Document:

Exhibit 10.44

 

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 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.  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.

 

CONVERTIBLE SUBORDINATED NOTE

 

	
  Issuance Date:
  January 1, 2009

  	
  Principal:
  U.S. $ [                     ]

  

 

FOR VALUE RECEIVED, LIQUIDMETAL TECHNOLOGIES,
INC., a Delaware corporation (the “Company”),
hereby promises to pay to the order of [INSERT HOLDER]  or
registered assigns (“Holder”) the
amount set out above as the Principal (as reduced pursuant to the terms hereof pursuant
to redemption, conversion or otherwise, the “Principal”)
when due, whether upon the Maturity Date (as defined below), acceleration,
redemption or otherwise (in each case in accordance with the terms hereof) and
to pay interest (“Interest”) on
any outstanding Principal at the rate of interest as determined pursuant to Section 2,
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), the Maturity
Date, acceleration, conversion, redemption or otherwise (in each case in
accordance with the terms hereof).  This
Convertible Subordinated Note (including all Convertible Subordinated Notes
issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of Convertible
Subordinated Notes issued on January 3, 2007 (the “Original
Date”) pursuant to the Securities Purchase Agreement (the “Original Notes”) or issued after January 3, 2007 in
satisfaction of interest and/or other amounts owing by the Company to the
holders of the Original Notes (the “Interest Notes”)
(the Original Notes and Interest Notes are collectively referred to as the “Notes” herein, and any Notes other than this Note are
collectively referred to as the “Other Notes”).  This Note is deemed to be issued pursuant to Section 2
of the Holder’s Original Note and is subject to the terms and provisions of the
Securities Purchase Agreement.  Certain
capitalized terms are defined in Section 29.

 

 

(1)                                  MATURITY AND
AMORTIZATION PAYMENTS.

 

(a)                                  Payment on
Maturity.  On January 3,
2010 (the “Maturity Date”), the
Holder shall surrender this Note to the Company and the Company shall pay to
the Holder an amount in cash representing all outstanding Principal and accrued
and unpaid Interest, and following receipt of such payment, the Holder shall
mark this Note as “Cancelled” and shall surrender such cancelled Note to the
Company by courier, registered mail, or other traceable means.  Beginning on the first day of the eighteenth
(18th) calendar
month following the calendar month in which the Original Date occurs, the
Company may, upon thirty (30) calendar days prior written notice to Holder and
at the sole election of the Company, prepay this Note in whole or in part for a
cash redemption price equal to One Hundred Five Percent (105%) of the the
portion of the principal amount being redeemed plus all accrued and unpaid
interest on the portion of the principal amount being redeemed, provided that
following such notice the Holder may convert all or any part of the portion of
the Note to be redeemed so long as the Company receives a duly executed
Conversion Notice pursuant to Section 3 of this Note prior to the date on
which prepayment is actually made. 
Notwithstanding the foregoing, in the event that prior to the Maturity
Date the Company completes a public or private equity or debt offering or an
Asset Sale pursuant to which the Company receives aggregate cash proceeds (net
of placement agent fees, underwriter’s discouns, and other similar fees or
commissions, and net of transaction fees) in excess of Five Million Dollars
($5,000,000), but excluding financings for the purpose of purchasing capital
assets, then any net proceeds from such transaction after payment in full of
transaction expenses and the full payment of the Company’s 8% Unsecured
Subordinated Notes Due 2007 shall, within five (5) Business Days of the
Company’s receipt of such net proceeds, be paid to reduce the Principal and
accrued but unpaid interest under this Note and the other Interest Notes (and
if such net proceeds are insufficient to pay the Interest Notes in full, then
such net proceeds will be paid to the holders of the Interest Notes on a pro
rata basis in accordance with the then-outstanding Principal under the Interest
Notes held by them).  For this purpose,
an “Asset Sale” means any sale of assets by the Company in a single transaction
or series of related transactions, other than (i) sales of inventory or
other assets in the ordinary course of the Company’s business, (ii) sale
of obsolete equipment.

 

(b)                                 Amortization
Payments.  Beginning
on January 31, 2009 and at the end of each month thereafter (each, an “Amortization Date”) until there is no outstanding Principal
of this Note, the Company shall redeem $[           ] [1/36th of
the original Principal amount of this Note] of this Note (each, an “Amortization Redemption Amount”).  If the Company is unable to redeem all
Principal and Interest with respect to all Amortization Redemption Amounts on
this Note and the Other Notes, 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 subject to payment of an Amortization Redemption Amount on
such Amortization Date pursuant to this Note and the Other Notes.

 

(c)                                  Payment of
Amortization Redemption Amount.  The Company shall pay the Amortization
Redemption Amount in cash in accordance with the provisions of Section 12;
provided, however, that if the Conditions to Amortization Conversion (as defined

 

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below) are satisfied or waived in writing by
the Holder and the Company provides the Amortization Conversion Notice (as
defined below), then the Company shall have the right to require the Holder to
convert all or any such portion of the Amortization Redemption Amount
designated in the Amortization Conversion Notice into fully paid, validly
issued and nonassessable shares of Common Stock in accordance with the
applicable provisions of Section 3(c)(i). 
The Company may exercise its right to require conversion under this Section 1(c) by
delivering at least 20 Trading Days prior to such Amortization Date 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 that specifically describes
the portion of the Amortization Redemption Amount for this Note and the Other
Notes that will be paid in Common Stock (the “Amortization
Conversion Notice” and the date all of the holders received such
notice is referred to as the “Amortization
Conversion Notice Date”).  The
Amortization Conversion Notice shall be irrevocable; provided; that if
any of the Conditions to Amortization Conversion is not satisfied on the
applicable Amortization Date or waived by the Holder, the Company will
notwithstanding delivery of the Amortization Conversion Notice be required to
pay the Amortization Redemption Amount in cash. 
The conversion price applicable to an Amortization Conversion (the “Amortization
Price”) that is being paid in Common Stock pursuant to this Section 1(c) shall
be 90% of the Weighted Average Price of the Common Stock for the 20 consecutive
Trading Days immediately preceding the Amortization Date.  For purposes of this Section 1(c), “Conditions to Amortization Conversion”
means  the following conditions: (i) the
Common Stock shall be traded on the Principal Market, the NASDAQ Gobal Market
or NASDAQ Capital Market, or the American Stock Exchange on the applicable
Amortization Date, (ii) on the Amortization Date, either (x) the
Registration Statement or Registration Statements contemplated by the
Registration Rights Agreement shall be effective and available for the sale for
all of the Registrable Securities (as defined in the Registration Rights
Agreement) then outstanding, together with the Common Stock to be issued on
such Amortization Date, in accordance with the terms of the Registration Rights
Agreement or (y) all shares of Common Stock issuable upon conversion of
the Notes shall be eligible for sale without restriction and without the need
for registration under any applicable federal or state securities laws, (iii) an
Authorized Share Failure shall not be in effect on the Amortization Date; and (iv) any
such payment of the Amortization Redemption Amount in Common Stock shall not
consist of more than 20% of the total dollar volume traded in the Common Stock
for the 20 Trading Days prior to the Amortization Date.

 

(d)                                 Special
Redemption Right.  Within two (2) trading
days after the closing of one or more Qualified Transactions resulting in
$25,000,000 (Twenty Five Million Dollars) in aggregate proceeds after
transaction expenses and placement agent or broker commissions or fees, the
Company will notify the Holder of said closing (a “Transaction Notice”).  Upon the closing of the Qualified
Transaction, the Holder may elect to have all or part of the outstanding
principal amount of this Note and all accrued but unpaid interest thereunder
redeemed within five (5) Trading Days of the Company’s receipt of written
notice of the Holder’s election to effect such redemption.  In order to
elect such redemption, the Holder must deliver written notice of redemption to
the Company within twenty (20) Trading Days after its receipt of the
Transaction Notice, and such written notice must be accompanied by the
surrender of the originally executed Note, which must be marked “cancelled”
(provided that in lieu of 

 

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surrendering the Notes (if not fully
redeemed), the Holder may deliver a certification to the Company affirming that
the requisite principal amount of Notes is being forfeited as a result of such
redemption, in which case the change in the Notes will be noted by book entry
by the Company).  For purposes hereof, the term “Qualified Transactions” means (A) the
sale of Liquidmetal Korea’s manufacturing facility in Pyong-Taek, Republic of
Korea and that the appropriate authorities or banks in the Republic of Korea
approve the transfer of such proceeds from Liquidmetal Korea to the Company
and/or (B) the raising of capital in a debt or equity offering after the
date hereof (subject to any restrictions or limitations thereon set forth in
the Purchase Agreement or the Notes).

 

(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 on the first day of each Calendar Quarter and on the Maturity Date
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 April 1, 2009.  Interest shall be payable on each Interest
Date in cash at the rate of 8.00% per annum (the “Interest Rate”).  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).  From and after the occurrence of an Event of
Default, the Interest Rate shall be increased so that the Interest Rate shall
be twelve percent (12.00%) per annum.  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 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.

 

(3)                                  CONVERSION OF
NOTES.  This Note shall be convertible
into shares of the Company’s common stock, par value $0.001 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) in increments of at least $50,000 of Principal (or such
lesser amount if such amount represents the remaining Principal amount) 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.

 

(b)                                 Conversion Rate.  The number of shares of Common Stock 

 

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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 (as defined below) (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, plus (B) accrued and unpaid Interest with
respect to such Principal.

 

(ii)                                  “Conversion Price” means, as of any Conversion Date (as defined
below) or other date of determination, and subject to adjustment as provided
herein, $1.10.

 

(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 5:00 p.m., New York Time,
on such date, a copy of an executed notice of conversion in the form attached
hereto as Exhibit I (the “Conversion
Notice”) to the Company and (B) if required by Section 3(c)(iii),
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 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 Company’s transfer agent (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) 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 Depository
Trust Company (“DTC”) through its
Deposit Withdrawal At Custodian system or (Y) if the Transfer Agent is not
participating in 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 five 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.

 

(ii)                                  Company’s
Failure to Timely Convert.  If
the Company shall fail 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 

 

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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 liquidated damages to the Holder for each day of such
Conversion Failure in an amount equal to 1.0%
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
five (5) 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 and other
out-of-pocket expenses, 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 physical surrender and reissue of
this Note.  The Holder and the Company
shall maintain records showing the Principal and Interest 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

 

6

 

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.

 

(i)                                     Beneficial
Ownership.  Unless
waived by the Holder upon no less than sixty one (61) days prior written notice
to the Company, the Company shall not effect any conversion 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% of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion.  Even if the Holder waives the limitation set
forth in the preceding sentence, the Company shall in no event 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 9.99% of the
number of shares of Common Stock outstanding immediately after giving effect to
such conversion.  For purposes of the
foregoing sentences, 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 10-K, (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 two Business Days
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

 

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or its affiliates since the date
as of which such number of outstanding shares of Common Stock was reported.

 

(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 that
number of shares of Common Stock that the Company may issue upon conversion of
the Notes 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 holders of the Notes representing at least a
majority of the principal amounts of the Notes then outstanding.  Until such approval or written opinion is
obtained, no holders of Notes (the “Purchasers”)
shall be issued, upon conversion of Notes, 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 principal amount of Original Notes issued to such
Purchaser pursuant to the Securities Purchase Agreement on the Issuance Date
and the denominator of which is the aggregate principal amount of all Original
Notes issued to the Purchasers pursuant to the Securities Purchase Agreement on
the Issuance 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 Company’s
failure to pay to the Holder any amount of Principal or Interest when and as
due under this Note if such failure continues for a period of at least five
Business Days;

 

(ii)                                  the Company’s
failure to pay to the Holder any amounts other than Principal or Interest when
and as due under this Note, the Securities Purchase Agreement, or the

 

8

 

Registration Rights
Agreement, which failure is not cured within five Business Days after notice of
such default sent by the Holder to the Company;

 

(iii)                               any default
under, redemption of or acceleration prior to maturity of any Indebtedness (as
defined below) of the Company or any of its Subsidiaries (as defined in the
Securities Purchase Agreement) other than with respect to any Other Notes and
the Senior Indebtedness; provided that in the case of a payment default of such
Indebtedness, such default is not cured within applicable cure periods; further
provided that in the case of a non-payment default of such Indebtedness that
has not resulted in an acceleration or redemption of such Indebtedness prior to
its maturity, only upon acceleration or redemption of such Indebtedness;

 

(iv)                              the Company
shall fail to observe or perform any other material covenant or agreement
contained in the Securities Purchase Agreement, which failure is not cured
within ten Business Days after notice of such default sent by the Holder to the
Company;

 

(v)                                 the Company or
any of its Subsidiaries, pursuant to or within the meaning of Title 11, U.S.
Code, or any similar Federal 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”),  or (D) makes
a general assignment for the benefit of its creditors;

 

(vi)                              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 that remains undismissed for a period of 90 days, (B) appoints a
Custodian of the Company or any of its Subsidiaries that remains undischarged
or unstayed for a period of 90 days, or (C) orders the liquidation of the
Company or any of its Subsidiaries;

 

(vii)                           a final
judgment or judgments for the payment of money aggregating in excess of
$500,000 are rendered against the Company or any of its Subsidiaries and which
judgments are not, within 60 days after the entry thereof, bonded, discharged
or stayed pending appeal, or are not discharged within 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 $500,000 amount set forth above;

 

(viii)                        any breach or
failure to comply with Section 15 of this Note; or

 

(ix)                                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

 

9

 

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
Conversion Amount to be redeemed 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.

 

(5)                                  RIGHTS UPON
CHANGE OF CONTROL.

 

(a)                                  Change of Control.  Each of the following events shall constitute
a “Change of Control”:

 

(i)                                     the
consolidation, merger or other business combination (including, without
limitation, a reorganization or recapitalization) of the Company with or into
another Person (other than (A) a consolidation, merger or other business
combination (including, without limitation, reorganization or recapitalization)
in which holders of the Company’s voting power immediately prior to the
transaction continue after the transaction to hold, 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);

 

(ii)                                  the sale or
transfer of all or substantially all of the Company’s assets; or

 

(iii)                               a purchase,
tender or exchange offer made to and accepted by the holders of more than the
50% of the outstanding shares of Common Stock.

 

No sooner than 15 days nor later than 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”).

 

(b)                                 Assumption.  Prior to the consummation of any Change of
Control, the Company will secure from any Person purchasing the Company’s assets
or Common Stock or any successor resulting from such Change of Control (in each
case, an “Acquiring Entity”) a
written agreement (in form and substance satisfactory to the holders of Notes
representing at least a majority of the aggregate principal amount of the Notes
then outstanding) to deliver to

 

10

 

each holder of Notes in exchange for such
Notes, a security of the Acquiring 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
satisfactory to the holders of Notes representing at least a majority of the
principal amount of the Notes then outstanding. 
In the event that an Acquiring Entity is directly or indirectly
controlled by a company or entity whose common stock or similar equity interest
is listed, designated or quoted on a securities exchange or trading market, the
holders of Notes representing at least a majority of the aggregate principal
amount of the Notes then outstanding may elect to treat such Person as the
Acquiring Entity for purposes of this Section 5(b).

 

(c)                                  Redemption
Right.  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 10 days prior to a Change of
Control, at any time on or after the date which is 10 days prior to a Change of
Control and ending ten 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; provided, however, that the Company shall not be under any obligation
to redeem all or any portion of this Note or to deliver the applicable Change
of Control Redemption Price unless and until the applicable Change of Control
is consummated.  The portion of this Note
subject to redemption pursuant to this Section 5 shall be redeemed by the
Company in cash at a price equal to the greater of (i) the sum of (x) the
product of (A) the Applicable Percentage (as defined below) and (B) the
Conversion Amount being redeemed and (y) the amount of any accrued but
unpaid Interest on such Conversion Amount being redeemed through the date of
such redemption payment and (ii) the product of (x) the Applicable
Percentage and (y) the sum of (1) the product of (A) the
Conversion Amount being redeemed multiplied by (B) the quotient determined
by dividing (I) the aggregate cash consideration and the aggregate cash
value of any non-cash consideration per Common Share to be paid to the holders
of the Common Shares upon consummation of the Change of Control (any such
non-cash consideration in the form of securities to be valued at the higher of
the Closing Sale Price of such securities as of the Trading Day immediately
prior to the consummation of such Change of Control, the Closing Sale Price on
the Trading Day immediately following the public announcement of such proposed
Change of Control and the Closing Sale Price on the Trading Day immediately
prior to the public announcement of such proposed Change of Control) by (II) the
Conversion Price plus (2) the amount of any accrued but unpaid Interest on
such Conversion Amount being redeemed through the date of such redemption
payment, (the “Change of Control Redemption
Price”).  Redemptions required by this
Section 5(c) 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.  For purposes of this Note,
the term “Applicable Percentage” means 120% if
the Change of Control is consummated on or before the first (1st) anniversary of the
Original Date, 115% if the Change of Control is consummated after the first (1st) anniversary of the
Original Date but on or before the second (2nd) anniversary of the Original Date, and 110% if the
Change

 

11

 

of Control is consummated at any time after
the second (2nd) anniversary
of the Original Date.

 

(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. Prior to the consummation of any recapitalization, reorganization,
consolidation, merger, spin-off or other business combination (other than a
Change of Control) pursuant to which holders of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for 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 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 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 holders of Notes representing at least a majority of the
aggregate principal amount of the Notes then outstanding.

 

(7)                                  RIGHTS UPON
ISSUANCE OF OTHER SECURITIES.

 

(a)                                  Adjustment of
Conversion Price upon Issuance of Common Stock.  If and whenever on or after the Issuance
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 (the “New Securities
Issuance Price”) 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”),

 

12

 

then immediately after such Dilutive
Issuance, the Conversion Price then in effect shall be reduced to an amount
(rounded to the nearest cent) equal to the New Securities Issuance Price.  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 “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.  Notwithstanding anything
in this Note to the contrary, in the event that the Company agrees to decrease
the conversion price of any of its 7% Convertible Secured Promissory Notes due August 2007
in connection with an agreement by the holder of any such notes to convert the
same, such decrease in the conversion price will not result in any adjustment
to the Conversion Price

 

13

 

pursuant to this Section 7(a) of
this Note.

 

(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.

 

(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 holders of Notes representing at
least a majority of the principal amounts of the Notes then outstanding.  If such parties are unable to reach agreement
within ten days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such
consideration will be determined within five Business Days after the tenth day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the holders of Notes representing at least a
majority of the principal amounts of the Notes then outstanding.  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 equally by the Company, on the hand, and the
holders of the Notes, on the other hand.

 

(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

 

14

 

Common Stock, Options or
Convertible Securities, then such record date will be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

 

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

 

(9)                                  COMPANY’S RIGHT
OF MANDATORY CONVERSION.  (a) Mandatory
Conversion.  If at any time from and
after the Issuance Date, the Weighted Average Price of the Common Stock exceeds
250% of the conversion price of the Original Notes as of the Original Date (subject
to appropriate adjustments for stock splits, stock dividends, stock
combinations and other similar transactions after the Original Date) for each
of any 20 consecutive Trading Days (the “Mandatory
Conversion Measuring Period”) and the Conditions to Mandatory
Conversion (as set forth in Section 9(c)) are satisfied or waived in
writing by the Holder, the Company shall have the right to require the Holder
to convert all or any such portion of the Conversion Amount of this Note
designated in the Mandatory Conversion Notice 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”).  The Company may exercise its right to require
conversion under this Section 9(a) by delivering within not more than
five 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 is referred to as the “Mandatory Conversion Notice Date”).  The Mandatory Conversion Notice shall be irrevocable.

 

(b)                                 Pro Rata
Conversion Requirement.  If
the Company elects to cause a conversion of all or any portion of the
Conversion Amount of this Note pursuant to Section 9(a),

 

15

 

then it must simultaneously take the same
action with respect to the Other Notes (except that the Company is not required
to take the same action with respect to the Other Notes to the extent limited
by Section 3(d) in this Note or similar provisions under the Other
Notes).  If the Company elects to cause
the conversion of this Note pursuant to Section 9(a) (or similar
provisions under the Other Notes) with respect to less than all of the
Conversion Amounts of the Notes then outstanding, then the Company shall
require conversion of a Conversion Amount from each of the holders of the Notes
equal to the product of (I) the aggregate Conversion Amount of Notes which
the Company has elected to cause to be converted pursuant to Section 9(a),
multiplied by (II) the fraction, the numerator of which is the sum of the
aggregate principal amount of the Original Notes purchased by such holder
pursuant to the Securities Purchase Agreement and the denominator of which is
the sum of the aggregate principal amount of the Original Notes purchased by
all holders pursuant to the Securities Purchase Agreement (except to the extent
limited by Section 3(d) in this Note or similar provisions under the
Other Notes) (such fraction with respect to each holder is referred to as its “Allocation Percentage,” and such amount
with respect to each holder is referred to as its “Pro Rata Conversion Amount”). 
In the event that the initial holder of any Notes shall sell or
otherwise transfer any of such holder’s Notes, the transferee shall be
allocated a pro rata portion of such holder’s Allocation Percentage.  The Mandatory Conversion Notice shall state (i) the
Trading Day selected for the Mandatory Conversion in accordance with Section 9(a),
which Trading Day shall be at least 10 Business Days but not more than 60 Business
Days following the Mandatory Conversion Notice Date (the “Mandatory Conversion Date”), (ii) the
aggregate Conversion Amount of the Notes which the Company has elected to be
subject to mandatory conversion from all of the holders of the Notes pursuant
to this Section 9 (and analogous provisions under the Other Notes), (iii) each
holder’s Pro Rata Conversion Amount of the Conversion Amount of the Notes the
Company has elected to cause to be converted pursuant to this Section 9
(and analogous provisions under the Other Notes) and (iv) the number of
shares of Common Stock to be issued to such Holder as of the Mandatory
Conversion Date.  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.

 

(c)                                  Conditions to
Mandatory Conversion.  For
purposes of this Section 9, “Conditions
to Mandatory Conversion” means  the
following conditions: (i) during the period beginning on the date that is
six months prior to the Mandatory Conversion Date and ending on and including
the Mandatory Conversion Date, the Company shall have delivered shares of
Common Stock upon any conversion of Conversion Amounts as set forth in Section 3(c)(i);
(ii) on each day during the period beginning on the first Trading Day of
the Mandatory Conversion Measuring Period and ending on and including the Mandatory
Conversion Date, the Common Stock shall be traded on the Principal Market, the
NASDAQ Global Market or Global Select Market, the NASDAQ Capital Market, the
New York Stock Exchange, or the American Stock Exchange; (iii) on the
Mandatory Conversion Date either (x) the Registration Statement or

 

16

 

Registration Statements contemplated by the
Registration Rights Agreement shall be effective and available for the sale for
all of the Registrable Securities in accordance with the terms of the
Registration Rights Agreement or (y) all shares of Common Stock issuable
upon conversion of the Notes shall be eligible for sale without restriction and
without the need for registration under any applicable federal or state
securities laws; (iv) on the Mandatory Conversion Date, an Authorized
Share Failure shall not be in effect; and (v) any such payment of the
Conversion Amount in Common Stock shall not consist of more than 20% of the
total dollar volume traded in the Common Stock for the 20 Trading Days prior to
the Mandatory Conversion Date.

 

(10)                            NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
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 100% of the Conversion Rate with respect to the
Conversion Amount of each such Note as of the Issuance Date.  Thereafter, the Company, so long as any of
the Notes are outstanding, shall use commercially reasonable efforts to reserve
and keep available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Notes, 100% 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 (without regard to any
limitations on conversions) (the “Required
Reserve Amount”).  The number
of shares of Common Stock reserved for conversions of the Notes 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 time of Issuance Date 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.

 

(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 as soon as practicable use commercially reasonable
efforts 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.

 

17

 

(12)                            HOLDER’S
REDEMPTIONS.

 

(a)                                  Mechanics.  In the event that the Holder has sent an
Event of Default Redemption Notice or a Change of Control Redemption Notice to
the Company pursuant to Section 4(b) or Section 5(c),
respectively (each, a “Redemption Notice”),
the Holder shall promptly submit this Note to the Company.  If the Holder has submitted an Event of
Default Redemption Notice in accordance with Section 4(b), 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(c),
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 Business Days after the Company’s receipt of such notice if such
notice is received after the consummation of such Change of Control.  With respect to an Amortization Redemption,
the Company shall deliver the applicable Amortization Redemption Amount to the
Holder within five Business Days after the end of the applicable month for such
Amortization Redemption.  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, at the
Holder’s request, 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 Event of Default Redemption Price, the Change of Control Redemption Price,
or the Amortization Redemption Amount (each, the “Redemption Price”), as applicable, to the Holder (or deliver
any Common Stock to be issued pursuant to a Redemption Notice) within the time
period required, at any time thereafter and until the Company pays such unpaid
Redemption Price (and issues any Common Stock required pursuant to a Redemption
Notice) 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 (or any Common Stock required to be
issued pursuant to a Redemption Notice) 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 Closing
Bid Price on the date on which the Redemption Notice is voided.

 

(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(c) (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
Business Day period beginning on and including the date which is three Business
Days prior to the Company’s receipt of the

 

18

 

Holder’s Redemption Notice and ending on and
including the date which is three 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 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)                            SUBORDINATION
TO SENIOR INDEBTEDNESS.

 

(a)                                  General.  The Company and the Holder covenant and agree
that this Note shall be subject to the provisions of this Section 13 and
to the extent and in the manner set forth in this Section 13, the
indebtedness represented by this Note and the payment of Principal, Interest,
the Redemption Price, and any redemption amount, liquidated damages, fees,
expenses, or any other amounts in respect of this Note are hereby expressly
made subordinate and junior and subject in right of payment to the prior
payment in full in cash of all Senior Indebtedness of the Company now
outstanding or hereinafter incurred.

 

(b)                                 No Payment if
Default Under Senior Indebtedness.

 

(i)                                     [Intentionally
left blank]

 

(ii)                                  No cash payment
on account of Principal or Redemption Price of, or Interest on, this Note or
any other payment payable with respect to this Note shall be made, and no
portion of this Note shall be redeemed or purchased directly or indirectly by
the Company, if at the time of such payment or purchase or immediately after
giving effect thereto, (A) a default in the payment of principal, premium,
if any, interest or other obligations in respect of any Senior Indebtedness
having either an outstanding principal balance or a commitment to lend greater
than $500,000 (“Designated Senior Debt”) occurs
and is continuing (or, in the case of Senior Indebtedness for which there is a
period of grace, in the event of such a default that continues beyond the
period of grace, if any, specified in the instrument evidencing such Senior
Indebtedness) (a “Payment Default”),
unless and until such Payment Default shall have been cured or waived or shall
have ceased to exist or (B) the Company shall have received notice (a “Payment Blockage Notice”) from the holder or holders of
Designated Senior Debt that there exists under such Designated Senior Debt a
default, which shall not have been cured or waived, permitting the holder or
holders thereof to declare such Designated Senior Debt due and payable, but
only for the period (the “Payment Blockage Period”)
commencing on the date of receipt of the Payment Blockage Notice and ending on
the earlier of (a) the date such default shall have been cured or waived,
or (b) the 180th day immediately following the Company’s receipt of such
Payment Blockage Notice.  The Company
shall resume payments on and distributions in respect of this Note, including
any past scheduled payments of the principal of (and premium, if any) and
interest on this Note to which the

 

19

 

Holder would have been
entitled but for the provisions of this Section 13(b)(ii) in the case
of a Payment Default, within five (5) Business Days of the date upon which
such Payment Default is cured or waived or ceases to exist (and if payment is
made within such time period, any Event of Default with respect to such
nonpayment shall be cured).  In addition,
notwithstanding clauses (A) and (B) of this subsection (ii), unless
the holders of Designated Senior Debt shall have accelerated the maturity of
such Designated Senior Debt or there is a Payment Default, the Company shall
resume payments on this Note within (5) Business Days after the end of
each Payment Blockage Period.  In any
consecutive 365-day period, there shall be (i) no more than three Payment
Blockage Notices given in the aggregate on this Note and the Other Notes,
irrespective of the number of defaults with respect to Designated Senior Debt
during such period, and (ii) at least 90 days during which no Payment
Blockage Period shall be in effect.

 

(c)                                  Payment upon
Dissolution, Etc.  In the event
of any bankruptcy, insolvency, reorganization, receivership, composition,
assignment for benefit of creditors or other similar proceeding initiated by or
against the Company or any dissolution or winding up or total or partial
liquidation or reorganization of the Company (being hereinafter referred to as
a “Proceeding”), the Holder agrees
that such Holder shall, upon request of a holder of Senior Indebtedness, and at
such holder of Senior Indebtedness’ own expense, take all reasonable actions
(including but not limited to the execution and filing of documents and the
giving of testimony in any Proceeding, whether or not such testimony could have
been compelled by process) necessary to prove the full amount of all its claims
in any Proceeding, and the Holder shall not waive any claim in any Proceeding
without the written consent of such holder. 
If the Holder does not file a proper proof of claim or proof of debt in
the form required in any Proceeding at least thirty (30) days before the
expiration of the time to file such claim, the holders of any Senior
Indebtedness are hereby authorized to file an appropriate claim for and on
behalf of the Holder.

 

The Holder shall retain the right to vote and
otherwise act with respect to the claims under this Note (including, without
limitation, the right to vote to accept or reject any plan of partial or
complete liquidation, reorganization, arrangement, composition or extension); provided that the Holder shall not vote with
respect to any such plan or take any other action in any way so as to (i) contest
the validity of any Senior Indebtedness or any collateral therefor or
guaranties thereof, (ii) contest the relative rights and duties of any of
the lenders under the Senior Indebtedness established in any instruments or
agreement creating or evidencing the Senior Indebtedness with respect to any of
such collateral or guaranties, or (iii) contest the Holders’ obligations
and agreements set forth in this Section 13.

 

Upon payment or distribution to creditors in
a Proceeding of assets of the Company of any kind or character, whether in
cash, property or securities, all principal and interest due upon any Senior
Indebtedness shall first be paid in full before the Holder shall be entitled to
receive or, if received, to retain any payment or distribution on account of
this Note, and upon any such Proceeding, any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, to which the Holder would be entitled except for the

 

20

 

provisions of this Section 13 shall be
paid by the Company or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other Person making such payment or distribution, or by the
Holder who shall have received such payment or distribution, directly to the
holders of the Senior Indebtedness (pro rata to each such holder on the basis
of the respective amounts of such Senior Indebtedness held by such holder) or
their representatives to the extent necessary to pay all such Senior
Indebtedness in full after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the Holder or any holders of the Notes.

 

(d)                                 Payments on
Notes.  Subject to Sections 13(b) and
13(c), the Company may make regularly scheduled payments of the Principal of,
or Interest on, this Note or any other payment payable with respect to this
Note, if at the time of payment, and immediately after giving effect thereto,
there exists no Payment Default or a Payment Blockage Period.

 

(e)                                  Certain Rights.  Nothing contained in this Section 13 or
elsewhere in this Note is intended to or shall impair, as among the Company,
its creditors including the holders of Senior Indebtedness and the Holder, the
right, which is absolute and unconditional, of the Holder to convert this Note
in accordance herewith.

 

(f)                                    Subrogation.  Subject to payment in full in cash of all
Senior Indebtedness, the rights of the Holder shall be subrogated to the rights
of the holders of Senior Indebtedness to receive payments or distributions of
the assets of the Company made on such Senior Indebtedness until all principal
and interest on this Note shall be paid in full in cash; and for purposes of
such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which the Holder would be
entitled except for the subordination provisions of this Section 13 shall,
as between the Holder and the Company and/or its creditors other than the
holders of the Senior Indebtedness, be deemed to be a payment on account of the
Senior Indebtedness.

 

(g)                                 Rights of
Holders Unimpaired.  The
provisions of this Section 13 are and are intended solely for the purposes
of defining the relative rights of the Holder and the holders of Senior
Indebtedness and nothing in this Section 13 shall impair, as between the
Company and the Holder, the obligation of the Company, which is unconditional
and absolute, to pay to the Holder the principal thereof (and premium, if any)
and interest thereon, in accordance with the terms of this Note.

 

(h)                                 Holders of Senior
Indebtedness.  These
provisions regarding subordination will constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue
to hold, Senior Indebtedness; such provisions are made for the benefit of the
holders of Senior Indebtedness, and such holders are hereby made obligees under
such provisions to the same extent as if they were named therein, and they or
any of them may proceed to enforce such subordination and no amendment or
modification of the provisions contained herein shall diminish the rights of
such holders unless such holders have

 

21

 

agreed in writing thereto.  The holders of Senior Indebtedness may, at
any time and from time to time, without the consent of or notice to the Holder,
without incurring responsibility to the Holder and without impairing or
releasing the subordination provisions of this Section 13, (i) subject
to the limitations set forth herein, increase the amount of, change the manner,
terms or place of payment of, or renew or alter, any Senior Indebtedness, or
otherwise amend, modify, restate or supplement the same (provided that any such
modified indebtedness continues to be constitute Senior Indebedness within the
meaning of this Agreement), (ii) sell, exchange or release any collateral
mortgaged, pledged or otherwise securing the Senior Indebtedness, (iii) release
any Person liable in any manner for the Senior Indebtedness and (iv) exercise
or refrain from exercising any rights against the Company or any other Person.

 

(i)                                     Proceeds Held
in Trust.  In the
event that notwithstanding the foregoing, any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities (including, without limitation, by way of setoff or otherwise)
prohibited by the provisions hereof shall be received by the Holder before all
Senior Indebtedness if paid in full in cash, such payment or distribution shall
be held in trust for the benefit of and shall be paid over or delivered to the
holders of Senior Indebtedness, as their respective interests may appear, as
calculated by the Company, for application to, or to be held as collateral for,
the payment of any Senior Indebtedness remaining unpaid to the extent necessary
to pay all Senior Indebtedness in full in cash after giving effect to any
concurrent payment or distribution to or for the holders of such Senior
Indebtedness.

 

(j)                                     Blockage of
Remedies.  During any
Payment Default or any Payment Blockage Period, if an Event of Default has
occurred and is continuing under this Note, the Holder will not commence or
join with any creditor of the Company in asserting or commencing any
proceedings to collect or enforce its rights hereunder or take any action to
foreclose or realize upon the indebtedness hereunder for a period beginning on
the date of such Event of Default and ending on the first to occur of (i) the
date that is 180 days following the date that the holders of the Senior
Indebtedness are notified of such Event of Default or (ii) the date such
Payment Default is cured, waived or ceases to exist or the date such Payment
Blockage Period ends, as the case may be; provided, however, that
until all of the Senior Indebtedness shall have been paid in full in cash, any
payments, distributions or proceeds received by the Holder resulting from the
exercise of any action to collect or enforce any right or remedy available to
the Holder shall be subject to the terms of this Note.

 

(k)                                  Subsequent
Senior Indebtedness Requested Modifications.  In connection with the incurrence of any
future Senior Indebtedness, the Holder agrees that it shall act reasonably and
negotiate in good faith any modifications to the provisions of this Section 13
reasonably requested by the holder of such Senior Indebtedness; provided that
nothing in this section shall restrict the holders of Notes representing at
least a majority of the aggregate principal amount of the Notes then
outstanding from changing or amending this Section 13 pursuant to Section 17
hereof.

 

(l)                                     Failure to Make
Payment.  In the event that the Company
is

 

22

 

prohibited or restricted from making any
payment required under under this Note by reason of the provisions of this Section 13,
such prohibition or restriction shall not preclude the failure to make such
payment from being an Event of Default under Section 4(a) of this
Note.

 

(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 Delaware General Corporation Law, and as expressly provided in this Note.

 

(15)                            RANK;
ADDITIONAL INDEBTEDNESS; LIENS.

 

(a)                                  Rank.                  All payments due under this
Note (a) shall rank pari passu
with all Other Notes (“Pari Passu
Indebtedness”), (b) shall be subordinate in right of payment to
the prior payment of all existing and future Senior Indebtedness and (c) shall
be senior to all other Indebtedness of the Company and its Subsidiaries, other
than Senior Indebtedness and Pari Passu Indebtedness.

 

(b)                                 Incurrence of Senior
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 which shall rank senior to the Notes
other than Senior Indebtedness.

 

(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 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.  As used
herein, “Permitted Liens” means (i) Liens
incurred to secure Senior Indebtedness, (ii) Liens on fixed or capital
assets acquired, constructed or improved by the Company or any Subsidiary, to
the extent of Indebtedness incurred within thirty days for such acquisition,
construction or improvement and incurred within thirty days of such
acquisition, construction or improvement, (iii) purchase money Liens, or (iv) carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s and other similar Liens
imposed by law.

 

(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
Indebtedness, other than Senior Indebtedness or Pari Passu Indebtedness, 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 an Event of
Default has occurred and is continuing.

 

(16)                            PARTICIPATION.  The Holder, as the holder of this Note, shall
be

 

23

 

entitled to such dividends paid and
distributions made to the holders of Common Stock (each, a “Distribution”), in each such case to the
extent of the Distribution 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 (if any) 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 holders of
Notes representing not less than a majority of the aggregate principal amount
of the then outstanding Notes, shall be required for any change or amendment to
this Note or the Other Notes provided such change or amendment is consented to
by the Company, which such consent may be granted or withheld in the sole
discretion of the Company.

 

(18)                            TRANSFER.  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) and this Section 19(a),
following conversion or redemption of any portion of this Note, the outstanding
Principal represented by this Note may be less than the Principal stated on the
face of this Note.

 

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

 

24

 

(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 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, the
Securities Purchase Agreement and the Registration Rights Agreement, 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, 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

 

25

 

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 Redemption 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 Business Day of 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 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 or the
Closing Sale 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
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  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 Change of Control, 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.  Notwithstanding the foregoing, Section 4(i) of
the Securities Purchase Agreement shall apply to all notices given pursuant to
this Note.

 

(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

 

26

 

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.

 

(26)                            CANCELLATION.  After all Principal, accrued Interest and
other amounts at any time owed on this Note has 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)                                  “Approved Stock Plan” means any employee benefit,
option or incentive 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, consultant, officer or director for services provided to the Company.

 

(b)                                 “Bloomberg” means Bloomberg Financial
Markets.

 

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

 

(d)                                 “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

 

27

 

October 1 and ending on and including December 31.

 

(e)                                  “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 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.

 

(f)                                    [Intentionally
left blank]

 

(g)                                 “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.

 

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

 

(i)                                     “Excluded Securities” means any shares of Common
Stock issued or issuable: (i) in connection with any Approved Stock Plan; (ii) upon
conversion of the Notes and the Other Notes; (iii) upon conversion of any
Options or Convertible Securities which are outstanding on the Issuance Date, (iv) pursuant
to or in connection with commercial credit arrangements, equipment lease
financings, acquisitions of other assets or businesses, strategic

 

28

 

transactions not primarily for financing
purposes, or similar transactions into which the Company may enter with a
non-affiliate.

 

(j)                                     “Indebtedness” of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses, (E) all indebtedness created or arising under any conditional
sale or other title retention agreement, or incurred as financing, in either case
with respect to any property or assets acquired with the proceeds of such
indebtedness (even though the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of
such property), (F) all monetary obligations under any leasing or similar
arrangement which, in connection with generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a
capital lease, (G) off-balance sheet liabilities retained in connection
with asset securitization programs, synthetic leases, sale and leaseback
transactions or other similar obligations arising with respect to any other
transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the consolidated balance
sheet of such Person and its subsidiaries, and (H) all indebtedness
referred to in clauses (A) through (G) 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 (I) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (A) through
(H) above.

 

(k)                                  “Issuance Date” means January 1, 2009.

 

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

 

(m)                               “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.

 

(n)                                 “Principal Market” means the OTC Bulletin
Board.

 

(o)                                 “Registration Rights Agreement” means that
certain Registration Rights Agreement, dated January 3, 2007, between the
Company and the initial holders of the Interest Notes.

 

(p)                                 “SEC” means the United States Securities and Exchange 

 

29

 

Commission.

 

(q)                                 “Securities Purchase Agreement” means that certain
Securities Purchase Agreement, dated January 3, 2007, between the Company
and the initial holders of the Original Notes pursuant to which the Company
issued the Original Notes.

 

(r)                                    “Senior Indebtedness” means the principal of (and
premium, if any), interest on, and all fees and other amounts (including,
without limitation, any reasonable costs, enforcement expenses (including
reasonable legal fees and disbursements, collateral protection expenses and
other reimbursement or indemnity obligations relating thereto)), and all other
obligations of the Company under (i) any of the agreements or instruments
evidencing any Indebtedness of the Company and its Subsidiaries arising after
the Original Date to an unaffiliated, third-party commercial lender (together
with any renewals, refundings, refinancings or other extensions thereof) for
purposes of purchasing equipment (which debt shall be secured only by the
assets purchased with such financing), and (ii) Indebtedness secured by up
to a maximum of eighty five percent (85%) of the Company’s accounts receivable
and/or up to sixty percent (60%) of the value of the Company’s inventory.  For the avoidance of doubt, Senior
Indebtedness shall not include the debt which is required to be paid by the
Company pursuant to Section 4(i) of the Securities Purchase
Agreement.

 

(s)                                  [Intentionally
left blank]

 

(t)                                    “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).

 

(u)                                 [intentionally
left blank]

 

(v)                                 “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

 

30

 

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.

 

[Signature Page Follows]

 

31

 

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

 

	
   

  	
  LIQUIDMETAL
  TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Tony Chung

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  

 

32

 

EXHIBIT I

 

LIQUIDMETAL TECHNOLOGIES, INC.

CONVERSION NOTICE

 

Reference is made to the Convertible
Subordinated Note (the “Note”)
issued to the undersigned by Liquidmetal Technologies, Inc. (the “Company”). 
In accordance with and pursuant to the Note, the undersigned hereby
elects to convert the Conversion Amount (as defined in the Note) of the Note
indicated below into shares of Common Stock, par value $0.001 per share (the “Common Stock”), of the Company as of the
date specified below.

 

Date of Conversion:

 

Aggregate Conversion Amount to be converted:

 

The undersigned  hereby certifies to the Company that the
undersigned’s conversion of the amount set forth above in accordance with Section 3(a) of
the Note will not directly result in the undersigned (together with the
undersigned’s affiliates) beneficially owning in excess of 4.99% of the number
of shares of Common Stock outstanding immediately after giving effect to such
conversion, calculated in accordance with Section 3(d)(i) of the
Note; provided that if the undersigned has previously waived the 4.99%
beneficial ownership limitation upon no less than sixty one (61) days prior
written notice, the undersigned certifies to the Company that the undersigned’s
conversion of the amount set forth above will not directly result in the
undersigned (together with the undersigned’s affiliates) beneficially owning in
excess of 9.99% of the number of shares of Common Stock outstanding immediately
after giving effect to such conversion, calculated in accordance with Section 3(d)(i) of
the Note.

 

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 American Stock Transfer &
Trust Co. to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated January 3, 2007 from
the Company.

 

	
   

  	
  LIQUIDMETAL
  TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:Exhibit
10.45

 

CONTINUING GUARANTEE

 

THIS
GUARANTEE is executed by the undersigned (hereinafter called “Guarantor”) in
favor of Hana Financial, Inc. (hereinafter called “Hana”), with offices at
1000 Wilshire Blvd., Suite 2000, Los Angeles, CA 90017, with respect to
the Indebtedness of Liquidmetal Technologies, Inc.,
a Delaware corporation whose address is 30452 Esperanza, Rancho
Santa Margarita, CA 92688 (referred to herein as the “Client”).

 

1.             Continuing
Guarantee.      For valuable
consideration which is hereby acknowledged, Guarantor hereby unconditionally
guarantees and promises to pay on demand to Hana, at the address indicated
above, or at such other address as Hana may direct, in lawful money of the
United States, and to perform for the benefit of Hana, when due, whether by
acceleration or otherwise, all of the following: All loans, advances,
indebtedness, liabilities, debit balances, covenants and duties and all other Indebtedness
of whatever kind or nature at any time or from time to time owing by Client(s),
whether individually or collectively, to Hana or any of Hana’s affiliates,
whether fixed or contingent, known or unknown, liquidated or unliquidated,
present or future, no matter how or when arising and whether under the Loan and Security Agreement
executed by Hana and Client and made effective as of April 21, 2005 and
any amendments executed thereto from time to time (the “Loan and Security
Agreement”) or any other present or future agreement or
otherwise, and including without limitation, all Indebtedness for purchases
made by the Client from any other concern factored by Hana and any Promissory Note, Inventory Finance Agreement or a Factor Guarantee
presently existing or to be prepared in the future (collectively, the “Indebtedness”).  In addition, the Guarantor agrees
to fully indemnify Hana against any claim, harm, loss, damage, liability, costs
or expense (including all costs, attorneys’ fees, accounting fees and
investigation fees incurred in connection with any action, suit, claim or
proceeding relating thereto) resulting from or in any way relating to any
violation, non-performance or breach by Client of a Loan and
Security Agreement, any said Promissory Note,
Inventory Finance Agreement or a Factor Guarantee whether presently existing or
to exist in the future, or any breach of or failure to perform any
representation, promise, agreement or warranty of Client, or any wrongful acts,
conduct or omission or fraud of Client. 
As used herein, the term “Client” shall include any successor to the business
and assets of Client, and shall also include Client in its capacity as a debtor
or debtor in possession under the federal Bankruptcy Code, and any trustee,
custodian or receiver for Client or any of their assets, should Client hereafter
become the subject of any bankruptcy or insolvency proceeding, voluntary or
involuntary; and all indebtedness, liabilities and Indebtedness incurred by any
such entity shall be included in the Indebtedness guarantied hereby.  Guarantor hereby acknowledges and agrees that
acceptance by Hana of this guaranty shall not constitute a commitment of any
kind by Hana to permit Client to incur Indebtedness to Hana.  All sums due under this Guarantee shall bear
interest from the date due until the date paid at the highest rate charged with
respect to any of the Indebtedness. Notwithstanding any of the foregoing, the
outstanding Indebtedness due and owing to Hana as of the date of this Guarantee
is $593,848 (“Guarantor’s Obligation”) subject to applicable commission, fees
and interest as described under the Loan and Security Agreement and said Guarantor’s
Obligation to Hana under this Guarantee shall also be limited to the said
amount. Hana further agrees to release this Guarantee upon its receipt of the
Guarantor’s Obligation.  In addition,
Hana shall not exercise its rights under this Guarantee and waives its rights as
described under “Section 9. Events of Default” under the Loan and Security
Agreement as long as Guarantor’s Obligation is received by Hana on or prior to March 31,
2009.  The timely payment of the
Guarantor’s Obligation shall in effect cure the Events of Default relating to the
non-payment of Client Obligations only under the Loan and Security
Agreement occurring up to the time of such cure.

 

2.             Waivers.      Guarantor
hereby waives:  (a) presentment for
payment, notice of dishonor, demand, protest, and notice thereof as to any
instrument, and all other notices and demands to which Guarantor might be
entitled, including without limitation notice of all of the following: the
acceptance hereof; the creation, existence, or acquisition of any Indebtedness;
the amount of the Indebtedness from time to time outstanding; any foreclosure
sale or other disposition of any property which secures any or all of the
Indebtedness or which secures the 

 

INITIAL

 

1

 

obligations
of any other guarantor of any or all of the Indebtedness; any adverse change in
Client(s)’ financial position; any other fact that might increase Guarantor’s
risk; any default, partial payment or non-payment of all or any part of the
Indebtedness; the occurrence of any other Event of Default (as hereinafter
defined); any and all agreements and arrangements between Hana and Client and
any changes, modifications, or extensions thereof, and any revocation,
modification or release of any guaranty of any or all of the Indebtedness by
any person; (b) any right to require Hana to institute suit against, or to
exhaust its rights and remedies against, Client or any other person, or to
proceed against any property of any kind that secures all or any part of the
Indebtedness, or to exercise any right of offset or other right with respect to
any reserves, credits or deposit accounts held by or maintained with Hana or
any indebtedness of Hana to Client, or to exercise any other right or power, or
pursue any other remedy Hana may have; (c) any defense arising by reason
of any disability or other defense of Client or any other guarantor or any
endorser, co-maker or other person, or by reason of the cessation from any
cause whatsoever of any liability of Client or any other guarantor or any
endorser, co-maker or other person, with respect to all or any part of the
Indebtedness, or by reason of any act or omission of Hana or others that directly
or indirectly results in the discharge or release of Client or any other
Guarantor or any other person or any Indebtedness or any security therefore,
whether by operation of law or otherwise, (d) all rights of subrogation,
reimbursement, and indemnity whatsoever, and all rights of recourse to or with
respect to any assets or property of Client or any collateral or security for
any or all of the Indebtedness; (e) any defense arising by reason of any
failure of Hana to obtain, perfect, maintain or keep in force any security
interest in, or lien or encumbrance upon, any property of Client or any other
person, (f) any defense based upon failure of Hana to give Guarantor
notice of any sale or other disposition of any property securing any or all of
the Indebtedness, or any defects in any such notice that may be given, or
failure of Hana to comply with any provision of applicable law in enforcing any
security interest in or lien upon any property securing any or all of the
Indebtedness including, but not limited to, any failure by Hana to dispose of
any property securing any or all of the Indebtedness in a commercially
reasonable manner; and (g) any defense based upon arising out of any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against Client or any
other guarantor or any endorser, co-maker or other person, including without
limitation any discharge of, or bar against collecting, any of the Indebtedness
(including without limitation any interest thereon), in or as a result of any
such proceeding.  Until all of the
Indebtedness has been paid, performed, and discharged in full, nothing shall
discharge or satisfy the liability of Guarantor hereunder except the full
performance and payment of all of the Indebtedness.  In the event any payment with respect to any
or all of the Indebtedness by any person is repaid or returned by Hana because
of any claim that such payment constituted a preferential transfer or
fraudulent conveyance or for any other reason whatsoever, the liability of
Guarantor hereunder shall not be discharged or reduced by reason of such
payment and Guarantor shall be and remain fully liable therefore.  Hana shall have full authority in its sole
discretion to compromise or settle any such claim, and any amounts received by
Hana that are paid, repaid or returned as a part of such compromise or
settlement shall not discharge or reduce the liability of Guarantor hereunder
and Guarantor shall be and remain fully liable therefore.

 

3.             Consents.      Guarantor
hereby consents and agrees that, without notice to or by Guarantor and without
affecting or impairing in any way the obligations or liability of Guarantor
hereunder, Hana may, from time to time before or after revocation of this
Guarantee, do any one or more of the following in Hana’s sole and absolute
discretion: (a) accelerate, accept partial payments of, compromise or
settle, renew, extend the time for the payment, discharge, or performance of,
refuse to enforce, and release all or any parties to, any or all of the
Indebtedness; (b) grant any other indulgence to Client or any other person
in respect of any or all of the Indebtedness or any other matter; (c) accept,
release, waive, surrender, enforce, exchange, modify, impair, or extend the
time for the performance, discharge, or payment of, any and all property of any
kind securing any or all of the Indebtedness or any guaranty of any or all of
the Indebtedness, or on which Hana at any time may have a lien, or refuse to
enforce its rights or make any compromise or settlement or agreement therefore
in respect of any or all of such property; (d) substitute or add, or take
any action or omit to take any action that results in the release of, any one
or more endorsers or guarantor of all or part of the Indebtedness, including
without limitation one or 

 

INITIAL

 

2

 

more
parties to this Guarantee, regardless of any destruction or impairment of any
right of contribution or other right of Guarantor; (e) amend, alter or
change in any respect whatsoever any term or provision relating to any or all
of the Indebtedness, including the rate of interest thereon, (f) apply any
sums received from Client(s), any other guarantor, endorser, or cosigner, or
from the disposition of any collateral or security, to any indebtedness
whatsoever owing from such person or secured by such collateral or security, in
such manner and order as Hana determines in its sole discretion, and regardless
of whether such indebtedness is part of the Indebtedness, is secured, or is due
and payable; (g) apply any sums received from Guarantor or from the
disposition of any collateral or security securing the obligations of
Guarantor, to any of the Indebtedness in such manner and order as Hana
determines in its sole discretion, regardless of whether or not such
Indebtedness is secured or is due and payable. 
Guarantor consents and agrees that Hana shall be under no obligation to
marshal any assets in favor of Guarantor, or against or in payment of any or
all of the Indebtedness.  Guarantor
further consents and agrees that Hana shall have no duties or responsibilities
whatsoever with respect to any property securing any or all of the
Indebtedness.  Without limiting the generality
of the foregoing, Hana shall have no obligation to monitor, verify audit,
examine, or obtain or maintain any insurance with respect to, any property
securing any or all of the Indebtedness.

 

4.             Acceleration.      Notwithstanding
the terms of all or any part of the Indebtedness, the obligations of the
Guarantor hereunder to pay and perform all of the Indebtedness shall, at the
option of Hana, immediately become due and payable, without notice, and without
regard to the expressed maturity of any of the Indebtedness, in the event: (a) any
warranty, representation, statement, report, or certificate made or delivered
to Hana by Client or Guarantor, or any of their respective officers, partners,
employees, or agents, is incorrect, false, untrue, or misleading when given in
any material respect; or (b) Client or Guarantor shall fail to pay or
perform when due all or any part of the Indebtedness; or (c) Guarantor
shall fail to pay or perform when due any indebtedness or obligation of
Guarantor to Hana, whether under this Guarantee or any other instrument,
document, or agreement heretofore or hereafter entered into; or (d) any
event shall occur which results in the acceleration of the maturity of any
indebtedness of Client or Guarantor to others; or (e) Client or Guarantor
shall fail promptly to perform or comply with any term or condition of any
agreement with any third party which does or may result in a material adverse
effect on the business of Client or Guarantor; or (f) there shall be made
or exist any levy, assessment, attachment, seizure, lien, or encumbrance for
any cause or reason whatsoever upon all or any part of the property of Client or
Guarantor (unless discharged by payment, release or bond not more than twenty
(20) days after such event has occurred); or (g) there shall occur the
liquidation, dissolution, termination of existence, insolvency, or business
failure of Client or Guarantor, or the appointment of a receiver, trustee or
custodian for Client(s), Guarantor or all or any part of the property of either
of them, or the assignment for the benefit of creditors by Client or Guarantor,
or the commencement of any proceeding by or against Client or Guarantor under
any reorganization, insolvency, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, now or hereafter in effect;
or (h) Client or Guarantor shall be deceased or declared incompetent by
any court or a guardian or conserver shall be appointed for either of them or
for the property of either of them; or (i) Client or Guarantor shall
conceal, remove or permit to be concealed or removed nay part of its property,
with intent to hinder, delay or defraud its creditors, or make or suffer any
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law, or shall make any transfer of its
property to or for the benefit of any creditor at a time when other creditors
similarly situated have not been paid; or (j) Guarantor shall revoke this
Guarantee.  All of the foregoing is
hereinafter referred to as “Events of Default”.

 

5.             Exercise of Rights and Remedies.      
Guarantor consents and agrees that, without notice to or by Guarantor
and without affecting or impairing in any way the obligations or liability of
Guarantor hereunder, Hana may, from time to time before or after revocation of
this Guarantee, exercise any right or remedy it may have with respect to any or
all of the Indebtedness or any property securing any or all of the Indebtedness
or any guaranty therefore, including without limitation judicial foreclosure,
non judicial foreclosure, exercise of a power of sale, and taking a deed,
assignment or transfer in lieu of foreclosure as to any such property, and
Guarantor expressly 

 

INITIAL

 

3

 

waives
any defense based upon the exercise of any such right or remedy,
notwithstanding the effect thereof upon any of Guarantor’s rights, including
without limitation, any destruction of Guarantor’s right of subrogation against
Client and any destruction of Guarantor’s right of contribution or other right
against any other guarantor of any or all of the Indebtedness or against any
other person, whether by operation of Sections 580d or 726 of the California
Code of Civil Procedure, or any similar or comparable provisions of the laws of
any other jurisdiction, or any other statutes or rules of law now or
hereafter in effect, or otherwise. 
Without limiting the generality of the foregoing, Guarantor understands
and agrees that, in the event Hana in its sole discretion forecloses any trust
deed now or hereafter securing any or all of the Indebtedness, by non judicial
foreclosure, Guarantor will remain liable to Hana for any deficiency, even
though Guarantor will lose his right of subrogation against Client(s), and even
though Guarantor will be unable to recover from Client the amount of the
deficiency for which Guarantor is liable, and even though Guarantor would have
retained his right of subrogation against Client if Hana had foreclosed said
trust deed by judicial foreclosure as opposed to non judicial foreclosure.

 

6.             Right to Attachment Remedy.      Guarantor
agrees that, notwithstanding the existence of any property securing any or all
of the Indebtedness, Hana shall have all of the rights of an unsecured creditor
of Guarantor, including without limitation the right to obtain a temporary
protective order and writ of attachment against Guarantor with respect to any
sums due under this Guarantee. Guarantor further agrees that in the event any
property secures the obligations of Guarantor under this Guarantee, to the
extent that Hana, in its sole and absolute discretion, determines prior to the
disposition of such property that the amount to be realized by Hana therefrom
may be less than the indebtedness of Guarantor under this Guarantee, Hana shall
have all the rights of an unsecured creditor against Guarantor, including
without limitation the right of Hana, prior to the disposition of said
property, to obtain a temporary protective order and writ of attachment against
Guarantor.  Guarantor waives the benefit
of Section 483.010(b) of the California Code of Civil procedure and
of any and all other statutes and rules of law now or hereafter in effect
requiring Hana to first resort to or exhaust all such collateral before seeking
or obtaining any attachment remedy against Guarantor.  Hana shall have no liability to Guarantor as
a result thereof, whether or not the actual deficiency realized by Hana is less
than the anticipated deficiency on the basis, which Hana obtains a temporary
protective order or writ of attachment.

 

7.             Subordination.      Any and all
rights of Guarantor under any and all debts, liabilities and obligations owing
from Client to Guarantor, including any security for and guaranties of any such
obligations, whether now existing or hereafter arising, are hereby subordinated
in right of payment to the prior payment in full of all of the
Indebtedness.  No payment in respect of
any such subordinated obligations shall at any time be made to or accepted by
Guarantor if at any time such payment any Indebtedness is outstanding.  If any Event of Default has occurred, Client and
any assignee, trustee in bankruptcy, receiver, or any other person having
custody or control over any or all of Client(s)’ property are hereby authorized
and directed to pay to Hana the entire balance of the Indebtedness before
making any payments whatsoever to Guarantor, whether as a creditor,
shareholder, or otherwise; and insofar as may be necessary for that purpose,
Guarantor hereby assigns and transfers to Hana all rights to any and all debts,
liabilities and obligations owing from Client to Guarantor, including any
security for any guaranties of any such obligations, whether now existing or
hereafter arising, including without limitation any payments, dividends or
distributions out of the business or assets of Client(s).  Any amounts received by Guarantor in
violation of the foregoing provisions shall be received and held in trust for
the benefit of Hana and shall forthwith be paid over to Hana to be applied to
the Indebtedness in such order and sequence as Hana shall in its sole
discretion determine.  Guarantor hereby
expressly waives any right to set-off or assert against Hana any counterclaim
that Guarantor may have against Client(s).

 

8.             Revocation.      This is a
continuing guaranty relating to all of the Indebtedness, including Indebtedness
arising under successive transactions that from time to time continue the
Indebtedness or renew it after it has been satisfied and
shall continue in full force and effect until all Indebtedness has been fully
performed to Hana’s satisfaction.  This Guarantee
and all consents, waivers and other provision hereof shall continue in full 

 

INITIAL

 

4

 

force
and effect as to any and all Indebtedness that is outstanding on the effective
date of revocation and all extensions, renewals and modifications of said
Indebtedness including without limitation amendments, extensions, renewals and
modifications that are evidenced by new or additional instruments, documents or
agreements executed after revocation.

 

9.            Independent
Liability.      Guarantor
hereby agrees that one or more successive or concurrent actions may be brought
hereon against Guarantor, in the same action in which Client may be sued or in
separate actions, as often as deemed advisable by Hana.  The liability of Guarantor hereunder is
exclusive and independent of any other guaranty of any or all of the
Indebtedness whether executed by Guarantor or by any other guarantor.  The liability of Guarantor hereunder shall
not be affected, revoked, impaired, or reduced by any one or more of the
following: (a) the fact that the Indebtedness exceeds the maximum amount
of Guarantor’s liability, if any, specified herein or elsewhere (and no
agreement specifying a maximum amount of Guarantor’s liability shall be
enforceable unless set forth in a writing signed by Hana or set forth in this
Guarantee); or (b) any direction as to the application of payment by Client
or by any other party; or (c) any other continuing or restrictive guaranty
or undertaking or any limitation on the liability of any other guarantor
(whether under this Guarantee or under any other agreement); or (d) any payment
on or reduction of any such other guaranty or undertaking; or (e) any
revocation, amendment, modification or release of any such other guaranty or
undertaking; or (f) any dissolution or termination of, or increase,
decrease, or change in membership or stock ownership of Guarantor.  Guarantor hereby expressly represents that he
was not induced to give this Guarantee by the fact that there are or may be
other guarantors either under this Guarantee or otherwise, and Guarantor agrees
that any release of any one or more of such other guarantors shall not release
Guarantor from his obligations hereunder either in full or to any lesser
extent.  If Guarantor is a married
person, Guarantor hereby expressly agrees that recourse may be had against his
or her separate property for all of his or her obligations hereunder.

 

10.          Remedies Cumulative; No Waiver.      Hana shall have
the right to seek recourse against Guarantor to the full extent provided for
herein or in any other instrument or agreement evidencing obligations of
Guarantor to Hana.  No election in one
form of action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of Hana’s right to proceed in any other form of action or
proceeding or against any other party. 
The failure of Hana to enforce any of the provisions of this Guarantee
at any time or for any period of time shall not be construed to be a waiver of
any such provision or the right thereafter to enforce the same.  All remedies hereunder shall be cumulative
and shall be in addition to all rights, powers and remedies given to Hana by
law or under other instrument or agreement.

 

11.          Financial Condition of Client(s).      Guarantor is
fully aware of the financial condition of Client and is executing and delivering
this Guarantee at Clients’ request and based solely upon his own independent
investigation of all matters pertinent hereto and is not relying in any manner
upon any representation or statement of Hana with respect thereto.  Guarantor represents and warrants that he is
in a position to obtain, and Guarantor hereby assumes full responsibility for
obtaining, any additional information concerning Clients’ financial condition
and any other matter pertinent hereto as Guarantor may desire, and Guarantor is
not relying upon or expecting Hana to furnish to him any information now or
hereafter in Hana’s possession concerning the same or any other matter.  By executing this Guarantee, Guarantor
knowingly accepts the full range of risks encompassed within a contract of continuing
guaranty, which risks Guarantor acknowledges include without limitation the
possibility that Client will incur additional Indebtedness for which Guarantor
will be liable hereunder after Clients’ financial condition or ability to pay
such Indebtedness has deteriorated and/or after bankruptcy or insolvency
proceedings have been commenced by or against Client(s).

 

12.          Reports and Financial Statements of
Guarantor.      Guarantor
shall, at his sole cost and expense, at any time and from time to time, prepare
or cause to be prepared, and provide to Hana upon Hana’s request: (a) such
financial statements and reports concerning Guarantor for such periods of time
as Hana may designate 

 

INITIAL

 

5

 

(which
financial statements shall, if requested by Hana, be audited by certified
public accountants acceptable to Hana); (b) any other information
concerning Guarantor’s business, financial condition or affairs as Hana may
request; and (c) copies of any and all foreign, federal, state and local
tax returns and reports of or relating to Guarantor as Hana may from time to
time request.  Guarantor hereby
intentionally and knowingly waives any and all rights and privileged he may have
not to divulge or deliver said tax returns, reports and other information that
are requested by Hana hereunder or in any litigation in which Hana may be
involved relating directly or indirectly to Client or to Guarantor.  Guarantor further agrees immediately to give
written notice to Hana of any adverse change in Guarantor’s financial condition
and of any condition or event that constitutes an Event of Default under this
Guarantee.

 

13.          Representations and Warranties.      Guarantor
hereby represents and warrants that: (a) it is in Guarantor’s direct
interest to assist Client in procuring credit, because Client are an affiliate
of Guarantor, furnishes goods or services to Guarantor, purchases or acquires
goods or services from Guarantor, and/or otherwise has a direct or indirect
corporate or business relationship with Guarantor; (b) this Guarantee has
been duly and validly authorized, executed and delivered and constitutes the
binding obligation of Guarantor, enforceable in accordance with its terms; and (c) the
execution and delivery of this Guarantee does not violate or constitute a
default under any order, judgment, decree, instrument or agreement to which
Guarantor is a party or by which he or his property are affected or bound.

 

14.          Integration.      This Guarantee
is the entire and only agreement between Guarantor and Hana with respect to the
guaranty of the Indebtedness of Client by Guarantor, and all representations,
warranties, agreements, or undertakings heretofore or contemporaneously made,
which are not set forth herein, are superseded hereby.

 

15.          Amendment.      The terms and
provisions hereof may not be waived, altered, modified, or amended except in a
writing executed by Guarantor and a duly authorized officer of Hana.

 

16.          Costs.      Whether or not
suit be instituted, Guarantor agrees to reimburse Hana on demand for all
attorneys’ fees and all other costs and expenses incurred by Hana in enforcing
this Guarantee, or arising out of or relating in any way to this Guarantee, or
in enforcing any of the Indebtedness against Client, Guarantor, or any other
person, or in connection with any property of any kind securing all or any part
of the Indebtedness.  Without
limiting the generality of the foregoing, and in addition thereto, Guarantor
shall reimburse Hana on demand for all attorneys’ fees and costs Hana incurs in
any way relating to Guarantor, Client or the Indebtedness, in order to: obtain
legal advice; enforce or seek to enforce any of its rights; commence, intervene
in, respond to, or defend any action or proceeding; file, prosecute or defend
any claim or cause of action in any action or proceeding (including without
limitation any probate claim, bankruptcy claim, third-party claim, secured
creditor claim, reclamation complaint, and complaint for relief from any stay
under the Bankruptcy Code or otherwise); protect, obtain possession of, sell,
lease, dispose of or otherwise enforce any security interest in or lien on any
property of any kind securing any or all of the Indebtedness; or represent Hana
in any litigation with respect to Clients’ or Guarantor’s affairs.  In the event either Hana or Guarantor files
any lawsuit against the other predicated on a breach of this Guarantee, the
prevailing party in such action shall be entitled to recover its attorneys’
fees and costs of suit from the non-prevailing party.

 

17.          Successors and Assigns.      All rights,
benefits and privileges hereunder shall inure to the benefit of and be
enforceable by Hana and its successors and assigns and shall be binding upon
Guarantor and his heirs, executors, administrators, personal representatives,
successors and assigns.  Neither the
death of Guarantor nor notice thereof to Hana shall terminate this Guarantee as
to his estate, and notwithstanding the death of Guarantor or notice thereof to
Hana, this Guarantee shall continue in full force and effect with respect to
all Indebtedness, including without limitation, Indebtedness incurred or
created after the death of Guarantor and notice thereof to 

 

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Hana.

 

18.          Notices.      Any notice that
a party shall be required or shall desire to give to the other hereunder shall
be given by personal delivery or by depositing the same in the United States
mail, first class postage pre-paid, addressed to Hana at its addresses set
forth in the heading of this Guarantee and to Guarantor at his address set
forth next to his signature hereon, and such notices shall be deemed duly given
on the date of personal delivery or three days after the date of mailing as
aforesaid.  Hana and Guarantor may change
their address for purposes of receiving notices hereunder by giving written
notice thereof to the other party in accordance herewith.  Guarantor shall give Hana immediate written
notice of any change in his address.

 

19.          Construction;
Severability.      If more than
one person has executed this Guarantee, the term “Guarantor” as used herein
shall be deemed to refer to all and any one or more of such persons and their
obligations hereunder shall be joint and several.  As used in this Guarantee, the term “property”
is used in its most comprehensive sense and shall mean all property of every
kind and nature whatsoever, including without limitation real property,
personal property, mixed property, tangible property and intangible property.  If any provisions of this Guarantee or the
application thereof to any party or circumstance are held invalid, void,
inoperative or unenforceable, the remainder of this Guarantee and the
application of such provision to other parties or circumstances shall not be
affected thereby, the provisions of this Guarantee being severable in any such
instance.

 

20.          Governing Law and Jurisdiction.      This instrument
and all acts and transactions pursuant or relating hereto and all rights and
obligations of the parties hereto be governed, construed, and interpreted in
accordance with the internal laws of the State of California.  In order to induce Hana to accept this
Guarantee, and as a material part of the consideration therefore: (i) Guarantor
agrees that all actions or proceedings relating directly or indirectly hereto
shall, at the option of Hana, be litigated in courts located within Los Angeles
County, California; (ii) Guarantor consents to the jurisdiction of any
such court and consents to the service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and (iii) Guarantor
waives any and all rights Guarantor may have to transfer or change venue of any
such action or proceeding.

 

21.          Waiver of Jury Trial.      GUARANTOR
INTENTIONALLY AND KNOWINGLY, FOLLOWING CONSULTATION WITH LEGAL COUNSEL, WAIVES
HIS RIGHT TO TRIAL BY JURY IN ANY CLAIM, CAUSE OF ACTION OR PROCEEDING BASED
UPON, ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY DOCUMENTS EXECUTED IN
CONNECTION WITH THIS GUARANTY.  GUARANTOR
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO HANA TO ENTER INTO A
BUSINESS RELATIONSHIP WITH CLIENTAND THAT HANA HAS RELIED AND WILL CONTINUE TO
RELY ON THIS WAIVER.

 

IN WITNESS WHEREOF, the undersigned has executed
this Guarantee on January 5, 2009.

 

	
  GUARANTOR:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  John Kang

  	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SSN:

  	
   

  	
   

  	
  Signature:

  	
  /s/ John Kang

  

 

INITIAL

 

7

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