EXHIBIT 4.1
[FORM OF 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, 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 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.
INKSURE TECHNOLOGIES INC.
CONVERTIBLE NOTE
Issuance Date: September __, 2005 Original Principal Amount:
U.S. $__________
FOR VALUE
RECEIVED, InkSure Technologies Inc., a Delaware corporation
(the
"COMPANY"), hereby promises to pay to the
order of [SMITHFIELD FIDUCIARY
LLC][OTHER BUYERS] or registered assigns
("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
equal to four percent (4.0%) 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 an
Interest Date (as defined below), the
Maturity Date, acceleration, conversion,
redemption or otherwise (in each case in
accordance with the terms hereof). This
Convertible Note (including all Convertible
Notes issued in exchange, transfer
or replacement hereof, this "NOTE") is one
of an issue of Convertible Notes
(collectively, the "NOTES" and such other
Convertible Notes, the "OTHER NOTES")
issued pursuant to the Securities Purchase
Agreement (as defined below). Certain
capitalized terms are defined in Section
30.
<PAGE>
(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 September __,
2010, 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) Business 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 on this Note shall commence 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 on the last day of each
Calendar Quarter during the period
beginning on the Issuance Date and ending on,
and including, the Maturity Date (each, an
"INTEREST DATE") with the first
Interest Date being [December 31], 2005(1).
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 twelve percent
(12.0%). 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. This Note shall be convertible into shares of
common stock of the Company, par value
$0.01 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 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
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").
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(1) Insert appropriate upcoming Interest
Date in Additional Notes.
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<PAGE>
(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, $3.00(2), 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). 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
Company's
transfer agent (the "TRANSFER AGENT"). On or before the second
(2nd)
Business Day following the date of receipt of a Conversion Notice
(the
"SHARE DELIVERY DATE"), the Company shall (X) provided the
Transfer
Agent is participating in the Depository Trust Company ("DTC")
Fast
Automated Securities Transfer Program credit such aggregate number
of
shares of Common Stock to which the Holder shall be entitled to
the
Holder's or its designee's balance account with DTC through its
Deposit Withdrawal 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 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. 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.
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(2) Insert in
Additional Notes $3.60.
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<PAGE>
(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 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 five (5) Business Days after
the
Conversion Date (a "CONVERSION FAILURE"), then (A) the Company
shall
pay damages to the Holder for each date of such Conversion Failure
in
an amount equal to 1.0% (the "INITIAL PENALTY") of the product of
(I)
the sum of the number of shares of Common Stock not issued to
the
Holder on or prior to the Share Delivery Date and to which the
Holder
is entitled, and (II) the Closing Sale Price of the Common Stock
on
the Share Delivery Date and (B) the Holder, upon written notice to
the
Company, may void its Conversion Notice with respect to, and retain
or
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, 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 (or ten (10) Business Days if
the
failure to deliver Common Stock is due to a Force Majeure Event)
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. Notwithstanding the foregoing, the Company
shall
not be required to pay the Initial Penalty in the event that a
Conversion Failure is caused, directly or indirectly, by acts of
God,
acts of the public enemy, acts of any governmental body in its
sovereign or contractual capacity, fires, floods, epidemics,
strikes,
labor disputes, inability to obtain labor, material, equipment
or
transportation, freight embargoes, sabotage, civil disturbances,
any
outbreak, attack or escalation of hostilities or declaration of
war,
national emergency, act of terrorism or other national or
international calamity or crisis or change in economic, financial
or
political conditions, including changes on the financial markets
of
the United States or Israel (any of the foregoing, a "Force
Majeure
Event").
(iii) BOOK-ENTRY. Notwithstanding anything to the contrary set
forth herein, upon conversion of any portion of this Note in
accordance with the terms hereof, the Holder shall not be required
to
physically surrender this Note to the Company unless (A) the
full
Conversion Amount represented by this Note is being converted or
(B)
the Holder has provided the Company with prior written notice
(which
notice may be included in a Conversion Notice) requesting
physical
surrender and reissue of this Note. The Holder and the Company
shall
maintain records showing the Principal, Interest and Late
Charges
converted and the dates of such conversions or shall use such
other
method, reasonably satisfactory to the Holder and the Company, so
as
not to require physical surrender of this Note upon conversion.
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<PAGE>
(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 25.
(d) LIMITATIONS ON CONVERSIONS. 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, 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. For
purposes of this Section 3(d)(i), in determining the number of
outstanding
shares of Common Stock, the Holder may rely on the number of
outstanding
shares of Common Stock as reflected in (x) the Company's most
recent Form
10-KSB, Form 10-K, Form 10-QSB, Form 10-Q or Form 8-K, as the
case may be (y)
a more recent public announcement by the Company or (z) any
other notice by
the Company or the Transfer Agent setting forth the number
of shares of
Common Stock outstanding. For any reason at any time, upon the
written or oral
request of the Holder, the Company shall within three (3)
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 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.
(4) RIGHTS UPON
EVENT OF DEFAULT.
(a) EVENT OF DEFAULT. Each of the following events shall constitute
an
"EVENT OF
DEFAULT":
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<PAGE>
(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 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 days or for more than an aggregate
of
ten (10) 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;
(iv) at any time following the tenth (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 or any other Transaction Document (as defined in
the
Securities Purchase Agreement), 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 ten (10)
Business
Days;
(vi) (A) any payment default under any Indebtedness (as defined
in Section 3(s) of the Securities Purchase Agreement) of the
Company
or any of its Subsidiaries (as defined in Section 3(a) of the
Securities Purchase Agreement) having an aggregate principal
amount
equal to
or greater than $500,000, (B) any default (other than a
payment default) occurs under any Indebtedness of the Company or
any
of its Subsidiaries having an aggregate principal amount equal to
or
greater than $500,000 that results in the redemption of or
acceleration prior to maturity of such Indebtedness, in each
case
other than with respect to any Other Notes;
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<PAGE>
(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 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 $500,000 are rendered against the Company
or
any of its Subsidiaries and which judgments are not, within
ninety
(90) days after
the entry thereof, bonded, discharged or stayed
pending appeal, or are not discharged within ninety (90) 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 $500,000 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) the Company breaches, in any material respect, any
representation, warranty, covenant or other term or condition of
any
Transaction Document, except, in the case of a breach of a
covenant
which is curable, only if such breach continues for a period of
at
least twenty (20) consecutive Business Days;
(xi) any breach or failure in any respect to comply with
Section
16of this Note; or
(xii) 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 any time during the period
commencing after
the earlier of the Holder's receipt of an Event of Default
Notice and the
Holder becoming aware of an Event of Default and ending
forty-five (45)
days after such applicable 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 product of (i)
the
Conversion
Amount to be redeemed and (ii) the Redemption Premium (the
"EVENT OF
DEFAULT REDEMPTION PRICE"). Redemptions required by this
Section
4(b) shall be
made in accordance with the provisions of Section 13.
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<PAGE>
(5) RIGHTS UPON
FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
(a) ASSUMPTION. The Company shall not enter into or be party to
a
Fundamental
Transaction unless (i) the Successor Entity assumes in writing
all of the
obligations of the Company under this Note and the other
Transaction
Documents in accordance with the provisions of this Section
5(a) pursuant to
written agreements 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) other than in
connection with
a Cash Transaction, 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 125% of the Conversion Amount being redeemed (the
"CHANGE OF
CONTROL REDEMPTION PRICE"). Notwithstanding anything to the
contrary in this
Section 5(b), but subject to Section 3(d), until the
Change of
Control Redemption Price is paid in full, the Conversion Amount
submitted for
redemption under this Section 5(b) may be converted, in whole
or in part, by
the Holder into Common Stock pursuant to Section 3.
Redemptions
required by this Section 5 shall be made in accordance with the
provisions of
Section 13 and shall have priority to payments to
shareholders in
connection with a Change of Control.
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<PAGE>
(c) REDEMPTION AT THE COMPANY'S ELECTION UPON CASH TRANSACTION.
In
connection with
a pending, proposed or intended Cash Transaction, the
Company shall
have the right, in its sole discretion, to require that all,
but not less
than all, of the outstanding Notes be redeemed (a "CASH
TRANSACTION
REDEMPTION ELECTION") at a price equal to the Change of Control
Redemption Price
(such price in connection with a Cash Transaction
Redemption
Election, the "CASH TRANSACTION REDEMPTION PRICE"). The Company
shall exercise
its right to make a Cash Transaction Redemption Election by
providing each
holder of Notes written notice (the "CASH TRANSACTION
REDEMPTION
NOTICE") by facsimile and overnight courier, concurrently with
the public
disclosure of a proposed, pending or intended Cash Transaction
and at least ten
(10) Trading Days prior to the date of consummation of the
Cash Transaction
(the "CASH TRANSACTION ELECTION REDEMPTION DATE"), which
Cash Transaction
Election Redemption Date shall be the date of the
consummation of
the Cash Transaction. The Cash Transaction Redemption
Notice shall
indicate the anticipated Cash Transaction Election Redemption
Date and such
notice shall be irrevocable. If the Company has exercised its
right of Cash
Transaction Redemption Election then all Notes outstanding at
the time of the
consummation of the Cash Transaction shall be redeemed on
the Cash
Transaction Election Redemption Date by payment by or on behalf
of
the Company to
each holder of Notes of the Cash Transaction Redemption
Price for such
Notes concurrent with the closing of the Cash Transaction.
Notwithstanding
anything to the contrary in this Section 5(c), but subject
to Section 3(d),
until the Cash Transaction Redemption Price is paid in
full, the
Conversion Amount subject to redemption hereunder may be
converted, in
whole or in part, by the Holder into Common Stock pursuant to
Section 3.
Redemptions required by this Section 5(c) shall be made in
accordance with
the provisions of Section 13 and shall have priority to
payments to
stockholders in connection with a Cash Transaction.
(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.
- 9 -
<PAGE>
(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, (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) [IN INITIAL NOTES ONLY: ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCE OF
COMMON STOCK. If and whenever on or after the Subscription Date
until this Note
is fully converted or paid in full, 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 and excluding a deemed
issuance or sale
in a transaction for which appropriate adjustments are
made under
Sections 6(a) or 7(b)) for a consideration per share (the "NEW
ISSUANCE PRICE")
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 New
Issuance Price. 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.
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<PAGE>
(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
"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
purchase
price, additional consideration or changed conversion rate, as
the
case may be, at the time initially granted, issued or sold. For
purp
