APPENDIX I
AGREEMENT TO PURCHASE SERIES A CONVERTIBLE
DEBENTURES AND SERIES 1, 2 AND 3 DETACHABLE WARRANTS
This AGREEMENT TO PURCHASE SERIES A CONVERTIBLE DEBENTURES AND SERIES 1, 2 AND 3
DETACHABLE WARRANTS (this "Agreement") is entered into and effective as of the 15th day of April 1994
(the "Effective Date") by and between PRAC LTD., a Nevada limited partnership ("Investor"), and PAC RIM
HOLDING CORPORATION, a Delaware corporation ("Company"), with reference to the following recitals:
R E C I T A L S
A. Company owns all the issued and outstanding shares of The Pacific Rim Assurance
Company, a California domestic insurance company ("Assurance Company").
B. Company desires to secure capital to contribute to Assurance Company's surplus in order
to strengthen Assurance Company's financial position.
C. In order to secure such capital, Company will have authorized prior to the Closing Date
as hereinafter defined) the issuance of: (i) TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00)
aggregate amount of its eight percent (8%) Series A Convertible Debentures, due five (5) years from the
Closing Date (as hereinafter defined) (the "Maturity Date"), which are convertible into shares of Company's
$0.01 par value common stock (the "Common Stock") to the extent specified in Article 3 hereof (each, a
"Debenture" and collectively, the "Debentures"); (ii) 1,500,000 detachable warrants each exercisable at the
price of $2.50 for one share of Common Stock (the "Series 1 Warrants"); (iii) 1,500,000 detachable warrants
each exercisable at the price of $3.00 for one share of Common Stock (the "Series 2 Warrants"); and (iv)
800,000 detachable warrants each exercisable at the price of $3.50 for one share of Common Stock (the "Series
3 Warrants"). The Series 1 Warrants, Series 2 Warrants and Series 3 warrants shall be referred to collectively
from time to time as the "Warrants"). For purposes of this Agreement, the Debentures, Warrants and Common
Stock shall be referred to collectively from time to time as the "Securities". The Debentures, the Series 1 warrants, Series 2 Warrants and Series 3 Warrants shall, with the appropriate insertions, be substantially in the
form of Exhibits A, B, C and D respectively, attached hereto and incorporated herein by this reference.
D. Subject to the terms and conditions contained herein, Investor desires to provide
Company with capital by purchasing the Debentures and Warrants and, subject to the approval of Company's
shareholders, Company desires to issue the Debentures and Warrants to Investor and take certain other actions
specified herein in connection therewith.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement and
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1. ISSUANCE AND SALE OF THE DEBENTURES AND WARRANTS
1.1. Issuance and Sale. Subject to the terms, conditions, representations, warranties and
covenants set forth herein, on the Closing Date (as hereinafter defined) Company shall sell, assign, transfer,
issue and convey to Investor, and Investor shall purchase from Company, the Debentures and Warrants.
1.2. Purchase Price. As total consideration for the sale of the Debentures and Warrants to
Investor, Investor shall pay to Company the sum of TWENTY MILLION AND NO/100 DOLLARS
($20,000,000.00) (the "Purchase Price"), which Purchase Price shall be equal to one hundred percent (100%) of
the principal amount of the Debentures.
1.3. Additional Investment. Investor may increase the amount of the Debentures to be purchased at the
Closing hereunder by $5,000,000.00 by providing written notice to Company as provided in Section 18.2
hereof. Such increase shall also result in a twenty-five percent (25%) increase in each of the Series 1 Warrants,
Series 2 Warrants and Series 3 Warrants to be sold hereunder. Such increase may not be effected in the event
that it would extend the date on which the Closing is to occur by more than fifteen (15)*calendar days or cause
an unreasonable delay in procuring the regulatory and other approvals required to be obtained hereunder.
1.4. Closing and Closing Date. Subject to extension of such date pursuant to Section 14.3 hereof, the closing
("Closing") of the transactions provided for in this Agreement shall take place on or before June 30, 1994. The
Closing will occur within five (5) business days following the satisfaction of each of the conditions precedent to
Investor's and Company's obligations hereunder as set forth in Article 9 hereof. The Closing will take place at
10:00 a.m., local time, at the offices of counsel for Investor, Barger & Wolen, at 19800 MacArthur Boulevard,
8th Floor, Irvine, California 92715. The time and date of the Closing shall be referred to herein as the "Closing
Date."
1.5. Documents to be Delivered at the Closing.
1.5.1 Delivery of the Debentures and Warrants and Payment of the Purchase Price. At the
Closing, Company shall deliver to Investor the Debentures and Warrants against payment of the Purchase Price
thereof, which Purchase Price shall be payable by Investor by direct wire transfer in immediately available
funds to an account to be designated by Company and delivered to Company on the Closing Date. The
Debentures shall be dated as of the Closing Date and be payable to Investor or its assigns and the Warrants shall
promptly be registered upon the books of Company as of such date.
1.5.2 Delivery of Additional Documents and Taking of Other Actions by Company at the
Closing. Company shall deliver the following additional documents to Investor and take the following
additional actions at the Closing:
(a) A certified copy of the resolution or resolutions duly adopted by the Board of
Directors of Company (the "Company's Board") authorizing (i) the execution, delivery and performance of this
Agreement, (ii) the consummation of the transactions contemplated hereby, and (iii) all other actions ta ken by
Company in connection herewith;
(b) The opinion of Company's counsel identified in Section 9.1.11 hereof;
(c) The certificates identified in Sections 9.1.3, 9.1.10 and 9.1.18 hereof;
(d) The documents referred to in subsections (b) through (e) of Section 9.1.4 hereof;
(e) An executed copy of the Employment Agreement between Assurance Company and
Stanley Braun ("Braun") referred to in Section 10.4 hereof; and
(f) Company shall reimburse Investor for all legal, accounting, actuarial, financial
analysis, due diligence and other expenses incurred by Investor in connection with Investor's preparation of
documentation relating to and its investigation and analysis of the transactions contemplated under this
Agreement (the "Service Fees"). Notwithstanding the foregoing, Investor shall be reimbursed for Service Fees
to a maximum of $300,000.00, less the amount of the $100,000-00 nonrefundable application fee previously
paid by Company to Investor (the "Application Fee"); provided, however, that if it is determined that the
transactions contemplated under this Agreement are subject to the filing requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), Investor shall be reimbursed for Service Fees to a
maximum of $350,000.00 (less the Application Fee). Investor shall provide Company with an accounting of all
Services Fees with respect to which Investor seeks reimbursement hereunder.
1.5.3 Items to be Delivered by Investor at the Closing. Investor shall de-fiver the following
documents to Company and take the following actions at the Closing:
(a) The opinion of counsel identified in Section 9.2.6 hereof;
(b) The certificates identified in Sections 9.2.1, and 9.2.7 hereof;
(c) Evidence of approval by the California Department of Insurance ("Department")
of (i) the Form A Information Statement required to be filed pursuant to the California Insurance Holding
Company System Regulatory Act with respect to the transactions contemplated under this Agreement (the
"Form A Information Statement") and (ii) Company's ability to make the Contribution (as hereinafter defined)
to Assurance Company; and
(d) Evidence of authorization of execution, delivery and performance of this
Agreement by Investor, consummation of the transactions contemplated hereby, and all other actions to be
taken by Investor in connection herewith.
ARTICLE 2. DISPOSITION OF PURCHASE PRICE
2.1. Contribution to Assurance Company. Within twenty-four (24) hours following the
Closing, Company shall contribute the sum of $16,800,000 to Assurance Company by means of an
unconditional and unencumbered cash contribution (the "Contribution"). In addition, in the event of an increase
in the investment made hereunder as provided in Section 1.3 hereof, the Contribution shall be increased to $21,250,000.
2.2. The Retained Amount. The amount of the Purchase Price less the Contribution shall be
held by Company in an account separate and apart from all other funds and accounts of Company (the
"Retained Amount"). The Retained Amount shall be used only for the following purposes: (i) to pay interest on
the Debentures; and (ii) to pay the Company Transaction Fees (as hereinafter defined) and the Service Fees. For
the purposes of this Agreement, "Company Transaction Fees" shall mean the Service Fees, all legal (other than
legal fees and costs in any litigation that might arise as a result of the transactions contemplate d herein),
accounting, investment banking, and other related fees incurred by Company in connection with the
performance of its obligations hereunder which, in the aggregate, do not exceed $1,400,000, provided, however,
in the event of an increase in the investment made hereunder as provided in Section 1.3 hereof, the Company
Transaction Fees shall be increased to $1,500,000. No withdrawals or payments shall be made from the
Retained Amount without the written authorization and approval of all of the Investor Designees (as hereinafter
defined) or Debenture Holder Designees (as hereinafter defined) who are members of the Company's Board at
the time such withdrawal or payment is requested, other than withdrawals to pay obligations owing to Investor
or the Debenture Holders (as hereinafter defined) pursuant to this Agreement.
ARTICLE 3. PROVISIONS RESPECTING CONVERSION OF
DEBENTURES AND EXERCISE OF WARRANTS
3.1. General Provisions Applicable to Both the Debentures and Warrants.
3.1.1 Execution of the Debenture and Warrant Certificates. Certificates representing the
Debentures (the "Debenture Certificates") and Warrants (the "Warrant Certificates") (the Debenture Certific ates
and Warrant Certificates shall be referred to hereinafter each as a "Certificate" and collect ively as the
"Certificates") may be signed on behalf of Company by any person authorized to do so by Company. Any
Certificates may be signed on behalf of Company by any person who, at the actual date of the execution-of the
Certificates, is authorized by Company to sign the Certificates, although at the date of the execution of thi s
Agreement such person was not so authorized.
3.1.2 Right to Transfer. (a) Notwithstanding anything contained in this Agreement to the
contrary, the Debentures and warrants may be pledged, together with the rights of Investor hereunder,.in whole
or in part, to any bank, savings and loan association or other institutional lender unaffiliated with Investor (in
each case, an "Institutional Lender") as collateral to secure a bona fide loan from such Institutional Lender, and
may be transferred to such Institutional Lender upon the foreclosure of the security interest created by such
pledge, provided that such pledge or transfer (in each case, an "Institutional Transfer"), as the case may be, is in
compliance with the Securities Act of 1933, as amended (the "Securities Act".), the Trust Indenture Act of 1939
(the "Trust Indenture Act") and any applicable state securities and insurance laws.
(b) Except as otherwise set forth below in this Section 3.1.2(b), the Debentures and
Warrants may also be pledged, assigned, sold or otherwise transferred in whole or in part (in each case, a
"Transfer") to any other "Person" or "Persons" (as hereinafter defined), on the condition that such Transfer is in
compliance with the Securities Act, the Trust Indenture Act and any applicable state securities and insurance
laws; provided, however, that except as to the pledge of Securities to an Institutional Lender, Investor may not
transfer in one or more transactions more than $1,500,000.00 of face value of Debentures to any one person
other than "Investor Controlled Affiliates" (as hereinafter defined) without the prior written approval of a
majority of the "Independent Directors" (as hereinafter defined). Such limitation shall not, however, apply to the
sale of any Debentures registered pursuant to sections 4.1 or 4.2 hereof. With respect to any Transfer effected
pursuant to this Section 3.1.2(b), all terms and provisions of this Agreement shall be binding upon and inure to
the benefit of such transferees.
(c) With respect to any offer, sale or other disposition of any Debentures or Warrants
or any Common Stock acquired on conversion of any Debentures or exercise of any Warrants which have not
been registered pursuant to Article 4 hereof, the holder thereof will give written notice to Company prior to any
such offer, sale or other disposition describing briefly the manner thereof (the "Transfer Notice"), together, if re
, quested by Company, with a written opinion of such holder's counsel, to the effect that such offer, sale or other
disposition may be effected without registration or qualification under any federal or state law then in effect.
Within fifteen (15) calendar days after receiving a Transfer Notice (the "Notice Period") and reasonably
satisfactory opinion, if so requested, Company shall notify such holder that such holder may offer, sell or
otherwise dispose of the Debentures, Warrants or any Common Stock acquired on conversion of any
Debentures or exercise of any Warrants, all in accordance with the terms of the Transfer Notice delivered to
Company. Such transfer must be effected within ninety (90) calendar days following the holder's receipt of
written consent from Company with respect to such transfer. If a determination has been made pursuant to this
Section 3.1.2(c) that the opinion of counsel for the holder is not reasonably satisfactory to Company, Company
shall so notify the holder within the Notice Period that such determination has been made. Each of the
Debentures, Warrants and Common Stock into which such Debenture may be converted or with respect to
which any warrant may be exercised thus transferred shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with the Securities Act and the Trust Indenture Act, unless, in the
opinion of counsel for Company, it is determined that such legend is not required in order to ensure compliance
and Company may issue stop transfer instructions to its transfer agent in connection with such restriction. In the
event that Company fails to respond to a Transfer Notice prior to the expiration of the Notice Period, the holder
may sell or otherwise transfer the Securities in the manner described in such Transfer Notice; provided,
however, that such transfer is effected within ninety (90) calendar days following the expiration of the Notice
Period.(d) For the purposes of this Agreement, the following terms shall be defined as follows:
(i) "Person" or "Persons" means and includes natural persons, corporations, limited partnerships, general
partnerships, joint stock companies, joint ventures,, associations, companies, trusts, banks, trust companies, land
trusts ' business trusts or other organizations, whether or not legal entities, and governments and agencies and
political subdivisions thereof; (ii) "Investor Controlled Affiliates" shall be any trusts, corporations, associations,
limited partnerships, general partnerships or other business entities in which more than fifty percent (50%) of
the stock of each class having ordinary voting power or beneficial or other ownership interest, as appropriate,
shall, at the time as of which any determination is being made, be owned or controlled, directly or indirectly, by
Investor or any general or limited partner of Investor; and (iii) the "Independent Directors" are those members
of the Company's Board other than (1) the "Investor Designees" or "Debenture Holder Designees" (as
hereinafter defined), (2) any member of the Company's Board who is nominated by Investor and elected by
Company's shareholders, (3) any affiliate (as defined pursuant to the Securities Act) of Investor, and (4) any
officer or employee of Company; provided, however, nothing contained herein shall be construed to require that
the Company's Board be comprised of any Independent Directors.
3.1.3 Registration. Company may deem and treat each registered holder of a Debenture
Certificate (each,. a "Debenture Holder" and collectively, the "Debenture Holders") and a Warrant Certific ate
(each, a "Warrant Holder" and collectively, the "Warrant Holders") as the absolute owner thereof
(notwithstanding any notation of ownership or other writing thereon made by anyone) for the purpose of any
conversion or exercise thereof, any distribution to the Debenture Holder or Warrant Holder, as the case may be,
or any other purposes. Company shall keep at its principal office a register in which, subject to such reasonable
regulations as it may prescribe, but at its expense (other than transfer taxes, if any), Company shall provide for
the prompt registration and transfer of the Debentures and Warrants and the conversion of any Debentures and
exercise of any Warrants (the "Company Register").
3.1.4 Mechanics of Transfer. Company shall promptly register any tran r of record ownership
of any outstanding Certificates as permitted by Section 3.1.2 on the Company Register upon surrender thereof
accompanied, if so required by Company, by a written instrument or instruments of transfer duly executed by a
Debenture Holder or Warrant Holder (as the case may be) or by its duly authorized attorney. Upon a proper
registration of transfer, a new Warrant Certificate or Debenture Certificate, as the case may be, shall be issued
to the transferee and the surrendered Warrant Certificate or Debenture Certificate, as the case may be, sha ll be
cancelled by Company; provided, however, in the event of partial transfer, Company shall promptly issue to the
transferor new Certificate representing the retained portion of the transferor's Warrants or Debentures, as the
case may be, and in connection with any transfer permitted under this subsection, the transferor can require
Company to reissue (a) the Debenture Certificates in amounts which are multiples of $10,000.00 and (b) the
Warrant Certificates for any number of Warrants, but no fractional numbers.
3.1.5 Fractional Shares. No fractional shares or scrip representing fractional shares shall be
issued upon the conversion of any Debentures or exercise of any Warrants. if the conversion of any Debentures
or exercise of any Warrants results in a fraction, an amount of money equal to such fraction multiplied by the
fair market value of one share of Common Stock on the date on which such conversion or exercise is deemed
made shall be paid to Debenture Holder or Warrant Holder otherwise entitled to such fraction.
3.1.6 Effect of Reclassifications. In case of any reclassification or change of outstanding shares
of Common Stock issuable upon conversion of any Debentures or exercise of any Warrants (other than a change
in par value, or from par value to no par value, or from no par value to par value), or in case of any sale or
conveyance to another corporation of all or substantially all the assets of Company (all of which transactions are
subject to the approvals specified in Section 3.2.3 hereof), the Debenture Holders and Warrant Holders shall
have the right thereafter to convert the Debentures into or exercise such Warrants to purchase the kind and
amount of shares of stock and other securities and property receivable upon such reclassification, change, sale
or conveyance by a holder of the number of shares of Common Stock of Company into which the Debentures
might have been converted or as to which such Warrants might have been exercised immediately prior to such
reclassification, change, sale or conveyance. This Section 3.1.6 shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive sales or conveyances.
3.1.7 Company to Reserve Stock. Company covenants that it will at all times after the Closing
Date reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon
conversion of any Debentures or exercise of any Warrants as herein provided, such number of shares of
Common Stock as shall then be issuable upon the conversion of all outstanding Debentures and exercise of all
outstanding Warrants. Company covenants that all shares of Common Stock which shall be so issuable shall,
when issued pursuant to and in accordance with the terms of the Debentures, Warrants and this Agreement, be
duly and validly issued and fully paid and nonassessable.
3.1.8 Conversion Price Adjustments.(a) Adjustment for Stock Splits and Subdivisions. In the event Company should at
any time or from time to time after the Effective Date fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holders thereof to receive, directly or indirectl y, additional
shares of Common Stock without payment of any consideration by such holder for the additional shares of
Common Stock, then, as of such record date, the Conversion Price (as hereinafter defined) or the Series 1
Exercise Price, the Series 2 Exercise Price or the Series 3 Exercise Price (as hereinafter defined) shall be
appropriately decreased so that the number of shares of Common Stock issuable upon conversion of any
Debentures or the exercise of any Warrants shall be increased in proportion to such increase of outstanding
shares.
(b) Adjustments for Reverse Stock Splits. If the number of shares of Common Stock
outstanding at any time after the Effective Date is decreased by a combination of the outstanding shares of
Common Stock then, following the record date of such combination, the Conversion Price for any Debentures
and the Series 1 Exercise Price, the Series 2 Exercise Price and Series 3 Exercise Price for any Warrants shall
be appropriately increased so that the number of shares of Common Stock issuable on conversion or exercise
thereof shall be decreased i.n proportion to such decrease in outstanding shares.
(c) Adjustments for Recapitalizations. In the event that Company shall be
recapitalized, consolidated with or merged into any other corporation, or shall sell or convey to any other
corporation all or substantially all of its property as an entirety, provision shall be made as part of the terms of
such recapitalization, consolidation, merger, sale or conveyance so that any holder of Warrants or Debentures
may thereafter receive in lieu of.the Common Stock otherwise issuable upon conversion of any Debentures or
exercise of any Warrants, the same kind and amount of securities or assets as may be distributable upon such
recapitalization, consolidation, merger, sale or conveyance, with respect to the Common Stock.
(d) Adjustments for Dividends. In the event that Company shall at any time pay to the
holders of Common Stock a dividend in Common Stock, the closing price of the Common Stock prior to the
occurrence of such event utilized in the calculation of the Conversion Price upon conversion of any Debentures
or Series 1 Exercise Price, Series 2 Exercise Price or Series 3 Exercise Price upon the exercise of any Warrants
shall be proportionately decreased in order that they may be properly compared to post-dividend closing prices
in determining the Conversion Price, effective following the close of business on the record date for
determination of the holders of Common Stock entitled to such dividend.
(e) Other Dividends. In the event that Company shall at any time pay any dividend or
make any other distribution on its Common Stock in property, other than in cash or in Common Stock, then
provision shall be made as part of the terms of such dividend or distribution so that the holder of any
Debentures or warrants surrendered for conversion or exercise, as the case may be, after the record date for
determination of holders of Common Stock entitled to such dividend or distribution shall be entitled to receive
the same kind and the same proportionate share of such property which he would have been entitled to receive
had such Debentures or Warrants been converted or exercised, as the case may be, immediately prior to such
record date.
(f) Adjustments. The adjustments referred to in this Section 3.1.8 shall be made
successively if more than one event listed herein shall occur.
3.1.9 Taxes and Expenses on Conversion. The issuance of certificates for shares of Common
Stock upon the conversion of any Debentures or exercise of any Warrants shall be made without charge to the
converting Debenture Holder or Warrant Holder for any expense or tax (other than federal or state income
taxes) in respect of the issuance of such certificates, and such certificates shall promptly be issued in the name
of, or in such names as may be directed by, the Debenture Holder or Warrant Holder, as the case may be.
3.1.10 Mutilated or Missing Certificates. Upon receipt by Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Certificate, and (in the case of loss, t heft or
destruction) of indemnity satisfactory to it, and upon reimbursement to Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of such Certificate, if mutilated, Company will : (a) with
respect to the warrant Certificates, promptly make and deliver in lieu of such Warrant Certificates a ne w
Warrant Certificate of like tenor and representing the same number of Warrants; and (b) with respect to
Debenture Certificates, promptly make and deliver in lieu of such Debenture Certificate a new Debenture
Certificate of like tenor, dated the date to which interest has been paid on such lost, stolen, destroyed or
mutilated Debenture Certificate.
3.1-11 Restrictive Legends. Each Certificate and certificate for Common Stock issued upon the
conversion of any Debentures or exercise of any Warrants, and each Certificate issued upon the transfer of any
such Debentures or Warrants (except as otherwise permitted by this Article 3), shall be stamped or otherwise
imprinted with a legend in substantially the following form (the "Legend"):
"The securities represented hereby have not been registered under the Securities
Act of 1933, as amended, the Trust Indenture Act of 1939 or applicable state securities
laws. Such securities may not be sold, transferred, assigned, pledged or hypothecated in
the absence of such registration or an exemption therefrom under said Acts and
applicable state securities laws and, if necessary, receipt of an opinion of counsel
satisfactory to Pac Rim Holding Corporation that registration is not required. Such
securities may not be transferred except upon the conditions specified in certain
agreements, dated as of April 15, 1994, between Pac Rim Holding Corporation and
PRAC Ltd., complete and correct copies of which are available for inspection at the
office of Pac Rim Holding Corporation and a conformed copy of which will be furnished
to the holder of such securities upon written request and without charge. No transfer of
such securities shall be valid or effective unless and until the conditions so specified shall
have been complied with.";
provided, however, the Legend on the Warrant Certificates and certificates for Common Stock shall not contai n
a reference to the Trust Indenture Act.
3.1.12 Acts of the Debenture Holders. (a) Except with respect to the conversion of any Debentures or the
exercise of any Warrants, any request, demand, authorization, direction, notice, consent, waiver or other action
provided under this Agreement to be given or taken by the Debenture Holders or Warrant Holders may be
embodied in and evidenced by one or more instruments of substantially similar tenor signed by such holders in
person or by an agent duly appointed in writing, which instrument or instruments shall be transferred to Investor
on behalf of any Debenture Holders or Warrant Holders; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are delivered to Company by Investor.
Such instruments or instruments (and the action embodied therein and evidenced thereby) are sometimes
referred to as the "Act" of the Debenture Holders or Warrant Holders, as the case may be, signing such
instrument or instruments. Proof of execution of any such instrument or writing appointing any such agent shall
be sufficient for any purpose of the Agreement and conclusive in favor of Investor and Company, if made in the
manner prescribed in this Section 3.1.12.
(b) The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public
or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such
instrument or writing acknowledged to him or her the execution thereof. Where such execution is by an officer
of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or
affidavit shall also constitute sufficient proof of his or her authority.
(c) The ownership of the Debentures and Warrants shall be proved by the Company
Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver or other
action by the holder of any Debenture or Warrant shall bind every future holder of the same Debenture or
Warrant and the holder of every Debenture or Warrant issued upon the transfer thereof or in exchange therefor
or in lieu thereof in respect of anything done, omitted or suffered to be done by Investor or Company in reliance
thereon, whether or not notation of such action is made upon such Debenture or Warrant, as the case may be.
3.1-13 Notices to Investor and Company. Any request, demand, authorization, direction, notice,
consent, waiver or Act of the Debenture Holders or Warrant Holders, as the case may be, or other document
provided or permitted under this Agreement to be made upon or furnished to, or filed with,
(a) Investor by any Debenture Holder or Warrant Holder or by Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with Investor in
accordance with Section 18.2 hereof and at Investor's address set forth therein;
(b) Company by Investor or by any Debenture Holder or Warrant Holder shall be
sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with Company in
accordance with Section 18.2 hereof and at Company's address set forth therein.
3.1.14 Notices to Debenture Holders and Warrant Holders; Waiver. Where this Agreement
provides for notice to Debenture Holders and/or Warrant Holders of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid to each
such holder, at his, her or its address as it appears on the Company Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice.
3.2. The Debentures.
3.2.1 Interest Rate. The Debentures shall bear interest at a rate of eight percent (8%) per annum
simple interest. Interest on the amount of the Debentures outstanding shall be computed on the basis of a 365-
day or a 366-day year, as the case may be, actual days elapsed, from the Closing Date until repayment.
3.2.2 Interest Payments. The first payment of interest on the outstanding principal amount of the
Debentures shall be due and payable in cash by Company to the Debenture Holders in arrears on that date
which is six (6) months following the Closing Date and thereafter such interest shall be due and payable
semiannually in arrears, in each case payable to the Debenture Holders in cash at the address of the Debenture
Holders then on record with Company.
3.2.3 Voting Rights. with respect to matters other than the designation and election of members
to the Company's Board as set forth in Article 5 hereof, the Debenture Holders shall have a number of votes
with respect to each Debenture equal to the number of shares of Common Stock into which such Debenture is
convertible. Such voting rights provided in this Section 3.2.3 shall extend solely to the following matters when
submitted for approval of Company's shareholders or when written consent of Company's shareholders is
sought: (a) The amendment of Company's Certificate of Incorporation; (b) The sale or transfer of all or
substantially all of Company's assets; (c) The consolidation, reorganization, reclassification, recapital ization,
transfer, consolidation, merger, dissolution, liquidation, or winding-up of Company; (d) Changes in Company's
authorized capital stock or any rights with respect thereto; and (e) Changes in the number of individuals
constituting the Company's Board to a number other than seven (7).
The matters set forth in subsections (a) through (e) of this Section 3.2.3 shall require the
affirmative vote of at least seventy percent (70%) in the aggregate of (i) the issued and outstanding shares of
Common Stock and (ii) the number of shares of Common Stock into which the then outstanding Debentures
may be converted, voting together. Each holder of a Debenture shall be entitled to the number of votes equal to
the number of shares of Common Stock into which such Debenture could be converted and shall have voting
rights and powers equal to the voting rights and powers of Common Stock solely as to the matters set forth in
subsections (a) through (e) of this Section 3.2.3. In addition, in the event of an increase in the investment made
hereunder as provided in Section 1.3 hereof, the percentage of the required affirmative vote referred to under
this Section 3.2.3 shall be increased to seventy-five (75%).3.2.4 Investor Conversion Rights. At any time after the Closing Date, each Debenture Holder
shall have the right, at its option, at any time and from time to time prior to the Maturity Date, to convert i n
increments of $1,000,000.00 or more, or if such Debenture Holder owns less than $1,000,000.00 of Debentures,
such lesser amount, subject to the terms and provisions of this Article 3, any portion of the original principal
amount of the Debentures (to the extent such-convertible portion has not been subject to mandatory conversion
as set forth in Section 3.2.5 hereof) into shares of Common Stock, at the rate of $2.75 of principal amount of
Debentures per share of Common Stock (the "Conversion Price"). Such conversion shall be effective upon
surrender of any of the Debenture Certificates, the principal of which is so to be converted, to Company at its
principal office located at the address set forth in Section 18.2 hereof at any time during usual business hours,
accompanied, if so required by Company, by a written instrument or instruments of transfer in form satisfactory
to Company duly executed by the converting Debenture Holder of such Debentures or its attorney duly
authorized in writing.
3.2.5 Mandatory Conversion. In the event that on any date subsequent to the third anniversary
of the Closing Date (the "Measurement Date") the Closing Sale Price (as hereinafter defined) of the Common
Stock on the NASDAQ National Market-or any exchange on which such shares are listed for trading shall be
greater than one hundred fifty percent (150%) of the Conversion Price for twenty (20) out of the thirty (30)
consecutive trading days immediately preceding the Measurement Date, the then outstanding Debentures shal l
automatically be converted at the Conversion Price into Common Stock and said Common Stock shall promptly
be issued and delivered to the Debenture Holder or Holders thereof in accordance with this Article 3
("Automatic Conversion"). For purposes of this Agreement, the "Closing Sale Price" of any share of Common
Stock shall be (a) if the Common Stock is listed on an established stock exchange or exchanges, the average of
the closing bid and asked prices per share on such date on the principal exchange on which it is traded, or if no
sale was made on such date on such principal exchange, at the closing reported bid price on such date on such
exchange, or (b) if the Common Stock is not then listed on an exchange, the last reported sale price per !~hare
on such date reported by NASDAQ, or if sales are not reported by NASDAQ or no sale was made on such date,
the average of the closing bid and asked prices per share for the Common Stock in the over-the-counter market
as quoted on NASDAQ on such date. 3.2.6 Issuance of Common Stock Upon Conversion. As promptly as practicable after
the surrender of any Debentures for conversion or Automatic Conversion, as herein provided, Company shall
issue and deliver or cause to be issued and delivered to or upon the written order of the converting Debenture
Holder (a) certificates representing the number of fully paid and nonassessable shares of Common Stock into
which such Debentures are converted in accordance with the provisions of this Article 3, and (b) if any principal
amount of such Debenture remains unpaid after such conversion, a new Debenture Certificate or Debenture Certificates, substantially in the form of Exhibit A, dated the date to which interest has been paid on the
Debenture or Debentures surrendered for conversion, in an aggregate principal amount equal to such unpaid
principal amount, and specifying the portion of such unpaid principal amount, if any, which may be converted
into Common Stock. Subject to the following provisions of this Section 3.2.6, such conversion shall be deemed
to have been made at the close of business on the date that such Debentures shall have been surrendered for
conversion or on the date of Automatic Conversion, as the case may be, so that the rights of the Debenture
Holder with respect to the principal amount of the Debentures so converted shall cease at such time and the
Debenture Holder or Holders entitled to receive the shares of Common Stock upon conversion of such
Debentures shall be treated for all purposes as having become the record holder or holders of such shares of
Common Stock at such time and such conversion shall be at the Conversion Price; provided, however, that no
such surrender or Automatic Conversion on any date when the stock transfer books of Company shall be closed
shall be effective to constitute the person or persons entitled to receive the shares of Common Stock upon such
conversion, as the record holder or holders of such shares of Common Stock on such date, but such surrender
shall be effective to constitute the person or persons entitled to receive such shares of Common Stock as the
record holder or holders thereof for all purposes at the close of business on the next succeeding day on which
such stock transfer books are open and such conversion shall be at the Conversion Price in effect on the date
that such Debentures shall have been surrendered for conversion. Any certificates issued hereunder shall bear
the Legend.If the last day for the exercise of the conversion right shall be a Sunday or shall be in California a
legal holiday or a day on which banking institutions are authorized by law to close, then such conversion right
may be exercised on the next succeeding day not in California a legal holiday or a day on which banking
institutions are authorized by law to close.
3.2.7 Payment of Interest; Adjustment for Certain Dividends. Company shall pay all interest on
any Debentures or portion thereof surrendered for conversion accrued to the date of such surrender or
Automatic Conversion (the "Surrender Date") except that, in the event that Company shall have declared prior
to the Surrender Date a cash dividend payable on its shares of Common Stock to holders of record of such
Common Stock on a date subsequent to the Surrender Date, such payment of interest shall be adjusted
downward to an amount (not less than zero) determined by subtracting from the aggregate amount thereof an
amount equal to the aggregate dividends to be payable as of such record date on the shares of Common Stock
issuable upon conversion of such Debenture.
3.2.8 Events of Default and Acceleration. If any of the following events, herein called "Events
of Default," shall occur:
(a) If Company shall default in the payment of any part of the principal of the
Debentures when the same shall have become due and payable at maturity and such default shall not have been
remedied within fifteen (15) calendar days after written notice thereof shall have been given to Company by the
holders of not less than fifty percent (50%) of the principal amount of outstanding Debentures;
(b) If Company shall default in the payment of any installment of interest on the
Debentures and such default shall not have been remedied within fifteen (15) calendar days after written notice
thereof shall have been given to Company by the holders of riot less than fifty percent (50%) of the principal
amount of outstanding Debentures;
(c) If Company shall default in the performance of or compliance with any material
term contained in Articles 12 (Post Closing Affirmative Covenants of Company) or 13 (Negative Covenants of
Company) hereof, and such default shall not have been remedied within twenty (20) calendar days after written
notice thereof shall have been given to Company by the holders of not less than fifty percent (50%) of the
principal amount of outstanding Debentures; provided, however, that any such default in performance or
compliance shall not constitute an Event of Default under this Agreement unless such default or defaults (i)
individually or in the aggregate represent a Material Adverse Effect (as hereinafter defined) on Company and
Assurance Company taken as a whole or the Debenture Holders or (ii) is or are willful and intentional breaches
of a material matter. For the purposes of this Agreement, a "Material Adverse Effect" with respect to Company
or Assurance Company means a material adverse effect on the financial condition, results of operations,
business, properties or prospects, financial condition, liabilities (including contingent liabilities) or result s of
operations of Company and Assurance Company, taken as a whole;
(d) If any representation or warranty of Company herein shall prove to have been
false or incorrect in any material respect on the date as of which made; provided, however, that any inaccuracy
of any representation or warranty, on the Effective Date or on the Closing Date, shall not constitute an Event of
Default under this Agreement unless any such inaccuracy or inaccuracies, either (i) individually or in the
aggregate, represent a Material Adverse Effect on Company and Assurance Company, taken as a whole, or (ii)
is or are willful and intentional misrepresentations of a material matter that constitute fraud;
(e) If Company or any Subsidiary (as hereinafter defined) shall default (as principal
or guarantor or other surety) in any payment of principal of, premium, if any, or interest on, or any other
payment of money due under, any other obligation for borrowed money, in any single amount equal to or
exceeding $25,000 or, with respect to multiple obligations, in amounts which in the aggregate equal or exceed
$100,000 (including any obligation secured by purchase money mortgage), beyond any period of grace
provided with respect thereto, or in the performance of any other agreement, term, or condition contained in any
agreement under which any such obligation is created if the effect of such default is to cause, or permit the
holder or holders of such obligation (or a trustee on behalf of such holder or holders) to cause, such obligation
to become due prior to its stated maturity;
(f) If Company or any Subsidiary shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a volunta ry
petition in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law, or regulation, or shall file any answer admitting or not contesting
the material allegations of a petition filed against Company or any of its Subsidiaries in any such proceeding, or
shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Company or any
of its Subsidiaries or of all or any substantial part of the property of Company or of any Subsidiary;
(g) If, within sixty (60) calendar days after the commencement of an action against
Company or any of its Subsidiaries seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall
not have been dismissed or all orders or proceedings thereunder affecting the operations or the business of
Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within sixty
(60) calendar days after the appointment without the consent or acquiescence of Company or such Subsidiary of
any trustee, receiver or liquidator of Company or any Subsidiary or of all or any substantial part of the
properties of Company or any Subsidiary, such appointment shall not have been vacated; or
(h) If a final judgment against which Company or any Subsidiary is uninsured which,
together with other like outstanding final judgments against Company and any such Subsidiary, exceeds an
aggregate of $100,000 shall be rendered against Company or any Subsidiary and if, within sixty (60) calendar
days after entry thereof, such judgment shall not have been discharged or execution thereof stayed pending
appeal; or if, within sixty (60) calendar days after the expiration of any such stay, such judgment shall not have
been discharged;
then the holders of not less than fifty percent (50%) of the principal amount of outstanding Debentures may at
any time at their option, by written notice or notices to Company in accordance with Sections 3.1.12 and 3.1.13
hereof, declare all the principal amount of all the Debentures to be immediately due and payable, whereupon t he
same shall forthwith mature and become due and payable together with interest accrued and compounded
thereon without presentment, demand, protest or notice, all of which are hereby waived.
3.2.9 Remedies of Default. In case any one or more Events of Default shall occur and be
continuing, the holders of not less than fifty percent (50%) of the principal amount of outstanding Debentures
may proceed to protect and enforce the rights of such holders by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement contained herein or in a
Debenture Certificate, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of
the exercise of any power granted hereby or thereby or by law. If an Event of Default shall have been declared
as provided in Section 3.2.8 hereof Company will pay to the Debenture Holders such further amount as shall be
sufficient to cover the reasonable cost and expenses of. collection, including (without limitation) reasonable
professional and attorneys' fees, expenses and disbursements. If the Debenture Holders as provided hereunder
shall give any notice or take any other action in respect of a claimed Event of Default, Company shall, in
accordance with Section 3.1.14 hereof, forthwith give written notice thereof to all other Debenture Holders of
record at the time outstanding describing the notice or action and the nature of the claimed default. No course of
dealing and no delay on the part of any Debenture Holder in exercising any right, power, or remedy'shall
operate as a waiver thereof or otherwise prejudice such holder's rights, powers and remedies. No right, power,
or remedy conferred hereby or by any Debenture upon any Debenture Holder shall be exclusive of any other
right, power or remedy referred to herein or therein or now or hereafter available by law, in equity, by statute or
otherwise.
3.2.10 Election of a Majority of Directors Upon Default. (a) If an Event of Default shall
have been declared as provided in Section 3.2.8 hereof and there shall be at least $5 million of Debentures then
outstanding, at the next meeting of Company's shareholders for the election of directors as provided in
subsection (c) of this Section 3.2.10 (unless at the time of that meeting all arrears shall have been paid and the
principal and interest payment next due shall have been set aside or paid and no other Event of Default not
requiring payment shall be existing and unremedied), the Debenture Holders, voting as a class, shall be entitled
to elect the smallest number of directors necessary to ensure that the Debenture Holder Designees plus the
directors elected under this Section 3.2.10 constitute a majority of the authorized number of directors on the
Company's Board (the "Post-Default Directors") and the holders of the remaining voting rights of Company
shall be entitled, voting as a class, to elect the balance of the members of the Company's Board. So long as the
Debenture Holders have the right to elect additional directors as provided hereunder, the directors elected by the
Debenture Holders under this Section 3.2.10 shall be subject to removal only by the required vote of the holders
of the then outstanding Debentures. When all the principal and interest payments in arrears have been paid or
set apart for payment or other Event of Default not requiring payment shall have been cured, the rights of the
Debenture Holders to vote as provided in this Section 3.2-10 shall cease, subject to renewal from time to time
on the same terms and conditions as set forth in this Section 3.2.10. The Post-Default Directors will use their
best efforts, and will cause Company and its officers to use their respective best efforts, to cure any Event of
Default.
(b) Rights to vote pursuant to this Section 3.2.10 shall be exercisable only by the
Debenture Holders in whose name such Debentures are registered in the Company Register on the record date
for any such meeting established pursuant to applicable law. If the Debenture Holders are entitled to exercise
voting rights pursuant to this Section 3.2.10, each Debenture Holder shall, for the purposes of the class vote
under this Section 3.2.10, be entitled to the number of votes equal to the number of shares of Common Stock
into which each Debenture held by such Debenture Holder could be converted. Each such Debenture Holder
shall be entitled to receive all notices from Company as fully as though a shareholder of Company. At the
meeting so called or at any annual meeting held while the Debenture Holders have the voting rights provided
under this Section 3.2.10, the holders of a majority of the then outstanding principal amount of Debentures
entitled to vote, present in person or by proxy, shall be sufficient to constitute a quorum for the election of the
majority of the directors as provided in this Section 3.2.10.
(c) At any time after the voting power to elect a majority of the Company's Board
shall have become vested in the Debenture Holders as provided in this Section 3.2.10, the Secretary of
Company shall, upon the request of the record holders of at least fifty percent (50%) of the then outstanding
principal amount of Debentures, call a special meeting of the Company's shareholders for the election of
directors, to be held at the place and on the notice provided in the Bylaws of Company for the holding of annual
meetings. If notice of the requested meeting is not given within twenty (20) calendar days after receipt of the
request for the meeting, then a person designated by the holders of at least fifty percent (50%) of the principal
amount of the then outstanding Debentures may call such a special meeting at the place on the notice above
provided, and for that purpose shall have access to the stock books of Company and the Company Register. At
any meeting so called or at any annual meeting held while the Debenture Holders have the voting power to elect
a majority of the Company's Board, the holders of a majority of the then outstanding principal amount of
Debentures, present in person or by proxy, shall constitute a quorum for the election of directors as provided in
this Section 3.2.10. The terms of office of all Independent Directors who are directors of Company at the time
of the meeting shall terminate on the election at the meeting by the Debenture Holders of the number of
directors such Debenture Holders are entitled to elect, and the persons so elected as directors by the Debenture
Holders, together with the persons, if any, elected as directors by the holders of the Common Stock, shall
constitute the duly elected directors of Company. In the event the holders of the Common Stock fail to elect the
number of directors that they are entitled to elect at the meeting, the resulting vacancies ma y be filled by the
directors who are elected.
Whenever the voting rights of the Debenture Holders shall cease as provided in this Section
3.2.10, the term of office of all persons who are at the time directors of Company and who were elected solely
under this Section 3.2.10 to constitute a majority of the Company's Board as provided herein shall terminate on
election of their successors by the holders of the Common Stock.
3.2.11 Mandatory Redemption. Company may not redeem any Debentures prior to the Maturity
Date. Company shall redeem the Debentures then outstanding on the Maturity Date and all then outstanding
principal and interest relating to such Debentures shall immediately be due and payable to the Debenture
Holders in cash on that date.
3.3. The Warrants.
3.3.1 Term. After the Closing Date, the Warrants shall be exercisable at any time and from
time to time in the manner provided in Section 3.3.2 hereof; provided, however, that the warrants will expire at
5:00 p.m. Pacific Standard Time or Pacific Daylight Time, as the case may be, on the Maturity Date, at which
time any then unexercised Warrants shall become void and all rights of the Warrant Holders with respect to
such unexercised Warrants shall cease.
3.3.2 Manner of Exercise of Warrants. (a) Subject to the provisions of this Agreement, the holder
of each Series 1 Warrant shall have the right to purchase from Company (and Company shall issue and sell to
such holder) one (1) share of Common Stock, subject to the limits contained in Section 3.3.1 hereof, at the
exercise price of $2.50 (the "Series 1 Exercise Price") upon surrender to Company at its principal office of any
Series 1 Warrant Certificate evidencing such Series 1 Warrant, with the form of election to purchase attac hed
thereto completed and signed (specifying the number of shares of Common Stock for which the Warrant is
exercisable), and upon payment to Company of the Series 1 Exercise Price in lawful money of the United States
of America.
(b) Subject to the provisions of this Agreement, the holder of each Series 2 warrant
shall have the right to purchase from Company (and Company shall issue and sell to such holder) one (1) share
of Common Stock, subject to the limits contained in Section 3.3.1 hereof, at the exercise price of $3.00 (the
"Series 2 Exercise Price") upon surrender to Company at its principal office of any Series 2 Warrant Certificate
evidencing such Series 2 Warrant, with the form of election to purchase attached thereto completed and signed
(specifying the number of shares of Common Stock for which the Warrant is exercisable), and upon payment to
Company of the Series 2 Exercise Price in lawful money of the United States of America.
(c) Subject to the provisions of this Agreement, the holder of each Series 3 warrant
shall have the right to purchase from Company (and Company shall issue and sell to such holder) one (1) share
of Common Stock, subject to the limits contained in Section 3.3.1 hereof, at the exercise price of $3.50 (the
"Series 3 Exercise Price") upon surrender to Company at its principal office of any Series 3 Warrant Certificate
evidencing such Series 3 Warrant, with the form of election to purchase attached thereto completed and signed
(specifying the number of shares of Common Stock for which the Warrant is exercisable), and upon payment to
Company of the Series 3 Exercise Price in lawful money of the United States of America.
(d) The Series 1 Exercise Price, Series 2 Exercise Price and Series 3 Exercise Price shall
each be subject to adjustment as provided in Schedule 3.3.2(d) attached hereto.
3.3.3 Issuance of Common Stock Upon Exercise. Upon surrender of any Series 1
Warrant Certificate, Series 2 Warrant Certificate or Series 3 Warrant Certificate, as the ca se may be, and
payment of the Series 1 Exercise Price, Series 2 Exercise Price or Series 3 Exercise Price, as the case may be,
Company shall promptly issue and cause to be delivered to, or upon the written order of, the holder of the Series
1 Warrant Certificate, Series 2 Warrant Certificate or Series 3 Warrant Certificate, and in such na me or names
as such holder may designate, a certificate or other document representing the Common Stock issuable upon the
exercise of the Series 1 Warrants, Series 2 Warrants or Series 3 Warrants evidenced by any Series 1 Warrant
Certificate, Series 2 Warrant Certificate or Series 3 Warrant Certificate. The Common Stock cert ificate shall be
deemed to have been issued and any person so designated to be named therein shall be deemed to have become
a holder of record of such Common Stock as of the date of the surrender of any such certificate, as the case may
be, and payment of the applicable exercise price. The Series 1 Warrants, Series 2 Warrants or Series 3 Warrants
shall be exercisable, at the election of the holder thereof, either in their entirety or from time to ti me for part
only of the number of Series 1 warrants, Series 2 Warrants or Series 3 Warrants specified in the applicable
certificate and in the notice with respect to the exercise thereof. If less than all of the Series 1 Warrants, Se ries 2
Warrants or Series 3 Warrants evidenced by the specific Series 1 Warrant Certificate, Series 2 Warrant
Certificate or Series 3 Warrant Certificate are surrendered for exercise at any time prior to the Maturi ty Date, a
new Series 1 Warrant Certificate, Series 2 Warrant Certificate or Series 3 Warrant Certificat e or certificates, as
the case may be, shall promptly be issued for the balance of the Series 1 Warrants, Series 2 Warrants or Series 3
Warrants, as the case may be, not so exercised. All warrant Certificates surrendered upon exercise of Warrants
shall be cancelled by Company.
ARTICLE 4. REGISTRATION RIGHTS
4.1. Demand Registration Rights. Company agrees that upon receipt of a written demand for
registration (the Registration Notice") from the holders of Securities having a fair market value (based on the
closing price of the Common Stock in its principal trading market) of at least $5 million as of the close of
business on the trading day immediately preceding the date of such notice, Company shall, not later than the
30th calendar day after receipt of such notice, file a registration statement on an appropriate form avail able to
Company for the registration of such Securities, to register under the Securities Act for sale or distribution to
the public the number and class of Securities specified in the Registration Notice and thereafter shall use its best
efforts to file any amendment or amendments to such registration statement as shall be necessary to cause it to
become effective. The Registration Notice shall state the intended method of disposition of the Securit ies and, if
the disposition is an underwritten offering, the identity of the under-writers as determined by such Securities
holders. Two (2) demand registrations as provided for in this Section 4.1 shall be permitted prior to the Maturity
Date. Notwithstanding the foregoing, registration may be demanded by holders of Securities which in the
aggregate total less than $5 million (as calculated pursuant to the methodology set forth in the first sentence of
this section) if such Securities constitute all of the then unregistered Securities.
In addition, Company may cause certain of its securities to be included in any registration
requested pursuant to this Section 4.1, subject to the satisfaction of a majority of the holders of Securities
requesting registration pursuant to this Section 4.1 that such Company offering will not adversely affect the
registration requested by such holders.
Company shall not be obligated to effect, or to take any action to effect, any registration under
this Section 4.1:
(a) After Company has initiated two such registrations pursuant to this Section 4.1
(counting for these purposes registrations which have been declared or ordered effective and pursuant to which
Securities have been sold and registrations which have withdrawn by the holders); (b) During the period starting with the date sixty (60) calendar days prior to
Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after
the effective date of, a Company-initiated . registration; provided that Company is actively employing i n good
faith all reasonable efforts to cause such registration statement to become effective;
(c) If the holder's purpose is to dispose of Securities which may be immediately
registered on Form S-3;
(d) If the holders do not request that such offering be firmly underwritten by
underwriters selected by the holders (subject to the consent of Company, which consent will not be
unreasonably withheld); or
(e) If Company and the holders are unable to obtain the firm commitment of the
underwriter described above to underwrite the offer.
The right of any holder to registration pursuant to this Section 4.1 shall be conditioned upon such
holder's participation in such underwriting and the inclusion of such holder's Securities in the underwriting to
the extent provided herein.
If requested by Company and an underwriter, a holder shall not sell or otherwise transfer or
dispose of any Securities held by such holder (other than those included in the registration) during the 180-day
period following the effective date of a registration statement of Company filed under the Securities Act.
4.2. Incidental Registration. (a) In the event Company shall determine to proceed with the
actual preparation and filing of a registration statement under the Securities Act (other than a registrati on
statement on Form S-8 or Form S-4, or any successor to either) in connection with the proposed offer and sale
of any Securities issued or to be issued by Company, Company shall give written notice of its determination to
all holders of Securities not less than ten (10) calendar days subsequent to any such determination, which notice
shall set forth the amount and class and type of securities of Company which are proposed to be registered and
the purpose thereof (the "Company Notice"). Company will, except as herein provided, cause all Securities
held by a Participating Holder (as hereinafter defined) of the type which Company has decided to prepare and
file such registration statement to be so registered in accordance with the intended method of disposition
thereof; provided, however, that nothing in this Section 4.2 shall prevent Company from, at any time,
abandoning or delaying any such registration; provided further, that if Company determines not to proceed with
a registration after the reg
