Document:

EXHIBIT 10.2

 

REGISTRATION
RIGHTS AGREEMENT

 

REGISTRATION
RIGHTS AGREEMENT (this “Agreement”), dated as of
June 10, 2004, by and among EPIQ Systems, Inc., a Missouri corporation,
with headquarters located at 501 Kansas Avenue, Kansas City, Kansas 66105 (the
“Company”),
and the investors listed on the Schedule of Buyers attached hereto (each,
a “Buyer”
and collectively, the “Buyers”).

 

WHEREAS:

 

A.                                   In
connection with the Securities Purchase Agreement by and among the parties
hereto dated as of as of the date hereof (the “Securities Purchase Agreement”),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell on the date hereof to each
Buyer convertible notes of the Company (the “Notes”)
which shall be convertible into shares of the Company’s common stock, par value
$.01 per share (the “Common Stock”) (as converted, the “Conversion Shares”) in accordance with the
terms of the Notes;

 

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

 

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

 

1.                                       Definitions.

 

As used in this Agreement, the following terms shall have the following
meanings:

 

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

 

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

 

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

 

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

 

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e.                                       “Registrable Securities” means (i) the
Notes, (ii) the Conversion Shares issued or issuable upon conversion of all of
the Notes, (iii) any shares of capital stock issued or issuable with respect to
the Notes or the Conversion Shares as a result of any stock split, stock
dividend, recapitalization, exchange or similar event or otherwise, without
regard to any limitations on conversions of the Notes, and (iv) any shares of
capital stock of any entity issued in respect of the capital stock referenced
in the immediately preceding clauses (i), (ii) and (iii) as a result of a
merger, consolidation, sale of assets, sale or exchange of capital stock or
other similar transaction; provided, that the Notes and the Conversion Shares
will cease to be Registrable Securities at such time as they have been sold
under a Registration Statement or pursuant to Rule 144 under the 1933 Act or
such time as they are eligible to be sold pursuant to Rule 144(k).

 

f.                                         “Registration Period” means the period
between the date of this Agreement and the earliest of (i) the second
anniversary of the date of this Agreement or (ii) the date on which all of the
Registrable Securities have been sold by the Investors under a Registration
Statement or pursuant to Rule 144, or otherwise.

 

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

 

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

 

2.                                       Registration.

 

a.                                       Mandatory
Registration.  The Company shall use
its reasonable best efforts to prepare, and, as soon as practicable but in no
event later than 30 days after the date hereof (the “Filing Deadline”), file with
the SEC a Registration Statement on Form S-3 covering the resale of all of the
Registrable Securities.  In the event
that Form S-3 is unavailable for such a registration, the Company shall use
such other form as is available for such a registration, subject to the
provisions of Section 2(d).  The
Registration Statement prepared pursuant hereto shall register the Registrable
Securities for resale, including the Notes and at least 100% of the number of
shares of Common Stock issuable upon conversion of the Notes, subject to
adjustment as provided in Section 2(e), and shall contain the “Selling
Securityholders” section and “Plan of Distribution” attached hereto as Annex
I.  Each Buyer confirms the accuracy
such Buyer’s information set forth in Annex I and that such Buyer is aware of
SEC Telephone Interpretation A. 65 (July 1997).  The Company shall use its reasonable best efforts to have the
Registration Statement declared effective by the SEC as soon as practicable,
but in no event later than the date which is 120 days after the date hereof
(the “Effectiveness
Deadline”).

 

b.                                      Allocation
of Registrable Securities.  The
initial number of Registrable Securities included in any Registration Statement
and each increase in the number of Registrable Securities included therein
pursuant to Section 2(e) shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
the Registration Statement covering such initial number of Registrable
Securities or increase thereof is declared effective by the SEC.  In the event that an Investor sells or
otherwise transfers any of such Investor’s Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number
of Registrable Securities included in such Registration Statement for such
transferor.  Any shares of Common Stock
included in a Registration Statement and which remain allocated to any Person
which ceases to hold any Registrable Securities covered by such Registration
Statement shall be allocated to the remaining Investors, pro rata based on the
number of Registrable Securities then held by such Investors which are covered
by such Registration Statement.  In no
event shall the Company include any securities

 

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other than Registrable Securities on any Registration Statement without
the prior written consent of Buyers holding at least a majority of the
Registrable Securities.

 

c.                                       Legal
Counsel.  Subject to Section 5
hereof, the Investors holding at least a majority of the Registrable Securities
shall have the right to select one legal counsel to review and oversee any
registration pursuant to this Section 2 (“Legal Counsel”), which shall be Schulte Roth & Zabel LLP
or such other counsel as thereafter designated by the holders of at least a
majority of the Registrable Securities. 
The Company and Legal Counsel shall reasonably cooperate with each other
in performing the Company’s obligations under this Agreement.

 

d.                                      Ineligibility
for Form S-3.  In the event that
Form S-3 is not available for the registration of the resale of Registrable
Securities hereunder, the Company shall (i) register the resale of the
Registrable Securities on another appropriate form reasonably acceptable to the
holders of at least a majority of the Registrable Securities and (ii) undertake
to register the Registrable Securities on Form S-3 as soon as such form is
available, provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.

 

e.                                       Sufficient
Number of Shares Registered.  In the
event the number of shares available under a Registration Statement filed
pursuant to Section 2(a) is insufficient to cover all of the Registrable
Securities required to be covered by such Registration Statement or an
Investor’s allocated portion of the Registrable Securities pursuant to
Section 2(b), the Company shall amend the applicable Registration
Statement, or file a new Registration Statement (on the short form available
therefor, if applicable), or both, so as to cover at least 100% of the number
of such Conversion Shares as of the trading day immediately preceding the date
of the filing of such amendment or new Registration Statement, in each case, as
soon as practicable, but in any event not later than thirty (30) days after the
Company becomes aware of the necessity therefor arises (excluding any
applicable Allowable Grace Period).  The
Company shall use its reasonable best efforts to cause such amendment and/or
new Registration Statement to become effective as soon as practicable following
the filing thereof.  For purposes of the
foregoing provision, the number of shares available under a Registration
Statement shall be deemed “insufficient to cover all of the Registrable
Securities” if at any time the number of shares of Common Stock available for
resale under such Registration Statement is less than 100% of the number of
Conversion Shares issued and issuable upon conversion of the Notes.  The calculation set forth in the foregoing
sentence shall be made without regard to any limitations on the conversion of
the Notes and such calculation shall assume that the Notes are convertible into
shares of Common Stock, assuming the initial outstanding principal amount of
the Notes remains outstanding through the scheduled maturity date and assuming
no conversions or redemptions of the Notes prior to the scheduled maturity
date, are issuable at the then prevailing the Conversion Rate (as defined in
the Notes ).

 

f.                                         Effect
of Failure to File and Obtain and Maintain Effectiveness of Registration
Statement.  If (i) a Registration
Statement covering all the Registrable Securities required to be covered
thereby and required to be filed by the Company pursuant to this Agreement is
(A) not filed with the SEC on or before the Filing Deadline (a “Filing Failure”) or (B) not declared
effective by the SEC on or before the Effectiveness Deadline (an “Effectiveness Failure”) or (ii) on any day
after such Registration Statement has been declared effective by the SEC sales
of all the Registrable Securities required to be included on such Registration
Statement cannot be made (other than during an Allowable Grace Period (as
defined in Section 3(r)) pursuant to such Registration Statement
(including, without limitation, because of a failure to keep such Registration
Statement effective, to disclose such information as is necessary for sales to
be made pursuant to such Registration Statement or to register sufficient
shares of Common Stock)(a “Maintenance
Failure”), then, as partial relief for the damages to any holder by
reason of any such delay in or reduction of its ability to sell the underlying
shares of Common Stock

 

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(which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company shall pay to each holder of Notes relating to
such Registration Statement:  on the
earlier of the last day of each 30 day period after a Filing Failure, an
Effectiveness Failure and the initial day of a Maintenance Failure, as the case
may be until such event is cured, or on the tenth Business Day after any such
Filing Failure, Effectiveness Failure or Maintenance Failure is cured, an
amount in cash equal to the product of (i) the aggregate Principal (as defined
in the Notes) of such Investor’s Notes convertible into Conversion Shares
included in such Registration Statement (to the extent that such Conversion Shares
have not been sold) multiplied by (ii) 0.015, provided, however,
that such payment shall apply on a pro-rata basis for any portion of a 30 day
period prior to the cure of a Filing Failure, Effectiveness Failure or
Maintenance Failure as applicable.  The
payments to which a holder shall be entitled pursuant to this Section 2(f)
are referred to herein as “Registration Delay Payments” and shall cease to
accrue upon termination of the Registration Period.  Registration Delay Payments shall be paid on the earlier of (I)
the last day of the calendar month during which such Registration Delay
Payments are incurred and (II) the third Business Day after the event or
failure giving rise to the Registration Delay Payments is cured.  In the event the Company fails to make any
Registration Delay Payments pursuant to this Section 2(f) in a timely
manner, such Registration Delay Payments shall bear interest at the rate of
1.5% per month, or such lower maximum amount as is permitted by law, (prorated
for partial months) until paid in full.

 

3.                                       Related
Obligations.

 

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

 

a.                                       The
Company shall submit to the SEC, within two Business Days after the Company
learns that no review of a particular Registration Statement will be made by
the staff of the SEC or that the staff of the SEC has no further comments on a
particular Registration Statement, as the case may be, a request for
acceleration of effectiveness of such Registration Statement to a time and date
not later than 48 hours after the submission of such request.  The Company shall keep each Registration
Statement effective pursuant to Rule 415 at all times until the expiration of
the Registration Period.  The Company
shall ensure that each Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein, or necessary to make the statements therein (in the case
of prospectuses, in the light of the circumstances in which they were made) not
misleading.

 

b.                                      The
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and the
prospectus used in connection with such Registration Statement, which
prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act,
as may be necessary to keep such Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by such Registration Statement until such
time as all of such Registrable Securities shall have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in such Registration Statement.  In the case of amendments and supplements to a Registration
Statement which are required to be filed pursuant to this Agreement (including
pursuant to this Section 3(b)) by reason of the Company filing a report on
Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities
Exchange Act of 1934, as amended (the “1934
Act”), the Company shall have incorporated such report by reference
into such Registration Statement, if applicable, or shall file such amendments
or supplements with the SEC on the same day on which the 1934 Act report is
filed which created the requirement for the Company to amend or supplement such
Registration Statement.

 

4

 

c.                                       The
Company shall permit Legal Counsel to review and comment upon (i) a
Registration Statement at least three (3) Business Days prior to its filing
with the SEC and (ii) all amendments and supplements to all Registration
Statements (except for reports incorporated by reference into the Registration
Statement) within a reasonable number of days prior to their filing with the
SEC.  The Company shall not submit a
request for acceleration of the effectiveness of a Registration Statement or
any amendment or supplement thereto without the prior approval of Legal
Counsel, which consent shall not be unreasonably withheld.  The Company shall furnish to Legal Counsel,
without charge, (i) copies of any correspondence from the SEC or the staff of
the SEC to the Company or its representatives relating to any Registration
Statement, (ii) promptly after the same is prepared and filed with the SEC, one
copy of any Registration Statement and any amendment(s) thereto, including
financial statements and schedules, all documents, including exhibits if
reasonably requested by the Investor, incorporated therein by reference, if
requested by an Investor and not otherwise available on the EDGAR system, and
all other exhibits and (iii) upon the effectiveness of any Registration
Statement, one copy of the prospectus included in such Registration Statement
and all amendments and supplements thereto. 
The Company shall reasonably cooperate with Legal Counsel in performing
the Company’s obligations pursuant to this Section 3.

 

d.                                      The
Company shall furnish to each Investor whose Registrable Securities are
included in any Registration Statement, without charge, (i) promptly after the
same is prepared and filed with the SEC, at least one copy of such Registration
Statement and any amendment(s) thereto, including financial statements and
schedules, all documents, including exhibits, incorporated therein by reference,
if requested by an Investor and not otherwise available on the EDGAR system,
all other exhibits if reasonably requested by the Investor and each preliminary
prospectus, (ii) upon the effectiveness of any Registration Statement, ten (10)
copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.

 

e.                                       The
Company shall use its reasonable best efforts to (i) register and qualify,
unless an exemption from registration and qualification applies, the resale by
Investors of the Registrable Securities covered by a Registration Statement
under such other securities or “blue sky” laws of such jurisdictions in the
United States as the Investor may reasonably request, (ii) prepare and file in
those jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject
itself to general taxation in any such jurisdiction, or (z) file a general
consent to service of process in any such jurisdiction.  The Company shall promptly notify Legal
Counsel and each Investor who holds Registrable Securities of the receipt by
the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or “blue sky” laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.  The blue
sky registration requirements of this paragraph (e) with respect to the Notes
applies only with respect to resales of the Notes in minimum denominations of
$3,000,000 and if an exemption from registration or qualification for resales
in such minimum denominations is not available.

 

5

 

f.                                         The
Company shall notify Legal Counsel and each Investor in writing of the
happening of any event, as promptly as practicable after becoming aware of such
event, as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omission to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading (provided that in no event shall such notice contain
any material, nonpublic information), and, subject to Section 3(r),
promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to Legal Counsel and each Investor (or such other number
of copies as Legal Counsel or such Investor may reasonably request).  The Company shall also promptly notify Legal
Counsel and each Investor in writing (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed, and when a Registration
Statement or any post-effective amendment has become effective (notification of
such effectiveness shall be delivered to Legal Counsel and each Investor by
facsimile on the same day of such effectiveness and by overnight mail), (ii) of
any request by the SEC for amendments or supplements to a Registration
Statement or related prospectus or related information, and (iii) of the
Company’s reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.

 

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

 

h.                                      If
any Investor is required under applicable securities law to be described in the
Registration Statement as an underwriter, at the reasonable request of such
Investor, the Company shall furnish to such Investor, on the date of
effectiveness of the Registration Statement and thereafter from time to time on
such dates as an Investor may reasonably request (i) a letter, dated such date,
from the Company’s independent certified public accountants in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to such
Investors, and (ii) an opinion, dated as of such date, of counsel representing
the Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering, addressed
to such Investor.

 

i.                                          Upon
the written request of any Investor of holding at least 20% of the Registrable
Securities and delivery of the written advice (in form reasonably acceptable to
the Company) of Legal Counsel that the Investor is or is reasonably likely to
be considered a statutory underwriter with respect to any proposed resale of
the Conversion Shares pursuant to the Registration Statement, the Company shall
make available for inspection by (i) such Investor, (ii) Legal Counsel and
(iii) one firm of accountants or other agents retained by such Investor
(collectively, the “Inspectors”),
all pertinent financial and other records, and pertinent corporate documents
and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each
Inspector, and cause the Company’s officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree in writing (in a form reasonably acceptable to
the Company) to hold in strict confidence and shall not make any disclosure
(except to an Investor) or use of any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the

 

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information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other agreement of
which the Inspector has knowledge.  Each
Investor agrees that it shall, upon learning that disclosure of such Records is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.  Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investors’ ability to sell Registrable Securities in a manner
which is otherwise consistent with applicable laws and regulations.

 

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

 

k.                                       The
Company shall use its reasonable best efforts either to (i) cause all the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Conversion Shares covered by a
Registration Statement on The Nasdaq National Market, or (iii) if, despite the
Company’s reasonable best efforts to satisfy the preceding clause (ii), the
Company is unsuccessful in satisfying the preceding clause (ii), to secure the
inclusion for quotation on The Nasdaq SmallCap Market for such Conversion
Shares, and, without limiting the generality of the foregoing, to use its
reasonable best efforts to arrange for at least two market makers to register
with the National Association of Securities Dealers, Inc. as such with respect
to such Conversion Shares.  The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 3(k).

 

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

 

m.                                    If
requested by an Investor, the Company shall (i) as soon as practicable
incorporate in a prospectus supplement or post-effective amendment such
information as an Investor reasonably requests to be included therein relating
to the sale and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable Securities
being offered or sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities to be sold in such
offering; (ii) as soon as practicable make all required filings of such
prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) as soon as practicable,

 

7

 

supplement or make amendments to any Registration Statement if
reasonably requested by an Investor holding any Registrable Securities.

 

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

 

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

 

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

 

q.                                      Within
two (2) Business Days after a Registration Statement which covers Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and
shall cause legal counsel for the Company to deliver, to the transfer agent for
such Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) confirmation that such
Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit A.

 

r.                                         Notwithstanding
anything to the contrary herein, at any time after the Registration Statement
has been declared effective by the SEC, the Company may delay the disclosure of
material non-public information concerning the Company the disclosure of which
at the time is not, in the good faith opinion of the Board of Directors of the
Company, in the best interest of the Company (a “Grace Period”); provided,
that the Company shall promptly (i) notify the Investors in writing of the
existence of material non-public information giving rise to a Grace Period
(provided that in each notice the Company will not disclose the content of such
material non-public information to the Investors), the date on which the Grace
Period will begin, and the fact that the use of the Registration Statement has
been suspended, and (ii) notify the Investors in writing of the date on which
the Grace Period ends and that the use of the Registration Statement may be resumed;
and, provided further, that no Grace Period shall exceed twenty (20)
consecutive days and during any three hundred sixty five (365) day period such
Grace Periods shall not exceed an aggregate of forty-five (45) days and the
first day of any Grace Period must be at least two (2) trading days after the
last day of any prior Grace Period (each, an “Allowable Grace Period”).  For purposes of determining the length of a
Grace Period above, the Grace Period shall begin on and include the date the
Investors receive the notice referred to in clause (i) and shall end on and
include the later of the date the Investors receive the notice referred to in
clause (ii) and the date referred to in such notice.  During the period of any Allowable Grace Period, the provisions
of Section 3(f) hereof shall not be applicable and the use of the
Registration Statement shall be suspended. 
Upon expiration of the Grace Period, the Company shall again be bound by
the first sentence of Section 3(f) with respect to the information giving
rise thereto unless such material non-public information is no longer
applicable.  Notwithstanding anything to
the contrary, the Company shall cause its transfer agent to deliver unlegended
shares of Common Stock to a transferee of an Investor in accordance with the
terms of the Securities Purchase Agreement in connection with any sale of
Registrable Securities with respect to which an Investor has entered into a
contract for sale, and delivered a copy of the prospectus included as part of
the applicable Registration Statement, prior to the Investor’s receipt of the
notice of a Grace Period and for which the Investor has not yet settled.

 

8

 

4.                                       Obligations
Of The Investors.

 

a.                                       At
least five (5) Business Days prior to the first anticipated filing date of a
Registration Statement, the Company shall notify each Investor in writing of
the information the Company requires from each such Investor if such Investor
elects to have any of such Investor’s Registrable Securities included in such
Registration Statement.  It shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable Securities
of a particular Investor that such Investor shall furnish, in a manner
consistent with the last sentence of this Section 4(a), to the Company
such information regarding itself, the Registrable Securities held by it and
the intended method of disposition of the Registrable Securities held by it as
shall be reasonably required to effect the effectiveness of the registration of
such Registrable Securities and shall execute such documents in connection with
such registration as the Company may reasonably request.  All such information provided to the Company
by an Investor pursuant to the prior sentence shall be in writing, and such
writing shall expressly acknowledge that the information is being provided for
use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto. 
Other than the initial Buyers under the Securities Purchase Agreement,
the Company will not be obligated to include the Registrable Securities held by
any other Investor in the Registration Statement until such time as such
Investor confirms in writing to the Company all information concerning the
Investor required by the Company, in its reasonable determination, to be
included in the Registration Statement or any prospectus forming a part thereof
and confirms to the Company the accuracy of that information.

 

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

 

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

 

5.                                       Expenses
of Registration.

 

All reasonable expenses, other than underwriting discounts and
commissions (which shall be borne by the Investors), incurred in connection
with the performance of the Company’s obligations hereunder and under the
transactions contemplated hereby, including registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees,
and fees and disbursements of counsel for the Company shall be paid by the
Company.  The Company shall also
reimburse the Investors for the fees and disbursements of Legal Counsel in
connection with registration, filing or qualification pursuant to Sections 2
and 3 of this Agreement which amount shall be limited to $10,000 for the
Registration Statement.

 

9

 

6.                                       Indemnification.

 

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

 

a.                                       To
the fullest extent permitted by law, the Company will, and hereby does,
indemnify, hold harmless and defend each Investor, the directors, officers,
partners, employees, agents, representatives of, and each Person, if any, who
controls any Investor within the meaning of the 1933 Act or the 1934 Act (each,
an “Indemnified Person”), against
any losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, reasonable attorneys’ fees, amounts paid in settlement or expenses,
joint or several (collectively, “Claims”),
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the foregoing by or
before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto (“Indemnified
Damages”), to which any of them may become subject insofar as such
Claims (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon: 
(i) any untrue statement or alleged untrue statement of a material fact
in a Registration Statement or any post-effective amendment thereto or in any
filing made by the Company in connection with the qualification of the offering
under the securities or other “blue sky” laws of any jurisdiction in which
Registrable Securities are offered (“Blue Sky
Filing”), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made therein,
in the light of the circumstances under which the statements therein were made,
not misleading, (iii) any violation or alleged violation by the Company of the
1933 Act, the 1934 Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer or
sale of the Registrable Securities pursuant to a Registration Statement or (iv)
any material violation of this Agreement (the matters in the foregoing clauses
(i) through (iv) being, collectively, “Violations”).  Subject to Section 6(c), the Company
shall reimburse the Indemnified Persons, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such
Claim.  Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a):  (w) shall not apply
to a Claim by an Indemnified Person arising out of or based upon a Violation
which occurs in reliance upon and in conformity with information furnished in
writing to the Company by such Indemnified Person for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to
Section 3(d); (x) with respect to any preliminary prospectus, shall not
inure to the benefit of any such Indemnified Person from whom the Person asserting
any such Claim purchased the Registrable Securities that are the subject
thereof (or to the benefit of any Person controlling such Person) if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected in the prospectus, as then amended or supplemented, and if such
prospectus was timely made available by the Company pursuant to
Section 3(d), and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a violation
and such Indemnified Person, notwithstanding such advice, used it or failed to
deliver the correct prospectus as required by the 1933 Act and such correct
prospectus was timely made available pursuant to Section 3(d); (y) shall
not be available to the extent such Claim is based on a failure of the Investor
to deliver or to cause to be delivered the prospectus made available by the
Company, including a corrected prospectus, if such prospectus or corrected
prospectus was timely made available by the Company pursuant to
Section 3(d); and (z) shall not apply to amounts paid in settlement of any
Claim if

 

10

 

such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld or delayed.  Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.

 

b.                                      In
connection with any Registration Statement in which an Investor is
participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement and each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each, an “Indemnified Party”),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
or Indemnified Damages arise out of or are based upon:  (y) any Violation, in each case to the extent,
and only to the extent, that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement or any
post-effective amendment thereof or any prospectus contained therein, or (z)
any failure by such Investor to comply with the prospectus delivery
requirements (or the 1933 Act, the 1934 Act, or any other law, including,
without limitation, any state securities law, or any rule or regulation
thereunder relating to the offer or sale of the Registrable Securities pursuant
to a Registration Statement) or any covenant or agreement contained in the
Securities Purchase Agreement or this Agreement; and, subject to
Section 6(c), such Investor will reimburse any legal or other expenses
reasonably incurred by an Indemnified Party in connection with investigating or
defending any such Claim as promptly as such expenses are incurred and are due
and payable; provided, however, that the indemnity agreement contained in this
Section 6(b) and the agreement with respect to contribution contained in
Section 7 shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of such Investor,
which consent shall not be unreasonably withheld or delayed; provided, further,
however, that an Investor shall be liable under this Section 6(b) for only
that amount of a Claim or Indemnified Damages as does not exceed the net
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. 
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registrable Securities by the Investors pursuant to
Section 9.  Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary prospectus
shall not inure to the benefit of any Indemnified Party if the untrue statement
or omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or supplemented.

 

c.                                       Promptly
after receipt by an Indemnified Person or Indemnified Party under this
Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a Claim, such
Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6, deliver to
the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of the Indemnified Person or the Indemnified
Party, as the case may be, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding.  In the case
of an Indemnified Person, legal

 

11

 

counsel referred to in the immediately preceding sentence shall be
selected by the Investors holding at least a majority in interest of the
Registrable Securities included in the Registration Statement to which the
Claim relates.  In no circumstance shall
the Company be responsible for the fees of expenses of more than one counsel
for all Indemnified Persons.  The
Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or Claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or Claim.  The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto.  No indemnifying party shall be liable for
any settlement of any action, claim or proceeding effected without its prior
written consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent.  No indemnifying party shall, without the
prior written consent of the Indemnified Party or Indemnified Person, consent
to entry of any judgment or enter into any settlement or other compromise which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party or Indemnified Person of a release from all
liability in respect to such Claim or litigation.  Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party
or Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made.  The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to
the extent that the indemnifying party is prejudiced in its ability to defend
such action.

 

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

 

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

 

7.                                       Contribution.

 

To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which
it would otherwise be liable under Section 6 to the fullest extent
permitted by law; provided, however, that: (i) no contribution shall be made
under circumstances the maker would not have been liable for indemnification
under the fault standards set forth in Section 6, (ii) no Person involved
in the sale of Registrable Securities which Person is guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in
connection with such sale shall be entitled to contribution from any Person
involved in such sale of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (iii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities pursuant to such
Registration Statement.

 

12

 

8.                                       Rule
144A Information.  The Company
shall, upon request of any Investor, make available to such Investor the
information required by Rule 144A(d)(4) (or any successor rule) under the
Securities Act.

 

9.                                       Assignment
of Registration Rights.

 

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

 

10.                                 Amendment
of Registration Rights.

 

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

 

11.                                 Termination
of Obligations.  The obligations of
the Company pursuant to Sections 3 and 4 hereof shall cease and terminate upon
the expiration of the Registration Period.

 

12.                                 Miscellaneous.

 

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

 

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

 

13

 

	
   

  	
  If to the Company:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EPIQ Systems, Inc.

  
	
   

  	
   

  	
  501 Kansas Avenue

  
	
   

  	
   

  	
  Kansas City, Kansas 
  66105-1300

  
	
   

  	
   

  	
  Telephone:

  
	
   

  	
   

  	
  Facsimile:

  
	
   

  	
   

  	
  Attention:

  
	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Gilmore & Bell, P.C.

  
	
   

  	
   

  	
  2405 Grand Boulevard, Suite
  1100

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Kansas City, Missouri  64108

  
	
   

  	
   

  	
  Telephone:

  	
  816-221-1000

  
	
   

  	
   

  	
  Facsimile:

  	
  816-221-1018

  
	
   

  	
   

  	
  Attention:

  	
  Richard M. Wright, Jr., Esq.

  
	
   

  	
   

  	
   

  
	
   

  	
  If to Legal Counsel:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Schulte Roth & Zabel LLP

  
	
   

  	
   

  	
  919 Third Avenue

  
	
   

  	
   

  	
  New York, New York  10022

  
	
   

  	
   

  	
  Telephone:

  	
  (212) 756-2000

  
	
   

  	
   

  	
  Facsimile:

  	
  (212) 593-5955

  
	
   

  	
   

  	
  Attention:

  	
  Eleazer Klein, Esq.

  

 

If to a Buyer, to its address and facsimile number set forth on the
Schedule of Buyers attached hereto, with copies to such Buyer’s
representatives as set forth on the Schedule of Buyers, or to such other
address and/or facsimile number and/or to the attention of such other Person as
the recipient party has specified by written notice given to each other party
five days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a courier or overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.

 

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

 

d.                                      All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of New York or any other jurisdictions) that
would cause the application of the laws of any jurisdictions other than the
State of New York.  Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or

 

14

 

proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. 
Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law.  If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

e.                                       This
Agreement, the Securities Purchase Agreement, the Notes and the instruments
referenced herein and therein constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
and therein.  This Agreement, the
Securities Purchase Agreement, the Notes and the instruments referenced herein
and therein supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.

 

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

 

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

 

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

 

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

 

j.                                          All
consents and other determinations required to be made by the Investors pursuant
to this Agreement shall be made, unless otherwise specified in this Agreement,
by Investors holding at least a majority of the Registrable Securities,
determined as if all the Notes then outstanding have been converted to Common
Stock without regard to any limitations on exercises of the Notes.

 

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

 

15

 

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

 

[Remainder of Page Intentionally Left Blank.]

 

16

 

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

 

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  EPIQ SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/   Tom W. Olofson

  	
   

  
	
   

  	
   

  	
  Name: 
  

  	
  Tom W. Olofson

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
					

 

17

 

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

 

	
   

  	
  BUYERS:

  
	
   

  	
   

  
	
   

  	
  RIVERVIEW GROUP, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:  

  	
  /s/   Terry Feeney

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Terry Feeney

  
	
   

  	
   

  	
  Title:

  	
  Chief Operating Officer

  
						

 

18

 

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

 

	
   

  	
  BUYERS:

  
	
   

  	
   

  
	
   

  	
  SMITHFIELD FIDUCIARY LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/   Adam J. Chill

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Adam J. Chill

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signatory

  
						

 

19

 

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

 

	
   

  	
  BUYERS:

  
	
   

  	
   

  
	
   

  	
  OMICRON MASTER TRUST

  
	
   

  	
  By:  Omicron Capital L.P., as
  advisor

  
	
   

  	
  By:  Omicron Capital Inc., its
  general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/   Bruce Bernstein

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Bruce Bernstein

  
	
   

  	
   

  	
  Title:

  	
  Managing Partner

  
						

 

20

 

SCHEDULE OF BUYERS

 

	
  Investor

  	
   

  	
  Investor
  Address

  and Facsimile Number

  	
   

  	
  Investor’s
  Representative’s Address

  and Facsimile Number

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Riverview Group, LLC

  	
   

  	
  666
  Fifth Avenue, 8th Floor

  New York, New York  10103

  Attention:  Daniel Cardella

  Facsimile:(212) 977-1667

  Telephone: (212) 841-4100

  	
   

  	
  Schulte Roth & Zabel LLP

  919 Third Avenue

  New York, New York 10022

  Attention:  Eleazer Klein, Esq.

  Facsimile:  (212) 593-5955

  Telephone:  (212) 756-2000

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Smithfield Fiduciary LLC

  	
   

  	
  c/o
  Highbridge Capital Management, LLC

  9 West 57th Street, 27th Floor

  New York, New York  10019

  Attention:  Ari J. Storch

  Adam
  J. Chill

  Facsimile:  (212) 751-0755

  Telephone: (212) 287-4720

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Omicron Master Trust

  	
   

  	
  c/o Omicron Capital L.P.

  810 Seventh Avenue

  39th Floor

  New York, New York  10019

  Attention:  Brian Daly

  Facsimile:  (212) 803-5269

  Telephone:  (212) 803-5263

  	
   

  	
   

  

 

21EXHIBIT 10.3

 

[FORM OF CONTINGENT CONVERTIBLE SUBORDINATED
NOTE]

 

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

 

CONTINGENT CONVERTIBLE SUBORDINATED NOTE

 

	
  Issuance Date: June 10, 2004

  	
   

  	
  Principal: U.S.
  $            

  

 

FOR VALUE RECEIVED,
EPIQ SYSTEMS, INC., a Missouri corporation (the “Company”), hereby promises to pay to the order of [RIVERVIEW
GROUP, LLC][SMITHFIELD FIDUCIARY LLC][OMICRON MASTER TRUST] 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 4.00% per annum, subject to periodic
adjustment pursuant to Section 2 (the “Interest
Rate”), from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due
and payable, whether upon an Interest Date (as defined below), the Maturity
Date, acceleration, conversion, redemption or otherwise (in each case in
accordance with the terms hereof).  This
Contingent Convertible Subordinated Note (including all Contingent Convertible
Subordinated Notes issued in exchange, transfer or replacement hereof, this “Note”) is one of an issue of Contingent
Convertible Subordinated Notes (collectively, the “Notes” and such other Contingent Convertible Subordinated
Notes, the “Other Notes”) issued
on the Issuance Date pursuant to the Securities Purchase Agreement (as defined
below).  Certain capitalized terms are
defined in Section 29.

 

(1)                                  MATURITY.  On the Maturity Date, the Holder shall
surrender this Note to the Company and the Company shall pay to the Holder an
amount in cash representing all outstanding Principal, accrued and unpaid
Interest and accrued and unpaid Late Charges, if any.  The “Original Maturity Date”
shall be June 15, 2007, as may be extended in accordance with
Section 8 hereof or as extended at the option of the Holder (i) in the
event that, and for so long as, an Event of Default (as

 

1

 

defined in Section 4(a)) shall have occurred and be continuing or
any event shall have occurred and be continuing which with the passage of time
and the failure to cure would result in an Event of Default and (ii) through
the date that is ten days after the consummation of a Change of Control (as
defined in Section 5(a)) in the event that a Change of Control is publicly
announced or a Change of Control Notice (as defined in Section 5(a)) is
delivered prior to the Maturity Date (as may be extended, the “Maturity Date”).

 

(2)                                  INTEREST;
INTEREST RATE.  Interest on this
Note shall commence accruing on the Issuance Date and shall be computed on the
basis of a 365-day year and actual days elapsed and shall be payable in arrears
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 July 1, 2004.  Interest shall be payable on each Interest Date in cash.  From and after the occurrence of an Event of
Default, the Interest Rate shall be increased to 11%.  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 $0.01 per
share (the “Common Stock”), on the
terms and conditions set forth in this Section 3.

 

(a)                                  Conversion
Right.  (i)  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 $100,000 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 transfer, stamp or similar 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 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 portion of
the Principal to be converted, redeemed or otherwise with respect to which this
determination is being made.

 

(ii)                                  “Conversion Price” means, as of any
Conversion Date (as defined below) or other date of determination, and subject
to adjustment as provided herein, $17.50.

 

(c)                                  Mechanics
of Conversion.

 

(i)                                     Optional
Conversion.  To convert any
Conversion Amount into shares of Common Stock on any date (a “Conversion Date”), the Holder shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior to 4:59
p.m., New York Time, on such date, a copy of a duly executed and completed
notice of conversion in good order in the form

 

2

 

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 in
form and substance reasonably acceptable to the Company 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 third 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 Agent Commission 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 three 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 Conversion Amount on or prior to the date
which is three Trading Days after the Conversion Date, and if after such third
Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
the shares of Common Stock that the Holder anticipated receiving from the
Company pursuant hereto (a “Buy-In”),
then the Company shall, within three Trading Days after the Holder’s request
and in the Holder’s discretion, either (i) pay cash to the Holder in an amount
equal to the Holder’s total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the
Company’s obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times (B)
the Closing Sale Price on the date of the event giving rise to the Company’s
obligation to deliver such certificate. 
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 Conversion Amount on or
prior to the date which is five Business Days after the Conversion Date (a “Conversion Failure”), then (A) the Company
shall pay damages to the Holder for each date 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

 

3

 

voiding of a Conversion Notice shall not affect the Company’s
obligations to make any payments which have accrued prior to the date of such
notice pursuant to this Section 3(c)(ii) or otherwise.

 

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

 

(iv)                              Pro Rata Conversion;
Disputes.  In the event that the
Company receives a Conversion Notice from more than one holder of Notes for the
same Conversion Date and the Company can convert some, but not all, of such
portions of the Notes submitted for conversion, the Company, 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.  The Company shall not
effect any conversion of this Note, and the Holder of this Note shall not have
the right to convert any portion of this Note pursuant to Section 3(a), to
the extent that after giving effect to such conversion, the Holder (together
with the Holder’s affiliates) would beneficially own in excess of 9.99% of the
number of shares of Common Stock outstanding immediately after giving effect to
such conversion.  For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Note beneficially owned by the Holder
or any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any Other Notes or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its affiliates. 
Except as set forth in the preceding sentence, for purposes of this
Section 3(d)(i), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as
amended.  For purposes of this
Section 3(d)(i), in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock
as reflected in (x) the Company’s most recent Form 10-Q or Form 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 one Business Day confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. 
In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the

 

4

 

conversion or exercise of securities of the Company, including this
Note, by the Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.

 

(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 which 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 purchaser of the Notes
pursuant to the Securities Purchase Agreement (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
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 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.

 

(iii)                               Contingent
Convertibility.  Notwithstanding the
foregoing, this Note shall only be convertible: (v) during the period
commencing on the Issuance Date and terminating on January 14, 2005, at
any time after the arithmetic average of the Weighted Average Price of the
Common Stock equals or exceeds 110% of the then applicable Conversion Price for
ten (10) consecutive Trading Days; (w) from and after January 15, 2005, if
the Weighted Average Price of the Common Stock equals or exceeds 110% of the
then applicable Conversion Price on any five (5) consecutive Trading Days
during any calendar year; (x) from and after the Issuance Date, if the Weighted
Average Price of the Common Stock is less than $10.75 (the “Minimum Price”) (subject to adjustment as
provided herein) on any five (5) consecutive Trading Days; (y) if there shall
have occurred (A) the public announcement of a pending, proposed or intended
Change of Control that has not been abandoned, terminated or consummated, (B)
an Event of Default or (C) an event that with the passage of time or giving of
notice, and assuming it were not cured, would constitute an Event of Default;
or (z) upon receipt of a Mandatory Conversion Notice.

 

5

 

(4)                                  RIGHTS
UPON EVENT OF DEFAULT.

 

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

 

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

 

(ii)                                  the suspension from
trading or failure of the Common Stock to be listed on the Principal Market or
The New York Stock Exchange, Inc. for a period of five consecutive Trading Days
or for more than an aggregate of seven Trading Days in any 365-day period;

 

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

 

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

 

(v)                                 the Company’s failure
to pay to the Holder any amount of Principal, Interest, Late Charges or other
amounts when and as due under this Note, the Securities Purchase Agreement, the
Registration Rights Agreement or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
hereby and thereby to which the Holder is a party, except, in the case of a
failure to pay Interest, Late Charges or amount other than Principal when and
as due, in which case only if such failure continues for a period of at least
five Business Days;

 

(vi)                              any default under or
acceleration prior to maturity of any Indebtedness (as defined below) of the
Company or any of its Subsidiaries (as defined in Section 3(a) of the
Securities Purchase Agreement) with an unpaid principal amount in excess of
$1,000,000 at the time of such acceleration other than with respect to any
Other Notes; 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 of such Indebtedness prior to its maturity,
only upon acceleration of such Indebtedness;

 

6

 

(vii)                           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”),  (D) makes a general assignment for the
benefit of its creditors or (E) admits in writing that it is generally unable
to pay its debts as they become due;

 

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

 

(ix)                                a final judgment or
judgments for the payment of money aggregating in excess of $1,000,000 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 $1,000,000 amount set forth above so long as the Company provides the
Holder a written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Holder) to the effect
that such judgment is covered by insurance or an indemnity and the Company will
receive the proceeds of such insurance or indemnity within 30 days of the
issuance of such judgment;

 

(x)                                   the Company
materially breaches any representation, warranty, covenant or other term or
condition of the Securities Purchase Agreement, the Registration Rights
Agreement, this Note, the Other Notes, or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated thereby and hereby to which the Holder is a party, except, in the
case of a breach of a covenant or other term or condition which is curable,
only if such breach continues for a period of at least ten (10) consecutive
Business Days;

 

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

 

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

 

(xiii)                          either of (x) the Total Debt
to Total Capitalization Ratio shall exceed .55:1.00 or (y) the Total Debt to
EBITDA Ratio shall exceed 3.50:1.00.

 

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

 

7

 

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, stock transaction 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 (any of the foregoing (A) and (B), a “Surviving Change”));

 

(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 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).  In the event of a Surviving Change, the
entity resulting from or succeeding to the Company in such Surviving Change
shall assume the obligations under the Notes on the same terms and conditions
as the Notes and having a principal amount and interest rate equal to the
principal amounts and the interest rates of the Notes.

 

(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 10 days after the consummation of such Change of
Control), the Holder may require the Company

 

8

 

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(c) shall be redeemed by
the Company at a price equal to the greater of (i) the product of (x) the
Conversion Amount being redeemed and (y) the quotient determined by dividing
(A) the Closing Sale Price of the Common Stock immediately following the public
announcement of such proposed Change of Control by (B) the Conversion Price and
(ii) 110% of the Conversion Amount being redeemed (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.

 

(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 all or
substantially all record holders 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 all or substantially all
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 and Minimum 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 and Minimum 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

 

9

 

smaller number of shares, the Conversion Price and Minimum Price in
effect immediately prior to such combination will be proportionately increased.

 

(b)                                 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 and Minimum Price so as to protect the
rights of the Holder under this Note; provided that no such adjustment will
increase the Conversion Price or Minimum Price as otherwise determined pursuant
to this Section 7.

 

(8)                                  EXTENSION
OF MATURITY DATE AT HOLDER’S OPTION. 
The holders of Notes representing at least a majority of the aggregate
principal amount of the Notes then outstanding shall have the right, in their
sole discretion, to require that the Original Maturity Date of all then
outstanding Notes be extended for a period not to exceed three years from the
Original Maturity Date, without the action of any other Person, by delivering
written notice thereof (a “Holder Maturity
Date Extension Notice”) to the Company at any time prior to the
Original Maturity Date, which Holder Maturity Date Extension Notice shall
indicate the Maturity Date, as so extended, of this Note.  Within two Business Days of receipt of a
Holder Maturity Date Extension Notice, the Company shall inform all other
holders of Notes that such a notice has been received by the Company.

 

(9)                                  COMPANY’S
RIGHT OF MANDATORY CONVERSION AND OPTIONAL REDEMPTION.  (a) Mandatory Conversion.  If at any time from and after June 10,
2007, the Weighted Average Price of the Common Stock exceeds 200% of the
Conversion Price as of the Issuance Date (subject to appropriate adjustments
for stock splits, stock dividends, stock combinations and other similar
transactions after the Issuance 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 two 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 (or are deemed to have received such
notice in accordance with Section 9(f) of the Securities Purchase
Agreement) 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), then it must simultaneously
take the same action with respect to 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 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 Notes and
purchased by all holders pursuant to the Securities Purchase Agreement (such
fraction with respect to each holder is referred to as its “Allocation Percentage,” and such amount
with respect to each holder is

 

10

 

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 15 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 three
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 on a timely basis as set forth
in Section 3(c)(i); provided, however, that the Company shall be deemed to
have satisfied the conditions set forth in this clause (i) if on not more than
two occasions prior to the delivery of the Company’s Mandatory Conversion
Notice the Company has failed to meet the requirements set forth in
Section 3(c)(i) hereof by no more than three days; (ii) on each day 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 “Notice Measuring Period”), the Common
Stock shall be listed on the Principal Market or The New York Stock Exchange,
Inc. and delisting or suspension by such market or exchange shall not have been
threatened either (A) in writing by such market or exchange or (B) by falling
below the minimum listing maintenance requirements of such market or exchange;
(iii) during the period beginning on the first Trading Day of the Notice
Measuring Period and ending on and including the Mandatory Conversion Date,
there shall not have occurred (x) the public announcement of a pending,
proposed or intended Change of Control which has not been abandoned, terminated
or consummated, (y) an Event of Default or (z) an event that with the passage
of time or giving of notice, and assuming it were not cured, would constitute
an Event of Default if such event has not been cured prior to the Mandatory
Conversion Notice Date; (iv) on each day of the period beginning on the date of
delivery of the Mandatory Conversion Notice and ending on the Mandatory
Conversion Date either (x) the Registration Statement or Registration
Statements required pursuant to 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; and (v) on each day of the period
beginning on the Mandatory Conversion Date and ending thirty (30) Trading Days
thereafter either (x) the Registration Statements required pursuant to the
Registration Rights Agreement shall be expected to be effective and available
for the sale of at least 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.

 

11

 

(d)                                 Limitations.  If the Company is unable to deliver
Conversion Shares pursuant to a Mandatory Conversion under this Section 9
(such undeliverable Conversion Shares, the “Blocked
Shares”) as a result of the provisions of Section 3(d)(i) hereof,
then notwithstanding the provisions of Section 3(d)(i) hereof Company
shall be entitled to deliver the Blocked Shares (without being subject to any
conditions hereunder including the Conditions to Mandatory Conversion and the
provisions of Section 3(d)(i) hereof) ninety (90) days after the Mandatory
Conversion Date.  The Holder shall
inform the Company of the number of Blocked Shares applicable to such Holder
within one Business Day after the Mandatory Conversion Notice Date.  If the Company receives no written notice
from the Holder of the number of Blocked Shares applicable to such Holder by
the end of the Business Day after the Mandatory Conversion Notice Date, the
Company may conclusively conclude that there are no Blocked Shares for such
Holder.

 

(e)                                  Company
Optional Redemption Right.

 

(i)                                     Company
Optional Redemption.  If at any time
from and after the aggregate Principal amount of the then outstanding Notes is
equal to or less than $6,000,000, the Conditions to Company Redemption (as set
forth below) are satisfied or waived in writing by the Holder, the Company
shall have the right to redeem all but not less than all Notes then outstanding
(a “Company Optional Redemption”).  The Company may exercise its right of
redemption under this Section 9(e)(i) by delivering a written notice
thereof by facsimile and overnight courier to all of the holders of Notes and
the Transfer Agent (the “Company Optional Redemption Notice”). 
The Company Optional Redemption Notice shall be irrevocable.  This Note shall be redeemed by the Company
pursuant to this Section 9(e)(i) at a price equal to 110% of the
Conversion Amount (the “Company Optional Redemption Price”). 
Notwithstanding the foregoing, the Holder may continue to convert this
Note into Common Stock pursuant to Section 3(a) on or prior to the date
immediately preceding the Company Optional Redemption Date.  Redemptions required by this
Section 9(e) shall be made in accordance with the provisions of
Section 12.

 

(ii)                                  Company
Optional Redemption Notice.  If the
Company elects to cause a redemption of all of the Conversion Amount of this
Note pursuant to Section 9(e)(i), then it must simultaneously take the
similar action with respect to the Other Notes.  The Company Optional Redemption Notice shall state (A) the Trading
Day selected for the Company Optional Redemption in accordance with
Section 9(e)(i), which Trading Day shall be at least 20 Business Days but
not more than 60 Business Days following the Company Optional Redemption Notice
Date (the “Company
Optional Redemption Date”), (B) that all outstanding Notes have been
called for optional redemption pursuant to this Section 9(e) (and
analogous provisions under the Other Notes), and (C) the Company Optional
Redemption Price to be paid to such Holder as of the Company Optional
Redemption Date.  All Conversion Amounts
converted by the Holder after delivery of the Company Optional Redemption
Notice Date shall reduce the Conversion Amount of this Note required to be
redeemed on the Company Optional Redemption Date.

 

(iii)                               Conditions
to Company Redemption.  For purposes
of this Section 9(e), “Conditions to Company Redemption” means
the Conditions to Mandatory Conversion with the term “Mandatory Conversion
Notice” being replaced by “Company Optional Redemption Notice” and the term
“Mandatory Conversion Date” being replaced by “Company Optional Redemption
Date”.

 

(10)                            NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Articles 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

 

12

 

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 take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, 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; provided that at no time shall
the number of shares of Common Stock so reserved be less than the number of
shares required to be reserved by the previous sentence (without regard to any
limitations on conversions) (the “Required
Reserve Amount”).  The
initial number of shares of Common Stock reserved for conversions of the Notes
and each increase in the number of shares so reserved shall be allocated pro
rata among the holders of the Notes based on the principal amount of the Notes
held by each holder at the 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 take all action reasonably
necessary to increase the Company’s authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount for
the Notes then outstanding.  Without
limiting the generality of the foregoing sentence, as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in no event
later than 60 days after the occurrence of such Authorized Share Failure, the
Company shall hold a meeting of its stockholders for the approval of an
increase in the number of authorized shares of Common Stock.  In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best
efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

 

(12)                            HOLDER’S
REDEMPTIONS.

 

(a)                                  Mechanics.  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), or has received
a Company Optional Redemption Notice pursuant to Section 9(b), then the
Holder shall promptly after receipt of the applicable Redemption Price submit
this Note to the Company (each, a “Redemption
Notice”).  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

 

13

 

after the Company’s receipt of such notice otherwise.  The Company shall deliver the Company
Optional Redemption Amount to the Holder on the Company Optional Redemption
Date.  In the event of a redemption of
less than all of the Conversion Amount of this Note, the Company shall promptly
cause to be issued and delivered to the Holder a new Note (in accordance with
Section 19(d)) representing the outstanding Principal which has not been
redeemed.  In the event that the Company
does not pay the Event of Default Redemption Price, the Change of Control
Redemption Price or the Company Optional Redemption Price (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) (together
with any Late Charges thereon) has not been paid.  Upon the Company’s receipt of such notice, (x) the Redemption
Notice shall be null and void with respect to such Conversion Amount, (y) the
Company shall immediately return this Note, or issue a new Note (in accordance
with Section 19(d)) to the Holder representing such Conversion Amount and
(z) the Conversion Price of this Note or such new Notes shall be adjusted to
the lesser of (A) the Conversion Price as in effect on the date on which the
Redemption Notice is voided and (B) the lowest Closing Bid Price during the
period beginning on and including the date on which the Redemption Notice is
delivered to the Company and ending on and including the date on which the
Redemption Notice is voided.  The
Holder’s delivery of a notice voiding a Redemption Notice and exercise of its
rights following such notice shall not affect the Company’s obligations to make
any payments of Late Charges which have accrued prior to the date of such
notice with respect to the Conversion Amount subject to such notice.

 

(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) or the Company’s delivery of a Company Optional Redemption
Notice pursuant to Section 9(e) (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 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)                            [INTENTIONALLY
OMITTED]

 

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

 

14

 

(15)                            RANK;
ADDITIONAL INDEBTEDNESS; LIENS.

 

(a)                                  Rank.                  All payments due under this Note (a) shall rank pari passu with all Other Notes and (b)
shall be senior to all other Indebtedness of the Company and its Subsidiaries,
other than Permitted Indebtedness (as defined below).

 

(b)                                 Incurrence of Indebtedness.  So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer
to exist any Indebtedness, other than (i) the Indebtedness evidenced by this
Note and the Other Notes and (ii) Permitted Indebtedness.  As used herein, “Permitted Indebtedness”
means (A) Senior Indebtedness; and (B) Permitted Subordinated 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, (iv)
carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other
similar Liens imposed by law, so long as payment on such Lines is not more than
30 days past due, or (v) other Liens permitted by the Company’s senior credit
agreement in existence on the date hereof as filed as an exhibit to the
Company’s current report on Form 8-K filed with the SEC on February 13,
2004, and without giving effect to future amendments to or the termination of
the credit agreement.

 

(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, or that with the passage
of time and without being cured would constitute, an Event of Default has occurred
and is continuing.

 

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

 

(17)                            VOTE
TO ISSUE, OR CHANGE THE TERMS OF, NOTES. 
The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the 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 in the sole discretion of the Company.  Any change or amendment to this Note or the
Other Notes so approved upon

 

15

 

written notice by the Company of such change or amendment shall be
binding upon the Holder and holders, present and future, of this Note and the
Other Notes without regard to whether the terms of such change or amendment are
reflected in this Note or the Other Notes.

 

(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,
provided that this Note may be offered, sold, assigned or transferred only in
Principal amounts of $3,000,000 (or the entire remaining Principal amount if
less) or increments of $100,000 in excess thereof..

 

(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.

 

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

 

16

 

(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 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.

 

17

 

(25)                            NOTICES;
PAYMENTS.

 

(a)                                  Notices.  Whenever notice is required to be given
under this Note, unless otherwise provided herein, such notice shall be given
in accordance with Section 9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Note, including in
reasonable detail a description of such action and the reason therefore.  Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least twenty
(20) days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common Stock,
(B) with respect to any pro rata subscription offer to holders of Common Stock
or (C) for determining rights to vote with respect to any 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 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 to a U.S. bank or the domestic branch of a foreign bank of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder’s wire transfer instructions.  Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is paid
in full, the extension of the due date thereof shall not be taken into account
for purposes of determining the amount of Interest due on such date.  Any amount of Principal or other amounts due
under the Transaction Documents (as defined in the Securities Purchase
Agreement) which is not paid when due shall result in a late charge being
incurred and payable by the Company in an amount equal to interest on such
amount at the rate of 15% per annum from the date such amount was due until the
same is paid in full (“Late Charge”).

 

(26)                            CANCELLATION.  After all Principal, accrued Interest and
other amounts at any time owed on this Note 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.

 

18

 

(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 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 4:00:00 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)                                    “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.

 

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

 

19

 

(h)                                 “EBITDA” means, for any four Calendar
Quarter period for any Person, the net income (or net loss) of such Person and
its consolidated Subsidiaries, determined in accordance with GAAP, plus (i) any
provision for (or less any benefit from) income taxes, (ii) any deduction for
interest expense, net of interest income (iii) depreciation and amortization
expense, (iv) the non-cash portion of compensation expense related to the grant
of stock options, restricted stock, and stock appreciation rights, (v) any
other components of net income (or net loss) which are non-cash and will not
convert to cash prior to the final maturity of this Note, and (vi) costs, fees
and expenses incurred in connection with any acquisition transaction, and as
adjusted for the following items (to the extent that they are reflected in net
income or net loss): elimination of: (v) any net income (or net loss) from
discontinued operations as determined in accordance with GAAP (w) all
extraordinary gains and losses determined in accordance with GAAP, (x) gains
and losses from sales or dispositions of property and equipment or other fixed
assets, (y) all non-recurring income and expense items not incurred in the ordinary
course of business to the extent included in the determination of net income
for the relevant determination period and (z) foreign currency transaction
gains and losses, to the extent included in the determination of net income for
the relevant determination period; provided, however, that if,
during the four Calendar Quarter period for which the EBITDA of a Person is
being calculated, such Person has completed an acquisition of an on-going
business (a “Target”), the EBITDA
of such Person shall be recalculated to include the EBITDA of such Target as if
such acquisition (including any acquisition completed prior to the date of this
Note but within the applicable period for which EBITDA is being calculated) had
been completed on the first day of the relevant measuring period.  To the extent applicable, all determinations
of the components of EBITDA shall be derived from the Company’s then most
recently filed Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as
applicable.

 

(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; and (iii) upon
conversion of any Options or Convertible Securities which are outstanding on
the day immediately preceding the Issuance Date, provided that the terms of
such Options or Convertible Securities are not amended, modified or changed on
or after the Issuance Date.

 

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

 

(k)                                  “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

 

20

 

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.

 

(l)                                     “Issuance Date” means June 10, 2004.

 

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

 

(n)                                 “Permitted Subordinated Indebtedness” means
Indebtedness that (x) is made expressly subordinate in right of payment to the
Indebtedness evidenced by this Note and the Other Notes on terms reasonably
satisfactory to the holders of Notes representing not less than a majority of
the aggregate principal amount of the then outstanding Notes and (y) does not
provide at any time for the payment, prepayment, repayment, repurchase or
defeasance, directly or indirectly, of any principal or premium, if any,
thereon until at least 91 days after the Maturity Date.

 

(o)                                 “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.

 

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

 

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

 

(r)                                    “Registration Rights Agreement” means that
certain registration rights agreement between the Company and the initial
holders of the Notes relating to the registration of the resale of the shares
of Common Stock issuable upon conversion of the Notes.

 

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

 

(t)                                    “Securities Purchase Agreement” means that
certain securities purchase agreement between the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes.

 

(u)                                 “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) payable under the agreements or instruments evidencing, any
unaffiliated, third-party Indebtedness of the Company and its Subsidiaries,
whether now existing or hereafter arising (together with any renewals,
refundings, refinancings or other extensions thereof), which is not made
expressly subordinate in right of payment to the Indebtedness evidenced by this
Note and the Other Notes, provided that the aggregate amount of such Senior Indebtedness
(taking into account the maximum amounts which may be advanced under the loan
documents evidencing such Senior Indebtedness) does not as of the date on which
such Senior Indebtedness is incurred exceed the product of (i) 2.5 and (ii)
EBITDA (the “Senior Indebtedness Cap”).  Without limitation of the generality of the
foregoing and subject to the Senior Indebtedness Cap, Senior Indebtedness shall
include the obligations of the Company to its current senior secured lender,
LaSalle Bank, N.A. and any participants with LaSalle Bank, N.A. in such
Indebtedness (the “Senior Bank Obligations”),
and the Senior Bank Obligations are designated as Senior Indebtedness.  The Company

 

21

 

may from time to time designate by written notice to the Holder the
obligations, in addition to the Senior Bank Obligations, which constitute
Senior Indebtedness, and, provided that, at the time that the Senior
Indebtedness is incurred (or a commitment to lend any Senior Indebtedness is
made), the aggregate Senior Indebtedness of the Company does not exceed the
Senior Indebtedness Cap, Senior Indebtedness so designated shall continue to be
Senior Indebtedness notwithstanding any subsequent decline in the Company’s
EBITDA.

 

(v)                                 “Total Capitalization” means, at any time,
the sum of (i) the sum of all amounts (without duplication) which, in
accordance with GAAP, would be included in the Company’s stockholders’ equity
(excluding unrealized gains or losses pursuant to GAAP) as required to be
reported in the Company’s then most recent consolidated balance sheet, (ii)
Total Debt and (iii) the cumulative (subsequent to issuance of this Note)
non-cash portion of compensation expense related to the grant of stock options,
restricted stock, and stock appreciation rights.

 

(w)                               “Total Debt” means, on any date, the
outstanding principal amount of all Indebtedness of the Company and its
Subsidiaries of the type referred to in clauses (A), (C), (D), (F) and (G) of
the definition of “Indebtedness” along with any Contingent Obligation in
respect of any of the foregoing.

 

(x)                                   “Total Debt to EBITDA Ratio” means, as of
the last day of any Calendar Quarter, the ratio of (i) Total Debt outstanding
on such day to (ii) EBITDA on such day.

 

(y)                                 “Total Debt to Total Capitalization Ratio”
means, as of the last day of any Calendar Quarter, the ratio of (i) Total Debt
outstanding on such day to (ii) Total Capitalization on such day.

 

(z)                                   “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).

 

(aa)                            “Weighted Average Price” means, for any
security as of any date, the dollar volume-weighted average price for such
security on the Principal Market during the period beginning at 9:30:01 a.m.,
New York Time (or such other time as the Principal Market publicly announces is
the official open of trading), and ending at 4:00:00 p.m., New York Time (or
such other time as the Principal Market publicly announces is the official
close of trading) as reported by Bloomberg through its “Volume at Price”
functions, or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security during the period beginning at 9:30:01 a.m.,
New York Time (or such other time as such market publicly announces is the
official open of trading), and ending at 4:00:00 p.m., New York Time (or such
other time as such market publicly announces is the official close of trading)
as reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the “pink sheets” by Pink Sheets LLC
(formerly the National Quotation Bureau, Inc.).  If the Weighted Average Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Weighted Average Price
of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. 
If the Company and the Holder

 

22

 

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]

 

23

 

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

 

	
   

  	
  EPIQ SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Tom W. Olofson

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
						

 

24

 

EXHIBIT I

 

EPIQ SYSTEMS, INC.

CONVERSION NOTICE

 

Reference is made to the Contingent Convertible Subordinated Note (the “Note”) issued to the undersigned by EPIQ
Systems, 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 Common Stock, par value $0.01
per share, of the Company (the “Common Stock”)
as of the date specified below.

 

Date of Conversion:

 

Aggregate Conversion Amount to be converted:

 

The undersigned hereby certifies to the Company that the Company’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 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:

 

Name/Address for Issuance:

 

 

 

U.S. Tax Identification Number, if applicable: 

 

Broker/Dealer Information for DWAC:

 

Brokerage Name & DTC Participant #

 

Settlement Date                  
Broker
Contact                         
Phone
#                   

 

Facsimile Number:

 

Authorization:

 

	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  
	
  Dated:

  	
   

  
					

 

25

 

	
  Account Number:

  
	
    (if electronic DWAC/book entry transfer)

  
	
   

  
	
  Transaction Code Number:

  
	
    (if electronic DWAC/book entry transfer)

  

 

26

 

CONVERSION ACKNOWLEDGMENT

 

&

 

TRANSFER AGENT INSTRUCTION

 

The Company hereby acknowledges this Conversion Notice and hereby
directs Wells Fargo Shareowner Services to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
June 10, 2004 from the Company and acknowledged and agreed to by Wells
Fargo Shareowner Services.

 

	
   

  	
  EPIQ SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

27

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