The security represented by this instrument was originally issued on
December 23, 1996, and has not been registered under the Securities Act of
1933, as amended. The transfer of such security is subject to the
conditions specified in the Note and Warrant Purchase Agreement, dated as
of December 23, 1996, as amended and modified from time to time, between
the issuer (the "Company") and BMO Xxxxxxx Xxxxx Capital (U.S.), Inc., and
the Company reserves the right to refuse the transfer of such security
until such conditions have been fulfilled with respect to such transfer.
Upon written request, a copy of such conditions shall be furnished by the
Company to the holder hereof without charge.
This instrument is subject to the terms of a Subordination and
Intercreditor Agreement dated as of December 23, 1996, in favor of Xxxxxx
Trust and Savings Bank, as agent, which agreement (as amended in accordance
with its terms) is incorporated herein by reference. Notwithstanding any
statement to the contrary contained in this instrument, no payment on
account of the obligations hereunder, whether of principal, interest or
otherwise, shall be made, paid, received or accepted except in accordance
with the express terms of the Subordination and Intercreditor Agreement.
ZYTEC CORPORATION
CONVERTIBLE SUBORDINATED
PROMISSORY NOTE
-------------------
December 23, 1996 $12,000,000
Zytec Corporation, a Minnesota corporation (the "Company"), hereby
promises to pay to the order of BMO Xxxxxxx Xxxxx Capital (U.S.), Inc., a
Delaware corporation (the "Purchaser") the principal amount of $12,000,000
together with interest thereon calculated from the date hereof in accordance
with the provisions of this Note.
This Note was issued pursuant to a Note and Warrant Purchase
Agreement, dated as of December 23, 1996 (as amended and modified from time to
time, the "Purchase Agreement"), between the Company and the Purchaser, and this
Note is the "Note" referred to in the Purchase Agreement. The Purchase Agreement
contains terms governing the rights of the holder of this Note, and all
provisions of the Purchase Agreement are hereby incorporated herein in full by
reference. Except as defined in paragraph 8 hereof or unless otherwise indicated
herein, capitalized terms used in this Note have the same meanings set forth in
the Purchase Agreement.
1. Payment of Interest. Except as otherwise expressly provided in
-------------------
paragraph 3(b) hereof, interest shall accrue at the rate of seven and one-half
percent (7 1/2%) per annum (computed on the basis of a 360-day year and the
actual number of days elapsed in any year) on the unpaid principal amount of
this Note outstanding from time to time, or (if less) at the highest rate then
permitted under applicable law. The Company shall pay to the holder of this Note
all accrued interest on the last day of each December, March, June and
September, beginning March 31, 1997. Unless prohibited under applicable law, any
accrued interest which is not paid on the date on which it is due and payable
shall bear interest at the same rate at which interest is then accruing on the
principal amount of this Note until such interest is paid. Any accrued interest
which for any reason has not theretofore been paid shall be paid in full on the
date on which the final principal payment on this Note is made. Interest shall
accrue on any principal payment due under this Note and, to the extent permitted
by applicable law, on any interest which has not been paid on the date on which
it is due and payable until such time as payment therefor is actually delivered
to the holder of this Note.
2. Payment of Principal.
--------------------
(a) Scheduled Repayment. The Company shall repay the principal
-------------------
amount of $12,000,000 (or such lesser principal amount then outstanding) to the
holder of this Note on December 23, 2001 (the "Scheduled Repayment Date"),
together with all accrued and unpaid interest on the Note.
(b) Optional Repayments.
-------------------
(i) Subject to subparagraphs (b)(ii) and (iii) below, the Company may,
at any time and from time to time repay all or any portion (in whole number
multiples of $1,000,000 only) of the outstanding principal amount of the Note;
provided that (A) such repayment is not prohibited by the provisions of the
Subordination Agreement and (B) the Company has paid all interest on the Note
accrued through the immediately preceding scheduled interest payment date. In
connection with each repayment of principal hereunder, the Company shall also
pay all accrued and unpaid interest on the principal amount of the Notes being
repaid.
(ii) The Company shall send written notice of its election to make a
repayment on the Note to the holder of the Note by registered or certified mail,
return receipt requested, at least 30 days prior to the date of repayment. At
least ten days prior to the date of repayment, the Company shall deliver to the
holder of the Note in person or by registered or certified mail, return receipt
requested, a cashier's or certified check for the full amount which the Company
intends to repay on the Note plus interest accrued on the outstanding principal
amount of the Note through the date of repayment specified in the Company's
notice. Any repayment of the Note shall not be deemed to have been effected
until ten days after the holder of the Note has received a check from the
Company in the amount of such repayment. If the holder of the Note elects to
convert all or a portion of the principal amount of the Note rather than receive
such repayment, the holder shall deliver to the Company in person or by
registered or certified mail, return receipt requested, the Note on or prior to
the date of repayment together with the check received from the Company, if any,
and such conversion shall be effected in accordance with the terms of paragraph
4 hereof.
(iii) In the event the Company exercises its right to repay any
portion of this Note in accordance with subparagraph (b)(i) above prior to the
consummation of a Qualified Offering, the Company shall be obligated to pay the
holder of the Note a prepayment premium of 2% per annum of the principal amount
being repaid by the Company from the date of repayment through the Scheduled
Repayment Date.
(c) Mandatory Repayment.
-------------------
(i) If a Change in Ownership has occurred or the Company obtains
knowledge that a Change in Ownership is to occur, the Company shall give prompt
written notice of such Change in Ownership describing in reasonable detail the
definitive terms and date of consummation thereof to the holder of this Note,
but in any event such notice shall not be given later than five days after the
occurrence of such Change in Ownership. The holder of this Note may require the
Company to repay all or any portion of the outstanding principal amount of this
Note, together with (i) all accrued and unpaid interest on the Note and (ii) the
Conversion Fair Value thereof by giving written notice to the Company of such
election prior to the later of (a) 21 days after receipt of the Company's notice
and (b) five days prior to the consummation of the Change in Ownership (the
"Expiration Date"). Upon receipt of such election, the Company shall be
obligated to repay the portion of the Note specified therein on the later of (a)
the occurrence of the Change in Ownership or (b) five days after the Company's
receipt of such election(s). If in any case a proposed Change in Ownership does
not occur or if the holder of this Note elects to rescind a request for
repayment within five days after receipt of notice of the Conversion Fair Value,
all requests for repayment in connection therewith shall be automatically
rescinded. The term "Change in Ownership" means any sale or issuance or series
-------------------
of sales and/or issuances of Common Stock by the Corporation or any holders
thereof which results in any Person or group of affiliated Persons (other than
Xxxxxx X. Xxxxxxx, Xxxxxxxx X. Xxxxxxxx and Xxxx X. Steel) owning more than 50%
of the Common Stock outstanding at the time of such sale or issuance or series
of sales and/or issuances.
(ii) If a Fundamental Change is proposed to occur, the Company shall
give written notice of such Fundamental Change describing in reasonable detail
the definitive terms and date of consummation thereof to the not more than 45
days nor less than 20 days prior to the consummation thereof. The holder of this
Note may require the Company to repay all or any portion of this Note, together
with (i) all accrued and unpaid interest on the Note and (ii) the Conversion
Fair Value thereof by giving written notice to the Corporation of such election
prior to the later of (a) ten days prior to the consummation of the Fundamental
Change or (b) ten days after receipt of notice from the Company. Upon receipt of
such election, the Company shall be obligated to repay the principal amount of
the Note specified therein upon the consummation of such Fundamental Change. If
any proposed Fundamental Change does not occur or if the holder of this Note
elects to rescind the request for repayment within five days after receipt of
notice of the Conversion Fair Value, all requests for repayment in connection
therewith shall be automatically rescinded. The term "Fundamental Change"
----------- ------
means (a) a sale or transfer of more than 30% of the assets of the Company and
its Subsidiaries on a consolidated basis (measured by either book value in
accordance with generally accepted accounting principles consistently applied or
fair market value determined in the reasonable good faith judgment of the
Company's board of directors) in any transaction or series of transactions
(other than sales in the ordinary course of business), (b) any merger or
consolidation to which the Company is a party, except for a merger in which the
Company is the surviving corporation and, after giving effect to such merger, no
Person or group of affiliated Persons (other than Xxxxxx X. Xxxxxxx, Xxxxxxxx X.
Xxxxxxxx and Xxxx X. Steel) shall own more than 50% of the Common Stock
outstanding at the time of such merger and (c) any transaction or occurrence a
result of which the Common Stock is no longer (A) registered pursuant to the
Securities Act of 1934 or (B) quoted in the NASDAQ System.
(iii) Repayments made pursuant to this subparagraph (c) shall not
relieve the Company of its obligation to repay any remaining outstanding
principal amount on the Scheduled Repayment Date.
(iv) For purposes of this subparagraph (c), "Conversion Fair Value"
---------------------
means the fair value of the conversion rights under this Note (or a portion
thereof) determined jointly by the Company and the holder of this Note. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Company
and the holder of this Note. The determination of such appraiser shall be final
and binding upon the parties, and the fees and expenses of such appraiser shall
be borne by the Company.
(d) Offset. Prior to any prepayment on this Note, the holder of this
------
Note shall have the right (exercisable by notifying the Company at least five
days prior to the payment date) to reduce the principal amount to be paid by the
Company at such time by an amount not exceeding the principal amount of this
Note which has previously been converted by such holder into shares of
Conversion Stock and which has not previously been applied to any such
reduction, except that this right may not be exercised by such holder in
connection with a prepayment by the Company of all the principal amount of this
Note.
(e) Conversion. Notwithstanding any provision contained in this
----------
paragraph 2, the holder of this Note may convert all or any portion of the
outstanding principal amount of this Note until such time as such amount has
been deemed to have been paid.
3. Events of Default.
-----------------
(a) Definition. For purposes of this Note, an Event of Default shall
----------
be deemed to have occurred if
(i) the Company fails to pay when due and payable (whether at
maturity or otherwise) the full amount of interest then accrued on this Note or
the full amount of the scheduled principal payment on this Note, and in the
event of unpaid interest such failure to pay is not cured within five days after
the occurrence thereof;
(ii) the Company fails to perform or observe any other provision
contained in this Note or in the Purchase Agreement, and such failure is not
cured within 15 days after written notice from the Purchaser to the Company of
the occurrence thereof;
(iii) any representation, warranty or information contained in
the Purchase Agreement or required to be furnished to the holder of this Note
pursuant to the Purchase Agreement, or any writing required to be furnished by
the Company to the holder of this Note, is false or misleading in any material
respect on the date made or furnished;
(iv) the Company or any Subsidiary makes an assignment for the
benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Company or any Subsidiary bankrupt or insolvent; or any order
for relief with respect to the Company or any Subsidiary is entered under the
Federal Bankruptcy Code; or the Company or any Subsidiary petitions or applies
to any tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Company or any Subsidiary, or of any substantial part of the
assets of the Company or any Subsidiary, or commences any proceeding (other than
a proceeding for the voluntary liquidation and dissolution of any Subsidiary)
relating to the Company or any Subsidiary under any bankruptcy reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Company or any Subsidiary and either (A)
the Company or any such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein or (B) such petition, application or
proceeding is not dismissed within 60 days;
(v) a judgment in excess of $2,000,000 is rendered against the
Company or any Subsidiary and, within 60 days after entry thereof, such judgment
is not discharged in full or execution thereof stayed pending appeal, or within
60 days after the expiration of any such stay, such judgment is not discharged
in full; or
(vi) the Company or any Subsidiary defaults in the performance of
any obligation if the effect of such default is to cause an amount exceeding
$2,000,000 to become due prior to its stated maturity or to permit the holder or
holders of such obligation to cause an amount exceeding $2,000,000 to become due
prior to its stated maturity.
The foregoing shall constitute Events of Default whatever the reason
or cause for any such Event of Default and whether it is voluntary or
involuntary or is 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.
(b) Consequences of Events of Default.
---------------------------------
(i) If any Event of Default has occurred and is continuing, the
interest rate on the Note shall increase immediately by an increment of one
percentage point to the extent permitted by law. Thereafter, until such time as
no Events of Default exist, the interest rate shall increase automatically at
the end of each succeeding 60-day period by an additional increment of one
percentage point to the extent permitted by law (but in no event shall the
interest rate exceed 11 1/2%). Any increase of the interest rate resulting from
the operation of this subparagraph shall terminate as of the close of business
on the date on which no Events of Default exist (subject to subsequent increases
pursuant to this subparagraph).
(ii) If an Event of Default of the type described in subparagraph
3(a)(iv) has occurred, the aggregate principal amount of this Note (together
with all accrued interest thereon and all other amounts due and payable with
respect thereto) shall become immediately due and payable without any action on
the part of the holder of this Note, and the Company shall immediately pay to
the holder of this Note all amounts due and payable with respect to this Note.
(iii) If any Event of Default (other than under subparagraph
3(a)(iv)) has occurred and is continuing, the holder of this Note may declare
all or any portion of the outstanding principal amount of this Note (together
with all accrued interest thereon and all other amounts due and payable with
respect thereto) to be immediately due and payable. If any holder of this Note
demands immediate payment of all or any portion of this Note, the Company shall
immediately pay to such holder all amounts due and payable with respect to this
Note.
(iv) The holder of this Note shall also have any other rights
which such holder may have been afforded under any contract or agreement at any
time and any other rights which such holder may have pursuant to applicable law.
(v) The Company hereby waives diligence, presentment, protest and
demand and notice of protest and demand, dishonor and nonpayment of this Note,
and expressly agrees that this Note, or any payment hereunder, may be extended
from time to time and that the holder hereof may accept security for this Note
or release security for this Note, all without in any way affecting the
liability of the Company hereunder.
4. Conversion.
----------
(a) Conversion Procedure.
--------------------
(i) Upon the occurrence (or the expected occurrence as described
in (iii) below) of any Conversion Event, the holder of this Note shall be
entitled to convert all or any portion of the outstanding principal amount of
this Note into a number of shares of Conversion Stock computed by dividing the
principal amount designated by such holder to be converted by the Conversion
Price then in effect; provided that all of such shares of Conversion Stock are
(or are expected to be) distributed, disposed of, sold or canceled in connection
with such Conversion Event.
(ii) For purposes of this paragraph 4A, a "Conversion Event"
shall mean (a) any public offering or public sale of securities of the Company
(including a public offering registered under the Securities Act of 1933 and a
public sale pursuant to Rule 144 of the Securities and Exchange Commission or
any similar rule then in force), (b) any sale or transfer of securities of the
Company to a Person or group of Persons (within the meaning of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) if, after such sale or
transfer, such Person or group of Persons in the aggregate would own or control
securities of the Company which possess in the aggregate the ordinary voting
power to elect a majority of the Company's directors (provided that such sale
has been approved by the Company's Board of Directors or a committee thereof),
(c) any sale or transfer of securities of the Company to a Person or group of
Persons (within the meaning of the 0000 Xxx) if, after such sale or transfer,
such Person or group of Persons in the aggregate would own or control securities
of the Company (excluding any Conversion Stock being disposed of in connection
with such Conversion Event) which possess in the aggregate the ordinary voting
power to elect a majority of the Company's directors, (d) any sale or transfer
of securities of the Company to a Person or group of Persons (within the meaning
of the 0000 Xxx) if, after such sale or transfer, such Person or group of
Persons would not, in the aggregate, own, control or have the right to acquire
more than two percent (2%) of the outstanding securities of any class of voting
securities of the Company, (e) a merger, consolidation or similar transaction
involving the Company if, after such transaction, a Person or group of Persons
(within the meaning of the 0000 Xxx) in the aggregate would own or control
securities which possess in the aggregate the ordinary voting power to elect a
majority of the surviving corporation's directors (provided that the transaction
has been approved by the Company's Board of Directors or a committee thereof)
and (f) any liquidation, dissolution or winding up of the Company.
(iii) The holder of this Note shall be entitled to convert all or
any portion of the outstanding principal amount of this Note in connection with
any Conversion Event if such holder reasonably believes that such Conversion
Event shall be consummated, and a written request for conversion from the holder
of this Note to the Company stating such holder's reasonable belief that a
Conversion Event shall occur shall be conclusive and shall require the Company
to effect such conversion in a timely manner so as to enable each such holder to
participate in such Conversion Event. If any portion of the outstanding
principal amount of this Note is converted into shares of Conversion Stock in
connection with a Conversion Event and such shares of Conversion Stock are not
actually distributed, disposed of, sold or canceled pursuant to such Conversion
Event, such shares of Conversion Stock shall be promptly converted back into the
principal amount of this Note so converted.
(iv) Except as otherwise expressly provided herein, each
conversion of this Note shall be deemed to have been effected as of the close of
business on the date on which this Note has been surrendered for conversion at
the principal office of the Company. At such time as such conversion has been
effected, the rights of the holder of this Note as such holder to the extent of
the conversion shall cease, and the Person or Persons in whose name or names any
certificate or certificates for shares of Conversion Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Conversion Stock represented thereby.
(v) As soon as possible after a conversion has been effected (but
in any event within five business days in the case of clause (A) below), the
Company shall deliver to the converting holder:
(A) a certificate or certificates representing the number of
shares of Conversion Stock (excluding any fractional share) issuable by
reason of such conversion in such name or names and such denomination or
denominations as the converting holder has specified;
(B) payment in an amount equal to the sum of all accrued interest
with respect to the principal amount converted, which has not been paid
prior thereto, plus the amount payable under subparagraph (vi) below; and
(C) a new Note representing any portion of the principal amount
which was represented by the Note surrendered to the Company in connection
with such conversion but which was not converted; provided that, if the
shares of Conversion Stock so issued are converted back into principal of
this Note pursuant to (iii) above, the converting holder shall return all
certificates, payments and Notes delivered pursuant to (A), (B) and (C)
above to the Company, and the Company shall promptly deliver to the
converting holder the Note surrendered for conversion.
(vi) If any fractional share of Conversion Stock would, except
for the provisions hereof, be deliverable upon conversion of this Note, the
Company, in lieu of delivering such fractional share, shall pay an amount equal
to the Market Price of such fractional share as of the date of such conversion.
(vii) The issuance of certificates for shares of Conversion Stock
upon conversion of this Note shall be made without charge to the holder hereof
for any issuance tax in respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of shares of Conversion
Stock. Upon conversion of this Note, the Company shall take all such actions as
are necessary in order to insure that the Conversion Stock issuable with respect
to such conversion shall be validly issued, fully paid and nonassessable.
(viii) The Company shall not close its books against the transfer
of Conversion Stock issued or issuable upon conversion of this Note in any
manner which interferes with the timely conversion of this Note. The Company
shall assist and cooperate with any holder of this Note required to make any
governmental filings or obtain any governmental approval prior to or in
connection with the conversion of this Note (including, without limitation,
making any filings required to be made by the Company).
(ix) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Conversion Stock, solely for the
purpose of issuance upon the conversion of the Note, such number of shares of
Conversion Stock issuable upon the conversion of all outstanding Notes. All
shares of Conversion Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Company shall take all such actions as may be necessary to assure
that all such shares of Conversion Stock may be so issued without violation of
any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Conversion Stock may be listed
(except for official notice of issuance which shall be immediately delivered by
the Company upon each such issuance).
(b) Conversion Price.
----------------
(i) The initial Conversion Price shall be $13.68. In order to
prevent dilution of the conversion rights granted under the Notes, the
Conversion Price shall be subject to adjustment from time to time pursuant to
this paragraph 4(b).
(ii) If and whenever on or after the original date of issuance of
this Note the Company issues or sells, or in accordance with paragraph 4(c) is
deemed to have issued or sold, any shares of Common Stock for a consideration
per share less than the Conversion Price in effect immediately prior to such
time, then immediately upon such issue or sale the Conversion Price shall be
reduced to the Conversion Price determined by dividing (A) an amount equal to
the sum of (x) the product derived by multiplying the Conversion Price in effect
immediately prior to such issue or sale by the number of shares of Common Stock
Deemed Outstanding immediately prior to such issue or sale, plus (y) the
consideration, if any, received by the Company upon such issue on sale, by (B)
the number of shares of Common Stock Deemed Outstanding immediately after such
issue or sale.
(c) Effect on Conversion Price of Certain Events. For purposes of
--------------------------------------------
determining the adjusted Conversion Price under paragraph 4(b), the following
shall be applicable:
(i) Issuance of Rights or Options. If the Company in any
-----------------------------
manner grants or sells any Options and the price per share for which Common
Stock is issuable upon the exercise of such Options, or upon conversion or
exchange of any Convertible Securities issuable upon exercise of such Options,
is less than the Conversion Price in effect immediately prior to the time of the
granting or sale of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options, or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options, shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the granting or sale of such
Option for such price per share. For purposes of this paragraph, the "price per
share for which Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" is determined by dividing
(A) the total amount, if any, received or receivable by the Company as
consideration for the granting or sale of such Options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. No adjustment of the Conversion
Price shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment of the Conversion Price
shall be made pursuant to paragraph 4(b) as a result of (w) the granting of
stock options under qualified stock options plans approved by the Board of
Directors of the Company, at exercise prices not less than the fair market value
of the Common Stock at the date of grant, (x) the actual issuance of Common
Stock upon the exercise of such stock options, (y) the issuance of Common Stock
pursuant to the Company's Employee Stock Purchase Plan or (z) the issuance of
Common Stock to non-employee directors pursuant to the Company's director stock
grant program.
(ii) Issuance of Convertible Securities. If the Company in any
----------------------------------
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon conversion or exchange thereof is less than
the Conversion Price in effect immediately prior to the time of such issue or
sale, then the maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the issuance or
sale of such Convertible Securities for such price per share. For the purposes
of this paragraph, the "price per share for which Common Stock is issuable upon
conversion or exchange thereof" is determined by dividing (A) the total amount
received or receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities. No adjustment of
the Conversion Price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustments of the Conversion Price had been or are to be made
pursuant to other provisions of this paragraph 4(c), no further adjustment of
the Conversion Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the
-----------------------------------------
purchase price provided for in any Option, the additional consideration (if any)
payable upon the issue, conversion or exchange of any Convertible Security, or
the rate at which any Convertible Security is convertible into or exchangeable
for Common Stock changes at any time, the Conversion Price in effect at the time
of such change shall be adjusted immediately to the Conversion Price which would
have been in effect at such time had such Option or Convertible Security
originally provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this paragraph 4(c), if the terms of any Option
or Convertible Security which was outstanding as of the date of issuance of this
Note are changed in the manner described in the immediately preceding sentence,
then such Option or Convertible Security and the Common Stock deemed issuable
upon exercise, conversion or exchange thereof shall be deemed to have been
issued as of the date of such change; provided that no such change shall at any
time cause the Conversion Price hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right to
----------
convert or exchange any Convertible Securities without the exercise of such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination,
never been issued. For purposes of this paragraph 4(c), the expiration or
termination of any Option or Convertible Security which was outstanding as of
the date of issuance of this Note shall not cause the Conversion Price hereunder
to be adjusted unless, and only to the extent that, a change in the terms of
such Option or Convertible Security caused it to be deemed to have been issued
after the date of issuance of this Note.
(v) Calculation of Consideration Received. If any Common
-------------------------------------
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company shall be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration therefor shall
be deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash and securities shall be determined jointly by the Company and
the holders of a majority of the outstanding principal amount of the Notes. If
such parties are unable to reach agreement within a reasonable period of time,
such fair value shall be determined by an appraiser jointly selected by the
Company and the holders of a majority of the outstanding principal amount of the
Notes. The determination of such appraiser shall be final and binding upon the
parties, and the fees and expenses of such appraiser shall be borne by the
Company.
(vi) Integrated Transactions. In case any Option is issued in
-----------------------
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options shall be deemed to
have been issued without consideration.
(vii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the holders
-----------
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(d) Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend or otherwise) one or
more classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and if the Company at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased.
(e) Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
which in each case is effected in such a manner that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as an "Organic Change." Prior to the consummation of any Organic
Change, the Company shall make lawful and adequate provision (in form and
substance satisfactory to the holder of this Note) to insure that the holder of
this Note shall thereafter have the right to acquire and receive, in lieu of or
addition to (as the case may be) shares of Conversion Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's Note,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of shares of Conversion Stock
immediately theretofore acquirable and receivable upon conversion of such
holder's Note had such Organic Change not taken place. In any such case,
appropriate provision (in form and substance satisfactory to the holders of a
majority of the outstanding principal amount of this Note) shall be made with
respect to such holder's rights and interests to insure that the provisions of
this paragraph 4 and paragraphs 5 and 6 shall thereafter be applicable in
relation to any shares of stock, securities or assets thereafter deliverable
upon the conversion of this Note. The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form reasonably satisfactory to the holders of a majority of the outstanding
principal amount of this Note), the obligation to deliver to each such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
(f) Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this paragraph 4 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's board of directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holder of this Note;
provided that no such adjustment shall increase the Conversion Price as
otherwise determined pursuant to this paragraph 4 or decrease the number of
shares of Conversion Stock issuable upon conversion of the Note.
(g) Notices.
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(i) Immediately upon any adjustment of the Conversion Price, the
Company shall send written notice thereof to the holder of this Note, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall send written notice to the holder of this
Note at least 20 days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock or (C) for determining rights to vote with respect to any Organic Change,
dissolution or liquidation.
(iii) The Company shall also give at least 20 days prior written
notice of the date on which any Organic Change, dissolution or liquidation shall
take place.
5. Liquidating Dividends. If the Company declares a dividend upon
---------------------
the Common Stock payable otherwise than in cash out of earnings or earned
surplus (determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Company shall pay to the holder of
this Note at the time of payment thereof the Liquidating Dividend which would
have been paid to the holder of this Note on the Conversion Stock had this Note
been fully converted immediately prior to the date on which a record is taken
for such Liquidating Dividend, or, if no record is taken, the date as of which
the record holders of Common Stock entitled to such dividends are to be
determined; provided that if the Liquidating Dividends consist of voting
securities, the Company shall make available to the holder of this Note, at such
holder's request, Liquidating Dividends consisting of non-voting securities
which are otherwise identical to the Liquidating Dividends consisting of voting
securities and which non-voting securities are convertible into such voting
securities on a share-for-share basis.
6. Purchase Rights. If at any time the Company grants, issues or
---------------
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the holder of this Note shall be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Conversion Stock acquirable upon conversion of
such holder's Note immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights; provided that
if the Purchase Rights involve voting securities, the Company shall make
available to the holder of this Note, at such holder's request, Purchase Rights
involving non-voting securities which are otherwise identical to the Purchase
Rights involving voting securities and which non-voting securities are
convertible into such voting securities on a share-for-share basis.
7. Amendment and Waiver. Except as otherwise expressly provided
--------------------
herein, the provisions of this Note may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of a majority of the outstanding principal amount of this Note.
8. Definitions. For purposes of this Note, the following
-----------
capitalized terms have the following meaning.
"Common Stock" means any class of the Company's Common Stock and any
------------
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Common Stock Deemed Outstanding" means, at any given time, the number
-------------------------------
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to paragraphs 4(c)(i)
and 4(c)(ii) hereof, regardless of whether or not the Options and Convertible
Securities are actually exercisable at such time, but excluding any shares of
Common Stock issuable upon conversion of the Notes.
"Convertible Securities" means any stock or securities (directly or
----------------------
indirectly) convertible into or exchangeable for Common Stock.
"Conversion Stock" means shares of the Company's authorized but
----------------
unissued Common Stock; provided that if there is a change such that the
securities issuable upon conversion of the Note are issued by an entity other
than the Company or there is a change in the class of securities so issuable,
then the term "Conversion Stock" shall mean one share of the security issuable
upon conversion of this Note if such security is issuable in shares, or shall
mean the smallest unit in which such security is issuable if such security is
not issuable in shares.
"Market Price" of any security means the average of the closing prices
------------
of such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day. If at any time such security is not
listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by the Company and the holder of this Note. If such parties
are unable to reach agreement within a reasonable period of time, such fair
value shall be determined by an appraiser jointly selected by the Company and
the holder of this Note. The determination of such appraiser shall be final and
binding upon the parties, and the fees and expenses of such appraiser shall be
borne by the Company.
"Options" means any rights or options to subscribe for or purchase
-------
Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Subordination Agreement" means the Subordination and Intercreditor
-----------------------
Agreement dated as of the date hereof, between the Company, Xxxxxx Trust and
Savings Bank and the Purchaser.
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
9. Cancellation. After all principal and accrued interest at any
------------
time owed on this Note has been paid in full, this Note shall be surrendered to
the Company for cancellation and shall not be reissued.
10. Payments. All payments to be made to the holder of this Note
--------
shall be made in the lawful money of the United States of America in immediately
available funds.
11. Place of Payment. Payments of principal and interest shall be
----------------
delivered to BMO Xxxxxxx Capital (U.S.), Inc. at the following address:
BMO Xxxxxxx Xxxxx Equity Partners, Inc.
000 Xxxx Xxxxxx
00xx Xxxxx Xxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Managing Director
or to such other address or to the attention of such other person as specified
by prior written notice to the Company.
12. Business Days. If any payment is due, or any time period for
-------------
giving notice or taking action expires, on a day which is a Saturday, Sunday or
legal holiday in the State of Minnesota or the State of Illinois, the payment
shall be due and payable on, and the time period shall automatically be extended
to, the next business day immediately following such Saturday, Sunday or legal
holiday, and interest shall continue to accrue at the required rate hereunder
until any such payment is made.
13. Usury Laws. It is the intention of the Company and the holder of
----------
this Note to conform strictly to all applicable usury laws now or hereafter in
force, and any interest payable under this Note shall be subject to reduction to
the amount not in excess of the maximum legal amount allowed under the
applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated by
reason of an election by the holder hereof resulting from an Event of Default,
voluntary prepayment by the Company or otherwise, then earned interest may never
include more than the maximum amount permitted by law, computed from the date
hereof until payment, and any interest in excess of the maximum amount permitted
by law shall be canceled automatically and, if theretofore paid, shall at the
option of the holder hereof either be rebated to the Company or credited on the
principal amount of this Note, or if this Note has been paid, then the excess
shall be rebated to the Company. The aggregate of all interest (whether
designated as interest, service charges, points or otherwise) contracted for,
chargeable, or receivable under this Note shall under no circumstances exceed
the maximum legal rate upon the unpaid principal balance of this Note remaining
unpaid from time to time. If such interest does exceed the maximum legal rate,
it shall be deemed a mistake and such excess shall be canceled automatically
and, if theretofore paid, rebated to the Company or credited on the principal
amount of this Note, or if this Note has been repaid, then such excess shall be
rebated to the Company.
14. Governing Law. All questions concerning the construction,
-------------
validity, enforcement and interpretation of this Note shall be governed by the
internal law of the State of Minnesota without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of Minnesota or
any other jurisdictions) that would cause the application of the laws of any
jurisdiction other than the State of Minnesota.
IN WITNESS WHEREOF, the Company has executed and delivered this Note
on December __, 1996.
ZYTEC CORPORATION
Attest By ________________________________
_________________________ Its _______________________________
