-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GK9rZTxH54AIlhl2lLqxarjYh1gvxBDKzy5u0q8Jo81FXZQnb8Zh4UujGygcVK0A zxRWoQID2e3mlBUDIaVCDA== 0001023175-10-000367.txt : 20101222 0001023175-10-000367.hdr.sgml : 20101222 20101222172855 ACCESSION NUMBER: 0001023175-10-000367 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20101216 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20101222 DATE AS OF CHANGE: 20101222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROADCAST INTERNATIONAL INC CENTRAL INDEX KEY: 0000740726 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 870395567 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13316 FILM NUMBER: 101269824 BUSINESS ADDRESS: STREET 1: 7050 UNION PARK AVENUE, #600 CITY: SALT LAKE CITY STATE: UT ZIP: 84047 BUSINESS PHONE: 801-562-2252 MAIL ADDRESS: STREET 1: 7050 UNION PARK AVENUE #600 CITY: SALT LAKE CITY STATE: UT ZIP: 84047 FORMER COMPANY: FORMER CONFORMED NAME: LASER CORP DATE OF NAME CHANGE: 19920703 8-K 1 broadcast_8k.htm Converted by EDGARwiz




UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549


FORM 8-K

CURRENT REPORT



Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



Date of report (date of earliest event reported):  December 16, 2010


BROADCAST INTERNATIONAL, INC.


(Exact name of registrant as specified in its charter)




Utah

0-13316

87-0395567

(State or other jurisdiction of

(Commission

(IRS Employer

incorporation or organization)

File No.)

Identification No.)



7050 Union Park Avenue, Suite 600, Salt Lake City, UT 84047

(Address of principal executive offices, including zip code)



(801) 562-2252

(Registrant’s telephone number, including area code)



Not Applicable

(Former name or former address, if changed since last report)



Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





 




BROADCAST INTERNATIONAL, INC.


FORM 8-K



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Current Report on Form 8-K may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-look ing.  These statements are often, but not always, made through the use of words or phrases such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "management believes," "we believe," "we intend" and similar words or phrases.  Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them.  Any forward-looking statements are qualified in their entirety by reference to the risk factors contained in our annual and quarterly reports filed with the Securities and Exchange Commission.


Item 1.01.  Entry into a Material Definitive Agreement.


On December 16, 2010, Broadcast International, Inc. (the “Company”) entered into a loan restructuring agreement with Castlerigg Master Investments Ltd., the holder of its $15.0 million senior secured convertible note.  The loan restructuring agreement provides that, subject to and contingent upon the successful closing of a private offering with proceeds of not less than $8,500,000, the note will be amended and restated as an unsecured, senior convertible note in the principal amount of $5.5 million.  The amended and restated note will mature three years from closing, bear an annual interest rate of 6.25%, payable semi-annually, and be convertible into shares of the Company’s common stock at a conversion price of $1.35 per share, subject to adjustment.  The Company is obligated to pay approximately $343,750, representing the aggregate amount interest on the amended and restated note through December 31, 2011, at the closing of the transactions contemplated by the loan restructuring agreement (the “Closing”).  

In consideration for amending the note, which currently represents obligations to repay $15.0 million of principal and approximately $2.75 million in accrued but unpaid interest, at the Closing, the holder will receive $2.5 million in cash, payable from the proceeds of the private offering, and a number of shares of the Company’s common stock (or, at the option of the holder, a combination of shares of common stock and warrant exercisable for shares of common stock at an exercise price of $0.05 per share) equal to $3.5 million divided by the price per share of common stock paid by the investors in the private offering.  The holder will also forgive approximately $6.25 million of principal and accrued interest indebtedness, and the holder will surrender to the Company for cancellation warrants to purchase a total of 5,208,333 shares of the Company’s common stock.  At the Closing, each of the Company’s subsidiaries will enter into a guaranty with the holder pursuant t o which they will guarantee the Company’s obligations under the amended and restated note.



2


 




Pursuant to the loan restructuring agreement, the Company and the holder will enter into an Investor Rights Agreement at the Closing, which provides the holder of the senior secured convertible note will receive certain registration rights with respect to the Company’s securities held by such holder.  These registration rights include an obligation of the Company to issue additional warrants to the holder if certain registration deadlines or conditio ns are not satisfied.  The agreement also contains full-ratchet anti-dilution price protection provisions in the event the Company issues stock or convertible debt with a purchase price or conversion price less than the conversion price described above.  The agreement contains other terms and conditions that the Company believes are standard and customary for agreements of such type.  

The Company and the holder have each made customary representations, warranties and covenants in the loan restructuring agreement.  The obligations of the parties to consummate the transactions contemplated by the loan restructuring agreement are subject to customary closing conditions, including that no material adverse effect shall have occurred or worsened.  The Company has post-closing indemnification obligations pursuant to the loan restructuring agreement customary for transactions of this nature. &nb sp;The loan restructuring agreement may be terminated by either party if the Closing does not occur on or prior to December 31, 2010, and for other customary reasons.  The Company has agreed to reimburse the fees and expenses of the holder incurred in connection with the transactions contemplated by the loan restructuring agreement, including, without limitation, reasonable attorneys’ fees, promptly upon demand whether or not the Closing occurs.

On December 22, 2010, the Company also entered into an amended note with the holder of its $1.0 million unsecured convertible note, pursuant to which the maturity date of the note was extended to December 31, 2013.  The holder of this $1.0 million note will be issued 150,000 shares as consideration for extending the note and an additional number of shares, valued at $0.60 per share, to cover the payment of accrued interest in the amount of approximately $80 ,000.

The foregoing summaries of the loan restructuring agreement and the exhibit thereto are not necessarily complete and are qualified in their entirety by reference to the complete text of the loan restructuring agreement, including the exhibits thereto, which are also included as exhibits to this Current Report on Form 8-K.


Item 9.01.  Financial Statements and Exhibits


(c)

Exhibits:


10.1-

Loan Restructuring Agreement dated December 16, 2010.


10.2-

Form of Amended and Restate Note (Exhibit A to Loan Restructuring Agreement dated December 16, 2010).


10.3-

Form of Investor Rights Agreement (Exhibit B to Loan Restructuring Agreement dated December 16, 2010).


10.4-

Form of Warrant (Exhibit C to Loan Restructuring Agreement dated Dec ember 16, 2010).



3

 







10.5 – Amendment to 8% Convertible Note Due 2010 dated December 22, 2010



SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


Date: December 22, 2010.


BROADCAST INTERNATIONAL, INC.

a Utah corporation


By:   /s/ Rodney M. Tiede                           

Name:

Rodney M. Tiede

Title:

President and Chief Executive Officer< /p>



4


NY:1320706.2


 EX-10.1 2 f4986059_1.htm LOAN RESTRUCTURING AGREEMENT Converted by EDGARwiz

EXECUTION COPY



LOAN RESTRUCTURING AGREEMENT



by and between


BROADCAST INTERNATIONAL, INC.

and


CASTLERIGG MASTER INVESTMENTS LTD.




Dated as of December 16, 2010










This LOAN RESTRUCTURING AGREEMENT, dated as of December 16, 2010 (this “Agreement”), is entered into by and between Broadcast International, Inc., a Utah corporation (the & #147;Company”), and Castlerigg Master Investments Ltd., a fund advised by Sandell Asset Management Corp. (the “Lender”).  Capitalized terms not otherwise defined herein shall have the meanings set forth in Section 1 hereof.

W I T N E S S E T H:

WHEREAS, the Company and the Lender are parties to a Securities Purchase Agreement dated as of December 21, 2007, as amended, modified or supplemented from time to time (the “Existing Purchase Agreement”), pursuant to which the Lender, among other things, loaned $15,000,000 to the Company (the “Existing Loan”) in exchange for the issuance by the Company to the Lender of 1,000,000 shares of the Company’s Common Stock, a warrant to purchase up to 1,875,000 shares of Common Stock (the “Existing Wa rrant”) and a Senior Secured Convertible Note with original principal amount of $15,000,000, as amended (the “Existing Note”);

WHEREAS, the Company has engaged Philadelphia Brokerage Corporation (“Placement Agent”) as placement agent for the sale and issuance of up to $15,000,000 of Common Stock to qualified institutional buyers and accredited investors (the “Private Offering”);

WHEREAS, in connection with the Private Offering, the Company and the Lender each wishes to restructure the Existing Loan by (a) amending the Existing Note through the Company’s execution and delivery of an Amended and Restated Senior Convertible Note substantially in the form attached hereto as Exhibit A (the “Amended Note”) and (b) cancelling th e Existing Warrant in exchange for, among other things, the payment by the Company of $2,500,000 in cash, and the issuance by the Company of (i) a number of shares of Common Stock equal to (A) $3,500,000, divided by (B) the price per share of Common Stock paid by investors in the Private Offering (the “Full Issuance Shares”), subject to reduction in accordance with the terms hereof, and, if required to be issued pursuant to the terms hereof, (ii) the Warrant, to the Lender;

WHEREAS, contemporaneously with the consummation of the transactions contemplated hereby, the Parties will execute and deliver an Investor Rights Agreement substantially in the form attached hereto as Exhibit B (the “Investor Rights Agreement”), pursuant to which the Company will provide, among other things, certain registration rights and board observation rights to the Lender; and

WHEREAS, this Agreement has been negotiated among the Parties in good faith and at arm’s length and, as executed, reflects the conclusions of each Party that this Agreement, and the transactions contemplated by this Agreement, are fair, equitable, and in the best interests of such Party.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:




NY:1315865.11




SECTION 1.

DEFINITIONS

1.1

Certain Defined Terms.  Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings specified in the Amended Note.  In addition, as used in this Agreement, the following terms shall have the following meanings:

“8-K Filing” has the meaning set forth in Section 4.5 hereof.

“Agreement” has the meaning set forth in the preamble of this Agreement.

“Amended Note” has the meaning set forth in the recitals to this Agreement.

“Articles of Incorporation” has the meaning set forth in Section 5.1(r).

“BHCA” has the meaning set forth in Section 5.1(jj).

“Bridge Note Documents” means (a) the Bridge Notes by the Company in favor of ACT Capital Partners, LP, Amir L. Ecker, and Amir L. Ecker IRA, dated December 1, 2010 in the aggregate principal sum of $1,000,000 and (b) all other agreements, instruments and documents executed by the Company pursuant thereto, in each case, as amended, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time in accordance with the Amended Note.

“Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of New York are authorized or required by any Requirements of Law to remain closed.

“Bylaws” has the meaning set forth in Section 5.1(r).

“Cash Payment< /b>” has the meaning set forth in Section 2.1.

“Closing” has the meaning set forth in Section 3.1 hereof.

“Closing Date” means the date on which all of the documents and all of the transactions contemplated by Section 3 hereof shall be delivered and consummated, as applicable.

“Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

“Collateral” has the meaning set forth in Section 2.4.

“Common Stock” means the common stock of the Company, par value $0.05 per share.

“Company” has the meaning set forth in the preamble of this Agreement.

“Contingent Obligations” has the meaning set forth in Section 5.1(s).



2





“Conversion Shares” has the meaning set fo rth in Section 5.1(b).

“Environmental Laws” has the meaning set forth in Section 5.1(y).

“Excess Shares” has the meaning set forth in Section 2.2(b).

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Existing Guaranties” means those certain Guaranties dated on or about December 21, 2007 and executed by each of the Company’s Subsidiaries in favor of the Lender.  

“Existing Loan” has the meaning set forth in the recitals to this Agreement.

“Existing Note” has the meaning set forth in the recitals to this Agreement.

“Existing Purchase Agreement” has the meaning set forth in the recitals to this Agreement.

“Existing Warrant” has the meaning set forth in the recitals to this Agreement.

“Federal Reserve” has the meaning set forth in Section 5.1(jj).

“Frenkel Loan Documents” means (a) the 5% Convertible Note issued by the Company i n favor of Leon Frankel, dated October 28, 2006 in the principal sum of $1,000,000 and (b) all other agreements, instruments and documents executed by the Company pursuant thereto, in each case, as amended, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time in accordance with the Subordination Agreement and the Amended Note.

“Full Issuance Shares” has the meaning set forth in the recitals.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Guaranties” means guaranties to be executed by each of the Company’s Subsidiaries in favor of the Lender at the Closing in a form satisfactory to the Parties.

“Hazardous Materials” has the meaning set forth in Section 5.1(y).

“Indebtedness” has the meaning set forth in Section 5.1(s).

“Indemnified Liabilities” has the meaning set forth in Section 8.3.

“Indemnitees” has the meaning set forth in Section 8.3.

“Insolvent” has the meaning set forth in Section 5.1(l).

“Intellectual Property Rights” has the meaning set forth in Section 5.1(x).



3





“Investor Rights Agreement” has the meaning set forth in the recitals hereto.

“Lender” has the meaning set forth in th e preamble to this Agreement.

“Lien” means any mortgage, lien, pledge, charge, security interest or other encumbrance.

“Material Adverse Effect” means any material adverse effect on the business, properties, assets, operations, results of operations, condition (financial or otherwise) or prospects of the Company and its Subsidiaries, taken as a whole, or on the transactions contemplated hereby and the other Transaction Documents (as defined below) or by the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents.  

“Outside Closing Date 8; has the meaning set forth in Section 7.1(a) hereof.

“Partial Issuance Shares” has the meaning set forth in Section 2.2(b).

“Parties” means the parties to this Agreement as identified in the preamble to this Agreement and signatory pages hereto.

“Person” has the meaning set forth in Section 5.1(s).

“Placement Agent” has the meaning set forth in the recitals to this Agreement.

“Pledge Agreement” means that certain Pledge A greement dated on or about December 21, 2007 and entered into between the Company and the Lender pursuant to the Existing Purchase Agreement.  

“Principal Market” has the meaning set forth in Section 5.1(d).

“Private Offering” has the meaning set forth in the recitals to this Agreement.

“Regulation D” means Regulation D as promulgated by the SEC under the Securities Act.

“Requirements of Laws” means any United States federal, state and local law, and any other laws, statutes, regulations, rules, codes or ordinances enacted, adopted, issued or pr omulgated by any Governmental Authority or common law applicable to the Company.

“Rule 144” has the meaning set forth in Section 5.2(f).

“SEC” means the U.S. Securities and Exchange Commission.

“SEC Documents” has the meaning set forth in Section 5.1(k).

“Securities” has the meaning set forth in Section 5.1(b).

“Securities Act” means the Securities Act of 1933, as amended.



4





“Securities Agreement” means that certain Securities Agreement dated on or about December 21, 2007 and entered into among the Company, its Subsidiaries and the Lender pursuant to the Existing Purchase Agreement.

“Security Documents” has the meaning set forth in Section 2.4.

“Security Interest Termination” has the meaning set forth in < u>Section 2.4.

“Shares” means the Full Issuance Shares or, to the extent the Lender makes an election pursuant to Section 2.2(b), the Partial Issuance Shares.

“Subordination Agreement” means the Subordination Agreement to be entered into among the Company, Leon Frenkel and the Lender, in form and substance satisfactory to the Lender.

“Subsidiaries” has the meaning set forth in Section 5.1(a).

“Trading Affiliates” has the meaning set forth in Section 5.2(k).

“Transaction Documents” means this Agreement (including all exhibits and schedules hereto), the Amended Note, the Warrant (if required to be issued pursuant to the terms hereof), the Guaranties, the Investor Rights Agreement, the Subordination Agreement and each of the other agreements required to be entered into by the Parties in connection with the transactions contemplated by this Agreement.

“UCC” means the Uniform Commercial Code as in effect in the State of Utah.

“Warrant” has the meaning set forth in Section 2.2(b).

“Warrant Shares” has the meaning set forth in Section 2.2(b).

1.2

Other Definitional Provisions.

(a)

Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto.

(b)

The words “hereof,” “herein,” “hereby,” “hereto” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; the words “include,” “includes” and “including” shall be deemed to be followed by the words “without limitation.”

(c)

The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

(d)

Unless the context otherwise requires, references herein:  (i) to Articles, Sections, Exhibits and Schedules mean the Articles and Sections of, and the Exhibits and Schedules attached to, this Agreement; (ii) to an agreement, instrument or other document means



5





such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by th is Agreement; and (iii) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder.

(e)

The Schedules and Exhibits referred to herein shall be construed with and as an integral part of this Agreement to the same extent as if they were set forth verbatim herein.

(f)

Titles to Articles and headings of Sections are inserted for convenience of reference only and shall not be deemed a part of or to affect the meaning or interpretation of this Agreement.

(g)

This Agreement and the Transaction Documents shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting an instrument or causing any instrument to be drafted.

SECTION 2.

LOAN RESTRUCTURE

2.1

Cash Payment.  At the Closing, the Company shall pay to the Lender a one-time cash payment of $2,500,000 (the “Cash Payment”) by wire transfer of immediately available funds to a bank account designated by the Lender.

2.2

Issuance of the Shares and the Warrant.  

(a)

At the Closing, the Company shall issue and sell to the Lender, and the Lender shall purchase fro m the Company for consideration set forth herein, (i) the Shares, which shall, upon issuance, be duly authorized, validly issued, fully paid, nonassessable and free and clear of all taxes and Liens and, if required to be issued pursuant to Section 2.2(b), (ii) the Warrant, which shall, upon issuance, be duly authorized and validly issued.  

(b)

Notwithstanding anything to the contrary contained in this Agreement, in the event that the issuance by the Company of the Full Issuance Shares would result in the Lender (together with its affiliates) beneficially owning in excess of 9.90% of the shares of Common Stock outstanding immediately after giving effect to such issuance, as determined by the Lender, then Lender may at its opt ion provide the Company with written notice at or prior to the Closing that it elects for the Full Issuance Shares to be reduced by a number of shares of Common Stock (the “Excess Shares”) that, when subtracted from the number of Full Issuance Shares, will result in the Lender and its affiliates beneficially owning less than 9.90% of the shares of Common Stock outstanding immediately after giving effect to such issuance, as determined by the Lender.  In such event, at the Closing, the Company shall issue (i) a number of shares of Common Stock equal to the excess of the Full Issuance Shares over the Excess Shares (the “Partial Issuance Shares”) and (ii) a warrant, in substantially the form attached as Exhibit C hereto (the “Warrant”), to purchase a number of shares of Common Stock equal to the number of Excess Shares (the “Warrant Shares”) on the terms and conditions set forth in the Warrant.  

2.3

Amendment and Restatement of Senior Secured Promissory Note.  Effective at the Closing, the Existing Note, including any and all amendments thereto, shall be



6





amended and restated in its entirety by the Amended Note substantially in the form attached hereto as Exhibit A, and the terms set forth in the Existing Note shall be su perseded in their entirety by the terms set forth in the Amended Note.  

2.4

Termination of Security Interest.  At the Closing, the security interests in the assets of the Company and its Subsidiaries (the “Collateral”) and other rights and interest granted by the Company and its Subsidiaries pursuant to the Pledge Agreement, the Security Agreement and the Existing Guaranties (collectively, the “Security Documents”), shall be terminated and all rights of the Lender with respect to the Collateral pursuant to the Security Documents or otherwise shall revert to the Company (the “Security Interest Termination”).  Upon such Security Interest Termination, the Lender hereby authorizes the Company to file any UCC termination statements neces sary to effect such termination and the Lender will execute and deliver to the Company any additional documents or instruments as the Company may reasonably request to evidence such Security Interest Termination.

2.5

Termination of the Existing Warrant.  At the Closing, the Existing Warrant, including any and all amendments thereto, shall be terminated and the rights of the Lender thereunder shall be extinguished.

2.6

Termination of the Full Ratchet Amendment and Extension Agreements.  For the avoidance of doubt, after consummation of the transactions con templated hereunder and fulfillment by the Company of all of its obligations under that certain letter agreement, dated as of the date hereof, between the Company and the Lender, a copy of which is attached hereto as Annex A, at the Closing, (a) that certain Full Ratchet Amendment and Extension Agreement, dated as of July 30, 2010, by and between the Company and the Lender, (b) that certain Fourth Amendment and Extension Agreement, dated as of October 29, 2010, by and between the Company and the Lender and (c) that certain Fifth Amendment and Extension Agreement, dated as of November 15, 2010, by and between the Company and the Lender, shall be terminated and the rights of the parties thereunder shall be extinguished.

SECTION 3.

CLOSING CONDITIONS

3.1

Closing.  The closing (the “Closing”) shall take place at 10:00 A.M. Mountain Standard time on the second Business Day following the date on which all of the conditions set forth in Section 3.4 hereof have been satisfied or waived, or such other time as the Parties may mutually agree.  The Closing shall take place remotely via the exchange of documents and signatures.

3.2

Closing Deliveries of the Lender.  On or prior to the Closing Date, the Lender shall deliver (or cause to be delivered) to the Company each of the following documents:

(a)

the Existing Note for replacement at the Closing in accordance with Section 2.3 hereof; provided, however, that effective upon the occurrence of the Closing, the Existing Note shall be of no further force and effect, whether or not it is delivered as set forth in this sentence;



7





(b)

the Existing Warrant for cancellation at the Closing in accordance with Section 2.5 hereof; provided, however, that effective upon the occurrence of the Closing, the Existing Warrant shall be of no further force and effect, whether or not it is delivered as set forth in this sentence;

(c)

a copy of the Investor Rights Agreement, executed by the Lender; and

(d)

any UCC termination statements necessary to effect the Security Interest Termination and any additional documents or instruments as the Company shall reasonably request to evidence such termination.

3.3

Closing Deliveries of the Company.  On or prior to the Closing Date, the Company shall deliver (or cause to b e delivered) to the Lender each of the following:

(a)

the Cash Payment pursuant to Section 2.1 hereof;

(b)

one or more stock certificate(s) representing the Shares, duly executed by the Company, pursuant to Section 2.2(a) hereof;

(c)

if required to be issued pursuant to Section 2.2(b), the Warrant, duly executed by the Company;

(d)

the Amended Note, duly executed by the Company, pursuant to Section 2.3 hereof;

(e)

a copy of the Investor Rights Agreement, duly executed by the Company;

(f)

copies of the Guaranties, duly executed by the Company’s Subsidiaries;

(g)

a certificate of the Secretary or any Assistant Secretary of the Company, dated as of the Closing Date, in form and substance reasonably satisfactory to the Lender, certifying (i) the resolutions of the Board of Directors of the Company authorizing the execution and performance of this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby, (ii) the incumbency and signatures of the representative(s) of the Company and its Subsidiaries signing, as applicable, this Agreement an d each of the other Transaction Documents, (iii) the Company’s Articles of Incorporation and (iv) the Company’s Bylaws, each in effect at the Closing;

(h)

an Officer’s Certificate (or its equivalent) of the Company, dated as of the Closing Date, certifying that (i) the representations and warranties of the Company contained in this Agreement were true and correct when made and are true and correct as of the Closing Date with the same force and effect as if made as of the Closing Date (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties were true and correct as of that date); and (ii) the covenants and agreements contained in this Agreement to be complied with by the Company on or before the Closing Date have been complied with;



8





(i)

a non-foreign affidavit of the Company, dated as of the Closing Date, sworn under penalty of perjury and in form and substance required under Section 1.1445-2(b)(2) of the United States Treasury regulations promulgated under the Code;

(j)

the opinion of Holland & Hart, dated as of the Closing Date, in form and substance reasonably satisfactory to the Lender;

(k)

a certificate evidencing the formation and good standing of the Company and each of its Subsidiaries in each such entity's jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within ten (10) days of the Closing Date;

(l)

a certified copy of the Articles of Incorporation as certified by the Secretary of State (or comparable office) of the State of Utah dated within ten (10) days of the Closing Date;

(m)

a letter from the Company’s transfer agent certifying the number of shares of Common Stock outstanding as of a date within five (5) days prior to the Closing Date;

(n)

the Subordination Agreement, duly executed by the Company and Leon Frenkel;

(o)

a copy of all amendments, supplements and/or other modifications to any of the Frenkel Loan Documents (if any), in each case, in form and substance satisfactory to the Lender, which shall, among other things, extend the maturity date of the Indebtedness evidenced thereby to a date after the maturity date of the Amended Note;

(p)

evidence reasonably satisfactory to the Lender that the Company has raised a minimum of $8,500,000 but not more than $15 million in the Private Offering on terms acceptable to the Lender;

(q)

a copy of all consents, waivers or approvals required to be obtained by the Company with respect to the consummation of the transactions contemplated by this Agreement or any other Transaction Documents;

(r)

evidence reasonably satisfactory to the Lender that the Indebtedness represented by the Bridge Note Documents has been converted into shares of Common Stock at the per share purchase price paid by investors in the Private Offering or that the holders of the Indebtedness evidenced by the Bridge Note Documents have been repaid all amounts due under the Bridge Note Documents;

(s)

the escrow agreement contemplated by the Amended Note, in form and substance reasonably acceptable to the Lender; and

(t)

s uch other instruments, agreements or documents as the Lender shall reasonably require to consummate the transactions contemplated by this Agreement or any other Transaction Document.



9





3.4

Other Conditions to Closing.  

(a)

The obligations of the Lender to effect the transactions contemplated by this Agreement are subject to the satisfaction or, to the extent permitted by the Requirements of Law, the waiver by the Lender on or prior to the Closing Date of each of the following conditions:

(i)

the Company shall have made each of the deliveries required pursuant to Section 3.3 hereof;

(ii)

the representations and warranties of the Company and contained in this Agreement shall have been true and correct when made and shall be true and correct as of the Closing Date with the same force and effect as if made as of the Closing Date (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall have been true and correct as of that date);

(iii)

the covenants and agreements contained in this Agreement to be complied with by the Company on or before the Closing Date shall have been complied with;

(iv)

no order issued by a court of competent jurisdiction or by a Governmental Authority, nor any Requirement of Law or other legal restraint or prohibition, shall be in effect that would make the transactions contemplated by this Agreement or any other Transaction Document illegal or otherwise prevent the consummation thereof;

(v)

there shall be no litigation, legal proceeding or dispute, threatened or commenced, seeking to challenge or block the issuance of the Amended Note or the consummation of any other transactions contemplated by this Agreement or the other Transaction Documents;

(vi)

the Securities (i) shall be designated for quotation or listed on the Principal Market and (ii) shall not have been suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, as of the Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by falling below the minimum listing maintenance requirements of the Principal Market; and

(vii)

since the date of this Agreement, no event, condition or circumstance shall have occurred, or worsened, that has had, or would be reasonably likely to have, a Material Adver se Effect.

(b)

The obligation of the Company to effect the transactions contemplated by this Agreement are subject to the satisfaction or, to the extent permitted by the Requirements of Law, the waiver by the Company on or prior to the Closing Date of each of the following conditions:



10





(i)

the Lender shall have made each of the deliveries required pursuant to Section 3.2 hereof;

(ii)

the Company shall have raised a minimum of $8,500,000 in the Private Offering;

(iii)

the representations and warranties of the Lender contained in this Agreement shall have been true and correct when made and shall be true and correct as of the Closing Date with the same f orce and effect as if made as of the Closing Date (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall have been true and correct as of that date); and

(iv)

no order issued by a court of competent jurisdiction or by a Governmental Authority, nor any Requirement of Law or other legal restraint or prohibition, shall be in effect that would make the transactions contemplated by this Agreement illegal or otherwise prevent the consummation thereof.

SECTION 4.

COVENANTS OF COMPANY

4.1

Covenants Regarding the Incurrence of Indebtedness.  From the date hereof until the Closing Date:

(a)

The Company shall not create, incur, permit to exist or have (i) any Liens upon or with respect to any part of the Company’s assets or properties or (ii) outstanding Indebtedness that is not or would not be subordinated to the obligations of th e Company under the Amended Note; and

(b)

The Company shall not declare or pay any dividend or make any other distribution, or set aside any sum for any such purpose.

4.2

SEC Filings.  The Company shall comply in all material respects with the Exchange Act and the rules and regulations of the SEC promulgated thereunder and no Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K  (or any amendme nt thereto) or other instrument filed by the Company with the SEC during such period shall contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

4.3

Notice of Certain Events.  From the date hereof until the Closing Date, the Company shall promptly notify the Lender in writing after learning of any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions set forth in Section 3.4(a) hereof impossible or not reasonably likely.  Without limiting the generality of the foregoing, the Company shall advise the Lender in writing of (i) any legal proceeding or claim threatened in writing, commenced or asserted against or with respect to the transactions contemplated by this Agreement; (ii) the occurrence or existence of any event, condition or circumstance that has had, or would be reasonably likely to have, a Material Adverse Effect; or (iii) any breach of any representation or warranty of the Company contained herein.  No such



11





notice shall limit or modify in any way, or act as or result in a waiver of the Company’s obligations with respect to any breach of any of the representations, warranties, covenants or agreements contained herein (including, without limitation, conditions to Closing or indemnification obligations).

4.4

Securities Law Matters.  The Company shall file a Form D with respect to the Securities as required pursuant to Regulation D and provide a copy thereof to Lender promptly after such filing.  The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Lender at the Closing pursuant to this Agreement under applicable sec urities or "Blue Sky" laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Lender on or prior to the Closing Date.  The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or "Blue Sky" laws of the states of the United States following the Closing Date.

4.5

Disclosure of Transactions and Other Material Information.  On or before 9:00 a.m., New York City time, on the second Business Day following the date of this Agreement, the Company shall issue a press release and file a Current Report on Form 8-K describing the terms of the transactions conte mplated by the Transaction Documents in the form required by the Exchange Act and attaching the material Transaction Documents (including this Agreement, the form of Amended Note, the form of Investor Rights Agreement and the form of the Guaranties as exhibits to such filing (including all attachments, the “8-K Filing”)).  From and after the filing of the 8-K Filing with the SEC, the Lender shall not be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents that is not disclosed in the 8-K Filing.  Unless requested in writing by the Lender, the Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents, not to, provide the Lender with any material, nonpublic information regarding the Company or any of its Subsidiaries from and after the filing of the 8-K Filing with the SEC without the ex press written consent of the Lender.  If the Lender has, or believes it has, received any such material, nonpublic information regarding the Company or any of its Subsidiaries, it shall provide the Company with written notice thereof.  The Company shall, within two (2) Trading Days (as defined in the Amended Note) of receipt of such notice, make public disclosure of such material, nonpublic information.  Subject to the foregoing, neither the Company nor any of its Subsidiaries shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Lender, to make any press release or other public disclosure with respect to such transactions (a) in substantial conformity with the 8-K Filing and contemporaneously therewith and (b) as is required by applicable Requirements of Law (provided that in the case of clause (a) the Lender shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release).  Without the prior written consent of the Lender, neither the Company nor any of its Subsidiaries or affiliates shall disclose the name of the Lender in any filing, announcement, release or otherwise, except as required by applicable Requirements of Law.



12





4.6

Best Efforts.  The Company shall use its best efforts to satisfy timely each of the conditions to be satisfied by it as provided in Sections 3.3 and 3.4 hereof.

SECTION 5.

REPRESENTATIONS AND WARRANTIES

5.1

Representation and Warranties of the Company.  The Company hereby represents and warrants to the Lender as follows:

(a)

Organization and Qualification.  Except as set forth on Schedule 5.1(a)(i), each of the Company and its “Subsidiaries” (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns any of the capital stock or holds an equity or similar interest) are entities duly organized and validly existing in good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authorization to own their properties and to carry on their business as now being conducted.  Each of the Company and its Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification nece ssary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect.  The Company has no Subsidiaries except as set forth on Schedule 5.1(a)(ii).  All of the capital stock and other equity securities of each of the Company’s Subsidiaries is wholly-owned by the Company or one of its Subsidiaries, except as set forth on Schedule 5.1(a)(ii).

(b)

Authorization; Enforcement; Validity.  The Company has the requisite power and authority to enter into and perform its obligations under the Transaction Documents and to issue the Securities in accordance with the terms hereof and thereof.  The execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Securities, the reservation for issuance and the issuance of the Warrant Shares (if the Warrant is required to be issued pursuant to Section 2.2(b)), the reservation for issuance and the issuance of the Common Stock issuable upon conversion of the Amended Note (the “Conversion Shares” and together with the Amended Note, the Shares, the Warrant (if required to be issued pursuant to Section 2.2(b)) and the Warrant Shares (if the Warrant is required to be issued pursuant to Section 2.2(b)), the “Securities”) have been duly authorized by the Company’s Board of Directors and (other than the filing with the SEC and applicable state securities commissions of Form D and related filings and the filing with the SEC of one or more registration statements in accordance with the requirements of the Investor Rights A greement) no further filing, consent, or authorization is required by the Company, its Board of Directors or its stockholders.  This Agreement and the other Transaction Documents have been or will, when executed and delivered, be duly executed and delivered by the Company, and constitute or will, when executed and delivered, constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

(c)

Issuance of Securities.  The issuance of the Securities is duly authorized and, upon issuance thereof, the Securities will be validly issued, fully paid, non-assessable and



13





are and will be free from all taxes and Liens.  As of the Closing, a number of shares of Common Stock shall have been duly authorized and reserved for issuance which equals or exceeds 130% of the aggregate of (i) the maximum number of Warrant Shares (if the Warrant is required to be issued pursuant to Section 2.2(b)) is suable upon exercise of the Warrant without taking into account any limitations on the exercise of the Warrant set forth in the Warrant and (ii) the maximum number of Conversion Shares issuable upon conversion of the Amended Note without taking into account any limitations on the conversion of the Amended Note set forth in the Amended Note.  Upon conversion or payment in accordance with the Amended Note, the Conversion Shares and, upon exercise of the Warrant (if required to be issued pursuant to Section 2.2(b)) in accordance with the terms thereof, the Warrant Shares will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights, taxes and Liens, with the holders being entitled to all rights accorded to a holder of Common Stock.  The offer and issuance by the Company of the Securities is exempt from registration under the Securities Act.  The Securities shall be issued in compliance with all applicable securities laws.

(d)

No Conflicts.  Except as set forth on Schedule 5.1(d), the execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Amended Note, the Shares, the Warrant (if required to be issued pursuant to Section 2.2(b)) and reservation for issuance and issuance of the Conversion Shares and the Warrant Shares (if the Warrant is required to be issued pursuant to Section 2.2(b)) will not (i) result in a violation of any articles of incorporation, certificate of formation, any certificate of designations or other constituent documents of the Company or any of its Subsidiaries, any capital stock of the Company or any of its Subsidiaries or the bylaws of the Company or any of its Subsidiaries or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) in any respect under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and state securities laws and regulations and the rules and regulations of the OTC Bulletin Board (the “Principal Market”)) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected.

(e)

Consents.  Except as set forth on Schedule 5.1(e), neither the Company nor any of its Subsidiaries is required to obtain any consent, authorization or order of, or make any filing or registration with, any court, Governmental Authority or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents, in each case in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the Closing Date, and the Company and its Subsidiaries are unaware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the consents, registrations, applications or filings pursuant to the p receding sentence.  The Company is not in violation of the listing requirements of the Principal Market and has no knowledge of any facts which would reasonably lead to delisting or suspension of the Common Stock in the foreseeable future.



14





(f)

Acknowledgment Regarding Lender’s Purchase of Securities.  The Company acknowledges and agrees that the Lender is acting solely in the capacity of arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby and that the Lender is not (i) an officer or director of the Company, (ii) an "affiliate" of the Company or any of its Subsidiaries (as defined in Rule 144) or (iii) to the knowledge of the Company, a “beneficial owner” of more than 10% of the shares of Common Stock (as defined for purposes of Rule 13d-3 of the Exchange Act).  The Company further acknowledges that the Lender is not acting as a financial advisor or fiduciary of the Company or any of its Subsidiaries (or in any similar capacity) with respect to the Transaction Documents or the transactions contemplated hereby and thereby, and any advice given by the Lender or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to the Lender’s purchase of the Securiti es and other transactions contemplated by this Agreement.  The Company further represents to the Lender that the Company’s decision to enter into the Transaction Documents has been based solely on the independent evaluation by the Company and its representatives.

(g)

No General Solicitation; Placement Agent's Fees.  Neither the Company, nor any of its Subsidiaries or affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. The Company shall be responsible for the payment of any placement agent's fees, financial advisory fees, or brokers' commissions (ot her than for Persons engaged by the Lender or its investment advisor) relating to or arising out of the transactions contemplated hereby. The Company shall pay, and hold the Lender harmless against, any liability, loss or expense (including, without limitation, attorney's fees and out-of-pocket expenses) arising in connection with any such claim. The Company acknowledges that it has engaged the Placement Agent in connection with the sale of the Securities and the sale of Common Stock in the Private Offering.  The aggregate amount of all fees and expenses owed by the Company to the Placement Agent in respect of the Private Offering is substantially as set forth in the Confidential Private Placement Offering Memorandum prepared by the Company and used in the Private Offering.  Other than the Placement Agent, the Company has not engaged any placement agent or other agent in connection with the sale of the Securities or the sale of Common Stock in the Private Offering.

(h)

No Integrated Offering.  None of the Company, its Subsidiaries, any of their affiliates, and any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the Securities Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated.  None of the Company, its Subsidiaries, their affiliat es or any Person acting on their behalf will take any action or steps referred to in the preceding sentence that would require registration of any of the Securities under the Securities Act or cause the offering of the Securities to be integrated with other offerings.

(i)

Dilutive Effect.  The Company understands and acknowledges that the number of Conversion Shares issuable upon conversion of the Amended Note and Warrant



15





Shares (if the Warrant is required to be issued pursuant to Section 2.2(b)) issuable upon exercise of the Warrant (if required to be issued pursuant to Section 2.2(b)) will increase in certain circumstances.  The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Amended Note and Warrant Shares (if the Warrant is required to be issued pursuant to Section 2.2(b)) upon exercise of the Warrant (if required to be issued pursuant to Section 2.2(b)) in accordance with this Agreement is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

(j)

Application of Takeover Protections; Rights Agreement.  The Company and its board of directors and shareholders have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Articles of Incorporation or Bylaws or the laws of the jurisdiction of its formation or otherwise which is or could become applicable to the Lender as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Securities and the Lender’s ownership of the Securities.  The Company has not adopted a stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stoc k or a change in control of the Company.

(k)

SEC Documents; Financial Statements.  Except as disclosed on Schedule 5.1(k), during the three (3) years prior to the date hereof, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”).  The Company has delivered to the Lender or its representatives true, correct and complete copie s of the SEC Documents not available on the EDGAR system.  As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  No other information provided by or on behalf of the Company to the Lender which is not included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading.



16





(l)

Absence of Certain Changes.  Except as disclosed on Schedule 5.1(l), since January 1, 2010, there has been no Material Adverse Effect, no event, condition or circumstance that would be reasonably likely to have a Material Adverse Effect and no material adverse development in the business, properties, operations, condition (financial or otherwise), results of operations or prospects of the Company or its Subsidiaries.  Neither the Company nor any of its Subsidiaries has taken any steps to seek protect ion pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so.  The Company is not as of the date hereof, and after giving effect to the transactions contemplated hereby to occur at the Closing, will not be Insolvent (as defined below).  For purposes of this Section, “Insolvent” means, with respect to any Person (as defined below), (i) the present fair saleable value of such Person’s assets is less than the amount required to pay such Person’s total Indebtedness (as defined below), (ii) such Person is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (iii) the Company intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature or (iv) such Per son has unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted.

(m)

No Undisclosed Events, Liabilities, Developments or Circumstances.  No event, liability, development or circumstance has occurred or exists, or to the knowledge of the Company is contemplated to occur with respect to the Company, its Subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws and which has not been publicly disclosed.

(n)

Conduct of Business; Regulatory Permits.  Neither the Company nor any of its Subsidiaries is in violation of any term of or in default under any certificate of designations of any outstanding series of preferred stock of the Company, its Articles of Incorporation or Bylaws or its organizational charter or articles of incorporation or bylaws (or similar governing documents), respectively.  Neither the Company nor any of its Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation or other Requirement of Law applicable to the Company or its Subsidiaries, and neither the Company nor any of its Subsidiaries will conduct its business in violation of any of the foregoing.  Without limiting the generality of the foregoing, the Company is not in violation of any of the rul es, regulations or requirements of the Principal Market and has no knowledge of any facts or circumstances which would reasonably lead to delisting or suspension of the Common Stock by the Principal Market in the foreseeable future.  During the two years prior to the date hereof, the Common Stock has been designated for quotation on the Principal Market.  During the two years prior to the date hereof, (i) trading in the Common Stock has not been suspended by the SEC or the Principal Market and (ii) the Company has received no communication, written or oral, from the SEC or the Principal Market regarding the suspension or delisting of the Common Stock from the Principal Market.  The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.



17





(o)

Foreign Corrupt Practices.  Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other Person acting on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its Subsidiaries (i) used a ny corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

(p)

Sarbanes-Oxley Act.  The Company is in compliance in all material respects with any and all applicable requirements of the Sarbanes-Oxley Act of 2002, and any and all applicable rules and regula tions promulgated by the SEC thereunder.

(q)

Transactions With Affiliates.  Except as set forth on Schedule 5.1(q), none of the officers, directors or employees of the Company is a party to any transaction with the Company or any of its Subsidiaries (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Company or any of its Subsidiaries, any corporation, partnership, trust or other entity in which any such officer, direct or, or employee has a substantial interest or is an officer, director, trustee or partner.

(r)

Equity Capitalization.  The authorized capital stock of the Company consists of (i) 180,000,000 shares of Common Stock, of which 45,759,150 shares are issued and outstanding, 5,075,864 shares are reserved for issuance pursuant to the Company's stock option and purchase plans, and 13,106,619 shares are reserved for issuance pursuant to securities (other than the aforementioned options, warrants, the Warrant (if required to be issued pursuant to Section 2.2(b)) and the Amended Note) exercisable or exchangeable for, or convertible into, shares of Common Stock and (ii) 20,000,000 shares of preferred stock, no par value, of which none are issued and outstanding. All of such outstanding shares have been, or upon issuance will be, duly authorized and validly issued and fully paid and nonassessable.  Except as set forth on Schedule 5.1(r): (i) none of the Company's capital stock is subject to preemptive rights or any other similar rights or any Liens suffered or permitted by the Company; (ii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exe rcisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries; (iii) there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing statements securing



18





obligations filed in connection with the Company or any of its Subsidiaries; (v) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to the Investor Rights Agreement); (vi) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (viii) the Company does not have any stock appreciation rights or “phantom stock” plans or agreements or any similar plan or agreement; and (ix) the Company and its Subsidiaries have no liabilities or obligations required to be disclosed in the SEC Documents but not so disclosed in the SEC Documents. T he Company has furnished or made available to the Lender true, correct and complete copies of the Company's Articles of Incorporation, as amended and as in effect on the date hereof (the “Articles of Incorporation”), and the Company's Bylaws, as amended and as in effect on the date hereof (the “Bylaws”), and as set forth on Schedule 5.1(r), the material terms of all securities convertible into, or exercisable or exchangeable for, shares of Common Stock and the material rights of the holders thereof in respect thereof.

(s)

Indebtedness and Other Contracts.  Except as set forth on Schedule 5.1(s), neither the Company nor any of its Subsidiaries (i) has any outstanding Indebtedness (as defined below), (ii) is a party to any material contract as defined in Item 601 of Regulation S-K promulgated by the SEC, (iii) is in violation of any term of or in default under any contract, agreement or instrument relating to any Indebtedness, or (iv) is a party to any contract, agreement or instrument relating to any Indebtedness.  For purposes of this Agreement:  (x) “Indebtedness” of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including  “capital leases” in accordance with generally accepted accounting principles (other than trade payables entered into in the ordinary course of business), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incu rred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Liens upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns suc h assets or property has not assumed or become liable for the payment of such indebtedness, (H) all indebtedness referred to in clauses (A) through (G) above guaranteed in any manner by the Person, or in effect guaranteed, directly or indirectly, in any manner by the Person through an agreement, contingent or otherwise, to supply funds to, or in any other manner invest in, the debtor, or to purchase indebtedness, or to purchase and pay for



19





property if not delivered or pay for services if not performed, primarily or excl usively, for the purpose of enabling the debtor to make payment of the indebtedness or to insure the owners of the indebtedness against loss and (I) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (H) above; (y) “Contingent Obligation” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto; and (z) “Person” means an individual, a limited liability company, a partnership, a joint venture, a c orporation, a trust, an unincorporated organization and a Governmental Authority or any department or agency thereof.

(t)

Absence of Litigation.  There is no action, suit, proceeding, inquiry or investigation before or by the Principal Market, any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, the Common Stock or any of the Company’s Subsidiaries or any of the Company’s or its Subsidiaries’ officers or directors in their capacities as such, except as set forth on Schedule 5.1(t).

(u)

Insurance.  The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as is prudent and customary in the businesses in which the Company and its Subsidiaries are engaged.  Neither the Company nor any such Subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers.

(v)

Employee Relations.  

(i)

Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union.  The Company and its Subsidiaries believe that their relations with their employees are good.  No executive officer of the Company or any of its Subsidiaries has notified the Company or any such Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the Company or any such Subsidiary.  No executive officer of the Company or any of its Subsidiaries, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of a ny employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters.

(ii)

The Company and its Subsidiaries are in compliance with all federal, state, local and foreign Requirements of Law respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours.



20





(w)

Title.  Except as set forth on Schedule 5.1(w), the Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all Liens and defects except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Su bsidiaries.   Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.

(x)

Intellectual Property Rights.  The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights (“Intellectual Pro perty Rights”) necessary to conduct their respective businesses as now conducted.  Except as set forth on Schedule 5.1(x), none of the Company’s Intellectual Property Rights have expired or terminated, or are expected to expire or terminate, within three years from the date of this Agreement.  The Company does not have any knowledge of any infringement by the Company or its Subsidiaries of Intellectual Property Rights of others.  The Company does not have any knowledge of any infringement by any third party of the Company’s or any of its Subsidiaries’ Intellectual Property Rights.  There is no claim, action or proceeding being made or brought, or to the knowledge of the Company or its Subsidiaries, being threatened, against the Company or its Subsidiaries regarding its Intellectual Property Rights.  To the knowledge of the Company, there is no reasonable basis for any such claim, action or proceeding.  The Company is unaware of any facts or circums tances which might give rise to any of the foregoing infringements or claims, actions or proceedings.  The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties.

(y)

Environmental Laws.  The Company and its Subsidiaries (i) are in compliance with any and all Environmental Laws (as hereinafter defined), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval.  The term “Environmental Laws” means all federal , state, local or foreign Requirements of Law relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

(z)

Subsidiary Rights.  Except as set forth on Schedule 5.1(z), the Company or one of its Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by



21





applicable law) to receive dividends and distributions on, all capital securities of the Company’s direct and indirect Subsidiaries as owned by the Company or such Subsidiary.

(aa)

Investment Company Status.  The Company is not, and upon consummation of the sale of the Securities will not be, an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

(bb)

Tax Status.  The Company and each of its Subsidiaries (i ) has made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

(cc)

Internal Accounting and Disclosure Controls. The Company and each of its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference. The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-14 under the Exchange Act) that are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed in to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure. Except as set forth on Schedule 5.1(cc), during the twelve months prior to the date hereof, neither the Company nor any of its Subsidiaries has received any notice or correspondence from any accountant or auditor relating to any material weakness in any part of the system of internal accounting controls of the Company or any of its Subsidiaries.

(dd)

Off Balance Sheet Arrangements.  There is no transaction, arrangement, or other relationship between the Company and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its Exchange Act filings and is not so disclosed or that otherwise would be reasonably likely to have a Material Adverse Effect.  



22





(ee)

Ranking of Notes.  Except as set forth on the Schedule 5.1(ee), no Indebtedness of the Company is senior to or ranks pari passu with the Amended Note in right of payment, whether with respect of payment of redemptions, interest, damages or upon liquidation or dissolution or otherwise.

(ff)

Transfer Taxes.  On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in conne ction with the sale and transfer of the Securities to be sold to the Lender hereunder will be, or will have been, fully paid or provided for by the Company, and all laws imposing such taxes will be or will have been complied with.

(gg)

Manipulation of Price.  The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) other than the Placement Agent, sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) other than the Placement Agent, pa id or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company.

(hh)

Acknowledgement Regarding Lender’s Trading Activity. It is understood and acknowledged by the Company that (i) the Lender has not been asked to agree, and the Lender has not agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) the Lender, and counter parties in "derivative" transactions to which the Lender is a party, directly or indirectly, presently may have a “short” position in the Common Stock, and (iii) the Lender shall not be deemed to have any affiliation with or control over any arm's length counter-party in any “derivative” transaction. The Company further understands and acknowledges that the Lender may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Conversion Shares or the Warrant Shares (if the Warrant is required to be issued pursuant to Section 2.2(b)) are being determined and (b) such hedging and/or trading activities, if any, can reduce the value of the existing stockholders' equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted. The Company acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement, the Amended Note or any of the other Transaction Documents.

(ii)

U.S. Real Property Holding Corporation.  The Company is not, nor has it ever been, a U.S. real property holding corporation within the meaning of Section 897 of the Code, and the Company shall so certify upon the Lender’s request.

(jj)

Bank Holding Company Act.  Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”), or to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve& #148;).  Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five (25%) or more of the total equity of a bank or any  equity that is subject



23





to the BHCA or to regulation by the Federal Reserve.  Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA or to regulation by the Federal Reserve.

(kk)

Disclosure.  Except as set forth on Schedule 5.1(kk), the Company confirms that neither it nor any other Person acting on its behalf has provided the Lender or its agents or counsel with any information that constitutes or could reasonably be expected to constitute material, nonpublic information.  The Company understands and confirms that the Lender will rely on the foregoing representations in effecting transactions in securities of the Company.  All disclosure provided to the Lender regarding the Company, or any of its Subsidiaries, their business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  Each press release issued by the Company or any of its Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  Except as contemplated by this Agreement, no event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable Requirements of Law, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed.

5.2

Representation and Warranties of the Lender.  The Lender hereby represents and warrants to the Company as follows:

(a)

No Public Sale or Distribution.  The Lender (i) has acquired the Existing Note as amended by the Amended Note, (ii) is acquiring the Shares, (iii) is acquiring the Warrant (if required to be issued pursuant to Section 2.2(b)), (iv) upon conversion of the Amended Note will acquire the Conversion Shares and (iv) upon exercise of the Warrant (if required to be issued pursuant to Section 2.2(b)) will acquire the Warrant Shares for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the Lender does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act.  The Lender is acquiring the Securities hereunder in the ordinary course of its business.  The Lender does not presently have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.

(b)

Accredited Investor Status.  The Lender is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.

(c)

Reliance on Exemptions.  The Lender understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the



24





truth and accuracy of, and the Lender’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Lender set forth herein in order to determine the availability of such exemptions and the eligibility of the Lender to acquire the Securities.

(d)

Informati on.  The Lender and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Lender.  The Lender and its advisors, if any, have been afforded the opportunity to ask questions of the Company.  Neither such inquiries nor any other due diligence investigations conducted by the Lender or its advisors, if any, or its representatives shall modify, amend or affect the Lender’s right to rely on the Company’s representations and warranties contained herein.  The Lender understands that its investment in the Securities involves a high degree of risk.  The Lender has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities.

(e)

No Governmental Review.  The Lender understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

(f)

Transfer or Resale.  The Lender understands that except as may be provided in the Investor Rights Agreement: (i) the Securities have not been and are not being registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) the Lender shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) the Lender provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the Securities Act, as amended, (or a successor rule thereto) (collectively, “Rule 144”); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other Person is under any obligation to register the Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.  The Securities may be pledged in connection with a bona fide margin account or other loan or financing arrangement secured by the Securities and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and the Lender, if effecting a pledge of Securities, shall not be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Documents, including, without limitation, this Section 5.2(f).



25





(g)

Legends.  The Lender understands that the certificates or other instruments representing the Amended Note and, until such time as the resale of the Securities has been registered under the Securities Act, the stock certificates representing the Securities, except as set forth below, shall bear any legend as required by the “blue sky” laws of any state and a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped or issue to such holder by electronic delivery at any applicable balance account, unless otherwise required by state securities laws, (i) such Securities are registered for resale under the Securities Act, (ii) in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that such sale, assignment or transfer of the Securities may be made without registration under the applicable requirements of the Securities Act, or (iii) such holder provides the Company with reasonable assurance that the Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A.

( h)

Validity; Enforcement.  This Agreement and the other Transaction Documents to which the Lender is a party have been (or will be) duly and validly authorized, executed and delivered on behalf of the Lender and shall constitute the legal, valid and binding obligations of the Lender enforceable against the Lender in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors’ rights and remedies.

(i)

No Conflicts.  The execution, delivery and performance by the Lender of this Agreement and the other Transaction Documents to which the Lender is a party and the consummation by the Lender of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of the Lender or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or



26





cancellation of, any material agreement, indenture or instrument to which the Lender is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment  or decree (including federal and state securities laws) applicable to the Lender, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of the Lender to perform its obligations hereunder.

(j)

Residency.  The Lender’s principal place of business is in New York.

(k)

Certain Trading Activities.  Other than with respect to the Existing Purchase Agreement, the Existing Note, the Existing Warrant and the transactions contemplated herein, since the time that the Lender was first contacted by the Company or any other Person regarding the transactions contemplated hereby, neither the Lender nor any affiliate of the Lender which (x) had knowledge of the transactions contemplated hereby, (y) has or shares discretion relating to the Lender’s investments or trading or information concerning the Lender’s investments, including in respect of the Securities, and (z) is subject to the Lender’s review or input concerning such affiliate’s investments or trading (collectively, “Trading Affiliates”) has directly or indirectly, nor has any Person act ing on behalf of or pursuant to any understanding with the Lender or Trading Affiliate, effected or agreed to effect any purchases or sales of the securities of the Company (including, without limitation, any short sales involving the Company’s securities). Notwithstanding the foregoing, in the case of the Lender and/or Trading Affiliate that is, individually or collectively, a multi-managed investment bank or vehicle whereby separate portfolio managers manage separate portions of the Lender’s or Trading Affiliate’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of the Lender’s or Trading Affiliate’s assets, the representation set forth above shall apply only with respect to the portion of assets managed by the portfolio manager that have knowledge about the financing transaction contemplated by this Agreement.  Other than to officers, directors, partners, members, advisors and affilia tes of the Lender and other Persons party to this Agreement, the Lender has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

SECTION 6.

REGISTER; ISSUANCE OF STOCK CERTIFICATES AND WARRANTS

6.1

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 each holder of Securities, which for purposes of the Common Stock, shall be the Company's existing independent registrar and transfer agent) a register for the Securities in which the Company shall record the name and address of the Person in whose name the Securities have been issued (including the name and address of each transferee), the principal amount of the Amended Note held by such Person, the number of Conversion Shares issuable upon conversion of the Amended Notes and the number of shares of Common Stock held by such Person. The Company shall keep the register open and available at all times during reasonable business hours for inspection of the Lender or its legal representatives.

6.2

Issuance of Stock Certificates and Warrants.    The Company shall cause its transfer agent to prepare and issue certificate(s) registered in the name of the Lender or its



27





nominee(s), for the Shares issued at the Closing, and shall also execute and issue the Warrant to Lender or its nominee(s).  The Company warrants that no instruction other than stop transfer instructions to give effect to Section 5.2(g) hereof, will be given by the Company to its transfer agent, and that the Securities shall otherwise be freely transferable on the books and records of the Co mpany as and to the extent provided in this Agreement and the other Transaction Documents. If the Lender effects a sale, assignment or transfer of the Securities in accordance with Section 5.2(f) hereof, the Company shall permit the transfer and shall promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by the Lender to effect such sale, transfer or assignment.  In the event that such sale, assignment or transfer involves the Shares, the Warrant Shares (if the Warrant is required to be issued pursuant to Section 2.2(b)) or Conversion Shares assigned or transferred pursuant to an effective registration statement or pursuant to Rule 144, the transfer agent shall issue such Securities to the Lender, assignee or transferee, as the case may be, without any restrictive legend.  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Lender.  Accordingly, the Compan y acknowledges that the remedy at law for a breach of its obligations under this Section 6.2 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 6.2, that the Lender shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.

SECTION 7.

TERMINATION OF THIS AGREEMENT

7.1

Termination of this Agreement.  This Agreement may be terminated at any time by the agreement, in writing, of the Company and the Lender.  In addition, this Agreement may be terminated by the Lender, effective immediately upon written notice to the Company, without further act or deed of any other Person, upon and after the occurrence of any of the following:

(a)

the Closing Date does not occur on or prior to December 31, 2010 (the “Outside Closing Date”);

(b)

any Governmental Authority, the approval of which is required to consummate the issuance of the Amended Note and the other transactions contemplated by this Agreement and the other Transaction Documents, fails to approve on or before the Outside Closing Date, or otherwise notifies the Lender that it will not approve, the issuance of the Securities or any other transaction contemplated by this Agreement or any other Transaction Document; or

(c)

a material violation or breach by the Company of any representation, warranty, covenant or other agreement contained in this Agreement has occurred which would be re asonably likely to prevent the satisfaction of any condition to the obligations of the Lender on or before the Outside Closing Date and such violation or breach has not been waived by the Lender or cured by the Company to the satisfaction of the Lender within fifteen (15) days after notice thereof is provided in accordance with Section 9.13 hereof.



28





7.2

Effects of Termination.  Each Party’s right of termination under Section 7.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies.  If this Agreement is terminated pursuant to Section 7.1, all further obligations of the Parties under this Agreement will terminate, except that the obligations in this Section 7.2 and Section 9 will survive; provided, however, that if this Agreement is terminated by a Party because of the breach of this Agreement by the other Party or because one or more of the conditions to the terminating Party’s obligations under this Agreement is not satisfied as a result of the other Party’s failure to comply with its obligations under this Agreement, the terminating Party’s right to pursue all legal remedies will survive such termination unimpaired.

SECTION 8.

SURVIVAL; INDEMNIFICATION

8.1

Reliance.  Each Party shall be entitled to rely upon, and shall be deemed to have relied upon, all representations, warranties and covenants of the other Party set forth in this Agreement which have been or are made in favor of such Party, and the rights of the Lender under this Section 8 shall not be affected, notwithstanding (a) the making of this Agreement, (b) any investigation or examination conducted with respect to, or any knowledge acquired (or capable of being acquired) about the accuracy or inaccuracy of or compliance with, any representation, warranty, covenant, agreement, undertaking or obligation made by or on behalf of the Parties, (c) the waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant, agreement, undertaking or obligation, or (d) the Closing hereunder.

8.2

Survival. The representations and warranties and agreements and covenants of the Company and the Lender set forth in the Transaction Documents shall survive the Closing.  

8.3

Indemnification.  In consideration of the Lender’s execution and delivery of the Transaction Documents and acquisition of the Securities hereunder and in addition to all of the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless the Lender and each other holder of the Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Inde mnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the



29





execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (ii) any disclosure made by the Company pursuant to Section 4.5, or (iii) the status of the Lender or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable Requirements of Law.

SECTION 9.

MISCELLANEOUS PROVISIONS

9.1

Effectiveness.  Notwithstanding anything contained herein to the contrary, this Agreement shall be effective only upon execution and delivery of this Agreement by each of the Parties hereto.

9.2

Payment of Expenses. Whether or not the Closing occurs, the Company shall reimburse the fees and expenses of the Lender incurred in connection with the transactions contemplated hereby, including, without limitation, reasonable attorneys’ fees, promptly upon demand.

9.3

Entire Agreement.  This Agreement and the other Transaction Documents (including all Schedules, Annexes and Exhibits attached hereto and thereto) constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, among th e Parties with respect to the subject matter hereof.  There are no representations, warranties, understandings or agreements among the Parties other than as set forth herein and therein.

9.4

Severability; Specific Enforcement.  If any provision of this Agreement or the application of any provision hereof to any circumstances is held invalid, unenforceable or otherwise illegal, the remainder of the Agreement and the application of such provision to other circumstances shall not be affected, and the provisions so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal.  Upon any such determ ination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. The Company acknowledges and agrees that the Lender may be damaged irreparably in the event that any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached.  Accordingly, the Company agrees that the Lender may be entitled, subject to a determination by a court of competent jurisdiction, to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof.

9.5

Amendments.  No amendment, supplement or modification of this Agreement shall be enforceable against any Party unless such Party has consented thereto in writing.



30





9.6

Counterparts; Facsimiles.  This Agreement may be executed and delivered in more than one counterpart, and by the different Parties in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same Agreement.  Exchange and delivery of this Agreement by facsimile or electronic transmission shall constitute a valid and binding execution and delivery of this Agreement by such Party.

9.7

Descriptive Headings.  The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.

9.8

Governing Law; Jurisdiction; Jury Trial.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement or other Transaction Documents shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions other than Section 5-1401 of New York’s General Obligations Law) that would cause the application of the laws of any jurisdictions other than the State of New York.  Each Party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in con nection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each Party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such Party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUN DER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

9.9

Further Actions.  From and after the Closing Date, the Parties agree to reasonably cooperate with one another and will execute and deliver all such documents and instruments and do all such other reasonable acts and things as may be necessary and appropriate to carry out the provisions of this Agreement, as promptly as practicable.

9.10

Assignment.

(a)

The rights and obligations of the Parties under this Agreement shall not be assignable without the written consent of all of the other Parties hereto.

(b)

This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their successors and permitted assigns.  Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon any Person other than the Parties and



31





successors and assigns permitted by this Section 9.10 any right, remedy or claim under or by reason of this Agreement.

9.11

Waivers.  Any term or provision of this Agreement may be waived, or the time for i ts performance may be extended by an authorized representative of each of the Parties entitled to the benefit thereof.  Any such waiver shall be validly and sufficiently given for the purposes of this Agreement if, as to any Party, it is in writing signed by an authorized representative of such Party.  The failure of any Party to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of any Party thereafter to enforce each and every such provision.  No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach.

9.12

No Third Party Beneficiaries.  This Agreement is intended for the benefit of the Parties and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person other than, with respect to the matters contemplated by Section 8, the Indemnitees.

9.13

Notices.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending Party); or (iii) one Business Day after deposit with an overnight courier service, in each case properly addressed to the Party to receive the same.  The addresses and facsimile numbers for such communications shall be:

If to the Company:

Broadcast International, Inc.

7050 Union Park, Ave. #600

Salt Lake City, Utah 84047

Attention:  

James Solomon

Telephone:  

(801) 562-2252

Facsimile:  

(801) 562-1773


With a copy (which shall not constitute notice) to:


Holland & Hart LLP

222 South Main, Suite 2200

Salt Lake City, Utah 84101

Attention:  

David G. Angerbauer, Esq.

Telephone:  

(801) 799-5800

Facsimile:  

(801) 799-5700


If to the Lender:

c/o Sandell Asset Management



32





40 West 57th St

26th Floor

New York, NY 10019

Attention:

Lee Iannarone

Telephone:

(212) 603-5700

Facsimile:  

(212) 603-5710


With a copy (which shall not constitute notice) to:

Winston & Strawn LLP

200 Park Avenue

New York, New York 10166

Attention:

Bradley C. Vaiana, Esq.

Tel ephone:

(212) 294-2610

Facsimile:  

(212) 294-4700

or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient Party has specified by written notice given to the other Party five (5) days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.

9.14

Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever the Lender exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then the Lender may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

9.15

Payment Set Aside. To the extent that the Company makes a payment or payments to the Lender hereunder or pursuant to any of the other Transaction Documents or the Lender enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any Requirements of Law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

(Signature Page Follows)



33





IN WITNESS WHEREOF, the Parties have executed this Agreement on the date first above written.


BROADCAST INTERNATIONAL, INC.



By:/s/ Rodney M. Tiede

                Name:  Rodney M. Tiede

      Title:

President & CEO



(Signature Page to Loan Restructuring Agreement)


1315865.11




IN WITNESS WHEREOF, the Parties have executed this Agreement on the date first above written.


CASTLERIGG MASTER INVESTMENTS LTD.

By Sandell Asset Management Corp.,

its investment manager



By:  /s/ Thomas E. Sandell

      Name:  Thomas E. Sandell

      Title:  Chief Executive Officer





(Signature Page to Loan Restructuring Agreement)


1315865.11




EXHIBIT A


AMENDED AND RESTATED SENIOR CONVERTIBLE NOTE





NY:1315865.11




EXHIBIT B


INVESTOR RIGHTS AGREEMENT







< p style=MARGIN:0px align=center>





NY:1315865.11




EXHIBIT C


FORM OF WARRANT







NY:1315865.11


EX-10.2 3 ny1316379v9final_amendedandr.htm FORM OF AMENDED RESTATED NOTE Converted by EDGARwiz

EXHIBIT A


NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT (II) UNLESS SOLD OR TRANSFERRED TO A “QUALIFIED INSTITUTIONAL BUYER” WITHIN THE MEANING O F RULE 144A UNDER THE 1933 ACT OR TO AN “ACCREDITED INVESTOR” AS THAT TERM IS DEFINED IN RULE 501(A) OF REGULATION D OR (III) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.  ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF.  THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

BROADCAST INTERNATIONAL, INC.

AMENDED AND RESTATED SENIOR CONVERT IBLE NOTE

Issuance Date:  December __, 2010

 

Original Principal Amount: $5,500,000.00

 

FOR VALUE RECEIVED, Broadcast International, Inc., a Utah corporation (the “Company”), hereby promises to pay to the order of CASTLERIGG MASTER INVESTMENTS LTD. or its registered assigns (collectively, “Holder”) the amount set out above as the “Original Principal Amount” (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”) wh en due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate, from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon an Interest Date (as defined below) or the Maturity Date, acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof).  Certain capitalized terms used herein are defined in Section 28.  

(1)  PAYMENTS OF PRINCIPAL

.  On the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Intere st and accrued and unpaid Late Charges, if any, on such Principal and Interest.  The “Maturity Date” shall be December __, 2013; provided, however, that the Maturity Date may be extended at the option of the Holder (i) in the event that, and for so long as, an Event of Default shall have occurred and be continuing on the Maturity Date (as may be extended





 


pursuant to this Section 1) or any event that shall have occurred and be continuing that with the passage of time and the failure to cure would result in an Event of Default and (ii) through the da te that is ten (10) Business Days after the consummation of a Change of Control in the event that a Change of Control is publicly announced or a Change of Control Notice is delivered prior to the Maturity Date.  Other than as specifically permitted by this Note, the Company may not prepay any portion of the outstanding Principal, accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and Interest, if any.  Notwithstanding any provision of this Section 1 to the contrary, the Holder may, at its option and in its sole discretion, deliver a written notice to the Company at least two (2) days prior to the Maturity Date electing to have the payment of all or any portion of the Principal and Interest payable on the Maturity Date deferred (such amount deferred, the “Deferral Amount”) up to a date that is two (2) years after the Maturity Date, which date shall thereafter be the “Maturity Date” for all purposes hereunder.  Any notice delivered by the Holde r pursuant to this Section 1 shall set forth (i) the Deferral Amount and (ii) the date that such Deferral Amount shall thereafter be payable.    

(2)

INTEREST; INTEREST RATE.  

(a)

Interest on this Note shall commence accruing on the Issuance Date and shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months and shall be payable in arrears for each Semi-Annual Period on the first (1st) day of the succeeding Semi-Annual Period during the period beginning on the Issuance Date and ending on, and including, the Maturity Date (each, an “Interest Date”) with the first Interest Date being July 1, 2011.  Interest shall be payable on each Interest Date, to the record holder of this Note on the applicable Interest Date, in cash; provided, however, that on the Issuance Date, the Company shall deliver to a bank mutually agreed upon by the Holder and the Company, as escrow agent (the “Escrow Agent”), by wire transfer of immediately available funds, an amount equal to the aggregate amount of Interest due and payable hereunder from the Issuance Date through December 31, 2011, to be held and disbursed in accordance with the terms of an escrow agreement to be entered into on the Issuance Date by the Company, the Holder and the Escrow Agent, in form and substance reasonably satisfactory to each of the parties thereto.

(b)

Prior to the payment of Interest on an Interest Date, Interest on this Note shall accrue at the Interest Rate.  From and after the occurrence and during the continuance of an Event of Default, the Interest Rate shall be increased to eighteen percent (18%) per annum.  In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default.    

(3)

CONVERSION OF NOTE.  This Note shall be convertible into shares of the Company’s common stock, par value $0.05 per share (the “Common Stock”), on the terms and conditions set forth in this Section 3.

(a)

Conversion Right.  At any time or times on or after the Issuance Date, the Holder shall be entitled to convert all or any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common



2




Stock in accordance with Section 3(c), at the Conversion Rate (as defined below).  The Company shall not issue any fraction of a share of Common Stock upon any conversion.  If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share.  The Company shall pay any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.

(b)

Conversion Rate.  The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”).

(i)

“Conversion Amount” means the sum of (A) the portion of the Principal to be converted, redeemed or otherwise with respect to which this determination is being made, (B) accrued and unpaid Interest with respect to such Principal, and (C) accrued and unpaid Late Charges with respect to such Principal and Interest.

(ii)

“ Conversion Price” means, as of any Conversion Date (as defined below) or other date of determination, $1.50, or if the per share price in the Private Offering (as defined in the Loan Restructuring Agreement) is less than $0.65 per share, the Conversion Price shall be 2.25 multiplied by the per share purchase price in the Private Offering, subject to adjustment as provided herein.

(c)

Mechanics of Conversion.

(i)

Optional Conversion.  To convert any Conversion Amount into shares of Common Stock on any date (a “Conversion Date ”), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if required by Section 3(c)(iii), surrender this Note to a common carrier for delivery to the Company as soon as practicable on or following such date (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction).  On or before the first (1st) Business Day following the date of receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation (the “Conversion Confirmation”) of receipt of such Conversion Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”).  On or before the second (2nd) Business Day following the date of receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall (X) provided that the Transfer Agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, or at the option of the Holder, issue and deliver to the address as specified in the Conversion Notice, a certificate or certificates, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled.  If this Note is physically surrendered for conversion as required by Section 3(c)(iii) and the outstanding Principal is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as



3




practicable and in no event later than three (3) Business Days after receipt of this Note and at its own expense, issue and deliver to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal not converted.  The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

(ii)

Company’s Failure to Timely Convert.  If within three (3) Trading Days (as defined in the Investor Rights Agreement) after the Company’s receipt of the facsimile copy of a Conversion Notice the Company shall fail to issue and deliver a certificate to the Holder or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any Conversion Amount (a “Conversion Failure”), and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock issuable upon such conversion that the Holder anticipated receiving from the Company (a “Buy-In”) or on any date on which the Company fails to satisfy its obligation to deliver shares o f Common Stock as contemplated pursuant to clause (B) below, then the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (A) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other out of pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to issue and deliver such certificate or to credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s conversion of any Conversion Amount shall terminate, or (B) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Common Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (1) such number of shares of Common Stock, and (2) the Closing S ale Price on the Conversion Date.

(iii)

Registration; Book-Entry.  The Company shall maintain a register (the “Register”) for the recordation of the names and addresses of the Holder and the principal amount of this Note held by such Holder (the “Registered Note”).  The entries in the Register shall be conclusive and binding for all purposes absent manifest error.  The Company and the Holder shall treat each Person whose name is recorded in the Register as the owner of this Note for all purposes, including, without limitation, the right to receive payments of Principal and Interest hereunder, notwithstanding notice to the contrary.  A Registered Note may be assigned or sold in whole or in part only by registration of such ass ignment or sale on the Register.  Upon its receipt of a request to assign or sell all or part of any Registered Note by a Holder, the Company shall record the information contained therein in the Register and issue one or more new Registered Notes in the same aggregate principal amount as the principal amount of the surrendered Registered Note to the designated assignee or transferee pursuant to Section 18.  Notwithstanding anything to the contrary set forth herein, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the full Conversion Amount represented by this Note is being converted or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note.  The Holder and the Company shall maintain records showing



4




the Principal, Interest and Late Charges, if any, converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.

(iv)

Disputes.  In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 23.

(d)

Limitations on Conversions.  The Company shall not effect any conversion of this Note, and the Holder of this Note shall not have the right to convert any portion of this Note pursuant to Section 3(a), to the extent that after giving effect to such conversion, the Holder (together with the Holder’s affiliates) would beneficially own in excess of 9.90% (the “Maximum Percentage”) of the number of shares of Common Stock outstanding immediately after giving effect to such conversion.  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Hol der and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 3(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended.  For purposes of this Section 3(d), in determining the number of outstanding shares of Common Stoc k, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-K, Form 10-Q, Form 8-K or other public filing with the SEC, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding.  For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, the Holder may increase or decrease the Maximum Percentage to any other percentage specified in such notice; provided that any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

(4)

RIGHTS UPON EVENT OF DEFAULT.



5




(a)

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

(i)

the failure of the applicable Registration Statement (as defined in the Investor Rights Agreement) required to be filed pursuant to the Investor Rights Agreement to be declared effective by the SEC on or prior to the date that is sixty (60) days after the applicable Effectiveness Deadline (as defined in the Investor Rights Agreement), or, while the applicable Registration Statement is required to be maintained effective pursuant to the terms of the Investor Rights Agreement, the effectiveness of the applicable Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to the Holder for sale of all of the Holder’s Registrable Securities (as defined in the Investor Rights Agreement) in accordance with the terms of the Investor Rights Agreement, and such lapse or unavailability continues for a period of ten (10) consecutive days or for more than an aggregate of twenty (20) days in any 365-day period (other than days during an Allowable Grace Period (as defined in the Investor Rights Agreement));

(ii)

the suspension from trading or failure of the Common Stock to be listed on an Eligible Market for a period of ten (10) consecutive Trading Days or for more than an aggregate of fifteen (15) Trading Days in any 365-day period;

(iii)

the Company’s (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within ten (10) Business Days after the applicable Conversion Date or (B) notice, written or oral, to the Holder, including by way of public announcement or through any of its agents, at any time, of its intention not to comply with a request for conversion of all or any portion of this Note into shares of Common Stock that is tendered in accordance with the provisions of this Note;

(iv)

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

(v)

any default under, redemption of or acceleration prior to maturity of any Indebtedness (as defined in the Loan Restructuring Agreement) of the Company or any of its Subsidiaries;

(vi)

the Company or any of its Subsidiaries, pursuant to or within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or state law for the relief of debtors (collectively, “Bankruptcy Law”), (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a receiver, trustee, assignee, liquidator or similar official (a “Custodian”), (D) makes a general assignment for the benefit of its creditors or (E) a dmits in writing that it is generally unable to pay its debts as they become due;



6




(vii)

a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that (A) is for relief against the Company or any of its Subsidiaries  in an involuntary case, (B) appoints a Custodian of the Company or any of its Subsidiaries or (C) orders the liquidation of the Company or any of its Subsidiaries;

(viii)

a final judgment or judgments for the payment of money aggregating in excess of $100,000 are rendered against the Company or any of its Subsidiaries and which judgments are not, within sixty (60) days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; provided, however, that any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the amounts set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company will receive the proceeds of such insurance o r indemnity within thirty (30) days of the issuance of such judgment;

(ix)

the Company breaches any representation, warranty, covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant or other term or condition of any Transaction Document which is curable, only if such breach continues for a period of at least ten (10) consecutive Business Days;

(x)

any breach or failure in any respect to comply with Section 14;

(xi)

any material damage to, or loss, theft or destruction of, any material assets of the Company, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty which causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of the Company or any Subsidiary, if any such event or circumstance could reasonably be expected to have a Material Adverse Effect (as defined in the Loan Restructuring Agreement);

(xii)

the failure of the Company to maintain a balance of cash and marketable securities equal to or greater than $950,000 (Nine Hundre d Fifty Thousand Dollars); or

(xiii)

(A) the Company commits any breach of the Subordination Agreement (as defined in the Loan Restructuring Agreement) or (B) any event of default occurs pursuant to any of  the Subordinated Indebtedness Documents.

(b)

Redemption Right.  Upon the occurrence of an Event of Default and provided such Event of Default continues for at least three (3) Business Days, the Company shall within one (1) Business Day deliver written notice thereof via facsimile and overnight courier (an “Event of Default Notice”) t o the Holder.  At any time after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to the Company,



7




which Event of Default Redemption Notice shall indicate the portion of this Note the Holder is electing to redeem.  Each portion of this Note subject to redemption by the Company pursuant to this Section 4(b) shall be rede emed by the Company at a price equal to the greater of (i) the product of (A) the Conversion Amount to be redeemed and (B) the Redemption Premium and (ii) the product of (A) the Conversion Rate with respect to such Conversion Amount in effect at such time as the Holder delivers an Event of Default Redemption Notice and (B) the product of (1) the Equity Value Redemption Premium and (2) the greatest Closing Sale Price of the Common Stock during the period beginning on the date immediately preceding such Event of Default and ending on the date the Holder delivers the Event of Default Redemption Notice (the “Event of Default Redemption Price”).  Redemptions required by this Section 4(b) shall be made in accordance with the provisions of Section 12.  To the extent redemptions required by this Section 4(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments.  The par ties hereto agree that in the event of the Company’s redemption of any portion of this Note under this Section 4(b), the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder.  Accordingly, any Redemption Premium due under this Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.

(5)

RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.

(a)

< p style="MARGIN-TOP:0px; TEXT-INDENT:-2px; MARGIN-BOTTOM:16px; FONT-SIZE:12pt" align=justify>Assumption.  The Company shall not enter into or be party to a Fundamental Transaction that is not a Change of Control unless (i)  the Successor Entity assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5(a) pursuant to a written agreement in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including agreements to deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note, including, without limitation, having a principal amount and interest rate equal to the principal amount then outstanding and the interest rate of this Note, having similar conversion rights as this Note and having similar ranking to this Note, and sa tisfactory to the Holder and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market.  Upon the occurrence of any Fundamental Transaction that is not a Change of Control, the Successor Entity shall succeed to, and be substituted for the Company hereunder (so that from and after the date of such Fundamental Transaction, the provisions of this Note referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note with the same effect as if such Successor Entity had been named as the Company herein.  Upon consummation of the Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon conversion or redemption of this Note at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Company’s Common Stock (or other securities, cash, assets or other property) issuable upon the conversion or redemption of this Note prior to such Fundamental Transaction, such shares of the publicly traded common stock (or their equivalent) of the Successor Entity (including its Parent Entity),



8




as adjusted in accordance with the provisions of this Note.  The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions that are not a Change of Control and shall be applied without regard to any limitations o n the conversion or redemption of this Note.

(b)

Redemption Right.  No sooner than fifteen (15) Trading Days nor later than ten (10) Trading Days prior to the consummation of a Change of Control, but not prior to the public announcement of such Change of Control, the Company shall deliver written notice thereof via facsimile and overnight courier to the Holder (a “Change of Control Notice”).  In the case of any Change of Control, upon the receipt of a Change of Control Notice, the Holder shall, at its option, either (i) convert this Note, in whole or in part, at the then applicable Conversion Price into shares of Common Stock in accordance with the provisions of this Note, or (ii) require the Company or its successor to redeem this Note, in whole or in part, by de livering written notice thereof (“Change of Control Redemption Notice”) at a redemption price in cash at a price equal to the greater of (i) 135% of the Conversion Amount being redeemed and (ii) the product of (x) the Equity Value Redemption Premium and (y) the product of (1) the Conversion Amount being redeemed multiplied by (2) the quotient determined by dividing (A) the aggregate cash consideration and the aggregate cash value of any non-cash consideration per share of Common Stock to be paid to the holders of the shares of Common Stock upon consummation of the Change of Control (any such non-cash consideration consisting of marketable securities to be valued at the higher of the Closing Sale Price of such securities as of the Trading Day immediately prior to the consummation of the Change of Control, the Closing Sale Price of such securities as of the Trading Day immediately following the public announcement of such proposed Change of Control and the Closing Sale Price of such securities immediately prior to the public announcement of such proposed Change of Control) by (B) the Conversion Price (the “Change of Control Redemption Price”).  Redemptions required by this Section 5 shall be made in accordance with the provisions of Section 12 and shall have priority to payments to stockholders in connection with a Change of Control.  To the extent redemptions required by this Section 5(b) are deemed or determined by a court of competent jurisdiction to be prepayments of this Note by the Company, such redemptions shall be deemed to be voluntary prepayments.  Notwithstanding anything to the contrary in this Section 5, until the Change of Control Redemption Price (together with any interest thereon) is paid in full, the Conversion Amount submitted for redemption under this Section 5(b) (together with any interest thereon) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3.  The parties hereto agree that in the event of t he Company’s redemption of any portion of this Note under this Section 5(b), the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder.  Accordingly, any Change of Control redemption premium due under this Section 5(b) is intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not as a penalty.

(6)

RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

(a)

Purchase Rights.  If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other



9




property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of s hares of Common Stock acquirable upon complete conversion of this Note (without taking into account any limitations or restrictions on the convertibility of this Note) 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.

(b)

Other Corporate Events.  In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event 8;), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note, at the Holder’s option, (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of this Note) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate.  Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Holder.  The provisions of this Section shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of this Note.

(7)

RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

(a)

Adjustment of Conversion Price upon Issuance of Common Stock.  Subject to compliance with the Investor Rights Agreement, if and whenever on or after the Issuance Date, the Company issues or sells, or in accordance with this Section 7(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company in connection with any Excluded Securities) for a consideration per share (the “New Issuance Price”) less than a price (the “Applicable Price”) equal to the Conversion Price in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price.  For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable:

(i)

Issuance of Options.  If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any



10




Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share.  For purposes of this Section 7(a)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion or exchange or exercise of any Convertible Security issuable upon exercise of such Option.  No further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common St ock upon conversion or exchange or exercise of such Convertible Securities.

(ii)

Issuance of Convertible Securities.  If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share.  For the purposes of this Section 7(a)(ii), the “lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange or exercise” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security.  No further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock upon conversion or exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price had been or are to be made pursuant to other provisions of this Section 7(a), no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

(iii)

Change in Option Price or Rate of Convers ion.  If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable or exercisable for Common Stock increases or decreases at any time, the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold.  For purposes of this Section 7(a)(iii), if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deeme d issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease.  No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect.  



11




(iv)

Calculation of Consideration Received.  In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01.  If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor.  If any Common Stock, Options or Convertible Securities are issued or sold for a consideration 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 Closing Sale Price of such securities on the date of receipt.  If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, 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 entity 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 jointly by the Company and the Holder.  If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder.  The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.

(v)

Record Date.  If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(b)

Adjustment of Conversion Price upon Subdivision or Combination of Common Stock.  If the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced.  If the Company at any time on or after the Issuance Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased.

(c)

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



12




(d)

Other Events.  If any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features, except for Excluded Securities and similar transactions or securities), then the Company’s Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Note; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 7.

(e)

Adjustment of Conversion Price.  Notwithstanding anything to the contrary contained in this Note, the provisions of Sections 7(a) through 7(d) shall not apply to the sale of up to $12,000,000 of Common Stock by Philadelphia Brokerage Corporation, as placement agent, to qualified institutional buyers and accredited investors on the Issuance Date pursuant to the Private Off ering.  

(8)

RESERVED.  

(9)

NONCIRCUMVENTION.  The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be reaso nably required to protect the rights of the Holder of this Note.

(10)

RESERVATION OF AUTHORIZED SHARES.

(a)

Reservation.  The Company shall initially reserve out of its authorized and unissued Common Stock a number of shares of Common Stock for this Note equal to 130% of the Conversion Rate with respect to the Conversion Amount of this Note as of the Issuance Date.  So long as this Note is outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the p urpose of effecting the conversion of this Note, 130% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of this Note in full; provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the “Required Reserve Amount”).  The Conversion Shares shall at all times be eligible for trading on the Principal Market and the Company shall pay all costs and expenses related thereto.

(b)

Insufficient Authorized Shares.  If at any time while this Note remains outstanding the Company does not have a sufficient number of authorized and unreserved shares of Commo n Stock to satisfy its obligation to reserve for issuance upon conversion of this Note at least a number of shares of Common Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for this Note then outstanding.  Without limiting the generality of the foregoing sentence, as soon as practicable



13




after the date of the occurrenc e of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.

(11)

RESERVED.

(12)

REDEMPTIONS.  The Company shall deliver the applicable Event of Default Redemption Price to the Holder within five (5) Business Days after the Company’s receipt of the Holder’s Event of Default Redemption Notice.  If the Holder has submitted a Change of Control Redemption Notice in accordance with Section 5(b), the Company shall deliver the applicable Change of Control Redemption Price to the Holder concurrently with the consummation of such Change of Control if such notice is received prior to the consummation of such Change of Control and within five (5) Business Days after the Company’s receipt of such notice otherwise.  In the event of a redemption of less than all of the Conversion Amount of this Note, the Company shall promptly cause to be issued and delivered to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal which has not been redeemed.  In the event that the Compa ny does not pay the applicable Redemption Price to the Holder within the time period required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to require the Company to promptly return to the Holder all or any portion of this Note representing the Conversion Amount that was submitted for redemption and for which the applicable Redemption Price (together with any Late Charges thereon) has not been paid.  Upon the Company’s receipt of such notice, (x) the Redemption Notice shall be null and void with respect to such Conversion Amount, (y) the Company shall immediately return or reinstate this Note, or issue a new Note (in accordance with Section 18(d)) to the Holder representing such Conversion Amount and (z) the Conversion Price of this Note or such new Note shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the applicable Redemption Notice is voided and (B) the lowest Closing Sale Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Company and ending on and including the date on which the applicable Redemption Notice is voided.  The Holder’s delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company’s obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice.

(13)

VOTING RIGHTS.  The Holder shall have no voting rights as the holder of this Note, except as required by law, including, but not limited to, the Utah Revised Business Corporation Act and as expressl y provided in this Note.

(14)

COVENANTS.  So long as this Note is outstanding:

(a)

Rank.  All of the Company’s obligations under this Note shall be senior to all other Indebtedness of the Company and its Subsidiaries.



14




(b)

Incurrence of Indebtedness.  The Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced by this Note and (ii) other Permitted Indebtedness.

(c)

Existence of Liens.  The Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or oth er encumbrance upon or in any property or assets (including accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”) other than Permitted Liens.  

(d)

Restricted Payments.  Except as set forth in the Subordination Agreement, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Indebtedness (other than this Note), whether by way of payment in respect of principal of (or premium, if any) or interest on such Indebtedness, if at the time such payment is due or is otherwise made or, after giving effect to such payment, an event constituting, or that with the passage of time and without being cured would constitute, an Event of Default has occurred and is continuing; provided that notwithstanding the foregoing, no payments (or any portion thereof) of any Subordinated Indebtedness may be paid (whether upon maturity, redemption, acceleration or otherwise) so long as this Note is outstanding.  

(e)

Restriction on Redemption and Cash Dividends.  Until this Note has been converted in full, redeemed or otherwise satisfied in accordance with its terms, the Company shall not, directly or indirectly, redeem, repurchase or declare or pay any cash dividend or distribution on its capita l stock without the prior express written consent of the Holder.

(f)

Creation of New Subsidiaries.  So long as the obligations of the Company under this Note are outstanding, if the Company shall create or acquire any Subsidiary, simultaneous with the creation or acquisition of such Subsidiary, the Company shall (i) promptly cause such Subsidiary to become a guarantor by executing a guaranty in favor of the Holder in form and substance reasonably satisfactory to the Holder, and (ii) promptly cause such Subsidiary to duly execute and/or deliver such opinions of counsel and other documents, in form and substance reasonable acceptable to the Holder, as the Holder shall reasonably request with respect thereto.

(g)

Intellectual Property.  So long as the obligations of the Company under this Note are outstanding, the Company shall not, and shall not permit any Subsidiary to, directly or indirectly, (i) assign, transfer or otherwise encumber or allow any other Person to have any rights or license to any of the Intellectual Property Rights (as defined in the Loan Restructuring Agreement) of the Company or its Subsidiaries, except in the ordinary course of business, or (ii) knowingly take any action or inaction to impair the value of their Intellectual Property Rights.



15




(h)

Transactions with Affiliates.  The Company shall not, nor shall it permit any of its Subsidiaries to, enter into, renew, extend or be a party to, any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any affiliate, except (i) in the ordinary course of business in a manner and to an extent consistent with past practice or (ii) necessary or desirable for the prudent operation of its business, in each case, for fair consideration and on terms no less favorable to it or its Subsidiaries than would be obtainable in a comparable arm’s length transaction with a Person that is not an affiliate thereof.

(i)

Change in Nature of Business.  The Company shall not make, or permit any of its Subsidiaries to make, any change in the fundamental nature of its business as described in the Company’s most recent annual report filed on Form 10-K with the SEC.  The Company shall not modify its corporate structure or purpose in any manner.

(j)

Preservation of Existence, Etc.  The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, righ ts and privileges, and become or remain, and cause each of its Subsidiaries to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.

(k)

Maintenance of Properties, Etc.  The Company shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties which are necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply, and cause each of its Subsidiaries to comply, at all times with the provisions of all leases to which it is a party as lessee or under which it occupies property, so as to pre vent any material loss or forfeiture thereof or thereunder.

(l)

Maintenance of Insurance.  The Company shall maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business interruption insurance) with respect to all material assets of the Company and its business, in such amounts and covering such risks as is required by any Governmental Authority (as defined in the Loan Restructuring Agreement) having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated and in any event in amount, adequacy and scope reasonably satisfactory to the Holder.  

(m)

Certification of Cash Balance.  From and after the Issuance Date, the Company shall provide the Holder with a certification of its cash balance at the end of each calendar month executed by its Chief Financial Officer.  Such certification shall accurately provide the cash balance of the Company as of the last day of the month and shall be provided to the Holder no later than five (5) Business Days after the end of the such month.

(n)

Board Observer Right.  

(i)

The Company shall permit one designee appointed by the Holder (the “Board Observer”) to serve as an observer and attend all meetings of the



16




Company’s Board of Directors.  All costs and expenses (including travel) incurred by the Board Observer in connection with his or her attendance at meetings of the Company’s Board of Directors shall be reimbursed by the C ompany to such Board Observer within three (3) Business Days after such Board Observer’s request for such reimbursement.  The Company shall give any such Board Observer, at the same time, on the same basis and in the same form as provided to the members of the Board of Directors, (i) notice of any meeting of the Board of Directors and (ii) copies of any materials or documents to be presented, discussed or used at such meetings.  The Board Observer shall be entitled to consult with, and make proposals and furnish advice to, the Company’s Board of Directors, and the Company shall use reasonable best efforts to cause the officers of the Company to take such proposals or advice seriously and give due consideration thereto, provided, that nothing herein is intended to require compliance with any such proposal or advice or to impose liability for any failure so to comply.  Except to the extent access to such information could adversely affect the attorney-client privilege between the Compa ny and its counsel, the Board Observer shall be provided with copies of all notices, minutes, consents and forms of consents in lieu of meetings of the Company’s Board of Directors at the same time or times as such notices, minutes, consents or forms are issued or circulated by or to, or such other material is provided to, the members of the Company’s Board of Directors.

(ii)

The Board Observer may be excluded from any meetings of the Board of Directors, and any meeting materials relating to the same may be redacted accordingly before being furnished to the Board Observer, if, in the good faith determination of the Board of Directors, (A) the subject matter to be discussed at such meeting (or the portion thereof from which it proposes to exclude the Board Observer) relates to disputes or negoti ations relating to the Company and the Holder in respect of this Note, the Loan Restructuring Agreement or otherwise, or (B) if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel.  The Company will use its best efforts to ensure, and to cause its Board of Directors to ensure, that any withholding of information or any restriction on attendance is strictly limited only to the extent necessary as set forth in the preceding sentence.  If, as a result of the death, disability, retirement, resignation, removal or otherwise, the person designated by the Holder pursuant to this Section 14(n) shall no longer serve as the Board Observer, the Holder shall be entitled to designate another individual to fill such capacity and serve as the Board Observer.

(iii)

The Board Observer will be subject to and comply with all rules, practices and procedures imposed by law, the applicable Principal Market and the Company’s corporate governance, confidentiality and other employee policies, including without limitation maintaining the confidentiality of all nonpublic information, refraining from trading in the Company’s securities while in possession of material, nonpublic information and generally complying with securities and disclosure rules and regulations.  The Company is under no obligation to disclose publicly material nonpublic information that is made available to the Holder or the Board Observer, and as a result, the Holder and the Board Observer may not be able to trade in the Company’s securities for indefinite periods of time when in possession of material nonpublic information.  

(iv)

The rights of the Holder  to select a Board Observer pursuant to this Section 14(n), and all related obligations of the Company with respect thereto,



17




shall terminate as of such time as the Holder beneficially owns less than 5% of the then-issued and outstanding shares of Common Stock.

(o)

Additional Notes; Variable Securities; Dilutive Issuances.  So long as this Note is outstanding, the Company shall not issue any other securities  that would cause a breach or default under this Note.  For so long as this Note remains outstanding, other than as contemplated hereby or by the Investor Rights Agreement, the Company shall not, in any manner, issue or sell any notes, rights, warrants or options to subscribe for or purchase Common Stock or directly or indirectly convertible into or exchangeable or exercisable for Common Stock at a price which varies or may vary with the market price of the Common Stock, including by way of one or more reset(s) to any fixed price unless (i) in the case of notes, the Indebtedness represented thereby are subordinated to the Indebtedness represented hereby pursuant to a written agreement executed by the Company and the holder thereof, in form and on terms satisfactory to the Holder, and (i i) in the case of any such security, the conversion, exchange or exercise price of any such security cannot be less than the then applicable Conversion Price with respect to the Common Stock into which this Note is convertible.  In the event the exchange, conversion or exercise price of any such security is less than the applicable Conversion Price, the Conversion Price then in effect shall automatically be reduced pursuant to and in accordance with Section 7(a).  Notwithstanding the foregoing, nothing in this Section 14(o) shall prohibit the Company from issuing any securities with a fixed conversion or exercise price with full ratchet or weighted average anti-dilution protection.  For so long as this Note remains outstanding, the Company shall not, in any manner, enter into or affect any Dilutive Issuance if the effect of such Dilutive Issuance is to cause the Company to be required to issue upon conversion of this Note any shares of Common Stock in excess of that number of shares of Common Stock which the Company may issue upon conversion of this Note without breaching the Company’s obligations under the rules or regulations of the Principal Market or any applicable Eligible Market.

(15)

PARTICIPATION.  The Holder, as the holder of this Note, shall be entitled to receive such dividends paid and distributions made to the holders of Common Stock to the same extent as if the Holder had converted this Note into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions.  Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock.

(16)

VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTE.  The written consent of the Holder shall be required for any change or amendment to this Note.

(17)

TRANSFER.  This Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company.  

(18)

REISSUA NCE OF THIS NOTE.

(a)

Transfer.  If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 18(d)), registered as the



18




Holder may request, representing the outstanding Principal being t ransferred by the Holder and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section 18(d)) to the Holder representing the outstanding Principal not being transferred.  The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of Section 3(c)(iii) following conversion or redemption of any portion of this Note, the outstanding Principal represented by this Note may be less than the Principal stated on the face of this Note.

(b)

Lost, Stolen or Mutilated Note.  Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertakin g by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 18(d)) representing the outstanding Principal and any accrued and unpaid Interest and Late Charges.

(c)

Note Exchangeable for Different Denominations.  This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 18(d)) representing in the aggregate the outstanding Principal and any accrued and unpaid Interest and Late Charges, and each such new Note will represent such portion of such outstanding Principal as is designated by the Holder at the time of such surren der.

(d)

Issuance of New Notes.  Whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal remaining outstanding (or in the case of a new Note being issued pursuant to Section 18(a) or Section 18(c), the Principal designated by the Holder which, when added to the principal represented by the other new Notes issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges, if any, on the Principal and Interest from the Issuance Date.

(19)

REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note.  Amounts set forth or provided for herein with respect to payments, conversion and the like (and the comp utation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).  The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate.  The Company therefore agrees that, in the event of any such breach



19




or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restr aining any breach, without the necessity of showing economic loss and without any bond or other security being required.

(20)

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

(21)

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

(22)

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

(23)

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

(24)

NOTICES; PAYMENTS.

(a)

Notices.  Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 9.13 of the Loan Restructuring Agreement.  The Company shall provide the Holder with prompt written



20




notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefor.  Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any pro rata subscription offer to holders of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

(b)

Payments.  Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, such payment shall be made in lawful money of the United States of America by wire transfer of immediately available funds to an account designated by the Holder.  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 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.  Any amount of Principal or other amounts due under the Transaction Documents which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of eighteen percent (18.0%) per annum from the date such amount was due until the same is paid in full (“Late Charge”).

(25)

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

(26)

WAIVER OF NOTICE.  To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Loan Restructuring Agreement.

(27)

GOVERNING LAW; JURISDICTION; SEVERABILITY; JURY TRIAL.  This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions other than Section 5-1401 of New Yo rk’s General Obligations Law) that would cause the application of the laws of any jurisdictions other than the State of New York.  The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is



21




improper.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note.  Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any ot her security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

(28)

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

“Applicable Price” has the meaning set forth in Section 7(a).

“Approved Stock Plan” means any employee benefit plan or other arrangement which has been or hereafter is approved by the Board of Directors of the Company, pursuant to which the Company’s securities may be issued to any employee, consultant, officer or director for services provided to the Company.

“Authorized Share Failure” has the meaning set forth in Section 10(b).

“Bloomberg” means Bloomberg Financial Markets.

“Bankruptcy Law” has the meaning set forth in Section 4(a)(vi).

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

“Buy-In” has the meaning set forth in Section 3(c)(ii).

“Buy-In Price” has the meaning set forth in Section 3(c)(ii).

 “Change of Control” means any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification of the Common Stock, in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, the voting power of the surviving entity or entities necessary to elec t a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities, or (ii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company, or



22




(iii) any Fundamental Transaction in which the Holder is the Person or part of the group of Persons described in clauses (i)(A) – (D) or clause (ii) of the definition thereof.

“Change of Control Notice” has the meaning set forth in Section 5(b).

“Change of Control Redemption Notice” has the meaning set forth in Section 5(b).

“Change of Control Redemption Price” has the meaning set forth in Section 5(b).

 “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., Ne w York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.).  If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 23.  All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

“Common Stock” has the meaning set forth in Section 3.

“Company” has the meaning set forth in the preamble to this Note.

“Conversion Amount” has the meaning set forth in Section 3(c)(i).

“Conversion Confirmation” has the meaning set forth in Section 3(c)(i).

“Conversion Date” has the meaning set forth in Section 3(b)(iii).

“Conversion Failure” has the meaning set forth in Section 3(b)(ii).

“Conversion Notice” has the meaning set forth in Section 3(c)(i).

“Conversion Price” has the meaning set forth in Section 3(b)(ii).



23




“Conversion Rate” has the meaning set forth in Section 3(b).

“Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for Common Stock.

“Corporate Event” has the meaning set forth in Section 6(b).

“Custodian” has the meaning set forth in Section 4(a)(vi).

“Dilutive Issuance” has the meaning set forth in Section 7(a).

“DTC” has the meaning set forth in Section 3(c)(i).

“Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., the American Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market or The NASDAQ Capital Market, or any market that is a successor to any of the foregoing.

“Escrow Agent” has the meaning set forth in Section 2(a).

“Equit y Value Redemption Premium” means for any Change of Control Notice or Event of Default Notice, as applicable, delivered or required to be delivered in connection with a Change of Control or Event of Default, as applicable, 135%.

“Event of Default” has the meaning set forth in Section 4(a).

“Event of Default Notice” has the meaning set forth in Section 4(b).

“Event of Default Redemption Notice” has the meaning set forth in Section 4(b).

“Event of Default Redemption Price” has the meaning set forth in Section 4(b).

 “Excluded Securities” means any Common Stock issued or issuable: (i) in connection with any Approved Stock Plan; (ii) upon conversion of this Note; (iii) in connection with any strategic acquisition or transaction by the Company, whether through an acquisition of stock or a merger of any business, assets or technologies, joint venture, corporate partnering arrangement, or otherwise, the primary purpose of which is not to raise equity capital in an amount not exceeding 2,000,000 shares of Common Stock in the aggregate; and (iv) upon exercise of any Options or Convertible Securities which are outstanding on the day immediately preceding the Issuance Date, provided that the terms of such Options or Convertible Securities are not amended, modified or changed on or after the Issuance Date.

“Fundamental Transaction” means that (i) the Company shall, directly or indirectly, in one or more related transactions, (A) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person or Persons, if the holders of the Voting Stock (not including any shares of Voting Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such consolidation or



24




merger) immediately prior to such consolidation or merger shall hold or have the right to direct the voting of less than 50% of the Voting Stock or such voting securities of such other surviving Person immediately following such transaction, or (B) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (C) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than the 50% of the outstanding shares of Voting Stock (not including any shares of Voting Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (D) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding shares of Voting Stock (not including any shares of Voting Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), (E) reorganize, recapitalize or reclassify its Common Stock or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock of the Company.

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

“Holder” has the meaning set forth in the preamble to this Note.

“Interest” has the meaning set forth in the preamble to this Note.

“Interest Rate” means six and one-quarter percent (6.25%) per annum, subject to adjustment as set forth in Section 2 hereof.

“Investor Rights Agreement” means that certain Investor Rights Agreement dated as of the Issuance Date by and between the Company and the initial Holder.

“Issuance Date” has the meaning set forth in the preamble to this Note.

“Late Charge” has the meaning set forth in Section 24(b).

“Loan Restructurin g Agreement” means that certain Loan Restructuring Agreement, dated as of December 16, 2010, by and between the Company and the initial Holder.

“Maximum Percentage” has the meaning set forth in Section 3(d).

“New Issuance Price” has the meaning set forth in Section 7(a).

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

“Original Principal Amount” has the meaning set forth in the preamble to this Note.

< br>

25




“Other Subordinated Indebtedness” means Indebtedness incurred by the Company that is (i) expressly subordinate in right of payment to the Indebtedness evidenced by this Note, as reflected in a written agreement reasonably acceptable to the Holder and approved by the Holder in writing, and (ii) approved by the Holder in writing.

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

“Permitted Indebtedness” means (i) the Subordinated Indebtedness, (ii) indebtedness secured by Permitted Liens, (iii) Indebtedness under this Note and (iv) extensions, refinancings and renewals of any items in clauses (i) and (ii) above, provided that the Holder has approved, in writing, any such extension, refinancing or renewal.

“Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that, in each case, the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment and (v) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with t he importation of goods.

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

“Principal” has the meaning set forth in the preamble to this Note.

“Principal Market” means the OTC Bulletin Board.

“Purchase Rights” has the meaning set forth in Section 6(a).

“Redemption Notices” means , collectively, any Event of Default Redemption Notices and any Change of Control Redemption Notices, each of the foregoing, individually, a Redemption Notice.

“Redemption Premium” means (i) in the case of the Events of Default described in Section 4(a)(i) - (v) and (viii) - (xiii), 125% or (ii) in the case of the Events of Default described in Section 4(a)(vi) - (vii), 100%.



26




“Redemption Prices” means, collectively, the Event of Default Redemption Price and Change of Control Redemption Price, each of the foregoing, individually, a Redemption Price.

“Register” has the meaning set forth in Section 3(c)(iii).

“Registered Note” has the meaning set forth in Section 3(c)(iii).

“Required Reserve Amount” has the meaning set forth in Section 10(a).

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

“Semi-Annual Period” means each of: the period beginning on and includin g January 1 and ending on and including June 30; and the period beginning on and including July 1 and ending on and including December 31.

“Share Delivery Date” has the meaning set forth in Section 3(c)(i).

“Subordinated Indebtedness” means (i) Indebtedness of the Company evidenced by the Frenkel Loan Documents (as defined in the Loan Restructuring Agreement) and any extensions, refinancings and renewals thereof, provided that the Holder has approved, in writing, such extension, refinancing or renewal, and (ii) any Other Subordinated Indebtedness.

“Subordinated Indebtedness Documents” means (i) all notes representing the Subordinated Indebtedness and (ii) all other agre ements, instruments and documents executed by the Company pursuant thereto, in each case, as amended, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time with the prior written approval of the Holder.

“Subsidiary” means any entity in which the Company, directly or indirectly, owns any of the capital stock or holds an equity or similar interest.  

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

“Transfer Agent” has the meaning set forth in Section 3(c)(i).

“Valuation Event” has the meaning set forth in Section 7(a)(iv).

 “Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).



27




(29)

DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Note, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall within four (4) Business Days after any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event tha t the Company believes that a notice contains material, nonpublic information, relating to the Company or its Subsidiaries, the Company shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.

[Signature Page Follows]



28




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

BROADCAST INTERNATIONAL, INC.

By:______________________________

Name:

Title:







EXHIBIT I

BROADCAST INTERNATIONAL, INC.

CONVERSION NOTICE

Reference is made to the Amended and Restated Senior Convertible Note (the “Note”) issued to the undersigned by Broadcast International, Inc. (the “Company”).  In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock par value $0.05 per share (the “Common Stock”) of the Company, as of the date specified below.

Date of Conversion:__________________________________________________

Aggregate Conversion Amount to be converted:_____________________________

Please confirm the following information:

Conversion Price:____________________________________________________

Number of shares of Common Stock to
be issued:__________________________________________________________

Please issue the Common Stock into which the Note is being converted in the following name and to the following address:

Issue to:___________________________________________________________

            &nbs p;                    __________________________________________________________________________

                                ___________________________________________________________________________


Facsimile Number:___________________________________________________

Authorization:

By:__________________________________________________________

Title:_________________________________________________________

                                 Dated:________________________________________________________

         Account Number:(if electronic book entry transfer)_______________________

         Transaction Code Number:(if electronic book entry transfer)  _______________

< p style="MARGIN-TOP:0px; MARGIN-BOTTOM:16px" align=justify>





ACKNOWLEDGMENT

The Company hereby acknowledges this Conversion Notice and hereby directs Interwest Transfer Company to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions as of ______________, from the Company and acknowledged and agreed to by Interwest Transfer Company.

BROADCAST INTERNATIONAL, INC.

By:________________________________

Name:___________________________

Title:____________________________











 EX-10.3 4 ny1316208v10final_investorri.htm FORM OF INVESTOR RIGHTS AGREEMENT Converted by EDGARwiz

EXHIBIT B


INVESTOR RIGHTS AGREEMENT

INVESTOR RIGHTS AGREEMENT dated as of December __, 2010 (this “Agreement”), by and between Broadcast International, Inc., a Utah corporation (the ”Company”), and Castlerigg Master Investments Ltd., a fund advised by Sandell Asset Management Corp. (the “Lender”).  

WHEREAS:

A.  

The Company has engaged Philadelphia Brokerage Corporation as placement agent for the sale and issuance of up to $15,000,000 of the Company’s common stock, par value $0.05 per share (the “Common Stock”), to qualified institutional buyers and accredited investors (the “Private Offering”).

B.  

In connection with the Loan Restructuring Agreement dated as of December 16, 2010, by and between the parties hereto (the “Loan Restructuring Agreement”), the Company has agreed, upon the terms and subject to the conditions set forth in the Loan Restructuring Agreement, among other things, to (i) issue and sell to the Lender (A) a number of shares of Common Stock equal to (1) $3,500,000, divided by (2) the price per share of Common Stock paid by investors in the Private Offering (the “Shares”), subject to reduction in accordance with the terms of the Loan Restructuring Agreement, and (B) if required to be issued pursuant to the terms of the Loan Restructuring Agreement, the Warrant, (ii) amend and restate the Existing Note in the form and on the terms of the Amended Note, in the face amount of $5,500,000 and which is convertible into shares of Common Stock (as converted, the “Conversion Shares”), (iii) pay the Lender $2,500,000 in cash and (iv) canc el the Existing Warrant, which was exercisable for shares of Common Stock.

C.

In accordance with the terms of the Loan Restructuring Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “1933 Act”), and applicable state securities laws.


NOW, THEREFORE, in consideration of the premises and the mutua l covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Lender hereby agree as follows:

1.

Definitions.

Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Loan Restructuring Agreement.  As used in this Agreement, the following terms shall have the following meanings:

“1933 Act” has the meaning set forth in recitals to this Agreement.

“1934 Act” has the meaning set forth in Section 3(b).




NY:1316208.10



“Additional Effective Date” means the date the Additional Registrat ion Statement is declared effective by the SEC.

“Additional Effectiveness Deadline” means the date which is thirty (30) calendar days after the earlier of the Additional Filing Date and the Additional Filing Deadline or in the event that the Registration Statement is subject to a full review by the SEC, sixty (60) calendar days after the earlier of the Additional Filing Date and the Additional Filing Deadline.

“Additional Filing Date” means the date on which the Additional Registration Statement is filed with the SEC.

“Additional Filing Deadline” means the date six (6) months from any request by the Lender for the filing of an Additional Registration Statement or the most recent Additional Effective Date, as applicable.

“Additional Registrable Securities” means, (i) any Cutback Shares not previously included on a Registration Statement, (ii) the remainder of the Shares not included in the Initial Registration Statement, (iii) 130% of the number of (a) Conversion Shares issued or issuable upon conversion of the Amended Note,  (b) Warrant Shares issued or issuable upon exercise of the Warrant (if required to be issued pursuant to the Loan Restructuring Agreement) and (c) Additional Warrant Shares (if any) issued or issuable upon exercise of Additional Warrants, in each case, as of the Trading Day immediately preceding the applicable date of determination, including, without limitation, those issuable as a result of any adju stment of the number of Conversion Shares, Warrant Shares and/or Additional Warrant Shares issuable under the Amended Note, the Warrant and the Additional Warrants, as applicable, and (iv) any capital stock of the Company issued or issuable with respect to the Shares, the Amended Note, the Conversion Shares, the Warrant Shares (if the Warrant is required to be issued pursuant to the Loan Restructuring Agreement), the Additional Warrant Shares (if any) or the Cutback Shares as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on conversion and/or redemption of the Amended Note, the Warrant and/or the Additional Warrant Shares; provided , that the Lender has completed and delivered to the Company selling stockholder information consistent with the Lender’s obligations hereunder; and provided further , that Cutback Shares and any capital stock of the Company issued or issuable with respect to the foregoing shall cease to be Additional Registrable Securities upon the earliest to occur of the following: (A) sale pursuant to a Registration Statement or Rule 144 under the 1933 Act (in which case, only such securities sold shall cease to be Registrable Securities); or (B) becoming eligible for sale without restriction or limitation pursuant to Rule 144.

“Additional Registration Statement” means a Registration Statement or Registration Statements of the Company filed under the 1933 Act covering any Additional Registrable Securities.

“Additional Required Registration Amount” means any Additional Registrable Securities not previously included on a Registration S tatement, all subject to adjustment as provided in Section 2(f), without regard to any limitations on conversions and/or redemptions of



2



NY:1316208.10



the Amended Note, the Warrant (if required to be issued pursuan t to the Loan Restructuring Agreement) or any Additional Warrant.

“Additional Warrant Shares” means, collectively, the Registration Delay Warrant Shares, the Public Information Failure Warrant Shares and the Suspension Warrant Shares.

“Additional Warrants” means, collectively, the Registration Delay Warrants, the Public Information Failure Warrants and the Suspension Warrants.

“Agreement” has the meaning set forth in preamble to this Agreement.

“Allowable Grace Period” has the meaning set forth in Section 3(p).

“Blue Sky Filing” has the meaning set forth in Section 6(a).

“Board Observer” has the meaning set forth in Section 11(a).

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

“Claims” has the meaning set forth in S ection 6(a).

“Closing Date” has the meaning set forth in the Loan Restructuring Agreement.

“Common Stock” has the meaning set forth in the recitals to this Agreement.

“Common Stock Equivalents” means, collectively, Options and Convertible Securities.

“Company” has the meaning set forth in the preamble to this Agreement.

“Conversion Shares” has the meaning set forth in the recitals to this Agreement.

“Convertible Securities” means any stock or securities (other than Options) convertible into or exercisable or exchangeable for shares of Common Stock.

“Cutback Shares” means any of the Initial Required Registration Amount (without regard to clause (II) in the definition thereof) of Registrable Securities not included in all Registration Statements previously declared effective hereunder as a result of a limitation on the maximum number of shares of Common Stock of the Company permitted to be registered by the staff of the SEC pursuant to Rule 415.  For the purpose of determining the Cutback Shares, in order to determine any applicable Required Registration Amount, first the Conversion Shares shall be excluded on a pro rata basis until all of the Conversion Shares have been excluded.

“Effective Date” means the Initial Effective Date and the Additional Effective Date, as applicable.



3



NY:1316208.10



“Effectiveness Deadline” means the Initial Effectiveness Deadline and the Additional Effectiveness Deadline, as applicable.

“Effectiveness Failure” has the meaning set forth in Section 2(g).

“Filing Deadline” means the Initial Filing Deadline and the Additional Filing Deadline, as applicable.

“Filing Failure” has the meaning set forth in Section 2(g).

“Grace Period” has the meaning set forth in Section 3(p).

“Indemnified Damages” has the meaning set forth in Section 6(a).

“Indemnified Party” has the meaning set forth in Section 6(b).

“Indemnified Person” has the meaning set forth in Section 6(a).

“Initial Effective Date” means the date that the Initial Registration Statement has been declared effective by the SEC.

“Initial Effectiveness Deadline” means the date that is 120 days following the date on which the Initial Registration Statement is filed with the SEC, but in any event not later than 120 days following the Initial Filing Deadline.

“Initial Filing Deadline” means the date that is sixty (60) days following the date hereof.

“Initial Registrable Securities” for t he Initial Registration Statement means 2.5 million of shares of Common Stock, comprised of, at the option of the Lender, any combination of the Shares, the Conversion Shares, the Warrant Shares and/or the Additional Warrant Shares, provided , that the Lender has completed and delivered to the Company selling stockholder information consistent with Lender’s obligations hereunder.

“Initial Registration Statement” means a Registration Statement or Registration Statements of the Company filed under the 1933 Act covering the Initial Registrable Securities.

“Initial Required Registration Amount” means the number of shares of Common Stock including in the Initial Registrable Securities.

“Legal Counsel” has the meaning set forth in Section 2(d).

“Lender” means the Lender or any transferee or assignee thereof to whom the Lender assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 10 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 10.



4



NY:1316208.10



“Loan Restructuring Agreement” has the meaning set forth in the recitals to this Agreement.

“Maintenance Failure” has the meaning set forth in Section 2(g).

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

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

“Private Offering” has the meaning set forth in the recitals to this Agreement.

“Public Information Failure” has the meaning set forth in Section 8(d).

“Public Information Failure Warrant Shares” has the meaning set forth in Section 8(d).

“Public Information Failure Warrants” has the meaning set forth in Section 8(d).

“register,” “registered,” and “registration” refer to a registration effected by preparing and filing one or more Registration Statements in compliance with the 1933 Act and pursuant to Rule 415 and the declaration or ordering of effectiveness of such Registration Statement(s) by the SEC.

“Regist rable Securities” means the Initial Registrable Securities and the Additional Registrable Securities.

“Registration Delay Warrants” has the meaning set forth in Section 2(g).

“Registration Delay Warrant Shares” has the meaning set forth in Section 2(g).

“Registration Period” has the meaning set forth in Section 3(a).

“Registration Statement” means the Initial Registration Statement and the Additional Registration S tatement, as applicable.

“Reporting Period” has the meaning set forth in Section 9(a).

“Required Registration Amount” means either the Initial Required Registration Amount or the Additional Required Registration Amount, as applicable.

“Rule 144” has the meaning set forth in Section 8.

“Rule 415” means Rule 415 promulgated under the 1933 Act or any successor rule providing for offering securities on a continuous or delayed b asis.



5



NY:1316208.10



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

“Shares” has the meaning set forth in the recitals.

“Subscription Agreement” means the Subscription Agreement, dated as of the date hereof, between the Company and the investors in the Private Offering in the form attached hereto as Exhibit C.

“Suspension” has the meaning set forth in Section 8(e).

“Suspension Notice” has the meaning set forth in Section 8(e).

“Suspension Perio d” has the meaning set forth in Section 8(e).

“Suspension Warrant” has the meaning set forth in Section 8(e).

“Suspension Warrant Shares” has the meaning set forth in Section 8(e).

“Trading Day” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded.

< font style=FONT-SIZE:10pt>“Trigger Date” has the meaning set forth in Section 9(e).

“Violations” has the meaning set forth in Section 6(a).

2.

Registration.

a.

Initial Mandatory Registration.  The Company shall prepare, and file with the SEC, the Initial R egistration Statement covering the resale of all of the Initial Registrable Securities, which Initial Registration Statement shall also include the shares issued in the Private Offering as contemplated by the Subscription Agreement.  The Lender shall be treated equally to and have the same rights with respect to the registration of the Initial Registrable Securities as the investors in the Private Offering will have as to the shares sold in the Private Offering, and all filing deadlines and reminders set forth in the Subscription Agreement for the benefit of the investors in the Private Offering will apply to and be for the benefit of the Lender.  By 9:30 a.m. New York time on the Business Day following the Initial Effective Date, the Company shall file with the SEC in accordance with Rule 424 under the 1933 Act the final prospectus to be used in connection with sales pursuant to such Initial Registration Statement.

b.

Additional Registrations.  At the request of the Lender, the Company shall prepare, and, as soon as practicable but in no event later than the Additional Filing Deadline, file with the SEC an Additional Registration Statement on Form S-3 covering the resale of all of the Additional Registrable Securities not previously registered on a Registration Statement hereunder.  To the extent the staff of the SEC does not permit the Additional Required Registration Amount to be registered on an Additional Registration Statement, the Company shall file Additional Registration Statements successively trying to register on each such



6



NY:1316208.10



Additional Registration Statement the maximum number of remaining Additional Registrable Securities until the Additional Required Registration Amount has been registered with the SEC.  In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available f or such a registration on another appropriate form reasonably acceptable to the Lender, subject to the provisions of Section 2(e).  Each Additional Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Common Stock equal to the Additional Required Registration Amount determined as of the date such Additional Registration Statement is initially filed with the SEC.  Each Additional Registration Statement shall contain (except if otherwise directed by the Lender) the “Selling Stockholders” and “Plan of Distribution” sections in substantially the form attached hereto as Exhibit B.  The Company shall use its reasonable best efforts to have each Additional Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the Additional Effectiveness Deadline.  By 9:30 a.m. New York time on the Business Day following the Additional Effective Date, the Compan y shall file with the SEC in accordance with Rule 424 under the 1933 Act the final prospectus to be used in connection with sales pursuant to such Additional Registration Statement.

c.

Other Securities.  The Lender acknowledges and agrees that the shares of Common Stock issued to the investors in the Private Offering and the shares of Common Stock issuable upon exercise of the warrants issued in the Private Offering will be included in the Initial Registration Statement.   If the Company advises the Lender and the investors in the Private Offering in writing that the total number of securities to be included in such registration exceeds the amount that can be sold in (or during the time of ) such offering without delaying or jeopardizing the success of such offering (including the price per share of the securities to be sold), then the amount of securities to be offered for the account of the Lender and the investors in the Private Offering shall be reduced pro rata on the basis of the relative number of securities requested to be included in such registration by each.  In no event shall the Company include any securities other than the Registrable Securities and the foregoing securities of the investors in the Private Offering in the Initial Registration Statement, and in no event shall the Company include any securities other than the Additional Registrable Securities and any of the foregoing securities of the investors in the Private Offering that were not able to be included in the Initial Registration Statement as provided above in any Additional Registration Statement, in each case, without the prior written consent of the Lender.

d.

Legal Counsel.  Subject to Section 5 hereof, the Lender shall have the right to select one legal counsel to review and oversee any registration pursuant to this Section 2 (“Legal Counsel”), which shall be Winston & Strawn LLP or such other counsel as thereafter designated by the Lender.  The Company shall reasonably cooperate with Legal Counsel in performing the Company's obligations under this Agreement.

e.

Ineligibility for Form S-3.  In the event that Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on another appropriate form reasonably acceptable to the Lender and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the SEC.



7



NY:1316208.10



f.

Sufficient Number of Shares Registered.  In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a) or Section 2(b) is insufficient to cover all of the Registrable Securities required to be covered by such Registration Statement, the Company shall amend the applicable Registration Statement, or file a new Registration S tatement (on the short form available therefor, if applicable), or both, so as to cover at least the Required Registration Amount as of the Trading Day immediately preceding the date of the filing of such amendment or new Registration Statement, in each case, as soon as practicable, but in any event not later than fifteen (15) days after the necessity therefor arises.  The Company shall use its reasonable best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof.  For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed “insufficient to cover all of the Registrable Securities” if at any time the number of shares of Common Stock available for resale under the Registration Statement is less than the Required Registration Amount.  The calculation set forth in the foregoing sentence shall be made without regard to any limitations on the conver sion and/or redemption of the Amended Note and such calculation shall assume that the Amended Note is then convertible into shares of Common Stock at the then prevailing Conversion Rate (as defined in the Amended Note), assuming the initial outstanding principal amount of the Amended Note remains outstanding through the scheduled maturity date and assuming no conversions or redemptions of the Amended Note prior to the scheduled maturity date.

g.

Effect of Failure to File and Obtain and Maintain Effectiveness of Registration Statement.  If (i) a Registration Statement covering all of the Registrable Securities required to be covered thereby and required to be filed by the Company pursuant to this Agreement is (A) not filed with the SEC on or before the respective Filing Deadline (a “Filing Failure”) or (B) not declared effective by the SEC on or before the respective Effectiveness Deadline (an “Effectiveness Failure”) or (ii) on any day after the Effective Date sales of all of the Registrable Securities required to be included on such Registration Statement cannot be made (other than during an Allowable Grace Period) pursuant to such Registration Statement or otherwise (including, without limitation, because of a failure to keep such Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to such Registration Statement, to register a sufficient number of shares of Common Stock or to maintain the listing of the Common Stock (a “Maintenance Failure”) then, as partial relief for the damages to the Lender by reason of any such delay in or reduction of its ability to sell the applicable shares of Common Stock (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall, on the 91st day following the Closing Date or the 61st day following the initial filing of the Registration Statement, as applicable, and each 121st day thereafter, as applicable, issue to the Lender warrants (“Registration Delay Warrants”) to purchase a number of shares of Common Stock equal to five percent (5%) of the aggregate number of Shares and Warrant Shares (if the Warrant is required to be issued pursuant to the Loan Restructuring Agreement) (“Registration Delay Warrant Shares”), with an exercise price and on the same terms as the warrants issued to the investors in the Private Offering pursuant to Section 10.c of the Subscription Agreement (which Section may not be amended without the prior written consent of the Lender).  Notwithstanding the foregoing, (i) no Registration Delay Warrants shall be



8



NY:1316208.10



issuable pursuant to this Section 2(g) if (A) the relevant failure is a result of an SEC review of the applicable Registration Statement where the SEC comments relate solely t o the application of Rule 415 by the SEC or (B) the relevant failure is a result of a force majeure and (ii) in no event shall the Company be required to issue to the Lender Registration Delay Warrants to purchase, in the aggregate, a number of shares of Common Stock in excess of seventy-five percent (75%) of the Shares and the Warrant Shares (if the Warrant is required to be issued pursuant to the Loan Restructuring Agreement) (without giving effect to any limitations on exercise thereof).  The Company shall use its best efforts to include the sale of the Registration Delay Warrants and the Registration Delay Warrant Shares in any Registration Statement filed pursuant to this Agreement and any amendments or supplements thereto.  Notwithstanding anything set forth herein to the contrary, at the Lender’s option, any Registration Delay Warrants issuable hereunder may include a limitation on the exercise of the Registration Delay Warrants to the extent that, after giving effect to such exercise, the Lender, together with its affiliates, would beneficially own in excess of 9.90% of the shares of Common Stock outstanding immediately after giving effect to such exercise, and that the Lender shall have the right to increase or decrease such amount from time to time to any other percentage with sixty-one (61) days’ prior notice.

3.

Related Obligations.

At such time as the Company is obligated to file a Registration Statement with the SEC pursuant to Section 2(a), 2(b), 2(e) or 2(f), the Company will use its reasonable best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations:

a.

The Company shall promptly prepare and file with the SEC a Registration Statement with respect to the Registrable Securities and use its reasonable best efforts to cause such Registration Statement relating to the Registrable Securities to become effective as soon as practicable after such filing (but in no event later than the Effectiveness Deadline).  The Company shall keep each Registration Statement effective pursuant to Rule 415 at all times until the earlier of (i) the date as of which the Lender may sell all of the Registrable Securities covered by such Registration State ment without restriction or limitation pursuant to Rule 144 (or any successor thereto) promulgated under the 1933 Act or (ii) the date on which the Lender shall have sold all of the Registrable Securities covered by such Registration Statement (the “Registration Period”).  The Company shall ensure that each Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein (in the case of prospectuses, in the light of the circumstances in which they were made) not misleading.  The term “best efforts” shall mean, among other things, that the Company submit to the SEC, within two (2) Business Days after the later of the date  that (i) the Company learns that no review of a particular Registration Statement will be made by the staff of the SEC or that the staff has n o further comments on a particular Registration Statement, as the case may be, and (ii) the Company receives the approval of Legal Counsel pursuant to Section 3(c) (which approval is immediately sought), a request for acceleration of effectiveness of such Registration Statement to a time and date not later than two (2) Business Days after the submission of such request.  The Company shall respond in writing to comments made by the SEC in respect of a



9



NY:1316208.10



Registration Statement as soon as practicable, but in no event later than fifteen (15) days after the receipt of comments by the SEC.

b.

The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 A ct, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement.  In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by Regulation S-X promulgated by the SEC or by reason of the Company filing a report on Form 8-K, Form 10-Q, Form 10-QSB, Form 10-K, Form 10-KSB, any amendment of any of the foregoing or any analogous report under the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the 1934 Act report is filed which created the requirement for the Company to amend or supplement such Registration Statement or the date on which updated information is required to be included in such Registration Statement pursuant to Regulation S-X promulgated by the SEC.

c.

The Company shall (A) permit Legal Counsel to review and comment upon (i) each Registration Statement at least five (5) Business Days prior to its filing with the SEC and (ii) all amendments and supplements to all Registration Statements (except for Annual Reports on Form 10-K or Form 10-KSB, Quarterly Reports on Form 10-Q or Form 10-QSB, Current Reports on Form 8-K, and any similar or successor reports) within a reasonable number of days prior to their filing with the SEC, and (B) not file any Registration Statement or amendment or supplement thereto in a form to which Legal Counsel reasonably objects.  The Company shall not submit a request for acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto without the prior approval of Legal Counsel, which consent shall not be unreasonably withheld.  The Company shall furnish to Legal Counsel, without charge, (i) copies of any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to any Registration Statement, (ii) promptly after the same is prepared and filed with the SEC, one copy of any Registration Statement and any amendment(s) and supplement(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, if requested by the Lender, and all exhibits and (iii) upon the effectiveness of any Registration Statement, one copy of the prospectus included in such Registration Statement and all amendments and supplements thereto.  The Company shall reasonably cooperate with Legal Counsel in performing the Company's obligations pursuant to this Section 3.

d.

The Company shall furnish to the Lender, without charge, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents



10



NY:1316208.10



incorporated therein by reference, if requested by the Lender, all exhibits and each preliminary prospectus, (ii) upon the effectiveness of any Registration Statement, ten (10) copies of the prospectus included in such Registration Statement and all ame ndments and supplements thereto (or such other number of copies as the Lender may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as the Lender may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by the Lender.

e.

The Company shall use its reasonable best efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by the Lender of the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of all applicable jurisdictions in the United States, (ii) prepare and file in those jurisdiction s, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(e), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction.  The Company shall promptly notify Legal Counsel and the Lender of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.

f.

The Company shall notify Legal Counsel and the Lender in writing of the happening of any event, as promptly as practicable after becoming aware of such event, as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in the lig ht of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and, subject to Section 3(p), promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission and deliver ten (10) copies of such supplement or amendment to Legal Counsel and the Lender (or such other number of copies as Legal Counsel or the Lender may reasonably request).  The Company shall also promptly notify Legal Counsel and the Lender in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to Legal Counsel and the Lender by facsimile or e-mail on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or relat ed prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.



11



NY:1316208.10



g.

The Company shall use its reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify Legal Counsel and the Lender of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.

h.

The Company shall hold in confidence and not make any disclosure of information concerning the Lender provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement.  The Company agrees that it shall, upon learning that disclosure of such information concerning the Lender is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Lender and allow the Lender, at the Lender’ ;s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

i.

The Company shall use its best efforts either to (i) cause all of the Registrable Securities covered by a Registration Statement to be listed on each securities exchange or the Principal Market (as defined in the Loan Restructuring Agreement) on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or (ii) secure the inclusion for quotation of all of the Registrable Securities on The NASDAQ Global Select Market or (iii) if, despite the Company's bes t efforts, the Company is unsuccessful in satisfying the preceding clauses (i) and (ii), to secure the inclusion for quotation on The NASDAQ Global Market, The New York Stock Exchange, The NASDAQ Capital Market or the American Stock Exchange for such Registrable Securities.  The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(i).

j.

The Company shall cooperate with the Lender and, to the extent applicable, facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominat ions or amounts, as the case may be, as the Lender may reasonably request and registered in such names as the Lender may request.

k.

If reasonably requested by the Lender, the Company shall as soon as practicable (i) incorporate in a prospectus supplement or post-effective amendment such information as the Lender reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) make all required filings of such p rospectus supplement or post-effective



12



NY:1316208.10



amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Registration Statement if reasonably requested by the Lender.

l.

The Company shall use its reasonable best efforts to cause the Registrable Securities covered by a Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.

m.

The Company shall mak e generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the applicable Effective Date of a Registration Statement.

n.

The Company shall use its reasonable best efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.

o.

Within two (2) Business Days after a Registration Statement which covers Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Lender) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A.

p.

Notwithstanding anything to the contrary herein, at any time after the Effective Date, the Company may delay the disclosure of material, non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company and its counsel, in the best interest of the Company and, in the opinion of counsel to the Company, otherwise required (a “Grace Period”); provided, that the Company shall promptly (i) notify the Lender in writing of the existence of material, non-public information giving rise to a Grace Period (provided that in each notice the Company will not disclose the content of such material, non-public information to the Lender) and the date on which the Grace Period will begin, and (ii) notify the Lender in writing of the date on which the Grace Period ends; and, provided further, that no Grace Period shall exceed twenty (20) consecutive days and during any three hundred sixty five (365) day period and such Grace Periods shall not exceed an aggregate of thirty (30) days and the first day of any Grace Period must be at least five (5) Trading Days after the last day of any prior Grace Period (each, an “Allowable Grace Period”).  For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the Lender receive the notice referred to in clause (i) and shall end on and include the later of the date the Lender receive the notice referred to in clause (ii) and the date referred to in such notice.  The provisions of Section 3(g) hereof shall not be applicable during the period of any Allowable Grace Period.  Upon expiration of the Grace Period, the Company shall again be bound by the first sentence of Section 3(f) with respect to the information giving rise thereto unless such material, non-public information is no longer applicable.  Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common



13



NY:1316208.10



Stock to a transferee of the Lender in accordance with the terms of the Loan Restructuring Agreement in connection with any sale of Registrable Securities with respect to which the L ender has entered into a contract for sale, prior to the Lender’s receipt of the notice of a Grace Period and for which the Lender has not yet settled.  

q.

Neither the Company nor any Subsidiary (as defined in the Loan Restructuring Agreement) or affiliate thereof shall identify the Lender as an underwriter in any public disclosure or filing with the SEC or any Principal Market (as defined in the Loan Restructuring Agreement); provided, however, that the foregoing shall not prohibit the Company from including the disclosure found in the “Plan of Distribution” section attached hereto as Exhibit B in the Registration Statement.  

4.

Obligations of the Lender.

a.

At least five (5) Business Days prior to the first anticipated filing date of a Registration Statement, the Company shall notify the Lender in writing of the information the Company requires from the Lender if the Lender elects to have any of the Lender’s Registrable Securities included in such Registration Statement.  It shall be a condition precedent to the obligations of the Company to complete the registration pursua nt to this Agreement with respect to the Registrable Securities of the Lender that the Lender shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect and maintain the effectiveness of the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.  

b.

The Lender, by acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registrati on Statement hereunder, unless the Lender has notified the Company in writing of its election to exclude all of the Registrable Securities from such Registration Statement.

c.

The Lender agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of 3(f), the Lender will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until the Lender’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(g) or the first sentence of 3(f) or receipt of notice that no supplement or amendment is required. &nb sp;Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of the Lender in accordance with the terms of the Loan Restructuring Agreement in connection with any sale of Registrable Securities with respect to which the Lender has entered into a contract for sale prior to the Lender’s receipt of a notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of 3(f) and for which the Lender has not yet settled.



14



NY:1316208.10



d.

The Lender covenants and agrees that it will comply with the prospectus delivery requirements of the 1933 Act as applicable to it or an exemption therefrom in connection with sales of Registrable Securities pursuant to the Registration Statement.

5.

Expenses of Registration.

All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company shall be paid by the Company.  The Company shall also reimburse the Lender for the reasonable fees and disbursements of Legal Counsel in connection with registration, filing or qualification pursuant to Sections 2 and 3 of this Agreement.

6.

Indemnification.

In the event any Registrable Securities are included in a Registration Statement under this Agreement:

a.

To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Lender, the directors, officers, members, partners, employees, agents, representatives of, and each Person, if any, who controls the Lender within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administra tive or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon:  (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any amendment or supplement thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (iv) any violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, “Violations”).  Subject to Section 6(c), the



15



NY:1316208.10




Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a):  shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(d).  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Lender pursuant to Section 10.

b.

In connection with any Registration Statement in which the Lender is participating, the Lender agrees to indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act, and each in vestor in the Private Offering with shares covered by such Registration Statement (each, an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by the Lender expressly for use in connection with such Registration Statement; and, subject to Section 6(c), the Lender shall reimburse the Indemnified Party, promptly as such expenses are incurred and are due and payable, for any legal or other expenses reasonably incurred by an Indemnified Party in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contai ned in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Lender, which consent shall not be unreasonably withheld or delayed; provided, further, that the Lender shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to the Lender as a result of the sale of Registrable Securities pursuant to such Registration Statement.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Lender pursuant to Section 10.  Notwithstanding the foregoing, the Lender’s aggregate obligation to indemnify the Indemnified Parties shall be limited to the net amount received by the Lender from the sale of the Registrable Securities covered by such Registration Statement less the amount of any other c laims, damages or liabilities paid by the Lender in connection with the Lender’s sale of such Registrable Securities.

c.

Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the



16



NY:1316208.10




commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for all such Indemnified Persons or Indemnified Parties to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of th e Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding.  In the case of an Indemnified Person, legal counsel referred to in the immediately preceding sentence shall be selected by the Lender.  The Indemnified Party or Indemnified Person shall cooperate reasonably with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or Claim.  The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto.  No indemnifying party shall be liable for any s ettlement of any action, claim or proceeding effected without its prior written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent.  No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such Claim or litigation, and such settlement shall not include any admission as to fault on the part of the Indemnified Party.  Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made.  T he failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.

d.

The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

e.

The indemnity agreements contained h erein shall be in addition to  (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

f.

The Company shall not permit any Subscription Agreement to be modified or amended without the prior written consent of the Lender, which consent shall not be unreasonably withheld or delayed.



17



NY:1316208.10




7.

Contribution.

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that:  (i) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; a nd (ii) contribution by any seller of Registrable Securities shall be limited in amount to the amount of net proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement.

8.

Reports Under the 1934 Act.

With a view to making available to the Lender the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Lender to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

a.

make and keep public information available, as those terms are understood and defined in Rule 144;

b.

file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

c.

furnish or make available to the Lender, so long as the Lender owns Registrable Securities, promptly upon request, (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act or confirm in writing that the Lender can sell the Registrable Securities under Rule 144, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Lender to sell such securities pursuant to Rule 144 without registration.

d.

At any time beginning on the date hereof and ending at such time that all of the Registrable Securities can be sold either pursuant to a Registration Statement or may be sold without restriction or limitation pursuant to Rule 144, if the Company shall fail for any reason to satisfy the current public information requirement under Rule 144 (a “Public I nformation Failure”) then, as partial relief for the damages to any holder of Registrable Securities by reason of any such delay in or reduction of its ability to sell the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall, on the date on which such Public Information Failure occurs, and each 30th day thereafter, as applicable, issue to the Lender warrants (the “Public Information Failure Warrants”) to purchase a number of shares of Common Stock equal to five percent (5%) of the aggregate number of Shares and Warrant Shares (if the Warrant is required to be



18



NY:1316208.10




issued pursuant to the Loan Restructuring Agreement) (the “Public Information Failure Warrant Shares”), with an exercise price and on the same terms as the warrants issued to the investors in the Public Offering pursuant to Section 10.c of the Subscription Agreement (whether or not warrants are issuable thereunder).  The Company shall use its best efforts to include the sale of the Public Information Failure Warrant Shares in any Registration Statement filed pursuant to this Agreement and any amendments or supplements thereto.  Notwithstanding anything set forth herein to the contrary, at the Lender’s option, any Public Information Failure Warrants issuable hereunder may include a limitation on the exercise of the Public Information Failure Warrants to the extent that, after giving effect to such exercise, the Lender, together with its affiliates, would beneficially own in excess of 9.90% of the shares of Common Stock outstanding immediately after giving effect to such exercise, and that the Lender shall have the right to increase or decrease such amount from time to time to any other percentage with sixty-one (61) days’ prior notice.

e.

In the event (i) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of any Registration Statement for amendments or supplements to such Registration Statement or related prospectus or for additional information, (ii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose, (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares, Conversion Shares issued upon conversion of the Amended Note, Warrant Shares issued upon exercise of the Warrant (if required to be issued pursuant to the Loan Restructuring Agreement) or Additional Warrant Shares issued upon exercise of any Additional Warrant for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (iv) of any event or circumstance which, upon the advice of its counsel, necessitates the making of any changes in any Registration Statement or prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of such Registration Statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, then the Company shall deliver (which delivery may occur electronically) a certificate in writing to the Lender (the “Suspension Notice”) to the effect of the foregoing and, upon receipt of such Suspension Notice, the Lender will refrain from selling any Registrable Securities pursuant to such  Registration Statement (a “Suspension”) until the Lender’s receipt of copies (which may be provided electronically) of a supplemented or amended prospectus prepared and filed by the Company, or until it is advised in writing by the Company that the current prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by ref erence in any such prospectus.  In the event of any Suspension, the Company shall use its reasonable commercial efforts to cause the use of the prospectus so suspended to be resumed as soon as reasonably practicable within twenty (20) Business Days after the delivery of a Suspension Notice to the Lender.  In the event that any Suspension or Suspensions pursuant to clauses (i) and/or (ii) above are in effect for an aggregate of more than



19



NY:1316208.10




fifteen (15) days in a ninety (90)-day period, or any Sus pension or Suspensions pursuant to clause (iii) above is in effect for an aggregate of more than thirty (30) days in a ninety (90)-day period, or any Suspension or Suspensions are in effect for an aggregate of greater than forty-five (45) days in any 360-day period (each such period, a “Suspension Period”), then, on the 16th, 31st or 46th day of each such Suspension Period, as applicable, and on each 30th day thereafter while such applicable Suspension is in effect, issue to the Lender a warrant (the “Suspension Warrant”) to purchase an aggregate number of shares of Common Stock equal to five percent (5%) of the aggregate number of Shares and Warrant Shares (if the Warrant is required to be issued pursuant to the Loan Restructuring Agreement) (“Suspension Warrant Shares”), with an exercise price and on the same terms as the warrants issued to the investors in the Private Offering pursuant to Section 11.c of the Subscription Agreement (which Section may not b e amended without the prior written consent of the Lender), until such Suspension terminates.  In addition to and without limiting any other remedies (including, without limitation, at law or at equity) available to the Lender, the Lender shall be entitled to specific performance in the event that the Company fails to comply with the provisions of this Section 8(e).

9.

Certain Covenants.

a.

Reporting Status.  Notwithstanding anything to the contrary contained in this Agreement, until the date on which the Lender shall have sold all of the Registrable Securities (the “Reporting Period”), or suc h earlier date as a Change of Control (as defined in the Amended Note) shall occur, the Company shall timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination.

b.

Financial Information.  The Company agrees to send the following to the Lender during the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are available to the public through the EDGAR system, or are otherwise made publicly available, (i) within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual Reports and Quarterly Reports on Form 10-K, 10-KSB, 10-Q or 10-QSB, any interim reports or any consolidated balance sheets, income statements, stockholders’ equity statements and/or cash flow statements for any period other than annual, any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed copies of all press releases issued by the Company or any of its Subsidiaries and (iii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders.

c.

Listing.  The Company shall promptly secure the listing of all of the Registrable Securities upon each nationa l securities exchange and automated quotation system, if any, upon which the Common Stock is then listed (subject to official notice of issuance) and shall maintain such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents.  The Company shall maintain the authorization of the Common Stock or quotation on the Principal Market.  Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting



20



NY:1316208.10




or suspension of the Common Stock on the Principal Market.  The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 9(c).

d.

Pledge of Securities.  The Company acknowledges and agrees that the Amended Note, the Shares, the Warrant (if required to be issued pursuant to the Loan Restructuring Agreement), the Warrant Shares (if the Warrant is required to be issued pursuant to the Loan Restructuring Agreement), any Additional Warrants, any Additional Warrant Shares and/or Conversion Shares may be pledged by the Lender in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by any such securities.  The pledge of the Amended Note, the Shares, the Warrant (if required to be iss ued pursuant to the Loan Restructuring Agreement), the Warrant Shares (if the Warrant is required to be issued pursuant to the Loan Restructuring Agreement), any Additional Warrants, any Additional Warrant Shares and/or Conversion Shares shall not be deemed to be a transfer, sale or assignment of such securities under any Transaction Document, and the Lender shall not be required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or any other Transaction Document; provided that the Lender and its pledgee shall be required to comply with the provisions of Section 5.2(f) of the Loan Restructuring Agreement in order to effect a sale, transfer or assignment of any such securities to such pledgee.  The Company hereby agrees to execute and deliver such documentation as a pledgee of the Amended Note, the Shares, the Warrant (if required to be issued pursuant to the Loan Restructuring Agreement), the Warrant Shares (if the Warrant is required to be issued pursuant to the Loan Restructuring Agreement), any Additional Warrants, any Additional Warrant Shares and/or Conversion Shares may reasonably request in connection with a pledge of any such securities to such pledgee by the Lender.

e.

Additional Issuances of Securities.  From the date hereof until the date when all Registrable Securities are freely tradeable without restriction or limitation pursuant to Rule 144 (the “Trigger Date”), and except as provided in Section 2(c) with respect to any securities of investors in the Private Offering that were not able to be included in the Initial Registration Statement as provided in Section 2(c), the Company shall not, directly or indirectly, file any registration statement with the SEC other than a Registration Sta tement.  From the date hereof until the Trigger Date, and except pursuant to the Private Offering, the Company shall not, (i) directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its or its Subsidiaries’ equity or equity equivalent securities, including, without limitation, any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for shares of Common Stock or Common Stock Equivalents or (ii) be party to any solicitations, negotiations or discussions with regard to the foregoing.

10.

Assignment of Registration Rights.

The rights under this Agreement shall be automatically assignable by the Lender to any transferee of all or any portion of the Lender’s Registrable Securities if:  (i) the Lender agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written



21



NY:1316208.10




notice of (a) the name and ad dress of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act or applicable state securities laws; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (v) such transfer shall have been made in accordance with the applicable requirements of the Loan Restructuring Agreement.

11.

Board Observer Rights.

a.< /p>

The Company shall permit one designee appointed by the Lender (the “Board Observer”) to serve as an observer and attend all meetings of the Company’s Board of Directors.  All costs and expenses (including travel) incurred by the Board Observer in connection with his or her attendance at meetings of the Company’s Board of Directors shall be reimbursed by the Company to such Board Observer within three (3) Business Days after such Board Observer’s request for such reimbursement.  The Company shall give any such Board Observer, at the same time, on the same basis and in the same form as provided to the members of the Board of Directors, (i) notice of any meeting of the Board of Directors and (ii) copies of any materials or documents to be presented, discussed or used at such meetings.  The Board Observer shall be entitled to consult with, and make proposals and furn ish advice to, the Company’s Board of Directors, and the Company shall use reasonable best efforts to cause the officers of the Company to take such proposals or advice seriously and give due consideration thereto, provided, that nothing herein is intended to require compliance with any such proposal or advice or to impose liability for any failure so to comply.  Except to the extent access to such information could adversely affect the attorney-client privilege between the Company and its counsel, the Board Observer shall be provided with copies of all notices, minutes, consents and forms of consents in lieu of meetings of the Company’s Board of Directors at the same time or times as such notices, minutes, consents or forms are issued or circulated by or to, or such other material is provided to, the members of the Company’s Board of Directors.

b.

The Board Observer may be excluded from any meetings of the Board of Directors, and any meeting materials relating to the same may be redacted accordingly before being furnished to the Board Observer, if, in the good faith determination of the Board of Directors, (i) the subject matter to be discussed at such meeting (or the portion thereof from which it proposes to exclude the Board Observer) relates to disputes or negotiations relating to the Company and the Lender in respect of this Agreement, the Loan Restructuring Agreement or otherwise, or (ii) if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel.  The Company will use its best efforts to ensure, and to cause its Board of Directors to ensure, that any withholding of information or any restriction on attendance is strictly limited only to the extent necessary as set forth in the preceding s entence.  If, as a result of the death, disability, retirement, resignation, removal or otherwise, the person designated by Lender pursuant to this Section 12 shall no longer serve as the Board Observer, the Lender shall be entitled to designate another individual to fill such capacity and serve as the Board Observer.



22



NY:1316208.10




c.

The Board Observer will be subject to and comply with all rules, prac tices and procedures imposed by law, the applicable Principal Market and the Company’s corporate governance, confidentiality and other employee policies, including without limitation maintaining the confidentiality of all nonpublic information, refraining from trading in the Company’s securities while in possession of material, nonpublic information and generally complying with securities and disclosure rules and regulations.  The Company is under no obligation to disclose publicly material nonpublic information that is made available to the Lender or the Board Observer, and as a result, the Lender and the Board Observer may not be able to trade in the Company’s securities for indefinite periods of time when in possession of material nonpublic information.  

d.

The rights of Lende r to select a Board Observer pursuant to this Section 10, and all related obligations of the Company with respect thereto, shall terminate as of such time as the Lender beneficially owns less than 5% of the then-issued and outstanding shares of Common Stock.

12.

Amendment.

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Lender.  Any amendment or waiver effected in accordance with this Section 12 shall be binding upon the Lender and the Company.

13.< /u>

Miscellaneous.

a.

A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities.  If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from such record owner of such Registrable Securities.

b.

Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be:


If to the Company:  



23



NY:1316208.10




Broadcast International, Inc.

7050 Union Park, Ave. #600

Salt Lake City, Utah 84047

Attention:  

James Solomon

Telephone:  

(801) 562-2252

Facsimile:  

< p style="MARGIN-TOP:0px; TEXT-INDENT:-2px; PADDING-LEFT:192px; MARGIN-BOTTOM:16px">(801) 562-1773

With a copy (which shall not constitute notice) to:


Holland & Hart LLP

222 South Main, Suite 2200

Salt Lake City, Utah 84101

Attention:  

David G. Angerbauer, Esq.

Telephone:  

(801) 799-5800

Facsimile:  

(801) 799-5700


If to the Lender:

c/o Sandell Asset Management

40 West 57th St

26th Floor

New York, NY 10019

Attention:

Lee Iannarone

Telephone:

(212) 603-5700

Facsimile:  

(212) 603-5710


With a copy (which shall not constitute notice) to Legal Counsel

If to Legal Counsel:

Winston & Strawn LLP

200 Park Avenue

New York, New York 10166

Attention:

Bradley C. Vaiana, Esq.

Telephone:

(212) 294-2610

Facsimile:  

(212) 294-4700

If to the Lender, to its address and facsimile number set forth in the Loan Restructuring Agreement, with copies to the Lender’s representative as set forth in the Loan Restructuring Agreement, or to such other address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipien t facsimile number and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by



24



NY:1316208.10




facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

c.

Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

d.

All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions other than Section 5-1401 of New York’s General Obligations Law) that would cause the application of the laws of any jurisdictions other than the State of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

e.

If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties.  The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

f.

This Agreement, the other Transaction Documents (as defined in the Loan Restructuring Agreement) and the instruments referenced herein and therein constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises, warranties or undertakings, other than those set forth or



25



NY:1316208.10




referred to herein and therein.  This Agreement, the other Transaction Documents and the instruments referenced herein and therein supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

g.

Subject to the requirements of Section 10, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

h.

The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

i.

This Agreement may be executed in more than one counterpart, each of which shall be deemed an original but all of which shall constitute one and the same agreement.  This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission o f a copy of this Agreement bearing the signature of the party so delivering this Agreement.

j.

Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

k.

The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.

l.

This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person other than the Indemnified Persons and Indemnified Parties as contemplated by Sections 6 and 7.

* * * * * *

(Signature Page Follows)




26



NY:1316208.10




IN WITNESS WHEREOF, the Lender and the Company have caused their respective signature page to this Investor Rights Agreement to be duly executed as of the date first written above.

 

COMPANY:

 

 

 

BROADCAST INTERNATIONAL, INC.

 

 

 

 

 

 

 

By:

__________________________________
Name:  Rodney M. Tiede
Title:    President & CEO

 

 





(Signature Page to Investor Rights Agreement)

NY:1316208.10


< /p>





IN WITNESS WHEREOF, the Lender and the Company have caused their respective signature page to this Investor Rights Agreement to be duly executed as of the date first written above.


 

LENDER:

 

 

 

CASTLERIGG MASTER INVESTMENTS LTD.

 

By Sandell Asset Management Corp.,

its investment manager

 

 

 

 

 

By:

__________________________________
Name:    
Title:    

 

 




(Signature Page to Investor Rights Agreement)

NY:1316208.10





EXHIBIT A


FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

[               ]

[               ]

[               ]

   

Re:

Broadcast International, Inc.

Ladies and Gentlemen:

[We are][I am] counsel to Broadcast International, Inc., a Utah corporation (the “Company”), and have represented the Company in connection with that certain Loan Restructuring Agreement (the “Loan Restructuring Agreement”) entered into by and between the Company and Castlerigg Master Investments Ltd. (the “Lender”) pursuant to which the Company issued to the Lender shares (the “Shares”) of the Company's common stock, par value $0.05 per share (the “Common Stock”), [a warrant to purchase shares of Common Stock (“Warrant Shares”)], and an Amended and Restated Senior Convertible Note (the “Amended Note”) which is convertible into Common Stock (the “Conversion Shares”).  Pursuant to the Loan Restructuring Agree ment, the Company also has entered into an Investor Rights Agreement with the Lender (the “Investor Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Investor Rights Agreement), including the Shares[, the Warrant Shares], any Additional Warrant Shares and the Conversion Shares, under the Securities Act of 1933, as amended (the “1933 Act”).  In connection with the Company's obligations under the Investor Rights Agreement, on ____________ ___, 201_, the Company filed a Registration Statement on Form S-3 (File No. 333-_____________) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the Registrable Securities which names the Lender as a selling stockholder thereunder.

In connection with the foregoing, [we][I] advise you that a m ember of the SEC's staff has advised [us][me] by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and [we][I] have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.




NY:1316208.10




This letter shall serve as our standing instruction to you that the shares of Common Stock are freely transferable by the Lender pursuant to the Registration Statement.  You need not require further letters from us to effect any future legend-free issuance or reissuance of shares of Common Stock to the Lender.  

Very truly yours,

[ISSUER'S COUNSEL]

By:_____________________

CC:

[LENDER]





NY:1316208.10





EXHIBIT B


SELLING STOCKHOLDERS

The shares of common stock being offered by the selling stockholders are those previously issued to the selling stockholders and those issuable to the selling stockholders upon conversion of a convertible note.  [For additional information regarding the issuance of the convertible note, see “Private Placement of Shares and Convertible Note” above.]  We are registering the shares of common stock in order to permit the selling stockholders to offer the shares for resale from time to time.  

The table below lists the selling stockholders and other inf ormation regarding the beneficial ownership of the shares of common stock by the selling stockholders.  The second column lists the number of shares of common stock beneficially owned by the selling stockholders, based on their ownership of the common shares and convertible note, as of [________, ______,] assuming conversion of the convertible note held by the selling stockholders on that date, without regard to any limitations on conversions or exercise.

The third column lists the shares of common stock being offered by this prospectus by the selling stockholders.

In accordance with the terms of an investor rights agreement with the selling stockholders, this prospectus generally covers the resale of at least 130% of the sum of (i) the number of shares of common stock issued, (ii) the number of shares of common stock issuable upon conversion of the warrants and (iii) the number of shares of common stock issuable upon conversion of the convertible note, in the case of each of clause (ii) and (iii), as of the Trading Day immediately preceding the date on which the registration statement of which this prospectus forms a part was initially filed with the SEC.  Because the conversion price of the convertible note and the number of shares issuable upon exercise of the warrants may be adjusted, the number of shares that will actually be issued may be more or less than the number of shares being offered by this prospectus.  The fourth column assumes the sale of all of the shares offered by the selling stockholders pursuant to this prospectus.

The number of shares in the second column does not reflect this limitation.  The selling stockholders may sell all, some or none of their shares in this offering.  See “Plan of Distribution.”




NY:1316208.10







Name of Selling Stockholder

Number of Shares of Common Stock Owned Prior to Offering

Maximum Number of Shares of Common Stock to be Sold Pursuant to this Prospectus

Number of Shares of Common Stock Owned After Offering

Castlerigg Master Investments Ltd. (1)

[________] (2)

[_________] (2)

0

 

< p style="MARGIN-TOP:0px; WIDTH:48px; MARGIN-BOTTOM:-2px; FLOAT:left; FONT-SIZE:10pt">(1)

Sandell Asset Management Corp. (“SAMC”) is the investment manager of Castlerigg Master Investments Ltd. (“Castlerigg”). Thomas Sandell is the controlling person of SAMC and may be deemed to share beneficial ownership of the shares beneficially owned by Castlerigg. Castlerigg International Ltd. (“Castlerigg International”) is the controlling shareholder of Castlerigg International Holdings Limited (“International Holdings”) and Castlerigg GS Holdings, Ltd. (“GS Holdings”).  International Holdings and GS Holdings are the beneficial owners of Castlerigg Offshore Holdings, Ltd. (“Offshore Holdings”).  Offshore Holdings is the controlling shareholder of Castlerigg.  Each of International Holdings, GS Holdings, Offshore Holdings and Castlerigg International may be deemed to share beneficial ownership of the shares beneficially owned by Castlerigg Master Investments Ltd.


The business address of each of these entities is as follows: c/o Sandell Asset Management Corp. 40 W. 57th Street, 26th Floor, New York, New York 10019.


SAMC, Mr. Sandell, International Holdings, GS Holdings, Offshore Holdings and Castlerigg International each disclaims beneficial ownership of the securities with respect to which indirect beneficial ownership is described.



(2)

Includes [_______] shares of common stock issuable upon conversion of the convertible note and [___] shares of common stock issuable upon conversion of the warrants, in each case, as of [_________], 20__.





NY:1316208.10





PLAN OF DISTRIBUTION

We are registering the shares of common stock previously issued and the shares of common stock issuable upon conversion of the convertible note to permit the resale of these shares of common stock by the holder of the common stock and the convertible note from time to time on and after the date of this prospectus.  We will not receive any of the proceeds from the sale by the selling stockholders of the shares of common stock.  We will bear all fees and expenses incident to our obligation to register the shares of common stock.

The selling stockholders may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents.  If the shares of common stock are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts or commissions or agent's commissions.  The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices.  These sales may be effected in transactions, which may involve crosses or block transactions,

·

on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;

·

in the over-the-counter market;

·

in transactions otherwise than on these exchanges or systems or in the over-the-counter market;

·

through the writing of options, whether such options are listed on an options exchange or otherwise;

·

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

·

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

·

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

·

an exchange distribution in accordance with the rules of the applicable exchange;

·

privately negotiated transactions;

·

short sales;

·

sales pursuant to Rule 144;





NY:1316208.10




·

broker-dealers may agree with the selling securityholders to sell a specified number of such shares at a stipulated price per share;

·

a combination of any such methods of sale; and

·

any other method permitted pursuant to applicable law.

If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or co mmissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved).  In connection with sales of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume.  The selling stockholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales.  The selling stockholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.

The selling stockholders may pledge or grant a security interest in some or all of the convertible note or shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended (the “1933 Act”), amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.  The selling stockholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

The s elling stockholders and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the 1933 Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the 1933 Act.  At the time a particular offering of the shares of common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.

Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers.  In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for




NY:1316208.10




sale in such state or an exemption from registration or qualification is available and is complied with.

There can be no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement, of which this prospectus forms a part.

The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other participating person.  Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock.  All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.

We will pay all expense s of the registration of the shares of common stock pursuant to the investor rights agreement, estimated to be $[     ] in total, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that a selling stockholder will pay all underwriting discounts and selling commissions, if any.  We will indemnify the selling stockholders against liabilities, including some liabilities under the 1933 Act, in accordance with the investor rights agreements, or the selling stockholders will be entitled to contribution.  We may be indemnified by the selling stockholders against civil liabilities, including liabilities under the 1933 Act, that may arise from any written information furnished to us by the selling stockholders specifically for use in this prospectus, in accordance with the related investor rights agreement, or we may be entitled to contribution.

Once sold under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.




NY:1316208.10




EXHIBIT C


FORM OF SUBSCRIPTION AGREEMENT

[OMITTED]











NY:1316208.10


EX-10.4 5 ny1318854v3final_formofsande.htm FORM OF WARRANT Converted by EDGARwiz

EXHIBIT C


Form of Warrant

BROADCAST INTERNATIONAL, INC.

WARRANT FOR COMMON STOCK

Right to purchase ______________ (_____) shares (subject to adjustment) of the common stock, $.05 p ar value (the “Stock”), of BROADCAST INTERNATIONAL, INC., a Utah corporation (the “Company”).

The Company hereby certifies that, for value received,

[WARRANT HOLDER]

or registered assigns (the “Holder”), is entitled to purchase from the Company at any time or from time to time during the Exercise Period (as hereinafter defined) an aggregate of _______ fully paid and non-assessable shares, subject to adjustment as provided below, of the Stock, on the payment therefor of the exercise price which shall be $0.05 per share (subject to adjustment) (the “Per Share Exercise Price”) multiplied by the number of shares of Stock to be issued (the “Exercise Price”), upon the surrender of this Warrant du ly signed by the registered Holder hereof at the time of exercise, accompanied by payment of the Exercise Price, upon the terms and subject to the conditions hereinafter set forth.

The Warrant represented hereby is delivered pursuant to and is subject to that certain Loan Restructuring Agreement dated as of December 16, 2010 by and between the Company and the Holder (the “Agreement”).  Capitalized terms used herein without definition shall have the meanings set forth in the Agreement.

1.

EXERCISE OF WARRANT.

  

(A)

Exercise.  This Warrant shall be exercisable commencing on the date hereof and shall expire at the times specified herein under the heading “EXPIRATION OF WARRANT” (the “Exercise Period”).  Subject to the foregoing restrictions, the Holder may, at its option, elect to exercise this Warrant, in whole or in part and at any time or from time to time during the Exercise Period, by (i) surrendering this Warrant, with the Notice of Exercise appended hereto duly executed by or on behalf of the Holder, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of the Exercise Price payable in respect of the number of shares of Stock purchased upon such exercise, or (ii) notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 8).  

(B)

Limitation on Exercises.  The Company shall not effect the exercise of this Warrant, and the Holder shall not have the right to exercise this Warrant, to the extent that after giving effect to such exercise, such Person (together with such Person’s affiliates) would beneficially own in excess of 9.90% (the “Maximum Percentage”) of the shares of Stock outstanding immediately after giving effect to such exercise.  For purposes of the foregoing sentence, the aggregate number of shares of Stock beneficially owned by such Person and its affiliates shall include the number of shares of Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Stock which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by such Person and its affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Person and its affiliates (including, without limitation, any convertible notes or convertible preferred





 


 


stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein.  Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  For purposes of this Warrant, in determining the number of outstanding shares of Stock, the Holder may rely on the number of outstanding shares of Stock as reflected in (1) the Company’s most recent Form 10-K, Form 10-KSB, Form 10-Q, Form 10-QSB, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or the Transfer Agent setting forth the number of shares of Stock outstanding.  For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day, confirm orally and in writing to the Holder the number of shares of Stock then outstanding.  In any case, the number of outstanding shares of Stock shall be determined after giving effect to the conversion or exercise of securities of the Company by the Holder and its affiliates since the date as of which such number of outstanding shares of Stock was reported.  By written notice to the Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other percentage specified in such notice; provided that any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company.  The provisions of this paragraph shall be construed and implemented in a manner othe rwise than in strict conformity with the terms of this Section 1(B) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

(C)

Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of shares of Stock issuable upon exercise hereof, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two Business Days of receipt of the Notice of Exercise giving rise to such dispute, as the case may be, to the Holder.  If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the number of shares of Stock issuable upon exercise hereof within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two Business Days, submit via facsimile (i) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (ii) the disputed arithmetic calculation of the number of shares of Stock issuable upon exercise hereof to the Company’s independent, outside accountant.  The Company shall cause the investment bank or the accountant, as the case may be, at its expense, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten Business Days from the time it receives the disputed determinations or calculations.  Such investment bank’s or accountant’ ;s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the number of shares of Stock issuable upon exercise of this Warrant, the Company shall promptly issue to the Holder the number of shares of Stock that are not disputed and resolve such dispute in accordance with the foregoing.

2.

EXPIRATION OF WARRANT.

            This Warrant shall expire and shall no longer be exercisable at 5:00 p.m., Salt Lake City, Utah local time, on December __, 2020.  

3.

DELIVERY OF STOCK CERTIFICATE UPON EXERCISE.

  

(A)

As soon as practicable, but in no event later than three Business Days, after the exercise of this Warrant and payment of the Exercise Price in accordance with Section 1, the Company will cause to be issued in the name of and delivered to the registered Holder hereof or its assigns, or such Holder’s




NY:1318854.3


 


nominee or nominees, a certificate or certificates for the number of full shares of Stock of the Company to which such Holder shall be entitled upon such exercise (and in the case of a partial exercise, a Warrant of like tenor for the unexercised portion remaining subject to exercise prior to the expiration of the Exercise Period set forth herein).  For all corporate purposes, such certificate or certificates shall be deemed to have been issued and such Holder or such Holder’s designee to be named therein shall be deemed to have become a holder of record of such shares of Stock as of the date the duly executed Notice of Exercise pursuant to this Warrant, together with full payment of the Exercise Price, is received by the Company as aforesaid.  No fraction of a share or scrip certificate for such fraction shall be issued upon the exercise of this Warrant, but rather the number of shares of Stock to be issued shall be rounded up to the nearest whole number.  The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of shares of Stock upon exercise of this Warrant.

(B)

If the Company shall fail for any reason or for no reason to issue to the Holder three Business Days after the exercise of this Warrant and payment of the Exercise Price in accordance with Section 1, a certificate for the number of shares of Stock to which the Holder is entitled and register such shares of Stock on the Company’s share register, and if on or after the expiration of such three Business Day period, the Holder purchases (in an open market transaction or otherwise) shares of Stock to deliver in satisfaction of a sale by the Holder of shares of Stock issuable upon such exercise that the Holder anticipated receiving from the Company then, in addition to all other remedies available to the Holder, the Company shall, within three Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such shares of Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Stock and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Stock, and (B) the Closing Sale Price (as defined in the Amended Note) on the date of exercise.

4.

ADJUSTMENTS.

(A)

Dividends .  In the event that a dividend shall be declared upon the Stock of the Company payable in shares of Stock, the number of shares of Stock covered by this Warrant shall be adjusted by adding thereto the number of shares that would have been distributable thereon if such shares had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend.

(B)

Rights upon Distribution of Assets.  If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to receive the portion of the Distribution that the Holder have would been entitled to receive had this Warrant been exercised in full (without regard to any limitations on the exercise of this Warrant) immediately prior to the record date fixed for the determination of shares of Stock entitled to receive the Distribution; provided, that in the event that the Distribution is of shares of common stock (“Other Shares of Common Stock”) of a company whose common shares are traded on a national securities exchange or a national automated quotation system, then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of such Other Shares of Common Stock, the terms of which shall be identical to those o f this Warrant, except that such




NY:1318854.3


 


warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date.

(C)

Purchase Rights; Fundamental Transactions.  

(i)        Purchase Rights.  In addition to any adjustments pursuant to this Section 4, if at any time the Company grants, issues or sells (x) any rights, warrants or options to subscribe for or purchase shares of Stock or Convertible Securities (as defined below) (“Options”), (y) any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Stock (“Convertible Securities”) or (z) any rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Stock (collectively, the “Purchase Rights ”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(ii)       Fundamental Transactions.  The Company shall not enter into or be party to a Fundamental Transaction (as defined below) (other than with respect to a Change of Control (as defined below) wit h a Successor Entity (as defined below) that is not a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market (as defined below) (a “Public Successor”) or with respect to a Change of Control with a Public Successor where the sole consideration in such Change of Control transaction is cash (each, an “Excluded Change of Control Transaction”)) unless the Successor Entity assumes in writing all of the obligations of the Company under this Warrant pursuant to a written agreement in form and substance satisfactory to the Holder and approved by the Holder prior to such Fundamental Transaction, including an agreement to deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant, including, without limitation, an adjusted exercise price equal to the value for the shares of Stock reflected by the terms of such Fundamen tal Transaction, and exercisable for a corresponding number of shares of capital stock equivalent to the shares of Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and satisfactory to the Holder. Upon the occurrence of any Fundamental Transaction (other than an Excluded Change of Control Transaction), the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.  Upon consummation of the Fundamental Transaction (other than an




NY:1318854.3


 


Excluded Change of Control Transaction), the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Fundamental Transaction, in lieu of the shares of the Stock (or other securities, cash, assets or other property) purchasable upon the exercise of this Warrant prior to such Fundamental Transaction, such shares of the publicly traded common stoc k (or its equivalent) of the Successor Entity (including its Parent Entity (as defined below)) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been converted immediately prior to such Fundamental Transaction, as adjusted in accordance with the provisions of this Warrant.  In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Stock arc entitled to receive securities or other assets with respect to or in exchange for shares of Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon an exercise of this Warrant at any time after the consummation of the Fundamental Transaction but prior to the ninetieth (90th) day after the consummation of the Fundamental Transaction, in lieu of the shares of the Stock (or other securit ies, cash, assets or other property) purchasable upon the exercise of this Warrant prior to such Fundamental Transaction, such shares of stock, securities, cash, assets or any other property whatsoever (including warrants or other purchase or subscription rights) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Warrant been exercised immediately prior to such Fundamental Transaction.  Provision made pursuant to the preceding sentence shall be in a form and substance reasonably satisfactory to the Holder. The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions and Corporate Events and shall be applied without regard to any limitations on the exercise of this Warrant.

  (iii)     In the event of a proposed Change of Control, the Company shall give th e Holder thirty (30) days prior notice of the proposed closing date of the Change of Control.  Notwithstanding the foregoing and the provisions of Section 4(C)(ii) above, in the event of a Change of Control, at the request of the Holder delivered before the ninetieth (90th) day after the consummation of such Change of Control, the Company (or the Successor Entity) shall purchase this Warrant from the Holder by paying to the Holder, within five (5) Business Days of such request (or, if later, on the effective date of the Change of Control), cash in an amount equal to the Black-Scholes Value of the remaining unexercised portion of this Warrant on the date of such Change of Control.

         (iv)        As used in herein, the following terms have the following meanings:

“Change of Control” means any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification of the Stock, in which holders of the Company’s voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if




NY:1318854.3


 


other than a corporation) of such entity or entities, or (ii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company, or (iii) any Fundamental Transaction in which the Holder is the Person or part of the group of Persons described in clauses (i)(A) – (D) or clause (ii) of the definition thereof.

“Eligible Market” means the Principal Market, the American Stock Exchange, The New York Stock Exchange, Inc., The NASDAQ Global Market, The NASDAQ Capital Market or The NASDAQ Global Select Market.

“Fundamental Transac tion” means that (i) the Company shall, directly or indirectly, in one or more related transactions, (A) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Person or Persons, if the holders of the Voting Stock (not including any shares of Voting Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such consolidation or merger) immediately prior to such consolidation or merger shall hold or have the right to direct the voting of less than 50% of the Voting Stock or such voting securities of such other surviving Person immediately following such transaction, or (B) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (C) allow another Person to make a purchase, tender or exchange offer that is accepted by the holders of more than the 50% of the outstanding shares of Voting Stock (not including an y shares of Voting Stock held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (D) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than the 50% of the outstanding shares of Voting Stock (not including any shares of Voting Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock purchase agreement or other business combination), (E) reorganize, recapitalize or reclassify its Common Stock or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate Voting Stock of the Company.

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

“Successor Entity” means the Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or the Person (or, if so elected by the Holder, the Parent Entity) with which such Fundamental Transaction shall have been entered into.




NY:1318854.3


 


“Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any cont ingency).

(D)

Subdivision or Combination of Stock.  If the Company at any time on or after the date hereof subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Stock into a greater number of shares, the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the date hereof combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Stock into a smaller number of shares, the number of Warrant Shares will be proportionately decreased.  Any adjustment under this Section 4(D) shall become effective at the close of business on the date the subdivision or combinati on becomes effective

(E)

Reorganizations, Consolidations, Mergers.  Except as otherwise set forth herein, in the event that the outstanding shares of Stock of the Company shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another Person, whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation, then upon exercise of this Warrant there shall be substituted for the shares of Stock covered by this Warrant, the number and kind of shares of stock or other securities that would have been substituted therefor if such shares of Stock had been outstanding on the date fixed for determining the stoc kholders entitled to receive such changed or substituted stock or other securities.

(F)

Other Changes .  In the event there shall be any change, other than specified above, in the number or kind of outstanding shares of Stock of the Company or of any stock or other securities into which such Stock shall be changed or for which it shall have been exchanged, then if the Board of Directors shall determine, in good faith, that such change equitably requires an adjustment in the number or kind of shares covered by this Warrant, such adjustment shall be made by the Board of Directors and shall be effective and binding for all purposes of this Warrant.

(G)

Notice of Adjustments.  In the event of any adjustment pursuant to this Section 4, the Company will provide the Holder with notice of such adjustment reasonably promptly after the effective date of such adjustment.

5.

LOST, STOLEN, DESTROYED OR MUTILATED WARRANT.

            Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, t heft or destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity reasonably satisfactory to it, and (in the case of mutilation) upon the surrender and cancellation thereof, the Company will issue and deliver, in lieu thereof, a new Warrant of like tenor.

6.

TRANSFER.

(A)

Owner of Warrant      The Company may deem and treat the Person in whose name this Warrant is registered as the Holder and owner hereof (notwithstanding any no tations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall




NY:1318854.3


 


not be affected by any notice to the contrary until presentation of this Warrant for registration of transfer as provided below.

(B)

Transfer of Warrant     The Company agrees to maintain, at its then principal place of business, books for the registration of this Warrant and transfers thereof, and this Warrant and all rights hereunder are transferable, in whole or in part, on said books at said office, upon surrender of this Warrant at said office, together with a written assignment of this Warrant duly executed by the Holder hereof or its duly authorized agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and this Warrant shall promptly be canceled.  This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants representing in the aggregate the right to purchase the number of shares of Stock then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such shares of Stock as is designated by the Holder at the time of such surrender; provided, however, that no Warrants for fractional shares of Stock shall be given.  Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the shares of Stock then underlying this Warrant, (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the date hereof, and (iv) shall have the same rights and conditions as this Warrant.

7.

COVENANTS

.  

(A)

Required Reserve Amount.  If at any time while this Warrant remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Stock to satisfy its obligation to reserve for issuance upon exercise of this Warrant at least a number of shares of Stock equal to 130% (the “Required Reserve Amount”) of the number of shares of Stock as shall from time to time be necessary to effect the exer cise of this Warrant in full (an “Authorized Share Failure”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for this Warrant then outstanding.  Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Stock.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Stock and to cause its board of directors to recommend to the stockholders that they approve such proposa l.  The Company further covenants that all shares of Stock that shall be deliverable upon exercise of this Warrant shall be duly and validly issued and fully paid and non-assessable.

(B)

Notice Requirements.  The Company will give written notice to the Holder (i) immediately upon any adjustment of the number of shares of Stock issuable upon exercise hereof, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or r ights to purchase stock, warrants, securities or other property to holders of shares of Stock or (C) for determining rights to




NY:1318854.3


 


vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

8.

CASHLESS EXERCISE RIGHTS.

  

(A)

Cashless Exercise Provisions.  Notwithstanding anything to the contrary contained herein, if at any time a Registration Statement (as defined in the Investor Rights Agreement) covering the resale of the Stock issuable upon exercise of this Warrant is not available, then the Holder shall have the right, in its sole discretion, to exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Exercise Price, elect instead to receive upon such exercise the number of shares of Stock determined as follows:

X =  Y [(A-B)/A], where:

X =  the number of shares of Stock to be issued to the Holder upon exercise.

Y =  the number of shares of Stock with respect to which this Warrant is being exercised.

A =  the arithmetic average of the VWAP of the Stock for the thirty (30) Trading Days immediately prior to (but not including) the date on which a Notice of Exercise is delivered to the Company.

B = the Exercise Price.

(B)

Certain Definitions.  For purposes of this Section 8, “VWAP” means on any particular Trading Day or for any particular period the volume weighted average trading price per share of Stock on such date or for such period on the Principal Market as reported by Bloomberg L.P., or any successor performing similar functions.

9.

MISCELLANEOUS.

 

(A)

No Rights as Shareholder.  This Warrant does not confer upon the Holder any rights of a stockholder of the Company, including, without limitation, any right to vote or to consent to or receive notice as a stockholder of the Company.  In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a shareholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.  Notwiths tanding this Section 9(A), the Company shall provide the Holder with copies of the same notices and other information given to the shareholders of the Company generally, contemporaneously with the giving thereof to the shareholders.

(B)

Noncircumvention.  The Company hereby covenants and agrees that the Company will not, by amendment of its Articles of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Stock receivable upon the exercise of this Warrant above the Per Share Exercise Price




NY:1318854.3


 


then in effect, and (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and no nassessable shares of Stock upon the exercise of this Warrant.

(C)

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

(D)

Notices.  Any notices required or permitted to be given under the terms of this Warrant shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective three (3) days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier, or by confirmed telecopy, in each case addressed as follow : If to the Company to: at 7050 Union Park Avenue, Suite 600, Salt Lake City, Utah 84047, Attn: Chief Executive Officer, facsimile number (801) 562-1773 and if to the Holder to the address shown therefor on the books and records of the Company. Any party may change its address for notice and the address to which copies must be sent by giving notice of the new addresses to the other parties in accordance with this Section 9, except that any such change of address notice shall not be effective unless and until received.

(E)

Governing Law.   All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the laws of the State of New York without regard to principles of conflicts of laws.

(F)

Amendment.   This Warrant and any provision hereof may be amended solely by an instrument in writing signed by the Company and Holder.

(G)

Severability.   In case any one or more of the provisions of this Warrant shall be determined by a court of competent jurisdiction to be invalid or unenforceable in any respect, the validity and enforceability of the rema ining terms and provisions of this Warrant shall not in any way be affected or impaired thereby.  

(H)

Assignment.   This Warrant shall be binding on and inure to the benefit of the parties hereto and their respective permitted successors and assigns. Subject to the preceding sentence, nothing in this Warrant shall be construed to give to any Person other than the Company and Holder any legal or equitable right, remedy or cause of action under this Warrant.

(I)

Headings.  The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.




NY:1318854.3


 


IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer, effective as of the date first set forth above.


Dated:

December __, 2010

BROADCAST INTERNATIONAL, INC.

 

 

__________________________________
Rodney M. Tiede
Ch ief Executive Officer





NY:1318854.3


 


NOTICE OF EXERCISE OF WARRANT

To:

BROADCAST INTERNATIONAL, INC.

The under signed Holder hereby exercises the right to purchase _____________ shares of Common Stock, $.05 par value, of Broadcast International, Inc., a Utah corporation (the “Company”), as evidenced by the Warrant, dated as of December ___, 2010, issued by the Company to the Holder (the “Warrant”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.

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

___

payment of the Exercise Price in cash with respect to ________ shares of Stock; and/or

___

a Cashless Exercise with respect to _______ shares of Stock.

2.

You will kindly forward a certificate or certificates for the shares of Stock purchased hereby and, if such shares shall not include all of the shares provided in this Warrant, a new Warrant of like tenor and date for the balance of the shares issuable thereunder shall be delivered to the undersigned at the address set forth below.


         Date:

 

 

 

Name of Holder

 

   By:

 

 

 

Address:

 

 

 





NY:1318854.3


 EX-10.5 6 frenkel_noteamendmenfinal1.htm AMENDMENT TO 8% CONVERTIBLE NOTE Converted by EDGARwiz



Execution Copy



AMENDMENT

TO

8% CONVERTIBLE NOTE DUE 2010


OF


BROADCAST INTERNATIONAL, INC.



Or iginal Principal Amount:  $1,000,000

Original Issuance Date:  October 16, 2006                                            




Whereas, on or about October 16, 2006, Leon Frenkel (“Holder”) and Broadcast International, inc. (“Company”) entered into a Securities Purchase Agreement and that certain 5% Convertible Note Due 2009 (“Note”) as amended on December 22, 2009 to extend the Final Maturity Date and amend the interest rate to 8% and further amended the Final Maturity Date on November 15, 2010,


Now Therefore, in consideration of Holder agreeing to extend the due date of the Note subject to the provisions herein and intending to be legally bound hereby, Holder and the Company agree as follows:


1.

The Company shall immediately upon execution hereof issue to the Holder (or his designee) 150,000 shares of common stock of the Company, par value $.05 per share (the “Extension Shares”).


2.

The Company shall pay to Holder all outstanding and unpaid interest as of December 31, 2010, according to the terms and conditions of the Note, provided however that such amount of outstanding and unpaid interest shall be payable in shares of common stock of the Company at the rate equal to $0.60 per share (the “Interest Shares”).


3.

Paragraph 1(b) is of the Note is hereby amended to provide that the “Final Maturity Date” shall be  defined as December 31, 2013.


4.

All other terms and conditions of the Note and Securities Purchase Agreement, as amended, shall continue in full force and effect.


5.

The Holder hereby subordinates any and all obligations of the Company to pay the obligations under the Note, whether now existing or hereafter arising, or due or to become due, in favor of all of the Company’s obligations to Castlerigg Master Investments Ltd., a fund advised by Sandell Asset Management Corp. (“CMIL”), under the Amended and Restated Senior Convertible Note, dated as of the date hereof,




 




issued to CMIL by the Company (the “CMIL Senior Note”).  Notwithstanding the foregoing, for so long as no Event of Default (as defined in the CMIL Senior Note) has occurred or is continuing or would result therefrom, the Company may make payments of interest under the Note as and when they become due.  CMIL shall be an express third party beneficiary of the provisions hereof, and shall have the right to enforce such provisions against the Holder and/or the Company.  This Section 5 shall not be amended without the prior written consent of CMIL.


 IN WITNESS WHEREOF, the Parties have amended the Note effective as of the 22nd day of December 2010.


< p style=MARGIN:0px align=justify>

BROADCAST INTERNATIONAL, INC.

LEON FRENKEL




By___/s/Rodney M. Tiede___________                                   _____/s/ Leon Frenkel________

      Rodney M. Tiede,

      President & CEO



  




 


 -----END PRIVACY-ENHANCED MESSAGE-----