Exhibit 10.2
[FORM OF AMENDED AND RESTATED
NOTE]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A
UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED TO AN “ACCREDITED INVESTOR” (AS SUCH TERM IS
DEFINED IN THE RULES AND REGULATIONS PROMULGATED UNDER THE
SECURITIES ACT OF 1933) IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE
TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 20(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.
A VANEX C ORPORATION
A MENDED AND R ESTATED S ENIOR S ECURED C ONVERTIBLE N OTE
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Issuance Date:
November 8, 2005
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Principal
Amount: U.S. $
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FOR VALUE RECEIVED,
Avanex Corporation, a Delaware
corporation (the “Company”), hereby promises to pay to
the order of [STEELHEAD INVESTMENTS LTD.] [KINGS ROAD
INVESTMENTS LTD.] [GRYPHON MASTER FUND, L.P.] [GSSF MASTER FUND LP]
[CASTLERIGG MASTER INVESTMENTS LTD.] or registered assigns
(“ Holder ”) the amount set out above as the
Principal Amount (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 a rate per annum equal to the Interest Rate (as
defined below), from the Original Issuance Date (as defined below)
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 Amended and
Restated Senior Secured Convertible Note
(including all Senior Secured Convertible Notes issued in exchange,
transfer or replacement hereof, this “ Note ”)
amends, supplements, modifies and completely restates the Senior
Secured Convertible Note, dated as of May 19, 2005 (the
“ Existing Note ”), issued by the Company to the
order of the Holder in the principal amount of
$[ ]
but shall not, except as specifically amended hereby, constitute a
release, satisfaction or novation of any of the obligations under
the Existing Note or any other Transaction Document (as defined in
the Securities Purchase Agreement). This Note is one of the Senior
Secured Convertible Notes issued pursuant to the Securities
Purchase Agreement, as amended in accordance with the Amendment
Agreement (collectively, the “ Notes ” and such
other Senior Secured Convertible Notes, the “ Other
Notes ”). Certain capitalized terms used herein are
defined in Section 30.
(1) MATURITY . On the
Maturity Date, the Holder shall surrender this 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, if any. The “
Maturity Date ” shall be May 19, 2008, as may be
extended at the option of the Holder (i) in the event that,
and for so long as, an Event of Default (as defined in
Section 4(a)) shall have occurred and be continuing or any
event shall have occurred and be continuing which with the passage
of time and the failure to cure would result in an Event of Default
and (ii) through the date that is ten days after the
consummation of a Change of Control in the event that a Change of
Control is publicly announced or a Change of Control Notice (as
defined in Section 5) is delivered prior to the Maturity
Date.
(2) INTEREST; INTEREST RATE .
Interest for the period beginning on the Original Issuance Date
through the second (2 nd ) anniversary of the Original
Issuance Date shall be pre-paid on the Closing Date, which
pre-payment shall be nonrefundable, in accordance with the terms of
the Securities Purchase Agreement. Interest on this Note shall
commence accruing on the second (2 nd ) anniversary of the Original
Issuance Date and shall be computed on the basis of a 365-day year
and actual days elapsed and shall be payable in arrears on the last
day of each Calendar Quarter during the period beginning on the
Original Issuance Date and ending on, and including, the Maturity
Date (each, an “ Interest Date ”) with the first
Interest Date being June 30, 2007. Interest shall be payable
on each Interest Date in cash. 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). From
and after the occurrence of an Event of Default, the Interest Rate
shall be increased to fifteen percent (15%). In the event that such
Event of Default is subsequently cured, the adjustment referred to
in the preceding sentence shall cease to be effective as of the
date of such cure; provided that the Interest as calculated at such
increased rate during the continuance of such Event of Default
shall continue to apply to the extent relating to the days after
the occurrence of such Event of Default through and including the
date of cure of such Event of Default.
(3) CONVERSION OF NOTES .
Subject to and in compliance with the provisions of this Note, the
Holder shall have the right, at its option, at any time after the
Original Issuance Date through the close of business on the
Maturity Date (except to the extent this Note or portion thereof
(including any accrued and unpaid Interest thereon and Late
Charges, if any) shall be redeemed or repurchased prior to the
Maturity Date) to convert the Note in accordance with the
provisions of this Section 3 into shares of common stock of
the Company, par value $0.001 per share (the “ Common
Stock ”), on the terms and conditions set forth in this
Section 3.
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(a) Conversion Right .
Subject to the provisions of Section 3(d), at any time or
times on or after the Original 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, 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 taxes that may be payable
with respect to the issuance and delivery of Common Stock upon
conversion of any Conversion Amount; provided that the
Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issue and delivery of
shares of Common Stock in any name other than that of the Holder of
any Note converted or with respect to any income tax due by the
Holder with respect to such shares of Common Stock issued upon
conversion.
(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 (provided that such portion of the
Principal shall be equal to $1,000 or an integral multiple of
$1,000 in excess thereof), (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, $0.90, subject to adjustment as
provided herein.
(c) Mechanics of Conversion
.
(i) Optional Conversion . To
convert any Conversion Amount into shares of Common Stock on any
date (a “ Conversion Date ”), the Holder shall
(A) transmit by facsimile (or otherwise deliver), for receipt
on or prior to 11:59 p.m., New York Time, on such date, a copy of
an executed notice of conversion in the form attached hereto as
Exhibit I (the “ Conversion Notice ”) to
the Company and (B) if required by Section 3(c)(iii),
surrender this Note to a common carrier for delivery to the Company
as soon as practicable on or following such date (or an
indemnification undertaking with respect to this Note in the case
of its loss, theft or destruction reasonably satisfactory to the
Company) and (C) pay any transfer taxes or other applicable
taxes or duties, if any, required in connection with the issuance
of shares of Common Stock in the name of someone other than the
Holder. On or before the second (2 nd ) 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 and the Company’s transfer agent (the “
Transfer Agent ”). On or before the third (3
rd
) Business Day
following the date of receipt by the Company of a Conversion Notice
(the “ Share Delivery Date ”), the Company shall
(X) provided the Transfer Agent is participating in the
Depository Trust
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Company (“ DTC ”) Fast
Automated Securities Transfer Program credit such aggregate number
of shares of Common Stock to which the Holder shall be entitled to
the Holder’s or its designee’s balance account with DTC
through its Deposit Withdrawal Agent Commission system to the
extent such Common Stock is not a “restricted security”
within the meaning of Rule 144 under the Securities Act of 1933, as
amended (the “ Securities Act ”) or (Y) if
the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program or the Common Stock is a restricted
security subject to the restrictions on transfer hereunder, 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 20(d)) representing the outstanding Principal not
converted.
(ii) Company’s Failure to
Timely Convert . If within three (3) Trading 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 credit the Holder’s balance account with DTC
for the number of shares of Common Stock to which the Holder is
entitled upon such holder’s conversion of any Conversion
Amount, and if on or after such Trading Day the Holder purchases
(in an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by the Holder of Common Stock
issuable upon such conversion that the Holder anticipated receiving
from the Company (a “Buy-In” ), then the Company
shall, 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, 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) 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 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 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
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of Notes electing to have Notes converted on
such date a pro rata amount of 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 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 25.
(v) The Holder, as such, is not
entitled to any rights of a holder of Common Stock until the Holder
has converted this Note into Common Stock, and only to the extent
this Note is deemed to have been converted into Common Stock
pursuant to this Section 3.
(vi) This Note shall be deemed to
have been converted immediately prior to the close of business on
the Conversion Date, and at such time the rights of the Holder of
this Note as the Holder hereof shall cease (unless the Company
defaults on its obligations in connection with any such conversion)
with respect to the portion of this Note converted on such
Conversion Date, and the Person or Persons entitled to receive the
shares of Common Stock issuable upon conversion shall be deemed to
be a stockholder of record on the Conversion Date.
(d) (i) Limitations on
Conversions . The Company shall not effect any conversion of
this Note (including any Optional Conversion pursuant to
Section 8), 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 9.9% (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 Other 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 (the “ Exchange Act ”). 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-K, 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 recent notice by
the Company or the Transfer Agent setting forth the number of
shares of Common Stock outstanding. Upon the written request of the
Holder, the Company shall within two (2) Business Days confirm
orally and in writing to the Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to
the conversion or
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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 percentage not in excess
of 9.9% specified in such notice; provided that (i) any such
increase will not be effective until the sixty-first (61
st
) 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.
(ii) Principal Market
Regulation . The Company shall not be obligated to issue any
shares of Common Stock upon conversion of this Note if the issuance
of such shares of Common Stock would exceed that number of shares
of Common Stock which the Company may issue upon conversion or
exercise, as applicable, of the Notes and the Warrants without
breaching the Company’s obligations under the rules or
regulations of the Principal Market.
(4) RIGHTS UPON EVENT OF
DEFAULT .
(a) Event of Default . Each
of the following events shall constitute an “ Event of
Default ”:
(i) the failure of the applicable
Registration Statement (as defined in the Registration Rights
Agreement) required to be filed pursuant to the Registration Rights
Agreement to be declared effective by the SEC on or prior to the
date that is sixty (60) days after the applicable
Effectiveness Deadline (as defined in the Registration Rights
Agreement), or, while the applicable Registration Statement is
required to be maintained effective pursuant to the terms of the
Registration Rights Agreement, the effectiveness of the applicable
Registration Statement lapses for any reason (including, without
limitation, the issuance of a stop order) or is unavailable to any
holder of the Notes for sale of all of such holder’s
Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period
of ten (10) consecutive days or for more than an aggregate of
thirty (30) days in any 365-day period (other than days during
an Allowable Grace Period (as defined in the Registration Rights
Agreement));
(ii) the suspension from trading or
failure of the Common Stock to be listed on the Principal Market or
on an Eligible Market for a period of five (5) consecutive
Business Days or for more than an aggregate of ten (10) days
in any 365-day period;
(iii) the Company’s
(A) failure to issue a certificate to the Holder or credit the
Holder’s balance account with DTC for the number of shares of
Common Stock to which the Holder is entitled upon conversion of the
Conversion Amount within ten (10) Business Days after the
applicable Conversion Date or (B) notice, written or oral, to
any holder of the Notes, including by way of public announcement or
through any of its agents, at any time, of its intention not to
comply with a request for conversion of any Notes into shares of
Common Stock that is tendered in accordance with the provisions of
the Notes;
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(iv) at any time following the tenth
(10 th ) consecutive Business Day
that the Holder’s Authorized Share Allocation is less than
the number of shares of Common Stock that the Holder would be
entitled to receive upon a conversion of the full Conversion Amount
of this Note (without regard to any limitations on conversion set
forth in Section 3(d) or otherwise);
(v) the Company’s failure to
pay to the Holder any amount of Principal, Interest, Late Charges
or other amounts when and as due under this Note or any other
Transaction Document (as defined in the Securities Purchase
Agreement) or any other agreement, document, certificate or other
instrument delivered in connection with the transactions
contemplated hereby and thereby to which the Holder is a party,
except in the case of a failure to pay Interest, Late Charges and
other amounts when and as due, in which case only if such failure
continues for a period of five (5) Business Days;
(vi) any default beyond any
applicable grace period under, redemption of or acceleration prior
to maturity of any Indebtedness of the Company or any of its
Subsidiaries (as defined in Section 3(a) of the Securities
Purchase Agreement) having an aggregate principal amount in excess
of $250,000 other than with respect to any Other Notes;
(vii) the Company or any of its
Subsidiaries, pursuant to or within the meaning of Title 11, U.S.
Code, or any similar Federal, foreign or state law for the relief
of debtors (collectively, “ Bankruptcy Law ”),
(A) commences a voluntary case, (B) consents to the entry
of an order for relief against it in an involuntary case,
(C) consents to the appointment of a receiver, trustee,
assignee, liquidator or similar official (a “
Custodian ”), (D) makes a general assignment for
the benefit of its creditors or (E) admits in writing that it
is generally unable to pay its debts as they become due;
(viii) a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law
that (A) is for relief against the Company or any of its
Subsidiaries in an involuntary case, (B) appoints a Custodian
of the Company or any of its Subsidiaries and such appointment is
not vacated within 60 days or (C) orders the liquidation of
the Company or any of its Subsidiaries;
(ix) a final judgment or judgments
for the payment of money aggregating in excess of $250,000 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 $250,000 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
thirty (30) days of the issuance of such judgment;
(x) on or after the Original
Issuance Date, the Company breaches any material representation,
warranty, covenant or other term or condition of any
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Transaction Document (other than in connection
with the Existing Claims (as defined in the Amendment Agreement)),
except, in the case of a breach of a covenant which is curable,
only if such breach continues for a period of at least fifteen
(15) consecutive Business Days;
(xi) the Company redeems, defeases,
repurchases, repays or makes any payments (other than any regularly
scheduled payments of Permitted Indebtedness in accordance with the
terms of, and only to the extent required by, and subject to any
applicable subordination provisions of, such Permitted
Indebtedness) in respect of, by the payment of cash or cash
equivalents, all or any portion of the principal amount of any
Permitted Indebtedness unless prior to any such redemption,
defeasance, repurchase, repayment or payment the Company has first
offered to redeem the aggregate principal amount outstanding under
the Notes, including any accrued and unpaid interest thereon and
accrued and unpaid Late Charges with respect to such principal and
interest, from all holders of the Notes;
(xii) the Company fails to satisfy
the Net Cash Balance Test for a period of three (3) Business
Days;
(xiii) any breach or failure in any
respect to comply with Section 15 of this Note; or
(xiv) any Event of Default (as
defined in the Other Notes) occurs with respect to any Other
Notes.
(b) Redemption Right .
Promptly after the occurrence of an Event of Default with respect
to this Note or any Other Note, the Company shall deliver written
notice thereof via facsimile and overnight courier (an “
Event of Default Notice ”) to the Holder. At the
election of the Required Holders, the Collateral Agent shall, by
notice to the Company, exercise any and all of its other rights and
remedies under applicable law hereunder and under the other
Transaction Documents. At any time after the earlier of the
Holder’s receipt of an Event of Default Notice and the Holder
becoming aware of an Event of Default, the Holder may require the
Company to redeem all or any portion of this Note by delivering
written notice thereof (the “ Event of Default Redemption
Notice ”) to the Company, which Event of Default
Redemption Notice shall indicate the portion of this Note the
Holder is electing to redeem. Each portion of this Note subject to
redemption by the Company pursuant to this Section 4(b) shall
be redeemed by the Company at a price equal to the greater of
(i) the product of (x) the Conversion Amount to be
redeemed and (y) the Redemption Premium and (ii) the
product of (A) the Conversion Rate with respect to such
Conversion Amount in effect at such time as the Holder delivers an
Event of Default Redemption Notice and (B) the Closing Sale
Price of the Common Stock on the date immediately preceding such
Event of Default (the “ Event of Default Redemption
Price ”). Redemptions 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
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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 in form
and substance reasonably satisfactory to the Required Holders and
approved by the Required Holders prior to such Fundamental
Transaction (which approval shall not be unreasonably withheld),
including agreements 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 and having similar ranking
to the Notes, and reasonably satisfactory to the Required Holders
and (ii) the Successor Entity (including its Parent Entity) is
a publicly traded corporation whose common stock is quoted on or
listed for trading on an Eligible Market. Upon the occurrence of
any Fundamental Transaction, the Successor Entity, if other than
the Company, 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. Upon the occurrence of
any Fundamental Transaction, the Successor Entity shall succeed to,
and be substituted for (so that from and after the effective 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 any
successor note is delivered. 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 Right . No
sooner than fifteen (15) days nor later than ten
(10) days prior to the proposed consummation date of a Change
of Control, but not prior to the public announcement of such Change
of Control, the Company shall deliver written notice thereof via
facsimile and overnight courier to the Holder (a “ Change
of Control Notice ”). At any time during the 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 may require the
Company to redeem all or any portion of this Note by delivering
written notice thereof (“ Change of Control Redemption
Notice ” and, collectively, with the Event of Default
Redemption Notice, the “ Redemption Notices ”
and, each, a “ Redemption Notice ”) to the
Company, which Change of Control Redemption Notice shall indicate
the Conversion Amount the Holder is electing to redeem. The portion
of this Note subject to redemption pursuant to this Section 5
shall be redeemed by the Company at a price equal to the greater of
(i) the product of (x) the Change of Control Premium,
(y) the Conversion Amount being redeemed and (z) the
quotient determined by dividing (A) the Closing Sale Price of
the Common Stock immediately following the public announcement of
such proposed Change of Control by (B) the Conversion Price
and (ii) the product of (x) the Change of Control Premium
and (y) the Conversion Amount being redeemed (the “
Change of Control Redemption Price ” and,
collectively, with the Event of Default Redemption Price, the
“ Redemption Prices ” and, each, a “
Redemption Price ”). Redemptions required by this
Section 5 shall be made in accordance with the provisions of
Section 12 and shall have priority to payments to shareholders
in connection with a Change of Control.
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(6) RIGHTS UPON ISSUANCE OF
PURCHASE RIGHTS AND OTHER CORPORATE EVENTS .
(a) Purchase Rights . If at
any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to all or substantially all
of the record holders of any class of Common Stock (the “
Purchase Rights ”), then the Holder will be entitled
to acquire, upon the terms applicable to such Purchase Rights, upon
the Holder’s election, the aggregate Purchase Rights, in lieu
of any adjustments to which the Holder is otherwise entitled under
Section 7 below in respect of such Purchase Right, 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.
(b) Other Corporate Events .
In addition to and not in substitution for any other rights
hereunder, prior to the consummation of any Fundamental Transaction
(other than a Change of Control pursuant to which all Holders
redeem the Notes in accordance with Section 5) 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 insure that the
Holder will after the effective date of such Fundamental
Transaction have the right to receive upon a conversion of this
Note, (i) in addition to the shares of Common Stock receivable
upon such conversion, such securities or other assets to which the
Holder would have been entitled with respect to such shares of
Common Stock had such shares of Common Stock been held by the
Holder upon the consummation of such Corporate Event (without
taking into account any limitations or restrictions on the
convertibility of this Note) or (ii) in lieu of the shares of
Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of
Common Stock in connection with the consummation of such Corporate
Event in such amounts as the Holder would have been entitled to
receive had this Note initially been issued with conversion rights
for the form of such consideration (as opposed to shares of Common
Stock) at a conversion rate for such consideration commensurate
with the Conversion Rate. Provision made pursuant to the preceding
sentence shall be in a form and substance satisfactory to the
Required Holders. The provisions of this Section shall apply
similarly and equally to successive Corporate Events and shall be
applied without regard to any limitations on the conversion or
redemption of this Note.
(7) RIGHTS UPON ISSUANCE OF OTHER
SECURITIES .
(a) Adjustment of Conversion
Price upon Issuance of Common Stock . If and whenever on or
after the Subscription Date, the Company issues or sells, or in
accordance with this Section 7(a) is deemed to have issued or
sold, any shares of Common Stock (including
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the issuance or sale of shares of Common Stock
owned or held by or for the account of the Company, but excluding
shares of Common Stock deemed to have been issued or sold by the
Company in connection with any Excluded Security) for a
consideration per share less than a price (the “
Applicable Price ”) equal to the Conversion Price in
effect immediately prior to such issue or sale (the foregoing a
“ Dilutive Issuance ”), then immediately after
such Dilutive Issuance, the Conversion Price then in effect shall
be reduced to an amount equal to the product of (A) the
Conversion Price in effect immediately prior to such Dilutive
Issuance and (B) the quotient determined by dividing
(1) the sum of (I) the product derived by multiplying the
Conversion Price in effect immediately prior to such Dilutive
Issuance and the number of shares of Common Stock Deemed
Outstanding immediately prior to such Dilutive Issuance plus
(II) the consideration, if any, received by the Company upon
such Dilutive Issuance, by (2) the product derived by
multiplying (I) the Conversion Price in effect immediately
prior to such Dilutive Issuance by (II) the number of shares
of Common Stock Deemed Outstanding immediately after such Dilutive
Issuance. For purposes of determining the adjusted Conversion Price
under this Section 7(a), the following shall be
applicable:
(i) Issuance of Options . If
the Company in any manner grants or sells any Options and the
lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or
exchange or exercise of any Convertible Securities issuable upon
exercise of such Option is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For
purposes of this Section 7(a)(i), the “lowest price per
share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion or exchange or
exercise of any Convertible Securities issuable upon exercise of
such Option” shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon granting or sale
of the Option, upon exercise of the Option and upon conversion or
exchange or exercise of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Conversion
Price shall be made upon the actual issuance of such share of
Common Stock or of such Convertible Securities upon the exercise of
such Options or upon the actual issuance of such Common Stock upon
conversion or exchange or exercise of such Convertible
Securities.
(ii) Issuance of Convertible
Securities . If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one
share of Common Stock is issuable upon such conversion or exchange
or exercise thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the issuance of
sale of such Convertible Securities for such price per share. For
the purposes of this Section 7(a)(ii), the “lowest price
per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise” shall be equal to the sum
of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock upon the issuance or sale of the Convertible Security and
upon the conversion or exchange or exercise of such Convertible
Security. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such share of Common Stock upon
conversion or exchange or exercise of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other
provisions of this Section 7(a), no further adjustment of the
Conversion Price shall be made by reason of such issue or
sale.
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(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
issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable or exercisable for Common Stock
changes at any time, the Conversion Price in effect at the time of
such change shall be adjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible
Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold. For purposes of this
Section 7(a)(iii), if the terms of any Option or Convertible
Security that was outstanding as of the Subscription Date are
changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof
shall be deemed to have been issued as of the date of such change.
No adjustment shall be made if such adjustment would result in an
increase of the Conversion Price then in effect.
(iv) Calculation of Consideration
Received . In case any Option is issued in connection with the
issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto,
the Options will be deemed to have been issued for a consideration
of $.01. If any Common Stock, Options or Convertible Securities are
issued or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the gross
amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration
other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the Closing Sale Price of such securities on
the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be
the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash or securities will be
determined in good faith by the Board of Directors of the Company
within five (5) days after the occurrence of an event
requiring valuation. If the Required Holders disagree with the
determination of the Board of Directors and give written notice of
such disagreement to the Company within ten (10) days after
the occurrence of an event requiring valuation (the “
Valuation Event ”), the fair value of such
consideration will be determined within five (5) Business Days
after the tenth day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company
and the Required Holders. The determination of such appraiser shall
be deemed binding upon all parties absent manifest error and the
fees and expenses of such appraiser shall be borne by the
Company.
(v) Record Date . If the
Company takes a record of the holders of Common Stock for the
purpose of entitling them (A) to receive a dividend or
other
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distribution payable in Common Stock, Options or
in Convertible Securities or (B) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record
date will be deemed to be the date of the issue or sale of the
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(vi) Floor Price . Until such
time as the Company receives any necessary stockholder approval, no
adjustment pursuant to Section 7(a) shall cause the Conversion
Price to be less than $0.7279 as adjusted for any stock dividend,
stock split, stock combination, reclassification or similar
transaction.
(b) Adjustment of Conversion
Price upon Subdivision or Combination of Common Stock . If the
Company at any time on or after the Subscription Date subdivides
(by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into
a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately
reduced. If the Company at any time on or after the Subscription
Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into
a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately
increased.
(c) No adjustment in the Conversion
Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in such price; provided
, however , that any adjustments which by reason of this
Section 7(c) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 7 shall be made by the Company
in good faith and shall be made to the nearest cent or to the
nearest one hundredth of a share, as applicable. No adjustment need
be made for a change in the par value or no par value of the
Company’s Common Stock.
(8) COMPANY’S RIGHT OF
OPTIONAL CONVERSION .
(a) Optional Conversion . If
at any time from and after the second (2 nd ) anniversary of the Original
Issuance Date (the “ Optional Conversion Eligibility
Date ”), (i) the Weighted Average Price of the
Common Stock equals or exceeds 175% of the Conversion Price on the
Subscription Date (subject to appropriate adjustments for stock
splits, stock dividends, stock combinations and other similar
transactions after the Subscription Date) for each of twenty
(20) Trading Days out of any thirty (30) consecutive
Trading Days following the Optional Conversion Eligibility Date
(the “ Optional Conversion Measuring Period ”)
and (ii) the Equity Conditions shall have been satisfied (or
waived in writing by the Holder) from and including the Optional
Conversion Notice Date (as defined below) through and including the
Optional Conversion Date (as defined below), the Company shall have
the right to require the Holder to convert all, but not less than
all, of the Conversion Amount then remaining under this Note into
fully paid, validly issued and nonassessable shares of Common Stock
in accordance with Section 3(c) hereof at the Conversion Rate
as of the Optional Conversion Date (as defined below) (an “
Optional Conversion ”). The Company may exercise its
right to require conversion under this Section 8(a) by
delivering within not more than two (2) Trading Days following
the end of such Optional Conversion Measuring Period written notice
thereof by facsimile and
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