Contract
Exhibit
99.2
THIS
SENIOR CONVERTIBLE NOTE (THIS “NOTE”) AND
THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE OR SOLD
UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE
IN
CONNECTION WITH SUCH OFFER OR SALE. THIS NOTE AND THE SECURITIES ISSUABLE UPON
CONVERSION
HEREOF
(I) MAY BE PLEDGED OR HYPOTHECATED IN CONNECTION WITH A BONA FIDE MARGIN LOAN
OR
OTHER FINANCING SECURED BY SUCH SECURITIES OR (II) MAY BE TRANSFERRED OR
ASSIGNED TO AN AFFILIATE OF THE HOLDER HEREOF WITHOUT THE NECESSITY OF AN
OPINION OF COUNSEL OR THE CONSENT OF THE ISSUER HEREOF.
THIS
NOTE
DOES
NOT REQUIRE PHYSICAL SURRENDER HEREOF IN ORDER TO EFFECT A PARTIAL PAYMENT,
REDEMPTION OR CONVERSION HEREOF. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT
OF THIS NOTE
MAY
BE LESS THAN THE PRINCIPAL AMOUNT SHOWN BELOW.
$[___________]
Issue
Date: December 5, 2006
FOR
VALUE RECEIVED, ZAP, a
California corporation (the
“Company”),
hereby promises to pay to the order of [GEMINI MASTER FUND, LTD.] or its
permitted successors or assigns (the “Holder”)
the sum of [__________________________] DOLLARS ($[_____________]) in same
day
funds, on or before the two (2) year anniversary of the Issue Date (the
“Maturity
Date”).
The Holder may convert principal of and interest accrued on this Note into
shares (“Conversion
Shares”)
of the Company’s common stock, no par value (the “Common
Stock”),
on the terms set forth herein.
Except
as specifically provided by the terms of Section
6,
and the Scheduled Principal Payments contemplated in Section
2(a),
the Company shall not have the right to prepay any principal of this
Note.
The
Company has issued this Note pursuant to a Securities Purchase Agreement, dated
as of December 5, 2006 (the “Securities
Purchase Agreement”).
The Notes issued by the Company
pursuant
to the Securities Purchase Agreement, including this Note, are collectively
referred to herein as the “Notes”.
The
following terms shall apply to this Note:
1. DEFINITIONS.
“Business
Day”
means any day other than a Saturday, a Sunday or a day on which the Principal
Market is closed or on which banks in the City of New York are required or
authorized by law to be closed.
“Change
of Control”
means the existence or occurrence of any of the following: (a) the sale,
conveyance or disposition of all or substantially all of the assets of the
Company; (b) the effectuation of a transaction or series of transactions in
which more than fifty percent (50%) of the voting power of the Company is
disposed of; (c) the consolidation, merger or other business combination of
the
Company with or into any other entity, immediately following which the prior
stockholders of the Company fail to own, directly or indirectly, at least fifty
percent (50%) of the surviving entity; (d) a transaction or series of
transactions in which any Person or group acquires more than fifty percent
(50%)
of the voting equity of the Company; or (e) the Continuing Directors do not
at
any time constitute at least a majority of the Board of Directors of the
Company.
“Continuing
Director”
means, at any date, a member of the Company’s Board of Directors (i) who was a
member of such board on the date of the Securities Purchase Agreement or (ii)
who was nominated or elected by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election or whose
election to the Company’s Board of Directors was recommended or endorsed by at
least a majority of the directors who were Continuing Directors at the time
of
such nomination or election or such lesser number comprising a majority of
a
nominating committee if authority for such nominations or elections has been
delegated to a nominating committee whose authority and composition have been
approved by at least a majority of the directors who were Continuing Directors
at the time such committee was formed.
“Conversion”
has the meaning set forth in Section
3(a)
of this Note.
“Conversion
Date”
has the meaning set forth in Section
3(b)
of this Note.
“Conversion
Default”
has the meaning set forth in Section
3(e)
of this Note.
“Conversion
Notice”
has the meaning set forth in Section
3(b)
of this Note.
“Conversion
Price”
means, as of any date, one
dollar ($1.00),
subject to adjustment as provided herein.
“Convertible
Securities” means
any stock or securities (other than Options) of the Company convertible into
or
exercisable or exchangeable for Common Stock.
“Current
Price”
means, as of a particular date, the average of the daily VWAP for each of the
five (5) consecutive Trading Days occurring immediately prior to (but not
including) such date.
-2-
“Default
Interest Rate”
means the lower of twelve (12%) and the maximum rate permitted by applicable
law
or by the applicable rules or regulations of any governmental agency or of
any
stock exchange or other self-regulatory organization having jurisdiction over
the Company or the trading of its securities.
“Delivery
Date”
has the meaning set forth in Section
3(d)
of this Note.
“Determination
Date”
has the meaning set forth in Section
4(c)
of this Note.
“Dispute
Procedure”
has the meaning set forth in Section
3(b)
of this Note.
“Distribution,”
“Distribution
Date”
and “Distribution
Notice”
have the respective meanings set forth in Section
4(c)
of this Note.
“Equity
Conditions”
means each of the following:
(i) the
Registration Statement shall have been declared effective, not be the subject
of
any stop order, be available to the Holder, and cover the number of Registrable
Securities required by the Registration Rights Agreement;
(ii) the
Reserved Amount must be equal to or greater than the number of shares of Common
Stock that the Company is required to reserve by the Securities Purchase
Agreement;
(iii) trading
in the Common Stock shall not have been suspended on the Principal Market;
(iv) the
shares of Common Stock that the Holder would beneficially own, after giving
effect to the contemplated issuance of Company securities for which these Equity
Conditions must be satisfied, shall not exceed the limitation set forth in
Section
3(f)
(unless such limitation has been waived by the Holder in accordance with
Section
3(f);
and
(v) an
Event of Default, or an event that with the passage of time or giving of notice,
or both, would constitute an Event of Default, has not occurred and is not
continuing.
“Event
of Default”
means the occurrence of any of the following events:
(i) a
Liquidation Event occurs or is publicly announced;
(ii) the
Company fails to make any payment of principal or interest on this Note in
full
as and when such payment is due, and such payment remains unpaid for five (5)
Business Days following written notice thereof from the Holder;
(iii)
other
than a breach described in clause
(ii)
above, the Company breaches or provides notice of its intent to breach any
material term or condition of this Note, the
-3-
Securities
Purchase Agreement, the Warrant or the Registration Rights Agreement (including,
without limitation, the occurrence of a Conversion Default, an Exercise Default
(as defined in the Warrants) or a Registration Default (as defined in the
Registration Rights Agreement); and such breach continues for a period of five
(5) Business Days following written notice thereof from the Holder;
(iv) any
representation or warranty made by the Company in this Note, the Securities
Purchase Agreement, the Warrant or the Registration Rights Agreement was
inaccurate or misleading in any material respect as of the date such
representation or warranty was made; or
(v) a
default occurs or is declared, or any amounts are accelerated, under or with
respect to any instrument that evidences Debt of the Company or any of its
Subsidiaries in a principal amount exceeding $25,000.
“Excluded
Securities”
means (i) securities purchased under the Securities Purchase Agreement; (ii)
securities issued upon conversion or exercise of the Notes, the Warrants, or
any
other options, warrants or convertible securities outstanding as of the Issue
Date and disclosed on Schedule 3.5 of the Securities Purchase Agreement; (iii)
shares of Common Stock issuable or issued to employees from time to time upon
the exercise of options, in such case granted or to be granted in the discretion
of the Board of Directors pursuant to one or more employee stock option plans
or
restricted stock plans in effect as of the Issue Date or adopted after the
Issue
Date by the independent members of the Board of Directors; (iv) shares of Common
Stock issued in connection with any stock split, stock dividend or
recapitalization of the Company; (v) shares of Common Stock issued in exchange
for services, in leasing transactions, or for purchase of assets, in each case,
negotiated on an arms’ length basis and charged at a reasonable market rates;
and (vi) securities issued in connection with a merger or a consolidation
involving the Company or a Subsidiary or the acquisition of the capital stock
or
the assets of any Person, provided
in
each case that the transaction is approved by the written consent of the
Investors holding at least a majority of the principal amount of the Notes
then
outstanding, such consent not to be unreasonably withheld.
“Floor
Price”
means, as of any date, the lesser of (i) $0.75 (as
appropriately adjusted for any stock dividend, stock split, reverse stock split
or other similar transaction) and (ii) the Conversion Price in effect as of
such
date.
“Forced
Conversion”
has the meaning set forth in Section
7(a) of
this Note.
“Forced
Conversion Date”
has the meaning set forth in Section
7(b)
of this Note.
“Forced
Conversion Period”
has the meaning set forth in Section
7(a)
of this Note.
“Forced
Conversion Price”
means, as of any date, the lesser of (i) $2.00 (as appropriately adjusted for
any stock dividend, stock split, reverse stock split or other similar
transaction) and (ii) two hundred percent (200%) of the Conversion Price in
effect as of such date.
“Governmental
Authority”
means any nation or government, any state, provincial or political subdivision
thereof and any entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government, including without
limitation any stock exchange, securities market or self-regulatory
organization.
-4-
“Interest”
and “Interest
Payment Date”
have the respective meanings set forth in Section
2(b)(i)
of this Note.
“Interest
Stock Option”
has the meaning set forth in Section
2(b)(ii)
of this Note.
“Interest
Stock Option Delivery Date”
has the meaning set forth in Section
2(b)(v)
of this Note.
“Interest
Stock Option Notice”
has the meaning set forth in Section
2(b)(iv)
of this Note.
“Issue
Date”
means the date on which this Note is issued pursuant to the Securities Purchase
Agreement.
“Liquidation
Event”
means the (i) institution of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or
any Subsidiary of the Company,
or (ii) the dissolution or other winding up of the Company
or any Subsidiary of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy proceedings, or (iii) any assignment for the benefit of creditors
or
any marshalling of the material assets or material liabilities of the
Company
or any Subsidiary of the Company.
“Major
Transaction”
means a merger, consolidation, business combination, tender offer, exchange
of
shares, recapitalization, reorganization, redemption or other similar event,
as
a result of which shares of Common Stock shall be changed into the same or
a
different number of shares of the same or another class or classes of stock
or
securities or other assets of the Company or another entity or the Company
shall
sell all or substantially all of its assets.
“Mandatory
Redemption,”
“Mandatory
Redemption Date”
and “Mandatory
Redemption Notice”
have the respective meanings set forth in Section
5(a)
of this Note.
“Mandatory
Redemption Price”
means one hundred and twenty percent (120%) of (A) the unpaid principal amount
of this Note being redeemed plus
(B) all accrued and unpaid Interest (including default interest).
“Optional
Redemption”,
“Optional
Redemption Date”
and “Optional
Redemption Notice”
have the respective meanings set forth in Section
6(a)
of this Note.
“Optional
Redemption Price”
means one hundred and twenty percent (120%) of (A) the unpaid principal amount
of this Note plus
(B) all accrued and unpaid Interest (including default interest).
“Options”
means any rights, warrants or options to subscribe for, purchase or receive
Common Stock or Convertible Securities.
-5-
“Person”
means any individual, corporation, trust, association, company, partnership,
joint venture, limited liability company, joint stock company, Governmental
Authority or other entity.
“Principal
Market”
means the principal exchange, market or quotation system on which the Common
Stock is listed, traded or quoted.
“Principal
Payment”
has
the meaning set forth in Section
2(a)(i)
of this Note.
“Principal
Payment Response Notice”
and “Principal Payment Suspension Notice” have the respective
meanings
set forth in Section
2(a)(vi)
of this Note.
“Principal
Payment Share Price”
means, as of a Scheduled Principal Payment Date, the lesser of (i) ninety
percent (90%) of the lowest daily VWAP for any Trading Day among the ten (10)
consecutive Trading Days occurring immediately prior to (but not including)
such
Scheduled Principal Payment Date and (ii) the Conversion Price in effect as
of
such Scheduled Principal Payment Date.
“Principal
Stock Option”
has
the meaning set forth in Section
2(a)(ii)
of this Note
“Principal
Stock Option Delivery Date”
has
the meaning set forth in Section
2(a)(v)
of this Note
“Principal
Stock Option Notice”
has
the meaning set forth in Section
2(a)(iv)
of this Note
“Purchase
Rights”
means any options, warrants or other rights to purchase or subscribe for Common
Stock or Convertible Securities.
“Record
Date”
has the meaning set forth in Section
4(c)
of this Note.
“Registrable
Securities”
has the meaning set forth in the Registration Rights Agreement.
“Registration
Rights Agreement”
means the agreement between the Holder and the Company pursuant to which the
Company has agreed to register the resale of the shares of Common Stock issuable
under the Notes and the Warrants.
“Registration
Statement”
has the meaning set forth in the Registration Rights Agreement.
“Scheduled
Interest Payment Date”
means each April 1, July 1, October 1, and January 1 following the Issue Date,
with the first Scheduled Interest Payment Date occurring on January 1, 2007,
provided,
that if any of such days in any year is not a Business Day, then the Scheduled
Interest Payment Date shall be the Business Day immediately following such
date.
-6-
“Scheduled
Principal Payment Date”
means the first day of each calendar month, with the first Scheduled Principal
Payment Date occurring on June 1, 2007, provided,
that if any of such days in any year is not a Business Day, then the Scheduled
Principal Payment Date shall be the Business Day immediately following such
date.
“Trading
Day”
means a Business Day on which shares of Common Stock are purchased and sold
on
the Principal Market.
“Transaction
Documents”
means (i) the Securities Purchase Agreement, (ii) the Notes, (iii) the Warrants,
(iv) the Registration Rights Agreement, and (v) all other agreements, documents
and other instruments executed and delivered by or on behalf of the Company
and
any of its officers at the Closing.
“VWAP”
on a Trading Day means the volume weighted average price of the Common Stock
for
such Trading Day on the Principal Market as reported by Bloomberg Financial
Markets or, if Bloomberg Financial Markets is not then reporting such prices,
by
a comparable reporting service of national reputation selected by the Holders
and reasonably satisfactory to the Company. If VWAP cannot be calculated for
the
Common Stock on such Trading Day on the foregoing bases, then the Company shall
submit such calculation to an independent investment banking firm of national
reputation reasonably acceptable to the Investors, and shall cause such
investment banking firm to perform such determination and notify the Company
and
the Investors of the results of determination no later than two (2) Business
Days from the time such calculation was submitted to it by the Company. All
such
determinations shall be appropriately adjusted for any stock dividend, stock
split, reverse stock split or other similar transaction during such
period.
“Warrants”
means the warrants issued pursuant to the Securities Purchase
Agreement.
All
definitions contained in this Note are equally applicable to the singular and
plural forms of the terms defined. The words “hereof”, “herein” and “hereunder”
and words of similar import refer to this Note as a whole and not to any
particular provision of this Note. Any capitalized term used but not defined
herein has the meaning specified in the Securities Purchase
Agreement.
2. PAYMENT
OF PRINCIPAL AND INTEREST.
(a) Principal.
(i) Schedule
and Amount of Payments.
Subject to Section
2(a)(vi),
the Company shall pay
to the Holder, in cash, on
each Scheduled Principal Payment Date, an amount of principal equal to the
lesser of (x) 8.333% of the original principal amount of this Note and (y)
the
then total remaining unpaid principal of this Note (each,
a “Principal
Payment”).
(ii) Payment
of Principal.
The Company shall make each Principal Payment in
cash by wire transfer of immediately available funds; provided,
however,
that, subject to the satisfaction of all of the Equity Conditions as specified
in Section
2(a)(iii),
the Company may elect to pay all or a portion of a Principal Payment due on
a
Scheduled Principal Payment Date
in
shares of Common Stock
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(the
“Principal
Stock Option”).
A Principal Payment that is not paid as and when due in accordance with this
Section
2(a)
shall bear interest until paid at the Default Interest Rate.
(iii) Conditions
to Principal Payment in Common Stock.
The
Company shall be entitled to exercise the Principal Stock Option with respect
to
a Scheduled Principal Payment Date only if, on the Principal Stock Option
Delivery Date for such Scheduled Principal Payment Date and on each of the
ten
(10) Trading Days immediately preceding such date, all of the Equity Conditions
are satisfied in full. In
the
event that any of the Equity Conditions are not satisfied as of the applicable
Principal Stock Option Delivery
Date and
each
such Trading Day (and regardless of whether the Company has delivered a
Principal Stock Option Notice), the Company shall not be permitted to exercise
the Principal Stock Option and must pay
the entire Principal Payment due on such Scheduled Principal Payment Date in
cash by wire transfer of immediately available funds on such Scheduled Principal
Payment Date, and such amounts due but not paid on such Scheduled Principal
Payment Date shall accrue interest at the Default Interest Rate until paid
in
full. Notwithstanding the foregoing, in no event shall the Company be permitted
to exercise the Principal Stock Option to the extent that, upon receipt of
the
shares of Common Stock deliverable thereby, the Holder would beneficially own
more than 4.99% of the number of shares of Common Stock then
outstanding.
(iv) Principal
Stock Option Notice.
In order to exercise the Principal Stock Option with respect to a Scheduled
Principal Payment Date, the Company must deliver, on or before the tenth
(10th)
calendar day immediately prior to such date, written notice to the Holder
stating that the Company wishes to exercise such option and the amount of the
Principal Payment to be paid in shares of Common Stock (a “Principal
Stock Option Notice”).
A Principal Stock Option Notice, once delivered by the Company, shall be
irrevocable (provided
that
if the Company is prohibited under Section
2(a)(iii)
from exercising the Principal Stock Option contemplated in such Principal Stock
Option Notice; such Principal Stock Option Notice shall be deemed cancelled).
In
the event that the Company does not deliver a Principal Stock Option Notice
on
or before such tenth day, the Company will be deemed to have elected to pay
all
of the Principal Payment then due in cash.
(v) Delivery
of Shares.
If the Company has validly exercised the Principal Stock Option with respect
to
a Scheduled Principal Payment Date, the Company must deliver to the Holder,
on
or before the fifth (5th)
Business Day following such Scheduled Principal Payment Date (the “Principal
Stock Option Delivery Date”),
a number of shares of Common Stock equal to (A) the amount of the Principal
Payment for which the Company has elected to pay in Common Stock on such
Scheduled Principal Payment Date divided
by
(B) the Principal Payment Share Price as of such Scheduled Principal Payment
Date. The Company must deliver such shares of Common Stock to the Holder in
accordance with the provisions of Section
3(d)
of this Note, with the Principal Stock Option Delivery Date being deemed the
Delivery Date for purposes hereof, and in the event of the Company’s failure to
effect such delivery on the applicable Delivery Date therefor, the Holder shall
have the remedies specified in Section
3(e)
of this Note. If any fractional share would be issuable upon exercise of the
Principal Stock Option, such fractional share shall be disregarded and the
number of shares issuable shall, in the aggregate, be equal to the nearest
whole
number of shares.
(vi) Suspension
of Principal Payment.
(1) Notwithstanding
Section
2(a)(i),
the obligation of the Company to
-8-
make
a Principal Payment on a Scheduled Principal Payment Date shall be suspended
as
and to the extent provided in Section
2(a)(vi)(3) if
(a) the Company has timely delivered a Principal Stock Option Notice with
respect to such Principal Payment, (b) the Principal Payment Share Price is
less
than the Floor Price as of such Scheduled Principal Payment Date, (c) the
Company provides written notice thereof (the “Principal
Payment Suspension Notice”) to
the Holder prior to 5 p.m., New York City time on such Scheduled Principal
Payment Date, and (d) the Holder fails to provide written notice (the
“Principal
Payment Response Notice”) to
the Company within two Business Days of receiving such Principal Payment
Suspension Notice stating that the Holder is willing to receive such Principal
Payment in shares of Common Stock based on a per share price equal to such
Floor
Price (and not the Principal Payment Share Price). If the Company fails to
timely deliver a Principal Payment Suspension Notice with respect to a Principal
Payment, then the Company shall be obligated to make such Principal Payment
in
shares of Common Stock at the applicable Principal Payment Share Price, even
if
such price is below the Floor Price.
(2) If
the Holder timely delivers a Principal Payment Response Notice in response
to a
Principal Payment Suspension Notice, then the Company shall, in full
satisfaction of the Principal Payment to which such Principal Payment Response
Notice relates, deliver to
the Holder, on or before the Principal Stock Option Delivery Date for such
Principal Payment, a number of shares of Common Stock equal to (A) the amount
of
such Principal Payment divided
by
(B) the Floor Price as of such Scheduled Principal Payment Date. Notwithstanding
the foregoing, if any
of
the Equity Conditions are not satisfied (or waived by the Holder) as of such
Principal Stock Option Delivery Date and on each of the ten
(10) Trading Days immediately preceding such date, then the Company shall not
be
entitled or permitted to make such Principal Payment, and such Principal Payment
shall be deemed suspended as
and to the extent provided in Section
2(a)(vi)(3).
The Company must deliver the shares of Common Stock required to be delivered
by
it under this Section
2(a)(vi)(2)
to the Holder in accordance with the provisions of Section
3(d)
of this Note, with the applicable Principal Stock Option Delivery Date being
deemed the Delivery Date for purposes hereof, and in the event of the Company’s
failure to effect such delivery on such Principal Stock Option Delivery Date,
the Holder shall have the remedies specified in Section
3(e)
of this Note. If any fractional share would be issuable upon the making of
a
Principal Payment hereunder, such fractional share shall be disregarded and
the
number of shares issuable shall, in the aggregate, be equal to the nearest
whole
number of shares.
(3) If
the Holder does not timely deliver a Principal Payment Response Notice to a
Principal Payment Suspension Notice (or, if upon timely delivery by the Holder
of a Principal Payment Response Notice to a Principal Payment Suspension Notice,
any of the Equity Conditions are not satisfied in accordance with Section
2(a)(vi)(2)),
the Company’s obligation to make the Principal Payment to which such Principal
Payment Suspension Notice relates shall be suspended until the next Scheduled
Principal Payment Date; in which case, (i) all Principal Payments previously
suspended and not paid plus
(2)
the Principal Payment regularly scheduled to be paid on such Scheduled Principal
Payment Date, shall be due and payable in full as of such Scheduled Principal
Payment Date in accordance with, and subject to the limitations of, this
Section
2(a).
(b) Interest.
-9-
(i) Interest
Accrual.
This
Note shall bear interest on the unpaid principal amount hereof (“Interest”)
at an
annual rate equal to eight percent (8%), computed on the basis of a 360-day
year
and calculated using the actual number of days elapsed since the Issue Date
or
the date on which Interest was most recently paid, as the case may be, and
if
not timely paid as provided herein, compounded monthly. The
Company shall pay accrued Interest (x) on each Scheduled Interest Payment Date,
(y) on the Maturity Date and (z) on
any
date on which the entire principal amount of this Note is paid in full (whether
through conversion or otherwise) (each of the foregoing clauses (x),
(y)
and
(z)
being
referred to herein as an “Interest
Payment Date”).
(ii) Interest
Payments.
The Company shall pay Interest in
cash by wire transfer of immediately available funds; provided,
however,
that, subject to the satisfaction of all of the Equity Conditions as specified
in Section
2(b)(iii),
the Company may elect to pay all or a portion of the Interest due on a Scheduled
Interest Payment Date
in
shares of Common Stock (the “Interest
Stock Option”).
Interest that is not paid as and when due in accordance with this Section
2(b)
shall bear interest until paid at the Default Interest Rate.
(iii) Conditions
to Interest Payment in Common Stock.
The Company shall be entitled to exercise the Interest Stock Option with respect
to a Scheduled Interest Payment Date only if, on the Interest Stock Option
Delivery Date for such Scheduled Interest Payment Date and on each of the ten
(10) Trading Days immediately preceding such date, all of the Equity Conditions
are satisfied in full. In
the
event that any Equity Conditions is not satisfied as of the applicable
Interest
Stock Option Delivery Date and
each
such Trading Day (and regardless of whether the Company has delivered an
Interest Stock Option Notice), the Company shall not be permitted to exercise
the Interest Stock Option and must pay
all amounts due on such Scheduled Interest Payment Date in cash by wire transfer
of immediately available funds on such Scheduled Interest Payment Date, and
such
amounts due but not paid on such Scheduled Interest Payment Date shall accrue
interest at the Default Interest Rate until paid in full. Notwithstanding the
foregoing, in no event shall the Company be permitted to exercise the Interest
Stock Option to the extent that, upon receipt of the shares of Common Stock
deliverable thereby, the Holder would beneficially own more than 4.99% of the
number of shares of Common Stock then outstanding.
(iv) Interest
Stock Option Notice.
In order to exercise the Interest Stock Option with respect to a Scheduled
Interest Payment Date, the Company must deliver, on or before the tenth
(10th)
calendar day immediately prior to such date, written notice to the Holder
stating that the Company wishes to exercise such option and the amount of
Interest to be paid in shares of Common Stock (an “Interest
Stock Option Notice”).
An Interest Stock Option Notice, once delivered by the Company, shall be
irrevocable (provided
that
if the Company is prohibited under Section
2(b)(iii)
from exercising the Interest Stock Option contemplated in such Interest Stock
Option Notice, such Interest Stock Option Notice shall be deemed cancelled).
In
the event that the Company does not deliver an Interest Stock Option Notice
on
or before such tenth day, the Company will be deemed to have elected to pay
all
Interest then due in cash.
(v) Delivery
of Shares.
If the Company has validly exercised the Interest Stock Option with respect
to a
Scheduled Interest Payment Date, the Company must deliver to the Holder, on
or
before the fifth (5th)
Business Day following such Scheduled Interest Payment Date (the “Interest
Stock Option Delivery
-10-
Date”),
a number of shares of Common Stock equal to (A) the amount of Interest accrued
and payable with respect to this Note as of such Scheduled Interest Payment
Date
divided
by
(B) ninety-five percent (95%) of the Current Price in effect on such Scheduled
Interest Payment Date. The Company must deliver such shares of Common Stock
to
the Holder in accordance with the provisions of Section
3(d)
of this Note, with the Interest Stock Option Delivery Date being deemed the
Delivery Date for purposes hereof, and in the event of the Company’s failure to
effect such delivery on the applicable Delivery Date therefor, the Holder shall
have the remedies specified in Section
3(e)
of this Note. If any fractional share would be issuable upon exercise of the
Interest Stock Option, such fractional share shall be disregarded and the number
of shares issuable shall, in the aggregate, be equal to the nearest whole number
of shares.
3. CONVERSION.
(a) Right
to Convert.
The Holder shall have the right, at any time and from time to time, to convert
(i) all or any part of the outstanding and unpaid principal amount of this
Note
and (ii) at the Holder’s option, in its sole discretion, all or any part of
unpaid Interest (and any other amounts) accrued hereon, into such number of
fully paid and non-assessable Conversion Shares as is determined in accordance
with the terms hereof (a “Conversion”).
The Company may not refuse any conversion request by the Holder for any reason
or no reason unless and until the Company obtains an injunction and posts bond
with respect thereto.
(b)
Conversion
Notice.
In order to convert principal of (and, if the Holder so elects, Interest accrued
on) this Note, the Holder shall send by facsimile transmission (followed by
a
telephonic or email confirmation that such facsimile was sent), at any time
prior to 5:00 p.m., New York City time, on the Business Day on which the Holder
wishes to effect such Conversion (the “Conversion
Date”),
a properly completed notice of conversion to the Company, in the form set forth
on Annex
I
hereto, stating the amount of principal (and accrued Interest and any other
amounts, if applicable) to be converted and a calculation of the number of
shares of Common Stock issuable upon such Conversion (a “Conversion
Notice”).
Subject
to Section
8(d),
the Conversion Notice shall also state the name or names (with address) in
which
the shares of Common Stock that are issuable on such Conversion shall be issued.
The
Holder shall not be required to physically surrender this Note to the Company
in
order to effect a Conversion. The Company shall maintain a record showing,
at
any given time, the unpaid principal amount of this Note and the date of each
Conversion or other payment of principal hereof. In the case of a dispute as
to
the number of Conversion Shares issuable upon a Conversion (including without
limitation as a result of adjustments to the Conversion Price made in accordance
with Section
4
below), the Company shall promptly issue to the Holder the number of Conversion
Shares that are not disputed, the Company and the Holder shall provide each
other with their respective calculations, and the Company shall submit the
disputed calculations to a certified public accounting firm of national
recognition (other than the Company’s independent accountants) within two (2)
Business Days following the later of the date on which the Holder delivers
its
calculations to the Company and the receipt of the Holder’s Conversion Notice.
The Company shall use its best efforts to cause such accountants to calculate
the Conversion Price as provided herein and to notify the Company and the Holder
of the results in writing no later than two (2) Business Days following the
day
on which such accountant received the disputed calculations (the “Dispute
Procedure”).
Such accountant’s calculation shall be deemed conclusive absent manifest error.
The fees of any such accountant shall be borne by the party whose calculations
are most at variance with those of such accountant.
-11-
(c) Number
of Conversion Shares; Reduction of Principal and Interest.
The number of Conversion Shares to be delivered by the Company pursuant to
a
Conversion shall be equal to the principal amount of (and, if the Holder so
elects, Interest and any other amounts accrued on) this Note being
converted divided
by
the Conversion Price in effect on the Conversion Date.
Upon the valid delivery of the Conversion Shares by the Company, the amounts
subject to such Conversion shall be credited towards the principal amount of
(and,
if the Holder so elected, Interest and any other amounts accrued on)
this
Note, provided
that all amounts credited towards future payments of principal shall be credited
in the order that such principal payments are to become due and payable.
(d) Delivery
of Common Stock Upon Conversion.
Upon receipt of a Conversion Notice, the Company shall, no later than the close
of business on the sixth (6th) Business Day following the Conversion Date set
forth in such Conversion Notice (the “Delivery
Date”),
issue and deliver or cause to be delivered to the Holder the number of
Conversion Shares determined pursuant to Section
3(c)
above, provided,
however,
that any Conversion Shares that are the subject of a Dispute Procedure shall
be
delivered no later than the close of business on the sixth (6th) Business Day
following the determination made pursuant thereto. The
Company shall effect delivery of Conversion Shares to the Holder, as long as
the
Company’s
designated transfer agent or co-transfer agent in the United States for the
Common Stock (the “Transfer
Agent”)
participates in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer program (“FAST”),
by crediting the account of the Holder or its nominee at DTC (as specified
in
the applicable Conversion Notice) with the number of Conversion Shares required
to be delivered, no later than the close of business on such Delivery Date.
In
the event that the Transfer Agent is not a participant in FAST or if the Holder
so specifies in a Conversion Notice or otherwise in writing on or before the
Conversion Date, the Company shall effect delivery of Conversion Shares by
delivering to the Holder or its nominee physical certificates representing
such
Conversion Shares, no later than the close of business on such Delivery Date.
If
any Conversion would create a fractional Conversion Share, such fractional
Conversion Share shall be disregarded and the number of Conversion Shares
issuable upon such Conversion, in the aggregate, shall be the nearest whole
number of Conversion Shares. Conversion Shares delivered to the Holder shall
not
contain any restrictive legend unless such legend is required pursuant to the
terms of the Securities Purchase Agreement.
(e) Failure
to Deliver Conversion Shares.
(i) In
the event that the Company fails for any reason to deliver to the Holder the
number of Conversion Shares specified in a Conversion Notice (without any
restrictive legend to the extent permitted by applicable law and the terms
of
the Securities Purchase Agreement) on or before the Delivery Date therefor,
or
fails to remove any restrictive legend from outstanding Conversion Shares at
the
request of the Holder in accordance with Section
2.5
of the Securities Purchase Agreement on or before the tenth (10th) Business
Day
following such request (a “Conversion
Default”),
the
Holder shall have the right to receive from the Company an amount equal to
(i)
(N/365) multiplied
by
(ii) the principal amount of, and any Interest and any other amounts accrued
on,
this Note represented by the Conversion Shares which remain the subject of
such
Conversion Default multiplied
by
(iii) the Default Interest Rate, where “N” equals the number of days elapsed
between the original Delivery Date of such Conversion Shares (or from such
tenth
Business Day in the event of a failure to remove a legend from outstanding
Conversion Shares) and the date on which such Conversion Default has been cured.
In the event that shares of Common Stock are purchased by or on behalf of the
Holder in order to
make
delivery on a sale effected in anticipation of receiving
-12-
Conversion
Shares upon a Conversion, and there is a Conversion Default with respect to
such
Conversion, the Holder shall have the right to receive from the Company, in
addition to the foregoing amounts, (i) the aggregate amount paid by or on behalf
of the Holder for such shares of Common Stock minus
(ii) the aggregate amount of net proceeds, if any, received by the Holder from
the sale of the Conversion Shares issued by the Company pursuant to such
Conversion. Amounts
payable under this Section
3(e)(i) shall
be paid to the Holder in immediately available funds on or before the second
(2nd)
Business Day following written notice from the Holder to the Company specifying
the amount owed to it by the Company pursuant to this Section
3(e)(i)
and, if a Conversion Default continues to exist thereafer, at the end of each
period of thirty (30) days following such second Business Day.
(ii) In
addition to its rights under Section
3(e)(i)
above, the Holder shall have the right to pursue all other remedies available
to
it at law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).
(f) Limitations
on Right to Convert.
In no event shall the Holder be permitted to convert principal of or Interest
(or other amounts) on this Note if, upon such conversion, (x) the number of
Conversion Shares to be issued pursuant to such Conversion plus
(y) the number of shares of Common Stock beneficially owned by the Holder (other
than Common Stock which may be deemed beneficially owned except for being
subject to a limitation on conversion or exercise analogous to the limitation
contained in this Section
3(f))
would exceed 4.99% of the number of shares of Common Stock then issued and
outstanding, it being the intent of the Company and the Holder that the Holder
not be deemed at any time to have the power to vote or dispose of greater than
4.99% of the number of shares of Common Stock issued and outstanding at any
time. Nothing contained herein shall be deemed to restrict the right of the
Holder to convert such excess principal amount at such time as such Conversion
does not violate the provisions of this Section3(f).
As
used herein, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act. To the extent that the limitation contained in this
Section
3(f)
applies (and without limiting any rights the Company may otherwise have), the
submission of a Conversion Notice by the Holder shall be deemed to be the
Holder’s representation that this Note is convertible
pursuant to the terms hereof,
the Company may rely on the Holder’s representation that this Note
is convertible pursuant to the terms hereof,
and the Company shall have no obligation whatsoever to verify or confirm the
accuracy of such representation. The Company shall have no liability to any
person if the Holder’s determination of whether this Note is convertible
pursuant to the terms hereof is incorrect. The holders of Common Stock are
to be
deemed third-party beneficiaries of the limitation imposed hereby and,
accordingly, this Section
3(f)
may not be amended without the consent of the holders of a majority of the
shares of Common Stock then outstanding; provided,
however,
that the Holder shall have the right, upon sixty (60) days’ prior written notice
to the Company, to waive the provisions of this Section
3(f)
without obtaining such consent.
4. ADJUSTMENTS
TO FIXED CONVERSION PRICE.
(a) Stock
Splits, Stock Interests, Etc.
If, at any time on or after the Issue Date, the number of outstanding shares
of
Common Stock is increased by a stock split, stock dividend, reclassification
or
other similar event, the Conversion Price shall be proportionately reduced,
or
if the number of outstanding shares of Common Stock is decreased by a reverse
stock split, combination, reclassification or other similar event, the
Conversion Price shall be proportionately
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increased.
In such event, the Company shall notify the Company’s transfer agent of such
change on or before the effective date thereof.
(b) Major
Transactions.
If, at any time after the Issue Date, any Major Transaction shall occur, then
the Holder shall thereafter have the right to receive upon Conversion, in lieu
of the shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable upon
such
Major Transaction with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon Conversion had such Major
Transaction not taken place (without giving effect to any limitations on such
Conversion contained in this Note or the Securities Purchase Agreement). The
Company shall not effect any Major Transaction unless (i) the Holder has
received written notice of such transaction at least thirty (30) days prior
thereto (which period shall be increased to sixty one (61) days if, at such
time, without giving effect to the limitation on conversion contained in
Section
3(f)
hereof, the Holder would beneficially own more than 4.99% of the Common Stock
then outstanding, and the Holder has notified the Company in writing of such
circumstance) but in no event later than fifteen (15) days prior to the record
date for the determination of stockholders entitled to vote with respect
thereto; provided,
however,
that the Company shall publicly disclose the material terms of any such Major
Transaction on or before the date on which it delivers notice of a Major
Transaction to the Holder, and (ii) the resulting successor or acquiring entity
(if not the Company) assumes by written instrument (in form and substance
reasonable satisfactory to the Holder) the obligations of the Company under
this
Note (including, without limitation, the obligation to make payments of
principal and Interest accrued but unpaid through the date of such
consolidation, merger or sale and accruing thereafter). The above provisions
shall apply regardless of whether or not there would have been a sufficient
number of shares of Common Stock authorized and available for issuance upon
conversion of this Note as of the date of such transaction, and shall similarly
apply to successive Major Transactions. Notwithstanding the foregoing, if a
Major Transaction constitutes a Change of Control, the Holder may, in lieu
of
exercising its rights under this Section
4(b),
exercise its rights under Section
5
of this Note.
(c) Distributions.
If, at any time after the Issue Date, the Company declares or makes any
distribution of cash or any other assets (or rights to acquire such assets)
to
holders of Common Stock, including without limitation any dividend or
distribution to the Company’s stockholders in shares (or rights to acquire
shares) of capital stock of a subsidiary) (a “Distribution”),
the Company shall deliver written notice of such Distribution (a “Distribution
Notice”)
to the Holder at least fifteen (15) days prior to the earlier to occur of (i)
the record date for determining stockholders entitled to such Distribution
(the
“Record
Date”)
and (ii) the date on which such Distribution is made (the “Distribution
Date”)
(the earlier of such dates being referred to as the “Determination
Date”).
Upon receipt of the Distribution Notice, the Holder shall promptly (but in
no
event later than three (3) Business Days) notify the Company whether it has
elected (A) to receive the same amount and type of assets (including, without
limitation, cash) being distributed as though the Holder were, on the
Determination Date, a holder of a number of shares of Common Stock into which
this Note is convertible as of such Determination Date (such number of shares
to
be determined without giving effect to any limitations on such conversion)
or
(B) upon any exercise of this Note on or after the Distribution Date, to reduce
the Conversion Price in effect on the Business Day immediately preceding the
Record Date by an amount equal to the fair market value of the assets to be
distributed divided
by
the number of shares of Common Stock as to which such Distribution is to be
made, such fair market value to be reasonably determined in good faith by
the
-14-
independent
members of the Company’s Board of Directors. Upon receipt of such election
notice from the Holder, the Company shall timely effectuate the transaction
or
adjustment contemplated in the foregoing clause
(A) or
(B),
as applicable.
If the Holder does not notify the Company of its election pursuant to the
preceding sentence on or prior to the Determination Date, the Holder shall
be
deemed to have elected clause
(A)
of the preceding sentence.
(d) Convertible
Securities; Options.
If, at any time after the Issue Date, the Company issues Convertible Securities
or Options to the record holders of the Common Stock, whether or not such
Convertible Securities or Options are immediately convertible, exercisable
or
exchangeable, then the Holders shall be entitled, upon any Conversion of this
Note after the date of record for determining stockholders entitled to receive
such Convertible Securities or Options (or if no such record is taken, the
date
on which such Convertible Securities or Options are issued), to receive the
aggregate number of Convertible Securities or Options which the Holder would
have received with respect to the shares of Common Stock issuable upon such
conversion (without giving effect to any limitations on such Conversion
contained in this Note or the Securities Purchase Agreement) had the Holder
been
the holder of such shares of Common Stock on the record date for the
determination of stockholders entitled to receive such Convertible Securities
or
Options (or if no such record is taken, the date on which such Convertible
Securities or Options were issued).
(e) Dilutive
Issuances.
(i) Adjustment
Upon Dilutive Issuance.
If, at any time after the Issue Date and on or prior to the later of (1) the
earlier of (x) the Effective Date and (y) the two year anniversary of the Issue
Date, and (2) the six month anniversary of the Issue Date, the Company issues
or
sells, or in accordance with Section
4(e)(ii)
of this Note is deemed to have issued or sold, any shares of Common Stock for
no
consideration or for a consideration per share less than the Conversion Price
on
the date of such issuance or sale (or deemed issuance or sale) (a “Dilutive
Issuance”),
then effective immediately upon the Dilutive Issuance, the Conversion Price
shall be adjusted so as to equal the consideration received or receivable by
the
Company (on a per share basis) for the additional shares of Common Stock so
issued, sold or deemed issued or sold in such Dilutive Issuance (which, in
the
case of a deemed issuance or sale, shall be calculated in accordance with
Section
4(e)(ii)
of this Note). Notwithstanding the foregoing, no adjustment shall be made
pursuant hereto if such adjustment would result in an increase in the Conversion
Price.
(ii) Effect
On Conversion Price Of Certain Events.
For purposes of determining the adjusted Conversion Price under Section
4(e)(i) of
this Note, the following will be applicable:
(A) Issuance
Of Options.
If the Company issues or sells any Options, whether or not immediately
exercisable, and the price per share for which Common Stock is issuable upon
the
exercise of such Options (and the price of any conversion of Convertible
Securities, if applicable) is less than the Conversion Price in effect on the
date of issuance or sale of such Options, then the maximum total number of
shares of Common Stock issuable upon the exercise of all such Options (assuming
full conversion, exercise or exchange of Convertible Securities, if applicable)
shall, as of the date of the issuance or sale of such Options, be deemed to
be
outstanding and to have been issued and sold by the Company for such price
per
share. For purposes of the preceding sentence, the “price per share for which
Common Stock is issuable upon the exercise of such Options” shall be determined
by
-15-
dividing
(x) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Options, plus
the minimum aggregate amount of additional consideration, if any, payable to
the
Company upon the exercise of all such Options, plus,
in the case of Convertible Securities issuable upon the exercise of such
Options, the minimum aggregate amount of additional consideration payable upon
the conversion, exercise or exchange thereof (determined in accordance with
the
calculation method set forth in Section
4(e)(ii)(B)
below) at the time such Convertible Securities first become convertible,
exercisable or exchangeable, by (y) the maximum total number of shares of Common
Stock issuable upon the exercise of all such Options (assuming full conversion,
exercise or exchange of Convertible Securities, if applicable). No further
adjustment to the Conversion Price shall be made upon the actual issuance of
such Common Stock upon the exercise of such Options or upon the conversion,
exercise or exchange of Convertible Securities issuable upon exercise of such
Options. To
the extent that shares of Common Stock or Convertible Securities are not
delivered pursuant to such Options, upon the expiration or termination of such
Options, the Conversion Price shall be readjusted to the Conversion Price that
would then be in effect had the adjustments made upon the issuance of such
Options been made on the basis of delivery of only the number of shares of
Common Stock actually delivered.
(B) Issuance
Of Convertible Securities.
If the Company issues or sells any Convertible Securities, whether or not
immediately convertible, exercisable or exchangeable, and the price per share
for which Common Stock is issuable upon such conversion, exercise or exchange
is
less than the Conversion Price in effect on the date of issuance or sale of
such
Convertible Securities, then the maximum total number of shares of Common Stock
issuable upon the conversion, exercise or exchange of all such Convertible
Securities shall, as of the date of the issuance or sale of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by
the
Company for such price per share. If the Convertible Securities so issued or
sold do not have a fluctuating conversion or exercise price or exchange ratio,
then for the purposes of the immediately preceding sentence, the “price per
share for which Common Stock is issuable upon such conversion, exercise or
exchange” shall be determined by dividing
(A) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible
Securities,
plus
the minimum aggregate amount of additional consideration, if any, payable to
the
Company upon the conversion, exercise or exchange thereof (determined in
accordance with the calculation method set forth in this Section
4(e)(ii)(B))
at the time such Convertible Securities first become convertible, exercisable
or
exchangeable, by (B) the maximum total number of shares of Common Stock issuable
upon the exercise, conversion or exchange of all such Convertible
Securities.
If the Convertible Securities so issued or sold have a fluctuating conversion
or
exercise price or exchange ratio (a “Variable
Rate Convertible Security”),
then for purposes of the first sentence of this Section
4(e)(ii)(B),
the “price per share for which Common Stock is issuable upon such conversion,
exercise or exchange” shall be deemed to be the lowest price per share which
would be applicable (assuming all holding period and other conditions to any
discounts contained in such Variable Rate Convertible Security have been
satisfied) if the conversion price of such Variable Rate Convertible Security
on
the date of issuance or sale thereof were equal to the actual conversion price
on such date (or such higher minimum conversion price if such Variable Rate
Convertible Security is subject to a minimum conversion price) (the
-16-
“Assumed
Variable Market Price”),
and, further, if the conversion price of such Variable Rate Convertible Security
at any time or times thereafter is less than or equal to the Assumed Variable
Market Price last used for making any adjustment under this Section
4(e)
with respect to any Variable Rate Convertible Security, the Conversion Price
in
effect at such time shall be readjusted to equal the Conversion Price which
would have resulted if the Assumed Variable Market Price at the time of issuance
of the Variable Rate Convertible Security had been equal to the actual
conversion price of such Variable Rate Convertible Security existing at the
time
of the adjustment required by this sentence; provided,
however,
that if the conversion or exercise price or exchange ratio of a Convertible
Security may fluctuate solely as a result of provisions designed to protect
against dilution, such Convertible Security shall not be deemed to be a Variable
Rate Convertible Security. No further adjustment to the Conversion Price shall
be made upon the actual issuance of such Common Stock upon conversion, exercise
or exchange of such Convertible Securities.
(C) Change
In Option Price Or Conversion Rate.
If there is a change at any time (including, without limitation, a change with
respect to any Options or Convertible Securities outstanding as of the Issue
Date) in (x) the amount of additional consideration payable to the Company
upon
the exercise of any Options; (y) the amount of additional consideration, if
any,
payable to the Company upon the conversion, exercise or exchange of any
Convertible Securities; or (z) the rate at which any Convertible Securities
are
convertible into or exercisable or exchangeable for Common Stock (in each such
case, other than under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such change shall
be
readjusted to the Conversion Price which would have been in effect at such
time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion, exercise or exchange
rate, as the case may be, at the time initially issued or sold.
(D) Calculation
Of Consideration Received.
If any Common Stock, Options or Convertible Securities are issued or sold for
cash, the consideration received therefor will be the amount received by the
Company therefor. In case any Common Stock, Options or Convertible Securities
are issued or sold for a consideration part or all of which shall be other
than
cash, the amount of the consideration other than cash received by the Company
(including the net present value of the consideration expected by the Company
for the provided or purchased services) shall be the fair market value of such
consideration. In case any Common Stock, Options or Convertible Securities
are
issued in connection with any merger or consolidation in which the Company
is
the surviving corporation, the amount of consideration therefor will be deemed
to be the fair market value of such portion of the net assets and business
of
the non-surviving corporation as is attributable to such Common Stock, Options
or Convertible Securities, as the case may be. The independent members of the
Company’s Board of Directors shall calculate reasonably and in good faith, using
standard commercial valuation methods appropriate for valuing such assets,
the
fair market value of any consideration.
(iii) Exceptions
To Adjustment Of Conversion Price.
Notwithstanding the foregoing, no adjustment to the Conversion Price shall
be
made pursuant to this Section
4(e)
upon the issuance of any Excluded Securities.
-17-
(iv) Notice
Of Adjustments.
Upon the occurrence of each adjustment or readjustment of the Conversion Price
pursuant to this Section
4(e)
resulting in a change in the Conversion Price by more than one percent (1%),
or
any change in the number or type of stock, securities and/or other property
issuable upon Conversion of this Note, the Company, at its expense, shall
promptly compute such adjustment, readjustment or change and prepare and furnish
to the Holder a certificate setting forth such adjustment, readjustment or
change and showing in detail the facts upon which such adjustment, readjustment
or change is based. The Company shall, upon the written request at any time
of
the Holder, furnish to the Holder a like certificate setting forth (i) such
adjustment, readjustment or change, (ii) the Conversion Price at the time in
effect and (iii) the number of shares of Common Stock and the amount, if any,
of
other securities or property which at the time would be received upon Conversion
of this Note.
(f) Adjustments;
Additional Shares, Securities or Assets.
In the event that at any time, as a result of an adjustment made pursuant to
this Section
4,
the Holder of this Note shall, upon conversion of this Note, become entitled
to
receive securities or assets (other than Common Stock) then, wherever
appropriate, all references herein to shares of Common Stock shall be deemed
to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall
be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section
4.
5. EVENTS
OF DEFAULT; MANDATORY REDEMPTION.
(a) Mandatory
Redemption.
In the event that an Event of Default or a Change of Control occurs, the Holder
shall have the right, upon written notice to the Company (a “Mandatory
Redemption Notice”),
to have all or any portion of the unpaid principal amount of this Note,
plus
all accrued and unpaid Interest (including default interest (if any), redeemed
by the Company (a “Mandatory
Redemption”)
at the Mandatory Redemption Price in same day funds. The Mandatory Redemption
Notice shall specify the effective date of such Mandatory Redemption (the
“Mandatory
Redemption Date”),
which date must be at least two (2) Business Days following the Business Day
on
which the Mandatory Redemption Notice is delivered to the Company, and the
amount of principal and interest (and other amounts, if any) to be redeemed.
In
order to effect a Mandatory Redemption hereunder, the Holder must deliver a
Mandatory Redemption Notice no later than, in the case of an Event of Default,
the close of business on the third (3rd)
Business Day following the date on which an Event of Default is no longer
continuing and, with respect to a Change of Control, the close of business
on
the third (3rd)
Business Day following the date on which the Change of Control is
completed.
(b)
Payment
of Mandatory Redemption Price.
(i) The
Company shall pay the Mandatory Redemption Price to the Holder on the Mandatory
Redemption Date. In the event that the Company redeems the entire remaining
unpaid principal amount of this Note, all accrued and unpaid Interest and any
other amounts due hereunder, and pays such amount to the Holder in cash, the
Holder shall return this Note to the Company for cancellation.
(ii) If
the Company fails to pay the Mandatory Redemption Price to the Holder on
Mandatory Redemption Date, the Holder shall be entitled to interest thereon
at
the Default Interest Rate from the Mandatory Redemption Date until the date on
which Mandatory Redemption Price has been paid in full.
-18-
6. OPTIONAL
REDEMPTION.
(a) Redemption.
Upon the satisfaction of the Equity Conditions on the Optional Redemption Date
and on each of the twenty (20) Trading Days occurring immediately prior to
such
date, the Company shall have the right, at any time after the Issue Date, to
redeem all
but not less than all of the unpaid principal amount of this Note, plus
all accrued and unpaid Interest,
at the Optional Redemption Price (an “Optional
Redemption”).
In order to effect an Optional Redemption, the Company must deliver to the
Holder written notice thereof (an “Optional
Redemption Notice”),
specifying the
effective date of such Optional Redemption (the “Optional
Redemption Date”),
which date must be at
least twenty (20)
Trading Days following delivery of the Optional Redemption
Notice to the Holder. In the event that the Company effects an Optional
Redemption with respect to this Note, it must contemporaneously effect an
Optional Redemption of all but not less than all of the other Notes.
Notwithstanding
the delivery by the Company of an Optional Redemption Notice, the right of
the
Company to exercise its redemption rights under this Section
6(a)
shall be subordinate to and shall not limit in any way (x) the right of the
Holder to convert this Note prior to the Optional Redemption Date, (y) the
availability of any and all remedies that are provided to the Holder hereunder
in the event that the Company does not satisfy its obligations with respect
to
any such conversion, or (z) the right of the Holder to effect a Mandatory
Redemption pursuant to Section
5.
(b) Payment
of Optional Redemption Price.
(i) The
Company shall pay the Optional Redemption Price to the Holder on the Optional
Redemption Date. In the event that the Company redeems the entire remaining
unpaid principal amount of this Note, and pays to the Holder the Optional
Redemption Price and all other amounts due in connection therewith, the Holder
shall return this Note to the Company for cancellation.
(ii) If
the Company fails to pay the Optional Redemption Price to the Holder on the
Optional Redemption Date, the Holder shall be entitled to interest thereon
at
the Default Interest Rate from the Optional Redemption Date until the date
on
which Optional Redemption Price and accrued and unpaid default interest thereon
have been paid in full.
7. FORCED
CONVERSION.
(a) Forced
Conversion.
Subject to the terms and conditions of this Section
7(a),
the Company shall have the right, exercisable at any time after December 31,
2007, to require Conversion of this Note (a “Forced
Conversion”).
In order to effect a Forced Conversion, (i) the daily VWAP must, on each of
twenty (20) Trading Days occurring during any period of thirty (30) consecutive
Trading Days (such period of thirty Trading Days, a “Forced
Conversion Period”),
be equal to or greater than the Forced Conversion Price and (ii) each of the
Equity Conditions must be satisfied on each Trading Day occurring during the
Forced Conversion Period and through and including the Forced Conversion Date.
Notwithstanding the foregoing, in no event shall the Company be permitted to
effect a Forced Conversion to the extent that, upon receipt of the shares of
Common Stock deliverable
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thereby,
the Holder would beneficially own more than 4.99% of the number of shares of
Common Stock then outstanding.
(b) Forced
Conversion Notice; Number of Conversion Shares.
In order to effect a Forced Conversion hereunder, the Company must deliver
to
the Holder written notice thereof (a “Forced
Conversion Notice”)
at any time after the fifth (5th)
Business Day immediately following the last Trading Day of the Forced Conversion
Period but not later than the tenth (10th)
Business Day following such last Trading Day. A Forced Conversion Notice shall
specify the aggregate principal amount of the Notes that the Company elects
to
submit to a Forced Conversion. A Forced Conversion shall be effected on the
date
(the “Forced
Conversion Date”)
that is the third (3rd)
Trading Day immediately following delivery of a Forced Conversion Notice to
the
Holder. On the Forced Conversion Date, the Company must deliver to the Holder
a
number of shares of Common Stock equal to (A) the amount of principal being
converted as set forth on the applicable Forced Conversion Notice plus
all Interest accrued and unpaid thereon as of such Forced Conversion Date
divided
by
the (B) the Conversion Price in effect on such date. The Company must deliver
such shares of Common Stock to the Holder in accordance with the provisions
of
Section
3(d)
of this Note, with the Forced Conversion Date being deemed the Delivery Date
for
purposes hereof. If any fractional share would be issuable upon a Forced
Conversion, such fractional share shall be disregarded and the number of shares
issuable shall, in the aggregate, be equal to the nearest whole number of
shares.
(c) Notwithstanding
the delivery by the Company of a Forced Conversion Notice, nothing contained
herein shall be deemed to limit in any way (x) the right of the Holder to
convert this Note prior to the Forced Conversion Date or (y) the availability
of
any and all remedies that are provided to the Holder hereunder, including
without limitation in the event that the Company fails to deliver Conversion
Shares upon a Forced Conversion as required by the terms of Section
3
of this Note, provided,
that,
in the event of such failure, the Forced Conversion shall be terminated with
respect to the Holder upon the delivery of written notice thereof by the Holder
to the Company, and the Company shall forfeit its right to require a Forced
Conversion of the Notes thereafter. In
the event of multiple Forced Conversions, at least sixty (60) days must elapse
between Forced Conversion Dates.
8. MISCELLANEOUS.
(a) Failure
to Exercise Rights not Waiver.
No failure or delay on the part of the Holder in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof. All rights and remedies of the Holder
hereunder are cumulative and not exclusive of any rights or remedies otherwise
available. In the event that the Company does not pay any amount under this
Note
when such amount becomes due, the Company shall bear all costs incurred by
the
Holder in collecting such amount, including without limitation reasonable legal
fees and expenses.
(b) Notices.
Any notice, demand or request required or permitted to be given by the Company
or the Holder pursuant to the terms of this Note shall be in writing and shall
be deemed delivered (i) when delivered personally or by verifiable facsimile
transmission, unless such delivery is made on a day that is not a Business
Day,
in which case such delivery will be deemed to be made on the next succeeding
Business Day, (ii) on the next Business Day after timely delivery to an
overnight courier and (iii) on the Business Day actually received if deposited
in the U.S. mail (certified or registered mail, return receipt requested,
postage prepaid), addressed as follows:
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If
to the Company:
000
Xxxxxx Xxxxxx
Xxxxx
Xxxx, Xxxxxxxxxx 00000
Attn:
Xxxxxx Xxx
Tel: (000) 000-0000
Fax:
(000)
000-0000
with
a copy (which
shall not constitute notice) to:
Xxxxxxx
Xxxxxxxxx Xxxxx LLP
Suite
1900
000
Xxxxxxxx Xxxxx
Xxxxxxx,
XX 00000
Attn: Xxxxxxx
X. Xxxxxx
Tel: (000)
000-0000
Fax: (000)
000-0000
and
if to
the Holder, to such address for the Holder as shall appear on the signature
page
of the Securities Purchase Agreement executed by the Holder, or as shall be
designated by the Holder in writing to the other parties hereto in accordance
this Section
8(b).
(c)
Amendments
and Waivers.
No amendment, modification or other change to, or waiver of any provision of,
this Note or any other Note may be made unless such amendment, modification
or
change, or request for waiver, is (A) set forth in writing and is signed by
the
Company, (B) consented to in writing by the holders of at least sixty-six
percent (66%) of the unpaid principal amount of the Notes, and (C) applied
to
all of the Notes. Upon the satisfaction of the conditions described in (A),
(B)
and (C) above, this Note shall be deemed to incorporate any the amendment,
modification, change or waiver effected thereby as of the effective date
thereof, even if the Holder did not consent to such amendment, modification,
change or waiver. Notwithstanding
the foregoing, the limitation on beneficial ownership set forth in Section
3(f)
may not be amended without the consent of the holders of a majority of the
shares of Common Stock then outstanding; provided,
however,
that such limitation may be waived by the Holder upon sixty (60) days’ prior
written notice to the Company, and such waiver shall be valid and shall not
require the consent of the Company or any other holder of Common Stock or
Notes.
(d)
Transfer
of Note.
The Holder may sell, transfer or otherwise dispose of all or any part of this
Note (including without limitation pursuant to a pledge) to any person or entity
as long as such sale, transfer or disposition is the subject of an effective
registration statement under the Securities Act of 1933, as amended, and
applicable state securities laws, or is exempt from registration thereunder,
and
is otherwise made in accordance with the applicable provisions of the Securities
Purchase Agreement. From and after the date of any such sale, transfer or
disposition, the transferee hereof shall be deemed to be the holder of a Note
in
the principal amount acquired by
-21-
such
transferee, and the Company shall, as promptly as practicable, issue and deliver
to such transferee a new Note identical in all respects to this Note, in the
name of such transferee. The Company shall be entitled to treat the original
Holder as the holder of this entire Note unless and until it receives written
notice of the sale, transfer or disposition hereof.
(e)
Lost
or Stolen Note.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Note, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of the Note, if mutilated, the Company shall execute and
deliver to the Holder a new Note identical in all respects to this
Note.
(f)
Governing
Law.
This Note shall be governed by and construed in accordance with the laws of
the
State of California applicable
to contracts made and to be performed entirely within the State of
California.
(g) Successors
and Assigns.
The terms and conditions of this Note
shall inure to the benefit of and be binding upon the respective successors
(whether by merger or otherwise) and permitted assigns of the Company and the
Holder. The Company may not assign its rights or obligations under this
Note
except as specifically required or permitted pursuant to the terms
hereof.
(h) Usury.
This
Note is subject to the express condition that at no time shall the Company
be
obligated or required to pay interest hereunder at a rate which could subject
the Holder to either civil or criminal liability as a result of being in excess
of the maximum interest rate which the Company is permitted by applicable law
to
contract or agree to pay. If by the terms of this Note, the Company is at
any time required or obligated to pay interest hereunder at a rate in excess
of
such maximum rate, the rate of interest under this Note shall be deemed to
be
immediately reduced to such maximum rate and the interest payable shall be
computed at such maximum rate and all prior interest payments in excess of
such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance of this Note.
[Signature
Page to Follow]
-22-
IN
WITNESS WHEREOF, the Company has caused this Note to be signed in its name
by
its duly authorized officer on the date first above written.
By: ____________________________
Name:
Title:
-23-
ANNEX
I
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert principal of the 8% Senior Convertible
Note
(the “Note”)
issued by ZAP (the “Company”)
into shares of common stock (“Common
Stock”)
of the Company according to the terms and conditions of the Note. Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Note.
Date
of Conversion:
_______________________________________________
Principal
Amount
of
Note
to be Converted: _____________________________________________
Amount
of
Interest
to
be Converted (if any): ____________________________________________
Number
of Shares
of
Common
Stock to be Issued: _________________________________________
Name
of Holder: __________________________________________________
Address:
________________________________________________________
________________________________________________________
________________________________________________________
Signature: ________________________________________________________
Name:
Title:
Holder
Requests Delivery to be made:
(check one)
|
o
|
By
Delivery of Physical Certificates to the Above
Address
|
|
o
|
Through
Depository Trust Corporation
(Account
____________________________)
|
