Exhibit 4.2
FORM OF
NOTE
THE SECURITIES REPRESENTED HEREBY HAVE NOT 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 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION THEREFROM
ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY
REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTION 3(b) HEREOF. THE
PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF, MAY BE LESS THAN THE
AMOUNT SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(b) OF
THIS NOTE.
[THE COMPANY MAY PLACE THE FOLLOWING PARAGRAPH
ON THE FACE OF EACH NOTE HELD BY OR TRANSFERRED TO AN
“AFFILIATE” (AS DEFINED IN RULE 501(B) OF REGULATION D
UNDER THE SECURITIES ACT) OF THE COMPANY:]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE HELD BY A PERSON WHO MAY BE DEEMED TO BE AN AFFILIATE OF THE
ISSUER FOR PURPOSES OF RULE 144 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY
BE SOLD ONLY IN COMPLIANCE WITH RULE 144, PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
VALID EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT.
JAMESON INNS, INC.
7.0% CONVERTIBLE SENIOR SUBORDINATED NOTES DUE
2010
THIS 7.0% CONVERTIBLE SENIOR
SUBORDINATED NOTE DUE 2010 (this “Note”) is one of a duly
authorized issue of Notes of Jameson Inns, Inc., a corporation duly
organized and existing under the laws of the State of Georgia (the
“Company”), designated as its 7.0% Convertible Senior
Subordinated Notes Due 2010, in an aggregate principal amount of up
to Thirty-Five Million United States Dollars ($35,000,000) (the
“Notes”). For value received, the Company hereby
promises to pay to [
], or registered assigns (the “Holder”), the principal
sum of [
] United States Dollars ($[
]) and any accrued and unpaid interest thereon on
September 30, 2010 (the “Maturity Date”) and to
pay interest (an “Interest Payment”) on the principal
sum outstanding from time to time under this Note, at the rate per
annum specified in the title of this Note, accrued from the date of
issuance
1
of this Note and due and payable semi-annually
on June 30 and December 31 of each year (each, an
“Interest Payment Date”), commencing December 31,
2005. If an Interest Payment Date is not a Business Day (as defined
below), then the Interest Payment shall be due and payable on the
Business Day immediately following such Interest Payment Date.
Interest Payments will be paid to the Person (as defined below) in
whose name this Note (or one or more predecessor Notes) is
registered at the close of business on the record date (as defined
below) for such Interest Payment on the Notes Register (as defined
in Section 6 of this Note). In the event that any Note or
portion thereof is called for redemption and the redemption date is
subsequent to a record date with respect to any Interest Payment
Date and prior to such Interest Payment Date, interest on such Note
will be paid upon presentation and surrender of such Note as
provided in Section 2 of this Note. Any accrued and unpaid
interest which is not paid within five (5) Business Days of
the Interest Payment Date on which such payment of interest was due
shall bear interest at the rate of 12% per annum from such
Interest Payment Date until the same is paid in full (or, if less,
the maximum interest rate then permitted by applicable law) (the
“Default Interest”).
This Note is one of a series of
Notes issued in connection with the transactions described in that
certain Securities Purchase Agreement dated as of
September 29, 2005, by and between the Company and the parties
listed on the Schedule of Buyers attached thereto as Schedule I (as
such agreement may be amended, supplemented and modified from time
to time as provided in such agreement, the “Securities
Purchase Agreement”) and certain other related documents and
agreements including, without limitation, the Transaction Documents
(as defined below). The Conversion Shares (as defined below) issued
upon conversion of this Note and the Holder hereof and thereof
shall be entitled to all of the rights and privileges set forth in
the Transaction Documents.
SECTION 1.
Definitions. Terms not
defined herein have the meanings ascribed to them in the Securities
Purchase Agreement. The following terms as used in this Note shall
have the following meanings:
(a) “Business Day” means
any day other than Saturday, Sunday or other day on which
commercial banks in the City of New York are required by law to
remain closed.
(b) “Common Stock” means
(i) the common stock, $0.10 par value per share, of the
Company, and (ii) any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
(c) “Conversion Price”
shall be equal to $2.77, subject to further adjustment as
hereinafter provided.
(d) “Conversion Shares”
means all shares of Common Stock into which this Note is
convertible pursuant to Section 3 of this Note.
(e) “Convertible
Securities” means any stock or securities (other than
Options) directly or indirectly convertible into or exchangeable or
exercisable for Common Stock.
(f) “Maturity Date”
means September 30, 2010 or, if such date does not fall on a
Business Day or on a Trading Day, then the next Business
Day.
2
(g) “Option” means any
rights, warrants or options to subscribe for or purchase or
otherwise acquire Common Stock or Convertible
Securities.
(h) “Person” means an
individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization or
association and a government or any department or agency
thereof.
(i) “Predecessor Note”
of any particular Note means every previous Note evidencing all or
a portion of the same debt as that evidenced by such particular
Note; and, for purposes of this definition, any Note authenticated
and delivered under Section 10 of this Note in lieu of a lost,
destroyed or stolen Note shall be deemed to evidence the same debt
as the lost, destroyed or stolen Note.
(j) “Principal Market”
means The Nasdaq National Market (“NASDAQ”) or if the
Common Stock is not traded on NASDAQ then the principal securities
exchange or trading market for the Common Stock.
(k) “Registration Rights
Agreement” means that certain Registration Rights Agreement,
dated as of September 29, 2005, between the Company and the
initial purchasers of the Notes, as such agreement may be amended,
supplemented and modified from time to time in a writing signed by
all of the signatories thereto.
(l) “record date” means,
with respect to any Interest Payment Date, the 4th day of the month
in which an Interest Payment Date shall occur, whether or not such
date is a Business Day.
(m) “Securities Act”
means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
(n) “Shelf Registration
Statement” means the Shelf Registration Statement
contemplated by the Registration Rights Agreement.
(o) “Trading Day” means
(x) a day on which the Principal Market is open for business
or (y) if the applicable security is not so listed on a
Principal Market or admitted for trading or quotation, a Business
Day.
(p) “Transaction
Documents” means the Securities Purchase Agreement, the
Registration Rights Agreement, the Notes and each of the other
agreements entered into by the parties hereto and thereto in
connection with the transactions contemplated by the Securities
Purchase Agreement.
SECTION 2. Redemption.
(a) Redemption Price . From
and after September 30, 2008, the Company may, at its option,
redeem all or part of the Notes, upon notice as set forth in
Section 2(b) of this Note, and at a redemption price equal to
One Thousand United States Dollars ($1,000) per One Thousand United
States Dollars ($1,000) principal amount of the Notes to be
redeemed, plus accrued and unpaid interest thereon, if any, to, but
excluding, the date of redemption; provided that, to the
3
extent that the Shelf Registration Statement is
required by the terms of the Registration Rights Agreement to still
remain effective as of the Notice Date, the Shelf Registration
Statement is effective and available during the 30 day period prior
to the Notice Date.
(b) Notice of Redemption . In
case the Company shall desire to exercise such right to redeem all
or, as the case may be, a portion of the Notes in accordance with
the right reserved so to do, the Company shall give notice of such
redemption to Holders of the Notes to be redeemed a notice of such
redemption not less than thirty (30) days and not more than
sixty (60) days before the date fixed for redemption to such
Holders at their last addresses as they shall appear upon the Notes
Register (the date of such notice, the “Notice Date”).
Such notice shall be irrevocable. Any notice that is mailed in the
manner herein provided shall be conclusively presumed to have been
duly given, whether or not the registered holder receives the
notice. In any case, failure to duly give such notice to the Holder
of any Notes designated for redemption in whole or in part, or any
defect in such notice, shall not affect the validity of the
proceedings for the redemption of any other Notes. In the case of
any redemption of Notes prior to the expiration of any restriction
on such redemption provided in the terms of this Note, the Company
shall provide in such notice to Holders evidence of compliance with
any such restriction.
Each such notice of redemption shall
specify the aggregate principal amount of Notes to be redeemed, the
“CUSIP” number or numbers of such Notes, the date fixed
for redemption, the redemption price at which Notes are to be
redeemed, the place or places of payment, that payment will be made
upon presentation and surrender of such Notes, that interest
accrued to, but excluding, the date fixed for redemption will be
paid as specified in said notice, and that on and after said date
interest thereon or on the portion thereof to be redeemed will
cease to accrue. Such notice shall also state the current
Conversion Price and the date on which the right to convert such
Notes or portions thereof into Common Stock will expire. In case
this Note is to be redeemed in part only, the notice of redemption
shall state the portion of the principal amount thereof to be
redeemed and shall state that on and after the date fixed for
redemption, upon surrender of this Note, a new Note or Notes in
principal amount equal to the unredeemed portion thereof will be
issued.
On or prior to the redemption date
specified in the notice of redemption given as provided in this
Section 2(b), the Company will deposit with one or more paying
agents (or, if the Company is acting as its own paying agent, set
aside, segregate and hold in trust as provided in Section 5 of
this Note) an amount of money sufficient to redeem on the
redemption date all the Notes (or portions thereof) so called for
redemption (other than those theretofore surrendered for conversion
into Common Stock) at the appropriate redemption price, together
with accrued interest to, but excluding, the date fixed for
redemption; provided, however, that if such payment is made on the
redemption date it must be received by the paying agent by 1:00
p.m. New York time, on such date. If this Note when called for
redemption is converted pursuant hereto, any money deposited with
the paying agent or so segregated and held in trust for the
redemption of the Note shall be paid to the Company upon its
request, or, if then held by the Company, shall be discharged from
such trust.
If less than all the Notes are to be
redeemed Notes shall be redeemed pro rata based on the principal
amount of the Notes then outstanding. The Company may, if and
whenever it shall so elect, by delivery of instructions signed on
its behalf by any authorized officer, instruct any
4
paying agent to call all or any part of the
Notes for redemption and to give notice of redemption in the manner
set forth in this Section 2(b), such notice to be in the name
of the Company or its own name as such paying agent may deem
advisable. In any case in which notice of redemption is to be given
by any such paying agent, the Company shall deliver or cause to be
delivered to, or permit to remain with, such paying agent, such
Note Register, transfer books or other records, or suitable copies
or extracts therefrom, sufficient to enable the paying agent to
give any notice by mail that may be required under the provisions
of this Section 2(b).
(c) Payment Upon Redemption .
If notice of redemption has been given as above provided, the Notes
or portion of Notes with respect to which such notice has been
given shall, unless converted into Common Stock pursuant to the
terms of this Note, become due and payable on the date and at the
place or places stated in such notice at the applicable redemption
price and interest accrued to, but excluding, the date fixed for
redemption, and on and after said date (unless the Company shall
default in the payment of such Notes at the redemption price and
interest accrued to, but excluding, said date) interest on the
Notes or portion of Notes so called for redemption shall cease to
accrue and such Notes shall cease after the close of business on
the Business Day next preceding the date fixed for redemption to be
convertible into Common Stock and to be entitled to any benefit or
security under this Note, and the holders thereof shall have no
right in respect of such Notes except the right to receive the
redemption price thereof and unpaid interest to, but excluding, the
date fixed for redemption. On presentation and surrender of such
Notes at a place of payment specified in said notice, the said
Notes or the specified portions thereof to be redeemed shall be
paid and redeemed by the Company at the applicable redemption price
and interest accrued thereon to, but excluding, the date fixed for
redemption; provided, however, that, if the applicable redemption
date is an Interest Payment Date, the semi-annual payment of
interest becoming due on such date shall be payable to the holders
of such Notes registered as such on the relevant record
date.
Upon presentation of any Note
redeemed in part only, the Company shall execute and deliver to the
Holder, at its own expense, a new Note or Notes, of authorized
denominations, in principal amount equal to the unredeemed portion
of the Notes so presented.
If any Note called for redemption
shall not be so paid upon surrender thereof for redemption, the
principal and premium, if any, shall, until paid or duly provided
for, bear interest from the date fixed for redemption at the rate
borne by the Note and such Note shall remain convertible into
Common Stock until the principal and premium, if any, shall have
been paid or duly provided for.
SECTION 3. Conversion of Note.
(a) Right to Convert .
Subject to and upon compliance with the provisions of this Note,
the Holder of any Note shall have the right, at his option, at any
time following the date of original issuance of the Notes and prior
to the close of business on September 30, 2010 (except that,
with respect to any Note or portion of a Note that shall be called
for redemption, such right to convert shall terminate at the close
of business on the Business Day next preceding the date fixed for
redemption of such Note or portion of a Note unless the Company
shall default in payment due upon redemption thereof), to convert
the principal amount of any such Note, or any portion of such
principal amount which is One Thousand United States Dollars
($1,000) or an
5
integral multiple thereof, into that number of
fully paid and non-assessable shares of Common Stock (as such
shares shall then be constituted) obtained by dividing the
principal amount of the Note or portion thereof surrendered for
conversion by the Conversion Price in effect at such time, by
surrender of the Note so to be converted in whole or in part in the
manner provided in Section 2(b) of this Note. A Note with
respect to which a Holder has delivered a notice in accordance with
Section 8(b) of this Note regarding such Holder’s
election to require the Company to repurchase such Holder’s
Notes following the occurrence of a Repurchase Event (as defined in
Section 8(c)) may be converted in accordance with this
Section 3 only if such Holder withdraws such notice by
delivering a written notice of withdrawal to the Company prior to
the close of business on the last Business Day prior to the day
fixed for repurchase.
(b) Exercise of Conversion
Privilege; Issuance of Common Stock on Conversion . In order to
exercise the conversion privilege with respect to any Note in
definitive form, the Holder of any such Note to be converted in
whole or in part shall (i) transmit via facsimile (or
otherwise physically deliver) a copy of a properly completed
Conversion Notice in the form attached hereto as Exhibit A
(the “Conversion Notice”), (ii) provide copies of
the Conversion Notice via facsimile to the Company’s transfer
agent, Registrar and Transfer Company, P.O. Box 664, Cranford, New
Jersey 07016 and the Company’s legal counsel, Lynnwood R.
Moore, Jr., Conner & Winters, LLP, 3700 First Place Tower,
15 East Fifth Street, Tulsa, Oklahoma, 74103 918-586-5711, ,(iii)
wire to the Company in accordance with wire transfer instructions
provided by the Company in writing to the Holder from time to time,
the funds, if any, required by the last paragraph of this
Section 3(b), (iv) if required by this Section 3(b),
surrender this Note, duly endorsed, to an overnight courier service
for delivery to the Company as soon as practicable (or such
security, indemnity or other items required by the Company in
accordance with Section 10 of this Note in the case of the
loss, theft or destruction of this Note) and (v) shall provide
such additional documentation or certification as the Company may
reasonably request to the office or agency specified in the
Conversion Notice that the Holder elects to convert this Note or
such portion thereof. The Conversion Notice shall also state the
name or names (with address) in which the shares of Common Stock
which shall be issuable on such conversion shall be issued, and
shall be accompanied by transfer taxes, if required pursuant to
Section 4 of this Note.
The Company shall use its best
efforts to, within three (3) Business Days after the
Conversion Date (as defined below) with respect to any Note,
subject to compliance with any restrictions on transfer if shares
issuable on conversion are to be issued in a name other than that
of the Holder (as if such transfer were a transfer of the Note or
Notes (or portion thereof) so converted), cause its transfer agent
to issue and deliver to such Holder at the address specified in the
Conversion Notice (a) a Certificate, registered in the name of
the Holder or its designee, for the number of full shares of Common
Stock issuable upon the conversion of such Note or portion thereof
in accordance with the provisions of this Section 3, or, at
the holder’s request, a written statement that the transfer
agent has recorded, through its book-entry system, the Holder as
the record owner of such shares of Common Stock on the books and
records of the Company maintained by the transfer agent as the
registrar of the Common Stock or, at the holder’s request,
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 The Depository Trust Company
(“DTC”) through its Deposit Withdrawal At Custodian
system and (b) a check or cash in respect of any fractional
interest in respect of a share of Common Stock arising upon such
conversion, as provided in Section 3(d). In case any Note of a
denomination greater than One Thousand United
6
States Dollars ($1,000) shall be surrendered for
partial conversion, the Company shall execute and deliver to the
Holder of the Note so surrendered, without charge to him, a new
Note or Notes in authorized denominations in an aggregate principal
amount equal to the unconverted portion of the surrendered
Note.
Subject to Section 9, if the
Company shall not have delivered the number of shares of Common
Stock issued upon conversion of Notes by any Holder within five
(5) Business Days after the Conversion Date with respect to
such Notes, the Company shall pay liquidated damages to such Holder
in the amount of one-half percent (0.5%) per month of the
outstanding principal amount of Notes so converted by such
Holder.
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 in accordance with this Section 3 or
(B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice)
requesting this Note be reissued upon the surrender of this Note to
the Company. Each Note surrendered for conversion shall, unless the
shares issuable on conversion are to be issued in the same name as
the registration of such Note, be duly endorsed by, or be
accompanied by instruments of transfer (including a broker’s
letter regarding compliance with the prospectus delivery
requirement, if applicable) in form satisfactory to the Company
duly executed by the Holder or its duly authorized attorney. The
Holder and the Company shall maintain records showing the principal
converted or paid and the dates of such conversions or payments 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.
The conversion shall be deemed to
have been effected as to any such Note (or portion thereof) on the
date on which the requirements set forth above in this
Section 3(b) have been satisfied as to such Note (or portion
thereof) (such date, the “Conversion Date”), and the
person in whose name any shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become on the
Conversion Date the Holder of record of the shares represented
thereby; provided, however, that any such surrender on any date
when the stock transfer books of the Company shall be closed shall
constitute the person in whose name the certificates are to be
issued as the record holder thereof for all purposes on the next
succeeding day on which such stock transfer books are open, but
such conversion shall be at the Conversion Price in effect on the
date upon which such Note shall be surrendered. For purposes of
determining satisfaction of the requirement set forth above with
respect to the Conversion Date for any Note, any facsimile required
to be sent shall be deemed to have been sent on a given day if such
facsimile was sent before 5:00 p.m., New York time, on such date,
to the number listed above and a confirmation of transmission of
such facsimile is obtained.
The Company shall pay in cash, on
any Note or portion thereof surrendered for conversion during the
period from the close of business on any Interest Payment Date to
which interest has been fully paid through the close of business on
the Business Day preceding the record date for the next such
Interest Payment Date, accrued and unpaid interest, if any, to, but
excluding, the date of conversion and liquidated damages, if any.
Subject to Section 9, any such payment of interest shall be
made with respect to such Note within ten (10) Business Days
after
7
the Conversion Date. Notwithstanding the
foregoing, any Note or portion thereof surrendered for conversion
during the period from the close of business on the record date for
any Interest Payment Date to which interest has been fully paid
through the close of business on the Business Day next preceding
such Interest Payment Date shall (unless such Note or portion
thereof being converted shall have been called for redemption
pursuant to a redemption notice mailed to the Holders in accordance
with Section 2(b) of this Note or shall have become due prior
to such Interest Payment Date as a result of a Repurchase Event) be
accompanied by payment, in immediately available funds or other
funds acceptable to the Company, of an amount equal to the interest
otherwise payable on such Interest Payment Date on the principal
amount being converted; provided, however, that no such payment
need be made if there shall exist at the time of conversion a
default in the payment of interest on the Notes. Except as provided
in this Section 3(b), no adjustment shall be made for interest
accrued on any Note converted or for dividends on any shares issued
upon the conversion of such Note as provided in this
Section 3.
(c) Cash Payments in Lieu of
Fractional Shares . No fractional shares of Common Stock or
scrip representing fractional shares shall be issued upon
conversion of Notes. If more than one Note shall be surrendered for
conversion at one time by the same Holder, the number of full
shares which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate principal amount of the
Notes (or specified portions thereof to the extent permitted
hereby) so surrendered for conversion. If any fractional share of
stock otherwise would be issuable upon the conversion of any Note
or Notes, the Company shall calculate and pay a cash adjustment in
lieu of such fractional share at the current market value thereof
to the Holder of Notes. For the purposes of this Section 3(c),
the current market value of a share of Common Stock shall be the
Closing Sale Price (determined as provided in Section 3(d)(6)
of this Note) on the first Trading Day immediately preceding the
day on which the Notes (or specified portions thereof) are deemed
to have been converted; provided, however, that if the Common Stock
is not listed on a Principal Market or quoted, then the Closing
Sale Price shall be determined in good faith by the Company’s
Board of Directors.
(d) Adjustment of Conversion
Price . The Conversion Price shall be adjusted from time to
time by the Company as follows:
(1) In case the Company shall
hereafter pay a dividend or make a distribution to all holders of
the outstanding Common Stock in shares of Common Stock, the
Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution shall be
reduced by multiplying such Conversion Price by a fraction of which
(i) the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the Record Date (as
defined in Section 3(d)(6) of this Note) fixed for such
determination and (ii) the denominator shall be the sum of
such number of shares and the total number of shares constituting
such dividend or other distribution, such reduction in the
Conversion Price to become effective immediately after the opening
of business on the day following the Record Date. If any dividend
or distribution of the type described in this Section 3(d)(1)
is declared but not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in
effect if such dividend or distribution had not been
declared.
8
(2) In case the outstanding shares
of Common Stock shall be subdivided into a greater number of shares
of Common Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and conversely,
in case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Price in
effect at the opening of business on the day following the day upon
which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on the
day following the day upon which such subdivision or combination
becomes effective.
(3) In case the Company shall issue
rights, warrants or options to all holders of its outstanding
shares of Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the Current
Market Price (as defined in Section 3(d)(6) of this Note) on
the Record Date fixed for the determination of stockholders
entitled to receive such rights, warrants or options, the
Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect at
the opening of business on the date after such Record Date by a
fraction of which (i) the numerator shall be the sum of the
number of shares of Common Stock outstanding at the close of
business on the Record Date plus the number of shares that the
aggregate offering price of the total number of shares so offered
for subscription or purchase would purchase at such Current Market
Price, and of which (ii) the denominator shall be the sum of
the number of shares of Common Stock outstanding at the close of
business on the Record Date plus the total number of additional
shares of Common Stock so offered for subscription or purchase.
Such adjustment shall become effective immediately after the
opening of business on the day following the Record Date fixed for
determination of stockholders entitled to receive such rights,
warrants or options. To the extent that shares of Common Stock are
not delivered pursuant to such rights, warrants or options, upon
the expiration or termination of such rights, warrants or options
the Conversion Price shall be readjusted to the Conversion Price
that would then be in effect had the adjustments made upon the
issuance of such rights, warrants or options been made on the basis
of delivery of only the number of shares of Common Stock actually
delivered. In the event that such rights, warrants or options are
not so issued, the Conversion Price shall again be adjusted to be
the Conversion Price that would then be in effect if such date
fixed for the determination of stockholders entitled to receive
such rights, warrants or options had not been fixed. In determining
whether any rights, warrants or options entitle the holders to
subscribe for or purchase shares of Common Stock at less than such
Current Market Price, and in determining the aggregate offering
price of such shares of Common Stock, there shall be taken into
account any consideration received for such rights, warrants or
options, the value of such consideration, if other than cash, to be
determined in good faith by the Company’s Board of
Directors.
(4) In case the Company shall, by
dividend or otherwise, distribute to all holders of its Common
Stock shares of any class of capital stock of the Company (other
than any dividends or distributions to which Section 3(d)(1)
of this Note applies) or evidences of its indebtedness or other
assets (including securities, but excluding (1) any rights,
warrants or options referred to in Section 3(d)(3) of this
Note and (2) dividends and distributions paid exclusively in
cash (except as set forth in Section 3(d)(5) of this Note (the
foregoing hereinafter in this Section 3(d)(4) called the
“Additional Securities”)), unless the Company elects to
reserve such Additional Securities for distribution to the Holders
upon conversion of the Notes so that
9
any such Holder converting Notes will receive
upon such conversion, in addition to the shares of Common Stock to
which such Holder is entitled, the amount and kind of such
Additional Securities which such Holder would have received if such
Holder had converted its Notes into Common Stock immediately prior
to the Record Date for such distribution of the Notes then, in each
such case, the Conversion Price shall be reduced so that the same
shall be equal to the price determined by multiplying the
Conversion Price in effect immediately prior to the close of
business on the Record Date with respect to such distribution by a
fraction of which (i) the numerator shall be the Current
Market Price on such date less the fair market value (as determined
in good faith by the Company’s Board of Directors, whose
determination shall be conclusive and described in a Board
Resolution) on such date of the portion of the Additional
Securities so distributed applicable to one share of Common Stock
and (ii) the denominator shall be such Current Market Price,
such reduction to become effective immediately prior to the opening
of business on the day following the Record Date; provided,
however, that in the event the then fair market value (as so
determined) of the portion of the Additional Securities so
distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price on the Record Date, in lieu
of the foregoing adjustment, adequate provision shall be made so
that each Holder shall have the right to receive upon conversion of
a Note (or any portion thereof) the amount of Common Stock such
Holder would have received had such Holder converted such Note (or
portion thereof) immediately prior to such Record Date. In the
event that such dividend or distribution is not so paid or made,
the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such dividend or
distribution had not been declared. If the Company’s Board of
Directors determines the fair market value of any distribution for
purposes of this Section 3(d)(4) by reference to the actual or
when issued trading market for any securities comprising all or
part of such distribution, it must in doing so consider the prices
in such market over the same period (the “Reference
Period”) used in computing the Current Market Price pursuant
to Section 3(d)(6) of this Note to the extent possible, unless
the Company’s Board of Directors determines in good faith
that to do so would not be in the best interest of the
Holder.
In the event that the Company
implements a new stockholder rights plan, such rights plan shall
provide that, upon conversion of the Notes, the Holders will
receive, in addition to the Common Stock issuable upon such
conversion, the rights issued under such rights plan (as if the
Holder had converted the Notes prior to implementing the rights
plan and notwithstanding the occurrence of an event causing such
rights to separate from the Common Stock at or prior to the time of
conversion). Any distribution of rights, warrants or options
pursuant to a stockholder rights plan complying with the
requirements set forth in the immediately preceding sentence of
this paragraph shall not constitute a distribution of rights,
warrants or options for the purposes of this
Section 3(d)(4).
Rights, warrants or options
distributed by the Company to all holders of Common Stock entitling
the holders thereof to subscribe for or purchase shares of the
Company’s capital stock (either initially or under certain
circumstances), which rights, warrants or options, until the
occurrence of a specified event or events (“Trigger
Event”): (i) are deemed to be transferred with such
shares of Common Stock; (ii) are not exercisable; and
(iii) are also issued in respect of future issuances of Common
Stock, shall be deemed not to have been distributed for purposes of
this Section 3(d)(4) (and no adjustment to the Conversion
Price under this Section 3(d)(4) will be required) until the
occurrence of the earliest Trigger Event. If such right or warrant
is subject to
10
subsequent events, upon the occurrence of which
such right or warrant shall become exercisable to purchase
different securities, evidences of indebtedness or other assets or
entitles the holder to purchase a different number or amount of the
foregoing or to purchase any of the foregoing at a different
purchase price, then the occurrence of each such event shall be
deemed to be the date of issuance and record date with respect to a
new right or warrant (and a termination or expiration of the
existing right or warrant without exercise by the holder thereof).
In addition, in the event of any distribution (or deemed
distribution) of rights, warrants or options, or any Trigger Event
or other event (of the type described in the preceding sentence)
with respect thereto, that resulted in an adjustment to the
Conversion Price under this Section 3(d)(4), (1) in the
case of any such rights, warrants or options that shall all have
been redeemed or repurchased without exercise by any holders
thereof, the Conversion Price shall be readjusted upon such final
redemption or repurchase to give effect to such distribution or
Trigger Event, as the case may be, as though it were a cash
distribution, equal to the per share redemption or repurchase price
received by a holder of Common Stock with respect to such rights,
warrants or options (assuming such holder had retained such rights,
warrants or options), made to all holders of Common Stock as of the
date of such redemption or repurchase, and (2) in the case of
such rights, warrants or options all of which shall have expired or
been terminated without exercise, the Conversion Price shall be
readjusted as if such rights, warrants or options had never been
issued.
For purposes of this
Section 3(d)(4) and Sections 3(d)(1) and (3) of this
Note, any dividend or distribution to which this
Section 3(d)(4) is applicable that also includes shares of
Common Stock, or rights, warrants or options to subscribe for or
purchase shares of Common Stock to which Sections 3(d)(1) or
3(d)(3) of this Note applies (or both), shall be deemed instead to
be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights, warrants or
options other than such shares of Common Stock or rights, warrants
or options to which Section 3(d)(3) of this Note applies (and
any Conversion Price reduction required by this
Section 3(d)(4) with respect to such dividend or distribution
shall then be made) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights,
warrants or options (and any further Conversion Price reduction
required by Sections 3(d)(1) and (3) of this Note with respect
to such dividend or distribution shall then be made, except
(A) the Record Date of such dividend or distribution shall be
substituted as “the date fixed for the determination of
stockholders entitled to receive such dividend or other
distribution,” “Record Date fixed for such
determination” and “Record Date” within the
meaning of Section 3(d)(1) of this Note and as “the date
fixed for the determination of stockholders entitled to receive
such rights, warrants or options,” “the Record Date
fixed for the determination of the stockholders entitled to receive
such rights, warrants or options” and “such Record
Date” within the meaning of Section 3(d)(3) of this Note
and (B) any shares of Common Stock included in such dividend
or distribution shall not be deemed “outstanding at the close
of business on the date fixed for such determination” within
the meaning of Section 3(d)(1) of this Note.
(5) In case the Company shall, by
dividend or otherwise, distribute cash to all holders of its Common
Stock (excluding any cash that is distributed upon a merger or
consolidation to which Section 3(e) of this Note applies or as
part of a distribution referred to in Section 3(d)(4) of this
Note), then, immediately after the close of business on the record
Date for the distribution, the Conversion Price shall be reduced so
that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the close of
business on such Record Date by a fraction (i) the numerator
of which shall be equal to the
11
Current Market Price on the Record Date less an
amount equal to the quotient of (x) the amount distributed and
(y) the number of shares of Common Stock outstanding on the
Record Date and (ii) the denominator of which shall be equal
to the Current Market Price on such date; provided, however, that
in the event the portion of the cash so distributed applicable to
one (1) share of Common Stock is equal to or greater than the
Current Market Price of the Common Stock on the Record Date, in
lieu of the foregoing adjustment, adequate provision shall be made
so that each Holder shall have the right to receive upon conversion
of a Note (or any portion thereof) the amount of cash such Holder
would have received had such Holder converted such Note (or portion
thereof) immediately prior to such Record Date. In the event that
such dividend or distribution is not so paid or made, the
Conversion Price shall again be adjusted to be the Conversion Price
that would then be in effect if such dividend or distribution had
not been declared.
(6) For purposes of this
Section 3(d), the following terms shall have the meaning
indicated:
(A) “Closing Sale Price”
with respect to any securities on any day shall mean the closing
sale price regular way on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and
asked prices, regular way, in each case on the Nasdaq National
Market or New York Stock Exchange, as applicable, or, if such
security is not listed or admitted to trading on such National
Market or Exchange, on the principal national security exchange or
quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system,
the average of the closing bid and asked prices of such security on
the over-the-counter market on the day in question as reported by
the National Quotation Bureau Incorporated, or a similar generally
accepted reporting service, or if not so available, in such manner
as furnished by any New York Stock Exchange member firm selected
from time to time by the Board of Directors for that purpose, whose
determination shall be conclusive.
(B) “Current Market
Price” shall mean the average of the daily Closing Sale
Prices per share of Common Stock for the ten (10) consecutive
Trading Days immediately prior to the date in question; provided,
however, that (1) if the “ex” date (as hereinafter
defined) for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the
Conversion Price pursuant to Section 3(d)(1), (2), (3),
(4) or (5) of this Note occurs during such ten
(10) consecutive Trading Days, the Closing Sale Price for each
Trading Day prior to the “ex” date for such other event
shall be adjusted by multiplying such Closing Sale Price by the
same fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (2) if the
“ex” date for any event (other than the issuance or
distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to
Section 3(e)(1), (2), (3), (4) or (5) of this Note
occurs on or after the “ex” date for the issuance or
distribution requiring such computation and prior to the day in
question, the Closing Sale Price for each Trading Day on and after
the “ex” date for such other event shall be adjusted by
multiplying such Closing Sale Price by the reciprocal of the
fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, and (3) if the
“ex” date for the issuance or distribution requiring
such computation is prior to the day in question, after taking into
account any adjustment required pursuant to clause (1) or
(2) of this proviso, the Closing Sale Price for each Trading
Day on or after such “ex” date shall be adjusted by
adding thereto the
12
amount of any cash and the fair market value (as
determined in good faith by the Company’s Board of Directors
in a manner consistent with any determination of such value for
purposes of Section 3(d)(4) of this Note, whose determination
shall be conclusive) of the evidences of indebtedness, shares of
capital stock or assets being distributed applicable to one share
of Common Stock as of the close of business on the day before such
“ex” date. For purposes of this paragraph, the term
“ex” date, (1) when used with respect to any
issuance or distribution, means the first date on which the Common
Stock trades regular way on the Principal Market without the right
to receive such issuance or distribution and (2) when used
with respect to any subdivision or combination of shares of Common
Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time at
which such subdivision or combination becomes effective.
Notwithstanding the foregoing, whenever successive adjustments to
the Conversion Price are called for pursuant to this
Section 3(d), such adjustments shall be made to the Current
Market Price as may be necessary or appropriate to effectuate the
intent of this Section 3(d) and to avoid unjust or inequitable
results as determined in good faith by the Board of
Directors.
(C) “Fair market value”
shall mean the amount which a willing buyer would pay a willing
seller in an arm’s length transaction.
(D) “Record Date” shall
mean, with respect to any dividend, distribution or other
transaction or event in which the holders of Common Stock have the
right to receive any cash, securities or other property or in which
the Common Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other
property, the date fixed for determination of stockholders entitled
to receive such cash, securities or other property (whether such
date is fixed by the Board of Directors or by statute, contract or
otherwise).
(E) “Trading Day” shall
mean (x) if the applicable security is listed or admitted for
trading on the New York Stock Exchange or another national security
exchange, a day on which the New York Stock Exchange or such other
national security exchange, as applicable, is open for business or
(y) if the applicable security is quoted on Nasdaq, a day on
which trades may be made thereon or (z) if the applicable
security is not so listed, admitted for trading or quoted, a
Business Day.
(7) The Company may make such
reductions in the Conversion Price, in addition to those required
by Sections 3(d)(1), (2), (3), (4) or (5) of this Note,
as the Board of Directors considers to be advisable to avoid or
diminish any income tax to holders of Common Stock or rights to
purchase Common Stock resulting from any dividend or distribution
of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes.
(8) To the extent permitted by
applicable law, the Company from time to time may reduce the
Conversion Price by any amount for any period of time if the period
is at least twenty (20) days, the reduction is irrevocable
during the period and the Board of Directors shall have made a
determination that such reduction would be in the best interests of
the Company, which determination shall be conclusive and described
in a Board Resolution; provided, however, that the Company may not
reduce the Conversion Price pursuant to this Section 3(d)(8)
if, as a result of such reduction, the rules of the Principal
Market would require approval of the
13
stockholders of the Company for the issuance of
a number of shares of Common Stock greater in the aggregate than
19.99% of the number of shares of Common Stock outstanding
immediately prior to the Closing Date. Whenever the Conversion
Price is reduced pursuant to the preceding sentence, the Company
shall mail to the Holder of each Note at his last address appearing
on the Note Register a notice of the reduction at least five
(5) days prior to the date the reduced Conversion Price takes
effect, and such notice shall state the reduced Conversion Price
and the period during which it will be in effect.
(9) No adjustment in the Conversion
Price shall be required under this Section 3(d) unless such
adjustment would require an increase or decrease of at least one
percent (1%) in such price; provided, however, that any
adjustments which by reason of this Section 3(d)(9) are not
required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this
Section 3 shall be made by the Company and shall be made to
the nearest cent or to the nearest one hundredth of a share, as the
case may be. No adjustment need be made for a change in the par
value or no par value of the Common Stock.
(10) Subject to
Section 3(d)(9), whenever the Conversion Price is adjusted as
provided in this Section 3(d), the Company shall promptly
prepare a notice of such adjustment of the Conversion Price setting
forth the adjusted Conversion Price and the date on which each
adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to the Holder of each Note at
his last address appearing on the Note Register, within twenty
(20) days of the effective date of such adjustment. Failure to
deliver such notice shall not effect the legality or validity of
any such adjustment.
(11) In any case in which this
Section 3(d) provides that an adjustment shall become
effective immediately after a Record Date for an event, the Company
may defer until the occurrence of such event (i) issuing to
the Holder of any Note converted after such Record Date and before
the occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment required
by such event over and above the Common Stock issuable upon such
conversion before giving effect to such adjustment and
(ii) paying to such Holder any amount in cash in lieu of any
fraction pursuant to Section 3(c) of this Note.
(12) For purposes of this
Section 3(d), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock.
The Company will not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the
Company.
(e) Effect of Reclassification,
Consolidation, Merger or Sale . Subject to the provisions of
Section 8, if any of the following events occur, namely
(i) any reclassification or change of the outstanding shares
of Common Stock (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any
consolidation, merger or combination of the Company with another
person as a result of which holders of Common Stock shall be
entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common
Stock (other than as a result of a change in name, a change in par
value or a change in the jurisdiction of incorporation),
(iii) any statutory exchange as a result of which holders of
Common Stock
14
generally shall be entitled to receive stock,
securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock (such transaction,
a “Statutory Exchange”), or (iv) any sale or
conveyance of the properties and assets of the Company as, or
substantially as, an entirety to any other person as a result of
which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock, then the Company
or the successor or purchasing person, as the case may be, shall
execute and deliver to the Holder a successor Note providing that
such Note shall be convertible into the kind and amount of shares
of stock and other securities or property or assets (including
cash) receivable upon such reclassification, change, consolidation,
merger, combination, Statutory Exchange, sale or conveyance by a
holder of a number of shares of Common Stock issuable upon
conversion of such Notes (assuming, for such purposes, a sufficient
number of authorized shares of Common Stock available to convert
all such Notes) immediately prior to such reclassification, change,
consolidation, merger, combination, Statutory Exchange, sale or
conveyance assuming such holder of Common Stock did not exercise
his rights of election, if any, that holders of Common Stock who
were entitled to vote or consent to such transaction had as to the
kind or amount of securities, cash or other property receivable
upon such consolidation, merger, combination, Statutory Exchange,
sale or conveyance (provided that, if the kind or amount of
securities, cash or other property receivable upon such
consolidation, merger, combination, Statutory Exchange, sale or
conveyance is not the same for each share of Common Stock in
respect of which such rights of election shall not have been
exercised (“non-electing share”), then for the purposes
of this Section 3(e) the kind and amount of securities, cash
or other property receivable upon such consolidation, merger,
combination, Statutory Exchange, sale or conveyance for each
non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares).
Such successor Note shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided
for in this Section 3. If, in the case of any such
reclassification, change, consolidation, merger, combination,
Statutory Exchange, sale or conveyance, the stock or other
securities and assets receivable thereupon by a holder of shares of
Common Stock include shares of stock or other securities and assets
of a person other than the successor or purchasing person, as the
case may be, in such reclassification, change, consolidation,
merger, combination, Statutory Exchange, sale or conveyance, then
such successor Note shall also be executed by such other person and
shall contain such additional provisions to protect the interests
of the Holders of the Notes as the Company’s Board of
Directors shall reasonably consider necessary by reason of the
foregoing, including to the extent practicable the provisions
providing for the repurchase rights set forth in Section 8 of
this Note.
The above provisions of this Section
shall similarly apply to successive reclassifications, changes,
consolidations, mergers, combinations, sales and
conveyances.
If this Section 3(e) applies to
any event or occurrence, Section 3(d) of this Note shall not
apply.
(f) Reservation of Shares; Shares
to be Fully Paid; Listing of Common Stock . The Company shall
provide, free from preemptive rights, out of its authorized but
unissued shares or shares held in treasury, reserved for the
purpose of issuance, no less than one hundred five percent
(105%) of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares upon conversion
of all of the Notes without regard to any limitations on
conversion.
15
The Company will not, by amendment
of its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be
observed or performed by it hereunder. Without limiting the
generality of the foregoing, the Company (i) will not increase
the par value of any shares of Common Stock issuable upon
conversion of this Note above the Conversion Price then in effect,
(ii) will take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock upon
conversion of this Note and (iii) will not take any action
which results in any adjustment of the Conversion Price if the
total number of shares of Common Stock issuable after the
conversion of all of the Notes would exceed the total number of
shares of Common Stock then authorized by the Company’s
certificate of incorporation and available for the purpose of issue
upon such exercise.
The Company covenants that all
shares of Common Stock issuable upon conversion of the Notes will
be fully paid and non-assessable by the Company and free from all
taxes, liens and charges with respect to the issue
thereof.
The Company is obligated to register
the resale of the shares of Common Stock issuable upon conversion
of the Notes under the Securities Act pursuant to the Registration
Rights Agreement. The shares of Common Stock issuable upon
conversion of the Notes shall constitute Registrable Securities (as
such term is defined in the Registration Rights Agreement). Each
Holder of Notes shall be entitled to all of the benefits afforded
to a Holder of any such Registrable Securities under the
Registration Rights Agreement and such Holder, by its acceptance of
this Note, agrees and shall agree to be bound by and to comply with
the terms and conditions of the Registration Rights Agreement
applicable to such Holder as a Holder of such Registrable
Securities.
The Company shall use commercially
reasonable efforts to promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Note upon the Principal
Market (subject to official notice of issuance upon exercise of
this Note) and shall use commercially reasonable efforts to
maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all shares of Common Stock from time to
time issuable upon the exercise of this Note; and the Company shall
use commercially reasonable efforts to list on the Principal Market
or automated quotation system, as the case may be, and shall
maintain such listing of, any other shares of capital stock of the
Company issuable upon conversion of the Notes if and so long as any
shares of the same class shall be listed on such Principal Market
or automated quotation system. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this
Section 3(f).
(g) Notice to Holders Prior to
Certain Actions . In case:
(1) the Company shall declare a
dividend (or any other distribution) on its Common Stock;
or
16
(2) the Company shall authorize the
granting to the holders of its Common Stock of rights, warrants or
options to subscribe for or purchase any share of any class or any
other rights, warrants or options; or
(3) of any reclassification of the
Common Stock of the Company (other than a subdivision or
combination of its outstand
