Exhibit 4.2
Execution Version
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OF
THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE BORROWER. THESE SECURITIES AND THE SECURITIES ISSUABLE
UPON CONVERSION OF THESE SECURITIES MAY BE PLEDGED IN A MANNER CONSISTENT
WITH THE SECURITIES ACT IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
SECURED BY SUCH SECURITIES.
No. [ ] $[ ]
Original Issue Date: February 9, 2005
ZOLTEK COMPANIES, INC.
SENIOR CONVERTIBLE NOTE DUE AUGUST 9, 2008
THIS NOTE is one of a series of duly authorized and issued
notes of Zoltek Companies, Inc., a Missouri corporation (the "BORROWER"),
designated as its Senior Convertible Notes due August 9, 2008, in the
original aggregate principal amount of [Twenty Million Dollars
($20,000,000)] (collectively, the "NOTES" and each note comprising the
Notes, a "NOTE").
FOR VALUE RECEIVED, the Borrower promises to pay to the
order of [ ] or its registered assigns (the "LENDER"), the principal sum of
[ ] ($), on August 9, 2008 or such earlier date as this Note is required to
be repaid as provided hereunder (the "MATURITY DATE"), and to pay interest
to the Lender on the principal amount of this Note outstanding from time to
time in accordance
with the provisions hereof. All holders of Notes are referred to
collectively, as the "LENDERS." This Note is subject to the following
additional provisions:
1. Definitions. In addition to the terms defined elsewhere
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in this Note: (a) capitalized terms that are used but not otherwise defined
herein have the meanings given to such terms in the Loan and Warrant
Agreement, dated as of the Original Issue Date, among the Borrower, the
lenders identified therein and Omicron Master Trust, as Administrative Agent
thereunder (the "LOAN AGREEMENT"), and (b) the following terms have the
meanings indicated below:
"BANKRUPTCY EVENT" means any of the following events: (a) the
Borrower or any Subsidiary commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction relating to the Borrower or any Subsidiary thereof; (b) there
is commenced against the Borrower or any Subsidiary any such case or
proceeding that is not dismissed within 60 days after commencement; (c) the
Borrower or any Subsidiary is adjudicated by a court of competent
jurisdiction insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (d) the Borrower or any
Subsidiary suffers any appointment of any custodian or the like for it or
any substantial part of its property that is not discharged or stayed within
60 days; (e) under applicable law the Borrower or any Subsidiary makes a
general assignment for the benefit of creditors; (f) the Borrower or any
Subsidiary fails to pay, or states that it is unable to pay or is unable to
pay, its debts generally as they become due; (g) the Borrower or any
Subsidiary calls a meeting of its creditors with a view to arranging a
composition, adjustment or restructuring of its debts; or (h) the Borrower
or any Subsidiary, by any act or failure to act, expressly indicates its
consent to, approval of or acquiescence in any of the foregoing or takes any
corporate or other action for the purpose of effecting any of the foregoing.
"CHANGE OF CONTROL" means the occurrence of any of the following in
one or a series of related transactions: (i) an acquisition after the date
hereof by an individual or legal entity or "group" (as described in Rule
13d-5(b)(1) under the Exchange Act) of more than one-third of the voting
rights or equity interests in the Borrower; (ii) a replacement of more than
one-half of the members of the Borrower's board of directors in a single
election of directors that is not approved by those individuals who are
members of the board of directors on the date hereof (or other directors
previously approved by such individuals); (iii) a Fundamental Transaction, a
merger or consolidation of the Borrower or any Subsidiary or a sale of more
than one-half of the assets of the Borrower in one or a series of related
transactions, unless following such transaction or series of transactions,
the holders of the Borrower's securities prior to the first such transaction
continue to hold at least two-thirds of the voting rights and equity
interests in the surviving entity or acquirer of such assets; (iv) a
recapitalization, reorganization or other transaction involving the Borrower
or any Subsidiary that constitutes or results in a transfer of more than
one-third of the voting rights or equity interests in the Borrower, unless
following such transaction or series of transactions, the holders of the
Borrower's securities prior to the first such transaction continue to hold
at least two-thirds of the voting rights and equity interests in the
surviving entity or acquirer of such assets; (v) consummation of a "Rule
13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act with
respect to the Borrower, or (vi) the execution by the Borrower or
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its controlling shareholders of an agreement providing for or reasonably
likely to result in any of the foregoing events.
"CLOSING PRICE" means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on an Eligible Market, the closing sale price per share of
the Common Stock for such date (or the nearest preceding date) on the
primary Eligible Market or exchange on which the Common Stock is then listed
or quoted; (b) if prices for the Common Stock are then quoted on the OTC
Bulletin Board, the closing sale price per share of the Common Stock for
such date (or the nearest preceding date) so quoted; (c) if prices for the
Common Stock are then reported in the "Pink Sheets" published by the
National Quotation Bureau Incorporated (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent sale price
per share of the Common Stock so reported; or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an independent
qualified appraiser selected in good faith and paid for by a majority in
interest of the Lenders.
"COMMON STOCK" means the common stock of the Borrower, $0.01 par
value per share, and any securities into which such common stock may
hereafter be reclassified.
"COMMON STOCK EQUIVALENTS" means any securities of the Borrower or
a subsidiary thereof which entitle the holder thereof to acquire Common
Stock at any time, including without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock or other securities that entitle the holder
to receive, directly or indirectly, Common Stock.
"CONVERSION DATE" means the date a Conversion Notice together with
the Conversion Schedule is delivered to the Borrower in accordance with
Section 5(a).
"CONVERSION NOTICE" means a written notice in the form attached
hereto as Exhibit A.
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"CONVERSION PRICE" means $20.00, subject to adjustment from time to
time pursuant to Section 11.
"DEFAULT" means any event or condition which constitutes an Event
of Default or that upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"ELIGIBLE MARKET" means any of the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap
Market.
"EQUITY CONDITIONS ARE SATISFIED" means, as of any date of
determination, that each of the following conditions is (or would be)
satisfied on such date, if the Borrower were to issue on such date all of
the Underlying Shares then issuable upon (1) conversion in full of the
outstanding principal amount of all convertible debt issued by the Borrower
(including the Notes), (2) the exercise of all options and warrants for
Common Stock (including the Warrants) and (3) the payment of accrued and
unpaid interest on such Interest Payment Date under all convertible debt
(including the Notes) of the Borrower: (i) the number of authorized but
unissued and otherwise unreserved shares of Common Stock is sufficient for
such issuance, (ii) the Common Stock is listed or quoted (and is not
suspended from trading) on an Eligible Market and such shares of Common
Stock are approved for listing on such Eligible Market upon issuance, (iii)
such Common Stock is registered for resale under the Registration Statement,
(iv) such issuance would be permitted in full without violating Section 13,
Section 5(b)(i) or Section
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5(b)(ii) hereof or the rules or regulations of the Eligible Market on which
such shares are listed or quoted, (v) both immediately before and after
giving effect thereto, no Default shall or would exist, and (vi) no public
announcement of a pending or proposed Change of Control transaction has
occurred that has not been consummated.
"EVENT EQUITY VALUE" means the average of the Closing Prices for
the five consecutive Trading Days preceding either: (a) the date of an Event
Notice or the date the Borrower becomes obligated to pay the Event Price
under Section 7(b), as applicable, or (b) the date on which the Event Price
with respect thereto (together with any other payments, expenses and
liquidated damages then due and payable under the Transaction Documents) is
paid in full, whichever is greater.
"EVENT OF DEFAULT" means any one of the following events (whatever
the reason and whether it shall be voluntary or involuntary or effected by
operation of law or pursuant to any judgment, decree or order of any court,
or any order, rule or regulation of any administrative or governmental
body):
(i) any default in the payment (free of any claim of
subordination), when the same becomes due and payable (whether on a
Conversion Date or the Borrower Conversion Date, a Prepayment Date, the
Maturity Date or by acceleration or prepayment or otherwise), of principal,
interest or liquidated damages in respect of this Note which default
continues unremedied for a period of three Trading Days after the date on
which written notice of such default is first given to the Borrower by the
Holder.
(ii) the Borrower or any Subsidiary (1) fails to pay when
due any monetary obligation (regardless of amount) under any currently
existing or hereafter arising debenture or note (other than a Note) or any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which
there may be secured or evidenced, any Indebtedness or under any long term
leasing or factoring arrangement, if the aggregate amount of the obligations
and liabilities of the Borrower and the Subsidiaries thereunder exceed
$350,000 (each of the foregoing a "MATERIAL DEBT AGREEMENT"), or (2) fails
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to observe or perform any other obligation under any Material Debt
Agreement, and such failure results in the obligations thereunder becoming
or being declared due and payable prior to the date on which they would
otherwise become due and payable.
(iii) the occurrence or entering into by the Borrower or
any Subsidiary, or consummation of, any Change of Control transaction.
(iv) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 4.4, 4.6, 4.8, 4.9,
4.10, 4.12, 4.16 or in Article 5 of the Loan Agreement.
(v) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in any Transaction Document
(other than those specified in clause (i) or (iv) above and clause (xvii) or
(xxi) below), and such failure shall continue unremedied for a period of ten
Trading Days after the date on which written notice of such default is first
given to the Borrower by the Holder (it being understood that no prior
notice need be given in the case of a default that cannot reasonably be
cured within ten Trading Days).
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(vi) the occurrence and continuance of an Event of Default
under any other Note.
(vii) any prepayment by the Borrower of any other Note or
any other Indebtedness (other than (a) the Borrower's outstanding
Indebtedness to Southwest Bank of St. Louis or Xxxx Bank, SSB, and (b) the
2003 Debentures (as defined below) 2004 Debentures (as defined below) or
2004 Notes (as defined below), each in accordance with their respective
terms), issued by it or outstanding under any issuance of securities in
exchange for any Notes issued by it (other than Underlying Shares upon
conversion of such notes in accordance with their terms as in effect on the
Original Issue Date thereof), except in each case (1) if the Borrower offers
to the Lender in writing the same prepayment of this Note and all other
Notes then held by such Lender on the same economic terms on which the
Borrower prepays or offers to prepay (whichever is more favorable to the
holder of such Note) such Notes and (2) in accordance with the prepayment
provisions of Section 8 of this Note.
(viii) any of the Borrower's representations and
warranties set forth in the Loan Agreement shall be incorrect in any
material respect as of the Original Issue Date.
(ix) the occurrence of a Bankruptcy Event.
(x) one or more judgments for the payment of money in an
aggregate amount in excess of (1) with respect to the existing litigation
pertaining to Xxxxx Xxxxx Securities, $850,000, or (2) in all other cases,
$350,000, shall be rendered against the Borrower or any Subsidiary or any
combination thereof (which shall not be fully covered by insurance without
taking into account any applicable deductibles) and the same shall remain
undischarged or unbonded for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to attach or levy upon any assets of the
Borrower or any Subsidiary to enforce any such judgment.
(xi) any Transaction Document shall cease, for any reason,
to be in full force and effect, or the Borrower shall so assert in writing
or shall disavow any of its obligations thereunder.
(xii) the Common Stock shall not be listed or quoted,
or is suspended from trading, on an Eligible Market for a period of three
Trading Days (which need not be consecutive Trading Days).
(xiii) the Borrower fails to deliver a stock certificate
evidencing Underlying Shares to a Lender within three Trading Days after a
Conversion Date, or in the case of exercises under a Warrant, within three
Trading Days after a Date of Exercise under, and as such term is defined in,
such Warrant, or the conversion or exercise rights of the Lenders pursuant
to the terms hereof or the terms of the Warrants are otherwise suspended for
any reason (other than as set forth in Section 11 of the Warrant).
(xiv) the Borrower fails to have available a sufficient
number of authorized but unissued and otherwise unreserved shares of Common
Stock available to issue Underlying Shares upon any conversion of Notes or
upon any exercise of Warrants.
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(xv) the Borrower effects or publicly announces its
intention to effect any exchange, recapitalization or other transaction that
effectively requires or rewards physical delivery of certificates evidencing
the Common Stock, unless following such transaction, the holders of the
Borrower's securities prior to the first such transaction continue to
beneficially own at least two-thirds of the voting rights and equity
interests in the surviving entity or acquirer of such assets.
(xvi) a Registration Statement under the Registration
Rights Agreement is not declared effective by the Commission by the 365th
day following the Closing Date, or is not effective as to all Registrable
Securities (as defined in the Registration Rights Agreement), and available
for use by the holders of Registrable Securities, for in excess of an
aggregate of 60 Trading Days (which need not be consecutive Trading Days)
during the Effectiveness Period (as defined in the Registration Rights
Agreement).
(xvii) the Borrower fails to make any cash payment
required under the Transaction Documents (other than as set forth in
paragraph (i) above) and such failure is not cured within five Trading Days
after notice of such default is first given to the Borrower by a Lender.
(xviii) there shall be an Event of Default under and as
defined in any debenture issued by the Borrower in respect of the Securities
Purchase Agreement dated as of December 19, 2003 (the "2003 SECURITIES
PURCHASE AGREEMENT") (such debentures, the "2003 DEBENTURES").
(xix) there shall be an Event of Default under and as
defined in any debenture issued by the Borrower in respect of the Securities
Purchase Agreement dated as of March 11, 2004 (the "2004 SECURITIES PURCHASE
AGREEMENT") (such debentures, the "2004 DEBENTURES").
(xx) there shall be an Event of Default under and as
defined in any note issued by the Borrower in respect of the Loan and
Warrant Agreement dated as of October 14, 2004 (the "2004 LOAN AGREEMENT")
(such notes, the "2004 NOTES").
(xxi) the Borrower shall agree to amend, waive or
otherwise modify the Shareholders Agreement other than in accordance with
Section 8.4 of the Loan Agreement.
"GUARANTEE" of or by any Person shall mean any obligation,
contingent or otherwise, of such Person guaranteeing or having the economic
effect of guaranteeing any Indebtedness of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including any
obligation of such Person, direct or indirect, (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
to purchase (or to advance or supply funds for the purchase of) any security
for the payment of such Indebtedness, (b) to purchase property, securities
or services for the purpose of assuring the owner of such Indebtedness of
the payment of such Indebtedness or (c) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness,
provided, that the term Guarantee shall not include endorsements for
collection or deposit, in either case in the ordinary course of business.
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"INDEBTEDNESS" of any Person shall mean, without duplication, (a)
all obligations of such Person for borrowed money, (b) all obligations of
such Person evidenced by bonds, debentures, notes or similar instruments,
(c) all obligations of such Person upon which interest charges are
customarily paid, (d) all obligations of such Person under conditional sale
or other title retention agreements relating to property or assets purchased
by such Person, (e) all obligations of such Person issued or assumed as the
deferred purchase price of property or services (other than unsecured
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not
the obligations secured thereby have been assumed, (g) all Guarantees by
such Person of Indebtedness of others, (h) all Capital Lease Obligations of
such Person, (i) all obligations of such Person in respect of interest rate
protection agreements, foreign currency exchange agreements or other
interest or exchange rate hedging arrangements that exceed amounts necessary
to hedge the Borrower's interest rate or cross-currency exposure and (j) all
obligations of such Person as an account party in respect of letters of
credit and bankers' acceptances. The Indebtedness of any Person shall
include the Indebtedness of any partnership in which such Person is a
general partner.
"INITIAL INTEREST PERIOD" means the period beginning on the
Original Issue Date and ending on March 31, 2005.
"INTEREST PERIOD" means a period of six months for the calculation
of the interest on the Notes, provided that any such period (i) shall start
on the last day of the preceding period (other than the Initial Interest
Period); (ii) which would otherwise end on a day which is not a Trading Day
shall be extended to the next succeeding day which is a Trading Day and the
following interest period shall then end on the day on which it would have
ended if the preceding interest period had not been so extended; and (iii)
which would otherwise overrun the Maturity Date shall be shortened to end on
the Maturity Date. Each Interest Period, other than the Initial Interest
Period shall begin on either March 31 or September 30 of each year occuring
prior to the Maturity Date.
"LIBOR" means, in respect of any six-month Interest Period (i) the
six-month rate of interest per annum (expressed with a maximum of 4
decimals) offered for deposits in the relevant currency and amount which
appears on Telerate page 3750 or on any other relevant Telerate, Bloomberg
or Xxxxxx page as of 11:00 a.m. London time two (2) Business Days prior to
the commencement of the relevant Interest Period; or (ii) should such
quotation not be published on the relevant day and time such interest rate
per annum according to such other widely published LIBOR quotation as the
Borrower may select for the relevant Interest Period as of 11:00 a.m. London
time two (2) Business Days prior to the commencement of the Interest Period.
"ORIGINAL ISSUE DATE" has the meaning set forth on the face of this
Note.
"VWAP" means, with respect to any date of determination, the daily
volume weighted average price (as reported by Bloomberg using the VAP
function) of the Common Stock on such date of determination, or if there is
no such price on such date of determination, then the daily volume weighted
average price on the date nearest preceding such date.
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2. Interest.
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(a) The Borrower shall pay interest to the Lender on the
aggregate then outstanding principal amount of this Note at the rate of
LIBOR plus 4% per annum, payable quarterly in cash in arrears on each March
31, June 30, September 30 and December 31, beginning March 31, 2005, except
if such date is not a Trading Day, in which case such interest shall be
payable on the next succeeding Trading Day. Interest shall be calculated on
the basis of a 360-day year for the actual number of days elapsed and shall
accrue daily commencing on the Original Issue Date.
(b) Subject to the conditions and limitations set forth
below, the Borrower may at its option, on each Interest Payment Date, pay
accrued interest on this Note either: (i) in cash, or (ii) by delivering by
the Third Trading Day following the applicable Interest Payment Date, a
number of freely tradable shares of Common Stock equal to the quotient
obtained by dividing the amount of such interest by 90% of the arithmetic
average of the VWAP for each of the 20 consecutive Trading Days immediately
preceding (but not including) such Interest Payment Date. The Borrower must
deliver written notice to the Lender indicating the manner in which it
intends to pay interest at least ten Trading Days prior to each Interest
Payment Date, but the Borrower may indicate in any such notice that the
election contained therein shall continue for subsequent Interest Payment
Dates until rescinded. Failure to timely provide such written notice shall
be deemed an irrevocable election by the Borrower to pay such interest in
cash. All interest payable in respect of the Notes on any Interest Payment
Date must be paid in the same manner. Notwithstanding the foregoing, the
Borrower may not pay interest in shares of Common Stock on any Interest
Payment Date unless, on the date thereof, the Equity Conditions Are
Satisfied.
3. Registration of Notes. The Borrower shall register the
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Notes upon records maintained by the Borrower for that purpose (the "NOTE
REGISTER") in the name of each record Lender thereof from time to time. The
Borrower may deem and treat the registered Lender of this Note as the
absolute owner hereof for the purpose of any conversion hereof or any
payment of interest hereon, and for all other purposes, absent actual notice
to the contrary from such record Lender. The Borrower shall at any time and
from time to time, upon one Business Days' prior notice by the
Administrative Agent or any Lender, make the Note Register available for
inspection by the Administrative Agent, such Lender or the representative(s)
of the Administrative Agent or such Xxxxxx, at the chief executive office of
the Borrower during normal business hours. The Administrative Agent shall be
permitted to rely on the information set forth in the Note Register.
4. Registration of Transfers and Exchanges. The Borrower
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shall register the transfer of any portion of this Note in the Note Register
upon surrender of this Note to the Borrower at its address for notice set
forth herein. Upon any such registration or transfer, a new Note, in
substantially the form of this Note (any such new note, a "NEW NOTE"),
evidencing the portion of this Note so transferred shall be issued to the
transferee and a New Note evidencing the remaining portion of this Note not
so transferred, if any, shall be issued to the transferring Lender. The
acceptance of the New Note by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a
holder of a Note. The Borrower agrees that its prior consent is not required
for the transfer of any portion of this Note;
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provided, however, that the Borrower shall be entitled to reasonable
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assurance, including an opinion of counsel reasonably acceptable to
Borrower, that such transfer complies with applicable federal and state
securities laws. This Note is exchangeable for an equal aggregate principal
amount of Notes of different authorized denominations, as requested by the
Lender surrendering the same. No service charge or other fee will be imposed
in connection with any such registration of transfer or exchange.
5. Conversion.
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(a) At the Option of the Lender. All or any portion of the
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principal amount of this Note then outstanding together with any accrued and
unpaid interest hereunder shall be convertible into shares of Common Stock
at the Conversion Price (subject to limitations set forth in Section 5(b)),
at the option of the Lender, at any time and from time to time from and
after the Original Issue Date. The Lender may effect conversions under this
Section 5(a), by delivering to the Borrower a Conversion Notice together
with a schedule in the form of Schedule 1 attached hereto (the "CONVERSION
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SCHEDULE"). If the Lender is converting less than all of the principal
amount represented by this Note, or if a conversion hereunder may not be
effected in full due to the application of Section 5(b), the Borrower shall
honor such conversion to the extent permissible hereunder and shall promptly
deliver to the Lender a Conversion Schedule indicating the principal amount
which has not been converted.
(b) Certain Conversion Restrictions.
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(i) Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
a Lender upon any conversion of Notes (or otherwise in respect hereof) shall
be limited to the extent necessary to insure that, following such conversion
(or other issuance), the total number of shares of Common Stock then
beneficially owned by such Lender and its Affiliates and any other Persons
whose beneficial ownership of Common Stock would be aggregated with such
Lender's for purposes of Section 13(d) of the Exchange Act, does not exceed
4.999% (the "THRESHOLD PERCENTAGE") or 9.999% (the "MAXIMUM PERCENTAGE") of
the total number of issued and outstanding shares of Common Stock (including
for such purpose the shares of Common Stock issuable upon such conversion).
For such purposes, beneficial ownership shall be determined in accordance
with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. Each delivery of a Conversion Notice hereunder will
constitute a representation by the Lender that it has evaluated the
limitation set forth in this paragraph and determined that issuance of the
full number of shares of Common Stock requested in such Conversion Notice is
permitted under this paragraph. The Borrower's obligation to issue shares of
Common Stock in excess of the limitation referred to in this Section shall
be suspended (and shall not terminate or expire notwithstanding any contrary
provisions hereof) until such time, if any, as such shares of Common Stock
may be issued in compliance with such limitation. The Lender shall have the
right (x) at any time and from time to time to reduce its Maximum Percentage
immediately upon notice to the Borrower in the event and only to the extent
that Section 16 of the Exchange Act or the rules promulgated thereunder (or
any successor statute or rules) is changed to reduce the beneficial
ownership percentage threshold thereunder to a percentage less than 9.99%
and (y) at any time and from time to time, to waive the provisions of this
Section insofar as they relate to the Threshold Percentage
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or to increase its Threshold Percentage (but not in excess of the Maximum
Percentage) unless the Lender shall have, by written instrument delivered to
the Borrower, irrevocably waived its rights to so increase its Threshold
Percentage, but (i) any such waiver or increase will not be effective until
the 61st day after such notice is delivered to the Borrower, and (ii) any
such waiver or increase or decrease will apply only to the Lender and not to
any other Lender of Notes; but (i) any such waiver or increase will not be
effective until the 61st day after such notice is delivered to the Borrower,
and (ii) any such waiver or increase or decrease will apply only to the
Lender and not to any other Lender of Notes.
(ii) Notwithstanding anything to the contrary in this
Note, if the Borrower has not previously obtained Shareholder Approval (as
defined below), then the Borrower may not issue shares of Common Stock in
excess of the Issuable Maximum upon conversion of this Note at a conversion
price which is less than the Closing Price on the Trading Day immediately
preceding the Original Issue Date (the "THRESHOLD PRICE"). The "Issuable
Maximum" means, as of any date, a number of shares of Common Stock equal to
19.99% of the outstanding shares of Common Stock immediately preceding the
closing date of the transactions contemplated by the 2003 Securities
Purchase Agreement, less such number of shares of Common Stock as have been
issued at a price below the Threshold Price (1) upon exercise of the
Warrants issued under the Loan Agreement and warrants issued under the 2003
Securities Purchase Agreement, the 2004 Securities Purchase Agreement or the
2004 Loan Agreement, (2) upon conversion of the 2003 Debentures, the 2004
Debentures and the 2004 Notes, and (3) upon conversion of the Notes, or in
payment of interest thereunder. Each Lender shall be entitled to a portion
of the Issuable Maximum equal to the quotient obtained by dividing: (x) the
principal amount of Notes issued and sold to such Lender on the Original
Issue Date by (y) the aggregate principal amount of all Notes issued and
sold by the Borrower on the Original Issue Date. If any Lender shall no
longer hold Notes, then such Xxxxxx's remaining portion of the Issuable
Maximum (other than those represented by the remaining portion of the
Warrant and the other warrants referenced in clause (1) above) shall be
allocated pro-rata among the remaining Lenders, giving effect to the
Borrower's desire to allocate this limitation among the class of securities
known as the Notes. If on any Conversion Date, or at such time as a Lender
shall notify the Borrower that the condition in (A) following this clause
shall be in effect: (A) the aggregate number of shares of Common Stock that
would then be issuable upon conversion in full of all then outstanding
principal amount of Notes would exceed the Issuable Maximum on such date,
and (B) the Borrower shall not have previously obtained the vote of
shareholders, as may be required by the applicable rules and regulations of
the Nasdaq Stock Market (regardless of whether the Borrower's securities
continue to be traded on the Nasdaq Stock Market), applicable to approve the
issuance of shares of Common Stock in excess of the Issuable Maximum
pursuant to the terms hereof (the "SHAREHOLDER APPROVAL"), then, the
Borrower shall, on such Conversion Date or on any Conversion Date prior to
the receipt by the Borrower of the Shareholder Approval, issue to the Lender
a number of shares of Common Stock equal to the Issuable Maximum and, with
respect to the remainder of the principal amount of Notes then held by the
Lenders for which a conversion would result in an issuance of shares of
Common Stock in excess of the Issuable Maximum, the Borrower must seek
Shareholder Approval in accordance with subsection (iii) below. The Borrower
and the Lender understand and agree that shares of Common Stock issued to
and then held by the Lender as a result of conversions of the
10
Notes shall not be entitled to cast votes on any resolution to obtain
Shareholder Approval pursuant hereto.
(iii) Shareholder Approval.
--------------------
(1) The Borrower shall use its best efforts to
obtain as soon as possible but in no event later than 90 days following the
date of the Loan Agreement or 120 days in the event the proxy materials
shall be reviewed by the Commission, shareholder approval of the issuance of
the Underlying Shares (the "SHAREHOLDER PROPOSAL"), which approval shall
meet the requirements of Nasdaq's Rule 4350(i) of Nasdaq set forth in the
NASD Manual (the "SHAREHOLDER APPROVAL DATE").
(2) As soon as practicable following the date of
the Loan Agreement, but in no event more than 30 days following the date of
the Loan Agreement, the Borrower shall prepare and file with the Commission
proxy materials calling a special meeting (the "SPECIAL MEETING") of its
shareholders seeking approval of the Shareholder Proposal. The Borrower
shall use its reasonable best efforts to cause such proxy materials to reach
the "no further comment" stage as soon as possible (the "CLEARANCE DATE")
and to hold the Special Meeting as soon as possible following the Clearance
Date, but in no event later than 45 days following the Clearance Date.
(3) The Board of Directors shall recommend approval
thereof by the Borrower's shareholders. The Borrower shall mail and
distribute its proxy materials for the Special Meeting to its shareholders
at least 30 days prior to the date of the Special Meeting and shall actively
solicit proxies to vote for the Shareholder Proposal. The Borrower shall
provide the Lenders an opportunity to review and comment on such proxy
materials by providing (which may be by e-mail) copies of such proxy
materials and any revised preliminary proxy materials to the Lenders at
least three (3) days prior to their filing with the Commission. The Borrower
shall provide the Lenders (which may be by e-mail) copies of all
correspondence from or to the Commission or its staff concerning the proxy
materials for the Special Meeting promptly after the same is sent or
received by the Borrower and summaries of any comments of the Commission's
staff which the Borrower receives orally promptly after receiving such oral
comments. The Borrower shall (i) furnish to the Lenders and their counsel
(which may be by e-mail) a copy of its definitive proxy materials for the
Special Meeting and any amendments or supplements thereto promptly after the
same are first used, mailed to shareholders or filed with the Commission,
(ii) inform the Lenders of the progress of solicitation of proxies for such
meeting and (iii) inform the Lenders of any adjournment of the Special
Meeting and shall report the result of the vote of shareholders on the
Shareholder Proposal at the conclusion of the Special Meeting.
(4) If for any reason the Shareholder Proposal
is not approved at the Special Meeting, the Borrower will take such
additional acts or actions as are necessary to hold an additional Special
Meeting to consider the Shareholder Proposal and in conjunction therewith
shall hire a nationally recognized proxy solicitation firm, selected by the
Lenders which is reasonably satisfactory to the Borrower, to assist it in
obtaining the necessary shareholder votes to approve the Shareholder
Proposal. The Borrower shall bear all costs and
11
expenses of the preparation and filing of any and all proxy materials and
Special Meetings, including but not limited to the costs and expenses of the
proxy solicitation firm if needed.
6. Mechanics of Conversion.
-----------------------
(a) The number of Underlying Shares issuable upon any
conversion hereunder shall equal the outstanding principal amount of this
Note to be converted, divided by the Conversion Price on the Conversion
Date, plus (if indicated in the applicable Conversion Notice or the Borrower
Conversion Notice) the amount of any accrued but unpaid interest on this
Note through the Conversion Date, divided by the Conversion Price on the
Conversion Date.
(b) The Borrower shall promptly following each Conversion
Date (but in no event later than three Trading Days after such Conversion
Date) issue or cause to be issued and cause to be delivered to or upon the
written order of the Lender and in such name or names as the Lender may
designate a certificate for the Underlying Shares issuable upon such
conversion, free of restrictive legends. The Lender, or any Person so
designated by the Lender to receive Underlying Shares, shall be deemed to
have become holder of record of such Underlying Shares as of such Conversion
Date. The Borrower shall, upon request of the Lender, use its best efforts
to deliver Underlying Shares hereunder electronically (via a DWAC) through
the Depository Trust Corporation or another established clearing corporation
performing similar functions.
(c) The Lender shall not be required to deliver the
original Note in order to effect a conversion hereunder. Execution and
delivery of the Conversion Notice shall have the same effect as cancellation
of the Note and issuance of a New Note representing the remaining
outstanding principal amount.
(d) The Borrower's obligations to issue and deliver
Underlying Shares upon conversion of this Note in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or
inaction by the Lender to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by
the Lender or any other Person of any obligation to the Borrower or any
violation or alleged violation of law by the Lender or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Borrower to the Lender in connection with the issuance of
such Underlying Shares.
(e) If by the third Trading Day after a Conversion Date or
the Borrower Conversion Date the Borrower fails to deliver to the Lender
such Underlying Shares in such amounts and in the manner required pursuant
to Section 5, then the Lender will have the right to rescind the Conversion
Notice or the Borrower Conversion Notice pertaining thereto by giving
written notice to the Borrower prior to such Xxxxxx's receipt of such
Underlying Shares.
(f) If by the third Trading Day after a Conversion Date or
the Borrower Conversion Date the Borrower fails to deliver to the Lender the
required number of Underlying Shares in the manner required pursuant to
Section 5, and if after such third Trading Day and prior to the receipt of
such Underlying Shares, the Lender purchases (in an open market
12
transaction or otherwise) shares of Common Stock to deliver in satisfaction
of a sale by the Lender of the Underlying Shares which the Lender
anticipated receiving upon such conversion (a "BUY IN"), then the Borrower
shall: (1) pay in cash to the Lender (in addition to any other remedies
available to or elected by the Lender) the amount by which (x) the Lender's
total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Underlying Shares that the Borrower was
required to deliver to the Lender in connection with the exercise at issue
by (B) the Closing Price at the time of the obligation giving rise to such
purchase obligation and (2) at the option of the Lender, either void the
conversion at issue and reinstate the principal amount of Notes (plus
accrued interest therein) for which such conversion was not timely honored
or deliver to the Lender the number of shares of Common Stock that would
have been issued had the Borrower timely complied with its exercise and
delivery obligations hereunder. The Lender shall provide the Borrower
reasonably detailed evidence or written notice indicating the amounts
payable to the Lender in respect of the Buy-In.
7. Events of Default.
-----------------
(a) At any time or times following the occurrence and
during the continuance of an Event of Default (other than under clause (ix)
of such defined term with respect to the Borrower), the Lender may by notice
to the Borrower (an "EVENT NOTICE"), require the Borrower to purchase all or
any portion of the outstanding principal amount of this Note, as indicated
in such Event Notice, at a purchase price in Dollars in cash equal to the
greater of: (A) 100% of such outstanding principal amount, plus all accrued
but unpaid interest thereon and any unpaid liquidated damages and other
amounts then owing to the Lender under the Transaction Documents, through
the date of purchase, or (B) the Event Equity Value of the Underlying Shares
that would be issuable upon conversion of such principal amount and payment
in Common Stock of all such accrued but unpaid interest thereon (without
regard to any condition precedent or conversion limitation contained
herein). The aggregate amount payable pursuant to the preceding sentence is
referred to as the "EVENT PRICE." The Borrower shall pay the aggregate Event
Price to the Lender (free of any claim of subordination) no later than the
third Trading Day following the date of delivery of the Event Notice, and
upon receipt thereof the Lender shall deliver the original Note so
repurchased to the Borrower.
(b) Upon the occurrence of any Bankruptcy Event with
respect to the Borrower, all outstanding principal and accrued but unpaid
interest on this Note and any unpaid liquidated damages and other amounts
then owing under the Transaction Documents shall immediately become due and
payable in full in Dollars in cash (free of any claim of subordination),
without any action by the Lender, and the Borrower shall immediately be
obligated to repurchase this Note held by such Lender at the Event Price
pursuant to the preceding paragraph as if the Lender had delivered an Event
Notice immediately prior to the occurrence of such Bankruptcy Event.
(c) In connection with any Event of Default, the Lender
need not provide and the Borrower hereby waives any presentment, demand,
protest or other notice of any kind (other than the Event Notice), and the
Lender may immediately enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Any
such declaration may be rescinded and annulled by the Lender at any time
prior to payment
13
hereunder. No such rescission or annulment shall affect any subsequent Event
of Default or impair any right consequent thereto.
8. Ranking. This Note ranks senior to or pari passu with
-------
all other Notes now or hereafter issued pursuant to the Transaction
Documents and is senior to or pari passu with all existing and hereafter
created Indebtedness of the Borrower. No Indebtedness of the Borrower is
senior to this Note in right of payment, whether with respect of interest,
damages or upon liquidation or dissolution or otherwise. The Borrower will
not, directly or indirectly, enter into, create, incur, assume or suffer to
exist any indebtedness of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom, that is senior in any respect to the
Borrower's obligations under the Notes.
9. Charges, Taxes and Expenses. Issuance of certificates
---------------------------
for Underlying Shares upon conversion of (or otherwise in respect of) this
Note shall be made without charge to the Lender for any issue or transfer
tax, withholding tax, transfer agent fee or other incidental tax or expense
in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Borrower; provided, however, that the Borrower
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the registration of any certificates for Underlying
Shares or Notes in a name other than that of the Lender. The Lender shall be
responsible for all other tax liability that may arise as a result of
holding or transferring this Note or receiving Underlying Shares in respect
hereof.
10. Reservation of Underlying Shares. The Borrower
--------------------------------
covenants that it will at all times reserve and keep available out of the
aggregate of its authorized but unissued and otherwise unreserved Common
Stock, solely for the purpose of enabling it to issue Underlying Shares as
required hereunder, the number of Underlying Shares which are then issuable
and deliverable upon the conversion of (and otherwise in respect of) this
entire Note (taking into account the adjustments of Section 11), free from
preemptive rights or any other contingent purchase rights of persons other
than the Lender. The Borrower covenants that all Underlying Shares so
issuable and deliverable shall, upon issuance in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
11. Certain Adjustments. The Conversion Price is subject
-------------------
to adjustment from time to time as set forth in this Section 11.
(a) Stock Dividends and Splits. If the Borrower, at any
--------------------------
time while this Note is outstanding: (i) pays a stock dividend on its Common
Stock or otherwise makes a distribution on any class of capital stock that
is payable in shares of Common Stock, (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, or (iii) combines outstanding
shares of Common Stock into a smaller number of shares, then in each such
case the Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the
number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.
14
(b) Pro Rata Distributions. If the Borrower, at any time
----------------------
while this Note is outstanding, distributes to all holders of Common Stock
(i) evidences of its indebtedness, (ii) any security (other than a
distribution of Common Stock covered by the preceding paragraph), (iii)
rights or warrants to subscribe for or purchase any security, or (iv) any
other asset (in each case, "DISTRIBUTED PROPERTY"), then, at the request of
the Lender delivered before the 90th day after the record date fixed for
determination of shareholders entitled to receive such distribution, the
Borrower will deliver to the Lender, within five Trading Days after such
request (or, if later, on the effective date of such distribution), the
Distributed Property that the Lender would have been entitled to receive in
respect of the Underlying Shares for which this Note could have been
converted immediately prior to such record date. If such Distributed
Property is not delivered to the Lender pursuant to the preceding sentence,
then upon any conversion of this Note that occurs after such record date,
the Lender shall be entitled to receive, in addition to the Underlying
Shares otherwise issuable upon such conversion, the Distributed Property
that the Lender would have been entitled to receive in respect of such
number of Underlying Shares had the Lender been the record holder of such
Underlying Shares immediately prior to such record date. Notwithstanding the
foregoing, this Section 11(b) shall not apply to any distribution of rights
or securities in respect of adoption by the Borrower of a shareholder rights
plan, which events shall be covered by Section 11(a).
(c) Fundamental Transactions. If, at any time while this
------------------------
Note is outstanding, (i) the Borrower effects any merger or consolidation of
the Borrower with or into another Person, (ii) the Borrower effects any sale
of all or substantially all of its assets in one or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the
Borrower or another Person) is completed pursuant to which holders of Common
Stock tender or exchange their shares for other securities, cash or
property, or (iv) the Borrower effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (other than as a result of a subdivision or combination of shares
of Common Stock covered by Section 11(a) above) (in any such case, a
"FUNDAMENTAL TRANSACTION"), then upon any subsequent conversion of this
Note, the Lender shall have the right to: (x) declare an Event of Default
pursuant to clause (iii) thereunder, (y) receive, for each Underlying Share
that would have been issuable upon such conversion absent such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one share of Common Stock (the "ALTERNATE
CONSIDERATION") or (z) require the surviving entity to issue to the Lender
and instrument identical to this Note (with an appropriate adjustments to
the conversion price). For purposes of any such conversion, the Borrower
shall apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components
of the Alternate Consideration. If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Lender shall be given the same choice as
to the Alternate Consideration it receives upon any conversion of this Note
following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Borrower or
surviving entity in such Fundamental Transaction (or, if different, the
ultimate parent of such successor or entity or the entity issuing the
Alternate Consideration) shall issue to the Lender a new debenture
consistent with the foregoing provisions and evidencing the Lender's right
to convert such debenture into Alternate Consideration. The terms of any
agreement pursuant to
15
which a Fundamental Transaction is effected shall include terms requiring
any such successor or surviving entity to comply with the provisions of this
paragraph (c) and insuring that this Note (or any such replacement security)
will be similarly adjusted upon any subsequent transaction analogous to a
Fundamental Transaction.
(d) Subsequent Equity Sales.
-----------------------
(i) If the Borrower or any Subsidiary, as applicable,
at any time while this Note is outstanding, shall issue shares of Common
Stock or Common Stock Equivalents entitling any Person to acquire shares of
Common Stock, at a price per share less than the Conversion Price (if the
holder of the Common Stock or Common Stock Equivalent so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights issued in connection with such issuance, be
entitled to receive shares of Common Stock at a price less than the
Conversion Price, such issuance shall be deemed to have occurred for less
than the Conversion Price), then, the Conversion Price shall be adjusted to
the lowest conversion, exchange or purchase price for such Common Stock or
Common Stock Equivalents (including any reset provisions thereof) at issue.
Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. The Borrower shall notify the Lender in writing, no
later than the Trading Day following the issuance of any Common Stock or
Common Stock Equivalent subject to this section, indicating therein the
applicable issuance price, or of applicable reset price, exchange price,
conversion price and other pricing terms. No further adjustments shall be
made to the Conversion Price upon the actual issuance of Common Stock upon
conversion or exercise of the applicable Common Stock Equivalent.
(ii) For purposes of this subsection 11(d), the
following subsections (d)(ii)(l) to (d)(ii)(6) shall also be applicable:
(1) Issuance of Rights or Options. In case at any
-----------------------------
time the Borrower shall in any manner grant (directly and not by assumption
in a merger or otherwise) any warrants or other rights to subscribe for or
to purchase, or any options for the purchase of, Common Stock or any stock
or security convertible into or exchangeable for Common Stock (such
warrants, rights or options being called "OPTIONS" and such convertible or
exchangeable stock or securities being called "CONVERTIBLE SECURITIES")
whether or not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such Options or upon
the conversion or exchange of such Convertible Securities (determined by
dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by
the Borrower as consideration for the granting of such Options, plus (y) the
aggregate amount of additional consideration payable to the Borrower upon
the exercise of all such Options, plus (z), in the case of such Options
which relate to Convertible Securities, the aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) 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) shall be less than
the Conversion Price in effect immediately prior to the time of the granting
of such Options, then the total number of shares of Common Stock issuable
upon the
16
exercise of such Options or upon conversion or exchange of the total amount
of such Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued for such price per share as of the date
of granting of such Options or the issuance of such Convertible Securities
and thereafter shall be deemed to be outstanding for purposes of adjusting
the Conversion Price. Except as otherwise provided in subsection
11(d)(ii)(3), no adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(2) Issuance of Convertible Securities. In case
----------------------------------
the Borrower shall in any manner issue (directly and not by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the
sum (which sum shall constitute the applicable consideration) of (x) the
total amount received or receivable by the Borrower as consideration for the
issue or sale of such Convertible Securities, plus (y) the aggregate amount
of additional consideration, if any, payable to the Borrower upon the
conversion or exchange thereof, by (ii) the total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then the total maximum number of
shares of Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued for such price
per share as of the date of the issue or sale of such Convertible Securities
and thereafter shall be deemed to be outstanding for purposes of adjusting
the Conversion Price, provided that (a) except as otherwise provided in
subsection 11(d)(ii)(3), no adjustment of the Conversion Price shall be made
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities and (b) no further adjustment of the Conversion
Price shall be made by reason of the issue or sale of Convertible Securities
upon exercise of any Options to purchase any such Convertible Securities for
which adjustments of the Conversion Price have been made pursuant to the
other provisions of subsection 11(d).
(3) Change in Option Price or Conversion Rate.
-----------------------------------------
Upon the happening of any of the following events, namely, if the purchase
price provided for in any Option referred to in subsection 11(d)(ii)(l)
hereof, the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subsections
11(d)(ii)(l) or 11(d)(ii)(2), or the rate at which Convertible Securities
referred to in subsections 11(d)(ii)(l) or 11(d)(ii)(2) are convertible into
or exchangeable for Common Stock shall change at any time (including, but
not limited to, changes under or by reason of provisions designed to protect
against dilution), the Conversion Price in effect at the time of such event
shall forthwith 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 purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. On the termination of any Option for which any
adjustment was made pursuant to this subsection 11(d) or any right to
convert or exchange Convertible Securities for which any adjustment was made
pursuant to this subsection 11(d) (including without limitation upon the
redemption or purchase for consideration of such Convertible Securities by
the Borrower), the Conversion Price then in effect hereunder shall forthwith
be changed to the Conversion Price
17
which would have been in effect at the time of such termination had such
Option or Convertible Securities, to the extent outstanding immediately
prior to such termination, never been issued.
(4) Stock Dividends. Subject to the provisions
---------------
of this Section 11(d), in case the Borrower shall declare a dividend or make
any other distribution upon any stock of the Borrower (other than the Common
Stock) payable in Common Stock, Options or Convertible Securities, then any
Common Stock, Options or Convertible Securities, as the case may be,
issuable in payment of such dividend or distribution shall be deemed to have
been issued or sold without consideration.
(5) Consideration for Stock. In case any shares
-----------------------
of Common Stock, Options or Convertible Securities shall be issued or sold
for cash, the consideration received therefor shall be deemed to be the net
amount received by the Borrower therefor, after deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or
allowed by the Borrower in connection therewith. In case any shares of
Common Stock, Options or Convertible Securities shall be issued or sold for
a consideration other than cash, the amount of the consideration other than
cash received by the Borrower shall be deemed to be the fair value of such
consideration as determined in good faith by the Board of Directors of the
Borrower, after deduction of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Borrower in connection
therewith. In case any Options shall be issued in connection with the issue
and sale of other securities of the Borrower, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been
issued for such consideration as determined in good faith by the Board of
Directors of the Borrower. If Common Stock, Options or Convertible
Securities shall be issued or sold by the Borrower and, in connection
therewith, other Options or Convertible Securities (the "ADDITIONAL RIGHTS")
are issued, then the consideration received or deemed to be received by the
Borrower shall be reduced by the fair market value of the Additional Rights
(as determined using the Black-Scholes option pricing model or another
method mutually agreed to by the Borrower and the Lender). The Board of
Directors of the Borrower shall respond promptly, in writing, to an inquiry
by the Lenders as to the fair market value of the Additional Rights. In the
event that the Board of Directors of the Borrower and the Lenders are unable
to agree upon the fair market value of the Additional Rights, the Borrower
and the Lenders shall jointly select an appraiser, who is experienced in
such matters. The decision of such appraiser shall be final and conclusive,
and the cost of such appraiser shall be borne evenly by the Borrower and the
Lender.
(6) Record Date. In case the Borrower shall take
-----------
a record of the holders of its Common Stock for the purpose of entitling
them (i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (ii) 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.
(iii) Notwithstanding the foregoing, no adjustment will
be made under this paragraph (d) in respect of: (A) the issuance of
securities upon the exercise or
18
conversion of any Common Stock Equivalents issued by the Borrower prior to
the Original Issue Date of this Note (but will apply to any amendments,
modifications and reissuances thereof), and (B) the grant of options or
warrants, or the issuance of additional securities, under any duly
authorized Borrower stock option, stock incentive plan, restricted stock
plan or stock purchase plan in existence on the Closing Date; (C) the
issuance of Common Stock in payment of interest on Notes or on the 2003
Debentures or 2004 Debentures; (D) the issuance of Common Stock Equivalents
pursuant to a Strategic Transaction or (E) the issuance of Common Stock
pursuant to Section 2(b) of this Note.
(e) Reclassifications; Share Exchanges. In case of any
----------------------------------
reclassification of the Common Stock, or any compulsory share exchange
pursuant to which the Common Stock is converted into other securities, cash
or property (other than compulsory share exchanges which constitute Change
of Control transactions), the Lenders of the Notes then outstanding shall
have the right thereafter to convert such shares only into the shares of
stock and other securities, cash and property receivable upon or deemed to
be held by holders of Common Stock following such reclassification or share
exchange, and the Lenders shall be entitled upon such event to receive such
amount of securities, cash or property as a holder of the number of shares
of Common Stock of the Borrower into which such shares of Notes could have
been converted immediately prior to such reclassification or share exchange
would have been entitled. This provision shall similarly apply to successive
reclassifications or share exchanges.
(f) Calculations. All calculations under this Section 11
------------
shall be made to the nearest cent or the nearest 1/100th of a share, as
applicable. The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of the
Borrower, and the disposition of any such shares shall be considered an
issue or sale of Common Stock.
(g) Notice of Adjustments. Upon the occurrence of each
---------------------
adjustment pursuant to this Section 11, the Borrower at its expense will
promptly compute such adjustment in accordance with the terms hereof and
prepare a certificate describing in reasonable detail such adjustment and
the transactions giving rise thereto, including all facts upon which such
adjustment is based. Upon written request, the Borrower will promptly
deliver a copy of each such certificate to the Lender.
(h) Notice of Corporate Events. If the Borrower (i)
--------------------------
declares a dividend or any other distribution of cash, securities or other
property in respect of its Common Stock, including without limitation any
granting of rights or warrants to subscribe for or purchase any capital
stock of the Borrower or any Subsidiary, (ii) authorizes and publicly
approves, or enters into any agreement contemplating or solicits shareholder
approval for any Fundamental Transaction or (iii) publicly authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the
Borrower, then the Borrower shall deliver to the Lender a notice describing
the material terms and conditions of such transaction, at least 20 calendar
days prior to the applicable record or effective date on which a Person
would need to hold Common Stock in order to participate in or vote with
respect to such transaction, and the Borrower will take all steps reasonably
necessary in order to insure that the Lender is given the practical
opportunity to convert this Note prior to such time so as to participate in
or vote with respect to such
19
transaction; provided, however, that the failure to deliver such notice or
any defect therein shall not affect the validity of the corporate action
required to be described in such notice.
12. Fractional Shares. The Borrower shall not be required
-----------------
to issue or cause to be issued fractional Underlying Shares on conversion of
this Note. If any fraction of an Underlying Share would, except for the
provisions of this Section, be issuable upon conversion of this Note or
payment of interest hereon, the number of Underlying Shares to be issued
will be rounded up to the nearest whole share.
13. Call Right.
----------
(a) Subject to the provisions of this Section 13, if after
----------
the six-month anniversary of the Effective Date, the Closing Price of the
Borrower's Common Stock on the Nasdaq National Market is equal to or above
$40.00 (as adjusted for any stock splits, stock combinations, stock
dividends and other similar events) (the "THRESHOLD PRICE") for each of 10
consecutive Trading Days, then the Borrower shall have the right, but not
the obligation (the "CALL RIGHT"), on thirty (30) days prior written notice
to the Lender to redeem any portion of this Note for which a Conversion
Notice has not yet been delivered (the "CALL AMOUNT").
(b) To exercise this Call Right, the Borrower shall
deliver to the Lender an irrevocable written notice (a "CALL NOTICE"),
indicating the Call Amount. The date that the Borrower delivers the Call
Notice to the Lender shall be referred to as the "CALL DATE." Within thirty
(30) days of receipt of the Call Notice, and provided that the Lender is
permitted to convert this Note pursuant to Section 5 above, the Lender may
convert this Note in whole or in part in accordance with Section 5 above.
Any portion of the Call Amount that is not exercised by 6:30 p.m. (New York
City time) on the 30th day following the date of receipt of the Call Notice
(the "REDEMPTION DATE") shall be cancelled upon the payment by the Borrower
to the Lender of the Call Amount, plus all accrued but unpaid interest
thereon through the date of payment. Any portion of this Note to which the
Call Notice does not pertain (the "REMAINING PORTION") will be unaffected by
such Call Notice. The Borrower covenants and agrees that it will honor any
Conversion Notice with respect to the Call Amount that is tendered to the
Borrower from the time of delivery of the Call Notice through and including
6:30 p.m. (New York City time) on the Redemption Date.
(c) Notwithstanding anything to the contrary set forth in
this Note, the Borrower may not deliver a Call Notice or require the
cancellation of any unexercised Call Amount (and any Call Notice will be
void), unless from the beginning of the 10 consecutive Trading Days used to
determine whether the Common Stock has achieved the Threshold Price through
the Redemption Date (the "CALL PERIOD") (i) the Borrower shall have honored
in accordance with the terms of this Note any Conversion Notice delivered by
6:30 p.m. (New York City time) on or prior to the Redemption Date, (ii) all
Equity Conditions Are Satisfied, and (iii) the Closing Price of the
Borrower's Common Stock is equal to or above the Threshold Price.
14. Notices. Any and all notices or other communications
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or deliveries hereunder (including without limitation any Conversion Notice
or the Borrower Conversion Notice) shall be in writing and shall be deemed
given and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile
20
number specified in this Section prior to 6:30 p.m. (New York City time) on
a Trading Day, (ii) the next Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
number specified in this Section on a day that is not a Trading Day or later
than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom
such notice is required to be given. The addresses for such communications
shall be: (i) if to the Borrower, to 0000 XxXxxxxx Xxxx, Xx. Xxxxx, Xxxxxxxx
00000, facsimile: (000) 000-0000, attention Chief Financial Officer, (ii) if
to the Lender, to the address or facsimile number appearing on the
Borrower's shareholder records or such other address or facsimile number as
the Lender may provide to the Borrower in accordance with this Section, or
(iii) if to the Administrative Agent, to the address or facsimile number
therefor set forth in the Loan Agreement.
15. Miscellaneous.
-------------
(a) This Note shall be binding on and inure to the benefit
of the parties hereto and their respective successors and assigns.
(b) Subject to Section 15(a), above, nothing in this Note
shall be construed to give to any person or corporation other than the
Borrower and the Lender any legal or equitable right, remedy or cause under
this Note. This Note shall inure to the sole and exclusive benefit of the
Borrower and the Lender.
(c) All questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by and
construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings shall be commenced exclusively in the
state and federal courts sitting in the City of New York, Borough of
Manhattan (the "NEW YORK COURTS"). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for any
Proceeding, and hereby irrevocably waives, and agrees not to assert in any
proceeding, any claim that it is not personally subject to the jurisdiction
of any New York Court or that a New York Court is an inconvenient forum for
such Proceeding. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any legal proceeding. The prevailing party
in a proceeding shall be reimbursed by the other party for its reasonable
attorneys' fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such proceeding.
(d) The headings herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect
any of the provisions hereof.
21
(e) In case any one or more of the provisions of this Note
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Note shall not
in any way be affected or impaired thereby and the parties will attempt in
good faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Note.
(f) No provision of this Note may be waived, amended or
otherwise modified except in accordance with the requirements set forth in
the Loan Agreement. No waiver of any default with respect to any provision,
condition or requirement of this Note shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
(g) To the extent it may lawfully do so, the Borrower
hereby agrees not to insist upon or plead or in any manner whatsoever claim,
and will resist any and all efforts to be compelled to take the benefit or
advantage of, usury laws wherever enacted, now or at any time hereafter in
force, in connection with any claim, action or proceeding that may be
brought by any Lender in order to enforce any right or remedy under the
Notes. Notwithstanding any provision to the contrary contained in the Notes,
it is expressly agreed and provided that the total liability of the Borrower
under the Notes for payments in the nature of interest shall not exceed the
maximum lawful rate authorized under applicable law (the "MAXIMUM RATE"),
and, without limiting the foregoing, in no event shall any rate of interest
or default interest, or both of them, when aggregated with any other sums in
the nature of interest that the Borrower may be obligated to pay under the
Notes exceed such Maximum Rate. It is agreed that if the maximum contract
rate of interest allowed by law and applicable to the Notes is increased or
decreased by statute or any official governmental action subsequent to the
date hereof, the new maximum contract rate of interest allowed by law will
be the Maximum Rate of interest applicable to the Notes from the effective
date forward, unless such application is precluded by applicable law. If
under any circumstances whatsoever, interest in excess of the Maximum Rate
is paid by the Borrower to any Lender with respect to indebtedness evidenced
by the Notes, such excess shall be applied by such Lender to the unpaid
principal balance of any such indebtedness or be refunded to the Borrower,
the manner of handling such excess to be at such Xxxxxx's election.
(h) Subject to Section 13, the outstanding principal
amount and interest under this Note may not be prepaid or required to be
converted by the Borrower without the prior written consent of the Lender.
[Signature Page Follows]
22
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by a duly authorized officer as of the date first above indicated.
ZOLTEK COMPANIES, INC.
By:
----------------------------------
Name:
Title:
23
EXHIBIT A
CONVERSION NOTICE
(To be Executed by the Registered Lender
in order to convert Notes)
The undersigned hereby elects to convert the principal amount of
Note indicated below, into shares of Common Stock of Zoltek Companies, Inc.,
as of the date written below. If shares are to be issued in the name of a
Person other than undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates
and opinions as reasonably requested by the Borrower in accordance
therewith. No fee will be charged to the Lender for any conversion, except
for such transfer taxes, if any. All terms used in this notice shall have
the meanings set forth in the Note.
Conversion calculations:
----------------------------------------------------
Date to Effect Conversion
----------------------------------------------------
Principal amount of Note owned prior to conversion
----------------------------------------------------
Principal amount of Note to be Converted
----------------------------------------------------
Principal amount of Note remaining after Conversion
----------------------------------------------------
Number of shares of Common Stock to be Issued
----------------------------------------------------
Applicable Conversion Price
----------------------------------------------------
Name of Xxxxxx
By:
-------------------------------------------------
Name:
Title:
By the delivery of this Conversion Notice the Lender represents and
warrants to the Borrower that its ownership of the Common Stock does not
exceed the restrictions set forth in Section 5(b) of the Note.
24
SCHEDULE 1
Zoltek Companies, Inc.
Senior Convertible Notes due [ ]
CONVERSION SCHEDULE
This Conversion Schedule reflects conversions made under the
above referenced Notes.
Dated:
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Date of Conversion Amount of Aggregate Applicable Conversion
Conversion Principal Price
Amount
Remaining
Subsequent to
Conversion
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