<PAGE>
Exhibit 4.2
Execution Version
EXHIBIT A
---------
NEITHER THESE SECURITIES NOR THE SECURITIES
ISSUABLE UPON CONVERSION OF
THESE SECURITIES HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR
IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL
TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE BORROWER. THESE
SECURITIES AND THE SECURITIES ISSUABLE
UPON CONVERSION OF THESE SECURITIES MAY BE
PLEDGED IN A MANNER CONSISTENT
WITH THE SECURITIES ACT IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT
SECURED BY SUCH SECURITIES.
No. [ ]
$[ ]
Original Issue Date: [ ]
ZOLTEK COMPANIES, INC.
SENIOR CONVERTIBLE NOTE DUE [ ](1)
THIS NOTE is one of a series of duly authorized and issued
notes of Zoltek Companies, Inc., a Missouri
corporation (the "BORROWER"),
designated as its Senior Convertible Notes
due [______](2), in the original
aggregate principal amount of [Five Million
Dollars ($5,000,000)][Fifteen
Million Dollars ($15,000,000)][Twenty
Million Dollars ($20,000,000)]
(collectively, the "NOTES" and each note
comprising the Notes, a "NOTE").
FOR VALUE RECEIVED, the Borrower promises to pay to the
order of [ ] or its registered assigns (the
"LENDER"), the principal sum of
[ ] ($), on [ ](3) or such earlier date as
this Note is required to be
repaid as provided hereunder (the "MATURITY
DATE"), and to pay interest to
<FN>
--------------------
(1) 42nd month anniversary of the Original
Issue Date
(2) 42nd month anniversary of the Original
Issue Date
(3) 42nd month anniversary of the Original
Issue Date
<PAGE>
the Lender on the principal amount of this
Note outstanding from time to
time in accordance with the provisions
hereof. All holders of Notes are
referred to collectively, as the "LENDERS."
This Note is subject to the
following additional provisions:
1.
Definitions. In addition to the terms defined
-----------
elsewhere in this Note: (a) capitalized
terms that are used but not
otherwise defined herein have the meanings
given to such terms in the Loan
and Warrant Agreement, dated as of the
September 29, 2005, among the
Borrower, the lenders identified therein
and Omicron Master Trust, as
Administrative Agent thereunder (the "LOAN
AGREEMENT"), and (b) the
following terms have the meanings indicated
below:
"BANKRUPTCY EVENT" means any of the following events: (a) the
Borrower or any Subsidiary commences a case
or other proceeding under any
bankruptcy, reorganization, arrangement,
adjustment of debt, relief of
debtors, dissolution, insolvency or
liquidation or similar law of any
jurisdiction relating to the Borrower or
any Subsidiary thereof; (b) there
is commenced against the Borrower or any
Subsidiary any such case or
proceeding that is not dismissed within 60
days after commencement; (c) the
Borrower or any Subsidiary is adjudicated
by a court of competent
jurisdiction insolvent or bankrupt or any
order of relief or other order
approving any such case or proceeding is
entered; (d) the Borrower or any
Subsidiary suffers any appointment of any
custodian or the like for it or
any substantial part of its property that
is not discharged or stayed within
60 days; (e) under applicable law the
Borrower or any Subsidiary makes a
general assignment for the benefit of
creditors; (f) the Borrower or any
Subsidiary fails to pay, or states that it
is unable to pay or is unable to
pay, its debts generally as they become
due; (g) the Borrower or any
Subsidiary calls a meeting of its creditors
with a view to arranging a
composition, adjustment or restructuring of
its debts; or (h) the Borrower
or any Subsidiary, by any act or failure to
act, expressly indicates its
consent to, approval of or acquiescence in
any of the foregoing or takes any
corporate or other action for the purpose
of effecting any of the foregoing.
"CHANGE OF CONTROL" means the occurrence of any of the following
in
one or a series of related transactions:
(i) an acquisition after the date
hereof by an individual or legal entity or
"group" (as described in Rule
13d-5(b)(1) under the Exchange Act) of more
than 20% of the voting rights or
equity interests in the Borrower; (ii) a
replacement of more than one-half
of the members of the Borrower's board of
directors in a single election of
directors that is not approved by those
individuals who are members of the
board of directors on the date hereof (or
other directors previously
approved by such individuals); (iii) a
Fundamental Transaction, a merger or
consolidation of the Borrower or any
Subsidiary or a sale of more than 20%
of the assets of the Borrower in one or a
series of related transactions,
unless following such transaction or series
of transactions, the holders of
the Borrower's securities prior to the
first such transaction continue to
hold at least two-thirds of the voting
rights and equity interests in the
surviving entity or acquirer of such
assets; (iv) a recapitalization,
reorganization or other transaction
involving the Borrower or any Subsidiary
that constitutes or results in a transfer
of more than 20% of the voting
rights or equity interests in the Borrower,
unless following such
transaction or series of transactions, the
holders of the Borrower's
securities prior to the first such
transaction continue to hold at least
two-thirds of the voting rights and equity
interests in the surviving entity
or acquirer of such assets; (v)
consummation of a "Rule 13e-3 transaction"
as defined in Rule 13e-3 under the Exchange
Act with respect to the
Borrower, or (vi) the execution by the
Borrower or its
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controlling shareholders of an agreement
providing for or reasonably likely
to result in any of the foregoing
events.
"CLOSING DATE" shall mean the [First Closing Date][Second
Closing
Date][Third Closing Date][Fourth Closing
Date](4).
"CLOSING PRICE" means, for any date, the price determined by
the
first of the following clauses that
applies: (a) if the Common Stock is then
listed or quoted on an Eligible Market, the
closing sale price per share of
the Common Stock for such date (or the
nearest preceding date) on the
primary Eligible Market or exchange on
which the Common Stock is then listed
or quoted; (b) if prices for the Common
Stock are then quoted on the OTC
Bulletin Board, the closing sale price per
share of the Common Stock for
such date (or the nearest preceding date)
so quoted; (c) if prices for the
Common Stock are then reported in the "Pink
Sheets" published by the
National Quotation Bureau Incorporated (or
a similar organization or agency
succeeding to its functions of reporting
prices), the most recent sale price
per share of the Common Stock so reported;
or (d) in all other cases, the
fair market value of a share of Common
Stock as determined by an independent
qualified appraiser selected in good faith
and paid for by a majority in
interest of the Lenders.
"COMMON STOCK" means the common stock of the Borrower, $0.01
par
value per share, and any securities into
which such common stock may
hereafter be reclassified.
"COMMON STOCK EQUIVALENTS" means any securities of the Borrower
or
a subsidiary thereof which entitle the
holder thereof to acquire Common
Stock at any time, including without
limitation, any debt, preferred stock,
rights, options, warrants or other
instrument that is at any time
convertible into or exchangeable for, or
otherwise entitles the holder
thereof to receive, Common Stock or other
securities that entitle the holder
to receive, directly or indirectly, Common
Stock.
"CONVERSION DATE" means the date a Conversion Notice together
with
the Conversion Schedule is delivered to the
Borrower in accordance with
Section 5(a).
"CONVERSION NOTICE" means a written notice in the form attached
hereto as Exhibit A.
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"CONVERSION PRICE" means $12.50(5), subject to adjustment from
time
to time pursuant to Section 11.
"DEFAULT" means any event or condition which constitutes an
Event
of Default or that upon notice, lapse of
time or both would, unless cured or
waived, become an Event of Default.
"ELIGIBLE MARKET" means any of the New York Stock Exchange, the
American Stock Exchange, the Nasdaq
National Market or the Nasdaq SmallCap
Market.
"EQUITY CONDITIONS ARE SATISFIED" means, as of any date of
determination, that each of the following
conditions is (or would be)
satisfied on such date, if the Borrower
were to issue on
<FN>
--------------------
(4) To be determined based on the
Closing in which the Note is issued.
(5) The form of note will be the same
for the four closings but the
Conversion Price
with respect to the First and Second Closings will
be $12.50 and
with respect to the Third Closing and Fourth Closing,
will be based on
the closing prices immediately preceding the Third
Closing Date and
Fourth Closing Date, respectively as provided in
the Loan
Agreement.
3
<PAGE>
such date all of the Underlying Shares then
issuable upon (1) conversion in
full of the outstanding principal amount of
all convertible debt issued by
the Borrower (including the Notes), (2) the
exercise of all options and
warrants for Common Stock (including the
Warrants) and (3) the payment of
accrued and unpaid interest on such
Interest Payment Date under all
convertible debt (including the Notes) of
the Borrower: (i) the number of
authorized but unissued and otherwise
unreserved shares of Common Stock is
sufficient for such issuance, (ii) the
Common Stock is listed or quoted (and
is not suspended from trading) on an
Eligible Market and such shares of
Common Stock are approved for listing on
such Eligible Market upon issuance,
(iii) such Common Stock is registered for
resale under the Registration
Statement, (iv) such issuance would be
permitted in full without violating
Section 5(b)(i) or Section 5(b)(ii) hereof
or the rules or regulations of
the Eligible Market on which such shares
are listed or quoted, (v) both
immediately before and after giving effect
thereto, no Default shall or
would exist, and (vi) no public
announcement of a pending or proposed Change
of Control transaction has occurred that
has not been consummated.
"EVENT EQUITY VALUE" means the average of the Closing Prices
for
the five consecutive Trading Days preceding
either: (a) the date of an Event
Notice or the date the Borrower becomes
obligated to pay the Event Price
under Section 7(b), as applicable, or (b)
the date on which the Event Price
with respect thereto (together with any
other payments, expenses and
liquidated damages then due and payable
under the Transaction Documents) is
paid in full, whichever is greater.
"EVENT OF DEFAULT" means any one of the following events
(whatever
the reason and whether it shall be
voluntary or involuntary or effected by
operation of law or pursuant to any
judgment, decree or order of any court,
or any order, rule or regulation of any
administrative or governmental
body):
(i) any
default in the payment (free of any claim of
subordination), when the same becomes due
and payable (whether on a
Conversion Date or the Borrower Conversion
Date, a Prepayment Date, the
Maturity Date or by acceleration or
prepayment or otherwise), of principal,
interest or liquidated damages in respect
of this Note which default
continues unremedied for a period of three
Trading Days after the date on
which written notice of such default is
first given to the Borrower by the
Holder;
(ii)
the Borrower or any Subsidiary (1) fails to pay when
due any monetary obligation (regardless of
amount) under any currently
existing or hereafter arising debenture or
note (other than a Note) or any
mortgage, credit agreement or other
facility, indenture agreement, factoring
agreement or other instrument under which
there may be issued, or by which
there may be secured or evidenced, any
Indebtedness or under any long term
leasing or factoring arrangement, if the
aggregate amount of the obligations
and liabilities of the Borrower and the
Subsidiaries thereunder exceed
$350,000 (each of the foregoing a "MATERIAL
DEBT AGREEMENT"), or (2) fails
-----------------------
to observe or perform any other obligation
under any Material Debt
Agreement, and such failure results in the
obligations thereunder becoming
or being declared due and payable prior to
the date on which they would
otherwise become due and payable;
(iii) the
occurrence or entering into by the Borrower or
any Subsidiary, or consummation of, any
Change of Control transaction;
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<PAGE>
(iv)
the Borrower shall fail to observe or perform any
covenant, condition or agreement contained
in Section 4.4, 4.6, 4.8, 4.9,
4.10, 4.12, 4.16, 4.17 or in Article 5 of
the Loan Agreement;
(v) the
Borrower shall fail to observe or perform any
covenant, condition or agreement contained
in any Transaction Document
(other than those specified in clause (i)
or (iv) above and clause (xvii) or
(xxi) below), and such failure shall
continue unremedied for a period of ten
Trading Days after the date on which
written notice of such default is first
given to the Borrower by the Holder (it
being understood that no prior
notice need be given in the case of a
default that cannot reasonably be
cured within ten Trading Days);
(vi)
the occurrence and continuance of an Event of Default
under any other Note;
(vii) any
prepayment by the Borrower of any other Note or
any other Indebtedness (other than (a) the
Borrower's outstanding
Indebtedness to Marshall and Isley Bank of
St. Louis, and (b) the 2003
Debentures (as defined below) 2004
Debentures (as defined below), 2004 Notes
(as defined below) or 2005 Notes (as
defined below) each in accordance with
their respective terms), issued by it or
outstanding under any issuance of
securities in exchange for any Notes issued
by it (other than Underlying
Shares upon conversion of such notes in
accordance with their terms as in
effect on the Original Issue Date thereof),
except in each case (1) if the
Borrower offers to the Lender in writing
the same prepayment of this Note
and all other Notes then held by such
Lender on the same economic terms on
which the Borrower prepays or offers to
prepay (whichever is more favorable
to the holder of such Note) such Notes and
(2) in accordance with the
prepayment provisions of Section 8 and 13
of this Note;
(viii) any of
the Borrower's representations and
warranties set forth in the Loan Agreement
shall be incorrect in any
material respect as of the Original Issue
Date;
(ix)
the occurrence of a Bankruptcy Event;
(x) one or
more judgments for the payment of money in an
aggregate amount in excess of (1) with
respect to the existing litigation
pertaining to Scott Macon Securities,
$850,000, or (2) in all other cases,
$350,000, shall be rendered against the
Borrower or any Subsidiary or any
combination thereof (which shall not be
fully covered by insurance without
taking into account any applicable
deductibles) and the same shall remain
undischarged or unbonded for a period of 30
consecutive days during which
execution shall not be effectively stayed,
or any action shall be legally
taken by a judgment creditor to attach or
levy upon any assets of the
Borrower or any Subsidiary to enforce any
such judgment;
(xi)
any Transaction Document shall cease, for any
reason, to be in full force and effect, or
the Borrower shall so assert in
writing or shall disavow any of its
obligations thereunder;
(xii) the
Common Stock shall not be listed or quoted, or
is suspended from trading, on an Eligible
Market for a period of three
Trading Days (which need not be consecutive
Trading Days);
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<PAGE>
(xiii) the
Borrower fails to deliver a stock certificate
evidencing Underlying Shares to a Lender
within three Trading Days after a
Conversion Date, or in the case of
exercises under a Warrant, within three
Trading Days after a Date of Exercise
under, and as such term is defined in,
such Warrant, or the conversion or exercise
rights of the Lenders pursuant
to the terms hereof or the terms of the
Warrants are otherwise suspended for
any reason (other than as set forth in
Section 5 of this Note or Section 11
of the Warrant);
(xiv) the
Borrower fails to have available a sufficient
number of authorized but unissued and
otherwise unreserved shares of Common
Stock available to issue Underlying Shares
upon any conversion of Notes or
upon any exercise of Warrants;
(xv)
the Borrower effects or publicly announces its
intention to effect any exchange,
recapitalization or other transaction that
effectively requires or rewards physical
delivery of certificates evidencing
the Common Stock, unless following such
transaction, the holders of the
Borrower's securities prior to the first
such transaction continue to
beneficially own at least two-thirds of the
voting rights and equity
interests in the surviving entity or
acquirer of such assets;
(xvi) a
Registration Statement under the Registration
Rights Agreement is not declared effective
by the Commission by the 365th
day following the First Closing Date, or is
not effective as to all
Registrable Securities (as defined in the
Registration Rights Agreement),
and available for use by the holders of
Registrable Securities, for in
excess of an aggregate of 60 Trading Days
(which need not be consecutive
Trading Days) during the Effectiveness
Period (as defined in the
Registration Rights Agreement);
(xvii) the
Borrower fails to make any cash payment
required under the Transaction Documents
(other than as set forth in
paragraph (i) above) and such failure is
not cured within five Trading Days
after notice of such default is first given
to the Borrower by a Lender;
(xviii) there shall be
an Event of Default under and as
defined in any debenture issued by the
Borrower in respect of the Securities
Purchase Agreement dated as of December 19,
2003 (the "2003 SECURITIES
PURCHASE AGREEMENT") (such debentures, the
"2003 DEBENTURES");
(xix)
there shall be an Event of Default under and as
defined in any debenture issued by the
Borrower in respect of the Securities
Purchase Agreement dated as of March 11,
2004 (the "2004 SECURITIES PURCHASE
AGREEMENT") (such debentures, the "2004
DEBENTURES");
(xx)
there shall be an Event of Default under and as
defined in any note issued by the Borrower
in respect of the Loan and
Warrant Agreement dated as of October 14,
2004 (the "2004 LOAN AGREEMENT")
(such notes, the "2004 NOTES");
(xxi)
there shall be an Event of Default under and as
defined in any note issued by the Borrower
in respect of the Loan and
Warrant Agreement dated as of February 29,
2005 (the "2005 LOAN AGREEMENT")
(such notes, the "2005 NOTES"); or
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(xxii) the
Borrower shall agree to amend, waive or
otherwise modify the Shareholders Agreement
other than in accordance with
Section 8.4 of the Loan Agreement.
"GUARANTEE" of or by any Person shall mean any obligation,
contingent or otherwise, of such Person
guaranteeing or having the economic
effect of guaranteeing any Indebtedness of
any other Person (the "primary
obligor") in any manner, whether directly
or indirectly, and including any
obligation of such Person, direct or
indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or
payment of) such Indebtedness or
to purchase (or to advance or supply funds
for the purchase of) any security
for the payment of such Indebtedness, (b)
to purchase property, securities
or services for the purpose of assuring the
owner of such Indebtedness of
the payment of such Indebtedness or (c) to
maintain working capital, equity
capital or other financial statement
condition or liquidity of the primary
obligor so as to enable the primary obligor
to pay such Indebtedness,
provided, that the term Guarantee shall not
include endorsements for
collection or deposit, in either case in
the ordinary course of business.
"INDEBTEDNESS" of any Person shall mean, without duplication,
(a)
all obligations of such Person for borrowed
money, (b) all obligations of
such Person evidenced by bonds, debentures,
notes or similar instruments,
(c) all obligations of such Person upon
which interest charges are
customarily paid, (d) all obligations of
such Person under conditional sale
or other title retention agreements
relating to property or assets purchased
by such Person, (e) all obligations of such
Person issued or assumed as the
deferred purchase price of property or
services (other than unsecured
accounts payable incurred in the ordinary
course of business), (f) all
Indebtedness of others secured by (or for
which the holder of such
Indebtedness has an existing right,
contingent or otherwise, to be secured
by) any Lien on property owned or acquired
by such Person, whether or not
the obligations secured thereby have been
assumed, (g) all Guarantees by
such Person of Indebtedness of others, (h)
all Capital Lease Obligations of
such Person, (i) all obligations of such
Person in respect of interest rate
protection agreements, foreign currency
exchange agreements or other
interest or exchange rate hedging
arrangements that exceed amounts necessary
to hedge the Borrower's interest rate or
cross-currency exposure and (j) all
obligations of such Person as an account
party in respect of letters of
credit and bankers' acceptances. The
Indebtedness of any Person shall
include the Indebtedness of any partnership
in which such Person is a
general partner.
"ORIGINAL ISSUE DATE" has the meaning set forth on the face of
this
Note.
"PRINCIPAL PAYMENT DATE" means any date on which payment of a
principal amount of this Note shall be due
and payable by the Borrower in
accordance with Section 2.
"VWAP" means, with respect to any date of determination, the
daily
volume weighted average price (as reported
by Bloomberg using the VAP
function) of the Common Stock on such date
of determination, or if there is
no such price on such date of
determination, then the daily volume weighted
average price on the date nearest preceding
such date.
2.
Principal and Interest.
----------------------
(a)
The Borrower shall pay interest to the
Lender on the aggregate then outstanding
principal amount of this Note at
the rate of 7.5% per annum, payable
quarterly in cash in arrears on each
March 31, June 30, September 30 and
December 31 (each an "INTEREST PAYMENT
DATE"), beginning December 31, 2005, except
if such date is not a Trading
Day, in which case such interest shall be
payable on the next succeeding
Trading Day. Interest shall be
7
<PAGE>
calculated on the basis of a 360-day year
for the actual number of days
elapsed and shall accrue daily commencing
on the Original Issue Date.
(b)
The Borrower shall pay the principal
balance of this Note to the Holder in 10
equal quarterly installments (each,
a "QUARTERLY INSTALLMENT") commencing on
the date fifteen (15) months
following the Closing Date and to continue
for each of the 9 quarters
thereafter, except if such date is not a
Trading Day, in which case such
principal shall be payable on the next
succeeding Trading Day (each, a
"PRINCIPAL PAYMENT DATE"), until the
outstanding principal balance of this
Note has been paid in full.
(c)
Subject to the conditions and limitations
set forth below, the Borrower may at its
option, on each Interest Payment
Date, pay accrued interest on this Note
either: (A) in cash, or (B) by
delivering by the Third Trading Day
following the applicable Interest
Payment Date, a number of freely tradable
shares of Common Stock equal to
the quotient obtained by dividing the
amount of such interest by 93% of the
arithmetic average of the VWAP for each of
the 20 consecutive Trading Days
immediately preceding (but not including)
such Interest Payment Date and
(ii) on each Principal Payment Date, pay
the applicable Quarterly
Installment on this Note, either (A) in
cash, or (B) by delivery by the
Third Trading Day following the applicable
Quarterly Installment Date, a
number of freely tradable shares of Common
Stock equal to the quotient
obtained by dividing the amount of such
Quarterly Installment by the lesser
of (i) 90% of the arithmetic average of the
VWAP for each of the 20
consecutive Trading Days immediately
preceding (but not including) such
Principal Payment Date and (ii) the
Conversion Price. The Borrower must
deliver written notice to the Lender
indicating the manner in which it
intends to pay interest or principal at
least ten Trading Days prior to each
Interest Payment Date or Principal Payment
Date, but the Borrower may
indicate in any such notice that the
election contained therein shall
continue for subsequent Interest Payment
Dates or Principal Payment Dates
until rescinded. Failure to timely provide
such written notice shall be
deemed an irrevocable election by the
Borrower to pay such interest or
principal in cash. All interest or
principal payable in respect of the Notes
on any Interest Payment Date or Principal
Payment Date must be paid in the
same manner.
(d) Notwithstanding the
foregoing, the Borrower
may not pay interest or principal in shares
of Common Stock on any Interest
Payment Date, Principal Payment Date or in
connection with any conversion of
all or any portion of this Note unless, (i)
on the date thereof, the Equity
Conditions Are Satisfied, (ii) the closing
price of the Common Stock for the
twenty (20) consecutive Trading Days
immediately preceding the date thereof
shall exceed $12.50 per share (as adjusted
pursuant to Section 11) and (iii)
the trading volume of the Common Stock for
each Trading Day of such twenty
(20) consecutive Trading Day period
immediately preceding the date thereof
exceeds 50,000 shares.
3.
Registration of Notes. The Borrower shall register
---------------------
the Notes upon records maintained by the
Borrower for that purpose (the
"NOTE REGISTER") in the name of each record
Lender thereof from time to
time. The Borrower may deem and treat the
registered Lender of this Note as
the absolute owner hereof for the purpose
of any conversion hereof or any
payment of interest hereon, and for all
other purposes, absent actual notice
to the contrary from such record Lender.
The Borrower shall at any time and
from time to time, upon one Business Days'
prior notice by the
Administrative Agent or any Lender, make
the Note Register available for
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<PAGE>
inspection by the Administrative Agent,
such Lender or the representative(s)
of the Administrative Agent or such Lender,
at the chief executive office of
the Borrower during normal business hours.
The Administrative Agent shall be
permitted to rely on the information set
forth in the Note Register.
4.
Registration of Transfers and Exchanges. The Borrower
---------------------------------------
shall register the transfer of any portion
of this Note in the Note Register
upon surrender of this Note to the Borrower
at its address for notice set
forth herein. Upon any such registration or
transfer, a new Note, in
substantially the form of this Note (any
such new note, a "NEW NOTE"),
evidencing the portion of this Note so
transferred shall be issued to the
transferee and a New Note evidencing the
remaining portion of this Note not
so transferred, if any, shall be issued to
the transferring Lender. The
acceptance of the New Note by the
transferee thereof shall be deemed the
acceptance by such transferee of all of the
rights and obligations of a
holder of a Note. The Borrower agrees that
its prior consent is not required
for the transfer of any portion of this
Note; provided, however, that the
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Borrower shall be entitled to reasonable
assurance, including an opinion of
counsel reasonably acceptable to Borrower,
that such transfer complies with
applicable federal and state securities
laws. This Note is exchangeable for
an equal aggregate principal amount of
Notes of different authorized
denominations, as requested by the Lender
surrendering the same. No service
charge or other fee will be imposed in
connection with any such registration
of transfer or exchange.
5.
Conversion.
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(a)
At
the Option of the Lender. All or any
---------------------------
portion of the principal amount of this
Note then outstanding shall be
convertible into shares of Common Stock at
the Conversion Price (subject to
limitations set forth in Section 5(b)), at
the option of the Lender, at any
time and from time to time from and after
the Original Issue Date. The
Lender may effect conversions under this
Section 5(a), by delivering to the
Borrower a Conversion Notice together with
a schedule in the form of
Schedule 1 attached hereto (the "CONVERSION
SCHEDULE"). Upon receipt of the
----------
Conversion Notice, any accured and unpaid
interest hereunder payable with
respect to the principal amount of the Note
to be converted shall, at the
option of the Borrower, be payable by the
Borrower in cash or convertible
into that number of shares of Common Stock
equal to the amount of such
payment divided by the Conversion Price. If
the Lender is converting less
than all of the principal amount
represented by this Note, or if a
conversion hereunder may not be effected in
full due to the application of
Section 5(b), the Borrower shall honor such
conversion to the extent
permissible hereunder and shall promptly
deliver to the Lender a Conversion
Schedule indicating the principal amount
which has not been converted.
(b)
Certain Conversion Restrictions.
-------------------------------
(i)
Notwithstanding anything to the
contrary contained herein, the number of
shares of Common Stock that may be
acquired by a Lender upon any conversion of
Notes (or otherwise in respect
hereof) shall be limited to the extent
necessary to insure that, following
such conversion (or other issuance), the
total number of shares of Common
Stock then beneficially owned by such
Lender and its Affiliates and any
other Persons whose beneficial ownership of
Common Stock would be aggregated
with such Lender's for purposes of Section
13(d) of the Exchange Act, does
not exceed 4.999% (the "THRESHOLD
PERCENTAGE") or 9.999%
9
<PAGE>
(the "MAXIMUM PERCENTAGE") of the total
number of issued and outstanding
shares of Common Stock (including for such
purpose the shares of Common
Stock issuable upon such conversion). For
such purposes, beneficial
ownership shall be determined in accordance
with Section 13(d) of the
Exchange Act and the rules and regulations
promulgated thereunder. Each
delivery of a Conversion Notice hereunder
will constitute a representation
by the Lender that it has evaluated the
limitation set forth in this
paragraph and determined that issuance of
the full number of shares of
Common Stock requested in such Conversion
Notice is permitted under this
paragraph. The Borrower's obligation to
issue shares of Common Stock in
excess of the limitation referred to in
this Section shall be suspended (and
shall not terminate or expire
notwithstanding any contrary provisions
hereof) until such time, if any, as such
shares of Common Stock may be
issued in compliance with such limitation.
The Lender shall have the right
(x) at any time and from time to time to
reduce its Maximum Percentage
immediately upon notice to the Borrower in
the event and only to the extent
that Section 16 of the Exchange Act or the
rules promulgated thereunder (or
any successor statute or rules) is changed
to reduce the beneficial
ownership percentage threshold thereunder
to a percentage less than 9.99%
and (y) at any time and from time to time,
to waive the provisions of this
Section insofar as they relate to the
Threshold Percentage or to increase
its Threshold Percentage (but not in excess
of the Maximum Percentage)
unless the Lender shall have, by written
instrument delivered to the
Borrower, irrevocably waived its rights to
so increase its Threshold
Percentage, but (i) any such waiver or
increase will not be effective until
the 61st day after such notice is delivered
to the Borrower, and (ii) any
such waiver or increase or decrease will
apply only to the Lender and not to
any other Lender of Notes; but (i) any such
waiver or increase will not be
effective until the 61st day after such
notice is delivered to the Borrower,
and (ii) any such waiver or increase or
decrease will apply only to the
Lender and not to any other Lender of
Notes.
(ii)
Notwithstanding anything to the
contrary in this Note, if the Borrower has
not previously obtained
Shareholder Approval (as defined below),
then the Borrower may not issue
shares of Common Stock in excess of (a) the
Issuable Maximum or (b) a number
of shares above which the issuance of one
additional share would cause a
Change of Control (a "Change of Control
Threshold") upon conversion of this
Note at a conversion price which is less
than the Closing Price on the
Trading Day immediately preceding the
Original Issue Date (the "THRESHOLD
PRICE"). The "Issuable Maximum" means, as
of any date, a number of shares of
Common Stock equal to 19.99% of the
outstanding shares of Common Stock
immediately preceding the Closing Date,
less such number of shares of Common
Stock as have been issued at a price below
the Threshold Price (1) upon
exercise of the Warrants issued under the
Loan Agreement and warrants issued
under the 2003 Securities Purchase
Agreement, the 2004 Securities Purchase
Agreement, the 2004 Loan Agreement, and the
2005 Loan Agreement, (2) upon
conversion of the 2003 Debentures, the 2004
Debentures, the 2004 Notes and
the 2005 Notes and (3) upon conversion of
the Notes, or in payment of
interest thereunder. Each Lender shall be
e
