|
SENIOR CONVERTIBLE 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 (THE
“1933 ACT”), 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 1933 ACT, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT (II) UNLESS SOLD OR TRANSFERRED TO A
“QUALIFIED INSTITUTIONAL BUYER” WITHIN THE MEANING OF
RULE 144A UNDER THE 1933 ACT OR TO AN “ACCREDITED
INVESTOR” AS THAT TERM IS DEFINED IN RULE 501(A) OF
REGULATION D
OR (III) 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
18(a)
HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT
TO
SECTION 3(c)(iii)
OF THIS NOTE.
CHINA AUTOMOTIVE SYSTEMS, INC.
SENIOR CONVERTIBLE NOTE
|
Issuance
Date: February 15,
2008
|
Original
Principal Amount: U.S. $2,500,000
|
FOR VALUE RECEIVED,
China Automotive Systems, Inc. ,
a Delaware corporation (the “
Company ”),
hereby promises to pay to
YA Global Investments, L.P. or
registered assigns (the “
Holder ”)
the amount set out above as the Original 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 date set out above as the
Issuance Date (the “
Issuance
Date ”)
until the same becomes due and payable, whether upon an Interest
Date (as defined below), the Maturity Date, acceleration,
conversion, redemption or otherwise (in each case in accordance
with the terms hereof). This Senior Convertible Note (including all
Senior Convertible Notes issued in exchange, transfer or
replacement hereof, this “
Note ”)
is one of an issue of Senior Convertible Notes issued pursuant to
the Securities Purchase Agreement on the Closing Date
(collectively, the “
Notes ”
and such other Senior Convertible Notes, the “
Other
Notes ”).
Certain capitalized terms used herein are defined in
Section 29 .
(1)
MATURITY .
On
the Maturity Date, 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, on such
Principal and Interest
plus the
Maturity Make Whole Amount. The
“
Maturity
Date ”
shall be February 15, 2013, as may be extended at the option of the
Holder for a period which shall in no event exceed an additional
ninety (90) days (i) in the event that an Event of Default (as
defined in
Section 4(a) )
shall have occurred and be continuing on the Maturity Date (as may
be extended pursuant to this
Section 1 )
or any event shall have occurred and be continuing on the Maturity
Date (as may be extended pursuant to this
Section 1)
that with the passage of time and the failure to cure would result
in an Event of Default, and (ii) (subject to
Section 5(a) as
to conversion) from the date of 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 pursuant to the terms
of
Section 5(b ).
(2)
INTEREST; INTEREST RATE; PAYMENT NOTICE .
(a)
Interest
on this Note shall commence accruing on the Issuance Date and
shall be computed on the basis of actual number of days
elapsed over a 360-day year and shall be payable in arrears
semi-annually on
January 15, and July 15 of each year (each, an “
Interest
Date ”)
with
the first Interest Date being July 15, 2008. Interest shall be
payable on each Interest Date, to the record holder of this Note on
the applicable Interest Date in cash.
(b)
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
on
each Conversion Date in accordance with
Section 3(b)(i) .
From and after the occurrence and during the continuance of an
Event of Default, the Interest Rate then in effect shall be
increased by two percent (2%). 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.
(c)
The
Company shall provide notice (via email) to the Holder
immediately upon the making of any payment required pursuant
to this Note. In order for the Holder to claim an Event of
Default for the Company’s failure to make payment, the
Holder must respond within three (3) Business Days of such
notice that such payment has not been received. If the Company
fails to provide notice of payment as required hereunder the
Holder is under no obligation to notify the Company that
payment was not received.
(3)
CONVERSION OF NOTES .
This Note shall be convertible into shares of the Company’s
common stock, par value $0.0001 per share (the “
Common Stock ”),
on the terms and conditions set forth in this
Section 3 .
(a)
Conversion Right .
Subject to the provisions of
Section 3(d) ,
at any time or times on or after the thirtieth (30
th )
day after the Issuance Date and prior to the thirtieth (30
th )
Business Day prior to the Maturity 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 transfer, stamp and similar 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 issuable upon conversion of
any Conversion Amount pursuant to
Section 3(a) shall
be determined by dividing (x) such Conversion Amount by (y) the
Conversion Price (the “
Conversion Rate ”).
(i)
“
Conversion Amount ”
means the sum
of (A) the portion of the Principal to be converted, redeemed or
otherwise with respect to which this determination is being made,
(B) accrued and unpaid Interest with respect to such Principal and
(C) accrued and unpaid Late Charges with respect to such Principal
and Interest .
(ii)
“
Conversion Price ”
means, as of any Conversion Date (as defined below) or other date
of determination, $8.8527, subject to adjustment as set forth
in
Section 3(d) below
and as otherwise 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). On or before the first
(1
st )
Trading 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 (3rd) Trading Day following the date of
receipt of a Conversion Notice (the “
Share Delivery
Date ”),
the Company shall (x)
provided that
there is an effective Registration Statement and that the Transfer
Agent is participating in the Depository Trust Company’s
(“
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 there is no effective Registration Statement or 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 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) Trading Days after receipt of this Note and at its own
expense, issue and deliver to the holder a new Note (in accordance
with
Section 18(d) )
representing the outstanding Principal not converted. The Person or
Persons entitled to receive the shares of Common Stock issuable
upon a conversion of this Note shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on the
Conversion Date.
(ii)
Company’s Failure to Timely Convert .
If
the Company shall fail to issue a certificate to the Holder or
credit the Holder’s balance account with DTC, as applicable,
for the number of shares of Common Stock to which the Holder is
entitled upon conversion of any Conversion Amount on or prior to
the date which is three (3) Trading Days after the Conversion Date
(a “
Conversion Failure ”),
then (A) the Company shall pay damages to the Holder for each
Trading Day of such Conversion Failure in an amount equal to one
and one-half percent (1.5%) of the product of (1) the sum of the
number of shares of Common Stock not issued to the Holder on or
prior to the Share Delivery Date and to which the Holder is
entitled, and (2) the Weighted Average Price of the Common Stock on
the Share Delivery Date and (B) the Holder, upon written notice to
the Company within five (5) Trading Days after the Conversion
Failure, may void its Conversion Notice with respect to, and retain
or have returned, as the case may be, any portion of this Note that
has not been converted pursuant to such Conversion Notice;
provided that
the voiding of a Conversion Notice shall not affect the
Company’s obligations to make any payments which have accrued
prior to the date of such notice pursuant to this
Section 3(c)(ii) or
otherwise. In addition to the foregoing, i f
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 or on any date
of the Company’s obligation to deliver shares of Common Stock
as contemplated pursuant to clause (y) below, 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) Trading Days after the
Holder’s request and in the Holder’s discretion, either
(x) pay cash to the Holder in an amount equal to the Holder’s
total purchase price (including brokerage commissions and other out
of pocket expenses, if any) for the shares of Common Stock so
purchased (the “
Buy-In Price ”),
at which point the Company’s obligation to deliver such
certificate (and to issue such Common Stock) shall terminate, or
(y) 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 (I) such number of shares of
Common Stock, times (II) the Weighted Average Price on the
Conversion Date.
(iii)
Registration; Book-Entry .
The Company shall maintain a register (the “
Register ”)
for the recordation of the names and addresses of the holders of
each Note and the principal amount of the Notes held by such
holders (the “
Registered Notes ”).
The entries in the Register shall be conclusive and binding for all
purposes absent manifest error. The Company and the holders of the
Notes shall treat each Person whose name is recorded in the
Register as the owner of a Note for all purposes, including,
without limitation, the right to receive payments of Principal and
Interest hereunder, notwithstanding notice to the contrary. A
Registered Note may be assigned or sold in whole or in part only by
registration of such assignment or sale on the Register. Upon its
receipt of a request to assign or sell all or part of any
Registered Note by a Holder, the Company shall record the
information contained therein in the Register and issue one or more
new Registered Notes in the same aggregate principal amount as the
principal amount of the surrendered Registered Note to the
designated assignee or transferee pursuant to
Section 18 .
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 Principal 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, if any, 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 23 .
(v)
Mandatory Conversion .
(A)
General .
After the Holder’s Henglong Redemption Right has expired, if
at any time during a six-month period ending on the six-month (or
integral multiple of six-month) anniversary of the Closing Date
(the beginning day of each such six-month period, a “
Mandatory Conversion Period Start Date ”),
(1) the arithmetic average of the Weighted Average Price of the
Common Stock for a period of at
least thirty (30) consecutive Trading Days following
the Mandatory Conversion Period Start Date (the “
Mandatory Conversion Measuring Period ”)
equals or exceeds the percentage of the Conversion Price on the
Issuance Date (subject to appropriate adjustments for any stock
dividend, stock split, stock combination, reclassification or
similar transaction after the Issuance Date) set forth in the chart
below as applicable to the indicated six month period and to the
Mandatory Conversion Measuring Period related thereto:
|
0-6
months:
|
125%
|
|
6-12
months:
|
125%
|
|
12-18
months:
|
135%
|
|
18-24
months:
|
135%
|
|
24-30
months:
|
145%
|
|
30-36
months:
|
145%
|
|
|
155%
|
|
42-48
months:
|
155%
|
(the
“
Pricing Condition ”)
and (2) no Equity Conditions Failure exists, the Company shall have
the right to require the Holder to convert all
or any portion of the Conversion Amount then remaining under this
Note, in each case
as
designated in the Mandatory Conversion Notice (as defined below)
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 Mandatory Conversion Date (as
defined below) (a “
Mandatory Conversion ”).
The Company may exercise its right to require conversion under
this
Section 3(c)(v) by
delivering within not more than two (2) Trading Days following the
end of such Mandatory Conversion Measuring Period a written notice
thereof by facsimile and overnight courier to all, but not less
than all, of the holders of Notes and the Transfer Agent
(the
“Mandatory Conversion Notice”
and
the date all of the holders are deemed hereunder to have received
such notice is referred to as the “
Mandatory Conversion Notice Date ”).
The Mandatory Conversion Notice shall be irrevocable. The Mandatory
Conversion Notice shall (x) state (I) the Trading Day selected for
the Mandatory Conversion, which Trading Day shall be five (5)
Trading Days following the Mandatory Conversion Notice Date (the
“
Mandatory Conversion Date ”),
(II) the aggregate Conversion Amount of the Notes subject to
Mandatory Conversion from the Holder and all of the holders of the
Notes pursuant to this
Section 3(c)(v) (and
analogous provisions under the Other Notes), and (III) the number
of shares of Common Stock to be issued to the Holder on the
Mandatory Conversion Date,
and
(y)
certify that there has been no Equity Conditions Failure and (z)
certify that the Pricing Condition has been met as to the Mandatory
Conversion Measuring Period. If the Equity Conditions are satisfied
as of the Mandatory Conversion Notice Date but if any Equity
Condition is no longer satisfied at any time on each date prior to
and including the Mandatory Conversion Date, the Mandatory
Conversion Notice shall be null and void.
(B)
Pro Rata Conversion Requirement .
If the Company elects to cause a conversion of any Conversion
Amount of this Note pursuant to
Section 3(c)(v)(A) ,
then it must to the extent allowable in the Other Notes,
simultaneously take the same action in the same proportion with
respect to the Other Notes. If the Company elects a Mandatory
Conversion of this Note pursuant to
Section 3(c)(v)(A) (or
similar provisions under the Other Notes) with respect to less than
all of the Conversion Amounts of the Notes then outstanding, then
the Company shall require conversion of a Conversion Amount from
each of the holders of the Notes equal to the product of (1) the
aggregate Conversion Amount of Notes which the Company has elected
to cause to be converted pursuant to
Section 3(c)(v)(A) ,
multiplied by (2) the fraction, the numerator of which is the sum
of the aggregate Original Principal Amount of the Notes purchased
by such holder of outstanding Notes and the denominator of which is
the sum of the aggregate Original Principal Amount of the Notes
purchased by all holders holding outstanding Notes (such fraction
with respect to each holder is referred to as its “
Conversion
Allocation Percentage ,”
and such amount with respect to each holder is referred to as its
“
Pro Rata Conversion Amount ”);
provided, however, that in the event that any holder’s Pro
Rata Conversion Amount exceeds the outstanding Principal amount of
such holder’s Note, then such excess Pro Rata Conversion
Amount shall not be converted and no holder shall be required to
convert an amount in excess of its Pro Rata Conversion Amount. In
the event that the initial holder of any Notes shall sell or
otherwise transfer any of such holder’s Notes, the transferee
shall be allocated a pro rata portion of such holder’s
Conversion Allocation Percentage and the Pro Rata Conversion
Amount.
(d)
Conversion Price Reset .
On each six month anniversary of the Issuance Date beginning August
15, 2008, the Conversion Price shall be adjusted downward to the
Reset Reference Price (as defined below) if the Weighted Average
Price for the twenty (20) consecutive Trading Days immediately
prior to the applicable six month anniversary (the “
Reset Reference Price ”)
is less than 95% of the Conversion Price in effect as of such
applicable six month anniversary date, as adjusted pursuant
to
Section 7 .
The foregoing notwithstanding, the Conversion Price shall not be
reduced pursuant to this
Section 3(d) to
less than 80% of the Conversion Price in effect on the Issuance
Date, as adjusted pursuant to
Section 7(b) ;
and in no event shall the Conversion Price be reduced to less than
$6.7417.
(e)
Limitations on Conversions .
(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
Company (including, without limitation the Warrants (as defined in
the Securities Purchase Agreement) and any Other Notes) 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(e)(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(e)(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 (1) the Company’s most recent Form
10-K, Form 10-Q, Form 8-K or other public filing with the SEC, as
the case may be, (2) a more recent public announcement by the
Company or (3) 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 (1) 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 4.99% specified in such notice;
provided that
(x) any such increase will not be effective until the sixty-first
(61
st )
day after such notice is delivered to the Company, and (y) any such
increase or decrease will apply only to the initial Holder and not
to any other Holder of Notes.
(ii)
Mandatory Conversion Cap .
The Company shall not effect a Mandatory Conversion of more than
twelve percent (12%) of the Original Principal Amount of the Notes
(with the applicable accrued but unpaid Interest and Late Charges
on such Conversion Amount) in any six month period or twenty-four
percent (24%) of the Original Principal Amount of the Notes (with
the applicable accrued but unpaid Interest and Late Charges on such
Conversion Amount) in any twelve (12) month period.
(iii)
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 the aggregate number of shares of
Common Stock which the Company may issue upon conversion of the
Notes 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 such 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 purchaser of the Notes pursuant to the Securities
Purchase Agreement (the “
Purchasers ”)
shall be issued in the aggregate, upon conversion of Notes, 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 a Purchaser pursuant to the
Securities Purchase Agreement on the Closing Date and the
denominator of which is the aggregate principal amount of all Notes
issued to the Purchasers pursuant to the Securities Purchase
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 .
(a)
Event of Default .
Each of the following events shall constitute an “
Event of Default ”:
(i)
the
Company’s (A) failure to cure a Conversion Failure by
delivery of the required number of shares of Common Stock
within ten (10) Trading 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(e) ;
(ii)
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 amounts
hereunder) 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 and/or Late Charges when and as due,
in which case only if such failure continues for a period of
at least five (5) Business Days after written notice of such
failure as provided for in
Section 2(c) ;
(iii)
any
material and continuing (past any cure period) default under,
redemption of (involuntarily on the part of the Company) 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) in excess of US$3,000,000 other
than with respect to any Other Notes or in connection with a
permitted refinancing of Indebtedness at a lower interest rate and
an at-least-as-generous repayment schedule;
(iv)
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;
(v)
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
or (C) orders the liquidation of the Company or any of its
Subsidiaries;
(vi)
a
final judgment or judgments for the payment of money
aggregating in excess of $2,000,000
are
rendered against the Company or any of its Subsidiaries and which
judgments are not, within sixty (60) days after the entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged
within sixty (60) days after the expiration of such stay;
provided ,
however ,
that any judgment which is covered by insurance or an indemnity
from a credit worthy party shall not be included in calculating the
$2,000,000
amount
set forth above so long as the Company provides the Holder a
written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Holder)
to the effect that such judgment is covered by insurance or an
indemnity and the Company will receive the proceeds of such
insurance or indemnity within thirty (30) days of the issuance of
such judgment;
(vii)
other
than as specifically set forth in another clause of
this
Section 4(a) ,
the Company materially breaches and fails to cure within any
allowable cure period any 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 such breach
continues for a period of at least ten (10) consecutive Business
Days;
(viii)
any
breach or failure in any respect to comply with either
of
Sections 8 or
14 of
this Note; or
(ix)
any
unwaived Event of Default (as defined in the Other Notes)
occurs with respect to any Other Notes.
(b)
Redemption Right .
Upon the occurrence of an Event of Default with respect to this
Note or any Other Note, the Company shall within one (1) Business
Day 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 Conversion Amount of this Note the Holder is electing
to require the Company 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 sum of (i) the
Conversion Amount to be redeemed and (ii) the Other Make Whole
Amount (the “
Event of Default
Redemption Price ”).
Redemptions required by this
Section 4(b) shall
be made in accordance with the provisions of
Section 12 .
To the extent redemptions required by this
Section 4(b) are
deemed or determined by a court of competent jurisdiction to be
prepayments of the Note by the Company, such redemptions shall be
deemed to be voluntary prepayments. The parties hereto agree that
in the event of the Company’s redemption of any portion of
the Note under this
Section 4(b) ,
the Holder’s damages would be uncertain and difficult to
estimate because of the parties’ inability to predict future
interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for the Holder.
Accordingly, any premium due under this
Section 4(b) is
intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.
(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 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 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 then outstanding held by such Holder, having
similar conversion rights and having similar ranking to the Notes.
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, except for (as
described in the following sentence) the substitution of, instead
of shares of Common Stock of the Company as initially provided
herein, the delivery upon conversion of other applicable
securities, cash, assets or other property. 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 (or exchange note issued under the first
sentence of this paragraph) 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)
issuable
upon the conversion or redemption of the Notes prior to such
Fundamental Transaction ,
the
same combination and amount of securities, cash, assets or other
property as a holder of shares of Common Stock would have been
entitled to receive in the Fundamental Transaction, in accordance
with and as adjusted by 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 prior to nor later than ten (10)
days prior to the consummation of a Change of Control (the date of
consummation, the “
Change of Control Effective Date ”),
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 and from time to time during the period beginning after
the Holder’s receipt of a Change of Control Notice and ending
on the Change of Control Effective Date (provided there has been at
least ten (10) Trading Days between the date of the Change of
Control Notice and the Change of Control Effective Date), 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 of the Holder is electing to require
the Company to redeem. The
portion of this Note subject to redemption pursuant to this
Section 5(b) shall
be redeemed by the Company in cash at a price (the “
Change of Control Redemption Price ”)
equal to the sum of (i) the Conversion Amount being redeemed and
(ii) the Other Make Whole Amount .
Notwithstanding anything to the contrary in this
Section 5(b) ,
but subject to
Section 3(d) and
Section 5(a) ,
until the Holder receives the Change of Control Redemption Price,
the Change of Control Redemption Price may be converted, in whole
or in part, as indicated by the Holder on a Change of Control
Redemption Notice (the “
Converted Portion ”)
pursuant to
Section 3(c) and
Section 5(a) hereof.
Any
c onversions
required by this
Section 5(b) shall
reduce the Change of Control Redemption Price and shall be made in
accordance with the provisions of
Section 3(c )
and
Section 5(a) .
(c)
General .
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. To the extent redemptions required by
Section 5(b) are
deemed or determined by a court of competent jurisdiction to be
prepayments of the Note by the Company, such redemptions shall be
deemed to be voluntary prepayments. Notwithstanding anything to the
contrary in this
Section 5 ,
but subject to
Section 3(d) and
Section 5(a) ,
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 and
Section 5(a) .
The parties hereto agree that in the event of redemption of any
portion of the Note under
Section 5(b) and
because of the parties’ inability to predict future interest
rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder, any premium due
under
Section 5(b) is
intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder’s actual loss of its investment
opportunity and not as a penalty.
(d)
Make Whole Amounts .
For purposes of this Note:
(i)
the
“
Maturity Make Whole Amount ”
shall mean a premium to the Conversion Amount such that the total
amount received by the Holder at Maturity represents a gross yield
to the Holder on the Original Principal Amount as of the Maturity
Date equal to thirteen percent (13%), with interest computed on the
basis of actual number of days elapsed over a 360-day
year.
(ii)
the
“
Other Make Whole Amount ”
shall mean a premium to the Conversion Amount such that the total
amount received by the Holder upon redemption represents a gross
yield to the Holder on the Original Principal Amount as of the
redemption date equal to thirteen percent (13%), with interest
computed on the basis of actual number of days elapsed over a
360-day year.
(iii)
the
“
Annual Redemption Make Whole Amount ”
shall mean a premium to the Conversion Amount such that the total
amount received by the Holder upon any Annual Redemption represents
a gross yield on the Original Principal Amount of (A) ten percent
(10%), if the redemption date occurs during 2009, (B) eleven
percent (11%), if the redemption date occurs during 2010 or 2011,
and (c) thirteen percent (13%), if the redemption date occurs
during 2012, in each case with interest computed on the basis of
actual number of days elapsed over a 360-day year.
(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 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.
(b)
Other Corporate Events .
In addition to and not in substitution for any other rights
hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange
for shares of Common Stock (a “
Corporate Event ”),
the Company shall make appropriate provision to insure that the
Holder will thereafter have the right to receive upon a conversion
of this Note, at the Holder’s option, (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 reasonably 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 Issuance 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 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 an amount equal to the
following:
| |
NCP
|
=
|
AP
x
[
(OCP x OS) + (C)
]
|
where:
| |
NCP
|
=
|
new
Conversion Price (immediately after such Dilutive
Issuance)
|
| |
OCP
|
=
|
old
Conversion Price (immediately prior to such Dilutive
Issuance)
|
| |
AP
|
=
|
the
Applicable Price
|
| |
NS
|
=
|
new
shares of Common Stock Deemed Outstanding (immediately after such
Dilutive Issuance)
|
| |
OS
|
=
|
old
shares of Common Stock Deemed Outstanding (immediately prior to
such Dilutive Issuance)
|
| |
C
|
=
|
the
consideration, if any, received by the Company upon 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 or 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.
(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
|
