Document:

exv10w30

 

EXHIBIT 10.30

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”), by and between BRILLIAN CORPORATION, a Delaware
corporation (the “Company”), and ROBERT MELCHER (“Executive”) is effective as of the Effective Date
as defined herein.

RECITALS

     A. The Company is planning to enter into an Agreement and Plan of Reorganization (the “Merger
Agreement”) with Syntax Corporation, a California corporation (“Syntax”) as a result of which
Syntax would become a wholly owned subsidiary of the Company (the “Merger”).

     B. The Merger Agreement requires that Executive enter into an employment agreement with the
Company to take effect on the effective date of the Merger defined in the Merger Agreement (the
“Effective Date”).

     C. Following the Merger, the Company will conduct the business conducted by the Company and
Syntax prior to the Merger (the “Business”).

     D. The Company maintains its executive offices in Tempe, Arizona but Executive may render a
portion of Executive’s services to the Company in California.

     E. The Company desires to employ Executive, and Executive desires to accept such employment,
pursuant to the terms and conditions set forth in this Agreement, which on the Effective Date shall
replace any existing employment arrangements between the Company or Syntax and Executive.

AGREEMENT

     NOW, THEREFORE, in consideration of the mutual promises, terms, covenants, and conditions set
forth herein and the performance of each, it is hereby agreed as follows:

     1. Employment and Duties.

          (a) Employment. The Company hereby employs Executive, and Executive hereby agrees to act, as
the Chief Technology Officer of the Company. As such, Executive shall have responsibilities,
duties, and authority reasonably accorded to, expected of, and consistent with Executive’s
position. Executive hereby accepts this employment upon the terms and conditions herein contained
and agrees to devote Executive’s best efforts and, subject to paragraph l(c) hereof, substantially
all of Executive’s business time and attention to promote and further the business of the Company.
Executive shall provide such services to the Company’s subsidiaries as may be requested from time
to time by the Board of Directors without additional compensation.

          (b) Policies. Executive shall faithfully adhere to, execute, and fulfill all lawful policies
established by the Company.

 

 

          (c) Other Activities. Executive shall not, during the term of Executive’s employment
hereunder, be engaged in any other business activity pursued for gain, profit, or other pecuniary
advantage if such activity interferes in any material respect with Executive’s duties and
responsibilities hereunder. The foregoing limitations shall not be construed as prohibiting
Executive from (i) making personal investments in such form or manner as will neither require
Executive’s services in the operation or affairs of the companies or enterprises in which such
investments are made nor subject Executive to any conflict of interest with respect to Executive’s
duties to the Company; (ii) serving on any civic or charitable boards or committees; (iii)
delivering lectures or fulfilling speaking engagements; or (iii) serving, on the boards of
directors of public corporations on which Executive currently serves and with the written approval
of the Board, as a director of one or more other public corporations, in each case so long as any
such new activities do not significantly interfere with the performance of Executive’s
responsibilities under this Agreement.

          (d) Place of Performance. Executive shall not be required by the Company or by the
performance of Executive’s duties under this Agreement either to relocate Executive’s primary
residence or to perform Executive’s principal duties at a work location more than 25 miles from the
principal office at which Executive rendered services on July 11, 2005.

     2. Compensation. For all services rendered by Executive, the Company shall compensate
Executive as follows:

          (a) Base Salary. Effective on the Effective Date, the base salary payable to Executive shall
be $200,000 per year, payable on a regular basis in accordance with the Company’s standard payroll
procedures, but not less than monthly. On at least an annual basis, the Board or a committee of
the Board shall review Executive’s performance and may make changes to such base salary if, in its
sole discretion, any such change is warranted. In no event, however, shall Executive’s base salary
be reduced to a level below the base salary provided for in this Agreement.

          (b) Bonus or other Incentive Compensation. Executive shall be eligible to receive a bonus or
other incentive compensation as may be determined by the Board or a committee of the Board based
upon such factors as the Board or such committee, in its sole discretion, may deem relevant,
including, without limitation, the performance of Executive and the Company; provided, however,
that the Board or a committee of the Board shall establish for each fiscal year of the Company
either (i) a bonus program in which Executive shall be entitled to participate, which provides
Executive with a reasonable opportunity, based on the past compensation practices of the Company
and Executive’s then base salary, to maintain or increase Executive’s total compensation compared
to the previous fiscal year or (ii) a targeted bonus based on such factors as the Board may
determine (the “Targeted Bonus”).

          (c) Executive Perquisites, Benefits, and Other Compensation. Executive shall be entitled to
receive additional benefits and compensation from the Company in such form and to such extent as
specified below:

               (i) Insurance Coverage. Payment of all premiums for coverage for Executive and Executive’s
dependent family members under all health,

2

 

hospitalization, disability, dental, life, and other
insurance plans that the Company may have in effect from time to time, with the benefits provided
to Executive to be on terms no less favorable than the benefits provided to other Company executive
officers but with any generally applicable limitations, such as co-payment provisions.

               (ii) Reimbursement for Expenses. Reimbursement for business travel and other out-of-pocket
expenses reasonably incurred by Executive in the performance of Executive’s services under this
Agreement. All reimbursable expenses shall be appropriately documented in reasonable detail by
Executive upon submission of any request for reimbursement and shall be in a format and manner
consistent with the Company’s expense reporting policy.

               (iii) Vacation. Paid vacation in accordance with the applicable policy of the Company as in
effect from time to time for senior executives, but in no event shall Executive be entitled to less
than two weeks paid vacation per year.

               (iv) Other Executive Perquisites. The Company shall provide Executive with other executive
perquisites as may be made available to or deemed appropriate for Executive by the Board or a
committee of the Board and participation in all other Company-wide employee benefits as are
available to the Company’s executives from time to time, including any plans, programs, or
arrangements relating to retirement, deferred compensation, profit sharing, 401(k), and employee
stock ownership. Any options granted after the date hereof to Executive to purchase Common Stock
of the Company shall provide by their terms that such options shall vest immediately upon, and
shall be exercisable for a period of two years after, a termination of employment of Executive by
the Company without Good Cause, by Executive with Good Reason, or as a result of a Change in
Control.

     3. Non-Competition Agreement.

          (a) Non-Competition. Notwithstanding the provisions of California law, including, without
limitation, Bus. & Prof. Code Secs. 16600 et. seq. and 17200 et. sec., the parties agree that,
during the period of Executive’s employment by the Company, and for a period equal to the time
during or for which severance payments are being made by the Company to Executive in accordance
with this Agreement, Executive shall not, directly or indirectly, for himself or on behalf of or in
conjunction with any other person:

          (i) Other Activities. Engage, as an officer, director, shareholder, owner, principal,
partner, lender, joint venturer, employee, independent contractor, consultant, advisor, or sales
representative, in any Competitive Business within the Restricted Territory;

          (ii) Solicitation of Employees. Call upon any person who is, at that time, within the
Restricted Territory, an employee of the Company or any of its subsidiaries, in a managerial or
supervisory capacity for the purpose or with the intent of enticing such employee away from or out
of the employ of the Company or any of its subsidiaries;

          (iii) Solicitation of Customers. Call upon any person who is, at that time, or who has been,
within one year prior to that time, a customer of the Company or

3

 

any of its subsidiaries, within
the Restricted Territory for the purpose of soliciting or selling products or services in direct
competition with the Company or any of its subsidiaries within the Restricted Territory;

     (iv) Solicitation of Acquisition Candidates. Call upon any prospective acquisition candidate,
on Executive’s own behalf or on behalf of any person, which candidate was, to Executive’s knowledge
after due inquiry, either called upon by the Company, or

for which the Company made an acquisition
analysis, for the purpose of acquiring such candidate.

          (b) Certain Definitions. As used in this Agreement, the following terms shall have the
meanings ascribed to them:

               (i) Competitive Business shall mean any person that engages in a business the same as, similar
to, or in direct competition with the Business;

               (ii) person shall mean any individual, corporation, limited liability company, partnership,
firm, or other business of whatever nature;

               (iii) Restricted Territory shall mean any jurisdiction in which the Company or any subsidiary
of the Company maintains any facilities, sells any products, or provides any services; and

               (iv) subsidiary shall mean the Company’s consolidated subsidiaries, including corporations,
partnerships, limited liability companies, and any other business organization in which the Company
holds at least a fifty percent (50%) equity interest.

          (c) Enforcement. Because of the difficulty of measuring economic losses to the Company as a
result of a breach of the foregoing covenants in this paragraph 3, and because of the immediate and
irreparable damage that could be caused to the Company for which it would have no other adequate
remedy, Executive agrees that the foregoing covenants may be enforced by the Company in the event
of breach by Executive, by injunctions and restraining orders.

          (d) Reasonable Restraint. In agreeing to the period of non-competition as set forth herein,
Executive acknowledges that he has had the opportunity to speak with counsel of his choice in
connection with the force and effect of this waiver, and that he is aware that he is waiving rights
under California law to contest the imposition of a non-competition agreement. In agreeing to be
bound hereby, Executive is accepting the consideration extended to him in exchange for a knowing
waiver of his rights, and as full and complete consideration for this waiver, and acknowledges the
adequacy of such consideration. Both parties agree that Executive’s agreement to this term
constitutes a substantial and material term to the Company, without which the Company would not
enter into this Agreement or extend this offer of employment to Executive. Executive agrees that
the Company may seek and secure an injunction against Executive in order to enforce the terms
hereof in the event that Executive breaches this provision. Executive acknowledges that the scope
of the non-competition clause is reasonable in scope and will not preclude him from seeking gainful
employment in alternative fields. To the extent that any court of competent jurisdiction

4

 

determines that the non-competition provisions are unreasonable, it is the intent of the parties to
enforce the terms hereof to the full extent held reasonable.

          (e) Other Activities. It is further agreed by the parties that, in the event that Executive
shall cease to be employed hereunder and enters into a business or pursues other activities not in
competition with the Company (including the Company’s subsidiaries), or similar activities or
business in locations, the operation of which, under such circumstances, does not violate this
paragraph 3, and in any event such new business, activities, or location are not in violation of
this paragraph 3 or of Executive’s obligations under this paragraph 3, if any, Executive shall not
be chargeable with a violation of this paragraph 3 if the Company (including the Company’s
subsidiaries) shall thereafter enter the same, similar, or a competitive (i) business, (ii) course
of activities, or (iii) location, as applicable.

          (f) Separate Covenants. The covenants in this paragraph 3 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any other covenant.
Moreover, in the event any court of competent jurisdiction shall determine that the scope, time, or
territorial restrictions set forth are unreasonable, then it is the intention of the parties that
such restrictions be enforced to the fullest extent that the court deems reasonable, and the
Agreement shall thereby be reformed.

          (g) Independent Agreement. All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the existence of any claim or
cause of action of Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of such covenants. It
is specifically agreed that the period following termination of employment stated at the beginning
of this paragraph 3, during which the agreements and covenants of Executive made in this paragraph
3 shall be effective, shall be computed by excluding from such computation any time during which
Executive is in violation of any provision of this paragraph 3.

     4. Term; Termination; Rights on Termination.

          (a) Term. The term of Executive’s employment under this Agreement (the “Term”) shall be from
the Effective Date until the date that is two years from the Effective Date.

          (b) Termination. Executive’s employment under this Agreement may be terminated in any one of
the followings ways:

               (i) Death of Executive. The employment of Executive shall terminate immediately upon
Executive’s death provided that the Company shall, for a period of 12 months following such death,
pay to the estate of Executive an amount equal to Executive’s base salary and continue to pay all
premiums for coverage for Executive’s dependent family
members under all health, hospitalization, disability, dental, life, and other insurance plans
that the Company maintained at the time of Executive’s death.

               (ii) Disability of Executive. If, as a result of incapacity due to physical or mental illness
or injury, Executive shall have been absent from Executive’s full-time

5

 

duties hereunder for six
consecutive months, then 30 days after giving written notice to Executive (which notice may occur
before or after the end of such six month-period, but which shall not be effective earlier than the
last day of such six month-period), the Company may terminate Executive’s employment provided
Executive is unable to resume Executive’s full-time duties at the conclusion of such notice period.
Also, Executive may terminate Executive’s employment if Executive’s health should become impaired
to an extent that makes the continued performance of Executive’s duties hereunder hazardous to
Executive’s physical or mental health or Executive’s life, provided that Executive shall have
furnished the Company with a written statement from a qualified doctor to such effect and provided,
further, that, at the Company’s request made within 10 days of the date of such written statement,
Executive shall submit to an examination by a doctor selected by the Company who is reasonably
acceptable to Executive or Executive’s doctor and such doctor shall have concurred in the
conclusion of Executive’s doctor. In the event Executive’s employment under this Agreement is
terminated as a result of Executive’s disability, Executive shall receive from the Company, in a
lump-sum payment due within 10 days of the effective date of such termination, an amount equal to
the base salary payable to Executive pursuant to paragraph 2(a) of this Agreement, for the lesser
of the time period then remaining under the Term or one year. The disability benefits provided for
in this Agreement are independent of any disability insurance benefits that Executive receives.

               (iii) Termination by the Company for Good Cause. The Company may terminate Executive’s
employment upon 10 days prior written notice to Executive for “Good Cause,” which shall mean any
one or more of the following: (A) Executive’s willful dishonesty, fraud, or misconduct with respect
to the business or affairs of the Company, which materially and adversely affects the operations or
reputation of the Company; (B) Executive’s indictment for, conviction of, or guilty plea to a
felony crime involving dishonesty or moral turpitude whether or not relating to the Company; or (C)
a confirmed positive illegal drug test result. In the event of a termination by the Company for
Good Cause, Executive shall have no right to any severance compensation.

               (iv) Termination by the Company Without Good Cause or by Executive with Good Reason. The
Company may terminate Executive’s employment without Good Cause during the Term hereof upon the
approval of a majority of the members of the Board, excluding Executive if Executive is a member of
the Board. Executive may terminate Executive’s employment under this Agreement for Good Reason
upon 10 days prior notice to the Company.

                    (A) Result of Termination by the Company without Good Cause or by Executive with Good Reason.
Should the Company terminate Executive’s employment without Good Cause or should Executive
terminate Executive’s employment with Good Reason during the Term, the Company shall pay to
Executive for two years after such termination, on such dates as would otherwise be paid by the
Company, a pro rata amount based on the base salary payable to Executive pursuant to paragraph 2(a)
of this Agreement. Further, if
the Company terminates Executive’s employment without Good Cause or Executive terminates
Executive’s employment with Good Reason, (1) the Company shall continue the insurance coverage as
specified in paragraph 2(c)(i) or provide comparable coverage by way of making the family medical
insurance premium payments contemplated by COBRA or otherwise, in any case for a period of two
years after such termination; (2) the Company shall maintain life insurance

6

 

coverage, comparable to
that provided immediately prior to termination, for a period of two years thereafter with the
beneficiary designated by Executive; and (3) Executive shall be entitled to receive all other
accrued but unpaid benefits relating to vacations and other executive perquisites as provided in
paragraph 2(c)(iv) through Executive’s last day of employment.

                    (B) Definition of Good Reason. Executive shall have “Good Reason” to terminate Executive’s
employment upon the occurrence of any of the following events without Executive’s prior written
approval: (1) Executive is demoted by means of a reduction in authority, responsibilities, or
duties as provided herein; (2) Executive’s annual base salary for a fiscal year as determined
pursuant to paragraph 2 is reduced to a level that is less than the base salary paid to Executive
during the prior fiscal year under this Agreement; (3) a change is made in Executive’s bonus
(including a reduction in any Targeted Bonus to a level that is less than the Targeted Bonus for
Executive during the prior fiscal year under this Agreement) other than as contemplated by
paragraph 2(b); (4) the Company breaches a material provision of this Agreement, including
paragraph 1(d); or (5) the Company fails to obtain the assumption of this Agreement by any
successor or assign of the Company or its principal business activities.

               (v) Resignation by Executive Without Good Reason. Executive may, without cause, and without
Good Reason terminate Executive’s own employment under this Agreement, effective 30 days after
written notice is provided to the Company or such earlier time as any such resignation may be
accepted by the Company. If Executive resigns or otherwise terminates Executive’s employment
without Good Reason, Executive shall receive no severance compensation.

               (vi) Change in Control of the Company.

                    (A) Possibility of Change in Control. Executive understands and acknowledges that the Company
may be merged or consolidated with or into another entity and that such entity shall automatically
succeed to the rights and obligations of the Company hereunder or that the Company may undergo
another type of Change in Control. In the event such a merger or consolidation or other Change in
Control is initiated prior to the end of the Term, then the provisions of this paragraph 4(b)(vi)
shall be applicable.

                    (B) Termination by Executive. Subject to the exceptions set forth in paragraph 4(b)(vi)(E),
if any Change of Control is initiated during Executive’s employment hereunder, Executive may, at
Executive’s sole discretion, elect to terminate Executive’s employment under this Agreement by
providing written notice to the Company at least five business days at any time prior to or within
12 months after the closing of the transaction giving rise to the Change in Control. In such case,
the applicable provisions of paragraph 4(b)(iv) hereof will apply as though the Company had
terminated Executive’s employment without Good Cause during the Term and all executive perquisites
shall continue for a period of 12 months; however, under such circumstances, the amount of the severance
payments due to Executive shall be paid in a lump sum and the non-competition provisions of
paragraph 3 hereof shall all apply for a period of 12 months from the effective date of
termination.

7

 

                    (C) Effective Date of Change in Control. For purposes of applying paragraph 4 hereof under
the circumstances described in 4(b)(vi)(B) above, the effective date of Change in Control will be
the closing date of the transaction giving rise to the Change in Control and all compensation,
reimbursements, and lump-sum payments due Executive must be paid in full by the Company promptly
following Executive’s election to terminate Executive’s employment following such Change in
Control.

                    (D) Definition of Change in Control. A “Change in Control” shall mean a change in control of
a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, as in effect on
the date of this Agreement, or if Item 6(e) is no longer in effect, any regulations issued by the
Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
which serve similar purposes; provided further that, without limitation, a Change in Control shall
be deemed to have occurred if and when:

                         (1) Turnover of Board. The following individuals no longer constitute a majority of the
members of the Board: (A) the individuals who, as of the date of this Agreement, constitute the
Board (the “Current Directors”); (B) the individuals who thereafter are elected to the Board and
whose election, or nomination for election, to the Board was approved by a vote of all of the
Current Directors then still in office (such directors becoming “Additional Directors” immediately
following their election); and (C) the individuals who are elected to the Board and whose election,
or nomination for election, to the Board was approved by a vote of all of the Current Directors and
Additional Directors then still in office (such directors also becoming “Additional Directors”
immediately following their election);

                         (2) Tender Offer. A tender offer or exchange offer is made whereby the effect of such offer
is to take over and control the Company, and such offer is consummated for the equity securities of
the Company representing 20% or more of the combined voting power of the Company’s then outstanding
voting securities;

                         (3) Merger or Consolidation. The stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a reverse stock split of
outstanding voting securities, or consummation of any such transaction if stockholder approval is
not obtained, other than any such transaction that would result in at least 75% of the total voting
power represented by the voting securities of the surviving entity outstanding immediately after
such transaction being beneficially owned by the holders of outstanding voting securities of the
Company immediately prior to the transaction, with the voting power of each such continuing holder
relative to other such continuing holders not substantially altered in the transaction; or

                         (4) Liquidation or Sale of Assets. The stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition by the Company of
all or a substantial portion of the Company’s assets to another person, which is not a wholly owned
subsidiary of the Company (i.e., 50% or more of the total assets of the Company); or

8

 

                         (5) Stockholdings. Any “person” (as that term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) is or becomes the “beneficial owner” (as defined in
Rule 13d-3 under that act), directly or indirectly of more than 30% of the total voting power
represented by the Company’s then outstanding voting Securities.

                    (E) Exceptions from Change in Control. A Change in Control shall not be considered to have
taken place for purposes of this paragraph 4 in the event that both (1) the Change in Control shall
have been specifically approved by all of the Current and Additional Directors (as defined above)
and (2) the provisions of this Agreement remain in full force and effect as to Executive.

                    (F) Excess Parachute Payments. In the event that a Change in Control occurs and the aggregate
amount of any payments made to Executive hereunder, or pursuant to any plan, program, or policy of
the Company in connection with, on account of, or as a result of, such Change in Control
constitutes “excess parachute payments” as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the “Code”), subject to the excise tax imposed by Section 4999 of the Code, or
any successor sections thereof, Executive shall receive from the Company, in addition to any other
amounts payable under this Agreement, a lump sum payment equal to the amount of (i) such excise
tax, and (ii) the federal and state income taxes payable by the Executive with respect to any
payments made to Executive under this subparagraph (F). Such amount will be due and payable by the
Company or its successor within 10 days after Executive delivers a written request for
reimbursement accompanied by a copy of Executive’s tax return(s) showing the excise tax actually
incurred by Executive.

                    (G) Notification. Executive shall be notified in writing by the Company at any time that the
Company anticipates that a Change in Control may take place.

               (c) Payments to Termination Date. Upon termination of Executive’s employment under this
Agreement for any reason provided above, Executive shall be entitled to receive all compensation
earned and all benefits and reimbursements due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and payable to Executive
only to the extent and in the manner expressly provided above. All other rights and obligations of
the Company and Executive under this Agreement shall cease as of the effective date of termination,
except that the Company’s obligations under paragraph 8 (relating to indemnification of Executive)
and Executive’s obligations under paragraph 3 (relating to non-competition and non-solicitation, as
applicable), paragraph 5 (relating to return of Company property), paragraph 6 (relating to
inventions), paragraph 7 (relating to trade secrets), and
paragraph 9 (relating to prior agreements) shall survive such termination in accordance with
their terms.

               (d) Failure to Pay Executive. If termination of Executive’s employment arises out of the
Company’s failure to pay Executive on a timely basis the amounts to which Executive is entitled
under this Agreement or as a result of any other breach of this Agreement by the Company, as
determined by a court of competent jurisdiction or pursuant to

9

 

the provisions of paragraph 14, the
Company shall pay all amounts and damages to which Executive may be entitled as a result of such
breach, including interest thereon and all reasonable legal fees and expenses and other costs
incurred by Executive to enforce Executive’s rights hereunder. Further, none of the provisions of
paragraph 3 (relating to non-competition) shall apply in the event Executive’s employment under
this Agreement is terminated as a result of a breach by the Company.

               (e) Mitigation. The Company and Executive have mutually agreed that it would be appropriate
to mitigate the costs to the Company of any severance arrangements (other than relating to salary
or bonus) if Executive accepts other employment, the Company secures insurance or other coverage at
its cost, or Executive can obtain coverage under any governmental program without expense to
Executive, subject in each case to providing comparable benefits to Executive with no out-of-pocket
cost to him. As a result, all medical, disability, and other similar benefits payable to Executive
following the termination of Executive’s employment under this Agreement shall be reduced on a
dollar-for-dollar basis by (i) any medical, disability, and other similar benefits received by or
which may reasonably be receivable by Executive from any subsequent employer, (ii) any governmental
benefits available to Executive upon premium payments made or reimbursed by the Company to or on
behalf of Executive, or (iii) any insurance, annuity, or comparable payments or coverage furnished
by the Company at no cost to Executive as an alternative to the benefits provided by this
Agreement.

     5. Return of Company Property. All records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, and other property delivered to or compiled by Executive by
or on behalf of the Company (or its subsidiaries) or its representatives, vendors, or customers
that pertain to the business of the Company (or its subsidiaries) shall be and remain the property
of the Company and be subject at all times to its discretion and control. Likewise, all
correspondence, reports, records, charts, advertising materials, and other similar data pertaining
to the business, activities, or future plans of the Company (or its subsidiaries) that is collected
by Executive shall be delivered promptly to the Company without request by it upon termination of
Executive’s employment.

     6. Inventions. Executive shall disclose promptly to the Company any and all significant
conceptions and ideas for inventions, improvements, and valuable discoveries, whether patentable or
not, which are conceived or made by Executive, solely or jointly with another, during the period of
employment, and which are directly related to the business or activities of the Company (or its
subsidiaries), and which Executive conceives as a result of Executive’s employment by the Company.
Executive hereby assigns and agrees to assign all Executive’s interests therein to the Company or
its nominee. Whenever requested to do so by the Company, Executive shall execute any and all
applications, assignments, and other instruments
that the Company shall deem necessary to apply for and obtain Letters Patent of the United
States or any foreign country or to otherwise protect the Company’s interest therein.

     7. Trade Secrets. Executive agrees that Executive will not, during or after the period of
employment under this Agreement, disclose the specific terms of the Company’s relationships or
agreements with its respective significant vendors or customers, or any other significant and
material trade secret of the Company, whether in existence or proposed, to any person, firm,
partnership, corporation, or business for any reason or purpose whatsoever.

10

 

     8. Indemnification. In the event Executive is made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by the Company against Executive), by reason of the fact that Executive is or
was performing services under this Agreement, then the Company shall indemnify Executive against
all expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement, as
actually and reasonably incurred by Executive in connection therewith to the maximum extent
permitted by applicable law. The advancement of expenses shall be mandatory. In the event that
both Executive and the Company are made a party to the same third-party action, complaint, suit, or
proceeding, the Company agrees to engage competent legal representation, and Executive agrees to
use the same representation, provided that if counsel selected by the Company shall have a conflict
of interest that prevents such counsel from representing Executive, Executive may engage separate
counsel and the Company shall pay all attorneys’ fees of such separate counsel. Further, while
Executive is expected at all times to use Executive’s best efforts to faithfully discharge
Executive’s duties under this Agreement, Executive cannot be held liable to the Company for errors
or omissions made in good faith if Executive has not exhibited gross, willful, and wanton
negligence and misconduct or performed criminal and fraudulent acts that materially damage the
business of the Company. Notwithstanding this paragraph 8, the provision of any written
indemnification agreement applicable to the directors and officers of the Company to which
Executive shall be a party shall apply rather than this paragraph 8 to the extent inconsistent with
this paragraph 8.

     9. No Prior Agreements. Executive hereby represents and warrants to the Company that the
execution of this Agreement by Executive and Executive’s employment by the Company and the
performance of Executive’s duties hereunder will not violate or be a breach of any agreement with a
former employer, client, or any other person or entity. Further, Executive agrees to indemnify the
Company for any claim, including, but not limited to, attorneys’ fees and expenses of
investigation, by any such third party that such third party may now have or may hereafter come to
have against the Company based upon or arising out of any non-competition, invention, or secrecy
agreement between Executive and such third party that was in existence as of the date of this
Agreement.

     10. Assignment; Binding Effect. Executive understands that Executive is being employed by the
Company on the basis of Executive’s personal qualifications, experience, and skills. Executive
agrees, therefore, Executive cannot assign all or any portion of Executive’s performance under this
Agreement. Subject to the preceding two (2) sentences and the express provisions of paragraph 11
below, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the
parties hereto and their respective heirs, legal representatives, successors, and assigns.

     11. Complete Agreement. This Agreement is not a promise of future employment. Except as
specifically provided herein, Executive has no oral representations, understandings, or agreements
with the Company or any of its officers, directors, or representatives covering the same subject
matter as this Agreement. This written Agreement is the final, complete, and exclusive statement
and expression of the agreement between the Company and Executive and of all the terms of this
Agreement, and it cannot be varied, contradicted, or supplemented by evidence of any prior or
contemporaneous oral or written agreements. This written Agreement may not be later modified
except by a further writing

11

 

signed by a duly authorized officer of the Company and Executive, and
no term of this Agreement may be waived except by writing signed by the party waiving the benefit
of such term. This Agreement hereby supersedes any other employment agreements or understandings,
written or oral, between the Company and Executive.

     12. Notice. Whenever any notice is required hereunder, it shall be given in writing addressed
as follows:

	 	 	 
	To the Company:

	 	1600 N. Desert Drive
	 

	 	Tempe, Arizona 85251
	 

	 	Attention: Corporate Secretary
	 

	 	 
	To Executive:

	 	To the residence address of Executive
	 

	 	as shown in the records of the Company

     Notice shall be deemed given and effective on the earlier of three (3) days after the deposit
in the U.S. mail of a writing addressed as above and sent first class mail, certified, return
receipt requested, or when actually received. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 12.

     13. Severability; Headings. If any portion of this Agreement is held invalid or inoperative,
the other portions of this Agreement shall be deemed valid and operative and, so far as is
reasonable and possible, effect shall be given to the intent manifested by the portion held invalid
or inoperative. The paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of the Agreement or of any
part hereof.

     14. No Participation in Severance Plans. Except as contemplated by this Agreement, Executive
acknowledges and agrees that the compensation and other benefits set forth in this Agreement are
and shall be in lieu of any compensation or other benefits that may otherwise be payable to or on
behalf of Executive pursuant to the terms of any severance pay arrangement of the Company or any
affiliate thereof, or any other similar arrangement of the Company or any affiliates thereof
providing for benefits upon involuntary termination of employment.

     15. Governing Law. This Agreement shall in all respects be construed according to the laws of
the state of Arizona, notwithstanding the conflict of laws provisions of such state.

     16. Counterparts; Facsimile Signatures. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall constitute the same
agreement. This Agreement may be executed by facsimile, PDF, or other electronic means.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

12

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.

	 	 	 	 	 
	 	BRILLIAN CORPORATION

 	 
	 	By:  	/s/ Vincent F. Sollitto Jr.
 	 
	 	Title	President & CEO 	 
	 	Name:	Vincent F. Sollitto Jr.	 
	 	Its:	President & CEO 	 

	 
	 	EXECUTIVE:

 	 
	 	/s/ Robert Melcher
 	 
	 	Robert Melcher 	 
	 	 	 
	 

13exv4w3

 

EXHIBIT 4.3

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, 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 CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: April 20, 2005

Original Conversion Price (subject to adjustment herein): $1.57

$                    

AMENDED AND RESTATED

7% CONVERTIBLE DEBENTURE

DUE APRIL ___, 2008

     THIS DEBENTURE is one of a series of duly authorized and issued 7% Convertible Debentures of
Brillian Corporation, a Delaware corporation, having a principal place of business at
                                                             (the “Company”), designated as its 7% Convertible Debenture,
due April ___, 2008 (the “Debenture(s)”).

     FOR VALUE RECEIVED, the Company promises to pay to                                                              or its registered
assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal
sum of $                                         by April                     , 2008, or such earlier date as the Debentures are required or
permitted to be repaid as provided hereunder (the “Maturity Date”), and to pay interest to
the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in
accordance with the provisions hereof. This Debenture is subject to the following additional
provisions:

     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:

1

 

     “Alternate Consideration” shall have the meaning set forth in Section 5(d).

     “Base Conversion Price” shall have the meaning set forth in Section 5(b).

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

     “Buy-In” shall have the meaning set forth in Section 4(d)(v).

     “Change of Control Transaction” means the occurrence after the date hereof of
any of (i) an acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of the Company, by contract
or otherwise) of in excess of 33% of the voting securities of the Company, or (ii) the
Company merges into or consolidates with any other Person, or any Person merges into or
consolidates with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 66% of the aggregate

voting power of the Company or the successor entity of such transaction, or (iii) the
Company sells or transfers its assets, as an entirety or substantially as an entirety, to
another Person and the stockholders of the Company immediately prior to such transaction own
less than 66% of the aggregate voting power of the acquiring entity immediately after the
transaction, (iv) a replacement at one time or within a three year period of more than
one-half of the members of the Company’s board of directors which is not approved by a
majority of those individuals who are members of the board of directors on the date hereof
(or by those individuals who are serving as members of the board of directors on any date
whose nomination to the board of directors was approved by a majority of the members of the
board of directors who are members on the date hereof), or (v) the execution by the Company
of an agreement to which the Company is a party or by which it is bound, providing for any
of the events set forth above in (i) or (iv).

     “Common Stock” means the common stock, par value $0.001 per share, of the
Company and stock of any other class of securities into which such securities may hereafter
have been reclassified or changed into.

     “Conversion Date” shall have the meaning set forth in Section 4(a).

     “Conversion Price” shall have the meaning set forth in Section 4(b).

     “Conversion Shares” means the shares of Common Stock issuable upon conversion
of Debentures or as payment of interest in accordance with the terms.

     “Debenture Register” shall have the meaning set forth in Section 2(c).

2

 

     “Dilutive Issuance” shall have the meaning set forth in Section 5(b).

     “Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

     “Effectiveness Period” shall have the meaning given to such term in the
Registration Rights Agreement.

     “Equity Conditions” shall mean, during the period in question, (i) the Company
shall have duly honored all conversions and redemptions scheduled to occur or occurring by
virtue of one or more Notice of Conversions of the Holder, if any, (ii) all liquidated
damages and other amounts owing to the Holder in respect of the Debentures shall have been
paid; (iii) there is an effective Registration Statement pursuant to which the Holder is
permitted to utilize the prospectus thereunder to resell all of the shares issuable pursuant
to the Transaction Documents (and the Company believes, in good faith, that such
effectiveness will continue uninterrupted for the foreseeable future), (iv) the Common Stock
is trading on the Trading Market and all of the shares issuable pursuant to the Transaction
Documents are listed for trading on a Trading Market (and the Company believes, in good
faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for
the foreseeable future), (v) the daily dollar trading volume of the Common Stock on the
Trading Market for each Trading Day is at least $200,000, (vi) there is a sufficient number
of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance
of all of the shares issuable pursuant to the Transaction Documents, (vii) there is then
existing no Event of Default or event which, with the passage of time or the giving of
notice, would constitute an Event of Default, (viii) the issuance of the shares in question
to the Holder would not violate the limitations set forth in Sections 4(c)(i) and 4(c)(ii)
and (ix) no public announcement of a pending or proposed Fundamental Transaction, Change of
Control Transaction or acquisition transaction has occurred that has not been consummated.

     “Event of Default” shall have the meaning set forth in Section 8.

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

     “Fundamental Transaction” shall have the meaning set forth in Section 5(d).

     “Forced Conversion Notice” shall have the meaning set forth in Section 6(c).

     “Force Conversion Notice Date” shall have the meaning set forth in Section
6(c).

     “Interest Conversion Rate” means the lesser of (a) the Conversion Price and (b)
if Shareholder Approval has been obtained, 90% of the lesser of (i) the average of the 20
VWAPs immediately prior to the applicable Interest Payment Date or (ii) the average of the
20 VWAPs immediately prior to the date the applicable interest payment shares are issued and
delivered if after the Interest Payment Date.

3

 

     “Interest Payment Date” shall have the meaning set forth in Section 2(a).

     “Late Fees” shall have the meaning set forth in Section 2(d).

     “Mandatory Prepayment Amount” for any Debentures shall equal the sum of (i) the
greater of: (A) 130% of the principal amount of Debentures to be prepaid, plus all accrued
and unpaid interest thereon, or (B) the principal amount of Debentures to be prepaid, plus
all other accrued and unpaid interest hereon, divided by the Conversion Price on (x) the
date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the date the
Mandatory Prepayment Amount is paid in full, whichever is less, multiplied by the VWAP on
(x) the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the date
the Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all other
amounts, costs, expenses and liquidated damages due in respect of such Debentures.

     “New York Courts” shall have the meaning set forth in Section 9(d).

     “Notice of Conversion” shall have the meaning set forth in Section 4(a).

     “Optional Redemption” shall have the meaning set forth in Section 6(a).

     “Optional Redemption Amount” shall mean the sum of (i) (x) if an Optional
Redemption occurs prior to the one year anniversary of this Debenture, 120% of the principal
amount of the Debenture then outstanding, (y) if an Optional Redemption occurs on or after
the one year anniversary but prior to the two year anniversary of this Debenture, 140% of
the principal amount of the Debenture then outstanding or (z) if an Optional Redemption
occurs on or after the two year anniversary but prior to the Maturity Date, 160% of the
principal amount of the Debenture then outstanding, (ii) accrued but unpaid interest and
(iii) all liquidated damages and other amounts due in respect of the Debenture.

     “Optional Redemption Notice” shall have the meaning set forth in Section 6(a).

     “Optional Redemption Notice Date” shall have the meaning set forth in Section
6(a).

     “Original Issue Date” shall mean the date of the first issuance of the
Debentures regardless of the number of transfers of any Debenture and regardless of the
number of instruments which may be issued to evidence such Debenture.

     “Person” means a corporation, an association, a partnership, organization, a
business, an individual, a government or political subdivision thereof or a governmental
agency.

4

 

     “Purchase Agreement” means the Securities Purchase Agreement, dated as of April
18, 2005, to which the Company and the original Holder are parties, as amended, modified or
supplemented from time to time in accordance with its terms.

     “Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date of the Purchase Agreement, to which the Company and the original Holder are
parties, as amended, modified or supplemented from time to time in accordance with its
terms.

     “Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement, covering among other things the
resale of the Conversion Shares and naming the Holder as a “selling stockholder” thereunder.

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

     “Shareholder Approval” shall have the meaning given to such term in the
Purchase Agreement.

     “Subsidiary” shall have the meaning given to such term in the Purchase
Agreement.

     “Threshold Period” shall have the meaning given to such term in Section 6(d).

     “Trading Day” means a day on which the Common Stock is traded on a Trading
Market.

     “Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the Nasdaq National Market,
the American Stock Exchange, the New York Stock Exchange or the Nasdaq SmallCap Market.

     “Transaction Documents” shall have the meaning set forth in the Purchase
Agreement.

     “VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
the daily volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed or quoted as
reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to
4:02 p.m. Eastern Time); (b) if the Common Stock is not then listed or quoted on a Trading
Market and if prices for the Common Stock are then quoted on the OTC Bulletin Board, the
volume weighted average price of the Common Stock for such date (or the nearest preceding
date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the
OTC Bulletin Board and if prices for the

5

 

Common Stock are then reported in the “Pink Sheets”
published by the Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the Holders and reasonably acceptable
to the Company.

     Section 2. Interest.

     a) Payment of Interest in Cash or Kind. The Company shall pay interest to the
Holder on the aggregate unconverted and then outstanding principal amount of this Debenture
at the rate of 7% per annum, payable quarterly on March 31, June 30, September 30 and
December 31, beginning on the first such date after the Original Issue Date, on each Monthly
Redemption Date, on each Conversion Date (as to that principal amount then being converted),
on each Optional Redemption Date (as to that principal amount being redeemed) and on the
Maturity Date (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”), in cash or shares of Common Stock at the Interest Conversion Rate, or a
combination thereof; provided, however, payment in shares of Common Stock
may only occur if (i) during the 10 Trading Days immediately prior to the applicable
Interest Payment Date and through and including the date such shares of Common Stock are
issued to the Holder all of the Equity Conditions have been met, (ii) the Company has
obtained Shareholder Approval and (iii) the VWAP is equal to or greater than 115% of the
then applicable Conversion Price for the 10 Trading Days immediately prior to the applicable
Interest Payment Date and through and including the date such shares of Common Stock are
issued to the Holder and the Company shall have given the Holder notice in accordance with
the notice requirements set forth below.

     b) Company’s Election to Pay Interest in Kind. Subject to the terms and
conditions herein, the decision whether to pay interest hereunder in shares of Common Stock
or cash shall be at the discretion of the Company. Not less than 10 Trading Days prior to
each Interest Payment Date, the Company shall provide the Holder with written notice of its
election to pay interest hereunder either in cash or shares of Common Stock (the Company may
indicate in such notice that the election contained in such notice shall continue for later
periods until revised). Within 10 Trading Days prior to an Interest Payment Date, the
Company’s election (whether specific to an Interest Payment Date or continuous) shall be
irrevocable as to such Interest Payment Date. Subject to the aforementioned conditions,
failure to timely provide such written notice shall be deemed an election by the Company to
pay the interest on such Interest Payment Date in cash.

     c) 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. Payment of interest in shares of Common
Stock shall otherwise occur pursuant to Section 4(d)(ii) and only for purposes

6

 

of the
payment of interest in shares, the Interest Payment Date shall be deemed the Conversion
Date. Interest shall cease to accrue with respect to any principal amount converted,
provided that the Company in fact delivers the Conversion Shares within the time period
required by Section 4(d)(ii). 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”). Except as
otherwise provided herein, if at any time the Company pays interest partially in cash and
partially in shares of Common Stock, then such payment shall be distributed ratably among
the Holders based upon the principal amount of Debentures held by each Holder.

     d) 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) (“Late Fees”) which will
accrue daily, from the date such interest is due hereunder through and including the date of
payment. Notwithstanding anything to the contrary contained herein, if on any Interest
Payment Date the Company has elected to pay interest in Common Stock and is not able to pay
accrued interest in the form of Common Stock because it does not then satisfy the conditions
for payment in the form of Common Stock set forth above, then, at the option of the Holder,
the Company, in lieu of delivering either shares of Common Stock pursuant to this Section 2
or paying the regularly scheduled cash interest payment, shall deliver, within three Trading
Days of each applicable Interest Payment Date, an amount in cash equal to the product of the
number of shares of Common Stock otherwise deliverable to the Holder in connection with the
payment of interest due on such Interest Payment Date and the highest VWAP during the period
commencing on the Interest Payment Date and ending on the Trading Day prior to the date such
payment is made.

     e) Prepayment. Except as otherwise set forth in this Debenture, the Company
may not prepay any portion of the principal amount of this Debenture without the prior
written consent of the Holder.

     Section 3. 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

7

 

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 4. Conversion.

     a) Voluntary Conversion. At any time after the Original Issue Date until this
Debenture is no longer outstanding, this Debenture shall be convertible into shares of
Common Stock at the option of the Holder, in whole or in part at any time and from time to
time (subject to the limitations on conversion set forth in Section 4(c) hereof). The
Holder shall effect conversions by delivering to the Company the form of Notice of
Conversion attached hereto as Annex A (a “Notice of Conversion”), specifying
therein the principal amount of Debentures to be converted and the date on which such
conversion is to be effected (a “Conversion Date”). If no Conversion Date is
specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice
of Conversion is provided hereunder. To effect conversions hereunder, the Holder shall not
be required to physically surrender Debentures to the Company unless the entire principal
amount of this Debenture plus all accrued and unpaid interest thereon has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding principal amount of
this Debenture in an amount equal to the applicable conversion. The Holder and the Company
shall maintain records showing the principal amount converted and the date of such
conversions. The Company shall deliver any objection to any Notice of Conversion within 1
Business Day of receipt of such notice. In the event of any dispute or discrepancy, the
records of the Holder shall be controlling and determinative in the absence of manifest
error. The Holder and any assignee, by acceptance of this Debenture, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion of a portion of
this Debenture, the unpaid and unconverted principal amount of this Debenture may be less
than the amount stated on the face hereof.

     b) Conversion Price. The conversion price in effect on any Conversion Date
shall be equal to $1.57 (subject to adjustment herein)(the “Conversion Price”).

     c) Conversion Limitations.

     i. Trading Market Limitations. Notwithstanding anything herein to the
contrary, if the Company has not obtained Shareholder Approval (as defined below),
then the Company may not issue upon conversion of this Debenture, a number of shares
of Common Stock which, when aggregated with any shares of Common Stock issued prior
to such Conversion Date (A) pursuant to any Debentures issued pursuant to the
Purchase Agreement and (B) pursuant to any Warrants issued pursuant to the Purchase
Agreement, would exceed 19.999% of the number of shares of Common Stock outstanding
on the Trading Day immediately preceding the Original Issue Date (such number of
shares, the “Issuable Maximum”). Each Holder shall be entitled to a portion
of the Issuable Maximum equal to the quotient obtained by dividing (x) the aggregate
principal

8

 

amount of the Debenture(s) issued and sold to such Holder on the Original
Issue Date by (y) the aggregate principal amount of all Debentures issued and sold
by the Company on the Original Issue Date. If any Holder shall no longer hold the
Debenture(s), then such Holder’s remaining portion of the Issuable Maximum shall be
allocated pro-rata among the remaining Holders. If on any Conversion Date: (1) the
applicable Conversion Price then in effect is such that the shares issuable under
this Debenture on any Conversion Date together with the aggregate
number of shares of Common Stock that would then be issuable upon conversion in
full of all then outstanding Debentures would exceed the Issuable Maximum, and (2)
the Company’s shareholders shall not have previously approved the transactions
contemplated by the Transaction Documents (the “Shareholder Approval”), then
the Company shall issue to the Holder requesting a conversion a number of shares of
Common Stock equal to such Holder’s pro-rata portion (which shall be calculated
pursuant to the terms hereof) of the Issuable Maximum and, with respect to the
remainder of the aggregate principal amount of the Debentures (including any accrued
interest) then held by such Holder for which a conversion in accordance with the
applicable conversion price would result in an issuance of shares of Common Stock in
excess of such Holder’s pro-rata portion (which shall be calculated pursuant to the
terms hereof) of the Issuable Maximum (the “Excess Principal”), the Company
shall be prohibited from converting such Excess Principal, and shall notify the
Holder of the reason therefor. This Debenture shall thereafter be unconvertible to
such extent until and unless Shareholder Approval is subsequently obtained, but this
Debenture shall otherwise remain in full force and effect.

     ii. Holder’s Restriction on Conversion. The Company shall not effect
any conversion of this Debenture, and the Holder shall not have the right to convert
any portion of this Debenture, pursuant to Section 4(a) or otherwise, to the extent
that after giving effect to such conversion, the Holder (together with the Holder’s
affiliates), as set forth on the applicable Notice of Conversion, would beneficially
own in excess of 4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to such conversion. For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the Holder and
its affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Debenture with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) conversion of the remaining, nonconverted portion of this
Debenture beneficially owned by the Holder or any of its affiliates and (B) exercise
or conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other Debentures or the Warrants)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the Holder or any of its affiliates. Except
as set forth in the preceding sentence, for purposes of this Section 4(c)(ii),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act. To the

9

 

extent that the limitation contained in this section applies,
the determination of whether this Debenture is convertible (in relation to other
securities owned by the Holder) and of which a portion of this Debenture is
convertible shall be in the sole discretion of such Holder. To ensure compliance
with this restriction, the Holder will be deemed to represent to the Company each
time it delivers a Notice of Conversion that such Notice of Conversion has not
violated the restrictions set forth in this paragraph and the Company shall have no
obligation to verify or confirm the accuracy of such determination. For purposes of
this Section 4(c)(ii), in determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x) the
Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent
public announcement by the Company 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 Trading Days confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Debenture, by the Holder or
its affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The provisions of this Section 4(c) may be waived by the
Holder, at the election of the Holder, upon not less than 61 days’ prior notice to
the Company, and the provisions of this Section 4(c) 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).

     d) Mechanics of Conversion

     i. Conversion Shares Issuable Upon Conversion of Principal Amount. The
number of shares of Common Stock issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (x) the outstanding principal amount
of this Debenture to be converted by (y) the Conversion Price.

     ii. Delivery of Certificate Upon Conversion. Not later than three
Trading Days after any Conversion Date, the Company will deliver or cause to be
delivered to the Holder (A) a certificate or certificates representing the
Conversion Shares which shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement) representing the
number of shares of Common Stock being acquired upon the conversion of Debentures
(including, if so timely elected by the Company, shares of Common Stock representing
the payment of accrued interest) and (B) a bank check in the amount of accrued and
unpaid interest (if the Company is required to pay accrued interest in cash). The
Company shall, if available and if allowed under applicable securities laws, use its
best efforts to deliver any certificate or certificates required to be delivered by
the Company under this Section electronically through the

10

 

Depository Trust
Corporation or another established clearing corporation performing similar
functions.

     iii. Failure to Deliver Certificates. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as directed by
the applicable Holder by the third Trading Day after a Conversion Date, the Holder
shall be entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such conversion,
in which event the Company shall immediately return the certificates
representing the principal amount of Debentures tendered for conversion.

     iv. Obligation Absolute; Partial Liquidated Damages. If the Company
fails for any reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, for each $1000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day after 5 Trading Days after such damages begin to
accrue) for each Trading Day after such third Trading Day until such certificates
are delivered. The Company’s obligations to issue and deliver the Conversion Shares
upon conversion of this Debenture in accordance with the terms hereof are absolute
and unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the recovery
of any judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged breach
by the Holder or any other Person of any obligation to the Company or any violation
or alleged violation of law by the Holder or any other person, and irrespective of
any other circumstance which might otherwise limit such obligation of the Company to
the Holder in connection with the issuance of such Conversion Shares;
provided, however, such delivery shall not operate as a waiver by
the Company of any such action the Company may have against the Holder. In the
event a Holder of this Debenture shall elect to convert any or all of the
outstanding principal amount hereof, the Company may not refuse conversion based on
any claim that the Holder or any one associated or affiliated with the Holder has
been engaged in any violation of law, agreement or for any other reason, unless, an
injunction from a court, on notice, restraining and or enjoining conversion of all
or part of this Debenture shall have been sought and obtained and the Company posts
a surety bond for the benefit of the Holder in the amount of 150% of the principal
amount of this Debenture outstanding, which is subject to the injunction, which bond
shall remain in effect until the completion of arbitration/litigation of the dispute
and the proceeds of which shall be payable to such Holder to the extent it obtains
judgment. In the absence of an injunction precluding the same, the Company shall
issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion.
Nothing herein shall limit a Holder’s right to pursue actual damages or declare an

11

 

Event of Default pursuant to Section 8 herein for the Company’s failure to deliver
Conversion Shares within the period specified herein and such Holder 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. The exercise
of any such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.

     v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. In addition to any other rights available to the Holder, if the
Company fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the third Trading Day after the
Conversion Date, and if after such third Trading Day the Holder is required by its
brokerage firm to purchase (in an open market transaction or otherwise) Common Stock
to deliver in satisfaction of a sale by such Holder of the Conversion Shares which
the Holder anticipated receiving upon such conversion (a “Buy-In”), then the
Company shall (A) pay in cash to the Holder (in addition to any remedies available
to or elected by the Holder) the amount by which (x) the Holder’s total purchase
price (including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock that
such Holder anticipated receiving from the conversion at issue multiplied by (2) the
actual sale price of the Common Stock at the time of the sale (including brokerage
commissions, if any) giving rise to such purchase obligation and (B) at the option
of the Holder, either reissue Debentures in principal amount equal to the principal
amount of the attempted conversion or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely complied with its
delivery requirements under Section 4(d)(ii). For example, if the Holder purchases
Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect
to an attempted conversion of Debentures with respect to which the actual sale price
of the Conversion Shares at the time of the sale (including brokerage commissions,
if any) giving rise to such purchase obligation was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In. Notwithstanding anything
contained herein to the contrary, if a Holder requires the Company to make payment
in respect of a Buy-In for the failure to timely deliver certificates hereunder and
the Company timely pays in full such payment, the Company shall not be required to
pay such Holder liquidated damages under Section 4(d)(iv) in respect of the
certificates resulting in such Buy-In.

     vi. Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will at all times reserve and keep available out of its authorized
and unissued shares of Common Stock solely for the purpose of issuance upon
conversion of the Debentures and payment of interest on the Debenture, each as

12

 

herein provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (and the other Holders of the Debentures),
not less than such number of shares of the Common Stock as shall (subject to any
additional requirements of the Company as to reservation of such shares set forth in
the Purchase Agreement) be issuable (taking into account the adjustments and
restrictions of Section 5) upon the conversion of the outstanding principal amount
of the Debentures and payment of interest hereunder. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid, nonassessable and, if the Registration
Statement is then effective under the
Securities Act, registered for public sale in accordance with such Registration
Statement.

     vii. Fractional Shares. Upon a conversion hereunder the Company shall
not be required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the VWAP at such time. If the Company elects
not, or is unable, to make such a cash payment, the Holder shall be entitled to
receive, in lieu of the final fraction of a share, one whole share of Common Stock.

     viii. Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of this Debenture shall be made without charge to the
Holder hereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in a
name other than that of the Holder of such Debentures so converted and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.

     Section 5. Certain Adjustments.

     a) Stock Dividends and Stock Splits. If the Company, at any time while this
Debenture 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 (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company pursuant to this Debenture,
including as interest thereon), (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

13

 

Company, then the Conversion
Price shall be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to this Section 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 or any Subsidiary thereof, as
applicable, at any time while this Debenture 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 (or announce any offer, sale, grant or any option to purchase
or other disposition) 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
Conversion Price (such lower price, the “Base Conversion 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 Conversion Price, such issuance shall be deemed to
have occurred for less than the Conversion Price on such date of the Dilutive Issuance),
then the Conversion Price shall be reduced by multiplying the Conversion Price by a
fraction, the numerator of which is the number of shares of Common Stock issued and
outstanding immediately prior to the Dilutive Issuance plus the number of shares of Common
Stock and Common Stock Equivalents which the aggregate consideration received or receivable
by the Company in connection with such Dilutive Issuance would purchase at the then
effective Conversion Price, and the denominator of which shall be the sum of the number of
shares of Common Stock issued and outstanding immediately prior to the Dilutive Issuance
plus the number of shares of Common Stock and Common Stock Equivalents so issued or issuable
in connection with the Dilutive Issuance; provided, however, until
Shareholder Approval is obtained and deemed effective, the Conversion Price shall not be
adjusted to be less than $1.57, subject to adjustment for reverse and forward stock splits,
stock dividends, stock combinations and other similar transactions of the Common Stock that
occur after the date of this Debenture. Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment
will be made under this Section 5(b) in respect of an Exempt Issuance. 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

14

 

pursuant to
this Section 5(b), upon the occurrence of any Dilutive Issuance, after the date of such
Dilutive Issuance the Holder is entitled to receive a number of Conversion Shares based upon
the Base Conversion Price regardless of whether the Holder accurately refers to the Base
Conversion Price in the Notice of Conversion.

     c) Pro Rata Distributions. If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of Common Stock (and not to Holders) evidences
of its indebtedness or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security, then in each such case the Conversion Price shall be
adjusted by multiplying such Conversion 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 VWAP determined as of
the record date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then 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 Holder 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 Debenture is
outstanding, (A) the Company effects any merger or consolidation of the Company with or into
another Person, (B) the Company effects any sale of all or substantially all of its assets
in one or a series of related transactions, (C) any tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or exchanged for
other securities, cash or property (in any such case, a “Fundamental Transaction”),
then upon any subsequent conversion of this Debenture, the Holder shall have the right to
receive, for each Conversion Share that would have been issuable upon such conversion
immediately prior to the occurrence of such Fundamental Transaction, the same kind and
amount of securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of one share of Common Stock (the “Alternate
Consideration”). For purposes of any such conversion, the determination of the
Conversion 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 Conversion 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

15

 

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 conversion of this Debenture 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 debenture consistent with the foregoing provisions and evidencing the Holder’s right
to convert such debenture 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 paragraph (d) and
insuring that this Debenture (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.

     e) Calculations. All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this
Section 5, 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.

     f) Notice to Holders.

     i. Adjustment to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any of this Section 5, the Company shall promptly mail to each
Holder a notice setting forth the Conversion 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).

     ii. Notice to Allow Conversion 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 filed at each office or agency maintained for the purpose of conversion
of the Debentures, and shall cause to be

16

 

mailed to the Holders at their last
addresses as they shall appear upon the stock books 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, 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. Holders are entitled to convert Debentures during the 20-day period
commencing the date of such notice to the effective date of the event triggering
such notice.

     Section 6. Redemption and Forced Conversion.

     a) Optional Redemption at Election of Company. Subject to the provisions of
this Section 6, at any time after the Effective Date, the Company may deliver a notice to
the Holders (an “Optional Redemption Notice” and the date such notice is deemed
delivered hereunder, the “Optional Redemption Notice Date”) of its irrevocable
election to redeem some or all of the then outstanding Debentures, for an amount, in cash,
equal to the Optional Redemption Amount on the 10th Trading Day following the
Optional Redemption Notice Date (such date, the “Optional Redemption Date” and such
redemption, the “Optional Redemption”). The Optional Redemption Amount is due in
full on the Optional Redemption Date. The Company may only effect an Optional Redemption if
during the period commencing on the Optional Redemption Notice Date through to the Optional
Redemption Date and through and including the date such shares of Common Stock are issued to
the Holder, each of the Equity Conditions shall have been met. If any of the Equity
Conditions shall cease to be satisfied at any time during the required period, then the
Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3
Trading Days after the first day on which any such Equity Condition has not been met
(provided that if, by a provision of the Transaction Documents the Company is obligated to
notify the Holder of the non-existence of an Equity Condition, such notice period shall be
extended to the third Trading Day after proper notice from the Company) in which case the
Optional Redemption Notice shall be null and void, ab initio. The Company
covenants and agrees that it will honor all Notice of Conversions tendered from the time of
delivery of the Optional Redemption Notice through the date all amounts owing thereon are
due and paid in full.

17

 

     b) Redemption Procedure. The payment of cash pursuant to the Optional
Redemption shall be made on the Optional Redemption Date. If any portion of the cash
payment for an Optional Redemption shall not be paid by the Company by its due date,
interest shall accrue thereon at the rate of 18% per annum (or the maximum rate permitted by
applicable law, whichever is less) until the payment of the Optional Redemption Amount, plus
all amounts owing thereon is paid in full. Alternatively, if any portion of the Optional
Redemption Amount, as applicable, remains unpaid after such date, the Holders subject to
such redemption may elect, by written notice to the Company given at any time thereafter, to
invalidate ab initio such redemption, notwithstanding anything herein
contained to the contrary, and, with respect the failure to honor the Optional Redemption as
applicable, the Company shall have no further right to exercise such Optional Redemption.
Notwithstanding anything to the contrary in this Section 6, the Company’s determination to
redeem in cash or its elections under Section 6(b) shall be applied among the Holders of
Debentures ratably. The Holder may elect to convert the outstanding principal amount of the
Debenture pursuant to Section 4 prior to actual
payment in cash for any redemption under this Section 6 by fax delivery of a Notice of
Conversion to the Company.

     c) Forced Conversion. Notwithstanding anything herein to the contrary, if after
the 12 month anniversary of the Closing Date, each of the Closing Prices for the Common
Stock for any 30 consecutive Trading Days (such period commencing only after the one year
anniversary of the Closing Date, such period the “Threshold Period”)) exceeds $3.14
(subject to adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur after the
Original Issue Date), the Company may, within 1 Trading Day of the end of any such period,
deliver a notice to the Holder (a “Forced Conversion Notice” and the date such
notice is received by the Holder, the “Forced Conversion Notice Date”) to cause the
Holder to immediately convert all or part of the then outstanding principal amount of
Debentures pursuant to Section 4. The Company may only effect a Forced Conversion Notice if
all of the Equity Conditions are met through the applicable Threshold Period until the date
of the applicable Forced Conversion and through and including the date such shares of Common
Stock are issued to the Holder. Any Forced Conversion shall be applied ratably to all
Holders based on their initial purchases of Debentures pursuant to the Purchase Agreement.
For purposes of clarification, a Forced Conversion shall be subject to all of the provisions
of Section 4, including, without limitation, the provision requiring payment of liquidated
damages and limitations on conversions.

     Section 7. Negative Covenants. So long as any portion of this Debenture is
outstanding, the Company will not and will not permit any of its Subsidiaries to directly or
indirectly:

     a) enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for
borrowed money of any kind, including but not limited to, a guarantee, on or with respect to
any of its property or assets now owned or hereafter acquired or any

18

 

interest therein or any
income or profits therefrom that is senior to, or pari passu with, in any
respect, the Company’s obligations hereunder (other than pursuant to the Regenmacher
Transaction or pursuant to any capital lease or purchase money financing for items purchased
after the date hereof, the security for which is limited to the asset so leased or
financed);

     b) enter into, create, incur, assume or suffer to exist any liens of any kind, 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, in any respect, the
Company’s obligations hereunder (other than pursuant to the Regenmacher Transaction or
pursuant to any capital lease or purchase money financing for items purchased after the date
hereof, the security for which is limited to the asset so leased or financed);

     c) amend its certificate of incorporation, bylaws or other charter documents so as to
adversely affect any rights of the Holder;

     d) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a
de minimis number of shares of its Common Stock or Common Stock Equivalents other
than as to the Conversion Shares to the extent permitted or required under the Transaction
Documents or as otherwise permitted by the Transaction Documents;

     e) enter into any agreement with respect to any of the foregoing; or

     f) pay cash dividends on any equity securities of the Company.

     Section 8. 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, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which default,
solely in the case of an interest payment or other default under clause (B) above,
is not cured, within 3 Trading Days;

     ii. the Company shall fail to observe or perform any other covenant or
agreement contained in this Debenture (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion which
breach is addressed in clause [(xi) below) which failure is not cured, if possible
to cure, within the earlier to occur of (A) 5 Trading Days after notice of

19

 

such default sent by the Holder or by any other Holder and (B)10 Trading 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 other than the Debentures, or (B) any other
material agreement, lease, document or instrument to which the Company or any
Subsidiary is bound;

     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. (i) the Company or any of its Subsidiaries shall commence, or there shall be
commenced against the Company or any such Subsidiary, a case
under any applicable bankruptcy or insolvency laws as now or hereafter in
effect or any successor thereto, or the Company or any Subsidiary commences any
other proceeding under any reorganization, arrangement, adjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
Subsidiary thereof or (ii) there is commenced against the Company or any Subsidiary
thereof any such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 60 days; or (iii) the Company or any Subsidiary thereof
is adjudicated by a court of competent jurisdiction insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is entered; or
(iv) the Company or any Subsidiary thereof suffers any appointment of any custodian
or the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or (v) the Company or any
Subsidiary thereof makes a general assignment for the benefit of creditors; or (vi)
the Company shall fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or (vii) the Company or any
Subsidiary thereof shall call a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (viii) the Company or any
Subsidiary thereof shall by any act or failure to act expressly indicate its consent
to, approval of or acquiescence in any of the foregoing; or (ix) any corporate or
other action is taken by the Company or any Subsidiary thereof for the purpose of
effecting any of the foregoing;

     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

20

 

borrowed money or money due under any
long term leasing or factoring arrangement of the Company in an amount exceeding
$150,000, 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 Common Stock shall not be eligible for quotation on or quoted for
trading on a Trading Market and shall not again be eligible for and quoted or listed
for trading thereon within five Trading Days;

     viii. 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 more than a de
minimis number of its outstanding shares of Common Stock or other equity securities
of the Company (other than redemptions of Conversion Shares and repurchases of
shares of Common Stock or other equity securities of departing officers and
directors of the Company; provided such repurchases shall
not exceed $100,000, in the aggregate, for all officers and directors during
the term of this Debenture);

     ix. a Registration Statement shall not have been declared effective by the
Commission on or prior to the 180th calendar day after the Closing Date;

     x. if, during the Effectiveness Period (as defined in the Registration Rights
Agreement), the effectiveness of the Registration Statement lapses for any reason or
the Holder shall not be permitted to resell Registrable Securities (as defined in
the Registration Rights Agreement) under the Registration Statement, in either case,
for more than 10 consecutive Trading Days or 15 non-consecutive Trading Days during
any 12 month period; provided, however, that in the event that the
Company is negotiating a merger, consolidation, acquisition or sale of all or
substantially all of its assets or a similar transaction and in the written opinion
of counsel to the Company, the Registration Statement, would be required to be
amended to include information concerning such transactions or the parties thereto
that is not available or may not be publicly disclosed at the time, the Company
shall be permitted an additional 10 consecutive Trading Days during any 12 month
period relating to such an event; or

     xi. the Company shall fail for any reason to deliver certificates to a Holder
prior to the third Trading Day after a Conversion Date or any Forced Conversion Date
pursuant to and in accordance with Section 4(d) or the Company shall provide notice
to the Holder, including by way of public announcement, at any time, of its
intention not to comply with requests for conversions of any Debentures in
accordance with the terms hereof.

21

 

     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. The aggregate amount payable upon an Event of Default
shall be equal to the Mandatory Prepayment Amount. 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. All Debentures for
which the full Mandatory Prepayment 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 9. Miscellaneous.

     a) Notices. Any and all notices or other communications or deliveries to be
provided by the Holder hereunder, including, without limitation, any Notice of Conversion,
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 602-389-8869, Attn: Chief Financial Officer 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 telephone number or address of such Holder
appearing on the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the 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. (New York City
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. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the second Business Day following the date

22

 

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. This Debenture is expressly subordinated in right of payment of principal
(but, in the absence of an Event of Default under the Regenmacher Debenture, not in right of
payment of interest) to the Company’s prior repayment of the Regenmacher Debenture.

     c) 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.

     d) 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 New York, 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 New York, Borough of Manhattan (the
“New York Courts”). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York 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 personally subject to the jurisdiction of any such court, or such New York
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

23

 

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.

     e) 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.

     f) 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.

     g) 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.

     h) 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.

*********************

24

 

     IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly
authorized officer as of the date first above indicated.

	 	 	 	 	 
	 	BRILLIAN CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

25

 

	 	 	 	 	 

ANNEX A

NOTICE OF CONVERSION

     The undersigned hereby elects to convert principal under the 7% Convertible Debenture of
Brillian Corporation, a Delaware corporation (the “Company”), due on April 20, 2008, into
shares of common stock, par value $0.001 per share (the “Common Stock”), of the Company
according to the conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith. No fee will be charged to the holder
for any conversion, except for such transfer taxes, if any.

     By the delivery of this Notice of Conversion the undersigned represents and warrants to the
Company that its ownership of the Common Stock does not exceed the amounts determined in accordance
with Section 13(d) of the Exchange Act, specified under Section 4 of this Debenture.

     The undersigned agrees to comply with the prospectus delivery requirements under the
applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

	 	 	 	 	 
	 	 	Date to Effect Conversion:
	 
	 	 	 	 
	 	 	Principal Amount of Debentures to be Converted:
	 
	 	 	 	 
	 	 	Payment of Interest in Common Stock __ yes __ no
	 

	 	 	 	If yes, $___of Interest Accrued on Account of
	 

	 	 	 	Conversion at Issue.
	 
	 	 	 	 
	 	 	Number of shares of Common Stock to be issued:
	 
	 	 	 	 
	 	 	Signature:
	 
	 	 	 	 
	 	 	Name:
	 
	 	 	 	 
	 	 	Address:

26

 

Schedule 1

CONVERSION SCHEDULE

The 7% Convertible Debentures due on April 20, 2008, in the aggregate principal amount of
$2,500,000 issued by Brillian Corporation. This Conversion Schedule reflects conversions made
under Section 4 of the above referenced Debenture.

Dated:

	 	 	 	 	 	 	 
	 	 	 	 	Aggregate	 	 
	 	 	 	 	Principal	 	 
	 	 	 	 	Amount	 	 
	 	 	 	 	Remaining	 	 
	 	 	 	 	Subsequent to	 	 
	 	 	 	 	Conversion	 	 
	Date of Conversion	 	 	 	(or original	 	 
	(or for first entry,	 	Amount of	 	Principal	 	 
	Original Issue Date)	 	Conversion	 	Amount)	 	Company Attest
	 

	 	 
	 	 
	 	 

27

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00087-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00087-of-00352.parquet"}]]