Document:

Exhibit 4.8

THIS SECURITY HAS NOT 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, 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 ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.  THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
SECURITY AS PERMITTED BY THE SECURITIES PURCHASE AGREEMENT PURSUANT TO
WHICH THE SECURITIES WERE ISSUED.

Original Issue
Date: May 24, 2006

	
  No. 1

  	
   

  	
  $750,000

  

 

12% SENIOR SECURED
CONVERTIBLE DEBENTURE

This 12% Senior
Secured Convertible Debenture (this “Debenture”)
is a duly authorized and issued 12% Senior Secured Convertible Debenture of
UNIPIXEL, INC., a Delaware corporation (“UniPixel”),
and UNIPIXEL DISPLAYS, INC., a Texas corporation (“UniPixel
Displays”), having their principal place of business located
at 8708 Technology Forest Place, Suite 100, The Woodlands, Texas 77381, for the
principal amount of SEVEN HUNDRED AND FIFTY THOUSAND DOLLARS AND NO CENTS
($750,000), issued in connection with that certain Purchase Agreement (as
defined below) of even date herewith entered into by and among the Company and
the Holder.

FOR VALUE RECEIVED,
UniPixel and UniPixel Displays (collectively, hereinafter referred to as the “Company”) hereby jointly and
severally promise to pay to CAPSOURCE FUND, L.P., a Mississippi limited
partnership, having its principal place of business located at 795 Woodlands
Parkway, Suite 100, Ridgeland, MS 39157, or its registered assigns (the “Holder”), the principal sum of
$750,000 on the earlier of (a) May 23, 2007; (b) the consummation of a Change
of Control Transaction; or (c) upon the closing of a Qualifying Transaction
(the “Maturity Date”),
and to pay interest to the Holder on the then outstanding principal amount of
this Debenture in accordance with the provisions hereof.  This Debenture is subject to the following
additional provisions:

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Section 1.      Definitions.  For
the purposes hereof, in addition to the terms defined elsewhere in this
Debenture: (a) capitalized terms not otherwise defined herein have the meanings
given to such terms in the Purchase Agreement, and (b) the following terms
shall have the following meanings:

“Bankruptcy Event” means any of the following events: (a) the Company or any Subsidiary (as such term is defined in Rule 1.02(s) of Regulation S-X) thereof 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 or any Subsidiary thereof; (b) there is commenced against the Company or any Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company or any Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any Subsidiary thereof 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 or any Subsidiary thereof makes a general assignment for the benefit of creditors; (f) the Company or any Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; (g) the Company or any Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing; or (h) an application for the appointment of a receiver or liquidator for the Company or any of its material assets.
“Capital Lease” means any lease of property (real, personal or mixed) which, in accordance with GAAP, should be capitalized on the lessee’s balance sheet or for which the amount of the asset and liability thereunder as if so capitalized should be disclosed in a note to such balance sheet.
“Cash Flow” means an amount equal to (i) the Company’s Consolidated EBITDA, minus (ii) the Company’s Consolidated non-financed Capital Expenditures.

“Consolidated EBITDA”
means, for any Person for any period:

(i)            the consolidated
net income of such Person and its Consolidated Subsidiaries for such period
(after Income Taxes), calculated in accordance with GAAP, but excluding:

(A)          any gain arising from the sale of
capital assets,

(B)           any gain arising from any write-up of
assets,

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(C)           earnings of any other Person,
substantially all of the assets of which have been acquired by such Person or
its Consolidated Subsidiaries in any manner, to the extent that such earnings
were realized by such other Person prior to the date of such acquisition.

(D)          earnings of any Person in which the
Person or its Consolidated Subsidiaries has an ownership interest (other than
wholly owned Subsidiaries of such Person ), unless such earnings have actually
been received by the Person or its Consolidated Subsidiaries in the form of
cash distributions,

(E)           earnings of any Person to which
assets of the Person or its Consolidated Subsidiaries shall have been sold,
transferred or disposed of, or into which the Person shall have merged, to the
extent that such earnings arise prior to the date of such transaction,

(F)           any gain arising from the acquisition
of any securities of such Person or any of its Consolidated Subsidiaries, and

(G)           any extraordinary gain realized by
such Person or any of its Consolidated Subsidiaries during such period.

(ii)           plus the following,
but only in each case to the extent incurred by the Company and its
Consolidated Subsidiaries during such period and deducted in the calculation
above for such period,

(A)          all income and franchise taxes,

(B)           all Interest Expense,

(C)           all depreciation expense, and

(D)          all amortization expense.

“Current Assets” means, at any particular time, all amounts which, in conformity with GAAP, would be included as current assets on a consolidated balance sheet of the Company and its Subsidiaries; provided however, there shall be excluded therefrom (a) all prepaid expenses of every type and nature, (b) all amounts due from partners, officers, stockholders or other Affiliates, and all loans due from employees, and (c) all deferred charges.
“Current Liabilities” means, at any particular time, all amounts (including deferred taxes) which, in conformity with GAAP, would be included as current liabilities on a consolidated balance sheet of the Company and its Subsidiaries.

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“Current Ratio” means the ratio of Current Assets to Current Liabilities.
“Dallas Courts” shall have the meaning set forth in Section 7(e).
“Debenture Register” shall have the meaning set forth in Section 2(b).
“Event of Default” shall have the meaning set forth in Section 6.
“GAAP” mean generally accepted accounting principles.
“Interest Expense” means, with respect to any Person and for any period (without duplication), all interest on that Person’s Debt, whether paid in cash or accrued as a liability and payable in cash during any subsequent period (including, without limitation, the interest component of Capital Leases), as determined by GAAP.
“Late Fees” shall have the meaning set forth in the second paragraph to this Debenture.
“Liabilities” mean all liabilities, obligations and indebtedness of any and every kind and nature (including, without limitation, lease obligations, accrued interest, charges, expenses, attorneys’ fees and other sums) chargeable to the Company and made to or for the benefit of the Company, whether arising under this Debenture or arising under the any of the Transaction Documents, whether heretofore, now or hereafter owing, arising, due or payable from Company to the Holder and however evidenced, credited, incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed, or otherwise, including obligation of performance.
“Net Income” or “Net Loss”  means, with respect to any Person for any period, the net income or net loss of such Person determined in accordance with GAAP, after payment of income Taxes but excluding any extraordinary or non-recurring items.
“Original Issue Date” shall mean the date of the first issuance of this Debenture regardless of the number of transfers of this or any portion of this Debenture and regardless of the number of instruments which may be issued to evidence such Debenture or Debentures.
“Purchase Agreement” means the Securities Purchase Agreement of even date herewith, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms.

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Section 2.              Interest.

a)             Payment of Interest in Cash. The Company shall
pay interest, in cash, to the Holder on the then outstanding principal amount
of this Debenture at the rate of 12% per annum, payable monthly in arrears in
cash via wire transfer or by automated bank transfer in immediately available
and freely transferable funds (as requested by Purchaser), on the last day of
each month for the period beginning on the Initial Issuance Date and ending on
the Maturity Date or such earlier or later time when this Debenture is paid or
prepaid in full (except that, if any such date is not a Business Day, then such
payment shall be due on the next succeeding Business Day) (each such date, an “Interest Payment Date”), subject
to the conversion rights of Holder as stated herein.

b)            Interest Calculations. Interest shall be
calculated on the basis of a 360-day year and shall accrue daily commencing on
the Original Issue Date until payment in full of the principal sum, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made.  Interest
hereunder will be paid to the Person in whose name this Debenture is registered
on the records of the Company regarding registration and transfers of
Debentures (the “Debenture Register”).

c)             Late Fee. 
All overdue accrued and unpaid interest to be paid hereunder shall
entail a late fee at the rate of 18% per annum (or such lower maximum amount of
interest permitted to be charged under applicable law or regulation) (“Late Fee”) which will accrue
daily, from the date such interest is due hereunder through and including the
date of payment.

d)            Prepayment. 
The Company may prepay all or
any portion of the then outstanding principal amount of this Debenture without
any prepayment premium or discount by providing Holder not less than 30 days
prior written notice, such outstanding principal balance remaining subject to
Holder’s conversion rights hereunder until the actual prepayment is made
following such notice period.

Section 3.                Conversion Right; Adjustments.

The
Holder of this Debenture shall have the right, at Holder’s option, immediately
following the Original Issue Date, to convert all, or, in multiples of $50,000,
any part of this Debenture into such number of fully paid and nonassessable
shares of Common Stock as shall be provided herein.  The Holder of this Debenture may exercise the
conversion right by giving written notice (a “Conversion
Notice”) to the Company of the exercise of such right and
stating the name or names in which the stock certificate or stock certificates
for the shares of Common Stock are to be issued and the address to which such
certificates shall be delivered.  The
Conversion Notice shall be accompanied by this Debenture.  The number of shares of Common Stock that
shall be issuable upon 

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conversion
of the Debenture shall equal the then outstanding principal amount of this
Debenture plus all accrued and unpaid interest due and payable on the Debenture
on the Conversion Date (defined
below) or a portion thereof (in the discretion of the Holder) divided by the Conversion Price (as defined below) in
effect on the date the Conversion Notice is given.  Conversion shall be deemed to have been
effected on the date the Conversion Notice is delivered to the Company (each, a
“Conversion Date”).  Within 10 business days after a Conversion
Date, the Company shall issue and deliver by hand against a signed receipt
therefor or by reputable overnight delivery carrier to the address designated
in the Conversion Notice, a stock certificate or stock certificates of the
Company representing the number of shares of Common Stock to which Holder is
entitled and a check or cash in payment of all interest accrued and unpaid
under the Debenture being converted up to and including the Conversion
Date.  If a stock certificate or
stock certificates are not delivered within 10 business days after a Conversion
Date, the Company shall pay and/or grant to Holder 0.1% (on a Fully Diluted
Basis) of the Company’s Common Stock per day until such certificates are
delivered. The conversion rights will be governed by the following provisions:

a)    Conversion Price. On the issue
date hereof and until such time as an adjustment shall occur, the Conversion
Price shall be equal to the lesser of:

(i)           90%
of the average price per share of the Common Stock and Common Stock
Equivalents sold to any Person in the first Qualifying Transaction to be
consummated following the Original Issue Date (determined by dividing the total
number of shares of Common Stock issued plus shares issuable under Common Stock
Equivalents in such Qualifying Transaction, by the aggregate consideration
received by the Company plus all consideration to be received upon
exercise or conversion of all Common Stock Equivalents issued in such Qualifying
Transaction).  With respect to
determining the price paid per share in any asset purchase, only shares of
Common Stock actually issued and outstanding shall be used in determining such
per share calculation; or

(ii)          $1.75
per share (which such Conversion Price shall apply in the event no Qualifying
Transaction has closed on or by the Conversion Date.

Notwithstanding the foregoing, the
parties agree that the Conversion Price shall be adjusted down from the
determination resulting from the foregoing formula by mutual agreement of the
parties in the event that any convertible securities are sold to investors in
any Qualifying Transaction, the parties hereby recognizing that the issuance
thereof, even at an exercise or conversion price above the Conversion Price,
would increase the value of the securities issued to such investors and thus
entitle Holder to a greater number 

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of shares of Common Stock upon conversion
hereof.  The parties agree to negotiate
such determination in good faith.

b)   Adjustment for
Issuance of Shares at less than the Conversion Price.

(i)           If and whenever any Additional Common
Stock (as herein defined) shares shall be issued by the Company (the “Stock Issue Date”) for a
consideration per share less than the Conversion Price, then in each such case
the initial Conversion Price shall be reduced to a new Conversion Price equal
to the consideration per share received by the Company for the additional
shares of Common Stock then issued, and accordingly, the number of shares
issuable to Holder upon conversion shall be proportionately increased as a
result thereof; and, in the case of shares issued without consideration, the
initial Conversion Price shall be reduced in amount and the number of shares
issued upon conversion shall be increased in an amount so as to maintain for
the Holder the right to convert this Debenture into shares equal in amount to
the same percentage interest in the Common Stock of the Company as existed for
the Holder immediately preceding the Stock Issue Date.

(ii)         Consideration for Shares.   In case of the issuance of Additional Common
Stock for a consideration part or all of which shall be cash, the amount of the
cash consideration therefor shall be deemed to be the amount of the cash
received by Company for such shares.  In
case of the issuance of any shares of Additional Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor, other than cash, shall be deemed to be the then fair
market value of the property received as determined by an investment banking
firm selected by Holder.

(iii)         Reclassification of Shares.   In case of the reclassification of
securities into shares of Common Stock, the shares of Common Stock issued in
such reclassification shall be deemed to have been issued for a consideration
other than cash.  Shares of Additional
Common Stock issued by way of dividend or other distribution on any class of
stock of the Company shall be deemed to have been issued without consideration.

(iv)        Split up or Combination of Shares.   In case issued and outstanding shares of
Common Stock shall be subdivided or split up into a greater number of shares of
the Common Stock, the Conversion Price shall be proportionately decreased, and
in case issued and outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Price shall be
proportionately increased, such increase or decrease, as the case may be,
becoming effective at the time of record of the split-up or combination, as the
case may be.

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(v)         The term “Additional
Common Stock” herein shall mean, other than with respect to an
Exempt Issuance, in the most broadest sense all shares of Common Stock or
Common Stock Equivalents hereafter issued by the Company (including, but not
limited to Common Stock held in the treasury of the Company, except Common
Stock issued upon the conversion or exercise of any security purchased in
connection with the Purchase Agreement.

c)    Adjustment for Mergers, Consolidations, Etc..

(i)           In the event of distribution to all
Common Stock holders of any stock, indebtedness of the Company or assets
(excluding cash dividends or distributions from retained earnings) or other
rights to purchase securities or assets, then, after such event, this Debenture
will be convertible into the kind and amount of securities, cash and other
property which the holder of the Debenture would have been entitled to receive
if the holder owned the Common Stock issuable upon conversion of the Debenture
immediately prior to the occurrence of such event.

(ii)          In case of any capital reorganization,
reclassification of the stock of the Company (other than a change in par value
or as a result of a stock dividend, subdivision, split up or combination of
shares), this Debenture shall be convertible into the kind and number of shares
of stock or other securities or property of the Company to which the holder of
the Debenture would have been entitled to receive if the holder owned the
Common Stock issuable upon conversion of the Debenture immediately prior to the
occurrence of such event.  The provisions
of the foregoing sentence shall similarly apply to successive reorganizations,
reclassifications, consolidations, exchanges, leases, transfers or other
dispositions or other share exchanges.

d)   Notice of Adjustment.   In the event the Company shall propose to
take any action which shall result in an adjustment in the Conversion Price,
the Company shall give notice to the Holder, which notice shall specify the
record date, if any, with respect to such action and the date on which such
action is to take place.  Such notice
shall be given on or before the earlier of 10 days before the record date or
the date which such action shall be taken. 
Such notice shall also set forth all facts (to the extent known)
material to the effect of such action on the Conversion Price and the number,
kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or deliverable
upon conversion of this Debenture. 
Additionally, following completion of an event wherein the Conversion
Price shall be adjusted, the Company shall furnish to the holder of this
Debenture a statement, signed by an authorized officer of the Company of the
facts creating such adjustment and specifying the resultant adjusted Conversion
Price then in effect.

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e)    Reservation of Shares.  The Company warrants
and agrees that it shall at all times reserve and keep available, free from
preemptive rights, sufficient authorized and unissued shares of Common Stock to
effect conversion of this Debenture.

f)    Registration Rights.  The Holder has certain rights with respect to
the registration of shares of Common Stock issued upon the conversion of this
Debenture, such rights being specifically set forth in the Purchase Agreement
entered into by and between Holder and the Company on the date hereof.

g)   Intentionally Deleted.

Section 4.               Registration of Transfers and
Exchanges.

a)             Different Denominations. This Debenture is
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holder surrendering the
same.  No service charge will be made for
such registration of transfer or exchange.

b)            Investment Representations. This Debenture has
been issued subject to certain investment representations of the original
Holder set forth in the Purchase Agreement and may be transferred or exchanged
only in compliance with the Purchase Agreement and applicable federal and state
securities laws and regulations.

c)             Reliance on Debenture Register. Prior to due
presentment to the Company for transfer of this Debenture, the Company and any
agent of the Company may treat the Person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture is overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.

Section 5.               Negative Covenants. So
long as any portion of this Debenture is outstanding, without the prior written
consent of the Holder, which consent may be withheld in the sole discretion of
the Holder, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly:

a)             Indebtedness. 
Other than equipment leases of up to $­­­­­­­25,000 in the aggregate for
any 12 month period, enter into, create, incur, assume or suffer to exist any
indebtedness or Liens, on or with respect to any of its property or assets now
owned or hereafter acquired or any interest therein or any income or profits
therefrom that is senior to, or pari  passu with, in any respect,
the Company’s obligations under the Debentures; provided,
however, that this provision shall not prevent the Company from
entering into 

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any transaction, the
purpose of which is to repay this Debenture, provided all proper notices are
given in accordance herewith;

b)            Repayment of Indebtedness.  Repay any principal due and owing on any
promissory notes, debentures, or other forms of indebtedness, other than (i)
periodic interest payments due and owing thereunder; (ii) repayment due of any
principal amount or interest due or becoming due under this Debenture; and
(iii) repayment of the indebtedness set forth in Schedule 4.9 to the Purchase
Agreement; provided, nothing contained in this section shall prohibit the
Company from making any payments with respect to trade payables made in the
ordinary course of the Company’s business;

c)             Repayment of Shares.  Repay, repurchase or offer to repay,
repurchase or otherwise acquire more than a de minimus number of shares of its
Common Stock or other equity securities or as otherwise permitted by the
Transaction Documents; 

d)            Bylaws.      Amend
its certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder in its capacity as a holder of the
Debentures;

e)             Loans and Investments.  Lend or advance money, credit or property to
any person or entity, or invest in (by capital contribution or otherwise), or
purchase or repurchase the stock or indebtedness or assets or properties of any
person or entity, or agree to do any of the foregoing, other than in the
ordinary course of business; 

f)             Guarantees. 
Assume, endorse or otherwise become or remain liable in connection with
the obligations (including accounts payable) of any other person or entity,
other than in the ordinary course of business.

g)            Sale of Assets, Dissolution, Etc.  Transfer, sell, assign, lease or otherwise
dispose of any of its properties or assets, or any assets or properties
necessary or desirable for the proper conduct of its business, or transfer,
sell, assign or otherwise dispose of any of its accounts, or contract rights to
any person or entity, or change the nature of its business, wind-up,
liquidate or dissolve, or agree to any of the foregoing, other than in the
ordinary course of business;

h)            Acquisition of Assets.  Agree to purchase, acquire, or lease of any
assets of any Person, other than in the ordinary course of business;

i)              Compensation. 
Increase the compensation of any of its officers or consultants making
more than $100,000 per year, hire any relative of any officer, director or
shareholder of the Company, or pay a bonus to any such person.  

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j)              Subsidiaries. Establish or form a partially or
wholly owned Subsidiary.  Sell, transfer
or assign any interest in the Company’s existing Subsidiaries.

k)             No Further Issuance of Securities.  Other than in accordance herewith, create,
issue or permit the issuance of any additional securities of the Company or of
any of its Subsidiaries (including with respect to any Qualifying Transaction),
if any, or any rights, options or warrants to acquire any such securities and
in the event that Company desires to issue securities with preferences or
rights greater than that which the Common Stock has, the Holder will have the
option of converting into such stock in lieu of the Common Stock hereby;  

l)              No Dividends; No Redemption.  Declare any dividend, pay or set aside for
payment any dividend or other distribution, in cash, stock, or other property,
or make any payment to any related parties, including to any preferred
stockholders, as a dividend, redemption, or otherwise, other than the payment
of salaries in the ordinary course of business.

m)            Stock Splits.  
Undertake a reverse or forward stock split or reclassification of the
Common Stock; or

n)            Agreement.  
Enter into any agreement obligating the Company to undertake any of the
matters set forth in this Section 5.

Section 6.             Affirmative Covenants.  So long as any portion of this Debenture is
outstanding and unless the Holder otherwise consents in writing, which consent
may be withheld in the sole discretion of the Holder, the Company will:

a)             Taxes and Liens. 
Promptly pay, or cause to be paid, all taxes, assessments and other
governmental charges which may lawfully be levied or assessed upon the income
or profits of the Company, or upon any property, real, personal or mixed,
belonging to the Company, or upon any part thereof, and also any lawful claims
for labor, material and supplies which if unpaid, might become a lien or charge
against any such property; provided, however, the Company shall
not be required to pay any such tax, assessment, charge, levy or claim so long
as the validity thereof shall be actively contested in good faith by proper
proceedings; but, provided  further that any such tax, assessment,
charge, levy or claim shall be paid or bonded in a manner satisfactory to the
Holder upon the commencement of proceedings to foreclose any lien securing the
same.

b)            Business and Existence.  Do or cause to be done all things necessary
to preserve and to keep in full force and effect any licenses necessary to the
business of the Company, its corporate existence and rights of its franchises,
trade names, trademarks, 

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and permits which are
reasonably necessary for the continuance of its business; and continue to
engage principally in the business currently operated by the Company.

c)             Insurance and Properties.  Keep its business and properties insured at
all times with responsible insurance companies and carry such types and amounts
of insurance as are required by all federal, state and local governments in the
areas which the Company does business and as are usually carried by entities
engaged in the same or similar business similarly situated.  In addition, the Company shall maintain in
full force and effect policies of liability insurance in amounts at least equal
to that currently in effect.

d)            Maintain Property and Assets.  Maintain its property and assets in good
order and repair and, from time to time, make all needed and proper repairs,
renewals, replacements, additions and improvements thereto, so that the
business carried on may be properly and advantageously conducted at all times
in accordance with prudent business management, and maintain annually adequate
reserves for maintenance thereof.

e)             True Books. 
Keep true books of record and account in which full, true and correct
entries will be made of all of its dealings and transactions, and set aside on
its books such reserves as may be required by GAAP, consistently applied, with
respect to all taxes, assessments, charges, levies and claims referred to in
(a) above, and with respect to its business in general, and include such
reserves in interim as well as year-end financial statements.

f)             Right of Inspection.  Permit any person designated by the Holder,
at the Holder’s expense, to visit and inspect any of the properties, books and
financial reports of the Company, all at such reasonable times upon three (3)
Business Days prior notice to Company, and as often as the Holder may
reasonably request, provided the Holder does not unreasonably interfere with
the daily operations of the Company and Holder executes a confidentiality
agreement.

g)            Observance of Laws.  Conform to and duly observe all laws,
regulations and other valid requirements of any regulatory authority with
respect to the conduct of its business except those that would not cause a
Material Adverse Effect, as determined in the reasonable discretion of the
Holder.

h)            Company’s Knowledge of Default.  Upon an officer or director of the Company
obtaining knowledge of, or threat of, an Event of Default hereunder, cause such
officer to promptly, within no more than five (5) Business Days, deliver to the
Holder notice thereof specifying the nature thereof, the period of existence
thereof, and what action the Company has taken and/or proposes to take with
respect thereto.

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i)              Notice of Proceedings.  Upon an officer or director of the Company
obtaining knowledge of any material litigation, dispute or proceedings being
instituted or threatened against the Company, or any attachment, levy,
execution or other process being instituted against any assets of the Company,
cause such officer to promptly, within no more than five (5) Business Days,
give the Holder written notice of such litigation, dispute, proceeding, levy,
execution or other process.

j)              Certificate of Covenant Compliance Within 30
days of the last day of each March, June, September and December, the Company
will issue a Certificate of Covenant Compliance, executed by either the Chief
Executive Officer or Chief Financial Officer in the form of Exhibit A
attached hereto.  If the Company is not
in compliance with the covenants specified in this Section 5, the Company will
modify the Certificate of Covenant Compliance by stating the exception and
providing a detailed explanation of the non-compliance.

k)             Payment of Holder’s Expenses.  If at any time or times hereafter, Holder
employs counsel in connection with the execution and consummation of the
transactions contemplated by this Debenture or to commence, defend or
intervene, file a petition, complaint, answer, motion or other pleading, or to
take any action in or with respect to any suit or proceeding (bankruptcy or
otherwise) relating to this Debenture or any other Transaction Document, or any
other agreement, guaranty, note, instrument or document heretofore, now or at
any time or times hereafter executed by the Company and delivered to Holder, or
to enforce any rights of Holder hereunder whether before or after the
occurrence of any Event of Default, or to collect any of the Liabilities, then
in any of such events, all of the reasonable attorneys’ fees arising from such
services, and any expenses, costs and charges relating thereto, shall be part
of the Liabilities, payable on demand.

l)              Financial Reporting.  The Company shall provide to Holder audited
annual financial statements, audited by mutually agreed upon independent
certified public accounting firm.  Said
financial statements shall be prepared in accordance with GAAP, consistently
applied, and shall be delivered to Holder within ninety (90) days after the close
of the Company’s fiscal year.  The report
of the auditor that accompanies the financial statements shall not contain any
qualifications or limitations, such auditor to be a mutually agreeable
accounting firm.  The Company’s fiscal
year ends on December 31, and shall not be changed without the prior written
consent of the Holder.  The Company shall
provide to Holder unaudited monthly financial statements (including month to
date and year to date actual to prior periods) and a report in such form as is
acceptable to Holder, both presented in accordance with GAAP, consistently
applied (subject to such exceptions for interim financials as may be noted by
the Company thereon), and shall be delivered to Holder within twenty-five (25)
days after the close of the Company’s month. 
The Company shall also deliver any other reports reasonably 

 13
 

 

requested by
Holder.  If the statements or reports are
not delivered within twenty-five (25) days of the close of any month, then the
Company will pay a late fee of $250 per day until the report is delivered in
adequate form in the sole discretion of Holder.

m)           Financial Covenants.  As of the 60th date
following the date of this Agreement and thereafter continuing until the
Termination Date, the Company must maintain the following ratios:

(i)           Cash Interest Coverage.
Until this Debenture is repaid in full, the Company shall maintain a
Consolidated EBITDA ratio, based on any of the Company’s quarterly financial
statements (as determined on the last day of each fiscal quarter for the
immediately preceding quarter), of 2.0 or greater.  The Consolidated EBITDA ratio is defined as
Consolidated EBITDA divided by Interest Expense (Consolidated EBITDA ÷ Interest
Expense).

(ii)          Cash Flow Coverage Ratio.  The ratio of (a) the Company’s Cash Flow to
(b) the sum of (i) the Company’s consolidated Interest Expense plus (ii) the
Company’s scheduled payments of principal (including the principal component of
Capital Leases) to be paid during the 12 months following any date of
determination shall at all times exceed (1) 1.5 to 1.0.  Compliance with the ratio will be tested as
of the last day of each month, with Cash Flow and Interest Expense being
calculated for the twelve months then ended.

(iii)         Current Ratio.  The Company will at all times maintain a
Current Ratio of not less than 1.5 to 1.0. 
The Current Ratio shall be calculated and tested quarterly as of the
last day of each fiscal quarter of the Company.

(iv)         Actual versus Budget.  The Company shall
on a quarterly basis achieve 75 percent of its budgeted revenue and
income.  Budget numbers shall be those
delivered to Holder contemporaneously herewith and then on an annual calendar
basis.

Section 7.             Events of Default.

a)             “Event of Default”,
wherever used herein, means any one of the following events (whatever the
reason and whether it shall be voluntary or involuntary or effected by
operation of law or pursuant to any judgment, decree or order of any court, or
any order, rule or regulation of any administrative or governmental body):

i.              any default in the payment of (A)
the principal amount of any Debenture, or (B) interest (including Late Fees)
on, or liquidated damages in respect of, any Debenture, in each case free of
any claim of subordination, as and when the same shall become due and payable
(whether on the Maturity Date or by acceleration or otherwise);

 14
 

 

 

ii.             the Company shall fail to observe
or perform any other covenant or agreement contained in this Debenture or any
of the other Transaction Documents which failure is not cured, if possible to
cure, within the earlier to occur of (A) 10 Business Days after notice of such
default sent by the Holder or by any other Holder and (B) 10 Business Days
after the Company shall become or should have become aware of such failure;

iii.            a default or event of default
(subject to any grace or cure period provided for in the applicable agreement,
document or instrument) shall occur under (A) any of the Transaction Documents
or (B) any other material agreement, lease, document or instrument to which the
Company or any Subsidiary is bound and not cured;

iv.            any representation or warranty made
herein, in any other Transaction Documents, in any written statement pursuant
hereto or thereto, or in any other report, financial statement or certificate
made or delivered to the Holder or any other holder of Debentures shall be
untrue or incorrect in any material respect as of the date when made or deemed
made;

v.             there shall have occurred a
Bankruptcy Event;

vi.            the Company or any Subsidiary shall
default in any of its obligations under any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or evidenced any
indebtedness for borrowed money or money due under any long term leasing or factoring
arrangement of the Company in an amount exceeding $100,000, whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable.

vii.           the Company shall be a party to any
Change of Control Transaction or Fundamental Transaction, shall agree to sell
or dispose of all or in excess of 33% of its assets in one or more transactions
(whether or not such sale would constitute a Change of Control Transaction) or
shall redeem or repurchase any its outstanding shares of Common Stock or Common
Stock Equivalents;

viii.          the Company shall fail to have
available a sufficient number of authorized and unreserved shares of Common
Stock to issue to such Holder upon exercise of the Warrants in full and not
remedied as permitted in the Transaction Documents;

 15
 

 

 

ix.            the Company shall redeem any of  the Common Stock Equivalents;

x.             upon the reasonable determination
by the Holder that there has been a Material Adverse Effect; or

xi.            the occurrence of an Activity Event
of Default (as defined in Section 5.1(f)(ii) of the Purchase Agreement).

b)            Remedies Upon Event of Default. If any Event of
Default occurs, the full principal amount of this Debenture, together with
interest and other amounts owing in respect thereof, to the date of
acceleration shall become, at the Holder’s election, immediately due and
payable in cash.   Commencing 5 days
after the occurrence of any Event of Default that results in the eventual
acceleration of this Debenture, the interest rate on this Debenture shall
accrue at the rate of 18% per annum, or such lower maximum amount of interest
permitted to be charged under applicable law or regulation.  All Debentures for which the full principal
amount hereunder shall have been paid in accordance herewith shall promptly be
surrendered to or as directed by the Company. 
The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, 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.  Such declaration may be
rescinded and annulled by Holder at any time prior to payment hereunder and the
Holder shall have all rights as a Debenture holder until such time, if any, as
the full payment under this Section shall have been received by it.  No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.

Section 8.             Miscellaneous.

a)             Notices. 
Any and all notices or other communications or deliveries to be provided
by the Holders hereunder shall be in writing and delivered personally, by
facsimile, sent by a nationally recognized overnight courier service, addressed
to the Company, at the address set forth above, facsimile number (281) 825-4955, Attn: Chief Executive Officer, 8708
Technology Forest Place, Suite 100, The Woodlands, Texas 77381, or such other address or facsimile number
as the Company may specify for such purposes by notice to the Holders delivered
in accordance with this Section.  Any and
all notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service addressed to each Holder at the
facsimile number or address of such Holder appearing herein, or such other
address or facsimile number as such Holder may specify in accordance with this
Section.  Any notice or other
communication or deliveries hereunder shall be deemed given and effective on
the 

 16
 

 

earliest of (i) the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 5:30 p.m.
(Dallas, Texas time), (ii) the date after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section later than 5:30 p.m. (Dallas, Texas time) on
any date and earlier than 11:59 p.m. (Dallas, Texas time) on such date, (iii)
the second Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.

b)            Absolute Obligation. Except as expressly provided
herein, no provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Debenture at the time, place,
and rate, and in the coin or currency, herein prescribed.  This Debenture is a direct debt obligation of
the Company.  This Debenture ranks pari
passu with all other Debentures now or hereafter issued under the terms
set forth herein.

c)             Security Interest.  This Debenture is a direct debt obligation of
the Company and, pursuant to the Security Documents, is secured by a first
priority security interest in all of the assets of the Company and certain
other collateral for the benefit of the Holders.

d)            Lost or Mutilated Debenture.  If this Debenture shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested,
all reasonably satisfactory to the Company.

e)             Governing Law. 
All questions concerning the construction, validity, enforcement and
interpretation of this Debenture shall be governed by and construed and
enforced in accordance with the internal laws of the State of Texas, without
regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced in the state and federal courts sitting
in the City of Dallas, Texas (the “Dallas Courts”).  Each party hereto hereby irrevocably submits
to the exclusive jurisdiction of the Dallas Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the
enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not 

 17
 

 

personally subject to the
jurisdiction of any such court, or such Dallas Courts are improper or
inconvenient venue for such proceeding. 
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 Debenture 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.
Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Debenture or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of this Debenture, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

f)             Waiver. 
Any waiver by the Company or the Holder of a breach of any provision of
this Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture.  The failure of the Company or
the Holder to insist upon strict adherence to any term of this Debenture on one
or more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Debenture.  Any waiver must be in
writing.

g)            Severability. 
If any provision of this Debenture is invalid, illegal or unenforceable,
the balance of this Debenture shall remain in effect, and if any provision is
inapplicable to any person or circumstance, it shall nevertheless remain
applicable to all other persons and circumstances.  If it shall be found that any interest or
other amount deemed interest due hereunder violates applicable laws governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum permitted rate of interest. The Company covenants
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on this Debenture as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Company (to the extent it may lawfully
do so) hereby expressly waives all benefits or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or impeded
the execution of any power herein granted to the Holder, but will suffer and
permit the execution of every such as though no such law has been enacted.

 18
 

 

 

h)            Next Business Day. 
Whenever any payment or other obligation hereunder shall be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day.

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

j)              Usury.  To
the extent it may lawfully do so, the Company hereby agrees not to insist upon
or plead or in any manner whatsoever claim, and will resist any and all efforts
to be compelled to take the benefit or advantage of, usury laws wherever
enacted, now or at any time hereafter in force, in connection with any claim,
action or proceeding that may be brought by any Purchaser in order to enforce
any right or remedy under any Transaction Documents.  Notwithstanding any provision to the contrary
contained in any Transaction Documents, it is expressly agreed and provided
that the total liability of the Company under the Transaction Documents for
payments in the nature of interest shall not exceed the Maximum Rate, and,
without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. 
It is agreed that if the maximum contract rate of interest allowed by
law and applicable to the Transaction Documents is increased or decreased by
statute or any official governmental action subsequent to the date hereof, the
new maximum contract rate of interest allowed by law will be the Maximum Rate
applicable to the Transaction Documents from the effective date of such
increase or decrease forward, unless such application is precluded by applicable
law.  If under any circumstances
whatsoever, interest in excess of the Maximum Rate is paid by the Company to
any Purchaser with respect to indebtedness, if any, evidenced by the
Transaction Documents, such excess shall be applied by such Purchaser to the
unpaid principal balance of any such indebtedness or be refunded to the
Company, the manner of handling such excess to be at such Purchaser’s election
in the event any principal amount remains outstanding.

(k)            Amendment.  This Agreement may not be amended,
supplemented or modified, except by an agreement in writing signed by each of
the parties hereto.

[Signature Page Follows]

 

 19

 

IN
WITNESS WHEREOF, UniPixel and UniPixel Displays have caused
this Debenture to be duly executed by a duly authorized officer as of the date
first above indicated.

 

	
  

  	
  UNIPIXEL, INC.

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Reed Killion

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  UNIPIXEL DISPLAYS, INC.

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Reed Killion

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  

 

 

 

EXHIBIT A

We,
the undersigned, hereby represent that UniPixel, Inc. and UniPixel Displays,
Inc. are in compliance with all of their respective covenants specified in
Sections 5 and 6 of that certain 12% Senior Secured Convertible Debenture
originally dated as of May 24, 2006, executed by such parties, each with their
principal place of business located at 8708 Technology Forest Place, Suite 100,
The Woodlands, Texas 77381, in favor of Capsource Fund, L.P., a Mississippi
limited partnership, having its principal place of business located at 795
Woodlands Parkway, Suite 100, Ridgeland, MS 39157.

	
  

  	
  UNIPIXEL, INC.

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: 

  
	
   

  	
   

  	
  Title: 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  UNIPIXEL DISPLAYS, INC.

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: 

  
	
   

  	
   

  	
  Title:Exhibit 4.9

NEITHER THIS SECURITY NOR
THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE 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, 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 ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. 
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY SUCH SECURITIES AS PERMITTED BY LAW AND THE SECURITIES PURCHASE
AGREEMENT PURSUANT TO WHICH THE SECURITIES WERE ISSUED.

	
                   COMMON STOCK PURCHASE WARRANT

  	
   

  	
  NO. 1

  

 

To Purchase Shares of Common Stock of

UNIPIXEL, INC.

This COMMON STOCK
PURCHASE WARRANT (this “Warrant”)
certifies that, for value received, TRIDENT GROWTH FUND, L.P., a Delaware
limited partnership (the “Holder”),
is entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time on or after the date hereof, May
24, 2006 (the “Initial Exercise Date”),
and on or prior to the close of business on the fifth anniversary of the
Initial Exercise Date (the “Termination Date”),
to subscribe for and purchase from UNIPIXEL, INC., a Delaware corporation (the “Company”), such number of shares
of common stock, par value $001 per share, of the Company (the “Common Stock”), subject to
adjustment herein (the “Warrant Shares”)
as follows:

750,000 divided
by: the lesser of (i) $1.75; or (ii) 70% of the average price per share of the Common Stock and Common Stock
Equivalents sold to any Person in the first Qualifying Transaction to be
consummated following the Original Issue Date (determined by dividing the total
number of shares of Common Stock issued plus shares issuable under Common Stock
Equivalents in such Qualifying Transaction, by the aggregate consideration
received by the Company plus all consideration to be received upon
exercise or conversion of all Common Stock Equivalents issued in such
Qualifying Transaction).  With respect to
determining the price paid per share in any asset purchase, only shares of
Common Stock actually issued and outstanding shall be used in determining such
per share calculation.

In the event no Qualifying Transaction has been consummated on or by
the first anniversary hereof, then the number of Warrant Shares purchasable
hereby shall equal 5% (subject to adjustment as set forth in Section 4.15 of
the Purchase Agreement) of then outstanding Common Stock, computed on a Fully
Diluted Basis.

 1
 

 

 

Notwithstanding the foregoing, the parties agree that the number of
Warrant Shares to be issued in accordance herewith shall be adjusted up from
the determination resulting from the foregoing formula by mutual agreement of
the parties in the event that any convertible securities are sold to investors
in any Qualifying Transaction, the parties hereby recognizing that the issuance
thereof, even at an exercise or conversion price above the Exercise Price (as
defined below), would increase the value of the securities issued to such
investors and thus entitle Holder to a greater number of Warrant Shares.  The parties agree to negotiate such
determination in good faith.

The purchase price
of one share of Common Stock under this Warrant shall be equal to the Exercise
Price, as defined in Section 2(b).

Section 1.               Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “Purchase Agreement”), of even date herewith, entered
into by and among the Company and the Holder.

Section 2.               Exercise.

a)             Exercise
of Warrant.  Exercise of the purchase
rights represented by this Warrant may be made at any time or times on or after
the Initial Exercise Date and on or before the Termination Date (each, an “Exercise Date”) by delivery to
the Company of a duly executed facsimile copy of the Notice of Exercise Form
annexed  hereto (or such other office or
agency of the Company as it may designate by notice in writing to the
registered Holder at the address of such Holder appearing on the books of the
Company); provided, however,
within five Business Days of the date said Notice of Exercise is delivered to
the Company, the Holder shall have surrendered this Warrant to the Company and
the Company shall have received  payment
of the aggregate Exercise Price of the shares thereby purchased by wire
transfer or cashier’s check drawn on a United States bank.

b)            Exercise Price.  The Exercise Price (so called
herein) of each share of Common Stock under this Warrant shall be equal to the
lesser of:

(i)                                     90%
of the average price per share of the Common Stock and Common Stock
Equivalents sold to any Person in the first Qualifying Transaction to be
consummated following the Initial Exercise Date (determined by dividing the
total number of shares of Common Stock issued plus shares issuable under Common
Stock Equivalents in such Qualifying Transaction, by the aggregate
consideration received by the Company plus all consideration to be received
upon exercise or conversion of all Common Stock Equivalents issued in such
Qualifying Transaction).  With respect to
determining the price paid per share in any asset purchase, only shares of
Common Stock actually issued and outstanding shall be used in determining such
per share calculation; or

 2
 

 

 

(ii)                                  $1.75 per share (which such Exercise Price
shall apply in the event no Qualifying Transaction has closed on or by the
Exercise Date.

Notwithstanding the
foregoing, the parties agree that the Exercise Price shall be adjusted down
from the determination resulting from the foregoing formula by mutual agreement
of the parties in the event that any convertible securities are sold to
investors in any Qualifying Transaction, the parties hereby recognizing that
the issuance thereof, even at an exercise or conversion price above the
Exercise Price, would increase the value of the securities issued to such
investors and thus entitle Holder to a greater number of shares of Common Stock
upon conversion hereof.  The parties
agree to negotiate such determination in good faith.

c)             Cashless
Exercise.  If at any time after one
year from the date of issuance of this Warrant there is no effective
Registration Statement registering the resale of the Warrant Shares by the
Holder, then this Warrant may also be exercised at such time by means of a “cashless
exercise” in which the Holder shall be entitled to receive a certificate for
the number of Warrant Shares equal to the quotient obtained by dividing [(A-B)
(X)] by (A), where:

(A)             =   the price of said Common Stock determined by
reference to the last reported sale price for the Common Stock on such day on
the principal securities exchange on which the Common Stock is listed or
admitted to trading or if no such sale takes place on such date, the average of
the closing bid and asked prices thereof as officially reported, or, if not so
listed or admitted to trading on any securities exchange, the last sale price
for the Common Stock on the National Association of Securities Dealers national
market system on such date, or, if there shall have been no trading on such
date or if the Common Stock shall not be listed on such system, the average of
the closing bid and asked prices in the over-the-counter market as furnished by
any NASD member firm selected from time to time by the Company for such purpose
or, if the Common Stock is not traded, then such price as is reasonably
determined by the Company’s Board of Directors (the “Market
Value”);

(B)               =   the Exercise Price of this Warrant, as
adjusted; and

(X)              =   the number of Warrant Shares issuable upon exercise
of this Warrant in accordance with the terms of this Warrant by means of a cash
exercise rather than a cashless exercise.

Notwithstanding anything herein to the contrary, on
the Termination Date, this Warrant shall be automatically exercised via cashless
exercise pursuant to this Section 2(c).

d)            Exercise
Limitations.  The Holder shall not
have the right to exercise any portion of this Warrant, pursuant to Section 2
or otherwise, to the extent that after giving 

 3
 

 

effect to such issuance after exercise, the Holder
(together with the Holder’s affiliates), as set forth on the applicable Notice
of Exercise, would beneficially own in excess of 4.99% (or as applicable,
9.99%) of the number of shares of the Common Stock outstanding immediately
after giving effect to such issuance.  For purposes of the foregoing
determination, the number of shares of Common Stock beneficially owned by the
Holder and its affiliates shall include the number of shares of Common Stock
issuable upon such exercise of this Warrant less the number of shares of Common
Stock which would be issuable upon (A) exercise of the remaining, nonexercised
portion of this Warrant and (B) exercise or conversion of the unexercised or
unconverted portion of any other Securities (including, without limitation, any
other Debentures or Warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the
Holder.  Except as set forth in the preceding sentence, for purposes of
this Section 2(d), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act.  To
the extent that the limitation contained in this Section 2(d) applies, the
determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder) and of which a portion of this Warrant is
exercisable shall be in the sole discretion of such Holder.  For purposes of this Section 2(d), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x) Schedule
3.1(g) to the Purchase Agreement, (y) a more recent public announcement by
the Company, including the most recent annual or quarterly report of Form
10-KSB or 10-QSB filed with the Commission; or (z) any other notice by the
Company or the Company’s transfer agent setting forth the number of shares of
Common Stock outstanding.  Upon the written or oral request of the Holder,
the Company shall within two Business Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding.  The
provisions of this Section 2(d) may be waived by the Holder upon, at the
election of the Holder, not less than 61 days’ prior notice to the Company, and
the provisions of this Section 2(d) shall continue to apply until such 61st day
(or such later date, as determined by the Holder, as may be specified in such
notice of waiver).

e)             Mechanics
of Exercise.

i.      Authorization
of Warrant Shares.  The Company
covenants that all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issuance thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issuance). 
The Company covenants that during the period the Warrant is outstanding,
it will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Warrant Shares upon the
exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance
of this Warrant shall constitute full authority to its officers who are charged
with the duty of executing stock certificates to execute and issue the
necessary certificates for the Warrant Shares upon the exercise of the purchase
rights under this Warrant.  The 

 4
 

 

Company will take all such reasonable action as may be
necessary to assure that such Warrant Shares may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements
of the Trading Market upon which the Common Stock may be listed.

ii.     Delivery
of Certificates Upon Exercise. 
Certificates for shares purchased hereunder shall be transmitted by the
transfer agent of the Company to the Holder by crediting the account of the
Holder’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (“DWAC”) system if the Company is a
participant in such system and if the certificates may be issued without a
restrictive legend in accordance with applicable federal securities laws, and
otherwise by physical delivery to the address specified by the Holder in the
Notice of Exercise within two (2) Business Days from the delivery to the
Company of the Notice of Exercise Form, surrender of this Warrant and payment
of the aggregate Exercise Price as set forth above (“Warrant
Share Delivery Date”). 
This Warrant shall be deemed to have been exercised on the date the
Exercise Price is received by the Company. 
The Warrant Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the Exercise Price and
all taxes required to be paid by the Holder, if any, pursuant to Section
2(d)(vii) prior to the issuance of such shares, have been paid.

iii.    Delivery
of New Warrants Upon Exercise.  If
this Warrant shall have been exercised in part, the Company shall, at the time
of delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.

iv.    Rescission
Rights.  If the Company fails to
cause its transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this Section 2(d)(iv)
by the Warrant Share Delivery Date, then the Holder will have the right to
rescind such exercise.

v.     Failure
to Timely Deliver Certificates Upon Exercise.  In addition to any other rights available to
the Holder, if the Company or the Company’s transfer agent fails to cause
delivery to the Holder of a certificate or certificates representing the
Warrant Shares or if the Company or its transfer agent fails to deliver such
certificates without the restrictive legend (if applicable) on or before the
Warrant Share Delivery Date, the Company shall pay to Purchaser, in cash, as
partial liquidated damages and not as a penalty, the greater of (i) $500 for
each Business 

 5
 

 

Day after the Warrant Share Delivery Date until such
certificate is delivered with an appropriate legend or without a restrictive
legend, as the case may be; and (ii) the difference in the Market Value of the
Warrant Shares on the Warrant Share Delivery Date and the date such shares are
actually received by the Holder.  Nothing
herein shall limit Purchaser’s right to pursue actual damages for the Company’s
failure to deliver certificates representing any Securities as required herein,
and Purchaser shall have the right to pursue all remedies available to it at
law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief.

vi.    No
Fractional Shares or Scrip.  No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall round such fractional share up to the next
whole number.

vii.   Charges,
Taxes and Expenses.  Issuance of
certificates for Warrant Shares shall be made without charge to the Holder for
any issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be paid by
the Company, and such certificates shall be issued in the name of the Holder or
in such name or names as may be directed by the Holder; provided, however,
that in the event certificates for Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto duly executed by
the Holder; and the Company may require, as a condition thereto, the payment of
a sum sufficient to reimburse it for any transfer tax incidental thereto.

viii.  Closing
of Books.  The Company will not close
its stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

Section 3.               Certain Adjustments.

a)             Stock
Dividends and Splits. If the Company, at any time while this Warrant is
outstanding: (A) pays a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock excluding
Payment-in-Kind Preferred Stock Dividends as provided for in the Company’s
Series A, B, or other Preferred Stock offerings (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Company pursuant to
this Warrant), (B) subdivides outstanding shares of Common Stock into a larger
number of shares, (C) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (D)
issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then in each case the Exercise Price shall be multiplied
by a 

 6
 

 

fraction of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding after such event and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted.  Any adjustment made pursuant to this Section
3(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of
a subdivision, combination or re-classification.

b)            Subsequent
Equity Sales. If the Company at any time while this Warrant is outstanding,
shall offer, sell, grant any option to purchase or offer, sell or grant any
right to reprice its securities, or otherwise dispose of or issue  any Common Stock or Common Stock Equivalents
entitling any Person to acquire shares of Common Stock, at an effective price
per share less than the then Exercise Price (such lower price, the “Base Share Price” and such
issuances collectively, a “Dilutive Issuance”),
as adjusted hereunder (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights per share which is issued
in connection with such issuance, be entitled to receive shares of Common Stock
at an effective price per share which is less than the Exercise Price, such
issuance shall be deemed to have occurred for less than the Exercise Price),
then, the Exercise Price shall be reduced to equal the Base Share Price and the
number of Warrant Shares issuable hereunder shall be increased such that the
aggregate Exercise Price payable hereunder, after taking into account the
decrease in the Exercise Price, shall be equal to the aggregate Exercise Price
prior to such adjustment.  Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued.  The Company shall notify the
Holder in writing, no later than the Business Day following the issuance of any
Common Stock or Common Stock Equivalents subject to this section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”).  For purposes of clarification, whether or not
the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b),
upon the occurrence of any Dilutive Issuance, after the date of such Dilutive
Issuance the Holder is entitled to receive a number of Warrant Shares based
upon the Base Share Price regardless of whether the Holder accurately refers to
the Base Share Price in the Notice of Exercise.

c)             Pro
Rata Distributions.  If the Company,
at any time prior to the Termination Date, shall distribute to all holders of
Common Stock (and not to Holders of the Warrants) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any security other
than the Common Stock (which shall be subject to Section 3(b)), then in each
such case the Exercise Price shall be adjusted by multiplying the Exercise
Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the closing bid price of the Common Stock on the then
principal Trading Market determined as of the record date mentioned above (if
the closing bid price of the Common Stock on the then principal Trading Market
shall then be determinable and otherwise the fair market value per share as
determined by the Board of Directors in good 

 7
 

 

faith, and of which the numerator shall be such
closing bid price of the Common Stock on the then principal Trading Market on
such record date less the then per share fair market value at such record date
of the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of the Common Stock as determined by the Board of
Directors in good faith.  In either case
the adjustments shall be described in a statement provided to the Holders of
the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any
such distribution is made and shall become effective immediately after the
record date mentioned above.

d)            Fundamental
Transaction. If, at any time while this Warrant is outstanding, there
occurs a Fundamental Transaction, then, upon any subsequent conversion of this
Warrant, the Holder shall have the right to receive, for each Warrant Share
that would have been issuable upon such exercise absent such Fundamental
Transaction, at the option of the Holder, (a) upon exercise of this Warrant,
the number of shares of Common Stock of the successor or acquiring corporation
or of the Company, if it is the surviving corporation, and Alternate Consideration
receivable upon or as a result of such reorganization, reclassification,
merger, consolidation or disposition of assets by a Holder of the number of
shares of Common Stock for which this Warrant is exercisable immediately prior
to such event or (b) if the Company is acquired in an all cash transaction,
cash equal to the value of this Warrant as determined by the difference between
the applicable Exercise Price and the amount of cash paid per share to the
shareholders of the Company (the “Alternate Consideration”).  For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted to apply to
such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Exercise Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction.  To the extent
necessary to effectuate the foregoing provisions, any successor to the Company
or surviving entity in such Fundamental Transaction shall issue to the Holder a
new warrant consistent with the foregoing provisions and evidencing the Holder’s
right to exercise such warrant into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall include
terms requiring any such successor or surviving entity to comply with the
provisions of this Section 3(d) and insuring that this Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

e)             Exempt
Issuance. Notwithstanding the foregoing, no adjustments, Alternate
Consideration, nor notices shall be made, paid, or issued under this Section 3
in respect of an Exempt Issuance.

f)             Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. The number of shares 

 8
 

 

of Common Stock outstanding at any given time shall
not includes shares of Common Stock owned or held by or for the account of the
Company, and the description of any such shares of Common Stock shall be
considered on issue or sale of Common 
Stock.  For purposes of this
Section 3, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding treasury shares, if any) issued and outstanding.

g)            Voluntary
Adjustment By Company. The Company may at any time during the term of this
Warrant reduce the then current Exercise Price to any amount and for any period
of time deemed appropriate by the Board of Directors of the Company.

h)            Intentionally Omitted.

i)              Notice
to Holders.

i.      Adjustment to Exercise Price. Whenever the Exercise
Price is adjusted pursuant to this Section 3, the Company shall promptly mail
to each Holder a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment. If
the Company issues a variable rate security, despite the prohibition thereon in
the Purchase Agreement, the Company shall be deemed to have issued Common Stock
or Common Stock Equivalents at the lowest possible conversion or exercise price
at which such securities may be converted or exercised in the case of a
Variable Rate Transaction (as defined in the Purchase Agreement), or the lowest
possible adjustment price in the case of an MFN Transaction.  The term “MFN
Transaction” shall mean a transaction in which the Company
issues or sells any securities in a capital raising transaction or series of
related transactions which grants to an investor the right to receive additional
shares based upon future transactions of the Company on terms more favorable
than those granted to such investor in such offering.

ii.   Notice
to Allow Exercise by Holder. If (A) the Company shall declare a dividend
(or any other distribution) on the Common Stock; (B) the Company shall declare
a special nonrecurring cash dividend on or a redemption of the Common Stock;
(C) the Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, of any compulsory
share exchange whereby the Common Stock is converted into other securities,
cash or property; (E) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then, in
each case, the Company shall cause to be mailed to the Holder at its last
address as it shall appear upon the Warrant 

 9
 

 

Register of the Company, at least 20 calendar days
prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer or share exchange; provided, however that the failure
to mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.  The Holder is entitled to
exercise this Warrant during the 20-day period commencing the date of such
notice to the effective date of the event triggering such notice.

Section 4.               Transfer of Warrant.

a)             Transferability.  Subject to compliance with any applicable securities
laws and the conditions set forth in Sections 5(a) and 4(d) hereof and to the
provisions of Section 4.1 of the Purchase Agreement, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company, together with a written
assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denomination or denominations specified
in such instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of this Warrant not so assigned, and this Warrant shall
promptly be cancelled.  A Warrant, if
properly assigned, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued.

b)            New
Warrants. This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as
to any transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.

c)             Warrant
Register. The Company shall register this Warrant, upon records to be
maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to
time.  The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose
of any 

 10
 

 

exercise hereof or any distribution to the Holder, and
for all other purposes, absent actual notice to the contrary.

d)            Transfer
Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant
shall not be registered pursuant to an effective registration statement under
the Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such transfer (i) that the
Holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities
Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be
an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated
under the Securities Act or a qualified institutional buyer as defined in Rule
144A(a) under the Securities Act.

Section 5.               Covenants.

(a)           Negative Covenants. So
long as any portion of this Warrant is outstanding, without the prior written
consent of the Holder, which consent may be withheld in the sole discretion of
the Holder, the Company will not and will not permit any of its Subsidiaries to
directly or indirectly:

i.              Sale
of Assets, Dissolution, Etc. 
Transfer, sell, assign, lease or otherwise dispose of all or
substantially all of its properties or assets, or any assets or properties
necessary or desirable for the proper conduct of its business, or transfer,
sell, assign or otherwise dispose of any of its accounts, or contract rights to
any person or entity, or change the nature of its business, wind-up,
liquidate or dissolve, or agree to any of the foregoing, other than in the
ordinary course of business;

ii.             No
Further Issuance of Securities. 
Other than in accordance herewith or with respect to an Exempt Issuance,
create, issue or permit the issuance of any additional securities of the
Company or of any of its Subsidiaries (including with respect to any Qualifying
Transaction), if any, or any rights, options or warrants to acquire any such
securities; provided, however, that in
the event that Company desires to issue securities with preferences or rights
greater than that which the Common Stock has and the Holder consents to same,
the Holder will then have the option of converting all or any part of this
Warrant into such stock in lieu of the Common Stock;;

iii.            Agreement.           Enter into any agreement obligating
the Company to undertake any of the matters set forth in this Section 5(a).

 11
 

 

 

(b)          Affirmative Covenants.  So long as any portion of this Warrant is
outstanding and unless the Holder otherwise consents in writing, which consent
may be withheld in the sole discretion of the Holder, the Company will:

i.              True
Books.  Keep true books of record and
account in which full, true and correct entries will be made of all of its
dealings and transactions, and set aside on its books such reserves as may be
required by GAAP, consistently applied, with respect to all taxes, assessments,
charges, levies and claims referred to in (a) above, and with respect to its
business in general, and include such reserves in interim as well as year-end
financial statements; and

ii.             Right
of Inspection.  Permit any person
designated by the Holder, at the Holder’s expense, to visit and inspect any of
the properties, books and financial reports of the Company, all at such
reasonable times upon three (3) Business Days prior notice to the Company, and
as often as the Holder may reasonably request, provided the Holder does not
unreasonably interfere with the daily operations of the Company and Holder
executes a confidentiality agreement.

Section 6.               Miscellaneous.

a)             Title
to Warrant.  Prior to the Termination
Date and subject to compliance with applicable laws and Section 4 of this
Warrant, this Warrant and all rights hereunder are transferable, in whole or in
part, at the office or agency of the Company by the Holder in person or by duly
authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed.  The transferee shall sign an investment
letter in form and substance reasonably satisfactory to the Company.

b)            No
Rights as Shareholder Until Exercise. 
This Warrant does not entitle the Holder to any voting rights or other
rights as a shareholder of the Company prior to the exercise hereof.  Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.

c)             Loss,
Theft, Destruction or Mutilation of Warrant. The Company covenants that
upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant or any stock certificate
relating to the Warrant Shares, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it (which, in the case of the
Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of such Warrant or stock certificate.

d)            Saturdays,
Sundays, Holidays, etc.  If the last
or appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a 

 12
 

 

Saturday, Sunday or a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day not a
Saturday, Sunday or legal holiday.

e)             Authorized
Shares.

The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant.  The
Company will take all such reasonable action as may be necessary to assure that
such Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Trading Market upon
which the Common Stock may be listed.

Except and to the extent as waived or consented to by
the Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate to protect the rights of
Holder as set forth in this Warrant against impairment.  Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any Warrant Shares
above the amount payable therefor upon such exercise immediately prior to such
increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use
commercially reasonable efforts to obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof as may
be necessary to enable the Company to perform its obligations under this
Warrant.

Before taking any action which would result in an
adjustment in the number of Warrant Shares for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.

f)             Jurisdiction.
All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

g)            Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.

 13
 

 

 

h)            Expenses.  If the Company willfully and knowingly fails
to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys’ fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.

i)              Notices.  Any notice, request or other document
required or permitted to be given or delivered to the Holder by the Company
shall be delivered in accordance with the notice provisions of the Purchase
Agreement.

j)              Limitation
of Liability.  No provision hereof,
in the absence of any affirmative action by Holder to exercise this Warrant or
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of Holder, shall give rise to any liability of Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.

k)             Remedies.  Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive the defense
in any action for specific performance that a remedy at law would be adequate.

l)              Successors
and Assigns.  Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended
to be for the benefit of all Holders from time to time of this Warrant and
shall be enforceable by any such Holder or holder of Warrant Shares.

m)            Amendment
and Waiver.  This Warrant may be
modified or amended only with the written consent of the Company and the
Holder.  No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder’s rights,
powers or remedies, notwithstanding the fact that all rights hereunder
terminate on the Termination Date.  

n)            Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

o)            Headings.  The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.

p)            Registration Rights. The Holder
has certain rights with respect to the registration of the Warrant Shares upon
exercise of this Warrant, such rights being 

 14
 

 

specifically set forth in the Purchase Agreement
entered into by and between Holder and the Company on the date hereof.

[Signature Page Follows]

 15

 

 

IN
WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized as of the date first written
above.

	
  

  	
  UNIPIXEL, INC.

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Reed Killion

  
	
   

  	
   

  	
  Title: President

  

 

 

 

 

NOTICE OF EXERCISE

TO:         UNIPIXEL, INC.

(1)   The undersigned hereby elects to purchase
________ Warrant Shares of UniPixel, Inc. pursuant to the terms of the attached
Warrant (only if exercised in full), and tenders herewith payment of the
exercise price in full, together with all applicable transfer taxes, if any.

(2)   Payment shall take the form of (check
applicable box):

[  ] in lawful money of the United States; or

[  ] the cancellation of such number of Warrant
Shares as is necessary, in accordance with the formula set forth in subsection
2(c), to exercise this Warrant with respect to the maximum number of Warrant
Shares purchasable pursuant to the cashless exercise procedure set forth in
subsection 2(c).

(3)   Please issue a certificate or certificates
representing said Warrant Shares in the name of the undersigned or in such
other name as is specified below:

_______________________________

The Warrant Shares shall be delivered to the
following:

_______________________________

_______________________________

_______________________________

(4)  Accredited
Investor.  The undersigned, and, if
applicable, the person or entity identified in subsection 3 above, is an “accredited
investor” as defined in Regulation D promulgated under the Securities Act of
1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity:
_____________________________________________________________

Signature of Authorized Signatory of Investing
Entity: _______________________________________

Name of Authorized Signatory: _________________________________________________________

Title of Authorized Signatory:
__________________________________________________________

Date:
______________________________________________________________________________

 

 

ASSIGNMENT
FORM

(To assign the foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

FOR VALUE
RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby
assigned to

_______________________________________________
whose address is

_______________________________________________________________.

_______________________________________________________________

Dated:  ______________, _______

Holder’s Signature:   _____________________________

Holder’s Address:     _____________________________

           _____________________________

Signature
Guaranteed: 
___________________________________________

NOTE:  The signature to this Assignment Form must
correspond with the name as it appears on the face of the Warrant, without
alteration or enlargement or any change whatsoever, and must be guaranteed by a
bank or trust company.  Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00108-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00108-of-00352.parquet"}]]