Document:

EX-4.10 FORM OF 6% CALLABLE SECURED CONV. NOTE

 

 Exhibit
4.10

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S
UNDER SAID ACT.

CALLABLE SECURED CONVERTIBLE NOTE

			
	 	 	 
	Indianapolis, Indiana	 	 
	September 8, 2006
	 

          FOR VALUE RECEIVED, STANDARD MANAGEMENT CORPORATION, an Indiana corporation (hereinafter
called the “Borrower”), hereby promises to pay to the order of AJW OFFSHORE, LTD. or registered
assigns (the “Holder”) the sum of ________, on September 8, 2009 (the “Maturity Date”), and to pay
interest on the unpaid principal balance hereof at the rate of six percent (6%) (the “Interest
Rate”) per annum from September 8, 2006 (the “Issue Date”) until the same becomes due and payable,
whether at maturity or upon acceleration or by prepayment or otherwise. Any amount of principal or
interest on this Note which is not paid when due shall bear interest at the rate of fifteen percent
(15%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest
shall commence accruing on the Issue Date, shall be computed on the basis of a 365-day year and the
actual number of days elapsed and shall be payable quarterly in arrears, provided that no interest
shall be due and payable for any month in which the Trading Price (as such term is defined below)
is greater than $0.25 for each Trading Day (as such term is defined below) of the month. All
payments due hereunder (to the extent not converted into common stock, no par value per share (the
“Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United
States of America. All payments shall be made at such address as the Holder shall hereafter give
to the Borrower by written notice made in accordance with the provisions of this Note. Whenever
any amount expressed to be due by the terms of this Note is due on any day which is not a business
day, the same shall instead be due on the next succeeding day which is a business day and, in the
case of any interest payment date which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account for purposes of determining the
amount of interest due on such date. As used in this Note, the term “business day” shall mean any
day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New
York or the city of Indianapolis, Indiana

 

 

are authorized or required by law or executive order to remain closed. Each capitalized term
used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain
Securities Purchase Agreement, dated September 8, 2006, pursuant to which this Note was originally
issued (the “Purchase Agreement”).

     This Note is free from all taxes, liens, claims and encumbrances with respect to the issue
thereof and shall not be subject to preemptive rights or other similar rights of shareholders of
the Borrower and will not impose personal liability upon the holder thereof. The obligations of
the Borrower under this Note shall be secured by that certain Security Agreement and Intellectual
Property Security Agreement, each dated September 8, 2006 by and between the Borrower and the
Holder.

     The following terms shall apply to this Note:

ARTICLE I. CONVERSION RIGHTS

          1.1 Conversion Right. The Holder shall have the right from time to time, and at any
time on or prior to the earlier of (i) the Maturity Date and (ii) the date of payment of the
Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, the Optional
Prepayment Amount (as defined in Section 5.1) or any payments pursuant to Section 1.7, each in
respect of the remaining outstanding principal amount of this Note, to convert all or any part of
the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares
of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or
other securities of the Borrower into which such Common Stock shall hereafter be changed or
reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a
“Conversion”); provided, however, that in no event shall the Holder be entitled to
convert any portion of this Note in excess of that portion of this Note upon conversion of which
the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any
other security of the Borrower (including, without limitation, the warrants issued by the Borrower
pursuant to the Purchase Agreement) subject to a limitation on conversion or exercise analogous to
the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the
conversion of the portion of this Note with respect to which the determination of this proviso is
being made, would result in beneficial ownership by the Holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock; and provided further that the
Holder shall not be entitled to convert any portion of this Note during any month immediately
succeeding a Determination Date on which the Borrower exercises its prepayment option pursuant to
Section 5.2 of this Note. For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise provided in
clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion
of this Note shall be determined by dividing the Conversion Amount (as defined below) by the
applicable Conversion Price then in effect on the date specified in the notice of conversion, in
the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by
the Holder in accordance with Section

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1.4 below; provided that the Notice of Conversion is submitted by facsimile (or by other means
resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New
York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount”
means, with respect to any conversion of this Note, the sum of (1) the principal amount of this
Note to be converted in such conversion plus (2) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this Note to the Conversion Date, provided,
however, that the Company shall have the right to pay any or all interest in cash plus (3)
Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1)
and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to
Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
Agreement, dated as of September 8, 2006, executed in connection with the initial issuance of this
Note and the other Notes issued on the Issue Date (the “Registration Rights Agreement”). The term
“Determination Date” means the last business day of each month after the Issue Date.

          1.2 Conversion Price.

               (a) Calculation of Conversion Price. The Conversion Price shall be the Variable
Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock
splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities
or the securities of any subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar events). The “Variable Conversion
Price” shall mean the Applicable Percentage (as defined herein) multiplied by the Market Price (as
defined herein). “Market Price” means the average of the lowest three (3) Trading Prices (as
defined below) for the Common Stock during the twenty (20) Trading Day period ending one Trading
Day prior to the date the Conversion Notice is sent by the Holder to the Borrower via facsimile
(the “Conversion Date”). “Trading Price” means, for any security as of any date, the intraday
trading price on the Over-the-Counter Bulletin Board (the “OTCBB”) as reported by a reliable
reporting service (“Reporting Service”) mutually acceptable to Borrower and Holder and hereafter
designated by Holders of a majority in interest of the Notes and the Borrower or, if the OTCBB is
not the principal trading market for such security, the intraday trading price of such security on
the principal securities exchange or trading market where such security is listed or traded or, if
no intraday trading price of such security is available in any of the foregoing manners, the
average of the intraday trading prices of any market makers for such security that are listed in
the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated
for such security on such date in the manner provided above, the Trading Price shall be the fair
market value as mutually determined by the Borrower and the holders of a majority in interest of
the Notes being converted for which the calculation of the Trading Price is required in order to
determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common
Stock is traded for any period on the OTCBB, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded. “Applicable Percentage” shall
mean 50%; provided, however, that the Applicable Percentage shall be increased to (i) 55% in the
event that the Registration Statement (as defined in the Registration Rights Agreement) is filed on
or before the Filing Date (as defined in the in the Registration Rights Agreement) and (ii) 60% in
the event that the Registration Statement (as defined in the Registration Rights Agreement) becomes
effective on or before the Effectiveness Deadline (as defined in the Registration Rights
Agreement). In addition, the Holder agrees that

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it will limit all of its conversions to no more than the greater of (1) $150,000 per calendar
month; or (2) the average daily dollar volume calculated during the ten (10) business days prior to
a conversion, per conversion.

               (b) Conversion Price During Major Announcements. Notwithstanding anything contained
in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that
it intends to consolidate or merge with any other corporation (other than a merger in which the
Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or
transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity
(including the Borrower) publicly announces a tender offer to purchase 50% or more of the
Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion
Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion
Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which
would have been applicable for a Conversion occurring on the Announcement Date and (y) the
Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a).
For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any
proposed transaction or tender offer (or takeover scheme) for which a public announcement as
contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of
clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or
publicly announces the termination or abandonment of the proposed transaction or tender offer (or
takeover scheme) which caused this Section 1.2(b) to become operative.

          1.3 Authorized Shares. Subject to Stockholder Approval (as such term is defined in
Section 4(n) of the Securities Purchase Agreement), the Borrower covenants that during the period
the conversion right exists, the Borrower will reserve from its authorized and unissued Common
Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of
Common Stock upon the full conversion of this Note and the other Notes issued pursuant to the
Purchase Agreement. The Borrower is required at all times to have authorized and reserved the
number of shares that are actually issuable upon full conversion of the Notes (based on the
Conversion Price of the Notes or the Exercise Price of the Warrants in effect from time to time)
(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance
with the Borrower’s obligations pursuant to Section 4(h) of the Purchase Agreement. The Borrower
represents that upon issuance, such shares will be duly and validly issued, fully paid and
non-assessable. In addition, if the Borrower shall issue any securities or make any change to its
capital structure which would change the number of shares of Common Stock into which the Notes
shall be convertible at the then current Conversion Price, the Borrower shall at the same time make
proper provision so that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The
Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its
issuance of this Note shall constitute full authority to its officers and agents who are charged
with the duty of executing stock certificates to execute

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and issue the necessary certificates for shares of Common Stock in accordance with the terms
and conditions of this Note.

          If, at any time a Holder of this Note submits a Notice of Conversion, and the Borrower does
not have sufficient authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Article I (a “Conversion Default”), subject to
Section 4.8, the Borrower shall issue to the Holder all of the shares of Common Stock which are
then available to effect such conversion. The portion of this Note which the Holder included in
its Conversion Notice and which exceeds the amount which is then convertible into available shares
of Common Stock (the “Excess Amount”) shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms hereof until (and at the
Holder’s option at any time after) the date additional shares of Common Stock are authorized by the
Borrower to permit such conversion, at which time the Conversion Price in respect thereof shall be
the lesser of (i) the Conversion Price on the Conversion Default Date (as defined below) and (ii)
the Conversion Price on the Conversion Date thereafter elected by the Holder in respect thereof.
In addition, the Borrower shall pay to the Holder payments (“Conversion Default Payments”) for a
Conversion Default in the amount equal to (x) the sum of (1) the then outstanding principal
amount of this Note plus (2) accrued and unpaid interest on the unpaid principal amount of
this Note through the Authorization Date (as defined below) plus (3) Default Interest, if
any, on the amounts referred to in clauses (1) and/or (2), multiplied by (y) .24,
multiplied by (z) (N/365), where N = the number of days from the day the holder submits a
Notice of Conversion giving rise to a Conversion Default (the “Conversion Default Date”) to the
date (the “Authorization Date”) that the Borrower authorizes a sufficient number of shares of
Common Stock to effect conversion of the full outstanding principal balance of this Note. The
Borrower shall use its reasonable efforts to authorize a sufficient number of shares of Common
Stock as soon as practicable following the earlier of (i) such time that the Holder notifies the
Borrower or that the Borrower otherwise becomes aware that there are or likely will be insufficient
authorized and unissued shares to allow full conversion thereof and (ii) a Conversion Default. The
Borrower shall send notice to the Holder of the authorization of additional shares of Common Stock,
the Authorization Date and the amount of Holder’s accrued Conversion Default Payments. The accrued
Conversion Default Payments for each calendar month shall be paid in cash or shall be convertible
into Common Stock (at such time as there are sufficient authorized shares of Common Stock) at the
applicable Conversion Price, at the Borrower’s option, as follows:

               (a) In the event Holder elects to take such payment in cash, cash payment shall be made to
Holder by the fifth (5th) day of the month following the month in which it has accrued;
and

               (b) In the event Holder elects to take such payment in Common Stock, the Holder may convert
such payment amount into Common Stock at the Conversion Price (as in effect at the time of
conversion) at any time after the fifth day of the month following the month in which it has
accrued in accordance with the terms of this Article I (so long as there is then a sufficient
number of authorized shares of Common Stock).

          The Holder’s election shall be made in writing to the Borrower at any time prior to 6:00 p.m.,
New York, New York time, on the third day of the month following the month in

5

 

which Conversion Default payments have accrued. If no election is made, the Holder shall be
deemed to have elected to receive cash.

          1.4 Method of Conversion.

               (a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by
the Holder in whole or in part at any time from time to time after the Issue Date, by (A)
submitting to the Borrower a Notice of Conversion (by facsimile or other reasonable means of
communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and
(B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

               (b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set
forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall
not be required to physically surrender this Note to the Borrower unless the entire unpaid
principal amount of this Note is so converted. The Holder and the Borrower shall maintain records
showing the principal amount so converted and the dates of such conversions or shall use such other
method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical
surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such
records of the Borrower shall be controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder
may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower,
whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of
like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes)
may request, representing in the aggregate the remaining unpaid principal amount of this Note. The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this Note, the unpaid and
unconverted principal amount of this Note represented by this Note may be less than the amount
stated on the face hereof.

               (c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or
other securities or property on conversion of this Note in a name other than that of the Holder (or
in street name), and the Borrower shall not be required to issue or deliver any such shares or
other securities or property unless and until the person or persons (other than the Holder or the
custodian in whose street name such shares are to be held for the Holder’s account) requesting the
issuance thereof shall have paid to the Borrower the amount of any such tax or shall have
established to the satisfaction of the Borrower that such tax has been paid.

               (d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the
Holder of a facsimile transmission (or other reasonable means of communication) of a Notice of
Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower
shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion within three (3) business days
after such receipt (and, solely in the case of conversion of the entire unpaid principal amount
hereof, surrender of this Note) (such third business day being

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hereinafter referred to as the “Deadline”) in accordance with the terms hereof and the
Purchase Agreement (including, without limitation, in accordance with the requirements of Section
2(g) of the Purchase Agreement that certificates for shares of Common Stock issued on or after the
effective date of the Registration Statement upon conversion of this Note shall not bear any
restrictive legend).

               (e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a
Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, the outstanding principal amount and the amount of accrued and
unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower
defaults on its obligations under this Article I, all rights with respect to the portion of this
Note being so converted shall forthwith terminate except the right to receive the Common Stock or
other securities, cash or other assets, as herein provided, on such conversion. If the Holder
shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and
deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the
absence of any action by the Holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any action to enforce the
same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder
of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other
circumstance which might otherwise limit such obligation of the Borrower to the Holder in
connection with such conversion. The Conversion Date specified in the Notice of Conversion shall
be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00
p.m., New York, New York time, on such date.

               (f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical
certificates representing the Common Stock issuable upon conversion, provided the Borrower’s
transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities
Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower shall use its reasonable efforts to
cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to
the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit
Withdrawal Agent Commission (“DWAC”) system.

               (g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting
the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the
parties agree that if delivery of the Common Stock issuable upon conversion of this Note is more
than two (2) business days after the Deadline (other than a failure due to the circumstances
described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall
pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails
to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the
month following the month in which it has accrued or, at the option of the Holder (by written
notice to the Borrower by the first day of the month following the month in which it has accrued),
shall be added to the principal amount of this Note, in which event interest shall accrue thereon
in accordance with the terms of this Note and such additional

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principal amount shall be convertible into Common Stock in accordance with the terms of this
Note.

          1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of
this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective
registration statement under the Act or (ii) the Borrower or its transfer agent shall have been
furnished with an opinion of counsel (which opinion shall be reasonably acceptable to Borrower and
shall be in form, substance and scope customary for opinions of counsel in comparable transactions)
to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144
under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an
“affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the
shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in
the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to
the removal provisions set forth below), until such time as the shares of Common Stock issuable
upon conversion of this Note have been registered under the Act as contemplated by the Registration
Rights Agreement or otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold, each certificate
for shares of Common Stock issuable upon conversion of this Note that has not been so included in
an effective registration statement or that has not been sold pursuant to an effective registration
statement or an exemption that permits removal of the legend, shall bear a legend substantially in
the following form, as appropriate:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER SAID ACT, OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY AND
SHALL BE IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN
COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT UNLESS
SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT.”

          The legend set forth above shall be removed and the Borrower shall issue to the Holder a new
certificate therefor free of any transfer legend if (i) the Borrower or its transfer agent shall
have received an opinion of counsel, reasonably acceptable to Borrower and in form, substance and
scope customary for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Common Stock may be made without registration under the Act and the shares
are so sold or transferred, (ii) such Holder provides the Borrower or its transfer agent with
reasonable assurances that the Common Stock issuable upon conversion of this Note (to the extent
such securities are deemed to have been acquired on the same date) can be sold pursuant to Rule 144
or (iii) in the case of the Common Stock issuable upon conversion of this Note, such security is
registered for sale by the Holder under an effective registration statement filed under the Act or
otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold. Nothing in this Note shall (i) limit
the Borrower’s obligation under the Registration Rights

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Agreement or (ii) affect in any way the Holder’s obligations to comply with applicable
prospectus delivery requirements upon the resale of the securities referred to herein.

          1.6 Effect of Certain Events.

               (a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale,
conveyance or disposition of all or substantially all of the assets of the Borrower, the
effectuation by the Borrower of a transaction or series of related transactions in which more than
50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other
business combination of the Borrower with or into any other Person (as defined below) or Persons
when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as
defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon
the consummation of and as a condition to such transaction an amount equal to the Default Amount
(as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall
mean any individual, corporation, limited liability company, partnership, association, trust or
other entity or organization.

               (b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is
issued and outstanding and prior to conversion of all of the Notes, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a
result of which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of the Borrower or
another entity, or in case of any sale or conveyance of all or substantially all of the assets of
the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the
Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon
the basis and upon the terms and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the
Holder would have been entitled to receive in such transaction had this Note been converted in full
immediately prior to such transaction (without regard to any limitations on conversion set forth
herein), and in any such case appropriate provisions shall be made with respect to the rights and
interests of the Holder of this Note to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable
upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon the conversion hereof. The
Borrower shall not effect any transaction described in this Section 1.6(b) unless (a) it first
gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least
fifteen (15) days prior written notice) of the record date of the special meeting of shareholders
to approve, or if there is no such record date, the consummation of, such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event or sale of assets
(during which time the Holder shall be entitled to convert this Note) and (b) the resulting
successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations
of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.

               (c) Adjustment Due to Distribution. If the Borrower shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of Common Stock as

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a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend
or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note
shall be entitled, upon any conversion of this Note after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets which would have
been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion
had such Holder been the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.

               (d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes are issued
and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is
deemed to have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Fixed Conversion Price in effect on
the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive
Issuance”), then immediately upon the Dilutive Issuance, the Variable Conversion Price will be
reduced to the amount of the consideration per share received by the Borrower in such Dilutive
Issuance; provided that only one adjustment will be made for each Dilutive Issuance.

               The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in
any manner issues or grants any warrants, rights or options (not including employee stock option
plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or
other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such
warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter
referred to as “Options”) and the price per share for which Common Stock is issuable upon the
exercise of such Options is less than the Variable Conversion Price then in effect, then the
Variable Conversion Price shall be equal to such price per share. For purposes of the preceding
sentence, the “price per share for which Common Stock is issuable upon the exercise of such
Options” is determined by dividing (i) the total amount, if any, received or receivable by the
Borrower as consideration for the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of
all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such
Options, the minimum aggregate amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first become convertible or exchangeable,
by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such
Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment
to the Conversion Price will be made upon the actual issuance of such Common Stock upon the
exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon
exercise of such Options.

               Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if
the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of Options), and the price
per share for which Common Stock is issuable upon such conversion or exchange is less than the
Variable Conversion Price then in effect, then the Variable Conversion Price shall be equal to such
price per share. For the purposes of the

10

 

preceding sentence, the “price per share for which Common Stock is issuable upon such
conversion or exchange” is determined by dividing (i) the total amount, if any, received or
receivable by the Borrower as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the
Borrower upon the conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment
to the Variable Conversion Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.

               (e) Purchase Rights. If, at any time when any Notes are issued and outstanding, the
Borrower issues any convertible securities or rights to purchase stock, warrants, securities or
other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock,
then the Holder of this Note will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder
had held the number of shares of Common Stock acquirable upon complete conversion of this Note
(without regard to any limitations on conversion contained herein) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.

               (f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of
the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its
expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the
Holder of a certificate setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written
request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of
shares of Common Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of the Note.

          1.7 Trading Market Limitations. Unless permitted by the applicable rules and
regulations of the principal securities market on which the Common Stock is then listed or traded,
in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the
other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of
Common Stock that the Borrower can issue pursuant to any rule of the principal United States
securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which
shall be 19.99% of the total shares outstanding on the Closing Date (as defined in the Purchase
Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common Stock occurring
after the date hereof. Once the Maximum Share Amount has been issued (the date of which is
hereinafter referred to as the “Maximum Conversion Date”), if the Borrower fails to eliminate any
prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over the Borrower or any
of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the
Maximum Share Amount (a “Trading Market Prepayment Event”), in lieu of any further right to convert
this Note, and in

11

 

full satisfaction of the Borrower’s obligations under this Note, the Borrower shall pay to the
Holder, within fifteen (15) business days of the Maximum Conversion Date (the “Trading Market
Prepayment Date”), an amount equal to 130% times the sum of (a) the then
outstanding principal amount of this Note immediately following the Maximum Conversion Date,
plus (b) accrued and unpaid interest on the unpaid principal amount of this Note to the
Trading Market Prepayment Date, plus (c) Default Interest, if any, on the amounts referred
to in clause (a) and/or (b) above, plus (d) any optional amounts that may be added thereto
at the Maximum Conversion Date by the Holder in accordance with the terms hereof (the then
outstanding principal amount of this Note immediately following the Maximum Conversion Date,
plus the amounts referred to in clauses (b), (c) and (d) above shall collectively be
referred to as the “Remaining Convertible Amount”). With respect to each Holder of Notes, the
Maximum Share Amount shall refer to such Holder’s pro rata share thereof determined
in accordance with Section 4.8 below. In the event that the sum of (x) the aggregate number of
shares of Common Stock issued upon conversion of this Note and the other Notes issued pursuant to
the Purchase Agreement plus (y) the aggregate number of shares of Common Stock that remain
issuable upon conversion of this Note and the other Notes issued pursuant to the Purchase
Agreement, represents at least one hundred percent (100%) of the Maximum Share Amount (the
“Triggering Event”), the Borrower will use reasonable efforts to seek and obtain Shareholder
Approval (or obtain such other relief as will allow conversions hereunder in excess of the Maximum
Share Amount) as soon as practicable following the Triggering Event and before the Maximum
Conversion Date. As used herein, “Shareholder Approval” means approval by the shareholders of the
Borrower to authorize the issuance of the full number of shares of Common Stock which would be
issuable upon full conversion of the then outstanding Notes but for the Maximum Share Amount.

          1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i)
the shares covered thereby (other than the shares, if any, which cannot be issued because their
issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share
Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a
Holder of such converted portion of this Note shall cease and terminate, excepting only the right
to receive certificates for such shares of Common Stock and to any remedies provided herein or
otherwise available at law or in equity to such Holder because of a failure by the Borrower to
deliver such certificates. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Deadline with respect to a conversion of any portion of this Note for any reason,
then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so
notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to
such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such
unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to
reflect that such portion of this Note has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without limitation, (i) the right to receive
Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion
Price with respect to subsequent conversions determined in accordance with Section 1.3) for the
Borrower’s failure to convert this Note.

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ARTICLE II. CERTAIN COVENANTS

          2.1 Distributions on Capital Stock. So long as the Borrower shall have any obligation
under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or
set apart for such payment, any dividend or other distribution (whether in cash, property or other
securities) on shares of capital stock other than dividends on shares of Common Stock solely in the
form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary
make any other payment or distribution in respect of its capital stock except for distributions
pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s
disinterested directors.

          2.2 Restriction on Stock Repurchases. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the Holder’s written consent redeem,
repurchase or otherwise acquire (whether for cash or in exchange for property or other securities
or otherwise) in any one transaction or series of related transactions any shares of capital stock
of the Borrower or any warrants, rights or options to purchase or acquire any such shares.

          2.3 Borrowings. So long as the Borrower shall have any obligation under this Note,
the Borrower shall not, without the Holder’s written consent, create, incur, assume or suffer to
exist any liability for borrowed money, except (a) borrowings under the Notes (as such term is
defined in the Purchase Agreement) (b) borrowings in existence or committed on the date hereof
(including, without limitation, borrowings from Republic Bank and from Laurus Master Fund, Ltd.)
and of which the Borrower has informed Holder in writing prior to the date hereof, (c) indebtedness
to trade creditors or financial institutions incurred in the ordinary course of business, (d)
purchase money indebtedness and capital leases, (e) borrowings, the proceeds of which shall be used
to repay this Note or to refinance any other indebtedness for borrowed money permitted hereunder,
and (f) other indebtedness for borrowed money in an aggregate principal amount not to exceed
$200,000 at any time.

          2.4 Sale of Assets. So long as the Borrower shall have any obligation under this
Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise
dispose of any significant portion of its assets outside the ordinary course of business, other
than sales of assets no longer used or useful in Borrower’s business. Any consent to the
disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

          2.5 Advances and Loans. So long as the Borrower shall have any obligation under this
Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make
advances to any person, firm, joint venture or corporation, including, without limitation,
officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits
or advances (a) in existence or committed on the date hereof and which the Borrower has informed
Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not
in excess of $50,000.

          2.6 Contingent Liabilities. So long as the Borrower shall have any obligation under
this Note, the Borrower shall not, without the Holder’s written consent, which shall not be
unreasonably withheld, assume, guarantee, endorse, contingently agree to purchase

13

 

or otherwise become liable upon the obligation of any person, firm, partnership, joint venture
or corporation, except by the endorsement of negotiable instruments for deposit or collection and
except assumptions, guarantees, endorsements and contingencies (a) in existence or committed on the
date hereof and which the Borrower has informed Holder in writing prior to the date hereof, and (b)
similar transactions in the ordinary course of business.

ARTICLE III. EVENTS OF DEFAULT

          If any of the following events of default (each, an “Event of Default”) shall occur:

          3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal
hereof or interest thereon when due on this Note, whether at maturity, upon a Trading Market
Prepayment Event pursuant to Section 1.7, upon acceleration or otherwise, and such failure shall
continue for a period of three business days following notice thereof from the Holder to the
Borrower;

          3.2 Conversion and the Shares. The Borrower fails to issue shares of Common Stock to
the Holder (or announces or threatens that it will not honor its obligation to do so) upon exercise
by the Holder of the conversion rights of the Holder in accordance with the terms of this Note (for
a period of at least sixty (60) days, if such failure is solely as a result of the circumstances
governed by Section 1.3 and the Borrower is using reasonable efforts to authorize a sufficient
number of shares of Common Stock as soon as practicable), fails to transfer or cause its transfer
agent to transfer (electronically or in certificated form) any certificate for shares of Common
Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when
required by this Note or the Registration Rights Agreement, or fails to remove any restrictive
legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for
any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this
Note as and when required by this Note or the Registration Rights Agreement (or makes any
announcement, statement or threat that it does not intend to honor the obligations described in
this paragraph) and any such failure shall continue uncured (or any announcement, statement or
threat not to honor its obligations shall not be rescinded in writing) for ten (10) days after the
Borrower shall have been notified thereof in writing by the Holder;

          3.3 Failure to Timely File Registration or Effect Registration. The Borrower fails to
file the Registration Statement within sixty (60) days following the Closing Date (as defined in
the Purchase Agreement) or obtain effectiveness with the Securities and Exchange Commission of the
Registration Statement within one hundred thirty-five (135) days following the Closing Date (as
defined in the Purchase Agreement) or such Registration Statement lapses in effect (or sales cannot
otherwise be made thereunder effective, whether by reason of the Borrower’s failure to amend or
supplement the prospectus included therein in accordance with the Registration Rights Agreement or
otherwise) for more than ten (10) consecutive days or twenty (20) days in any twelve month period
after the Registration Statement becomes effective;

14

 

          3.4 Breach of Covenants. The Borrower breaches any material covenant or other
material term or condition contained in Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c),
4(e), 4(h), 4(i), 4(j) or 5 of the Purchase Agreement and such breach continues for a period of ten
(10) days after written notice thereof to the Borrower from the Holder;

          3.5 Breach of Representations and Warranties. Any representation or warranty of the
Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto
or in connection herewith (including, without limitation, the Purchase Agreement and the
Registration Rights Agreement), shall be false or misleading in any material respect when made and
the breach of which has (or with the passage of time will have) a material adverse effect on the
rights of the Holder with respect to this Note, the Purchase Agreement or the Registration Rights
Agreement;

          3.6 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an
assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business, or such a receiver or
trustee shall otherwise be appointed;

          3.7 Judgments. Any money judgment, writ or similar process shall be entered or filed
against the Borrower or any subsidiary of the Borrower or any of its property or other assets for
more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of thirty (30)
days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld;

          3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Borrower or any subsidiary of the Borrower, unless such proceeding
shall be stayed within thirty (30) days;

          3.9 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the
Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq
National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock
Exchange; or

          3.10 Default Under Other Notes. An Event of Default has occurred and is continuing
under any of the other Notes issued pursuant to the Purchase Agreement,

then, upon the occurrence and during the continuation of any Event of Default specified in Section
3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option of the Holders of a majority of the
aggregate principal amount of the outstanding Notes issued pursuant to the Purchase Agreement
exercisable through the delivery of written notice to the Borrower by such Holders (the “Default
Notice”), and upon the occurrence of an Event of Default specified in Section 3.6 or 3.8 (unless,
under Section 3.8, such proceeding shall be stayed within 30 days), the Notes shall become
immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its
obligations hereunder, an amount equal to the greater of (i) 130% times the sum of
(w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest
on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment
Date”) plus

15

 

(y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z)
any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section
2(c) of the Registration Rights Agreement (the then outstanding principal amount of this Note to
the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall
collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be
prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon
conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the
Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for
purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as
a result of a breach in respect of a specific Conversion Date in which case such Conversion Date
shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common
Stock during the period beginning on the date of first occurrence of the Event of Default and
ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts
payable hereunder shall immediately become due and payable, all without demand, presentment or
notice, all of which hereby are expressly waived, together with all costs, including, without
limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise
all other rights and remedies available at law or in equity. If the Borrower fails to pay the
Default Amount within five (5) business days of written notice that such amount is due and payable,
then the Holder shall have the right at any time, so long as the Borrower remains in default (and
so long and to the extent that there are sufficient authorized shares), to require the Borrower,
upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of
Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in
effect.

ARTICLE IV. MISCELLANEOUS

          4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder
in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privileges. All rights and remedies
existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

          4.2 Notices. Any notice herein required or permitted to be given shall be in writing
in accordance with Section 8(f) of the Purchase Agreement.

          4.3 Amendments. This Note and any provision hereof may only be amended by an
instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference
thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued
pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented,
then as so amended or supplemented.

          4.4 Assignability. This Note shall be binding upon the Borrower and its successors
and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each
transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933
Act). Notwithstanding anything in this Note to the contrary, this Note may be

16

 

pledged as collateral in connection with a bona fide margin account or other
lending arrangement.

          4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower
shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

          4.6 Governing Law. THIS NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER
HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW
YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY
WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH
PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING.
NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL
BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE
RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY
IN CONNECTION WITH SUCH DISPUTE.

          4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay
an amount in excess of the outstanding principal amount (or the portion thereof required to be paid
at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower
and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this
Note may be difficult to determine and the amount to be so paid by the Borrower represents
stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of
the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Note at a price in excess of the price paid for such shares
pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated
damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a
cash payment without the opportunity to convert this Note into shares of Common Stock.

          4.8 Allocations of Maximum Share Amount and Reserved Amount. The Maximum Share Amount
and Reserved Amount shall be allocated pro rata among the Holders of Notes based on the principal
amount of such Notes issued to each Holder. Each increase to the Maximum Share Amount and Reserved
Amount shall be allocated pro rata among the Holders of Notes based on the principal amount of such
Notes held by each Holder at the time of the

17

 

increase in the Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or
otherwise transfer any of such Holder’s Notes, each transferee shall be allocated a pro rata
portion of such transferor’s Maximum Share Amount and Reserved Amount. Any portion of the Maximum
Share Amount or Reserved Amount which remains allocated to any person or entity which does not hold
any Notes shall be allocated to the remaining Holders of Notes, pro rata based on the principal
amount of such Notes then held by such Holders.

          4.9 Damages Shares. The shares of Common Stock that may be issuable to the Holder
pursuant to Sections 1.3 and 1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights
Agreement (“Damages Shares”) shall be treated as Common Stock issuable upon conversion of this Note
for all purposes hereof and shall be subject to all of the limitations and afforded all of the
rights of the other shares of Common Stock issuable hereunder, including without limitation, the
right to be included in the Registration Statement filed pursuant to the Registration Rights
Agreement. For purposes of calculating interest payable on the outstanding principal amount
hereof, except as otherwise provided herein, amounts convertible into Damages Shares (“Damages
Amounts”) shall not bear interest but must be converted prior to the conversion of any outstanding
principal amount hereof, until the outstanding Damages Amounts is zero.

          4.10 Denominations. At the request of the Holder, upon surrender of this Note, the
Borrower shall promptly issue new Notes in the aggregate outstanding principal amount hereof, in
the form hereof, in such denominations of at least $50,000 as the Holder shall request.

          4.11 Purchase Agreement. By its acceptance of this Note, each Holder agrees to be
bound by the applicable terms of the Purchase Agreement.

          4.12 Notice of Corporate Events. Except as otherwise provided below, the Holder of
this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it
converts this Note into Common Stock. Following any such conversion, the Holder of this Note shall
have no rights as the “Holder” hereunder to the extent that it converts this Note into Common
Stock. The Borrower shall provide the Holder with prior notification of any meeting of the
Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders).
In the event of any taking by the Borrower of a record of its shareholders for the purpose of
determining shareholders who are entitled to receive payment of any dividend or other distribution,
any right to subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation, reclassification or recapitalization) any share of any class or any other securities
or property, or to receive any other right, or for the purpose of determining shareholders who are
entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially
all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the
Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the
record date specified therein (or thirty (30) days prior to the consummation of the transaction or
event, whichever is earlier), of the date on which any such record is to be taken for the purpose
of such dividend, distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the extent known at such
time. The Borrower shall make a public announcement of any event

18

 

requiring notification to the Holder hereunder substantially simultaneously with the
notification to the Holder in accordance with the terms of this Section 4.12.

          4.13 Remedies. The Borrower acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for
a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach
or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be
entitled, in addition to all other available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any
breach of this Note and to enforce specifically the terms and provisions thereof, without the
necessity of showing economic loss and without any bond or other security being required.

ARTICLE V. CALL OPTION

          5.1 Call Option. Notwithstanding anything to the contrary contained in this Article
V, so long as (i) no Event of Default or Trading Market Prepayment Event shall have occurred and be
continuing, (ii) the Borrower has a sufficient number of authorized shares of Common Stock reserved
for issuance upon full conversion of the Notes, then at any time after the Issue Date, and (iii)
the Common Stock is trading at or below $3.00 per share, the Borrower shall have the right,
exercisable on not less than ten (10) Trading Days prior written notice to the Holders of the Notes
(which notice may not be sent to the Holders of the Notes until the Borrower is permitted to prepay
the Notes pursuant to this Section 5.1), to prepay all of the outstanding Notes in accordance with
this Section 5.1. Any notice of prepayment hereunder (an “Optional Prepayment”) shall be delivered
to the Holders of the Notes at their registered addresses appearing on the books and records of the
Borrower and shall state (1) that the Borrower is exercising its right to prepay all of the Notes
issued on the Issue Date and (2) the date of prepayment (the “Optional Prepayment Notice”). On the
date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the
Optional Prepayment Amount (as defined below) to or upon the order of the Holders as specified by
the Holders in writing to the Borrower at least one (1) business day prior to the Optional
Prepayment Date. If the Borrower exercises its right to prepay the Notes, the Borrower shall make
payment to the holders of an amount in cash (the “Optional Prepayment Amount”) equal to either (i)
120% (for prepayments occurring within thirty (30) days of the Issue Date), (ii) 125% for
prepayments occurring between thirty-one (31) and sixty (60) days of the Issue Date, or (iii) 130%
(for prepayments occurring after the sixtieth (60th) day following the Issue Date),
multiplied by the sum of (w) the then outstanding principal amount of this Note plus (x)
accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment
Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x)
plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
pursuant to Section 2(c) of the Registration Rights Agreement (the then outstanding principal
amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y)
and (z) shall collectively be known as the “Optional Prepayment Sum”). Notwithstanding notice of an
Optional Prepayment, the Holders shall at all times prior to the Optional Prepayment Date maintain
the right to convert all or any portion of the Notes in accordance with Article I and any portion
of

19

 

Notes so converted after receipt of an Optional Prepayment Notice and prior to the Optional
Prepayment Date set forth in such notice and payment of the aggregate Optional Prepayment Amount
shall be deducted from the principal amount of Notes which are otherwise subject to prepayment
pursuant to such notice. If the Borrower delivers an Optional Prepayment Notice and fails to pay
the Optional Prepayment Amount due to the Holders of the Notes within two (2) business days
following the Optional Prepayment Date, the Borrower shall forever forfeit its right to redeem the
Notes pursuant to this Section 5.1.

          5.2 Partial Call Option. Notwithstanding anything to the contrary contained in this
Article V, in the event that the Average Daily Price of the Common Stock, as reported by the
Reporting Service, for each day of the month ending on any Determination Date is below the Initial
Market Price, the Borrower may, at its option, prepay a portion of the outstanding principal amount
of the Notes equal to 101% of the principal amount hereof divided by thirty-six (36) plus one
month’s interest and this will stay all conversions for the month. The term “Initial Market Price”
shall mean the volume weighted average price of the Common Stock for the five (5) Trading Days
immediately preceding the Closing which is $0.38.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

20

 

     IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly
authorized officer this 8th day of September, 2006.

	 	 	 	 	 	 	 
	 	 	STANDARD MANAGEMENT CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Ronald D. Hunter	 	 
	 

	 	 	 	 

Ronald D. Hunter
	 	 
	 

	 	 	 	Chief Executive Officer	 	 

21

 

EXHIBIT A

NOTICE OF CONVERSION

(To be Executed by the Registered Holder

in order to Convert the Notes)

          The undersigned hereby irrevocably elects to convert $                     principal amount of the Note
(defined below) into shares of common stock, par value $.001 per share (“Common Stock”), of
Standard Management Corporation, an Indiana corporation (the “Borrower”) according to the
conditions of the convertible Notes of the Borrower dated as of September 8, 2006 (the “Notes”), as
of the date written below. If securities 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. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any. A copy of each Note is attached hereto (or evidence of loss,
theft or destruction thereof).

          The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice
of Conversion to the account of the undersigned or its nominee with DTC through its Deposit
Withdrawal Agent Commission system (“DWAC Transfer”).

	 	 	 	 	 	 
	 

	 	Name of DTC Prime Broker: 	 	 
	 

	 	 	 	 	 
	 

	 	Account Number: 	 	 
	 

	 	 	 

          In lieu of receiving shares of Common Stock issuable pursuant to this Notice of Conversion by
way of a DWAC Transfer, the undersigned hereby requests that the Borrower issue a certificate or
certificates for the number of shares of Common Stock set forth below (which numbers are based on
the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:

	 	 	 	 	 	 
	 

	 	Name: 	 	 	 
	 

	 	 	 	 
	 

	 	   Address: 	 
	 

	 	 	 	 

          The undersigned represents and warrants that all offers and sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Notes shall be made pursuant to
registration of the securities under the Securities Act of 1933, as amended (the “Act”), or
pursuant to an exemption from registration under the Act.

Date of Conversion:                                                         

Applicable Conversion Price:                                           

Number of Shares of Common Stock to be Issued Pursuant to

Conversion of the Notes:                       

Signature:                                                                                 

Name:                                                                                         

Address:                                                                                
  

22

 

The Borrower shall issue and deliver shares of Common Stock to an overnight courier not later than
three business days following receipt of the original Note(s) to be converted, and shall make
payments pursuant to the Notes for the number of business days such issuance and delivery is late.

23EX-4.11 FORM OF STOCK PURCHASE WARRANT

 

 Exhibit
4.11

THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS OTHERWISE
SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED AS OF SEPTEMBER 8,
2006, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES
UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE, CUSTOMARY
FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER
SUCH ACT.

Right
to Purchase ______ Shares of Common Stock, no par value per share

STOCK PURCHASE WARRANT

     THIS CERTIFIES THAT, for value received, AJW Qualified Partners, LLC or its registered
assigns, is entitled to purchase from Standard Management Corporation, an Indiana corporation (the
“Company”), at any time or from time to time during the period specified in Paragraph 2 hereof,
______ fully paid and nonassessable shares of the Company’s Common Stock, no par value per share
(the “Common Stock”), at an exercise price per share equal
to ___ (the “Exercise Price”). The
term “Warrant Shares,” as used herein, refers to the shares of Common Stock purchasable hereunder.
The Warrant Shares and the Exercise Price are subject to adjustment as provided in Paragraph 4
hereof. The term “Warrants” means this Warrant and the other warrants issued pursuant to that
certain Securities Purchase Agreement, dated September 8, 2006, by and among the Company and the
Buyers listed on the execution page thereof (the “Securities Purchase Agreement”).

     This Warrant is subject to the following terms, provisions, and conditions:

	     1.    Manner of Exercise; Issuance of Certificates; Payment for Shares. Subject to the
provisions hereof, this Warrant may be exercised by the holder hereof, in whole or in part, by
the surrender of this Warrant, together with a completed exercise agreement in the form
attached hereto (the “Exercise Agreement”), to the Company during normal business hours on any
business day at the Company’s principal executive offices (or such other office or agency of
the

 

 

Company as it may designate by notice to the holder hereof), and upon (i) payment to the
Company in cash, by certified or official bank check or by wire transfer for the account of the
Company of the Exercise Price for the Warrant Shares specified in the Exercise Agreement or (ii) if
the resale of the Warrant Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the “Securities Act”),
delivery to the Company of a written notice of an election to effect a “Cashless Exercise” (as
defined in Section 11(c) below) for the Warrant Shares specified in the Exercise Agreement. The
Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder’s
designee, as the record owner of such shares, as of the close of business on the date on which this
Warrant shall have been surrendered, the completed Exercise Agreement shall have been delivered,
and payment shall have been made for such shares as set forth above. Certificates for the Warrant
Shares so purchased, representing the aggregate number of shares specified in the Exercise
Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding five (5)
business days, after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and shall be registered in
the name of such holder or such other name as shall be designated by such holder. If this Warrant
shall have been exercised only in part, then, unless this Warrant has expired, the Company shall,
at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant
representing the number of shares with respect to which this Warrant shall not then have been
exercised. In addition to all other available remedies at law or in equity, if the Company fails
to deliver certificates for the Warrant Shares within five (5) business days after this Warrant is
exercised, then the Company shall pay to the holder in cash a penalty (the “Penalty”) equal to 2%
of the number of Warrant Shares that the holder is entitled to multiplied by the Market Price (as
hereinafter defined) for each day that the Company fails to deliver certificates for the Warrant
Shares. For example, if the holder is entitled to 100,000 Warrant Shares and the Market Price is
$2.00, then the Company shall pay to the holder $4,000 for each day that the Company fails to
deliver certificates for the Warrant Shares. The Penalty shall be paid to the holder by the fifth
day of the month following the month in which it has accrued.

          Notwithstanding anything in this Warrant to the contrary, in no event shall the holder of this
Warrant be entitled to exercise a number of Warrants (or portions thereof) in excess of the number
of Warrants (or portions thereof) upon exercise of which the sum of (i) the number of shares of
Common Stock beneficially owned by the holder and its affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership of the unexercised Warrants and the
unexercised or unconverted portion of any other securities of the Company (including the Notes (as
defined in the Securities Purchase Agreement)) subject to a limitation on conversion or exercise
analogous to the limitation contained herein) and (ii) the number of shares of Common Stock
issuable upon exercise of the Warrants (or portions thereof) with respect to which the
determination described herein is being made, would result in beneficial ownership by the holder
and its affiliates of more than 4.9% of the outstanding shares of Common Stock. For purposes of
the immediately preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,
except as otherwise provided in clause (i) of the preceding sentence. Notwithstanding anything to
the contrary contained herein, the limitation on exercise of this Warrant set forth herein may not
be amended without (i) the written consent of the holder hereof and the Company and (ii) the
approval of a majority of shareholders of the Company.

 - 2 - 

 

     2. Period of Exercise. This Warrant is exercisable at any time or from time to time on
or after the date on which this Warrant is issued and delivered pursuant to the terms of the
Securities Purchase Agreement and before 6:00 p.m., New York, New York time on the seventh
(7th) anniversary of the date of issuance (the “Exercise Period”).

     3. Certain Agreements of the Company. The Company hereby covenants and agrees as
follows:

          (a) Shares to be Fully Paid. Subject to Stockholder Approval (as such term is defined
in Section 4(n) of the Securities Purchase Agreement), all Warrant Shares will, upon issuance in
accordance with the terms of this Warrant, be validly issued, fully paid, and nonassessable and
free from all taxes, liens, and charges with respect to the issue thereof.

          (b) Reservation of Shares. Subject to Stockholder Approval (as such term is defined
in Section 4(n) of the Securities Purchase Agreement),during the Exercise Period, the Company shall
at all times have authorized, and reserved for the purpose of issuance upon exercise of this
Warrant, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant.

          (c) Listing. The Company shall promptly secure the listing of the shares of Common
Stock issuable upon exercise of the Warrant upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed (subject to official
notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case may be, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.

          (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or
through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale
of securities, or any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed by it hereunder, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in the taking of all
such action as may reasonably be requested by the holder of this Warrant in order to protect the
exercise privilege of the holder of this Warrant against dilution or other impairment, consistent
with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

          (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding
to the Company by merger, consolidation, or acquisition of all or substantially all the Company’s
assets.

     4. Antidilution Provisions. During the Exercise Period, the Exercise Price and the number
of Warrant Shares shall be subject to adjustment from time to time as provided in this

 - 3 - 

 

Paragraph 4.
Notwithstanding anything herein to the contrary, the antidilution provisions of this Paragraph 4
shall not apply to the issuance of any securities contemplated by the Securities Purchase
Agreement.

     In the event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded up to the nearest cent.

          (a) Adjustment of Exercise Price and Number of Shares upon Issuance of Common Stock.
Except as otherwise provided in Paragraphs 4(c) and 4(e) hereof, if and whenever on or after the
date of issuance of this Warrant, the Company issues or sells, or in accordance with Paragraph 4(b)
hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Market Price on the date of issuance
(a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Exercise Price will be
reduced to a price determined by multiplying the Exercise Price in effect immediately prior to the
Dilutive Issuance by a fraction, (i) the numerator of which is an amount equal to the sum of (x)
the number of shares of Common Stock actually outstanding immediately prior to the Dilutive
Issuance, plus (y) the quotient of the aggregate consideration, calculated as set forth in
Paragraph 4(b) hereof, received by the Company upon such Dilutive Issuance divided by the Market
Price in effect immediately prior to the Dilutive Issuance, and (ii) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as defined below) immediately after
the Dilutive Issuance.

          (b) Effect on Exercise Price of Certain Events. For purposes of determining the
adjusted Exercise Price under Paragraph 4(a) hereof, the following will be applicable:

               (i) Issuance of Rights or Options. If the Company in any manner issues or grants any
warrants, rights or options, whether or not immediately exercisable, to subscribe for or to
purchase Common Stock or other securities convertible into or exchangeable for Common Stock
(“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as “Options”) and the price per share for which
Common Stock is issuable upon the exercise of such Options is less than the Market Price on the
date of issuance or grant of such Options, then the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by the Company for such
price per share. For purposes of the preceding sentence, the “price per share for which Common
Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the issuance or granting
of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Options, the minimum aggregate amount of additional
consideration payable upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such
Options (assuming full conversion of Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon the actual issuance of such Common Stock

 - 4 - 

 

upon
the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable
upon exercise of such Options.

               (ii) Issuance of Convertible Securities. If the Company in any manner issues or sells
any Convertible Securities, whether or not immediately convertible (other than where the same are
issuable upon the exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Market Price on the date of issuance, then the
maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of such Convertible Securities, be
deemed to be outstanding and to have been issued and sold by the Company for such price per share.
For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable
upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment
to the Exercise Price will be made upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.

               (iii) Change in Option Price or Conversion Rate. If there is a change at any time in
(i) the amount of additional consideration payable to the Company upon the exercise of any Options;
(ii) the amount of additional consideration, if any, payable to the Company upon the conversion or
exchange of any Convertible Securities; or (iii) the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock (other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the time of such change will
be readjusted to the Exercise Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed additional consideration or
changed conversion rate, as the case may be, at the time initially granted, issued or sold.

               (iv) Treatment of Expired Options and Unexercised Convertible Securities. If, in any
case, the total number of shares of Common Stock issuable upon exercise of any Option or upon
conversion or exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such Option or to convert or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to the Exercise Price which would
have been in effect at the time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.

               (v) Calculation of Consideration Received. If any Common Stock, Options or
Convertible Securities are issued, granted or sold for cash, the consideration received therefor
for purposes of this Warrant will be the amount received by the Company therefor, before deduction
of reasonable commissions, underwriting discounts or allowances or other
reasonable expenses paid or incurred by the Company in connection with such issuance, grant or
sale. In case any Common Stock, Options or Convertible Securities are issued or sold for a

 - 5 - 

 

consideration part or all of which shall be other than cash, the amount of the consideration other
than cash received by the Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration received by the
Company will be the Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition, merger or
consolidation in which the Company is the surviving corporation, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.

               (vi) Exceptions to Adjustment of Exercise Price. No adjustment to the Exercise Price
will be made (i) upon the exercise of any warrants, options or convertible securities granted,
issued and outstanding on the date of issuance of this Warrant; (ii) upon the grant or exercise of
any stock or options which may hereafter be granted or exercised under any employee benefit plan,
stock option plan or restricted stock plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of the members of a
committee of independent directors established for such purpose; or (iii) upon the exercise of the
Warrants.

          (c) Subdivision or Combination of Common Stock. If the Company at any time subdivides
(by any stock split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any time combines (by
reverse stock split, recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a smaller number of shares, then, after the date of record
for effecting such combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.

          (d) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price
pursuant to the provisions of this Paragraph 4, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained
by the adjusted Exercise Price.

          (e) Consolidation, Merger or Sale. In case of any consolidation of the Company with,
or merger of the Company into any other corporation, or in case of any sale or conveyance of all or
substantially all of the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant will have the right
to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock
immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and receivable
upon exercise of this Warrant had such consolidation, merger or sale or conveyance not taken

 - 6 - 

 

place.
In any such case, the Company will make appropriate provision to insure that the provisions of
this Paragraph 4 hereof will thereafter be applicable as nearly as may be in relation to any shares
of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company will
not effect any consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by written instrument the
obligations under this Paragraph 4 and the obligations to deliver to the holder of this Warrant
such shares of stock, securities or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.

          (f) Distribution of Assets. In case the Company shall declare or make any
distribution of its assets (including cash) to holders of Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise, then, after the date of record for determining
shareholders entitled to such distribution, but prior to the date of distribution, the holder of
this Warrant shall be entitled upon exercise of this Warrant for the purchase of any or all of the
shares of Common Stock subject hereto, to receive the amount of such assets which would have been
payable to the holder had such holder been the holder of such shares of Common Stock on the record
date for the determination of shareholders entitled to such distribution.

          (g) Notice of Adjustment. Upon the occurrence of any event which requires any
adjustment of the Exercise Price, then, and in each such case, the Company shall give notice
thereof to the holder of this Warrant, which notice shall state the Exercise Price resulting from
such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such
price upon exercise, setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. Such calculation shall be certified by the Chief Financial
Officer of the Company.

          (h) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall
be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is
otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such Exercise Price.

          (i) No Fractional Shares. No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any
fractional share which would otherwise be issuable in an amount equal to the same fraction of the
Market Price of a share of Common Stock on the date of such exercise.

          (j) Other Notices. In case at any time:

               (i) the Company shall declare any dividend upon the Common Stock payable in shares of stock of
any class or make any other distribution (including dividends or distributions payable in cash out
of retained earnings) to the holders of the Common Stock;

               (ii) the Company shall offer for subscription pro rata to the holders of the Common Stock any
additional shares of stock of any class or other rights;

 - 7 - 

 

               (iii) there shall be any capital reorganization of the Company, or reclassification of the
Common Stock, or consolidation or merger of the Company with or into, or sale of all or
substantially all its assets to, another corporation or entity; or

               (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the
Company;

then, in each such case, the Company shall give to the holder of this Warrant (a) notice of the
date on which the books of the Company shall close or a record shall be taken for determining the
holders of Common Stock entitled to receive any such dividend, distribution, or subscription rights
or for determining the holders of Common Stock entitled to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take place. Such notice shall
also specify the date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock for stock or other
securities or property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be
given at least 30 days prior to the record date or the date on which the Company’s books are closed
in respect thereto. Failure to give any such notice or any defect therein shall not affect the
validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above.

          (k) Certain Events. If any event occurs of the type contemplated by the adjustment
provisions of this Paragraph 4 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Paragraph 4(g) hereof, and the Company’s Board of
Directors will make an appropriate adjustment in the Exercise Price and the number of shares of
Common Stock acquirable upon exercise of this Warrant so that the rights of the holder shall be
neither enhanced nor diminished by such event.

          (l) Certain Definitions.

               (i) “Common Stock Deemed Outstanding” shall mean the number of shares of Common Stock
actually outstanding (not including shares of Common Stock held in the treasury of the Company),
plus (x) pursuant to Paragraph 4(b)(i) hereof, the maximum total number of shares of Common Stock
issuable upon the exercise of Options, as of the date of such issuance or grant of such Options, if
any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum total number of shares of Common
Stock issuable upon conversion or exchange of Convertible Securities, as of the date of issuance of
such Convertible Securities, if any.

               (ii) “Market Price,” as of any date, (i) means the average of the last reported sale
prices for the shares of Common Stock on the OTCBB for the five (5) Trading Days immediately
preceding such date as reported by Bloomberg, or (ii) if the OTCBB is not the principal trading
market for the shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period as reported by Bloomberg, or
(iii) if market value cannot be calculated as of such date on any of the foregoing bases, the
Market Price shall be the fair market value as reasonably determined in good faith by (a) the Board
of Directors of the Company or, at the option of a majority-in-interest of the holders of the
outstanding Warrants by (b) an independent investment bank of nationally

 - 8 - 

 

recognized standing in the valuation of businesses similar to the business of the corporation.
The manner of determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a determination as to
market value must be made hereunder.

               (iii) “Common Stock,” for purposes of this Paragraph 4, includes the Common Stock, no
par value per share, and any additional class of stock of the Company having no preference as to
dividends or distributions on liquidation, provided that the shares purchasable pursuant to this
Warrant shall include only shares of Common Stock, no par value per share, in respect of which this
Warrant is exercisable, or shares resulting from any subdivision or combination of such Common
Stock, or in the case of any reorganization, reclassification, consolidation, merger, or sale of
the character referred to in Paragraph 4(e) hereof, the stock or other securities or property
provided for in such Paragraph.

     5. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of this
Warrant shall be made without charge to the holder of this Warrant or such shares for any
issuance tax or other costs in respect thereof, provided that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than the holder of this Warrant.

     6. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Company. No provision of
this Warrant, in the absence of affirmative action by the holder hereof to purchase Warrant
Shares, and no mere enumeration herein of the rights or privileges of the holder hereof, shall
give rise to any liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of the Company.

     7. Transfer, Exchange, and Replacement of Warrant.

          (a) Restriction on Transfer. This Warrant and the rights granted to the holder hereof
are transferable, in whole or in part, upon surrender of this Warrant, together with a properly
executed assignment in the form attached hereto, at the office or agency of the Company referred to
in Paragraph 7(e) below, provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Paragraph 7(f) hereof and to the applicable provisions of the Securities
Purchase Agreement. Until due presentment for registration of transfer on the books of the
Company, the Company may treat the registered holder hereof as the owner and holder hereof for all
purposes, and the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in Paragraph 8 are
assignable only in accordance with the provisions of that certain Registration Rights Agreement,
dated September 8, 2006, by and among the Company and the other signatories thereto (the
“Registration Rights Agreement”).

          (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable,
upon the surrender hereof by the holder hereof at the office or agency of the Company referred to
in Paragraph 7(e) below, for new Warrants of like tenor representing in the
aggregate the right to purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such number of shares as
shall be designated by the holder hereof at the time of such surrender.

 - 9 - 

 

          (c) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such
loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu
thereof, a new Warrant of like tenor.

          (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in
connection with any transfer, exchange, or replacement as provided in this Paragraph 7, this
Warrant shall be promptly canceled by the Company. The Company shall pay all taxes (other than
securities transfer taxes) and all other expenses (other than legal expenses, if any, incurred by
the holder or transferees) and charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this Paragraph 7.

          (e) Register. The Company shall maintain, at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to the holder hereof), a
register for this Warrant, in which the Company shall record the name and address of the person in
whose name this Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.

          (f) Exercise or Transfer Without Registration. If, at the time of the surrender of
this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant
(or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered
under the Securities Act of 1933, as amended (the “Securities Act”) and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing such exercise,
transfer, or exchange, (i) that the holder or transferee of this Warrant, as the case may be,
furnish to the Company a written opinion of counsel, which opinion and counsel are acceptable to
the Company, to the effect that such exercise, transfer, or exchange may be made without
registration under said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in form and substance
acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in
Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter or status
as an “accredited investor” shall be required in connection with a transfer pursuant to Rule 144
under the Securities Act. The first holder of this Warrant, by taking and holding the same,
represents to the Company that such holder is acquiring this Warrant for investment and not with a
view to the distribution thereof.

     8. Registration Rights. The initial holder of this Warrant (and certain assignees
thereof) is entitled to the benefit of such registration rights in respect of the Warrant
Shares as are set forth in Section 2 of the Registration Rights Agreement.

     9. Notices. All notices, requests, and other communications required or permitted to be given or delivered
hereunder to the holder of this Warrant shall be in writing, and shall be personally delivered, or
shall be sent by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to such holder at the address shown for such holder on the books of the
Company, or at such other address as shall have been furnished to the Company by notice from such
holder. All notices, requests, and other communications required or permitted to be given or
delivered hereunder to the Company shall be in writing, and shall be

 - 10 - 

 

personally delivered, or shall
be sent by certified or registered mail or by recognized overnight mail courier, postage prepaid
and addressed, to the office of the Company at 10689 N. Pennsylvania Street, Indianapolis, IN
46280, Attention: Chief Executive Officer, or at such other address as shall have been furnished to
the holder of this Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently confirmed by a
writing personally delivered or sent by certified or registered mail or by recognized overnight
mail courier as provided above. All notices, requests, and other communications shall be deemed to
have been given either at the time of the receipt thereof by the person entitled to receive such
notice at the address of such person for purposes of this Paragraph 9, or, if mailed by registered
or certified mail or with a recognized overnight mail courier upon deposit with the United States
Post Office or such overnight mail courier, if postage is prepaid and the mailing is properly
addressed, as the case may be.

     10. Governing Law. THIS WARRANT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL
COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS WARRANT,
THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS
UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER
PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT
A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE
PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS WARRANT SHALL BE RESPONSIBLE
FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN
CONNECTION WITH SUCH DISPUTE.

     11. Miscellaneous.

          (a) Amendments. This Warrant and any provision hereof may only be amended by an
instrument in writing signed by the Company and the holder hereof.

          (b) Descriptive Headings. The descriptive headings of the several paragraphs of this
Warrant are inserted for purposes of reference only, and shall not affect the meaning or
construction of any of the provisions hereof.

          (c) Cashless Exercise. Notwithstanding anything to the contrary contained in this
Warrant, if the resale of the Warrant Shares by the holder is not then registered pursuant to an
effective registration statement under the Securities Act, this Warrant may be exercised by

 - 11 - 

 

presentation and surrender of this Warrant to the Company at its principal executive offices with a
written notice of the holder’s intention to effect a cashless exercise, including a calculation of
the number of shares of Common Stock to be issued upon such exercise in accordance with the terms
hereof (a “Cashless Exercise”). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that number of shares of Common
Stock determined by multiplying the number of Warrant Shares to which it would otherwise be
entitled by a fraction, the numerator of which shall be the difference between the then current
Market Price per share of the Common Stock and the Exercise Price, and the denominator of which
shall be the then current Market Price per share of Common Stock. For example, if the holder is
exercising 100,000 Warrants with a per Warrant exercise price of $0.75 per share through a cashless
exercise when the Common Stock’s current Market Price per share is $2.00 per share, then upon such
Cashless Exercise the holder will receive 62,500 shares of Common Stock.

          (d) Remedies. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holder, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for
a breach of its obligations under this Warrant will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Warrant, that the holder shall
be entitled, in addition to all other available remedies at law or in equity, and in addition to
the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing
any breach of this Warrant and to enforce specifically the terms and provisions thereof, without
the necessity of showing economic loss and without any bond or other security being required.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 - 12 - 

 

          IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized
officer.

	 	 	 	 	 	 	 
	 	 	STANDARD MANAGEMENT CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Ronald D. Hunter	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Ronald D. Hunter	 	 
	 

	 	 	 	Chief Executive Officer	 	 

Dated as of September 8, 2006

 

 

FORM OF EXERCISE AGREEMENT

Dated:                                                              , 200         
           

To:                                                             

     The undersigned, pursuant to the provisions set forth in the within Warrant, hereby agrees to
purchase
                     shares of Common Stock covered by such Warrant, and makes payment herewith in
full therefor at the price per share provided by such Warrant in cash or by certified or official
bank check in the amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the Securities Act of
1933, as amended, by surrender of securities issued by the Company (including a portion of the
Warrant) having a market value (in the case of a portion of this Warrant, determined in accordance
with Section 11(c) of the Warrant) equal to $                    . Please issue a certificate or certificates
for such shares of Common Stock in the name of and pay any cash for any fractional share to:

	 	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	Signature:	 	 	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

	 	 	 	 	 
	 

	 	Note:
	 	The above signature should correspond
exactly with the name on the face of the
within Warrant, if applicable.

and, if said number of shares of Common Stock shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned covering the balance
of the shares purchasable thereunder less any fraction of a share paid in cash.

 

 

FORM OF ASSIGNMENT

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the rights of the
undersigned under the within Warrant, with respect to the number of shares of Common Stock covered
thereby set forth hereinbelow, to:

	 	 	 	 	 
	Name of Assignee

	 	Address
	 	No of Shares

, and hereby irrevocably constitutes and appoints                                                              as agent and
attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full
power of substitution in the premises.

Dated:      
                
                
                
        , 200      
              

	 	 	 	 	 	 	 
	In the presence of:

	 	 	 	 

	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Signature:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	Title of Signing Officer or Agent (if any):	 	 

	 	 	 	 	 	 	 
	 

	 	Address:
	 	 

	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

	 	 	 	 	 	 	 
	 

	 	Note:
	 	The above signature should correspond
exactly with the name on the face of the
within Warrant, if applicable.

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