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EXECUTION COPY
NEITHER THE ISSUANCE AND PLACECITYSALE 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 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 19(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.
CHARYS HOLDING COMPANY, INC.
SUBORDINATED UNSECURED CONVERTIBLE NOTE
Issuance Date: April 30, 2007 Principal: U.S. $5,012,426.00
FOR VALUE RECEIVED, Charys Holding Company, Inc., a Delaware
corporation
(the "COMPANY"), hereby promises to pay to the order of
CASTLERIGG MASTER
INVESTMENTS LTD. 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), on any Installment Date with respect to
the Installment
Amount due on such Installment Date (each, as defined herein),
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 equal to
8.75% per annum (the "INTEREST RATE"), from the date set out
above as the
Issuance Date (the "ISSUANCE DATE") until the same becomes due
and payable,
whether upon any Installment Date or, the Maturity Date,
acceleration,
conversion, redemption or otherwise (in each case in accordance
with the terms
hereof). This Subordinated Unsecured Convertible Note (including
all
Subordinated Unsecured Convertible Notes issued in exchange,
transfer or
replacement hereof, this "NOTE") is one of an issue of
Subordinated Unsecured
Convertible Notes issued pursuant to the Securities Exchange
Agreement (as
defined below) on the Closing Date (collectively, the "NOTES"
and such other
Subordinated Unsecured Convertible Notes, the "OTHER NOTES").
Certain
capitalized terms used herein are defined in Section 27.
Notwithstanding
anything herein contained to the contrary or in the Securities
Exchange
Agreement defined below, the Holder specifically acknowledges
that all of those
certain 8.75% Senior Convertible Notes issued by the Company on
February 16,
2007 in the principal amount of $175 million, and issued on
March 6, 2007 in the
principal amount of $26.25 million in connection with the
issuance of securities
of the Company by McMahan Securities Co. L.P. are senior to this
Note in right
of payment, whether in respect of payment of redemptions,
interest, damages or
upon liquidation or dissolution or otherwise.
(1) PAYMENTS OF PRINCIPAL. On each Installment Date, the Company
shall
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pay to the Holder an amount equal to the Installment Amount due
on such
Installment Date. The "MATURITY DATE" shall be May 1, 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 (10) 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(b)) is delivered prior to the
Maturity Date and
(iii) in connection with a deferral in accordance with the
provisions of Section
8(b).
(2) INTEREST; INTEREST RATE. Interest on this Note shall
commence
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accruing on the Issuance Date and shall be computed on the basis
of a 365-day
year and actual days elapsed and shall be payable in arrears for
each Payment
Month on the Installment Date during the period beginning on the
Issuance Date
and ending on,
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and including, the Maturity Date. Interest shall be payable on
each Installment
Date, to the record holder of this Note on the applicable
Installment Date, and
to the extent that any Principal amount of this Note is
converted prior to such
Installment Date, accrued and unpaid Interest with respect to
such converted
Principal amount and accrued and unpaid Late Charges with
respect to such
Principal and Interest shall be paid through the Conversion Date
(as defined
below) on the next succeeding Installment Date to the record
holder of this Note
on the applicable Conversion Date, in cash ("CASH INTEREST").
Prior to the
payment of Interest on an Installment Date, Interest on this
Note shall accrue
at the Interest Rate. Upon the occurrence and during the
continuance 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 and
unpaid at such
increased rate during the continuance of such Event of Default
shall continue to
apply to the extent relating to the days after the occurrence of
such Event of
Default through and including the date of cure of such Event of
Default. The
Company shall pay any and all taxes that may be payable with
respect to the
issuance and delivery of Interest Shares; provided that the
Company shall not be
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required to pay any tax that may be payable in respect of any
issuance of
Interest Shares to any Person other than the Holder or with
respect to any
income tax due by the Holder with respect to such Interest
Shares.
(3) CONVERSION OF NOTES. This Note shall be convertible into
shares of
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the Company's common stock, par value $0.001 per share (the
"COMMON STOCK"), on
the terms and conditions set forth in this Section 3 (the
"CONVERSION").
(a) Conversion Right. Subject to the provisions of Section
3(d),
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at any time or times on or after 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, 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.
(b) Conversion Rate. The number of shares of Common Stock
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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 portion of the Principal
to
be converted, redeemed or otherwise with respect to which this
determination is
being made.
(ii) "CONVERSION PRICE" means, as of any Conversion Date (as
defined below) or other date of determination, $2.25, subject to
adjustment as
provided herein.
(c) Mechanics of Conversion.
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(i) Optional Conversion. To convert any Conversion Amount
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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
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the Company and (B) if required by Section 3(c)(iii), surrender
this Note to a
common carrier for delivery to the Company as soon as
practicable on or
following such date (or an indemnification undertaking with
respect to this Note
in the case of its loss, theft or destruction). On or before the
first (1st)
Business Day following the date of receipt of a Conversion
Notice, the Company
shall transmit by facsimile a confirmation of receipt of such
Conversion Notice
to the Holder and the Transfer Agent. On or before the second
Business Day
following the date of receipt of a Conversion Notice (the "SHARE
DELIVERY
DATE"), the Company shall (X) provided that the Transfer Agent
is participating
in the DTC Fast Automated Securities Transfer Program, credit
such aggregate
number of shares of Common Stock to which the Holder shall be
entitled to the
Holder's or its designee's balance account with DTC through its
Deposit
Withdrawal Agent Commission system or (Y) if the Transfer Agent
is not
participating in the DTC Fast Automated Securities Transfer
Program, 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
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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 17(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. In the event of a partial
Conversion of
this Note pursuant hereto, the principal amount converted shall
be deducted from
the Installment Amounts relating to the Installment Dates as set
forth in the
Conversion Notice.
(ii) Company's Failure to Timely Convert. If within three
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(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 (a "CONVERSION FAILURE"),
and if on or after
such Trading Day the Holder purchases (in an open market
transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by
the Holder of
Common Stock issuable upon such Conversion that the Holder
anticipated receiving
from the Company (a "BUY-IN"), 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
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set forth herein, upon Conversion of any portion of this Note in
accordance with
the terms hereof, the Holder shall not be required to physically
surrender this
Note to the Company unless (A) the full Conversion Amount
represented by this
Note is being converted or (B) the Holder has provided the
Company with prior
written notice (which notice may be included in a Conversion
Notice) requesting
reissuance of this Note upon physical surrender of this Note.
The Holder and
the Company shall maintain records showing 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 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 24.
(d) Limitations on Conversions.
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(i) Beneficial Ownership. 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 4.99% (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
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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 "1934 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-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 or
oral request of the Holder, the Company shall within one
Business Day confirm
orally and in writing to the Holder the number of shares of
Common Stock then
outstanding. In any case, the number of outstanding shares of
Common Stock
shall be determined after giving effect to the Conversion or
exercise of
securities of the Company, including this Note, by the Holder or
its affiliates
since the date as of which such number of outstanding shares of
Common Stock was
reported. By written notice to the Company, the Holder may
increase or decrease
the Maximum Percentage to any other percentage not in excess of
9.99% specified
in such notice; provided that (i) any such increase 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.
(ii) Principal Market Regulation. The Company shall not be
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obligated to issue any shares of Common Stock upon Conversion of
this Note if
the issuance of such shares of Common Stock would exceed the
aggregate number of
shares of Common Stock which the Company may issue upon
Conversion or exercise,
as applicable, of the Notes and Warrants without breaching the
Company's
obligations under the rules or regulations of the Principal
Market (the
"EXCHANGE CAP"), except that such limitation shall not apply in
the event that
the Company (A) obtains the approval of its stockholders as
required by the
applicable rules of the Principal Market for issuances of Common
Stock in excess
of such amount or (B) obtains a written opinion from outside
counsel to the
Company that such approval is not required, which opinion shall
be reasonably
satisfactory to the Required Holders. Until such approval or
written opinion is
obtained, no holder of the Notes pursuant to the Securities
Exchange Agreement
(the "HOLDERS") shall be issued in the aggregate, upon
Conversion or exercise,
as applicable, of Notes or Warrants, shares of Common Stock in
an amount greater
than the product of the Exchange Cap multiplied by a fraction,
the numerator of
which is the principal amount of Notes issued to the Holders
pursuant to the
Securities Exchange Agreement on the Closing Date and the
denominator of which
is the aggregate principal amount of all Notes issued to the
Holders pursuant to
the Securities Exchange Agreement on the Closing Date (with
respect to each
Purchaser, the "EXCHANGE CAP ALLOCATION"). In the event that any
Purchaser
shall sell or otherwise transfer any of such Purchaser's Notes,
the transferee
shall be allocated a pro rata portion of such Purchaser's
Exchange Cap
Allocation, and the restrictions of the prior sentence shall
apply to such
transferee with respect to the portion of the Exchange Cap
Allocation allocated
to such transferee. In the event that any holder of Notes shall
convert all of
such holder's Notes into a number of shares of Common Stock
which, in the
aggregate, is less than such holder's Exchange Cap Allocation,
then the
difference between such holder's Exchange Cap Allocation and the
number of
shares of Common Stock actually issued to such holder shall be
allocated to the
respective Exchange Cap Allocations of the remaining holders of
Notes on a pro
rata basis in proportion to the aggregate principal amount of
the Notes then
held by each such holder.
(4) RIGHTS UPON EVENT OF DEFAULT.
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(a) Event of Default. Each of the following events shall
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constitute an "EVENT OF DEFAULT":
(i) The failure of the applicable Registration Statement
required to be filed pursuant to the Registration Rights
Agreement to be
declared effective by the SEC, 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 five
(5) consecutive
Trading Days or for more than an aggregate of ten (10) days in
any 365-day
period (other than days during an Allowable Grace Period (as
defined in the
Registration Rights Agreement));
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(ii) If after Conversion, the suspension from trading or
failure of the Common Stock to be listed on an Eligible Market
for a period of
five (5) consecutive Trading Days or for more than an aggregate
of ten (10)
Trading Days in any 365-day period;
(iii) The Company's (A) failure to cure a Conversion Failure
by delivery of the required number of shares of Common Stock
within ten (10)
Business Days after the applicable Conversion Date or (B)
notice, written or
oral, to 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, other than
pursuant to Section
3(d);
(iv) At any time following the 10th 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 (including, without limitation, the Company's failure to
pay any redemption
payments or amounts hereunder) or any other Transaction Document
(as defined in
the Securities Exchange Agreement) or any other agreement,
document, certificate
or other instrument delivered in connection with the
transactions contemplated
hereby and thereby to which the Holder is a party, except, in
the case of a
failure to pay Interest and Late Charges when and as due, in
which case only if
such failure continues for a period of at least five (5)
Business Days;
(vi) The entry by a court having jurisdiction in the
premises
of (i) a decree or order for relief in respect of the Company or
any Subsidiary
of a voluntary case or proceeding under any applicable Federal
or State
bankruptcy, insolvency, reorganization or other similar law or
(ii) a decree or
order adjudging the Company or any Subsidiary as bankrupt or
insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement,
adjustment or composition of or in respect of the Company or any
Subsidiary
under any applicable Federal or State law or (iii) appointing a
custodian,
receiver, liquidator, assignee, trustee, sequestrator or other
similar official
of the Company or any Subsidiary or of any substantial part of
its property, or
ordering the winding up or liquidation of its affairs, and the
continuance of
any such decree or order for relief or any such other decree or
order unstayed
and in effect for a period of 60 consecutive days;
(vii) The commencement by the Company or any Subsidiary of a
voluntary case or proceeding under any applicable Federal or
State bankruptcy,
insolvency, reorganization or other similar law or of any other
case or
proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to
the entry of a decree or order for relief in respect of the
Company or any
Subsidiary in an involuntary case or proceeding under any
applicable Federal or
State bankruptcy, insolvency, reorganization or other similar
law or to the
commencement of any bankruptcy or insolvency case or proceeding
against it, or
the filing by it of a petition or answer or consent seeking
reorganization or
relief under any applicable Federal or State law, or the consent
by it to the
filing of such petition or to the appointment of or taking
possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator
or other
similar official of the Company or any Subsidiary or of any
substantial part of
its property, or the making by it of an assignment for the
benefit of creditors,
or the admission by it in writing of its inability to pay its
debts generally as
they become due, or the taking of corporate action by the
Company or any
Subsidiary in furtherance of any such action;
(viii) The Company breaches any material representation,
warranty, covenant or other term or condition of any Transaction
Document,
except, in the case of a breach of a covenant or other term or
condition of any
Transaction Document which is curable, only if the Holder gives
five (5)
Business Days prior notice of such breach and it remains uncured
for a period of
at least five (5) Business Days;
(ix) (A) the indictment or conviction of any of the named
executive officers (as defined in Item 402(a)(3) of Regulation
S-K) or any of
the directors of the Company of a violation of federal or state
securities laws
or (B) the settlement in an amount over $1,000,000 by any such
officer or
director of an action relating to such officer's violation of
federal or state
securities laws, breach of fiduciary duties or self-dealing;
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(x) Any breach or failure in any respect to comply with
Section 9 of this Note; or
(xi) 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
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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 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 sum of the Conversion Amount to be redeemed together
with accrued and
unpaid Interest with respect to such Conversion Amount and
accrued and unpaid
Late Charges with respect to such Conversion Amount and Interest
and (y) the
Redemption Premium and (ii) the product of (A) the Conversion
Rate with respect
to such sum of the Conversion Amount together with accrued and
unpaid Interest
with respect to such Conversion Amount and accrued and unpaid
Late Charges with
respect to such Conversion Amount and Interest 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. In
the event of a partial redemption of this Note pursuant hereto,
the principal
amount redeemed shall be deducted from the Installment Amounts
relating to the
applicable Installment Dates as set forth in the Event of
Default Redemption
Notice.
(c) In addition, and without limitation of any other rights
and
remedies hereunder, upon the first occurrence of a default under
Section 4(a)(v)
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of this Note, without regard to any cure period thereunder, and
upon the
expiration of each additional 30 day thereafter during which the
Event of
Default continues, in whole or in part (such late payment, the
"DELINQUENT
PAYMENT AMOUNT"), the Company shall issue a Warrant to the
Holder in the form
attached to the Securities Exchange Agreement (including any
warrants issued in
exchange therefore or replacement thereof, a "WARRANT") for such
number of
shares of Common Stock of the Company equal to the Delinquent
Payment Amount at
such time divided by the Conversion Price. Upon the second
occurrence of an
Event of Default under Section 4(a)(v) of this Note, without
regard to any cure
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period thereunder, the Company shall issue a Warrant to the
Holder for such
number of shares of Common Stock of the Company equal to the
outstanding
principal balance of the Note at such time divided by the
Conversion Price. The
issuance of any Warrant hereunder is not a cure of any Event of
Default. The
Company and the Holder agree that it would be extremely
difficult and
impracticable under the presently known and anticipated facts
and circumstances
to ascertain and fix with precision the actual damages the
Holder would incur
should the Company delay in making timely payments hereunder,
and, accordingly,
the Company and the Holder agree that a Warrant shall be issued
as provided
herein as liquidated damages for such delay, and not as a
penalty. The Company
and the Holder agree that the liquidated damages identified
herein are not a
penalty, but instead are a good faith and reasonable estimate of
the damages and
loss the Holder would suffer in the event the Company delays in
making timely
payments under this Note.
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(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF
CONTROL.
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(a) Assumption. The Company shall not enter into or be party to
a
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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 in form and substance reasonably satisfactory
to the Required
Holders and approved by the Required Holders prior to such
Fundamental
Transaction, 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 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 (a "PUBLIC SUCCESSOR ENTITY"). 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. Upon consummation of the Fundamental Transaction, the
Successor Entity
shall deliver to the Holder confirmation that there shall be
issued upon
Conversion or redemption of this Note at any time after the
consummation of the
Fundamental Transaction, in lieu of the shares of the Company's
Common Stock (or
other securities, cash, assets or other property) purchasable
upon the
Conversion or redemption of the Notes prior to such Fundamental
Transaction,
such shares of the publicly traded common stock (or its
equivalent) of the
Successor Entity (including its Parent Entity), 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 Right. No sooner than fifteen (15) days nor
later
-----------------
than ten (10) days prior to the consummation of a Change of
Control, but not
prior to the public announcement of such Change of Control, the
Company shall
deliver written notice thereof via facsimile and overnight
courier to the Holder
(a "CHANGE OF CONTROL NOTICE"). 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") 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) 125% of
the sum of the Conversion Amount being redeemed together with
accrued and unpaid
Interest with respect to such Conversion Amount and accrued and
unpaid Late
Charges with respect to such Conversion Amount and Interest and
(y) 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) 125% of the sum of the
Conversion Amount
being redeemed together with accrued and unpaid Interest with
respect to such
Conversion Amount and accrued and unpaid Late Charges with
respect to such
Conversion Amount and Interest (the "CHANGE OF CONTROL
REDEMPTION PRICE").
Redemptions required by this Section 5 shall be made in
accordance with the
provisions of Section 12 and shall have priority to payments to
stockholders in
connection with a Change of Control. Notwithstanding anything to
the contrary
in this Section 5, but subject to Section 3(d), 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(c) (together
with any interest thereon) may be converted, in whole or in
part, by the Holder
into Common Stock pursuant to Section 3. In the event of a
partial redemption
of this Note pursuant hereto, the principal amount redeemed
shall be deducted
from the Installment Amounts relating to the applicable
Installment Dates as set
forth in the Change of Control Redemption Notice.
-7-
<PAGE>
(6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE
------------------------------------------------------------------
EVENTS.
-------
(a) Purchase Rights. Except with respect to the purchase of
any
----------------
current Subsidiaries or any proposed acquisition of a new
Subsidiary and except
as disclosed in the SEC Documents filed at least three Business
Days prior to
the date of this Agreement), or the issuance of any shares of
the Common Stock
to employees or consultants for services rendered to the Company
or any
Subsidiary, or the issuance of any shares of the Common Stock in
settlement of
debts or disputes of the Company or any Subsidiary, or the
issuance of any
shares of the Common Stock to any lender in connection with
financings of the
Company or any Subsidiary, or the issuance of any shares of the
Common Stock
pursuant to any Stock Option Plan adopted by the Company or any
Subsidiary, or
shares of the Common Stock issued pursuant to any S-8
Registration Statement
filed by the Company with the SEC, or as otherwise consented to
by the Required
Holders (an "EXCLUDED SECURITY"), 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 the record holders of
any class of
Common Stock (the "PURCHASE RIGHTS"), then the Holder will be
entitled to
acquire, upon the terms applicable to such Purchase Rights, the
aggregate
Purchase Rights which the Holder could have acquired if the
Holder had held the
number of 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. As used
herein, "SEC Documents" means all reports, schedules, exhibits,
forms,
statements and other documents required to be filed by the
Company with the SEC
pursuant to the reporting re
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