which shall be the
original amount of the Offered Securities. 
In the event that any Buyer so elects to reduce the number or amount of
Offered Securities specified in its Notice of Acceptance, the Company may not
issue, sell or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to the
Buyers in accordance with Section 4(o)(iii)(1)
above.

 

(5)                                  Upon the closing of the issuance, sale or
exchange of all or less than all of the Refused Securities, the Buyers shall
acquire from the Company, and the Company shall issue to the Buyers, the number
or amount of Offered Securities specified in the Notices of Acceptance, as
reduced pursuant to Section 4(o)(iii)(3) above if the
Buyers have so elected, upon the terms and conditions specified in the
Offer.  The purchase by the Buyers of any
Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Buyers of a purchase agreement relating to such
Offered Securities reasonably satisfactory in form and substance to the Buyers
and their respective counsel.

 

(6)                                  Any Offered Securities not acquired by the
Buyers or other persons in accordance with Section 4(o)(iii)(3) above may not
be issued, sold or exchanged until they are again offered to the Buyers under
the procedures specified in this Agreement.

 

(iv)                              The restrictions contained in subsections (ii) and (iii) of this Section
4(o) shall not apply in connection with the issuance of any Excluded Securities
(as defined in the Notes).

 

(p)                                 Stockholder Approval.  The
Company shall provide each stockholder entitled to vote at a special or annual
meeting of stockholders of the Company (the “Stockholder
Meeting”), which shall be promptly called and held not later than
May 31, 2005 (the “Stockholder Meeting
Deadline”), a proxy statement, substantially in the form which has
been previously reviewed by the Buyers and a counsel of their choice,
soliciting each such stockholder’s affirmative vote at the Stockholder Meeting
for approval of resolutions providing for the Company’s issuance of all of the
Securities as described in the Transaction Documents in accordance with
applicable law and the rules and regulations of the Principal Market (such
affirmative approval being referred to herein as the “Stockholder Approval”), and the Company
shall use its best efforts to solicit its stockholders’ approval of such
resolutions (which best efforts shall include, without limitation, the
requirement to hire a reputable proxy solicitor) and to cause the Board of
Directors of the Company to recommend to the stockholders that they approve
such resolutions.  The Company shall be
obligated to seek to obtain the Stockholder Approval by the Stockholder Meeting
Deadline.  If, despite the Company’s best
efforts the Stockholder Approval is not obtained on or prior to the Stockholder
Meeting Deadline, the

 

22

 

Company shall cause an additional Stockholder
Meeting to be held each calendar quarter thereafter until such Stockholder
Approval is obtained.

 

(q)                                 Voting Agreement.  The
Company shall use its reasonable best efforts to effectuate the transactions
contemplated by the Voting Agreement, substantially in the form attached hereto
as Exhibit H, executed by the Company and Pehong
Chen (the “Voting Agreement”).

 

(r)                                    Trading in Common Stock.  For
so long as such Buyer owns any Notes, such Buyer shall not maintain a Net Short
Position.  For purposes of this Section,
a “Net Short Position” by a person
means a position whereby such person has executed one or more sales of Common
Stock that is marked as a short sale and that is executed at a time when such
Buyer has no equivalent offsetting long position in the Common Stock or
contract for the foregoing.  For purposes
of determining whether a Buyer has an equivalent offsetting long position in
the Common Stock, all Common Stock (i) that is owned
by such Buyer, (ii) that may be issued as Interest Shares pursuant to the terms
of the Notes to the Buyer or (iii) that would be issuable
upon conversion or exercise in full of all Securities then held by such Buyer
(assuming that such Securities were then fully convertible or exercisable,
notwithstanding any provisions to the contrary, and giving effect to any
conversion or exercise price adjustments that would take effect given only the
passage of time) shall be deemed to be held long by such Buyer.  Without limiting the foregoing, the Buyers
may engage in hedging activities at various times during the period following
the public announcement of the execution of this Agreement as provided in
Section 4(i), and during the period that the Notes
are outstanding, including, without limitation, during the periods that the
value of the Common Shares deliverable with respect to the Notes is being
determined.

 

5.                                       REGISTER; TRANSFER AGENT INSTRUCTIONS.

 

(a)                                  Register.  The Company shall maintain at
its principal executive offices (or such other office or agency of the Company
as it may designate by notice to each holder of Securities), a register for the
Notes, the Warrants and the Additional Investment Rights, in which the Company
shall record the name and address of the Person in whose name the Notes, the Warrants and Additional Investment
Rights have been issued (including the name and address of each transferee),
the principal amount of Notes held by such Person, the number of Interest
Shares issuable pursuant to the terms of the Notes,
Conversion Shares issuable upon conversion of the
Notes and Warrant Shares issuable upon exercise of
the Warrants held by such Person.  The
Company shall keep the register open and available at all times during business
hours for inspection of any Buyer or its legal representatives.

 

(b)                                 Transfer Agent Instructions.  The
Company shall issue irrevocable instructions to its transfer agent, and any
subsequent transfer agent, to issue certificates or credit shares to the
applicable balance accounts at The Depository Trust Company (“DTC”), registered in the name of each Buyer
or its respective nominee(s), for the Conversion Shares, the Interest Shares,
if any, and the Warrant Shares issued at the Closing or upon conversion of the
Notes or exercise of the Warrants in such amounts as specified from time to
time by each Buyer to the Company upon conversion of the Notes or exercise of
the Warrants in the form of Exhibit I

 

23

 

attached hereto (the “Irrevocable Transfer Agent Instructions”).  The Company warrants that no instruction
other than the Irrevocable Transfer Agent Instructions referred to in this
Section 5(b), and stop transfer instructions to give effect to Section 2(g)
hereof, will be given by the Company to its transfer agent, and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the other
Transaction Documents.  If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Section 2(f), the Company shall permit the transfer and shall promptly instruct
its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment.  In the event that such sale, assignment or
transfer involves Conversion Shares, Interest Shares or Warrant Shares sold,
assigned or transferred pursuant to an effective registration statement or
pursuant to Rule 144, the transfer agent shall issue such Securities to the
Buyer, assignee or transferee, as the case may be, without any restrictive
legend.  The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to a
Buyer.  Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section 5(b) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section 5(b), that a
Buyer shall be entitled, in addition to all other available remedies, to an
order and/or injunction restraining any breach and requiring immediate issuance
and transfer, without the necessity of showing economic loss and without any
bond or other security being required.

 

6.                                       CONDITIONS TO THE COMPANY’S OBLIGATION TO
SELL.

 

Closing Date.  The obligation of the Company
hereunder to issue and sell the Notes, the related Warrants and the related
Additional Investment Rights to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company’s sole benefit
and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:

 

(a)                                  Such Buyer shall have executed each of the
Transaction Documents to which it is a party and delivered the same to the
Company.

 

(b)                                 Such Buyer and each other Buyer shall have
delivered to the Company the Purchase Price (less, in the case of Portside
Growth & Opportunity Fund, the amounts withheld pursuant to Section 4(g))
for the Notes and the related Warrants and Additional Investment Rights being
purchased by such Buyer at the Closing by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.

 

(c)                                  The representations and warranties of such
Buyer shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Buyer at or prior to the Closing
Date.

 

24

 

7.                                       CONDITIONS TO EACH BUYER’S OBLIGATION TO
PURCHASE.

 

Closing Date.  The obligation of each Buyer
hereunder to purchase the Notes  and
the related Warrants and Additional Investment Rights at the Closing is subject
to the satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer’s sole benefit
and may be waived by such Buyer at any time in its sole discretion by providing
the Company with prior written notice thereof:

 

(a)                                  The Company and, to the extent it is a party
thereto, each of its Existing Subsidiaries, shall have duly executed and
delivered to such Buyer:  (i) the Initial Notes (in such principal amounts as
such Buyer shall request) being purchased by such Buyer at the Closing pursuant
to this Agreement, (ii) the Warrants (in such amounts as such Buyer shall
request) being purchased by such Buyer at the Closing pursuant to this
Agreement; (iii) the Additional Investment Rights (in such amounts as such
Buyer shall request) being purchased by such Buyer at the Closing pursuant to
this Agreement: (iv) the Pledge and Security Agreement; (v) the Guaranty, and
(v) each of the other Transaction Documents.

 

(b)                                 The Voting Agreement shall have been executed
and delivered to such Buyer by the Company and Pehong
Chen.

 

(c)                                  Such Buyer shall have received the opinion of
Cooley Godward LLP, the Company’s outside counsel,
dated as of the Closing Date, in substantially the form of Exhibit J
attached hereto.

 

(d)                                 The Company shall have delivered to such
Buyer a copy of the Irrevocable Transfer Agent Instructions, in the form of Exhibit I
attached hereto, which instructions shall have been delivered to and
acknowledged in writing by the Company’s transfer agent.

 

(e)                                  Except as set forth in Schedule 3(a),
the Company shall have delivered to such Buyer a certificate evidencing the
formation and good standing of the Company in its jurisdiction of formation
issued by the Secretary of State (or comparable office) of such jurisdiction,
as of a date within 10 days of the Closing Date.

 

(f)                                    Except as set forth in Schedule 3(a),
the Company shall have delivered to such Buyer a certificate evidencing the
Company’s qualification as a foreign corporation and good standing issued by
the Secretary of State (or comparable office) of each jurisdiction in which the
Company conducts business, as of a date within 10 days of the Closing Date.

 

(g)                                 The Company shall have delivered to such
Buyer a certified copy of the Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten (10) days of the Closing
Date.

 

(h)                                 The Company shall have delivered to such
Buyer a certificate, executed by the Secretary of the Company and dated as of
the Closing Date, as to (i) the resolutions
consistent with Section 3(b) as adopted by the Company’s Board of Directors in
a form reasonably acceptable to such Buyer, (ii) the Certificate of
Incorporation and (iii) the Bylaws, each as in effect at the Closing, in the
form attached hereto as Exhibit K.

 

25

 

(i)                                     The representations and warranties of the
Company shall be true and correct in all material respects (except for those
representations and warranties that are qualified by materiality or Material
Adverse Effect, which shall be true and correct in all respects) as of the date
when made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Company at or
prior to the Closing Date.  Such Buyer
shall have received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer in the form
attached hereto as Exhibit L.

 

(j)                                     The Company shall have delivered to such
Buyer a letter from the Company’s transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of the Closing
Date.

 

(k)                                  The Common Stock (i)
shall be designated for quotation or listed on the Principal Market and (ii)
shall not have been suspended, as of the Closing Date, by the SEC or the
Principal Market from trading on the Principal Market nor shall suspension by
the SEC or the Principal Market have been threatened, as of the Closing Date,
either (A) in writing by the SEC or the Principal Market or (B) by falling
below the minimum listing maintenance requirements of the Principal Market.

 

(l)                                     The Company shall have obtained all
governmental, regulatory or third party consents and approvals, if any,
necessary to be obtained prior to the Closing Date for the sale of the
Securities.  Without limiting the
generality of the foregoing, the Company shall also have obtained the consent
or waiver of Silicon Valley Bank under the documents and agreements evidencing
or relating to the Senior Indebtedness, with respect to (A) the issuance of the
Notes, the Additional Investment Rights and the Warrants and (B) the granting
of the security interests in the Collateral to secure the Notes, subject to any
prior perfected security interests securing the Senior Indebtedness, together
with such other agreements as the Buyers shall reasonably require to ensure
that the Buyers enjoy full rights with respect to the Collateral, evidence of
which shall have been provided to the Buyers.

 

(m)                               In accordance with the terms of the Security
Documents, the Company and the shall have delivered to the Agent (as defined in
the Pledge and Security Agreement) certificates, if issued, representing the
shares of capital stock of its Subsidiaries pledged under the Pledge and
Security Agreement, along with duly executed blank stock powers.  

 

(n)                                                                               The Company shall have renegotiated or repaid
all of its existing material debt and lease obligations, all on terms
satisfactory to the Buyers.

 

(o)           The Company, Silicon
Valley Bank and the Senior Agent shall have duly executed and delivered the
Subordination Agreement in the form of Exhibit M annexed hereto (as amended or
modified from time to time, the “Subordination Agreement”).  The execution and delivery of the
Subordination Agreement and the Pledge and Security Agreement by the Senior
Agent in the name and on behalf of the Buyers is hereby authorized and approved
by the Buyers.

 

(p)                                 The Company shall have delivered to such
Buyer such other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.

 

26

 

8.                                       TERMINATION.  In the event that the Closing
shall not have occurred with respect to a Buyer on or before five (5) Business
Days from the date hereof due to the Company’s or such Buyer’s failure to
satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching party’s failure to waive such unsatisfied
condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching party at the
close of business on such date without liability of any party to any other
party; provided, however, this if this Agreement is terminated
pursuant to this Section 8, the Company shall remain obligated to reimburse the
non-breaching Buyers for the expenses described in Section 4(g) above.

 

9.                                       MISCELLANEOUS.

 

(a)                                  Governing Law; Jurisdiction; Jury Trial.  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 in 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.  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 WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY. 

 

(b)                                 Counterparts.  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 the 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.

 

(c)                                  Headings.  The headings of this Agreement
are for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.

 

(d)                                 Severability.  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.

 

27

 

(e)                                  Entire Agreement; Amendments.  This
Agreement supersedes all other prior oral or written agreements between the Buyers,
the Company, their affiliates and Persons acting on their behalf with respect
to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be amended
other than by an instrument in writing signed by the Company and the holders of
at least a majority of the aggregate number of Registrable
Securities issued and issuable hereunder, and any
amendment to this Agreement made in conformity with the provisions of this
Section 9(e) shall be binding on all Buyers and holders of Securities, as
applicable.  No provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought.  No such amendment
shall be effective to the extent that it applies to less than all of the
holders of the applicable Securities then outstanding.  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 the Transaction Documents unless the same consideration also is offered
to all of the parties to the Transaction Documents, holders of Notes, holders
of the Warrants or holders of the Additional Investment Rights, as the case may
be.  The Company has not, directly or indirectly,
made any agreements with any Buyers relating to the terms or conditions of the
transactions contemplated by the Transaction Documents except as set forth in
the Transaction Documents.

 

(f)                                    Notices.  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
Business Day after deposit with an overnight courier 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:

 

BroadVision, Inc.

585
Broadway

Redwood City, California  94063

Telephone:                                    (650) 261-5100

Facsimile:                                            (650) 261-5900

Attention:                                         General Counsel

 

28

 

Copy
to:

 

Cooley
Godward LLP

One
Maritime Plaza, 20th Floor

San
Francisco, California  94111

Telephone:                                    (415) 693-2000

Facsimile:                                            (415) 951-3699

Attention:                                         Kenneth L. Guernsey, Esq.

 

If
to the Transfer Agent:

 

Computershare Trust Company

359 Indiana Street, Suite 800

Golden, CO  80401

Telephone:  

Facsimile:  

Attention:  Ms. Tiffany Skiles

 

If
to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers, with copies to such Buyer’s representatives as set forth on the Schedule
of Buyers, 

 

with a copy (for informational purposes only) to:

 

Schulte
Roth & Zabel LLP 

919 Third Avenue

New York, New York 
10022

Telephone:                                    (212) 756-2000

Facsimile:                                            (212) 593-5955

Attention:                                         Eleazer N. Klein, Esq.

 

or
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 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 an overnight courier service shall
be rebuttable evidence of personal service, receipt
by facsimile or receipt from an overnight courier service in accordance with
clause (i), (ii) or (iii) above, respectively.

 

(g)                                 Successors and Assigns.  This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any purchasers of the Notes,
the Warrants or the Additional Investment Rights.  The Company shall not assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
holders of at least a majority of the aggregate number of Registrable
Securities issued and issuable hereunder, including
by way of a Fundamental Transaction (unless the Company is in compliance with
the applicable provisions governing Fundamental Transactions set forth in the
Notes, the Warrants and the Additional Investment Rights).  A Buyer may assign some or all of its rights
hereunder without the consent of the Company in connection with a transfer by
such

 

29

 

Buyer of any of the Securities in which event such
assignee shall be deemed to be a Buyer hereunder with respect to such assigned
rights.

 

(h)                                 No Third Party Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person.

 

(i)                                     Survival.  Unless this Agreement is terminated
under Section 8, the representations and warranties of the Company and the
Buyers contained in Sections 2 and 3 and the agreements and covenants set forth
in Sections 4, 5 and 9 shall survive the Closing.  Each Buyer shall be responsible only for its
own representations, warranties, agreements and covenants hereunder.

 

(j)                                     Further Assurances.  Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements, certificates,
instruments and documents, as any 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)                                  Indemnification.  In
consideration of each Buyer’s execution and delivery of the Transaction
Documents and acquiring the Securities thereunder and
in addition to all of the Company’s other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons’ agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the “Indemnitees”)
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee
is a party to the action for which indemnification hereunder is sought), and
including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating
to (a) any material inaccuracy in any representation or warranty made by the
Company in the Transaction Documents or any inaccuracy in any representation or
warranty in the Transaction Documents that is qualified by materiality or
Material Adverse Effect, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or (c) any
cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of
the Transaction Documents, (ii) any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Securities, or (iii) the status of such Buyer or holder of the Securities
as an investor in the Company pursuant to the transactions contemplated by the
Transaction Documents; provided that indemnification pursuant to this clause
(iii) shall not be available to the extent arising primarily from such Buyer’s
fraud, gross negligence or willful misconduct. 
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law.  Except
as otherwise set forth herein, the mechanics and procedures with respect

 

30

 

to the rights and obligations under this
Section 9(k) shall be the same as those set forth in Section 6 of the
Registration Rights Agreement.

 

(l)                                     No Strict Construction.  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)                               Remedies.  Each Buyer and each holder of
the Securities shall have all rights and remedies set forth in the Transaction
Documents and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have 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), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law. 
Furthermore, the Company recognizes that in the event that it fails to
perform, observe, or discharge any or all of its obligations under the
Transaction Documents, any remedy at law may prove to be inadequate relief to
the Buyers.  The Company therefore agrees
that the Buyers shall be entitled to seek temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages and
without posting a bond or other security.

 

(n)                                 Payment Set Aside.  To
the extent that the Company makes a payment or payments to the Buyers hereunder
or pursuant to any of the other Transaction Documents or the Buyers enforce or
exercise their rights hereunder or thereunder, and
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, a trustee, receiver or
any other Person under any law (including, without limitation, any bankruptcy
law, foreign, 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.

 

31

 

(o)                                 Independent Nature of Buyers’ Obligations and
Rights.  The obligations of each Buyer under any
Transaction Document are several and not joint with the obligations of any
other Buyer, and no Buyer shall be responsible in any way for the performance
of the obligations of any other Buyer under any Transaction Document.  Nothing contained herein or in any other
Transaction Document, and no action taken by any Buyer pursuant hereto or
thereto, shall be deemed to constitute the Buyers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Buyers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by the Transaction
Documents.  Each Buyer confirms that it
has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors.  Each Buyer shall be entitled to independently
protect and enforce its rights, including, without limitation, the rights
arising out of this Agreement or out of any other Transaction Documents, and it
shall not be necessary for any other Buyer to be joined as an additional party
in any proceeding for such purpose.

 

[Signature Page Follows]

 

32

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

 

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  BROADVISION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Pehong Chen

  	
   

  
	
   

  	
   

  	
  Name:  Pehong Chen

  
	
   

  	
   

  	
  Title:
  Chief Executive Officer

  

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

 

	
   

  	
  BUYERS:

  
	
   

  	
   

  
	
   

  	
  PORTSIDE GROWTH & OPPORTUNITY FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ [Authorized Signatory]

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

 

	
   

  	
  SF CAPITALPARTNERS LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ [Authorized Signatory]

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly executed
as of the date first written above.

 

	
   

  	
  MANCHESTER SECURITIES CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ [Authorized Signatory]

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

 

	
   

  	
  KINGS ROAD INVESTMENTS LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ [Authorized Signatory]

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their
respective signature page to this Securities Purchase Agreement to be duly
executed as of the date first written above.

 

	
   

  	
  PROVIDENT PREMIER MASTER FUND, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ [Authorized Signatory]

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

SCHEDULE OF BUYERS

 

 

	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  	
  (6)

  	
   

  	
  (7)

  
	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  	
   

  	
  Aggregate

  Principal

  Amount of

  Initial Notes

  	
   

  	
  Number
  of

  Warrant

  Shares

  	
   

  	
  Maximum

  Aggregate

  Principal Amount

  of Additional Notes

  	
   

  	
  Purchase
  Price

  	
   

  	
  Legal
  Representative’s Address

  and Facsimile Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Portside

  	
   

  	
  c/o
  Ramius Capital Group,

  	
   

  	
  $

  	
  5,000,000

  	
   

  	
  543,478

  	
   

  	
  $

  	
  1,250,000

  	
   

  	
  $

  	
  5,000,000

  	
   

  	
  Schulte
  Roth & Zabel

  
	
  Growth
  & Opportunity Fund

  	
   

  	
  L.L.C.

  666 Third Avenue, 26th Floor

  New York, New York 10017

  Attention:                 Jeffrey Smith

  Nancy Wu

  Facsimile:
  (212) 845-7999

  Telephone: (212) 845-7955

  Residence: Cayman Islands

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  LLP

  919 Third Avenue

  New York, New York 10022

  Attention: Eleazer Klein, Esq.

  Facsimile: (212) 593-5955

  Telephone: (212) 756-2376

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SF
  Capital

  	
   

  	
  3600
  South Lake Drive

  	
   

  	
  $

  	
  4,000,000

  	
   

  	
  434,783

  	
   

  	
  $

  	
  1,000,000

  	
   

  	
  $

  	
  4,000,000

  	
   

  	
   

  
	
  Partners
  Ltd.

  	
   

  	
  St.
  Francis, WI 53235

  Attention: Brian Davidson

  Facsimile: (414) 294-7700

  Telephone: (414) 294-7000

  Residence: British Virgin Islands

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Manchester

  	
   

  	
  712
  Fifth Avenue

  	
   

  	
  $

  	
  2,000,000

  	
   

  	
  217,391

  	
   

  	
  $

  	
  500,000

  	
   

  	
  $

  	
  2,000,000

  	
   

  	
   

  
	
  Securities
  Corp.

  	
   

  	
  New
  York, NY 10019

  Attention: Sundar  Srinivasan

  Facsimile: (212) 586-9461

  Telephone: (212) 506-2999

  Residence: New York

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  	
  (6)

  	
   

  	
  (7)

  
	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  	
   

  	
  Aggregate

  Principal

  Amount of

  Initial Notes

  	
   

  	
  Number
  of

  Warrant

  Shares

  	
   

  	
  Maximum

  Aggregate

  Principal Amount

  of Additional Notes

  	
   

  	
  Purchase
  Price

  	
   

  	
  Legal
  Representative’s Address

  and Facsimile Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kings
  Road

  	
   

  	
  M
  & C Corporate Services 

  	
   

  	
  $

  	
  3,500,000

  	
   

  	
  380,435

  	
   

  	
  $

  	
  875,000

  	
   

  	
  $

  	
  3,500,000

  	
   

  	
   

  
	
  Investments
  Ltd.

  	
   

  	
  Limited

  P.O. Box 309GT, Ugland House

  South Church Street, George Town

  Grand Cayman, Cayman Islands

  Attention: James Piachaud

  Facsimile:  (212) 359-7304

  Telephone: (212) 359-7336

  Residence:  Cayman Islands

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Provident

  	
   

  	
  c/o
  Gemini Investment

  	
   

  	
  $

  	
  1,500,000

  	
   

  	
  163,043

  	
   

  	
  $

  	
  375,000

  	
   

  	
  $

  	
  1,500,000

  	
   

  	
   

  
	
  Premier
  Master Fund, Ltd.

  	
   

  	
  Strategies,
  LLC

  35 Waterview Boulevard

  Parsippany, NJ  07054

  Attention: Steven Winters

  Facsimile: (973) 404-1360

  Telephone: (973) 404-1350

  Residence: Cayman Islands

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

EXHIBITS

 

	
  Exhibit
  A

  	
  Form
  of Initial Notes

  
	
  Exhibit
  B

  	
  Form
  of Warrants

  
	
  Exhibit
  C

  	
  Form
  of Additional Investment Rights

  
	
  Exhibit
  D

  	
  Form
  of Additional Notes

  
	
  Exhibit
  E

  	
  Registration
  Rights Agreement

  
	
  Exhibit
  F

  	
  Form
  of Pledge and Security Agreement

  
	
  Exhibit
  G

  	
  Form
  of Guarantee

  
	
  Exhibit
  H

  	
  Form
  of Voting Agreement

  
	
  Exhibit
  I

  	
  Irrevocable
  Transfer Agent Instructions

  
	
  Exhibit
  J

  	
  Form
  of Outside Company Counsel Opinion

  
	
  Exhibit
  K

  	
  Form
  of Secretary’s Certificate

  
	
  Exhibit
  L

  	
  Form
  of Officer’s Certificate

  
	
  Exhibit
  M

  	
  Subordination
  Agreement

  

 

SCHEDULES

 

	
  Schedule
  3(a)

  	
  Subsidiaries

  
	
  Schedule
  3(l)

  	
  Absence
  of Certain Changes

  
	
  Schedule
  3(r)

  	
  Capitalization

  
	
  Schedule
  3(s)

  	
  Indebtedness
  and Other Contracts

  
	
  Schedule
  3(t)

  	
  Litigation

  
	
  Schedule
  3(v)

  	
  Employee
  Relations

  
	
  Schedule
  3(x)

  	
  Intellectual
  Property

  
	
  Schedule
  3(z)

  	
  Subsidiary
  Rights

  
	
  Schedule
  3(aa)

  	
  Tax
  Status

  
	
  Schedule
  3(cc)

  	
  Ranking
  of Notes

  
	
  Schedule
  3(ee)

  	
  Cash
  Balances

  

 

 

EXHIBIT A

[FORM OF SENIOR SUBORDINATED SECURED CONVERTIBLE NOTE]

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. 
THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF
COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.  ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY
REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii)
AND 19(a) HEREOF.  THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

 

BROADVISION, INC.

 

SENIOR SUBORDINATED
SECURED CONVERTIBLE NOTE

 

	
  Issuance Date:  October     ,
  2004

  	
  Principal: U.S. $                          

  

 

FOR VALUE RECEIVED, BroadVision, Inc., a Delaware corporation
(the “Company”), hereby promises
to pay to the order of [PORTSIDE GROWTH AND OPPORTUNITY FUND][OTHER BUYERS] or
registered assigns (“Holder”) the
amount set out above as the Principal (as reduced pursuant to the terms hereof
pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the
Maturity Date (as defined below), on any Installment Date with respect to the
Installment Amount due on such Installment Date (each, as defined herein),
acceleration, redemption or otherwise (in each case in accordance with the
terms hereof) and to pay interest (“Interest”)
on any outstanding Principal at the rate of 6.00% per annum (the “Interest Rate”), from the date set out
above as the Issuance Date (the “Issuance
Date”) until the same becomes due
and payable, whether upon an Interest Date (as defined below), any Installment
Date or, the Maturity Date, acceleration, conversion, redemption or otherwise
(in each case in accordance with the terms hereof).  This Senior Subordinated Secured Convertible
Note (including all Senior Subordinated Secured Convertible Notes issued in
exchange, transfer or replacement hereof, this “Note”) is one of an issue of Senior Subordinated Secured
Convertible Notes issued pursuant to the Securities Purchase Agreement (as
defined below) on the Closing Date (collectively, the “Notes” and such other Senior

 

 

Subordinated Secured Convertible Notes, the “Other  Notes”).  Certain capitalized terms used herein are
defined in Section 29.

 

(1)           PAYMENTS OF PRINCIPAL.  On each Installment Date, the Company shall
pay to the Holder an amount equal to the Installment Amount due on such
Installment Date in accordance with Section 8. 
The “Maturity  Date” shall be November         ,
2008, as may be extended at the option of the Holder (i) through the date that
is fifteen (15) Business Days (or, in the case of the Event of Default
specified in Section 4(a)(ix), sixty-five days) after the cure or termination
of any Event of Default (as defined in Section 4(a)) that has occurred and is
continuing on the Maturity Date (as may be extended pursuant to this Section 1)
or the termination of any event that has occurred and is continuing on the
Maturity Date (as may be extended pursuant to this Section 1) and that with the
passage of time and the failure to cure would result in an Event of Default and
(ii) through the date that is ten (10) days after the consummation of a Change
of Control in the event that a Change of Control is publicly announced or a
Change of Control Notice (as defined in Section 5(b)) is delivered prior to the
Maturity Date.

 

(2)           INTEREST;
INTEREST RATE.  Interest on this Note
shall commence accruing on the Issuance Date and shall be computed on the basis
of a 365-day year and actual days elapsed and shall be payable in arrears for
each Calendar Quarter on the first day of the succeeding Calendar Quarter
during the period beginning on the Issuance Date and ending on, and including,
the Maturity Date (each, an “Interest Date”)
with the first Interest Date being January 1, 2005.  Interest shall be payable on each Interest
Date, to the record holder of this Note on the applicable Interest Date, in
cash (“Cash Interest”) or, at the option of
the Company, in shares of Common Stock (“Interest Shares”)
or a combination thereof, provided that the Interest which accrued during any
period may be payable in Interest Shares if, and only if, the Company delivers
written notice (each, an “Interest Election Notice”)
of such election to each holder of the Notes on or prior to the twentieth
(20th) Trading Day prior to the Interest Date (each, an “Interest
Notice Due Date”); provided, further, that if the Stockholder
Approval (as defined in the Securities Purchase Agreement) has not been
obtained by the Stockholder Meeting Deadline (as defined in the Securities
Purchase Agreement), the Company may not elect to pay Interest in Interest
Shares and must pay all Interest due hereunder as Cash Interest until such time
as the Stockholder Approval has been obtained. 
Each Interest Election Notice must specify the amount of Interest that
shall be paid as Cash Interest, if any, and the amount of Interest that shall
be paid in Interest Shares.  Interest to
be paid on an Interest Date in Interest Shares shall be paid in a number of
fully paid and nonassessable shares (rounded to the nearest whole share in
accordance with Section 3(a)) of Common Stock equal to the quotient of (a) the
amount of Interest payable on such Interest Date less any Cash Interest paid
and (b) the Interest Conversion Price in effect on the applicable Interest
Date.  If any Interest Shares are to be
paid on an Interest Date, then the Company shall (X) provided that the Company’s
transfer agent (the “Transfer Agent”)
is participating in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer Program and such action is not prohibited by
applicable law or regulation or any applicable policy of DTC, credit such
aggregate number of Interest 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 (Y) if the foregoing shall not apply,
issue and deliver on the applicable Interest Date, to the address set forth in
the register maintained by the Company for such purpose pursuant to the
Securities Purchase Agreement or to such address as

 

2

 

specified by the Holder in writing to the Company at
least two Business Days prior to the applicable Interest Date, a certificate,
registered in the name of the Holder or its designee, for the number of
Interest Shares to which the Holder shall be entitled.  Notwithstanding the foregoing, the Company
shall not be entitled to pay Interest in Interest Shares and shall be required
to pay such Interest in cash as Cash Interest on the applicable Interest Date
if, unless consented to in writing by the Holder, during the period commencing
on the applicable Interest Notice Due Date through the applicable Interest Date
the Equity Conditions have not been satisfied. 
Prior to the payment of Interest on an Interest Date, Interest on this
Note shall accrue at the Interest Rate and be payable by way of inclusion of
the Interest in the Conversion Amount in accordance with Section 3(b)(i).  Upon the occurrence and during the
continuance of an Event of Default, the Interest Rate shall be increased to
twelve percent (12%).  In the event that
such Event of Default is subsequently cured, the adjustment referred to in the
preceding sentence shall cease to be effective as of the date of such cure;
provided that the Interest as calculated and unpaid at such increased rate
during the continuance of such Event of Default shall continue to apply to the
extent relating to the days after the occurrence of such Event of Default
through and including the date of cure of such Event of Default.  The Company shall pay any and all taxes that
may be payable with respect to the issuance and delivery of Interest Shares; provided
that the Company shall not be required to pay any tax that may be payable in
respect of any issuance of Interest Shares to any Person other than the Holder
or with respect to any income tax due by the Holder with respect to such
Interest Shares.

 

(3)           CONVERSION OF NOTES.  This Note shall be convertible into shares of
the Company’s common stock, par value $.0001 per share (the “Common Stock”), on the terms and conditions
set forth in this Section 3.

 

(a)           Conversion Right.  Subject to the provisions of Section 3(d), at
any time or times on or after the Issuance Date, the Holder shall be entitled
to convert any portion of the outstanding and unpaid Conversion Amount (as
defined below) into fully paid and nonassessable shares of Common Stock in
accordance with Section 3(c), at the Conversion Rate (as defined below).  The Company shall not issue any fraction of a
share of Common Stock upon any conversion. 
If the issuance would result in the issuance of a fraction of a share of
Common Stock, the Company shall round such fraction of a share of Common Stock
up to the nearest whole share.  The
Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Common Stock upon conversion of any Conversion Amount;
provided that the Company shall not be required to pay any tax that may
be payable in respect of any issuance of Common Stock to any Person other than
the converting Holder or with respect to any income tax due by the Holder with
respect to such Common Stock.

 

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

 

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

 

3

 

(ii)           “Conversion
Price” means, as of any Conversion Date (as defined below) or other
date of determination, $        (1),
subject to adjustment as provided herein.

 

(c)           Mechanics of Conversion.

 

(i)            Optional Conversion.  To convert any Conversion Amount into shares
of Common Stock on any date (a “Conversion
Date”), the Holder shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., New York Time, on such date, a
copy of an executed notice of conversion in the form attached hereto as Exhibit
I (the “Conversion Notice”) to
the Company and (B) if required by Section 3(c)(iii), surrender this Note to a
common carrier for delivery to the Company as soon as practicable on or
following such date (or an indemnification undertaking with respect to this
Note in the case of its loss, theft or destruction).  On or before the first (1st)
Business Day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile a confirmation of receipt of such Conversion Notice
to the Holder and the Transfer Agent.  On
or before the second Business Day following the date of receipt of a Conversion
Notice (the “Share Delivery  Date”), the Company shall (X) provided that
the Transfer Agent is participating in the DTC Fast Automated Securities
Transfer Program, credit such aggregate number of shares of Common Stock 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 (Y)
if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and deliver to the address as specified in the
Conversion Notice, a certificate, registered in the name of the Holder or its
designee, for the number of shares of Common Stock to which the Holder shall be
entitled.  If this Note is physically surrendered
for conversion as required by Section 3(c)(iii) and
the outstanding Principal of this Note is greater than the Principal portion of
the Conversion Amount being converted, then the Company shall as soon as
practicable and in no event later than three (3) Business Days after receipt of
this Note and at its own expense, issue and deliver to the holder a new Note
(in accordance with Section 19(d)) representing the outstanding Principal not
converted.  The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.  In the event of a partial conversion of this
Note pursuant hereto, the principal amount converted shall be deducted from the
Installment Amounts relating to the Installment Dates as set forth in the
Conversion Notice.

 

(ii)           Company’s Failure to Timely
Convert.  If the Company shall fail,
other than pursuant to Section 3(d), to issue a certificate to the Holder or
credit the Holder’s balance account with DTC for the number of shares of Common
Stock to which the Holder is entitled upon conversion of any Conversion Amount
on or prior to the date which is five Business Days after the Conversion Date
(a “Conversion Failure”), then (A)
the Company shall pay damages in cash to the Holder for each date of such
Conversion Failure in an amount

 

(1)  Insert in Notes number equal to (x) 115% of
(y) the arithmetic average of the Weighted Average Price of the Common Stock
for the ten (10) consecutive Trading Days ending on the Trading Day immediately
preceding the Closing Date (the “Measured Closing Price”).

 

4

 

equal to 1.5% of the product of (I) the sum of the
number of shares of Common Stock not issued to the Holder on or prior to the
Share Delivery Date and to which the Holder is entitled, and (II) the Closing
Sale Price of the Common Stock on the Share Delivery Date and (B) the Holder,
upon written notice to the Company, may void its Conversion Notice with respect
to, and retain or have returned, as the case may be, any portion of this Note
that has not been converted pursuant to such Conversion Notice; provided
that the voiding of a Conversion Notice shall not affect the Company’s
obligations to make any payments which have accrued prior to the date of such
notice pursuant to this Section 3(c)(ii) or otherwise.  In addition to the foregoing, if within three
(3) Trading 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 or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such holder’s
conversion of any Conversion Amount, and if on or after such Trading Day the
Holder purchases (in an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by the Holder of Common Stock issuable upon
such conversion that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within
three (3) Business Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s
total purchase price (including brokerage commissions, if any) for the shares
of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such Common Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing such Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the Conversion Date.

 

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

 

(iv)          Pro Rata Conversion; Disputes.  In
the event that the Company receives a Conversion Notice from more than one
holder of Notes for the same Conversion Date and the Company can convert some,
but not all, of such portions of the Notes submitted for conversion, the
Company, subject to Section 3(d), shall convert from each holder of Notes
electing to have Notes converted on such date a pro rata amount of such holder’s
portion of its Notes submitted for conversion based on the principal amount of
Notes submitted for conversion on such date by such holder relative to the
aggregate principal amount of all Notes submitted for conversion on such date.  In the event of a dispute as to the number of
shares of Common Stock issuable to the Holder in connection with a conversion
of this Note, the Company shall issue to the Holder the number of shares of
Common Stock not in dispute and resolve such dispute in accordance with Section
24.

 

(d)           Limitations on Conversions.

 

5

 

(i)            Beneficial Ownership.  Other than in connection with a Fundamental
Transaction pursuant to Section 5(a), the Company shall not effect any
conversion of this Note, and the Holder of this Note shall not have the right
to convert any portion of this Note pursuant to Section 3(a), to the extent
that after giving effect to such conversion, the Holder (together with the
Holder’s affiliates) would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the number of
shares of Common Stock outstanding immediately after giving effect to such
conversion.  For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Note beneficially owned by the Holder
or any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any Other Notes or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its affiliates. 
Except as set forth in the preceding sentence, for purposes of this
Section 3(d)(i), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.  For purposes of this
Section 3(d)(i), in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock
as reflected in (x) the Company’s most recent Form 10-Q or Form 8-K, as the
case may be (y) a more recent public announcement by the Company or (z) any
other notice by the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding.  For
any reason at any time, upon the written or oral request of the Holder, the
Company shall within one Business Day confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares
of Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Note, by the Holder or
its affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.  By written
notice to the Company, the Holder may increase or decrease the Maximum Percentage
to any other percentage not in excess of 9.99% specified in such notice;
provided that (i) any such increase will not be effective until the sixty-first
(61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any
other holder of Notes.

 

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

 

6

 

Exchange Cap multiplied by a fraction, the numerator
of which is the principal amount of Notes issued to the Purchasers pursuant to
the Securities Purchase Agreement on the Closing Date and the denominator of
which is the aggregate principal amount of all Notes issued to the Purchasers
pursuant to the Securities Purchase Agreement on the Closing Date (with respect
to each Purchaser, the “Exchange Cap
Allocation”).  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
Exchange Cap Allocation, and the restrictions of the prior sentence shall apply
to such transferee with respect to the portion of the Exchange Cap Allocation
allocated to such transferee.  In the
event that any holder of Notes shall convert all of such holder’s Notes into a
number of shares of Common Stock which, in the aggregate, is less than such
holder’s Exchange Cap Allocation, then the difference between such holder’s
Exchange Cap Allocation and the number of shares of Common Stock actually
issued to such holder shall be allocated to the respective Exchange Cap
Allocations of the remaining holders of Notes on a pro rata basis in proportion
to the aggregate principal amount of the Notes then held by each such holder.

 

(4)           RIGHTS UPON EVENT OF DEFAULT.

 

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

 

(i)            the failure of the applicable
Registration Statement required to be filed pursuant to the Registration Rights
Agreement to be declared effective by the SEC on or prior to the date that is
sixty (60) days after the applicable Effectiveness Deadline (as defined in the
Registration Rights Agreement), or, while the applicable Registration Statement
is required to be maintained effective pursuant to the terms of the
Registration Rights Agreement, the effectiveness of the applicable Registration
Statement lapses for any reason (including, without limitation, the issuance of
a stop order) or is unavailable to any holder of the Notes for sale of all of
such holder’s Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights Agreement,
and such lapse or unavailability continues for a period of ten (10) consecutive
days or for more than an aggregate of thirty (30) days in any 365-day period
(other than days during an Allowable Grace Period (as defined in the
Registration Rights Agreement));

 

(ii)           the
suspension from trading or failure of the Common Stock to be listed on an
Eligible Market for a period of five (5) consecutive days or for more than an
aggregate of ten (10) days in any 365-day period;

 

(iii)          the Company’s (A) failure to cure a
Conversion Failure by delivery of the required number of shares of Common Stock
within ten (10) Business Days after the applicable Conversion Date or (B)
notice, written or oral, to any holder of the Notes, including by way of public
announcement or through any of its agents, at any time, of its intention not to
comply with a request for conversion of any Notes into shares of Common Stock
that is tendered in accordance with the provisions of the Notes, other than
pursuant to Section 3(d);

 

7

 

(iv)          at any time following the tenth (10th)
consecutive Business Day that the Holder’s Authorized Share Allocation is less
than the number of shares of Common Stock that the Holder would be entitled to
receive upon a conversion of the full Conversion Amount of this Note (without
regard to any limitations on conversion set forth in Section 3(d) or
otherwise);

 

(v)           (A) the Company’s failure to pay to
the Holder any amount of Principal when and as due under this Note (including,
without limitation, the Company’s failure to pay any redemption payments) or
(B) the Company’s failure to pay to the Holder any other amounts when due and
as due under any Transaction Document (as defined in the Securities Purchase
Agreement) or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated hereby and thereby
to which the Holder is a party, if such failure continues for a period of at
least five (5) Business Days;

 

(vi)          (A) any payment default or other
default occurs under any Indebtedness (as defined in Section 3(s) of the
Securities Purchase Agreement) of the Company or any of its Subsidiaries (as
defined in Section 3(a) of the Securities Purchase Agreement) (other than the
Senior Credit Facility) that results in a redemption of or acceleration prior
to maturity of $250,000 or more of such Indebtedness in the aggregate, (B) any
material default occurs under any Indebtedness of the Company (other than the
Senior Credit Facility) or any of its Subsidiaries having an aggregate outstanding
balance in excess of $250,000 and such default continues uncured for more than
ten (10) Business Days, other than, in each case (A) or (B) above, a default
with respect to any Other Notes, or (C) any “event of default” occurs under the
Senior Credit Facility;

 

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

 

(viii)        a court of competent jurisdiction enters
an order or decree under any Bankruptcy Law that (A) is for relief against the
Company or any of its Subsidiaries in an involuntary case, (B) appoints a
Custodian of the Company or any of its Subsidiaries or (C) orders the
liquidation of the Company or any of its Subsidiaries;

 

(ix)           a final judgment or judgments for the
payment of money aggregating in excess of $2,000,000 are rendered against the
Company or any of its Subsidiaries and which judgments are not, within sixty
(60) days after the entry thereof, bonded, discharged or stayed pending appeal,
or are not discharged within sixty (60) days after the expiration of such stay;
provided, however, that any judgment which is covered by insurance or an
indemnity from a credit worthy party shall not be included in calculating the
$2,000,000 amount set forth above so long as the Company provides the Holder a
written statement from such insurer or indemnity provider (which written
statement shall be reasonably satisfactory to the Holder) to the effect that

 

8

 

such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such insurance or
indemnity within thirty (30) days of the issuance of such judgment;

 

(x)            the Company breaches in any material
respect any representation, warranty, covenant or other term or condition of
any Transaction Document, except, in the case of a breach of a covenant or
other term or condition of any Transaction Document which is curable, only if
such breach continues for a period of at least ten (10) consecutive Business
Days;

 

(xi)           any breach
or failure in any respect to comply with either of Sections 8 or 15 of this
Note; or

 

(xii)          any Event of
Default (as defined in the Other Notes) occurs with respect to any Other Notes.

 

(b)           Redemption Right.  Promptly after the occurrence of an Event of
Default with respect to this Note or any Other Note, the Company shall deliver
written notice thereof via facsimile and overnight courier (an “Event of Default Notice”) to the
Holder.  At any time after the earlier of
the Holder’s receipt of an Event of Default Notice and the Holder becoming
aware of an Event of Default, the Holder may require the Company to redeem all
or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to the
Company, which Event of Default Redemption Notice shall indicate the portion of
this Note the Holder is electing to redeem. 
Each portion of this Note subject to redemption by the Company pursuant
to this Section 4(b) shall be redeemed by the Company at a price equal to the
greater of (i) the product of (x) the Conversion Amount to be redeemed and (y)
the Redemption Premium and (ii) the product of (A) the Conversion Rate with
respect to such Conversion Amount in effect at such time as the Holder delivers
an Event of Default Redemption Notice and (B) the Closing Sale Price of the
Common Stock on the date immediately preceding such Event of Default (the “Event of Default  Redemption Price”). 
Redemptions required by this Section 4(b) shall be made in accordance
with the provisions of Section 12.  In
the event of a partial redemption of this Note pursuant hereto, the principal
amount redeemed shall be deducted from the Installment Amounts relating to the
applicable Installment Dates as set forth in the Event of Default Redemption
Notice.

 

(c)           Payment of Senior Credit Facility.  Within 61 days after the occurrence of the
Event of Default specified in Section 4(a)(vi)(C) hereof, the Company
shall (i) either (A) pay the full amount of all Senior Indebtedness outstanding
under the Senior Credit Facility, or (B) secure the Senior Indebtedness
outstanding under the Senior Credit Facility with cash collateral, and (ii)
obtain from the lender under the Senior Credit Facility a written
acknowledgment that the restrictions on pursuit of remedies by Holders of the
Notes under the Subordination Agreement (as defined in the Securities Purchase
Agreement) are no longer in effect.

 

9

 

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

 

(a)           Assumption.  The Company shall not enter into or be party
to a Fundamental Transaction unless (i)  the Successor Entity assumes in
writing all of the obligations of the Company under this Note and the other
Transaction Documents in accordance with the provisions of this Section 5(a) pursuant
to written agreements in form and substance satisfactory to the Required
Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Notes in
exchange for such Notes a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to the Notes,
including, without limitation, having a principal amount and interest rate
equal to the principal amounts and the interest rates of the Notes held by such
holder and having similar ranking to the Notes, and satisfactory to the
Required Holders and (ii) the Successor Entity (including its Parent
Entity) is a publicly traded corporation whose common stock is quoted on or
listed for trading on an Eligible Market. 
Upon the occurrence of any Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of
such Fundamental Transaction, the provisions of this Note referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company
under this Note with the same effect as if such Successor Entity had been named
as the Company herein.  Upon consummation
of the Fundamental Transaction, the Successor Entity shall deliver to the
Holder confirmation that there shall be issued upon conversion or redemption of
this Note at any time after the consummation of the Fundamental Transaction, in
lieu of the shares of the Company’s Common Stock (or other securities, cash,
assets or other property) purchasable upon the conversion or redemption of the
Notes prior to such Fundamental Transaction, such shares of stock, securities,
cash, assets or any other property whatsoever (including warrants or other
purchase or subscription rights) which the Holder would have been entitled to
receive upon the happening of such Fundamental Transaction had this Note been
converted immediately prior to such Fundamental Transaction, as adjusted in
accordance with the provisions of this Note. 
The provisions of this Section shall apply similarly and equally to
successive Fundamental Transactions and shall be applied without regard to any limitations
on the conversion or redemption of this Note.

 

(b)           Redemption Right.  No sooner than fifteen (15) days nor later
than ten (10) days prior to the consummation of a Change of Control, but not
prior to the public announcement of such Change of Control, the Company shall
deliver written notice thereof via facsimile and overnight courier to the
Holder (a “Change of Control  Notice”). 
At any time during the period beginning after the Holder’s receipt of a
Change of Control Notice and ending on the date of the consummation of such
Change of Control (or, in the event a Change of Control Notice is not delivered
at least ten (10) days prior to a Change of Control, at any time on or after
the date which is ten (10) days prior to a Change of Control and ending ten
(10) days after the consummation of such Change of Control), the Holder may
require the Company to redeem all or any portion of this Note by delivering
written notice thereof (“Change of Control
Redemption Notice”) to the Company, which Change of Control
Redemption Notice shall indicate the Conversion Amount the Holder is electing
to redeem.  The portion of this Note
subject to redemption pursuant to this Section 5 shall be redeemed by the
Company at a price equal to the greater of (i) the product of (x) the
Conversion Amount being redeemed and (y) the

 

10

 

quotient determined by dividing (A) the Closing Sale
Price of the Common Stock immediately following the public announcement of such
proposed Change of Control by (B) the Conversion Price and (ii) 105% of the
Conversion Amount being redeemed from the Issuance Date until six months from
the Issuance Date, 110% of the Conversion Amount being redeemed from the end of
such six month period until the first anniversary of the Issuance Date, and 120%
of the Conversion Amount being redeemed thereafter (the “Change of Control Redemption Price”).  Redemptions required by this Section 5 shall
be made in accordance with the provisions of Section 12 and shall have priority
to payments to stockholders in connection with a Change of Control.  Notwithstanding anything to the contrary in
this Section 5, but subject to Section 3(d), until the Change of Control
Redemption Price (together with any interest thereon) is paid in full, the
Conversion Amount submitted for redemption under this Section 5(c) (together
with any interest thereon) may be converted, in whole or in part, by the Holder
into Common Stock pursuant to Section 3. 
In the event of a partial redemption of this Note pursuant hereto, the
principal amount redeemed shall be deducted from the Installment Amounts
relating to the applicable Installment Dates as set forth in the Change of
Control Redemption Notice.

 

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

 

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

 

(b)           Other Corporate Events.  In addition to and not in substitution for
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a “Corporate Event”),
the Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon a conversion of this Note, (i) in
addition to the shares of Common Stock receivable upon such conversion, such
securities or other assets to which the Holder would have been entitled with respect
to such shares of Common Stock had such shares of Common Stock been held by the
Holder upon the consummation of such Corporate Event (without taking into
account any limitations or restrictions on the convertibility of this Note) or
(ii) in lieu of the shares of Common Stock otherwise receivable upon such
conversion, such securities or other assets received by the holders of shares
of Common Stock in connection with the consummation of such Corporate Event in
such amounts as the Holder would have been entitled to receive had this Note
initially been issued with conversion rights for the form of such consideration
(as opposed to shares of Common Stock) at a conversion rate for such
consideration commensurate with the Conversion Rate.  Provision made pursuant to the preceding
sentence shall be in a form and substance satisfactory to the Required
Holders.  The provisions of this Section
shall apply

 

11

 

similarly and equally to successive Corporate Events
and shall be applied without regard to any limitations on the conversion or
redemption of this Note.

 

(7)           RIGHTS UPON ISSUANCE OF OTHER
SECURITIES.

 

(a)           Adjustment of Conversion Price
upon Issuance of Common Stock.  If
and whenever on or after the Subscription Date, the Company issues or sells, or
in accordance with this Section 7(a) is deemed to have issued or sold, any
shares of Common Stock (including the issuance or sale of shares of Common
Stock owned or held by or for the account of the Company, but excluding shares
of Common Stock deemed to have been issued or sold by the Company in connection
with any Excluded Security) for a consideration per share less than a price
(the “Applicable Price”) equal to
the Conversion Price in effect immediately prior to such issue or sale (the
foregoing a “Dilutive Issuance”),
then immediately after such Dilutive Issuance, the Conversion Price then in
effect shall be reduced to an amount equal to the product of (A) the
Conversion Price in effect immediately prior to such Dilutive Issuance and
(B) the quotient determined by dividing (1) the sum of (I) the
product derived by multiplying the Conversion Price in effect immediately prior
to such Dilutive Issuance and the number of shares of Common Stock Deemed
Outstanding immediately prior to such Dilutive Issuance plus (II) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (I) the Conversion Price in effect
immediately prior to such Dilutive Issuance by (II) the number of shares
of Common Stock Deemed Outstanding immediately after such Dilutive
Issuance.  For purposes of determining
the adjusted Conversion Price under this Section 7(a), the following shall be
applicable:

 

(i)            Issuance of Options.  If the Company in any manner grants or sells
any Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion or exchange
or exercise of any Convertible Securities issuable upon exercise of such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share.  For purposes of this Section 7(a)(i), the “lowest
price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion or exchange or exercise of any
Convertible Securities issuable upon exercise of such Option” shall be equal to
the sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to any one share of Common Stock upon granting or
sale of the Option, upon exercise of the Option and upon conversion or exchange
or exercise of any Convertible Security issuable upon exercise of such
Option.  No further adjustment of the
Conversion Price shall be made upon the actual issuance of such Common Stock or
of such Convertible Securities upon the exercise of such Options or upon the
actual issuance of such Common Stock upon conversion or exchange or exercise of
such Convertible Securities.

 

(ii)           Issuance of Convertible Securities.  If the Company in any manner issues or sells
any Convertible Securities and the lowest price per share for which one share
of Common Stock is issuable upon such conversion or exchange or exercise
thereof is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance of sale of such Convertible Securities for
such price per share.  For the purposes
of this Section 7(a)(ii), the

 

12

 

“price per share for which one share of Common Stock
is issuable upon such conversion or exchange or exercise” shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable by
the Company with respect to any one share of Common Stock upon the issuance or
sale of the Convertible Security and upon the conversion or exchange or
exercise of such Convertible Security. 
No further adjustment of the Conversion Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange or exercise of
such Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other provisions of
this Section 7(a), no further adjustment of the Conversion Price shall be made
by reason of such issue or sale.

 

(iii)          Change in Option Price or Rate of
Conversion.  If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion, exchange or exercise of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable or exercisable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.  For
purposes of this Section 7(a)(iii), if the terms of
any Option or Convertible Security that was outstanding as of the Subscription
Date are changed in the manner described in the immediately preceding sentence,
then such Option or Convertible Security and the Common Stock deemed issuable
upon exercise, conversion or exchange thereof shall be deemed to have been
issued as of the date of such change.  No
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect.

 

(iv)          Calculation of Consideration Received.  In
case any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a consideration of
$.01.  If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. 
If any Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such consideration,
except where such consideration consists of securities, in which case the
amount of consideration received by the Company will be the Closing Sale Price
of such securities on the date of receipt. 
If any Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. 
The fair value of any consideration other than cash or securities will
be determined jointly by the Company and the Required Holders.  If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five (5) Business Days after the tenth
(10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the

 

13

 

Company and the Required
Holders.  The determination of such appraiser shall be
deemed binding upon all parties absent manifest error and the fees and expenses
of such appraiser shall be borne one-half by the Company and one-half by the
Holders.

 

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

 

(vi)          [Insert
in AIR  Notes
only:  (vi)        This Note Deemed Outstanding.  If during the period beginning on and
including the Subscription Date and ending on the date immediately preceding
the Issuance Date, the Company entered into, or in accordance with Section 7(a)
would have been deemed to have entered into (had this Note been outstanding at
such time), any Dilutive Issuance, then solely for purposes of determining any
adjustment under this Section 7(a) as a result of such Dilutive Issuance or
deemed Dilutive Issuance, this Note shall be deemed to have been outstanding at
the time of each such Dilutive Issuance or deemed Dilutive Issuance.]

 

(b)           Adjustment of Conversion Price
upon Subdivision or Combination of Common Stock.  If the Company at any time on or after the
Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced.  If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination will be proportionately increased.

 

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

 

(8)           COMPANY INSTALLMENT CONVERSION OR
REDEMPTION.

 

(a)           General.  On each applicable Installment Date and after
such time as the Stockholder Approval has been obtained, the Company shall pay
to the Holder of this Note the Installment Amount as of such Installment Date
by the combination of any of the following, but subject to and in accordance
with the terms of this Section 8, (i) provided that during the period
commencing with the Company Installment Notice (as defined below) through the
applicable Installment Date, the Equity Conditions have been satisfied (or
waived in writing by

 

14

 

the Holder, provided that the Holder may not
waive the provisions of Section 3(d)(ii)), requiring the conversion of a
portion of the applicable Installment Amount, in whole or in part, in
accordance with this Section 8 (a “Company Conversion”),
and/or (ii) redeeming the applicable Installment Amount, in whole or in part,
in accordance with this Section 8 (a “Company Redemption”);
provided that all of the outstanding applicable Installment Amount as of each
such Installment Date must be converted and/or redeemed by the Company on the
applicable Installment Date, subject to the provisions of this Section 8. [Insert in Initial Notes only: In the event that the
Stockholder Approval has not been obtained prior to any Installment Notice Due
Date (as hereinafter defined) or Special Installment Notice Due Date (as
defined in Section 8(e)), as applicable, the Company shall pay the applicable
Installment Amount in cash by way of a Company Redemption.  On or prior to the date which is the
twentieth (20th) Trading Day prior to each Installment Date (each, an “Installment Notice Due Date”), or as] [Insert in
AIR Notes only: In the event that the Stockholder Approval has not
been obtained prior to any Special Installment Notice Due Date (as defined in
Section 8(e)), the Company shall pay the applicable Installment Amount in cash
by way of a Company Redemption.  As] part
of the Net Cash Deficiency Notice (as defined in Section 8(e)), the Company
shall deliver written notice (each, a “Company Installment
Notice”), to the Holder which Company Installment Notice shall state
(i) the portion, if any, of the applicable Installment Amount which the Company
elects to convert pursuant to a Company Conversion, which amount when added to
the Company Redemption Amount must equal the applicable Installment Amount (the
“Company Conversion Amount”), (ii) the
portion, if any, of the applicable Installment Amount which the Company elects
to redeem pursuant to a Company Redemption (the “Company
Redemption Amount”), which amount when added to the Company
Conversion Amount must equal the applicable Installment Amount and (iii) if the
Company has elected, in whole or in part, a Company Conversion, then the
Company Installment Notice shall certify that the Equity Conditions have been
satisfied as of the date of the Company Installment Notice.  Each Company Installment Notice shall be
irrevocable.  If the Company does not
timely deliver a Company Installment Notice in accordance with this Section 8,
then the Company shall be deemed to have delivered an irrevocable Company
Installment Notice electing a Company Conversion and shall be deemed to have
certified that the Equity Conditions in connection with any such conversion
have been satisfied.  Except as expressly
provided in this Section 8(a), the Company shall redeem and convert the
applicable Installment Amount of this Note pursuant to this Section 8 and the
corresponding Installment Amounts of the Other Notes pursuant to the
corresponding provisions of the Other Notes in the same ratio of the
Installment Amount being redeemed and converted hereunder.  The Company Redemption Amount shall be
redeemed in accordance with Section 8(b) and the Company Conversion Amount
(whether set forth in the Company Installment Notice or by operation of this
Section 8) shall be converted in accordance with Section 8(c).  Notwithstanding the foregoing, unless the
Company is given notice to the contrary by the Holder, if the arithmetic
average of the Weighted Average Price of the Common Stock during the applicable
Company Conversion Measuring Period (as defined in Section 29 below) is greater
than the Company Conversion Price, then the Company shall be deemed to have
elected a Company Conversion in the Company Installment Notice as to the entire
applicable Installment Amount.

 

(b)           Mechanics of Company Redemption.  If the Company elects a Company Redemption in
accordance with Section 8(a), then the Company Redemption Amount, if any, which
is to be paid to the Holder on the applicable Installment Date shall be
redeemed by

 

15

 

the Company on such Installment Date, and the
Company shall pay to the Holder on such Installment Date, by wire transfer of
immediately available funds, an amount in cash (the “Company Installment Redemption Price”) equal to 100% of the
Company Redemption Amount.  If the
Company fails to redeem the Company Redemption Amount on the applicable
Installment Date by payment of the Company Installment Redemption Price on such
date, then at the option of the Holder designated in writing to the Company
(any such designation, “Conversion Notice”
for purposes of this Note), the Holder may require the Company to convert all
or any part of the Company Redemption Amount at the Company Conversion
Price.  Conversions required by this
Section 8(b) shall be made in accordance with the provisions of Section
3(c).  Notwithstanding anything to the
contrary in this Section 8(b), but subject to Section 3(d), until the Company
Installment Redemption Price (together with any interest thereon) is paid in
full, the Company Redemption Amount (together with any interest thereon) may be
converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3.  In the event the Holder
elects to convert all or any portion of the Company Redemption Amount prior to
the applicable Installment Date as set forth in the immediately preceding
sentence, the Company Redemption Amount so converted shall be deducted from the
Installment Amount to be paid on such Installment Date.

 

(c)           Mechanics of Company Conversion.  Subject to Section 3(d), if the Company
delivers a Company Installment Notice and elects, or is deemed to have elected,
in whole or in part, a Company Conversion in accordance with Section 8(a), then
the applicable Company Conversion Amount, if any, which remains outstanding
shall be converted as of the applicable Installment Date by converting on such
Installment Date such Company Conversion Amount at the Company Conversion
Price; provided that the Equity Conditions have been satisfied (or waived in
writing by the Holder) on such Installment Date.  If the Equity Conditions are not satisfied
(or waived in writing by the Holder) on such Installment Date, then at the
option of the Holder designated in writing to the Company, the Holder may
require the Company to do any one or more of the following: (i) the Company
shall redeem all or any part designated by the Holder of the unconverted
Company Conversion Amount (such designated amount is referred to as the “First Redemption Amount”) on such
Installment Date and the Company shall pay to the Holder on such Installment
Date, by wire transfer of immediately available funds, an amount in cash equal
to 120% of such First Redemption Amount, or (ii) the Company Conversion shall
be null and void with respect to all or any part designated by the Holder of
the unconverted Company 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
Company Conversion Amount; provided, however, that the Conversion Price for
such unconverted Company Conversion Amount shall thereafter be adjusted to
equal the lesser of (A) the Company Conversion Price as in effect on the date
on which the Holder voided the Company Conversion and (B) the Company
Conversion Price as in effect on the date on which the Holder delivers a
Conversion Notice relating thereto.  If
the Company fails to redeem any First Redemption Amount on or before the
applicable Installment Date by payment of such amount on the applicable
Installment Date, then the Holder shall have the rights set forth in Section
12(a) as if the Company failed to pay the applicable Company Redemption Price
and all other rights under this Note (including, without limitation, such
failure constituting an Event of Default described in Section 4(a)(xi)). 
Notwithstanding anything to the contrary in this Section 8(c), but
subject to 3(d), until the Company delivers Common Stock representing the
Company Conversion Amount to the Holder, the Company Conversion Amount may be
converted by the Holder into Common Stock pursuant to Section 3.  In the event the

 

16

 

Holder elects to convert the Company Conversion
Amount prior to the applicable Installment Date as set forth in the immediately
preceding sentence, the Company Conversion Amount so converted shall be
deducted from the Installment Amount to be paid on such Installment Date.

 

(d)           [Insert
in Initial Notes only: Deferred Scheduled Installment
Amount.  Notwithstanding any
provision of this Section 8 to the contrary, the Holder may, at its option and
in its sole discretion, deliver a notice to the Company at least ten (10)
Trading Days prior to the applicable Scheduled Installment Date electing to
have all or any portion of the Installment Amount payable on such Scheduled
Installment Date deferred. 
Notwithstanding any provision of this Section 8 to the contrary, in the
event that the Weighted Average Price of the Common Stock equals or exceeds
105% of the applicable Conversion Price for each of the ten (10) consecutive
Trading Days commencing on the date that is ten (10) Trading Days prior to the
applicable Installment Notice Due Date and ending on the first (1st) Trading
Day immediately preceding the Installment Notice Due Date, then the Company may
deliver a notice to the Holder electing to have payment of all or any portion
of the Installment Amount payable on such Scheduled Installment Date deferred
(such amount deferred pursuant to the first or second sentence of this Section
8(d), the “Deferral Amount”).  Any notice delivered by either the Holder or
the Company pursuant to this Section 8(d) shall set forth (A) the Deferral
Amount and (B) the date such Deferral Amount shall now be payable, which date
shall be eighteen (18) months from the date of the original Scheduled
Installment Date.]

 

(e)           Special Installment Amounts.  The provisions of this Section 8(e)
shall apply for each Calendar Quarter on the last day of which at least
$5,000,000 in aggregate Principal amount is outstanding under all Notes.  The Company shall announce its operating
results (the “Operating Results”) for each
Calendar Quarter no later than the twenty-fifth (25th) day after the end of
each Calendar Quarter and such announcement shall include the amount of the
Company’s Net Cash Balance.  In addition,
if at the end of the Calendar Quarter the Company’s U.S. Net Cash Balance is
less than $10,000,000 (a “US Net Cash Deficiency”),
the Company shall make publicly available (as part of the Operating Results
announcement or, contemporaneously, on a Current Report on Form 8K or
otherwise) the fact that the Company’s Obligation to pay Special Installment
Amounts has been triggered.  On the date
of such announcement (the “Announcement Date”),
the Company shall also provide to the Holders a certification (a “US Cash Certification”) as to the amount of the US Net Cash
Balance as of the end of the Calendar Quarter to which such Operating Results
relate.  If at the end of any Calendar
Quarter (i) the Company’s Net Cash Balance shall be less than $15,000,000 or
(ii) a U.S. Net Cash Deficiency exists (either event a “Net Cash
Deficiency”), the Company shall, on the Announcement Date, also
provide to the Holder a notice (each such notice, a “Net Cash
Deficiency Notice”) stating (A) the amount of such Net Cash
Deficiency and (B) if the Stockholder Approval has been obtained, the
information required to be included in a Company Installment Notice.  At any time during the period beginning after
the Holder’s receipt of a Net Cash Deficiency Notice and ending seven (7)
Business Days thereafter (the “Special Installment
Notice Due Date”), the Holder may require the Company to pay, on
each Special Installment Date, Special Installment Amounts in the form of a
Company Redemption or, at the Company’s option if applicable, a Company
Conversion (or a combination thereof) in accordance with the provisions of this
Section 8 by delivering written notice thereof to the Company.  The Company shall continue to pay such
Special Installment Amounts to the Holder on each Special Installment Date, and
the Holder shall be entitled to receive such Special Installment Amounts,

 

17

 

until a subsequent Announcement Date on which the
Company announces a Net Cash Balance of $15,000,000 or more and states that the
Company’s US Net Cash Balance is in compliance with the applicable threshold
hereunder (which such compliance shall be certified by the Company by delivery
of a US Cash Certification) (a “Net Cash
Compliance”); provided, however, that the Holders shall be entitled
to receive Special Installment Amounts with respect to any Net Cash Deficiency
for at least three (3) consecutive Special Installment Dates (the “Minimum Special Installment Payments”).

 

(8A)        COMPANY’S RIGHT OF MANDATORY
CONVERSION.

 

(a)           Mandatory Conversion.  If at any time from and after the one-year
anniversary of the Effective Date (as defined in the Registration Rights
Agreement) (the “Mandatory Conversion
Eligibility Date”), (i) the Weighted Average Price of the Common
Stock equals or exceeds 200% of the Conversion Price on the Closing Date
(subject to appropriate adjustments for stock splits, stock dividends, stock
combinations and other similar transactions after the Subscription Date) for
each of any twenty (20) consecutive Trading Days following the Mandatory
Conversion Eligibility Date (the “Mandatory
Conversion Measuring Period”) and (ii) the Equity Conditions shall
have been satisfied (or waived in writing by the Holder, provided that the
Holder may not waive the provisions of Section 3(d)(ii)) during the period
commencing on the Mandatory Conversion Notice Date through the applicable
Mandatory Conversion Date (each, as defined below), the Company shall have the
right to require the Holder to convert all, but not less than all, of the
Conversion Amount then remaining under this Note plus the Present Value of
Interest as designated in the
Mandatory Conversion Notice (as defined below) into fully paid, validly issued
and nonassessable shares of Common Stock in accordance with Section 3(c)
hereof at the Conversion Rate as of the Mandatory Conversion Date (as defined
below) (a “Mandatory Conversion”)
or, at the Company’s option and solely with respect to the Present Value of
Interest, cash or a combination of Common Stock and cash; provided, however,
that the Company may not elect to pay the Present Value of Interest due
hereunder in cash unless it has first obtained any written consent required to
make such cash payment under the terms of the Subordination Agreement.  The Company may exercise its right to require
conversion under this Section 8A(a) by delivering within not more than two (2)
Trading Days following the end of such Mandatory Conversion Measuring Period a
written notice thereof by facsimile and overnight courier to all, but not less
than all, of the holders of Notes and the Transfer Agent (the “Mandatory Conversion Notice” and the date
all of the holders received such notice by facsimile is referred to as the “Mandatory Conversion Notice Date”).  The Mandatory Conversion Notice shall be
irrevocable.  The Mandatory Conversion
Notice shall state (i) the Trading Day selected for the Mandatory Conversion in
accordance with Section 8A(a), which Trading Day shall be at least twenty (20)
Business Days but not more than sixty (60) Business Days following the
Mandatory Conversion Notice Date (the “Mandatory
Conversion Date”), (ii) the aggregate Conversion Amount of the Notes
subject to mandatory conversion from all of the holders of the Notes pursuant
to this Section 8A (and analogous provisions under the Other Notes), (iii) the
number of shares of Common Stock to be issued to, and the Present Value of
Interest to be paid to, such Holder on the Mandatory Conversion Date and (iv)
the portion, if any, of the Present Value of Interest that shall be paid in
cash and the portion, if any, that shall be paid in Common Stock.

 

18

 

(b)           Pro Rata Conversion Requirement.  If the Company elects to cause a conversion
of any Conversion Amount of this Note pursuant to Section 8A(a),
then it must simultaneously take the same action in the same proportion with
respect to the Other Notes.  All
Conversion Amounts converted by the Holder after the Mandatory Conversion
Notice Date shall reduce the Conversion Amount of this Note required to be
converted on the Mandatory Conversion Date. 
If the Company has elected a Mandatory Conversion, the mechanics of
conversion set forth in Section 3(c) shall apply, to the extent applicable, as
if the Company and the Transfer Agent had received from the Holder on the
Mandatory Conversion Date a Conversion Notice with respect to the Conversion
Amount being converted pursuant to the Mandatory Conversion.

 

(9)           SECURITY.  This Note and the Other Notes are secured to
the extent and in the manner set forth in the Security Documents (as defined in
the Securities Purchase Agreement).

 

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

 

(11)         RESERVATION OF AUTHORIZED SHARES.

 

(a)           Reservation.  The Company shall initially reserve out of
its authorized and unissued Common Stock a number of shares of Common Stock for
each of the Notes equal to 130% of the Conversion Rate with respect to the
Conversion Amount of each such Note as of the Issuance Date. 
So long as any of the Notes are outstanding, the Company shall take all
action necessary to reserve and keep available out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the Notes,
150% of the number of shares of Common Stock as shall from time to time be
necessary to effect the conversion of all of the Notes then outstanding
pursuant to Sections 2 and 3; provided that at no time shall the number of
shares of Common Stock so reserved be less than the number of shares required
to be reserved by the previous sentence (without regard to any limitations on
conversions) (the “Required Reserve Amount”).  The initial number of shares of Common Stock
reserved for conversions of the Notes and each increase in the number of shares
so reserved shall be allocated pro rata among the holders of the Notes based on
the principal amount of the Notes held by each holder at the Closing (as
defined in the Securities Purchase Agreement) or increase in the number of
reserved shares, as the case may be (the “Authorized
Share Allocation”).  In the
event that a holder shall sell or otherwise transfer any of such holder’s Notes,
each transferee shall be allocated a pro rata portion of such holder’s
Authorized Share Allocation.  Any shares
of Common Stock reserved and allocated to any Person which ceases to hold any
Notes shall be allocated to the remaining holders of Notes, pro rata based on
the principal amount of the Notes then held by such holders.

 

19

 

(b)           Insufficient Authorized Shares.  If at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately
take all action necessary to increase the Company’s authorized shares of Common
Stock to an amount sufficient to allow the Company to reserve the Required
Reserve Amount for the Notes then outstanding. 
Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock.  In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
its best efforts to solicit its stockholders’ approval of such increase in
authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.

 

(12)         HOLDER’S REDEMPTIONS.

 

(a)           Mechanics.  The Company shall deliver the applicable
Event of Default Redemption Price to the Holder within five Business Days after
the Company’s receipt of the Holder’s Event of Default Redemption Notice.  If the Holder has submitted a Change of
Control Redemption Notice in accordance with Section 5(b), the Company shall
deliver the applicable Change of Control Redemption Price to the Holder
concurrently with the consummation of such Change of Control if such notice is
received prior to the consummation of such Change of Control and within five (5)
Business Days after the Company’s receipt of such notice otherwise.  The Company shall deliver the applicable
Company Installment Redemption Price to the Holder on the applicable
Installment Date.  In the event of a
redemption of less than all of the Conversion Amount of this Note, the Company
shall promptly cause to be issued and delivered to the Holder a new Note (in
accordance with Section 19(d)) representing the outstanding Principal which has
not been redeemed.  In the event that the
Company does not pay the applicable Redemption Price to the Holder within the
time period required, at any time thereafter and until the Company pays such
unpaid Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any
portion of this Note representing the Conversion Amount that was submitted for
redemption and for which the applicable Redemption Price (together with any
Late Charges thereon) has not been paid. 
Upon the Company’s receipt of such notice, (x) the Redemption Notice
shall be null and void with respect to such Conversion Amount, (y) the Company
shall immediately return this Note, or issue a new Note (in accordance with
Section 19(d)) to the Holder representing such Conversion Amount and (z) the
Conversion Price of this Note or such new Notes shall be adjusted to the lesser
of (A) the Conversion Price as in effect on the date on which the Redemption
Notice is voided and (B) the lowest Closing Bid Price of the Common Stock during
the period beginning on and including the date on which the Redemption Notice
is delivered to the Company and ending on and including the date on which the
Redemption Notice is voided.  The Holder’s
delivery of a notice voiding a Redemption Notice and exercise of its rights
following such notice shall not affect the Company’s obligations to make any
payments of Late Charges which have accrued prior to the date of such notice
with respect to the Conversion Amount subject to such notice.

 

20

 

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

 

(13)         [Intentionally Omitted].

 

(14)         VOTING RIGHTS.  The Holder shall have no voting rights as the
holder of this Note, except as required by law, including, but not limited to,
the General Corporation Law of the State of Delaware, and as expressly provided
in this Note.

 

(15)         COVENANTS.

 

(a)           Rank.      (i) All payments due under this Note (A) shall rank pari passu with all Other Notes and (B)
shall be senior to or pari passu
with all other Indebtedness of the Company and its Subsidiaries, other than
Senior Indebtedness (subject to the terms of Subordination Agreement), Liens
(as hereinafter defined) securing the obligations under the Transaction
Documents shall be senior to all other liens securing any other Indebtedness of
the Company and its Subsidiaries; provided however, that (subject to the terms
of the Subordination Agreement), the Liens securing obligations the Transaction
Documents shall be junior to the lien securing the Senior Indebtedness.

 

(b)           Incurrence of Indebtedness.  So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than (i) the Indebtedness evidenced by this Note and the
Other Notes and (ii) Permitted Indebtedness; provided, however,
that, the Company shall not permit the unpaid principal balance owed under the
Senior Credit Facility to exceed
$15,000,000 for more than any ten (10) days during any Calendar Quarter unless
the Company obtains the prior written consent of the Required Holders;
provided, further however, that in no event shall more than $15,000,000 of
Indebtedness be outstanding under such Senior Credit Facility for more than 10
consecutive days.

 

(c)           Existence of Liens.  So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, allow or suffer to exist any mortgage, lien, pledge,
charge, security interest or other encumbrance

 

21

 

upon or in any property or assets (including
accounts and contract rights) owned by the Company or any of its Subsidiaries
(collectively, “Liens”) other than
Permitted Liens.

 

(d)           Restricted Payments.  The Company shall not, and the Company shall
not permit any of its Subsidiaries to, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Permitted Indebtedness (other than
the Senior Indebtedness consisting of revolving credit loans), whether by way
of payment in respect of principal of (or premium, if any) or interest on, such
Indebtedness if at the time such payment is due or is otherwise made or, after
giving effect to such payment, an event constituting, or that with the passage
of time and without being cured would constitute, an Event of Default has
occurred and is continuing.

 

(16)         PARTICIPATION.  The Holder, as the holder of this Note, shall
be entitled to receive such dividends paid and distributions made to the
holders of Common Stock to the same extent as if the Holder had converted this
Note into Common Stock (without regard to any limitations on conversion herein
or elsewhere) and had held such shares of Common Stock on the record date for
such dividends and distributions. 
Payments under the preceding sentence shall be made concurrently with
the dividend or distribution to the holders of Common Stock.

 

(17)         VOTE TO ISSUE, OR CHANGE THE TERMS
OF, NOTES.  The affirmative vote at a
meeting duly called for such purpose or the written consent without a meeting
of the Required Holders shall be required for any change or amendment to this
Note or the Other Notes.

 

(18)         TRANSFER.  This Note and any shares of Common Stock
issued upon conversion of this Note may be offered, sold, assigned or transferred
by the Holder without the consent of the Company, subject only to the
provisions of Section 2(f) of the Securities Purchase Agreement.

 

(19)         REISSUANCE OF THIS NOTE.

 

(a)           Transfer.  If this Note is to be transferred, the Holder
shall surrender this Note to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Note (in accordance with
Section 19(d)), registered as the Holder may request, representing the
outstanding Principal being transferred by the Holder and, if less then the
entire outstanding Principal is being transferred, a new Note (in accordance
with Section 19(d)) to the Holder representing the outstanding Principal not
being transferred.  The Holder and any
assignee, by acceptance of this Note, acknowledge and agree that, by reason of
the provisions of Section 3(c)(iii) following
conversion or redemption of any portion of this Note, the outstanding Principal
represented by this Note may be less than the Principal stated on the face of
this Note.

 

(b)           Lost,
Stolen or Mutilated Note.  Upon
receipt by the Company of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the

 

22

 

Holder to the Company in customary form and, in the
case of mutilation, upon surrender and cancellation of this Note, the Company
shall execute and deliver to the Holder a new Note (in accordance with Section
19(d)) representing the outstanding Principal.

 

(c)           Note Exchangeable for Different
Denominations.  This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for a new Note or Notes (in accordance with Section 19(d) and
in principal amounts of at least $100,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the
time of such surrender.

 

(d)           Issuance of New Notes.  Whenever the Company is required to issue a
new Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such
new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 19(a) or Section 19(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note,
(iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued Interest and Late Charges on the Principal and Interest of
this Note, from the Issuance Date.

 

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

 

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

 

23

 

attorneys’ fees and disbursements.

 

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

 

(23)         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.

 

(24)         DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Closing Bid Price, the Closing Sale Price or the Weighted
Average Price or the arithmetic calculation of the Conversion Rate or the
Redemption Price, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within one (1) Business Day of receipt,
or deemed receipt, of the Conversion Notice or Redemption Notice or other event
giving rise to such dispute, as the case may be, to the Holder.  If the Holder and the Company are unable to agree
upon such determination or calculation within one (1) Business Day of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within one Business Day submit via facsimile (a) the
disputed determination of the Closing Bid Price, the Closing Sale Price or the
Weighted Average Price to an independent, reputable investment bank selected by
the Company and approved by the Holder or (b) the disputed arithmetic
calculation of the Conversion Rate or the Redemption Price to the Company’s
independent, outside accountant.  The
Company, at the Company’s expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five (5) 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.

 

(25)         NOTICES; PAYMENTS.

 

(a)           Notices.  Whenever notice is required
to be given under this Note, unless otherwise provided herein, such notice
shall be given in accordance with Section 9(f) of the Securities Purchase
Agreement.  The Company shall
provide the Holder with prompt written notice of all actions taken pursuant to
this Note, including in reasonable detail a description of such action and the
reason therefore.  Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the Conversion Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment and (ii)
at least twenty (20) days prior to the date on which the Company closes its
books or takes a record (A) with respect to any dividend or distribution upon
the Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect to
any Fundamental Transaction, dissolution or liquidation, provided in each case
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder.

 

24

 

(b)           Payments.  Whenever any payment of cash is to be made by
the Company to any Person pursuant to this Note, such payment shall be made in
lawful money of the United States of America by a check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement); provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder’s wire transfer instructions.  Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is paid
in full, the extension of the due date thereof shall not be taken into account
for purposes of determining the amount of Interest due on such date.  Any amount of Principal or other amounts due
under the Transaction Documents, other than Interest, which is not paid when
due shall result in a late charge being incurred and payable by the Company in
an amount equal to interest on such amount at the rate of twelve percent (12)% per annum from the date such amount was due until the
same is paid in full (“Late Charge”).

 

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

 

(27)         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 and the Securities Purchase Agreement.

 

(28)         GOVERNING LAW.  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, 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.

 

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

 

(a)           “Additional
Investment Rights” has the meaning ascribed to such term in the
Securities Purchase Agreement and shall include additional investment rights
issued in exchange therefor.

 

(b)           “Approved
Stock Plan” means any employee benefit plan which has been approved
by the Board of Directors of the Company, pursuant to which the Company’s
securities may be issued to any employee, officer or director for services
provided to the Company.

 

(c)           “Bloomberg”
means Bloomberg Financial Markets.

 

25

 

(d)           “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.

 

(e)           “Calendar
Quarter” means each of: the period beginning on and including
January 1 and ending on and including March 31; the period beginning on and
including April 1 and ending on and including June 30; the period beginning on
and including July 1 and ending on and including September 30; and the period
beginning on and including October 1 and ending on and including December 31.

 

(f)            “Change
of Control” means any Fundamental Transaction other than (A) a
Fundamental Transaction in which holders of the Company’s voting power
immediately prior to the Fundamental Transaction continue after the Fundamental
Transaction to hold publicly traded securities and, directly or indirectly, the
voting power of the surviving entity or entities necessary to elect 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.

 

(g)           “Closing
Bid Price” and “Closing Sale Price”
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the Principal Market,
as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the
closing trade price, as the case may be, then the last bid price or last trade
price, respectively, of such security prior to 4:00:00 p.m., New York Time, as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded
as reported by Bloomberg, or if the foregoing do not apply, the last closing
bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.).  If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or
the Closing Sale Price, as the case may be, of such security on such date shall
be the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 24.  All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.

 

(h)           “Closing
Date” shall have the meaning set forth in the Securities Purchase
Agreement, which date is the date the Company initially issued Notes pursuant
to the terms of the Securities Purchase Agreement.

 

(i)            “Common
Stock Deemed Outstanding” means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of

 

26

 

shares of Common Stock deemed to be outstanding
pursuant to Sections 7(a)(i) and 7(a)(ii) hereof
regardless of whether the Options or Convertible Securities are actually
exercisable at such time, but excluding any Common Stock owned or held by or
for the account of the Company or issuable upon conversion or exercise, as
applicable, of the Notes and the Warrants.

 

(j)            [Insert
in AIR Notes only: “Company
Conversion Price” means, as of any date of determination, that price
which shall be the lower of (i) the price computed as 92% of the arithmetic
average of the Weighted Average Price of the Common Stock during each of the
fifteen (15) Trading Days of the fifteen (15) consecutive Trading Day period
commencing one (1) Trading Day after the Special Installment Notice Due Date
(each, a “Company Conversion Measuring Period”)
and (ii) the applicable Conversion Price. 
All such determinations to be appropriately adjusted
for any stock split, stock dividend, stock combination or other similar
transaction that proportionately decreases or increases the Common Stock during
such Company Conversion Measuring Period.]

 

(k)           [Insert
in Initial Notes only: “Company
Conversion Price” means, the lower of (i) (x) with respect to any
Scheduled Installment Date, that price which shall be computed as 92% of the
arithmetic average of the Weighted Average Price of the Common Stock on each of
the fifteen (15) consecutive Trading Days commencing two (2) Trading
Days after the Installment Notice Due Date and ending on the fourth (4th)
Trading Day immediately preceding the applicable Installment Date or (y) with respect
to any Special Installment Date, that price which shall be computed as 92% of
the arithmetic average of the Weighted Average Price of the Common Stock during
each of the fifteen (15) Trading Days of the fifteen (15) consecutive Trading
Day period commencing one (1) Trading Day after the Special Installment Notice
Due Date (each such period referred to in clause (x) or (y), a “Company
Conversion Measuring Period”) and (ii) the applicable Conversion
Price.  All such determinations to be
appropriately adjusted for any stock split, stock dividend, stock combination
or other similar transaction that proportionately decreases or increases the
Common Stock the applicable such Company Conversion Measuring Period.]

 

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

 

(m)          “Eligible
Market” means the Principal Market, The New York Stock Exchange,
Inc., the American Stock Exchange or The Nasdaq SmallCap
Market.

 

(n)           “Equity
Conditions” means each of the following conditions:  (i) on each day during the period beginning
one (1) month prior to the applicable date of determination and ending on and
including the applicable date of determination, either (x) the Registration
Statement filed pursuant to the Registration Rights Agreement shall be
effective and available for the resale of all remaining Registrable Securities
in accordance with the terms of the Registration Rights Agreement and there
shall not have been any Grace Periods (as defined in the Registration Rights
Agreement) or (y) all shares of Common Stock issuable upon conversion of the
Notes and exercise of the Warrants shall be eligible for sale without
restriction and without the need for registration under any applicable federal
or state securities laws; (ii) on each day during the period beginning three
(3) months prior to the applicable date of determination and

 

27

 

ending on and including the applicable date of
determination (the “Equity Conditions
Measuring Period”), the Common Stock is designated for quotation on
the Principal Market and shall not have been suspended from trading on such
exchange or market (other than suspensions of not more than two (2) days and
occurring prior to the applicable date of determination due to business
announcements by the Company) nor shall delisting or suspension by such
exchange or market been threatened or pending either (A) in writing by such
exchange or market or (B) by falling below the then effective minimum listing
maintenance requirements of such exchange or market; (iii) during the one (1)
year period ending on and including the date immediately preceding the
applicable date of determination, the Company shall have delivered Conversion
Shares upon conversion of the Notes and Warrant Shares upon exercise of the
Warrants to the holders on a timely basis as set forth in Section 2(c)(ii)
hereof (and analogous provisions under the Other Notes) and Sections 2(a) of
the Warrants and Notes upon exercise of the Additional Investment Rights; (iv)
during the Equity Conditions Measuring Period, any applicable shares of Common
Stock to be issued in connection with the event requiring determination may be
issued in full without violating Section 3(d) hereof and the rules or
regulations of the Principal Market; (v) during the Equity Conditions Measuring
Period, the Company shall not have failed to timely make any payments within
five (5) Business Days of when such payment is due pursuant to any Transaction
Document; (vi) during the Equity Conditions Measuring Period, there shall not
have occurred either (A) the public announcement of a pending, proposed or
intended Fundamental Transaction which has not been abandoned, terminated or
consummated, or (B) an Event of Default or (vii) during the period commencing
on the Interest Notice Due Date, [Insert in
Initial Notes only: the Installment Notice Due Date,] the Special Installment Notice Due Date
or the Mandatory Conversion Notice Date, as applicable, and ending on the
Interest Date, [Insert in Initial Notes only:
the Installment Date,]
the Special Installment Date or the Mandatory Conversion Date, as applicable,
an event that with the passage of time or giving of notice would constitute an
Event of Default; (viii) on the applicable date of determination, the Company
shall have no knowledge of any fact that would cause (x) the Registration
Statements required pursuant to the Registration Rights Agreement not to be
effective and available for the resale of all remaining Registrable Securities
in accordance with the terms of the Registration Rights Agreement or (y) any
shares of Common Stock issuable upon conversion of the Notes and shares of
Common Stock issuable upon exercise of the Warrants not to be eligible for sale
without restriction pursuant to Rule 144(k) and any applicable state securities
laws; and (ix) during the Equity Conditions Measuring Period, the Company
otherwise shall have been in material compliance with and shall not have
materially breached any provision, covenant, representation or warranty of any
Transaction Document.

 

(o)           “Excluded
Securities” means any Common Stock issued or issuable: (i) in
connection with any Approved Stock Plan; (ii) upon conversion of the Notes or
the exercise of the Warrants; (iii) pursuant to a bona fide firm commitment
underwritten public offering with a nationally recognized underwriter which
generates gross proceeds to the Company in excess of $30,000,000 (other than an
“at-the-market offering” as defined in Rule 415(a)(4) under the 1933 Act and “equity
lines”); (iv) in connection with the payment of any Interest Shares on the
Notes; (v) in connection with any acquisition by the Company, whether through
an acquisition of stock or a merger of any business, assets or technologies the
primary purpose of which is not to raise equity capital in an amount not to
exceed, in the aggregate 20% of the outstanding shares of Common Stock in any
calendar year; and (vi) upon conversion of any Options or Convertible
Securities which are outstanding on the day immediately preceding the
Subscription Date,

 

28

 

provided that the terms of such Options or
Convertible Securities are not amended, modified or changed on or after the
Subscription Date.

 

(p)           “Fundamental
Transaction” means that the Company shall, directly or indirectly,
in one or more related transactions, (i) consolidate or merge with or into
(whether or not the Company is the surviving corporation) another Person, or
(ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of the outstanding shares of
Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or
reclassify its Common Stock.

 

(q)           “GAAP”
means United States generally accepted accounting principles, consistently
applied.

 

(r)            [Insert
in AIR Notes only:  “Installment Amount” means the Special
Installment Amount with respect to any Special Installment Date.  In the event the Holder shall sell or
otherwise transfer any portion of this Note, the transferee shall be allocated
a pro rata portion of the each unpaid Installment Amount hereunder.]

 

(s)           [Insert
in Initial Notes only:  “Installment Amount” means (a) with respect
to any Scheduled Installment Date, the Scheduled Installment Amount with
respect to such date and (b) with respect to any Special Installment Date, the Special
Installment Amount with respect to such date. 
In the event the Holder shall sell or otherwise transfer any portion of
this Note, the transferee shall be allocated a pro rata portion of the each
unpaid Scheduled Installment Amount and Special Installment Amount hereunder.]

 

(t)            [Insert
in AIR Notes only:  “Installment Date” means each Special
Installment Date.]

 

(u)           [Insert
in Initial Notes only: “Installment
Date” means (a) each Scheduled Installment Date, and (b) each
Special Installment Date.]

 

(v)           “Interest
Conversion Price” means, with respect to any Interest Date,
that price which shall be computed as 92% of the arithmetic average of the
Weighted Average Price of the Common Stock on each of the fifteen (15)
consecutive Trading Days commencing two (2) Trading Days after the Interest
Notice Due Date and ending on the fourth (4th) Trading Day immediately
preceding the applicable Interest Date (each, an “Interest Measuring Period”).  All such determinations to
be appropriately adjusted for any stock split, stock dividend, stock
combination or other similar transaction during such period.

 

29

 

(w)          “Measuring
Period” means any of the Interest Measuring Period or Company
Conversion Measuring Period, as applicable.

 

(x)            “Net
Cash Balance” means, at any date, the difference between (i)
aggregate amount of all cash and cash equivalents (not including restricted
cash) and short term investments shown or reflected on the Company’s balance
sheet as at such date, minus
(ii) the unpaid principal balance of the Permitted Indebtedness on such date.

 

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

 

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

 

(aa)         “Permitted Indebtedness” means (A) Senior
Indebtedness, (B) Indebtedness incurred by the Company that is made expressly
subordinate in right of payment to the Indebtedness evidenced by this Note, as
reflected in a written agreement acceptable to the Holder and approved by the
Holder in writing, and which Indebtedness does not provide at any time for (1)
the payment, prepayment, repayment, repurchase or defeasance, directly or
indirectly, of any principal or premium, if any, thereon until ninety-one (91)
days after the Maturity Date or later and (2) total interest and fees at a rate
in excess of eight percent (8%) per annum, (C) Indebtedness secured by
Permitted Liens, (D) Indebtedness to trade creditors incurred in the ordinary
course of business, and (E) extensions, refinancings and renewals of any items
of Permitted Indebtedness, provided that the principal amount is not increased
or the terms modified to impose more burdensome terms upon the Company or its
Subsidiary, as the case may be.

 

(bb)         “Permitted Liens” means (i) any Lien for
taxes not yet due or delinquent or being contested in good faith by appropriate
proceedings for which adequate reserves have been established in accordance
with GAAP, (ii) any statutory Lien arising in the ordinary course of business
by operation of law with respect to a liability that is not yet due or
delinquent, (iii) any Lien created by operation of law, such as materialmen’s
liens, mechanics’ liens and other similar liens, arising in the ordinary course
of business with respect to a liability that is not yet due or delinquent or
that are being contested in good faith by appropriate proceedings, (iv) any
Lien incurred to secure Senior Indebtedness, (v) Liens securing the Company’s
obligations under the Notes, (vi) any Liens existing on the Closing Date and
disclosed in the Schedule, (vii) Liens (A) upon or in any equipment (as defined
in the Security Agreement) acquired or held by the Company or any of its
Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such
equipment, or (B) existing on such equipment at the time of its acquisition,
provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment; (viii) Liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clauses (i), (iv) and (vii) above,
provided that any extension, renewal or replacement

 

30

 

Lien shall be limited to the property encumbered by
the existing Lien and the principal amount of the Indebtedness being extended,
renewed or refinanced does not increase, (ix) leases or subleases and licenses
and sublicenses granted to others in the ordinary course of the Company’s
business, not interfering in any material respect with the business of the
Company and its Subsidiaries taken as a whole; (x) Liens in favor of customs
and revenue authorities arising as a matter of law to secure payments of custom
duties in connection with the importation of goods and (xi) Liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default under Section 4(a)(ix).

 

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

 

(dd)         “Principal Market” means the Nasdaq National
Market.

 

(ee)         “Redemption Premium” means (i) in the case
of the Events of Default described in Section 4(a)(i) - (vi) and (ix) - (xii),
120% or (ii) in the case of the Events of Default described in Section
4(a)(vii) - (viii), 100%.

 

(ff)           “Registration Rights Agreement” means that
certain registration rights agreement dated as of the Subscription Date by and
among the Company and the initial holders of the Notes relating to, among other
things, the registration of the resale of the Common Stock issuable upon
conversion of the Notes and exercise of the Warrants.

 

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

 

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

 

(ii)           “Present
Value of Interest” means
the amount of any interest that, but for a Mandatory Conversion, would have
accrued under this Note at the Interest Rate for the period from the Mandatory
Conversion Date through the Maturity Date discounted to the present value of
such interest using a discount rate equal to six percent (6%).

 

(jj)           [Insert in Initial Notes only:  “Scheduled
Installment Amount” means, with respect to any Scheduled Installment
Date, the lesser of (A) the product of (i) $1,066,667, multiplied by (ii) Holder Pro Rata
Amount and (B) the Principal amount (plus any accrued and unpaid interest
thereon) under this Note as of such Scheduled Installment Date, as any such
Scheduled Installment Amount may be reduced pursuant to the terms of this Note,
whether upon conversion, redemption or otherwise.  For the avoidance of doubt, any accrued and
unpaid interest which may be paid pursuant to this definition shall be deducted
from the total interest to be paid on any subsequent Interest Payment Date.]

 

(kk)         [Insert in Initial Notes only:  “Scheduled
Installment Date” means the first day of each of the fifteen (15)
consecutive calendar months commencing on June 1, 2005 and ending on August 1,
2006, and any other Scheduled Installment Date thereafter scheduled by the
Holder in connection with a Deferral Amount pursuant to Section 8(d) hereof.]

 

31

 

 

(ll)           “Securities Purchase Agreement” means that
certain securities purchase agreement dated as of the Subscription Date by and
among the Company and the initial holders of the Notes pursuant to which the
Company issued the Notes.

 

(mm)       “Senior
Indebtedness” means the principal of (and premium, if any), interest
on, and all fees and other amounts (including, without limitation, any
reasonable out-of-pocket costs, enforcement expenses (including reasonable
out-of-pocket legal fees and disbursements), collateral protection expenses and
other reimbursement or indemnity obligations relating thereto and all
reimbursement or payment obligations with respect to letters of credit) payable
by Company under or in connection with the Amended and Restated Loan and
Security Agreement, dated as of March 31, 2002 and any other agreements between
Silicon Valley Bank and the Company (together with any amendments,
restatements, renewals, refundings, refinancings or other extensions thereof,
the “Senior Credit Facility”); provided,
however, that the aggregate amount of such Senior Indebtedness (taking
into account the maximum amounts which may be advanced under the loan documents
evidencing such Senior Indebtedness) does not as of the date on which such
Senior Indebtedness is incurred, exceed (i) $20,000,000, with respect to the unpaid principal
balance of revolving credit loans thereunder, (ii) $1,300,000 with respect to
the unpaid principal balance of term loans thereunder, and (iii) $29,000,000,
with respect to all reimbursement and other payment obligations with respect to
letters of credit issued for the account of the Company to secure its
obligations under its real estate leases, provided, further, that
all such letter of credit obligations are fully secured by cash pledged to and
held by Silicon Valley Bank as the issuer (or confirming issuer) of such letter
of credit.

 

(nn)         “Special Installment Amount” means, with
respect to any Special Installment Date, the lesser of (i) the product of (1)
$1,000,000, multiplied by (2) a fraction (x) the numerator of which is
Principal amount of this Note on the Closing Date and (y) the denominator of
which is the aggregate principal amount of all Notes issued to the Purchasers
pursuant to the Securities Purchase Agreement on the Closing Date, (such
fraction, the “Holder Pro Rata Amount”)
or (ii) the Principal amount (plus any accrued and unpaid interest thereon)
under this Note as of such Special Installment Date, as any such Special
Installment Amount may be reduced pursuant to the terms of this Note, whether
upon conversion, redemption or otherwise. 
For the avoidance of doubt, any accrued and unpaid interest which may be
paid pursuant to this definition shall be deducted from the total interest to
be paid on any subsequent Interest Payment Date.

 

(oo)         “Special Installment Date” means (i) the
first day of the third calendar month following the end of the Calendar Quarter
giving rise to the Net Cash Deficiency and (ii) the first day of each subsequent
calendar month thereafter, until such time as the Holder is no longer entitled
to receive such payments pursuant to Section 8(e).  In the event that the day specified in clause
(i) hereof shall be prior to the end of the applicable Company Conversion Period,
the Special Installment Date shall be the third (3rd) day following
the end of such period.

 

(pp)         “Subscription
Date” means November       , 2004.

 

(qq)         “Successor Entity” means the Person, which
may be the Company, formed by, resulting from or surviving any Fundamental
Transaction or the Person with which such Fundamental Transaction shall have
been made, provided that if such Person is

 

32

 

not a publicly traded entity whose common stock or
equivalent equity security is quoted or listed for trading on an Eligible
Market, Successor Entity shall mean such Person’s Parent Entity.

 

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

 

(ss)         “US
Net Cash Balance” means,
at any date, the difference between (i) aggregate amount of cash and cash
equivalents (not including restricted cash) and short term investments shown or
reflected on the Company’s balance sheet as at such date, in each case only to
the extent such cash, cash equivalents and short term investments are on
deposit in each “Deposit Account” at United States banks pledged to the “Collateral
Agent” and constituting “Collateral” under (and as such terms and defined in
the “Pledge and Security Agreement” (as defined in the Securities Purchase
Agreement), minus (ii) the
unpaid principal balance of the Permitted Indebtedness on such date.

 

(tt)           “Warrants” has the meaning ascribed to such
term in the Securities Purchase Agreement, and shall include all warrants
issued in exchange therefor or replacement thereof.

 

(uu)         “Weighted Average Price” means, for any
security as of any date, the dollar volume-weighted average price for such
security on the Principal Market during the period beginning at 9:30:01 a.m.,
New York Time (or such other time as the Principal Market publicly announces is
the official open of trading), and ending at 4:00:00 p.m., New York Time (or
such other time as the 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 9:30:01 a.m.,
New York Time (or such other time as such market publicly announces is the
official open of trading), and ending at 4:00:00 p.m., New York Time (or such
other time as such 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 Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.). 
If the Weighted Average Price cannot be calculated for a security on a
particular 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 Holder. 
If the Company and the Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved pursuant to Section
24.  All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination
or other similar transaction during the applicable calculation period.

 

33

 

[Signature Page Follows]

 

34

 

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

 

	
   

  	
  BROADVISION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
				

 

 

EXHIBIT I

 

BROADVISION, INC.

CONVERSION NOTICE

 

Reference
is made to the Senior Subordinated Secured Convertible Note (the “Note”) issued to the undersigned by
BroadVision, Inc. (the “Company”).  In accordance with and pursuant to the Note,
the undersigned hereby elects to convert the Conversion Amount (as defined in
the Note) of the Note indicated below into shares of Common Stock par value
$.0001 per share (the “Common Stock”)
of the Company, as of the date specified below.

 

	
   

  	
  Date
  of Conversion:

  	
   

  
	
   

  	
   

  
	
   

  	
  Aggregate
  Conversion Amount to be converted:

  	
   

  
	
   

  	
   

  
	
  Please
  confirm the following information:

  	
   

  
	
   

  	
   

  
	
   

  	
  Conversion Price:

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of shares of Common
  Stock to be issued:

  	
   

  
	
   

  	
   

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

  	
   

  
	
   

  	
   

  
	
  Issue to:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Facsimile Number:

  	
   

  	
   

  
	
   

  	
   

  
	
  Authorization:

  	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  
	
   

  	
   

  
	
   

  	
  Account
  Number:

  	
   

  
	
   

  	
    (if
  electronic book entry transfer)

  
	
   

  	
   

  
	
   

  	
  Transaction
  Code Number:

  	
   

  
	
   

  	
    (if
  electronic book entry transfer)

  
														

 

ACKNOWLEDGMENT

 

The
Company hereby acknowledges this Conversion Notice and hereby directs
Computershare Trust Company to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated
November     , 2004 from the Company and acknowledged
and agreed to by Computershare Trust Company.

 

 

	
   

  	
  BROADVISION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

 

EXHIBIT B

 

[FORM OF WARRANT]

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN
THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

BROADVISION, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant
No.:                           

Number
of Shares of Common Stock:                          

Date
of Issuance: November       , 2004 (“Issuance Date”)

 

BroadVision,
Inc., a Delaware corporation (the “Company”),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, [PORTSIDE GROWTH AND OPPORTUNITY
FUND] [OTHER BUYERS], the registered holder hereof or its permitted assigns
(the “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after
May     , 2005, but not after 11:59 p.m., New York Time, on
the Expiration Date (as defined below),                             
(                          )(1)
fully paid nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”). 
Except as otherwise defined herein, capitalized terms in this Warrant
shall have the meanings set forth in Section 15.  This Warrant is one of the Warrants to
Purchase Common Stock (the “SPA Warrants”)
issued pursuant to Section 1 of that certain Securities Purchase Agreement,
dated as of November     , 2004 (the “Subscription Date”), by and among the
Company and the investors (the “Buyers”)
referred to therein (the “Securities Purchase
Agreement”).

 

(1)           Insert number of shares equal to (x) 30% of the principal
amount of Initial Notes issued to the Holder pursuant to the Securities
Purchase Agreement divided by (y) $        
[Insert the Conversion Price].

 

 

1.             EXERCISE OF
WARRANT.

 

(a)           Mechanics of Exercise.  Subject to the terms and conditions hereof
(including, without limitation, the limitations set forth in Section 1(f)),
this Warrant may be exercised by the Holder on any day on or after May     ,
2005, in whole or in part, by (i) delivery of a written notice, in the
form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this
Warrant and (ii) (A) payment to the Company of an amount equal to the
applicable Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the “Aggregate
Exercise Price”) in cash or wire transfer of immediately available
funds or (B) by notifying the Company that this Warrant is being exercised
pursuant to a Cashless Exercise (as defined in Section 1(d)).  The Holder shall not be required to deliver
the original Warrant in order to effect an exercise
hereunder.  Execution and delivery of the
Exercise Notice with respect to less than all of the Warrant Shares shall have
the same effect as cancellation of the original Warrant and issuance of a new
Warrant evidencing the right to purchase the remaining number of Warrant
Shares.  On or before the first Business
Day following the date on which the Company has received each of the Exercise
Notice and the Aggregate Exercise Price (or notice of a Cashless Exercise) (the
“Exercise Delivery Documents”),
the Company shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the Company’s
transfer agent (the “Transfer Agent”).  On or before the third Business Day following
the date on which the Company has received all of the Exercise Delivery
Documents (the “Share Delivery Date”),
the Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company (“DTC”)
Fast Automated Securities Transfer Program, upon the request of the Holder,
credit such aggregate number of shares of Common Stock to which the Holder is
entitled pursuant to such exercise to the Holder’s or its designee’s balance
account with DTC through its Deposit Withdrawal Agent Commission system, or (Y)
if the Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise.  Upon delivery of the Exercise
Notice and Aggregate Exercise Price referred to in clause (ii)(A)
above or notification to the Company of a Cashless Exercise referred to in
Section 1(d), the Holder shall be deemed for all corporate purposes to have
become the holder of record of the Warrant Shares with respect to which this
Warrant has been exercised, irrespective of the date of delivery of the
certificates evidencing such Warrant Shares. 
If this Warrant is delivered to the Company in connection with any
exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number
of Warrant Shares being acquired upon an exercise, then the Company shall as
soon as practicable and in no event later than two Business Days after the
Share Delivery Date and at its own expense, issue a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant, less
the number of Warrant Shares with respect to which this Warrant is
exercised.  No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but rather the number
of shares of Common Stock to be issued shall be rounded up to the nearest whole
number.  The Company shall pay any and
all taxes which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

 

2

 

(b)           Exercise Price. 
For purposes of this Warrant, “Exercise
Price” means $            (2),
subject to adjustment as provided herein.

 

(c)           Company’s Failure to Timely Deliver
Securities.  If the Company shall
fail for any reason or for no reason to issue to the Holder on or before the
Share Delivery Date, a certificate for the number of shares of Common Stock to
which the Holder is entitled and register such shares of Common Stock on the
Company’s share register or to credit the Holder’s balance account with DTC for
such number of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise of this Warrant, then, in addition to all other remedies
available to the Holder, the Company shall pay in cash to the Holder on each
day after such Share Delivery Date that the issuance of such shares of Common
Stock is not timely effected an amount equal to 1.0% of the product of (A) the
sum of the number of shares of Common Stock not issued to the Holder on a
timely basis and to which the Holder is entitled and (B) the Closing Sale Price
of the shares of Common Stock on the trading day immediately preceding the last
possible date which the Company could have issued such shares of Common Stock
to the Holder without violating Section 1(a). 
In addition to the foregoing, if on or before the Share Delivery Date
the Company shall fail to issue and deliver a certificate to the Holder and
register such shares of Common Stock on the Company’s share register or credit
the Holder’s balance account with DTC for the number of shares of Common Stock
to which the Holder is entitled upon such holder’s exercise hereunder, and if
on or after such Share Delivery Date the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction of
a sale by the Holder of shares of Common Stock issuable upon such exercise that
the Holder anticipated receiving from the Company (a “Buy-In”), then the
Company shall, within three Business Days after the Holder’s request and in the
Holder’s discretion, either (i) pay cash to the Holder in an amount equal to
the Holder’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at
which point the Company’s obligation to deliver such certificate (and to issue
such shares of Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing
such shares of Common Stock and pay cash to the Holder in an amount equal to
the excess (if any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the date of
exercise.

 

(d)           Cashless Exercise.  Notwithstanding anything
contained herein to the contrary, if a Registration Statement (as defined in
the Registration Rights Agreement) covering the Warrant Shares that are the
subject of the Exercise Notice (the “Unavailable
Warrant Shares”) is not available for the resale of such Unavailable
Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant
in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the “Net
Number” of shares of Common Stock determined according to the following formula
(a “Cashless Exercise”):

 

Net
Number = (A x B) - (A x C)

 

B

 

(2)           Insert number equal to 130% of the
Conversion Price.

 

3

 

For
purposes of the foregoing formula:

 

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

 

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

 

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

 

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

 

(f)            Limitations on Exercises.

 

(i)    Beneficial Ownership.  Other than in connection with a Fundamental
Transaction pursuant to Section 4(a), the Company shall not effect the exercise
of this Warrant, and the Holder shall not have the right to exercise this
Warrant, to the extent that after giving effect to such exercise, such Person
(together with such Person’s affiliates) would beneficially own in excess of
4.99% (the “Maximum Percentage”)
of the shares of Common Stock outstanding immediately after giving effect to
such exercise.  For purposes of the
foregoing sentence, the aggregate number of shares of Common Stock beneficially
owned by such Person and its affiliates shall include the number of shares of
Common Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude shares of
Common Stock which would be issuable upon (i) exercise of the remaining,
unexercised portion of this Warrant beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by such
Person and its affiliates (including, without limitation, any convertible notes
or convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein.  Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.  For purposes of this
Warrant, in determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company’s most recent Form 10-K, Form 10-Q, Current Report
on Form 8-K or other

 

4

 

public
filing with the Securities and Exchange Commission, as the case may be, (2) a
more recent public announcement by the Company or (3) any other notice by the
Company or the Transfer Agent setting forth the number of shares of Common
Stock outstanding.  For any reason at any
time, upon the written or oral request of the Holder, the Company shall within
one Business Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. 
In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of
the Company, including the SPA Securities and the SPA Warrants, by the Holder
and its affiliates since the date as of which such number of outstanding shares
of Common Stock was reported.  By written
notice to the Company, the Holder may increase or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% specified in such
notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any
other holder of SPA Securities.

 

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

 

5

 

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

 

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

 

(a)           Adjustment upon Issuance of shares of Common Stock.  If and whenever on or after the Subscription
Date the Company issues or sells, or in accordance with this Section 2 is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with any Excluded Securities (as defined in the
SPA Securities) for a consideration per share less than a price (the “Applicable Price”) equal to the Exercise
Price in effect immediately prior to such issue or sale or deemed issuance or
sale (the foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance, the Exercise
Price then in effect shall be reduced to an amount equal to the product of
(A) the Exercise Price in effect immediately prior to such Dilutive
Issuance and (B) the quotient determined by dividing (1) the sum of
(I) the product derived by multiplying the Exercise Price in effect immediately
prior to such Dilutive Issuance and the number of Common Stock Deemed
Outstanding immediately prior to such Dilutive Issuance plus (II) the
consideration, if any, received by the Company upon such Dilutive Issuance, by
(2) the product derived by multiplying (I) the Exercise Price in effect
immediately prior to such Dilutive Issuance by (II) the number of Common
Stock Deemed Outstanding immediately after such Dilutive Issuance.  Upon each such adjustment of the Exercise
Price hereunder, the number of Warrant Shares shall be adjusted to the number
of shares of Common Stock determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
acquirable upon exercise of this Warrant

 

6

 

immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.  For purposes of determining the adjusted
Exercise Price under this Section 2(a), the following shall be applicable:

 

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

 

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

 

7

 

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

 

(iv)  Calculation of Consideration Received.  In
case any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a consideration of
$0.01.  If any shares of Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the net amount received by the Company therefor.  If any shares of Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the Closing
Sale Price of such security on the date of receipt.  If any shares of Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the amount
of consideration therefor will be deemed to be the fair value of such portion
of the net assets and business of the non-surviving entity as is attributable
to such shares of Common Stock, Options or Convertible Securities, as the case
may be.  The fair value of any
consideration other than cash or securities will be determined jointly by the
Company and the Required Holders.  If
such parties are unable to reach agreement within ten (10) days after the
occurrence of an event

 

8

 

requiring
valuation (the “Valuation Event”),
the fair value of such consideration will be determined within five (5)
Business Days after the tenth day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the
Required Holders.  The determination of
such appraiser shall be final and binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall be borne one-half by
the Company and one-half by the Holders.

 

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

 

(vi)  Until such time as the Company receives the
Stockholder Approval (as defined in the Securities Purchase Agreement), no
adjustment pursuant to Section 2(a) shall cause the Exercise Price to be less
than $        (3), as adjusted for any
stock dividend, stock split, stock combination, reclassification or similar
transaction.

 

(b)           Adjustment upon Subdivision or Combination of shares of
Common Stock.  If the Company at any
time on or after the Subscription Date subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced
and the number of Warrant Shares will be proportionately increased.  If the Company at any time on or after the
Subscription Date 
combines (by combination, reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Exercise Price in effect immediately prior to such combination
will be proportionately increased and the number of Warrant Shares will be
proportionately decreased.  Any
adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

 

(c)           Other Events. 
If any event occurs of the type contemplated by the provisions of this
Section 2 but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features), then the Company’s Board of Directors will
make an appropriate adjustment in the Exercise Price and the number of Warrant
Shares so as to protect the rights of the Holder; provided that no such
adjustment pursuant to this Section 2(c) will increase the Exercise Price or decrease
the number of Warrant Shares as otherwise determined pursuant to this Section
2.

 

(3)           Insert
number equal to Closing Bid Price.

 

9

 

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

 

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

 

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

 

4.             PURCHASE RIGHTS; FUNDAMENTAL
TRANSACTIONS.

 

(a)           Purchase Rights. 
In addition to any adjustments pursuant to Section 2 above, if at any
time the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to
the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete exercise
of this Warrant (without regard to any limitations on the exercise of this
Warrant) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of

 

10

 

which the record holders of shares of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.

 

(b)           Fundamental Transactions.  The Company shall not enter into or be party
to a Fundamental Transaction unless (i)  the Successor Entity assumes in
writing all of the obligations of the Company under this Warrant and the other
Transaction Documents in accordance with the provisions of this Section (4)(b)
pursuant to written agreements in form and substance satisfactory to the
Required Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Warrants in
exchange for such Warrants a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant,
including, without limitation, an adjusted exercise price equal to the value
for the shares of Common Stock reflected by the terms of such Fundamental
Transaction, and exercisable for a corresponding number of shares of capital
stock equivalent to the shares of Common Stock acquirable and receivable upon
exercise of this Warrant (without regard to any limitations on the exercise of
this Warrant) prior to such Fundamental Transaction, and satisfactory to the
Required Holders and (ii) the Successor Entity (including its Parent
Entity) is a publicly traded corporation whose common stock is quoted on or
listed for trading on an Eligible Market. 
Upon the occurrence of any Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of
such Fundamental Transaction, the provisions of this Warrant referring to the
“Company” shall refer instead to the Successor Entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Warrant with the same effect as if such Successor Entity had
been named as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon exercise of this
Warrant at any time after the consummation of the Fundamental Transaction, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) purchasable upon the exercise of the Warrant prior to such
Fundamental Transaction, such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had this Warrant been converted immediately
prior to such Fundamental Transaction, as adjusted in accordance with the
provisions of this Warrant.  In addition
to and not in substitution for any other rights hereunder, prior to the
consummation of any Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate
provision to insure that the Holder will thereafter have the right to receive
upon an exercise of this Warrant at any time after the consummation of the
Fundamental Transaction but prior to the Expiration Date, in lieu of the shares
of the Common Stock (or other securities, cash, assets or other property)
purchasable upon the exercise of the Warrant prior to such Fundamental Transaction,
such shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights) which the Holder
would have been entitled to receive upon the happening of such Fundamental
Transaction had the Warrant been exercised immediately prior to such
Fundamental Transaction.  Provision made
pursuant to the preceding sentence shall be in a form and substance reasonably
satisfactory to the Required Holders. 
The provisions of this Section shall apply similarly and equally to
successive Fundamental Transactions and Corporate Events.  Provision made pursuant to the preceding
sentence shall be in a form and substance satisfactory to the Required Holders.  The provisions

 

11

 

of this Section shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events and shall
be applied without regard to any limitations on the exercise of this Warrant.

 

5.             NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect
the rights of the Holder.  Without
limiting the generality of the foregoing, the Company (i) shall not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect,
(ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 130% of the number of shares of Common Stock as shall from time
to time be necessary to effect the exercise of the SPA Warrants then
outstanding (without regard to any limitations on exercise).

 

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

 

7.             REISSUANCE OF WARRANTS.

 

(a)           Transfer of Warrant.  If this Warrant is to be transferred, the
Holder shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to

 

12

 

the Holder representing the right to purchase the number of Warrant Shares
not being transferred.

 

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

 

(c)           Exchangeable for Multiple Warrants.  This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a
new Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no Warrants for fractional shares of
Common Stock shall be given.

 

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

 

8.             NOTICES.  Whenever notice is required
to be given under this Warrant, unless otherwise provided herein, such notice
shall be given in accordance with Section 9(f) of the Securities Purchase
Agreement.  The Company shall
provide the Holder with prompt written notice of all actions taken pursuant to
this Warrant, including in reasonable detail a description of such action and
the reason therefore.  Without limiting
the generality of the foregoing, the Company will give written notice to the
Holder (i) immediately upon any adjustment of the Exercise Price, setting forth
in reasonable detail, and certifying, the calculation of such adjustment and
(ii) at least fifteen days prior to the date on which the Company closes its
books or takes a record (A) with respect to any dividend or distribution upon
the shares of Common Stock, (B) with respect to any grants, issuances or sales
of any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property to holders of shares of Common Stock or (C) for
determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to the Holder.

 

9.             AMENDMENT AND WAIVER.  Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein

 

13

 

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

 

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

 

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

 

12.           DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the
Warrant Shares, the Company shall submit the disputed determinations or
arithmetic calculations via facsimile within two Business Days of receipt of
the Exercise Notice giving rise to such dispute, as the case may be, to the
Holder.  If the Holder and the Company
are unable to agree upon such determination or calculation of the Exercise
Price or the Warrant Shares within three Business Days of such disputed
determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within two Business Days submit via facsimile (a) the disputed
determination of the Exercise Price to an independent, reputable investment bank
selected by the Company and approved by the Holder  or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant.  The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten Business Days from the time it receives the disputed
determinations or calculations.  Such
investment bank’s or accountant’s determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

 

13.           REMEDIES, OTHER OBLIGATIONS,
BREACHES AND INJUNCTIVE RELIEF.  The
remedies provided in this Warrant shall be cumulative and in addition to all other
remedies available under this Warrant and the other Transaction Documents, at
law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder
right to pursue actual damages for any failure by the Company to comply with
the terms of this Warrant.  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate.  The Company therefore
agrees that, in the event of any such breach or threatened breach, the holder
of this Warrant shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach, without the necessity of showing
economic loss and without any bond or other security being required.

 

14

 

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

 

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

 

(a)           “Bloomberg”
means Bloomberg Financial Markets.

 

(b)           “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.

 

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

 

(d)           “Common Stock”
means (i) the Company’s shares of Common Stock, par value $0.0001 per
share, and (ii) any share capital into which such Common Stock shall have
been changed or any share capital resulting from a reclassification of such
Common Stock.

 

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

 

15

 

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

 

(g)           “Eligible Market”
means the Principal Market, The New York Stock Exchange, Inc., the American
Stock Exchange or The Nasdaq SmallCap Market.

 

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

 

(i)            “Fundamental
Transaction” means that the Company shall, directly or indirectly,
in one or more related transactions, (i) consolidate or merge with or into
(whether or not the Company is the surviving corporation) another Person, or
(ii) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company to another Person,
or (iii) allow another Person to make a purchase, tender or exchange offer that
is accepted by the holders of more than the 50% of the outstanding shares of
Common Stock (not including any shares of Common Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person whereby such other Person acquires more than
the 50% of the outstanding shares of Common Stock (not including any shares of
Common Stock held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
purchase agreement or other business combination), or (v) reorganize,
recapitalize or reclassify its Common Stock.

 

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

 

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

 

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

 

(m)          “Principal Market”
means the Nasdaq National Market.

 

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

 

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

 

16

 

(p)           “SPA Securities”
means the Notes issued pursuant to the Securities Purchase Agreement.

 

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

 

[Signature Page Follows]

 

17

 

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

 

	
   

  	
   

  	
  BROADVISION, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE
THIS

WARRANT TO PURCHASE COMMON STOCK

 

BROADVISION, INC.

 

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

 

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

 

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

  
	
   

  
	
                        a  “Cashless Exercise” with respect to
                                
  Warrant Shares.

  
	
   

  

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

 

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

 

Date:                               
    ,             

 

	
   

  	
   

  	
   

  
	
     Name
  of Registered Holder

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

 

ACKNOWLEDGMENT

 

The
Company hereby acknowledges this Exercise Notice and hereby directs
Computershare Trust Company to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated November     ,
2004 from the Company and acknowledged and agreed to by Computershare Trust
Company.

 

	
   

  	
  BROADVISION, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

 

Exhibit C

 

[FORM OF ADDITIONAL INVESTMENT RIGHT]

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), 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 OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

BROADVISION, INC.

 

ADDITIONAL
INVESTMENT RIGHT

 

Additional
Investment Right No.:                     

Principal Amount of Additional Notes:                     

Date of Issuance:  November       ,
2004 (“Issuance Date”)

 

BroadVision,
Inc., a Delaware corporation (the “Company”),
hereby certifies that, for value received, the receipt and sufficiency of which
are hereby acknowledged, [PORTSIDE GROWTH AND OPPORTUNITY FUND] [OTHER BUYERS],
the registered holder hereof or its permitted assigns (the “Holder”), is entitled, subject to the terms
set forth below to purchase from the Company, at the Exercise Price (as defined
below) then in effect, at any time or times on or after the date hereof, but
not after 11:59 P.M., New York Time, on the Expiration Date (as defined below),
up to a total of $             (1),
in principal amount of Additional Notes (as defined in the Securities Purchase
Agreement (as defined below)).  Except as
otherwise defined herein, capitalized terms in this Additional Investment Right
shall have the meanings set forth in Section 15 or in that certain Securities
Purchase Agreement, dated as of November     , 2004,
by and among the Company and the buyers referred to therein, including the
Holder (the “Securities Purchase Agreement”).  This Additional Investment Right (including
all Additional Investment Rights issued in exchange, transfer or replacement
hereof, each an “AIR”, such other
AIRs, the “Other AIRs” and
collectively, the “AIRs”) is one
of the Additional Investment Rights (as defined in the Securities Purchase
Agreement) issued pursuant to Section 1 of the Securities Purchase Agreement.

 

(1)                                  Insert number set forth opposite such Buyer's
name in column 5 of the Schedule of Buyers set forth in the Securities Purchase
Agreement.

 

 

1.                                       EXERCISE OF AIR.

 

(a)                                  Mechanics of Exercise. 
Subject to the terms and conditions hereof, this AIR may be exercised by
the Holder hereof on any day beginning after the date hereof and ending on and
including July       , 2005(2) (the “Expiration Date”), in whole or in part, by
(i) delivery of a written notice, in the form attached hereto as Exhibit
A (the “Exercise Notice”), of
such Holder’s election to exercise this AIR and (ii) payment to the
Company of an amount equal to $1.00 for each $1.00 of principal amount of
Additional Notes as to which this AIR is being exercised (the “Exercise Price”) in cash or wire transfer
of immediately available funds.  The date
the Exercise Notice and the Exercise Price are delivered to the Company (as
determined in accordance with the notice provisions hereof) is an “Exercise Date”; provided, however, that if
the Exercise Notice and the Exercise Price are not delivered to the Company on
the same date, the Exercise Date shall be the date of the later of the two
deliveries. The Holder of this AIR shall not be required to deliver the
original AIR in order to effect an exercise
hereunder.  Execution and delivery of the
Exercise Notice with respect to less than all of the Additional Notes shall
have the same effect as cancellation of the original AIR and issuance of a new
AIR evidencing the right to purchase the remaining number of Additional
Notes.  On or before the first Business
Day following the Exercise Date, the Company shall transmit by facsimile an
acknowledgment of receipt of the Exercise Notice and the Exercise Price to the
Holder hereof.  On or before the third
Business Day following the Exercise Date, the Company shall issue and deliver
to the address as specified in the Exercise Notice an Additional Note,
registered in the name of the Holder of this AIR or its designee, in the
principal amount as to which the Holder of this AIR is entitled pursuant to
such exercise.  On the Exercise Date, the
Holder of this AIR shall be deemed for all corporate purposes to have become
the Holder of record of the Additional Note with respect to which this AIR has
been exercised, irrespective of the date of delivery of such Additional Note.  Upon surrender of this AIR to the Company
following one or more partial exercises, the Company shall as soon as
practicable and in no event later than three Business Days after receipt of the
AIR and at its own expense, issue a new AIR (in accordance with Section 5(d))
representing the right to purchase the number of Additional Notes purchasable
immediately prior to such exercise under this AIR, less the principal amount of
Additional Notes with respect to which this AIR is exercised.  The Company shall pay any and all taxes which
may be payable with respect to the issuance and delivery of Additional Notes
upon exercise of this AIR.

 

(b)                                 Company’s Failure to Timely Deliver
Additional Notes.  If the Company shall fail for any reason or
for no reason to issue to the Holder within three Business Days of the Exercise
Date, Additional Notes, the Company shall pay as additional damages in cash to
such Holder on each day after such third Business
Day that the issuance of such Additional Notes is not timely effected an amount
equal to 1.0% of the principal amount of the Additional Notes into which this
AIR is exercisable.

 

(c)                                  Absolute
and Unconditional Obligation.  The
Company’s obligations to issue and deliver Additional Notes in accordance with
the terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the

 

(2)                                  Insert
date that is 8 months from the date hereof.

 

2

 

Holder or any other Person
of any obligation to the Company or any violation or alleged violation of law
by the Holder or any other Person.  Nothing herein shall limit the
Holder’s right to pursue any other remedies available to it hereunder, at law
or in equity, including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company’s failure to timely
deliver Additional Notes upon exercise of the AIR as required pursuant to the
terms hereof.

 

2.                                       FUNDAMENTAL TRANSACTION.  The
Company shall not enter into or be party to a Fundamental Transaction (as
defined in the Notes), unless (i) the Person formed by or surviving any
such Fundamental Transaction (if other than the Company) or the Person to which
such Fundamental Transaction shall have been made assumes all the obligations
of the Company under this AIR and the other Transaction Documents (as defined
in the Securities Purchase Agreement) pursuant to written agreements in form
and substance satisfactory to the Required Holders and approved by the Required
Holders prior to such Fundamental Transaction, and including agreements to deliver
to each holder of AIRs in exchange for such AIRs, a security of the Person
formed by or surviving any such Fundamental Transaction (if other than the
Company) or the Person to which such Fundamental Transaction shall have been
made evidenced by a written instrument substantially similar in form and
substance to this AIR, including, without limitation, a right to exercise for
Additional Notes that have been adjusted and approved as set forth in Sections
5 and 6 of the Additional Notes as if such Additional Notes were outstanding at
the time of such Fundamental Transaction and (ii) the Company or the
Person formed by or surviving any such Fundamental Transaction or to which such
Fundamental Transaction shall have been made is a publicly traded entity whose
common stock or equivalent equity security is quoted on or listed for trading
on an Eligible Market (as defined in the Notes).  Upon any Fundamental Transaction, the
successor entity to such Fundamental Transaction shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this AIR referring to such “Company” shall refer
instead to the successor entity or, if so elected by the Required Holders, by
the entity that, directly or indirectly, controls such successor entity), and
may exercise every right and power of the Company and shall assume all of the
obligations of the Company under this AIR with the same effect as if such
successor Person had been named as the Company herein; provided, however, that the predecessor
Company shall not be relieved from its obligations under the Transaction
Documents except in the case of a Fundamental Transaction that meets the
requirements of this section.  The
provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions.

 

3.                                       COMPANY’S RIGHT OF MANDATORY FUNDING.

 

(a)                                  Mandatory Funding.  If
at any time from and after the Effective Date (as defined in the Registration
Rights Agreement) until July     , 2005(3) (the “Mandatory Funding Eligibility Date”), (i)
the Weighted Average Price (as defined in the Notes) of the Common Stock equals
or exceeds $                (4)
(subject to appropriate adjustments for stock splits, stock dividends, stock
combinations and other similar transactions after the Issuance Date) for each
of

 

(3)                                  Insert
date that is 8 months from the date hereof.

(4)                                  Insert
amount equal to 150% of Conversion Price specified in the Notes.

 

3

 

any twenty (20) consecutive Trading Days (as defined
in the Notes) following the Mandatory Funding Eligibility Date (the “Mandatory Funding Measuring Period”) and
(ii) the AIR Equity Conditions (as defined below) shall have been satisfied or
waived in writing by the Holder during the period commencing with the Mandatory
Funding Notice Date and ending with the Mandatory Funding Date (each, as
defined below), the Company shall have the right to require the Holder to
exercise all or any designated portion of the AIR and purchase from the
Company, at the Exercise Price then in effect, all or any designated portion of
the Additional Notes in accordance with Section 1(a) hereof as of the Mandatory
Funding Date (a “Mandatory Funding”).  The Company may exercise its right to require
purchase of Additional Notes under this Section 3(a) by delivering within not
more than two Trading Days following the end of any such Mandatory Funding
Measuring Period a written notice thereof by facsimile and overnight courier to
all, but not less than all, of the holders of AIRs (the “Mandatory Funding Notice” and the date all
of the holders received such notice is referred to as the “Mandatory Funding Notice Date”).  The Mandatory Funding Notice shall be
irrevocable.  The Mandatory Funding
Notice shall state (i) the Trading Day selected for the Mandatory Funding in
accordance with Section 3(a), which Trading Day shall be at least 20 Business
Days but not more than 60 Business Days following the Mandatory Funding Notice
Date (the “Mandatory Funding Date”),
(ii) the aggregate amount of the Additional Notes to be issued upon mandatory
exercise from all of the holders of the AIRs pursuant to this Section 3 (and
analogous provisions under the Other AIRS) and (iii) the principal amount of
Additional Notes to be issued.

 

As
used herein, “AIR Equity Conditions”
means each of the following conditions: 
(i) on each day during the period beginning one (1) month prior to the
applicable date of determination and ending on and including the applicable
date of determination, the Registration Statement filed pursuant to the
Registration Rights Agreement shall be effective and available for the resale
of all remaining Registrable Securities in accordance with the terms of the
Registration Rights Agreement and there shall not have been any Grace Periods
(as defined in the Registration Rights Agreement); (ii) on each day during the
period beginning three (3) months prior to the applicable date of determination
and ending on and including the applicable date of determination (the “AIR Equity Conditions Measuring Period”),
the Common Stock is designated for quotation on the Principal Market and shall
not have been suspended from trading on such exchange or market (other than
suspensions of not more than two (2) days and occurring prior to the applicable
date of determination due to business announcements by the Company) nor shall
delisting or suspension by such exchange or market been threatened or pending
either (A) in writing by such exchange or market or (B) by falling below then
effective minimum listing maintenance requirements of such exchange or market;
(iii) during the one (1) year period ending on and including the date
immediately preceding the applicable date of determination, the Company shall
have delivered Additional Notes upon exercise of the AIRs, Conversion Shares
upon conversion of the Notes and Warrant Shares upon exercise of the Warrants
to the holders thereof on a timely basis as set forth in Section 1(a) of the
AIRs (and analogous provisions under the Other AIRs), Section 2(c)(ii) of the
Notes and Sections 2(a) of the Warrants, respectively; (iv) during the AIR
Equity Conditions Measuring Period, all shares of Common Stock issuable
pursuant to Additional Notes to be issued in connection with the proposed
Mandatory Funding may be converted in full without violating Section 3(d) of
the Notes or the rules or regulations of the Principal Market; (v) during the
AIR Equity Conditions Measuring Period, the Company shall not have failed to
timely make any payments within five (5) Business Days of when such payment is
due pursuant to any Transaction Document; (vi) during the AIR Equity Conditions

 

4

 

Measuring Period, there shall not have
occurred either (A) the public announcement of a pending, proposed or intended
Fundamental Transaction which has not been abandoned, terminated or consummated
or (B) an Event of Default or an event that with the passage of time or giving
of notice would constitute an Event of Default; (vii) on the applicable date of
determination, the Company shall have no knowledge of any fact that would cause
the Registration Statements required pursuant to the Registration Rights
Agreement not to be effective and available for the resale of all remaining Registrable
Securities in accordance with the terms of the Registration Rights Agreement;
and (viii) during the AIR Equity Conditions Measuring Period, the Company
otherwise shall have been in material compliance with and shall not have
materially breached any provision, covenant, representation or warranty of any
Transaction Document.

 

(b)                                 Pro Rata Funding Requirement.  If
the Company elects to cause an exercise of this AIR pursuant to Section 3(a),
then it must simultaneously take the same action in the same proportion with
respect to the Other AIRs.  All AIRs
exercised by the Holder after the Mandatory Funding Notice Date shall reduce
the amount of Additional Notes required to be issued on the Mandatory Funding
Date.  If the Company has elected a
Mandatory Funding, the mechanics of exercise set forth in Section 1(a) shall
apply, to the extent applicable, as if the Company had received from the Holder
on the Mandatory Funding Date an Exercise Notice with respect to the Additional
Notes being issued pursuant to the Mandatory Funding.

 

4.                                       NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Certificate of Incorporation or through any Fundamental Transaction, issue
or sale of securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this AIR, and will at all
times in good faith carry out all the provisions of this AIR and take all
action as may be required to protect the rights of the Holder of this AIR.

 

5.                                       REISSUANCE OF AIRS.

 

(a)                                  Transfer of AIR.  If
this AIR is to be transferred, the Holder shall surrender this AIR to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder of this AIR a new AIR (in accordance with Section 5(d)),
registered as the Holder of this AIR may request, representing the right to
purchase the principal amount of Additional Notes being transferred by the
Holder and, if less then the total number of Additional Notes then underlying
this AIR is being transferred, a new AIR (in accordance with Section 5(d)) to
the Holder of this AIR representing the right to purchase the principal amount
of Additional Notes not being transferred.

 

(b)                                 Lost, Stolen or Mutilated AIR.  Upon
receipt by the Company of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this AIR, and, in the case of
loss, theft or destruction, of any indemnification undertaking by the Holder of
this AIR to the Company in customary form and, in the case of mutilation, upon
surrender and cancellation of this AIR, the Company shall execute and deliver
to the Holder a new AIR (in accordance with Section 5(d)) representing the
right to purchase the principal amount of Additional Notes then underlying this
AIR.

 

5

 

(c)                                  AIR Exchangeable for Multiple AIRs.  This
AIR is exchangeable, upon the surrender hereof by the Holder at the principal
office of the Company, for a new AIR or AIR (in accordance with Section 5(d))
representing in the aggregate the right to purchase the principal amount of
Additional Notes then underlying this AIR, and each such new AIR will represent
the right to purchase such portion of such Additional Notes as is designated by
the Holder of this AIR at the time of such surrender.

 

 

(d)                                 Issuance of New AIR. 
Whenever the Company is required to issue a new AIR pursuant to the
terms of this AIR, such new AIR (i) shall be of like tenor with this AIR, (ii)
shall represent, as indicated on the face of such new AIR, the right to
purchase the principal amount of Additional Notes then underlying this AIR (or
in the case of a new AIR being issued pursuant to Section 5(a) or Section 5(c),
the principal amount of Additional Notes designated by the Holder of this AIR
which, when added to the principal amount of Additional Notes underlying the
other new AIR issued in connection with such issuance, does not exceed the
principal amount of Additional Notes then underlying this AIR), (iii) shall
have an issuance date, as indicated on the face of such new AIR which is the
same as the Issuance Date, and (iv) shall have the same rights and conditions
as this AIR.

 

6.                                       COVENANTS.  Disclosure
of Transactions and Other Material Information.  On or before 8:30 a.m., New York Time, on the
first Business Day following each Exercise Date, the Company shall file a
Current Report on Form 8-K describing the terms of the transactions
contemplated by the exercise of this AIR in the form required by the 1934 Act.  On the Exercise Date, the Company shall
confirm that the representations and warranties of the Company set forth in the
Securities Purchase Agreement are true and correct in all material respects
(except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
respects) as of such Exercise Date as though made at that time (except for
representations and warranties that speak as of a specific date) and that the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by the Transaction
Documents (as defined in the Securities Purchase Agreement) to be performed,
satisfied or complied with by the Company at or prior to such Exercise Date.

 

7.                                       NOTICES.  Whenever
notice is required to be given under this AIR, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. 
The Company shall provide the Holder of this AIR with prompt written
notice of all actions taken pursuant to this AIR, including in reasonable
detail a description of such action and the reason therefore.  Without limiting the generality of the
foregoing, the Company will give written notice to the Holder of this AIR at
least fifteen days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any grants, issues or sales of any Options (as
defined in the Additional Notes), Convertible Securities (as defined in the
Additional Notes) or rights to purchase stock, warrants, securities or other
property to Holders of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or
in conjunction with such notice being provided to such Holder.

 

6

 

8.                                       AMENDMENT AND WAIVER. 
Except as otherwise provided herein, the provisions of this AIR may be
amended and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company has
obtained the written consent of the Required Holders; provided that no such
action may increase the exercise price of any AIRs or decrease the principal
amount of Additional Notes obtainable upon exercise of any AIRs without the
written consent of the Holder of this AIR. 
No such amendment shall be effective to the extent that it applies to
less than all of the Holders of the AIRs then outstanding.

 

9.                                       GOVERNING LAW.  This
AIR shall be construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this
AIR 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.

 

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

 

11.                                 REMEDIES, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF.  The remedies provided in this AIR shall be
cumulative and in addition to all other remedies available under this AIR, the
Securities Purchase Agreement and the other Transaction Documents (as defined
in the Securities Purchase Agreement), at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit the right of the Holder of this AIR to pursue actual damages for
any failure by the Company to comply with the terms of this AIR.  The Company acknowledges that a breach by it
of its obligations hereunder will cause irreparable harm to the Holder of this
AIR and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the
event of any such breach or threatened breach, the Holder of this AIR 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.

 

12.                                 TRANSFER.  This AIR may be offered for
sale, sold, transferred or assigned without the consent of the Company.

 

13.                                 CERTAIN DEFINITIONS.  For
purposes of this AIR, the following terms shall have the following meanings:

 

(a)                                  “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.

 

(b)                                 “Common
Stock” means (i) the Company’s common stock, par value $.0001
per share, and (ii) any capital stock into which such Common Stock shall
have been changed or any capital stock resulting from a reclassification of
such Common Stock.

 

7

 

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

 

(d)                                 “Registration
Rights Agreement” means that certain registration rights agreement
dated as of the Closing Date (as defined in the Securities Purchase Agreement)
by and among the Company and the Purchasers.

 

(e)                                  “Required
Holders” means the holders of AIRs
representing the right to acquire at least a majority of the principal amount
of Additional Notes underlying the AIRs then outstanding.

 

[Signature Page Follows]

 

8

 

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

 

	
   

  	
  BROADVISION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE
THIS

ADDITIONAL INVESTMENT RIGHT

 

BROADVISION, INC.

 

To:                              BroadVision, Inc.

 

The
undersigned is the holder of Additional Investment Right No.           
(the “AIR”)
issued by BroadVision, Inc., a Delaware corporation (the “Company”). 
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the AIR.

 

1.                                       The AIR is currently exercisable to purchase
a total of $              
principal amount of Additional Notes.

 

2.                                       The undersigned holder hereby exercises its
right to purchase $              
principal amount of Additional Notes pursuant to the AIR.

 

3.                                       The holder shall pay the sum of $                                      
to the Company in accordance with the terms of the AIR.

 

4.                                       Pursuant to this exercise, the Company shall
deliver to the holder $              
principal amount of Additional Notes in accordance with the terms of the AIR.

 

5.                                       Following this exercise, the AIR shall be
exercisable to purchase a total of $              
principal amount of Additional Notes.

 

Please
issue the Additional Notes in the following name and to the following address:

 

	
   

  	
  Issue to:

  	
   

  
	
   

  	
   

  
	
  Date:

  	
                                
      ,

  

 

	
   

  	
   

  
	
    Name
  of Registered Holder

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

FORM OF ASSIGNMENT

 

[To be completed and signed
only upon transfer of AIR]

 

FOR
VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto                                                                 
the right represented by the within AIR to purchase $                
principal amount of Additional Notes of BroadVision, Inc., to which the within
AIR relates and appoints                                 
attorney to transfer said right on the books of BroadVision, Inc. with full
power of substitution in the premises.

 

	
  Dated:               ,     

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature
  must conform in all respects to name of holder as specified on the face of
  the AIR)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address
  of Transferee

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  In
  the presence of:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
				

 

 

Exhibit D

 

Form of Additional Notes

 

See Exhibit A

 

 

Exhibit E

 

REGISTRATION RIGHTS AGREEMENT

 

REGISTRATION RIGHTS AGREEMENT (this “Agreement”),
dated as of November     , 2004, by and among BroadVision,
Inc., a Delaware corporation, with headquarters located at 585 Broadway,
Redwood City, CA 94063 (the “Company”),
and the undersigned buyers (each, a “Buyer”,
and collectively, the “Buyers”).

 

WHEREAS:

 

A.                                   In connection with the Securities Purchase
Agreement by and among the parties hereto of even date herewith (the “Securities Purchase Agreement”), the
Company has agreed, upon the terms and subject to the conditions set forth in
the Securities Purchase Agreement, to issue and sell to each Buyer
(i) senior subordinated secured convertible notes of the Company (the “Initial Notes”), which will, among other
things, be convertible into the Company’s common stock, $.0001 par value per
share (the ”Common Stock”, as
converted, the “Initial Conversion Shares”)
in accordance with the terms of the Notes, and (ii) warrants (the “Warrants”), which will be exercisable to
purchase shares of Common Stock (as exercised collectively, the “Warrant Shares”).

 

B.                                     In connection with the Securities Purchase
Agreement, the Company has agreed, upon the terms and subject to the conditions
set forth in the Securities Purchase Agreement, to issue and sell to each Buyer
certain additional investment rights (the “Additional
Investment Rights”) which will be exercisable to purchase additional
senior subordinated secured convertible notes of the Company (the “Additional Notes”, and collectively with
the Initial Notes, the “Notes”),
which will be convertible into shares of Common Stock (as converted, the “Additional Conversion Shares”, and
collectively with the Initial Conversion Shares, the “Conversion Shares”) in accordance with the
terms of the Additional Notes.

 

C.                                     The Notes bear interest, which at the option
of the Company, subject to certain conditions, may be paid in shares of Common
Stock (the “Interest Shares”).

 

D.                                    To induce the Buyers to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
“1933 Act”), and applicable state
securities laws.

 

NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and
each of the Buyers hereby agree as follows:

 

1.                                       Definitions.

 

Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement.  As used in this Agreement, the following
terms shall have the following meanings:

 

 

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

 

(b)                                 “Effective
Date” means the date the Registration Statement has been declared
effective by the SEC.

 

(c)                                  “Effectiveness
Deadline” means the date which is 120 days after the Closing Date.

 

(d)                                 “Filing
Deadline” means 60 days after the Closing Date.

 

(e)                                  “Investor”
means a Buyer or any transferee or assignee thereof to whom a Buyer assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9 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 9.

 

(f)                                    “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 and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.

 

(g)                                 “Registrable
Securities” means (i) the Conversion Shares issued or issuable
upon conversion of the Notes, (ii) the Warrant Shares issued or issuable
upon exercise of the Warrants, (iii) the Interest Shares issued or issuable
under the Notes and (iv) any share capital of the Company issued or
issuable with respect to the Conversion Shares, the Notes, the Warrant Shares,
the Warrants or the Additional Investment Rights as a result of any share
split, share dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of the Notes or exercises of
the Warrants and Additional Investment Rights.

 

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

 

(i)                                     “Required
Holders” means the holders of at least a
majority of the Registrable Securities.

 

(j)                                     “Required
Registration Amount” means 150% of the sum of (i) the number of
Interest Shares issued and issuable pursuant to the terms of the Notes as of
the trading date immediately preceding the applicable date of determination,
(ii) the number of Conversion Shares issued and issuable pursuant to the Notes
(including the Additional Notes) as of the trading day immediately preceding
the applicable date of determination, and (ii) the number of Warrant Shares
issued and issuable pursuant to the Warrants as of the trading day immediately
preceding the applicable date of determination, all subject to adjustment as
provided in Section 2(e).

 

2

 

(k)                                  “Rule 415”
means Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis.

 

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

 

2.                                       Registration.

 

(a)                                  Mandatory Registration.  The
Company shall prepare, and, as soon as practicable but in no event later than
the Filing Deadline, file with the SEC the 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(d).  The Registration Statement prepared pursuant
hereto shall register for resale at least the number of shares of Common Stock
equal to the Required Registration Amount as of date the Registration Statement
is initially filed with the SEC.  The Registration
Statement shall contain (except if otherwise directed by the Required Holders)
the “Selling Stockholders” and “Plan of Distribution” sections in
substantially the form attached hereto as Exhibit B.  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 Effectiveness Deadline.

 

(b)                                 Allocation of Registrable Securities.  The
initial number of Registrable Securities included in any Registration Statement
and any increase in the number of Registrable Securities included therein shall
be allocated pro rata among the Investors based on the number of 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.  In no event shall the Company include any
securities other than Registrable Securities on any Registration Statement
without the prior written consent of the Required Holders.

 

(c)                                  Legal Counsel. 
Subject to Section 5 hereof, the Required Holders shall have the right
to select one legal counsel to review and oversee any registration pursuant to
this Section 2 (“Legal Counsel”),
which shall be Schulte Roth & Zabel LLP or such other counsel as thereafter
designated by the Required Holders.  The
Company and Legal Counsel shall reasonably cooperate with each other 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 (i) register the resale of
the Registrable Securities on another appropriate form reasonably

 

3

 

acceptable to the Required Holders and (ii)
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 a Registration Statement filed
pursuant to Section 2(a) is insufficient to cover all of the Registrable
Securities required to be covered by such Registration Statement or an Investor’s
allocated portion of the Registrable Securities pursuant to Section 2(b), the
Company shall amend the applicable Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable),
or both, so as to cover at least the Required Registration Amount as of the
trading day immediately preceding the date of the filing of such amendment or
new Registration Statement, in each case, as soon as practicable, but in any
event not later than fifteen (15) days after the necessity therefor
arises.  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.  For purposes of the foregoing provision, the
number of shares available under a Registration Statement shall be deemed “insufficient
to cover all of the Registrable Securities” if at any time the number of shares
of Common Stock available for resale under the Registration Statement is less
than the product determined by multiplying (i) the Required Registration Amount
as of such time by (ii) 0.67.  The
calculation set forth in the foregoing sentence shall be made without regard to
any limitations on the conversion of the Notes or the exercise of the Warrants
or the Additional Investment Rights and such calculation shall assume that the
Notes are then convertible into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Notes) and that the Warrants and Additional
Investment Rights are then exercisable for shares of Common Stock at the then
prevailing Exercise Price (as defined in the Warrants and Additional Investment
Rights, respectively).

 

(f)                                    Effect of Failure to File and Obtain and
Maintain Effectiveness of Registration Statement.  If
(i) a Registration Statement covering all of the Registrable Securities
required to be covered thereby and required to be filed by the Company pursuant
to this Agreement is (A) not filed with the SEC on or before the Filing
Deadline (a “Filing Failure”) or
(B) not declared effective by the SEC on or before the respective Effectiveness
Deadline (an “Effectiveness Failure”)
or (ii) on any day after the Effective Date sales of all of the Registrable
Securities required to be included on such Registration Statement cannot be
made (other than during an Allowable Grace Period (as defined in Section 3(r))
pursuant to such Registration Statement (including, without limitation, because
of a failure to keep such Registration Statement effective, to disclose such
information as is necessary for sales to be made pursuant to such Registration
Statement or to register a sufficient number of shares of Common Stock) (a “Maintenance Failure”) then, as partial
relief for the damages to any holder by reason of any such delay in or reduction
of its ability to sell the underlying shares of Common Stock (which remedy
shall not be exclusive of any other remedies available at law or in equity),
the Company shall pay to each holder of Registrable Securities relating to such
Registration Statement an amount in cash equal to one percent (1%) of the
aggregate Purchase Price (as such term is defined in the Securities Purchase
Agreement) of such Investor’s Registrable Securities included in such
Registration Statement on each of the following dates: (i) the day of a Filing
Failure and

 

4

 

on every thirtieth day (pro rated for periods
totaling less than thirty days) thereafter until such Filing Failure is cured;
(ii) on the thirtieth day after an Effectiveness Failure and on every thirtieth
day (pro rated for periods totaling less than thirty days) thereafter until
such Effectiveness Failure is cured; (iii) the initial day of a Maintenance
Failure and on every thirtieth day (pro rated for periods totaling less than
thirty days) thereafter until such Maintenance Failure is cured.  The payments to which a holder shall be
entitled pursuant to this Section 2(g) are referred to herein as “Registration Delay Payments.”  Registration Delay Payments shall be paid on
the earlier of (I) the last day of the calendar month during which such
Registration Delay Payments are incurred and (II) the third Business Day after
the event or failure giving rise to the Registration Delay Payments is cured.  In the event the Company fails to make
Registration Delay Payments in a timely manner, such Registration Delay
Payments shall bear interest at the rate of 1.0% per month (prorated for
partial months) until paid in full.

 

3.                                       Related Obligations.

 

At
such time as the Company is obligated to file a Registration Statement with the
SEC pursuant to Section 2(a), 2(d) 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 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 a particular 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.  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 any successor thereto) promulgated under the 1933 Act or (ii) the
date on which the Investors shall have disposed of all of the Registrable
Securities covered by such Registration Statement (the “Registration Period”).  The Company shall ensure that each
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) 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 the case of prospectuses, in
the light of the circumstances in which they were made) not misleading.

 

(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 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 until such time as all of such Registrable Securities shall have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof as set forth in such Registration Statement.  In the case of amendments and supplements to
a Registration Statement which are required to be filed pursuant to this
Agreement (including pursuant to this Section 3(b)) by reason of the

 

5

 

Company filing a report on Form 10-Q, Form 10-K,
Form 8-K or any analogous report under the Securities Exchange Act of 1934, as
amended (the “1934 Act”), the
Company shall have incorporated such report by reference into such Registration
Statement, if applicable, or shall file such amendments or supplements with the
SEC on the same day on which the 1934 Act report is filed which created the
requirement for the Company to amend or supplement such Registration Statement.

 

(c)                                  The Company shall (A) permit Legal Counsel to
review and comment upon (i) a Registration Statement at least five (5) 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-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any similar or
successor reports) within a reasonable amount of time prior to their filing
with the SEC, and (B) not file any Registration Statement or amendment or
supplement thereto in a form to which Legal Counsel reasonably and timely
objects.  The Company shall not submit a
request for acceleration of the effectiveness of a Registration Statement or
any amendment or supplement thereto without the prior approval of Legal
Counsel, which consent shall not be unreasonably withheld or delayed.  The Company shall furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents incorporated therein by
reference, if requested by an Investor, and all exhibits and (iii) 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 and Legal Counsel
shall reasonably cooperate with respect to the obligations contained in 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, including exhibits, incorporated therein by
reference, if requested by an Investor and not otherwise available on the EDGAR
system, and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement (but in no event later than two Business Days after the
Effective Date), ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may reasonably request) and (iii) such
other documents, including copies of any preliminary or final prospectus, as
such Investor may reasonably request from time to time in order to facilitate
the disposition of the Registrable Securities owned by such Investor.

 

(e)                                  The Company shall use its best efforts to (i)
register and qualify, unless an exemption from registration and qualification
applies, the resale by Investors of the Registrable Securities covered by a
Registration Statement under such other securities or “blue sky” laws of such
jurisdictions in the United States as the Investor may reasonably request, (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

 

6

 

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), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process 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 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
the 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, subject to Section 3(r), promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). 
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 reasonable 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 at the earliest practicable moment 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)                                 If an Investor can demonstrate reasonable
necessity, at the reasonable request of any Investor, the Company shall use its
reasonable best efforts to furnish to such Investor, on the date of the
effectiveness of the 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

 

7

 

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)                                     In connection with the Investors’ due
diligence efforts, the Company shall make available for inspection during
business hours and upon reasonable advance request 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 in writing 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. 
Nothing herein (or in any other confidentiality agreement between the
Company and any Investor) shall be deemed to limit the Investors’ ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.

 

(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 or applicable rules and regulations of the
Principal Market, (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 either
to (i) cause all of the Registrable Securities covered by a Registration
Statement to be listed on each securities exchange on which securities of the
same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of
such exchange, or (ii) secure designation and quotation of all of the
Registrable Securities covered by a Registration Statement on the Nasdaq
National Market or (iii) if, despite the Company’s best

 

8

 

efforts to satisfy, the preceding clauses (i) and
(ii) the Company is unsuccessful in satisfying the preceding clauses (i) and
(ii), to secure the inclusion for quotation on The Nasdaq SmallCap Market for
such Registrable Securities and, without limiting the generality of the
foregoing, to use its best efforts to 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
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)                               If requested by an Investor, the Company
shall (i) as soon as practicable incorporate in a prospectus supplement or
post-effective amendment such information as an Investor reasonably requests to
be included therein relating to the sale and distribution of Registrable
Securities, including, without limitation, 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 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 holding any Registrable Securities.

 

(n)                                 The Company shall use its best efforts to
cause the Registrable Securities covered by a Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.

 

(o)                                 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, and in the manner provided by, the provisions of Rule 158 under
the 1933 Act) covering a twelve-month period beginning not later than the first
day of the Company’s fiscal quarter next following the effective date of a
Registration Statement.

 

(p)                                 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.

 

(q)                                 Within two (2) Business Days after a
Registration Statement which covers 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 such

 

9

 

Registration Statement)
confirmation that such Registration Statement has been declared effective by
the SEC in the form attached hereto as Exhibit A.

 

(r)                                    Notwithstanding anything to the contrary
herein, at any time after the 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 will 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 during any three hundred sixty five (365) day period
such Grace Periods shall not exceed an aggregate of thirty-five (35) days
(each, 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
Investors receive the notice referred to in clause (i) and shall end on and
include the later of the date the Investors receive the notice referred to in
clause (ii) and the date referred to in such notice.  The provisions of Section 3(g) 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 first sentence of Section 3(f) with respect
to the information giving rise thereto unless such material, non-public
information is no longer applicable. 
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, and delivered a copy of the
prospectus included as part of the applicable Registration Statement, prior to
the Investor’s receipt of the notice of a Grace Period and for which the
Investor has not yet settled.

 

4.                                       Obligations of the Investors.

 

(a)                                  At least five (5) Business Days prior to the
first anticipated filing date of a Registration Statement, the Company shall
notify each Investor in writing of the information 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.  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 Investor
that such Investor shall furnish to the Company 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 effectiveness of the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.

 

(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

 

10

 

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), 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.  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.

 

(d)                                 To the extent required by applicable law,
each Investor shall promptly notify the Company of any change in any
information regarding such Investor furnished by such Investor to the Company
for inclusion in a Registration Statement. 
Each Investor covenants and agrees that it will comply with the
prospectus delivery requirements of the 1933 Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.

 

5.                                       Expenses of Registration.

 

All
reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant
to Sections 2 and 3, including, without limitation, 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 fees and disbursements of Legal Counsel in connection with
registration, filing or qualification pursuant to Sections 2 and 3 of this
Agreement which amount shall be limited to $10,000.

 

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, members, partners, 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 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

 

11

 

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 prospectus if used prior to the effective date of such
Registration Statement, or contained in the final 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 the 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, without limitation, 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
violation of this Agreement (the matters in the foregoing clauses (i) through
(iv) being, 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
reasonable expenses 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):  (i) shall not apply to a Claim by an Indemnified
Person arising out of or based 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, if such prospectus was timely made available by
the Company pursuant to Section 3(d); (ii) with respect to any preliminary
prospectus, shall not inure to the benefit of any such Person from whom the
Person asserting any such Claim purchased the Registrable Securities that are
the subject thereof (or to the benefit of any Person controlling such Person)
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented and if such prospectus was timely made available by the Company
pursuant to Section 3(d), and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use giving rise to a
violation and such Indemnified Person, notwithstanding such advice, used it or
failed to deliver the correct prospectus as required by the 1933 Act; (iii)
shall not be available to the extent such Claim is based on a failure of the
Investor to deliver or to cause to be delivered the prospectus made available
by the Company, including a corrected prospectus, if such prospectus or
corrected prospectus was timely made available by the Company pursuant to
Section 3(d); and (iv) 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 or delayed.  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)                                 In connection with any Registration Statement
in which an Investor is participating, each such Investor agrees to severally
and not jointly indemnify, hold

 

12

 

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 1933 Act, the 1934 Act or otherwise, insofar as such Claim
or Indemnified Damages arise out of or are based upon any Violation, 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 post-effective amendment thereof; and, subject to Section
6(c), such Investor promptly will reimburse any legal or other expenses
reasonably incurred by an Indemnified Party 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 or delayed;
provided, further, however, that the Investor shall be liable under this
Section 6(b) for only that amount of a Claim or Indemnified Damages as does not
exceed the net proceeds to such Investor as a result of the sale of Registrable
Securities pursuant to such Registration Statement.  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. 
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.

 

(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 noticed, 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;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses of not more than
one counsel for such Indemnified Person or Indemnified Party to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of 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 case of an
Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding 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

 

13

 

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 reasonably apprised at all times as
to the status of the defense or any settlement negotiations with respect
thereto.  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 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.

 

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 in
amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities pursuant to such Registration Statement.

 

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:

 

14

 

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

 

(b)                                 file with the SEC in a timely manner all
reports and other documents required of the Company under the 1933 Act and the
1934 Act so long as the Company remains subject to such requirements 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, if true, that it has complied with the reporting
requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the
most recent annual report of the Company and such other reports and documents
so filed by the Company (other than any correspondence filed by the Company
with the SEC, including, without limitation, any confidential treatment
requests), and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.

 

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 such Investor’s 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
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.

 

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 the Required
Holders.  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.

 

11.                                 Termination of Obligations.

 

The
obligations of the Company pursuant to Section 3 hereof shall cease and
terminate upon the earlier to occur of (a) such time as all of the Registrable
Securities have been

 

15

 

resold, or (b) such time as all of the Registrable
Securities may be resold pursuant to Rule 144(k).

 

12.                                 Miscellaneous.

 

(a)                                  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 such record owner of such Registrable Securities.

 

(b)                                 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 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:

 

BroadVision,
Inc.

585
Broadway

Redwood City, California 94063

Telephone:                                    (650) 261-5100

Facsimile:                                            (650) 261-5900                     

Attention:                                         General Counsel

 

With
a copy to:

 

Cooley
Godward LLP

One Maritime Plaza, 20th Floor

San Francisco, California 94111

Telephone:                                    (415) 693-2000

Facsimile:                                            (415) 951-3699

Attention:                                         Kenneth L. Guernsey, Esq.

 

If to Legal Counsel:

 

Schulte
Roth & Zabel LLP

919
Third Avenue

New
York, New York  10022

Telephone:  (212) 756-2000

Facsimile:  (212) 593-5955

Attention:  Eleazer N. Klein, Esq.

 

16

 

If
to a Buyer, to its address and facsimile number set forth on the Schedule of
Buyers attached hereto, with copies to such Buyer’s representatives as set
forth on the Schedule of Buyers, or 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 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 receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.

 

(c)                                  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.

 

(d)                                 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 in 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.

 

(e)                                  This Agreement, the other Transaction
Documents (as defined in the Securities Purchase Agreement) and the instruments
referenced herein and therein 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, the other
Transaction Documents and

 

17

 

the instruments referenced herein and therein
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.

 

(f)                                    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.

 

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

 

(h)                                 This Agreement may be executed in identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. 
This Agreement, once executed by a party, may be delivered to the other
party hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.

 

(i)                                     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
any 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.

 

(j)                                     All consents and other determinations
required to be made by the Investors pursuant to this Agreement shall be made,
unless otherwise specified in this Agreement, by the Required Holders.

 

(k)                                  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.

 

(l)                                     This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other Person.

 

(m)                               The obligations of each Buyer hereunder are
several and not joint with the obligations of any other Buyer, and no provision
of this Agreement is intended to confer any obligations on any Buyer vis-à-vis
any other Buyer.  Nothing contained
herein, and no action taken by any Buyer pursuant hereto, shall be deemed to
constitute the Buyers as a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated herein.

 

* * * * * *

 

18

 

IN WITNESS WHEREOF, each Buyer and the Company have caused
their respective signature page to this Registration Rights Agreement to be
duly executed as of the date first written above.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  BROADVISION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused
their respective signature page to this Registration Rights Agreement to be
duly executed as of the date first written above.

 

	
   

  	
  BUYERS:

  
	
   

  	
   

  
	
   

  	
  PORTSIDE GROWTH & OPPORTUNITY FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused
their respective signature page to this Registration Rights Agreement to be
duly executed as of the date first written above.

 

	
   

  	
  SF CAPITAL PARTNERS LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused
their respective signature page to this Registration Rights Agreement to be
duly executed as of the date first written above.

 

	
   

  	
  MANCHESTER SECURITIES CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused
their respective signature page to this Registration Rights Agreement to be
duly executed as of the date first written above.

 

	
   

  	
  KINGS ROAD INVESTMENTS LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused
their respective signature page to this Registration Rights Agreement to be
duly executed as of the date first written above.

 

	
   

  	
  PROVIDENT PREMIER MASTER FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

SCHEDULE OF BUYERS

 

	
  Buyer

  	
   

  	
  Buyer’s
  Address

  and Facsimile Number

  	
   

  	
  Buyer’s
  Representative’s Address

  and Facsimile Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Portside
  Growth & Opportunity Fund

  	
   

  	
  c/o
  Ramius Capital Group, L.L.C.

  666 Third Avenue, 26th Floor

  New York, New York 10017

  Attention:                 Jeffrey Smith

  Nancy Wu

  Facsimile:
  (212) 845-7999

  Telephone: (212) 845-7955

  	
   

  	
  Schulte
  Roth & Zabel LLP

  919 Third Avenue

  New York, New York 10022

  Attn: Eleazer Klein, Esq.

  Facsimile: (212) 593-5955

  Telephone: (212) 756-2000

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SF
  Capital Partners Ltd.

  	
   

  	
  3600
  South Lake Drive

  St. Francis, WI 53235

  Attention: Brian Davidson

  Facsimile: (414) 294-7700

  Telephone: (414) 294-7000

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Manchester
  Securities Corp.

  	
   

  	
  712
  Fifth Avenue

  New York, NY 10019

  Attention: Sundar Srinivasan

  Facsimile: (212) 586-9461

  Telephone: (212) 506-2999

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kings
  Road Investments Ltd.

  	
   

  	
  M
  & C Corporate Services Limited

  P.O. Box 309GT, Ugland House

  South Church Street, George Town

  Grand Cayman, Cayman Islands

  Attention: James Piachaud

  Facsimile: (212) 359-7304

  Telephone: (212) 359-7336

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Provident
  Premier Master Fund, Ltd.

  	
   

  	
  c/o
  Gemini Investment Strategies, LLC

  35 Waterview Boulevard

  Parsippany, NJ 07054

  Attention: Steven Winters

  Facsimile: (973) 404-1360

  Telephone: (973) 404-1350

  	
   

  	
   

  

 

 

EXHIBIT A

 

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

 

Computershare
Trust Company

350
Indiana Street, Suite 800

Golden,
CO  80401

Attention:  Ms. Tiffany Skiles

 

Re:                               BroadVision, Inc.

 

Ladies
and Gentlemen:

 

[We
are][I am] counsel to BroadVision, Inc., 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 buyers named therein (collectively, the “Holders”) pursuant to which the Company
issued to the Holders senior secured convertible notes (the “Initial Notes”) convertible into the
Company’s common stock, $.0001 par value per share (the ”Common Stock”), warrants exercisable for
shares of Common Stock (the “Warrants”)
and additional investment rights exercisable for additional senior secured
convertible notes of the Company (the “Additional
Notes”, and collectively with the Initial Notes, the “Notes”) which will be convertible into
shares of Common Stock.  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, the shares of Common Stock issuable as interest on the
Notes and the shares of Common Stock issuable upon 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-3 (File No. 333-                          )
(the “Registration Statement”)
with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities that names each
of the Holders as a selling stockholder thereunder.

 

In
connection with the foregoing, [we][I] advise you that a member of the SEC’s
staff has advised [us][me] 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][I]
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.

 

This
letter shall serve as our standing opinion to you that the shares of Common
Stock are freely transferable by the Holders pursuant to the Registration
Statement.  You need not require further
letters from us to effect any future legend-free
issuance or reissuance of

 

1

 

shares of Common Stock to the Holders as
contemplated by the Company’s Irrevocable Transfer Agent Instructions dated                 
    , 2004.  This
letter shall serve as our standing opinion with regard to this matter.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  [ISSUER’S COUNSEL]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  

 

CC:                             [LIST NAMES
OF HOLDERS]

 

2

 

EXHIBIT B

 

SELLING STOCKHOLDERS

 

The
shares of Common Stock being offered by the selling stockholders are issuable
upon conversion of the convertible notes (including convertible notes issuable
upon exercise of additional investment rights which were issued pursuant to a
Securities Purchase Agreement dated as of November       ,
2004), as interest on the convertible notes and upon exercise of the
warrants.  For additional information regarding
the issuance of those convertible notes, warrants and additional investment
rights, see “Private Placement of Shares of Common Stock, Convertible Notes,
Warrants and Additional Investment Rights” above.  We are registering the shares of Common Stock
in order to permit the selling stockholders to offer the shares for resale from
time to time.  Except for the ownership
of the Convertible Notes, the Warrants and the Additional Investment Rights
issued pursuant to the Securities Purchase Agreement, the selling stockholders
have not had any material relationship with us within the past three years.

 

The
table below lists the selling stockholders and information regarding the
beneficial ownership of the shares of Common Stock by each of the selling stockholders.  The second column lists the number of shares
of Common Stock beneficially owned by each selling stockholder, based on its
ownership of the convertible notes, warrants and additional investment rights,
as of                 ,
200  , assuming conversion of all convertible notes (including
convertible notes issuable upon exercise of all of the additional investment
rights held by the selling stockholders) and exercise of the warrants held by
the selling stockholders on that date, without regard to any limitations on
conversions or exercise.

 

The
third column lists the shares of Common Stock being offered by this prospectus
by each selling stockholder.

 

In
accordance with the terms of a registration rights agreement among the Company
and the selling stockholders, this prospectus generally covers the resale of at
least 150% of the sum of (i) the number of shares of Common Stock issuable as
interest on the convertible notes, (ii) the number of shares of Common Stock
issuable upon conversion of the convertible notes (including convertible notes
issuable upon exercise of all of the additional investment rights which were
issued pursuant to a Securities Purchase Agreement) as of the trading day
immediately preceding the date the registration statement is initially filed
with the SEC and (iii) the number of shares of Common Stock issuable upon
exercise of the related warrants as of the trading day immediately preceding
the date the registration statement is initially filed with the SEC.  Because
the conversion price of the convertible notes, the interest payable on the
convertible notes may be adjusted and the exercise price of the warrants and
the additional investment rights may be adjusted, the number of shares that
will actually be issued may be more or less than the number of shares being
offered by this prospectus.  The fourth
column assumes the sale of all of the shares offered by the selling
stockholders pursuant to this prospectus.

 

Under
the terms of the convertible notes and the warrants, a selling stockholder may
not convert the convertible notes or exercise the warrants to the extent such
conversion or exercise would cause such selling stockholder, together with its
affiliates, to beneficially own a number of shares of Common Stock which would
exceed 4.99% of our then outstanding shares of Common

 

1

 

Stock following such
conversion or exercise, excluding for purposes of such determination shares of
Common Stock issuable upon conversion of the convertible notes that have not
been converted and upon exercise of the warrants and additional investment
rights that have not been exercised.  The
number of shares in the second column does not reflect this limitation.  The selling stockholders may sell all, some
or none of their shares in this offering. 
See “Plan of Distribution.”

 

	
  Name of Selling Shareholder

  	
   

  	
  Number of Shares Owned

  Prior to Offering

  	
   

  	
  Maximum Number of Shares

  to be Sold Pursuant to this

  Prospectus

  	
   

  	
  Number of Shares Owned

  After Offering

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Portside Growth & Opportunity Fund (1)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SF Capital Partners Ltd. (2)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Manchester Securities Corp. (3)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kings Road Investments Ltd.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Provident Premier Master Fund (4)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  0

  	
   

  

 

(1)                                  Ramius Capital Group, LLC (“Ramius Capital”)
is the investment adviser of Portside Growth and Opportunity Fund (“Portside”)
and consequently has voting control and investment discretion over securities
held by Portside.  Ramius Capital
disclaims beneficial ownership of the shares held by Portside.  Peter A. Cohen, Morgan B. Stark, Thomas W.
Strauss and Jeffrey M. Solomon are the sole managing members of C4S& Co.,
LLC, the sole managing member of Ramius Capital.  As a result, Messrs. Cohen, Stark, Strauss
and Solomon may be considered beneficial owners of any shares deemed to be
beneficially owned by Ramius Capital. 
Messrs. Cohen, Stark, Strauss and Solomon disclaim beneficial ownership
of these shares.

 

(2)                                  Michael A. Roth and Brian J. Stark possess
voting and dispositive power over all of the shares owned by SF Capital
Partners Ltd.

 

(3)                                  Manchester Securities Corp. is a wholly-owned
subsidiary of Elliott Associates, L.P. Paul E. Singer and Elliott Capital
Advisors, L.P., which is controlled by Mr. Singer, are the general partners of
Elliott Associates, L.P.

 

(4)
                               The Investment Advisor to Provident Premier
Master Fund, Ltd. is Gemini Investment Strategies, LLC. The Managing Members of
Gemini Investment Strategies, LLC are Messrs. Steven W. Winters and Mr. Richard
S. Yakomin. As such, Messrs. Winters and Yakomin may be deemed beneficial
owners of the shares. Messrs. Winters and Yakomin, however, disclaim beneficial
ownership of such shares.

 

2

 

PLAN OF DISTRIBUTION

 

We
are registering the shares of Common Stock issuable upon conversion of the
convertible notes (including convertible notes issuable upon exercise of the
additional investment rights), upon exercise of the warrants and in payment of
interest on the convertible notes to permit the resale of these shares of
Common Stock by the holders of the convertible notes, warrants and additional
investment rights from time to time after the date of this prospectus.  We will not receive any of the proceeds from
the sale by the selling stockholders of the shares of Common Stock.  We will bear all fees and expenses incident
to our obligation to register the shares of Common Stock.

 

The
selling stockholders may sell all or a portion of the shares of Common Stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents.  If the shares of Common Stock are sold
through underwriters or broker-dealers, the selling stockholders will be responsible
for underwriting discounts or commissions or agent’s commissions.  The shares of Common Stock may be sold in one
or more transactions at fixed prices, at prevailing market prices at the time
of the sale, at varying prices determined at the time of sale, or at negotiated
prices.  These sales may be effected in transactions, which may involve crosses or block
transactions,

 

•                  on any national securities exchange or
quotation service on which the securities may be listed or quoted at the time
of sale;

 

•                  in the over-the-counter market;

 

•                  in transactions otherwise than on these
exchanges or systems or in the over-the-counter market;

 

•                  through the writing of options, whether such options
are listed on an options exchange or otherwise;

 

•                  ordinary brokerage transactions and transactions in
which the broker-dealer solicits purchasers;

 

•                  block trades in which the broker-dealer will
attempt to sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;

 

•                  purchases by a broker-dealer as principal and resale
by the broker-dealer for its account;

 

•                  an exchange distribution in accordance with the
rules of the applicable exchange;

 

•                  privately negotiated transactions;

 

•                  short sales;

 

•                  sales pursuant to Rule 144;

 

1

 

•                  broker-dealers may agree with the selling securityholders
to sell a specified number of such shares at a stipulated price per share;

 

•                  a combination of any such methods of sale; and

 

•                  any other method permitted pursuant to
applicable law.

 

If
the selling stockholders effect such transactions by selling shares of Common
Stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of Common Stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved).  In connection with sales of the shares of
Common Stock or otherwise, the selling stockholders may enter into hedging
transactions with broker-dealers, which may in turn engage in short sales of
the shares of Common Stock in the course of hedging in positions they
assume.  The selling stockholders may
also sell shares of Common Stock short and deliver shares of Common Stock
covered by this prospectus to close out short positions and to return borrowed
shares in connection with such short sales. 
The selling stockholders may also loan or pledge shares of Common Stock
to broker-dealers that in turn may sell such shares.

 

The
selling stockholders may pledge or grant a security interest in some or all of
the convertible notes, warrants, additional investment rights or shares of
Common Stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the
shares of Common Stock from time to time pursuant to this prospectus or any
amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act of 1933, as amended, amending, if necessary, the list of
selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus.  The selling stockholders also may transfer
and donate the shares of Common Stock in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus.

 

The
selling stockholders and any broker-dealer participating in the distribution of
the shares of Common Stock may be deemed to be “underwriters” within the
meaning of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act.  At the time a particular offering of the
shares of Common Stock is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of shares of Common Stock
being offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to broker-dealers.

 

Under
the securities laws of some states, the shares of Common Stock may be sold in
such states only through registered or licensed brokers or dealers.  In addition, in some states the

 

2

 

shares of Common Stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.

 

There
can be no assurance that any selling stockholder will sell any or all of the
shares of Common Stock registered pursuant to the registration statement, of
which this prospectus forms a part.

 

The
selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of Common Stock by the selling
stockholders and any other participating person.  Regulation M may also restrict the ability of
any person engaged in the distribution of the shares of Common Stock to engage
in market-making activities with respect to the shares of Common Stock.  All of the foregoing may affect the
marketability of the shares of Common Stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
Common Stock.

 

We
will pay all expenses of the registration of the shares of Common Stock
pursuant to the registration rights agreement; provided, however, that a
selling stockholder will pay all underwriting discounts and selling
commissions, if any.  We will indemnify
the selling stockholders against liabilities, including some liabilities under
the Securities Act, in accordance with the registration rights agreements, or
the selling stockholders will be entitled to contribution.  We may be indemnified by the selling
stockholders against liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by
the selling stockholder specifically for use in this prospectus, in accordance
with the related registration rights agreement, or we may be entitled to
contribution.

 

Once
sold under the shelf registration statement, of which this prospectus forms a
part, the shares of Common Stock will be freely tradable in the hands of
persons other than our affiliates.

 

3

 

Exhibit H

 

VOTING AGREEMENT

 

VOTING AGREEMENT, dated as
of November        2004 (this “Agreement”), by and among BroadVision,
Inc., a Delaware corporation (the “Company”),
Pehong Chen, an individual (“Chen”),
and The Chen Family Trust dated 1/15/93, a [JURISDICTION]
[grantor] trust, (the “Trust” and,
collectively with Chen, the “Stockholders”).

 

WHEREAS, the Company and
certain investors (each, a “Buyer”,
and collectively, the “Buyers”)
have entered into a Securities Purchase Agreement, dated as of the date hereof
(the “Securities Purchase Agreement”),
pursuant to which, among other things, the Company has agreed to issue and sell
to the Buyers and the Buyers have, severally but not jointly, agreed to
purchase (i) senior subordinated secured convertible notes of the Company (the “Notes”), which Notes shall be convertible
into the Company’s common stock, $.0001 par value per share (the “Common Stock”), (ii) warrants to purchase
shares of Common Stock and (iii) a right to acquire additional Notes;

 

WHEREAS, as of the date
hereof, (i) the Trust owns [5,874,985] shares of Common Stock, which represent
approximately [17.7]% of the total issued and outstanding Common Stock of the
Company and approximately [17.7]% of the total voting power of the Company and
(ii) Chen owns options (the “Options”)
to purchase [1,057,455] shares of Common Stock of the Company;

 

WHEREAS, as a condition to
the willingness of the Buyers to enter into the Securities Purchase Agreement
and to consummate the transactions contemplated thereby (collectively, the “Transaction”), the Buyers have required
that the Stockholders agree, and in order to induce the Buyers to enter into
the Securities Purchase Agreement, the Stockholders have agreed, to enter into
this Agreement with respect to all the Common Stock now owned and which may
hereafter be acquired by the Stockholders (including, without limitation, the
Option Shares (as defined in Section 2.03 hereof)) and any other securities, if
any, which Stockholders are currently entitled to vote, or after the date
hererof become entitled to vote, at any meeting of the stockholders of the
Company (the “Other Securities”).

 

NOW, THEREFORE, in
consideration of the foregoing and the mutual covenants and agreements
contained herein, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:

 

ARTICLE
I

VOTING AGREEMENT OF THE STOCKHOLDERS

 

SECTION 1.01.  Voting Agreement.  Subject to the last sentence of this
Section 1.01, the Stockholders hereby agree that at any meeting of the stockholders
of the Company, however called, and in any action by written consent of the
Company’s stockholders, the Stockholders shall vote all of the Trust Shares (as
defined in Section 2.03 hereof), any Option Shares and any Other Securities:
(a) in favor of the Stockholder Approval (as defined in the Securities Purchase
Agreement) as described in Section 4(p) of the Securities Purchase
Agreement; and (b) against any proposal or any other corporate action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of the Company under the
Transaction Documents (as defined in the Securities

 

 

Purchase Agreement) or which could result in
any of the conditions to the Company’s obligations under the Transaction
Documents not being fulfilled.  The
Stockholders acknowledge receipt and review of a copy of the Securities
Purchase Agreement and the other Transaction Documents.  The obligations of the Stockholders under
this Section 1.01 shall terminate immediately following the occurrence of the
Stockholder Approval.

 

ARTICLE
II

REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER

 

Each Stockholder hereby
represents and warrants, severally but not jointly to the Company and each of
the Buyers as follows:

 

SECTION 2.01.  Authority Relative to this Agreement.  (a) Such Stockholder has all necessary power
(if such Stockholder is an entity), capacity (if such Stockholder is an
individual) and authority to execute and deliver this Agreement, to perform his
or its obligations hereunder and to consummate the transactions contemplated
hereby and (b) Chen has full trust power and authority as a trustee of the
Trust, under the terms of the relevant trust instrument thereof, to vote the
Trust Shares in accordance with the terms herein.  This Agreement has been duly executed and
delivered by such Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms, except (i) as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws now or hereafter in effect relating to, or affecting
generally, the enforcement of creditors’ and other obligees’ rights and (ii)
where the remedy of specific performance or other forms of equitable relief may
be subject to certain equitable defenses and principles and to the discretion
of the court before which the proceeding may be brought.

 

SECTION 2.02.  No Conflict.  (a)  The
execution and delivery of this Agreement by such Stockholder does not, and the
performance of this Agreement by such Stockholder shall not, (i) conflict with
or violate any federal, state or local law, statute, ordinance, rule,
regulation, order, judgment or decree applicable to such Stockholder or by
which the Trust Shares, Options, or any Other Securities owned by such
Stockholder are bound or affected or (ii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the Trust Shares, Options, or any Other Securities owned
by such Stockholder pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which such Stockholder is a party or by which such Stockholder is bound.

 

(b)           The execution and delivery of this Agreement by such
Stockholder does not, and the performance of this Agreement by such Stockholder
shall not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental entity by such Stockholder.

 

SECTION 2.03.  Title to the Stock.  As of the date hereof, (a) the Trust owns
[5,874,985] shares of Common Stock of the Company (the “Trust Shares”) and (b) Chen owns Options to
purchase [1,057,455] shares of Common Stock of the Company (the “Option

 

2

 

Shares”).  As
of the date hereof, Chen is entitled to vote, without restriction, on all
matters brought before holders of capital stock of the Company, (i) the Trust
Shares (in his capacity as a trustee), which shares represent on the date
hereof approximately [17.7]% of the outstanding stock and approximately [17.7]%
of the voting power of the Company and (ii) upon exercise of the Options, the
Option Shares, which shares represent on the date hereof (assuming exercise as
of such date) approximately [2.6]% of the outstanding stock and approximately
[2.6]% of the voting power of the Company. Such Common Stock is all the
securities of the Company owned, either of record or beneficially, by each
Stockholder.  Such Common Stock is owned
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on such Stockholder’s voting
rights, charges and other encumbrances of any nature whatsoever.  No Stockholder has appointed or granted any
proxy, which appointment or grant is still effective, with respect to the Trust
Shares, any Option Shares or Other Securities owned by such Stockholder.

 

ARTICLE
III

COVENANTS

 

SECTION 3.01.  No Disposition or Encumbrance of Stock.  Each Stockholder hereby covenants and agrees
that such Stockholder shall not, and Chen in his capacity as trustee shall not
cause or permit the Trust to, offer or agree to sell, transfer, tender, assign,
hypothecate or otherwise dispose of, grant a proxy or power of attorney with
respect to, or create or permit to exist any security interest, lien, claim,
pledge, option, right of first refusal, agreement, limitation on Stockholders’
voting rights, charge or other encumbrance of any nature whatsoever (“Encumbrance”) with respect to the Trust
Shares, any Option Shares or Other Securities, directly or indirectly, or
initiate, solicit or encourage any person to take actions which could
reasonably be expected to lead to the occurrence of any of the foregoing.

 

SECTION 3.02.  Company Cooperation.  The Company hereby covenants and agrees that
it will not, and each Stockholder irrevocably and unconditionally acknowledges
and agrees that the Company will not (and waives any rights against the Company
in relation thereto), recognize any Encumbrance or agreement on any of the
Trust Shares, Options, or any Other Securities subject to this Agreement.

 

ARTICLE
IV

MISCELLANEOUS

 

SECTION 4.01.  Further Assurances.  Each Stockholder shall execute and deliver
such further documents and instruments and take all further action as may be
reasonably necessary in order to consummate the transactions contemplated
hereby.

 

SECTION 4.02.  Specific Performance.  The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that any Buyer (without being
joined by any other Buyer) shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or in equity.  Any Buyer shall be entitled to its reasonable
attorneys’ fees in any action brought to enforce this Agreement in which it is
the prevailing party.

 

3

 

SECTION 4.03.  Entire Agreement.  This Agreement constitutes the entire
agreement among the Company and the Stockholders (other than the Securities
Purchase Agreement and the other Transaction Documents to which the
Stockholders are parties) with respect to the subject matter hereof and supersedes
all prior agreements and understandings, both written and oral, among the
Company and the Stockholders with respect to the subject matter hereof.

 

SECTION 4.04.  Amendment.  This Agreement may not be amended except by
an instrument in writing signed by the parties hereto.

 

SECTION 4.05.  Severability.  If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of this Agreement is not affected in any manner materially
adverse to any party.  Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated to the fullest extent possible.

 

SECTION 4.06.  Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of Delaware, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Delaware
or any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of Delaware. 
The parties hereby submit to the non-exclusive jurisdiction of the
Supreme Court of the State of New York or the United States District Court for
the Southern District of New York located in New York County, New York in
respect of any all actions or proceedings arising directly or indirectly from
or in connection with this Agreement. 
The parties consent to the jurisdiction and venue of the foregoing
courts and consent that any process or notice of motion or other application to
any of said courts or a judge thereof may be served inside or outside the State
of New York or the Southern District of New York by registered mail, return
receipt requested, directed to the party being served at its address set forth
on the signature ages to this Agreement (and service so made shall be deemed
complete three (3) days after the same has been posted as aforesaid) or by
personal service or in such other manner as may be permissible under the rules
of said courts.  Each of the Company and
each Stockholder irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of the venue of
any such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an inconvenient forum.  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 WITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

SECTION 4.07.  Third-Party Beneficiaries.  The Buyers shall be intended third party
beneficiaries of this Agreement to the same extent as if they were parties
hereto, and shall be entitled to enforce the provisions hereof.

 

4

 

SECTION 4.08.  Termination.  This Agreement shall terminate immediately
following the occurrence of the Stockholder Approval or upon the mutual consent
of the Stockholders and the Buyers holding at least a majority of the aggregate
principal amount of Notes outstanding.

 

5

 

IN WITNESS WHEREOF, the
Stockholder and the Company has duly executed this Agreement.

 

	
   

  	
  THE COMPANY:

  
	
   

  	
   

  
	
   

  	
  BROADVISION, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  585
  Broadway

  Redwood City, CA 94063

  
					

 

 

	
   

  	
  STOCKHOLDERS:

  
	
   

  	
   

  
	
   

  	
  PEHONG CHEN

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE CHEN FAMILY TRUST

  DATED 1/15/93

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Pehong
  Chen

  
	
   

  	
   

  	
  Title:

  	
  Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  
							

 

 

Exhibit F

 

SRZ DRAFT

11/08/04

 

PLEDGE AND SECURITY AGREEMENT

 

PLEDGE AND SECURITY AGREEMENT,
dated as of November       , 2004 (this “Agreement”) made by BroadVision, Inc., a Delaware corporation
(“BVI”) and each of its existing
“Subsidiaries” (as defined in the Securities Purchase Agreement defined below)
named on the signature pages hereto (collectively, the “Existing Subsidiaries”)  and each other Subsidiary of BVI hereafter
becoming party hereto (together with BVI and the Existing Subsidiaries, each a
“Grantor” and, collectively, the “Grantors”), in favor of Portside Growth & Opportunity Fund, a
company organized under the laws of the Cayman Islands, in its capacity as
collateral agent (in such capacity, the “Collateral
Agent”) for the “Buyers” (as defined below) party to the Securities
Purchase Agreement, dated as of even date herewith (as amended, restated or
otherwise modified from time to time, the “Securities
Purchase Agreement”).

 

W  I  T  N
E  S  S  E  T  H:

 

WHEREAS, BVI and each party listed as a “Buyer” Schedule of Buyers
attached thereto (collectively, the “Buyers”)
are parties to the Securities Purchase Agreement, pursuant to which BVI shall
be required to sell, and the Buyers shall purchase or have the right to
purchase, the “Notes” (as defined therein);

 

WHEREAS, it is a condition precedent to the Buyers entering into the
Securities Purchase Agreement that BVI shall have executed and delivered to the
Collateral Agent this Agreement providing for the grant to the Collateral Agent
for the benefit of the Buyers of a security interest in all Collateral (as
defined herein) to secure all of BVI’s obligations under the Securities
Purchase Agreement and the “Notes” (as defined therein) issued pursuant thereto
(as such Notes may be amended, restated, replaced or otherwise modified from
time to time in accordance with the terms thereof, collectively, the “Notes”);

 

WHEREAS, each of the Existing Subsidiaries is a wholly-owned Subsidiary
of BVI and will derive substantial benefits from the execution of the
Securities Purchase Agreement;

 

WHEREAS, each of the Existing Subsidiaries, BVI and each other Grantor
are or will be mutually dependent on each other in the conduct of their
respective businesses as an integrated operation, with the credit needed from
time to time by one often being provided through financing obtained by the
other and the ability to obtain such financing being dependent on the
successful operations of each of the Existing Subsidiaries, BVI and each other
Grantor;

 

WHEREAS, it is a condition precedent to the Buyers entering into the
Securities Purchase Agreement that each of the Existing Subsidiaries shall have
executed and delivered to the Collateral Agent the “Guaranty” (as defined
therein) with respect to the obligations of BVI under the Securities Purchase
Agreement and the Notes (as amended, restated or otherwise modified from time
to time, the “Guaranty”), and this
Agreement providing for the grant to the Collateral Agent for the benefit of
the Buyers of a security interest in all personal property of each of the
Existing Subsidiaries to secure its obligations under the Guaranty, and that
each

 

 

future domestic and material
foreign Subsidiary of BVI become a party to the Guaranty and this Agreement;
and

 

WHEREAS, each of the Existing Subsidiaries and each other Grantor has
determined that the execution, delivery and performance of this Agreement and
the Guaranty directly benefits, and are in the best interest of BVI; and

 

NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Buyers to perform under the Securities
Purchase Agreement, each Grantor agrees with the Collateral Agent, for the
benefit of the Buyers, as follows:

 

SECTION 1.                                Definitions.

 

(a)                                  Reference
is hereby made to the Securities Purchase Agreement and the Notes for a
statement of the terms thereof.  All
terms used in this Agreement and the recitals hereto which are defined in the
Securities Purchase Agreement, the Notes or in Articles 8 or 9 of the Uniform
Commercial Code (the “Code”) as in effect from time to time in the State of New
York, and which are not otherwise defined herein shall have the same meanings
herein as set forth therein; provided that terms used herein which are
defined in the Code as in effect in the State of New York on the date hereof
shall continue to have the same meaning notwithstanding any replacement or
amendment of such statute except as the Collateral Agent may otherwise
determine.

 

(b)                                 The
following terms shall have the respective meanings provided for in the
Code:  “Accounts”, “Cash Proceeds”,
“Chattel Paper”, “Commercial Tort Claim”, “Commodity Account”, “Commodity
Contracts”, “Deposit Account”, “Documents”, “Equipment”, “Fixtures”, “General
Intangibles”, “Goods”, “Instruments”, “Inventory”, “Investment Property”,
“Letter-of-Credit Rights”, “Noncash Proceeds”, “Payment Intangibles”,
“Proceeds”, “Promissory Notes”, “Security”, “Record”, “Security Account”,
“Software”, and “Supporting Obligations”.

 

(c)                                  As
used in this Agreement, the following terms shall have the respective meanings
indicated below, such meanings to be applicable equally to both the singular
and plural forms of such terms:

 

“Copyright Licenses” means
all licenses, contracts or other agreements, whether written or oral, naming
any Grantor as licensee or licensor and providing for the grant of any right to
use or sell any works covered by any copyright (including, without limitation,
all Copyright Licenses  set forth
in Schedule II hereto).

 

“Copyrights” means all
domestic and foreign copyrights, whether registered or not, including, without
limitation, all copyright rights throughout the universe (whether now or
hereafter arising) in any and all media (whether now or hereafter developed),
in and to all original works of authorship fixed in any tangible medium of
expression, acquired or used by any Grantor (including, without limitation, all
copyrights  described in Schedule
II hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Copyright Office or in any similar office or agency of the
United States or any other country or any political subdivision thereof), and
all reissues, divisions, continuations, continuations in part and extensions or
renewals thereof.

 

2

 

“Event of  Default” shall have the meaning set forth
in the Notes.

 

“Insolvency Proceeding”
means any proceeding commenced by or against any Person under any provision of
the Bankruptcy Code (Chapter 11 of Title 11 of the United States Code) or
under any other bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, or extensions generally
with creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.

 

“Intellectual Property”
means the Copyrights, Trademarks and Patents.

 

“Licenses” means the
Copyright Licenses, the Trademark Licenses and the Patent Licenses.

 

“Lien” means any mortgage,
deed of trust, pledge, lien (statutory or otherwise), security interest, charge
or other encumbrance or security or preferential arrangement of any nature,
including, without limitation, any conditional sale or title retention
arrangement, any capitalized lease and any assignment, deposit arrangement or
financing lease intended as, or having the effect of, security.

 

“Patent Licenses” means
all licenses, contracts or other agreements, whether written or oral, naming
any Grantor as licensee or licensor and providing for the grant of any right to
manufacture, use or sell any invention covered by any Patent (including,
without limitation, all Patent Licenses  set
forth in Schedule II hereto).

 

“Patents” means all
domestic and foreign letters patent, design patents, utility patents,
industrial designs, inventions, trade secrets, ideas, concepts, methods,
techniques, processes, proprietary information, technology, know-how, formulae,
rights of publicity and other general intangibles of like nature, now existing
or hereafter acquired (including, without limitation, all domestic and foreign
letters patent, design patents, utility patents, industrial designs,
inventions, trade secrets, ideas, concepts, methods, techniques, processes,
proprietary information, technology, know-how and formulae described in Schedule
II hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Patent and Trademark Office, or in any similar office or
agency of the United States or any other country or any political subdivision
thereof), and all reissues, divisions, continuations, continuations in part and
extensions or renewals thereof.

 

“Trademark Licenses” means
all licenses, contracts or other agreements, whether written or oral, naming
any Grantor as licensor or licensee and providing for the grant of any right
concerning any Trademark, together with any goodwill connected with and
symbolized by any such trademark licenses, contracts or agreements and the
right to prepare for sale or lease and sell or lease any and all Inventory now
or hereafter owned by any Grantor and now or hereafter covered by such licenses
(including, without limitation, all Trademark Licenses  described in Schedule II hereto).

 

“Trademarks” means all
domestic and foreign trademarks, service marks, collective marks, certification
marks, trade names, business names, d/b/a’s, Internet domain names, trade
styles, designs, logos and other source or business identifiers and all general

 

3

 

intangibles of like nature, now
or hereafter owned, adopted, acquired or used by any Grantor (including,
without limitation, all domestic and foreign trademarks, service marks,
collective marks, certification marks, trade names, business names, d/b/a’s,
Internet domain names, trade styles, designs, logos and other source or
business identifiers described in Schedule II hereto), all applications,
registrations and recordings thereof (including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
state thereof or any other country or any political subdivision thereof), and
all reissues, extensions or renewals thereof, together with all goodwill of the
business symbolized by such marks and all customer lists, formulae and other
Records of any Grantor relating to the distribution of products and services in
connection with which any of such marks are used.

 

SECTION 2.                                Grant
of Security Interest.  As collateral
security for all of the “Obligations” (as defined in Section 3 hereof),
each Grantor hereby pledges and assigns to the Collateral Agent for the benefit
of the Buyers, and grants to the Collateral Agent for the benefit of the Buyers
a continuing security interest in, all personal property of such Grantor,
wherever located and whether now or hereafter existing and whether now owned or
hereafter acquired, of every kind and description, tangible or intangible
(collectively, the “Collateral”),
including, without limitation, the following:

 

(a)                                  all
Accounts;

 

(b)                                 all
Chattel Paper (whether tangible or electronic);

 

(c)                                  the
Commercial Tort Claims specified on Schedule VI hereto;

 

(d)                                 all
Deposit Accounts (including, without limitation, all cash, and all other property
from time to time deposited therein and the monies and property in the
possession or under the control of the Collateral Agent or Buyer or any
affiliate, representative, agent or correspondent of the Collateral Agent or
Buyer;

 

(e)                                  all
Documents;

 

(f)                                    all
Equipment;

 

(g)                                 all
Fixtures;

 

(h)                                 all
General Intangibles (including, without limitation, all Payment Intangibles);

 

(i)                                     all
Goods;

 

(j)                                     all
Instruments (including, without limitation, Promissory Notes and each
certificated Security);

 

(k)                                  all
Inventory;

 

(l)                                     all
Investment Property;

 

4

 

(m)                               all
Copyrights, Patents and Trademarks, and all Licenses;

 

(n)                                 all
Letter-of-Credit Rights;

 

(o)                                 all
Supporting Obligations;

 

(p)                                 all
other tangible and intangible personal property of such Grantor (whether or not
subject to the Code), including, without limitation, all bank and other
accounts and all cash and all investments therein, all proceeds, products,
offspring, accessions, rents, profits, income, benefits, substitutions and
replacements of and to any of the property of such Grantor described in the
preceding clauses of this Section 2 (including, without limitation, any
proceeds of insurance thereon and all causes of action, claims and warranties
now or hereafter held by such Grantor in respect of any of the items listed
above), and all books, correspondence, files and other Records, including,
without limitation, all tapes, desks, cards, Software, data and computer
programs in the possession or under the control of such Grantor or any other
Person from time to time acting for such Grantor that at any time evidence or
contain information relating to any of the property described in the preceding
clauses of this Section 2 or are otherwise necessary or helpful in the
collection or realization thereof; and

 

(q)                                 
all Proceeds, including all Cash Proceeds and Noncash Proceeds, and products of
any and all of the foregoing Collateral;

in each case howsoever such Grantor’s
interest therein may arise or appear (whether by ownership, security interest,
claim or otherwise).

 

Notwithstanding the foregoing, “Collateral” shall not include:  (1) any such property that is nonassignable
by its terms without the consent of the licensor thereof or another party (but
only to the extent such prohibition on transfer is enforceable under applicable
law, including, without limitation, Sections 9-406 and 9-408 of the Code); (2)
any intent to use any Trademark application at the U.S. Patent and Trademark
Office (the “PTO”) prior to the filing with the PTO of a Statement of
Use with respect to such application; (3) any governmental permit or franchise
that prohibits Liens on or collateral assignments of such permit or franchise,
or (4) any shares of capital stock or other equity interests issued by any
foreign Subsidiary, other than those shares of capital stock or other equity
interests now or hereafter issued by (x) any of the Existing Subsidiaries, and
(y) any other foreign Subsidiary that shall, at any time, be or become a
material foreign Subsidiary.

 

SECTION 3.                                Security
for Obligations.  The security
interest created hereby in the Collateral constitutes continuing collateral
security for all of the following obligations, whether now existing or
hereafter incurred (collectively, the “Obligations”):

 

(a)                                  (i)
the payment by BVI, as and when due and payable (by scheduled maturity,
required prepayment, acceleration, demand or otherwise), of all amounts from
time to time owing by it in respect of the Securities Purchase Agreement, the
Notes and the other “Transaction Documents” (as defined in the Securities
Purchase Agreement), and (ii) the payment by each of the Existing Subsidiaries
and each other Grantor other than BVI as and when due and payable of all
“Guaranteed Obligations” under (as defined in) the Guaranty, including,

 

5

 

without limitation, (A) all principal of and
interest on the Notes (including, without limitation, all interest that accrues
after the commencement of any Insolvency Proceeding of any Grantor, whether or
not the payment of such interest is unenforceable or is not allowable due to
the existence of such Insolvency Proceeding), and (B) all fees, commissions,
expense reimbursements, indemnifications and all other amounts due or to become
due under any of the Transaction Documents; and

 

(b)                                 the
due performance and observance by each Grantor of all of its other obligations
from time to time existing in respect of any of the Transaction Documents for
so long as the Notes are outstanding.

 

SECTION 4.                                Representations
and Warranties.  Each Grantor
represents and warrants as follows:

 

(a)                                  Schedule
I hereto sets forth (i) the exact legal name of such Grantor, and (ii) the
organizational identification number of such Grantor or states that no such
organizational identification number exists.

 

(b)                                 There
is no pending or written notice threatening any action, suit, proceeding or
claim affecting such Grantor before any governmental authority or any
arbitrator, or any order, judgment or award by any governmental authority or
arbitrator, that may adversely affect the grant by such Grantor, or the
perfection, of the security interest purported to be created hereby in the
Collateral, or the exercise by the Collateral Agent of any of its rights or remedies
hereunder.

 

(c)                                  All
Federal, state and local tax returns and other reports required by applicable
law to be filed by such Grantor have been filed, or extensions have been
obtained, and all taxes, assessments and other governmental charges imposed upon
such Grantor or any property of such Grantor (including, without limitation,
all federal income and social security taxes on employees’ wages) and which
have become due and payable on or prior to the date hereof have been paid,
except to the extent contested in good faith by proper proceedings which stay
the imposition of any penalty, fine or Lien resulting from the non-payment
thereof and with respect to which adequate reserves have been set aside for the
payment thereof in accordance with generally accepted accounting principles
consistently applied (“GAAP”).

 

(d)                                 All
Equipment, Fixtures, Goods and Inventory of such Grantor now existing are, and
all Equipment, Fixtures, Goods and Inventory of such Grantor hereafter existing
will be, located and/or based at the addresses specified therefor in Schedule
III hereto, except that such Grantor will give the Collateral Agent not
less than 30 days’ prior written notice of any change of the location of any
such Collateral, other than to locations set forth on Schedule III and
with respect to which the Collateral Agent has filed financing statements and
otherwise fully perfected its Liens thereon. 
Such Grantor’s chief place of business and chief executive office, the
place where such Grantor keeps its Records concerning Accounts and all
originals of all Chattel Paper are located at the addresses specified therefor
in Schedule III hereto.  None of
the Accounts is evidenced by Promissory Notes or other Instruments.  Set forth in Schedule IV hereto is a
complete and accurate list, as of the date of this Agreement, of (i) each
Promissory Note, Security and other Instrument owned by each Grantor and (ii)
each Deposit Account,

 

6

 

Securities Account and Commodities Account of
each Grantor, together with the name and address of each institution at which
each such Account is maintained, the account number for each such Account and a
description of the purpose of each such Account.  Set forth in Schedule III hereto is a
complete and correct list of each trade name used by each Grantor and the name
of, and each trade name used by, each person from which such Grantor has
acquired any substantial part of the Collateral.

 

(e)                                  Such
Grantor has delivered to the Collateral Agent complete and correct copies of
each License, if any, described in Schedule II hereto, including all
schedules and exhibits thereto, which represents all of the material Licenses
existing on the date of this Agreement. 
Each such License sets forth the entire agreement and understanding of
the parties thereto relating to the subject matter thereof, and there are no
other agreements, arrangements or understandings, written or oral, relating to
the matters covered thereby or the rights of such Grantor or any of its affiliates
in respect thereof.  Each material
License now existing is, and any material License entered into in the future
will be, the legal, valid and binding obligation of the parties thereto,
enforceable against such parties in accordance with its terms.  No default under any material License by any
such party has occurred, nor does any defense, offset, deduction or
counterclaim exist thereunder in favor of any such party.

 

(f)                                    Such
Grantor owns and controls, or otherwise possesses adequate rights to use, all
material Trademarks, Patents and Copyrights, which are the only trademarks,
patents, copyrights, inventions, trade secrets, proprietary information and
technology, know-how, formulae, rights of publicity necessary to conduct its
business in substantially the same manner as conducted as of the date
hereof.  Schedule II hereto sets
forth a true and complete list of all registered copyrights, issued patents,
Trademarks and Licenses annually owned or used by such Grantor as of the date
hereof.  To the best knowledge of each
Grantor, all such scheduled Intellectual Property of such Guarantor is
subsisting and in full force and effect, has not been adjudged invalid or
unenforceable, is valid and enforceable and has not been abandoned in whole or
in part.  Except as set forth in Schedule
II, no such scheduled Intellectual Property is the subject of any licensing
or franchising agreement.  Such Grantor
has no knowledge of any conflict with the rights of others to any Intellectual
Property and, to the best knowledge of such Grantor, such Grantor is not now
infringing or in conflict with any such rights of others in any material
respect, and to the best knowledge of such Grantor, no other Person is now
infringing or in conflict in any material respect with any such properties,
assets and rights owned or used by such Grantor.  Such Grantor has not received any notice that
it is violating or has violated the trademarks, patents, copyrights,
inventions, trade secrets, proprietary information and technology, know-how,
formulae, rights of publicity or other Intellectual Property rights of any
third party.

 

(g)                                 Such
Grantor is and will be at all times the owner of, or otherwise has and will
have adequate rights in, the Collateral free and clear of any Liens, except for
Permitted Liens on any Collateral.  No
effective financing statement or other instrument similar in effect covering
all or any part of the Collateral is on file in any recording or filing office
except (A) such as may have been filed in favor of the Collateral Agent
relating to this Agreement, and (B) such as may have been filed to perfect
any Liens with respect to Senior Indebtedness.

 

7

 

(h)                                 The
exercise by the Collateral Agent of any of its rights and remedies hereunder
will not contravene any material law or any material contractual restriction
binding on or otherwise affecting such Grantor or any of its properties and
will not result in or require the creation of any Lien, upon or with respect to
any of its properties.

 

(i)                                     Under
the laws applicable in the United States, no authorization or approval or other
action by, and no notice to or filing with, any governmental authority or other
regulatory body or any other Person, is required for (i) the grant by such
Grantor, or the perfection, of the security interest purported to be created
hereby in the Collateral, or (ii) the exercise by the Collateral Agent of
any of its rights and remedies hereunder, except (A) for the filing under
the Uniform Commercial Code as in effect in the applicable jurisdiction of the
financing statements, all of which financing statements, have been duly filed
and are in full force and effect, (B) with respect to the perfection of
the security interest created hereby in the Intellectual Property, for the
recording of the appropriate Assignment for Security with respect to registered
Copyrights, if any, substantially in the form of Exhibit A hereto, in
the United States Copyright Office, as applicable, and (C) with respect to
the perfection of the security interest created hereby in foreign Intellectual
Property and Licenses, for registrations and filings in jurisdictions located
outside of the United States and covering rights in such jurisdictions relating
to the Intellectual Property and Licenses.

 

(j)                                     Under
the laws applicable in the United States, this Agreement creates in favor of
the Collateral Agent a legal, valid and enforceable security interest in the
Collateral, as security for the Obligations. 
The Collateral Agent’s having possession of all Instruments and cash
constituting Collateral from time to time, the recording of the appropriate
Assignment for Security executed pursuant hereto in the United States Patent
and Trademark Office and the United States Copyright Office, as applicable, and
the filing of the financing statements and the other filings and recordings, as
applicable, described in Schedule V hereto and, with respect to the
Intellectual Property hereafter existing and not covered by an appropriate
Assignment for Security, the recording in the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, of
appropriate instruments of assignment, result in the perfection of such
security interests.  Such security
interests are, or in the case of Collateral in which such Grantor obtains
rights after the date hereof, will be, perfected, first priority security
interests, subject only to Permitted Liens and the recording of such
instruments of assignment.  Such
recordings and filings and all other action necessary or desirable to perfect
and protect such security interest have been duly taken, except for the
Collateral Agent’s having possession of Instruments and cash constituting
Collateral after the date hereof and the other filings and recordations
described in Section 4(i) hereof.

 

(k)                                  As
of the date hereof, such Grantor does not hold any Commercial Tort Claims nor
is aware of any such pending claims, except for such claims described in Schedule
VI.

 

(l)                                     Each
of the Existing Subsidiaries is a wholly-owned Subsidiary of BVI and are the
only material foreign Subsidiaries of BVI, as of the date hereof, and each of
BVI’s domestic Subsidiaries in existence as of the date hereof are inactive and
have no assets, operations or income.

 

8

 

(m)                               No
Grantor owns any individual motor vehicle having an original purchase price of
$50,000 or more, and the aggregate purchase price of all motor vehicles owned
by all of the Grantors is less than $250,000.

 

SECTION 5.                                Covenants
as to the Collateral.  So long as any
of the Obligations shall remain outstanding, unless the Collateral Agent shall
otherwise consent in writing:

 

(a)                                  Further
Assurances.  Each Grantor will at its
expense, at any time and from time to time, promptly execute and deliver all
further instruments and documents and take all further action that the
Collateral Agent may reasonably request in order to:  (i) perfect and protect any domestic or
material foreign security interest purported to be created hereby under United
States law or the laws of any other applicable jurisdiction, including (without
limitation) providing applicable opinions of counsel; (ii) enable the
Collateral Agent to exercise and enforce its rights and remedies hereunder in
respect of any domestic or material foreign Collateral; or (iii) otherwise
effect the purposes of this Agreement, including, without limitation:  (A) marking conspicuously all Chattel
Paper and each License and, at the request of the Collateral Agent, each of its
Records pertaining to any domestic or material foreign Collateral with a
legend, in form and substance satisfactory to the Collateral Agent, indicating
that such Chattel Paper, License or Collateral is subject to the security
interest created hereby, (B)  delivering and pledging to the Collateral
Agent hereunder each Promissory Note, Security, Chattel Paper or other
Instrument constituting domestic or material foreign Collateral, now or
hereafter owned by such Grantor, duly endorsed and accompanied by executed
instruments of transfer or assignment, all in form and substance satisfactory
to the Collateral Agent, (C) executing and filing (to the extent, if any,
that such Grantor’s signature is required thereon) or authenticating the filing
of, such financing or continuation statements, or amendments thereto, as may be
necessary or desirable or that the Collateral Agent may request in order to
perfect and preserve the security interest in any domestic or material foreign
Collateral purported to be created hereby, (D) furnishing to the
Collateral Agent from time to time statements and schedules further identifying
and describing the Collateral and such other reports in connection with any
domestic or material foreign Collateral, in each case as the Collateral Agent
may reasonably request, all in reasonable detail, (E) if any Inventory
constituting domestic or material foreign Collateral shall be in the possession
of a third party, notifying such Person of the Collateral Agent’s security
interest created hereby and obtaining a written acknowledgment from such Person
that such Person holds possession of such Collateral  for the benefit of the Collateral Agent, which such written
acknowledgement shall be in form and substance reasonably satisfactory to the
Collateral Agent, (F) if at any time after the date hereof, such Grantor
acquires or holds any Commercial Tort Claim constituting domestic or material
foreign Collateral, promptly notifying the Collateral Agent in a writing signed
by such Grantor setting forth a brief description of such Commercial Tort Claim
and granting to the Collateral Agent a security interest therein and in the
proceeds thereof, which writing shall incorporate the provisions hereof and
shall be in form and substance satisfactory to the Collateral Agent, (G) upon
the acquisition after the date hereof by such Grantor of any motor vehicle or
other Equipment constituting domestic or material foreign Collateral with a
purchase price of $50,000 or more subject to a certificate of title or
ownership (other than a motor vehicle or Equipment that is subject to a
purchase money security interest), notifying the Collateral Agent promptly
thereof and, upon the Collateral Agent’s request, causing the Collateral Agent
to be listed as the lienholder on such certificate of title or ownership and
delivering evidence of the same to the Collateral Agent in accordance with the
Securities

 

9

 

Purchase Agreement, and (H) taking all
actions required by any earlier versions of the Uniform Commercial Code or by
other law, as applicable, in any relevant Uniform Commercial Code jurisdiction,
or by other law as applicable in any foreign jurisdiction with respect to any
and all domestic or material foreign Collateral.

 

(b)                                 Location
of Equipment and Inventory.  Each
Grantor will keep the Equipment and Inventory at the locations specified
therefor in Section 4(d) hereof or, upon not less than thirty (30)
days’ prior written notice to the Collateral Agent accompanied by a new Schedule
III hereto indicating each new location of the Equipment and Inventory, at
such other locations in the United States.

 

(c)                                  Condition
of Equipment.  Each Grantor will
maintain or cause the Equipment (necessary or useful to its business) to be
maintained and preserved in good condition, repair and working order, ordinary
wear and tear excepted, and will forthwith, or in the case of any loss or
damage to any Equipment of such Guarantor within a commercially reasonable time
after the occurrence thereof, make or cause to be made all repairs,
replacements and other improvements in connection therewith which are necessary
or desirable, consistent with past practice, or which the Collateral Agent may
request to such end.  Such Grantor will
promptly furnish to the Collateral Agent a statement describing in reasonable
detail any such loss or damage in excess of $250,000 to any Equipment.

 

(d)                                 Taxes,
Etc.  Each Grantor agrees to pay
promptly when due all property and other taxes, assessments and governmental
charges or levies imposed upon, and all claims (including claims for labor,
materials and supplies) against, the Equipment and Inventory, except to the
extent the validity thereof is being contested in good faith by proper
proceedings which stay the imposition of any penalty, fine or Lien resulting
from the non-payment thereof and with respect to which adequate reserves in
accordance with GAAP have been set aside for the payment thereof.

 

(e)                                  Insurance.

 

(i)                                     Each
Grantor will, at its own expense, maintain insurance (including, without
limitation, commercial general liability and property insurance) with respect
to the Equipment and Inventory in such amounts, against such risks, in such
form and with responsible and reputable insurance companies or associations as
is required by any governmental authority having jurisdiction with respect
thereto or as is carried generally in accordance with sound business practice
by companies in similar businesses similarly situated and in any event, in
amount, adequacy and scope reasonably satisfactory to the Collateral
Agent.  Each such policy for liability
insurance shall provide for all losses to be paid on behalf of the Collateral
Agent and such Grantor as their respective interests may appear, and each
policy for property damage insurance shall provide for all losses to be
adjusted with, and paid directly to, the Collateral Agent.  Each such policy shall in addition (A) name
the Collateral Agent as an additional insured party thereunder (without any
representation or warranty by or obligation upon the Collateral Agent) as their
interests may appear, (B) contain an agreement by the insurer that any loss
thereunder shall be payable to the Collateral Agent on its own account during
the continuance of an Event of Default, notwithstanding any action, inaction or
breach of representation or warranty by such Grantor, (C) provide that there
shall be no recourse against

 

10

 

the Collateral Agent for payment of premiums
or other amounts with respect thereto, and (D) provide that at least 30 days’
prior written notice of cancellation, lapse, expiration or other adverse change
shall be given to the Collateral Agent by the insurer.  Such Grantor will, if so requested by the
Collateral Agent, deliver to the Collateral Agent original or duplicate
policies of such insurance and, as often as the Collateral Agent may reasonably
request, a report of a reputable insurance broker with respect to such
insurance.  Such Grantor will also, at
the request of the Collateral Agent, execute and deliver instruments of
assignment of such insurance policies and cause the respective insurers to
acknowledge notice of such assignment.

 

(ii)                                  Reimbursement
under any liability insurance maintained by a Grantor pursuant to this Section
5(e) may be paid directly to the Person who shall have incurred liability
covered by such insurance.  In the case
of any loss involving damage to Equipment or Inventory, any proceeds of
insurance maintained by a Grantor pursuant to this Section 5(e) shall be
paid to the Collateral Agent (except as to which paragraph (iii) of this Section
5(e) is not applicable), such Grantor will make or cause to be made the
necessary repairs to or replacements of such Equipment or Inventory, and any
proceeds of insurance maintained by such Grantor pursuant to this Section
5(e) shall be paid by the Collateral Agent to such Grantor as reimbursement
for the costs of such repairs or replacements.

 

(iii)                               Upon
the occurrence and during the continuance of an Event of Default, all insurance
payments in respect of such Equipment or Inventory shall be paid to the
Collateral Agent and applied as specified in Section 7(b) hereof.

 

(f)                                    Provisions
Concerning the Accounts and the Licenses.

 

(i)                                     Each
Grantor will (A) give the Collateral Agent at least 30 days’ prior written
notice of any change in such Grantor’s name, identity or organizational
structure, or its jurisdiction of incorporation as set forth in Section 4(b)
hereto, (B) immediately notify the Collateral Agent upon obtaining an
organizational identification number, if on the date hereof such Grantor did
not have such identification number, and (C) keep adequate records concerning
the Accounts and Chattel Paper and permit representatives of the Collateral
Agent during normal business hours on reasonable notice to such Grantor, to
inspect and make abstracts from such Records and Chattel Paper.

 

(ii)                                  Each
Grantor will, except as otherwise provided in this subsection (f),
continue to collect, at its own expense, all amounts due or to become due under
the Accounts.  In connection with such
collections, such Grantor may (and, during the continuance of an Event of
Default, at the Collateral Agent’s direction, will) take such action as such Grantor
or the Collateral Agent may deem necessary or advisable to enforce collection
or performance of the Accounts; provided, however, that the
Collateral Agent shall have the right at any time, upon the occurrence and
during the continuance of an Event of Default, to notify the account debtors or
obligors under any Accounts of the assignment of such Accounts to the
Collateral Agent and to direct such account debtors or obligors to make payment
of all amounts due or to become due to such Grantor thereunder directly to the
Collateral Agent or its designated agent and, upon such notification and at the
expense of such Grantor and to the extent permitted by law, to enforce
collection of any such Accounts and to adjust, settle or compromise the amount
or payment thereof, in the same manner and to the same extent as such Grantor
might

 

11

 

have done. 
After receipt by a Grantor of a notice from the Collateral Agent that
the Collateral Agent has notified, intends to notify, or has enforced or
intends to enforce a Grantor’s rights against the account debtors or obligors
under any Accounts as referred to in the proviso to the immediately preceding
sentence, (A) all amounts and proceeds (including Instruments) received by
such Grantor in respect of the Accounts shall be received in trust for the
benefit of the Collateral Agent hereunder, shall be segregated from other funds
of such Grantor and shall be forthwith paid over to the Collateral Agent in the
same form as so received (with any necessary endorsement) to be held as cash
collateral and applied as specified in Section 7(b) hereof, and (B) such
Grantor will not adjust, settle or compromise the amount or payment of any
Account or release wholly or partly any account debtor or obligor thereof or
allow any credit or discount thereon.  In
addition, upon the occurrence and during the continuance of an Event of
Default, the Collateral Agent may (in its sole and absolute discretion) direct
any or all of the banks and financial institutions with which such Grantor either
maintains a Deposit Account or a lockbox or deposits the proceeds of any
Accounts to send immediately to the Collateral Agent by wire transfer (to such
account as the Collateral Agent shall specify, or in such other manner as the
Collateral Agent shall direct) all or a portion of such securities, cash,
investments and other items held by such institution.  Any such securities, cash, investments and
other items so received by the Collateral Agent shall (in the sole and absolute
discretion of the Collateral Agent) be held as additional Collateral for the
Obligations or distributed in accordance with Section 7 hereof.

 

(iii)                               Upon
the occurrence and during the continuance of any breach or default under any
material License referred to in Schedule II hereto by any party thereto
other than a Grantor, the Grantor party thereto will, promptly after obtaining
knowledge thereof, give the Collateral Agent written notice of the nature and
duration thereof, specifying what action, if any, it has taken and proposes to
take with respect thereto and thereafter will take reasonable steps to protect
and preserve its rights and remedies in respect of such breach or default, or
will obtain or acquire an appropriate substitute License.

 

(iv)                              During
the continuance of an Event of Default, each Grantor will, at its expense,
promptly deliver to the Collateral Agent a copy of each notice or other
communication received by it by which any other party to any material License
referred to in Schedule II hereto purports to exercise any of its rights
or affect any of its obligations thereunder, together with a copy of any reply
by such Grantor thereto.

 

(v)                                 Each
Grantor will exercise promptly and diligently each and every right which it may
have under each material License (other than any right of termination) and will
duly perform and observe in all respects all of its obligations under each
material License and will take all action reasonably necessary to maintain such
Licenses in full force and effect. 
During the continuance of an Event of Default, no Grantor will, without
the prior written consent of the Collateral Agent, cancel, terminate, amend or
otherwise modify in any respect, or waive any provision of, any material
License referred to in Schedule II hereto.

 

(g)                                 Transfers
and Other Liens.

 

(i)                                     No
Grantor will sell, assign (by operation of law or otherwise), lease, license,
exchange or otherwise transfer or dispose of any of the Collateral, except (A)
Inventory in the ordinary course of business, (B) licenses and similar arrangements
for the use of

 

12

 

property in the ordinary course of business,
and (C) worn-out or obsolete assets not necessary to the business.

 

(ii)                                  No
Grantor will create, suffer to exist or grant any Lien upon or with respect to
any Collateral other than a Permitted Lien.

 

(h)                                 Intellectual
Property.

 

(i)                                     If
applicable, each Grantor shall, upon the Collateral Agent’s reasonable written
request, duly execute and delivered the applicable Assignment for Security in
the form attached hereto as Exhibit A.  Each Grantor (either itself or through
licensees) will, and will cause each licensee thereof to, take all action reasonably
necessary to maintain all of the
Intellectual Property in full force and effect, including, without limitation,
using the proper statutory notices and markings and using the Trademarks on
each applicable trademark class of goods in order to so maintain the Trademarks
in full force and free from any claim of abandonment for non-use, and such
Grantor will not (nor permit any licensee thereof to) do any act or knowingly
omit to do any act whereby any Intellectual Property may become invalidated; provided,
however, that so long as no Event of Default has occurred and is
continuing, such Grantor shall not have an obligation to use or to maintain any
Intellectual Property (A) that relates solely to any product or work, that
has been, or is in the process of being, discontinued, abandoned or terminated,
(B) that is being replaced with Intellectual Property substantially similar to
the Intellectual Property that may be abandoned or otherwise become invalid, so
long as the failure to use or maintain such Intellectual Property does not
materially adversely affect the validity of such replacement Intellectual Property
and so long as such replacement Intellectual Property is subject to the Lien
created by this Agreement or (C) that is substantially the same as another
Intellectual Property that is in full force, so long the failure to use or
maintain such Intellectual Property does not materially adversely affect the
validity of such replacement Intellectual Property and so long as such other
Intellectual Property is subject to the Lien and security interest created by
this Agreement.  Each Grantor will cause to be taken all necessary steps
in any proceeding before the United States Patent and Trademark Office and the
United States Copyright Office or any similar office or agency in any other
country or political subdivision thereof to maintain each registration of the
Intellectual Property (other than the Intellectual Property described in the
proviso to the immediately preceding sentence), including, without limitation,
filing of renewals, affidavits of use, affidavits of incontestability and
opposition, interference and cancellation proceedings and payment of
maintenance fees, filing fees, taxes or other governmental fees.  If any Intellectual Property (other than
Intellectual Property described in the proviso to the first sentence of
subsection (i) of this clause (h)) is infringed, misappropriated, diluted or
otherwise violated in any material respect by a third party, such Grantor shall
(x) upon learning of such infringement, misappropriation, dilution or other
violation, promptly notify the Collateral Agent, and (y) to the extent such
Grantor shall reasonably deem
appropriate under the circumstances, promptly sue for infringement,
misappropriation, dilution or other violation, seek injunctive relief where
appropriate and recover any and all damages for such infringement,
misappropriation, dilution or other violation, or take such other actions as
such Grantor shall reasonably deem
appropriate under the circumstances to protect such Intellectual Property.  Each Grantor
shall furnish to the Collateral Agent from time to time upon its request
statements and schedules further identifying and describing the Intellectual
Property and Licenses and such other reports in connection with the
Intellectual Property and Licenses as the Collateral Agent may reasonably
request, all in reasonable detail and promptly

 

13

 

upon request of
the Collateral Agent, following receipt by the Collateral Agent of any such
statements, schedules or reports, such Grantor shall modify this Agreement by
amending Schedule II hereto, as the case may be, to include any
applications of any registered or material Intellectual Property and Licenses,
as the case may be, which becomes part of the Collateral under this Agreement
and shall execute and authenticate such documents and do such acts as shall be
necessary or, in the reasonable judgment
of the Collateral Agent, desirable to subject such Intellectual Property and
Licenses to the Lien and security interest created by this Agreement.  Notwithstanding anything herein to the
contrary, upon the occurrence and during the continuance of an Event of
Default, such Grantor may not abandon or otherwise permit any Intellectual
Property to become invalid without the prior written consent of the Collateral
Agent, and if any Intellectual Property is infringed, misappropriated, diluted
or otherwise violated in any material respect by a third party, such Grantor
will take such action as the Collateral Agent shall reasonably deem appropriate under the circumstances to protect
such Intellectual Property.

 

(ii)                                  In
no event shall a Grantor, either itself or through any agent, employee,
licensee or designee, file an application for the registration of any Trademark
(or any Statement of Use with respect to any intent to use any Trademark
application) or Copyright or the issuance of any Patent with the United States
Patent and Trademark Office or the United States Copyright Office, as
applicable, or in any similar office or agency of the United States or any
country or any political subdivision thereof unless it gives the Collateral
Agent prior written notice thereof.  Upon
request of the Collateral Agent, each Grantor shall execute, authenticate and
deliver any and all assignments, agreements, instruments, documents and papers
as the Collateral Agent may reasonably request to evidence the Collateral
Agent’s security interest hereunder in such Intellectual Property and the
General Intangibles of such Grantor relating thereto or represented thereby,
and such Grantor hereby appoints the Collateral Agent its attorney-in-fact to
execute and/or authenticate and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed, and
such power (being coupled with an interest) shall be irrevocable until the
indefeasible payment in full in cash of all of the Obligations in full and the
termination of each of the Transaction Documents.

 

(i)                                     Deposit,
Commodities and Securities Accounts. 
Upon the Collateral Agent’s reasonable written request each Grantor
shall use its reasonable best efforts to cause each bank and other financial
institution with an account referred to in Schedule IV hereto to execute
and deliver to the Collateral Agent a control agreement, in form and substance
reasonably satisfactory to the Collateral Agent, duly executed by such Grantor
and such bank or financial institution, or enter into other arrangements in
form and substance satisfactory to the Collateral Agent, pursuant to which such
institution shall irrevocably agree, inter  alia, that (i) it
will comply at any time with the instructions originated by the Collateral
Agent to such bank or financial institution directing the disposition of cash,
Commodity Contracts, securities, Investment Property and other items from time
to time credited to such account, without further consent of such Grantor,
which instructions the Collateral Agent will not give to such bank or other
financial institution in the absence of a continuing Event of Default,
(ii) all cash, Commodity Contracts, securities, Investment Property and
other items of such Grantor deposited with such institution shall be subject to
a perfected, first priority security interest in favor of the Collateral Agent,
subject to the Liens securing the Senior Indebtedness, (iii) any right of
set off, banker’s Lien or other similar Lien, security interest or encumbrance
shall be fully waived as against the Collateral Agent (except for customary
fees and/or the amount of any loss to such financial

 

14

 

institution or bank for the face amount of
check, draft, wire transfer or similar instrument), and (iv) upon receipt
of written notice from the Collateral Agent during the continuance of an Event
of Default, such bank or financial institution shall immediately send to the
Collateral Agent by wire transfer (to such account as the Collateral Agent
shall specify, or in such other manner as the Collateral Agent shall direct)
all such cash, the value of any Commodity Contracts, securities, Investment
Property and other items held by it. 
Without the prior written consent of the Collateral Agent, such Grantor
shall not make or maintain any Deposit Account, Commodity Account or Securities
Account except for the accounts set forth in Schedule IV hereto.  The provisions of this paragraph 5(i) shall
not apply to (i) Deposit Accounts for which the Collateral Agent is the
depositary, (ii) Deposit Accounts specially and exclusively used for payroll,
payroll taxes and other employee wage and benefit payments to or for the
benefit of a Grantor’s salaried employees, and (iii) any Deposit Account which
individually does not at any time have a balance of more than $1,000.

 

(j)                                     Motor
Vehicles.

 

(i)                                     Upon
the Collateral Agent’s written request, each Grantor shall deliver to the
Collateral Agent originals of the certificates of title or ownership for all
motor vehicles owned by it with the Collateral Agent listed as lienholder, for
the benefit of the Buyers with respect to (A) any such individual motor vehicle
having an original purchase price of 50,000 or more, or (B) all such motor
vehicles, if the aggregate purchase price thereof is $250,000 or more.

 

(ii)                                  Each
Grantor hereby appoints the Collateral Agent as its attorney-in-fact, effective
the date hereof and terminating upon the termination of this Agreement, for the
purpose of (A) executing on behalf of such Grantor title or ownership
applications for filing with appropriate state agencies to enable such motor
vehicles now owned or hereafter acquired by such Grantor to be retitled and the
Collateral Agent listed as lienholder thereof, (B) filing such applications
with such state agencies, and (C) executing such other documents and
instruments on behalf of, and taking such other action in the name of, such
Grantor as the Collateral Agent may deem necessary or advisable to accomplish
the purposes hereof (including, without limitation, for the purpose of creating
in favor of the Collateral Agent a perfected Lien on such motor vehicles and
exercising the rights and remedies of the Collateral Agent hereunder).  This appointment as attorney-in-fact is
coupled with an interest and is irrevocable until all of the Obligations are
indefeasibly paid in full in cash and after all Transaction Documents have been
terminated.

 

(iii)                               Any
certificates of title or ownership delivered pursuant to the terms hereof shall
be accompanied by odometer statements for each motor vehicle covered thereby.

 

(iv)                              So
long as no Event of Default shall have occurred and be continuing, upon the
request of such Grantor, the Collateral Agent shall execute and deliver to such
Grantor such instruments as such Grantor shall reasonably request to remove the
notation of the Collateral Agent as lienholder on any certificate of title for
any such motor vehicle; provided, however, that any such
instruments shall be delivered, and the release effective, only upon receipt by
the Collateral Agent of a certificate from such Grantor stating that such motor
vehicle

 

15

 

is to be sold or has suffered a casualty loss
(with title thereto passing to the casualty insurance company therefor in
settlement of the claim for such loss) and the amount that such Grantor will
receive as sale proceeds or insurance proceeds. 
Any proceeds of such sale or casualty loss shall be paid to the
Collateral Agent hereunder immediately upon receipt, to be applied to the
Obligations then outstanding.

 

(k)                                  Control.  Each Grantor hereby agrees to take any or all
action that may be necessary or desirable or that the Collateral Agent may
request in order for the Collateral Agent to obtain control in accordance with
Sections 9-105 — 9-107 of the Code with respect to the following
Collateral:  (i) Electronic Chattel
Paper, (ii) Investment Property, and (iii) Letter-of-Credit Rights.

 

(l)                                     Inspection
and Reporting.  Each Grantor shall
permit the Collateral Agent, or any agent or representatives thereof or such
professionals or other Persons as the Collateral Agent may designate, not more
than once a year in the absence of an Event of Default, (i) to examine and
make copies of and abstracts from such Grantor’s records and books of account,
(ii) to visit and inspect its properties, (iii) to verify materials,
leases, Instruments, Accounts, Inventory and other assets of such Grantor from
time to time, (iii) to conduct audits, physical counts, appraisals and/or
valuations, examinations at the locations of such Grantor.  Each Grantor shall also permit the Collateral
Agent, or any agent or representatives thereof or such professionals or other
Persons as the Collateral Agent may designate to discuss such Grantor’s
affairs, finances and accounts with any of its directors, officers, managerial
employees, independent accountants or any of its other representatives.

 

(m)                               Future
Subsidiaries.  If any of BVI’s
domestic Subsidiaries in existence as of the date hereof ever become active or
have assets, operations or income, or if BVI or any other Grantor shall
hereafter own, create or acquire any other domestic Subsidiary or material
foreign Subsidiary that is not a Grantor hereunder or a party to the Guaranty,
then, BVI or such other Grantor shall promptly notify the Collateral Agent
thereof and, upon the Collateral Agent’s request, BVI or such other such
Grantor shall cause such Subsidiary to become a party to the Guaranty as an
additional “Guarantor” thereunder and a party to this Agreement as an
additional “Grantor” hereunder, and to duly execute and/or deliver such
opinions of counsel and other documents, in form and substance reasonably
acceptable to the Collateral Agent, as the Collateral Agent shall reasonably
request with respect thereto. 

 

SECTION 6.                                Additional
Provisions Concerning the Collateral.

 

(a)                                  Each
Grantor hereby (i) authorizes the Collateral Agent to file one or more
Uniform Commercial Code financing or continuation statements, and amendments
thereto, relating to the Collateral and (ii) ratifies such authorization
to the extent that the Collateral Agent has filed any such financing or
continuation statements, or amendments thereto, prior to the date hereof.  A photocopy or other reproduction of this
Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.

 

(b)                                 Each
Grantor hereby irrevocably appoints the Collateral Agent as its
attorney-in-fact and proxy, with full authority in the place and stead of such
Grantor and in the name of

 

16

 

such Grantor or otherwise, from time to time
in the Collateral Agent’s discretion, so long as an Event of Default shall have
occurred and is continuing, to take any action and to execute any instrument
which the Collateral Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of such Grantor under Section
5 hereof), including, without limitation, (i) to obtain and adjust
insurance required to be paid to the Collateral Agent pursuant to Section
5(e) hereof, (ii) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become due
under or in respect of any Collateral, (iii) to receive, endorse, and collect
any drafts or other instruments, documents and chattel paper in connection with
clause (i) or (ii) above, (iv) to file any claims or take any action or
institute any proceedings which the Collateral Agent may deem necessary or
desirable for the collection of any Collateral or otherwise to enforce the
rights of the Collateral Agent and the Buyers with respect to any Collateral,
and (v) to execute assignments, licenses and other documents to enforce the
rights of the Collateral Agent and the Buyers with respect to any
Collateral.  This power is coupled with
an interest and is irrevocable until all of the Obligations are indefeasibly
paid in full in cash.

 

(c)                                  For
the purpose of enabling the Collateral Agent to exercise rights and remedies
hereunder, at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, and for no other purpose, each Grantor
hereby grants to the Collateral Agent, to the extent assignable, an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to such Grantor) to use, assign, license or sublicense any
Intellectual Property constituting Collateral now owned or hereafter acquired
by such Grantor, wherever the same may be located, including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or
printout thereof; provided  however, that the Collateral Agent
shall not use, assign, license or sublicense any such Intellectual Property
unless an Event of Default has occurred and is continuing.  Notwithstanding anything contained herein to
the contrary, but subject to the provisions of the Securities Purchase
Agreement that limit the right of such Grantor to dispose of its property and Section
5(h) hereof, so long as no Event of Default shall have occurred and be
continuing, such Grantor may exploit, use, enjoy, protect, license, sublicense,
assign, sell, dispose of or take other actions with respect to the Intellectual
Property in the ordinary course of its business.  In furtherance of the foregoing, unless an
Event of Default shall have occurred and be continuing, the Collateral Agent
shall from time to time, upon the request of a Grantor, execute and deliver any
instruments, certificates or other documents, in the form so requested, which
such Grantor shall have certified are appropriate (in such Grantor’s judgment)
to allow it to take any action permitted above (including relinquishment of the
license provided pursuant to this clause (c) as to any Intellectual Property).  Further, upon the indefeasible payment in
full in cash of all of the Obligations, the Collateral Agent (subject to Section
10(e) hereof) shall release and reassign to such Grantor all of the
Collateral Agent’s right, title and interest in and to the Intellectual
Property, and the Licenses, all without recourse, representation or warranty
whatsoever.  The exercise of rights and
remedies hereunder by the Collateral Agent shall not terminate the rights of
the holders of any licenses or sublicenses theretofore granted by such Grantor
in accordance with the second sentence of this clause (c).  Each Grantor hereby releases the Collateral
Agent from any claims, causes of action and demands at any time arising out of
or with respect to any actions taken or

 

17

 

omitted to be taken by the Collateral Agent
under the powers of attorney granted herein other than actions taken or omitted
to be taken through the Collateral Agent’s gross negligence or willful
misconduct, as determined by a final determination of a court of competent
jurisdiction.

 

(d)                                 If
a Grantor fails to perform any agreement contained herein, the Collateral Agent
may itself perform, or cause performance of, such agreement or obligation, in
the name of such Grantor or the Collateral Agent, and the expenses of the
Collateral Agent incurred in connection therewith shall be payable by such
Grantor pursuant to Section 8 hereof and shall be secured by the
Collateral.

 

(e)                                  The
powers conferred on the Collateral Agent hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise
any such powers.  Except for the safe
custody of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Collateral Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral.

 

(f)                                    Anything
herein to the contrary notwithstanding (i) each Grantor shall remain
liable under the Licenses and otherwise with respect to any of the Collateral
to the extent set forth therein to perform all of its obligations thereunder to
the same extent as if this Agreement had not been executed, (ii) the
exercise by the Collateral Agent of any of its rights hereunder shall not
release such Grantor from any of its obligations under the Licenses or
otherwise in respect of the Collateral, and (iii) the Collateral Agent
shall not have any obligation or liability by reason of this Agreement under
the Licenses or with respect to any of the other Collateral, nor shall the
Collateral Agent be obligated to perform any of the obligations or duties of
such Grantor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.

 

SECTION 7.                                Remedies
Upon Event of Default.  If any Event
of Default shall have occurred and be continuing:

 

(a)                                  The
Collateral Agent may exercise in respect of the Collateral, in addition to any
other rights and remedies provided for herein or otherwise available to it, all
of the rights and remedies of a secured party upon default under the Code
(whether or not the Code applies to the affected Collateral), and also may
(i) take absolute control of the Collateral, including, without
limitation, transfer into the Collateral Agent’s name or into the name of its
nominee or nominees (to the extent the Collateral Agent has not theretofore
done so) and thereafter receive, for the benefit of the Collateral Agent, all
payments made thereon, give all consents, waivers and ratifications in respect
thereof and otherwise act with respect thereto as though it were the outright
owner thereof, (ii) require each Grantor to, and each Grantor hereby
agrees that it will at its expense and upon request of the Collateral Agent
forthwith, assemble all or part of its respective Collateral as directed by the
Collateral Agent and make it available to the Collateral Agent at a place or
places to be designated by the Collateral Agent that is reasonably convenient
to both parties, and the Collateral Agent may enter into and occupy any
premises owned or leased by such Grantor where the Collateral or any part
thereof is located or assembled for a reasonable period in order to effectuate
the Collateral Agent’s rights and remedies hereunder or under law, without
obligation to such Grantor in respect of such occupation, and
(iii) without notice except as specified below and without any obligation
to prepare or process the Collateral

 

18

 

for sale, (A) sell the Collateral or any
part thereof in one or more parcels at public or private sale, at any of the
Collateral Agent’s offices or elsewhere, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the
Collateral Agent may deem commercially reasonable and/or (B) lease,
license or dispose of the Collateral or any part thereof upon such terms as the
Collateral Agent may deem commercially reasonable.  Each Grantor agrees that, to the extent
notice of sale or any other disposition of its respective Collateral shall be
required by law, at least ten (10) days’ notice to such Grantor of the time and
place of any public sale or the time after which any private sale or other
disposition of its respective Collateral is to be made shall constitute
reasonable notification.  The Collateral
Agent shall not be obligated to make any sale or other disposition of any
Collateral regardless of notice of sale having been given.  The Collateral Agent may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.  Each
Grantor hereby waives any claims against the Collateral Agent and the Buyers
arising by reason of the fact that the price at which its respective Collateral
may have been sold at a private sale was less than the price which might have
been obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Collateral Agent accepts the first offer received and
does not offer such Collateral to more than one offeree, and waives all rights
that such Grantor may have to require that all or any part of such Collateral be
marshalled upon any sale (public or private) thereof.  Each Grantor hereby acknowledges that
(i) any such sale of its respective Collateral by the Collateral Agent
shall be made without warranty, (ii) the Collateral Agent may specifically
disclaim any warranties of title, possession, quiet enjoyment or the like, and
(iii) such actions set forth in clauses (i) and (ii) above shall not
adversely effect the commercial reasonableness of any such sale of
Collateral.  In addition to the
foregoing, (1) upon written notice to any Grantor from the Collateral
Agent, such Grantor shall cease any use of the Intellectual Property or any
trademark, patent or copyright similar thereto for any purpose described in
such notice; (2) the Collateral Agent may, at any time and from time to time,
upon 10 days’ prior notice to such Grantor, license, whether general, special
or otherwise, and whether on an exclusive or non-exclusive basis, any of the
Intellectual Property, throughout the universe for such term or terms, on such
conditions, and in such manner, as the Collateral Agent shall in its sole
discretion determine; and (3) the Collateral Agent may, at any time, pursuant
to the authority granted in Section 6 hereof (such authority being
effective upon the occurrence and during the continuance of an Event of
Default), execute and deliver on behalf of such Grantor, one or more
instruments of assignment of the Intellectual Property (or any application or
registration thereof), in form suitable for filing, recording or registration
in any country.

 

(b)                                 Any
cash held by the Collateral Agent as Collateral and all Cash Proceeds received
by the Collateral Agent in respect of any sale of or collection from, or other
realization upon, all or any part of the Collateral may, in the discretion of
the Collateral Agent, be held by the Collateral Agent as collateral for, and/or
then or at any time thereafter applied (after payment of any amounts payable to
the Collateral Agent pursuant to Section 8 hereof) in whole or in part
by the Collateral Agent against, all or any part of the Obligations in such
order as the Collateral Agent shall elect, consistent with the provisions of
the Securities Purchase Agreement.  Any
surplus of such cash or Cash Proceeds held by the Collateral Agent and
remaining after the indefeasible payment in full in cash of all of the
Obligations shall be paid over to whomsoever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction shall direct.

 

19

 

(c)                                  In
the event that the proceeds of any such sale, collection or realization are
insufficient to pay all amounts to which the Collateral Agent and the Buyers
are legally entitled, such each shall be liable for the deficiency, together
with interest thereon at the highest rate specified in any of the applicable
Transaction Documents for interest on overdue principal thereof or such other
rate as shall be fixed by applicable law, together with the costs of collection
and the reasonable fees, costs, expenses and other client charges of any
attorneys employed by the Collateral Agent to collect such deficiency.

 

(d)                                 Each
Grantor hereby acknowledges that if the Collateral Agent complies with any
applicable state, provincial, or federal law requirements in connection with a
disposition of the Collateral, such compliance will not adversely affect the
commercial reasonableness of any sale or other disposition of the Collateral.

 

(e)                                  The
Collateral Agent shall not be required to marshal any present or future collateral
security (including, but not limited to, this Agreement and the Collateral)
for, or other assurances of payment of, the Obligations or any of them or to
resort to such collateral security or other assurances of payment in any
particular order, and all of the Collateral Agent’s rights hereunder and in
respect of such collateral security and other assurances of payment shall be
cumulative and in addition to all other rights, however existing or
arising.  To the extent that each Grantor
lawfully may, such Grantor hereby agrees that it will not invoke any law
relating to the marshalling of collateral which might cause delay in or impede
the enforcement of the Collateral Agent’s rights under this Agreement or under
any other instrument creating or evidencing any of the Obligations or under
which any of the Obligations is outstanding or by which any of the Obligations
is secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, such Grantor hereby irrevocably waives the benefits of all such
laws.

 

SECTION 8.                                Indemnity
and Expenses.

 

(a)                                  Each
Grantor agrees, jointly and severally, to defend, protect, indemnify and hold
the Collateral Agent and each of the Buyers, jointly and severally, harmless
from and against any and all claims, damages, losses, liabilities, obligations,
penalties, fees, costs and expenses (including, without limitation, reasonable
legal fees, costs, expenses, and disbursements of such Person’s counsel) to the
extent that they arise out of or otherwise result from this Agreement
(including, without limitation, enforcement of this Agreement), except claims,
losses or liabilities resulting solely and directly from such Person’s gross
negligence or willful misconduct, as determined by a final judgment of a court
of competent jurisdiction.

 

(b)                                 Each
Grantor agrees, jointly and severally, to upon demand pay to the Collateral
Agent the amount of any and all costs and expenses, including the reasonable
fees, costs, expenses and disbursements of counsel for the Collateral Agent and
of any experts and agents (including, without limitation, any collateral
trustee which may act as agent of the Collateral Agent), which the Collateral
Agent may incur in connection with (i) the preparation, negotiation,
execution, delivery, recordation, administration, amendment, waiver or other
modification or termination of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Collateral, (iii) the exercise or enforcement of any
of the rights of the Collateral Agent hereunder, or (iv) the failure by
any Grantor to perform or observe any of the provisions hereof.

 

20

 

SECTION 9.                                Notices,
Etc.  All notices and other communications
provided for hereunder shall be in writing and shall be mailed (by certified
mail, postage prepaid and return receipt requested), telecopied or delivered,
if to a Grantor at its address specified below and if to the Collateral Agent
to it, at its address specified below; or as to any such Person, at such other
address as shall be designated by such Person in a written notice to such other
Person complying as to delivery with the terms of this Section 9.  All such notices and other communications shall
be effective (a) if sent by certified mail, return receipt requested, when
received or three days after deposited in the mails, whichever occurs first,
(b) if telecopied, when transmitted (during normal business hours) and
confirmation is received, otherwise, the day after the notice was transmitted
if confirmation is received, or (c) if delivered, upon delivery.

 

SECTION 10.                          Miscellaneous.

 

(a)                                  No
amendment of any provision of this Agreement shall be effective unless it is in
writing and signed by each Grantor and the Collateral Agent, and no waiver of
any provision of this Agreement, and no consent to any departure by a Grantor
therefrom, shall be effective unless it is in writing and signed by the
Collateral Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.

 

(b)                                 No
failure on the part of the Collateral Agent to exercise, and no delay in
exercising, any right hereunder or under any of the other Transaction Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise
of any other right.  The rights and
remedies of the Collateral Agent or any Buyer provided herein and in the other
Transaction Documents are cumulative and are in addition to, and not exclusive
of, any rights or remedies provided by law. 
The rights of the Collateral Agent or any Buyer under any of the other
Transaction Documents against any party thereto are not conditional or
contingent on any attempt by such Person to exercise any of its rights under
any of the other Transaction Documents against such party or against any other
Person, including but not limited to, any Grantor.

 

(c)                                  Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
portions hereof or thereof or affecting the validity or enforceability of such
provision in any other jurisdiction.

 

(d)                                 This
Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until the indefeasible payment in
full in cash of the Obligations, and (ii) be binding on each Grantor and all
other Persons who become bound as debtor to this Agreement in accordance with
Section 9-203(d) of the Code and shall inure, together with all rights and
remedies of the Collateral Agent and the Buyers hereunder, to the benefit of
the Collateral Agent and the Buyers and their respective permitted successors,
transferees and assigns.  Without
limiting the generality of clause (ii) of the immediately preceding sentence,
without notice to any Grantor, the Collateral Agent and the Buyers

 

21

 

herein or otherwise.  Upon any such assignment or transfer, all
references in this Agreement to the Collateral Agent or any such Buyer shall
mean the assignee of the Collateral Agent or such Buyer.  None of the rights or obligations of any
Grantor hereunder may be assigned or otherwise transferred without the prior
written consent of the Collateral Agent, and any such assignment or transfer
without the consent of the Collateral Agent shall be null and void.

 

(e)                                  Upon the indefeasible payment in full in cash
of the Obligations, (i) this Agreement and the security interests created
hereby shall terminate and all rights to the Collateral shall revert to the
respective Grantor that granted such security interests hereunder, and (ii) the
Collateral Agent will, upon such Grantor’s request and at such Grantor’s
expense, (A) return to such Grantor such of the Collateral as shall not have
been sold or otherwise disposed of or applied pursuant to the terms hereof, and
(B) execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence such termination, all without any
representation, warranty or recourse whatsoever.

 

(f)                                    THIS AGREEMENT SHALL BE GOVERNED BY,
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT
THE VALIDITY AND PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER,
IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.

 

(g)                                 ANY LEGAL ACTION, SUIT OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY DOCUMENT RELATED THERETO MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR THE UNITED STATES
OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH GRANTOR HEREBY ACCEPTS
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. 
EACH GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM  NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS
TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY
THE COURT.

 

(h)                                 EACH GRANTOR AND (BY ITS ACCEPTANCE OF THE
BENEFITS OF THIS AGREEMENT) THE COLLATERAL AGENT WAIVES ANY RIGHT IT MAY HAVE
TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, VERBAL OR WRITTEN STATEMENT OR
OTHER ACTION OF THE PARTIES HERETO.

 

22

 

(i)                                     Each Grantor irrevocably consents to the service
of process of any of the aforesaid courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to such Grantor at
its address provided herein, such service to become effective 10 days after
such mailing.

 

(j)                                     Nothing contained herein shall affect the
right of the Collateral Agent to serve process in any other manner permitted by
law or commence legal proceedings or otherwise proceed against any Grantor or
any property of such Grantor in any other jurisdiction.

 

(k)                                  Each Grantor irrevocably and unconditionally
waives any right it may have to claim or recover in any legal action, suit or proceeding referred to in this Section any
special, exemplary, punitive or consequential damages.

 

(l)                                     Notwithstanding anything to the contrary
herein, BVI’s obligations hereunder and under the other Transaction Documents
are subject to the prior performance of any conflicting obligation under the
documents evidencing the Senior Indebtedness, to the extent that performance of
such obligation hereunder or thereunder would be precluded by BVI’s
satisfaction of the requirements under such document or the rights and
obligations of the parties under Subordination Agreement.

 

(m)                               Section headings herein are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.

 

(n)                                 This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which shall be deemed to be an original, but all of which taken together
constitute one in the same Agreement.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

23

 

IN WITNESS WHEREOF, each
Grantor has caused this Agreement to be executed and delivered by its officer
thereunto duly authorized, as of the date first above written.

 

	
   

  	
  BroadVision, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  	
  585 Broadway,

  Redwood City, CA 94063

  
					

 

[Signatures continued.]

 

 

	
   

  	
  BroadVision Italia SrL

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
						

 

	
   

  	
  BroadVision (U.K.) Ltd.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
						

 

	
   

  	
  BroadVision Japan K.K.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
						

 

[Signatures continued.]

 

 

ACCEPTED BY:

 

Portside
Growth & Opportunity Fund,

as Collateral Agent

 

 

	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
	
  Address:

  	
  c/o Ramius Capital Group,
  L.L.C.

  	
   

  
	
   

  	
  666 Third Avenue, 26th
  Floor

  	
   

  
	
   

  	
  New York, New York 10017

  	
   

  
	
   

  	
  Attention: Jeffrey Smith

  	
   

  
					

 

 

SCHEDULE
I

 

LEGAL NAMES; ORGANIZATIONAL
IDENTIFICATION NUMBERS; STATES OR JURISDICTION OF ORGANIZATION

 

I-1

 

SCHEDULE
II

 

BVI

 

INTELLECTUAL
PROPERTY AND LICENSES

 

II-1

 

EXISTING
SUBSIDIARIES

 

INTELLECTUAL
PROPERTY AND LICENSES

 

II-2

 

SCHEDULE
III

 

LOCATIONS OF BVI

 

	
  LOCATION

  	
   

  	
  Description of Location (State if Location

  
	
   

  	
   

  	
  (i) contains Rolling Stock, other Equipment,
  Fixtures,

  
	
   

  	
   

  	
  Goods or Inventory,

  
	
   

  	
   

  	
  (ii) is chief place of business and

  
	
   

  	
   

  	
  chief executive office, or

  
	
   

  	
   

  	
  (iii) contains Records concerning Accounts

  
	
   

  	
   

  	
  and originals of Chattel Paper)

  

 

III-1

 

LOCATIONS OF EXISTING SUBSIDIARIES

 

	
  LOCATION

  	
   

  	
  Description of Location
  (State if Location

  
	
   

  	
   

  	
  (i) contains Rolling
  Stock, other Equipment, Fixtures,

  
	
   

  	
   

  	
  Goods or Inventory,

  
	
   

  	
   

  	
  (ii) is chief place of
  business and

  
	
   

  	
   

  	
  chief executive office, or

  
	
   

  	
   

  	
  (iii) contains Records
  concerning Accounts

  
	
   

  	
   

  	
  and originals of
  Chattel Paper)

  

 

III-2

 

SCHEDULE
IV

 

PROMISSORY NOTES,
SECURITIES, DEPOSIT ACCOUNTS, SECURITIES
ACCOUNTS AND COMMODITIES ACCOUNTS

 

BVI

 

Promissory Notes:

 

 

 

Securities and Other
Instruments:

 

 

 

	
  Name
  and Address

  of Institution

  Maintaining Account

  	
   

  	
  Account Number

  	
   

  	
  Type of Account

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

IV-1

 

EXISTING
SUBSIDIARIES

 

Promissory Notes:

 

 

 

Securities and Other
Instruments:

 

 

 

	
  Name
  and Address

  of Institution

  Maintaining Account

  	
   

  	
  Account Number

  	
   

  	
  Type of Account

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

IV-2

 

SCHEDULE
V

 

BVI

 

UCC-1
FINANCING STATEMENTS

 

V-1

 

EXISTING
SUBSIDIARIES

 

UCC-1
FINANCING STATEMENTS

 

 

V-2

 

 

SCHEDULE
VI

 

BVI

 

COMMERCIAL
TORT CLAIMS

 

VI-1

 

EXISTING
SUBSIDIARIES

 

COMMERCIAL
TORT CLAIMS

 

 

VI-2

 

EXHIBIT
A

 

ASSIGNMENT
FOR SECURITY

 

[TRADEMARKS] [PATENTS] [COPYRIGHTS]

 

WHEREAS,                                                             
(the “Assignor”) [has adopted, used and is using, and holds all right,
title and interest in and to, the trademarks and service marks listed on the
annexed Schedule 1A, which trademarks and service marks are
registered or applied for in the United States Patent and Trademark Office (the
“Trademarks”)] [holds all right, title and interest in the letter
patents, design patents and utility patents listed on the annexed Schedule 1A,
which patents are issued or applied for in the United States Patent and
Trademark Office (the “Patents”)] [holds all right, title and interest
in the copyrights listed on the annexed Schedule 1A, which copyrights
are registered in the United States Copyright Office (the “Copyrights”)];

 

WHEREAS, the Assignor has
entered into a Security Agreement, dated as of                                 ,
2004 (as amended, restated or otherwise modified from time to time the “Security
Agreement”), in favor of Portside Growth & Opportunity Fund, as
collateral agent for certain purchasers (the “Assignee”);

 

WHEREAS, pursuant to the
Security Agreement, the Assignor has assigned to the Assignee and granted to
the Assignee for the benefit of the Buyers (as defined in the Security
Agreement) a continuing security interest in all right, title and interest of the
Assignor in, to and under the [Trademarks, together with, among other things,
the good-will of the business symbolized by the Trademarks] [Patents]
[Copyrights] and the applications and registrations thereof, and all proceeds
thereof, including, without limitation, any and all causes of action which may
exist by reason of infringement thereof and any and all damages arising from
past, present and future violations thereof (the “Collateral”), to
secure the payment, performance and observance of the “Obligations” (as defined
in the Security Agreement);

 

NOW, THEREFORE, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Assignor does hereby pledge, convey, sell, assign, transfer
and set over unto the Assignee and grants to the Assignee for the benefit of
the Buyers a continuing security interest in the Collateral to secure the
prompt payment, performance and for the benefit of the Buyers observance of the
Obligations.

 

The Assignor does hereby
further acknowledge and affirm that the rights and remedies of the Assignee
with respect to the Collateral are more fully set forth in the Security
Agreement, the terms and provisions of which are hereby incorporated herein by
reference as if fully set forth herein.

 

A-1

 

IN WITNESS WHEREOF, the
Assignor has caused this Assignment to be duly executed by its officer
thereunto duly authorized as of                           ,
20    

 

	
   

  	
  [GRANTOR]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

A-2

 

STATE OF                         

ss.:

COUNTY OF                     

 

On this         
day of                               ,
20    , before me personally came                                 ,
to me known to be the person who executed the foregoing instrument, and who,
being duly sworn by me, did depose and say that s/he is the                                 
of                                                                               ,
a                                         ,
and that s/he executed the foregoing instrument in the firm name of                                                                               ,
and that s/he had authority to sign the same, and s/he acknowledged to me that
he executed the same as the act and deed of said firm for the uses and purposes
therein mentioned.

 

A-3

 

SCHEDULE
1A TO ASSIGNMENT FOR SECURITY

 

 

[Trademarks
and Trademark Applications]

[Patent
and Patent Applications]

[Copyright
and Copyright Applications]

Owned
by                                                             

 

 

Exhibit G

 

SRZ DRAFT

11/08/04

 

GUARANTY

 

GUARANTY,
dated as of November        , 2004
(this “Guaranty”), made by each of the existing “Subsidiaries” (as
defined in the Securities Purchase Agreement defined below) of BroadVision, Inc., a Delaware corporation
(the “Parent” or “BVI”) named on the signature pages hereto
(collectively, the “Existing Subsidiaries”)
and each other Subsidiary of BVI hereafter becoming party hereto (together with
the Existing Subsidiaries, each (each,
a  ”Guarantor” and,
collectively, the “Guarantors”),
in favor of Portside Growth & Opportunity
Fund, a company organized under the laws of the Cayman Islands, in
its capacity as collateral agent (in such capacity, the ”Collateral Agent”) on behalf of the
“Buyers” (as defined below) party to the Securities Purchase Agreement, dated
as of even date herewith (as amended, restated or otherwise modified from time
to time, the “Securities Purchase Agreement”).

 

W  I  T  N
E  S  S  E  T  H :

 

WHEREAS, the
Parent and each party listed as a “Buyer” on the Schedule of Buyers attached
thereto are parties to a Securities Purchase Agreement;

 

WHEREAS, the
Parent and the Existing Subsidiaries have
each executed and delivered a Pledge and Security Agreement dated as of even
date herewith, in favor of the Collateral Agent (as amended, restated or
otherwise modified from time to time, the “Security
Agreement”);

 

WHEREAS, it is
a condition precedent to the Buyers’ obligation under the Securities Purchase
Agreement that each of the Existing Subsidiaries execute and deliver to the
Collateral Agent a guaranty guaranteeing all of the obligations of the Parent
thereunder, and that each future domestic Subsidiary or material foreign Subsidiary of the Parent become a party to
this Guaranty and the Security Agreement; and

 

WHEREAS, each
Guarantor has determined that its execution, delivery and performance of this
Guaranty directly benefit, and are within the corporate purposes and in the
best interests of, such Guarantor;

 

NOW,
THEREFORE, in consideration of the premises and the agreements herein and in
order to induce the Buyers to perform under the Securities Purchase Agreement,
each Guarantor hereby agrees with the Collateral Agent as follows:

 

SECTION 1.     Definitions.  Reference is hereby made to the Securities
Purchase Agreement and the “Notes” (as defined therein) issued pursuant thereto
(as such Notes may be amended, restated, replaced or otherwise modified from
time to time in accordance with the terms thereof, collectively, the “Notes”) for a statement of the terms
thereof.  All terms used in this
Guaranty, which are defined in the Security Agreement, the Securities Purchase
Agreement or the Notes and not otherwise defined herein, shall have the same
meanings herein as set forth therein.

 

 

SECTION 2.     Guaranty.  Each Guarantor hereby unconditionally and
irrevocably, jointly and severally, guarantees the punctual payment, as and when
due and payable, by stated maturity or otherwise, of all Obligations of the
Parent from time to time owing by it in respect of the Securities Purchase
Agreement, the Notes and the other “Transaction
Documents” (as defined in the Securities Purchase Agreement),
including, without limitation, all interest that accrues after the commencement
of any Insolvency Proceeding of the Parent or any Guarantor, whether or not the
payment of such interest is unenforceable or is not allowable due to the
existence of such Insolvency Proceeding), and all fees, commissions, expense
reimbursements, indemnifications and all other amounts due or to become due
under any of the Transaction Documents (such obligations, to the extent not
paid by the Parent, being the ”Guaranteed
Obligations”), and agrees to pay any and all expenses (including
reasonable counsel fees and expenses) reasonably incurred by the Collateral
Agent and the Buyers in enforcing any rights under this Guaranty.  Without limiting the generality of the
foregoing, each Guarantor’s liability hereunder shall extend to all amounts
that constitute part of the Guaranteed Obligations and would be owed by the
Parent to the Collateral Agent and the Buyers under the Securities Purchase
Agreement and the Notes but for the fact that they are unenforceable or not
allowable due to the existence of an Insolvency Proceeding involving any
Guarantor or the Parent (each, a “Transaction
Party”).

 

SECTION 3.     Guaranty Absolute;
Continuing Guaranty; Assignments.

 

(a)                                  Each
Guarantor, jointly and severally, guarantees that the Guaranteed Obligations
will be paid strictly in accordance with the terms of the Transaction
Documents, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Collateral Agent or the Buyers with respect thereto.  The obligations of each Guarantor under this
Guaranty are independent of the Guaranteed Obligations, and a separate action
or actions may be brought and prosecuted against any Guarantor to enforce such
obligations, irrespective of whether any action is brought against any
Transaction Party or whether any Transaction Party is joined in any such action
or actions.  The liability of each
Guarantor under this Guaranty shall be irrevocable, absolute and unconditional
irrespective of, and each Guarantor hereby irrevocably waives any defenses it
may now or hereafter have in any way relating to, any or all of the following:

 

(i)                                     any lack of validity or enforceability of any Transaction
Document or any agreement or instrument relating thereto;

 

(ii)                                  any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Guaranteed Obligations, or any other amendment or waiver of or
any consent to departure from any Transaction Document, including, without
limitation, any increase in the Guaranteed Obligations resulting from the
extension of additional credit to any Transaction Party or otherwise;

 

(iii)                               any taking, exchange, release or non-perfection of any Collateral,
or any taking, release or amendment or waiver of or consent to departure from
any other guaranty, for all or any of the Guaranteed Obligations;

 

2

 

(iv)                              any
change, restructuring or termination of the corporate, limited liability
company or partnership structure or existence of any Transaction Party; or

 

(v)                                 any
other circumstance (including any statute of limitations) or any existence of
or reliance on any representation by the Collateral Agent or the Buyers that
might otherwise constitute a defense available to, or a discharge of, any
Transaction Party or any other guarantor or surety.

 

This Guaranty
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Guaranteed Obligations is rescinded or must
otherwise be returned by the Collateral Agent, the Buyers or any other Person upon the insolvency, bankruptcy or
reorganization of any Transaction Party or otherwise, all as though such
payment had not been made.

 

(b)                                 This
Guaranty is a continuing guaranty and shall (i) remain in full force and effect
until the indefeasible cash payment in full of the Guaranteed Obligations and
all other amounts payable under this Guaranty and shall not terminate for any
reason prior to the Maturity Date and (ii) be binding upon each Guarantor and
its respective successors and assigns. 
This Guaranty shall inure to the benefit of and be enforceable by the
Collateral Agent, the Buyers and their successors, pledgees, transferees and
assigns.  Without limiting the generality
of the foregoing sentence, any Buyer may pledge, assign or otherwise transfer
all or any portion of its rights and obligations under any Transaction Document
to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to such Buyer herein or otherwise,
in each case as provided in the Securities Purchase Agreement.

 

SECTION 4.     Waivers.  Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty and any requirement that the
Collateral Agent or the Buyers exhaust any right or take
any action against any Transaction Party or any other Person or any
Collateral.  Each Guarantor acknowledges
that it will receive direct and indirect benefits from the financing
arrangements contemplated herein and that the waiver set forth in this
Section 4 is knowingly made in contemplation of such benefits.  Each Guarantor hereby waives any right to
revoke this Guaranty, and acknowledges that this Guaranty is continuing in
nature and applies to all Guaranteed Obligations, whether existing now or in
the future.

 

SECTION 5.     Subrogation.  No Guarantor may exercise any rights that it
may now or hereafter acquire against any Transaction Party or any other
guarantor that arise from the existence, payment, performance or enforcement of
such Guarantor’s obligations under this Guaranty, including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution
or indemnification and any right to participate in any claim or remedy of the
Collateral Agent and the Buyers against any Transaction Party or any other
guarantor or any Collateral, whether or not such claim, remedy or right arises
in equity or under contract, statute or common law, including, without
limitation, the right to take or receive from any Transaction Party or any
other guarantor, directly or indirectly, in cash or other property or by
set-off or in any other manner, payment or security solely on account of such
claim, remedy or right, unless and until all of the Guaranteed Obligations and
all other amounts payable under this Guaranty shall have indefeasibly been paid
in full in cash.  If any amount shall be
paid to any Guarantor in

 

3

 

violation of the immediately
preceding sentence at any time prior to the later of the payment in full in
cash of the Guaranteed Obligations and all other amounts payable under this
Guaranty, such amount shall be held in trust for the benefit of the Collateral
Agent and the Buyers and shall forthwith be paid to the Collateral Agent and
the Buyers to be credited and applied to the Guaranteed Obligations and all
other amounts payable under this Guaranty, whether matured or unmatured, in
accordance with the terms of the Transaction Document, or to be held as
Collateral for any Guaranteed Obligations or other amounts payable under this
Guaranty thereafter arising.  If
(a) any Guarantor shall make payment to the Collateral Agent and the
Buyers of all or any part of the Guaranteed Obligations, and (b) all of
the Guaranteed Obligations and all other amounts payable under this Guaranty
shall indefeasibly be paid in full in cash, the Collateral Agent and the Buyers
will, at such Guarantor’s request and expense, execute and deliver to such
Guarantor appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer by subrogation to such Guarantor
of an interest in the Guaranteed Obligations resulting from such payment by
such Guarantor.

 

SECTION 6.     Representations,
Warranties and Covenants. 
Each Guarantor hereby represents and warrants as follows:

 

(a)                                  Such
Guarantor:  (i) is an entity, duly
organized, validly existing and in good standing (or such other similar
concept) under the laws of the jurisdiction of its organization as set forth on
the first page hereof; (ii) has all requisite power and authority to conduct its
business as now conducted and as presently contemplated and to execute and
deliver this Guaranty and each other Transaction Document to which such
Guarantor is a party, and to consummate the transactions contemplated hereby
and thereby; and (iii) is duly qualified to do business and is in good
standing (or such other similar concept) in each jurisdiction in which the
character of the properties owned or leased by it or in which the transaction
of its business makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect.

 

(b)                                 The
execution, delivery and performance by such Guarantor of this Guaranty and each
other Transaction Document to which such Guarantor is a party: (i) have been
duly authorized by all necessary action; (ii) do not and will not contravene
its charter or by-laws (or other applicable constitutive documents), its
limited liability company or operating agreement or its certificate of
partnership or partnership agreement, as applicable, or any applicable law or
any contractual restriction binding on or otherwise affecting such Guarantor or
its properties; (iii) do not and will not result in or require the creation of
any lien (other than pursuant to any Transaction Document) upon or with respect
to any of its properties; and (iv) do not and will not result in any default,
noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of
any permit, license, authorization or approval applicable to it or its
operations or any of its properties, except in the case of this clause (iv),
for such any such default, noncompliance, suspension, revocation, impairment,
forfeiture or nonrenewal as would not be reasonably expected to have a Material
Adverse Effect.

 

(c)                                  No
authorization or approval or other action by, and no notice to or filing with,
any governmental authority is required in connection with the due execution,
delivery and performance by such Guarantor of this Guaranty or any of the other
Transaction Documents to which such Guarantor is a party, except for the filing
of any financing statements on Form UCC-1

 

4

 

or
such other registrations, filings or recordings as may be necessary to perfect
the lien purported to be created by any Transaction Documents to which such
Guarantor is a party.

 

(d)                                 Each
of this Guaranty and the other Transaction Documents to which such Guarantor is
or will be a party, when delivered, will be, a legal, valid and binding
obligation of such Guarantor, enforceable against such Guarantor in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, suretyship or other similar laws.

 

(e)                                  There
is no pending or, to the best knowledge of such Guarantor, threatened action,
suit or proceeding affecting such Guarantor or to which any of the properties
of such Guarantor is subject, before any court or other governmental authority
or any arbitrator that (i) if adversely determined, could have a Material
Adverse Effect or (ii) relates to this Guaranty or any of the other
Transaction Documents to which such Guarantor is a party or any transaction
contemplated hereby or thereby.

 

(f)                                    Such
Guarantor:  (i) has read and understands
the terms and conditions of the Securities Purchase Agreement and the other
Transaction Documents; and (ii) now has and will continue to have
independent means of obtaining information concerning the affairs, financial
condition and business of the Parent and the other Transaction Parties, and has
no need of, or right to obtain from the Collateral Agent or any Buyer, any
credit or other information concerning the affairs, financial condition or
business of the Parent or the other Transaction Parties that may come under the
control of the Collateral Agent or any Buyer.

 

(g)                                 Such
Guarantor covenants and agrees that until indefeasible full and final payment
of the Guaranteed Obligations, it will comply in all material respects with
each of the covenants (except to the extent applicable only to a public
company, or applicable to BVI as the parent company of such Guarantor), which
are set forth in Section 4 of the Securities Purchase Agreement as if such
Guarantor were a party thereto.

 

SECTION 7.     Right of Set-off.  Upon the occurrence and during the
continuance of any Event of Default, the Collateral Agent or any Buyer may, and
is hereby authorized to, at any time and from time to time, without notice to
any Guarantor (any such notice being expressly waived by each Guarantor) and to
the fullest extent permitted by law, set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by the Collateral Agent or any Buyer to or
for the credit or the account of any Guarantor against any and all obligations
of any Guarantor now or hereafter existing under this Guaranty or any other
Transaction Document, irrespective of whether or not the Collateral Agent or
any Buyer shall have made any demand under this Guaranty or any other
Transaction Document and although such obligations may be contingent or
unmatured.  The Collateral Agent and each
Buyer agrees to notify the relevant Guarantor promptly after any such set-off
and application made by the Collateral Agent or such Buyer, provided that the
failure to give such notice shall not affect the validity of such set-off and
application.  The rights of the
Collateral Agent and the Buyers under this Section 7 are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
which the Collateral Agent and the Buyers may have under this Guaranty or any
other Transaction Document in law or otherwise.

 

5

 

SECTION 8.     Notices, Etc.  All notices and other communications provided
for hereunder shall be in writing and shall be mailed, telecopied or delivered,
if to any Guarantor, to it at its address set forth on the signature page
hereto, or if to the Collateral Agent, to it at its address set forth in the
Securities Purchase Agreement; or as to either such Person at such other
address as shall be designated by such Person in a written notice to such other
Person complying as to delivery with the terms of this Section 8.  All such notices and other communications
shall be effective (i) if mailed (by certified mail, postage prepaid and return
receipt requested), when received or three Business Days after deposited in the
mails, whichever occurs first; (ii) if telecopied, when transmitted and
confirmation is received, provided same is on a Business Day and, if not, on
the next Business Day; or (iii) if delivered, upon delivery, provided same is
on a Business Day and, if not, on the next Business Day.

 

SECTION 9.     CONSENT
TO JURISDICTION; SERVICE OF PROCESS AND VENUE.  ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
TO THIS GUARANTY OR ANY OTHER TRANSACTION DOCUMENT MAY BE BROUGHT IN THE COURTS
OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND
DELIVERY OF THIS GUARANTY, EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS.  EACH GUARANTOR HEREBY IRREVOCABLY APPOINTS
THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS AGENT FOR SERVICE OF
PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING AND FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND
IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, AT ITS ADDRESS FOR NOTICES AS SET FORTH ON
THE SIGNATURE PAGE HERETO AND TO THE SECRETARY OF STATE OF THE STATE OF NEW
YORK, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
COLLATERAL AGENT AND THE BUYERS TO SERVICE OF PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
ANY GUARANTOR IN ANY OTHER JURISDICTION. 
EACH GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH
COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.  TO THE EXTENT
THAT ANY GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION
OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE,
ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH
RESPECT TO ITSELF OR ITS PROPERTY, EACH GUARANTOR HEREBY IRREVOCABLY WAIVES
SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS GUARANTY AND THE OTHER
TRANSACTION DOCUMENTS.

 

6

 

SECTION 10.     WAIVER OF JURY TRIAL, ETC.  EACH GUARANTOR HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS
UNDER THIS GUARANTY OR THE OTHER TRANSACTION DOCUMENTS, OR UNDER ANY AMENDMENT,
WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN
THE FUTURE MAY BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING
FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS GUARANTY OR
THE OTHER TRANSACTION DOCUMENTS, AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.  EACH GUARANTOR CERTIFIES THAT NO OFFICER,
REPRESENTATIVE, AGENT OR ATTORNEY OF THE COLLATERAL AGENT OR ANY BUYER HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE COLLATERAL AGENT OR ANY BUYER
WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM,
SEEK TO ENFORCE THE FOREGOING WAIVERS. 
EACH GUARANTOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE COLLATERAL AGENT AND THE BUYERS ENTERING INTO THIS GUARANTY.

 

SECTION 11.     Taxes.

 

(a)                                  All
payments made by any Guarantor hereunder or under any other Transaction Document
shall be made in accordance with the terms of the Securities Purchase Agreement
and shall be made without set-off, counterclaim, deduction or other
defense.  All such payments shall be made
free and clear of and without deduction for any present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding taxes imposed on the net income of the Buyers
by the jurisdiction in which such Buyer is organized or where it has its
principal lending office (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities, collectively or
individually, “Taxes”).  If any Guarantor shall be required to deduct
or to withhold any Taxes from or in respect of any amount payable hereunder or
under any other Transaction Document;

 

(i)                                     the
amount so payable shall be increased to the extent necessary so that after
making all required deductions and withholdings (including Taxes on amounts
payable to the Collateral Agent or the Buyers pursuant to this sentence) the
Collateral Agent or the Buyers receive an amount equal to the sum they would
have received had no such deduction or withholding been made,

 

(ii)                                  such Guarantor shall make such deduction or withholding,

 

(iii)                               such Guarantor shall pay the full amount deducted or
withheld to the relevant taxation authority in accordance with applicable law,
and

 

(iv)                              as
promptly as possible thereafter, such Guarantor shall send the Collateral Agent
and the Buyers an official receipt (or, if an official receipt is not
available, such other documentation as shall be satisfactory to the Collateral
Agent or the Buyers, as the case may be) showing payment.  In addition, such Guarantor agrees to pay any
present or future taxes, charges or similar levies which arise from any payment
made

 

7

 

hereunder or from the execution, delivery, performance, recordation or
filing of, or otherwise with respect to, this Guaranty or any other Transaction
Document other than any present or future stamp or documentary taxes or any
other excise or property taxes, charges or similar levies that arise from any
payment made hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Guaranty or any other Transaction Document
(collectively, “Other Taxes”).

 

(b)                                 Each
Guarantor hereby, jointly and severally, indemnifies and agrees to hold the
Collateral Agent and the Buyers harmless from and against Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 11) paid by the Collateral
Agent or any Buyer and any liability (including penalties, interest and
expenses for nonpayment, late payment or otherwise) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted.  This indemnification
shall be paid within 30 days from the date on which the Collateral Agent or any
Buyer makes written demand therefor, which demand shall identify the nature and
amount of Taxes or Other Taxes.

 

(c)                                  If
any Guarantor fails to perform any of its obligations under this
Section 11, each Guarantor shall, jointly and severally, indemnify the
Collateral Agent and the Buyers for any taxes, interest or penalties that may
become payable as a result of any such failure. 
The obligations of the Parent under this Section 11 shall survive
the termination of this Guaranty and the payment of the Obligations and all
other amounts payable hereunder.

 

SECTION 12.     Miscellaneous.

 

(a)                                  Each
Guarantor will make each payment hereunder in lawful money of the United States
of America and in immediately available funds to the Collateral Agent, for the
benefit of the Buyers, at such address specified by the Collateral Agent from
time to time by notice to such Guarantor.

 

(b)                                 No
amendment or waiver of any provision of this Guaranty and no consent to any
departure by any Guarantor therefrom shall in any event be effective unless the
same shall be in writing and signed by such Guarantor and the Collateral Agent,
and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

 

(c)                                  No
failure on the part of the Collateral Agent or any Buyer to exercise, and no
delay in exercising, any right hereunder or under any other Transaction
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder or under any Transaction Document preclude any
other or further exercise thereof or the exercise of any other right.  The rights and remedies of the Collateral
Agent and the Buyers provided herein and in the other Transaction Documents are
cumulative and are in addition to, and not exclusive of, any rights or remedies
provided by law.  The rights of the
Collateral Agent and the Buyers under any Transaction Document against any
party thereto are not conditional or contingent on any attempt by the
Collateral Agent and the Buyers to exercise any of their rights under any other
Transaction Document against such party or against any other Person.

 

8

 

(d)                                 Any
provision of this Guaranty that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
portions hereof or thereof or affecting the validity or enforceability of such
provision in any other jurisdiction.

 

(e)                                  This
Guaranty shall (i) be binding on each Guarantor and its respective successors
and assigns, and (ii) inure, together with all rights and remedies of the
Collateral Agent and the Buyers hereunder, to the benefit of the Collateral
Agent and the Buyers and their respective successors, transferees and
assigns.  Without limiting the generality
of clause (ii) of the immediately preceding sentence, any Buyer may assign or
otherwise transfer its rights and obligations under the Securities Purchase
Agreement or any other Transaction Document to any other Person,
and such other Person shall thereupon become vested with all of the benefits in
respect thereof granted to the Buyers herein or otherwise.  Each Guarantor agrees that each participant
shall be entitled to the benefits of Section 11 with respect to its
participation in any portion of the Notes as if it was a Buyer.  None of the rights or obligations of any
Guarantor hereunder may be assigned or otherwise transferred without the prior
written consent of the Collateral Agent.

 

(f)                                    This Guaranty and the other Transaction Documents
represent the entire agreement of each Guarantor, the Collateral Agent and the
Buyers with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Collateral Agent or any
Buyer relative to the subject matter thereof not expressly set forth or
referred to herein or in the other Transaction Documents.

 

(g)                                 Section headings herein are included for
convenience of reference only and shall not constitute a part of this Guaranty for any other purpose.

 

(h)                                 THIS
GUARANTY AND THE OTHER TRANSACTION DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE
CONTRARY IN ANOTHER TRANSACTION DOCUMENT) SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED THEREIN WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.

 

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9

 

IN WITNESS
WHEREOF, each Guarantor has caused this Guaranty to be executed by an officer
thereunto duly authorized, as of the date first above written.

 

	
   

  	
  BroadVision Italia SrL

  
	
   

  	
   

  
	
   

  	
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  BroadVision (U.K.) Ltd.

  
	
   

  	
   

  
	
   

  	
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  BroadVision Japan K.K.

  
	
   

  	
   

  
	
   

  	
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