THIS SENIOR CONVERTIBLE NOTE (THIS
“NOTE”) AND THE SECURITIES ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED
FOR SALE OR SOLD UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT
THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION
WITH SUCH OFFER OR SALE. THIS NOTE AND THE SECURITIES ISSUABLE
UPON CONVERSION HEREOF (I) MAY BE PLEDGED OR
HYPOTHECATED IN CONNECTION WITH A BONA FIDE MARGIN LOAN OR OTHER
FINANCING SECURED BY SUCH SECURITIES OR (II) MAY BE TRANSFERRED OR
ASSIGNED TO AN AFFILIATE OF THE HOLDER HEREOF WITHOUT THE NECESSITY
OF AN OPINION OF COUNSEL OR THE CONSENT OF THE ISSUER
HEREOF.
THIS NOTE DOES NOT REQUIRE PHYSICAL
SURRENDER HEREOF IN ORDER TO EFFECT A PARTIAL PAYMENT, REDEMPTION
OR CONVERSION HEREOF. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT
OF THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT SHOWN
BELOW.
ZAP
8% SENIOR CONVERTIBLE NOTE
$[___________]
Issue Date: December 5,
2006
FOR VALUE RECEIVED, ZAP,
a California corporation (the “
Company ”), hereby promises to pay to the
order of [GEMINI MASTER FUND, LTD.] or its permitted successors or
assigns (the “ Holder ”) the sum of
[__________________________] DOLLARS ($[_____________]) in same day
funds, on or before the two (2) year anniversary of the Issue Date
(the “ Maturity Date ”). The Holder may
convert principal of and interest accrued on this Note into shares
(“ Conversion Shares ”) of the
Company’s common stock, no par value (the “
Common Stock ”), on the terms set forth
herein.
Except as
specifically provided by the terms of Section 6 ,
and the Scheduled Principal Payments contemplated in Section
2(a) , the Company shall not have the right to prepay any
principal of this Note.
The Company has
issued this Note pursuant to a Securities Purchase Agreement, dated
as of December 5, 2006 (the “ Securities Purchase
Agreement ”). The Notes issued by the Company
pursuant to the Securities Purchase Agreement,
including this Note, are collectively referred to herein as the
“ Notes ”.
The following terms
shall apply to this Note:
“
Business Day ” means any day other than a
Saturday, a Sunday or a day on which the Principal Market is closed
or on which banks in the City of New York are required or
authorized by law to be closed.
“
Change of Control ” means the existence or
occurrence of any of the following: (a) the sale, conveyance or
disposition of all or substantially all of the assets of the
Company; (b) the effectuation of a transaction or series of
transactions in which more than fifty percent (50%) of the voting
power of the Company is disposed of; (c) the consolidation, merger
or other business combination of the Company with or into any other
entity, immediately following which the prior stockholders of the
Company fail to own, directly or indirectly, at least fifty percent
(50%) of the surviving entity; (d) a transaction or series of
transactions in which any Person or group acquires more than fifty
percent (50%) of the voting equity of the Company; or (e) the
Continuing Directors do not at any time constitute at least a
majority of the Board of Directors of the Company.
“ Continuing Director
” means, at any date, a member of the Company’s Board
of Directors (i) who was a member of such board on the date of the
Securities Purchase Agreement or (ii) who was nominated or elected
by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election or whose
election to the Company’s Board of Directors was recommended
or endorsed by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election or
such lesser number comprising a majority of a nominating committee
if authority for such nominations or elections has been delegated
to a nominating committee whose authority and composition have been
approved by at least a majority of the directors who were
Continuing Directors at the time such committee was formed.
“ Conversion ” has
the meaning set forth in Section 3(a) of this
Note.
“ Conversion Date
” has the meaning set forth in Section 3(b)
of this Note.
“
Conversion Default ” has the meaning set
forth in Section 3(e) of this Note.
“
Conversion Notice ” has the meaning set forth
in Section 3(b) of this Note.
“
Conversion Price ” means, as of any date, one
dollar ($1.00), subject to adjustment as provided herein.
“ Convertible Securities
” means any stock or securities
(other than Options) of the Company convertible into or exercisable
or exchangeable for Common Stock .
“
Current Price ” means, as of a particular
date, the average of the daily VWAP for each of the five (5)
consecutive Trading Days occurring immediately prior to (but not
including) such date.
“
Default Interest Rate ” means the lower of
twelve (12%) and the maximum rate permitted by applicable law or by
the applicable rules or regulations of any governmental agency or
of any stock exchange or other self-regulatory organization having
jurisdiction over the Company or the trading of its securities.
“
Delivery Date ” has the meaning set forth in
Section 3(d) of this Note.
“
Determination Date ” has the meaning set
forth in Section 4(c) of this Note.
“
Dispute Procedure ” has the meaning set forth
in Section 3(b) of this Note.
“
Distribution, ” “ Distribution
Date ” and “ Distribution
Notice ” have the respective meanings set forth in
Section 4(c) of this Note.
“ Equity
Conditions ” means each of the following:
(i) the Registration
Statement shall have been declared effective, not be the subject of
any stop order, be available to the Holder, and cover the number of
Registrable Securities required by the Registration Rights
Agreement;
(ii) the Reserved
Amount must be equal to or greater than the number of shares of
Common Stock that the Company is required to reserve by the
Securities Purchase Agreement;
(iii) trading in the
Common Stock shall not have been suspended on the Principal
Market;
(iv) the shares of
Common Stock that the Holder would beneficially own, after giving
effect to the contemplated issuance of Company securities for which
these Equity Conditions must be satisfied, shall not exceed the
limitation set forth in Section 3(f) (unless such
limitation has been waived by the Holder in accordance with
Section 3(f) ; and
(v) an Event of
Default, or an event that with the passage of time or giving of
notice, or both, would constitute an Event of Default, has not
occurred and is not continuing.
“ Event
of Default ” means the occurrence of any of the
following events:
(i) a Liquidation
Event occurs or is publicly announced;
(ii) the Company
fails to make any payment of principal or interest on this Note in
full as and when such payment is due, and such payment remains
unpaid for five (5) Business Days following written notice thereof
from the Holder;
(iii) other than a
breach described in clause (ii) above, the Company
breaches or provides notice of its intent to breach any material
term or condition of this Note, the
Securities Purchase Agreement, the Warrant or
the Registration Rights Agreement (including, without limitation,
the occurrence of a Conversion Default, an Exercise Default (as
defined in the Warrants) or a Registration Default (as defined in
the Registration Rights Agreement); and such breach continues for a
period of five (5) Business Days following written notice thereof
from the Holder;
(iv) any
representation or warranty made by the Company in this Note, the
Securities Purchase Agreement, the Warrant or the Registration
Rights Agreement was inaccurate or misleading in any material
respect as of the date such representation or warranty was made;
or
(v) a default occurs
or is declared, or any amounts are accelerated, under or with
respect to any instrument that evidences Debt of the Company or any
of its Subsidiaries in a principal amount exceeding $25,000.
“
Excluded Securities ” means (i) securities
purchased under the Securities Purchase Agreement; (ii) securities
issued upon conversion or exercise of the Notes, the Warrants, or
any other options, warrants or convertible securities outstanding
as of the Issue Date and disclosed on Schedule 3.5 of the
Securities Purchase Agreement; (iii) shares of Common Stock
issuable or issued to employees from time to time upon the exercise
of options, in such case granted or to be granted in the discretion
of the Board of Directors pursuant to one or more employee stock
option plans or restricted stock plans in effect as of the Issue
Date or adopted after the Issue Date by the independent members of
the Board of Directors; (iv) shares of Common Stock issued in
connection with any stock split, stock dividend or recapitalization
of the Company; (v) shares of Common Stock issued in exchange for
services, in leasing transactions, or for purchase of assets, in
each case, negotiated on an arms’ length basis and charged at
a reasonable market rates; and (vi) securities issued in connection
with a merger or a consolidation involving the Company or a
Subsidiary or the acquisition of the capital stock or the assets of
any Person, provided in each case that the transaction is
approved by the written consent of the Investors holding at least a
majority of the principal amount of the Notes then outstanding,
such consent not to be unreasonably withheld.
“ Floor
Price ” means, as of any date, the lesser of (i)
$0.75 (as appropriately adjusted for any
stock dividend, stock split, reverse stock split or other similar
transaction) and (ii) the Conversion Price in effect as of such
date.
“ Forced
Conversion ” has the meaning set forth in
Section 7(a) of this Note.
“
Forced Conversion Date ” has the meaning set
forth in Section 7(b) of this Note.
“
Forced Conversion Period ” has the meaning
set forth in Section 7(a) of this Note.
“
Forced Conversion Price ” means, as of any
date, the lesser of (i) $2.00 (as appropriately adjusted for any
stock dividend, stock split, reverse stock split or other similar
transaction) and (ii) two hundred percent (200%) of the Conversion
Price in effect as of such date.
“
Governmental Authority ” means any nation or
government, any state, provincial or political subdivision thereof
and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, including without limitation any stock exchange,
securities market or self-regulatory organization.
“
Interest ” and “ Interest
Payment Date ” have the respective meanings set
forth in Section 2(b)(i) of this Note.
“
Interest Stock Option ” has the meaning set
forth in Section 2(b)(ii) of this Note.
“
Interest Stock Option Delivery Date ” has the
meaning set forth in Section 2(b)(v) of this
Note.
“
Interest Stock Option Notice ” has the
meaning set forth in Section 2(b)(iv) of this
Note.
“ Issue
Date ” means the date on which this Note is issued
pursuant to the Securities Purchase Agreement.
“ Liquidation Event
” means the (i) institution of any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or
other similar proceedings in connection therewith, relative to the
Company or any Subsidiary of the Company, or (ii) the dissolution
or other winding up of the Company or any Subsidiary of the
Company, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy proceedings, or (iii) any
assignment for the benefit of creditors or any marshalling of the
material assets or material liabilities of the Company or any
Subsidiary of the Company.
“ Major
Transaction ” means a merger, consolidation,
business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar
event, as a result of which shares of Common Stock shall be changed
into the same or a different number of shares of the same or
another class or classes of stock or securities or other assets of
the Company or another entity or the Company shall sell all or
substantially all of its assets.
“ Mandatory Redemption
,” “ Mandatory Redemption Date ”
and “ Mandatory Redemption Notice ”
have the respective meanings set forth in Section
5(a) of this Note.
“ Mandatory Redemption
Price ” means one hundred and twenty percent (120%)
of (A) the unpaid principal amount of this Note being redeemed
plus (B) all accrued and unpaid Interest (including
default interest).
“
Optional Redemption ”, “
Optional Redemption Date ” and “
Optional Redemption Notice ” have the
respective meanings set forth in Section 6(a) of
this Note.
“ Optional Redemption
Price ” means one hundred and twenty percent (120%)
of (A) the unpaid principal amount of this Note plus (B)
all accrued and unpaid Interest (including default interest).
“
Options ” means any rights, warrants or
options to subscribe for, purchase or receive Common Stock or
Convertible Securities.
“
Person ” means any individual, corporation,
trust, association, company, partnership, joint venture, limited
liability company, joint stock company, Governmental Authority or
other entity.
“
Principal Market ” means the principal
exchange, market or quotation system on which the Common Stock is
listed, traded or quoted.
“
Principal Payment ” has the meaning set forth
in Section 2(a)(i) of this Note.
“
Principal Payment Response Notice ” and
“Principal Payment Suspension Notice” have the
respective meanings set forth in Section 2(a)(vi)
of this Note.
“
Principal Payment Share Price ” means, as of
a Scheduled Principal Payment Date, the lesser of (i)
ninety percent (90%) of the lowest daily
VWAP for any Trading Day among the ten (10) consecutive Trading
Days occurring immediately prior to (but not including) such
Scheduled Principal Payment Date and (ii) the Conversion Price in
effect as of such Scheduled Principal Payment Date.
“
Principal Stock Option ” has the meaning set
forth in Section 2(a)(ii) of this Note
“
Principal Stock Option Delivery Date ” has
the meaning set forth in Section 2(a)(v) of this
Note
“
Principal Stock Option Notice ” has the
meaning set forth in Section 2(a)(iv) of this
Note
“
Purchase Rights ” means any options, warrants
or other rights to purchase or subscribe for Common Stock or
Convertible Securities.
“ Record Date ”
has the meaning set forth in Section 4(c) of this
Note.
“
Registrable Securities ” has the meaning set
forth in the Registration Rights Agreement.
“ Registration Rights
Agreement ” means the agreement between the Holder
and the Company pursuant to which the Company has agreed to
register the resale of the shares of Common Stock issuable under
the Notes and the Warrants.
“ Registration Statement
” has the meaning set forth in the Registration Rights
Agreement.
“
Scheduled Interest Payment Date ” means each
April 1, July 1, October 1, and January 1 following the Issue Date,
with the first Scheduled Interest Payment Date occurring on January
1, 2007, provided , that if any of such days in any year
is not a Business Day, then the Scheduled Interest Payment Date
shall be the Business Day immediately following such date.
“
Scheduled Principal Payment Date ” means the
first day of each calendar month, with the first Scheduled
Principal Payment Date occurring on June 1, 2007, provided
, that if any of such days in any year is not a Business Day, then
the Scheduled Principal Payment Date shall be the Business Day
immediately following such date.
“
Trading Day ” means a Business Day on which
shares of Common Stock are purchased and sold on the Principal
Market.
“
Transaction Documents ” means (i) the
Securities Purchase Agreement, (ii) the Notes, (iii) the Warrants,
(iv) the Registration Rights Agreement, and (v) all other
agreements, documents and other instruments executed and delivered
by or on behalf of the Company and any of its officers at the
Closing.
“
VWAP ” on a Trading Day means the volume
weighted average price of the Common Stock for such Trading Day on
the Principal Market as reported by Bloomberg Financial Markets or,
if Bloomberg Financial Markets is not then reporting such prices,
by a comparable reporting service of national reputation selected
by the Holders and reasonably satisfactory to the Company. If VWAP
cannot be calculated for the Common Stock on such Trading Day on
the foregoing bases, then the Company shall submit such calculation
to an independent investment banking firm of national reputation
reasonably acceptable to the Investors, and shall cause such
investment banking firm to perform such determination and notify
the Company and the Investors of the results of determination no
later than two (2) Business Days from the time such calculation was
submitted to it by the Company. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, reverse
stock split or other similar transaction during such period.
“
Warrants ” means the warrants issued pursuant
to the Securities Purchase Agreement.
All definitions
contained in this Note are equally applicable to the singular and
plural forms of the terms defined. The words “hereof”,
“herein” and “hereunder” and words of
similar import refer to this Note as a whole and not to any
particular provision of this Note. Any capitalized term used but
not defined herein has the meaning specified in the Securities
Purchase Agreement.
2. PAYMENT OF
PRINCIPAL AND INTEREST .
(i) Schedule and
Amount of Payments . Subject to Section
2(a)(vi) , the Company shall pay to the Holder, in cash,
on each Scheduled Principal Payment Date, an amount of principal
equal to the lesser of (x) 8.333% of the original principal amount
of this Note and (y) the then total remaining unpaid principal of
this Note (each, a “ Principal Payment
”).
(ii) Payment of
Principal . The Company shall make each Principal Payment in
cash by wire transfer of immediately available funds; provided,
however, that, subject to the satisfaction of all of the
Equity Conditions as specified in Section 2(a)(iii)
, the Company may elect to pay all or a portion of a Principal
Payment due on a Scheduled Principal Payment Date in shares of
Common Stock
(the “ Principal Stock
Option ”). A Principal Payment that is not paid as
and when due in accordance with this Section 2(a)
shall bear interest until paid at the Default Interest Rate.
(iii) Conditions to
Principal Payment in Common Stock . The Company shall be
entitled to exercise the Principal Stock Option with respect to a
Scheduled Principal Payment Date only if, on the Principal Stock
Option Delivery Date for such Scheduled Principal Payment Date and
on each of the ten (10) Trading Days immediately preceding such
date, all of the Equity Conditions are satisfied in full. In the
event that any of the Equity Conditions are not satisfied as of the
applicable Principal Stock Option Delivery Date and each such
Trading Day (and regardless of whether the Company has delivered a
Principal Stock Option Notice), the Company shall not be permitted
to exercise the Principal Stock Option and must pay the entire
Principal Payment due on such Scheduled Principal Payment Date in
cash by wire transfer of immediately available funds on such
Scheduled Principal Payment Date, and such amounts due but not paid
on such Scheduled Principal Payment Date shall accrue interest at
the Default Interest Rate until paid in full. Notwithstanding the
foregoing, in no event shall the Company be permitted to exercise
the Principal Stock Option to the extent that, upon receipt of the
shares of Common Stock deliverable thereby, the Holder would
beneficially own more than 4.99% of the number of shares of Common
Stock then outstanding.
(iv) Principal
Stock Option Notice . In order to exercise the Principal Stock
Option with respect to a Scheduled Principal Payment Date, the
Company must deliver, on or before the tenth (10 th ) calendar day immediately prior
to such date, written notice to the Holder stating that the Company
wishes to exercise such option and the amount of the Principal
Payment to be paid in shares of Common Stock (a “
Principal Stock Option Notice ”). A Principal
Stock Option Notice, once delivered by the Company, shall be
irrevocable ( provided that if the Company is prohibited
under Section 2(a)(iii) from exercising the
Principal Stock Option contemplated in such Principal Stock Option
Notice; such Principal Stock Option Notice shall be deemed
cancelled). In the event that the Company does not deliver a
Principal Stock Option Notice on or before such tenth day, the
Company will be deemed to have elected to pay all of the Principal
Payment then due in cash.
(v) Delivery of
Shares . If the Company has validly exercised the Principal
Stock Option with respect to a Scheduled Principal Payment Date,
the Company must deliver to the Holder, on or before the fifth (5
th ) Business Day
following such Scheduled Principal Payment Date (the “
Principal Stock Option Delivery Date ”), a
number of shares of Common Stock equal to (A) the amount of the
Principal Payment for which the Company has elected to pay in
Common Stock on such Scheduled Principal Payment Date divided
by (B) the Principal Payment Share Price as of such Scheduled
Principal Payment Date. The Company must deliver such shares of
Common Stock to the Holder in accordance with the provisions of
Section 3(d) of this Note, with the Principal Stock
Option Delivery Date being deemed the Delivery Date for purposes
hereof, and in the event of the Company’s failure to effect
such delivery on the applicable Delivery Date therefor, the Holder
shall have the remedies specified in Section 3(e)
of this Note. If any fractional share would be issuable upon
exercise of the Principal Stock Option, such fractional share shall
be disregarded and the number of shares issuable shall, in the
aggregate, be equal to the nearest whole number of shares.
(vi) Suspension of
Principal Payment .
(1) Notwithstanding
Section 2(a)(i) , the obligation of the Company
to
make a Principal Payment on a Scheduled
Principal Payment Date shall be suspended as and to the extent
provided in Section 2(a)(vi)(3) if (a) the
Company has timely delivered a Principal Stock Option Notice with
respect to such Principal Payment, (b) the Principal Payment Share
Price is less than the Floor Price as of such Scheduled Principal
Payment Date, (c) the Company provides written notice thereof (the
“ Principal Payment Suspension Notice
”) to the Holder prior to 5 p.m., New
York City time on such Scheduled Principal Payment Date, and (d)
the Holder fails to provide written notice (the “
Principal Payment Response Notice ”)
to the Company within two Business Days of
receiving such Principal Payment Suspension Notice stating that the
Holder is willing to receive such Principal Payment in shares of
Common Stock based on a per share price equal to such Floor Price
(and not the Principal Payment Share Price). If the Company fails
to timely deliver a Principal Payment Suspension Notice with
respect to a Principal Payment, then the Company shall be obligated
to make such Principal Payment in shares of Common Stock at the
applicable Principal Payment Share Price, even if such price is
below the Floor Price.
(2) If the Holder
timely delivers a Principal Payment Response Notice in response to
a Principal Payment Suspension Notice, then the Company shall, in
full satisfaction of the Principal Payment to which such Principal
Payment Response Notice relates, deliver to the Holder, on or
before the Principal Stock Option Delivery Date for such Principal
Payment, a number of shares of Common Stock equal to (A) the amount
of such Principal Payment divided by (B) the Floor Price
as of such Scheduled Principal Payment Date. Notwithstanding the
foregoing, if any of the Equity Conditions are not satisfied (or
waived by the Holder) as of such Principal Stock Option Delivery
Date and on each of the ten (10) Trading Days immediately preceding
such date, then the Company shall not be entitled or permitted to
make such Principal Payment, and such Principal Payment shall be
deemed suspended as and to the extent provided in Section
2(a)(vi)(3) . The Company must deliver the shares of
Common Stock required to be delivered by it under this
Section 2(a)(vi)(2) to the Holder in accordance
with the provisions of Section 3(d) of this Note,
with the applicable Principal Stock Option Delivery Date being
deemed the Delivery Date for purposes hereof, and in the event of
the Company’s failure to effect such delivery on such
Principal Stock Option Delivery Date, the Holder shall have the
remedies specified in Section 3(e) of this Note. If
any fractional share would be issuable upon the making of a
Principal Payment hereunder, such fractional share shall be
disregarded and the number of shares issuable shall, in the
aggregate, be equal to the nearest whole number of shares.
(3) If the Holder
does not timely deliver a Principal Payment Response Notice to a
Principal Payment Suspension Notice (or, if upon timely delivery by
the Holder of a Principal Payment Response Notice to a Principal
Payment Suspension Notice, any of the Equity Conditions are not
satisfied in accordance with Section 2(a)(vi)(2) ),
the Company’s obligation to make the Principal Payment to
which such Principal Payment Suspension Notice relates shall be
suspended until the next Scheduled Principal Payment Date; in which
case, (i) all Principal Payments previously suspended and not paid
plus (2) the Principal Payment regularly scheduled to be
paid on such Scheduled Principal Payment Date, shall be due and
payable in full as of such Scheduled Principal Payment Date in
accordance with, and subject to the limitations of, this
Section 2(a) .
(i) Interest
Accrual . This Note shall bear interest on the unpaid principal
amount hereof (“ Interest ”) at an
annual rate equal to eight percent (8%), computed on the basis of a
360-day year and calculated using the actual number of days elapsed
since the Issue Date or the date on which Interest was most
recently paid, as the case may be, and if not timely paid as
provided herein, compounded monthly. The Company shall pay accrued
Interest (x) on each Scheduled Interest Payment Date, (y) on the
Maturity Date and (z) on any date on which the entire principal
amount of this Note is paid in full (whether through conversion or
otherwise) (each of the foregoing clauses (x) ,
(y) and (z) being referred to
herein as an “ Interest Payment Date
”).
(ii) Interest
Payments . The Company shall pay Interest in cash by wire
transfer of immediately available funds; provided,
however, that, subject to the satisfaction of all of the
Equity Conditions as specified in Section 2(b)(iii)
, the Company may elect to pay all or a portion of the Interest due
on a Scheduled Interest Payment Date in shares of Common Stock (the
“ Interest Stock Option ”). Interest
that is not paid as and when due in accordance with this
Section 2(b) shall bear interest until paid at the
Default Interest Rate.
(iii) Conditions to
Interest Payment in Common Stock . The Company shall be
entitled to exercise the Interest Stock Option with respect to a
Scheduled Interest Payment Date only if, on the Interest Stock
Option Delivery Date for such Scheduled Interest Payment Date and
on each of the ten (10) Trading Days immediately preceding such
date, all of the Equity Conditions are satisfied in full. In the
event that any Equity Conditions is not satisfied as of the
applicable Interest Stock Option Delivery Date and each such
Trading Day (and regardless of whether the Company has delivered an
Interest Stock Option Notice), the Company shall not be permitted
to exercise the Interest Stock Option and must pay all amounts due
on such Scheduled Interest Payment Date in cash by wire transfer of
immediately available funds on such Scheduled Interest Payment
Date, and such amounts due but not paid on such Scheduled Interest
Payment Date shall accrue interest at the Default Interest Rate
until paid in full. Notwithstanding the foregoing, in no event
shall the Company be permitted to exercise the Interest Stock
Option to the extent that, upon receipt of the shares of Common
Stock deliverable thereby, the Holder would beneficially own more
than 4.99% of the number of shares of Common Stock then
outstanding.
(iv) Interest
Stock Option Notice . In order to exercise the Interest Stock
Option with respect to a Scheduled Interest Payment Date, the
Company must deliver, on or before the tenth (10 th ) calendar day immediately prior
to such date, written notice to the Holder stating that the Company
wishes to exercise such option and the amount of Interest to be
paid in shares of Common Stock (an “ Interest Stock
Option Notice ”). An Interest Stock Option Notice,
once delivered by the Company, shall be irrevocable (
provided that if the Company is prohibited under
Section 2(b)(iii) from exercising the Interest
Stock Option contemplated in such Interest Stock Option Notice,
such Interest Stock Option Notice shall be deemed cancelled). In
the event that the Company does not deliver an Interest Stock
Option Notice on or before such tenth day, the Company will be
deemed to have elected to pay all Interest then due in cash.
(v) Delivery of
Shares . If the Company has validly exercised the Interest
