Document:

exv10w4

 

EXHIBIT 10.4

EXECUTION COPY

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER
OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.

StarVox Communications, Inc.

Senior Secured Debenture

			
	Issuance Date: June 1, 2007
	 	Principal: U.S. $2,000,000

     FOR VALUE RECEIVED, StarVox Communications, Inc., a California corporation (the ”Company”) and
a wholly owned subsidiary of U.S. Wireless Data, Inc., a Delaware corporation (“Parent”), hereby
promises to pay to the order Trinad Capital Master Fund Ltd. or its registered assigns (“Holder”)
the amount set out above as the Principal (as reduced pursuant to the terms hereof pursuant to
redemption or otherwise, the “Principal”) when due, upon the Maturity Date (as defined below),
acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay
interest (“Interest”) on any outstanding Principal at a rate equal to 10.00% per annum (the
“Interest Rate”), from the date set out above as the Issuance Date (the “Issuance Date”) until the
same becomes due and payable, whether upon an Interest Date (as defined below) or the Maturity
Date, acceleration, redemption or otherwise (in each case in accordance with the terms hereof).
This Senior Debenture (including all Senior Debentures issued in exchange, transfer or replacement
hereof, this “Debenture”) is one of an issue of Senior Debentures issued pursuant to the Securities
Purchase Agreement (as defined below) on the Issuance Date (collectively, the “Debentures” and such
other Senior Debentures, the “Other Debentures”). Certain capitalized terms used herein are
defined in Section 21.

          (1) PAYMENTS OF PRINCIPAL. On the Maturity Date, the Company shall pay to the Holder
an amount equal to the Principal, as well as all accrued but unpaid Interest. The “Maturity Date”
shall be August 1, 2007, or (a) such earlier date as may be accelerated by the Required Holders
upon an Event of Default in accordance with the terms hereof, (b) such later date as may be
extended at the option of the Required Holders, or (c) such earlier date which is the third day
following a financing or refinancing (or related series thereof) of either debt or equity by the
Company and/or the Parent of at least Thirty Million Dollars ($30,000,000) in the aggregate.

          (2) INTEREST; INTEREST RATE. Interest on this Debenture shall commence accruing on
the Issuance Date and shall be computed on the basis of a 365-day year and actual days elapsed and
shall be payable in arrears for each Payment Quarter on the first day of the succeeding Payment
Quarter during the period beginning on the Issuance Date and ending on, and including, the Maturity
Date (each, an “Interest Date”). Interest shall be payable on

 

 

each Interest Date, to the record holder of this Debenture on the applicable Interest Date, in
cash. Interest accrues at the Interest Rate on all outstanding unpaid Principal owed under this
Debenture and all accrued Interest is payable on each Interest Date. Upon the occurrence and
during the continuance of an Event of Default, the Interest Rate shall be increased to fifteen
percent (15.00%) (the “Default Rate”). In the event that such Event of Default is subsequently
cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the
date of such cure; provided, that the Interest as calculated and unpaid at such increased
rate during the continuance of such Event of Default shall continue to apply to the extent relating
to the days after the occurrence of such Event of Default through and including the date of cure of
such Event of Default.

          (3) RIGHTS UPON EVENT OF DEFAULT.

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

                    (i) the failure of the applicable Registration Statement required to be filed pursuant to the
Registration Rights Agreement to be declared effective by the SEC, or, while the applicable
Registration Statement is required to be maintained effective pursuant to the terms of the
Registration Rights Agreement, the effectiveness of the applicable Registration Statement lapses
for any reason or is unavailable to any holder of the Debenture for sale of all of such holder’s
Registrable Securities (as defined in the Registration Rights Agreement), in each case as required
by and in accordance with the terms of the Registration Rights Agreement;

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

                    (iii) any default in excess of $50,000 in the aggregate occurs and is continuing under, or any
redemption of or acceleration prior to maturity occurs in respect of any Indebtedness of the
Company, Parent or any of their Subsidiaries (as defined in Section 3(a) of the Securities Purchase
Agreement) in excess of $50,000 in the aggregate, other than in respect of Capital Lease
Obligations not in excess of $75,000 in the aggregate and other than with respect to any redemption
of the Other Debentures in accordance with their terms; provided, that in the event that
any such acceleration of Indebtedness is rescinded by the holders thereof prior to acceleration of
this Debenture or the Other Debentures, no Event of Default shall exist as a result of such
rescinded acceleration;

                    (iv) the Company, Parent or any of their Subsidiaries, pursuant to or within the meaning of
Title 11, U.S. Code, or any similar federal, foreign or state law for the relief of debtors
(collectively, “Bankruptcy Law”), (A) commences a voluntary case, (B)

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consents to the entry of an order for relief against it in an involuntary case, (C) consents
to the appointment of a receiver, trustee, assignee, liquidator or similar official (a
“Custodian”), (D) makes a general assignment for the benefit of its creditors or (E) admits in
writing that it is generally unable to pay its debts as they become due except as disclosed in the
SEC Documents at least three (3) Business Days prior to the Issuance Date;

                    (v) creditors of the Company, Parent or any of their Subsidiaries file an action for relief
under any Bankruptcy Law against such entity in an involuntary case and such action is not
dismissed within thirty (30) days of such filing or a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that (A) is for relief against the Company, Parent or any
of their Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company, Parent or
any of their Subsidiaries or (C) orders the liquidation of the Company, Parent or any of their
Subsidiaries;

                    (vi) a final judgment or judgments for the payment of money aggregating in excess of $250,000
are rendered against the Company, Parent or any of their Subsidiaries, which judgments are not,
within sixty (60) days after the entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within sixty (60) days after the expiration of such stay; provided,
however, that any judgment which is covered by insurance or an indemnity from a credit
worthy party shall not be included in calculating the $250,000 amount set forth above so long as
the Company provides the Holder a written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment
is covered by insurance or an indemnity and the Company will receive the proceeds of such insurance
or indemnity within sixty (60) days of the issuance of such judgment;

                    (vii) the Company or Parent, as applicable, (A) makes any representation or warranty in any
Transaction Document which is incorrect or misleading when made, or (B) breaches any covenant
(other than a covenant contained in Section 8 of this Debenture or in the Post-Closing Letter
Agreement) of any Transaction Document, except, in the case of a breach of a covenant of any
Transaction Document which is curable, only if such breach continues for a period of at least ten
(10) consecutive Business Days;

                    (viii) any breach or failure in any respect to comply with Section 8 of this Debenture or with
the Post-Closing Letter Agreement;

                    (ix) the Parent fails to obtain authorization for the transactions contemplated in the
Transaction Documents from the Pennsylvania Public Utilities Commission within twenty (20) days
after the Issuance Date;

                    (x) the Company fails to cause its, and its Subsidiaries’, outside Pennsylvania counsel, to
deliver to Holder an opinion dated within ten (10) days after the Issuance Date in form and
substance satisfactory to Holder in its sole discretion;

                    (xi) any Event of Default (as defined in the Other Debentures) occurs and is continuing with
respect to any Other Debentures;

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                    (xii) any Event of Default (as defined in the Security Agreement) occurs and is continuing
under the Security Documents, the repudiation by the Company, Parent or any of their Subsidiaries
of any of its obligations under the Security Agreement or the unenforceability of the Security
Agreement against the Company, Parent or any of their Subsidiaries for any reason; and

                    (xiii) any of the Governmental Approvals shall have been (a) revoked, rescinded, suspended,
modified in an adverse manner or not renewed in the ordinary course for a full term and such
revocation, rescission, suspension, adverse modification or failure to renew has a material adverse
effect on the business or financial condition of the Company, Parent or a Subsidiary or (b) subject
to any decision by a Governmental Authority that designates a hearing with respect to any
applications for renewal of any of the Governmental Approvals or that could result in the
Governmental Authority taking any of the actions described in clause (a) above, and such decision
or such revocation, rescission, suspension, modification or non-renewal (1) has, or could
reasonably be expected to have, a material adverse change, or (2) adversely affects the legal
qualifications of Parent or any of its Subsidiaries to hold any of the Governmental Approvals in
any applicable jurisdiction and such revocation, rescission, suspension, modification or
non-renewal could reasonably be expected to affect the status of or legal qualifications of Parent
or any of its Subsidiaries to hold any of the Governmental Approvals in any other jurisdiction.

               (b) Redemption Right. Promptly after the occurrence of an Event of Default with
respect to this Debenture or any other Debenture, the Company shall deliver written notice thereof
via facsimile and overnight courier (an “Event of Default Notice”) to the Holder. At any time
after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming
aware of an Event of Default, the Required Holder may require the Company to redeem all or any
portion of the Debenture (as “Event of Default Redemption”) by delivering written notice thereof
(the “Event of Default Redemption Notice”) to the Company, which Event of Default Redemption Notice
shall indicate the portion of the Debenture the Required Holders are electing to redeem; provided
that upon the occurrence of any default described in Section 3(a)(v) and 3(a)(vi), the Debenture
shall automatically, and without any action on behalf of the Holders, be redeemed by the Company.
Each portion of the Debenture subject to redemption by the Company pursuant to this Section 3(b)
shall be redeemed by the Company at a price equal to 110% of the outstanding Principal amount and
accrued and unpaid Interest and accrued and unpaid Late Charges and Interest with respect to such
portion of the Debenture subject to redemption (the “Event of Default Redemption Price”).
Redemptions required by this Section 3(b) shall be made in accordance with the provisions of
Section 7.

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

               (a) Assumption. Neither Parent nor the Company shall enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations
of the Company under this Debenture and the other Transaction Documents in accordance with the
provisions of this Section 4(a) pursuant to written agreements in form and substance reasonably
satisfactory to the Required Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to the Holder of this

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Debenture in exchange for such Debenture a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to the Debenture, including, without
limitation, having a principal amount and interest rate equal to the principal amounts and the
interest rates of the Debenture held by such holder and having similar ranking to the Debenture,
and satisfactory to the Required Holders and (ii) unless the Fundamental Transaction would result
in a Change of Control and the Company complies with the provisions of Section 4(b), the Successor
Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted
on or listed for trading on an Eligible Market (a “Public Successor Entity”). Upon the occurrence
of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of this Debenture
referring to the “Company” shall refer instead to the Successor Entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the Company under this
Debenture with the same effect as if such Successor Entity had been named as the Company herein.
The provisions of this Section shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations on the redemption of this
Debenture.

               (b) Redemption Right. No sooner than fifteen (15) days nor later than ten (10) days
prior to the consummation of a Change of Control, but not prior to the public announcement of such
Change of Control, the Company shall deliver written notice thereof via facsimile and overnight
courier to the Holder (a “Change of Control Notice”). At any time during the period beginning
after the Holder’s receipt of a Change of Control Notice and ending on the date of the consummation
of such Change of Control (or, in the event a Change of Control Notice is not delivered at least
ten (10) days prior to a Change of Control, at any time on or after the date which is ten (10) days
prior to a Change of Control and ending ten (10) days after the consummation of such Change of
Control), the Required Holders may require the Company to redeem all or any portion of the
Debenture by delivering written notice thereof (“Change of Control Redemption Notice”) to the
Company, which Change of Control Redemption Notice shall indicate the portion of the Debenture each
Holder is electing to redeem. The portion of this Debenture subject to redemption pursuant to this
Section 4 shall be redeemed by the Company at a price equal to the sum of the amount being redeemed
together with accrued and unpaid Interest with respect to such amount and accrued and unpaid Late
Charges with respect to such amount and Interest (the “Change of Control Redemption Price”).
Redemptions required by this Section 4 shall be made in accordance with the provisions of Section 7
and shall have priority to payments to stockholders in connection with a Change of Control.

          (5) COMPANY REDEMPTION. Prior to the Maturity Date, the Company may elect to pay to
the Holder of this Debenture the Company Redemption Amount, subject to and in accordance with the
terms of this Section 5, by redeeming the Principal, in whole or in part, in accordance with this
Section 5 (a “Company Redemption”). On or prior to the date which is the sixth (6th) Trading Day
prior to the Company Redemption (each, a “Company Redemption Notice Due Date”), the Company shall
deliver written notice (each, a “Company Redemption Notice”), to the Holder which Company
Redemption Notice shall state the amount of Principal which the Company elects to redeem pursuant
to a Company Redemption (the “Company Redemption Amount”), together with accrued and unpaid
Interest with respect to such Company Redemption Amount and accrued and unpaid Late Charges with
respect to such Company Redemption Amount and Interest. Each Company Redemption Notice shall be

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irrevocable. The Company shall redeem the applicable Company Redemption Amount of this
Debenture pursuant to this Section 5 together with the corresponding Company Redemption Amounts of
the Other Debentures pursuant to the corresponding provisions of the Other Debentures. If the
Company elects a Company Redemption, then the Company Redemption Amount which is to be paid to the
Holder on the applicable Company Redemption Date shall be redeemed by the Company on such Company
Redemption Date, and the Company shall pay to the Holder on such Company Redemption Date, by wire
transfer of immediately available funds, an amount in cash equal to the Company Redemption Amount.

          (6) NONCIRCUMVENTION. The Company and Parent hereby covenant and agree that neither
the Company nor Parent will, by amendment of its Articles or Certificate (as applicable) of
Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this Debenture, and
will at all times in good faith carry out all of the provisions of this Debenture and take all
action as may be required to protect the rights of the Holder of this Debenture.

          (7) HOLDER’S REDEMPTIONS.

               (a) Mechanics. The Company shall deliver the applicable Event of Default Redemption
Price to the Holder within five Business Days after the Company’s receipt of the Required Holders’
Event of Default Redemption Notice. If the Required Holders have submitted a Change of Control
Redemption Notice in accordance with Section 4(b), the Company shall deliver the applicable Change
of Control Redemption Price to the Holder concurrently with the consummation of such Change of
Control if such notice is received prior to the consummation of such Change of Control
(provided, that if the Change of Control is described in Section 1(c)), then the payment
shall be made in accordance with Section 1(c) and within five (5) Business Days after the Company’s
receipt of such notice otherwise. In the event of a redemption of less than all of the Principal
of this Debenture, the Company shall promptly cause to be issued and delivered to the Holder a new
Debenture (in accordance with Section 12(d)) representing the outstanding Principal which has not
been redeemed.

               (b) Redemption by Other Holders. Any Event of Default Redemption Notice or Change of
Control Redemption Notice for redemption or repayment as a result of an event or occurrence
substantially similar to the events or occurrences described in Section 3(b), Section 4(b) or
Section 8 is to be delivered to the Company by the Required Holders. If the Company receives any
Event of Default Redemption Notice or Change of Control Redemption Notice and the Company is unable
to redeem all principal, interest and other amounts designated in such Redemption Notice, then the
Company shall redeem a pro rata amount from each holder of the Debentures (including the Holder)
based on the principal amount of the Debentures submitted for redemption pursuant to such Event of
Default Redemption Notice or Change of Control Redemption Notice received by the Company from the
Required Holders.

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          (8) COVENANTS.

               (a) Rank. All payments due under this Debenture (a) shall rank pari passu with all
Other Debentures and (b) shall be senior in right of payment to all other Indebtedness of the
Company and its Subsidiaries.

               (b) Incurrence of Indebtedness. So long as this Debenture is outstanding, Parent and
the Company shall not, and neither Parent nor the Company shall permit any of its Subsidiaries to,
directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness, other than
(i) the Indebtedness evidenced by this Debenture and the Other Debentures and (ii) Permitted
Indebtedness.

               (c) Existence of Liens. So long as this Debenture is outstanding, Parent and the
Company shall not, and neither Parent nor the Company shall permit any of its Subsidiaries to,
directly or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including accounts and contract
rights) owned by Parent, the Company or any of either of its Subsidiaries (collectively, “Liens”)
other than Permitted Liens.

               (d) Restricted Payments. Parent shall not, the Company shall not, and neither Parent
nor the Company shall permit any of its Subsidiaries to, directly or indirectly,

                    (i) declare or pay any dividend or make any other payment or distribution on account of the
Parent’s Equity Interests (including, without limitation, any payment in connection with any merger
or consolidation involving the Parent) or to the direct or indirect holders of the Parent’s Equity
Interests in their capacity as such;

                    (ii) purchase, redeem or otherwise acquire or retire for value (including, without limitation,
in connection with any merger or consolidation involving the Parent) any Equity Interests of the
Parent or any direct or indirect parent of the Parent other than in connection with a Permitted
Distribution; or

                    (iii) make any payment on or with respect to, accelerate the maturity of, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness of the Company or the Parent,
except a payment of interest, principal or other amounts due at the stated maturity thereof and
except for payments of principal, interest and other amounts under the Other Debentures.

               (e) Asset Sales. Parent shall not, the Company shall not, and neither Parent nor the
Company shall permit any of its Subsidiaries to, directly or indirectly, consummate any Asset Sale
unless:

                    (A) Parent or the Company (or the applicable Subsidiary, as the case may be) receives
consideration at the time of the Asset Sale at least equal to the fair market value of the assets
or Equity Interests issued or sold or otherwise disposed of, and at least 85% of the consideration
received in the Asset Sale by the Company or such Subsidiary is in the form of cash; or

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                    (B) the asset transferred consists of worn-out or obsolete or unneeded Equipment; or

                    (C) the owner of the assets or rights after the transfer or series of related transfer is
Parent, the Company or a Subsidiary party to the Security Agreement; or

                    (D) the assets or rights transferred after the Issuance Date have a book value not exceeding
$200,000 in the aggregate.

               (f) Use of Proceeds. The Company and Parent will use the proceeds from the sale of
the Securities as set forth in Section 4(d) of the Securities Purchase Agreement.

               (g) Additional Collateral. With respect to any Property acquired after the Issuance
Date by the Company or any of its Subsidiaries (other than Property acquired with a lease or
purchase money financing constituting Permitted Indebtedness, to the extent the terms of such lease
or financing prohibit the granting of a security interest in such Property) as to which the Holder
does not have a perfected Lien, the Company shall promptly (i) execute and deliver to the Holder or
its agent such amendments to the Security Agreement or such other documents as such Holder deems
necessary or advisable to grant to the Holder a security interest in such Property and (ii) take
all actions necessary or advisable to grant to the Holder, for the benefit of the Secured Parties,
a perfected first priority security interest in such Property, including, without limitation, the
filing of Mortgages and UCC financing statements in such jurisdictions as may be required by the
Security Agreement or by law or as may be reasonably requested by such Holder.

          (9) CHANGE THE TERMS OF THIS DEBENTURE; WAIVER. The affirmative vote at a meeting
duly called for such purpose or the written consent without a meeting of the Required Holders shall
be required for any change or amendment to this Debenture or waiver of compliance by the Company or
Parent with any term of this Debenture or the Other Debentures.

          (10) TRANSFER. This Debenture may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, subject only to the provisions of Sections 2(f) and 2(g)
of the Securities Purchase Agreement.

          (11) REISSUANCE OF THIS DEBENTURE.

               (a) Transfer. If this Debenture is to be transferred, the Holder shall surrender this
Debenture to the Company, whereupon the Company will forthwith issue and deliver upon the order of
the Holder a new Debenture (in accordance with Section 12(d)), registered as the Holder may
request, representing the outstanding Principal being transferred by the Holder and, if less then
the entire outstanding Principal is being transferred, a new Debenture (in accordance with Section
12(d)) to the Holder representing the outstanding Principal not being transferred.

               (b) Lost, Stolen or Mutilated Debenture. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Debenture, and, in the case of mutilation, upon surrender and cancellation of

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this Debenture, the Company shall execute and deliver to the Holder a new Debenture (in
accordance with Section 12(d)) representing the outstanding Principal.

               (c) Debenture Exchangeable for Different Denominations. This Debenture is
exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a
new Debenture or Debentures (in accordance with Section 12(d) and in principal amounts of at least
$100,000) representing in the aggregate the outstanding Principal of this Debenture, and each such
new Debenture will represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.

               (d) Issuance of New Debentures. Whenever the Company is required to issue a new
Debenture pursuant to the terms of this Debenture, such new Debenture (i) shall be of like tenor
with this Debenture, (ii) shall represent, as indicated on the face of such new Debenture, the
Principal remaining outstanding (or in the case of a new Debenture being issued pursuant to Section
12(a) or Section 12(c), the Principal designated by the Holder which, when added to the principal
represented by the other new Debentures issued in connection with such issuance, does not exceed
the Principal remaining outstanding under this Debenture immediately prior to such issuance of new
Debentures), (iii) shall have an issuance date, as indicated on the face of such new Debenture,
which is the same as the Issuance Date of this Debenture, (iv) shall have the same rights and
conditions as this Debenture, and (v) shall represent accrued Interest and Late Charges on the
Principal and Interest of this Debenture, from the Issuance Date.

          (12) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.
The remedies provided in this Debenture shall be cumulative and in addition to all other remedies
available under this Debenture and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and nothing herein
shall limit the Holder’s right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Debenture. Amounts set forth or provided for herein with
respect to payments and the like (and the computation thereof) shall be the amounts to be received
by the Holder and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof).

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

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

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          (15) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder
in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.

          (16) DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Redemption Price, the Company shall submit the disputed determinations or arithmetic calculations
via facsimile within one (1) Business Day of receipt, or deemed receipt, of the Redemption Notice
or other event giving rise to such dispute, as the case may be, to the Holder. If the Holder and
the Company are unable to agree upon such determination or calculation within one (1) Business Day
of such disputed determination or arithmetic calculation being submitted to the Holder, then the
Company shall, within one (1) Business Day, submit via facsimile the disputed arithmetic
calculation of the Redemption Price to the Company’s independent, outside accountant. The Company,
at the Company’s expense, shall cause the accountant to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five (5) Business Days from the
time it receives the disputed determinations or calculations. Such accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

          (17) NOTICES; PAYMENTS.

               (a) Notices. Whenever notice is required to be given under this Debenture, unless
otherwise provided herein, such notice shall be given in accordance with Section 10(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of
all actions taken pursuant to this Debenture, including in reasonable detail a description of such
action and the reason therefor.

               (b) Payments. Whenever any payment of cash is to be made by the Company to any Person
pursuant to this Debenture, such payment shall be made in lawful money of the United States of
America by a check drawn on the account of the Company and sent via overnight courier service to
such Person at such address as previously provided to the Company in writing (which address, in the
case of each of the Purchasers, shall initially be as set forth on the Schedule of Buyers attached
to the Securities Purchase Agreement); provided, that the Holder may elect to receive a
payment of cash via wire transfer of immediately available funds by providing the Company with
prior written notice setting out such request and the Holder’s wire transfer instructions.
Whenever any amount expressed to be due by the terms of this Debenture is due on any day which is
not a Business Day, the same shall instead be due on the next succeeding day which is a Business
Day and, in the case of any Interest Date which is not the date on which this Debenture is paid in
full, the extension of the due date thereof shall not be taken into account for purposes of
determining the amount of Interest due on such date. Any amount of Principal or other amounts due
under the Transaction Documents, other than Interest, which is not paid when due shall result in a
late charge being incurred and payable by the Company in an amount equal to interest on such amount
at the rate of fifteen percent (15.00%) per annum from the date such amount was due until the same
is paid in full (“Late Charge”). Late Charges shall be added to Principal to the extent not paid
when they are incurred.

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

          (19) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby waives
demand, notice, protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement of this Debenture and the Securities Purchase
Agreement.

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

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

               (a) “Asset Sale” means (i) the sale, lease, conveyance or other disposition of any assets or
rights with a book value in excess of $50,000 other than in the ordinary course of business
consistent with past practice, and (ii) the sale of Equity Interests in any of the Company’s
Subsidiaries.

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

               (c) “Capital Lease Obligation” means, at the time any determination is to be made, the amount
of the liability in respect of a capital lease that would at that time be required to be
capitalized on a balance sheet prepared in accordance with GAAP.

               (d) “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.

               (e) “Change of Control” means any Fundamental Transaction other than (i) any reorganization,
recapitalization or reclassification of the shares of Capital Stock in which holders of the
Parent’s voting power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization, recapitalization or reclassification to hold
publicly traded securities and, directly or indirectly, the voting power of

11

 

the surviving entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or entities, or (ii)
pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or the Parent.

               (f) “Common Stock” shall mean the common stock of the Parent, par value $0.01 per share.

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

               (h) “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).

               (i) “Fundamental Transaction” means that the Parent shall, directly or indirectly, in one or
more related transactions, (i) consolidate or merge with or into (whether or not the Parent is the
surviving corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose
of all or substantially all of the properties or assets of the Company to another Person, or (iii)
allow another Person to make a purchase, tender or exchange offer that is accepted by the holders
of more than the 50% of the outstanding shares of Capital Stock (not including any shares of
Capital Stock held by the Person or Persons making or party to, or associated or affiliated with
the Persons making or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby
such other Person acquires more than the 50% of the outstanding shares of Capital Stock (not
including any shares of Capital Stock held by the other Person or other Persons making or party to,
or associated or affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or reclassify its Capital
Stock or (vi) own 100% of the Capital Stock of the Company.

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

               (k) “Governmental Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from
or to, or other act by or in respect of, any Governmental Authority with respect to the Company,
Parent or a Subsidiary.

               (l) “Governmental Authority” means any nation or government, any state or other political
subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative
functions of or pertaining to government, any securities exchange and any self-regulatory
organization having jurisdiction over the Company, Parent or a Subsidiary (including, without
limitation, the Federal Communications Commission and any

12

 

State public utility commission or other State agency or department with primary regulatory
jurisdiction over common carrier telecommunications and pay telephone services).

               (m) “Hedging Obligations” means, with respect to any specified Person, the obligations of such
Person under:

                    (i) interest rate swap agreements (whether from fixed to floating or from floating to fixed),
interest rate cap agreements and interest rate collar agreements;

                    (ii) other agreements or arrangements designed to manage interest rates or interest rate risk;
and

                    (iii) other agreements or arrangements designed to protect such Person against fluctuations in
currency exchange rates or commodity prices.

               (n) “Indebtedness” means any indebtedness (excluding accrued expenses and trade payables),
whether or not contingent:

                    (i) in respect of borrowed money;

                    (ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof);

                    (iii) in respect of banker’s acceptances;

                    (iv) representing Capital Lease Obligations;

                    (v) 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;
or

                    (vi) representing any Hedging Obligations,

               (o) if and to the extent any of the preceding items (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of the Company prepared in accordance
with GAAP. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a
Lien on any asset of the Company or its Subsidiaries (whether or not such Indebtedness is assumed
by the Company or such Subsidiary) and, to the extent not otherwise included, the guarantee by the
Company or any of its Subsidiaries of any Indebtedness of any other Person.

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

13

 

               (q) “Payment Quarter” means each of: the period beginning on and including June 1, 2007, and
ending on and including June 30, 2007; the period beginning on and including July 1, 2007, and
ending on and including the Maturity Date.

               (r) “Permitted Distribution” means the conversion or exchange of any convertible securities
(including preferred stock) issued prior to the Issuance Date into or for other securities pursuant
to the terms of such convertible securities or preferred stock and cash payments in lieu of
fractional shares in connection with such conversion or exchange.

               (s) “Permitted Indebtedness” means (a) purchase money debt, Capital Lease Obligations or other
Indebtedness incurred in connection with the acquisition of an interest in property, equipment,
entities or other assets, provided that such purchase money debt, Capital Lease Obligations or
other Indebtedness is recourse only to the interests in property, equipment, entities or other
assets so acquired, (b) Indebtedness of up to $2,000,000 for working capital purposes, provided the
interest rate on such Indebtedness is equal to or less than 10.0% per annum, (c) Indebtedness
described in Schedule 3(s) of the Securities Purchase Agreement, (d) indebtedness incurred
by the Company or Parent, which is subordinated to all indebtedness to Holder under this Debenture
pursuant to a subordination, intercreditor, or other similar agreement in form and substance
satisfactory to Holder entered into between Holder and the other creditor, (e) unsecured
Indebtedness to trade creditors and with respect to surety bonds and similar obligations incurred
in the ordinary course of business, (f) Indebtedness incurred as a result of endorsing negotiable
instruments received in the ordinary course of business, (g) guarantees with respect to Permitted
Indebtedness, (h) extensions, refinancings, modifications, amendments and restatements of
indebtedness described in (c) of this definition, provided that the principal amount thereof is not
increased and the terms thereof are not modified to impose more burdensome terms upon the Company
or Parent, as the case may be, and (i) Indebtedness of the Company to any Guarantor, or of any
Guarantor to any other Guarantor, which is memorialized in writing in the form of a note approved
by the Required Holders, and in each case pledged to the Holder and holders of the other Senior
Debentures issued pursuant to the Securities Purchase Agreement.

               (t) “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP; (ii) any statutory Lien arising in the ordinary course of
business by operation of law with respect to a liability that is not yet due or delinquent; (iii)
any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other
similar liens, arising in the ordinary course of business with respect to a liability that is not
yet due or delinquent or that are being contested in good faith by appropriate proceedings; (iv)
Liens securing the Company’s obligations under the Debenture; (v) Liens securing purchase money
debt, Capital Lease Obligations or other Indebtedness incurred pursuant to clause (a) of the
definition of Permitted Indebtedness, provided, that such Liens do not extend and otherwise
are not recourse to any assets of the Company or its Subsidiaries other than the interests in
property, equipment, entities or other assets acquired with such purchase money debt, Capital Lease
Obligations or other Indebtedness; (vi) leases or subleases of property granted in the ordinary
course of business, and leases, subleases, non-exclusive licenses or sublicenses of property
granted in the ordinary course of business of the Company, Parent or any Subsidiary; (vii)
non-exclusive license of intellectual property granted to third parties in the

14

 

ordinary course of business of the Company, Parent or any Subsidiary; (viii) Liens securing
judgments for the payment of money not constituting an Event of Default hereunder; and (ix) Liens
in favor of other financial institutions arising in connection with Borrowers’ deposit and/or
securities accounts held at such institutions, provided that Holder has a priority perfected
security interest in the amounts held in such deposit and/or securities accounts.

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

               (v) “Post-Closing Letter Agreement” shall have the meaning set forth in the Securities
Purchase Agreement.

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

               (x) “Property” means any right or interest in or to property of any kind whatsoever, whether
real, personal or mixed and whether tangible or intangible, including, without limitation, capital
stock.

               (y) “Registrable Securities” shall have the meaning set forth in the Registration Rights
Agreement.

               (z) “Registration Rights Agreement” means that certain registration rights agreement dated as
of February 2, 2007, by and among the Parent, the Existing Investors (as defined therein), initial
holders of the Debentures, and any subsequent registration rights agreement between the Parent, the
holder of this Debenture and the holders of the Other Debentures, relating to, among other things,
the registration of the resale of the shares of Common Stock underlying the warrants issued
pursuant to the Securities Purchase Agreement.

               (aa) “Registration Statement” shall have the meaning set forth in the Registration Rights
Agreement.

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

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

               (dd) “SEC Documents” shall have the meaning set forth in the Securities Purchase Agreement.

               (ee) “Securities Purchase Agreement” means that certain securities purchase agreement dated as
of the Issuance Date by and among the Parent, the Company and the initial holders of the Debentures
pursuant to which the Company issued the Debenture.

15

 

               (ff) “Security Agreement” means the Pledge and Security Agreement dated as of the Issuance
Date among the Parent, its Subsidiaries, the holder of this Debenture and the holders of the Other
Debentures, as may be amended or modified from time to time.

               (gg) “Security Documents” means the Security Agreement, if any, and all other instruments,
documents and agreements delivered by the Company or any of its Subsidiaries in order to grant to
any holder of a Debenture or Other Debenture, a Lien on any real, personal or mixed property of the
Company or one of its Subsidiaries as security for the obligations under the Debentures and Other
Debentures.

               (hh) “Successor Entity” means the Person, which may be the Company, formed by, resulting from
or surviving any Fundamental Transaction or the Person with which such Fundamental Transaction
shall have been made, provided, that if such Person is not a publicly traded entity whose
common stock or equivalent equity security is quoted or listed for trading on an Eligible Market,
Successor Entity shall mean such Person’s Parent Entity.

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

          (22) DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance
with the terms of this Debenture, unless the Company has in good faith determined that the matters
relating to such notice do not constitute material, nonpublic information relating to the Company
or its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or
delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains material, nonpublic
information relating to the Company or its Subsidiaries, the Company so shall indicate to such
Holder contemporaneously with delivery of such notice, and in the absence of any such indication,
the Holder shall be allowed to presume that all matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its Subsidiaries.

[Signature Page Follows]

16

 

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

	 	 	 	 	 	 	 
	 	 	StarVox Communications, Inc., a California	 	 
	 	 	corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Jay Wolf
 

Jay Wolf
	 	 
	 

	 	Title:
	 	Acting Chief Executive Officer	 	 

17

 

	 	 	By signing below, Parent agrees to be bound by and subject to Section 6 and Section 8 of this
Debenture.

	 	 	 	 	 	 	 
	 	 	U.S. Wireless Data, Inc., a	 	 
	 	 	Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Jay Wolf
 

Jay Wolf
	 	 
	 

	 	Title:
	 	Acting Chief Executive Officer	 	 

18exv10w5

 

EXHIBIT 10.5

EXECUTION COPY

WARRANT

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

U.S. WIRELESS DATA, INC.

Warrant To Purchase Common Stock

Warrant No.: A-1

Number of Shares of Common Stock: 1,400,000

Date of Issuance: June 1, 2007 (“Issuance Date”)

     U.S. Wireless Data, Inc., a Delaware corporation (the “Company”), hereby certifies that, for
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, DKR
Soundshore Oasis Holding Fund Ltd. the registered holder hereof or its permitted assigns (the
“Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon surrender of this Warrant to Purchase Common
Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement
hereof, the “Warrant”), at any time or times on or after the date hereof but not after 11:59 p.m.,
New York time, on the Expiration Date (as defined below), One Million Four Hundred Thousand
(1,400,000) fully paid nonassessable shares of Common Stock (as defined below) (the “Warrant
Shares”). Except as otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 16. This Warrant is issued pursuant to that certain securities
purchase agreement, dated as of June 1, 2007 (the “Subscription Date”), between the Company, its
wholly owned subsidiary, StarVox Communications, Inc. (“StarVox”), and the investors (the “Buyers”)
referred to therein (the “Securities Purchase Agreement”).

     1. EXERCISE OF WARRANT.

          (a) Mechanics of Exercise. Subject to the terms and conditions hereof (including,
without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by
the Holder on any day on or after the date hereof, in whole or in part, by (i) delivery of a
written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the
Holder’s election to exercise this Warrant and (ii) (A) payment to the Company of an amount

 

 

equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which
this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or wire transfer of
immediately available funds, or (B) by notifying the Company that this Warrant is being exercised
pursuant to a Cashless Exercise (as defined in Section 1(d)). This Warrant shall be automatically
exercised upon the repayment in full of the outstanding principal and accrued but unpaid interest
under the Debentures (as defined in the Securities Purchase Agreement) and that Aggregate Exercise
Price shall be deducted from the repayment amount of the Debentures (a “Debenture Repayment
Withholding Exercise”). The Holder shall not be required to deliver the original Warrant in order
to effect an exercise hereunder. Execution and delivery of the Exercise Notice with respect to
fewer than all of the Warrant Shares shall have the same effect as cancellation of the original
Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of
Warrant Shares. On or before the second Business Day following the date on which the Company has
received each of the Exercise Notice and the Aggregate Exercise Price (or notice of a Cashless
Exercise or a Debenture Repayment Withholding Exercise) (the “Exercise Delivery Documents”), the
Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise
Delivery Documents to the Holder and the Company. On or before the third Business Day following
the date on which the Company has received all of the Exercise Delivery Documents (the “Share
Delivery Date”), the Company shall (X) provided that the Company’s transfer agent is participating
in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the
request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder
is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC
through its Deposit Withdrawal Agent Commission system, or (Y) if the Company’s transfer agent is
not participating in the DTC Fast Automated Securities Transfer Program, transfer and dispatch by
overnight courier to the address as specified in the Exercise Notice, certificates for the number
of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon proper
and valid delivery of the Exercise Notice and Aggregate Exercise Price by the record holder of this
Warrant as referred to in clause (ii)(A) above or notification to the Company of a Cashless
Exercise referred to in Section 1(d) or a Debenture Repayment Withholding Exercise referred to in
clause (ii)(C) above, the Holder shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has been exercised,
irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this
Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number
of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and
in no event later than five Business Days after any exercise and at its own expense, issue a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional shares of Common
Stock are to be transferred upon the exercise of this Warrant, but rather the number of shares of
Common Stock to be transferred shall be rounded up to the nearest whole number. The Company shall
pay any and all transfer
 taxes which may be payable with respect to the issuance and delivery of
Warrant Shares upon exercise of this Warrant.

          (b) Exercise Price. For purposes of this Warrant, “Exercise Price” means $0.01
subject to adjustment as provided herein.

- 2 -

 

          (c) Company’s Failure Timely to Deliver Securities. In addition to the foregoing, if
within three (3) Trading Days after the Company’s receipt of the facsimile copy of an exercise
notice the Company shall fail to transfer the Warrant Shares to the Holder, and if on or after such
third Trading Day the Holder is required to purchase (in an open market transaction or otherwise on
reasonable terms) shares of Common Stock in order to deliver in satisfaction of a sale initiated by
the Holder in anticipation of receiving from the Company the shares of Common Stock issuable upon
such exercise (a “Buy-In”), then the Company shall upon receipt of reasonably satisfactory
documentation evidencing the Buy-In terms, within three (3) Business Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common
Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such shares of Common Stock) resulting from such exercise shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock and pay cash to the holder in an amount equal
to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) the Closing Sale Price on the date of exercise. Nothing herein shall limit the
holder’s right to pursue actual damages for the Company’s failure to maintain a sufficient number
of authorized shares of Common Stock or to otherwise issue shares of Common Stock upon exercise of
this Warrant in accordance with the terms hereof, and the holder shall have the right to pursue all
remedies available at law or in equity (including a decree of specific performance and/or
injunctive relief).

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

For purposes of the foregoing formula:

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

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

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

- 3 -

 

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

          (f) (i) Limitations on Exercises; Beneficial Ownership. The Company shall not effect
the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to
the extent that after giving effect to such exercise, such Person (together with such Person’s
affiliates) would beneficially own (directly or indirectly through Warrant Shares or otherwise) in
excess of 4.99% of the shares of Common Stock outstanding immediately after giving effect to such
exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned (directly or indirectly through Warrant Shares or otherwise) by such Person and
its affiliates shall include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made, but shall exclude
shares of Common Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Person and its affiliates (including, without limitation, any
convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein. Except as set forth in the preceding
sentence, for purposes of this subsection, beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this
Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely on
the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form
10-K, Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange
Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any
other notice by the Company or the Company’s transfer agent setting forth the number of shares of
Common Stock outstanding. In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the exercise of securities of the Company, including the
Warrants, by the Holder and its affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. By written notice to the Company, the Holder may increase or
decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such
notice; provided that (i) any such increase will not be effective until the sixty-first
(61st) day after such notice is delivered to the Company, and (ii) any such increase or
decrease will apply only to the Holder and not to any other holder of Warrants.

               (ii) Principal Market Regulation. The Company shall not be obligated to issue any
shares of Common Stock upon exercise of this Warrant if the issuance of such shares of Common Stock
would exceed the aggregate number of shares of Common Stock which the Company may issue upon
exercise of the Warrants without breaching the Company’s obligations under the rules or regulations
of the Principal Market (the “Exchange Cap”), except that such limitation shall not apply in the
event that the Company (A) obtains the approval of its stockholders as required by the applicable
rules of the Principal Market for issuances of Common Stock in excess of such amount or (B) obtains
a written opinion from outside counsel to the Company that such approval is not required, which
opinion shall be reasonably satisfactory to the Required Holders.

- 4 -

 

     Notwithstanding anything in this Warrant to the contrary, the Company shall be entitled to
treat the registered holder of this Warrant as such appears in its records, as the owner of this
Warrant for all purposes; provided that such records are kept current using a reasonably
satisfactory and customary method intended for such purpose.

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

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

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

     3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets) to Holders of shares
of Common Stock, by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities not addressed by Section 2, property or options not
addressed by Section 2 by way of a dividend, spin off, reclassification, corporate rearrangement,
scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the
issuance of this Warrant, then, in each such case:

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

- 5 -

 

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

     4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

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

          (b) Fundamental Transactions. If the Company enters into or is party to a Fundamental
Transaction, then the Holder shall have the right either (A) purchase and receive upon the basis
and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately
theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets
(including cash) as would have been issuable or payable with respect to or in exchange for a number
of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon
exercise of the Warrant, had such Fundamental Transaction not taken place or (B) require the
repurchase of this Warrant for a purchase price, payable in cash within five (5) business days
after such request, equal to the Black Scholes Value of the remaining unexercised portion of this
Warrant on the date of such request. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or surviving entity and
Holder to comply with the provisions of this Section 4(b). The provisions of this Section
shall apply similarly and equally to successive Fundamental Transactions and shall be applied
without regard to any limitations on the exercise of this Warrant.

- 6 -

 

     5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the company will
not, by amendment of its Articles of Incorporation, Bylaws or through any reorganization, transfer
of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities,
or any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, and will at all times in good faith carry out all the provisions of this
Warrant and take all action that is required hereunder to protect the rights of the holder.
Without limiting the generality of the foregoing, the Company (i) shall not increase the par value
of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price
then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that
the Company may validly and legally have the Common Stock fully paid and nonassessable shares of
Common Stock transferred to the Holder upon the exercise of this Warrant, and (iii) shall, so long
as any of the Default Warrants are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the Default Warrants, 120% (or such lesser amount limited by the SEC) of
the number of shares of Common Stock as shall from time to time be necessary to effect the exercise
of the Default Warrants then outstanding (without regard to any limitations on exercise).

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

     7. REISSUANCE OF WARRANTS.

          (a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon
the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder
may request, representing the right to purchase the number of Warrant Shares being transferred by
the Holder and, if less then the total number of Warrant Shares then underlying this Warrant is
being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the
right to purchase the number of Warrant Shares not being transferred.

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

- 7 -

 

the Holder to the Company in customary form and, in the case of mutilation, upon surrender and
cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in
accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying
this Warrant.

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

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

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

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

- 8 -

 

     10. SEVERABILITY. If any provision of this Warrant or the application thereof becomes
or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the
remainder of the terms of this Warrant will continue in full force and effect.

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

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

     13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the
Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within three Business Days of
receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If
the Holder and the Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall, within two Business
Days, submit via facsimile (a) the disputed determination of the Exercise Price to an independent,
reputable investment bank selected by the Company and approved by the Holder (which approval shall
not be unreasonably withheld) or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company’s independent, outside accountant. The Company shall cause, at the expense of the
losing party, the investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the results no later than
ten Business Days from the time it receives the disputed determinations or calculations. Such
investment bank’s or accountant’s determination or calculation, as the case may be, shall be
binding upon all parties absent demonstrable error.

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

- 9 -

 

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

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

          (a) “Black-Scholes Value” means the value of this Warrant based on the Black-Scholes Option
Pricing Model obtained from the “OV” function on Bloomberg determined as of the day immediately
following the public announcement of the applicable Fundamental Transaction and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining
term of this Warrant as of such date of request and (ii) an expected volatility equal to the
greater of 60% and the 100-day volatility obtained from the HVT function on Bloomberg.

          (b) “Bloomberg” means Bloomberg Financial Markets.

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

          (d) “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the
last closing bid price and last closing trade price, respectively, for such security on the
Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing trade price, as
the case may be, then the last bid price or last trade price, respectively, of such security prior
to 5:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last closing bid price or
last trade price, respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any
market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price cannot be
calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price
or the Closing Sale Price, as the case may be, of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such dispute shall be
resolved pursuant to Section 12. All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction during the applicable
calculation period.

          (e) “Common Stock” means (i) the Company’s shares of Common Stock, $0.01 par value per share,
and (ii) any share capital into which such Common Stock shall have been changed or any share
capital resulting from a reclassification of such Common Stock.

- 10 -

 

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

          (g) “Expiration Date” means the date five (5) years after the Issuance Date or, if such date
falls on a day other than a Business Day or on which trading does not take place on the Principal
Market (a “Holiday”), the next date that is not a Holiday.

          (h) “Fundamental Transaction” means that (i) the Company shall, directly or indirectly, in one
or more related transactions, (A) consolidate or merge with or into (whether or not the Company is
the surviving corporation) another Person, or (B) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company to another Person,
or (C) allow another Person to make a purchase, tender or exchange offer that is accepted by such
number of holders of outstanding shares of Common Stock resulting in such Person (together with any
affiliates of such Person) holding more than the 50% of the outstanding Common Stock of the Company
following such purchase, tender or exchange offer, or (D) consummate a stock purchase agreement or
other business combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person resulting in such other Person (together
with any affiliates of such person) holding more than the 50% of the outstanding Common Stock of
the Company following such stock purchase agreement or other business combination, or (E)
reorganize, recapitalize or reclassify its Common Stock or (ii) any “person” or “group” (as these
terms are used for purposes of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended), directly or indirectly, of 50% of the issued and outstanding
Common Stock or the aggregate ordinary voting power represented by issued and outstanding Common
Stock other than current stockholders of the Company.

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

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

          (k) “Principal Market” means the principal national securities exchange or the NASD OTC
Bulletin Board upon which the Company’s Common Stock is then listed or traded.

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

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

[Signature Page Follows]

- 11 -

 

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

	 	 	 	 	 
	 	U.S. WIRELESS DATA, INC.

 	 
	 	By:  	/s/ Thomas Rowley
 	 
	 	Name: 	Thomas Rowley 	 
	 	Title: 	Chief Executive Officer 	 
	 

 

 

EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

U.S. WIRELESS DATA, INC.

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

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

	 	 	 	 	 
	 

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

	 	 	 	 
	 
	 	 	 	 
	 

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

	 	 	 	 

     2. Notwithstanding anything to the contrary contained herein, this Exercise Notice shall
constitute a representation by the Holder of the Warrant submitting this Exercise Notice that,
after giving effect to the exercise provided for in this Exercise Notice, such Holder (together
with its affiliates) will not have beneficial ownership (together with the beneficial ownership of
such Person’s affiliates) of a number of shares of Common Stock which exceeds the maximum
percentage of the total outstanding shares of Common Stock as determined pursuant to the provisions
of Section 1(f)(i) of the Warrant.

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

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

Date:                                                              ,           
          

	 	 	 	 	 
	 
	 	 	 
	Name of Registered Holder	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

     Name:
	 	 
	 

	 	     Title:

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