NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B)
AN OPINION
OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT
REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE
SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS
3(c)(iii) AND 20(a)
HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE
AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS
NOTE.
MDWERKS, INC.
SENIOR SECURED CONVERTIBLE NOTE
Issuance Date: October 19, 2006
Original Principal Amount: U.S. $2,500,000
FOR VALUE RECEIVED, MDwerks, Inc., a Delaware corporation (the
"COMPANY"),
hereby promises to pay to GOTTBETTER CAPITAL MASTER, LTD. or its
registered
assigns ("HOLDER") the amount set out above as the Original
Principal Amount (as
may be 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, acceleration, redemption or otherwise
(in each
case in accordance with the terms hereof) and to pay interest
("INTEREST") on
any outstanding Principal at a rate per annum equal to the Interest
Rate (as
defined below), from the date set out above as the Issuance Date
(the "ISSUANCE
DATE") until the same becomes due and payable, whether upon an
Interest Date (as
defined below), 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") issued pursuant to the Securities Purchase Agreement (as
defined below).
Certain capitalized terms used herein are defined in Section 28.
1. PAYMENTS OF PRINCIPAL; MATURITY. On each Installment Date
commencing October
1, 2007, the Company shall pay to the Holder an amount equal to the
Installment
Amount due on such Installment Date in cash by wire transfer of
immediately
available funds. The "MATURITY DATE" shall be October 18, 2009, as
may be
extended at the option of the Holder (i) in the event that, and for
so long as,
an Event of Default (as defined in Section 4(a)) shall have
occurred and be continuing 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.
(a) Interest on this Note shall commence accruing on the Issuance
Date and
shall be computed on the basis of a 360-day year and actual days
elapsed and
shall be payable in arrears for each Calendar Month during the
period beginning
on the Issuance Date and ending on, and including, the Maturity
Date (each, an
"INTEREST DATE") with the first Interest Date being December 1,
2006. Interest
shall be payable on each Interest Date, to the record holder of
this Note on the
applicable Interest Date, in cash ("CASH INTEREST").
(b) From and after the occurrence of an Event of Default, the
Interest Rate
shall be increased to fifteen percent (15%) per annum. In the event
that such
Event of Default is subsequently cured, the adjustment referred to
in the
preceding sentence shall cease to be effective as of the date of
such cure;
provided that the Interest as calculated at such increased rate
during the
continuance of such Event of Default shall continue to apply to the
extent
relating to the days after the occurrence of such Event of Default
through and
including the date of cure of such Event of Default.
3. CONVERSION OF NOTES. This Note shall be convertible into shares
of common
stock of the Company, par value $0.001 per share (the "COMMON
STOCK"), on the
terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(d), at
any
time or times on or after the Issuance Date, the Holder shall be
entitled to
convert any portion of the outstanding and unpaid Conversion Amount
(as defined
below) into fully paid and nonassessable shares of Common Stock in
accordance
with Section 3(c), at the Conversion Rate (as defined below). The
Company shall
not issue any fraction of a share of Common Stock upon any
conversion. If the
issuance would result in the issuance of a fraction of a share of
Common Stock,
the Company shall round such fraction of a share of Common Stock up
to the
nearest whole share. The Company shall pay any and all stamp and
similar taxes
that may be payable with respect to the issuance and delivery of
Common Stock
upon conversion of any Conversion Amount. The Company shall not be
required,
however, to pay any transfer tax or similar charge imposed in
connection with
the issuance of Common Stock in any name other than that of the
Holder.
(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
then in
effect (the "CONVERSION RATE").
(i) "CONVERSION AMOUNT" means the portion of the Principal to be
converted, redeemed or otherwise with respect to which this
determination
is being made.
2
(ii) "CONVERSION PRICE" means, as of the Issuance Date $2.25, which
Conversion Price shall be subject to adjustment from time to time
in
accordance with the terms set forth herein (including Section 7
hereof).
The Conversion Price shall be appropriately adjusted for any stock
split,
stock dividend, stock combination or other similar transaction that
proportionately decreases or increases the Common Stock.
(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
5:00 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)(iv),
surrender
this Note to a nationally recognized overnight delivery service for
delivery to the Company (or an indemnification undertaking with
respect to
this Note in the case of its loss, theft or destruction). On or
before the
next Trading Day following the date of receipt of a Conversion
Notice, the
Company shall transmit by facsimile a confirmation of receipt of
such
Conversion Notice to the Holder and the Transfer Agent. On or
before the
second (2nd) Trading Day following the date of receipt of a
Conversion
Notice (the "SHARE DELIVERY DATE"), the Company shall (1) (X)
provided that
the Transfer Agent is participating in the Fast Automated
Securities
Transfer Program 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 Transfer Agent is not participating
in the
DTC Fast Automated Securities Transfer Program, issue and deliver
to the
address as specified in the Conversion Notice, a certificate,
registered in
the name of the Holder or its designee, for the number of shares of
Common
Stock to which the Holder shall be entitled and (2) pay to the
Holder in
cash an amount equal to the accrued and unpaid Interest on the
Conversion
Amount up to and including the Conversion Date. If this Note is
physically
surrendered for conversion as required by Section 3(c)(iv) 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 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 18(d)) representing the
outstanding
Principal not converted. The Person or Persons entitled to receive
the
shares of Common Stock issuable upon a conversion of this Note
shall be
treated for all purposes as the record holder or holders of such
shares of
Common Stock on the Conversion Date. 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 in
reverse chronological order.
(ii) Company's Failure to Timely Convert. 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 (a "CONVERSION
3
FAILURE"), and if on or after such Trading Day the Holder purchases
(in an
open market transaction or otherwise) Common Stock to deliver in
satisfaction of a sale by the Holder of Common Stock issuable upon
such
conversion that the Holder anticipated receiving from the Company
(a
"BUY-IN"), then the Company shall, within three (3) Business Days
after the
Holder's request and provision of trade confirmations and in the
Holder's
sole discretion, either (i) pay cash to the Holder in an amount
equal to
the Holder's total purchase price (including brokerage commissions
and
other out-of-pocket expenses, if any) for the shares of Common
Stock so
purchased (the "BUY-IN PRICE"), at which point the Company's
obligation to
deliver such certificate (and to issue such Common Stock) shall
terminate,
or (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) Registration; Book-Entry. The Company shall maintain a
register
(the "REGISTER") for the recordation of the names and addresses of
the
holders of the Notes and the principal amount of the Notes held by
such
holders (the "REGISTERED NOTES"). The entries in the Register shall
be
conclusive and binding for all purposes absent manifest error. The
Company
and the holders of the Notes shall treat each Person whose name is
recorded
in the Register as the owner of a Note for all purposes, including,
without
limitation, the right to receive payments of principal and interest
hereunder, notwithstanding notice to the contrary. A Registered
Note may be
assigned or sold in whole or in part only by registration of such
assignment or sale on the Register. Upon its receipt of a request
to assign
or sell all or part of any Registered Note by a Holder, the Company
shall
record the information contained therein in the Register and issue
one or
more new Registered Notes in the same aggregate principal amount as
the
principal amount of the surrendered Registered Note to the
designated
assignee or transferee pursuant to Section 17. Notwithstanding
anything to
the contrary set forth herein, upon conversion of any portion of
this Note
in accordance with the terms hereof, the Holder shall not be
required to
physically surrender this Note to the Company unless (A) the full
Conversion Amount represented by this Note is being converted or
(B) the
Holder has provided the Company with prior written notice (which
notice may
be included in a Conversion Notice) requesting physical surrender
and
reissue of this Note. The Holder and the Company shall maintain
records
showing the Principal, Interest and Late Charges converted and the
dates of
such conversions or shall use such other method, reasonably
satisfactory to
the Holder and the Company, so as not to require physical surrender
of this
Note upon conversion.
(iv) Disputes. In the event of a dispute as to the number of shares
of
Common Stock issuable to the Holder in connection with a conversion
of this
Note, the Company shall issue to the Holder the number of shares of
Common
Stock not in dispute and resolve such dispute in accordance with
Section
23.
(d) Limitations on Conversions.
4
(i) Beneficial Ownership. The Company shall not effect any
conversion
of this Note, and the Holder of this Note (including any successor,
transferee or assignee) 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 warrants) subject to a limitation on
conversion or
exercise analogous to the limitation contained herein beneficially
owned by
the Holder or any of its affiliates. Except as set forth in the
preceding
sentence, for purposes of this Section 3(d)(i), beneficial
ownership shall
be calculated in accordance with Section 13(d) of the Securities
Exchange
Act of 1934, as amended. For purposes of this Section 3(d)(i), in
determining the number of outstanding shares of Common Stock, the
Holder
may rely on the number of outstanding shares of Common Stock as
reflected
in (x) the Company's most recent Form 10-KSB, Form 10-K, Form
10-QSB, Form
10-Q or Form 8-K, as the case may be (y) a more recent public
announcement
by the Company or (z) any other notice by the Company or the
Transfer Agent
setting forth the number of shares of Common Stock outstanding. For
any
reason at any time, during regular business hours of the Company
and upon
the written request of the Holder, the Company shall within two (2)
Business Days confirm 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 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,
and the
Holder of this Note shall not have the right to receive upon
conversion of
this Note any shares of Common Stock, if the issuance of such
shares of
Common Stock would exceed the aggregate number of shares of Common
Stock
which the Company may issue upon conversion or exercise, as
applicable, of
the Notes and Warrants without breaching the Company's obligations
under
the rules or regulations of the Principal Market (the "EXCHANGE
CAP"),
except that such limitation shall not apply in the event that the
Company
(A) obtains the approval of its stockholders as required by the
applicable
rules of the Principal Market for issuances of Common Stock in
excess of
such amount or (B) obtains a written opinion
5
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, shares of Common Stock in an
amount
greater than the product of the Exchange Cap multiplied by a
fraction, the
numerator of which is the principal amount of Notes issued to the
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 filed
on or
prior to the Filing Deadline (as defined in the Registration Rights
Agreement) or declared effective by the SEC on or prior to the date
that is
thirty (30) days after the applicable Effectiveness Deadline (as
defined in
the Registration Rights Agreement), the Company fails to file the
final
prospectus in accordance with Rule 424 under the 1933 Act or, while
the
applicable Registration Statement is required to be maintained
effective
pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the applicable Registration Statement lapses for
any
reason (including, without limitation, the issuance of a stop
order) or is
unavailable to any holder of the Notes for sale of all of such
holder's
Registrable Securities (as defined in the Registration Rights
Agreement) in
accordance with the terms of the Registration Rights Agreement, and
such
lapse or unavailability continues for a period of ten (10)
consecutive days
or for more than an aggregate of thirty (30) days in any 365-day
period
(other than days during an Allowable Grace Period (as defined in
the
Registration Rights Agreement));
(ii) the suspension from trading or failure of the Common Stock to
be
listed on the Principal Market or on an Eligible Market for a
period of
five (5) consecutive
6
Trading Days or for more than an aggregate of ten (10) Trading Days
in any
365-day period
(iii) the Company's (A) failure to cure a Conversion Failure by
delivery of the required number of shares of Common Stock within
ten (10)
Business Days after the applicable Conversion Date or (B) written
notice to
any holder of the Notes, including by way of public announcement or
through
any of its authorized agents, at any time, of its intention not to
comply
with a request for conversion of any Notes into shares of Common
Stock that
is tendered in accordance with the provisions of the Notes;
(iv) at any time following the tenth (10th) consecutive Business
Day
that the authorized number of shares is less than the number of
shares of
Common Stock that the Holder would be entitled to receive upon a
conversion
of one hundred seventy-five percent (175%) of the full Conversion
Amount of
this Note (without regard to any limitations on conversion set
forth in
Section 3(d) or otherwise);
(v) the Company's failure to pay to the Holder any amount of
Principal
(including, without limitation, any redemption or make-whole
payments),
Interest, Late Charges or other amounts when and as due under this
Note or
any other Transaction Document (as defined in the Securities
Purchase
Agreement), including any Company Redemption Price or Redemption
Premium in
connection with any redemption of this Note, or any other
agreement,
document, certificate or other instrument delivered in connection
with the
transactions contemplated hereby and thereby to which the Holder is
a
party, except, in the case of a failure to pay Interest and Late
Charges
when and as due, in which case only if such failure continues for a
period
of at least five (5) Business Days;
(vi) any default under, redemption of or acceleration prior to
maturity of any Indebtedness in excess of $250,000, in the
aggregate, of
the Company or any of its Subsidiaries (as defined in Section 3(a)
of the
Securities Purchase Agreement);
(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 $250,000 are rendered against the Company
or any
of its Subsidiaries and
7
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 $250,000
amount set
forth above so long as the Company provides the Holder a written
statement
from such insurer or indemnity provider (which written statement
shall be
reasonably satisfactory to the Holder) to the effect that such
judgment is
covered by insurance or an indemnity and the Company will receive
the
proceeds of such insurance or indemnity within thirty (30) days of
the
issuance of such judgment;
(x) the Company breaches any material representation, warranty,
covenant or other term or condition of any Transaction Document,
except, in
the case of a breach of a covenant which is curable, only if such
breach
continues for a period of at least thirty (30) consecutive days
after
written notice thereof;
(xi) any breach or failure in any respect to comply with (x)
Section
15 of this Note or (y) any of the Potential Partner Conditions;
(xii) the inability of the Common Stock to be transferred with DTC
through the Deposit Withdrawal at Custodian system, only if such
inability
continues for a period of at least thirty (30) consecutive days; or
(xiii) The Security Agreement (as defined in the Securities
Purchase
Agreement) shall for any reason fail or cease to create a valid and
perfected and, except to the extent permitted by the terms thereof,
first
priority lien in favor of the Holder for the benefit of the holders
of the
Notes on any Collateral (as defined in the Security Agreement)
purported to
be covered thereby and such failure or cessation cannot be cured
within ten
(10) business days of written notice thereof.
(b) Redemption Right. Upon the occurrence of an Event of Default
with
respect to this Note, the Company shall within two (2) Business
Days after the
day on which the Company is aware of the Event of Default deliver
written notice
thereof via facsimile and overnight courier (an "EVENT OF DEFAULT
NOTICE") to
the Holder. At any time after the earlier of the Holder's receipt
of an Event of
Default Notice and the Holder becoming aware of an Event of
Default, the Holder
may require the Company to redeem all or any portion of the
outstanding balance
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
have redeemed.
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 12. To the extent
redemptions required
by this Section 4(b) are deemed or determined by a court of
competent
jurisdiction to be
8
prepayments of the Note by the Company, such redemptions shall be
deemed to be
voluntary prepayments. The parties hereto agree that in the event
of the
Company's redemption of any portion of this Note under this Section
4(b), the
Holder's damages would be uncertain and difficult to estimate
because of the
parties' inability to predict future interest rates and the
uncertainty of the
availability of a suitable substitute investment opportunity for
the Holder.
Accordingly, any Redemption Premium due under this Section 4(b) is
intended by
the parties to be, and shall be deemed, a reasonable estimate of
the Holder's
actual loss of its investment opportunity and not as a penalty.
5. RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
(a) Assumption. For so long as this Note shall remain outstanding,
the
Company shall not enter into or be party to a Fundamental
Transaction unless (i)
the Successor Entity assumes in writing all of the obligations of
the Company
under this Note and the other Transaction Documents in accordance
with the
provisions of this Section 5(a) pursuant to written agreements in
form and
substance satisfactory to the Required Holders and approved by the
Required
Holders prior to such Fundamental Transaction, including agreements
to deliver
to each holder of Notes in exchange for such Notes a security of
the Successor
Entity evidenced by a written instrument substantially similar in
form and
substance to the Notes, including, without limitation, having a
principal amount
and interest rate equal to the principal amounts and the interest
rates of the
Notes held by such holder, having similar conversion rights as the
Notes 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
shall succeed to, and be substituted for (so that from and after
the date of
such Fundamental Transaction, the provisions of this Note referring
to the
"Company" shall refer instead to the Successor Entity), and may
exercise every
right and power of the Company and shall assume all of the
obligations of the
Company under this Note with the same effect as if such Successor
Entity had
been named as the Company herein. Upon consummation of the
Fundamental
Transaction, the Successor Entity shall deliver to the Holder
confirmation that
there shall be issued upon conversion or redemption of this Note at
any time
after the consummation of the Fundamental Transaction, in lieu of
the shares of
Common Stock (or other securities, cash, assets or other property)
issuable upon
the conversion of the Notes prior to such Fundamental Transaction,
such shares
of publicly traded common stock (or their equivalent) of the
Successor Entity,
as adjusted in accordance with the provisions of this Note. The
provisions of
this Section shall apply similarly and equally to successive
Fundamental
Transactions and shall be applied without regard to any limitations
on the
conversion 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 ten (10) Trading
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
9
CONTROL REDEMPTION NOTICE") to the Company, which Change of Control
Redemption
Notice shall indicate the Conversion Amount the Holder is electing
to be
redeemed. The portion of this Note subject to redemption pursuant
to this
Section 5 shall be redeemed by the Company in cash at a price equal
to the
greater of (i) the product of the Change of Control Premium and the
product of
(x) the sum of the Conversion Amount being redeemed and any accrued
and unpaid
Interest with respect to such Conversion Amount and accrued and
unpaid Late
Charges with respect to such Conversion Amount and Interest and (y)
the quotient
determined by dividing (A) the Closing Sale Price of the Common
Stock
immediately following the public announcement of such proposed
Change of Control
by (B) the Conversion Price and (ii) 150% of the sum of the
Conversion Amount
being redeemed and any accrued and unpaid Interest with respect to
such
Conversion Amount subject to such Change of Control Redemption and
accrued and
unpaid Late Charges with respect to such Conversion Amount and
Interest (the
"CHANGE OF CONTROL REDEMPTION PRICE"). Redemptions required by this
Section 5
shall be made in accordance with the provisions of Section 15 and
shall have
priority to payments to shareholders in connection with a Change of
Control. To
the extent redemptions required by this Section 5(b) are deemed or
determined by
a court of competent jurisdiction to be prepayments of this Note by
the Company,
such redemptions shall be deemed to be voluntary prepayments.
Notwithstanding
anything to the contrary in this Section 5, until the Company
Redemption Price
(together with any interest thereon) is paid in full, the
Conversion Amount
submitted for redemption under this Section 5(c) may be converted,
in whole or
in part, by the Holder into shares of Common Stock, or in the event
the
Conversion Date is after the consummation of the Change of Control,
shares of
publicly traded common stock (or their equivalent) of the Successor
Entity
pursuant to Section 3. The parties hereto agree that in the event
of the
Company's redemption of any portion of this Note under this Section
5(b), the
Holder's damages would be uncertain and difficult to estimate
because of the
parties' inability to predict future interest rates and the
uncertainty of the
availability of a suitable substitute investment opportunity for
the Holder.
Accordingly, any redemption premium due under this Section 5(b) is
intended by
the parties to be, and shall be deemed, a reasonable estimate of
the Holder's
actual loss of its investment opportunity and not as a penalty.
6. RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE
EVENTS.
(a) Purchase Rights. If at any time the Company grants, issues or
sells any
Options, Convertible Securities or rights to purchase stock,
warrants,
securities or other property pro rata to the record holders of any
class of
Common Stock (the "PURCHASE RIGHTS"), then the Holder will be
entitled to
acquire, upon the terms applicable to such Purchase Rights, the
aggregate
Purchase Rights which the Holder could have acquired if the Holder
had held the
number of shares of Common Stock acquirable upon complete
conversion of this
Note (without taking into account any limitations or restrictions
on the
convertibility of this Note) immediately before the date on which a
record is
taken for the grant, issuance or sale of such Purchase Rights, or,
if no such
record is taken, the date as of which the record holders of Common
Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
(b) Other Corporate Events. In addition to and not in substitution
for any
other rights hereunder, prior to the consummation of any
Fundamental Transaction
pursuant to which holders
10
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 if the
Holder is a
Holder at the time of consummation of such Fundamental Transaction,
the Holder
will thereafter have the right to receive upon conversion of this
Note, at the
Holder's option, (i) in addition to the shares of Common Stock
receivable upon
such conversion, such securities or other assets to which the
Holder would have
been entitled with respect to such shares of Common Stock had such
shares of
Common Stock been held by the Holder upon the consummation of such
Corporate
Event (without taking into account any limitations or restrictions
on the
convertibility of this Note) or (ii) in lieu of the shares of
Common Stock
otherwise receivable upon such conversion, such securities or other
assets
received by the holders of shares of Common Stock in connection
with the
consummation of such Corporate Event in such amounts as the Holder
would have
been entitled to receive had this Note initially been issued with
conversion
rights for the form of such consideration (as opposed to shares of
Common Stock)
at a conversion rate for such consideration commensurate with the
Conversion
Rate. Provision made pursuant to the preceding sentence shall be in
a form and
substance 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 at any
time after the Subscription Date, the Company issues or sells, or
in accordance
with this Section 7(a) is deemed to have issued or sold, any shares
of Common
Stock (including the issuance or sale of shares of Common Stock
owned or held by
or for the account of the Company, but excluding shares of Common
Stock which
are an Excluded Security or are deemed to have been issued or sold
by the
Company in connection with any Excluded Security) for a
consideration per share
(the "NEW ISSUANCE PRICE") less than a price (the "APPLICABLE
PRICE") equal to
the Conversion Price in effect immediately prior to such issue or
sale (the
foregoing a "DILUTIVE ISSUANCE"), then (i) if such issuance or sale
occurs prior
to the one year anniversary date of the Subscription Date,
immediately after
such Dilutive Issuance, the Conversion Price then in effect shall
be reduced to
the New Issuance Price or (ii) if such issuance or sale occurs on
or after the
one year anniversary of the Subscription Date, then immediately
after such
Dilutive Issuance the Conversion Price then in effect shall be
reduced to the
price determined by dividing (i) an amount equal to the sum of (x)
the number of
shares of Common Stock outstanding immediately prior to such issue
or sale
(including for the purpose, shares of Common Stock issuable upon
conversion or
exercise of any outstanding securities or Options which are at such
time
exercisable, convertible or vested) multiplied by the Applicable
Price and (y)
the consideration, if any, to be received by the Company for such
additional
shares of Common Stock by (ii) an amount equal to the sum of (x)
the total
number of shares of Common Stock outstanding immediately prior to
such issue of
sale (including, for this purpose, shares of Common Stock issuable
upon
conversion or exercise of any outstanding securities or Options,
which are at
such time exercisable, convertible or vested) any (y) the total
number of
additional shares of Common Stock issuable as part of such Dilutive
Issuance
(including shares subject to conversion of convertible securities
or Options).
For purposes of determining the adjusted Conversion Price under
this Section
7(a), the following shall be applicable:
11
(i) Issuance of Options. If the Company in any manner grants or
sells
any Options and the lowest price per share for which one share of
Common
Stock is issuable upon the exercise of any such Option or upon
conversion
or exchange or exercise of any Convertible Securities issuable upon
exercise of such Option is less than the Applicable Price, then all
of such
shares of Common Stock underlying such Option shall be deemed to be
outstanding and to have been issued and sold by the Company at the
time of
the granting or sale of such Option for such price per share. For
purposes
of this Section 7(a)(i), the "lowest price per share for which one
share of
Common Stock is issuable upon the exercise of any such Option or
upon
conversion or exchange or exercise of any Convertible Securities
issuable
upon exercise of such Option" shall be equal to the sum of the
lowest
amounts of consideration (if any) received or receivable by the
Company
with respect to any one share of Common Stock upon granting or sale
of the
Option, upon exercise of the Option and upon conversion or exchange
or
exercise of any Convertible Security issuable upon exercise of such
Option.
No further adjustment of the Conversion Price shall be made upon
the actual
issuance of such share of Common Stock or of such Convertible
Securities
upon the exercise of such Options or upon the actual issuance of
such
Common Stock upon conversion or exchange or exercise of such
Convertible
Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner
issues or sells any Convertible Securities and the lowest price per
share
for which one share of Common Stock is issuable upon such
conversion or
exchange or exercise thereof is less than the Applicable Price,
then all
shares of Common Stock issuable upon conversion of such Convertible
Securities shall be deemed to be outstanding and to have been
issued and
sold by the Company at the time of the issuance or sale of such
Convertible
Securities for such price per share. For the purposes of this
Section
7(a)(ii), the "lowest price per share for which one share of Common
Stock
is issuable upon such conversion or exchange or exercise" shall be
equal to
the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common
Stock
upon the issuance or sale of the Convertible Security and upon the
conversion or exchange or exercise of such Convertible Security. No
further
adjustment of the Conversion Price shall be made upon the actual
issuance
of such share of Common Stock upon conversion or exchange or
exercise of
such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for
which
adjustment of the Conversion Price had been or are to be made
pursuant to
other provisions of this Section 7(a), no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. If the purchase
price provided for in any Options, the additional consideration, if
any,
payable upon the issue, conversion, exchange or exercise of any
Convertible
Securities, or the rate at which any Convertible Securities are
convertible
into or exchangeable or exercisable for Common Stock changes at any
time,
the Conversion Price in effect at the time of such change shall be
adjusted
to the Conversion Price which would have been in effect at such
time had
such Options or Convertible Securities provided for such changed
purchase
price,
12
additional consideration or changed conversion rate, as the case
may be, at
the time initially granted, issued or sold. For
