Document:

Exhibit 4.1

 

EXECUTION VERSION

 

SENIOR
SUBORDINATED CONVERTIBLE NOTES

 

This Senior Subordinated
Convertible Notes Agreement (this “Agreement”),
is made and entered into as of March 22, 2010, among Deerfield Capital
Corp., a Maryland corporation (the “Company”),
Bounty Investments, LLC (“Bounty”)
and any additional investors satisfactory to Bounty that become party hereto in
accordance with the terms hereof (each, an “Additional
Investor” and, together with Bounty, an “Investor”
and, together with any assignee or transferee of the Securities (as defined
below) in accordance with the terms of this Agreement, the “Holders”).

 

W I T N E S S E T H:

 

WHEREAS, the Company, Bounty
and Columbus Nova Credit Investment Management, LLC, a Delaware limited
liability company (“CNCIM”), have entered
into that certain Acquisition and Investment Agreement, dated as of March 22,
2010 (the “Acquisition Agreement”),
pursuant to which, upon the terms and subject to the conditions therein, the
Company has agreed to issue the Stock Consideration to Bounty in consideration
for the purchase of all of the Equity Interests of CNCIM, a wholly owned
subsidiary of Bounty;

 

WHEREAS, the Company has
indicated its desire to sell, and the Investors have indicated their respective
desire to buy, an aggregate principal amount of $25,000,000 of the Company’s
Senior Subordinated Convertible Notes (the “Notes”)
convertible into shares of common stock, $0.001 par value per share, of the
Company (the “Common Stock”; the Notes and
shares of Common Stock that may be issued upon conversion thereof are herein
collectively called the “Securities”);

 

WHEREAS, the Company has
agreed among other things to grant to the Holders certain registration rights
with respect to the Common Stock issuable upon conversion of the Notes as set
forth in a Registration Rights Agreement (as defined in Exhibit A hereto),
substantially in the form attached as Exhibit H hereto;

 

WHEREAS, in connection with
the Acquisition Agreement, the Company has agreed among other things to enter
into (i) a stockholders agreement with Bounty, substantially in the form
attached as Exhibit A to the Acquisition Agreement (the “Stockholders Agreement”), (ii) the
Registration Rights Agreement, substantially attached as Exhibit B to the
Acquisition Agreement with respect to the shares of Company Common Stock
issuable thereunder (which for the avoidance of doubt is the same as the
Registration Rights Agreement attached as Exhibit H hereto) and (iii) a
Transition Services Agreement (the “Transition Services Agreement” and, together with this Agreement, the
Acquisition Agreement, the Stockholders Agreement and the Registration Rights
Agreement, the “Transaction Documents”); and

 

WHEREAS, in connection with
such sale and purchase, the Company and the Investors are each willing to agree
to observe certain covenants set forth in this Agreement for the benefit of the
other party, and the parties will rely on such covenants as a material
inducement to their sale and purchase of the Securities pursuant to this Agreement.

 

NOW THEREFORE, in
consideration of the premises, the purchase and sale of the Securities, and of
the respective covenants contained in this Agreement, the parties to this
Agreement agree as follows:

 

1

 

1.                                       Definitions.

 

1.1                                 Certain Defined
Terms.  Certain terms used but not
defined elsewhere in this Agreement have the meanings assigned to them in Exhibit A.  In addition, the following terms are defined
in the following sections:

 

	
  Term

  	
   

  	
  Defined in

  Section

  
	
  AHYDO
  Catch-up Payment

  	
   

  	
  2.6(d)

  
	
  Balance
  Sheet Date

  	
   

  	
  11.1(h)

  
	
  Cash
  Interest Rate

  	
   

  	
  2.6(e)(i)

  
	
  Change
  of Control Offer

  	
   

  	
  3.8

  
	
  Change
  of Control Payment

  	
   

  	
  3.8

  
	
  Change
  of Control Payment Date

  	
   

  	
  3.8

  
	
  Closing

  	
   

  	
  2.2

  
	
  Closing
  Date

  	
   

  	
  2.2

  
	
  Company
  Disclosure Schedule

  	
   

  	
  11.1

  
	
  Company
  Financial Statements

  	
   

  	
  11.1(g)(i)

  
	
  Company
  SEC Documents

  	
   

  	
  11.1(g)(i)

  
	
  Default
  Interest

  	
   

  	
  2.6(f)

  
	
  Distributed
  Property

  	
   

  	
  6.2(d)

  
	
  Equity-Linked
  Securities

  	
   

  	
  6.1

  
	
  Event
  of Default

  	
   

  	
  9.1

  
	
  Excluded
  Securities

  	
   

  	
  6.1

  
	
  Expiration
  Date

  	
   

  	
  6.2(f)

  
	
  incur

  	
   

  	
  3.6

  
	
  Interest
  Payment Date

  	
   

  	
  2.6(a)

  
	
  Interest
  Period

  	
   

  	
  2.6(a)

  
	
  Interest
  Rate

  	
   

  	
  2.6(e)

  
	
  Maturity
  Date

  	
   

  	
  2.5

  
	
  Merger
  Event

  	
   

  	
  6.4(a)

  
	
  Notice
  of Conversion

  	
   

  	
  5.2(a)

  
	
  Notice
  of Election to Defer

  	
   

  	
  2.6(c)(iii)

  
	
  Notice
  of Transfer

  	
   

  	
  7.2(c)

  
	
  Notices

  	
   

  	
  13.7

  
	
  Paying
  Agent

  	
   

  	
  2.3

  
	
  Payment
  Blockage Notice

  	
   

  	
  8.3(a)(ii)

  
	
  Payment
  Default

  	
   

  	
  9.1(e)(i)

  
	
  PIK
  Election

  	
   

  	
  2.6(c)

  
	
  PIK
  Interest

  	
   

  	
  2.6(c)

  
	
  PIK
  Interest Rate

  	
   

  	
  2.6(e)(ii)

  
	
  Preferred
  Stock

  	
   

  	
  11.1(d)

  
	
  Reference
  Property

  	
   

  	
  6.4(a)

  
	
  Register

  	
   

  	
  7.2(c)

  
	
  Registrar

  	
   

  	
  2.3

  
	
  Rule 144

  	
   

  	
  3.3(c)

  
	
  Spin-off

  	
   

  	
  6.2(e)

  
	
  Stockholder
  Rights Plan

  	
   

  	
  6.3(a)

  
	
  Stockholders
  Meeting

  	
   

  	
  11.1(b)

  
	
  Valuation
  Period

  	
   

  	
  6.2(e)

  

 

2

 

1.2                                 Accounting
Terms.  Each accounting term not
otherwise defined herein shall have the meaning assigned to it, and be
interpreted, in accordance with GAAP. 
All accounting calculations and determinations hereunder shall be made
in accordance with GAAP, and all financial statements required to be delivered
hereunder shall be prepared on a consolidated basis in accordance with GAAP.

 

1.3                                 Rules of
Construction.  Unless the
context otherwise requires:

 

(a)                                  A term has the meaning assigned to it;

 

(b)                                 “or” is not exclusive;

 

(c)                                  whenever the words “include,” “includes” or “including” are
used in this Agreement they will be deemed to be followed by the phrase “without
limitation;”

 

(d)                                 Words in the singular include the plural, and in the plural
include the singular;

 

(e)                                  “will” shall be interpreted to express a command;

 

(f)                                    Provisions apply to successive events and transactions;

 

(g)                                 References to any section, clause, schedule or exhibit refer
to the corresponding section, clause, schedule or exhibit, respectively, of
this Agreement; and

 

(h)                                 References to sections of or rules under the Securities
Act or the Exchange Act will be deemed to include substitute, replacement or
successor sections or rules adopted by the SEC from time to time.

 

2.                                       The Notes

 

2.1                                 Purchase of the
Notes.  At the Closing, on the terms
and subject to the conditions of this Agreement and in reliance upon the
representations, warranties, covenants and agreements set forth herein, the
Company shall issue and sell to each Investor, and each Investor severally, but
not jointly, agrees to purchase from the Company on the Closing Date, the
aggregate principal amount of the Notes set forth opposite the name of such
Investor on Schedule A attached hereto at an aggregate purchase price of 100%
of the principal amount thereof, by payment of cash by wire transfer of
immediately available funds in accordance with the Company’s written wire
instructions, and the Company shall deliver to each Investor the Notes in the
principal amount which such Investor is then purchasing, duly executed on
behalf of the Company and registered in the name of such Investor.

 

2.2                                 Closing. The closing of the issuance of the Initial Notes and the consummation
of the other transactions contemplated hereby contemporaneous therewith (the “Closing”) shall take place at
10:00 a.m. (New York City time) at the offices of Schulte Roth &
Zabel LLP, 919 Third Avenue, New York, New York 10022 no later than the third
Business Day following the satisfaction or waiver of each of the conditions set
forth in Section 12 hereof (other than those conditions that by their
nature are to be satisfied by actions taken at the Closing, but subject to the
satisfaction or waiver of such conditions), or at such other time and place as
may be mutually agreed to by the Company and the Investors.  Such time and date are referred to in this
Agreement as the “Closing
Date.”

 

3

 

2.3                                 General.  The Notes will be substantially in the form
of Exhibit B.  The Notes may
have notations, legends or endorsements required by Law, stock exchange rule or
usage.  Each Note will be dated the date
of its issuance.  The Notes shall be in
denominations of $1,000,000 and integral multiples thereof, except that (a) Notes
issued upon the payment of PIK Interest may be in other denominations or (b) to
the extent PIK Interest is capitalized to the principal amount of outstanding
Notes, the principal amount thereof may be increased and result in less than an
integral multiple of $1,000.

 

The terms and provisions
contained in the Notes will constitute, and are hereby expressly made, a part
of this Agreement, and the Company and the Investors, by their execution and
delivery of this Agreement, expressly agree to such terms and provisions and to
be bound thereby.  However, to the extent
any provision of any Note conflicts with the express provisions of this
Agreement, the provisions of this Agreement shall govern and be controlling.

 

At least one duly authorized
officer of the Company must sign the Notes for the Company by manual or
facsimile signature.

 

The Company will maintain an
office or agency where Notes may be presented for registration of transfer or
for exchange (“Registrar”) and an office or
agency where Notes may be presented for payment (“Paying
Agent”).  The Registrar
will keep a register of the Notes and of their transfer and exchange.  The Company initially appoints itself to act
as Registrar and Paying Agent.

 

2.4                                 Principal
Amount.  The aggregate principal amount
of Notes issuable under this Agreement shall be limited to an amount equal to
$50,000,000 plus the principal amount of all Notes issued in the form of PIK
Interest on Notes (including on PIK Interest previously paid) in accordance
with the terms of this Agreement.  At
Closing, the Company will issue $25,000,000 of Initial Notes and, subject to
compliance with the covenants set forth herein, from time to time from and
after the Closing Date the Company may issue an aggregate of up to $25,000,000
in principal amount of Additional Notes under this Agreement (excluding PIK
Interest payable on Notes) if the Holders representing a majority in principal
amount of Notes outstanding immediately prior to such issuance have consented
to such issuance of additional Notes and the principal amount thereof at the
time of such  issuance.  Each Additional Investor purchasing
Additional Notes shall be satisfactory to Bounty and shall become a party to
this Agreement by executing a Joinder Agreement in the form attached hereto as Exhibit C.

 

2.5                                 Maturity.  The Notes will mature on the date that is
seven years and six months following the Closing Date (the “Maturity Date”), and will be due and
payable in full in cash on such date, except to the extent any Notes have been
earlier redeemed by the Company pursuant to Section 4 or converted by the
Holder thereof pursuant to Section 5.

 

2.6                                 Interest.

 

(a)                                  Interest Payment Dates.  Interest shall be payable quarterly in
arrears on each January 1, April 1, July 1 and October 1
(each, an “Interest Payment Date”),
commencing on the first such date after the Closing.  Interest on the Notes will accrue from the most
recent Interest Payment Date or, if no interest has been paid with respect to a
Note, from the date of issuance of such Note. 
Each period from the most recent date of issuance or date of payment of
interest, as applicable, to the next succeeding Interest Payment Date is
referred to herein as an “Interest Period”.

 

(b)                                 Interest Calculation.  Interest will be computed on the basis of a
360-day year of twelve 30-day months.

 

4

 

(c)                                  Interest Election.  Interest shall be paid in full in cash on
each Interest Payment Date; provided that,
at the Company’s election in its sole discretion (but subject to compliance
with the requirements of this clause (c)), the Company may pay up to 50% of the
interest payment due on any Interest Payment Date in PIK Interest.  “PIK Interest”
shall mean the capitalizing of unpaid interest to the principal amount of the
Notes or by paying interest in-kind in respect of the Notes by issuing
additional Notes on each Interest Payment Date. 
The Company’s ability to elect to pay PIK Interest is subject to the
following:

 

(i)                                     Interest shall compound on PIK Interest;

 

(ii)                                  The Company may not pay PIK Interest to the extent such
payment would be prohibited by, or constitute a default under, any other
indebtedness or preferred stock of the Company and its Subsidiaries; and

 

(iii)                               In connection with an intention to sell or an actual sale of
the Notes or any shares of Common Stock, or an intention to enter into a
derivative transaction or actual entry into a derivative transaction in respect
of the Notes or any shares of Common Stock (subject to compliance by a Holder
with the applicable restrictions set forth in Section 7.2(e) hereof),
any Holder may at any time and from time to time, but in any event at least 5
calendar days prior to the first Interest Payment Date for which such Holder
intends to begin deferring the payment of PIK Interest, provide one or more
written notices to the Company (a “Notice of Election to
Defer”) of its election to defer (or, at the option of such
Holder, to forfeit) the payment of PIK Interest to such Holder on all future
Interest Payment Dates to a subsequent regularly scheduled Interest Payment
Date as specified in the Notice of Election to Defer.  Upon receipt of such Notice of Election to
Defer, the Company shall continue to pay interest in cash on the portion of the
Notes not subject to the PIK Election (as defined below) registered in the name
of such electing Holder but defer, or not accrue, in the case of forfeiture,
PIK Interest payable in respect of the Notes registered in the name of such
electing Holder to, and in the case of a deferment, payable on, the regularly
scheduled Interest Payment Date specified in the Notice of Election to Defer.  Any Notice of Election to Defer may be
modified, extended or revoked by the Holder that provided such notice, but in
no event shall the Company be required to pay any interest on a date other than
a regularly scheduled Interest Payment Date unless otherwise agreed by the Company;
provided, however, that any such modification, extension or revocation will
take effect on (i) the next regularly scheduled Interest Payment Date if
delivered at least 5 calendar days prior to such regularly scheduled Interest
Payment Date and (ii) on the second succeeding regularly scheduled
Interest Payment Date if not delivered at least 5 calendar days prior to the
next regularly scheduled Interest Payment Date.

 

To the extent the Company
elects to pay PIK Interest, the Company shall provide the Holders written
notice of such election with respect to an Interest Period, and the percentage
to which the election is being applied, at least 15 calendar days prior to the
first Interest Payment Date upon which the Company intends to pay PIK Interest,
in the form attached as Exhibit D (the “PIK
Election”); provided that
with respect to the first Interest Period commencing on the Closing Date, such
election may be made at any time up to 10 Business Days after the Closing
Date.  If a PIK Election is not made by
the Company in a timely fashion or at all with respect to an Interest Period,
the Company shall pay all interest due on the corresponding Interest Payment
Date in full in cash.

 

(d)                                 Notwithstanding anything to the contrary contained in this
Agreement, commencing with the first “accrual period” (as defined for purposes
of Section 163(i) of the Code) ending after the fifth year
anniversary of the Closing Date and continuing with each subsequent accrual
period thereafter, the Company shall pay in cash, on the first Business Day
immediately preceding 

 

5

 

the end of such accrual period, an amount
equal to the accrued and unpaid original issue discount (including PIK
Interest) with respect to the Notes to the extent necessary so that the Notes
will not be classified as an “applicable high yield discount obligation” under Section 163(i) of
the Code. Each such payment is referred to as an “AHYDO
Catch-Up Payment” and each such AHYDO Catch-Up Payment shall
first be allocated to the accrued and unpaid original issue discount as of the
applicable payment date.

 

(e)                                  Interest Rate.  The unpaid principal amount of each Note
shall bear interest from the date of the issuance thereof (and in the case of
PIK Interest, from the date of payment thereof) until maturity thereof (whether
by acceleration or otherwise) at a rate per annum that
shall at all times (other than as specified in Section 2.6(f)) be equal to
the Cash Interest Rate or the PIK Interest Rate, as then applicable (the “Interest Rate”).  Interest on the Notes shall accrue from the
most recent date to which interest has been paid or, if no interest has been
paid with respect to such Notes, from and including the date of issuance of
such Note (or in the case of PIK Interest, from the date of payment
thereof).  The Cash Interest Rate and PIK
Interest Rates will be as follows:

 

(i)                                     Cash Interest.  To the extent the Company has not made a PIK
Election, the Company shall pay interest in cash at a rate (the “Cash Interest Rate”) equal to the per annum rate specified in the following table
corresponding to the applicable Interest Period:

 

	
  Period

  	
   

  	
  Interest Rate

  	
   

  
	
  Closing Date to and including the day prior to
  second anniversary of the Closing Date

  	
   

  	
  8.00

  	
  %

  
	
  Second anniversary of the Closing Date to and
  including the day prior to third anniversary of the Closing Date

  	
   

  	
  9.00

  	
  %

  
	
  Third anniversary of the Closing Date to and
  including the day prior to fourth anniversary of the Closing Date

  	
   

  	
  10.00

  	
  %

  
	
  Fourth anniversary of the Closing Date and
  thereafter

  	
   

  	
  11.00

  	
  %

  

 

(ii)                                  PIK Interest.  To the extent the Company has made a PIK
Election, then from and after such PIK Election the Company shall pay interest
at a rate (the “PIK Interest Rate”) equal to
the per annum rate specified in the following
table corresponding to the applicable Interest Period:

 

	
  Period

  	
   

  	
  Interest Rate

  	
   

  
	
  Closing Date to and including the day prior to
  second anniversary of the Closing Date

  	
   

  	
  10.00

  	
  %

  
	
  Second anniversary of the Closing Date to and
  including the day prior to third anniversary of the Closing Date

  	
   

  	
  11.00

  	
  %

  
	
  Third anniversary of the Closing Date and
  thereafter

  	
   

  	
  12.00

  	
  %

  

 

For the avoidance of doubt, (i) if
a PIK Election is made, then the PIK Interest Rate shall apply to the
calculation of all interest due on the applicable Interest Payment
Date, (ii) once a PIK Election has been made, the PIK Interest Rate
shall apply to all subsequent Interest Periods for all interest paid, whether
in cash or in kind and (iii) any PIK Election made shall apply in the same
percentage with respect to each Note then outstanding.

 

(f)                                    Default Rate.  The Company shall pay interest on overdue
principal and premium, if any, and interest on overdue installments of cash
interest, capitalized PIK Interest and Special Interest, if any, to the extent
lawful, at a rate per annum equal to the rate of interest then otherwise
applicable to the Notes plus 200 basis points beginning on the Interest Payment
Date on 

 

6

 

which interest is not paid (such 200-basis
point increase, “Default Interest”).  Default Interest shall be payable on demand
and may only be paid in cash.

 

(g)                                 Taxes.  Payments of interest, as well as PIK
Interest, Special Interest, premium, if any, and all other payments hereunder
in respect of the Notes shall be subject to all applicable withholding taxes.

 

2.7                                 Replacement
Notes.  If any mutilated Note is
surrendered to the Company or the Company receives evidence to its satisfaction
of the destruction, loss or theft of any Note, the Company will issue a
replacement Note if the Company’s requirements are met.  If required by the Company, an indemnity bond
must be supplied by the Holder that is sufficient in the judgment of the
Company to protect the Company and any Paying Agent from any loss that any of
them may suffer if a Note is replaced. 
The Company may charge for its expenses in replacing a Note.

 

Every replacement Note is an
additional obligation of the Company and will be entitled to all of the
benefits of this Agreement equally and proportionately with all other Notes
duly issued hereunder.

 

2.8                                 Outstanding
Notes.  The Notes outstanding at any
time are all the Notes issued by the Company (including upon the payment of PIK
Interest, whether actual Notes are then issued or the PIK Interest is
capitalized to the principal amount of existing Notes) except for those
canceled by it, those delivered to it for cancellation, and those described in
this Section 2.8 as not outstanding. 
Except as set forth in Section 2.9, a Note does not cease to be
outstanding because the Company or an Affiliate of the Company holds the Note;
however, Notes held by the Company or a Subsidiary of the Company shall not be
deemed to be outstanding for purposes of Section 4.1.

 

If a Note is replaced
pursuant to Section 2.7, it ceases to be outstanding unless the Company
receives proof satisfactory to it that the replaced Note is held by a protected
purchaser.

 

If the principal amount of
any Note is considered paid under Section 4.1, it ceases to be outstanding
and interest on it ceases to accrue.

 

If the Paying Agent (other
than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a
redemption date or maturity date, money sufficient to pay Notes payable on that
date, then on and after that date such Notes will be deemed to be no longer
outstanding and will cease to accrue interest.

 

If a Note is converted
pursuant to Section 5, it ceases to be outstanding and interest on it
ceases to accrue.

 

2.9                                 Treasury Notes.  In determining whether the Holders of the
required principal amount of Notes have concurred in any direction, waiver or
consent, Notes owned by the Company or by any Subsidiary of the Company, will
be considered as though not outstanding.

 

2.10                           Cancellation.  The Company at any time may cancel Notes that
have been surrendered to the Company for registration of transfer, exchange,
payment, replacement or cancellation, and will destroy canceled Notes (subject
to the record retention requirement of the Exchange Act).  The Registrar and Paying Agent will forward
to the Company any Notes surrendered to them for registration of transfer,
exchange or payment.  The Company may not
issue new Notes to replace Notes that it has paid or cancelled.

 

7

 

3.                                       Covenants of
the Company.

 

3.1                                 Payment of
Notes.  The Company will duly and
punctually pay or cause to be paid the principal of, premium on, if any, and
interest and Special Interest, if any, on, the Notes in accordance with the
terms of this Agreement and the Notes. 
Principal (including any PIK Interest), premium, if any, and interest
and Special Interest, if any, will be considered paid on the date due if the
Paying Agent, if other than the Company or a Subsidiary thereof, holds and, if
the Company or a Subsidiary thereof is the Paying Agent, the Holders hold as of
3:00 p.m. Central Time on the due date money deposited by the Company in
immediately available funds and designated for and sufficient to pay all
principal (including any PIK Interest added to principal), premium, if any, and
interest and Special Interest, if any, then due.  Such Paying Agent, if other than the Company
or a Subsidiary thereof, shall return to the Company promptly, and in any
event, no later than three Business Days following the date of payment, any
money (including accrued interest) that exceeds such amount of principal,
premium, if any, and interest paid on the Notes.  The Company will pay all Special Interest, if
any, in the same manner on the dates and in the amounts set forth in the
Registration Rights Agreement.  The
Company will pay Default Interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal to the extent lawful;
it will pay Default Interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Special Interest, if any (after giving effect to any applicable grace period),
to the extent lawful.  If a payment date
is not a Business Day at a place of payment, payment may be made at that place
on the next succeeding day that is a Business Day.

 

3.2                                 Maintenance of
Office or Agency.  The Company
will maintain in the Chicago metropolitan area, an office or agency where Notes
may be surrendered for transfer or for exchange and where notices and demands
to or upon the Company in respect of the Notes and this Agreement may be
served.  The Company will give prompt
written notice to the Holders of the location, and any change in the location,
of such office or agency.  The Company
may also from time to time designate one or more other offices or agencies
where the Notes may be presented or surrendered for any or all such purposes
and may from time to time rescind such designations; provided,
however, that no such designation or rescission will in any manner
relieve the Company of its obligation to maintain an office or agency in the
Chicago metropolitan area for such purposes. 
The Company will give prompt written notice to the Holders of any such
designation or rescission and of any change in the location of any such other
office or agency.

 

3.3                                 Reports.

 

(a)                                  Whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, so long as
any Notes are outstanding, the Company must provide the Holders of the Notes,
within 15 days after it is or would be required to file such reports with the
SEC (together with the maximum extension period that may be granted by the SEC)
with all quarterly and annual financial statements and a “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” that
would be required to be contained in a filing with the SEC on Forms 10-Q and
10-K if the Company were required to file such forms, including with respect to
annual information only, a report thereon by the Company’s certified
independent public accountants.

 

(b)                                 The Company shall be deemed to have complied with this
covenant, and shall be deemed to have provided such documents to the Holders,
to the extent the Company has filed or furnished documents and reports referred
to in clauses (a) above with the SEC via the EDGAR system or any successor
electronic delivery procedures within the time periods specified in Section 3.3(a).

 

8

 

(c)                                  If the Company is not subject to the reporting requirements
of Sections 13 and 15(d) of the Exchange Act, then for so long as any
Notes remain outstanding and constitute “restricted securities” under Rule 144
of the Securities Act (“Rule 144”),
the Company will furnish to the Holders, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.

 

3.4                                 Taxes.  The Company will pay, and will cause each of
its Subsidiaries to pay, prior to delinquency, all material taxes, assessments,
and governmental levies except such as are contested in good faith by
appropriate proceedings and for which adequate provision has been made in
accordance with GAAP or where the failure to effect such payment is not adverse
in any material respect to the Holders.

 

3.5                                 Stay, Extension
and Usury Laws.  The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury Law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance
of this Agreement; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such Law, and covenants
that it will not, by resort to any such Law, hinder, delay or impede the
execution of any power herein granted to the Holders, but will suffer and
permit the execution of every such power as though no such Law has been
enacted.

 

3.6                                 Incurrence of
Indebtedness.

 

The Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable, contingently or otherwise, with respect to (collectively, “incur”) any Indebtedness that is
contractually subordinated in right of payment to any other Indebtedness of the
Company unless such Indebtedness is contractually subordinated in right of
payment to the Notes on substantially similar terms; provided,
however, that no Indebtedness will be deemed to be contractually
subordinated in right of payment to any other Indebtedness solely by virtue of
being unsecured or by virtue of being secured on a junior priority basis or by
virtue of the fact that the holders of secured Indebtedness have entered into
intercreditor agreements giving one or more such holders priority over the
other holders in the collateral held by them.

 

3.7                                 [Reserved].

 

3.8                                 Change of
Control.

 

(a)                                  Unless otherwise waived by written consent of a majority in
aggregate principal amount of the Notes, upon the occurrence of a Change of
Control, the Company will make an offer (a “Change
of Control Offer”) to each Holder to repurchase all or any part
(equal to $1,000,000 or an integral multiple of $1,000 in excess thereof) of
that Holder’s Notes at a purchase price in cash equal to 100% of the aggregate
principal amount of Notes repurchased, plus accrued and unpaid interest and
Special Interest, if any, on the Notes repurchased to the date of purchase,
subject to the rights of Holders of Notes on the relevant record date to
receive interest due on the relevant Interest Payment Date (the “Change of Control Payment”). Within
30 days following any Change of Control, the Company will mail a notice to each
Holder describing the transaction or transactions that constitute the Change of
Control and stating:

 

(i)                                     that the Change of Control Offer is being made pursuant to
this Section 3.8 and that all Notes tendered will be accepted for payment;

 

9

 

(ii)                                  the purchase price and the purchase date, which shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the “Change of Control Payment Date”);

 

(iii)                               that any Note not tendered will continue to accrue interest;

 

(iv)                              that, unless the Company defaults in the payment of the
Change of Control Payment, all Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest after the Change of
Control Payment Date;

 

(v)                                 that Holders electing to have any Notes purchased pursuant to
a Change of Control Offer will be required to surrender the Notes, with the
form entitled “Option of Holder to Elect Purchase” attached to the Notes
completed, or transfer by book-entry transfer, to the Paying Agent at the
address specified in the notice prior to the Close of Business on the third
Business Day preceding the Change of Control Payment Date;

 

(vi)                              that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the Close of Business on the fifth
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Notes delivered for purchase, and a statement that such
Holder is withdrawing his election to have the Notes purchased; and

 

(vii)                           that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, which unpurchased portion must be equal to $1,000,000
in principal amount or an integral multiple of $1,000 in excess thereof.

 

The Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other
securities Laws and regulations thereunder to the extent those Laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change in Control.  To the
extent that the provisions of any securities Laws or regulations conflict with
the provisions of this Section 3.8, the Company will comply with the
applicable securities Laws and regulations and will not be deemed to have
breached its obligations under this Section 3.8 by virtue of such compliance.

 

(b)                                 On the Change of Control Payment Date, the Company will, to
the extent lawful:

 

(i)                                     accept for payment all Notes or portions of Notes properly
tendered pursuant to the Change of Control Offer;

 

(ii)                                  deposit with the Paying Agent an amount equal to the Change
of Control Payment in respect of all Notes or portions of Notes properly
tendered; and

 

(iii)                               deliver or cause to be delivered to the Holders of Notes
properly accepted a certificate of a duly authorized officer of the Company
stating the aggregate principal amount of Notes or portions of Notes being
purchased by the Company.

 

The Company will promptly
mail (but in any case not later than five days after the Change of Control
Payment Date) to each Holder of Notes properly tendered the Change of Control
Payment for such Notes, and the Company will promptly mail to each Holder a new
Note equal in 

 

10

 

principal amount to any unpurchased portion
of the Notes surrendered, if any.  The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.

 

Prior to complying with any
of the provisions of this Section 3.8, but in any event within 90 days
following a Change of Control, the Company will either repay all outstanding
Senior Debt or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Debt to permit the repurchase of Notes required by
this Section 3.8.

 

(c)           Notwithstanding
anything to the contrary in this Section 3.8, the Company will not be
required to make a Change of Control Offer upon a Change of Control if (1) a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in this Section 3.8
and purchases all Notes properly tendered and not withdrawn under the Change of
Control Offer, or (2) notice of redemption has been given pursuant to Section 4.3,
unless and until there is a default in payment of the applicable redemption
price.

 

Notwithstanding anything to
the contrary contained herein, a Change of Control Offer may be made in advance
of a Change of Control, conditioned upon the consummation of such Change of
Control, if a definitive agreement is in place for the Change of Control at the
time the Change of Control Offer is made.

 

3.9           Merger,
Consolidation or Sale of Assets.

 

(a)           The
Company shall not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company and its
Subsidiaries taken as a whole, in one or more related transactions, to another
Person, unless:

 

(i)            either:

 

(A)          the
Company is the surviving corporation; or

 

(B)           the
Person formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, conveyance or other
disposition has been made is an entity organized or existing under the Laws of
the United States, any state of the United States or the District of Columbia;
and, if such entity is not a corporation, a co-obligor of the Notes is a
corporation organized or existing under any such Laws;

 

(ii)           the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to which such sale, assignment, transfer, conveyance
or other disposition has been made assumes all the obligations of the Company
under the Notes, this Agreement and the Registration Rights Agreement pursuant
to agreements otherwise reasonably satisfactory to the Holders of a majority in
principal amount of the Notes; and

 

(iii)          immediately
after such transaction, no Default or Event of Default exists.

 

In addition, the Company
will not, directly or indirectly, lease all or substantially all of the
properties and assets of it and its Subsidiaries taken as a whole, in one or
more related transactions, to any 

 

11

 

other Person.  This Section 3.9(a) will
not apply to any sale, assignment, transfer, conveyance, lease or other
disposition of assets between or among the Company and its Subsidiaries.  Clauses (iii) and (iv) of this Section 3.9(a) will
not apply to (1) any merger or consolidation of the Company with or into
one of its Subsidiaries for any purpose or (2) with or into an Affiliate
solely for the purpose of reincorporating the Company in another jurisdiction.

 

(b)           Upon
any consolidation or merger, or any sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the properties
or assets of the Company in a transaction that is subject to, and that complies
with the provisions of, Section 3.9(a), the successor Person formed by
such consolidation or into or with which the Company is merged or to which such
sale, assignment, transfer, lease, conveyance or other disposition is made
shall succeed to, and be substituted for (so that from and after the date of
such consolidation, merger, sale, assignment, transfer, lease, conveyance or
other disposition, the provisions of this Agreement referring to the “Company”
shall refer instead to the successor Person and not to the Company), and may
exercise every right and power of the Company under this Agreement with the
same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be
relieved from the obligation to pay the principal of, premium on, if any, and
interest and Special Interest, if any, on, the Notes except in the case of a
sale of all of the Company’s assets in a transaction that is subject to, and
that complies with the provisions of, Section 3.9(a).

 

3.10         Listing of
Common Stock.  The Company
shall use its commercially reasonable efforts at all times cause the shares of
Common Stock to be issued upon conversion of the Notes to be approved for
listing on the NASDAQ or such other securities exchange or quotation system, if
any, on which the Common Stock is listed or quoted from time to time, subject
to official notice of issuance.

 

3.11         Reservation of
Common Stock; Issuance of Common Stock.  For as long as any Notes remain outstanding,
the Company shall at all times reserve and keep available, free from preemptive
rights, out of its authorized but unissued Common Stock or shares of Common
Stock held in treasury by the Company, for the purpose of effecting the
conversion of the Notes, the full number of shares of Common Stock then
issuable upon the conversion of all the then outstanding Notes (after giving
effect to all price protection and anti-dilution adjustments in effect as of such
date).  All shares of Common Stock
delivered upon conversion of the Notes shall be newly issued shares or shares
held in treasury by the Company, shall have been duly authorized and validly
issued and shall be fully paid and nonassessable, and shall be free from
preemptive rights and free of any lien or adverse claim.

 

3.12         Use of Proceeds.  The Company shall apply the proceeds from the
issuance and sale of the Notes issued on the Closing Date to repurchase the Series A
Senior Secured Notes and Series B Senior Secured Notes, issued by
Deerfield & Company LLC in connection with its merger into the
Company, in accordance with the Payment Agreement, and to pay related
transaction fees and expenses.

 

3.13         Transfer Taxes.  The Company shall pay any and all documentary,
stamp or similar issue or transfer tax due on (x) the Notes and (y) the
issue of shares of Common Stock upon conversion of the Notes.  However, in the case of conversion of the
Notes, the Company shall not be required to pay any tax or duty that may be
payable in respect of any transfer involved in the issue and delivery of shares
of Common Stock in a name other than that of the Holder of the Notes to be
converted, and no such issue or delivery shall be made unless and until the
Person requesting such issue has paid to the Company the amount of any such tax
or duty, or has established to the satisfaction of the Company that such tax or
duty has been paid.

 

12

 

4.             Redemption.

 

4.1           Optional
Redemption.

 

(a)           The
Notes will not be redeemable at the Company’s option prior to the second
anniversary of the Closing Date.

 

(b)           On
or after the second anniversary of the Closing Date, the Company may on any one
or more occasions redeem all or a part of the Notes, upon not less than 30 nor
more than 60 days’ notice, at a redemption price equal to 100% of the principal
amount thereof plus (i) if the redemption
date is on or prior to the third anniversary of the Closing Date, the Interest
Rate then in effect as an additional percentage of principal amount, (ii) if
the redemption date is after the third anniversary of the Closing Date but on
or prior to the fourth anniversary of the Closing Date, one-half of the
Interest Rate then in effect as an additional percentage of principal amount,
in each case plus accrued and unpaid interest and Special Interest, if any, on
the Notes redeemed, to the applicable redemption date, subject to the rights of
Holders on the relevant record date to receive interest on the relevant Interest
Payment Date.

 

Unless the Company defaults
in the payment of the redemption price, interest will cease to accrue on the
Notes or portions thereof called for redemption on the applicable redemption
date.

 

Notwithstanding the
foregoing, Holders shall have the right, in their sole discretion, to refuse to
surrender their Notes to the Company on the redemption date if the Company is
not in compliance with its obligations under the Registration Rights Agreement
at all times from the date of the redemption notice through the redemption
date.  To the extent that the Holders
exercise such right, then the Notes held by such Holders that are not
surrendered on the redemption date shall remain outstanding and shall continue
to accrue interest as if they had not been called for redemption.

 

4.2           Mandatory
Redemption.  The Company
is not required to make a mandatory redemption or sinking fund payments with
respect to the Notes.

 

4.3           Notice of
Redemption.  The Company
will give each Holder written notice of the exercise of the optional redemption
right under Section 4.1(a) not less than 30 nor more than 60 days’
prior to the date fixed for such redemption unless a shorter notice period is
accepted by written consent of a majority in interest of aggregate principal
amount of Notes outstanding.  Such notice
shall specify the redemption date, the principal amount of Notes to be
redeemed, the redemption price, the interest to be paid on the redemption date
with respect to the principal amount being redeemed and the place or places at
which Notes shall be surrendered for redemption and, in the case of partial
redemption, the portion of the principal amount of the Note (including any PIK
Interest) to be redeemed.

 

4.4           Selection of
Notes to Be Redeemed.  If less
than all of the Notes are to be redeemed, the Company will select Notes for
redemption on a pro rata basis
unless otherwise required by Law or applicable stock exchange or depositary
requirements.  In the event of partial
redemption or purchase by lot, the particular Notes to be redeemed or purchased
will be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption or purchase date by the Company from the
outstanding Notes not previously called for redemption or purchase.

 

The Company will promptly
notify the Holders in writing of the Notes selected for redemption or purchase
and, in the case of any Note selected for partial redemption or purchase, the
principal amount thereof to be redeemed or purchased.  Notes and portions of Notes selected will be
in amounts of $1,000,000 or $1,000 multiples thereof; except that if all of the
Notes of a Holder are to be 

 

13

 

redeemed or purchased, the entire outstanding
amount of Notes held by such Holder shall be redeemed or purchased.  Except as provided in the preceding sentence,
provisions of this Agreement that apply to Notes called for redemption or
purchase also apply to portions of Notes called for redemption or purchase.

 

4.5           Partial Redemption.  Upon surrender of a Note that is redeemed or
purchased in part, the Company will execute and deliver to the Holder of the
Notes so surrendered a new Note or Notes equal in principal amount to the
unredeemed or unpurchased portion of the Notes surrendered.

 

4.6           Effect of
Notice of Redemption.  Once notice
of redemption is mailed in accordance with Section 4.3, Notes called for
redemption become irrevocably due and payable on the redemption date at the
redemption price.  A notice of redemption
may not be conditional.

 

Delivery of a notice
pursuant to Section 4.3 shall in no way preclude the ability of any Holder
to sell, transfer or convert the Notes prior to the redemption date specified
in such notice.

 

5.             Conversion
Rights.

 

5.1           Right to Convert.  The
Holder of any Notes not previously repaid shall have the right, at any time and
from time to time, at such Holder’s option, to convert the principal amount of
the Notes held by such Holder, or any portion of such principal amount into the
number of fully paid and non-assessable shares of Common Stock as follows:  for each Note converted, the Holder shall be
entitled to receive a number of shares of Common Stock equal to the product of (a) the
quotient of (i) the sum of (x) the principal amount of such Note (or
if less than the full principal amount of such Note is to be converted, the
portion of the principal amount of such Note specified by such Holder) plus (y) an
amount equal to the accrued but unpaid PIK Interest for which a PIK Election
has been made but has not then been paid on such principal amount being
converted from and including the immediately preceding Interest Payment Date to
but excluding the conversion date, divided by (ii) $1,000,
multiplied by (b) the Conversion
Rate then in effect.  Expressed as a
formula, the calculation is as follows:

 

 

where,

 

	
  S’

  	
  =

  	
  the
  number of shares of Common Stock received upon conversion of a Note;

  
	
   

  	
   

  	
   

  
	
  PA

  	
  =

  	
  the
  principal amount of the Note(s) being converted;

  
	
   

  	
   

  	
   

  
	
  PI

  	
  =

  	
  the
  amount of accrued and unpaid PIK Interest for which a PIK Election
  has been made but has not then been paid on PA from and including the
  immediately preceding Interest Payment Date to but excluding the conversion
  date;

  
	
   

  	
   

  	
   

  
	
  CR

  	
  =

  	
  the Conversion Rate in
  effect on the applicable conversion date.

  

 

5.2           Exercise of Conversion Rights.

 

(a)           Conversion
of the Notes.  The Notes may be converted in full or in part
at any time upon surrender to the Company of the Notes being converted,
together with the duly completed and signed form of notice of conversion in the
form attached as Exhibit E (the “Notice of Conversion”).  Such notice shall also state the name or
names (with address or addresses) in which the 

 

14

 

certificate or certificates for shares of
Common Stock which shall be issuable on such conversion (and any Note or Notes
issuable pursuant to Section 5.2(b)) shall be issued, and shall be
accompanied by transfer or similar taxes, if required pursuant to Section 3.13. 
To validly effect conversion of a Note, all of the foregoing must be received
by the Company no later than 5:00 p.m. New York City time on the Business
Day immediately preceding the Maturity Date, provided
that, with respect to Notes for which a notice of redemption pursuant to Section 4.3 has
been given, such documents and instruments must be delivered no later than 5:00 p.m.
New York City time on the second Business Day immediately preceding the date
fixed for such redemption.

 

(b)           Partial
Conversion.  Upon surrender of a Note that is converted in
part, the Company shall execute and deliver to the Holder of the Notes so
surrendered a new Note or Notes equal in principal amount to the unconverted
portion of the Notes surrendered.

 

(c)           Fractional
Interests.  No fractional shares of Common Stock will be
issued upon the conversion of the Notes, but in lieu thereof the Company shall
pay therefor in cash an amount equal to the product obtained by multiplying the
Closing Sale Price of one share of Common Stock on the Trading Day immediately preceding
the date of conversion of the Notes times such fraction (rounded to the nearest
cent).  For the avoidance of doubt, the
Company shall issue the maximum number of whole shares possible by applying the
Conversion Rate to the aggregate principal amount of all Notes simultaneously
converted by a Holder.

 

(d)           Deemed
Issuance. 
Upon delivery of the Notice of Conversion, the surrender of the
applicable Notes and payment of any applicable transfer or similar taxes
required by Section 3.13, the Company will issue and cause to be delivered
with all reasonable dispatch (and in no event more than three Business Days
from delivery of the Notice of Conversion, the surrendered Notes and payment of
any applicable transfer or similar taxes required by Section 3.13) to and
in the name of the Holder, or in the name of such other Person as designated by
the Holder, a certificate or certificates for the number of full shares of
Common Stock so issued upon the conversion of the Notes, together with a check
or cash in respect of any fraction of a share of Common Stock otherwise
deliverable upon such conversion, as provided in Section 5.2(c).  Such certificate or certificates shall be
deemed to have been issued, and the Person in whose name any such certificates
will be issuable upon conversion of the Notes (as indicated in the applicable
Notice of Conversion) will be deemed to have become a holder of record of such
shares of Common Stock as of the date of the last to occur of the delivery of
the Notice of Conversion, the surrender of the Notes and the payment of all
applicable transfer or similar taxes required by Section 3.13.

 

6.             Adjustment
of Conversion Rate.  The Conversion Rate shall be adjusted from
time to time (successively and for each event described) by the Company as set
forth in this Section 6.

 

6.1           Price
Protection.  If, at any
time and from time to time during the eighteen months following the Closing
Date, the Company issues shares of Common Stock, options, rights, warrants or
any other security convertible into, or exercisable or exchangeable for, or
otherwise linked to, Common Stock (such Common Stock, options, rights, warrants
and other securities collectively, “Equity-Linked Securities”),
for a price per share of Common Stock (or with a conversion, exercise or
exchange price per share of Common Stock underlying such Equity-Linked
Securities) less than the Conversion Price then applicable to the Notes, then
the Conversion Rate shall be adjusted based on the following formula:

 

 

15

 

where,

 

CR’                            =                                         the Conversion
Rate in effect immediately after the issuance of such Equity-Linked Securities;

 

CP                                 =                                         the Conversion
Price in effect immediately prior to the issuance of such Equity-Linked
Securities;

 

OS                                =                                         the number of
shares of Common Stock outstanding or deemed outstanding (including pursuant to
this Agreement and any other option, right or warrant convertible or
exchangeable for Common Stock for which no adjustment is required hereunder or
for which adjustment has already been made hereunder) immediately prior to the
issuance of such Equity Linked Securities;

 

ELS                           =                                        the number of
shares of Common Stock issued or issuable pursuant to such Equity-Linked
Securities; and

 

AC                              =                                         the aggregate
consideration paid or payable for such Equity-Linked Securities.

 

The adjustment shall become
effective immediately after such issuance. 
To the extent that shares of the Common Stock are not delivered after
the expiration of such Equity-Linked Securities, the Conversion Rate shall be adjusted
to the Conversion Rate that would then be in effect had the adjustments made
upon the issuance of such rights, options or warrants been made on the basis of
delivery of only the number of shares of Common Stock actually delivered.  Notwithstanding anything to the contrary
contained herein, the provisions of this Section 6.1 and the
provisions of Section 6.2 shall not apply to securities issued (a) to
directors and employees pursuant to the terms of stock option, restricted stock
or stock incentive plans (i) in effect as of the date of this Agreement or
(ii) approved by the Board of Directors of the Company including each
Investor Director, (b) pursuant to open market sales programs not to
exceed $1.0 million per calendar year (pro-rated for partial years), (c) upon
the conversion of the Notes or exercise of Equity-Linked Securities held by an
Investor, (d) upon the exercise, conversion or exchange of any
Equity-Linked Securities which are outstanding immediately prior to the date
hereof, (e) pursuant to a dividend reinvestment plan maintained by the
Company or (f) in connection with one or more acquisitions with one or
more third parties on an arm’s length basis, the primary purpose of which is
not to raise additional capital (collectively, “Excluded
Securities”).

 

6.2           Dilution
Adjustments.

 

(a)           Cash
Distributions.  If, at any time (and from time to time) after
the Closing Date that any Notes are outstanding, the Company, by dividend or
otherwise, distributes to all or substantially all holders of outstanding
shares of Common Stock distributions consisting exclusively of cash in an
amount that, together with other all-cash distributions made within the
preceding 365 days in respect of which no adjustment has been made, in the
aggregate exceeds an amount equal to 7.5% of the Equity Value of the Company
measured as of the date of declaration of such dividend or distribution, then
the Conversion Rate shall be adjusted based on the following formula:

 

 

where,

 

16

 

CR’         =              the Conversion Rate in effect immediately after the
Close of Business on the Record Date for such dividend or distribution;

 

CR           =              the Conversion Rate in effect immediately prior to
the Close of Business on the Record Date for such dividend or distribution;

 

SP           =              the Closing Sale Price as of the
Business Day immediately prior to the Record Date for such
dividend or distribution; and

 

CD          =              the per-share amount attributable to the aggregate
amount of such cash distribution for which adjustment is being made.

 

Such adjustment shall become
effective immediately after the Record Date fixed for the determination of
stockholders entitled to receive such distribution.  If any dividend or
distribution of the type described in this Section 6.2(a) is declared
but not so paid or made, or the outstanding shares of Common Stock are not
split or combined, as the case may be, the Conversion Rate shall be immediately
readjusted, effective as of the date the Company’s Board of Directors
determines not to pay such dividend or distribution, or split or combine the
outstanding shares of Common Stock, as the case may be, to the Conversion Rate
that would then be in effect if such dividend, distribution, share split or
share combination had not been declared or announced. Notwithstanding
the foregoing, in cases where (i) the per share amount of such
distribution equals or exceeds the average of the Closing Sale Prices of the
Common Stock over the 10 consecutive Trading Day Period ending on, and
including the Trading Day immediately preceding the Record Date for such
distribution, or (ii) if the average of the Closing Sale Prices of the
Common Stock over the 10 consecutive Trading Day Period ending on, and
including the Trading Day immediately preceding the Record Date for such
distribution exceeds the per share amount of such distribution by less than
$1.00, in lieu of the adjustment set forth in this Section 6.2(a), then
Holders will have the right to receive upon conversion, in addition to shares
of Common Stock, if any, such distribution such Holders would have received
upon conversion of such Holders’ Notes if they had been converted immediately
prior to the Record Date.

 

(b)           Stock
Dividends, Subdivisions and Combinations.  If, at any time (and from time to time) after
the Closing Date that any Notes are outstanding, the Company:

 

(i)            pays
a dividend or makes a distribution payable exclusively in shares of Common
Stock on all or substantially all shares of the Company’s Common Stock;

 

(ii)           subdivides
the outstanding shares of Common Stock into a greater number of shares; or

 

(iii)          combines
the outstanding shares of Common Stock into a smaller number of shares;

 

then
the Conversion Rate will be adjusted based on the following formula:

 

 

where,

 

17

 

CR’         =              the Conversion Rate in effect immediately after the
Close of Business on the Record Date for such dividend or distribution, or the
Close of Business on the effective date of such share subdivision or
combination, as applicable;

 

CR           =              the Conversion Rate in effect immediately prior to
the Close of Business on the Record Date for such dividend or distribution, or
the Close of Business on the effective date of such subdivision or combination,
as applicable;

 

OS’         =              the number of shares of Common Stock outstanding
immediately after the Close of Business on the Record Date for such dividend or
distribution, or the Close of Business on the effective date of such
subdivision or combination, as applicable; and

 

OS           =              the number of shares of Common Stock outstanding
immediately prior to the Close of Business on the Record Date for such dividend
or distribution, or the Close of Business on the effective date of such
subdivision or combination, as applicable.

 

Such adjustment shall become
effective immediately after the Close of Business on the Record Date for such
dividend or distribution, or the effective date for such subdivision or
combination, as the case may be.  If any
dividend or distribution of the type described in this Section 6.2(b) is
declared but not so paid or made, or the outstanding shares of Common Stock are
not split or combined, as the case may be, the Conversion Rate shall be
immediately readjusted, effective as of the date the Company’s Board of
Directors determines not to pay such dividend or distribution, or split or
combine the outstanding shares of Common Stock, as the case may be, to the
Conversion Rate that would then be in effect if such dividend, distribution,
share split or share combination had not been declared or announced.

 

(c)           Adjustment
for Options, Rights and Warrants.  If, at any time (and from
time to time) after the Closing Date that any Notes are outstanding, the
Company distributes any rights, options or warrants (other than Excluded
Securities and pursuant to a Stockholder Rights Plan (defined below)) to all or
substantially all holders of the Company’s Common Stock entitling them to
purchase (for a period not more than 45 days from the Record Date for such
distribution) shares of Common Stock at a price per share less than the average
of the Closing Sale Prices of the Common Stock for the 10 consecutive Trading
Day period ending on, and including the Trading Day immediately preceding the
Record Date for such distribution, the Conversion Rate shall be adjusted in
accordance with the formula:

 

 

where:

 

CR’         =              the Conversion Rate in effect immediately after the
Close of Business on the Record Date for such distribution;

 

CR           =              the Conversion Rate in effect immediately prior to
the Close of Business on the Record Date for such distribution;

 

OS           =              the number of shares of Common Stock outstanding
immediately prior to the Close of Business on the Record Date for such
distribution;

 

18

 

N                                       =                                         the total number of shares of
Common Stock issuable pursuant to such rights, options or warrants;

 

P                                         =                                         the per-share offering price
payable to exercise such rights, options or warrants for the additional shares
plus the per-share consideration (if any) the Company receives for such rights,
options or warrants; and

 

M                                    =                                         the average of the Closing
Sale Prices of the Common Stock for the 10 consecutive Trading Day period
ending on, and including, the Trading Day immediately preceding the Record Date
with respect to the distribution.

 

Such adjustment shall be
successively made whenever any such rights, options or warrants are distributed
and shall become effective immediately after the Close of Business on the
Record Date for such distribution.  To the
extent that shares of the Common Stock are not delivered after the expiration
of such rights, options or warrants, the Conversion Rate shall be adjusted to
the Conversion Rate that would then be in effect had the adjustments made upon
the issuance of such rights, options or warrants been made on the basis of
delivery of only the number of shares of Common Stock actually delivered.  If such rights, options or warrants are not
so issued, the Conversion Rate shall be adjusted promptly to be the Conversion Rate
that would then be in effect if such Record Date for such distribution had not
been fixed.

 

For purposes of this Section 6.2(c),
in determining whether any rights, options or warrants entitle the holders to
subscribe for or purchase Common Stock at less than the average of the Closing
Sale Prices of Common Stock for each Trading Day in the applicable 10
consecutive Trading Day period, there shall be taken into account any
consideration received by the Company for such rights, options or warrants and
any amount payable on exercise thereof, the value of such consideration, if
other than cash, to be determined by the Board of Directors.

 

(d)           Adjustment
for Other Distributions. If, at any time (and from
time to time) after the Closing Date that any Notes are outstanding, the
Company distributes to all or substantially all holders of its Common Stock any
of its debt or other assets or property (including cash, rights, options or
warrants to acquire Capital Stock of the Company or other securities that,
together with all other distributions made within the preceding 365 days in
respect of which no adjustment has been made, in the aggregate exceeds an
amount equal to 7.5% of the Equity Value of the Company measured as of the date
of declaration of such distribution, but excluding (i) dividends or distributions
exclusively in cash referred to in Section 6.2(a), dividends or
distributions (including subdivisions) referred to in Section 6.2(b) and
distributions of rights, warrants or options referred to in Section 6.2(c),
(ii)  rights issued to all holders of Common Stock pursuant to a
Stockholder Rights Plan, where such rights are not presently exercisable,
continue to trade with Common Stock and holders will receive such rights
together with Common Stock upon conversion of the Notes, (iii) any
Spin-off to which the provisions set forth below in Section 6.2(e) shall
apply and (iv) Excluded Securities) (“Distributed Property”),
the Conversion Rate shall be adjusted in accordance with the formula:

 

 

where:

 

CR’         =              the Conversion Rate in effect immediately after the
Close of Business on the Record Date for such distribution;

 

19

 

CR           =              the Conversion Rate in effect immediately prior to
the Close of Business on the Record Date for such distribution;

 

MP          =              the average of the Closing Sale Prices of Common
Stock for the 10 consecutive Trading Day period ending on, and including, the
Record Date for such distribution; and

 

FMV       =              the fair market value, as determined by the Board of
Directors, of the portion of the Distributed Property to be distributed in
respect of each share of Common Stock immediately as of the Close of Business
on the Record Date for such distribution.

 

Such adjustment shall become
effective immediately after the Close of Business on the Record Date for such
distribution.  Notwithstanding the
foregoing, if “FMV” as set forth above is equal to or greater than “MP” as set
forth above, in lieu of the foregoing adjustment, upon conversion of the Notes,
the Holder shall receive, upon the same terms as holders of Common Stock, the
amount and kind of Distributed Property the Holder would have received had the
Holder owned a number of shares of Common Stock issued upon such conversion
immediately prior to the Record Date for such distribution.  If such distribution is not so paid or made,
the Conversion Rate shall again be adjusted to be the Conversion Rate that
would then be in effect if such dividend or distribution had not been
declared.  If the Board of Directors or a
committee thereof determines “FMV” for purposes of this Section 6.2(d) by
reference to the actual or when issued trading market for any Common Stock, it
must in doing so consider the prices in such market over the same period used
in computing the Closing Sale Prices of the Common Stock over the 10
consecutive Trading Day period ending on, and including, the Record Date for
such distribution.

 

For purposes of this Section 6.2(d),
in determining whether any rights, options or warrants entitle the holders to
subscribe for or purchase shares of the Common Stock at less than the average
of the Closing Sale Prices of the Common Stock for each Trading Day in the
applicable 10 consecutive Trading Day period, there shall be taken into account
any consideration received by the Company for such rights, options or warrants
and any amount payable on exercise or conversion thereof, the value of such
consideration, if other than cash, to be determined by the Board of Directors.

 

(e)           Adjustment
for Spin-Offs.  If, at any
time (and from time to time) after the Closing Date that any Notes are
outstanding, the Company makes a dividend or distribution
on the Common Stock in shares of Capital Stock of any class or series, or
similar equity interest, of or relating to a Subsidiary or other business unit,
where such Capital Stock or similar equity interest is listed or quoted (or
will be listed or quoted upon consummation of the Spin-off) on a national
securities exchange or reasonably comparable non-U.S. equivalent, which is
referred to herein as a “Spin-off,” the Conversion Rate
will be adjusted based on the following formula:

 

 

CR’         =              the Conversion Rate in effect immediately after the
Close of Business on the last day of the Valuation Period;

 

CR           =              the Conversion Rate in effect immediately prior to
the Close of Business on the last day of the Valuation Period;

 

FMV       =              the average of the closing sale prices (calculated
in the same manner as the Closing Sale Price) of the Capital Stock or similar
equity interest distributed to holders of the Common 

 

20

 

Stock applicable to one share of the Common Stock
for each day during the Valuation Period; and

 

MP                             =                                         the average of
the Closing Sale Prices of the Common Stock for each day during the Valuation
Period.

 

For purposes of the
foregoing, “Valuation Period” means the
first 10 consecutive Trading Days immediately following, and including, the
effective date for the Spin-off.  The
adjustment to the Conversion Rate under the preceding paragraph of this Section 6.2(e) will
be made immediately after the Close of Business on the last day of the
Valuation Period, but will be given effect as of the Open of Business on the
effective date for the Spin-off.  For
purposes of determining the Conversion Rate in respect of any conversion during
the 10 Trading Days commencing on the effective date for any Spin-off,
references within the portion of this Section 6.2(e) related to “Spin-offs”
to 10 consecutive Trading Days shall be deemed replaced with such lesser number
of Trading Days as have elapsed from, and including, the effective date for
such Spin-off to, but excluding, the relevant determination date.

 

If, prior to a determination
date, a record date for a Spin-off has been set but the relevant dividend or
distribution has not yet resulted in an adjustment to the Conversion Rate and
an exercising Holder is not entitled to participate in the dividend or
distribution with respect to the shares of Common Stock the Holder receives
upon conversion (whether because the Holder was not a holder of such shares of
Common Stock on the effective date for such dividend or distribution or
otherwise), then as promptly as practicable following the determination date,
the Company will deliver to the Holder a number of additional shares of Common
Stock that reflects the increase to the number of shares of Common Stock
issuable upon conversion of the Notes deliverable as a result of the Spin-off.

 

(f)                                    Adjustment
for Company Tender or Exchange.  If, at any time (and from
time to time) after the Closing Date that any Notes are outstanding, the Company or any of its
Subsidiaries makes a payment to holders of the shares of Common Stock in
respect of a tender or exchange offer, other than an odd-lot offer, by the
Company or any of its Subsidiaries for shares of Common Stock, to the extent
that the cash and value of any other consideration included in the payment per
share of Common Stock exceeds the average of the Closing Sale Prices over the
10 consecutive Trading Day period commencing on, and including the Trading Day
immediately following the last date on which tenders or exchanges may be made
pursuant to such tender or exchange offer (the “Expiration
Date”), the Conversion Rate shall be adjusted based on the
following formula:

 

 

CR’                            =                                         the Conversion
Rate in effect immediately after the Open of Business on the Trading Day
immediately following the Expiration Date;

 

CR                                =                                         the Conversion
Rate in effect immediately prior to the Open of Business on the Trading Day
immediately following the Expiration Date;

 

FMV                     =                                         the aggregate fair market
value, as determined by the Board of Directors, of all cash and other
consideration payable in such tender or exchange offer  for shares purchased in such tender or
exchange offer, such value to be measured as of the expiration time of the
tender or exchange offer (the “Expiration Time”);

 

21

 

OS                                =                                         the number of
shares of Common Stock outstanding immediately prior to the Expiration Time
(prior to giving effect to such tender offer or exchange offer);

 

OS’                            =                                         the number of
shares of Common Stock outstanding immediately after the Expiration Time (after
giving effect to such tender offer or exchange offer); and

 

SP                                  =                                         the average of
the Closing Sale Prices of Common Stock over the 10 consecutive Trading Day
period commencing on, and including, the Trading Day immediately following the
Expiration Date.

 

The adjustment to the
Conversion Rate under this Section 6.2(f) will be made immediately
after the Open of Business on the 11th Trading Day
following the Expiration Date but will be given effect at the Open of Business
on the Trading Day following the Expiration Date.  For purposes of determining the Conversion
Rate, in respect of any conversion during the 10 Trading Days commencing on the
Trading Day immediately following the Expiration Date, references within this Section 6.2(f) to
10 Trading Days shall be deemed replaced with such lesser number of Trading
Days as have elapsed from, and including, the Trading Day following the
Expiration Time to, but excluding, the relevant determination date.

 

6.3                                 When No
Adjustment Required.  No
adjustment need be made pursuant to this Section 6 as a result of:

 

(a)                                  the issuance of the rights pursuant to the Company’s adoption
of a stockholders rights plan that provides that each share of Common Stock
issued upon conversion of the Notes at any time prior to the distribution of
separate certificates representing rights will be entitled to receive the right
(a “Stockholder Rights Plan”);

 

(b)                                 the distribution of separate certificates representing the
rights under a Stockholder Rights Plan;

 

(c)                                  the exercise or redemption of the rights in accordance with
any rights agreement under a Stockholder Rights Plan;

 

(d)                                 the termination or invalidation of the rights under a
Stockholder Rights Plan;

 

(e)                                  upon the issuance of any shares of Common Stock pursuant to
any present or future plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of additional
optional amounts in Common Stock under any plan;

 

(f)                                    upon the issuance of any shares of Common Stock or options or
rights to purchase or be issued those shares pursuant to any present or future
employee, director or consultant benefit plan or program of, or assumed by, the
Company or any of its Subsidiaries;

 

(g)                                 ordinary course of business stock repurchases, including
structured or derivative transactions pursuant to a stock repurchase program
approved by the Board of Directors (but, for the avoidance of doubt, excluding
transactions described in Section 6.2(f));

 

(h)                                 upon the issuance of any shares of Common Stock or any
securities convertible into, or exchangeable for shares of Common Stock, or the
right to purchase shares 

 

22

 

of Common Stock or such convertible or
exchangeable securities other than as described in Sections 6.2(c) or
6.2(d); or

 

(i)                                     for a change in the par value of Common Stock.

 

If any event described in Section 6.3(a) through
(d) occurs, the Holder will receive the rights upon conversion, unless,
prior to any conversion, the rights have separated from the Common Stock.  If the rights have separated, the Conversion
Rate will be adjusted at the time of separation as provided by Section 6.2(c) or
(d), as applicable, subject to readjustment in the event of expiration,
termination or redemption of such rights.

 

Notwithstanding the
foregoing, no adjustment need be made to the Conversion Rate pursuant to Section 6.2
if all the Holders participate (at the same time as Common Stock holders participate),
subject to notice of such participation to the Holder, in the transaction that
would otherwise trigger the applicable adjustment, as if the Holders held a
number of shares of Common Stock issuable upon conversion of the Notes then
outstanding.

 

6.4                                 Effect of
Reclassification, Consolidation, Merger or Sale.

 

(a)                                  Upon the occurrence of (i) any reclassification of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a split, subdivision or combination covered by Section 6.2(b)), (ii) any
consolidation or merger, (iii) a binding share exchange which reclassifies
or changes the outstanding shares of Common Stock or (iv) any sale or
conveyance of all or substantially all of the property and assets of the
Company to any other Person, in each case as a result of which the holders of
Common Stock shall be entitled to receive cash, securities or other property or
assets with respect to or in exchange for such Common Stock (any such event, a “Merger Event”), then at the
effective time of the Merger Event, the right to convert the Notes will be
changed into a right to convert the Notes into the type and amount of shares of
stock, other securities or other property or assets (including cash or any
combination thereof) that a holder of a number of shares of Common Stock
issuable upon conversion of the Notes immediately prior to such Merger Event
would have owned or been entitled to receive (the “Reference
Property”) upon such Merger Event. If the Merger Event causes
the Common Stock to be converted into, or exchanged for, the right to receive
more than a single type of consideration (determined based in part upon any for
of stockholder election), the Reference Property to be received upon exercise
will be deemed to be the weighted average of the types and amounts of Reference
Property to be received by the holders of Common Stock that affirmatively make
such election).

 

(b)                                 If the Company consummates a Merger Event, the Company shall
promptly provide notice to the Holder briefly describing the Merger Event and
stating the type or amount of cash, securities, property or other assets that
will comprise the Reference Property after any such Merger Event and any adjustment
to be made with respect thereto.

 

(c)                                  The above provisions of this Section 6.4 shall similarly
apply to successive Merger Events.

 

6.5                                 Simultaneous
Adjustments.  In the
event that this Section 6 requires adjustments to the Conversion Rate
under more than one of the provisions of Section 6.2(a), (b), (c), (d) and
(e) and the Record Dates (or, in the case of a Spin-off, the effective
date of such a Spin-off) for the distributions giving rise to such adjustments
shall occur on the same date, then such adjustments shall be made by applying,
first, the provisions of Section 6.2(b), second, the provisions of Section 6.2(d),
third, the provisions of Section 6.2(e), fourth, the provisions of Section 6.2(a) and,
fifth, the provisions of

 

23

 

Section 6.2(c).  To the extent the issuance of any
Equity-Linked Securities would give rise to an adjustment under both Section 6.1
and any clause under Section 6.2, then only the adjustment that would
result in the greatest increase to the Conversion Rate shall apply.  Any adjustment to the Conversion Rate
pursuant to Section 6.4 shall be made after giving effect to all other
adjustments then applicable, but in all events without duplication of any
adjustments.

 

6.6                                 Successive
Adjustments.  After an
adjustment to the Conversion Rate under this Section 6, any subsequent
event requiring an adjustment under this Section 6 shall cause an
adjustment to the Conversion Rate as so adjusted, but in all events without
duplication of any adjustments.

 

6.7                                 Limitation on
Adjustments.  The Company
shall not take any action that would result in an adjustment pursuant to the
foregoing provisions in this Section 6 if that adjustment to the
Conversion Rate would produce a Conversion Price less than the then par value
of the shares of Common Stock issuable upon conversion of the Notes.  In no event will the Conversion Rate be
decreased other than as a result of a transaction described in Section 6.2(b)(iii) or
as a result of any readjustment to the Conversion Rate to reverse any prior
adjustment made for a transaction that was not subsequently completed as
provided in Section 6.2.  For the
avoidance of doubt, an increase in the Conversion Rate results in a decrease in
the Conversion Price, and vice versa.

 

6.8                                 Notices.

 

(a)                                  Promptly after any adjustment of the Conversion Rate, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail the calculation of such adjustment.

 

(b)                                 The Company shall give written notice to the Holders at least
five (5) Business Days prior to the date on which the Company (i) closes
its books or takes a record (w) with respect to any dividend or
distribution on the Common Stock, (x) with respect to any pro rata
subscription offer to holders of Common Stock, (y) with respect to any pro
rata redemption or similar offer to holders of the Common Stock or (z) for
determining rights to vote with respect to any Merger Event, dissolution or
liquidation or (ii) enters into any transaction that will result in an
adjustment of the Conversion Rate.

 

7.                                       Restrictions on
Transfer.

 

7.1                                 Permitted
Transfers.  The Holder
may transfer the Notes or the shares of Common Stock issuable upon conversion
of the Notes to any Person:

 

(a)                                  pursuant to a registration statement that is, at the time of
such transfer, effective under the Securities Act;

 

(b)                                 pursuant to Rule 144; or

 

(c)                                  in a transaction otherwise exempt from the registration
requirements of the Securities Act (subject to the requirements of such
exemption).

 

7.2                                 Terms of
Transfer. 
Notwithstanding the foregoing, the following terms and conditions will
apply to each transfer provided for in Section 7.1:

 

24

 

(a)                                  in the case of a transfer pursuant to Section 7.1(b) or
(c), as a condition precedent to such transfer, unless otherwise agreed by the
Company in writing, the transferor must deliver an opinion of counsel
reasonably satisfactory to the Company to the effect that the proposed transfer
is exempt from registration under the Securities Act and applicable state
securities Laws; and

 

(b)                                 no Holder that is subject to the Company’s then-applicable
insider trading policy may transfer any of the Notes or any shares of Common
Stock issuable upon conversion of the Notes except to the extent permitted
under such trading policy.

 

(c)                                  Except as provided in Section 7.1 above, the Notes and
the shares of Common Stock issuable upon conversion of the Notes may not be
transferred in whole or in part by the Holder. 
In order to effect any transfer or partial transfer of Notes, the Holder
shall deliver the Notes to the Company with the notice of transfer in the form
attached as Exhibit F (the “Notice of Transfer”)
completed and duly executed.  Upon
receipt of Notice of Transfer and the opinion of counsel required by this Section 7,
if any, the Company shall promptly (i) issue to the transferee a new Note
for the principal amount of Notes assigned by the Holder, and (ii) to the
extent the transfer contemplated by the Notice of Transfer is not for the
entire principal amount of Notes, issue to the Holder a replacement Note
representing the balance of such Note. 
The Company shall maintain at the Registrar office a record of the names
and addresses of the Holders hereunder and the principal amount (and stated
interest thereon) of any Notes held by such Holders (the “Register”).  Notwithstanding anything herein to the
contrary, a Note shall be transferred (in whole or in part) only by the
recordation of such transfer on the Register.

 

(d)                                 The Company shall not be required to register any transfer of
the Notes or the shares of Common Stock issuable upon conversion of the Notes
in violation of this Section 7 or applicable securities Laws.  The Company may place such stop transfer
orders as may be required on the transfer books of the Company in order to
ensure compliance with the provisions of this Section and applicable
securities Laws.

 

(e)                                  Each Holder, severally and not jointly, agrees from and after
the date of this Agreement until the earlier of (x) the third anniversary
of the Closing Date or (y) the date on which such Holder or its Affiliates
no longer owns Notes, Common Stock or warrants to purchase Common Stock
representing 10% or more of the Common Stock (calculated assuming all shares of
Common Stock then issuable pursuant to the Notes and exercise of the warrants
are outstanding), such Holder shall not, and shall not permit its Affiliates or
any Person acting on behalf of, or pursuant to any understanding with, the
Holder or its Affiliates to, engage in Short Sales, derivatives,
participations, swaps or other arrangements that transfer to another Person, in
whole or in part, any of the economic consequences of ownership of the Common
Stock or the Notes held by the Holder or its Affiliates without transferring
title or legal ownership of such Notes or Common Stock.

 

7.3                                 Legends.  The following legends will appear on the face
of all Notes issued under this Agreement unless specifically stated otherwise
in the applicable provisions of this Agreement.

 

(a)                                  Private Placement Legend.

 

(A)                              Except as
permitted by subparagraph (B) below, each Note (and all Notes issued in
exchange therefor or substitution thereof) shall bear the legend in
substantially the following form:

 

“THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”) AND, ACCORDINGLY, MAY NOT BE 

 

25

 

OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET
FORTH IN THE FOLLOWING SENTENCE.  BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A “QUALIFIED
INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A “QIB”),
(B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR
BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN
INSTITUTIONAL “ACCREDITED INVESTOR” (AS DEFINED IN RULE 501(A)(1),
(2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN “IAI”),
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE
144 (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES
ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE
TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO
THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A PERSON WHOM THE HOLDER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE
THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) TO AN
IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE COMPANY A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE REGISTRATION
OF TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
THE COMPANY) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND.  WITH RESPECT
TO ANY TRANSFER CONTEMPLATED BY CLAUSES (2)(B), (C), (D) OR (E) ABOVE,
THE HOLDER SHALL BE REQUIRED TO DELIVER A LEGAL OPINION REASONABLY ACCEPTABLE
IN FORM AND SUBSTANCE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT.  IN CONNECTION
WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE
REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE COMPANY.  AS USED
HEREIN, THE TERMS “OFFSHORE TRANSACTION,” “UNITED STATES” AND “U.S. PERSON”
HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT.”

 

(B)                                Notwithstanding
the foregoing, if requested in writing by a Holder accompanied by a legal
opinion reasonably acceptable in form and substance to the Company that such
Private Placement Legend is eligible to be removed, any Note resold pursuant to
Rule 144 in a manner that results in such Note no longer constituting a
restricted security or pursuant to an effective registration statement (and all
Notes issued in exchange therefor or substitution thereof) will not bear the
Private Placement Legend.

 

(b)                                 Original Issue
Discount Legend.   Each Note will bear a
legend in substantially the following form:

 

“FOR THE PURPOSES OF
SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED,
THIS SECURITY IS BEING ISSUED WITH ORIGINAL 

 

26

 

ISSUE DISCOUNT; THE ISSUE PRICE, AMOUNT OF
ORIGINAL DISCOUNT, ISSUE DATE, AND YIELD TO MATURITY WITH RESPECT TO THESE
NOTES MAY BE OBTAINED BY WRITING TO THE CHIEF FINANCIAL OFFICER OF THE
BORROWER AT THE ADDRESS SET FORTH IN SECTION 13.7 HEREIN.”

 

8.                                       Subordination.

 

8.1                                 Agreement to
Subordinate.  The Company
agrees, and each Holder by accepting a Note agrees, that the indebtedness
evidenced by the Notes is subordinated in right of payment, to the extent and
in the manner provided in this Section 8, to the prior payment in full of
all Senior Debt (whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed), and that the subordination is for the benefit
of the holders of Senior Debt.

 

8.2                                 Liquidation;
Dissolution; Bankruptcy.  Upon
any distribution to creditors of the Company in a liquidation or dissolution of
the Company or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property, in an assignment
for the benefit of creditors or any marshaling of the Company’s assets and
Liabilities:

 

(a)                                  holders of Senior Debt will be entitled to receive payment in
full of all Obligations due in respect of such Senior Debt (including interest
after the commencement of any bankruptcy proceeding at the rate specified in
the applicable Senior Debt) before the Holders of Notes will be entitled to
receive any payment with respect to the Notes (except that Holders of Notes may
receive and retain Permitted Junior Securities); and

 

(b)                                 until all Obligations with respect to Senior Debt (as
provided in clause (a) above) are paid in full, any distribution to which
Holders would be entitled but for this Section 8 will be made to holders
of Senior Debt (except that Holders of Notes may receive and retain Permitted
Junior Securities), as their interests may appear.

 

8.3                                 Default on
Designated Senior Debt.

 

(a)                                  The Company may not make any payment or distribution to any
Holder in respect of Obligations with respect to the Notes and may not acquire
from any Holder any Notes for cash or property (other than Permitted Junior
Securities) until all principal and other Obligations with respect to the Senior
Debt have been paid in full if:

 

(i)                                     payment default on Designated Senior Debt occurs and is
continuing; or

 

(ii)                                  any other default occurs and is continuing on any series of
Designated Senior Debt that permits holders of that series of Designated Senior
Debt to accelerate its maturity and the Holders receive a notice of such
default (a “Payment Blockage Notice”)
from the Company of the holders of any Designated Senior Debt.  If the Company receives any such Payment
Blockage Notice, no subsequent Payment Blockage Notice will be effective for
purposes of this Section 8.3 unless and until (A) at least 360 days
have elapsed since the delivery of the immediately prior Payment Blockage
Notice and (B) all scheduled payments of principal of, premium on, if any,
and interest and Special Interest, if any, on, the Notes that have come due
have been paid in full in cash.

 

No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage
Notice to the Company may be, or may be made, the basis for a subsequent
Payment 

 

27

 

Blockage Notice unless such default has been
cured or waived for a period of not less than 90 days. Notwithstanding the
foregoing, the Company may make payment on the Notes if the Company receives
written notice approving such payment from the Representative of each series of
any Designated Senior Debt then outstanding with respect to which either of the
events set forth in clauses (i) and (ii) of this clause (a) has
occurred and is continuing.

 

(b)                                 The Company may and will resume payments on and distributions
in respect of the Notes and may acquire them upon the earlier of:

 

(i)                                     in the case of a payment default, upon the date upon which
such default is cured or waived, and

 

(ii)                                  in the case of any other default, upon the earliest of (A) the
date on which such nonpayment default is cured or waived, (B) 179 days
after the date on which the applicable Payment Blockage Notice is received, and
(C) the date the Company receives notice from the Representative of each
series of Designated Senior Debt then outstanding rescinding such Payment
Blockage Notice, unless the maturity of any Designated Senior Debt has been
accelerated.

 

8.4                                 Acceleration of
Notes.  If payment of the Notes is
accelerated because of an Event of Default, the Company will promptly notify
holders of Senior Debt of the acceleration.

 

8.5                                 When
Distribution Must Be Paid Over.  In the event that any Holder of the Notes
receives any payment of any Obligations with respect to the Notes (other than
Permitted Junior Securities) at a time when the payment is prohibited by Section 8.3
and the Holder has actual knowledge that the payment is prohibited by Section 8.3,
such payment will be held by such Holder, in trust for the benefit of, and will
be paid forthwith over and delivered, upon written request, to, the holders of
Senior Debt as their interests may appear or their Representative under the
agreement, indenture or other document (if any) pursuant to which Senior Debt
may have been issued, as their respective interests may appear, for application
to the payment of all Obligations with respect to Senior Debt remaining unpaid
to the extent necessary to pay such Obligations in full in accordance with
their terms, after giving effect to any concurrent payment or distribution to
or for the holders of Senior Debt.

 

8.6                                 Notice by
Company.  The Company will promptly
notify the Holders of any facts known to the Company that would cause a payment
of any Obligations with respect to the Notes to violate this Section 8,
but failure to give such notice will not affect the subordination of the Notes
to the Senior Debt as provided in this Section 8.

 

8.7                                 Subrogation.  After all Senior Debt is paid in full and
until the Notes are paid in full, Holders of Notes will be subrogated (equally
and ratably with all other indebtedness pari passu with
the Notes) to the rights of holders of Senior Debt to receive distributions
applicable to Senior Debt to the extent that distributions otherwise payable to
the Holders of Notes have been applied to the payment of Senior Debt.  A distribution made under this Section 8
to holders of Senior Debt that otherwise would have been made to Holders of
Notes is not, as between the Company and Holders, a payment by the Company on
the Notes.

 

8.8                                 Relative Rights.  This Section 8 defines the relative
rights of Holders of Notes and holders of Senior Debt.  Nothing in this Agreement will:

 

28

 

(i)                                     impair, as between the Company and Holders of Notes, the
obligation of the Company, which is absolute and unconditional, to pay
principal of, premium on, if any, and interest and Special Interest, if any,
on, the Notes in accordance with their terms;

 

(ii)                                  affect the relative rights of Holders of Notes and creditors
of the Company other than their rights in relation to holders of Senior Debt;
or

 

(iii)                               prevent any Holder of Notes from exercising its available
remedies upon a Default or Event of Default, subject to the rights of holders
and owners of Senior Debt to receive distributions and payments otherwise
payable to Holders of Notes.

 

If the Company fails because
of this Section 8 to pay principal of, premium on, if any, or interest or
Special Interest, if any, on, a Note on the due date, the failure is still a
Default or Event of Default.

 

8.9                                 Subordination May Not
Be Impaired by Company.  No
right of any holder of Senior Debt to enforce the subordination of the
indebtedness evidenced by the Notes may be impaired by any act or failure to
act by the Company or any Holder or by the failure of the Company or any Holder
to comply with this Agreement.

 

8.10                           Distribution or
Notice to Representative. 
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.

 

Upon any payment or
distribution of assets of the Company referred to in this Section 8, the
Holders of Notes will be entitled to rely upon any Order or decree made by any
court of competent jurisdiction or upon any certificate of such Representative
or of the liquidating trustee or agent or other Person making any distribution
to the Holders of Notes for the purpose of ascertaining the Persons entitled to
participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Section 8.

 

8.11                           Amendments.  The provisions of this Section 8 may not
be amended or modified without the written consent of the holders of all Senior
Debt.  In addition, any amendment to, or
waiver of, the provisions of this Section 8 that adversely affects the
rights of the Holders of the Notes will require the consent of the holders of
at least a majority in aggregate principal amount of the Notes then
outstanding.

 

9.                                       Events of
Default.

 

9.1                                 Definition.  Each of the following is an “Event of Default”:

 

(a)                                  default, for 15 days after notice to the Company by the
Holders of at least a majority in aggregate principal amount of the Notes in
the payment when due of interest, AHYDO Catch-up Payment and Special Interest,
if any, on the Notes, whether or not prohibited by the subordination provisions
of this Agreement;

 

(b)                                 default, after notice to the Company by the Holders of at
least a majority in aggregate principal amount of the Notes, in the payment
when due (at maturity, upon redemption or otherwise) of the principal
(including PIK Interest previously paid) of, or premium on, if any, the Notes,
whether or not prohibited by the subordination provisions of this Agreement;

 

29

 

(c)                                  failure by the Company or any of its Subsidiaries after
notice to the Company by the Holders of at least a majority in aggregate
principal amount of the Notes to comply with the provisions of Section 3.9;

 

(d)                                 failure by the Company or any of its Subsidiaries for 30 days
after notice to the Company by the Holders of at least a majority in aggregate
principal amount of the Notes to comply with any of the other agreements in
this Agreement;

 

(e)                                  default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any indebtedness
(other than Non-Recourse Indebtedness) for money borrowed by the Company or any
of its Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Subsidiaries), whether such indebtedness or guarantee now exists, or
is created after the date of this Agreement, if that default:

 

(i)                                     is caused by a failure to pay principal of, premium on, if
any, or interest on, if any, such indebtedness prior to the expiration of the
grace period provided in such indebtedness on the date of such default (a “Payment Default”); or

 

(ii)                                  results in the acceleration of such indebtedness prior to its
express maturity,

 

and, in each case, the
principal amount of any such indebtedness, together with the principal amount
of any other such indebtedness under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $10 million or more
and is not cured within 10 days following notice to the Company by the Holders of at least a
majority in aggregate principal amount of the Notes;

 

(f)                                    failure by the Company or any of its Material Subsidiaries to
pay final and non-appealable judgments entered by a court or courts of
competent jurisdiction aggregating in excess of $10 million (net of any amounts
covered by insurance or pursuant to which the Company is indemnified), which
judgments are not paid, discharged or stayed, for a period of 60 days after
notice to the Company by the Holders of at least a majority in aggregate
principal amount of the Notes and, in the event such judgment is covered by
insurance, an enforcement proceeding has been commenced by any creditor upon
such judgment or decree that is not promptly stayed;

 

(g)                                 the Company or any of its Subsidiaries that is a Material
Subsidiary or any group of Subsidiaries of the Company that, taken together,
would constitute a Material Subsidiary pursuant to or within the meaning of
Bankruptcy Law:

 

(i)                                     commences a voluntary case,

 

(ii)                                  consents to the entry of an Order for relief against it in an
involuntary case,

 

(iii)                               consents to the appointment of a custodian of it or for all
or substantially all of its property,

 

(iv)                              makes a general assignment for the benefit of its creditors,
or

 

(v)                                 generally is not paying its debts as they become due; or

 

30

 

(h)                                 a court of competent jurisdiction enters an Order or decree
under any Bankruptcy Law that:

 

(i)                                     is for relief against the Company or any of its Subsidiaries
that is a Material Subsidiary or any group of Subsidiaries of the Company that,
taken together, would constitute a Material Subsidiary in an involuntary case;

 

(ii)                                  appoints a custodian of the Company or any of its
Subsidiaries that is a Material Subsidiary or any group of Subsidiaries of the
Company that, taken together, would constitute a Material Subsidiary or for all
or substantially all of the property of the Company or any of its Subsidiaries
that is a Material Subsidiary or any group of Subsidiaries of the Company that,
taken together, would constitute a Material Subsidiary; or

 

(iii)                               orders the liquidation of the Company or any of its
Subsidiaries that is a Material Subsidiary or any group of Subsidiaries of the
Company that, taken together, would constitute a Material Subsidiary;

 

and the Order or decree remains
unstayed and in effect for 60 consecutive days.

 

9.2                                 Acceleration.

 

(a)                                  In the case of an Event of Default specified in clause (g) or
(h) of Section 9.1, with respect to the Company, any Subsidiary of
the Company that is a Material Subsidiary or any group of Subsidiaries of the
Company that, taken together, would constitute a Material Subsidiary, all
outstanding Notes will become due and payable immediately without further
action or notice.  If any other Event of
Default occurs and is continuing, the Holders of at least 33 1/3% in aggregate
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately.  Upon any
such declaration, the Notes shall become due and payable immediately.

 

(b)                                 The Holders of a majority in aggregate principal amount of
the then outstanding Notes by written notice to the Company may, on behalf of
all of the Holders of all the Notes, rescind an acceleration and its
consequences hereunder, if the rescission would not conflict with any judgment or
decree and if all existing Events of Default (except nonpayment of principal
of, premium on, if any, on the Notes that has become due solely because of the
acceleration) have been cured or waived.

 

9.3                                 Other Remedies.  If an Event of Default occurs and is
continuing, the Holders may pursue any available remedy to collect the payment
of principal of, and premium, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Agreement; provided that only
Holders of a majority in aggregate principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available or exercising any trust or power conferred on
the Holders.  Except as provided in the
immediately preceding sentence, no individual Holder or group of Holders may
pursue any remedy with respect to this Agreement or any Note.  A delay or omission by the Holders of Notes
in exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default.  All remedies are
cumulative to the extent permitted by Law.

 

9.4                                 Waiver of Past
Defaults.  The Holders
of a majority in aggregate principal amount of the then outstanding Notes by
written notice to the Company may, on behalf of the Holders of all of the Notes
waive any existing Default or Event of Default and its consequences hereunder,
except a continuing Default or Event of Default in the payment of principal of,
premium on, if 

 

31

 

any, on, the Notes (including in connection
with an offer to purchase); provided, however,
that the Holders of a majority in aggregate principal amount of the then
outstanding Notes may rescind an acceleration and its consequences, including
any related payment default that resulted from such acceleration.  Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Agreement; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.

 

10.                               Amendment,
Supplement and Waiver.

 

10.1                        Without Consent
of Holders of Notes.  The Company
may not amend or supplement this Agreement without the consent of Holders of
the Notes.

 

10.2                        With Consent of
Holders of Notes.  Except as
provided below in this Section 10.2, (i) the Company may amend this
Agreement and the Notes with the consent of the Holders of at least a majority
in aggregate principal amount of the Notes then outstanding (including,
without limitation, PIK Interest and Additional Notes, if any) voting as a
single class (including, without limitation, consents obtained in connection
with a tender offer or exchange offer for, or purchase of, the Notes), (ii) any
existing Default or Event of Default (other than a Default or Event of Default
in the payment of the principal of, premium on, if any, or interest or Special
Interest, if any, on, the Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Agreement or the Notes may be waived with the consent of the Holders of a
majority in aggregate principal amount of the Notes then outstanding (including,
without limitation, PIK Interest and Additional Notes, if any) voting as a
single class (including, without limitation, consents obtained in connection
with a tender offer or exchange offer for, or purchase of, the Notes) or (iii) the
Company may amend or supplement this Agreement to provide for the issuance of
Additional Notes in accordance with the limitations set forth in this Agreement
as of the date hereof, with the consent of the Holders of a majority in
aggregate principal amount of the Notes then outstanding (including,
without limitation, PIK Interest and Additional Notes, if any) voting as a
single class.

 

Upon receipt of the
requisite consents, the Company and Holders representing the requisite consents
may enter into an amendment to this Agreement. 
It is not necessary for the consent of Holders of Notes under this Section 10.2
to approve the particular form of any proposed amendment, supplement or waiver,
but it is sufficient if such consent approves the substance thereof.

 

Notwithstanding the
foregoing, without the consent of each Holder affected, an amendment,
supplement or waiver to this Agreement may not (with respect to any Notes held
by a non-consenting Holder):

 

(a)                                 Reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;

 

(b)                                 Reduce the principal of or change the fixed maturity of any
Note or alter or waive any of the provisions with respect to the redemption of
the Notes (except with respect to Section 3.8);

 

(c)                                  Reduce the rate of or change the time for payment of
interest, including Default Interest, on any Note;

 

(d)                                 Waive a Default or Event of Default in the payment of
principal of, premium on, if any, or interest or Special Interest, if any, on,
the Notes (except a rescission of 

 

32

 

acceleration of the Notes by the Holders of a
majority in aggregate principal amount of the then outstanding Notes and a
waiver of the payment default that resulted from such acceleration);

 

(e)                                  Make any Note payable in money other than that stated in the
Notes;

 

(f)                                   Make any change in the provisions of this Agreement relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of, premium on, if any, or interest or Special Interest,
if any, on, the Notes;

 

(g)                                  Waive a redemption payment with respect to any Note (other
than a payment required by Section 3.9); and

 

(h)                                 Make any change in the preceding amendment and waiver
provisions.

 

Section 8.11 provides
additional requirements regarding any amendment to the subordination provisions
of this Agreement.

 

10.3                        Revocation and
Effect of Consents.  Until an
amendment, supplement or waiver becomes effective, a consent to it by a Holder
of a Note is a continuing consent by such Holder and every subsequent Holder of
a Note or portion thereof that evidences the same debt as the consenting Holder’s
Note, even if notation of the consent is not made on any Note.  However, any such Holder of a Note or
subsequent Holder thereof may revoke the consent as to its Note by providing
written notice of revocation to the Company before the date the amendment,
supplement or waiver becomes effective. 
An amendment, supplement or waiver becomes effective in accordance with
its terms and thereafter binds every Holder.

 

Each Holder and its successors
and assigns acknowledge that by the operation of this Section 10, the
Holders representing a majority in principal amount of the Notes then
outstanding, acting in conjunction with the Company, will have the right and
power to diminish or eliminate any or all rights pursuant to this Agreement.

 

11.                               Representations
and Warranties.

 

11.1                        Representations
and Warranties of the Company.  Except as set forth in the corresponding
sections of the disclosure schedule (the “Company Disclosure
Schedule”) which is being delivered by the Company to the
Investors concurrently herewith and except as disclosed in, and reasonably
apparent from, the Company SEC Documents publicly available prior to the date
of this Agreement and only as and to the extent disclosed therein (other than
disclosures in any schedules thereto or in any documents incorporated by
reference therein and other than any forward looking disclosures set forth in
any risk factor section, any disclosures in any section relating to forward
looking statements and any other disclosures included therein to the extent
they are primarily predictive or forward-looking in nature), the Company represents and
warrants to the Investors as of the date hereof and as of the Closing that:

 

(a)                                 Organization.  (i) The Company is duly incorporated, validly
existing and in good standing under the Laws of Maryland with all requisite
power and authority required to conduct its business as presently
conducted.  The Company has heretofore
made available to each Investor true and complete copies of the Constituent
Documents of the Company and its Subsidiaries and each such Constituent
Document is in full force and effect. 
(ii) The Company and each Subsidiary of
the 

 

33

 

Company is duly qualified or licensed to
transact business and is in good standing in all jurisdictions where the
ownership or operation of its assets and properties or the conduct of its
business requires such qualification, except where the failure to be so
licensed or in good standing would not have a Company Material Adverse
Effect.  

 

(b)                                 Authorization;
Enforceability.  The
Company has all requisite corporate power and authority to execute and deliver
this Agreement and the Registration Rights Agreement and to perform its
obligations hereunder and thereunder. 
The execution and delivery by the Company of this Agreement and the
Registration Rights Agreement and the performance by the Company of its
obligations hereunder and thereunder have been duly authorized by all requisite
corporate action of the Company, subject only to obtaining Stockholder Approval
at a duly held meeting of the Company’s stockholders (the “Stockholders
Meeting”) or any adjournment or postponement thereof.  The Board of Directors has determined (based
on the recommendation of a special committee of the Board of Directors) that
this Agreement and the transactions contemplated hereby are in the best
interests of the Company and its stockholders, has resolved to recommend that
holders of Common Stock vote in favor of the issuance of the shares of Common
Stock issued in connection with the conversion of the Notes be submitted to the
Company’s stockholders for approval at the Stockholders Meeting and has taken
any required action to make any “fair price,” “moratorium,” “control share
acquisition” or other similar anti-takeover statute or regulation enacted under
the MGCL inapplicable to the transactions contemplated hereby.  No other corporate action on the part of the
Company or its stockholders is necessary to authorize the execution, delivery
and performance by the Company of this Agreement and the Registration Rights
Agreement and the consummation by it of the transactions contemplated hereunder
and thereunder.  This Agreement and the
Registration Rights Agreement have been duly executed and delivered by the
Company, and assuming this Agreement and the Registration Rights Agreement have
been duly authorized, executed and delivered by the other parties hereto or
thereto, constitutes or will constitute the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except to the extent that the enforceability thereof may be limited by (i) applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar Laws from time to time in effect affecting generally the enforcement of
creditors’ rights and remedies; and (ii) general principles of equity,
including principles of reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in equity or at law).

 

(c)                                  Subsidiaries;
Investments.

 

(i)                                     Section 4.3(a) of the Company Disclosure Schedule
sets forth the name and jurisdiction of organization of each Subsidiary of the
Company.  Each of the Company’s Subsidiaries
is an entity duly organized, validly existing and (to the extent the concept of
good standing exists in the applicable jurisdiction) in good standing under the
laws of its jurisdiction of organization. 
Each of the Company’s Subsidiaries has all requisite corporate or other
similar organizational power and authority to own, lease and operate its
properties and to carry on its business as now being conducted except where the
failure to be so licensed or in good standing would not have a Company Material
Adverse Effect.

 

(ii)                                  Other than any interests in the Company’s Subsidiaries and,
except as set forth in Section 4.3(b) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries owns any Equity
Interests in any Person.  All Equity
Interests in each Subsidiary of the Company are owned by the Company or another
Subsidiary of the Company free and clear of any Liens, other than Permitted
Liens.

 

(d)                                 Capitalization.  The Company is authorized to issue
500,000,000 shares of Common Stock and 100,000,000 shares of preferred stock of
the Company, par value $0.001 per 

 

34

 

share (the “Preferred Stock”).  As of the date of this Agreement, (i) 6,454,924
shares of Common Stock are issued and outstanding, (ii) no shares of
Preferred Stock are issued and outstanding, (iii) the Company has reserved
(A) 308,164 shares of Common Stock for issuance pursuant to the grant of
outstanding restricted stock units and (B) 3,000,000 shares of Common
Stock for issuance pursuant to exercise of outstanding warrants to purchase
Common Stock and (iv) no other shares of Common Stock, other voting
securities of the Company or shares of Preferred Stock have been issued,
reserved for issuance or outstanding. 
All issued and outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid, nonassessable and not subject to
preemptive rights.  There are no other
outstanding calls, rights, commitments, agreements, arrangements or undertakings
of any kind, obligating the Company to issue, deliver or sell, or cause to be
issued, delivered or sold Equity Interests in the Company, or obligating the
Company to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.  There are no outstanding or authorized stock
appreciation, phantom stock, profit participation or similar rights with
respect to the Equity Interests of the Company. 
There are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any of its Equity Interests or make any
material investment (in the form of a loan, capital contribution or otherwise)
in any Person.

 

(e)                                  Compliance with Laws.

 

(i)                                     Except as
disclosed in Section 4.5 of the Company Disclosure Schedule, the Company and its Subsidiaries are not in material violation
of, and have not violated in any material respect, any applicable Law affecting
or related to the Company, any of its Subsidiaries or any Company CLO Issuer
and any of their businesses, operations, assets or employees.  To the Knowledge of the Company, no
investigation or review by any Governmental Authority with respect to the
Company or any of its Subsidiaries or any Company CLO Issuer is pending or
threatened and no Governmental Authority has indicated an intention to conduct
the same.

 

(ii)                                  None of the Company or any of its Subsidiaries, or any of
their managers, directors or officers acting for or on their behalf, or, to the
Knowledge of the Company, any employee or agent of the Company or any of its
Subsidiaries or any Person acting for or on their behalf, has, directly or
indirectly, (i) used any funds for unlawful contributions, gifts,
gratuities, entertainment or other unlawful expenses related to political
activity, (ii) made any payment or offered, promised or authorized the
payment of anything of value, regardless of form, whether in money, property or
services, to or for the benefit of any U.S. or non-U.S. government official or
employee, any official or employee of a public international organization, or
any political party or candidate for political office for the purpose of
influencing any act or decision of such individual or of any Governmental
Authority or public international organization, or securing any improper
advantage, in order to obtain or retain business or direct business to any
Person in violation of applicable Law, (iii) made any other unlawful
payment, regardless of form, whether in money, property or services, including
any payment which constitutes criminal bribery under applicable Law or (iv) violated
any applicable export control, money laundering or anti-terrorism law or
regulation, or any other applicable anti-bribery law or regulation, of any
applicable jurisdiction, or any applicable Law of similar effect.

 

(f)                                   Non-Contravention; Consents and Approvals.  The execution and
delivery of this Agreement and the Registration Rights Agreement by the
Company, the consummation by the Company of the transactions contemplated hereby
and thereby, and the performance by the Company of its obligations hereunder
and thereunder, except as set forth in Section 4.6 of the Company
Disclosure Schedule: (i) do not violate any provision of the Constituent
Documents of the Company or any of its Subsidiaries; and (ii)(A) do not
conflict with or violate any applicable Law 

 

35

 

of any Governmental Authority having
jurisdiction over the Company or any of its Subsidiaries or any part of the properties or assets of the
Company or any of its Subsidiaries, (B) do not require the Consent of any
Person under, violate, result in the termination or acceleration of or of any
right under, give rise to or modify any right or obligation under (whether or
not in combination with any other event or circumstance), or conflict with,
breach or constitute a default under (in each case with or without notice, the
passage of time or both), any Contract to which the Company or any of its
Subsidiaries is a party or by which any of their respective properties or
assets is bound, (C) do not result in the creation or imposition of any
Lien on any part of the properties or assets of the Company or any of its
Subsidiaries, (D) do not violate any Order binding on the Company or any
of its Subsidiaries or any part of its or their properties or assets, and (E) except
for the Stockholder Approval and the filing with the SEC of the Proxy Statement
and the Other Filings, does not otherwise require any Governmental Approvals or
any Third Party Consents other than the Consents set forth on Section 5.7(a)(i) and
(ii) of the Company Disclosure Schedule, except in the case
of (B), (C), (D) or (E) for any of the foregoing, that, individually
or in the aggregate would not have a Company Material Adverse Effect.

 

(g)                                  SEC Reports and Financial Statements.

 

(i)                                     Since December 31, 2008, the Company has timely filed or
otherwise furnished (as applicable) all registration statements, prospectuses,
forms, reports, definitive proxy statements, schedules, statements and
documents required to be filed or furnished by it under the Exchange Act, (such
documents as amended, as have been supplemented, modified or amended since the
time of filing so long as such supplement, modification or amendment has occurred
prior to the date of this Agreement, collectively, the “Company
SEC Documents”).  As of
their respective filing dates (and if so amended or superseded, then on the
date of such subsequent filing) the Company SEC Documents (i) did not (or
with respect to Company SEC Documents filed after the date hereof, will not)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading and (ii) complied in all material respects with the applicable
requirements of the Exchange Act and the applicable rules and regulations
of the SEC thereunder.  None of the
Company Subsidiaries is currently required to make any filings with the SEC
other than DCM in its capacity as a registered investment advisor.  All of the audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company and its Subsidiaries included in the Company SEC Documents
(collectively, the “Company Financial Statements”)
(A) have been or will be, as the case may be, prepared from the Books and
Records of the Company and its Subsidiaries, (B) have been or will be, as
the case may be, prepared in accordance with GAAP applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto
or, in the case of interim financial statements, for normal and recurring
year-end adjustments that are not material in amount or nature and as may be
permitted by the SEC on Form 10-Q, Form 8-K or any successor or like
form under the Exchange Act) and (C) fairly present in all material
respects the consolidated financial position and the consolidated results of
operations, cash flows and changes in stockholders’ equity of the Company and
its Subsidiaries as of the dates and for the periods referred to therein.

 

(ii)                                  Without limiting the generality of Section 11.1(e)(i),
(i) Deloitte & Touche LLP has not resigned or been dismissed as
independent public accountant of the Company as a result of or in connection
with any disagreement with the Company on a matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, (ii) no
executive officer of the Company has failed in any respect to make, without
qualification, the certifications required of him or her under Section 302
or 906 of the Sarbanes-Oxley Act with respect to any form, report or schedule
filed by the Company with the SEC since 

 

36

 

December 31,
2008 and (iii) no enforcement action has been initiated or, to the
Knowledge of the Company, threatened against the Company by the SEC relating to
disclosures contained in any Company SEC Document.

 

(iii)                               The Company has not received any complaint, allegation,
assertion or claim in writing regarding a material aspect of the accounting
practices, procedures, methodologies or methods of the Company’s internal
accounting controls, including any such complaint, allegation, assertion or
claim that the Company has engaged in questionable accounting or audit
practices.  The Company has made available to the Company any management
letters, or other formal communications, including with respect to proposed
adjustments, from any of the Company’s auditors to the Company, any officer of
the Company or the Board of Directors, in any case regarding (1) any
significant deficiencies and material weaknesses in the design or operation of
disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Exchange Act) or of internal control over financial reporting (as defined
in Rule 13a-15(f) of the Exchange Act) which have adversely affected
or are reasonably likely to adversely affect the ability of the Company to
record, process, summarize and report financial date, (2) any fraud,
whether or not material, that involves management or other employees who have a
significant role in the Company’s internal control over financial reporting, or
(3) any other deficiencies in the accounting system of the Company.

 

(h)                                 Absence of Certain Changes and Events.  Since December 31,
2009 (the “Balance Sheet Date”), (a) the
Company has conducted, and has caused its Subsidiaries to conduct, their
respective businesses only in the ordinary course and consistently with past
practice; (b) the Company and its Subsidiaries have not suffered any
event, change, occurrence, facts or circumstance that, individually or in the
aggregate with any other events, changes, occurrences or circumstances, has had
or would reasonably be expected to have a Company Material Adverse Effect; and (c) there
has not been any action, omission or event that would be prohibited by or would
have required consent of the Investors pursuant to Section 5.2 of the
Acquisition Agreement had such action, omission or event been taken, occurred
or arisen after the date of this Agreement.

 

(i)                                     No Undisclosed Liabilities.  (a) Except (i) for those Liabilities that are reflected on
or reserved against in the Company’s December 31, 2009 balance sheet or
disclosed in the notes thereto, and (ii) for those Liabilities incurred in
the ordinary course of business consistent with past practice since the Balance
Sheet Date, and not, individually or in the aggregate, material to the Company
and its Subsidiaries, the Company and its Subsidiaries do not have any
Liabilities of any kind or nature whatsoever, whether known or unknown,
accrued, contingent, absolute, determined, or determinable, or whether
otherwise due or to become due, and there is no existing condition, situation
or set of circumstances that could reasonably be expected to result in such a Liability.

 

(j)                                    Regulatory Compliance.

 

(i)                                     None of the Company, any of its Subsidiaries or, to the
Knowledge of the Company, any other Person “associated” (as defined under the
Investment Advisers Act) with the Company or any of its Subsidiaries during the
preceding ten years, has been convicted of any crime or is or has been subject
to any disqualification that would be a basis for denial, suspension or
revocation of registration of an investment adviser under Section 203(e)
through (4) and 203(e)(7) through (9) of the Investment Advisers Act or Rule 206(4)-4(b) thereunder
or has engaged in any conduct, except for the investigation described in
Section 4.10(c) of the Company Disclosure Schedule, been involved in any Legal
Proceeding or is or was subject to any Order that is required to be disclosed
on a Form ADV.

 

37

 

(ii)                                  Each of the
Company and its Subsidiaries required to be registered as an investment adviser
under the Investment Advisers Act and the rules and regulations thereunder
is registered as such and has completed notice filings for each state listed in
Section 4.10(b) of the Company Disclosure Schedule, which
jurisdictions are the only jurisdictions wherein such Person is required to
make such filings.

 

(iii)                               Each Subsidiary of the Company that is registered as an
investment adviser under the Investment Advisers Act has filed a Form ADV
with the SEC in accordance with the Investment Advisers Act, which Form ADV
at the time of filing was (and with respect to Form ADV Part II, was
as of its date), and as amended and supplemented as of the date hereof is, in
effect pursuant to and in material compliance with the requirements of the
Investment Advisers Act.  The Company has
heretofore made available to the Investors true and correct copies of the Forms
ADV for 2008 and 2009 as amended or supplemented as of the date hereof.  Each of the investment management entities
and each of its investment adviser representatives (as such term is defined in Rule 203A-3(a) under
the Investment Advisers Act) has, and until the time of the Closing will have,
all Governmental Approvals required in order for them to lawfully conduct the
investment advisory services of the Company and its Subsidiaries in the manner
presently conducted, and all such Governmental Approvals are in full force and
effect and are being complied with in all respects, in each case except to the
extent the failure to have such Governmental Approvals or the failure to comply
with any such Governmental Approval has not had and would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.  DCM is not subject to any
material limitation relating to the investment adviser activities of DCM
imposed in connection with one or more of the Governmental Approvals.  Except as set forth in Section 4.10(c) of
the Company Disclosure Schedule, none of the Company or any of its Subsidiaries
or, in connection with their service to the Company and its Subsidiaries, any
of their respective directors, officers or employees is registered or required
to be registered as a broker or dealer, a commodity trading adviser, a
commodity pool operator, a futures commission merchant, an introducing broker,
a transfer agent, a registered representative or associated person, a
counseling officer, an insurance agent, a sales person or in any similar
capacity with the SEC, the Commodity Futures Trading Commission, the NFA,
FINRA, the securities commission of any state or any other self-regulatory body
and each such Person set forth on Section 4.10(c) of the Company
Disclosure Schedule is duly registered as required by Law.  None of the Company, any of its Subsidiaries
or, in connection with their service to the Company and its Subsidiaries, any
of their respective directors, officers or employees, during the preceding ten
years, has been convicted of any crime, or is or has been the subject of a
denial, suspension or revocation of registration with the CFTC or the NFA as a “commodity
pool operator” (as such term is defined in the Commodity Exchange Act).

 

(iv)                              None of the Company, any Subsidiary, or any Company CLO
Issuer is registered as, or is required to be registered as Registered
Investment Company, and no other Person to whom the Company or any Subsidiary
renders Investment Management Services is a Registered Investment Company.

 

(v)                                 No person, other than employees of the Company or any of its
Subsidiaries, renders Investment Management Services to or on behalf of Clients
or solicits Clients with respect to the provision of Investment Management
Services by the Company or any of its Subsidiaries.

 

(vi)                              DCM has adopted a written policy regarding insider trading
and a code of ethics, which complies in all material respects with all
applicable provisions of the Investment Advisers Act (including with respect to
insider trading and personal trading 

 

38

 

under Section 204A
thereof and Rule 204A-1 thereunder), copies of which have been made
available to the Investors.  All of the
employees of the Company and its Subsidiaries have executed acknowledgments
that they are bound by the provisions of the applicable insider trading
policies and code of ethics.  DCM has
adopted a written compliance program regarding its satisfaction of the
requirements of Rule 206(4)-7 under the Investment Advisers Act. To the
Knowledge of the Company, during the past three (3) years, there have been
no material violations or allegations of material violations of such codes of
ethics or insider trading policies.  The
Investment Management Entity has adopted a written compliance program regarding
the Investment Management Entity’s satisfaction of the requirements of Rule 206(4)-7
under the Investment Advisers Act.

 

(vii)                           No exemptive Orders, “no-action” letters or similar
exemptions or regulatory relief have been obtained, and no requests are pending
therefor, by or with respect to the Company, any of its Subsidiaries or any
Company CLO Issuer or any employee of any such Person in connection with the
business of the Company or any of its Subsidiaries or any Company CLO Issuer.

 

(k)                                 Litigation.  Except as disclosed in Section
4.13 of the Company Disclosure Schedule, (a) there
is no material Legal Proceeding pending nor, to the Knowledge of the Company,
threatened against the Company, its Subsidiaries or the Company CLO Issuers
before any Governmental Authority, (b) none of the Company, its
Subsidiaries or the Company CLO Issuers is a party to or is subject to any
Order or other arrangement with any Governmental Authority and none of the
Company, its Subsidiaries or the Company CLO Issuers has been notified by any
Governmental Authority to the effect that such Governmental Authority is
contemplating issuing or requesting any such Order or other arrangement, and (c) none
of the Company, its Subsidiaries or the Company CLO Issuers is in default
under, or has failed to comply with, any material Order applicable to it.

 

(m)                             Taxes.  Each of the Company and its
Subsidiaries has timely filed or caused to be timely filed all material Tax
Returns required to be filed by it.  All
such Tax Returns, when filed were true, correct and complete in all material
respects.  Each of the Company and its
Subsidiaries has paid all material Taxes due
and payable by it and has made adequate provision in accordance with GAAP for
any material Taxes not yet due and payable by it.

 

(n)                                 Employment Benefit Plans.

 

(i)                                     Section 4.15(a) of
the Company Disclosure Schedule identifies each Company Benefit Plan.  The Company has delivered or made available
to the Investor true and complete copies of each Company Benefit Plan and all
amendments thereto (and for any Company Benefit Plan that is not in writing, a
written description of the material terms thereof), current summary plan
descriptions (and all summaries of material modifications thereto) of each of
the Company Benefit Plans subject to ERISA and similar descriptions of all
other Company Benefit Plans, the trust agreement, insurance contract or other
documentation of any funding arrangement related to each Company Benefit Plan,
any material communications to and from any Governmental Authority or to or
from any participant of a Company Benefit Plan (or a written description of any
material oral communications), the most recent Form 5500 and related
schedules for each Company Benefit Plan subject to ERISA’s reporting
requirements, the two most recent actuarial reports and audited financial statements, and the most recent determination
or opinion letter from the IRS with respect to the qualified status of each of
the Company Benefit Plans that is intended to meet the requirements of a “qualified
plan” under Section 401(a) of the Code.  The Company Benefit Plans have been
established, maintained, operated and administered in all material respects in
accordance with their terms and are in

 

39

 

compliance in all material
respects with the applicable Law, including ERISA and the Code.  Each Company Benefit Plan which is intended
to meet the requirements of a “qualified plan” under Section 401(a) of
the Code has been determined by the IRS to be a qualified plan (in form) by the
issuance of a favorable determination or opinion letter by the IRS.  There is no pending or, to the Knowledge of
the Company, threatened material legal actions, suits, Liens, complaints or
claims relating to any Company Benefit Plan and no circumstances which could
cause the loss of such qualification of any Company Benefit Plan intended to be
qualified under Section 401(a) of the Code.  To the Knowledge of the Company, in the two
years immediately preceding the Closing Date, the Company and its Subsidiaries
have not engaged in a transaction in connection with which the Company or any
of its Subsidiaries would be subject to either a civil penalty pursuant to Section 502(i) of
ERISA or Tax pursuant to Section 4975 of the Code that could reasonably be
expected to have a Company Material Adverse Effect.  No material action, suit, proceeding, hearing
or investigation with respect to the administration of the investment of the
assets of any of the Company Benefit Plans (other than routine claims for
benefits) is pending or, to the Knowledge of the Company, threatened.  No Company Benefit Plan is subject to Section 302
of ERISA, Title IV of ERISA or Section 412 of the Code and neither the
Company, any of its Subsidiaries, nor any member of their Controlled Groups
(defined as any organization which is a member of a controlled group of
organizations within the meaning of Sections 414(b), (c), (m) or (o) of
the Code) have at any time in the five years immediately prior to the Closing
Date sponsored or contributed to, or had any Liability or obligation with
respect to any plan subject to Section 302 of ERISA, Title IV of ERISA or Section 412
of the Code.  The Company and its
Subsidiaries do not have any present or future Liability under any of the
Company Benefit Plans to provide death, medical, life or other health and
welfare benefits with respect to any of their employees or other service
providers (or their spouses, beneficiaries, or dependents) subsequent to the
retirement or other termination of service of any such employee or service
provider, other than continuation coverage as described under Part 6 of
Title I of ERISA.  The Company and its
Subsidiaries do not maintain or otherwise have any Liability with respect to
any deferred compensation, excess benefit or other non-qualified supplemental
retirement plan, program or arrangement. 
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby (whether alone or in
conjunction with any other event), will (i) result in (or any material
increase in) any compensation or payment (including severance, unemployment
compensation, golden parachute or otherwise) becoming due to any current or
former director, officer, partner, member, consultant or employee of the
Company or any of its Subsidiaries under any of the Company Benefit Plans or
otherwise from the Company or any of its Subsidiaries, (ii) materially
increase any benefits otherwise payable or result in any new obligation under
any Company Benefit Plans, (iii) result in any material acceleration of
the time of payment, funding or vesting of any such benefit (whether through a
grantor trust or otherwise), or (iv) result in any limitation or
restriction on the right of the Company or any of its Subsidiaries to amend or
terminate any Company Benefit Plan.  All
material contributions and other payments required to be made by the Company
and its Subsidiaries to any of the Company Benefit Plans with respect to any
period ending at the Closing Date have been made or reserves adequate for such
contributions or other payments have been set aside therefore and have been
reflected in the Company Financial Statements in accordance with GAAP.  There are no material outstanding Liabilities
of any of the Company Benefit Plans other than Liabilities for benefits to be
paid to participants and their beneficiaries in accordance with the terms of
such Company Benefit Plan.  The Company
and its Subsidiaries do not maintain any Company Benefit Plan outside of the United
States of America.  Except as provided by
applicable Law, there are no restrictions on the rights of the Company and its
Subsidiaries to amend or terminate any of the Company Benefit Plans.

 

40

 

(ii)                                  With respect to the agreements, contracts, plans or other
arrangements to which the Company or any of its Subsidiaries is a party, each such agreement, contract, plan or other
arrangement that is or that forms a part of a non-qualified deferred
compensation plan described in Section 409A, has been operated in
compliance with Section 409A and is in compliance with Section 409A,
except for any failure that would not, individually or in the aggregate, impose
a material Liability.

 

(o)                                 Employment
Matters.  There are no employment or
consulting Contracts to which the Company or any of its Subsidiaries is a party or by which it is bound or
otherwise has any present or future Liability other than as listed on Section 4.16
of the Company Disclosure Schedule, true and complete copies (and any
amendments thereto) of which have been made available to the Investors.  The Company and its Subsidiaries are not, and have not in the past five years
been, a party to any labor or collective bargaining agreement and there are no
labor or collective bargaining agreements which pertain to employees of the
Company or any of its Subsidiaries.  To the Knowledge of the Company, there are no
organizing activities involving the Company or any of its Subsidiaries pending or threatened with any labor
organization or group of employees of the Company or any of its Subsidiaries and there are no representation or
certification proceedings or petitions seeking a representation proceeding
presently pending or, to the Knowledge of the Company, threatened to be brought
or filed with the National Labor Relations Board or any other labor relations
tribunal or authority relating to the Company or any of its Subsidiaries. 
There have not been in the past five years and are not currently any
pending, or, to the Knowledge of the Company, threatened, labor strikes,
disputes, walkouts, work stoppages, slowdowns, demonstrations, leafleting,
picketing, boycott, work-to-rule campaign, sit-in, sick-out, union
election, governmental investigation or lockout with respect to employees of
the Company or any of its Subsidiaries.  There are no material unfair labor practice
charges or complaints, grievances, arbitrations or arbitration demands,
lawsuits or administrative or other proceedings pending or, to the Knowledge of
the Company, threatened by or on behalf of any employee or group of employees
of the Company or any of its
Subsidiaries or brought or filed, with any authority or arbitrator based
on, arising out of, in connection with, or otherwise relating to the employment
or termination of employment of any individual by the Company or any of its Subsidiaries or any
basis for any of the foregoing.  There
are no material charges or complaints alleging sexual or other harassment or
other discrimination by the Company, any
of its Subsidiaries or any of their respective employees or agents
pending or, to the Knowledge of the Company, threatened in each case against
the Company or any of its Subsidiaries.  The Company and its Subsidiaries are in
compliance in all material respects with all Laws governing the employment of
labor, including all such Laws relating to wages, hours, collective bargaining,
discrimination, civil rights, safety and health, labor relations, working
conditions, employee scheduling, family and medical leave, employment and
reemployment of members of the uniformed services, employment terminations,
classification of Persons as independent contractors, workers’ compensation
disability, employee benefits, severance payments, unemployment and the
collection and payment of withholding and/or Taxes due under the U.S. Old-Age,
Survivors, and Disability Insurance program, and similar Taxes.  The Company and its Subsidiaries have complied in all material respects with
WARN and have not incurred any Liability or obligation which remains
unsatisfied under WARN.

 

(p)                                 Information Provided.  The written information to be supplied by or on behalf of the
Company for inclusion in the Proxy Statement to be sent to the stockholders of
the Company in connection with the Stockholders Meeting shall not, on the date
the Proxy Statement is first mailed to stockholders of the Company, at the time
of the Stockholders Meeting or at Closing, contain any statement that, at such
time and in light of the circumstances under which it shall be made, is false
or misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements made in the Proxy Statement not
false or misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders Meeting that has become false or misleading.  If at any time prior to the Stockholders

 

41

 

 

Meeting any fact or event relating to the Company or any of
its Affiliates that should be set forth in a supplement to the Proxy Statement
should be discovered by the Company or should occur, the Company shall,
promptly after becoming aware thereof, inform the Investors of such fact or
event.

 

(r)                                    Issuance of
Notes.  The issuance of the Notes to
the Investors has been duly authorized by the Company, and, when issued and
delivered by the Company, will have been duly executed, issued and delivered,
will be free from all taxes and Liens with respect to the issuance thereof and
will constitute valid and legally binding obligations of the Company, entitled
to the benefits of this Agreement.  As of
the date hereof, a number of shares of Common Stock have been duly authorized
and reserved for issuance in an amount equal to 100% of the maximum number of
shares of Common Stock issuable upon the conversion of the Notes (assuming that
no PIK Interest is paid).  Upon the
conversion of the Notes, the shares of Common Stock issued in connection with
the conversion will be validly issued, fully paid and non-assessable and free
from all preemptive or similar rights, taxes and Liens with respect to the
issue thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock.  The offer and
issuance by the Company of the Notes and the shares of Common Stock issued in
connection with the conversion of the Notes is exempt from registration under
the Securities Act.

 

(s)                                  Margin Rules.  The Company is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of the sale of the Notes will be used
to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.

 

(t)                                    Independent Investigation.  The Company
hereby acknowledges and affirms that in making its decision to enter into this
Agreement and to consummate the transactions contemplated hereby it has relied
solely on its own investigation, analysis and evaluation of the Investors and
is not relying in any way on any representations and warranties, including any
implied warranties, made by the Investors, the Affiliates of the Investors or
made on behalf of the Investors by any other Person other than the
representations and warranties made expressly by the Investors in this
Agreement and each applicable Transaction Document.

 

(u)                                 Registration Rights; Voting Rights.

 

(i)                                     Except as provided in the
Registration Rights Agreement, the Company has not granted or agreed to grant,
and is not under any obligation to provide, any rights to register under the
Securities Act any of its presently outstanding securities or any of its
securities that may be issued subsequently.

 

(ii)                                  Except as provided in the
Stockholders Agreement, to the Knowledge of the Company, no stockholder of the
Company has entered into any agreement with respect to the voting of equity
securities of the Company.

 

(v)                                 No Solicitation / Integration. 
Neither the Company nor any other Person authorized by the Company to
act on its behalf has engaged in a general solicitation or general advertising
(within the meaning of Regulation D of the Securities Act) of investors with
respect to offers or sales of the Notes. The Company has not, directly or
indirectly, sold, offered for sale, solicited offers to buy or otherwise
negotiated in respect of, any security (as defined in the Securities Act)
which, to its knowledge, is or will be integrated with the Notes sold pursuant
to this Agreement under circumstances that would require registration of the
issuance of the Notes under the Securities Act.

 

42

 

(w)                               Brokers.   (i) Other than UBS Securities LLC, (i) no broker, finder,
agent or similar intermediary is acting, or has acted, for, or on behalf of,
the Company or any of its Subsidiaries in connection with this Agreement, the
transactions contemplated hereby or the Transaction Documents, and (ii) no
broker, finder, agent or similar intermediary is entitled to any broker’s,
finder’s or similar fee or other commission in connection therewith based on
any agreement, arrangement or understanding with the Company or any of its
Subsidiaries or any action taken by the Company or any of its
Subsidiaries.  The fees and expenses of
UBS Securities LLC shall be paid by the Company.

 

(x)                                   Funds.  As of the date hereof, the Company and its
Subsidiaries do not manage or act as investment adviser to any private
investment funds, including, without limitation, any investment funds or other
pooled investment vehicles that is an “investment company” as defined by the
Investment Company Act.

 

(z)                                   Affiliate
Transactions.  Except as
set forth in Section 4.24 of the Company Disclosure
Schedule, since January 1, 2009, each of the Company and its Subsidiaries
has not engaged in any transactions and is not party to any agreements,
arrangements or understandings with Affiliates that would be required to be
disclosed under Item 404 of Regulation S-K.

 

11.2                           Representations
and Warranties of the Investors.  Each Investor represents and
warrants, severally and not jointly, to the Company that:

 

(a)                                  Organization.  Such Investor is duly formed and validly
existing under the jurisdiction of its organization.

 

(b)                                 Authorization; Enforceability.  Such Investor has all requisite power and
authority to execute and deliver this Agreement and the Registration Rights
Agreement and to perform its obligations hereunder and thereunder.  The execution and delivery by such Investor
of this Agreement and the Registration Rights Agreement and the performance by
such Investor of its respective obligations hereunder and thereunder have been
duly authorized by all requisite action of the Investor.  No other action on the part of the Investor
is necessary to authorize the execution, delivery and performance by the
Investor of this Agreement and the Registration Rights Agreement and the
consummation by it of the transactions contemplated hereunder and
thereunder.  This Agreement and the
Registration Rights Agreement have been duly executed and delivered by the
Investor and, assuming this Agreement and the Registration Rights Agreement
have been duly authorized, executed and delivered by the other parties hereto
and thereto, constitutes or will constitute the legal, valid and binding
obligation of the Investor, enforceable against the Investor in accordance with
its terms, except to the extent that the enforceability thereof may be limited
by (i) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar Laws from time to time in effect
affecting generally the enforcement of creditors’ rights and remedies; and (ii) general
principles of equity, including principles of reasonableness, good faith and
fair dealing (regardless of whether enforcement is sought in equity or at law).

 

(c)                                  Non-Contravention; Consents and Approvals.  The execution and
delivery of this Agreement and the Registration Rights Agreement by such
Investor, the consummation by such Investor of the transactions contemplated
hereby and thereby, and the performance by such Investor of its respective
obligations hereunder and thereunder:  (i) do
not violate any provision of the Constituent Documents of such Investor; and
(ii)(A) do not conflict with or violate any applicable Law of any
Governmental Authority having jurisdiction over the Investor or any part of the
properties or assets of such Investor, (B) do not require the Consent of
any Person under, violate, result in the termination or acceleration of or of
any right under, give rise to or modify any right or obligation under (whether
or not in combination with any other event or circumstance), or conflict with, 

 

43

 

breach or constitute a default under (in each case with or
without notice, the passage of time or both), any agreement relating to the
material indebtedness of such Investor or under any mortgage, deed of trust,
security agreement or lease to which it is a party or by which any of its
respective properties or assets is bound, (C) do not result in the
creation or imposition of any Lien on any part of the properties or assets of
such Investor, (D) do not violate any Order binding on such Investor or
any part of its respective properties or assets, and (E) do not otherwise
require any Governmental Approvals, except in the case of (B), (C), (D) or
(E) for any of the foregoing that, individually or in the aggregate would
not have a Material Adverse Effect on such Investor’s ability to consummate the
transactions contemplated hereby.

 

(d)                                 No Public Sale or Distribution.  Such Investor is (i) acquiring the Notes
and (ii) upon conversion of the Notes will acquire shares of Common Stock,
for investment for its own account and not with a view towards, or for resale
in connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the Securities Act.  Such Investor does not presently have any
agreement or understanding, directly or indirectly, with any Person to
distribute any of the Notes or the shares of Common Stock issued in connection
with the conversion of the Notes.

 

(e)                                  Accredited Investor Status.  At the time such Investor was offered the
Notes, it was, and at the date hereof it is, and on each date on which it
exercises the Notes it will be, an “accredited investor” as defined in Rule 501(a) under
the Securities Act.  Such Investor is not
a registered broker-dealer under Section 15 of the Exchange Act.

 

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

 

(g)                                 Independent Investigation. 
Such Investor hereby acknowledges
and affirms that it has conducted and completed its own investigation, analysis
and evaluation of the Company and its Subsidiaries, that it has been offered
the opportunity to make all such reviews and inspections of the financial
condition, business, results of operations, properties, assets and prospects of
the Company and its Subsidiaries as it has deemed necessary or appropriate,
that it has had the opportunity to request all information it has deemed
relevant to the foregoing from the Company and has received responses it deems
adequate and sufficient to all such requests for information, and that in making
its decision to enter into this Agreement and to consummate the transactions
contemplated hereby it has relied solely on its own investigation, analysis and
evaluation of the Company and its Subsidiaries and is not relying in any way on
any representations and warranties, including any implied warranties, made by
the Company or on behalf of the Company by any other Person other than the
representations and warranties made expressly by the Company in this
Agreement.  The foregoing, however, does
not limit or modify the representations or warranties of the Company in Section 11.1
of this Agreement or the right of the Investors to rely thereon.  Such Investor understands that its investment
in the Notes involves a high degree of risk. 
Such Investor has had an opportunity to consult with such accounting,
legal and tax advisors as it has considered necessary to make an informed
investment decision with respect to its acquisition of the Notes.

 

(h)                                 No Governmental Review.  Such Investor understands that no Governmental
Authority has passed on or made any recommendation or endorsement of the Notes
or the fairness or suitability of the investment in the Notes nor has any
Governmental Authority passed upon or endorsed the merits of the offering of
the Notes.

 

44

 

(i)                                     Transfer or Resale.  Such Investor understands that except as
provided in the Registration Rights Agreement: (i) the Notes and the
shares of Common Stock issued in connection with the conversion of the Notes
have not been and are not being registered under the Securities Act or any
state securities Laws, and may not be offered for sale, sold, assigned or
transferred unless (A) pursuant to an effective registration statement
under the Securities Act, (B) unless otherwise agreed by the Company in
writing, such Investor shall have delivered to the Company an opinion of
counsel, in a form reasonably acceptable to the Company, to the effect that
such Notes or the shares of Common Stock issued in connection with the
conversion of the Notes to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration, or (C) such
Investor provides the Company with reasonable assurance that such Notes or the
shares of Common Stock issued in connection with the conversion of the Notes
can be sold, assigned or transferred pursuant to Rule 144; (ii) any
sale of the Notes or the shares of Common Stock issued in connection with the
conversion of the Notes made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Notes under circumstances in which the Investor
(or the Person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any
other Person is under any obligation to register the Notes under the Securities
Act or any state securities Laws or to comply with the terms and conditions of
any exemption thereunder.

 

(j)            Certain Trading Activities.  Such Investor has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Investor, engaged in any transactions in the securities of the Company
(including engaging in Short Sales, derivatives, participations, swaps or other
arrangements that transfer to another Person, in whole or in part, any of the
economic consequences of ownership of the Company’s securities) since the time
that such Investor was first contacted by the Company regarding the
transactions contemplated hereby.

 

(k)                                  Disclaimer Regarding Estimates and
Projections.  In connection
with such Investor’s investigation of the Company, such Investor has received
certain projections, including projected statements of operating revenues and
income from operations of the business and the Company and certain business
plan information.  Such Investor
acknowledges that there are uncertainties inherent in attempting to make such
estimates, projections and other forecasts and plans, that such Investor is
familiar with such uncertainties and that such Investor is taking full
responsibility for making its own evaluation of the adequacy and accuracy of
all estimates, projections and other forecasts and plans so furnished to it
(including the reasonableness of the assumptions underlying such estimates,
projections and forecasts).  Accordingly,
the Company makes no representation or warranty with respect to, and disclaims
any obligation to update, such estimates, projections and other forecasts and
plans (including the reasonableness of the assumptions underlying such
estimates, projections and forecasts).

 

(l)                                     No Legal, Tax or Investment Advice.  Such Investor
understands that nothing in this Agreement or any other materials presented by
or on behalf of the Company to the Investor in connection with the purchase of
the Notes and the other transactions contemplated hereby constitutes legal, tax
or investment advice.  Such Investor has
consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its purchase
of the Notes.

 

(m)                               Acknowledgments.  The Investors acknowledge and agree that the
Company has not made and is not making any representations or warranties,
express or implied except for those representations and warranties set forth in
Section 11.1 hereof.

 

45

 

12.                                 Conditions to
the Closing.

 

12.1                           Conditions to Obligation of the
Company.  The
obligation of the Company under this Agreement to consummate the transactions
contemplated hereby on the Closing Date shall be subject to the satisfaction,
at or prior to the Closing Date, of all of the following conditions, any one or
more of which may be waived by the Company:

 

(a)                                  No Injunctions or Restraints; Illegality.  No Order, injunction
or decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition preventing the issuance of the Notes
contemplated to be issued on the Closing Date shall be in effect.  No Law shall have been enacted, entered,
promulgated or enforced by any applicable Governmental Authority that prohibits
or makes illegal the issuance of the Notes contemplated to be issued on the
Closing Date.

 

(b)                                 Representations and Warranties Accurate.  All representations
and warranties of each of the Investors set forth in Section 11.2 shall be
true and correct (without giving effect to any limitation as to “materiality”
or any derivative thereof or “material adverse effect” set forth therein),
except where the failure or failures of such representations and warranties to
be so true and correct, individually or in the aggregate, does not and would
not reasonably be expected to prevent purchase of the Notes by the Investors,
at and as of the date of this Agreement and at and as of the Closing Date as if
made at and as of such time (or if expressly made as of a specific date, as of
that date).

 

(c)           Acquisition Agreement.  The transactions contemplated by the
Acquisition Agreement shall be consummated contemporaneously with the Closing
(except to the extent that failure of transactions under the Acquisition
Agreement to be consummated results from a breach of the Acquisition Agreement
by the Company).

 

12.2                           Conditions to
Obligation of the Investors.  The obligation of each Investor to consummate
the transactions contemplated hereby on the Closing Date shall be subject to
the satisfaction, at or prior to the Closing Date, of all of the following
conditions, any one or more of which may be waived by an Investor:

 

(a)                                  Stockholder
Approval.  The
Stockholder Approval shall have been obtained.

 

(b)                                 Delivery of the Notes.  The Company will have delivered the aggregate
principal amount of Initial Notes to Bounty and, if applicable, the aggregate
principal amount of Additional Notes to each Additional Investor joining this
Agreement prior to the Closing Date, in each case in the principal amount which
such Investor is then purchasing as set forth opposite the name of such
Investor on Schedule A attached hereto or pursuant to the Joinder Agreement, if
applicable, duly executed on behalf of the Company and registered in the name
of such Investor.

 

(c)                                  Performance.  The Company shall have performed and complied
in all material respects with all obligations, covenants, conditions and other
agreements required by this Agreement and the other Transaction Documents to be
performed and complied with by it prior to or on the Closing Date.

 

(d)                                 No Injunctions or Restraints; Illegality.  No Order, injunction
or decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition preventing the issuance of the Notes
contemplated to be issued on the Closing Date shall be in effect.  No Law shall have been enacted, entered,
promulgated or enforced by any applicable Governmental 

 

46

 

Authority that prohibits or makes illegal the issuance of the
Notes contemplated to be issued on the Closing Date.

 

(e)                                  Representations and Warranties Accurate.  All representations
and warranties of the Company set forth in Section 11.1 shall be true and
correct (without giving effect to any limitation as to “materiality” or any
derivative thereof or “material adverse effect” set forth therein), except
where the failure or failures of such representations and warranties to be so
true and correct, individually or in the aggregate, does not and would not
reasonably be expected to have a Company Material Adverse Effect, at and as of
the date of this Agreement and at and as of the Closing Date as if made at and
as of such time (or if expressly made as of a specific date, as of that date); provided,
that the representations and warranties of the Company contained in Sections
11.1(a) (i), (b) and (d) shall be true and correct in all respects at
and as of the Closing Date as if made at and as of such time (or if expressly
made as of a specific date, as of that date).

 

(f)                                    State Securities Laws.  The Company shall have obtained all necessary
permits and qualifications, if any, or secured an exemption therefrom, required
by any state or country prior to the offer and sale of the Notes, and such
authorization, approval, permit or qualification shall be effective at the
Closing.

 

(g)                                 Acquisition Agreement.  The transactions contemplated by the
Acquisition Agreement shall be consummated contemporaneously with the Closing.

 

(h)                                 Transaction Documents. 
The Investors shall have received copies of the Transaction Documents,
duly executed by the Company.

 

(i)                                     Payment Agreement and Termination Agreement.  Each of the Payment
Agreement and the Termination
Agreement shall have been duly executed and delivered by the parties
thereto and shall, as of the Closing, be in full force and effect without any
waiver, termination, amendment or modification of any provision thereof or any
agreement with respect to any such waiver, termination, amendment or
modification.

 

(j)                                     Officer’s Certificate.  The Investors
shall have received a certificate executed by a duly authorized
executive officer of the Company on behalf of the Company dated as of the
Closing Date, to the effect that the conditions set forth in Sections 12.2(b), (c) and
(d) have been satisfied.

 

(k)                                  Secretary’s Certificate.  The Investors
shall have received (i) true, correct and complete copies of the
Company’s Constituent Documents and (ii) resolutions of the board of
directors of the Company authorizing the execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the other Transaction
Documents, the Payment Agreement and the Termination Agreement and the
consummation of the transactions contemplated hereby and thereby, certified as
correct and complete as of the Closing Date by the Secretary of the Company.

 

(l)                                     Listing of Shares.  The shares of Common Stock issuable upon
conversion of the Notes shall have been approved for listing on the NASDAQ,
subject to official notice of issuance.

 

(m)                               Opinion of Company Counsel.  The Investors shall have received opinions
from one or more legal counsels to the Company (reasonably acceptable to
Bounty), dated as of the Closing, substantially in the form attached to this
Agreement as Exhibit G.

 

47

 

13.                                 Miscellaneous.

 

13.1                           Governing Law.  This Agreement shall be governed in all
respects by the Laws of the State of New York without regard to choice of laws
or conflict of laws provisions thereof that would require the application of
the laws of any other jurisdiction.

 

13.2         Submission to Jurisdiction; Venue;
Waiver of Trial by Jury.  Each of the
parties to this Agreement irrevocably submits to the exclusive jurisdiction of
any New York State or United States Federal court sitting in the County of New
York, in the State of New York, over any suit, action or proceeding arising out
of or relating to this Agreement or the transactions contemplated by this
Agreement.  Each of the parties
irrevocably waives, to the fullest extent permitted by Law, any objection which
it may now or hereafter have to the laying of venue of any such suit, action or
proceeding brought in such a court and any claim that any such suit, action or
proceeding brought in such a court has been brought in an inconvenient
forum.  EACH PARTY ACKNOWLEDGES AND
AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY
TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
SET FORTH IN THIS SECTION.

 

13.3                           Enforcement of
Agreement.  The parties
to this Agreement agree that irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
its specific terms or was otherwise breached. 
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any Federal court
sitting in the County of New York, in the State of New York (or, solely to the
extent that no such Federal court has jurisdiction over such suit, action or
proceeding, in any New York State court sitting in the County of New York, in
the State of New York), this being in addition to any other remedy to which any
party is entitled at law or in equity. 
Additionally, each party to this Agreement irrevocably waives any
defenses based on adequacy of any other remedy, whether at law or in equity,
that might be asserted as a bar to the remedy of specific performance of any of
the terms or provisions of this Agreement or injunctive relief in any action
brought therefore.

 

13.4                           Successors and
Assigns.  Except as otherwise provided
in this Agreement, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, assigns, heirs, executors, and
administrators of the parties to this Agreement.

 

13.5                           No Third Party
Beneficiaries.  Nothing in
this Agreement, express or implied, is intended to confer on any Person other
than the parties to this Agreement any rights, remedies, obligations or
Liabilities under or by reason of this Agreement, and no Person that is not a
party to this Agreement (including without limitation any partner, member,
shareholder, director, officer, employee or other beneficial owner of any party
to this Agreement, in its own capacity as such or in bringing a derivative
action on behalf of a party to this Agreement) shall have any standing as third
party beneficiary 

 

48

 

with respect to this Agreement or the transactions contemplated hereby;
provided, however, that future Holders
shall have the rights of the Holders set forth in this Agreement.

 

13.6                           Entire
Agreement.  This
Agreement, the Registration Rights Agreement, the other Transaction Documents
and the other documents delivered pursuant to this Agreement constitute the
full and entire understanding and agreement among the parties with regard to
the subjects hereof and thereof.  Neither
this Agreement nor any term of this Agreement may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge, or
termination is sought.

 

13.7                           Notices, Etc.  Except as otherwise provided in this
Agreement, all notices, requests, claims, demands, waivers and other
communications required or permitted hereunder (“Notices”)
shall be in writing and shall be mailed by registered or certified mail,
postage prepaid, return receipt requested, sent via facsimile (receipt
confirmed) or electronic mail at the following addresses, facsimile numbers or
electronic mail addresses (or at such other addresses, facsimile numbers or
electronic mail addresses for a party as shall be specified by like notice) or
otherwise delivered by hand or by messenger, addressed:

 

(a)                                  if to Bounty:

 

c/o
Columbus Nova Partners LLC

601 Lexington Avenue, 58th Floor

New York, New York 10022

Telephone(212) 418-9600

 

Facsimile No: (646) 349-1091

Attention: Paul Lipari

Email: plipari@columbusnova.com

 

With
a copy to:

 

Latham &
Watkins LLP

885
Third Avenue

New
York, NY 10022

Telephone:
(212) 906-1200

Facsimile
No.: (212) 906-4864

Attention:  Dennis D. Lamont, Esq.

Email:  dennis.lamont@lw.com

 

(b)                                 if to an Additional Investor, to:

 

The address
provided by such Additional Investor in the Joinder Agreement.

 

(c)                                  if to the Company, to:

 

49

 

Deerfield
Capital Corp.

6250 North River Road

9th Floor

Rosemont, Illinois 60018

Telephone:
(773) 380-1600

Facsimile
No: (773) 380-1695

Attention:  Robert Contreras

Email:  rcontreras@deerfieldcapital.com

 

With
a copy to:

 

Schulte Roth & Zabel LLP

919
Third Avenue

New
York, NY 10022

Telephone:
(212) 756-2000

Facsimile
No: (212) 593-5955

Attention:  Marc Weingarten, Esq.

Email:  marc.weingarten@srz.com

 

or in any such case to such other address,
facsimile number, electronic mail address or telephone as either party may,
from time to time, designate in a written notice given in a like manner.  If notice is provided by mail, it shall be
deemed to be delivered upon proper deposit in a mailbox, if notice is delivered
via facsimile or electronic mail, it shall be deemed to be delivered upon
receipt of electronic confirmation, and if notice is delivered by hand,
messenger or overnight courier service, it shall be deemed to be delivered upon
actual delivery.

 

13.8         Delays or Omissions.  No delay or omission to exercise any right,
power, or remedy accruing to any Holder of any Securities upon any breach or
default of the Company under this Agreement shall impair any such right, power,
or remedy of such Holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring.  Any waiver,
permit, consent, or approval of any kind or character on the part of any Holder
of any breach or default under this Agreement, or any waiver on the part of any
holder of any provisions or conditions of this Agreement, must be in writing
and shall be effective only to the extent specifically set forth in such
writing or as provided in this Agreement. 
All remedies, either under this Agreement or by Law or otherwise
afforded to any holder, shall be cumulative and not alternative.

 

13.9                           Counterparts.  This Agreement may be executed in any number
of counterparts and signatures may be delivered by facsimile or in electronic
format (i.e., “PDF”), each of which may be executed by less than all parties,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.

 

13.10                     Severability.  If any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable,
or void, such portions of such provision, or such provision in its entirety, to
the extent necessary, shall be severed from this Agreement and the balance of
this Agreement shall be enforceable in accordance with its terms.

 

13.11                     Titles and
Subtitles; Section References.  The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting 

 

50

 

this Agreement.  Unless otherwise
stated, references to Sections, Schedules and Exhibits are to the Sections,
Schedules and Exhibits of this Agreement.

 

[THIS SPACE LEFT BLANK INTENTIONALLY]

 

IN WITNESS
WHEREOF, the parties have executed this Agreement as of the date first above
written.

 

	
   

  	
  Company:

  
	
   

  	
   

  
	
   

  	
  DEERFIELD CAPITAL CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jonathan Trutter

  
	
   

  	
  Name:
  Jonathan Trutter

  
	
   

  	
  Title:
  Chief Executive Officer

  

 

 

SIGNATURE
PAGE TO THE CONVERTIBLE NOTE AGREEMENT

 

 

	
   

  	
  Investors:

  
	
   

  	
   

  
	
   

  	
  BOUNTY
  INVESTMENTS, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Andrew Intrater

  
	
   

  	
  Name:  Andrew
  Intrater

  
	
   

  	
  Title:  Chief
  Executive Officer

  

 

 

SIGNATURE
PAGE TO THE CONVERTIBLE NOTE AGREEMENT

 

 

SCHEDULE A

 

	
   

  	
   

  	
  Principal

  	
   

  
	
   

  	
   

  	
  Amount of

  	
   

  
	
   

  	
   

  	
  Notes

  	
   

  
	
   

  	
   

  	
  to be

  	
   

  
	
  Investor

  	
   

  	
  Purchased

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bounty Investments, LLC

  	
   

  	
  $

  	
  25,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  $

  	
  25,000,000

  	
   

  

 

A-1

 

EXHIBIT A

 

CERTAIN DEFINITIONS

 

“Additional
Notes” means up to $25,000,000 aggregate principal amount of
additional Notes (other than the Initial Notes and PIK Interest on any Notes)
issued under this Agreement in accordance with Section 2.4 hereof, as part
of the same series as the Initial Notes.

 

“Affiliate”
of any specified Person means any other Person directly or indirectly
controlling, controlled by or under common control with such specified
Person.  For purposes of this definition,
“control” (including “controlled by” and “under common control with”) means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting Capital Stock, by agreement or otherwise.  For the avoidance of doubt, DPLC shall not be
deemed to be an Affiliate of the Company for purposes of this Agreement.

 

“Bankruptcy
Law” means Title 11, U.S. Code or any similar federal or
state Law for the relief of debtors.

 

“Beneficial
Owner” has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act. 
The terms “Beneficially Owns” and “Beneficially Owned” have a
corresponding meaning.

 

“Books
and Records” means all files, documents, instruments, papers,
books and records relating to the business of a Person, including financial
statements, Tax Returns and related work papers and letters from accountants,
budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute
books, stock certificates and books, stock transfer ledgers, contracts,
customer lists, computer files and programs, retrieval programs, operating data
and plans and environmental studies and plans.

 

“Board
of Directors” means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such board.

 

“Business Day” means
any day excluding Saturday, Sunday and any day which is a legal holiday under
the Laws of the State of New York or is a day on which banking institutions
located in such state are authorized or required by Law or other governmental
action to close.

 

“Capital
Stock” means:

 

(1)           in the case of a corporation, corporate stock;

 

(2)           in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;

 

(3)           in the case of a partnership or limited liability company,
partnership interests (whether general or limited) or membership interests; and

 

(4)           any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person, but excluding from all of the
foregoing any debt securities convertible into Capital Stock, whether or not
such debt securities include any right of participation with Capital Stock.

 

A-1

 

“Change
of Control” means the occurrence of any of the following:

 

(1)           the direct or indirect sale, lease, transfer, conveyance
or other disposition (other than by way of merger or consolidation), in one or
a series of related transactions, of all or substantially all of the properties
or assets of the Company and its Subsidiaries taken as a whole to any Person
(including any “person” (as that term is used in Section 13(d)(3) of
the Exchange Act)) other than a Permitted Holder, a Related Party of a
Permitted Holder or a Permitted Group;

 

(2)           the adoption of a plan relating to the liquidation or
dissolution of the Company;

 

(3)           the consummation of any transaction (including, without
limitation, any merger or consolidation), the result of which is that any
Person (including any “person” (as defined above), other than a Permitted
Holder, a Related Party of a Permitted Holder or a Permitted Group, becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock
of the Company, measured by voting power rather than number of shares; or

 

(4)           the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors.

 

Notwithstanding the
foregoing, no “Change of Control” shall be deemed to occur if such action is
the direct or indirect result of any action by an Investor or any Affiliate
thereof.

 

“Client” means any Person to whom Investment Management
Services are provided; provided,
that no investor in any such Person shall be deemed a Client.

 

“Close
of Business” means 5:00 p.m. (New York City time).

 

“Closing
Sale Price” of the Common Stock on any date means the closing
per-share sale price (or if no closing per-share sale price is reported, the
average of the last bid and ask prices or, if more than one in either case, the
average of the average last bid and the average last ask prices) on that date
as reported by the principal national or regional securities exchange on which
the shares of the Common Stock are then traded. 
The Closing Sale Price will be determined without reference to
after-hours or extended market trading. 
If the Common Stock is not so listed for trading on the relevant date,
then the “Closing Sale Price” of the Common Stock will be the last quoted bid
price for Common Stock in the over-the-counter market on the relevant date as
reported by Pink OTC Markets Inc. or a similar organization.  If the Common Stock is not so quoted, then
the “Closing Sale Price” of the Common Stock will be determined by a U.S.
nationally recognized independent investment banking firm selected by the
Company for this purpose.

 

“Code”
means the United States Internal Revenue Code of 1986, as amended from time to
time.

 

“Company
Benefit Plans” means all “employee benefit plans” (within the
meaning of Section 3(3) of ERISA, including multiemployer plans
within the meaning of Section 3(37) of ERISA), and all equity purchase,
equity option, severance, employment, change-in-control, fringe benefit, bonus,
incentive, deferred compensation (including nonqualified deferred
compensation), employee loan and all other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA
(including any funding mechanism therefor now in effect or required in the
future as a result of the transactions contemplated hereby or otherwise),
whether written or oral, under which (i) any current or former employee,
director or consultant of the Company or any of its Subsidiaries has any
present or future right to benefits and which are contributed to, maintained or
sponsored by the Company or any of its Subsidiaries or (ii) the Company or
any of its Subsidiaries has any present or future Liability.

 

A-2

 

“Company
CLO Issuer” means Bridgeport CLO Ltd., Bridgeport CLO II Ltd.,
Buckingham CDO Ltd., Buckingham CDO II Ltd., Buckingham CDO III Ltd., Burr
Ridge CLO Plus Ltd., DFR Middle Market CLO Ltd., Cumberland II CLO Ltd., Forest
Creek CLO Ltd., Gillespie CLO PLC, Knollwood CDO Ltd., Knollwood CDO II Ltd.,
Long Grove CLO Ltd., Market Square CLO Ltd., Marquette Park CLO Ltd., Mid Ocean
CBO 2000-1 Ltd., Mid Ocean CBO 2001-1 Ltd., NorthLake CDO I, Limited, Oceanview
CBO I, Ltd., Pinetree CDO Ltd., River North CDO Ltd., Rosemont CLO, Ltd.,  Schiller Park CLO Ltd., Valeo Investment Grade
CDO Ltd., Valeo Investment Grade CDO II Ltd., Robeco CDO II Limited, Mayfair
Euro CDO I B.V. and Aramis CDO.

 

“Company CLO Management Agreement” means the collateral
management agreement between the Company or applicable Subsidiary of the
Company and each Company CLO Issuer.

 

“Company Material Adverse Effect”
means any effect, event, circumstance or change that (a) is or would be
reasonably likely to be, individually or in the aggregate, materially adverse
to the business, financial condition or results of operation of the Company and
its Subsidiaries, taken as a whole, (it being agreed that in the event of a
cancellation of, notice of cancellation of, termination of, removal for cause of the Company as
the collateral manager (including pursuant to any “key person” provision) under
or the acceleration, liquidation, or optional redemption of securities issued
by a Company CLO Issuer with respect to the Company CLO Management Agreements
other than with respect to Oceanview CBO I, Ltd., it shall be deemed to be materially adverse to the Company
and its Subsidiaries, taken as a whole, only if the loss of the expected future
revenue stream would decrease the net present value of the Company CLO Management
Agreements in excess of $6,000,000 and for purposes of this calculation, the
net present value of management fees will be based upon the assumptions detailed
in Section 1.1 of the Company Disclosure Schedule); provided, however,
that none of the following effects, events or changes shall be deemed in
themselves, either alone or in combination, to constitute, and none of them
shall be taken into account in determining whether there has been or will be, a
Company Material Adverse Effect: (i) any change in general economic,
political or financial market conditions (including conditions in the stock
markets or other capital markets and changes in interest or exchange rates),
(ii)  any change in the market price or trading volume of the Common Stock
after the date hereof (it being understood that the underlying circumstances,
events or reasons giving rise to any such change can be taken into account in
determining whether a Company Material Adverse Effect has occurred or would
reasonably be expected to occur), (iii) any effect, event, circumstance or
change resulting from a change in applicable Law or accounting or principal
after the date of this Agreement, (iv) any effect, event, circumstance or
change resulting from failure by the Company to meet any projections,
forecasts, revenues or earning predictions, estimates or budgets for any period
prior to, on or after the date of this Agreement (it being understood that the
underlying circumstances, events or reasons giving rise to any such change can
be taken into account in determining whether a Company Material Adverse Effect
has occurred or would reasonably be expected to occur) or (v) an outbreak or
escalation of war, armed hostilities, acts of terrorism, political instability,
natural catastrophe or other national or international calamity, crisis or
emergency, or any governmental or other response to any of the foregoing, in
each case, whether occurring within or outside the United States; provided,  that, in the
case of clauses (i), (iii) and (v) such occurrence, condition,
change, development, event or effect shall only be excluded to the extent it
does not have a disproportionate adverse effect on the business, financial
condition, or results of operation of the Company and its Subsidiaries, taken
as a whole, as compared to other Persons engaged in the investment management
business or (b) would prevent the consummation of the transactions
contemplated hereby.

 

“Consents”
means all consents, notices, authorizations, novations, Orders, waivers,
approvals, licenses, accreditations, certificates, declarations, filings or
expiration of waiting periods, non-objection or confirmation by a rating agency
that an action or event will not result in the reduction or withdrawal of a
rating.

 

A-3

 

“Constituent
Documents” means, with respect to any Person that is a
corporation, its articles or certificate of incorporation or memorandum and
articles of association, as the case may be, and bylaws, with respect to any
Person that is a partnership, its certificate of partnership and partnership
agreement, with respect to any Person that is a limited liability company, its
certificate of formation and limited liability company or operating agreement,
with respect to any Person that is a trust or other entity, its declaration or
agreement of trust or constituent document, and with respect to any other
Person, its comparable organizational documents, in each case, as amended or
restated.

 

“Continuing
Directors” means, as of any date of determination, any member of
the Board of Directors who:

 

(1)           was a member of such Board of Directors on the Closing
Date; or

 

(2)           was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors and other
Investor Directors who were members of such Board of Directors at the time of
such nomination or election.

 

“Contract” means any written or oral contract, agreement,
lease, license, indenture, note, bond, mortgage, loan, instrument, conditional
sale contract, guarantee commitment or other arrangement, understanding,
undertaking or obligation.

 

“Conversion
Price” shall mean, at any time, $1,000 divided by the Conversion
Rate then applicable.

 

“Conversion
Rate” initially shall equal the quotient of (1) $1,000
divided by (2) 110% of the Strike Price on the shares of Common Stock
issued on the Closing Date, as the same is adjusted from time to time
in accordance with Section 6. For the avoidance of doubt, the conversion
rate initially shall equal $6.05.

 

“DCM”
means Deerfield Capital Management LLC, a Delaware limited liability company
and indirect wholly owned Subsidiary of the Company.

 

“Deerfield
Special Purpose Entities” means (i) Bridgeport CLO Ltd.,
Bridgeport CLO II Ltd., Buckingham CDO Ltd., Buckingham CDO II Ltd., Buckingham
CDO III Ltd., Burr Ridge CLO Plus Ltd., DFR Middle Market CLO Ltd., DWFC, LLC,
Cumberland II CLO Ltd., Forest Creek CLO Ltd., Gillespie CLO PLC, Knollwood CDO
Ltd., Knollwood CDO II Ltd., Long Grove CLO Ltd., Market Square CLO Ltd.,
Marquette Park CLO Ltd., Mid Ocean CBO 2000-1 Ltd., Mid Ocean CBO 2000-1 Ltd.,
NorthLake CDO I, Limited, Oceanview CBO I, Ltd., Pinetree CDO Ltd., River North
CDO Ltd., Rosemont CLO, Ltd., Schiller Park CLO Ltd., Valeo Investment Grade
CDO Ltd., Valeo Investment Grade CDO II Ltd., Robeco CDO II Limited, Mayfair
Euro CDO I B.V. and Aramis CDO Ltd., (ii) any Person in which the Company
or any of its Subsidiaries made or maintains an investment and (x) to which
the Company or any of its Subsidiaries provides Investment Management Services
or (y) which is directly or indirectly controlled by the Company and (iii) variable
interest entities consolidated with the Company in its financial statements in
accordance with GAAP.

 

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

 

“Designated
Senior Debt” means any Senior Debt permitted
under this Agreement the principal amount of which is $10.0 million or more and
that has been designated by the Company as “Designated Senior Debt.”

 

A-4

 

“Equity
Interests” means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

 

“Equity
Value” means, as of any date of determination, the market
capitalization of the Company calculated by multiplying the aggregate number of
shares of Common Stock then issued and outstanding  by the Closing Sale Price as of the Business
Day immediately preceding such date of determination.

 

“ERISA” means the Employee Retirement Income Security Act
of 1974, as amended.

 

“Exchange
Act” means the U.S. Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and the rules and
regulations promulgated thereunder.

 

“Form ADV”
means SEC Form ADV under the Investment Advisers Act.

 

“GAAP” shall mean
generally accepted accounting principles and practices as in effect on the
relevant date, which are recognized as such by the Financial Accounting
Standards Board or successor organization, in each case, consistently applied.

 

“Governmental Approvals” means all
Consents of a Governmental Authority required in connection with the
transactions contemplated hereby.

 

“Governmental Authority” means
any foreign, federal, state or local governmental, judicial, legislative,
regulatory or administrative agency, commission or authority, and any court,
tribunal or arbitrator(s) of competent jurisdiction, including
Self-Regulatory Organizations.

 

“Indebtedness”
means, with respect to any specified Person, any indebtedness of such Person
(excluding accrued expenses, hedging obligations and trade payables), whether
or not contingent:

 

(1)           in respect of borrowed money;

 

(2)           evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) (other than letters of credit issued in respect of trade payables or
real estate leases entered into in the ordinary course);

 

(3)           in respect of banker’s acceptances;

 

(4)           representing capital lease Obligations; or

 

(5)           representing the balance deferred and unpaid of the
purchase price of any property or services due more than six months after such
property is acquired or such services are completed,

 

if and to the extent any of the preceding
items (other than letters of credit) would appear as a Liability upon a balance
sheet of the specified Person prepared in accordance with GAAP.  In addition, the term “Indebtedness” includes
all Indebtedness of others secured by a Lien on any asset of the specified
Person (whether or not such Indebtedness is assumed by the specified Person)
and, to the extent not otherwise included, the guarantee by the specified
Person of any Indebtedness of any other Person. Indebtedness shall be
calculated without giving effect to the effects of Statement of Financial
Accounting Standards No. 133 and related interpretations to the extent
such effects would otherwise increase or decrease an amount of Indebtedness for
any purpose under this Agreement as a result of accounting for any embedded
derivatives created by the terms of such Indebtedness.  Notwithstanding the foregoing, in connection
with the purchase by the Company or any Subsidiary of any business, the term “Indebtedness”
will exclude 

 

A-5

 

post-closing payment adjustments to which the
seller may become entitled to the extent such payment is determined by a final
closing balance sheet or such payment depends on the performance of such
business after the closing; provided that Indebtedness shall exclude (i) Obligations
under repurchase agreements and Obligations due to brokers and dealers in the
ordinary course of business, (ii) Obligations under any “warehouse”
financing and (iii) Obligations of any Deerfield Special Purpose Entities.

 

“Initial
Notes” means the first $25,000,000 aggregate principal amount of
Notes issued to Bounty under this Agreement.

 

“Intellectual Property” means all (i) foreign and
domestic trademarks, service marks, brand names, certification marks,
collective marks, Internet domain names, logos, symbols, trade dress, assumed
names, fictitious names, trade names, and other indicia of origin; (ii) patents;
(iii) confidential and proprietary information, trade secrets and
know-how; and (iv) copyrights, whether published or unpublished, including
copyrights in computer software.

 

“Investment Advisers Act”
means the Investment Advisers Act of 1940, as amended, and the rules and
regulations promulgated thereunder.

 

“Investment Company Act” means
the Investment Company Act of 1940, as amended, and the rules and
regulations promulgated thereunder.

 

“Investment Management Entity” means
DCM.

 

“Investment Management Services”
means any services (including sub-advisory services) which involve (i) the
management of an investment account or fund (or portions thereof or a group of
investment accounts or funds) of any third party for compensation, and
performing activities related or incidental thereto, or (ii) the rendering
of advice with respect to the investment and reinvestment of assets or funds
(or any group of assets or funds) of any third party (including any “business
development company” under the Investment Company Act, or any “real estate
investment trust”) for compensation, and performing activities related or
incidental thereto; provided,
that with respect to a third party that is an entity, Investment Management
Services shall not be deemed provided to any owner of the third party unless
the services in (i) or (ii) above are provided to such owner separate
and apart from such services provided to the third party.

 

“Investor
Director” means any member of the Board of Directors designated
by an Investor pursuant to the Stockholders Agreement or otherwise nominated
for election by an Investor.

 

“Joinder
Agreement” means each Joinder Agreement in the form attached
hereto as Exhibit C duly authorized, executed and delivered by any
Investor to subscribe for Additional Notes and accepted by each of the Company
and Bounty.

 

“Knowledge of the Company” means the actual knowledge
(without due inquiry) of Jonathan Trutter, Robert Contreras, Frank Straub,
Aaron Peck, Luke Knecht and Dan Hattori.

 

“Law” means any statute, code, Order, law, ordinance,
rule, regulation or other requirement of any Governmental Authority.

 

“Legal Proceeding” means any judicial, legislative,
administrative or arbitral actions, suits, investigations, claims or other
proceedings by or before a Governmental Authority.

 

A-6

 

“Liabilities”
means any and all debts, liabilities, commitments and obligations of any kind,
whether fixed, contingent or absolute, matured or unmatured, liquidated or
unliquidated, accrued or not accrued, asserted or not asserted, known or
unknown, determined, determinable or otherwise, whenever or however arising
(including, whether arising out of any contract or tort, based on negligence or
strict liability) and whether or not the same would be required by GAAP to be
reflected in financial statements or disclosed in the notes thereto.

 

“Lien”
means any lien, security interest or other charge or encumbrance of any kind on
the property of a Person, including, without limitation, the lien or retained
security title of a conditional vendor and any easement, right of way or other
encumbrance on title to real property, provided the term “Lien” shall not
include any license of Intellectual Property.

 

“Market
Disruption Event” means the occurrence or existence on any
Scheduled Trading Day for the Common Stock of any suspension or limitation
imposed on trading (by reason of movements in price exceeding limits permitted
by the stock exchange or otherwise) in the Common Stock or in any options
contracts or futures contracts relating to the Common Stock, and such
suspension or limitation occurs or exists at any time within the 30 minutes
prior to the closing time of the relevant exchange on such Scheduled Trading
Day.

 

“Material
Adverse Effect” means any effect, event,
circumstance or change that (a) is or would be reasonably likely to be,
individually or in the aggregate, materially adverse to the business, financial
condition or results of operation of the Company and its Subsidiaries, taken as
a whole, or (b) would prevent the consummation of the transactions
contemplated hereby.

 

“Material
Subsidiary” means with respect to the Company, each direct
Subsidiary of the Company, other than a Deerfield Special Purpose Entity, that,
for the most recently completed fiscal year of the Company for which audited
financial statements are available, either (i) has, together with its
Subsidiaries, assets that exceed 5% of the total assets shown on the
consolidated statement of financial condition of the Company as of the last day
of such period or (ii) has, together with its Subsidiaries, net sales that
exceed 5% of the consolidated net sales of the Company for such period.

 

“MGCL”
means the Maryland General Corporation Law.

 

“NASDAQ”
means the NASDAQ Stock Market LLC.

 

“Non-Recourse
Indebtedness” means Indebtedness incurred by the Company or any
of its Subsidiaries with respect to which the applicable creditor has recourse
only to (i) a particular asset and not to the general balance sheet of the
Company or any of its Subsidiaries or (ii) a Deerfield Special Purpose
Entity and, in each case, is not recourse to the general balance sheet of the
Company or any of its Subsidiaries other than a Deerfield Special Purpose
Entity.

 

“Notes”
has the meaning assigned to it in the preamble to this Agreement.  The Initial Notes and the Additional Notes
and all PIK Interest shall be treated as a single class for all purposes under
this Agreement, and unless the context otherwise requires, all references to
the Notes shall include the Initial Notes and all PIK Interest and all
Additional Notes, if any.

 

“Obligations”
means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.

 

“Open
of Business” means 9:00 a.m. (New York City time).

 

A-7

 

“Order” means any judgment, order, injunction,
stipulation, decree, writ, doctrine, ruling, assessment or arbitration award or
similar order of any Governmental Authority.

 

“Other
Filings” means any document other than the Proxy Statement to be
filed with the SEC in connection with the Transaction Documents, including the
Registration Rights Agreement.

 

“Payment
Agreement” means that certain Payment Agreement and Release,
dated as of March 22, 2010, by and among Deerfield & Company LLC,
the Company, the several holders of the Seller Notes identified on the
signature pages thereto, and the administrative holders and agents in
respect of the Seller Notes identified on the signature pages thereto.

 

“Permitted
Group” means any group of investors that includes a Permitted
Holder or Related Party and is deemed to be a “person” (as that term is used in
Section 13(d)(3) of the Exchange Act), by virtue of any stockholders
agreement, voting agreement or other arrangement.

 

“Permitted
Holder” means Bounty Investments, LLC.

 

“Permitted
Junior Securities” means:

 

(1)           Equity Interests in the Company or any Subsidiary of the
Company; and

 

(2)           debt securities that are subordinated to all Senior Debt
and any debt securities issued in exchange for Senior Debt to substantially the
same extent as, or to a greater extent than, the Notes are subordinated to
Senior Debt under this Agreement.

 

“Permitted Liens” means (i) statutory Liens of
mechanics, materialmen, workmen, repairmen, warehousemen, carriers incurred in
the ordinary course of business for amounts which are not delinquent or which
are being contested in good faith by appropriate proceedings, (ii) Liens
for Taxes not yet due and payable or that are being contested in good faith by
appropriate proceedings and for which adequate reserves have been established
in accordance with GAAP or IFRS, as applicable, (iii) all defects,
exceptions, restrictions, easements, rights of way and encumbrances disclosed
in policies of title insurance that have been delivered to the Company or the
Investors as applicable, (iv) zoning, building, planning, entitlement and
other land use and regulations regulating use or occupancy of the activities
conducted on real property imposed by any Governmental Authority having
jurisdiction over such real property which are not violated by the current use
or occupancy of such real property or the operation of the business of the
Company, as applicable, or any violation of which is not material to the use of
or value of such real property, (v) Intellectual Property licenses, (vi) minor
defects or irregularities in title that do not in the aggregate, materially
affect the value or current use of the underlying asset, (vii) purchase
money liens on assets incurred in the ordinary course of business (viii) Liens
in connection with a deposit account bank’s right of set-off, (ix) Liens on
mortgage securities or U.S. Treasury securities incurred in connection with
repurchase agreements in the ordinary course of business and (x) Liens on cash
and cash equivalents securing hedging obligations.

 

“Person”
means an individual, partnership, corporation (including a business trust),
joint stock company, trust, unincorporated association, joint venture, limited
liability company or other entity, or a government or any political subdivision
or agency thereof.

 

“Private
Placement Legend” means the legend set forth in Section 7.3(a)(A) hereof
to be placed on all Notes issued under this Agreement except where otherwise
permitted by the provisions of this Agreement.

 

A-8

 

“Proxy
Statement”  means the
Proxy Statement in definitive form relating to the Stockholders Meeting to be
filed with the SEC.

 

“Record
Date” means, with respect to any dividend, distribution or other
transaction or event in which the holders of Common Stock have the right to
receive any cash, securities or other property or in which the Common Stock (or
other applicable security) is exchanged for or converted into any combination
of cash, securities or other property, the date fixed for the determination of
shareholders entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by statute, charter,
contract or otherwise).

 

“Registration
Rights Agreement” means the Registration Rights Agreement, dated
as of the Closing Date, among the Company, the Investors and the other parties
named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time and, with respect to any Additional
Notes, one or more registration rights agreements among the Company and the
other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Company to the
purchasers of Additional Notes to register such Additional Notes under the
Securities Act.

 

“Related Party” means:

 

(1)           any
controlling stockholder, majority owned Subsidiary, or immediate family member
(in the case of an individual) of any Permitted Holder; or

 

(2)           any trust, corporation, partnership, limited liability
company or other entity, the beneficiaries, stockholders, partners, members,
owners or Persons beneficially holding a majority (and controlling) interest of
which consist of any one or more Permitted Holders and/or such other Persons
referred to in the immediately preceding clause (1).

 

“Representative” means the agent,
trustee or holder of a majority of the aggregate principal amount outstanding
for any Senior Debt.

 

“Restricted
Note” means a Note bearing the Private Placement Legend.

 

“Scheduled
Trading Day” means any day that is scheduled by the applicable
exchange to be a Trading Day, provided that if the Common Stock is not
listed or traded, then a “Scheduled Trading Day” shall have the same meaning as
Business Day.

 

“SEC”
means the U.S. Securities and Exchange Commission.

 

“Securities
Act” means the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.

 

“Self-Regulatory
Organization” means each national securities exchange in the
United States of America or other commission, board, agency or body that is
charged with the supervision or regulation of brokers, dealers, securities
underwriting or trading, stock exchanges, commodities exchanges, insurance
companies or agents, investment companies or investment advisers, or to the
jurisdiction of which any party hereto or any of their respective Subsidiaries
is otherwise subject.

 

“Seller Notes” means, collectively, (i) those
certain Series A Senior Secured Notes issued by DFR Merger Company, LLC
and Deerfield & Co. due in calendar year 2010 and (ii) those
certain Series 

 

A-9

 

B
Senior Secured Notes issued by DFR Merger Company, LLC and Deerfield &
Co. due in calendar year 2012.

 

“Senior
Debt” means:

 

(1)           all Indebtedness of the Company
outstanding under the Seller Notes and all Obligations with respect to any of
the foregoing;

 

(2)           any other Indebtedness of the Company
permitted to be incurred under the terms of this Agreement, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is on a parity with or subordinated in right of payment to the Notes, and

 

(3)           all Obligations with respect to the
items listed in the preceding clauses (1) and (2).

 

Notwithstanding
anything to the contrary in the foregoing, Senior Debt will not include:

 

(4)           any
Liability for federal, state, local or other taxes owed or owing by the
Company;

 

(5)           any
Indebtedness of the Company to any of its Subsidiaries or other Affiliates;

 

(6)           any Indebtedness incurred for the
purchase of goods or materials or for services obtained in the ordinary course
of business (other than with the proceeds of revolving credit borrowings
permitted hereby);

 

(7)           the portion of any Indebtedness that is
incurred in violation of this Agreement; or

 

(8)           Indebtedness which is classified as non-recourse in
accordance with GAAP or any unsecured claim arising in respect thereof by
reason of the application of Section 1111(b)(1) of the Bankruptcy
Code.

 

“Short
Sales” means all “short
sales” as defined in Rule 200 promulgated
under Regulation SHO under the Exchange Act and all types of direct and
indirect stock pledges, forward sale contracts, options, puts, calls, swaps and
similar arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.

 

“Special
Interest” has the meaning assigned to that term pursuant to the
Registration Rights Agreement.

 

“Stockholder Approval” means the approval of the
issuance of the Stock Consideration and the shares of Common Stock
issuable upon conversion of the Notes by the affirmative vote of
a majority of the total votes cast by the holders of Common Stock at a
Stockholders Meeting (or any adjournment or postponement thereof).

 

“Stock
Consideration” means the shares of Common Stock issued to Bounty
pursuant to the Acquisition Agreement.

 

“Strike Price” means $5.50 per share of
Common Stock.

 

“Subsidiary”
of any Person shall mean any corporation, partnership, joint venture, limited
liability company, trust or estate of which (or in which) more than fifty
percent (50%) of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of 

 

A-10

 

such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon the
occurrence of any contingency), (b) the interest in the capital or profits
of such partnership, joint venture or limited liability company or (c) the
beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more
of its other Subsidiaries or by one or more of such Person’s other
Subsidiaries; provided that the Deerfield Special Purpose Entities shall
not be deemed to be Subsidiaries of the Company for purposes of this Agreement.

 

“Tax Returns” means any and all reports, returns,
declarations, claims for refund, elections, disclosures, estimates, information
reports or returns or statements supplied or required to be supplied to a
taxing authority in connection with Taxes, including any schedule or attachment
thereto or amendment thereof.

 

“Taxes” means (i) any and all federal, state,
provincial, local, foreign and other taxes, levies, fees, imposts, duties, and
similar governmental charges (including any interest, fines, assessments,
penalties or additions to tax imposed in connection therewith or with respect
thereto) including, without limitation (x) taxes imposed on, or measured
by, income, franchise, profits or gross receipts, and (y) ad valorem,
value added, capital gains, sales, goods and services, use, real or personal
property, capital stock, license, branch, payroll, estimated withholding,
employment, social security (or similar), unemployment, compensation, utility,
severance, production, excise, stamp, occupation, premium, windfall profits,
escheat, transfer and gains taxes, and customs duties, and (ii) any
Liability in respect of any items described in clause (i) above as a
transferee or successor, pursuant to Treasury Regulation §1.1502-6 (or any
similar provision of state, local or foreign Law), as an indemnitor, guarantor,
surety or in a similar capacity under any contract, arrangement, agreement,
understanding or commitment (whether oral or written) or as a result of
successor liability or otherwise.

 

“Termination
Agreement” means the termination agreement, dated as of March 21,
2010, entered into by and among Pegasus Deerfield (AIV), LLC, a Delaware
limited liability company, PGS Management, LLC, a Delaware limited liability
company, the Company, Deerfield Capital Management, LLC, a Delaware limited
liability company, DPLC General Partner LLC, a Delaware limited liability
company, Deerfield Loan Manager LLC, a Delaware limited liability company,
Deerfield Pegasus Loan Capital LP, a Delaware limited partnership and Jonathan
Trutter.

 

“Third
Party Consents” means all consents or waivers or notices to any
party (other than a Governmental Authority) to any Contract to which any of the
parties hereto is a party or by which any of their respective assets or
properties are bound.

 

“Trading
Day” means a day on which (i) there is no Market Disruption
Event and (ii) trading in the Company’s securities generally occurs on the
NASDAQ, or if shares of Common Stock are not listed on the NASDAQ, then as
reported by the New York Stock Exchange or the principal other national or
regional securities exchange on which the shares of Common Stock are then
traded, or if the Common Stock is not listed or approved for trading on the New
York Stock Exchange or another national or regional securities exchange, on the
principal market on which shares of the Common Stock are then traded, provided
that if the Common Stock is not so listed or traded, then a “Trading Day” shall
have the same meaning as Business Day.

 

“Unrestricted
Note” means a Note that does not bear and is not required to
bear the Private Placement Legend.

 

“Voting
Stock” of any specified Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of
the Board of Directors of such Person.

 

A-11

 

“WARN” means the Worker Adjustment
and Retraining Notification Act or any state or local Law regarding the
termination or layoff of employees.

 

A-12

 

EXHIBIT B

 

FORM OF NOTE

 

[Face of Note]

[Insert
Original Issue Discount Legend here, if applicable pursuant to the terms of the
Convertible Notes Agreement.]

 

Senior Subordinated Convertible Notes due 20[  ]

 

	
  No.                    

  	
  $                        *

  

 

[NAME
OF COMPANY]

 

promises to pay to
              
or registered assigns,

 

the principal sum of
                                                                                                                  
DOLLARS*  on [           ],
20[   ].(1)

 

Interest Payment Dates:  January 1, April 1, July 1 and
October 1

 

Record Dates:  December 15, March 15, June 15
and September 15

 

Dated: 
                              ,
20[  ]

 

	
   

  	
  DEERFIELD
  CAPITAL CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

*As
the same may be increased in accordance with the Schedule of Capitalization of
PIK Interest attached hereto.

 

(1)          The date of payment is to be
filled in with the date determined in accordance with the definition of
“Maturity Date” in Section 2.5 of the Convertible Note Agreement.

 

B-1

 

[BACK
OF NOTE]

SENIOR
SUBORDINATED CONVERTIBLE NOTES DUE 20[  ]

 

[Insert the Private Placement
Legend, if applicable pursuant to the provisions of the Convertible Note
Agreement.]

 

Capitalized terms used
herein have the meanings assigned to them in the Convertible Note Agreement
referred to below unless otherwise indicated.

 

(i)            INTEREST.  Deerfield
Capital Corp., a Maryland corporation (the “Company”), promises to pay or cause to be
paid interest on the principal amount of this Note at the rate per annum
specified in the next sentence from
[                                ],
20[    ] until maturity and shall pay the Special Interest,
if any, payable pursuant to the Registration Rights Agreement referred to
below.

 

Initially,
the Interest Rate shall equal the Cash Interest Rate which is the per annum rate specified in the following table
corresponding to the applicable Interest Period:(2)

 

	
  Period

  	
   

  	
  Interest Rate

  	
   

  
	
  [                        ],
  2010 – [                        ],
  2012

  	
   

  	
  8.00

  	
  %

  
	
  [                        ],
  2012 – [                        ],
  2013

  	
   

  	
  9.00

  	
  %

  
	
  [                        ],
  2013 – [                        ],
  2014

  	
   

  	
  10.00

  	
  %

  
	
  Thereafter

  	
   

  	
  11.00

  	
  %

  

 

To the
extent the Company has made a PIK Election, then from and after such PIK
Election the Company shall pay the PIK Interest Rate which is the per annum rate specified in the following table
corresponding to the applicable Interest Period:(2)

 

	
  Period

  	
   

  	
  Interest Rate

  	
   

  
	
  [                        ],
  2010 – [                        ],
  2012

  	
   

  	
  10.00

  	
  %

  
	
  [                        ],
  2012 – [                        ],
  2013

  	
   

  	
  11.00

  	
  %

  
	
  Thereafter

  	
   

  	
  12.00

  	
  %

  

 

For the
avoidance of doubt, (i) if a PIK Election is made, then the PIK Interest
Rate shall apply to the calculation of all interest due on the applicable
Interest Payment Date and (ii) once a PIK Election has been made the PIK
Interest Rate shall apply to all subsequent Interest Periods for all interest
paid, whether in cash or in kind.

 

Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.

 

The Company will pay interest and
Special Interest, if any, quarterly in arrears on each January 1, April 1,
June 1 and October 1 (each, an “Interest Payment Date”).  Interest on the Notes will accrue from the
most recent Interest Payment Date or, if no interest has been paid with respect
to a Note, from the date of issuance of such Note.  Interest shall be paid in full in cash on
each Interest Payment Date; provided that,
at the Company’s election in its sole discretion (but subject 

 

(2)   The dates in the following table
are to be filled-in with the dates determined in accordance with the respective
corresponding provisions of Section 2.6(e) of the Convertible Note Agreement.

 

B-2

 

to compliance with the requirements
of this clause (c)), the Company may pay up to 50% of the interest payment due
on any Interest Payment Date in PIK Interest. 
“PIK Interest” shall mean the
capitalizing of unpaid interest to the principal amount of the Notes or by
paying interest in-kind in respect of the Notes by issuing additional Notes on
each Interest Payment Date.  The Company’s
ability to elect to pay PIK Interest is subject to the conditions set forth in Section 2.6(c) of
the Convertible Note Agreement.

 

Notwithstanding the
foregoing, commencing with the first “accrual period” (as defined for purposes
of Section 163(i) of the Code) ending after the fifth year
anniversary of the Closing Date and continuing with each subsequent accrual
period thereafter, the Company shall pay in cash, on the first Business Day
immediately preceding the end of such accrual period, an AHYDO Catch-Up
Payment, which shall first be allocated to the accrued and unpaid original
issue discount as of the applicable payment date.

 

The Company shall pay
interest on overdue principal and premium, if any, and interest on overdue
installments of cash interest, PIK Interest and Special Interest, if any, to
the extent lawful, at a rate per annum equal to the rate of interest then
otherwise applicable to the Notes plus 200 basis points (such 200-basis point
increase, “Default Interest”).  Default Interest shall be payable on demand
and may only be paid in cash.

 

(ii)           METHOD OF PAYMENT. 
The Company will pay interest on the Notes (except Default Interest) and
Special Interest, if any, to the Persons who are registered Holders of Notes at
the Close of Business on the December 15, March 15, June 15 or September 15
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as
provided in Section 2.6(f) of the Convertible Note Agreement with
respect to Default Interest.  The Notes
will be payable as to principal, premium, if any, interest and Special
Interest, if any, at the office or agency of the Paying Agent and Registrar
within the City and State of New York, or, at the option of the Company,
payment of interest and Special Interest, if any, may be made by check mailed
to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately
available funds will be required with respect to principal of, premium on, if
any, interest and Special Interest, if any, on, all Notes the Holders of which
will have provided wire transfer instructions to the Company or the Paying
Agent.  Such payment will be in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.

 

(iii)          PAYING AGENT AND REGISTRAR. 
Initially, the Company will act as Paying Agent and Registrar.  The Company may change the Paying Agent or
Registrar without prior notice to the Holders of the Notes.  The Company or any of its Subsidiaries may
act as Paying Agent or Registrar. 
Notwithstanding anything herein to the contrary, a Note shall be
transferred (in whole or in part) only by the recordation of such transfer on the
Register.

 

(iv)          CONVERTIBLE NOTE AGREEMENT. 
The Company issued the Notes under a Senior Subordinated Convertible
Note Agreement dated as of March 22, 2010 (the “Convertible Note Agreement”) among the
Company and the Holders from time to time party thereto.  The terms of the Notes include those stated
in the Convertible Note Agreement.  The
Notes are subject to all such terms, and Holders are referred to the
Convertible Note Agreement for a statement of such terms.  To the extent any provision of this Note
conflicts with the express provisions of the Convertible Note Agreement, the
provisions of the Convertible Note Agreement shall govern and be
controlling.  The Notes are unsecured
senior subordinated 

 

B-3

 

obligations
of the Company.  The Convertible Note
Agreement does not limit the aggregate principal amount of Notes that may be
issued thereunder.

 

(v)      OPTIONAL
REDEMPTION.

 

The Notes will not be
redeemable at the Company’s option prior to [              
    ], 2012.(3)

 

On or after [              
    ], 2012, the Company may on any one or more
occasions redeem all or a part of the Notes, upon not less than 30 nor more
than 60 days’ notice, at a redemption price equal to 100% of the principal
amount thereof plus (i) if the redemption
date is on or prior to [              
    ], 2013, the Interest Rate then in effect as
an additional percentage of principal amount, (ii) if the redemption date
is after [              
    ], 2013 but on or prior to [              
    ], 2014, one-half of the Interest Rate then in
effect as an additional percentage of principal amount, in each case plus
accrued and unpaid interest and Special Interest, if any, on the Notes
redeemed, to the applicable redemption date, subject to the rights of Holders
on the relevant record date to receive interest on the relevant interest
payment date.

 

Unless the Company defaults
in the payment of the redemption price, interest will cease to accrue on the
Notes or portions thereof called for redemption on the applicable redemption
date.

 

(vi)          MANDATORY REDEMPTION. 
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.

 

(vii)         REPURCHASE AT THE
OPTION OF HOLDER.  If there is
a Change of Control, the Company will be required to make an offer (a “Change of Control Offer”)
to each Holder to repurchase all or any part (equal to $1,000,000 or an
integral multiple of $1,000 in excess thereof) of each Holder’s Notes at a
purchase price in cash equal to 100% of the aggregate principal amount thereof
plus accrued and unpaid interest and Special Interest, if any, thereon to the
date of purchase, subject to the rights of Holders on the relevant record date
to receive interest due on the relevant interest payment date (the “Change of Control Payment”).  Within ten days following any Change of
Control, the Company will mail a notice to each Holder setting forth the
procedures governing the Change of Control Offer as required by the Convertible
Note Agreement.

 

(viii)        NOTICE OF REDEMPTION. 
At least 30 days but not more than 60 days before a redemption date, the
Company will mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed at its registered
address.  Notes and portions of Notes
selected will be in amounts of $1,000,000 or whole multiples of $1,000 in
excess thereof; except that if all of the Notes of a Holder are to be redeemed
or purchased, the entire outstanding amount of Notes held by such Holder shall
be redeemed or purchased.

 

(ix)           DENOMINATIONS, TRANSFER, EXCHANGE.  The Notes are in registered form in
denominations of $1,000,000 and integral multiples thereof; provided that the principal amount of Notes may cease to be
in integral multiples of $1,000 in excess thereof to 

 

(3)   The
dates in this paragraph (v) are to be filled-in with the dates determined
in accordance with the respective corresponding provisions of Section 4.1
of the Convertible Note Agreement.

 

B-4

 

the extent
the Company elects to pay PIK Interest. 
The transfer of Notes is required to be recorded on a register and Notes
may be exchanged as provided in the Convertible Note Agreement.  The Registrar and the Company may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a Holder to pay any taxes and fees
required by Law or permitted by the Convertible Note Agreement.  The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part.  Also, the Company need not exchange or
register the transfer of any Notes for a period of 15 days before a selection
of Notes to be redeemed or during the period between a record date and the next
succeeding Interest Payment Date.

 

(x)            PERSONS DEEMED OWNERS. 
The registered Holder of a Note may be treated as the owner of it for
all purposes. Only registered Holders have rights under the Convertible Note
Agreement.

 

(xi)           AMENDMENT, SUPPLEMENT AND WAIVER.  Subject to certain exceptions, the
Convertible Note Agreement or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in aggregate principal amount of the
then outstanding Notes, including Additional Notes, if any, voting as a single
class, and any existing Default or Event of Default or compliance with any
provision of the Convertible Note Agreement or the Notes may be waived with the
consent of the Holders of a majority in aggregate principal amount of the then
outstanding Notes, including Additional Notes, if any,  voting as a single class.  The Convertible Note Agreement may not be
amended without the consent of Holders of Notes.

 

(xii)          DEFAULTS AND REMEDIES. 
Events of Default include:  (i) default
for 15 days after notice to the Company by the Holders of at least a majority
in aggregate principal amount of the Notes in the payment when due of interest
and Special Interest, if any, on, the Notes, whether or not prohibited by the
subordination provisions of the Convertible Note Agreement; (ii) default
after notice to the Company by the Holders of at least a majority in aggregate
principal amount of the Notes in the payment when due (at maturity, upon redemption
or otherwise) of the principal (including PIK Interest previously paid) of, or
premium on, if any, the Notes, whether or not prohibited by the subordination
provisions of the Convertible Note Agreement, (iii) failure by the Company
or any of its Subsidiaries after notice to the Company by the Holders of at
least a majority in aggregate principal amount of the Notes to comply with the
provisions of Section 3.9 of the Convertible Note Agreement; (iv) failure
by the Company or any of its Subsidiaries for 30 days after notice to the
Company by the Holders of at least a majority in aggregate principal amount of
the Notes then outstanding voting as a single class to comply with any of the
other agreements in the Convertible Note Agreement; (v) default under
certain other agreements relating to Indebtedness of the Company which default
is a Payment Default or results in the acceleration of such Indebtedness prior
to its express maturity; (vi) failure by the Company or any of its
Material Subsidiaries to pay certain final judgments, which judgments are not
paid, discharged or stayed, for a period of 60 days after notice to the Company
by the Holders of at least a majority in aggregate principal amount of the
Notes and, in the event such judgment is covered by insurance, an enforcement
proceeding has been commenced by any creditor upon such judgment or decree that
is not promptly stayed; and (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Subsidiaries that is a
Material Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Material Subsidiary.  In the
case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company, any Subsidiary of the Company that is a
Material Subsidiary or any group of 

 

B-5

 

Subsidiaries
of the Company that, taken together, would constitute a Material Subsidiary,
all outstanding Notes will become due and payable immediately without further
action or notice.  If any other Event of
Default occurs and is continuing, the Holders of at least 33 1/3% in aggregate
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately; provided that
so long as any Indebtedness permitted to be incurred pursuant to Designated
Senior Debt is outstanding, such acceleration will not be effective until the
earlier of (1) the acceleration of such Indebtedness under such Designated
Senior Debt or (2) five Business Days after receipt by the Company of
written notice of such acceleration. 
Holders may not enforce the Convertible Note Agreement or the Notes
except as provided in the Convertible Note Agreement.  Subject to certain limitations, Holders of a
majority in aggregate principal amount of the then outstanding Notes may direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Holders.  The
Holders of a majority in aggregate principal amount of the then outstanding
Notes may, on behalf of all the Holders, rescind an acceleration or waive an
existing Default or Event of Default and its respective consequences under the
Convertible Note Agreement except a continuing Default or Event of Default in
the payment of principal of, premium on, if any, interest or Special Interest,
if any, on, the Notes (including in connection with an offer to purchase).  The Company is required, upon becoming aware
of any Default or Event of Default, to deliver to the Holders a statement specifying
such Default or Event of Default.

 

(xiii)         SUBORDINATION. 
Payment of principal of, premium on, if any, interest and
Special Interest, if any, on, the Notes is subordinated to the prior payment of
Senior Debt on the terms provided in the Convertible Note Agreement.

 

(xiv)        CONVERSION.  Subject
to the provisions of the Convertible Note Agreement, this Note may be converted
by the Holder at any time into shares of Common Stock of the Company at an
initial Conversion Rate of [    ](4) per
$1,000 of principal amount of Notes.  The
Conversion Rate is subject to adjustment for a number of events specified in Section 6
of the Convertible Note Agreement.  No
fractional shares of Common Stock will be issued by the Company upon conversion
of Notes, but instead the Company shall pay the Holder cash in respect of such
fractional shares.

 

(xv)         NO RECOURSE AGAINST OTHERS. 
No director, officer, employee, incorporator or stockholder of the
Company, as such, will have any Liability for any obligations of the Company
under the Notes, the Convertible Note Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creation.  Each Holder of Notes by accepting a Note
waives and releases all such Liability. 
The waiver and release are part of the consideration for issuance of the
Notes.  The waiver may not be effective
to waive Liabilities under the federal securities Laws.

 

(xvi)        ABBREVIATIONS. 
Customary abbreviations may be used in the name of a Holder or an
assignee, such as:  TEN COM (= tenants in
common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).

 

(4)   The
Conversion Rate in this paragraph (xiv) is to be filled-in with the rate
determined in accordance with the definition of Conversion Rate in Annex A to
the Convertible Note Agreement.

 

B-6

 

(xvii)       ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED NOTES.  In addition to the rights provided to Holders
of Notes under the Convertible Note Agreement, Holders of Restricted Notes will
have all the rights set forth in the Registration Rights Agreement dated as of
the Closing Date (as defined in the Convertible Note Agreement), among the
Company and the other parties named on the signature pages thereof or, in
the case of Additional Notes, Holders of Restricted Notes will have the rights
set forth in one or more registration rights agreements, if any, among the Company
and the other parties thereto, relating to rights given by the Company to the
purchasers of any Additional Notes (collectively, the “Registration Rights Agreement”).

 

(xviii)      GOVERNING LAW.  THE INTERNAL LAW OF THE STATE OF NEW
YORK WILL GOVERN AND BE USED TO CONSTRUE THE CONVERTIBLE NOTE AGREEMENT AND
THIS NOTE WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.

 

The Company will furnish to
any Holder upon written request and without charge a copy of the Convertible
Note Agreement and/or the Registration Rights Agreement.  Requests may be made to:

 

Deerfield Capital Corp.

6250 North River Road

9th Floor

Rosemont, Illinois 60018

Attention: 
Robert Contreras

 

B-7

 

Assignment
Form

 

To assign this Note, fill in
the form below:

 

	
  (I) or
  (we) assign and transfer this Note to:

  	
   

  
	
   

  	
  (Insert
  assignee’s legal name)

  
	
   

  	
   

  
	
   

  
	
  (Insert
  assignee’s soc. sec. or tax I.D. no.)

  

 

 

 

	
   

  
	
  (Print
  or type assignee’s name, address and zip code)

  

 

and irrevocably appoint
                                                                                                                                                                            
to transfer this Note on the books of the Company.  The agent may substitute another to act for
him.

 

	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Your
  Signature:

  	
   

  
	
   

  	
   

  	
   

  	
  (Sign exactly as your name appears on the face of
  this Note)

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature
  Guarantee*:

  	
   

  	
   

  	
   

  
						

 

*                                         Participant in a recognized Signature
Guarantee Medallion Program (or other signature guarantor).

 

B-8

 

Option
of Holder to Elect Purchase

 

If you want to elect to have
this Note purchased by the Company pursuant to Section 3.8 of the
Convertible Note Agreement, please check this box: o

 

If you want to elect to have
only part of the Note purchased by the Company pursuant to Section 3.8 of
the Convertible Note Agreement, state the amount you elect to have purchased:

 

$
                      

 

	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Your
  Signature:

  	
   

  
	
   

  	
   

  	
  (Sign exactly as your name appears on the face of
  this Note)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Tax
  Identification No.:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature
  Guarantee*:

  	
   

  	
   

  	
   

  	
   

  
							

 

*                                         Participant in a recognized Signature
Guarantee Medallion Program (or other signature guarantor).

 

B-9

 

Schedule
of Capitalization of PIK Interest

 

The following increases to
the principal amount of this Note have been made as a result of the
capitalization of PIK Interest to the principal amount hereof:

 

	
  Date
  of PIK Interest Payment

  	
   

  	
  Amount of increase in

  Principal Amount

  of this Note

  	
   

  	
  Principal Amount of this

  Note following such increase

  	
   

  	
  Authorized officer that

  approved of this change

  (in Notice of PIK Election)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

B-10

 

EXHIBIT C

 

FORM OF JOINDER AGREEMENT

 

Joinder
Agreement (this “Joinder  Agreement”),
dated as of
[                    ],
2010, among Deerfield Capital Corp., a Maryland corporation (the “Company”), Bounty Investments, LLC (“Bounty”) and
[                                        ]
(the “Additional Investor”).

 

WHEREAS,
the Company and Bounty heretofore executed and delivered that certain Senior
Subordinated Convertible Note Agreement, dated as of March 22, 2010 (as
amended, supplemented or otherwise modified from time to time, the “Convertible Note Agreement”),
providing for the issuance sale of the Securities (all capitalized terms used
but not defined herein shall have the meaning assigned to them in the
Convertible Note Agreement); and

 

WHEREAS,
pursuant to Section 2.4 of the Convertible Note Agreement, the Additional
Investor signatory hereto has agreed to subscribe for and purchase
$[                    ]
in aggregate principal amount of Additional Notes (the “Subscribed
Additional Notes”) pursuant to the Convertible Note Agreement,
and to join in the Convertible Note Agreement, by executing and delivering this
Agreement.

 

NOW,
THEREFORE, each of the undersigned hereby agrees as follows:

 

1.                                       Purchase.  The undersigned Additional Investor hereby
subscribes to purchase for cash at face value the Subscribed Additional Notes,
to be issued by the Company to the Additional Investor on
[                    ],
20[    ] and such Subscribed Additional Notes shall accrue
interest in accordance with the Convertible Note Agreement from such date of
issuance.

 

2.                                       Joinder.  The undersigned Additional Investor hereby
acknowledges that it has received and reviewed a copy of the Convertible Note
Agreement and all other documents it deems necessary to enter into this Joinder
Agreement.  The undersigned Additional
Investor acknowledges and agrees (i) that by entering into this Joinder
Agreement, the undersigned will become subject to the terms of the Convertible
Note Agreement in all respects as if such undersigned were an original party
thereto, (ii) to make, and hereby makes, each of the representations,
warranties and acknowledgments of or made by the several Investors in the
Convertible Note Agreement with respect to the undersigned Additional Investor,
(iii) to be bound by all covenants and agreements applicable to the
several Investors in the Convertible Note Agreement, and (iv) to perform
all obligations and duties required of the Investors pursuant to the
Convertible Note Agreement.  The
undersigned affirms that it has complied with all obligations, covenants and
agreements in the Convertible Note Agreement as of the date hereof as if such
undersigned was an original party thereto.

 

3.                                       Representations
and Warranties and Agreements.  The undersigned Additional Investor hereby
represents and warrants to and agrees with the Company and Bounty that (i) it
has all requisite corporate, or limited liability company or other applicable
power and authority to execute, deliver and perform its 

 

C-1

 

obligations
under this Joinder Agreement, (ii) it has duly authorized the execution
and delivery of this Joinder Agreement and entry into the Convertible Note
Agreement and the consummation of the transactions contemplated hereby and
thereby, (iii) it has duly executed and delivered this Joinder Agreement
to the Company and Bounty, (iv) this Joinder Agreement, taken together
with the Convertible Note Agreement, constitutes a valid and legally binding
agreement enforceable against the undersigned Additional Investor in accordance
with their respective terms and (v) the representations, warranties and
covenants of the undersigned set forth in the Convertible Note Agreement are
true and correct as of the date hereof.

 

4.                                       Notice.  Pursuant to Section 13.7 of the
Convertible Note Agreement, all Notices to the undersigned shall be addressed
to:

 

	
  [Investor]

  	
   

  	
   

  	
   

  
	
  [

  	
  ]

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Telephone:
  [

  	
   

  	
   

  	
  ]

  
	
  Facsimile
  No: [

  	
   

  	
  ]

  	
   

  
	
  Attention:
  [

  	
   

  	
   

  	
  ]

  
	
  Email:
  [

  	
   

  	
   

  	
  ]

  
	
   

  	
   

  	
   

  	
   

  
	
  With
  a copy to:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  [

  	
  ]

  	
   

  	
   

  
	
  [

  	
  ]

  	
   

  	
   

  
	
  Telephone:
  [

  	
   

  	
   

  	
  ]

  
	
  Facsimile
  No: [

  	
   

  	
  ]

  	
   

  
	
  Attention:
  [

  	
   

  	
   

  	
  ]

  
	
  Email:
  [

  	
   

  	
   

  	
  ]

  

 

5.                                       General Provisions.    This Joinder Agreement shall be operative and
effective pursuant to the Convertible Note Agreement only once it has been
countersigned by each of the Additional Investor, the Company and Bounty.  This Joinder Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same
instrument.  The section headings herein
are for the convenience of the parties only and shall not affect the
construction or interpretation of this Joinder Agreement.

 

6.                                       Amendments.  This
Joinder Agreement may not be amended or modified unless in writing by all of
the parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.

 

7.                                       Governing
Law Provisions.  This Agreement shall be governed in all respects
by the Laws of the State of New York without regard to choice of laws or
conflict of laws provisions thereof that would require the application of the
laws of any other jurisdiction.

 

[THIS SPACE LEFT BLANK INTENTIONALLY]

 

C-2

 

IN WITNESS WHEREOF, the
undersigned has executed this agreement this [   ] day of [   ].

 

	
   

  	
   

  	
  [                             ]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Accepted
  as of the date hereof:

  	
   

  	
   

  
	
  DEERFIELD CAPITAL CORP.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Accepted
  as of the date hereof:

  	
   

  	
   

  
	
  BOUNTY
  INVESTMENTS, LLC

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

C-3

 

EXHIBIT D

 

FORM OF PIK ELECTION

 

Deerfield
Capital Corp.

6250 North River Road

9th Floor

Rosemont, Illinois 60018

 

[DATE]

 

Re:                               Notice of
Intention to Pay PIK Interest

on Senior Subordinated Convertible Notes due 20[  ]

 

Ladies &
Gentlemen:

 

Reference is hereby made to
that certain Senior Subordinated Convertible Note Agreement, dated as of March 22,
2010 (as amended, supplemented or otherwise modified from time to time, the “Convertible Note Agreement”), among
Deerfield Capital Corp., a Maryland corporation (the “Company”),
and the Holders from time to time party thereto.  All capitalized terms used but not defined
herein shall have the meaning assigned to them in the Convertible Note
Agreement.

 

Pursuant to Section 2.6(c) of
the Convertible Note Agreement, the Company hereby irrevocably elects to pay
interest on the Notes for the Interest Period beginning on
[                    ],
20[    ], as indicated in Item A below:

 

	
  A

  	
   

  	
  Portion of Interest to
  be paid in PIK (expressed as a percent of total interest payment, not to
  exceed 50% of interest payable for the Interest Period)

  	
   

  	
  [      ]

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B

  	
   

  	
  Aggregate principal
  amount of Notes issued under Convertible Note Agreement (excluding prior
  payments of PIK Interest)

  	
   

  	
  $

  	
  [                    ]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C

  	
   

  	
  Aggregate of all prior
  payments of PIK Interest

  	
   

  	
  $

  	
  [                    ]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  D

  	
   

  	
  Total principal amount
  of Notes outstanding (sum of B + C)

  	
   

  	
  $

  	
  [                    ]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  E

  	
   

  	
  Applicable Interest
  Rate pursuant to Section 2.6(e) of Convertible Note Agreement
  (excluding Default Interest, if any)

  	
   

  	
  [      ]

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  F

  	
   

  	
  Total interest payable
  for Interest Period (applying E to D)

  	
   

  	
  $

  	
  [                    ]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  G

  	
   

  	
  Total PIK Interest (product of A x F)

  	
   

  	
  $

  	
  [                    ]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  H

  	
   

  	
  Total interest to be
  paid in cash (sum of F — G)

  	
   

  	
  $

  	
  [                    ]

  	
   

  

 

D-1

 

The Company represents and
warrants to the Holders that this PIK Election is made in compliance with the
requirements of Section 2.6(c) and that the calculations set forth
above accurately reflect the interest payable in respect of all Notes
outstanding (including on prior payments of PIK Interest) for the applicable
Interest Period.

 

Each Holder is hereby
authorized, on the scheduled Interest Payment Date, to add to the principal
amount of each Note outstanding the corresponding amount under the heading “PIK
Interest payable on such Note” for the respective Note on the Schedule of
Capitalization of PIK Interest attached thereto, which when accompanied by this
instrument shall be conclusive proof of the increase in the principal amount of
such Note:

 

	
  Note
  Number

  	
   

  	
  Holder

  	
   

  	
  Principal Amount 

  Prior to this Notice

  	
   

  	
  PIK Interest payable 

  on such Note

  	
   

  	
  Total Principal 

  Amount of Note 

  upon payment of 

  PIK Interest

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  DEERFIELD
  CAPITAL CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

D-2

 

EXHIBIT E

 

FORM OF NOTICE OF CONVERSION

 

Deerfield
Capital Corp.

6250 North River Road

9th Floor

Rosemont, Illinois 60018

 

[DATE]

 

Re:                               Notice of
Conversion

of Senior Subordinated Convertible Notes due 20[  ]

 

Ladies &
Gentlemen:

 

Reference is hereby made to
that certain Senior Subordinated Convertible Note Agreement, dated as of March 22,
2010 (as amended, supplemented or otherwise modified from time to time, the “Convertible Note Agreement”), among
Deerfield Capital Corp., a Maryland corporation (the “Company”),
and the Holders from time to time party thereto.  All capitalized terms used but not defined
herein shall have the meaning assigned to them in the Convertible Note
Agreement.

 

,
(the “Owner”) owns and proposes to
convert the Note[s] specified herein, in the principal amount of
$                        
in such Note[s] (the “Conversion”)
pursuant to Section 5 of the Convertible Note Agreement.  In connection with the Conversion, the Owner
hereby certifies that, as Owner of this Note, hereby irrevocably exercises the
option to convert this Note, or such portion of this Note in the principal
amount designated above, into shares of Common Stock in accordance with the
terms of Convertible Note Agreement, and directs that such shares, together
with a check in payment for any fractional share and any Notes representing any
unconverted principal amount hereof, be delivered to and be registered in the
name of the undersigned unless a different name has been indicated below. If
shares of Common Stock or Notes are to be registered in the name of a Person
other than the undersigned, (a) the undersigned will pay all transfer
taxes payable with respect thereto and (b) signature(s) must be
guaranteed by an Eligible Guarantor Institution with membership in an approved
signature guarantee program pursuant to Rule 17Ad-15 under the Exchange Act.  Any amount required to be paid by the
undersigned on account of interest accompanies this Note.

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [OWNER]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

E-1

 

If only
a portion of a Note is to be converted, please indicate:

1.                                       Principal
amount to be converted: U.S. $

2.                                       Principal
amount and denomination of Notes representing unconverted principal amount to
be issued:

 

Amount:
U.S. $                                        Denominations:
U.S. $               

 

	
  If
  shares of Common Stock or Notes are to be

  	
   

  
	
  registered
  in the name of a Person other than the Holder,

  	
   

  
	
  please
  print such Person’s name and address:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  (Name)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  (Address)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Social
  Security or other Identification Number, if any.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  [Signature
  Guaranteed]

  	
   

  

 

E-2

 

EXHIBIT F

 

FORM OF NOTICE OF TRANSFER

 

Deerfield
Capital Corp.

6250 North River Road

9th Floor

Rosemont, Illinois 60018

 

[DATE]

 

Re:                               Notice of
Conversion

of Senior Subordinated Convertible Notes due 20[  ]

 

Ladies &
Gentlemen:

 

Reference is hereby made to
that certain Senior Subordinated Convertible Note Agreement, dated as of March 22,
2010 (as amended, supplemented or otherwise modified from time to time, the “Convertible Note Agreement”), among
Deerfield Capital Corp., a Maryland corporation (the “Company”),
and the Holders from time to time party thereto.  All capitalized terms used but not defined
herein shall have the meaning assigned to them in the Convertible Note
Agreement.

 

                                   ,
(the “Transferor”) owns and
proposes to transfer the Note[s] specified in Annex A hereto, in the principal
amount of
$                      
in such Notes (the “Transfer”), to
                                                      
(the “Transferee”), as further
specified in Annex A hereto.  In
connection with the Transfer, the Transferor hereby certifies that:

 

[CHECK ALL THAT APPLY]

 

1.  o   Check if Transferee will
take delivery of a Restricted Note pursuant to Rule 144A.  The Transfer is being effected pursuant to
and in accordance with Rule 144A under the Securities Act of 1933, as
amended (the “Securities Act”), and,
accordingly, the Transferor hereby further certifies that the Note is being
transferred to a Person that the Transferor reasonably believes is purchasing
the Note for its own account, or for one or more accounts with respect to which
such Person exercises sole investment discretion, and such Person and each such
account is a “qualified institutional buyer” within the meaning of Rule 144A
in a transaction meeting the requirements of Rule 144A, and such Transfer
is in compliance with any applicable blue sky securities Laws of any state of
the United States.  Upon consummation of
the proposed Transfer in accordance with the terms of the Convertible Note
Agreement, the transferred Note will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Note and in the
Convertible Note Agreement and the Securities Act.

 

2.  o   Check if Transferee will
take delivery of a Restricted Note pursuant to Regulation S.  The Transfer is being effected pursuant to
and in accordance with Rule 903 or Rule 904 under the Securities Act
and, accordingly, the Transferor hereby further certifies that (i) the
Transfer is not being made to a Person in the United States and (x) at the
time the buy order was originated, the Transferee was outside the United States
or such Transferor and any Person acting on its behalf reasonably believed and
believes that the Transferee was outside the United States or (y) the
transaction was executed in, on or through the facilities of a designated
offshore securities market and neither such 

 

F-1

 

Transferor
nor any Person acting on its behalf knows that the transaction was prearranged
with a buyer in the United States, (ii) no directed selling efforts have
been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S under the Securities Act and (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act.  Upon consummation of the
proposed transfer in accordance with the terms of the Convertible Note
Agreement, the transferred Note will be subject to the restrictions on Transfer
enumerated in the Private Placement Legend printed on the Note and in the
Convertible Note Agreement and the Securities Act.

 

3.  o   Check and complete if
Transferee will take delivery of a Restricted Note pursuant to any provision of
the Securities Act other than Rule 144A or Regulation S.  The Transfer is being effected in compliance
with the transfer restrictions applicable to Restricted Notes and pursuant to
and in accordance with the Securities Act and any applicable blue sky
securities Laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):

 

(a)                                  o   such Transfer
is being effected pursuant to and in accordance with Rule 144 under the
Securities Act;

 

OR

 

(b)                                 o   such Transfer
is being effected to the Company or a subsidiary thereof;

 

OR

 

(c)                                  o   such Transfer
is being effected pursuant to an effective registration statement under the
Securities Act and in compliance with the prospectus delivery requirements of
the Securities Act;

 

OR

 

(d)                                 o   such Transfer
is being effected to an Institutional Accredited Investor and pursuant to an
exemption from the registration requirements of the Securities Act other than Rule 144A,
Rule 144, Rule 903 or Rule 904, and the Transferor hereby
further certifies that it has not engaged in any general solicitation within
the meaning of Regulation D under the Securities Act and the Transfer complies
with the transfer restrictions applicable to Restricted Notes and the
requirements of the exemption claimed, which certification is supported by (1) a
certificate executed by the Transferee in the form of Exhibit D to the
Convertible Note Agreement and (2) an Opinion of Counsel provided by the
Transferor or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that such Transfer is in compliance with the
Securities Act.  Upon consummation of the
proposed transfer in accordance with the terms of the Convertible Note
Agreement, the transferred Note will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Notes and
in the Convertible Note Agreement and the Securities Act.

 

4.  o   Check if Transferee will
take delivery of an Unrestricted Note.

 

(a)  o   Check if Transfer is
pursuant to Rule 144.  (i) The
Transfer is being effected pursuant to and in accordance with Rule 144
under the Securities Act and in compliance with the transfer restrictions
contained in the Convertible Note Agreement and any applicable blue sky
securities Laws of any state of the United States and (ii) the
restrictions on transfer contained in the Convertible Note Agreement and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act.  Upon consummation of
the proposed Transfer in accordance with the terms of the 

 

F-2

 

Convertible
Note Agreement, the transferred Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Notes and in the Convertible Note Agreement.

 

(b)  o   Check if Transfer is
Pursuant to Regulation S.  (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904
under the Securities Act and in compliance with the transfer restrictions
contained in the Convertible Note Agreement and any applicable blue sky
securities Laws of any state of the United States and (ii) the
restrictions on transfer contained in the Convertible Note Agreement and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act.  Upon consummation of
the proposed Transfer in accordance with the terms of the Convertible Note
Agreement, the transferred Note will no longer be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the
Restricted Notes and in the Convertible Note Agreement.

 

(c)  o   Check if Transfer is
Pursuant to Other Exemption.  (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule 903
or Rule 904 and in compliance with the transfer restrictions contained in
the Convertible Note Agreement and any applicable blue sky securities Laws of
any State of the United States and (ii) the restrictions on transfer
contained in the Convertible Note Agreement and the Private Placement Legend
are not required in order to maintain compliance with the Securities Act.  Upon consummation of the proposed Transfer in
accordance with the terms of the Convertible Note Agreement, the transferred
Note will not be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Notes and in the Convertible
Note Agreement.

 

This certificate and the
statements contained herein are made for your benefit and the benefit of the
Company.

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [Insert
  Name of Transferor]

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  

 

F-3

 

EXHIBIT G

 

Form of Legal Opinion

 

1.                                        The Company is a corporation duly incorporated
under the general corporation law of the State of Maryland with corporate power
and authority to own its properties and to conduct its business as presently
conducted.  The Company is validly
existing and in good standing under the laws of the State of
[                  ]
and is qualified to do business in the following States: [                                                       ].

 

2.                                       The Convertible
Note Agreement has been duly authorized by all necessary corporate action of
the Company, has been duly executed and delivered by the Company, and is the
legally valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms.

 

3.                                       The Convertible
Notes have been duly authorized by all necessary corporate action of the
Company and, when executed and issued in accordance with the terms of the
Convertible Note Agreement and delivered and paid for in accordance with the
terms of the Convertible Note Agreement, will be legally valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms.

 

4.                                       The shares of
Common Stock initially issuable upon conversion of the Convertible Notes have
been duly authorized by all necessary corporate action of the Company and
reserved for issuance upon conversion of the Convertible Notes and, when issued
and delivered upon conversion of the Notes in accordance with the terms of the
Convertible Note Agreement, will be validly issued, fully paid and
non-assessable.

 

5.                                       The
Registration Rights Agreement has been duly authorized by all necessary
corporate action of the Company, has been duly executed and delivered by the
Company and is the legally valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.

 

6.                                       The execution
and delivery of the Convertible Note Agreement and the Registration Rights
Agreement and the issuance and sale of the Convertible Notes by the Company do
not on the date hereof:

 

(i)             violate the Company’s
Governing Documents;

 

(ii)          result in the breach of or a
default under any of the Specified Agreements;

 

(iii)       violate any federal, New
York or Maryland statute, rule or regulation or Court Order applicable to
the Company; or

 

(iv)      require any
consents, approvals, or authorizations to be obtained by the Company from, or
any registrations, declarations or filings to be made by the Company with, any
governmental authority under any federal, New York or Maryland statute, rule or
regulation applicable to the Company on or prior to the date hereof that have
not been obtained or made.

 

7.                                       No registration
of the Convertible Notes under the Securities Act of 1933, as amended, is
required for the purchase of the Convertible Notes in the manner contemplated
by the Convertible Note Agreement.

 

8.                                       The Company is
not, and immediately after giving effect to the sale of the Convertible Notes
in accordance with the Convertible Note Agreement and the application of the
proceeds as described in Section 3.12 of the Convertible Note Agreement
will not be required to be, registered as an “investment company” within the
meaning of the Investment Company Act of 1940, as amended.

 

G-1

 

EXHIBIT H

 

Form of Registration Rights Agreement

 

H-1

 

DEERFIELD CAPITAL CORP.

 

SENIOR SUBORDINATED CONVERTIBLE NOTES

 

March 22, 2010

 

 

TABLE OF CONTENTS

 

	
  1.

  	
  Definitions

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Certain Defined Terms

  	
   

  	
  2

  
	
   

  	
  1.2

  	
  Accounting Terms

  	
   

  	
  3

  
	
   

  	
  1.3

  	
  Rules of Construction

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  The Notes

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Purchase of the Notes

  	
   

  	
  3

  
	
   

  	
  2.2

  	
  Closing

  	
   

  	
  3

  
	
   

  	
  2.3

  	
  General

  	
   

  	
  4

  
	
   

  	
  2.4

  	
  Principal Amount

  	
   

  	
  4

  
	
   

  	
  2.5

  	
  Maturity

  	
   

  	
  4

  
	
   

  	
  2.6

  	
  Interest

  	
   

  	
  4

  
	
   

  	
  2.7

  	
  Replacement Notes

  	
   

  	
  7

  
	
   

  	
  2.8

  	
  Outstanding Notes

  	
   

  	
  7

  
	
   

  	
  2.9

  	
  Treasury Notes

  	
   

  	
  7

  
	
   

  	
  2.10

  	
  Cancellation

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Covenants of the Company

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Payment of Notes

  	
   

  	
  8

  
	
   

  	
  3.2

  	
  Maintenance of Office or Agency

  	
   

  	
  8

  
	
   

  	
  3.3

  	
  Reports

  	
   

  	
  8

  
	
   

  	
  3.4

  	
  Taxes

  	
   

  	
  9

  
	
   

  	
  3.5

  	
  Stay, Extension and Usury Laws

  	
   

  	
  9

  
	
   

  	
  3.6

  	
  Incurrence of Indebtedness

  	
   

  	
  9

  
	
   

  	
  3.7

  	
  [Reserved]

  	
   

  	
  9

  
	
   

  	
  3.8

  	
  Change of Control

  	
   

  	
  9

  
	
   

  	
  3.9

  	
  Merger, Consolidation or Sale of Assets

  	
   

  	
  11

  
	
   

  	
  3.10

  	
  Listing of Common Stock

  	
   

  	
  12

  
	
   

  	
  3.11

  	
  Reservation of Common Stock; Issuance of Common Stock

  	
   

  	
  12

  
	
   

  	
  3.12

  	
  Use of Proceeds

  	
   

  	
  12

  
	
   

  	
  3.13

  	
  Transfer Taxes

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Redemption

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Optional Redemption

  	
   

  	
  13

  
	
   

  	
  4.2

  	
  Mandatory Redemption

  	
   

  	
  13

  
	
   

  	
  4.3

  	
  Notice of Redemption

  	
   

  	
  13

  
	
   

  	
  4.4

  	
  Selection of Notes to Be Redeemed

  	
   

  	
  13

  
	
   

  	
  4.5

  	
  Partial Redemption

  	
   

  	
  14

  
	
   

  	
  4.6

  	
  Effect of Notice of Redemption

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Conversion Rights

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Right to Convert

  	
   

  	
  14

  

 

i

 

	
   

  	
  5.2

  	
  Exercise of Conversion Rights

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Adjustment of Conversion Rate

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Price Protection

  	
   

  	
  15

  
	
   

  	
  6.2

  	
  Dilution Adjustments

  	
   

  	
  16

  
	
   

  	
  6.3

  	
  When No Adjustment Required

  	
   

  	
  22

  
	
   

  	
  6.4

  	
  Effect of Reclassification, Consolidation, Merger or Sale

  	
   

  	
  23

  
	
   

  	
  6.5

  	
  Simultaneous Adjustments

  	
   

  	
  23

  
	
   

  	
  6.6

  	
  Successive Adjustments

  	
   

  	
  24

  
	
   

  	
  6.7

  	
  Limitation on Adjustments

  	
   

  	
  24

  
	
   

  	
  6.8

  	
  Notices

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Restrictions on Transfer

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Permitted Transfers

  	
   

  	
  24

  
	
   

  	
  7.2

  	
  Terms of Transfer

  	
   

  	
  24

  
	
   

  	
  7.3

  	
  Legends

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Subordination

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  Agreement to Subordinate

  	
   

  	
  27

  
	
   

  	
  8.2

  	
  Liquidation; Dissolution; Bankruptcy

  	
   

  	
  27

  
	
   

  	
  8.3

  	
  Default on Designated Senior Debt

  	
   

  	
  27

  
	
   

  	
  8.4

  	
  Acceleration of Notes

  	
   

  	
  28

  
	
   

  	
  8.5

  	
  When Distribution Must Be Paid Over

  	
   

  	
  28

  
	
   

  	
  8.6

  	
  Notice by Company

  	
   

  	
  28

  
	
   

  	
  8.7

  	
  Subrogation

  	
   

  	
  28

  
	
   

  	
  8.8

  	
  Relative Rights

  	
   

  	
  28

  
	
   

  	
  8.9

  	
  Subordination May Not Be Impaired by Company

  	
   

  	
  29

  
	
   

  	
  8.10

  	
  Distribution or Notice to Representative

  	
   

  	
  29

  
	
   

  	
  8.11

  	
  Amendments

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Events of Default

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Definition

  	
   

  	
  29

  
	
   

  	
  9.2

  	
  Acceleration

  	
   

  	
  31

  
	
   

  	
  9.3

  	
  Other Remedies

  	
   

  	
  31

  
	
   

  	
  9.4

  	
  Waiver of Past Defaults

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  Amendment, Supplement and Waiver

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.1

  	
  Without Consent of Holders of Notes

  	
   

  	
  32

  
	
   

  	
  10.2

  	
  With Consent of Holders of Notes

  	
   

  	
  32

  
	
   

  	
  10.3

  	
  Revocation and Effect of Consents

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Representations and Warranties

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.1

  	
  Representations and Warranties of the Company

  	
   

  	
  33

  
	
   

  	
  11.2

  	
  Representations and Warranties of the Investors

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  Conditions to the Closing

  	
   

  	
  46

  

 

ii

 

	
   

  	
  12.1

  	
  Conditions to Obligation of the Company

  	
   

  	
  46

  
	
   

  	
  12.2

  	
  Conditions to Obligation of the Investors

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  Miscellaneous

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.1

  	
  Governing Law

  	
   

  	
  48

  
	
   

  	
  13.2

  	
  Submission to Jurisdiction; Venue; Waiver of Trial by Jury

  	
   

  	
  48

  
	
   

  	
  13.3

  	
  Enforcement of Agreement

  	
   

  	
  48

  
	
   

  	
  13.4

  	
  Successors and Assigns

  	
   

  	
  48

  
	
   

  	
  13.5

  	
  No Third Party Beneficiaries

  	
   

  	
  48

  
	
   

  	
  13.6

  	
  Entire Agreement

  	
   

  	
  49

  
	
   

  	
  13.7

  	
  Notices, Etc.

  	
   

  	
  49

  
	
   

  	
  13.8

  	
  Delays or Omissions

  	
   

  	
  50

  
	
   

  	
  13.9

  	
  Counterparts

  	
   

  	
  50

  
	
   

  	
  13.10

  	
  Severability

  	
   

  	
  50

  
	
   

  	
  13.11

  	
  Titles and Subtitles; Section References

  	
   

  	
  50

  
	
   

  	
   

  	
   

  
	
  SCHEDULES AND EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule A

  	
  Schedule
  of Investors and Amounts

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Certain
  Definitions

  	
   

  	
   

  
	
  Exhibit B

  	
  Form of
  Note

  	
   

  	
   

  
	
  Exhibit C

  	
  Form of
  Joinder Agreement

  	
   

  	
   

  
	
  Exhibit D

  	
  Form of
  PIK Election

  	
   

  	
   

  
	
  Exhibit E

  	
  Form of
  Notice of Conversion

  	
   

  	
   

  
	
  Exhibit F

  	
  Form of
  Notice of Transfer

  	
   

  	
   

  
	
  Exhibit G

  	
  Form of
  Legal Opinion

  	
   

  	
   

  
	
  Exhibit H

  	
  Form of
  Registration Rights Agreement

  	
   

  	
   

  

 

iiiExhibit 10.1

 

Exhibit A

 

 

STOCKHOLDERS
AGREEMENT

 

BETWEEN

 

DEERFIELD
CAPITAL CORP.

 

AND

 

BOUNTY
INVESTMENTS, LLC

 

 

DATED
AS OF
[            ],
2010

 

 

TABLE
OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.1

  	
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.2

  	
  Construction

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE II REPRESENTATIONS AND WARRANTIES

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Representations
  and Warranties of the Company

  	
  6

  
	
   

  	
   

  	
   

  
	
  Section 2.2

  	
  Representations
  and Warranties of the Investor

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE III BOARD OF DIRECTORS

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Board
  of Directors

  	
  7

  
	
   

  	
   

  	
   

  
	
  Section 3.2

  	
  Investor
  Activities

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 3.3

  	
  Majority
  Voting Provision

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 3.4

  	
  Market
  Activity

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 3.5

  	
  Affiliate
  Transactions

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 3.6

  	
  Committee
  Membership

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 3.7

  	
  Board
  Observer

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 3.8

  	
  Preemptive
  Rights

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV NON SOLICITATION

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Non
  Solicitation

  	
  14

  
	
   

  	
   

  	
   

  
	
  ARTICLE V MISCELLANEOUS

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  Termination
  of Agreement

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 5.2

  	
  Expenses

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 5.3

  	
  Notices

  	
  15

  
	
   

  	
   

  	
   

  
	
  Section 5.4

  	
  Governing
  Law

  	
  16

  
	
   

  	
   

  	
   

  
	
  Section 5.5

  	
  Consent
  to Jurisdiction

  	
  16

  

 

i

 

	
  Section 5.6

  	
  Specific
  Performance

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 5.7

  	
  Waiver
  of Jury Trial

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 5.8

  	
  Binding
  Effect; Persons Benefiting; Assignment

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 5.9

  	
  Counterparts

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 5.10

  	
  Entire
  Agreement

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 5.11

  	
  Severability

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 5.12

  	
  Amendments
  and Waivers

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 5.13

  	
  Delays
  or Omissions

  	
  18

  

 

EXHIBITS

 

Exhibit A
— Initial Investor Designees

Exhibit B
— Form of Majority Voting Bylaw

 

ii

 

STOCKHOLDERS AGREEMENT, dated as of
[            ],
2010 (this “Agreement”), by and between Deerfield Capital Corp., a
Maryland corporation (the “Company”), and Columbus Nova Partners, LLC, a
Delaware limited liability company (the “Investor”).

 

WHEREAS, the Company, the Manager and the
Investor are parties to an Acquisition and Investment Agreement, dated as of March 22,
2010 (the “Acquisition and Investment Agreement”), pursuant to which,
upon the terms and subject to the conditions therein, the Company will at
Closing issue the Stock Consideration to the Investor in consideration for the
purchase of all of the Equity Interests of the Manager (the “Acquisition”);

 

WHEREAS, the Company and the Investor are
parties to a Convertible Note Purchase Agreement, dated as of March 22,
2010 (the “Convertible Note Purchase Agreement”), pursuant to which,
upon the terms and subject to the conditions therein, the Investor will at
Closing purchase $25,000,000 in aggregate principal amount of senior subordinated convertible notes of the Company (the “Convertible
Notes”), convertible into shares of Common Stock of the Company (the “Conversion
Shares”) in accordance with the terms of the Convertible Notes;

 

WHEREAS, the Investor has the registration
rights with respect to the Conversion Shares and the Investor Shares (as
defined below) as provided in the Registration Rights Agreement, dated as of
the date hereof (the “Registration Rights Agreement”);

 

WHEREAS, the execution and delivery of this
Agreement is a condition to the obligations of the parties to consummate the
Closing; and

 

WHEREAS, the Company and the Investor desire
to establish in this Agreement certain terms and conditions concerning the
corporate governance of the Company, the Stock Consideration and the Conversion
Shares and related provisions concerning the relationship of the Investor with,
and its investment in, the Company from and after the Closing.

 

NOW, THEREFORE, in consideration of the
mutual covenants and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

 

ARTICLE
I

DEFINITIONS

 

Section 1.1                                    Definitions.  As used in this Agreement, the following
terms shall have the meanings indicated below; provided that capitalized
terms used herein but not defined herein shall have the meanings ascribed to
them in the Acquisition and Investment Agreement:

 

 

“Acquisition” has the meaning assigned
in the recitals.

 

“Acquisition and Investment Agreement”
has the meaning assigned in the recitals.

 

“Affiliate” shall have the meaning
assigned in the Acquisition and Investment Agreement; provided, that for
purposes of this Agreement, the Company and its Subsidiaries shall not be
deemed to be Affiliates of the Investor and the Investor shall not be deemed to
be an Affiliate of the Company and its Subsidiaries.

 

“Agreement” has the meaning assigned
in the preamble.

 

“Beneficial
Ownership” by a Person of any securities includes ownership by any
Person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares (i) voting power
which includes the power to vote, or to direct the voting of, such security;
and/or (ii) investment power which includes the power to dispose, or to
direct the disposition, of such security; and shall otherwise be interpreted in
accordance with the term “beneficial ownership” as defined in Rule 13d-3
adopted by the SEC under the Exchange Act; provided that
for purposes of determining Beneficial Ownership, a Person shall be deemed to
be the Beneficial Owner of any securities that may be acquired by such Person
pursuant to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise
(irrespective of whether the right to acquire such securities is exercisable
immediately or only after the passage of time, including the passage of time in
excess of 60 days, the satisfaction of any conditions, the occurrence of any
event or any combination of the foregoing). 
For purposes of this Agreement, a Person shall be deemed to Beneficially
Own any securities Beneficially Owned by its Affiliates or any “group” (as
contemplated by Exchange Act Rule 13d-5(b)) of which such Person or any
such Affiliate is or becomes a member. 
The term “Beneficially Own”
shall have a correlative meaning.

 

“Board” means, as of any date, the
Board of Directors of the Company in office on that date.

 

“Closing” means the closing of the
transactions contemplated in the Acquisition and Investment Agreement.

 

“Common Stock” means the common stock
of the Company, par value $0.001 per share.

 

“Company” has the meaning assigned in
the preamble.

 

“Consents” means all consents,
notices, authorizations, novations, Orders, waivers, approvals, licenses,
accreditations, certificates, declarations, filings or expiration of waiting
periods, non-objection or confirmation by a rating agency that an action or
event will not result in the reduction or withdrawal of a rating.

 

2

 

“Constituent Documents” means, with
respect to any Person that is a corporation, its articles or certificate of
incorporation or memorandum and articles of association, as the case may be,
and bylaws, with respect to any Person that is a partnership, its certificate
of partnership and partnership agreement, with respect to any Person that is a
limited liability company, its certificate of formation and limited liability
company or operating agreement, with respect to any Person that is a trust or
other entity, its declaration or agreement of trust or constituent document,
and with respect to any other Person, its comparable organizational documents,
in each case, as amended or restated.

 

“Contract”
means any written or oral contract, agreement, lease, license, indenture, note,
bond, mortgage, loan, instrument, conditional sale contract, guarantee
commitment or other arrangement, understanding, undertaking or obligation.

 

“Conversion Shares” has the meaning
assigned in the recitals.

 

“Convertible Note Purchase Agreement”
has the meaning assigned in the recitals.

 

“Company Stock Plan” means that
certain Deerfield Triarc Capital Corp. Stock Incentive Plan effective as of December 17,
2004, as amended.

 

“Dilution Notice”  has the meaning assigned in Section 3.1(h)(ii).

 

“Director” means any member of the
Board.

 

“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

 

“Governmental
Authority” means any foreign, federal, state or local governmental,
judicial, legislative, regulatory or administrative agency, commission or
authority, and any court, tribunal or arbitrator(s) of competent
jurisdiction, including Self-Regulatory Organizations.

 

“Independent
Director” means a Director who qualifies as an “independent
director” of the Company under (a) the Corporate Governance Guidelines of
the Company then in effect and (b) (i) applicable NASDAQ rules, as
such rules may be amended, supplemented or replaced from time to time, or
(ii), if the Common Stock is listed on a securities exchange or quotation
system other than NASDAQ, any comparable rule or regulation of the primary
securities exchange or quotation system on which the Common Stock is listed or
quoted (whether by final rule or otherwise).  The fact that an individual has been
designated by the Investor for nomination pursuant to this Agreement will not,
in and of itself, disqualify that individual as an Independent Director.

 

“Investor”
has the meaning assigned in the preamble.

 

3

 

“Investor Shares” means, as of the
applicable measurement date, the sum of the shares of Common Stock and Other
Capital Stock Beneficially Owned by the Investor and its Affiliates (including,
for the avoidance of doubt, the Conversion Shares assuming all Conversion
Shares then issuable pursuant to the Convertible Notes Beneficially Owned by
the Investor are outstanding) and any shares of Common Stock or other
securities issued in respect thereof or into which such shares of Common Stock
or other securities shall be converted in connection with stock splits, reverse
stock splits, stock dividends or distributions, combinations or any similar
recapitalizations after the date of this Agreement.

 

“Law”
means any statute, code, Order, law, ordinance, rule, regulation or other
requirement of any Governmental Authority.

 

“Lien” means any lien, pledge,
encumbrance, mortgage, deed of trust, security interest, equity, claim, lease,
license, charge, option, adverse right, right of first or last negotiation,
offer or refusal, easement or transfer restriction of any kind or nature
whatsoever, whether arising by agreement, operation of Law or otherwise.

 

“NASDAQ” means the NASDAQ Stock Market
LLC.

 

“New Shares” means any shares of
capital stock of the Company, including Common Stock or Other Capital Stock,
whether authorized or not by the Board or any committee of the Board, and
rights, options, or warrants to purchase said shares of capital stock, and
securities of any type whatsoever that are, or may become, convertible into
capital stock; provided, however, that the term “New Shares” shall not include:
(i) securities issued to employees, consultants, officers and directors of
the Company, pursuant to any arrangement approved by the Board or the Board’s
compensation committee; (ii) securities issued in connection with the
acquisition of another business or assets of another Person by the Company by
merger or purchase of the assets or shares, or other reorganization; (iii) securities
issued pursuant to any rights or agreements, including, without limitation,
convertible securities, options and warrants, provided that either (x) the
Company shall have complied with Section 3.8 with respect to the initial
sale or grant by the Company of such rights or agreements or (y) such rights
or agreements existed prior to the Closing (it being understood that any
modification or amendment to any such pre-existing right or agreement
subsequent to the Closing with the effect of increasing the percentage of the
Company’s fully-diluted securities underlying such rights agreement shall not
be included in this clause (iii); (iv) securities issued in connection
with any stock split, stock dividend, recapitalization, reclassification or
similar event by the Company; (v) Conversion Shares issued upon conversion
of any portion of the then outstanding Convertible Notes; (vi) warrants
issued in connection with debt financings; (vii) securities registered
under the Securities Act that are issued in an underwritten public offering; and
(viii) any right, option, or warrant to acquire any security convertible
into the securities excluded from the definition of New Shares pursuant to
clauses (i) through (vii) above.

 

4

 

“Nominating Committee” means the Nominating & Corporate
Governance Committee of the Board.

 

“Order”
means any judgment, order, injunction, stipulation, decree, writ, doctrine,
ruling, assessment or arbitration award or similar order of any Governmental
Authority.

 

“Other Capital Stock” means shares of
any class of capital stock of the Company (other than the Common Stock) that
are entitled to vote generally in the election of Directors.

 

“Outstanding Stock” means, as of the
applicable measurement date, together, the sum of (1) the outstanding shares
of Common Stock and any Other Capital Stock and (2) the Conversion Shares
issuable upon the conversion of the aggregate amount Convertible Notes then
outstanding (calculated assuming all Conversion Shares then issuable pursuant
to the Convertible Notes are outstanding).

 

“Person”
means any individual, corporation, partnership, limited liability company,
limited liability partnership, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, Governmental Authority or other
entity.

 

“Short Sales” means
all “short sales” as defined in Rule 200 promulgated
under Regulation SHO under the Exchange Act and all types of direct and
indirect stock pledges, forward sale contracts, options, puts, calls, swaps and
similar arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.

 

“Strategic
Committee” has the meaning assigned in Section 3.1(k).

 

“Third Party” means any Person other
than the Company, its Subsidiaries and the Investor and each of such Person’s
respective members, directors, officers and Affiliates.

 

“Trading Day” means any day on which
the Common Stock is traded on NASDAQ, or, if NASDAQ 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.

 

Section 1.2                                      Construction.  Unless the context of this Agreement clearly
requires otherwise:  (i) references
to the plural include the singular and vice versa; (ii) references to one
gender include all genders; (iii) whenever the words “include,” “includes”
or “including” are used in this Agreement they will be deemed to be followed by
the phrase “without limitation;” (iv) the words “hereof,” “herein,”
“hereby,” “hereunder” and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement; and
(v) when a reference is made in this Agreement to a Section, Schedule, Exhibit or
Annex, such reference shall be to a 

 

5

 

Section,
Schedule, Exhibit or Annex of this Agreement unless otherwise
indicated.  The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.

 

ARTICLE
II

REPRESENTATIONS AND WARRANTIES

 

Section 2.1                                      Representations
and Warranties of the Company.  The Company represents and warrants to the
Investor as of the date hereof that:

 

(a)                                  The Company is
duly incorporated, validly existing and in good standing under the Laws of
Maryland with all requisite power and authority required to conduct its
business as presently conducted.

 

(b)                                 The Company has
all requisite corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.  The execution and delivery by the Company of
this Agreement and the performance by the Company of its obligations hereunder
have been duly authorized by all requisite corporate action of the
Company.  No other action on the part of
the Company is necessary to authorize the execution, delivery and performance
by the Company of this Agreement.

 

(c)                                  This Agreement
has been duly executed and delivered by the Company and, assuming this
Agreement has been duly authorized, executed and delivered by the Investor,
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to the extent that the
enforceability thereof may be limited by (i) applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar Laws
from time to time in effect affecting generally the enforcement of creditors’
rights and remedies; and (ii) general principles of equity, regardless of
whether enforcement is sought in equity or at Law.

 

(d)                                 The execution
and delivery of this Agreement by the Company and the performance by the
Company of its obligations under this Agreement (i) does not violate any
provision of the Constituent Documents of the Company; and (ii)(A) does
not conflict with or violate any applicable Law of any Governmental Authority
having jurisdiction over the Company or any part of the properties or assets of
the Company, (B) does not require the Consent of any Person under,
violate, result in the termination or acceleration of or of any right under,
give rise to or modify any right or obligation under (whether or not in
combination with any other event or circumstance), or conflict with, breach or
constitute a default under (in each case with or without notice, the passage of
time or both), any Contract to which the Company is a party or by which any of
its properties or assets is bound, (C) does not result in the creation or
imposition of any Lien on any part of the properties or assets of the Company,
(D) does not violate any Order binding on the Company or any part of its
properties or assets, and (E) does not otherwise require any Governmental
Approvals or any Third Party Consents.

 

6

 

Section 2.2                                      Representations
and Warranties of the Investor.  The Investor represents and warrants to the
Company that as of the date hereof:

 

(a)                                  The Investor is
duly formed, validly existing and in good standing under the Laws of Delaware
with all requisite power and authority required to conduct its business as
presently conducted.

 

(b)                                 The Investor
has all requisite limited liability power and authority to execute and deliver
this Agreement and to perform its obligations hereunder.  The execution and delivery by the Investor of
this Agreement and the performance by the Investor of its obligations hereunder
have been duly authorized by all requisite limited liability company action of
the Investor.  No other action on the
part of the Investor or its members is necessary to authorize the execution,
delivery and performance by the Investor of this Agreement.

 

(c)                                  This Agreement
has been duly executed and delivered by the Investor and, assuming this
Agreement has been duly authorized, executed and delivered by the Company,
constitutes the legal, valid and binding obligation of the Investor,
enforceable against the Investor in accordance with its terms, except to the
extent that the enforceability thereof may be limited by (i) applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar Laws from time to time in effect affecting generally the enforcement of
creditors’ rights and remedies; and (ii) general principles of equity regardless
of whether enforcement is sought in equity or at Law.

 

(d)                                 The execution
and delivery of this Agreement by the Investor and the performance by the
Investor of its obligations under this Agreement (i) does not violate any
provision of the Constituent Documents of the Investor; and (ii)(A) does
not conflict with or violate any applicable Law of any Governmental Authority
having jurisdiction over the Investor or any part of the properties or assets
of the Investor, (B) does not require the Consent of any Person under,
violate, result in the termination or acceleration of or of any right under,
give rise to or modify any right or obligation under (whether or not in
combination with any other event or circumstance), or conflict with, breach or
constitute a default under (in each case with or without notice, the passage of
time or both), any Contract to which the Investor is a party or by which any of
its properties or assets is bound, (C) does not result in the creation or
imposition of any Lien on any part of the properties or assets of the Investor,
(D) does not violate any Order binding on the Investor or any part of its
properties or assets, and (E) does not otherwise require any Governmental
Approvals or any Third Party Consents.

 

ARTICLE
III

BOARD OF DIRECTORS

 

Section 3.1                                      Board of
Directors.  (a) 
Effective as of the Closing, the Company shall (i) increase the size of
the Board by two Directors so that upon such increase the Board shall consist
of nine Directors divided equally among the three existing classes of Directors
and (ii) cause [•], [•] and [•] to be appointed to the
Board 

 

7

 

(whose names and classes are set forth on Exhibit A
hereto, with
Mr.                     
qualifying as an Independent Director) and [•] as an observer.  The Company and
the Investor shall take all necessary action to ensure, unless otherwise agreed
by the Board, including the Directors designated by the Investor, that for so
long as the Investor Shares represent at least 5% of the Outstanding Stock that
(i) the Board shall consist of not more than nine Directors and
(ii) the Board will be divided into three equal classes.

 

(b)                                 If the Investor
Shares represent at least 25% of the Outstanding Stock, the Company shall, at
each annual (or special) meeting of stockholders of the Company at which
Directors are to be elected, nominate and recommend for election that number of
individuals designated by the Investor to serve as Directors necessary to
ensure that (assuming such designees are elected) three Directors are
individuals designated by the Investor, provided, that if necessary to
ensure that a majority of the members of the Board are Independent Directors,
then the Investor shall designate an individual who qualifies as an Independent
Director; provided, further, that the Company shall have no
further obligation pursuant to this Section 3.1(b) once the Investor
Shares cease to represent at least 25% of the Outstanding Stock, even if the
Investor subsequently owns a number of Investor Shares representing at least
25% of the Outstanding Stock, except as provided in
Section 3.1(h) below.

 

(c)                                  If the Investor
Shares represent at least 15% but less than 25% of the Outstanding Stock, the
Company shall, at each annual (or special) meetings of stockholders of the Company
at which Directors are to be elected, nominate and recommend for election that
number of individuals designated by the Investor to serve as Directors
necessary to ensure that (assuming such designees are elected) two Directors
are individuals designated by the Investor; provided, that the Company
shall have no further obligation pursuant to this Section 3.1(c) once
the Investor Shares cease to represent at least 15% of the Outstanding Stock
even if the Investor subsequently owns a number of Investor Shares representing
at least 15% of the Outstanding Stock, except as provided in
Section 3.1(h) below.

 

(d)                                 If the Investor
Shares represent at least 5% but less than 15% of the Outstanding Stock, the
Company shall, at each annual (or special) meeting of the stockholders of the
Company at which Directors are to be elected, nominate and recommend for
election an individual designated by the Investor to serve as a Director if
necessary to ensure that one Director is an individual designated by the
Investor provided, that the Company shall have no further obligation
pursuant to this Section 3.1(d) once the Investor Shares cease to
represent at least 5% of the Outstanding Stock even if the Investor
subsequently owns a number of Investor Shares representing at least 5% of the
Outstanding Stock, except as provided in Section 3.1(h) below.

 

(e)                                  [Reserved]

 

8

 

(f)                                    Upon the death,
disability, retirement, resignation or other removal of a Director designated
by the Investor, subject to Section 3.1(g) below, the Board shall
elect as a Director to fill the vacancy so created an individual designated by
the Investor.

 

(g)                                 Each individual
designated by the Investor for nomination as a Director or observer shall be
reasonably acceptable to the Nominating Committee (it being understood and
agreed that the individuals set forth in Section 3.1 are reasonably
acceptable to the Nominating Committee).

 

(h)

 

(i)                                     Subject to
(ii) below, in the event that, as of any date, the Investor Shares
represent less than the number of shares that would entitle the Investor and
its Affiliates pursuant to this Section 3.1 to designate the number of the
Investor-designated Directors then serving on the Board, then if requested by
the Nominating Committee (other than any member thereof designated by the
Investor), the Investor shall promptly take all necessary action to cause the
resignation, effective at the next annual meeting of the Company, of that
number of Investor-designated Directors as is required to cause the remaining
number of Investor-designated Directors to conform to this Section 3.1.

 

(ii)                                  Notwithstanding
the foregoing, if the Investor Shares represent a percentage of Outstanding
Stock that is less than the applicable minimum specified in Sections 3.1(b),
(c) or (d) as a result of dilution of the Investor Shares (in which
case, the Company shall deliver a written notice to the Investor of such
dilution event, the “Dilution Notice”) and within ten days following
receipt of the Dilution Notice the Investor gives the Company a written notice
of its intention to acquire, directly or indirectly through its Affiliates, an
amount of Common Stock, Convertible Notes or Other Capital Stock such that
immediately following such acquisition the Investor Shares represent a
percentage of Outstanding Stock equal to or greater than the minimum percentage
of Outstanding Stock specified in Sections 3.1(b), (c) or (d), as
applicable, (a “Cure Purchase”) within 90 days of the Company’s receipt
of the Dilution Notice (the “Cure Period”), then the Investor shall not
be required to cause any Investor-designated Director(s) to resign in
accordance with Section 3.1(h)(i);  provided,
however, that if the Cure Purchase is not consummated within the Cure
Period, then if requested by the Nominating Committee (other than any member
thereof designated by the Investor), the Investor shall promptly take all
necessary action to cause the resignation, effective at the next annual meeting
of the Company, of that number of Investor-designated Directors as is required
to cause the remaining number of Investor-designated Directors to conform to
this Section 3.1;  provided, further,
that the Investor shall not be required to cause any Investor-designated
Director(s) to resign in accordance with Section 3.1(h) as a
result of a dilution of the Investor Shares unless and until the Company
complies with procedures in this Section 3.1(h)(ii).

 

9

 

(i)                                     For the purpose
of determining the number of Directors the Investor shall be entitled to
designate for nomination pursuant to this Section 3.1 at a stockholder
meeting, the Investor Shares shall be calculated as of the close of business on
the last Trading Day of the month immediately prior to the date on which the
Nominating Committee selects Director nominees for election at the relevant
stockholder meeting.

 

(j)                                     The Company
shall cause each individual designated by the Investor for nomination in
accordance with this Section 3.1 to be included in the Board’s “slate” of
nominees for the applicable meeting of stockholders and shall use commercially
reasonable best efforts to solicit from its stockholders eligible to vote for
the election of Directors proxies (i) in favor of the election of such persons
and (ii) against removal of any such designee.

 

(k)                                  The Board shall
establish a Strategic Committee of the Board (the “Strategic Committee”), which shall continue in existence
until the date that the Investor Shares represent less than 25% of the Outstanding
Stock.  The Strategic Committee shall
initially consist of four members:  two
Directors designated by the Investor and two Directors designated by the
Independent Directors of the Company not designated by the Investor.  Any successor member of the Strategic
Committee to the two Directors designated by the Independent Directors of the
Company shall be designated by the Independent Directors of the Company not
designated by the Investor.  Any
successor member of the Strategic Committee to the Directors designated by the
Investor shall be designated by the Investor. 
The Strategic Committee shall report and make recommendations to the
Board regarding the following and, for matters approved by the Board, will be
responsible for effectuating the following: 
(i) identifying and executing merger and acquisition opportunities,
(ii) working with members of the Company’s senior management to set
direction for the Company, including new investment initiatives and investment
products, (iii) the hiring, dismissal and scope of responsibility of
senior management, and (iv) the integration of CLO platforms of the
Manager and the Company.

 

(l)                                     The rights of
the Investor set forth in this Section 3.1 are personal to the Investor
and the Investor shall not transfer, delegate or assign, whether in connection
with any sale of Common Stock or Convertible Notes or otherwise, any right of
the Investor under this Section 3.1 to any Person other than an Affiliate
of the Investor.  Any purported transfer,
delegation or assignment shall be null and void ab initio.

 

(m)                               Each
Investor-designated Director(s) shall receive the same compensation and
benefits as the other outside directors, including reimbursement for travel,
lodging and related expenses incurred in connection with meetings of the Board
or any of their respective subsidiaries, or any committee thereof, or otherwise
in service as a Director or member of the boards of directors of the 

 

10

 

Company or any of its
respective subsidiaries in accordance with the Company’s policies applicable to
the other outside directors.

 

(n)                                 The Company
shall to the maximum extent permitted under applicable Law, indemnify each
Director designated by the Investor, from and against any and all losses which
may be imposed on, incurred by, or asserted against such Director in any way
relating to or arising out of, or alleged to relate to or arise out of, the
Director’s service in that capacity pursuant to the Company’s Constituent
Documents and an indemnification agreement in the form heretofore provided to
the Investor.

 

(o)                                 The Directors
designated by the Investor shall be covered by the directors’ and officers’
liability insurance and fiduciary liability insurance carried by the Company,
the current benefits and levels of coverage of which have been disclosed to the
Investor.

 

Section 3.2                                      Investor
Activities.

 

(a)                                  Until the
earlier of (x) the third anniversary of this Agreement and (y) such
date as the Investor Shares represent less than 15% of the Outstanding Stock,
the Investor and its Affiliates, including their respective directors, officers
and employees) will not do any of the following, directly or indirectly (which,
shall include any action taken on behalf of the Investor or its Affiliates), unless
the Investor has obtained the prior unanimous written consent of the
Independent Directors not designated by the Investor:

 

(i)                                     (A) engage,
or in any way participate, directly or indirectly, in any “solicitation” (as
such term is defined in Rule 14a-1(l) promulgated by the SEC under
the Exchange Act) of proxies or consents in any “election contest” with respect
to the Company’s Directors (regardless of whether it involves the election or
removal of directors of the Company), (B) seek to advise, encourage or
influence any Person with respect to the voting of any voting securities of the
Company in any “election contest” with respect to the Directors (regardless of
whether it involves the election, removal of or withholding votes for
Directors), (C) initiate, propose or otherwise “solicit” (as such term is
defined in Rule 14a-1(l) promulgated by the SEC under the Exchange
Act) stockholders of the Company for the approval of stockholder proposals in
connection with the election or removal of or withholding votes for Directors
of the Company, or (D) induce or attempt to induce any other Person to
initiate any such stockholder proposal;

 

(ii)                                  form, join or
in any way participate in a partnership, syndicate or other group (including
without limitation any “group” as defined under Section 13(d)(2)of the
Exchange Act) with any Person other than an Affiliate of the Investor with
respect to any voting securities of the Company in connection with any
“election contest” with respect to the Directors (regardless of whether it
involves the election or removal of or withholding votes for Directors);

 

11

 

(iii)                               seek, alone or
in concert with others, (A) to obtain representation on the Board, except
as otherwise expressly permitted in this Agreement, (B) to effect the
removal of any Director, except as otherwise expressly permitted in this
Agreement, or (C) to make a stockholder proposal at any meeting of the
stockholders of the Company to change the size of the Board, the authority of
the Nominating Committee or the manner in which Directors are elected;

 

(iv)                              enter into any
discussions, negotiations, agreements or understandings with any Third Party
with respect to the foregoing, or advise, assist, encourage or seek to persuade
any Third Party to take any action with respect to any of the foregoing, or
otherwise take or cause any action inconsistent with any of the foregoing; or

 

(v)                                 request,
directly or indirectly, any amendment or waiver of any provision of this
Section 3.2 (including this clause (v)) by the Company; provided
that nothing in this Section 3.2 shall prohibit the Investor from voting
Common Stock owned by the Investor for, against or withholding its votes from
any Directors nominated by the Nominating Committee.

 

(b)                                 The Investor
agrees that the Investor shall, as a condition precedent to any sale or series
of related sales or other transfers or series of related transfers (including
by merger or other operation of Law) of Investor Shares representing 15% or
more of the Outstanding Stock to any single Person or its Affiliates, require
that such Person enter into a written agreement with the Company providing that
such Person will agree to be bound by the terms of this Section 3.2.  Any purported sale or transfer by the
Investor without compliance of the obligation in the preceding sentence shall
be null and void ab initio.  For the avoidance of doubt, the requirements
of this Section 3.2(b) shall apply to any Person acquiring Investor
Shares representing 15% or more of the Outstanding Stock even if following such
sale or transfer the Investor would own Investor Shares representing less than
5% of the Outstanding Stock.

 

Section 3.3                                      Majority Voting
Provision.  Until the
date that the Investor Shares represent less than 5% of the Outstanding Stock,
the Company shall adopt and continue to maintain a majority voting bylaw
provision substantially in the form attached as Exhibit B hereto,
with such modifications as are required by Law.

 

Section 3.4                                      Market Activity.  Until the earlier of (x) the third
anniversary of this Agreement and (y) the date that the Investor Shares
represent less than 10% of the Outstanding Stock, the Investor shall not,
directly or indirectly, nor permit its Affiliates or any Person acting on
behalf of or pursuant to any understanding with the Investor or its Affiliates,
to engage in any Short Sales, derivatives, participations, swaps or enter into
any other arrangements that transfer to another Person, in whole or in part,
any of the economic consequences of ownership of the Common Stock and the
Convertible Notes held by the Investor without transferring title to or legal
ownership of such Common Stock and Convertible Notes.  Except as set forth in Section 3.2 and
this 

 

12

 

Section 3.4,
the Convertible Note Purchase Agreement and applicable Law, the sale or
transfer of any securities of the Company by the Investor shall not be subject
to any restrictions.

 

Section 3.5                                      Affiliate
Transactions.  Except as
expressly contemplated by this Agreement, the Acquisition and Investment
Agreement or the Registration Rights Agreement, the Company shall not, and
shall cause its Subsidiaries not to, without the prior written consent of a
majority of the Independent Directors, enter into or commit to enter into any
Contract, arrangement or understanding between the Company and its direct or
indirect Subsidiaries, on the one hand, and the Investor and its Affiliates, on
the other hand.

 

Section 3.6                                      Committee
Membership. Except as otherwise stated in Section 3.1(k) and
subject to such Investor-designated Director or Directors satisfying applicable
qualifications under the Company’s Corporate Governance Guidelines, applicable
law, regulation or stock exchange rules and regulations, the Investor
shall be entitled to have representation on all committees of the Board equal
to (x) the number of members of the committee multiplied by (y) the
number of Investor-designated Directors divided by the total number of
Directors (rounded up to the next whole number if the quotient includes a
remainder of .5 or more and rounded down to the next whole number (which may be
zero) if the quotient includes a remainder of less than .5); provided,
that for so long as the Investor Shares represent at least 15% of the
Outstanding Stock, the Investor shall be entitled to have representation of at
least one Investor-designated Director on all committees of the Board.  If none of the Investor-designated Directors
satisfy the applicable qualifications under the Company’s Corporate Governance
Guidelines, applicable law, regulation or stock exchange rules and
regulations to sit on any committee of the Board, then the Board shall permit
an Investor-designated Director to attend (but not vote) at the meetings of
such committee as an observer if permitted by the Company’s Corporate
Governance Guidelines, applicable law, regulation or stock exchange
rules and regulations.

 

Section 3.7                                      Board Observer.  In addition to the rights of the Investor in
Section 3.1, for so long as the Investor Shares represent at least 15% of
the Outstanding Stock, the Investor shall also be entitled to designate one
observer to attend (but not vote) at all meetings of the Board and each
committee of the Board.

 

Section 3.8                                      Preemptive
Rights.

 

(a)                                  For so long as the Investor Shares represent at least 5% or more of the
Outstanding Stock, the Investor shall have, the right to purchase, in
accordance with the procedures set forth herein, its pro rata portion
(calculated based solely on the Common Stock issued or issuable to the Investor
upon conversion of the Convertible Notes as a percentage of the
then-outstanding Common Stock prior to issuance of the New Shares) of any New
Shares which the Company may, from time to time, propose to sell and issue
(hereinafter referred to as the “Preemptive Right”).

 

13

 

(b)                                 In the event that the Company proposes to
issue and sell New Shares, the Company shall notify the Investor in writing
with respect to the proposed New Shares to be issued (the “New Shares Notice”).  Each New Shares Notice shall set forth:  (i) the number of New Shares proposed to
be issued by the Company and their purchase price; (ii) the Investor’s pro
rata portion (calculated based on the Common Stock issued or issuable to the
Investor upon conversion of the Convertible Notes as a percentage of the then-outstanding
Common Stock prior to issuance of the New Shares) of New Shares and
(iii) any other material term and, if known, the expected date of
consummation of the purchase and sale of the New Shares.

 

(c)                                  The Investor shall be entitled to
exercise its right to purchase such New Shares by delivering an irrevocable
written notice to the Company within 15 days from the date of receipt of any
such New Shares Notice specifying the number of New Shares to be subscribed,
which in any event can be no greater than the Investor’s pro rata portion
(calculated as provided above) of such New Shares at the price and on the terms
and conditions specified in the New Shares Notice.

 

(d)                                 If the Investor does not elect within the
applicable notice period described above to exercise its preemptive rights with
respect to any of the New Shares proposed to be sold by the Company, the
Company shall have 90 days after expiration of all such notice period to sell
or to enter into an agreement to sell such unsubscribed New Shares proposed to
be sold by the Company, at a price and on terms no more favorable to the
purchaser than those offered to the Investor.

 

(e)                                  The Investor shall take up and pay for
any New Shares pursuant to the Preemptive Right upon closing of the issuance of
the New Shares, and shall have no right to acquire such New Shares if the
issuance thereof shall not be consummated.

 

ARTICLE IV

NON SOLICITATION

 

Section 4.1                                      Non
Solicitation.  Without the
consent of the Board, until the Investor Shares represent less than 5% of the
Outstanding Stock, the Investor and its Affiliates shall not, directly or
indirectly, solicit for employment or any similar arrangement or hire any
employee of the Company or any of its Affiliates; provided, however,
that this Section 4.1 shall not prohibit the hiring of a person (i) whose
employment has been terminated by the Company, (ii) who responds to
general solicitations of employment through advertisements or other means not
targeted specifically to such employees or (iii) who was an employee of
the Investor or its Affiliates after the Closing Date prior to being employed
by the Company or its Affiliates after the Closing Date.

 

14

 

ARTICLE V

MISCELLANEOUS

 

Section 5.1                                      Termination of
Agreement.  This
Agreement shall continue in effect until the first to occur of (i) the
Investor Shares represent less than 5% of the Outstanding Stock; provided,
that the requirements of Section 3.2(b) shall apply to a sale or
transfer of Investor Shares representing 15% or more of the Outstanding Stock
that following such sale or transfer results in the Investor Shares
representing less than 5% of the Outstanding Stock, and (ii) termination
of this Agreement by written agreement of the Company and the Investor.

 

Section 5.2                                      Expenses.  Except as otherwise expressly set forth
herein and in the Acquisition and Investment Agreement, each party hereto shall
pay its own costs and expenses (including all legal, accounting, broker, finder
and investment banker fees) relating to this Agreement, the negotiations
leading up to this Agreement and the transactions contemplated hereby.

 

Section 5.3                                      Notices.  All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, or when sent by telecopier (with receipt
confirmed); provided, that a copy is also sent by registered mail,
return receipt requested, or by courier addressed as follows (or to such other
address for the Company or Investor as shall be specified by like notice):

 

	
   

  	
  If
  to the Company:

  
	
   

  	
   

  
	
   

  	
  Deerfield
  Capital Corp.

  
	
   

  	
  6250
  North River Road

  
	
   

  	
  9th
  Floor

  
	
   

  	
  Rosemont,
  Illinois 60018

  
	
   

  	
  Attention:

  	
  Robert
  Contreras

  
	
   

  	
  Telecopier:

  	
  (773)
  380-1695

  
	
   

  	
   

  
	
   

  	
  with
  copies to:

  
	
   

  	
   

  
	
   

  	
  Schulte
  Roth & Zabel LLP

  
	
   

  	
  919
  Third Avenue

  
	
   

  	
  New
  York, New York 10022

  
	
   

  	
  Attention:

  	
  Marc
  Weingarten, Esq.

  
	
   

  	
  Telecopier:

  	
  (212)
  593-5955

  
	
   

  	
   

  
	
   

  	
  If
  to Investor:

  
	
   

  	
   

  
	
   

  	
  Bounty
  Investments, LLC

  
	
   

  	
  c/o
  Columbus Nova Partners, LLC

  

 

15

 

	
   

  	
  601
  Lexington Avenue, 58th Floor

  
	
   

  	
  New
  York, New York 10022

  
	
   

  	
  Attention:

  	
  Paul
  Lipari

  
	
   

  	
  Telecopier:

  	
  (646)
  349-1091

  
	
   

  	
   

  
	
   

  	
  with
  copies to:

  
	
   

  	
   

  
	
   

  	
  Latham &
  Watkins LLP

  
	
   

  	
  885
  Third Avenue

  
	
   

  	
  New
  York, New York 10022

  
	
   

  	
  Attention:

  	
  James C. Gorton, Esq.

  
	
   

  	
  Telecopier:

  	
  (212)
  751-4864

  

 

Section 5.4                                      Governing Law.  EXCEPT TO THE EXTENT THAT THE LAWS OF THE
STATE OF MARYLAND APPLICABLE TO THE ELECTION OF DIRECTORS ARE APPLICABLE, THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO
ITS CHOICE  OF LAW RULES THAT WOULD
APPLY THE LAWS OF ANY OTHER JURISDICTION.

 

Section 5.5                                      Consent to
Jurisdiction.  Each Party
to this Agreement, by its execution hereof, (a) hereby irrevocably
consents and agrees that any action, suit or proceeding arising in connection
with any disagreement, dispute, controversy or claim, in whole or in part,
arising out of, related to, based upon or in connection with this Agreement or
the subject matter hereof shall be brought only in the courts of the State
Courts of the State of New York, New York County or the United States District
Court located in the State of New York, New York County, (b) hereby waives
to the extent not prohibited by applicable Law, and agrees not to assert, by
way of motion, as a defense or otherwise, in any such action, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that any such
action brought in one of the above-named courts should be dismissed on grounds
of forum non conveniens, should be
transferred to any court other than one of the above-named courts, or should be
stayed by reason of the pendency of some other proceeding in any other court
other than one of the above-named courts, or that this Agreement or the subject
matter hereof may not be enforced in or by such court and (c) hereby
agrees not to commence any such action other than before one of the above-named
courts nor to make any motion or take any other action seeking or intending to
cause the transfer or removal of any such action to any court other than one of
the above-named courts whether on the grounds of forum non
conveniens or otherwise. Each party hereby (i) consents to
service of process in any such action in any manner permitted by New York law, (ii) agrees
that service of process made in accordance with clause (i) or made by
registered or certified mail, return receipt requested, at its address
specified pursuant to Section 5.3, shall constitute good and valid service
of process in any such action, and (iii) waives and agrees not to assert
(by way of motion, as a defense, or 

 

16

 

otherwise)
in any such action any claim that service of process made in accordance with
clause (i) or (ii) does not constitute good and valid service of process.

 

Section 5.6                                      Specific
Performance.  The parties
to this Agreement each acknowledge that each party would not have an adequate
remedy at law for money damages in the event that any of the covenants
hereunder have not been performed in accordance with their terms, and therefore
agree that the other parties shall be entitled to specific enforcement of the
terms hereof and any other equitable remedy to which such parties may be
entitled.

 

Section 5.7                                      Waiver of Jury
Trial.  The parties each hereby waive
trial by jury in any judicial proceeding involving, directly or indirectly, any
matters (whether sounding in tort, contract or otherwise) in any way arising
out of, related to or connected with this Agreement or the transactions
contemplated hereby.

 

Section 5.8                                      Binding Effect;
Persons Benefiting; Assignment.  This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns.  Nothing in this
Agreement is intended or shall be construed to confer upon any Person other
than the parties hereto and their respective successors and permitted assigns
any right, remedy or claim under or by reason of this Agreement or any part
hereof.  Without the prior written
consent of the other party hereto, this Agreement may not be assigned by either
party hereto and any purported assignment made without such consent shall be
null and void.

 

Section 5.9                                      Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.

 

Section 5.10                                Entire
Agreement.  This
Agreement, including the Schedules, Exhibits, Annexes, certificates and lists
referred to herein, any documents executed by the parties simultaneously
herewith or pursuant thereto constitute the entire understanding and agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all other prior agreements and understandings, written or oral, between the
parties with respect to such subject matter.

 

Section 5.11                                Severability.  If any provision of this Agreement, or the
application thereof to any Person or circumstance, is invalid or unenforceable
in any jurisdiction, (a) a substitute and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid and
enforceable in such jurisdiction, the intent and purpose of their invalid or
unenforceable provision; and (b) the remainder of this Agreement and the
application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability of such provision affect the validity or enforceability of
such provision, or the application thereof, in any other jurisdiction.

 

17

 

Section 5.12                                Amendments and
Waivers.  This Agreement may not be
amended, altered or modified except by written instrument executed by the
Investor and the Company and approved by the unanimous written consent of the
Independent Directors not designated by the Investor.  The failure by any party hereto to enforce at
any time any of the provisions of this Agreement shall in no way be construed
to be a waiver of any such provision nor in any way to affect the validity of
this Agreement or any part hereof or the right of such party thereafter to
enforce each and every such provision. 
No waiver of any breach of or non-compliance with this Agreement shall
be held to be a waiver of any other or subsequent breach or non-compliance. Any
waiver made by any party hereto in connection with this Agreement shall not be
valid unless agreed to in writing by such party.

 

Section 5.13                                Delays or
Omissions.  No delay or
omission to exercise any right, power, or remedy accruing to any party under
this Agreement shall impair any such right, power, or remedy of such party, nor
shall it be construed to be a waiver of or acquiescence to any breach or
default, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any
other breach or default. All remedies, either under this Agreement or by law or
otherwise afforded to any holder, shall be cumulative and not alternative.

 

18

 

IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.

 

	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  DEERFIELD
  CAPITAL CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  INVESTOR:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BOUNTY
  INVESTMENTS, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

EXHIBIT A

 

	
  Name

  	
   

  	
  Class

  
	
  [         ]

  	
   

  	
  Class I

  
	
  [         ]

  	
   

  	
  Class II

  
	
  [         ]

  	
   

  	
  Class III

  

 

 

EXHIBIT B

 

Majority Voting Bylaw Provisions.

(to replace existing provisions)

 

Section 7.                                            Voting.

 

(a)(i) 
Each director to be elected by stockholders after the effective date of this
Bylaw shall be elected by the vote of the majority of the votes cast at any
meeting for the election of directors at which a quorum is present. For
purposes of this Bylaw, a majority of votes cast (a “Majority Vote”)
shall mean that the number of votes cast “for” a director’s election exceeds
the number of votes “withheld” from or cast “against” that director’s election.
Votes cast shall exclude “abstentions” and any “broker non-votes” with respect
to that director’s election. Notwithstanding the foregoing, in the event of a
contested election of directors, directors shall be elected by the vote of a
plurality of all the votes cast at a meeting for the election of directors at
which a quorum is present. For purposes of this Bylaw, a contested election
shall mean any election of directors in which the number of candidates for
election as directors exceeds the number of directors to be elected, with the
determination that an election is “contested” to be made by the Secretary
within 30 days following the close of the applicable notice of nomination
period set forth in Section 11, based on whether one or more notices of
nomination meeting the requirements of Section 11 were timely filed in
accordance with Section 11 (provided that the determination that an
election is a “contested election” shall be determinative only as to the
timeliness of a notice of nomination and not otherwise as to its validity). If,
prior to the day preceding the day the Company first mails its notice of
meeting in connection with such election of directors, one or more notices of
nomination are withdrawn such that the number of candidates for election as
director no longer exceeds the number of directors to be elected, the election
shall not be considered a contested election.

 

(ii) 
In order for any incumbent director to become a nominee of the Board of
Directors for further service on the Board of Directors, such person shall
submit an irrevocable resignation, contingent on that person’s not receiving a
Majority Vote in an election that is not a contested election. In the event an
incumbent director fails to receive a Majority Vote in an election that is not
a contested election, the resignation of such incumbent director shall be
automatically effective without any further action by the Board or any
committee thereof and the Board of Directors may, in its sole discretion, fill
any resulting vacancy pursuant to the provisions of Section 12.

 

Section 3.                                            Resignations.

 

Any
Director may resign at any time by sending a written notice of such resignation
to the principal executive office of the Corporation addressed to the Chairman of
the Board or the President.  Such
resignation shall take effect at the time specified therein or upon the
happening of an event or events specified therein, or if the time is not
specified and the resignation is not made contingent upon the happening of an
event or events, upon receipt thereof by the Chairman of the Board or the
President.

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