Senior Unsecured Convertible Note

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 4.2

[FORM OF SENIOR UNSECURED CONVERTIBLE NOTE]

         THE NOTES WILL BE ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR U.S. FEDERAL INCOME TAX PURPOSES. THE ISSUE PRICE FOR EACH NOTE WILL BE 100% OF THE PRINCIPAL AMOUNT OF SUCH NOTE AND THE INITIAL ISSUANCE DATE FOR THE NOTES IS DECEMBER 16, 2005. THE COMPARABLE YIELD FOR THE NOTES IS 12% PER ANNUM, COMPOUNDED QUARTERLY (WHICH WILL BE TREATED AS THE YIELD TO MATURITY FOR U.S. FEDERAL INCOME TAX PURPOSES). FOR INFORMATION REGARDING THE YIELD TO MATURITY ON THE NOTES, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THE NOTES, AND THE PROJECTED PAYMENT SCHEDULE FOR THE NOTES, HOLDERS SHOULD CONTACT VONAGE HOLDINGS CORP., 23 MAIN STREET, HOLMDEL, NJ 07733, ATTENTION: DIRECTOR OF TAX.

         NEITHER THE ISSUANCE AND SALE OF THIS NOTE NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE OR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE UNDER THE SECURITIES ACT, OR (B) AN OPINION OF COUNSEL (SELECTED BY THE HOLDER AND REASONABLY ACCEPTABLE TO THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE OFFERED FOR SALE, SOLD, ASSIGNED OR TRANSFERRED PURSUANT TO AN EXEMPTION FROM REGISTRATION; PROVIDED THAT SUCH OPINION OF COUNSEL SHALL NOT BE REQUIRED IN CONNECTION WITH ANY SUCH SALE, ASSIGNMENT OR TRANSFER TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT IS A HOLDER OF ADDITIONAL NOTES (AS SUCH TERM IS DEFINED IN THIS NOTE) OR AN AFFILIATE OF THE HOLDER OF THIS NOTE, OR (II) THE HOLDER PROVIDES THE COMPANY WITH ASSURANCE (REASONABLY SATISFACTORY TO THE COMPANY) THAT SUCH NOTE OR THE SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION OF THE NOTE CAN BE SOLD, ASSIGNED OR TRANSFERRED PURSUANT TO RULE 144; PROVIDED HOWEVER, THAT PRIOR TO AN EFFECTIVE REGISTRATION (AS SUCH TERM IS DEFINED IN THIS NOTE) IN NO EVENT (I) MAY THIS NOTE BE OFFERED FOR SALE, SOLD, ASSIGNED OR TRANSFERRED TO A COMPETITOR (AS SUCH TERM IS DEFINED IN THIS NOTE) OR (II) WILL THIS NOTE BE MADE ELIGIBLE FOR CLEARANCE AND SETTLEMENT THROUGH THE DEPOSITARY TRUST COMPANY. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING, WITHOUT LIMITATION, 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. THIS NOTE HAS BEEN ISSUED PURSUANT TO THE SUBSCRIPTION AGREEMENT (AS SUCH TERM IS DEFINED IN THIS NOTE), SECTION 8.1 OF WHICH CONTEMPLATES CERTAIN RESTRICTIONS ON SALES, PURCHASES, HEDGING TRANSACTIONS AND CERTAIN OTHER TRANSACTIONS RELATING TO THE COMPANY'S SECURITIES. ANY ASSIGNEE OR TRANSFEREE OF THIS NOTE SHALL BE SUBJECT TO THE RESTRICTIONS SET FORTH IN SECTION 8.1 OF THE SUBSCRIPTION AGREEMENT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS NOTE MAY BE PLEDGED TO A PERSON (OTHER THAN A COMPETITOR) IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING AN AGREEMENT SECURED BY SUCH SECURITIES.

Vonage Holdings Corp.

Senior Unsecured Convertible Note

         FOR VALUE RECEIVED, Vonage Holdings Corp., a Delaware corporation (the " Company "), hereby promises to pay to [NAME OF BUYER] or registered assigns (" Holder ") the amount set out above as the Principal (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the " Principal ") when 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 Interest Rate (as defined below), from December 16, 2005 (the " Initial Issuance Date ") until the same becomes due and payable, whether upon an Interest Date (as defined below), the Maturity Date, acceleration, conversion, redemption or otherwise (in each case, in accordance with the terms hereof). This Senior Unsecured Convertible Note (including all Senior Unsecured Convertible Notes issued in exchange, transfer or replacement hereof, this " Note ") is one of an issue of Senior Unsecured Convertible Notes issued pursuant to the Subscription Agreement (as defined below) (collectively, the " Notes " and such other Senior Unsecured Convertible Notes, the " Additional Notes "). Certain capitalized terms used herein are defined in Section 28.

        (1)     MATURITY.     On the Maturity Date, the Holder shall surrender the Note to the Company and the Company shall pay to the Holder an amount in cash representing all outstanding Principal, accrued and unpaid Interest and accrued and unpaid Late Charges (as defined below), if any. The " Maturity Date " shall be December 1, 2010.

        (2)     INTEREST; INTEREST RATE.     Interest on this Note shall commence accruing on the Initial Issuance Date and shall be computed on the basis of a 360-day year comprised of twelve 30-day months and shall be payable in arrears on the first day of each March, June, September and December (the period of such accruing interest being referred to as an " Interest Period ") during the period beginning on the Initial Issuance Date and ending on, and including, the Maturity Date (each, an " Interest Date ") with the first Interest Date being March 1, 2006. Interest shall be payable on each Interest Date for the applicable Interest Period, to the record holder of this Note on the applicable Interest Date, entirely in cash (" Cash Interest ") or, at the option of the Company, entirely by increasing the amount of Principal outstanding under this Note (" Accreted Interest ") and such Accreted Interest shall thereafter accrue Interest during each Interest Period at the Interest Rate, provided that the Interest which accrued during any Interest Period shall be payable as Accreted Interest if, and only if, the Company delivers written notice of such election (each, an " Interest Election Notice ") to each holder of the Notes at least twenty (20) Business Days prior to the applicable Interest Date (each, an " Interest Election Date "). Prior to the payment of Interest on an Interest Date, Interest on this Note shall accrue at the Interest Rate and be payable by way of inclusion of the Interest in the Conversion Amount in accordance with Section 3(b)(i). If an Event of Default occurs and such Event of Default is subsequently cured, the adjustment referred to in Section 28(xxi)(5) shall cease to be effective as of the date of such cure; provided that the Interest as calculated 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. All payments of Interest on the Notes shall be made on a pro rata basis in accordance with each holder's percentage ownership of then outstanding Notes.

        (3)     CONVERSION OF NOTES.     This Note shall be convertible into shares of Common Stock, on the terms and conditions set forth in this Section 3.

2

        (a)     Conversion Right.     At any time or times on or after the date first set forth above as the Issuance Date (the " Issuance Date "), the Holder shall be entitled to convert any portion of the outstanding and unpaid Conversion Amount (as defined below) into fully paid and nonassessable shares of Common 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 in excess of one half of one share, 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 stock transfer, stamp, documentary and similar taxes (excluding any taxes on the income or gain of the Holder) that may be payable with respect to the issuance and delivery of shares of Common Stock to the Holder 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 that is (x) prior to an Effective Registration, the Pre-IPO Conversion Price and (y) from and after an Effective Registration, the Post-IPO Conversion Price, each subject to adjustment as provided herein (including, without limitation, adjustment pursuant to Section 7).

        (iii)  " Effectiveness Failure Pre-IPO Conversion Price " means in the event that a registration statement under the Securities Act relating to a Qualified IPO is not declared effective by the SEC prior to the first anniversary of the Initial Issuance Date, (x) if no adjustment has previously been made to the Pre-IPO Conversion Price as a result of the application of the provisions set forth in the definition of Filing Failure Pre-IPO Conversion Price, $4.83 (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction), or (y) otherwise, $4.57 (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction); provided that if the Conversion Price in effect prior to the application of clause (x) or (y), as the case may be, is less than the amount specified in such clause, then the Effectiveness Failure Pre-IPO Conversion Price shall be such Conversion Price in lieu of the amount specified in such clause (x) or (y), as the case may be.

        (iv)  " Filing Failure Pre-IPO Conversion Price " means in the event that the Company fails to file a registration statement under the Securities Act with the SEC relating to a Qualified IPO prior to the date that is six months after the Initial Issuance Date, $4.83 (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction); provided that if the Conversion Price in effect prior to the application of the foregoing sentence is less than the amount specified in such sentence, then the Filing Failure Pre-IPO Conversion Price shall be such Conversion Price in lieu of the amount specified in such sentence.

        (v)   " Initial Pre-IPO Conversion Price " means $5.08 (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction).

        (vi)  " Post-IPO Conversion Price " means, from and after an Effective Registration, the lesser of (x) the Conversion Price in effect immediately prior to the Effective Registration and

3

(y) the product of (A) 0.90 and (B) the public offering price of the Common Stock as set forth in the final prospectus contained in the registration statement relating to such Effective Registration; provided, however, that notwithstanding anything otherwise to the contrary, the Post-IPO Conversion Price shall not equal an amount less than 50% of the Pre-IPO Conversion Price in effect immediately prior to the Effective Registration.

        (vii) " Pre-IPO Conversion Price " means the lowest of (x) the Initial Pre-IPO Conversion Price and, if applicable, (y) the Filing Failure Pre-IPO Conversion Price and (z) the Effectiveness Failure Pre-IPO Conversion Price.

        (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), cause this Note to be delivered to the Company as soon as practicable on or following such date. On or before 4:00 p.m., New York Time, on the first (1 ^st ) Business Day following the date of receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt of such Conversion Notice to the Holder (at the facsimile number provided in the Conversion Notice) and the Company's transfer agent, if any (the " Transfer Agent "). On or before 4:00 p.m., New York Time, on the third (3 ^rd ) Business Day following the date of receipt of a Conversion Notice (the " Share Delivery Date "), the Company shall (X) if the Transfer Agent, if any, 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 at Custodian system or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or if the foregoing is not applicable, issue and deliver to the address as specified in the Conversion Notice, a certificate, 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 of this Note is greater than the Principal portion of the Conversion Amount being converted, then the Company shall as soon as 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, at any time, the Company shall fail to issue a certificate to the Holder or, from and after an Effective Registration, fail to credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled, in each case, upon conversion of any Conversion Amount on or prior to the date which is five (5) Business Days after the Conversion Date (a " Conversion Failure "), then (A) the Company shall pay damages to the Holder for each day of such Conversion Failure in an amount equal to 1.5% of the product of (I) the sum of the number of shares of Common Stock not issued to the Holder on or prior to the Share Delivery Date and to which the Holder is entitled, and (II) the Closing Sale Price of the Common Stock on the Share Delivery Date and (B) the Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or

4

have returned, as the case may be, any portion of this Note that has not been converted pursuant to such Conversion Notice; provided that the voiding of a Conversion Notice shall not affect the Company's obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 3(c)(ii) or otherwise. In lieu of the foregoing, if within three (3) Business Days 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, from and after an Effective Registration, fail to credit the Holder's balance account with DTC for the number of shares of Common Stock to which the Holder is entitled, in each case, upon the Holder's conversion of any Conversion Amount, and if on or after such three (3) Business Day period the Holder purchases (in an open market transaction or in an arm's length transaction at market prices) shares of 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 "), then the Holder may elect to require the Company to, within three (3) 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 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 deliver such certificate (and to issue such Common Stock) shall terminate, or (ii) from and after an Effective Registration, 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 (A) such number of shares of Common Stock times (B) the Closing Bid Price on the Conversion Date.

        (iii)     Book-Entry.     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 physical surrender and reissue of this Note. The Holder and the Company shall maintain records showing the Principal, Interest and Late Charges 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)     Pro Rata Conversion; Disputes.     In the event that the Company receives a Conversion Notice from more than one holder of Notes for the same Conversion Date and the Company can convert some, but not all, of such portions of the Notes submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of Notes electing to have Notes converted on such date a pro rata amount of each such holder's portion of its Notes submitted for conversion based on the principal amount of Notes submitted for conversion on such date by such holder relative to the aggregate principal amount of all Notes submitted for conversion on such date. In the event of a dispute between the Company and any holders of Notes that are subject to any such Conversion Notice or among any holders of Notes that are subject to any such Conversion Notice 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.

5

        (d)     Limitations on Conversions.     From and after an Effective Registration and other than in connection with a Fundamental Transaction, 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 9.99% (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 Holder 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 Additional Notes or 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)(i), 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)(i), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Form 10-KSB, Form 10-K, Form 10-QSB, Form 10-Q or Form 8-K, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written request of the Holder, the Company shall within three (3) Business Days confirm orally or 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 not in excess of 9.99% specified in such notice; provided that (i) any such increase or decrease will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder and not to any other holder of Notes. The Holder may elect to have the provisions of this Section 3(d) rendered inapplicable to this Note, such Holder and any subsequent holder of the Note by executing on or prior to the Issuance Date a notice of such election, which may be in the form attached hereto as Exhibit II . Notwithstanding anything in this Section 3(d) to the contrary, it is agreed and understood that the limitation on conversions contained in this Section 3(d) shall in no way limit any of the Company's rights under Sections 8(a) and 8(c) of this Note.

        (4)     RIGHTS UPON EVENT OF DEFAULT.     

        (a)     Event of Default.     Each of the following events shall constitute an " Event of Default ":

        (i)    the Company's failure to pay to the Holder any amount of Principal when and as due under this Note (including, without limitation, the Company's failure to pay any Redemption Price or Make-Whole Premium);

        (ii)   the Company's failure to pay to the Holder any amount of Interest, Late Charges or other amounts (other than the amounts specified in clause (i) above but including, without limitation, any payment required by Section 15) when and as due under this Note or any other

6

Transaction Document if such failure continues for a period of at least thirty (30) Business Days;

        (iii)  (A) any acceleration prior to maturity of any Indebtedness referred to in clause (a) or (b) of the definition thereof of the Company or any of its Subsidiaries which individually or in the aggregate is equal to or greater than $5,000,000 principal amount of Indebtedness and, prior to the consummation of a Qualifying IPO, any payment default thereunder (following the expiration of all applicable grace periods);

        (iv)  the Company or any of its Material 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) admits in writing that it is generally unable to pay its debts as they become due;

        (v)   a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that is not vacated, set aside or reversed within sixty (60) days that (A) is for relief against the Company or any of its Material Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or any of its Material Subsidiaries or (C) orders the liquidation of the Company or any of its Material Subsidiaries;

        (vi)  a final judgment or judgments for the payment of money aggregating in excess of $5,000,000 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 $5,000,000 amount 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 or indemnity within sixty (60) days of the issuance of such judgment;

        (vii) the Company breaches any covenant or agreement or materially breaches any representation or warranty in any Transaction Document, and such breach continues for a period of at least thirty (30) days after written notice thereof from one or more Holders to the Company; or

        (viii) any Event of Default (as defined in the Additional Notes) occurs with respect to any Additional Notes.

        (b)     Rights Upon Event of Default.     Promptly after the occurrence of an Event of Default with respect to this Note or any Additional Note, the Company shall deliver written notice thereof (an " Event of Default Notice ") to the Holder. If an Event of Default with respect to the Company described in Sections 4(a)(iv) or 4(a)(v) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. If any Event of Default described in Sections 4(a)(i), 4(a)(ii), 4(a)(iii) or 4(a)(vi) through 4(a)(viii) has occurred and is continuing, holders of not less than 25% of the aggregate Principal amount of the Notes then outstanding may at any time at its or their option, by notice or notices to the Company (an " Event of Default Payment Notice "), declare all the Notes then outstanding to be immediately due and payable. Upon any Notes becoming due and payable under this Section 4(b), whether automatically or by declaration, such Notes will forthwith mature and the greater of (x) the entire unpaid Principal, plus all

7

accrued and unpaid Interest and Late Charges, and (y) from and after an Effective Registration, the product of (A) the Conversion Rate with respect to such Conversion Amount in effect at such time of the Event of Default and (B) the Closing Sale Price of the Common Stock on the date immediately preceding such Event of Default, shall become immediately due and payable (the " Event of Default Price "). Payments required by this Section 4(b) shall be made in accordance with the provisions of Section 12.

        (5)     RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.     

        (a)     Assumption.     The Company shall not enter into or be party to a Fundamental Transaction 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 written agreements on or prior to such Fundamental Transaction, including the agreement to deliver to each holder of Notes in exchange for such Notes a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Notes, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of the Notes held by such holder (the " Successor Note ") and (ii) from and after an Effective Registration, the Successor Entity is a publicly traded corporation whose common stock or equivalent equity security is listed for trading or quoted on a U.S. national securities exchange or quotation system or on an internationally recognized securities exchange outside the United States or which will be so listed or quoted when issued or exchanged in connection with such Fundamental Transaction. Upon the occurrence of any Fundamental 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 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, until such time as the Successor Note is delivered. Upon consummation of a Reclassification or Fundamental Transaction as a result of which holders of Common Stock shall be entitled to receive stock, securities, cash, assets or any other property with respect to or in exchange for such Common Stock, the Company or Successor Entity, as the case may be, 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 such Reclassification or Fundamental Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) issuable upon the conversion or redemption of the Notes prior to such Reclassification or 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 Reclassification or Fundamental Transaction had this Note been converted immediately prior to such Reclassification or Fundamental Transaction, as adjusted in accordance with the provisions of this Note. The provisions of this Section shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion or redemption of this Note.

        (b)     Redemption upon Change of Control.     No sooner than fifteen (15) days nor later than ten (10) days prior to the consummation of a Change of Control (but from and after an Effective Registration, not prior to the public announcement of such Change of Control), the Company shall deliver written notice thereof to the Holder (a " Change of Control Notice "). If at any time during the period (the " Change of Control Measuring Period ") beginning after the Holder's receipt of a Change of Control Notice and ending on the date of the consummation of such Change of Control (or, in the event a Change of Control Notice is not delivered at least ten (10) days prior to a Change of Control, at any time on or after the date which is ten (10) days prior to a Change of Control and ending ten (10) days after the consummation of such Change of Control), the Holder

8

may require the Company to redeem all or any portion of this Note (" Optional Change of Control Redemption ") by delivering written notice thereof (" Optional Change of Control Redemption Notice ") to the Company, which Optional Change of Control Redemption Notice shall indicate the Conversion Amount the Holder is electing to redeem. An Optional Change of Control Redemption required by this Section 5 shall be made in accordance with the provisions of Section 12. The portion of this Note subject to redemption pursuant to this Section 5 shall be redeemed by the Company at a price (the " Change of Control Redemption Price ") equal to: (1) in the case of a Change of Control Notice delivered prior to an Effective Registration, 110% of the Conversion Amount being redeemed; or (2) in the case of a Change of Control Notice delivered from and after an Effective Registration, the Conversion Amount being redeemed. In addition to the foregoing, at the time of the consummation of any such Change of Control, the Company shall pay to the Holder an amount in cash equal to the Present Value of Interest (if any) for any Conversion Amount converted pursuant to the provisions of Section 3 hereof during the Change of Control Measuring Period. 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 shares of Common Stock pursuant to Section 3.

        (c)     Conversion in the Event of a Fundamental Transaction.     Following an Effective Registration, in the event of a Fundamental Transaction as a result of which holders of Common Stock shall be entitled to receive stock, securities, cash, assets or any other property with respect to or in exchange for such Common Stock and in which less than 90% of the consideration for the Common Stock consists of publicly-traded equity securities (a " Cash Buy-Out "), each Holder shall receive from the Company upon conversion of its Notes pursuant to Section 3, in addition to the amounts described therein, the Make-Whole Premium (in cash or shares of Common Stock (valued as described in the definition of "Make Whole Premium" below) or a combination thereof, at the option of the Company). If the Cash Buy-Out constitutes a Change of Control, each Holder may, in lieu of converting its Note, require the Company to redeem all or any portion of its Note pursuant to Section 5(b).

        The " Make-Whole Premium " for each $1,000 in Principal amount of the Notes converted will equal the excess, if any, of (a) the average of the Closing Trading Prices of each $1,000 in Principal amount of the Notes for the ten (10) trading days immediately prior to the public announcement of the Cash Buy-Out, less (b) the product of (x) the average of the closing prices of the Common Stock for the ten (10) Trading Days immediately prior to the public announcement of the Cash Buy-Out and (y) the applicable Conversion Rate for a Conversion Amount of $1,000.

        The " Closing Trading Price " of $1,000 in Principal amount of the Notes for purposes of calculating the Make-Whole Premium on any date of determination means the secondary fair market value of $1,000 in Principal amount of the Notes as determined by the Company's board of directors, acting in good faith, on the basis of a valuation of the secondary fair market value of the Notes from at least one independent, reputable investment bank of national standing, with at least $5,000,000,000 in assets, selected by the Company, which valuation shall not take into account (x) any discount due to the illiquidity of the Notes or (y) any of the restrictions imposed by Section 8.1 of the Subscription Agreement.

        (d)     Public Acquirer Fundamental Transaction.     Notwithstanding the provisions of Section 5(c), in the event of a Public Acquirer Fundamental Transaction (as defined below) following an Effective Registration, the Company may at its option, in lieu of paying the Make-Whole Premium pursuant to the first paragraph of Section 5(c) upon conversion of the Notes pursuant to Section 3, elect to adjust the Conversion Rate such that from and after the effective date of such Public Acquirer Fundamental Transaction, each Holder will be entitled to

9

convert its Notes into a number of shares of Public Acquirer Common Stock (as defined below) by adjusting the Conversion Rate in effect immediately before the Public Acquirer Fundamental Transaction by a fraction (i) the numerator of which will be (x) in the case of a share exchange, consolidation, merger or binding share exchange, pursuant to which the Common Stock is converted into cash, securities or other property, the average fair market value at the time of such Public Acquirer Fundamental Transaction of all cash and any other consideration (as determined by the Company's board of directors) paid or payable per share of Common Stock or (y) in the case of any other Public Acquirer Fundamental Transaction, the average of the closing prices of the Common Stock for the five Trading Days immediately prior to but excluding the effective date of such Public Acquirer Fundamental Transaction, and (ii) the denominator of which will be the average of the closing prices of the Public Acquirer Common Stock for the five trading days commencing on the trading day next succeeding the effective date of such Public Acquirer Fundamental Transaction.

        " Public Acquirer Fundamental Transaction " means an event constituting a Fundamental Transaction that would otherwise obligate the Company to pay the Make-Whole Premium pursuant to the first paragraph of Section 5(c) upon conversion of the Notes pursuant to Section 3, and the acquirer (or any entity that is a parent of, or a directly or indirectly wholly-owned subsidiary of, the acquirer) has a class of common stock or equivalent equity security listed for trading or quoted on an Eligible Market or which will be so listed or quoted when issued or exchanged in connection with such Fundamental Transaction (the " Public Acquirer Common Stock "). Upon a Public Acquirer Fundamental Transaction, if the Company makes the election described in the first paragraph of this Section 5(d), Holders may convert their Notes pursuant to Section 3 at the adjusted Conversion Rate described in the first paragraph of this Section 5(d), but will not be entitled to any Make-Whole Premium. The Company shall notify each Holder of its election not later than ten (10) days prior to the consummation of the applicable Fundamental Transaction (but in no event prior to the public announcement of such Fundamental Transaction) by delivering written notice thereof to such Holder. If the Public Acquirer Fundamental Transaction constitutes a Change of Control, each Holder may, in lieu of converting its Note, require the Company to redeem all or any portion of its Note pursuant to Section 5(b).

        (e)     Redemption of Illiquid Consideration After Conversion.     Following the Company's entry into a definitive agreement relating to a Fundamental Transaction at any time prior to an Effective Registration, the Company will notify each Holder not later than the 10 ^th day following the effective date of such Fundamental Transaction of the determination by the Company's board of directors, made in good faith, of the fair market value of the Illiquid Consideration at the time of such Fundamental Transaction, and each Holder shall have the right, exercisable for thirty (30) days following the delivery of such notice, to require the Company to redeem all or any part of the Illiquid Consideration received upon conversion of its Notes for cash in the amount of such fair market value; provided that such notice shall specify in reasonable detail the basis for such determination. In the event that the Holder disagrees with such determination of fair market value, the Holder may require that such fair market value be determined in accordance with the provisions of Section 23.

10

        (6)     RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.     

        (a)    Purchase Rights .    If the Company at any time, or from time to time, grants, issues or sells any (i) Options, (ii) Convertible Securities or (iii) rights to purchase stock, warrants, securities or other property, pro rata to all record holders of any class of Common Stock (the " Purchase Rights "), then the person who is the Holder as of the Stock Record Date (as defined below) 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 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 (the " Stock Record Date ").

        (b)    Other Corporate Events .    In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Reclassification or 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 "), the Company shall make appropriate provision to ensure that the Holder will thereafter have the right to receive upon a conversion of this Note, (i) in the event that the Common Stock remains outstanding after any such Corporate Event, 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 the event that the Common Stock is no longer outstanding after any such Corporate Event, 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 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). 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. Notwithstanding this Section (6)(b), in no event shall the Company be obligated to distribute any Purchase Rights pursuant to this Section (6)(b) if and to the extent that it has distributed such Purchase Rights to the Holder pursuant to Section (6)(a).

        (7)     RIGHTS UPON ISSUANCE OF OTHER SECURITIES.     

        (a)    Adjustment of Conversion Price upon Issuance of Common Stock .    If, on or after the Subscription Date and prior to the consummation of a Qualified IPO, the Company at any time, or from time to time, 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 issued or sold or deemed to have been issued or sold by the Company with respect to Options to acquire up to 25,000,000 shares of Common Stock (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction) that may be awarded after the Subscription Date and prior to the consummation of a Qualified IPO by the Company solely to employees, officers, consultants, suppliers and directors for services provided to the Company) for a consideration per share (the " New Issuance Price ") less than a price (the " Pre-Qualified IPO Applicable Price ") equal to the Conversion Price in effect immediately prior to such issue or sale (the foregoing issuance, a " Pre-Qualified IPO Dilutive Issuance "), then immediately after such Pre-Qualified IPO Dilutive Issuance, the Conversion Price then in effect shall be reduced to an

11

amount equal to the New Issuance Price, provided that no such reduction shall be made unless and until either (i) the aggregate gross proceeds to the Company from such issuances, sales and deemed sales exceeds $25 million or (ii) the aggregate number of shares so issued, sold or deemed sold exceeds 2.00% of the total number of shares of Common Stock outstanding on a fully-diluted basis on the Subscription Date; provided    further that, prior to a Qualified IPO, the Conversion Price shall not be reduced, as a result of the application of the provisions of this Section 7(a), below $2.54 (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction). If, on or after the consummation of a Qualified IPO, the Company at any time, or from time to time, 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 issued or sold or deemed to have been issued or sold by the Company in each case solely in connection with any Excluded Security) for a consideration per share less than a price (the " Post-Qualified IPO Applicable Price ") equal to the Market Price then in effect (the foregoing issuance, a " Post-Qualified IPO Dilutive Issuance "), then immediately after such Post-Qualified IPO Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the product of (i) the Conversion Price in effect immediately prior to such issuance or sale and (ii) the quotient determined by dividing (A) the sum of (1) the product derived by multiplying the Post-Qualified IPO Applicable Price and the number of shares of Common Stock Deemed Outstanding immediately prior to such Post-Qualified IPO Dilutive Issuance plus (2) the consideration, if any, received by the Company upon such Post-Qualified IPO Dilutive Issuance, by (B) the product derived by multiplying (1) the Post-Qualified IPO Applicable Price by (2) the number of shares of Common Stock Deemed Outstanding immediately after such Post-Qualified IPO Dilutive Issuance. Notwithstanding anything to the contrary in this Section 7(a), for purposes of this Section 7(a) shares of Common Stock issued or sold by the Company on or after the Subscription Date in connection with the exercise of Options that were awarded by the Company prior to the Subscription Date shall not constitute, or be deemed to constitute, shares of Common Stock issued or sold by the Company on or after the Subscription Date and shall not result in an adjustment to the Conversion Price pursuant to this Section 7(a); provided that on or after the Subscription Date the exercise prices of such Options are not decreased and the number of shares issuable upon exercise of such Options is not increased (other than as a result of any stock dividend, stock split, stock combination, reclassification or similar transaction). For purposes of determining the adjusted Conversion Price under this Section 7(a), the following shall be applicable:

        (i)     Issuance of Options .    If, on or after the Subscription Date, the Company at any time, or from time to time, 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 Convertible Securities issuable upon exercise of such Option is less than the Pre-Qualified IPO Applicable Price or the Post-Qualified IPO Applicable Price, as the case may be, 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 (A) upon granting or sale of the Option, (B) upon exercise of the Option and (C) 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

12

Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange or exercise of such Convertible Securities.

        (ii)    Issuance of Convertible Securities .    If, on or after the Subscription Date, the Company at any time, or from time to time, 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 the conversion, exchange or exercise thereof is less than the Pre-Qualified IPO Applicable Price or the Post-Qualified IPO Applicable Price, as the case may be, 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 of sale of such Convertible Securities for such price per share. For the purposes of this Section 7(a)(ii), the "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 (A) upon the issuance or sale of the Convertible Security and (B) 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 Conversion .    If the purchase price provided for in any Options, the additional consideration, if any, payable upon the iss