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EXHIBIT 4.6
[FORM OF SENIOR SECURED CONVERTIBLE NOTE]
NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"),
OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT, (B) AN OPINION OF
COUNSEL, REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (C) REASONABLE ASSURANCE
HAVING BEEN PROVIDED TO THE COMPANY
THAT SUCH OFFER, SALE, ASSIGNMENT OR
TRANSFER IS BEING MADE PURSUANT TO RULE 144
OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE
SHOULD CAREFULLY REVIEW THE TERMS OF THIS
NOTE, INCLUDING SECTIONS 3(c)(III) AND
19(a) HEREOF. THE PRINCIPAL AMOUNT
REPRESENTED BY THIS NOTE AND, ACCORDINGLY,
THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO
SECTION 3(c)(III) OF THIS NOTE.
VERILINK CORPORATION
SENIOR SECURED CONVERTIBLE NOTE
Issuance Date: ______, 200_
Principal: U.S. $_____________
FOR VALUE RECEIVED, Verilink Corporation, a Delaware
corporation
(the "COMPANY"), hereby promises to pay to
the order of [BUYER] or registered
assigns ("HOLDER") the amount set out above
as the Principal (as reduced
pursuant to the terms hereof pursuant to
redemption, conversion or otherwise,
the "PRINCIPAL") when due, whether upon the
Maturity Date (as defined below), on
any Installment Date with respect to the
Installment Amount due on such
Installment Date (each, as defined herein),
acceleration, redemption or
otherwise (in each case in accordance with
the terms hereof) and to pay interest
("INTEREST") on any outstanding Principal
at the rate of 6.00% 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), any
Installment Date or the Maturity Date,
acceleration, conversion, redemption or
otherwise (in each case in accordance
with the terms hereof). This Senior Secured
Convertible Note (including all
Senior Secured Convertible Notes issued in
exchange, transfer or replacement
hereof, this "NOTE") is one of an issue of
Senior Secured Convertible Notes
issued pursuant to the Securities Purchase
Agreement (as defined below)
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(collectively, the "NOTES" and such other
Senior Secured Convertible Notes, the
"OTHER NOTES"). Certain capitalized terms
used herein are defined in Section 29.
(1) PAYMENTS OF PRINCIPAL. On each Installment Date, the
Company
shall pay to the Holder an amount equal to
the Installment Amount due on such
Installment Date in accordance with Section
8. The "MATURITY DATE" shall be
March 21, 2008, as the same may be extended
at the option of the Holder (i)
through the date that is fifteen (15)
Business Days (or, in the case of the
Event of Default specified in Section
4(a)(ix), sixty-five (65) days) after the
cure or termination of any Event of Default
(as defined in Section 4(a)) that
has occurred and is continuing on the
Maturity Date (as may be extended pursuant
to this Section 1) or the termination of
any event that has occurred and is
continuing on the Maturity Date (as may be
extended pursuant to this Section 1)
and that with the passage of time and the
failure to cure would result in an
Event of Default and (ii) through the date
that is ten (10) days after the
consummation of a Change of Control in the
event that a Change of Control is
publicly announced or a Change of Control
Notice (as defined in Section 5(b)) is
delivered prior to the Maturity Date.
(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 for each Calendar
Quarter on the tenth day of the succeeding
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 July 10, 2005.
Interest shall be payable on each Interest
Date, to the record holder of this
Note on the applicable Interest Date, in
cash ("CASH INTEREST") or, at the
option of the Company, in shares of Common
Stock ("INTEREST SHARES") or a
combination thereof, provided that the
Interest which accrued during any period
may be payable in Interest Shares if, and
only if, the Company delivers written
notice (each, an "INTEREST ELECTION
NOTICE") of such election to each holder of
the Notes on or prior to the twentieth
(20th) Trading Day prior to the Interest
Date (each, an "INTEREST NOTICE DUE DATE");
provided, further, that from and
after November 21, 2005, the Company must
pay at least 50% of all Interest due
hereunder as Cash Interest, unless at such
time the Stockholder Approval (as
defined in the Securities Purchase
Agreement) has been obtained. Each Interest
Election Notice must specify the amount of
Interest that shall be paid as Cash
Interest, if any, and the amount of
Interest that shall be paid in Interest
Shares. Interest to be paid on an Interest
Date in Interest Shares shall be paid
in a number of fully paid and nonassessable
shares (rounded to the nearest whole
share in accordance with Section 3(a)) of
Common Stock equal to the quotient of
(a) the amount of Interest payable on such
Interest Date less any Cash Interest
paid and (b) the Interest Conversion Price
in effect on the applicable Interest
Date. If any Interest Shares are to be paid
on an Interest Date, then the
Company shall (X) provided that the
Company's transfer agent (the "TRANSFER
AGENT") is participating in the Depository
Trust Company ("DTC") Fast Automated
Securities Transfer Program and such action
is not prohibited by applicable law
or regulation or any applicable policy of
DTC, credit such aggregate number of
Interest Shares 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 foregoing
shall not apply, issue and deliver on
the applicable Interest Date, to the
address set forth in the register
maintained by the Company for such purpose
pursuant to the Securities Purchase
Agreement or to such address as specified
by the Holder in writing to the
Company at least two Business Days prior to
the applicable Interest Date, a
certificate, registered
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in the name of the Holder or its designee,
for the number of Interest Shares to
which the Holder shall be entitled.
Notwithstanding the foregoing, the Company
shall not be entitled to pay Interest in
Interest Shares and shall be required
to pay such Interest in cash as Cash
Interest on the applicable Interest Date
if, unless consented to in writing by the
Holder, during the period commencing
on the applicable Interest Notice Due Date
through the applicable Interest Date
the Equity Conditions have not been
satisfied. 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). Upon the
occurrence and during the continuance
of an Event of Default, the Interest Rate
shall be increased to twelve percent
(12%). In the event that such Event of
Default is subsequently cured, the
adjustment referred to in the preceding
sentence shall cease to be effective as
of the date of such cure; provided that the
Interest as calculated and unpaid at
such increased rate during the continuance
of such Event of Default shall
continue to apply to the extent relating to
the days after the occurrence of
such Event of Default through and including
the date of cure of such Event of
Default. The Company shall pay any and all
taxes that may be payable with
respect to the issuance and delivery of
Interest Shares; provided that the
Company shall not be required to pay any
tax that may be payable in respect of
any issuance of Interest Shares to any
Person other than the Holder or with
respect to any income tax due by the Holder
with respect to such Interest
Shares.
(3) CONVERSION OF NOTES. This Note shall be convertible into
shares
of the Company's common stock, par value
$.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 conversion would result
in the issuance of a fraction of a
share of Common Stock, unless the entire
balance of the Note is being converted,
the portion of the Conversion Amount that
corresponds to such fraction of a
share of Common Stock shall resume the
status of unpaid Principal on the Note.
If the entire balance of the Note is being
converted, the Company shall round
such fraction of a share of Common Stock up
to the nearest whole share. The
Company shall pay any and all taxes that
may be payable with respect to the
issuance and delivery of Common Stock upon
conversion of any Conversion Amount;
provided that the Company shall not be
required to pay any tax that may be
payable in respect of any issuance of
Common Stock to any Person other than the
converting Holder or with respect to any
income tax due by the Holder with
respect to such Common Stock.
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of any Conversion
Amount pursuant to Section 3(a) shall
be determined by dividing (x) such
Conversion Amount by (y) the Conversion Price
(the "CONVERSION RATE").
(i) "CONVERSION AMOUNT" means the sum of (A) the portion
of the Principal to be converted, redeemed
or otherwise with respect to which
this determination
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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, $3.01, 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 Transfer Agent. On or
before the second Business Day
following the date of receipt of a
Conversion Notice (the "SHARE DELIVERY
DATE"), the Company shall (X) provided that
the Transfer Agent is participating
in the DTC Fast Automated Securities
Transfer Program and such action is not
prohibited by applicable law or regulation
or any applicable policy of DTC,
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 foregoing shall not
apply, 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 19(d)) representing
the outstanding Principal not
converted. The Person or Persons entitled
to receive the shares of Common Stock
issuable upon a conversion of this Note
shall be treated for all purposes as the
record holder or holders of such shares of
Common Stock on the Conversion Date.
In the event of a partial conversion of
this Note pursuant hereto, the principal
amount converted shall be deducted from the
Installment Amounts relating to the
Installment Dates as set forth in the
Conversion Notice.
(ii) Company's Failure to Timely Convert. If the Company
shall fail, other than pursuant to Section
3(d), 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 Business Days after the
Conversion Date (a "CONVERSION FAILURE"),
then (A) the Company shall pay damages
in cash to the Holder for each date of such
Conversion Failure in an amount
equal to 2.0% 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,
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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 after the
Holder's request and in the Holder's
discretion, either (i) pay cash to the
Holder in an amount equal to the Holder's
total purchase price (including
brokerage commissions, if any) for the
shares of Common Stock so purchased (the
"BUY-IN PRICE"), at which point the
Company's obligation to deliver such
certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly
honor its obligation to deliver to the
Holder a certificate or certificates
representing such Common Stock and pay cash
to the Holder in an amount equal to
the excess (if any) of the Buy-In Price
over the product of (A) such number of
shares of Common Stock, times (B) the
Closing Bid Price on the Conversion Date.
(iii) Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion
of any portion of this Note in
accordance with the terms hereof, the
Holder shall not be required to physically
surrender this Note to the Company unless
(A) the full Conversion Amount
represented by this Note is being converted
or (B) the Holder has provided the
Company with prior written notice (which
notice may be included in a Conversion
Notice) requesting reissuance of this Note
upon physical surrender of this Note.
The Holder and the Company shall maintain
records showing the Principal,
Interest and Late Charges converted and the
dates of such conversions or shall
use such other method, reasonably
satisfactory to the Holder and the Company, so
as not to require physical surrender of
this Note upon conversion.
(iv) Pro Rata Conversion; Disputes. In the event that
the Company receives a Conversion Notice
from more than one holder of Notes for
the same Conversion Date and the Company
can convert some, but not all, of such
portions of the Notes submitted for
conversion, the Company, subject to Section
3(d), shall convert from each holder of
Notes electing to have Notes converted
on such date a pro rata amount of such
holder's portion of its Notes submitted
for conversion based on the principal
amount of Notes submitted for conversion
on such date by such holder relative to the
aggregate principal amount of all
Notes submitted for conversion on such
date. In the event of a dispute as to the
number of shares of Common Stock issuable
to the Holder in connection with a
conversion of this Note, the Company shall
issue to the Holder the number of
shares of Common Stock not in dispute and
resolve such dispute in accordance
with Section 24. The failure to issue to
the Holder the number of shares of
Common Stock in dispute shall not be a
Conversion Failure.
(d) Limitations on Conversions.
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(i) Beneficial Ownership. The Company shall not effect
any conversion of this Note, and the Holder
of this Note shall not have the
right to convert any portion of this Note
pursuant to Section 3(a), to the
extent that after giving effect to such
conversion, the Holder (together with
the Holder's affiliates) would beneficially
own in excess of 4.99% (the "MAXIMUM
PERCENTAGE") of the number of shares of
Common Stock outstanding immediately
after giving effect to such conversion. For
purposes of the foregoing sentence,
the number of shares of Common Stock
beneficially owned by the Holder and its
affiliates shall include the number of
shares of Common Stock issuable upon
conversion of this Note with respect to
which the determination of such sentence
is being made, but shall exclude the number
of shares of Common Stock which
would be issuable upon (A) conversion of
the remaining, nonconverted portion of
this Note beneficially owned by the Holder
or any of its affiliates and (B)
exercise or conversion of the unexercised
or nonconverted portion of any other
securities of the 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-Q or Form 8-K, as
the case may be, (y) a more recent public
announcement by the Company or (z) any
other notice by the Company or the Transfer
Agent setting forth the number of
shares of Common Stock outstanding. For any
reason at any time, upon the written
or oral request of the Holder, the Company
shall within one Business Day confirm
orally and in writing to the Holder the
number of shares of Common Stock then
outstanding. In any case, the number of
outstanding shares of Common Stock shall
be determined after giving effect to the
conversion or exercise of securities of
the Company, including this Note, by the
Holder or its affiliates since the date
as of which such number of outstanding
shares of Common Stock was reported. By
written notice to the Company, the Holder
may increase or decrease the Maximum
Percentage to any other percentage not in
excess of 9.99% specified in such
notice; provided that (i) any such increase
will not be effective until the
sixty-first (61st) day after such notice is
delivered to the Company, and (ii)
any such increase or decrease will apply
only to the Holder and not to any other
holder of Notes.
(ii) Principal Market Regulation. The Company shall not
be obligated to issue any shares of Common
Stock upon conversion of this Note if
the issuance of such shares of Common Stock
would exceed the aggregate number of
shares of Common Stock which the Company
may issue upon conversion or exercise,
as applicable, of the Notes and Warrants
and the payment of Interest in Interest
Shares without breaching the Company's
obligations under the rules or
regulations of the Principal Market (the
"EXCHANGE CAP"), except that such
limitation shall not apply in the event
that the Company (A) obtains the
approval of its stockholders as required by
the applicable rules of the
Principal Market for issuances of Common
Stock in excess of such amount or (B)
obtains a written opinion from outside
counsel to the Company that such approval
is not required, which opinion shall be
reasonably satisfactory to the Required
Holders. Until such approval or written
opinion is obtained, no purchaser of the
Notes pursuant to the Securities Purchase
Agreement (the "PURCHASERS") shall be
issued in the aggregate, upon conversion or
exercise, as applicable, of Notes or
Warrants or the payment of Interest in
Interest Shares, shares of Common Stock
(as adjusted for stock splits,
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stock dividends, stock combinations and
other similar transactions) in an amount
greater than the product of the Exchange
Cap multiplied by a fraction, the
numerator of which is the principal amount
of Notes issued to the Purchasers
pursuant to the Securities Purchase
Agreement on the Closing Date and the
denominator of which is the aggregate
principal amount of all Notes issued to
the Purchasers pursuant to the Securities
Purchase Agreement on the Closing Date
(with respect to each Purchaser, the
"EXCHANGE CAP ALLOCATION"). In the event
that any Purchaser shall sell or otherwise
transfer any of such Purchaser's
Notes, the transferee shall be allocated a
pro rata portion of such Purchaser's
Exchange Cap Allocation, and the
restrictions of the prior sentence shall apply
to such transferee with respect to the
portion of the Exchange Cap Allocation
allocated to such transferee. In the event
that any holder of Notes shall
convert all of such holder's Notes into a
number of shares of Common Stock
which, in the aggregate, is less than such
holder's Exchange Cap Allocation,
then the difference between such holder's
Exchange Cap Allocation and the number
of shares of Common Stock actually issued
to such holder shall be allocated to
the respective Exchange Cap Allocations of
the remaining holders of Notes on a
pro rata basis in proportion to the
aggregate principal amount of the Notes then
held by each such holder.
(4) RIGHTS UPON EVENT OF DEFAULT.
(a) Event of Default. Each of the following events shall
constitute an "EVENT OF DEFAULT":
(i) the 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 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, other than pursuant to Section
3(d);
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(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) (A) the Company's failure to pay to the Holder any
amount of Principal, when and as due under
this Note (including, without
limitation, the Company's failure to pay
any redemption payments) or (B) the
Company's failure to pay to the Holder any
other amounts when due and as due
under any Transaction Document (as defined
in the Securities Purchase Agreement)
or any other agreement, document,
certificate or other instrument delivered in
connection with the transactions
contemplated hereby and thereby to which the
Holder is a party, if such failure
continues for a period of at least five (5)
Business Days;
(vi) (A) any payment default or other default occurs
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)
(other than the Alabama Mortgage) that
results in a redemption of or acceleration
prior to maturity of $250,000 or more
of such Indebtedness in the aggregate, (B)
any material default occurs under any
Indebtedness of the Company (other than the
Alabama Mortgage) or any of its
Subsidiaries having an aggregate
outstanding balance in excess of $250,000 and
such default continues uncured for more
than ten (10) Business Days, other than,
in each case (A) and (B) above, a default
with respect to any Other Notes, or
(C) any "event of default" occurs under the
Alabama Mortgage;
(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 $2,000,000
are rendered against the Company or
any of its Subsidiaries and which judgments
are not, within sixty (60) days
after the entry thereof, bonded, discharged
or stayed pending appeal, or are not
discharged within sixty (60) days after the
expiration of such stay; provided,
however, that any judgment which is covered
by insurance or an indemnity from a
credit worthy party shall not be included
in calculating the $2,000,000 amount
set forth above so long as the Company
provides the Holder a written statement
from such insurer or indemnity provider
(which written statement shall be
reasonably satisfactory to the Holder) to
the effect that
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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 or other term or
condition of any Transaction Document which
is curable, only if such breach
continues for a period of at least ten (10)
consecutive Business Days;
(xi) any breach or failure in any respect to comply with
Section 15 of this Note or Section 8(b) of
the Securities Purchase Agreement; 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
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 prior to sixty (60) days
after written notice from the Company to
the Holder that such Event of Default is
cured (which written notice shall
provide satisfactory evidence that such
Event of Default has actually been
cured), the Holder may require the Company
to redeem all or any portion of this
Note by delivering written notice thereof
(the "EVENT OF DEFAULT REDEMPTION
NOTICE") to the Company, which Event of
Default Redemption Notice shall indicate
the portion of this Note the Holder is
electing to redeem. Each portion of this
Note subject to redemption by the Company
pursuant to this Section 4(b) shall be
redeemed by the Company at a price equal to
the greater of (i) the product of
(x) the Conversion Amount to be redeemed
and (y) the Redemption Premium and (ii)
the product of (A) the Conversion Rate with
respect to such Conversion Amount in
effect at such time as the Holder delivers
an Event of Default Redemption Notice
and (B) the Closing Sale Price of the
Common Stock on the date immediately
preceding such Event of Default (the "EVENT
OF DEFAULT REDEMPTION PRICE").
Redemptions required by this Section 4(b)
shall be made in accordance with the
provisions of Section 13. In the event of a
partial redemption of this Note
pursuant hereto, the principal amount
redeemed shall be deducted from the
Installment Amounts relating to the
applicable Installment Dates as set forth in
the Event of Default Redemption Notice.
(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 (if other than the
Company) 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
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<PAGE>
a written instrument substantially similar
in form and substance to the Notes,
including, without limitation, having a
principal amount and interest rate equal
to the principal amounts and the interest
rates of the Notes held by such holder
and having similar ranking to the Notes,
and satisfactory to the Required
Holders and (ii) the Successor Entity
(including its Parent Entity) is a
publicly traded corporation whose common
stock is quoted on or listed for
trading on an Eligible Market. Upon the
occurrence of any Fundamental
Transaction, the Successor Entity (if other
than the Company) shall succeed to,
and be substituted for (so that from and
after the date of such Fundamental
Transaction, the provisions of this Note
referring to the "Company" shall refer
instead to the Successor Entity), and may
exercise every right and power of the
Company and shall assume all of the
obligations of the Company under this Note
with the same effect as if such Successor
Entity had been named as the Company
herein. Upon consummation of the
Fundamental Transaction, the Successor Entity
(if other than the Company) 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
stock, securities, cash, assets or any
other property whatsoever (including
warrants or other purchase or subscription
rights) which the Holder would have been
entitled to receive upon the happening
of such Fundamental Transaction had this
Note been converted immediately prior
to such Fundamental Transaction, as
adjusted in accordance with the provisions
of this Note. The provisions of this
Section shall apply similarly and equally
to successive Fundamental Transactions and
shall be applied without regard to
any limitations on the conversion or
redemption of this Note.
(b) Redemption Right. No sooner than fifteen (15) days nor
later than ten (10) days prior to the
consummation of a Change of Control, but
not prior to the public announcement of
such Change of Control, the Company
shall deliver written notice thereof via
facsimile and overnight courier to the
Holder (a "CHANGE OF CONTROL NOTICE"). At
any time during the period beginning
after the Holder's receipt of a Change of
Control Notice and ending on the date
of the consummation of such Change of
Control (or, in the event a Change of
Control Notice is not delivered at least
ten (10) days prior to a Change of
Control, at any time on or after the date
which is ten (10) days prior to a
Change of Control and ending ten (10) days
after the consummation of such Change
of Control), the Holder may require the
Company to redeem all or any portion of
this Note by delivering written notice
thereof ("CHANGE OF CONTROL REDEMPTION
NOTICE") to the Company, which Change of
Control Redemption Notice shall
indicate the Conversion Amount the Holder
is electing to redeem. The portion of
this Note subject to redemption pursuant to
this Section 5 shall be redeemed by
the Company at a price equal to the greater
of (i) the product of (x) the
Conversion Amount being redeemed and (y)
the quotient determined by dividing (A)
the Closing Sale Price of the Common Stock
immediately following the public
announcement of such proposed Change of
Control by (B) the Conversion Price and
(ii) 105% of the Conversion Amount being
redeemed from the Issuance Date until
six months from the Issuance Date, 110% of
the Conversion Amount being redeemed
from the end of such six month period until
the first anniversary of the
Issuance Date, and 120% of the Conversion
Amount being redeemed thereafter (the
"CHANGE OF CONTROL REDEMPTION PRICE").
Redemptions required by this Section 5
shall be made in accordance with the
provisions of Section 13 only if such
Change of Control is consummated and shall
have priority to payments to
stockholders in connection with a Change of
Control. Notwithstanding anything to
the contrary
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<PAGE>
in this Section 5, but subject to Section
3(d), until the Change of Control
Redemption Price (together with any
interest thereon) is paid in full, the
Conversion Amount submitted for redemption
under this Section 5(c) (together
with any interest thereon) may be
converted, in whole or in part, by the Holder
into Common Stock pursuant to Section 3. In
the event of a partial redemption of
this Note pursuant hereto, the principal
amount redeemed shall be deducted from
the Installment Amounts relating to the
applicable Installment Dates as set
forth in the Change of Control Redemption
Notice.
(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"), the Company shall make
appropriate provision to insure that the
Holder will thereafter have the right
to receive upon a conversion of this Note,
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 conversion of this Note (without
taking into account any limitations or
restrictions on the convertibility of this
Note) immediately before the date on
which a record is taken for the grant,
issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as
of which the record holders of
Common Stock are to be determined for the
grant, issue or sale of such Purchase
Rights.
(b) Other Corporate Events. In addition to and not in
substitution for any other rights
hereunder, prior to the consummation of any
Fundamental Transaction pursuant to which
holders of shares of Common Stock are
entitled to receive securities or other
assets with respect to or in exchange
for shares of Common Stock (a "CORPORATE
EVENT"), the Company shall make
appropriate provision to insure that the
Holder will thereafter have the right
to receive upon a conversion of this Note,
as applicable, (i) in addition to the
shares of Common Stock receivable upon such
conversion, such securities or other
assets to which the Holder would have been
entitled with respect to such shares
of Common Stock had such shares of Common
Stock been held by the Holder upon the
consummation of such Corporate Event
(without taking into account any
limitations or restrictions on the
convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise
receivable upon such conversion, such
securities or other assets received by the
holders of shares of Common Stock in
connection with the consummation of such
Corporate Event in such amounts as the
Holder would have been entitled to receive
had this Note initially been issued
with conversion rights for the form of such
consideration (as opposed to shares
of Common Stock) at a conversion rate for
such consideration commensurate with
the Conversion Rate. Provision made
pursuant to the preceding sentence shall be
in a form and substance reasonably
satisfactory to the Required Holders. The
provisions of this Section shall apply
similarly and equally to successive
Corporate Events and shall be applied
without regard to any limitations on the
conversion or redemption of this Note.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
(a) Adjustment of Conversion Price upon Issuance of Common
Stock. If and whenever on or after the
Subscription Date, the Company issues or
sells, or in accordance
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<PAGE>
with this Section 7(a) is deemed to have
issued or sold, any shares of Common
Stock (including the issuance or sale of
shares of Common Stock owned or held by
or for the account of the Company, but
excluding shares of Common Stock deemed
to have been issued or sold by the Company
in connection with any Excluded
Security) for a consideration per share
less than a price (the "APPLICABLE
PRICE") equal to the Conversion Price in
effect immediately prior to such issue
or sale (the foregoing a "DILUTIVE
ISSUANCE"), then immediately after such
Dilutive Issuance, the Conversion Price
then in effect shall be reduced to an
amount equal to the product of (A) the
Conversion Price in effect immediately
prior to such Dilutive Issuance and (B) the
quotient determined by dividing (1)
the sum of (I) the product derived by
multiplying the Conversion Price in effect
immediately prior to such Dilutive Issuance
and the number of shares of Common
Stock Deemed Outstanding immediately prior
to such Dilutive Issuance plus (II)
the consideration, if any, received by the
Company upon such Dilutive Issuance,
by (2) the product derived by multiplying
(I) the Conversion Price in effect
immediately prior to such Dilutive Issuance
by (II) the number of shares of
Common Stock Deemed Outstanding immediately
after such Dilutive Issuance. For
purposes of determining the adjusted
Conversion Price under this Section 7(a),
the following shall be applicable:
(i) Issuance of Options. If the Company in any manner
grants or sells any Options and the lowest
price per share for which one share
of Common Stock is issuable upon the
exercise of any such Option or upon
exercise of such Option and 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
Common Stock or of such Convertible
Securities upon the exercise of such
Options or upon the actual issuance of such
Common Stock upon conversion or exchange or
exercise of such Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company
in any manner issues or sells any
Convertible Securities and the lowest price
per share for which one share of Common
Stock is issuable upon such conversion
or exchange or exercise thereof is less
than the Applicable Price, then such
share of Common Stock shall be deemed to be
outstanding and to have been issued
and sold by the Company at the time of the
issuance or sale of such Convertible
Securities for such price per share. For
the purposes of this Section 7(a)(ii),
the "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
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
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<PAGE>
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
purposes of this Section 7(a)(iii), if
the terms of any Option or Convertible
Security that was outstanding as of the
Subscription Date are changed in the manner
described in the immediately
preceding sentence, then such Option or
Convertible Security and the Common
Stock deemed issuable upon exercise,
conversion or exchange thereof shall be
deemed to have been issued as of the date
of such change. No adjustment shall be
made pursuant to this Section 7(a)(iii) if
such adjustment would result in an
increase of the Conversion Price then in
effect.
(iv) Calculation of Consideration Received. In case any
Option is issued in connection with the
issue or sale of other securities of the
Company, together comprising one integrated
transaction in which no specific
consideration is allocated to such Options
by the parties thereto, the Options
will be deemed to have been issued for a
consideration of $.01. If any Common
Stock, Options or Convertible Securities
are issued or sold or deemed to have
been issued or sold for cash, the
consideration received therefor will be deemed
to be the net amount received by the
Company therefor. If any Common Stock,
Options or Convertible Securities are
issued or sold for a consideration other
than cash, the amount of the consideration
other than cash received by the
Company will be the fair value of such
consideration, except where such
consideration consists of marketable
securities, in which case the amount of
consideration received by the Company will
be the Closing Sale Price of such
securities on the date of receipt. If any
Common Stock, Options or Convertible
Securities are issued to the shareholders
of the non-surviving entity in
connection with any merger in which the
Company is the surviving entity, the
amount of consideration therefor will be
deemed to be the fair value of net
assets and business of the non-surviving
entity, calculated on a going concern
basis, as is attributable to such Common
Stock, Options or Convertible
Securities, as the case may be. The fair
value of any consideration other than
cash or securities will be determined
jointly by the Company and the Required
Holders. If such parties are unable to
reach agreement within ten (10) days
af
