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Secured
Convertible Promissory Note dated August 6, 2009
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THIS NOTE AND
THE COMMON STOCK ISSUABLE UPON ITS CONVERSION 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 (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED TO AN “ACCREDITED INVESTOR” (AS SUCH TERM IS
DEFINED IN THE RULES AND REGULATIONS PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED) IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY
THE SECURITIES.
ZAP
SECURED CONVERTIBLE PROMISSORY NOTE DUE
2012
ZAP, a California corporation (the “
Company ”), for value received, hereby promises to pay
to Cathaya Capital, L.P., a Cayman Islands exempted limited
partnership, or its registered assigns, the principal sum of TEN
MILLION DOLLARS ($10,000,000.00), or if less the aggregate
principal amount of the outstanding Advances made hereunder, on
December 31, 2012 (or if earlier the date the Advances are declared
or become automatically due and payable upon the occurrence of an
Event of Default), (the “ Maturity Date ”) and
to pay interest thereon, from the date of each Advance is made, or
from the most recent interest payment date to which interest has
been paid, monthly on the first Business Day of each month (the
“ Interest Payment Date ”), commencing September
1, 2009, at the Interest Rate until the principal hereof is paid
and in the manner set forth below.
Payment of the principal of this Note shall be
made upon the surrender of this Note to the Company, at its chief
executive office (or such other office within the United States as
shall be designated by the Company to the holder hereof) (the
“ Designated Office ”), in such coin or currency
of the United States of America as at the time of payment shall be
legal tender for the payment of public and private
debts. Payment of interest in cash
and all other amounts payable in cash with respect to this Note
shall be made by wire transfer to the Holder, provided that
if the Holder shall not have furnished wire instructions in writing
to the Company on or prior to the third Business Day
immediately
prior to the date on which the Company makes such payment, such
payment may be made by U.S. dollar check mailed to the address of
the Person entitled thereto as such address shall appear in the
Company security register. Capitalized terms used and
not otherwise defined herein, shall have the respective meanings
given to those terms in Section 7 hereof.
Interest on this Note shall be paid in cash, or
at the Company’s option upon written notice to the Holder
given 20 Trading Days prior to the Interest Payment Date, in shares
of Common Stock; provided that the number of shares of
Common Stock to be delivered shall be equal to the quotient of (x)
the interest payable on such Interest Payment Date divided
by (y) the Stock Price. Such shares shall be
delivered to the Holder on the Interest Payment Date.
1.
Advances . Subject to clause (b) below
including the other terms and conditions set forth herein, the
Holder shall make loans (the “ Advances ”) to
the Company from time to time up to prior to October 1, 2012 in an
aggregate amount not to exceed Ten Million Dollars ($10,000,000);
provided that (x) no Advances shall be made prior to
November 2, 2009, (y) up to $5,000,000 of Advances may be made on
or after November 2, 2009 (“ Facility A ”), and
(z) an additional $5,000,000 of Advances may be made after (i)
Advances in the aggregate principal amount of $5,000,000 under
Facility A have been made and (ii) on or after February 6, 2010
(“ Facility B ”). The Company may not
reborrow prepaid, repaid or converted Advances.
(a) The
Company may request an Advance by furnishing a written notice (the
“ Notice of Borrowing ”) to the Holder
specifying (i) the principal amount of the requested Advance (which
shall be not less than One Hundred Thousand Dollars ($100,000) or
an integral multiple of $100,000 in excess thereof), (ii) the
intended use of proceeds of the requested Advance, which intended
use must be in accordance with the Securities Purchase Agreement,
(iii) the account to which the Holder is to disburse the proceeds
of the requested Advance, (iv) the date the requested Advance is to
be made, which must be a Business Day, and (v) that the conditions
set forth in clause (b) are satisfied in respect of such
Advance. A Notice of Borrowing must be given at least
ten (10) Business Days before the date the requested Advance is to
be made. Each Notice of Borrowing shall be irrevocable
and binding on the Company. If the Company fails to
satisfy the conditions to the Advance set forth in clause (b)
below, the Company shall indemnify the Holder against any loss,
cost or expense incurred by the Holder due to the liquidation or
reemployment of the funds acquired by the Holder to fund the
Advance.
(b) The
Holder shall make the requested Advance if (i) after giving effect
to the Advance, no Default or Event of Default has occurred or
would occur as a result of such Advance, (ii) after giving effect
to the Advance, the aggregate principal amount of the Advances made
hereunder do not exceed $5,000,000 if such Advance is made prior to
February 6, 2010 or $10,000,000 if such Advance is made on or after
February 6, 2010, (iii) the representations and warranties of the
Company in the Securities Purchase Agreement shall be true and
correct, except to the extent such representation and warranty
relates solely to an earlier date, in which case such
representation and warranty shall be true and correct as of such
earlier date, (iv) there
shall not have
occurred any event or condition of any character that has had or is
reasonably likely to have a Material Adverse Effect on the Company
since the date of this Note, (v) with respect to an Advance under
each of Facility A and Facility B, the Company shall have delivered
to the Holder true and complete copies of firm purchase orders with
respect to which the Advance is being made and such purchase orders
must be with creditworthy purchasers and otherwise on terms and
conditions reasonably acceptable to the Holder (any such purchase
against which an Advance is made, an “ Approved Purchase
Order ”), (vi) the Company and the Holder shall have
entered into the arrangements contemplated by Section 4.21 of the
Securities Purchase Agreement, (vii) the Company has delivered to
the Holder any other documents reasonably requested by the Holder
and (viii) solely with respect to an Advance requested under
Facility B, the Company shall have delivered to the Holder evidence
reasonably satisfactory to the Holder that the Promissory Note
dated July 30, 2008 made by the Company in favor of Al Yousuf LLC
has been paid in full and terminated and all Liens granted by the
Company in connection therewith have been released.
(c) With
respect to any Approved Purchase Order, the principal amount of the
Advance shall be 115% of the face amount of such Approved Purchase
Order.
(d) If
the Holder shall fail to make any Advance for which a Notice of
Borrowing has been properly delivered and all conditions set forth
in Section 1(b) hereof have been satisfied, then the sole remedy of
Company for the failure of the Holder to make such Advance shall be
that the number of shares for which the Second Warrant (as defined
in the Securities Purchase Agreement) is exercisable shall not
increase.
(e) If,
the first time a Notice of Borrowing has been properly delivered
and all conditions set forth in Section 1(b) hereof have been
satisfied, the Holder shall fail to make an Advance under Facility
A within thirty (30) days of the delivery of such Notice of
Borrowing and satisfaction of the conditions set forth in Section
1(b), then this Note and the Security Agreement shall terminate
and be of no further force or effect. If the Holder
has made the first Advance under Facility A and the Holder shall
fail to make an Advance under Facility A for which a Notice of
Borrowing has been properly delivered and all conditions set forth
in Section 1(b) hereof have been satisfied within thirty (30) days
of the delivery of such Notice of Borrowing and satisfaction of the
conditions set forth in Section 1(b), then the Company shall be
entitled to incur Indebtedness to a third party pursuant to clause
(d) of the definition of Permitted Indebtedness and, if requested
by the Company, the Holder will enter into intercreditor
arrangements reasonably acceptable to the Holder to reflect the
pari passu nature of such Indebtedness .
(a) The
Company shall repay the principal amount of each Advance, together
with accrued and unpaid interest thereon, on the earlier of the
date that is two years after the date such Advance is made (or the
immediately preceding business day if such date is not a business
day) and the Maturity Date.
(b) Upon
thirty (30) days prior written notice to the Holder, the Company
may prepay this Note in whole or in part; provided
that: any such prepayment will be applied first to the payment
of expenses due under this Note, second to interest accrued on this
Note and third, if the amount of prepayment exceeds the amount of
all such expenses and accrued interest, to the payment of principal
of this Note.
(a) (1) The holder of
this Note is entitled at any time and from time to time before the
close of business on December 31, 2012 (or, in case the Company has
given notice of prepayment on this Note or the Holder hereof has
exercised its right to require the Company to repurchase this Note
or a portion hereof pursuant to Section 4 hereof, then in respect
of this Note or such portion hereof, as the case may be, until and
including, but (unless the Company defaults in making the payment
due upon prepayment or repurchase) not after, 5:00 p.m., California
time, on the Business Day prior to the prepayment date or the
Repurchase Date, as the case may be), to convert this Note (or any
portion of the principal amount hereof that is an integral multiple
of $1,000), into fully paid and nonassessable Common Stock
(calculated as to each conversion to the nearest 1/100 of a share)
of the Company at the rate (or at the then current adjusted rate if
an adjustment has been made as provided below) of 2,000 shares of
Common Stock for each $1,000 principal amount of the Note (such
number of shares of Common Stock issuable for each $1,000 principal
amount of the Note, which shall initially be 2,000, the “
Conversion Rate ”) by surrender of this Note, duly
endorsed or assigned to the Company or in blank to the Company at
the Designated Office, accompanied by written notice to the Company
that the Holder hereof elects to convert this Note (or if less than
the entire principal amount hereof is to be converted, specifying
the portion hereof to be converted). The term “
Conversion Price ” on any day shall equal $1,000
divided by the Conversion Rate in effect on such day.
(2) In
the event that the conversion of this Note into shares of Common
Stock would require the Company and the Holder of this Note to file
notification and report forms with the Federal Trade Commission and
Antitrust Division of the Department of Justice (the “
FTC ”) pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the “ HSR Act
”), then the Holder of this Note and the Company agree (i) to
use their best efforts to complete all applicable filings and
provide all necessary information as required pursuant to the HSR
Act, and (ii) such conversion of this Note into shares of Common
Stock shall not occur until such time as the required filings are
made pursuant to the HSR Act and the required waiting periods have
passed or early termination notifications have been granted by the
FTC.
The Company shall, if the Holder so elects,
deliver the Common Stock issuable upon conversion of this Note to
any third party designated by the Holder, subject to compliance
with Sections 3(f) and 8(c) – (g) hereof.
(b) The Conversion
Rate will be subject to adjustment from time to time as
follows:
(1) If the Company
shall pay or make a dividend or other distribution to all or
substantially all holders of its outstanding shares of Common Stock
of the Company payable in Common Stock, the Conversion Rate in
effect at the opening of business on the day following the
Determination Date for such dividend or other distribution shall be
increased by dividing such Conversion Rate by a fraction of which
the numerator shall be the number of shares of Common Stock
outstanding at the close of business on such Determination Date and
the denominator shall be the sum of such number of shares of Common
Stock and the total number of shares of Common Stock constituting
such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day
following such Determination Date.
(2) If the Company
shall issue rights, options or warrants to all or substantially all
holders of its Common Stock entitling them to subscribe for or
purchase Common Stock (or securities convertible into shares of
Common Stock) at a price per share (or having a conversion price
per share) less than the current market price per share (determined
as provided in paragraph (8) of this Section 3(b)) of the Common
Stock on the Determination Date for such distribution, the
Conversion Rate in effect at the opening of business on the day
following such Determination Date shall be increased by dividing
such Conversion Rate by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of
business on such Determination Date plus the number of shares of
Common Stock which the aggregate of the offering price of the total
number of shares of Common Stock so offered (or into which the
convertible securities so offered are convertible) for subscription
or purchase would purchase at such current market price and the
denominator shall be the number of shares of Common Stock
outstanding at the close of business on such Determination Date
plus the number of shares of Common Stock so offered (or into which
the convertible securities so offered are convertible) for
subscription or purchase, such increase to become effective
immediately after the opening of business on the day following such
Determination Date. The Company will not issue any
rights, options or warrants in respect of Common Stock held in the
treasury of the Company. Upon the expiration of any
right, option or warrant to purchase Common Stock the issuance of
which resulted in an adjustment to the Conversion Rate pursuant to
this paragraph (2) of Section 3(b), if any such right, option
or warrant shall expire and shall not have been exercised, the
Conversion Rate shall immediately upon such expiration be
recomputed to the Conversion Rate which would have been in effect
had the adjustment of the Conversion Rate made upon the issuance of
such right, option or warrant been made on the basis of offering
for subscription or purchase only that number of shares of Common
Stock actually purchased upon the exercise of such right, option
and warrant actually exercised.
(3) If the outstanding
Common Stock shall be subdivided into a greater number of shares of
Common Stock, the Conversion Rate in effect at the opening of
business on the day following the day upon which such subdivision
becomes effective shall be proportionately increased, and,
conversely, in case outstanding Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion
Rate in effect at the opening of business on the day following the
day upon which such combination becomes effective shall be
proportionately reduced. Any such increase or reduction,
as the case may be, shall become effective immediately
after the
opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(4) If the Company
shall, by dividend or otherwise, distribute to all or substantially
all holders of its Common Stock evidences of its indebtedness,
shares of any class of capital stock, or other property (including
securities, but excluding (i) any rights, options or warrants
referred to in paragraph (2) of this Section 3(b), (ii) any
dividend or distribution paid exclusively in cash, (iii) any
dividend or distribution referred to in paragraph (1) of this
Section 3(b) and (iv) any merger or consolidation to which Section
3(h) applies (the “ Distributed Property ”)),
the Conversion Rate shall be adjusted so that the same shall equal
the rate determined by dividing the Conversion Rate in effect
immediately prior to the close of business on the Determination
Date for such distribution by a fraction of which the numerator
shall be the current market price per share (determined as provided
in paragraph (8) of this Section 3(b)) of the Common Stock on such
Determination Date less the then fair market value (as determined
in good faith by the Board of Directors of the Company in
accordance with the provisions of this paragraph (4) of Section
3(b)) on the Determination Date of the portion of the assets,
shares or evidences of indebtedness so distributed applicable to
one share of Common Stock (determined on the basis of the number of
shares of Common Stock outstanding at the close of business on such
Determination Date) and the denominator shall be such current
market price per share of the Common Stock, such adjustment to
become effective immediately prior to the opening of business on
the day following such Determination Date; provided ,
however , that if the Distributed Property consists of
shares of capital stock of a Subsidiary, the Company may, at its
option and in lieu of the foregoing adjustment to the Conversion
Rate, elect to make adequate provision so that the Holder shall
have the right to receive upon conversion the amount of such shares
of capital stock that the Holder would have received if the Holder
had converted such Note on the record date. If the Board
of Directors determines the fair market value of any distribution
for purposes of this paragraph (4) by reference to the actual or
when issued trading market for any securities constituting such
distribution, it must in doing so consider the prices in such
market over the same period used in computing the current market
price per share pursuant to paragraph (8) of this Section
3(b).
If the Company should adopt a shareholder rights
plan (a “ Rights Plan ”), upon conversion of
this Note into Common Stock, the holder of this Note will receive,
in addition to the Common Stock, the rights described therein
(whether or not the rights have separated from the Common Stock at
the time of conversion), subject to the limitations set forth in
the Rights Plan. Any distribution of rights or warrants
pursuant to the Rights Plan in compliance with the requirements set
forth in the immediately preceding sentence of this paragraph shall
not constitute a distribution of rights or warrants pursuant to
this Section 3(b).
Rights or warrants 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 or warrants, 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(b) (and
no adjustment to the Conversion Rate under this Section 3(b)
will be required) until the occurrence of the earliest Trigger
Event, whereupon such rights and warrants shall be deemed to have
been distributed and an appropriate adjustment (if any is required)
to the Conversion Rate shall be made under this
Section 3(b). If any such right or warrant,
including any such existing rights or warrants distributed prior to
the original issue date of this Note, are subject to events, upon
the occurrence of which such rights or warrants become exercisable
to purchase different securities, evidences of indebtedness or
other assets, then the date of the occurrence of any and each such
event shall be deemed to be the date of distribution and record
date with respect to new rights or warrants with such rights (and a
termination or expiration of the existing rights or warrants
without exercise by any of the holders thereof). In
addition, in the event of any distribution (or deemed distribution)
of rights or warrants, or any Trigger Event or other event (of the
type described in the preceding sentence) with respect thereto that
was counted for purposes of calculating a distribution amount for
which an adjustment to the Conversion Rate under this
Section was made, (x) in the case of any such rights or
warrants which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Rate 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 or holders of
Common Stock with respect to such rights or warrants (assuming such
holder had retained such rights or warrants), made to all holders
of Common Stock as of the date of such redemption or repurchase,
and (y) in the case of such rights or warrants which shall have
expired or been terminated without exercise by any holders thereof,
the Conversion Rate shall be readjusted as if such rights and
warrants had not been issued.
(5) In case the
Company shall, by dividend or otherwise, distribute to all holders
of its Common Stock cash (excluding any cash that is distributed as
part of a distribution referred to in paragraph (4) of
Section 3(b) or a merger or consolidation to which Section
3(h) applies), immediately after the close of business on such
Determination Date, the Conversion Rate shall be adjusted so that
the same shall equal the rate determined by dividing the Conversion
Rate in effect immediately prior to the close of business on the
date fixed for determination of the stockholders entitled to
receive such distribution by a fraction (i) the numerator of which
shall be equal to the current market price per share of the Common
Stock on the Determination Date minus the amount of such cash
dividend or distribution applicable to one share of Common Stock
(determined on the basis of the number of shares of Common Stock
outstanding at the close of business on the Determination Date) and
(ii) the denominator of which shall be equal to the current market
price per share of the Common Stock on the Determination
Date.
(6) In
case of a tender offer made by the Company or any Subsidiary of the
Company for all or any portion of the Common Stock shall expire and
such tender offer or exchange (as amended upon the expiration
thereof) shall require the payment to stockholders (based on the
acceptance (up to any maximum specified in the terms of the tender
offer) of Purchased Shares (as defined below)) of an
aggregate
consideration
having a fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in
a board resolution), of the current market price per share of the
Common Stock (determined as provided in paragraph (7) of this
Section 3(b)) as of the last time tenders or exchanges could
have been made pursuant to such tender or exchange offer (as it may
be amended) then, and in each such case, immediately prior to the
opening of business on the day after the date of the last time (the
“ Expiration Time ”) tenders or exchanges could
have been made pursuant to such tender or exchange offer (as it may
be amended), the Conversion Rate shall be adjusted so that the same
shall equal the rate determined by dividing the Conversion Rate
immediately prior to close of business on the date of the
Expiration Time by a fraction (i) the numerator of which shall be
equal to (A) the product of (I) the current market price per share
of Common Stock on the date of the Expiration Time multiplied by
(II) the number of shares of Common Stock outstanding (including
any tendered or exchanged shares) on the date of the Expiration
Time less (B) the combined tender and cash amount, and (ii) the
denominator of which shall be equal to the product of (A) the
current market price per share of the Common Stock as of the
Expiration Time multiplied by (B) the number of shares of Common
Stock outstanding (including any tendered or exchanged shares) as
of the Expiration Time less the number of all shares validly
tendered or exchanged and not withdrawn as of the Expiration Time
(the shares deemed so accepted up to and any such maximum, being
referred to as the “ Purchased Shares
”).
(7) If and whenever on
or after the date hereof, the Company issues or sells, or in
accordance with this Section 3(b)(7) 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 issued or 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 either (i)
in the case of the issuance or sale of shares of Common Stock, the
lesser of $0.25 per share or the Conversion Price in effect
immediately prior to such issue or sale or (ii) in the case of the
issuance or sale of Options or other Convertible Securities, 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 Applicable
Price and the Conversion Rate shall be increased to an amount equal
to $1,000 divided by such new Conversion Price. For
purposes of determining the adjusted Conversion Rate under this
Section 3(b)(7), the following shall be applicable:
(A) If
the Company in any manner grants or sells any Options and the
lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or
exchange or exercise of any Convertible Securities issuable upon
exercise of such Option is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per
share. For purposes of this Section 3(b)(7)(A) 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 Rate
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.
(B) If
the Company in any manner issues or sells any Convertible
Securities and the lowest price per share for which one share of
Common Stock is issuable upon such conversion or exchange or
exercise thereof is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance of sale
of such Convertible Securities for such price per
share. For the purposes of this Section 3(7)(B), 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 Rate 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 Rate had been or are
to be made pursuant to other provisions of this Section 3(b)(7), no
further adjustment of the Conversion Rate shall be made by reason
of such issue or sale.
(C) 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
Rate in effect at the time of such change shall be adjusted to the
Conversion Rate 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 3(b)(7)(C), if the
terms of any Option or Convertible Security that was outstanding as
of the date of issuance of this Note 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 if such adjustment would result in a decrease of the
Conversion Rate then in effect.
(D) In
case any Option is issued in connection with the issue
or
