Document:

EX-10.1

 

Exhibit 10.1

SEPARATION AGREEMENT AND GENERAL RELEASE 

     This SEPARATION AGREEMENT AND GENERAL RELEASE (this “Agreement”), dated as of April
11, 2006 (the “Effective Date”), is by and among AMH Holdings II, Inc., a Delaware
corporation (“AMH II”), AMH Holdings, Inc. (“AMH”), a Delaware corporation and
wholly owned subsidiary of AMH II, Associated Materials Holdings, Inc. (“AMHI”), a Delaware
corporation and wholly owned subsidiary of AMH, Associated Materials Incorporated, a Delaware
corporation and wholly owned subsidiary of AMH I (“Employer” and together with AMH II, AMHI
and AMH, “Associated”), and Michael Caporale, Jr. (“Executive”).

     WHEREAS, Employer and Executive are parties to that certain Amended and Restated Employment
Agreement, dated as of July 27, 2004 (the “Employment Agreement”);

     WHEREAS, Executive serves as a member of the Boards of Directors of each of AMH II, AMHI, AMH
and AMI (each, a Board of Directors, and collectively, the “Boards of Directors”);

     WHEREAS, Executive owns beneficially and of record 71,688 shares (the “Class B
Shares”) of Class B Series II (Non-Voting) Common Stock of AMH II (the “Class B Common
Stock”);

     WHEREAS, Executive has resigned as Employer’s Chairman, President and Chief Executive Officer
by mutual agreement with Employer’s Board of Directors, such resignation to be effective in
accordance with the terms and conditions of this Agreement; and

     WHEREAS, the parties hereto desire to clarify and settle all existing legal rights and
obligations related to (i) Executive’s employment with Employer, (ii) the Class B Shares and (iii)
options Executive holds to purchase additional equity securities of AMH II and of AMH (subject to
Executive’s agreement to exchange any equity securities of AMH issued upon the exercise of such
options for equity securities of AMH II).

     NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations and
undertakings of the parties set forth herein, the adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

     1. Termination Date; Board Membership.

          (a) The parties hereto acknowledge and agree that Executive’s employment with Employer shall
terminate effective on the close of business on June 30, 2006 (the “Termination Date”).
Executive shall remain employed by Employer through the Termination Date in accordance with the
terms of the Employment Agreement, except as provided in Section 3 below. Executive acknowledges
and agrees that after the Termination Date, he will not report to work for Associated or hold
himself out as being employed by Associated, notwithstanding the fact that Executive may continue
as a member of the Boards of Directors pursuant to Section 1(b) below.

 

 

          (b) Subject to Section 3 below, Executive will remain as a member of the Boards of Directors
through December 31, 2006, serving in the capacity of non-executive Chairman of the Boards of
Directors through such time. After such time, Executive shall continue to serve as a member of the
Boards of Directors at the pleasure of AMH II, AMHI, AMH or AMI and their respective stockholders.
If, from and after the Termination Date, AMH II, AMHI, AMH or AMI elects to designate Executive as
a non-voting member of the applicable Board of Directors and all requisite Board and stockholder
approvals are obtained for such designation, Executive shall become a non-voting member of the
applicable Board of Directors, with all rights of a director other than the right to vote on
matters before the Board of Directors.

     2. Payments to Executive.

          (a) Subject to Section 3 below, (i) until the earlier of (x) the Termination Date and (y) the
date, if any, on which the Executive accepts full time salaried employment with any third party,
Employer will continue to pay Executive’s base salary at the annual rate currently in effect and
(ii) from the Termination Date until the earlier of (x) December 31, 2006 and (y) the date, if any,
on which the Executive accepts full time salaried employment with any third party, Employer will
pay to the Executive, as complete and total compensation for Executive’s duties as a member of the
Boards of Directors and in consideration of the Executive entering into this Agreement and the
covenants and agreements contained herein, including without limitation those contained in Sections
7 and 8 hereof, and the general release of claims in Section 9 hereof, a fee of $10,000 per month
(and a pro-rated portion for any partial months) (the “Fee Payments”), in accordance with
Employer’s normal payroll practices and as reduced by deductions or withholdings required by law.

          (b) Subject to Section 3 below, and provided that the Executive has signed (and not revoked) a
General Release in the form attached hereto as Exhibit A (the “General Release”) and
provided that the General Release is signed within the requisite time periods stated therein and
has become effective, then, starting on July 1, 2006, Employer shall provide the Executive with the
following:

               (i) A severance payment equal to $1,000,000 per year for the two year period following
the Termination Date (the “Severance Period”) in accordance with Section 7 of the
Employment Agreement. Such payment shall be made in accordance with Employer’s normal
payroll practices and be reduced by deductions or withholdings required by law. The amount
paid to Executive pursuant to the foregoing sentence is referred to herein as the
“Severance Payment.”

               (ii) Employer will continue to provide Executive with the medical and dental benefits
currently provided to Executive from the date hereof through the Severance Period, at the
same rate of employee and Employer shared costs of such coverage as in effect from time to
time for active employees of Employer.

               (iii) To the extent incentive bonuses are payable to the top five (5) most senior
executives of Employer (other than the Executive) for the fiscal year 2006, Employer will
pay Executive one half of the incentive bonus that would be payable to the

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Executive for the fiscal year 2006 based upon the same performance criteria with
respect to Associated that are applicable to such five executives (notwithstanding anything
to the contrary contained in the Employment Agreement), in accordance with Executive’s
Board-approved bonus policy for such executives, payable when incentive bonuses, if any, are
paid to the executives of Employer.

               (iv) Employer’s agreement to make the payments and provide the benefits described in
this Section 2(b) will be made in consideration of the Executive entering into the General
Release. The Executive’s execution of this Agreement does not constitute an agreement to
sign the General Release or otherwise waive any legal rights that Executive may have with
respect to claims arising subsequent to Executive’s execution of this Agreement. Rather, in
the event that the General Release is provided to Executive, Executive will be afforded the
opportunity to review and determine whether to sign the General Release in accordance with
relevant laws.

          (c) No payment made or benefit provided by Associated to Executive on or after the Termination
Date shall in any way be treated as continuing any employment relationship between Executive and
Employer beyond such date.

          (d) The payments under this Agreement shall be in lieu of any other severance-related payments
to which Executive otherwise could claim entitlement, including without limitation the Employment
Agreement and any severance plan or policy of Associated.

     3. Early Termination of Executive. If, prior to the Termination Date, the Board of
Directors of Employer determines in good faith (with Executive recusing himself from such vote)
that (x) Executive should be terminated based upon a breach of the covenants contained in Section
7(a) or (y) Executive should be terminated for “Cause” (as defined in the Employment Agreement),
then:

     (a) Executive shall not be entitled to receive the continuation of base salary and/or
Fee Payments (as applicable) pursuant to Section 2(a) of this Agreement (as applicable)
pursuant to Section 2(b) from and after the date the Board makes such determination;

     (b) Executive shall not be entitled to receive the extension of the exercise period for
the options in accordance with Section 5 of this Agreement (but rather, in accordance with
the terms of the governing option agreements, Executive will have 90 days from the date he
no longer serves as Chief Executive Officer of Employer to exercise the options to the
extent vested as of the Termination Date);

     (c) Executive shall not be entitled to the Severance Payment and the continuation of
benefits; and

     (iv) Executive will not be entitled to continue as a member of the Boards of Directors
in accordance with Section 1(b) above.

     4. Repurchase Rights With Respect to Class B Shares.

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     AMH II hereby waives its rights, pursuant to the Option Agreements (as defined below), to
repurchase after the Termination Date any or all of the Class B Shares that are held by Employee as
of the date hereof.

     5. Treatment of Options; Repurchase of Option Shares. Executive holds options to
purchase Class B Common Stock as set forth on Schedule 1 hereto (the “Options”) pursuant to
the option agreement identified on Schedule 1 hereto (the “Option Agreements”). The
parties hereto acknowledge and agree that notwithstanding any provisions contained in the Option
Agreements that state that Executive will have 90 days from the termination of employment to
exercise Options to the extent vested on the Termination Date, Executive shall be entitled to
exercise any such Options at any time prior to December 31, 2006; provided, however, that if
Executive is terminated pursuant to Section 3 above, the post-termination exercise periods shall
remain 90 days. In the event that Executive exercises any Options, AMH II shall have the right,
exercisable upon written notice to Executive no later than June 15, 2007 (a “Repurchase
Notice”), to repurchase all of the shares of Class B Common Stock issued to Executive upon the
exercise of such Options (“the “Option Shares”) for an aggregate purchase price equal to
the lesser of (i) $2,000,000 and (ii) the fair market value of the Option Shares to be repurchased
as of the Repurchase Date (as defined below), as determined in good faith by the Board of Directors
of AMH II, without discount for lack of marketability or minority interest, based upon a customary
appraisal prepared by an independent appraisal company, or such other reasonable valuation method
as the Board of Directors shall select and apply (the “Repurchase Price”). If AMH II
elects to repurchase the Option Shares pursuant to a Repurchase Notice, the closing of such
repurchase shall occur, subject to the following proviso and to the immediately succeeding
sentence, on June 30, 2007; provided, however, that if the Repurchase Price on such date would be
less than $1,500,000, then Executive shall be entitled to defer the date of such repurchase until
December 31, 2007, and the Repurchase Price shall be calculated as of December 31, 2007 (the date
on which such repurchase occurs, the “Repurchase Date”); provided, however, that the
Repurchase Price shall not in any event exceed $2,000,000. Notwithstanding the foregoing or
anything to the contrary contained in any Option Agreement, the Executive hereby agrees that, in
the event that (i) AMH II exercises its repurchase right as described above and (ii) either (x) AMH
II’s payment of the Repurchase Price for all or a portion of the Option Shares to be repurchased is
not then permitted under Delaware law or under the terms of any of the Company’s or any of its
Affiliates’ debt or equity financing agreements, including, without limitation, the Indenture with
respect to AMH II’s 13.625% Senior Notes Due 2014 (the “Mezz Notes”) or (y) such payment
would, in the reasonable judgment of AMH II’s Board of Directors, render AMH II unable to pay when
due its next scheduled installment of interest in respect of the Mezz Notes, then the repurchase of
such Option Shares shall be deferred as follows:

     (A) if such deferral is pursuant to clause (x) above, AMH II shall purchase such quantity of
Option Shares on the Repurchase Date as it shall be permitted to do so in compliance with all of
the restrictions described in such clause (x), for a purchase price per Option Share equal to the
Repurchase Price divided by the number of Option Shares to be repurchased at such time (the
“Price Per Share”), and the purchase of any Option Shares that AMH II is prohibited by such
restrictions from purchasing on the Repurchase Date shall be deferred until the date that is ten
days after the end of the first fiscal quarter in which AMH II shall be permitted to purchase such
Option Shares in compliance with such restrictions, subject to additional quarterly deferrals in

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like manner until all Option Shares elected to be purchased by AMH II shall have been
purchased and paid for; and

     (B) if such deferral is pursuant to clause (y) above, AMH II shall purchase such quantity of
Option Shares, on the Repurchase Date and for the Price Per Share, as would, in the reasonable
judgment of AMH II’s Board of Directors, enable AMH II to pay the full amount of the next scheduled
interest payment in respect of the Mezz Notes, and the purchase of any Option Shares which AMH II
does not purchase on the Repurchase Date shall be deferred until the next scheduled interest
payment date in respect of the Mezz Notes on which AMH II is able, in the reasonable judgment of
the Board of Directors to (I) first, pay the scheduled interest payment in respect of the Mezz
Notes on such date and (II) second, purchase any Option Shares in compliance with such all of the
restrictions described in clause (x) above, subject to additional deferrals as provided herein
until all Option Shares elected to be purchased by AMH II shall have been purchased and paid for;

The purchase price in respect of each Option Share purchased by AMH II after the Repurchase Date
(whether pursuant to clause (A) or clause (B) above) shall be the Price Per Share, together with
accrued interest thereon from the Repurchase Date to the date of repurchase at the rate of 8% per
annum; provided, however, that the aggregate purchase price in respect of all repurchased Option
Shares shall not in any event exceed $2,000,000. Executive expressly acknowledges and agrees that
AMH II’s right to defer any purchase of Option Shares in the manner described above shall be in
addition to, and not in lieu or limitation of, any other right of AMH II to defer cash payment of
the purchase price for repurchased Option Shares contained in any Option Agreement.

     6. Representations of Executive. Executive represents and warrants to Associated that
he has the capacity to enter into this Agreement and this Agreement constitutes a legal, valid and
binding obligation of him.

     7. General Covenants and Agreements.

          (a) Executive covenants and agrees not to make any derogatory or disparaging statements about
Associated, its officers, directors, agents, employees, representatives, related or affiliated
corporations, their successors and assigns, their products or services, their customers at any time
in the future without limitation of any kind, except as otherwise required by law. Associated, on
behalf of itself and its officers, directors, agents, employees, representatives, related or
affiliated corporations, their successors and assigns, covenants and agrees not to make any
derogatory or disparaging statements about Executive at any time in the future without limitation
of any kind, or otherwise interfere with his efforts to secure future employment, except as
otherwise required by law.

          (b) Executive agrees to (i) voluntarily appear, if requested by Associated, without a subpoena
to testify in any legal proceeding, meet with Associated counsel prior to such testimony as and
when reasonably requested by Associated and advise such counsel truthfully of all facts known to
him, and (ii) for a period of twelve months from the Termination Date, provide reasonable
consultation, cooperation and assistance as and when reasonably requested by Associated with
respect to matters in which Executive was involved or had knowledge of during

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his employment by Employer, provided, that, Associated shall reimburse Executive for all
reasonable out-of-pocket expenses incurred by Executive in order to comply with this Section 7(b).

          (c) Executive covenants and agrees that he will execute such additional documents and take
such additional actions as may be reasonably requested by Associated in furtherance or connection
with this Agreement.

     8. Non-Competition, Non-Solicitation, Non-Disclosure of Proprietary Information, Surrender
of Records, Inventions and Patents.

          (a) Non-Competition. Executive acknowledges that in the course of his employment with
Employer he has become familiar with the trade secrets and other confidential information of
Employer. Therefore, and in consideration of, among other things, the Severance Payment, Executive
agrees that from the date hereof through the Severance Period (the “Noncompete Period”), he
shall not directly or indirectly within any jurisdiction or marketing area in which Associated is
doing or is qualified to do business, directly or indirectly, own, manage, operate, control, be
employed by or participate in the ownership, management, operation or control of, or be connected
in any manner with, any manufacturing, production, distribution or sale of exterior residential
building products, including, without limitation, vinyl siding, windows, fencing, decking, railings
and garage doors, or any other business of a type and character engaged in by Associated during
Executive’s employment with Employer. Nothing herein shall prohibit Executive from being a passive
owner of not more than 2% of the outstanding stock of any class of a competing corporation which is
publicly traded so long as Executive has no direct or indirect active participation in the business
of such corporation.

          (b) Non-Solicitation. During the Noncompete Period, Executive shall not, directly or
indirectly, (i) employ any individual who is or was an employee of Associated during Executive’s
with Employer and who is or was granted options to purchase stock of Associated or who is or was a
party to an employment or severance agreement with Associated; (ii) solicit for employment or
otherwise contract for the services of any individual who is or was an employee of Associated
during Executive’s employment with Employer; (iii) otherwise induce or attempt to induce any
employee of Associated to leave the employ of Associated, or in any way knowingly interfere with
the relationship between Associated and any employee respectively thereof; or (iv) induce or
attempt to induce any customer, supplier, licensee or other business relation of Associated to
cease doing business with Associated.

          (c) Proprietary Information. Executive agrees that he shall not use for his own
purpose or for the benefit of any person or entity other than Employer or its shareholders or
affiliates, nor shall Executive otherwise disclose to any individual or entity any proprietary
information of Employer unless such disclosure (i) has been authorized by Employer’s board of
directors or (ii) is required by law, a court of competent jurisdiction or a governmental or
regulatory agency. For purposes of this Agreement, “proprietary information” shall mean: (a) the
name or address of any customer, supplier or affiliate of Employer or any information concerning
the transactions or relations of any customer, supplier or affiliate of Employer or any of its
shareholders; (b) any information concerning any product, service, technology or procedure offered
or used by Employer, or under development by or being considered for use by Employer;

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(c) any information relating to marketing or pricing plans or methods, capital structure, or
any business or strategic plans of Employer; (d) any inventions, innovations, trade secrets or
other items covered by Section 8(d) below; and (e) any other information which the Board has
determined by resolution and communicated to Executive in writing to be proprietary information for
purposes hereof. However, proprietary information shall not include any information that is or
becomes generally known to the public other than through actions of Executive in violation of this
Section 8.

          (d) Surrender of Records. Executive agrees that he shall not retain and shall
promptly after the date hereof surrender to Employer all correspondence, memoranda, files, manuals,
financial, operating or marketing records, magnetic tape, or electronic or other media of any kind
which may be in Executive’s possession or under his control or accessible to him which contain any
proprietary information as defined in Section 8(c) above. Upon written and specific request by
Executive, Employer will consider permitting Executive to retain one copy of management
presentations and similar items which do not contain any proprietary information as defined in
Section 8(c) above.

          (e) Inventions and Patents. Executive agrees that all inventions, innovations, trade
secrets, patents and processes in any way relating, directly or indirectly, to Employer’s business
developed by him alone or in conjunction with others at any time during his employment by Employer
shall belong to Employer. Executive will use his best efforts to perform all actions reasonably
requested by the Board of Directors of Employer to establish and confirm such ownership by
Employer.

          (f) Enforcement. The parties hereto agree that the duration and area for which the
covenants set forth in this Section 8 are to be effective are reasonable. The periods under the
covenants in this Section 8 shall be extended by one day for each day that Executive is in
violation thereof. In the event that any court or arbitrator determines that the time period or
the area, or both of them, are unreasonable and that any of the covenants are to that extent
unenforceable, the parties hereto agree that such covenants will remain in full force and effect,
first, for the greatest time period, and second, in the greatest geographical area that would not
render them unenforceable. The parties intend that this Agreement will be deemed to be a series of
separate covenants, one for each and every county of each and every state of the United States of
America. Executive agrees that damages are an inadequate remedy for any breach of the covenants in
this Section 8 and that Associated will be entitled, in addition to and not in lieu of monetary
damages or any other remedy available to Associated at law, to equitable relief in the form of
preliminary and permanent injunctions without bond or other security upon any actual or threatened
breach of this Agreement.

     9. Release. For valuable consideration, including without limitation the Fee
Payments, Executive hereby for himself and his successors, heirs, executors, administrators and
assigns, does hereby remise, release and forever discharge Associated and Associated’s parent(s),
predecessors, successors, divisions, subsidiaries, affiliates and assigns and their respective
current and former officers, directors, agents, employees and counsel, individually and in their
official capacities, from all manner of actions, causes of action, suits, debts, sums of money,
bonds, bills, contracts, controversies, agreements, indemnification rights, promises, damages,
judgments, claims and demands whatsoever, at law or in equity, whether known or unknown, up

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until the time that this Agreement is executed by Executive, including but not limited to
claims pursuant to federal, state or local law, regulation or executive order prohibiting
discrimination in employment, including, but not limited to, all claims under the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act
of 1991, the Employee Retirement Income Security Act and the Americans with Disabilities Act, which
Executive or his successors, heirs, executors, administrators or assigns ever had, now has or
hereafter can, shall or may have, for, upon or by reason of his employment by Employer or any
interest in Associated, or the shares of the capital stock of AMH II, or any agreement, instrument,
matter, cause or thing whatsoever, including any action alleging a supposed breach of contract or
tort, claims for severance pay, back pay, wage/salary increase, expenses, benefits, bonus(es),
options, phantom stock, severance, re-employment, service letters, compensatory or punitive
damages, attorneys’ fees and all claims for any other type of damage relief or any other theory of
law. The release contained in this Section 9 shall not release AMH II from its obligations under
the terms of this Agreement.

     10. Miscellaneous.

          (a) Entire Agreement. This Agreement, together with the Option Agreements, the
Employment Agreement (as modified by this Agreement) and, if executed in accordance with the terms
hereof, the General Release, is the entire agreement between Executive and Associated with regard
to the clarification of all existing legal rights and obligations related to (i) Executive’s
employment by Employer, (ii) the Class B Shares and (iii) the Options.

          (b) Disclaimer of Wrongdoing. This Agreement shall not be construed as an admission
by Associated of any wrongdoing or any violation of federal, state or local law, statute or
ordinance, and Associated specifically disclaims and denies any wrongdoing whatsoever against
Executive by it, its employees, representatives, or agents.

          (c) No Representations, Warranties, Promises or Inducements. Executive acknowledges
that the only consideration for him signing this Agreement are the terms stated herein, that no
other promise, agreement, statement or representation of any kind has been made to him by any
person or entity to cause him to sign this Agreement, that he is competent to execute this
Agreement, that he fully understands the meaning and intent of the promises and covenants contained
herein, and that he is voluntarily executing this Agreement without reservation and of his own free
will. Other than as stated herein, no promises of inducement have been offered to Executive in
consideration for his acceptance and agreement to the terms of this Agreement.

          (d) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon AMH II and Employer and their successors and assigns and Executive and his heirs and
personal representatives, but Executive’s rights hereunder are personal to him and shall not be
subject to voluntary or involuntary alienation, assignment or transfer.

          (e) Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without reference to its choice of law rules.

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          (f) Waivers and Amendments. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a
written instrument signed by AMH II, Employer and Executive or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party hereto in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part any
party hereto of any right, power or privilege hereunder, or any single or partial exercise of any
right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party hereto may otherwise have
at law or in equity.

          (g) Severability. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed
in all respects as if such invalid or unenforceable provision were omitted.

          (h) Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one and the same
instrument.

          (i) Headings. The headings in this Agreement are for reference purposes only and
shall not in any way affect the meaning or interpretation of this Agreement.

          (j) Conflicts. In the event that any of the terms or conditions contained in this
Agreement are inconsistent or otherwise conflict with any of the terms and conditions of the
Employment Agreement, the terms and conditions of this Agreement shall govern and control.

          (k) Age Discrimination in Employment Act. Executive hereby represents and
acknowledges that he is being given 21 days to consider whether to sign this Agreement (including
the general release of claims set forth in Section 9 hereof) and that he has seven (7) days from
the date that he signs this Agreement to revoke this Agreement. Any revocation of this Agreement
must be in writing and personally delivered to Employer, 3737 State Road, Cuyahoga Falls, Ohio
44224, Attn: Chief Financial Officer, or if mailed, postmarked within seven (7) days of the date
upon which it was signed by you.

          (l) EXECUTIVE HEREBY ACKNOWLEDGES AND AGREES THAT HE HAS READ THIS AGREEMENT; FULLY
UNDERSTANDS AND ACCEPTS ALL OF ITS TERMS AND CONDITIONS OF HIS OWN FREE WILL; AND THAT HE HAS HAD
AN ADEQUATE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH AN ATTORNEY OF HIS CHOOSING AND HAS DONE SO
OR VOLUNTARILY ELECTED NOT TO DO SO.

[the remainder of this page is intentionally left blank]

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     IN WITNESS WHEREOF, this Agreement is made effective as of the Effective Date.

	 	 	 	 	 
	 	AMH HOLDINGS II, INC.

 	 
	 	By:  	/s/ D. Keith LaVanway
 	 
	 	 	Name:  	D. Keith LaVanway 	 
	 	 	Title:  	Vice President - Finance,

Chief Financial Officer,

Treasurer and Secretary 	 
	 
	 	AMH HOLDINGS, INC.

 	 
	 	By:  	/s/ D. Keith LaVanway
 	 
	 	 	Name:  	D. Keith LaVanway 	 
	 	 	Title:  	Vice President - Finance,

Chief Financial Officer,

Treasurer and Secretary 	 
	 
	 	ASSOCIATED MATERIALS HOLDINGS, INC.

 	 
	 	By:  	/s/ D. Keith LaVanway
 	 
	 	 	Name:  	D. Keith LaVanway 	 
	 	 	Title:  	Vice President - Finance,

Treasurer and Secretary 	 
	 
	 	ASSOCIATED MATERIALS INCORPORATED

 	 
	 	By:  	/s/ D. Keith LaVanway
 	 
	 	 	Name:  	D. Keith LaVanway 	 
	 	 	Title:  	Vice President - Finance,

Treasurer and Secretary 	 
	 
	 	 	 
	 	                                    /s/ Michael Caporale, Jr
 	 
	 	Michael Caporale, Jr. 	 
	 	 	 

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Schedule 1

Options and Option Agreements

Options to purchase 134,204 shares of Class B, Series II (Non-Voting) Common Stock of AMH Holdings
II, Inc., subject to vesting, granted pursuant to the Stock Option Award Agreement, dated September
4, 2002, between Michael Caporale and AMH Holdings, Inc.

 

 

EXHIBIT A

April 11, 2006

Michael Caporale, Jr.

c/o Associated Materials Incorporated

3773 State Road

Cuyahoga Falls, OH 44223

Re:     General Release

          Dear Michael:

          In connection with the termination of your employment, Associated Materials Incorporated
(“AMI”) is prepared to provide you with the following severance payments and benefits
(which are described in Section 5 of your employment agreement, dated July 27, 2004 (the
“Employment Agreement”) and Section 2 of your Separation Agreement and General Release,
dated April 11, 2006 (the “Separation Agreement”)):

               (i) A severance payment equal to $1,000,000 per year for two years, with such
payment(s) to commence on July 1, 2006 (the “Severance Period”). Such payment(s)
shall be made in accordance with AMI’s normal payroll practices and be reduced by deductions
or withholdings required by law.

               (ii) Employer will continue to provide Executive with the medical and dental benefits
currently provided to Executive from the date hereof through the Severance Period, at the
same rate of employee and Employer shared costs of such coverage as in effect from time to
time for active employees of Employer.

               (iii) To the extent incentive bonuses are payable to the top five (5) most senior
executives of Employer (other than the Executive) for the fiscal year 2006, Employer will
pay Executive one half of the incentive bonus that would be payable to the Executive for the
fiscal year 2006 based upon the same performance criteria with respect to Associated that
are applicable to such five executives (notwithstanding anything to the contrary contained
in the Employment Agreement), in accordance with Executive’s Board-approved bonus policy for
such executives, payable when incentive bonuses, if any, are paid to the executives of
Employer.

          In order to be eligible to receive the payments and benefits described above to which you are
not otherwise entitled, you are required to agree to the terms contained in this

 

 

General Release, indicate your agreement by signing and returning this General Release and not
revoke this General Release as provided below.

          In consideration for the payments and other benefits described above to which you are not
otherwise entitled, you hereby for yourself and your successors, heirs, executors, administrators
and assigns, do hereby remise, release and forever discharge AMI, AMH Holdings II, Inc., AMH
Holdings, Inc. and Associated Materials Holdings, Inc. and each of their respective parent(s),
predecessors, successors, divisions, subsidiaries, affiliates and assigns and their respective
current and former officers, directors, agents, employees and counsel, individually and in their
official capacities, from all manner of actions, causes of action, suits, debts, sums of money,
bonds, bills, contracts, controversies, agreements, indemnification rights, promises, damages,
judgments, claims and demands whatsoever, at law or in equity, whether known or unknown, up until
the time that this Agreement is executed by Executive, including but not limited to claims pursuant
to federal, state or local law, regulation or executive order prohibiting discrimination in
employment, including, but not limited to, all claims under the Age Discrimination in Employment
Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Employee
Retirement Income Security Act and the Americans with Disabilities Act, which Executive or his
successors, heirs, executors, administrators or assigns ever had, now has or hereafter can, shall
or may have, for, upon or by reason of his employment by Employer or any interest in Associated, or
the shares of the capital stock of Associated, or any agreement, instrument, matter, cause or thing
whatsoever, including any action alleging a supposed breach of contract or tort, claims for
severance pay, back pay, wage/salary increase, expenses, benefits, bonus(es), options, phantom
stock, severance, re-employment, service letters, compensatory or punitive damages, attorneys’ fees
and all claims for any other type of damage relief or any other theory of law. By signing this
Agreement and Release, you are providing a complete waiver of all claims that may have arisen,
whether known or unknown, up until the time that this Agreement and Release is executed.
Notwithstanding the foregoing, this General Release does not release AMI from its obligations under
the terms of this General Release.

          You acknowledge and agree that you continue to be bound by the terms of the Separation
Agreement, including the covenants contained in Sections 7 and 8 thereof, and the General Release
contained in Section 9 thereof (relevant sections of the Separation Agreement and General Release
and the Employment Agreement are attached hereto and incorporated herein as Exhibits A and B
respectively).

          If you breach this Agreement and Release, AMI will seek restitution and/or offset of any
payments or benefits provided to the extent permitted by law.

          You represent that you have not commenced or participated in any proceeding of any kind (on
behalf of yourself, any other person or as a member of any alleged class of persons) that is
pending in any court or before any administrative or investigative body or agency (whether public,
quasi-public or private) against or involving any of Associated or any Associated Officials and
that you have not assigned or transferred your rights with respect to any Claims covered by this
General Release. In addition, if you do commence or participate in any such proceeding, you agree
that this General Release will be a complete defense in any such proceeding and you (and your
heirs, administrators, executors, successors and assigns) will not

2

 

seek, obtain or receive, and that you will have no right to seek, obtain or receive any award,
recovery, settlement or relief of any kind whatsoever as a result of any such proceeding.

          Since your execution of this Agreement and Release releases Associated and any Associated
Officials from all claims you may have, you should review this carefully before signing it. You
can take at least twenty-one (21) days from your receipt of this Agreement and Release to consider
its meaning and effect and to determine whether you wish to enter into it. You are advised to
consult with anyone of your choosing, including an attorney, prior to executing this Agreement and
Release.

          Once you have signed this Agreement and Release, you may choose to revoke your execution
within seven (7) days. Any revocation of this Agreement and Release must be in writing and
personally delivered to Keith LaVanway, Associated Materials, Inc., 3773 State Road, Cuyahoga
Falls, OH 44223 or, if mailed, postmarked within seven (7) days of the date upon which it was
signed by you.

          TO RECEIVE THE PAYMENTS AND OTHER BENEFITS DESCRIBED ABOVE TO WHICH YOU ARE NOT OTHERWISE
ENTITLED, YOU MUST SIGN AND RETURN THE AGREEMENT AND RELEASE NO LATER THAN May 2, 2006. This
Agreement and Release should be returned to Keith LaVanway, Associated Materials, Inc., 3773 State
Road, Cuyahoga Falls, OH 44223. AMI will not make any payments or provide any benefits pursuant to
this Agreement and Release until after the seven (7) day period expires and provided that you have
not revoked this General Release.

          This Agreement and Release (including the relevant sections of the Separation Agreement and
General Release and the Employment Agreement) contains the entire understanding of the parties
relating to the subject matter hereof. You acknowledge that no representations, oral or written,
have been made other than those expressly set forth herein, and that you have not relied on any
other representations in executing this Agreement and Release. This Agreement and Release may be
modified only in a document signed by the parties and referring specifically hereto.

Sincerely yours,

Associated Materials Incorporated

/s/ D. Keith LaVanway

D. Keith LaVanway

Vice-President and CFO

AGREED TO AND ACCEPTED:

/s/ Michale Caporale, Jr.                                        

Michael Caporale, Jr.

Date: April 11, 2006

3Unassociated Document

    Exhibit
      4.2

     

    FORM
      OF CONVERTIBLE SETTLEMENT NOTE

     

    THE
      INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED IN ACCORDANCE WITH ITS
      TERMS
      TO ALL SENIOR INDEBTEDNESS (AS DEFINED IN THIS NOTE) OF VASO ACTIVE
      PHARMACEUTICALS, INC. 

     

    NEITHER
      THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE
      HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
      SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
      REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”), AND EXEMPTIONS FROM THE REGISTRATION AND QUALIFICATION REQUIREMENTS UNDER
      APPLICABLE STATE SECURITIES LAWS , AND, ACCORDINGLY, MAY NOT BE OFFERED OR
      SOLD
      EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
      ACT
      OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
      TO,
      THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
      APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AND THE COMPANY, IN ITS SOLE
      DISCRETION, MAY REQUIRE AN OPINION OF COUNSEL REGARDING SUCH MATTERS.

     

    

     

    
      	
              No.
                CN-________

            	
              $_____________

            

    

    Date:
      _________________

     

    VASO
      ACTIVE PHARMACEUTICALS, INC.

    5%
      SUBORDINATED CALLABLE CONVERTIBLE NOTE

    DUE
      ____________, 200[8]

     

    THIS
      NOTE
      is one of a series of notes, issued or to be issued, of Vaso Active
      Pharmaceuticals, Inc., a Delaware corporation (the “Company”),
      designated as its 5% Subordinated Callable Convertible Notes issued in
      connection with certain litigation settlements in the aggregate principal amount
      of $860,000,
      which
      series is comprised of the following: (i) this Note, (ii) all other 5%
      subordinated callable convertible notes issued in connection with the Class
      Settlement Agreement (as defined below), and (iii) all 5% subordinated callable
      convertible notes under the Stipulation and Settlement of Agreement, dated
      as of
      September 21, 2005, by and among certain plaintiffs, derivatively on behalf
      of
      the Company, and the defendants, of which the Company is a nominal defendant,
      with respect to certain derivative actions (collectively, the “Subordinated
      Notes”).
      

     

     

     

    FOR
      VALUE
      RECEIVED, the Company promises to pay to the order of SCHIFFRIN & BARROWAY,
      LLP or its registered assigns (the “Holder”),
      on
      _____________, 200[8] (the “Maturity
      Date”)
      or
      such earlier date as the Notes are required or permitted to be repaid as
      provided hereunder, the principal sum of One Hundred Eighty-Seven Thousand
      Five
      Hundred Dollars ($187,500.00), together with interest thereon at a rate of
      five
      percent (5.0%) per annum. 

     

    
      
         

      

      
        Page
          1 of
          18

        
          

        

      

      
         

      

    

    Interest
      payable under this Note shall be computed on the basis of a year of 360 days
      and
      actual days elapsed (including the first day but excluding the last day)
      occurring in the period for which interest is payable. 

     

    Payments
      of principal and interest shall be made in lawful money of the United States
      of
      America to the Holder at its address as provided in Section 15.

     

    This
      Note
      is being issued by the Company pursuant to that certain Stipulation and
      Agreement of Settlement, dated as of September 21, 2005 (the “Class
      Settlement Agreement”)
      by and
      among Lead Plaintiffs on behalf of the Class and the Defendants, one of whom
      is
      the Company, by and through their respective counsel.

     

    1.  Definitions.
      In
      addition to the terms defined elsewhere in this Note, the following terms shall
      have the meanings indicated below (any capitalized terms that are not defined
      herein shall have the meanings ascribed to them in the Class Settlement
      Agreement): 

     

    “Bankruptcy
      Event”
means
      any of the following events: (a) the Company commences a case or other
      proceeding under any bankruptcy, reorganization, arrangement, adjustment of
      debt, relief of debtors, dissolution, insolvency or liquidation or similar
      law
      of any jurisdiction relating to the Company; (b) there is commenced against
      the
      Company any such case or proceeding that is not dismissed within 60 days after
      commencement; (c) the Company is adjudicated insolvent or bankrupt or any order
      of relief or other order approving any such case or proceeding is entered;
      (d)
      the Company suffers any appointment of any custodian or the like for it or
      any
      substantial part of its property that is not discharged or stayed within 60
      days; (e) the Company makes a general assignment for the benefit of creditors;
      (f) the Company fails to pay, or states that it is unable to pay or is unable
      to
      pay, its debts generally as they become due; or (g) the Company calls a meeting
      of its creditors with a view to arranging a composition, adjustment or
      restructuring of its debts.

    

    “Business
      Day”
means
      any day except Saturday, Sunday and any day which shall be a federal legal
      holiday or a day on which banking institutions in the Commonwealth of
      Massachusetts are authorized or required by law or other governmental action
      to
      close.

    

       “Common
      Stock”
means
      the
      Class
      A Common Stock of the Company, par value $0.0001
      per share, and any securities into which such Class A Common Stock may hereafter
      be reclassified.

    

    “Conversion
      Price”
      means,
      initially, $1.75, subject to adjustment in accordance with the terms of this
      Note.

     

    “Mandatory
      Conversion Date”
means
      the first date immediately following any three (3) consecutive Trading Day
      period during which the highest sale price or average of the highest bid and
      highest asked prices for such date, as applicable, of one share of Common Stock
      equals or exceeds the Conversion Price for each of the three (3) Trading
      Days.

     

    
      
         

      

      
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          18

        
          

        

      

      
         

      

    

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

     

    “Required
      Majority of Senior Noteholders” means
      the
      Senior Noteholders holding greater than 50% of the then outstanding face amount
      of the Senior Notes.

    

    “Securities
      Purchase Agreement”
means
      the Securities Purchase Agreement, dated as of August 16, 2005, by and among
      the
      Company and the Senior Noteholders, as such agreement may
      be
      amended, restated, supplemented, modified, extended or replaced from time to
      time.

     

    “Securities”
means
      the Subordinated Notes and the Underlying Shares.

     

    “Senior
      Creditor”
means
      the Senior Noteholders and any other holder, lender, creditor, lessor, obligee
      or other Person to whom the Company is obligated with respect to any Senior
      Indebtedness.

     

    “Senior
      Debt Documents” means
      the
      Senior Notes, the security agreement and pledge agreement with respect to
      collateral securing the Senior Notes, and
      any
      other document, agreement or instrument evidencing any Senior Indebtedness
      or
      executed pursuant to or in connection therewith, as each such document,
      agreement or instrument may be amended, restated, supplemented, modified,
      extended or replaced from time to time.

    

    “Senior
      Indebtedness” means
      all
      indebtedness, whether secured or unsecured, of the Company or its subsidiaries
      existing as of the date of this Note and all future indebtedness of the Company
      or its subsidiaries, including, by way of example and not of limitation, (i)
      all
      principal, interest, fees and other obligations of the Company under or with
      respect to the Senior Notes; (ii) all
      indebtedness, liabilities and other obligations of the Company and its
      subsidiaries to any Person with respect to any revolving credit or other line
      of
      credit facility, any term loan facility, or any other extension of credit by
      a
      bank, insurance company or financial institution engaged in the business of
      lending money or other institutional lender, including reimbursement obligations
      under letters of credit (or guaranties, as applicable) and obligations in
      respect of bankers’ acceptances and swap or hedging agreements; (iii) any
      other indebtedness, liabilities and other obligations of the Company or its
      subsidiaries (including,
      by way of example and not of limitation, any interest which accrues after the
      commencement of any case, proceeding or other action relating to the bankruptcy,
      insolvency or reorganization of the Company to the extent the Senior Creditors
      have the right to receive the same from the Company)
      (A) for borrowed money or evidenced by notes, bonds, debentures or similar
      instruments, including obligations so evidenced incurred in connection with
      the
      acquisition of property, assets or businesses, (B) under leases for real,
      personal or intangible property, whether or not capitalized under generally
      accepted accounting principals, (C) in respect of the principal balance
      outstanding under any synthetic lease, tax retention operating lease,
      off-balance sheet loan or similar off-balance sheet financing products, and
      (D)
      to trade or other creditors whether or not in the ordinary course of
      business; (iv) obligations
      arising
      under guarantees executed by the Company or any of its subsidiaries; and
      (v) renewals, extensions, refinancings, deferrals, amendments and
      modifications of the items described in clauses (i), (ii), (iii), and
      (iv) above; provided,
      however,
      that
      the following indebtedness shall not constitute Senior Indebtedness: (1) any
      indebtedness of the Company evidenced by this Note or any other Subordinated
      Notes, all of which shall be pari
      passu
      with the
      indebtedness evidenced by this Note; and (2) any other subordinated indebtedness
      that the Company issues that ranks junior to or pari
      passu
      with the
      Subordinated Notes, all as determined in the Company’s discretion. 

    

    
      
         

      

      
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          3 of
          18

        
          

        

      

      
         

      

    

    “Senior
      Notes”
means
      (i) the Senior Secured Convertible Notes due May 1, 2007, each dated August
      16,
      2005, with an aggregate principal face amount of $2,500,000 issued by the
      Company to the Senior Noteholders, and (ii) any additional Senior Secured
      Convertible Notes that may be issued to the Senior Noteholders upon exercise
      of
      certain rights held by the Senior Noteholders pursuant to the Securities
      Purchase Agreement.

    

    “Senior
      Noteholders” means
      Iroquois Master Fund Ltd., Smithfield Fiduciary LLC, Omicron Master Trust,
      RAQ
      LLC and their respective successors and assigns.

     

    "Trading
      Day"
      means
      (a) any day on which the Common Stock is listed or quoted and traded on its
      primary Trading Market, or (b) if the Common Stock is not then listed or quoted
      and traded on any Trading Market, then any Business Day.

    

    "Trading
      Market"
      means
      any national or regional securities exchange or an automated quotation system
      of
      a national securities association on which the Common Stock is then listed
      or
      quoted.

    

    “Underlying
      Shares”
means
      the shares of Common Stock issuable to the Holder upon conversion of this
      Note.

    

    “Voluntary Conversion
      Date”
means
      the date that the Voluntary Conversion Notice and this Note are delivered by
      a
      Holder to the Company pursuant to Section
      7(a).

     

    “Voluntary
      Conversion Notice”
means
      a
      written notice in the form attached hereto as Schedule 1. 

     

    2.  Subordination
      Generally.
      The
      Holder agrees, by its acceptance of this Note, for itself and each future holder
      of this Note or any portion hereof (the Holder and any such future holder being
      hereinafter referred to as the “Subordinated
      Creditor”)
      that
      all of the indebtedness evidenced by this Note, whether for principal or
      interest (the “Subordinated
      Obligations”),
      is
      expressly subordinate and junior in right of payment (as defined in Section
      3
      below) to all of the Company's obligations in respect of all Senior
      Indebtedness. 

     

    3.  Meaning
      of “Subordinate and Junior In Right of Payment”.
      For
      purposes of this Section
      3
      and the
      other provisions of this Note, “subordinate and junior in right of payment”
shall mean that: 

     

    
      
         

      

      
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          4 of
          18

        
          

        

      

      
         

      

    

    (a)
       No
      part
      of the Subordinated Obligations shall have any claim to the assets of the
      Company on a parity with or prior to the claim of the Senior Indebtedness.
      Unless and until the Senior Indebtedness shall have been fully and finally
      paid
      and satisfied (as defined below), the Subordinated Creditor will not, without
      the express prior written consent of the Required Majority of the Senior
      Noteholders, take or receive from the Company, and the Company will not make,
      give or permit, directly or indirectly, by setoff, redemption, purchase or
      in
      any other manner, any payment, distribution, prepayment or collateral security
      for the Subordinated Obligations; provided,
      however,
      that
      the Company may make and the Subordinated Creditor may receive payments of
      principal and interest in accordance with the terms hereof (without any
      amendment or modification) unless there shall have occurred and be continuing,
      or the making of any such payment would cause, an Event of Default under the
      Senior Notes or an event which, with the giving of notice or the passage of
      time
      or both, would become such an Event of Default (a “
      Senior Debt Default”).
      For
      purposes of this Section
      3
      and the
      other provisions of this Note, the term “fully and finally paid and satisfied”
with respect to the Senior Indebtedness shall mean that the Senior Creditors
      shall have (i) received full and final payment from the Company with respect
      to
      all Senior Indebtedness and any and all preference periods under every
      applicable federal and state bankruptcy, insolvency, moratorium, reorganization,
      liquidation, dissolution or other similar law shall have expired without the
      institution or commencement of any proceeding, suit or claim under any such
      law
      by or against the Company or (ii) in the case of the Senior Noteholders,
      exercised their conversion rights with respect to all Senior Notes and shall
      not
      have any right to purchase any additional Senior Notes under the Securities
      Purchase Agreement.

     

    (b)
       The
      Subordinated Creditor, without the prior written consent of the Required
      Majority of the Senior Noteholders, shall not take any action or exercise any
      rights, remedies or powers under the terms of the Subordinated Obligations,
      or
      exercise any other right or remedy at law or equity that the Subordinated
      Creditor might otherwise possess, to collect any amount due and payable under
      the Subordinated Obligations, including, but not limited to, the acceleration
      of
      the Subordinated Obligations, the commencement of any foreclosure on any lien
      or
      security interest, if applicable, the filing of any petition in bankruptcy
      or
      the taking advantage of any other insolvency law of any jurisdiction, unless
      and
      until the Senior Indebtedness has been fully and finally paid and satisfied.
      

    

    (c)
       (i)
      In
      the event of any distribution, division or application, partial or complete,
      voluntary or involuntary, by operation of law or otherwise, of all or any
      substantial part of the property, assets or business of the Company, or the
      proceeds thereof, to any creditor or creditors of the Company, or (ii) upon
      any
      indebtedness of the Company becoming due and payable by reason of any
      liquidation, dissolution or other winding-up of the Company or its business
      or
      by reason of any Bankruptcy Event, or (iii) in the event that any Senior
      Indebtedness has become, or have been declared to be, due and payable (and
      have
      not been paid in full in accordance with their terms), then and in any such
      event, any payment or distribution of any kind or character, whether in cash,
      securities or other assets, which, but for the subordination provisions
      contained herein, would otherwise be payable or deliverable to the Subordinated
      Creditor upon or in respect of the Subordinated Obligations or in respect of
      any
      other indebtedness of the Company that is subordinated to the payment of this
      Note, shall instead be paid over or delivered to the Senior Noteholders for
      application to the outstanding Senior Indebtedness held by them, and if such
      cash, securities or other assets exceeds the amount of such Senior Indebtedness,
      then such excess shall be paid to the other Senior Creditors on a pro rata
      basis
      or such other basis as the Company may determine in its sole discretion, and
      the
      Subordinated Creditor shall not receive any such cash, securities or other
      assets or any benefit therefrom unless and until the Senior Noteholders and
      the
      other Senior Creditors shall have been fully and finally paid and satisfied.
      

     

    
      
         

      

      
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          18

        
          

        

      

      
         

      

    

    (d) The
      Subordinated Creditor irrevocably authorizes and empowers the Senior
      Noteholders, under the circumstances set forth in clause (i) or (ii) of
Section
      3(c),
      to
      demand, sue for, collect and receive every such payment or distribution referred
      to in such subsection and give acquittance therefor, and file claims and proofs
      of claim in any statutory or nonstatutory proceeding and take such other
      proceedings, in its own name, or in the name of the Subordinated Creditor or
      otherwise, as the Senior Noteholders may deem necessary or advisable for the
      enforcement of the provisions of this Note. The Subordinated Creditor hereby
      agrees, under the circumstances set forth in clause (i) or (ii) of Section
      3(c)
      hereof,
      duly and promptly to take such action as may be requested at any time and from
      time to time by the Senior Noteholders to collect and to file appropriate proofs
      of claim in respect of the Subordinated Obligations, and to execute and deliver
      such powers of attorney, assignments or proofs of claim or other instruments
      as
      may be requested by the Senior Noteholders, in order to enable the Senior
      Noteholders to enforce any and all claims upon or in respect of the Subordinated
      Obligations and to collect and receive any and all payments or distributions
      which may be payable or deliverable at any time upon or in respect of the
      Subordinated Obligations. Nothing in this Section 3, nor any other provisions
      hereof, shall be construed to give the Senior Noteholders any right to vote
      this
      Note, or any related claim, or any portion of any such note or claim, whether
      in
      connection with any resolution, arrangement, plan or reorganization, compromise,
      settlement, election of trustees or otherwise.

     

    (e)
       Should
      any payment or distribution or collateral security, or the proceeds of any
      thereof, be collected or received by the Subordinated Creditor in respect of
      the
      Subordinated Obligations at any time that a Senior Debt Default has occurred
      and
      is continuing or such other time that such collection or receipt is not
      permitted hereunder, the Subordinated Creditor forthwith will turn over the
      same
      to the Senior Noteholders in the form received (except for the endorsement
      or
      the assignment of the Subordinated Creditor when necessary) for application
      to
      the Senior Indebtedness in accordance with Section
      3(c)
      and,
      until so turned over, the same shall be held in trust by the Subordinated
      Creditor as the property of the Senior Creditors.

     

    (f) Subject
      to the payment in full of the Senior Indebtedness, the Subordinated Creditor
      shall be subrogated to the rights of the Senior Creditors to receive payments
      or
      distributions of assets of the Company made on the Senior Indebtedness; and,
      for
      the purposes of such subrogation, payments or distributions to the Senior
      Creditors, for their respective accounts, of any cash, securities or other
      assets to which the Subordinated Creditor would be entitled except for the
      provisions of this Note shall, as between the Company and its Senior Creditors
      and the Subordinated Creditor, be deemed to be a payment by the Company to
      or on
      account of Subordinated Obligations, it being understood that the provisions
      of
      Section 2 and this Section 3 of this Note are, and are intended solely, for
      the
      purpose of defining the relative rights of the Subordinated Creditor, on the
      one
      hand, and the Senior Creditors, on the other hand.

     

    (g) The
      Subordinated Creditor acknowledges and agrees that, as to any cash, securities
      or other assets of the Company that may be in the possession of the Senior
      Noteholders after the Senior Indebtedness held by the Senior Noteholders has
      been fully and finally paid and satisfied, the Senior Noteholders shall have
      the
      right, at any time, to deposit all or any part of any excess assets into any
      federal or state court of competent jurisdiction for a determination as to
      the
      proper disposition of such assets. 

     

    
      
         

      

      
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          18

        
          

        

      

      
         

      

    

    (h) The
      Subordinated Creditor consents that, without further assent by or notice to
      the
      Subordinated Creditor, without impairing, abridging, releasing or affecting
      the
      subordination provided for herein, (i) any demand for payment of any of the
      Senior Indebtedness made by the Senior Creditors may be rescinded in whole
      or in
      part by the Senior Creditors, as the case may be, and any of the Senior
      Indebtedness, or the liability of the Company or any other party upon or for
      any
      part thereof, or any collateral security or guaranty therefor or right of offset
      with respect thereto, may, from time to time, in whole or in part, be renewed,
      extended, modified, accelerated, compromised, waived, surrendered, or released
      by the Senior Creditors, as the case may be; (ii) any document or instrument
      evidencing or governing the terms of any Senior Indebtedness or any collateral
      security documents or guaranties or documents in connection therewith may,
      to
      the extent pertinent to the Senior Indebtedness, be amended, modified,
      supplemented or terminated, in whole or in part, as the Senior Creditors
      (whichever may be a party thereto or the beneficiary thereof) may deem
      advisable, and any collateral security at any time held by the Senior Creditors,
      as the case may be, for the payment of any of the Senior Indebtedness may be
      sold, exchanged, waived, surrendered or released; (iii) the Senior Creditors
      may
      exercise or refrain from exercising any right, remedy or power granted by any
      document or instrument creating, evidencing or otherwise relating to the Senior
      Indebtedness, or at law, in equity, or otherwise, with respect to the Senior
      Indebtedness, or any collateral security lien (legal or equitable), held, given
      or intended to be given therefor (including, without limitation, the right
      to
      perfect any lien or security interest created in connection therewith); and
      (iv)
      any balance of funds with any bank or other institution at any time standing
      to
      the credit of the Company or any guarantor of any of the Senior Indebtedness
      may, from time to time, in whole or in part, be surrendered or released, all
      as
      the Senior Creditors may deem advisable. The Subordinated Creditor hereby waives
      any and all notice of or proof of reliance by the Senior Creditors upon this
      Note, and the Senior Indebtedness, and any of it, shall conclusively be deemed
      to have been created, contracted or incurred in reliance upon this Note, and
      all
      dealings between the Company and the Senior Creditors shall be deemed to have
      been consummated in reliance upon this Note. The subordination provisions hereof
      are a continuing agreement of subordination and the Senior Creditors may
      continue to make loans to or otherwise accept the obligations of the Company
      in
      reliance hereon, without notice to the Subordinated Creditor. If the Senior
      Creditors or any of them shall be required to disgorge, pay or repay the amount
      received on account of the Senior Indebtedness or any part thereof because
      of
      the provisions of any applicable federal or state bankruptcy, insolvency,
      moratorium, reorganization, liquidation, dissolution or other similar law,
      the
      Subordinated Creditor shall make such payments or repayments out of the amounts
      received by it on account of the Subordinated Obligations, if any, which are
      necessary in order to put the Senior Creditors in the same position in which
      they would have been had the Senior Indebtedness not been deemed to have been
      fully and finally paid and satisfied at the time of payments of such amounts
      to
      the Subordinated Creditor.

     

    (i) No
      failure to exercise, and no delay in exercising, on the part of the Senior
      Creditors any right, power or privilege under the Senior Indebtedness or this
      Note shall operate as a waiver thereof; nor shall any single or partial exercise
      by the Senior Creditors of any rights, power or privilege under the Senior
      Indebtedness or this Note preclude any other or further exercise thereof or
      the
      exercise of any other right, power or privilege. The rights and remedies
      provided in the subordination provisions contained herein and in any agreements,
      instruments and documents referred to in any of the foregoing are cumulative
      and
      shall not be exclusive of any rights or remedies provided by law.

     

    
      
         

      

      
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    (j) The
      Senior Creditors shall not be prejudiced in their rights to enforce the
      subordination contained herein in accordance with the terms hereof by any act
      or
      failure to act on the part of the Company or failure by the Company to provide
      the Subordinated Creditor with any notice whatsoever.

     

    (k) The
      subordination provisions contained herein are for the benefit of the Senior
      Creditors, who are the express third-party beneficiaries of such provisions,
      and
      may not be rescinded, canceled, amended or modified in any way with respect
      to
      any Senior Creditor without the prior written consent of such Senior Creditor.
      

     

    (l)Until
      the
      Senior Indebtedness is fully and finally paid and satisfied, the Subordinated
      Creditor covenants and agrees that it will not modify or amend or permit
      modification or amendment of the payment terms, rate of interest and other
      financial terms and conditions of this Note without obtaining the prior written
      consent of the Required Majority of the Senior Noteholders thereto. 

     

    4.   Reservation
      of Common Stock.
      

     

    The
      Company covenants that it will at all times reserve and keep available out
      of
      its authorized but unissued and otherwise unreserved Common Stock, solely for
      the purpose of enabling it to issue Underlying Shares as required hereunder,
      the
      number of Underlying Shares which are then issuable and deliverable upon the
      conversion of (and otherwise in respect of) this Note (taking into account
      the
      adjustments set forth in Section
      9),
      free
      from preemptive rights or any other contingent purchase rights of Persons other
      than the Holder. The Company covenants that all Underlying Shares so issuable
      and deliverable shall, upon issuance in accordance with the terms hereof, be
      duly and validly authorized and issued, fully paid and nonassessable.

     

    5.  Transfer
      Restrictions.

     

    (a)
       The
      Securities may only be assigned and transferred pursuant to an effective
      registration statement under the Securities Act or pursuant to an available
      exemption from the registration requirements of the Securities Act, and in
      compliance with any applicable state securities laws. In connection with any
      transfer of Securities other than pursuant to an effective registration
      statement or to the Company, the Company may require the transferor to provide
      to the Company, at the sole expense of the transferor, an opinion of counsel
      selected by the transferor and satisfactory to the Company, the form and
      substance of which opinion shall be reasonably satisfactory to the Company,
      to
      the effect that such transfer does not require registration under the Securities
      Act or any applicable state securities laws. 

    

    (b)
       The
      Holder agrees to the imprinting of the following legend on any certificate
      evidencing Securities:

    

    
      
         

      

      
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    NEITHER
      THESE NOTES NOR THE SECURITIES INTO WHICH THESE NOTES ARE CONVERTIBLE HAVE
      BEEN
      REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”),
      AND
      EXEMPTIONS FROM THE REGISTRATION AND QUALIFICATION REQUIREMENTS UNDER APPLICABLE
      STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
      PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
      PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
      THE
      REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
      APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AND THE COMPANY, IN ITS SOLE
      DISCRETION, MAY REQUIRE ANY TRANSFEROR OR POSSIBLE TRANSFEREE TO PROVIDE AN
      OPINION OF COUNSEL REGARDING SUCH MATTERS. 

     

    6.  Registration
      of Transfers and Exchanges.
      

     

    (a)
        The
      Holder may assign and transfer this Note (in whole but not in part), provided
      that the Holder effects such assignment in compliance with (i) Section
      5
      hereof,
      (ii) this Section
      6,
      and
      (iii) all applicable laws and regulations, including laws relating to the
      registration of securities under the Securities Act and any applicable state
      securities laws.

     

    (b)
        The
      Company shall register the transfer of this Note in the Note Register upon
      surrender of this Note to the Company at its address for notice set forth
      herein. Upon any such registration or transfer, a new Note, in substantially
      the
      form of this Note (any such new Note, a “New
      Note”),
      shall
      be issued to the transferee. The acceptance of the New Note by the transferee
      thereof shall be deemed the acceptance by such transferee of all of the rights
      and obligations of a holder of a Note.

     

    (c)
        A
      service
      charge of $500 shall be payable by the transferor in connection with any such
      registration of transfer or exchange.

     

    7.  Conversion.
      

     

    (a)
        Voluntary
      Conversion.
      All
      (but not less than all) of this Note shall be convertible into shares of Common
      Stock at the option of the Holder, at any time and from time to time from and
      after the date of this Note. The
      number of Underlying Shares issuable upon any conversion hereunder shall equal
      the outstanding principal amount of this Note, plus the amount of any accrued
      but unpaid interest on this Note through the Voluntary Conversion Date, divided
      by the Conversion Price in effect on the Voluntary Conversion Date. The
      Holder shall effect this conversion under this Note by delivering to the Company
      a completed and executed Voluntary Conversion Notice together with this Note.
      

     

    (b)
        Mandatory
      Conversion.
      At
      any
      time after the Mandatory Conversion Date, the
      Company may, but shall not be required to, cause all of the
      principal amount of this Note plus all accrued and unpaid interest to be
      converted into a number of fully paid and nonassessable shares of Common Stock
      equal to the quotient of (i) the principal amount of this Note plus all accrued
      and unpaid interest outstanding on the Mandatory Conversion Date divided by
      (ii)
      the Conversion Price in effect on the Mandatory Conversion Date by providing
      written notice of such mandatory conversion (the “Mandatory
      Conversion Notice”)
      to
      Holder and Lead Counsel. 

     

    
      
         

      

      
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    8.  Mechanics
      of Conversion.

     

    (a)
        Upon
      conversion of this Note pursuant to either Section 7(a) or 7(b), the Company
      shall promptly (but in no event later than thirty (30) days after receipt of
      the
      Voluntary Conversion Notice and this Note or thirty (30) days after receipt
      of
      the Holder’s Note pursuant to a Mandatory Conversion Notice) issue and deliver
      to the Holder, in the Holder’s name, a certificate for the Underlying Shares
      issuable upon such conversion, which certificate may contain the transfer
      restrictions legend in the form set forth in Section
      5, together
      with any additional legend(s) necessary under applicable law. 

     

    (b)
        The
      Holder shall be required to deliver the Voluntary Conversion Notice and this
      Note in order to effect a conversion and receive the certificate for the
      Underlying Shares pursuant to a voluntary conversion under Section
      7(a).
      In
      order to receive the certificate for the Underlying Shares upon a mandatory
      conversion under Section
      7(b), the
      Holder shall be required to deliver this Note. In the case of a voluntary
      conversion, the Holder shall be deemed to have become the holder of record
      of
      the Underlying Shares as of the Voluntary Conversion Date. In the case of a
      mandatory conversion, if the Holder does not deliver this Note to the Company,
      the Holder shall have the right to obtain the Underlying Shares but shall not
      be
      deemed a Company stockholder until the date that the Company receives this
      Note.
      Regardless of whether delivery of this Note is made by the Holder in accordance
      with this Section
      8,
      the
      Holder will cease to be the Holder of this Note and shall not have any claims
      as
      a creditor under this Note as of the Voluntary Conversion Date or Mandatory
      Conversion Date (assuming that the Company elects to require mandatory
      conversion), as applicable.

     

    9.  Certain
      Adjustments.
      The
      Conversion Price is subject to adjustment from time to time as set forth in
      this
Section
      9.

     

    (a)
        Stock
      Dividends and Splits.
      If the
      Company, at any time while this Note is outstanding, (i) pays a stock dividend
      on its Common Stock or otherwise makes a distribution on any class of capital
      stock that is payable in shares of Common Stock, (ii) subdivides outstanding
      shares of Common Stock into a larger number of shares, or (iii) combines
      outstanding shares of Common Stock into a smaller number of shares, then in
      each
      such case the Conversion Price shall be multiplied by a fraction of which the
      numerator shall be the number of shares of Common Stock outstanding immediately
      before such event and of which the denominator shall be the number of shares
      of
      Common Stock outstanding immediately after such event. Any adjustment made
      pursuant to clause (i) of this Section
      9(a)
      shall
      become effective immediately after the record date for the determination of
      stockholders entitled to receive such dividend or distribution, and any
      adjustment pursuant to clause (ii) or (iii) of this Section
      9(a)
      shall
      become effective immediately after the effective date of such subdivision or
      combination. 

     

    (b)
        Pro
      Rata Distributions.
      If the
      Company, at any time while this Note is outstanding, distributes to holders
      of
      Common Stock (i) evidences of its indebtedness, (ii) any security (other than
      a
      distribution of Common Stock covered by Section
      9(a)),
      (iii) rights or warrants to subscribe for or purchase any security, or (iv)
      any other asset (in each case, “Distributed
      Property”),
      then
      in each such case the Conversion Price in effect immediately prior to the record
      date fixed for determination of stockholders entitled to receive such
      distribution shall be adjusted (effective on such record date) to equal the
      product of such Conversion Price times a fraction of which the denominator
      shall
      be the average of the Closing Prices for the five Trading Days immediately
      prior
      to (but not including) such record date and of which the numerator shall be
      such
      average less the then fair market value of the Distributed Property distributed
      in respect of one outstanding share of Common Stock, as determined by the
      Company’s independent certified public accountants that regularly examine the
      financial statements of the Company. 

     

    
      
         

      

      
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    (c)
        Fundamental
      Changes.
      If, at
      any time while this Note is outstanding, (i) the Company effects any merger
      or
      consolidation of the Company with or into another Person, (ii) the Company
      effects any sale of all or substantially all of its assets in one or more
      transactions, (iii) any tender offer or exchange offer (whether by the Company
      or another Person) is completed pursuant to which holders of Common Stock are
      permitted to tender or exchange their shares for other securities, cash or
      assets, or (iv) the Company effects any reclassification of the Common Stock
      or
      any compulsory share exchange pursuant to which the Common Stock is effectively
      converted into or exchanged for other securities, cash or assets (other than
      as
      a result of a subdivision or combination of shares of Common Stock described
      in
Section
      9(a))
      (in any
      such case, a “Fundamental
      Change”),
      then
      upon any subsequent conversion of this Note, the Holder shall have the right
      to
      receive, for each Underlying Share that would have been issuable upon such
      conversion absent such Fundamental Change, the same kind and amount of
      securities, cash or assets as it would have been entitled to receive upon the
      occurrence of such Fundamental Change if it had been, immediately prior to
      such
      Fundamental Change, the holder of one share of Common Stock (the “Alternate
      Consideration”).
      If
      holders of Common Stock are given any choice as to the securities, cash or
      assets to be received in a Fundamental Change, then the Holder shall be given
      the same choice as to the Alternate Consideration it receives upon any
      conversion of this Note following such Fundamental Change. 

     

    At
      the
      Holder’s request, any successor to the Company or surviving Person in such
      Fundamental Change shall issue to the Holder a new Note consistent with the
      foregoing provisions and evidencing the Holder’s right to convert such Note into
      Alternate Consideration. The terms of any agreement pursuant to which a
      Fundamental Change is effected shall include terms requiring any such successor
      or surviving Person to comply with the provisions of this Section
      9(c)
      and
      insuring that this Note (or any such replacement security) will be similarly
      adjusted upon any subsequent transaction analogous to a Fundamental Change.
      

     

    (d)
        Subsequent
      Equity Sales.
      If, at
      any time while this Note is outstanding, the Company issues additional shares
      of
      Common Stock or rights, warrants, options or other securities or debt
      convertible, exercisable or exchangeable for shares of Common Stock or otherwise
      entitling any Person to acquire shares of Common Stock (collectively,
“Common
      Stock Equivalents”)
      at an
      effective net price to the Company per share of Common Stock (the “Effective
      Price”)
      less
      than the Conversion Price (as adjusted hereunder to such date), then the
      Conversion Price shall be reduced to a price determined by multiplying such
      Conversion Price by a fraction, (i) the numerator of which shall be (x) the
      number of shares of Common Stock outstanding immediately prior to such issuance
      plus (y) the number of shares of Common Stock that the aggregate consideration
      received by the Company for the total number of additional shares of Common
      Stock so issued or issuable pursuant to Common Stock Equivalents would purchase
      at such Conversion Price; and (ii) the denominator of which shall be (x) the
      number of shares of Common Stock outstanding prior to such issuance plus (y)
      the
      number of such additional shares of Common Stock so issued or issuable pursuant
      to the Common Stock Equivalents. 

     

    
      
         

      

      
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    For
      purposes of this Section
      9(d),
      in
      connection with any issuance of any Common Stock Equivalents, (i) the maximum
      number of shares of Common Stock potentially issuable at any time upon
      conversion, exercise or exchange of such Common Stock Equivalents (the
“Deemed
      Number”)
      shall
      be deemed to be outstanding upon issuance of such Common Stock Equivalents,
      (ii)
      the Effective Price applicable to such Common Stock shall equal the minimum
      dollar value of consideration payable to the Company to purchase such Common
      Stock Equivalents and to convert, exercise or exchange them into Common Stock
      (net of any discounts, fees, commissions and other expenses), divided by the
      Deemed Number, and (iii) no further adjustment shall be made to the Conversion
      Price upon the actual issuance of Common Stock upon conversion, exercise or
      exchange of such Common Stock Equivalents. The Effective Price of Common Stock
      or Common Stock Equivalents issued in any transaction in which more than one
      type of securities are issued shall give effect to the allocation by the Company
      of the aggregate amount paid for such securities among the different securities
      issued in such transaction.

     

    (e)
        Conversion
      Price Adjustment Exceptions.
      No
      adjustment will be made under Section
      9(d)
      in
      respect of:

     

    (i)  Any
      past
      or future issuance of Common Stock, of a Common Stock Equivalent or rights
      or
      securities exercisable or convertible into a Common Stock Equivalent under
      the
      Securities Purchase Agreement or otherwise to the Senior Noteholders; or

     

    (ii)  The
      issuance of Common Stock to any Person upon exercise or conversion of any Common
      Stock Equivalents outstanding as of December 15, 2005; or

    

    (iii)  The
      issuance of Common Stock or Common Stock Equivalents pursuant to employee
      benefit plans or otherwise to officers, directors, employees, advisers,
      consultants or independent contractors of the Company pursuant to restricted
      stock issuances, stock grants, stock options or otherwise, in each case as
      approved by the Board of Directors of the Company or the Board’s Compensation
      Committee, as appropriate; or

    

    (iv)  
      The
      issuance of securities in connection with a merger, acquisition, joint venture
      or development agreement or strategic partnership or similar agreement approved
      by the Company’s Board of Directors, the primary purpose of which is not to
      raise equity capital.

    

    (f)
        Calculations.
      All
      calculations under this Section
      9
      shall be
      made to the nearest cent or the nearest 1/100th of a share, as applicable.
      The
      number of shares of Common Stock outstanding at any given time shall not include
      shares owned or held by or for the account of the Company, and the disposition
      of any such shares shall be considered an issue or sale of Common
      Stock.

     

    
      
         

      

      
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          18

        
          

        

      

      
         

      

    

    (g)
        Notice
      of Adjustments.
      Upon
      the occurrence of each adjustment pursuant to this Section
      9,
      the
      Company at its expense will compute such adjustment in accordance with the
      terms
      hereof and prepare and notify the Holder of such adjustment, describing in
      reasonable detail such adjustment and the transactions giving rise thereto,
      including all facts upon which such adjustment is based.

     

    (h)
        Notice
      of Corporate Events.
      If the
      Company (i) declares a dividend or any other distribution of cash, securities
      or
      other assets in respect of its Common Stock, including without limitation any
      granting of rights or warrants to subscribe for or purchase any capital stock
      of
      the Company, (ii) authorizes or approves, enters into any agreement
      contemplating or solicits stockholder approval for any Fundamental Change or
      (iii) authorizes the voluntary dissolution, liquidation or winding up of the
      affairs of the Company, then the Company shall deliver to the Holder a notice
      describing the material terms and conditions of such transaction, at least
      10
      Trading Days prior to the applicable record or effective date on which a Person
      would need to hold Common Stock in order to participate in or vote with respect
      to such transaction, and the Company will take all steps reasonably necessary
      in
      order to insure that the Holder is given the practical opportunity to convert
      this Note prior to such time so as to participate in or vote with respect to
      such transaction; provided, however, that the failure to deliver such notice
      or
      any defect therein shall not affect the validity of the corporate action
      required to be described in such notice. 

     

    10.  Prepayment
      at the Option of the Company.

     

    If
      permitted by the Securities Purchase Agreement and the other Transaction
      Documents (as such term is defined in the Securities Purchase
      Agreement), at
      any
      time, upon delivery of a written notice to the Holder (a “Company
      Prepayment Notice”),
      the
      Company shall be entitled to prepay all or any portion of the outstanding
      principal amount of this Note plus any accrued and unpaid interest thereon
      in
      cash without penalty or premium. Once delivered, the Company shall not be
      entitled to rescind a Company Prepayment Notice. 

     

    11.  Events
      of Default.

     

    (a)
        “Event
      of Default”
means
      any one of the following events, except
      that none of the following events shall be deemed to be an “Event of Default” if
      such event occurs as a result of the Company’s complying or attempting to comply
      with the subordination provisions contained in this Note:

     

    (i)  any
      failure to pay the principal of and interest on this Note within five (5)
      Business Days after the same becomes due and payable; or

     

    (ii)  the
      occurrence of a Bankruptcy Event.

     

    (b)
        At
      any
      time or times following the occurrence of an Event of Default, subject to the
      subordination provisions of this Note, the Holder shall have the option to
      elect, by notice to the Company (the “Acceleration
      Notice”),
      to
      require the Company to pay all of the outstanding principal amount of this
      Note,
      plus all accrued but unpaid interest thereon through the date of payment (the
      “Accelerated
      Amount”).
      

     

    
      
         

      

      
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    (c)
        Upon
      the
      occurrence of any Bankruptcy Event, the Accelerated Amount shall immediately
      become due and payable in full in cash, without any further action by the
      Holder.

     

    (d)
        In
      connection with any Event of Default, the Holder need not provide and the
      Company hereby waives any presentment, demand, protest or other notice of any
      kind, except as provided herein, and the Holder may immediately and without
      expiration of any grace period enforce any and all of its rights and remedies
      hereunder and all other remedies available to it under applicable law.

     

    12.  Charges,
      Taxes and Expenses.
      Issuance of certificates for Underlying Shares upon conversion of (or otherwise
      in respect of) this Note shall be made without charge to the Holder for any
      issue or transfer tax, withholding tax, transfer agent fee or other incidental
      tax or expense in respect of the issuance of such certificate, all of which
      taxes and expenses shall be paid by the Company; provided,
      however,
      that
      the Company shall not be required to pay any tax which may be payable in respect
      of any transfer involved in the registration of any certificates for Underlying
      Shares or Subordinated Notes in a name other than that of the Holder. The Holder
      shall be responsible for all other tax liability that may arise as a result
      of
      holding or transferring this Note or receiving Underlying Shares in respect
      hereof.

     

    13.  No
      Fractional Shares.
      The
      Company shall not issue or cause to be issued fractional Underlying Shares
      upon
      the conversion of this Note. If any fraction of an Underlying Share would,
      except for the provisions of this Section
      13,
      be
      issuable upon conversion of this Note, the number of Underlying Shares to be
      issued will be rounded up or down, as applicable, to the nearest whole
      share.

     

    14.  Exemption
      From Registration.
      The
      Holder acknowledges and agrees that (i) in accordance with Section 6(f) of
      the
      Class Settlement Agreement, it or its representatives have stipulated that
      the
      issuance of this Note is in reliance upon and subject to the exemption from
      registration under Section 3(a)(10) of the Securities Act of 1933 and any
      applicable provisions of state securities law and (ii) pursuant to certain
      Court
      orders, entered on December 21, 2005 and January 4, 2006, respectively, the
      Courts have approved the issuance of the Subordinated Notes, of which this
      Note
      is one, and the Class Settlement Agreement as fair, both substantively and
      procedurally, to the holders of the Subordinated Notes. In
      addition, the Holder acknowledges and agrees that the issuance of this Note
      is
      in reliance upon an exemption from
      the
      Trust Indenture Act of 1939, as amended. 

     

    15.  Notices.
      Any and
      all notices or other communications or deliveries hereunder by the Holder of
      this Note to the Company (including any Conversion Notice) shall be in writing,
      shall be given pursuant to certified mail, return receipt requested, postage
      prepaid or by nationally recognized overnight courier, and shall be deemed
      given
      and effective on the earliest of (i) the Business Day following the date of
      mailing, if sent by nationally recognized overnight courier service, or (ii)
      upon actual receipt by the party to whom such notice is required to be given,
      if
      delivered by certified mail. Any and all notices or other communications or
      deliveries hereunder by the Company to the Holder of this Note to shall be
      in
      writing, shall be given by first class mail, and shall be deemed given and
      effective three (3) Business Days following the date of mailing. The addresses
      for such communications shall be: 

     

    

    
      
         

      

      
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          18

        
          

        

      

      
         

      

    

     

    If
      to the
      Company:

     

    Vaso
      Active Pharmaceuticals, Inc.

    99
      Rosewood Drive

    Suite
      260

    Danvers,
      MA 01923

    Attn:
      Joseph Frattaroli, President

    

     

    If
      to the
      Holder:

     

    Schiffrin
      & Barroway, LLP

    280
      King
      of Prussia Road

    Radnor,
      PA 19087

    

    If
      to
      Lead Counsel:

    

    Schiffrin
      & Barroway, LLP

    280
      King
      of Prussia Road

    Radnor,
      PA 19087

    

    

    If
      to
      Senior Noteholders: 

    

    Iroquois
      Master Fund Ltd.

    641
      Lexington Avenue

    26th
      Floor

    New
      York,
      NY 10022

    Attn:
      Joshua Silverman

    

    With
      a
      copy to:

    

    Proskauer
      Rose LLP

    1585
      Broadway

    New
      York,
      NJ 10036-8299

    Attn:
      Adam J. Kansler, Esq.

    

    Smithfield
      Fiduciary LLC

    c/o
      Highbridge Capital Management, LLC

    9
      West
      57th
      Street,
      27th
      Floor

    New
      York,
      NY 10019

    Attn:
      Ari
      J. Storch/Adam J. Chill

    

    
      
         

      

      
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          15 of
          18

        
          

        

      

      
         

      

    

    Omicron
      Master Trust

    c/o
      Omicron Capital, LP

    650
      Fifth
      Avenue, 24th
      Floor

    New
      York,
      NY 10019

    

    RAQ,
      LLC

    c/o
      Paramount BioCapital Asset Management, Inc.

    787
      Seventh Avenue

    48th
      Floor

    New
      York,
      New York 10019

    Attn:
      General Counsel

    

    

    16.  Miscellaneous.

     

    (a)
        This
      Note
      shall be binding on and inure to the benefit of the parties hereto and their
      respective successors and permitted assigns. 

     

    (b)
        Governing
      Law; Venue.
      all
      questions concerning the construction, validity, enforcement and interpretation
      of this Note shall be governed by and construed and enforced in accordance
      with
      the internal laws of the commonwealth of massachusetts, without regard to the
      principles of conflicts of law thereof. each party hereby irrevocably submits
      to
      the exclusive jurisdiction of the state and federal courts sitting in the city
      of boston of the commonwealth of massachusetts for the adjudication of any
      dispute hereunder or in connection herewith or with any transaction contemplated
      hereby or discussed herein, and hereby irrevocably waives, and agrees not to
      assert in any suit, action or proceeding, any claim that it is not personally
      subject to the jurisdiction of any such court, that such suit, action or
      proceeding is improper. each party hereby irrevocably waives personal service
      of
      process and consents to process being served in any such suit, action or
      proceeding by mailing a copy thereof via registered or certified mail or
      overnight delivery (with evidence of delivery) to such party at the address
      in
      effect for notices to it under this agreement and agrees that such service
      shall
      constitute good and sufficient service of process and notice thereof. nothing
      contained herein shall be deemed to limit in any way any right to serve process
      in any manner permitted by law. the requirements of this section
      16(b),
      shall
      in no event have any effect on the right of the senior noteholders to take
      any
      action permitted by section
      3(g).
       

     

    (c)
        The
      headings herein are for convenience only, do not constitute a part of this
      Note
      and shall not be deemed to limit or affect any of the provisions
      hereof.

     

    (d)
        In
      case
      any one or more of the provisions of this Note shall be invalid or unenforceable
      in any respect, the validity and enforceability of the remaining terms and
      provisions of this Note shall not in any way be affected or impaired thereby,
      and the parties will attempt in good faith to agree upon a valid and enforceable
      provision which shall be a commercially reasonable substitute therefor, and
      upon
      so agreeing, shall incorporate such substitute provision in this
      Note.

     

    
      
         

      

      
        Page
          16 of
          18

        
          

        

      

      
         

      

    

    (e)
        In
      the
      event of any stock split, subdivision, dividend or distribution payable in
      shares of Common Stock (or other securities or rights convertible into, or
      entitling the holder thereof to receive directly or indirectly shares of Common
      Stock), combination or other similar recapitalization or event occurring after
      the date hereof, each reference in this Note to a price shall be amended to
      appropriately account for such event.

     

    (f)
        No
      provision of this Note may be waived or amended except in a written instrument
      signed, in the case of an amendment, by the Company and the Holder or, in the
      case of a waiver, by the Holder. No waiver of any default with respect to any
      provision, condition or requirement of this Note shall be deemed to be a
      continuing waiver in the future or a waiver of any subsequent default or a
      waiver of any other provision, condition or requirement hereof, nor shall any
      delay or omission of either party to exercise any right hereunder in any manner
      impair the exercise of any such right. 

     

    
      	 
	
              VASO
                ACTIVE PHARMACEUTICALS, INC.

            
	 
	 
	
              By______________________________________

            
	
              Name:
                

            
	
              Title:
                

            

    

    

     

    
      
         

      

      
        Page
          17 of
          18

        
          

        

      

      
         

      

    

     

    Schedule
      1

     

    

     

    FORM
      OF VOLUNTARY CONVERSION NOTICE

     

    

     

    5%
      SUBORDINATED CALLABLE CONVERTIBLE NOTE DUE ___________, 200[8]

    

     

    (To
      be
      executed by the registered Holder 

    in
      order
      to convert Note)

     

    The
      undersigned hereby elects to convert the entire principal amount of the
      5%
      Subordinated
      Callable Convertible Note (the “Subordinated
      Note”)
      registered in the name of the undersigned into shares of Class A Common Stock,
      par value $0.0001 per share (the “Common
      Stock”),
      of
      Vaso Active Pharmaceuticals, Inc., a Delaware corporation, according to the
      conditions of the Subordinated Note, as of the date written below.

     

    
      	 
	 
	
              Date
                of Conversion

            
	 
	 
	
              Principal
                Amount of Subordinated Note

            
	
               

               

            
	
              Applicable
                Conversion Price 

            
	 
	 
	
              Number
                of Shares of Common Stock to be Issued

            
	 
	 
	
              Name
                of Registered Holder

            
	 
	 
	
              By_____________________________________________________________

            
	
              Name:

            
	
              Title:
                

            

    

    

    
       

      Page
        18 of
        18

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