Exhibit 4.D
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES (COLLECTIVELY,
THE "ACTS"). THE SECURITIES MAY NOT BE SOLD, DISTRIBUTED,
OFFERED, PLEDGED, ENCUMBERED, ASSIGNED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE ACTS COVERING THE TRANSACTION, (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
ACTS, OR (3) THE COMPANY OTHERWISE SATISFIES ITSELF THAT
REGISTRATION IS NOT REQUIRED UNDER THE ACTS. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES.
PARLEX CORPORATION
7% CONVERTIBLE SUBORDINATED NOTE
Due: July 28, 2007
$__________ July 28, 2003
For value received the undersigned, Parlex Corporation, a Massachusetts
corporation (the "Company"), hereby promises to pay ______________ (or his,
her or its assignee so long as such assignee is an Investor named on the
signature pages to the Purchase Agreement (as hereinafter defined)), at its
principal office in the City of Methuen, Massachusetts, the principal sum of
__________________________________ Dollars and no cents ($________) (the
"Face Amount") in lawful money of the United States on July 28, 2007 (the
"Maturity Date"), together with interest thereon, as more fully provided
below.
This Convertible Subordinated Note (the "Convertible Note") shall bear
annual interest (the "PIK Interest") at a fixed rate of 7% of the Unpaid Face
Amount, payable quarterly as of the first business day of each calendar
quarter in arrears only in shares of common stock, par value $.10 per share
(the "Common Stock"), of the Company (the "PIK Interest Shares"), which
number of shares shall be determined by dividing the monetary value of the
accrued interest due on the unpaid Face Amount for the relevant quarterly
period by the Initial Conversion Price (as hereinafter defined). The Company
agrees to provide notice to the Investors at least three (3) business days
prior to the issuance of any PIK Interest Shares. If the PIK Interest
Shares are not then covered by an effective registration statement, then
each holder of this Convertible Note may choose, in its sole discretion, to
have the PIK Interest paid in PIK Interest Shares or in cash, with the
exception of
the first interest payment payable hereunder, which shall in any event be
payable in PIK Interest Shares.
This Convertible Note has been issued under the terms and provisions of
a Securities Purchase Agreement (the "Purchase Agreement"), dated July 28,
2003, among the Company and the Investors named on the signature pages
thereto and are entitled to the benefits thereof.
Upon the occurrence of any one or more of the Events of Default
specified in Article 8 of the Purchase Agreement, all amounts then remaining
unpaid on this Convertible Note, including any accrued but unpaid PIK
Interest, may be declared to be or shall become immediately due and payable
as provided in the Purchase Agreement.
This Convertible Note is subject to the following additional
provisions, terms and conditions:
1. Right to Convert.
(a) Subject to paragraph 3 hereof, the Face Amount of this
Convertible Note shall be convertible at the option of the Investor, in
whole or in part, (but in no event shall any conversion in part consist of
less than twenty percent (20%) of the Face Amount of this Convertible Note),
at any time prior to the Maturity Date into such number of fully paid and
non-assessable shares of Common Stock of the Company as is determined by
dividing the Face Amount of this Convertible Note or the portion that is
being converted by the Initial Conversion Price of $8.00 per share. Until
such time as this Convertible Note is converted or paid off, the Initial
Conversion Price is subject to adjustment as hereinafter provided except
that if the Company exercises its option to redeem the Convertible Note as
provided for in paragraph 4 below (and payment is made or provided for on
the proposed redemption date), then only the portion of the Convertible
Note that was not redeemed may be converted.
2. Conversion Procedure.
(a) Before any holder of this Convertible Note shall be entitled to
convert the same into shares of Common Stock, such holder shall surrender
the instrument or instruments therefor, duly endorsed, at the office of the
Company or its transfer agent, and shall give written notice to the Company
at its principal corporate office, of the election to convert the same and
shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. A Convertible
Note so delivered shall be deemed to have been converted on the day of
surrender of this Convertible Note for conversion in accordance with the
foregoing provisions, and at such time the rights of the holder of this
Convertible Note to be converted, as such holder, shall cease and such holder
shall be treated for all purposes as the record holder of the Common Stock of
the Company issuable upon conversion. Within five (5) business days of the
conversion date, the Company or its transfer agent shall issue a certificate
or certificates for the number of full shares of Common Stock issuable upon
conversion, together with, in the event this Convertible Note is being
converted in part only, a new Convertible Note representing the Face Amount
hereof which shall not have been converted.
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(b) Upon receipt of a certificate or certificates for the number of
full shares of Common Stock issuable upon conversion as herein provided,
this Note shall no longer be deemed to be outstanding and all rights with
respect to this Note shall immediately cease and terminate other than the
right of the Investor to receive Common Stock (and, in the event of a
partial conversion, a new Convertible Note representing the Face Amount
hereof which shall not have been converted) in exchange therefor. This
Note shall then be cancelled.
3. Initial Conversion Price Adjustments of Convertible Note for
Certain Dilutive Issuances, Splits and Combinations.
The Initial Conversion Price of the Convertible Note shall be subject
to adjustment from time to time as follows:
(i) Upon each adjustment of the conversion price, the holder of
this Convertible Note shall thereafter be entitled to receive the
number of shares obtained by multiplying the conversion price in effect
immediately prior to such adjustment by the number of shares issuable
pursuant to conversion immediately prior to such adjustment, and
dividing the product thereof by the conversion price resulting from
such adjustment. Notwithstanding any other provision herein contained,
no adjustment of the conversion price shall be made until the total
amount of the adjustment (based on any single transaction or a series
of aggregated transactions which trigger the anti-dilution provisions
set forth in this paragraph 3) shall be equal to at least one cent per
share.
(ii) Except for (a) options to purchase shares of Common Stock
and the issuance of awards of Common Stock pursuant to key employee and
consultant benefit plans adopted by the Company and except for shares
of Common Stock issued upon the exercise of such options granted
pursuant to such plans (provided that the aggregate number of shares
thus awarded and covered by unexercised options and thus issued
pursuant to such options shall not be in excess of 1,000,000 shares
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes)) and (b) shares of
Common Stock and/or options, warrants or other Common Stock purchase
rights, and the Common Stock issued pursuant to such options, warrants
or other rights issued pursuant to a merger, consolidation,
acquisition, strategic alliance, purchase or sale of assets, sale or
exchange of stock, or in connection with any strategic investments,
joint venture, manufacturing, marketing or distribution arrangement,
technology transfer or development arrangement, or other similar
commercial relationship or similar business combination approved by
the Board of Directors (in each case not for the purpose of capital
raising), and (c) shares of Common Stock issuable pursuant to the
exercise of that certain Warrant dated June 11, 2003 granted to Silicon
Valley Bank, if and whenever the Company shall issue or sell any shares
of its Common Stock or Convertible Securities (as hereinafter defined)
for a consideration per share less than the conversion price in effect
immediately
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prior to the time of such issue or sale, then, forthwith upon such
issue or sale, the conversion price shall be reduced to:
(A) in the event such issue or sale occurs at any time
during the first 18 months following the date of closing of the
transactions contemplated by the Purchase Agreement (the "Initial
Period"), the lower price.
(B) in the event such issue or sale occurs at any time
after the Initial Period, the price (calculated to the nearest
cent) determined by dividing (A) an amount equal to the sum of
(1) the number of shares of Common Stock outstanding immediately
prior to such issue or sale (including for this purpose all
shares of Common Stock issuable upon exercise or conversion of
any Convertible Notes or Warrants as said term is defined in the
Purchase Agreement outstanding immediately prior to such issue or
sale) multiplied by the conversion price then in effect, and
(2) the consideration, if any, received by the Company upon such
issue or sale, by (B) an amount equal to the sum of (1) the
number of shares of Common Stock outstanding immediately prior to
such issue or sale (including for this purpose all shares of
Common Stock issuable upon exercise or conversion of any
Convertible Notes or Warrants as said term is defined in the
Purchase Agreement outstanding immediately prior to such issue or
sale) and (2) the number of shares of Common Stock thus issued or
sold.
(iii) For the purposes of paragraph (ii), the following
provisions (A) to (E), inclusive, shall also be applicable:
(A) In case at any time the Company shall grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of,
(aa) Common Stock or (bb) any obligations or any shares of stock
of the Company which are convertible into or exchangeable for
Common Stock (any of such obligations or shares of stock being
hereinafter called "Convertible Securities") whether or not such
rights or 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 rights or options or upon conversion or exchange of such
Convertible Securities (determined by dividing (aa) the total
amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration payable
to the Company upon the exercise of such rights or options, plus,
in the case of such rights or options which relate to Convertible
Securities,
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the minimum 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 (bb) the total
maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon the conversion or
exchange of all such Convertible Securities issuable upon the
exercise of such rights or options) shall be less than the
conversion price in effect immediately prior to the time of the
granting of such rights or options, then the total maximum number
of shares of Common Stock issuable upon the exercise of such
rights or options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of
granting of such rights or options) be deemed to have been issued
for such price per share. Except as provided in paragraph (vi)
below, no further adjustments of the conversion price shall be
made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such rights or options or
upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(B) In case the Company shall issue or sell (whether
directly or by assumption in a merger or otherwise) any
Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (aa) 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 (bb) the
total maximum 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 (as of the date of the
issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share,
provided that (x) except as provided in paragraph (vi) below, no
further adjustments of the conversion price shall be made upon
the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities, and (y) if any such issue or sale
of such Convertible Securities is made upon exercise of any
rights to subscribe for or to purchase or any option to purchase
any such Convertible Securities for which adjustments of the
conversion price have been or are to be made pursuant to other
provisions of this paragraph (iii), no further
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adjustment of the conversion price shall be made by reason of
such issue or sale.
(C) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or sold for cash,
the consideration received therefor shall be deemed to be the
amount received by the Company therefor, without deduction
therefrom of any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed by the
Company in connection therewith. In case any shares of Common
Stock or Convertible Securities or any rights or options to
purchase any such Common Stock 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 Company shall
be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the
Company, without deducting therefrom of any expenses incurred or
any underwriting commissions, discounts or concessions paid or
allowed by the Company in connection therewith. In case any
shares of Common Stock or Convertible Securities or any rights or
options to purchase such Common Stock or Convertible Securities
shall be issued in connection with any merger or consolidation in
which the Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value as
determined in good faith by the Board of Directors of the Company
of such portion of the assets and business of the non-surviving
corporation or corporations as such Board shall determine to be
attributable to such Common Stock, Convertible Securities, rights
or options, as the case may be. In the event of any
consolidation or merger of the Company in which the Company is
not the surviving corporation or in the event of any sale of all
or substantially all of the assets of the Company for stock or
other securities of any other corporation, the Company shall be
deemed to have issued a number of shares of its Common Stock for
stock or securities of the other corporation computed on the
basis of the actual exchange ratio on which the transaction was
predicated and for a consideration equal to the fair market value
on the date of such transaction of such stock or securities of
the other corporation, and if any such calculation results in
adjustment of the conversion price, the determination of the
number of shares of Common Stock issuable upon conversion
immediately prior to such merger, conversion or sale, for
purposes of paragraph (vii) below, shall be made after giving
effect to such adjustment of the conversion price.
(D) In case the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them
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(aa) to receive a dividend or other distribution payable in
Common Stock or in Convertible Securities, or in any rights or
options to purchase any Common Stock or Convertible Securities,
or (bb) to subscribe for or purchase Common Stock 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 rights of subscription or purchase, as the case may be.
(E) 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 Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock for
the purposes of this paragraph (iii).
(iv) In case the Company shall (A) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend declared to
effect a subdivision of the outstanding shares of Common Stock, as
described in paragraph (v) below) or Convertible Securities, or in any
rights or options to purchase Common Stock or Convertible Securities,
or (B) declare any other dividend or make any other distribution upon
the Common Stock payable otherwise than out of earnings or earned
surplus, then thereafter the holder of this Convertible Note upon the
conversion hereof will be entitled to receive the number of shares of
Common Stock to which such holder shall be entitled upon such
conversion, and, in addition and without further payment therefor, each
dividend described in clause (A) above and each dividend or
distribution described in clause (B) above which such holder would have
received by way of dividends or distributions if continuously since
such holder became the record holder of this Convertible Note such
holder (A) had been the record holder of the number of shares of Common
Stock then received, and (B) had retained all dividends or
distributions in stock or securities (including Common Stock or
Convertible Securities, and any rights or options to purchase any
Common Stock or Convertible Securities) payable in respect of such
Common Stock or in respect of any stock or securities paid as dividends
or distributions and originating directly or indirectly from such
Common Stock. For the purposes of the foregoing, a dividend or
distribution other than in cash shall be considered payable out of
earnings or earned surplus only to the extent that such earnings or
earned surplus are charged an amount equal to the fair value of such
dividend or distribution as determined by the Board of Directors of the
Company.
(v) In case the Company shall at any time subdivide 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 conversely, in case the outstanding
shares of Common Stock of the Company shall
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be combined into a smaller number of shares, the conversion price in
effect immediately prior to such combination shall be proportionately
increased.
(vi) If (A) the purchase price provided for in any right or
option referred to in clause (A) of paragraph (iii), or (B) the
additional consideration, if any, payable upon the conversion or
exchange of Convertible Securities referred to in clause (A) or clause
(B) of paragraph (iii), or (C) the rate at which any Convertible
Securities referred to in clause (A) or clause (B) of paragraph (iii)
are convertible into or exchangeable for Common Stock shall change at
any time (other than under or by reason of provisions designed to
protect against dilution), the conversion price then in effect shall
forthwith be increased or decreased to such conversion price which
would have obtained had the adjustments made upon the issuance of such
rights, options or Convertible Securities been made upon the basis of
(A) the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exercise of such options or rights or upon
the conversion or exchange of such Convertible Securities, and the
total consideration received therefor, and (B) the issuance at the time
of such change of any such options, rights or Convertible Securities
then still outstanding for the consideration, if any, received by the
Company therefor and to be received on the basis of such changed price;
and on the expiration of any such option or right or the termination of
any such right to convert or exchange such Convertible Securities, the
conversion price then in effect hereunder shall forthwith be increased
to such conversion price which would have obtained had the adjustments
made upon the issuance of such rights or options or Convertible
Securities been made upon the basis of the issuance of the shares of
Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights or
options or upon the conversion or exchange of such Convertible
Securities. If the purchase price provided for in any such right or
option referred to in clause (A) of paragraph (iii) or the rate at
which any Convertible Securities referred to in clause (A) or clause
(B) of paragraph (iii) are convertible into or exchangeable for Common
Stock shall decrease at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of
the delivery of Common Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Security,
the conversion price then in effect hereunder shall forthwith be
decreased to such conversion price as would have obtained had the
adjustments made upon the issuance of such right, option or Convertible
Securities been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as
aforesaid.
(vii) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of
its assets to another corporation shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the
holder hereof shall
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thereafter have the right to purchase and receive, upon the basis and
upon the terms and conditions specified in this Convertible Note and in
lieu of the shares of the Common Stock of the Company immediately
theretofore receivable upon conversion hereof, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore
receivable upon conversion hereof had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in
any such case appropriate provision shall be made with respect to the
rights and interests of the holder of this Convertible Note to the end
that the provisions hereof (including without limitation provisions for
adjustments of the conversion price and of the number of shares
issuable upon the conversion of this Convertible Note) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the conversion hereof.
The Company shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or
the corporation purchasing such assets shall assume, by written
instrument executed and mailed to the registered holder hereof at the
last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder
may be entitled to receive.
(viii) Upon any adjustment of the conversion price, then and in
each such case the Company shall give written notice thereof, by first-
class mail, postage prepaid, addressed to the registered holder of this
Convertible Note at the address of such holder as shown on the books of
the Company, which notice shall state the conversion price resulting
from such adjustment and the increase or decrease, if any, in the
number of shares receivable at such price upon the conversion of this
Convertible Note, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(ix) In case any time:
(1) the Company shall declare any cash dividend on its
Common Stock at a rate in excess of the rate of the last cash
dividend theretofore paid;
(2) the Company shall pay any dividend payable in stock
upon its Common Stock or make any distribution (other than
regular cash dividends) to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of
any class or other rights;
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(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the registered
holder of this Convertible Note at the address of such holder as shown on the
books of the Company, of the date on which (aa) the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights, or (bb) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall
take place, as the case may be. Such notice shall also specify the date as
of which the holders of Common Stock of record shall participate in such
dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Such written
notice shall be given at least 20 days prior to the action in question and
not less than 20 days prior to the record date or the date on which the
Company's transfer books are closed in respect thereto.
(x) No fractional shares of Common Stock shall be issued upon
the conversion of this Convertible Note, but, instead of any fraction
of a share which would otherwise be issuable, the Company shall pay a
cash adjustment in respect of such fraction in an amount equal to the
same fraction of the market price per share of Common Stock as of the
close of business on the date of the notice required by paragraph (b)
above. "Market price" for purposes of this paragraph (x) shall mean,
if the Common Stock is traded on a securities exchange or on the Nasdaq
National Market, the closing price of the Common Stock on such exchange
or the Nasdaq National Market, or, if the Common Stock is otherwise
traded in the over-the-counter market, the closing bid price, in each
case averaged over a period of 20 consecutive business days prior to
the date as of which "market price" is being determined. If at any
time the Common Stock is not traded on an exchange or the Nasdaq
National Market, or otherwise traded in the over-the-counter market,
the "market price" shall be deemed to be the higher of (i) the book
value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors
of the Company as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made, or (ii)
the fair value thereof determined in good faith by the Board of
Directors of the Company as of a date which is within 15 days of the
date as of which the determination is to be made.
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(xi) As used herein, the term "Common Stock" shall mean and
include the Company's presently authorized Common Stock and shall also
include any capital stock of any class of the Company hereafter
authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Company;
provided that the shares issuable upon conversion of this Convertible
Note shall include shares designated as Common Stock of the Company on
the date of original issue of this Convertible Note or, in the case of
any reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in paragraph (vii) above.
(xii) Notwithstanding anything to the contrary contained in this
Convertible Note, the payment of the PIK Interest Shares by the Company
to holders of the Company's 7% convertible subordinated notes issued
pursuant to the Purchase Agreement shall not trigger any of the anti-
dilution provisions specified under this paragraph 3.
4. Company Call Option.
(a) At any time after the second anniversary of the date hereof, the
Company shall have the option (the "Call Option") to redeem, in its sole and
absolute discretion (in whole or in part), all of the Company's outstanding
7% convertible subordinated notes issued pursuant to the Purchase Agreement
if the following conditions are met:
(i) the Company has filed and caused to become effective and
stay continuously effective a registration statement covering the
aggregate number of shares of Common Stock issued or issuable with
respect to the 7% convertible subordinated notes and warrants issued
pursuant to the Purchase Agreement;
(ii) the Company gives written irrevocable notice to all
holders of the Company's outstanding 7% convertible subordinated
notes of its intent to redeem such holders' notes (the date of such
notice shall hereinafter be referred to as the "Notice Date") not
later than 20 days prior to the date fixed by the Company to redeem
such notes (the "Call Option Redemption Date"); and
(iii) the closing price of a share of Common Stock, as reported
on the Nasdaq National Market, has been, on average, for the 20
trading days prior to the Notice Date, at least two times the Initial
Conversion Price.
The outstanding unpaid Face Amount to be redeemed together with any
unpaid PIK Interest accrued thereon as of the Call Option Redemption Date
shall become due and payable on the Call Option Redemption Date.
(b) Nothing hereinabove set forth shall affect in any way the right of
the holder of this Convertible Note to convert this Convertible Note at any
time and from time to time in accordance with paragraph 3 hereof.
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5. Noteholder Put Option.
(a) At any time after the third anniversary of the date hereof ("Third
Anniversary Date"), the holder of this Convertible Note shall have the
option (the "Third Anniversary Put Option") to require that this Convertible
Note be redeemed by the Company in whole (but not in part). The holder
hereof may exercise the Third Anniversary Put Option by giving the Company
written notice of such exercise and the Company shall, within 20 days of
receipt of such notice, redeem the outstanding unpaid Face Amount, and pay
all accrued but unpaid PIK Interest thereon to the redemption date. In the
event that the holder hereof fails to exercise its Third Anniversary Put
Option as provided for herein within 30 days after the Third Anniversary
Date, then the Third Anniversary Put Option shall be deemed to be null and
void, and the holder hereof shall be deemed to have irrevocably waived its
right to exercise the Third Anniversary Put Option and the Third
Anniversary Put Option shall be of no further force or effect.
(b) In the event of a Change in Control (as hereinafter defined) of
the Company, the holder hereof shall have the option (the "Change in Control
Put Option") to require that this Convertible Note be redeemed by the Company
in whole (but not in part), at 120% of the outstanding unpaid Face Amount,
plus all unpaid PIK Interest accrued thereon to the redemption date.
The Company shall give the holder of this Convertible Note written
notice of such impending transaction not later than 20 days prior to the
stockholders' meeting of the Company called to approve such transaction, or
20 days prior to the closing of such transaction, whichever is earlier, and
shall also notify such holder in writing of the final approval of such
transaction. The first of such notices shall give the proposed effective
date of the transaction (the "Effective Date") and shall describe the
material terms and conditions of the transaction and of this paragraph 5(b)
(including, without limiting the generality of the foregoing, a description
of the value of the consideration, if any, being offered to the holders of
the outstanding securities of the Company), and the Company shall thereafter
give such holder prompt notice of any material changes to such terms and
conditions. The transaction shall in no event take place sooner than 20 days
after the mailing by the Company of the first notice provided for herein or
sooner than 10 days after the mailing by the Company of any notice of
material changes provided for herein.
Any election to exercise the Change in Control Put Option shall be made
by the holder hereof giving written notice thereof to the Company at least
five days before the Effective Date (if no such notice is given, the
provisions of paragraph 3(vii) shall apply). Upon receipt of such notice,
the Company shall, on the Effective Date, redeem this Convertible Note in
whole (but not in part) at 120% of the outstanding unpaid Face Amount, plus
all unpaid PIK Interest accrued thereon to the Effective Date.
For purposes of this Convertible Note, a "Change in Control" of the
Company shall be deemed to occur if any of the following occur:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) after the
12
date hereof first acquires or becomes a "beneficial owner" (as
defined in Rule 13d-3 or any successor rule under the Exchange Act),
directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then
outstanding securities entitled to vote generally in the election of
directors ("Voting Securities"), provided, however, that the
following shall not constitute a Change in Control pursuant to this
paragraph (c)(i):
(A) any acquisition of shares or Voting Securities of the
Company directly from the Company;
(B) any acquisition or beneficial ownership by the Company or
a subsidiary;
(C) any acquisition or beneficial ownership by any employee
benefit plan (or related trust) sponsored or maintained
by the Company or one or more of its subsidiaries;
(D) any acquisition or beneficial ownership by any
corporation with respect to which, immediately following
such acquisition, more than 50% of both the combined
voting power of the Company's then outstanding Voting
Securities and the shares of the Company is then
beneficially owned by all or substantially all of the
persons who beneficially owned Voting Securities and
shares of the Company immediately prior to such
acquisition in substantially the same proportions as
their ownership of such Voting Securities and shares, as
the case may be, immediately prior to such acquisition;
or
(E) any acquisition or beneficial ownership by one or more of
the initial Investors or their assignees or transferees.
(ii) A majority of the members of the Board of Directors of
the Company shall not be Continuing Directors. "Continuing
Directors" shall mean: (A) individuals who, on the date hereof, are
directors of the Company, (B) individuals elected as directors of the
Company subsequent to the date hereof for whose election proxies
shall have been solicited by the Board of Directors of the Company,
(C) individuals elected as directors of the Company subsequent to the
date hereof pursuant to a nomination or board representation right of
noteholders of the Company, or (D) any individual elected or
appointed by the Board of Directors of the Company to fill vacancies
on the Board of Directors of the Company caused by death or
resignation (but not by removal) or to fill newly-created
directorships;
(iii) Approval by the stockholders of the Company of a
reorganization, merger or consolidation of the Company or a statutory
exchange of outstanding
13
Voting Securities of the Company, unless, immediately following such
reorganization, merger, consolidation or exchange, all or
substantially all of the persons who were the beneficial owners,
respectively, of Voting Securities and shares of the Company
immediately prior to such reorganization, merger, consolidation or
exchange beneficially own, directly or indirectly, more than 50% of,
respectively, the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors and the then outstanding shares of common stock, as the
case may be, of the corporation that is the issuer of such securities
held by the stockholders of the Company after such reorganization,
merger, consolidation or exchange in substantially the same
proportions as their ownership, immediately prior to such
reorganization, merger, consolidation or exchange, of the Voting
Securities and shares of the Company, as the case may be; or
(iv) Approval by the stockholders of the Company of (x) a
complete liquidation or dissolution of the Company or (y) the sale or
other disposition of all or substantially all of the assets of the
Company (in one or a series of transactions), other than to a
corporation with respect to which, immediately following such sale or
other disposition, more than 50% of, respectively, the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors
and the then outstanding shares of common stock of such corporation
is then beneficially owned, directly or indirectly, by all or
substantially all of the persons who were the beneficial owners,
respectively, of the Voting Securities and shares of the Company
immediately prior to such sale or other disposition in substantially
the same proportions as their ownership, immediately prior to such
sale or other disposition, of the Voting Securities and shares of the
Company, as the case may be.
(d) Nothing hereinabove set forth in this paragraph 5 shall affect in
any way the right of the holder of this Convertible Note to convert this
Convertible Note at any time and from time to time in accordance with
paragraph 3 hereof.
(e) In the event that the holder hereof fails to exercise its Change
of Control Put Option as provided for herein within 30 days after the
Effective Date, then the Change of Control Put Option shall be deemed to be
null and void, and the holder hereof shall be deemed to have irrevocably
waived its right to exercise the Change of Control Put Option and the
Change of Control Put Option shall be of no further force or effect.
6. Subordination.
(a) To the extent there is any conflict between the provisions of this
Paragraph 6(a) and the other provisions of this Convertible Note, the
provisions of this Paragraph 6(a) shall control.
(i) Investor subordinates to Silicon Valley Bank, or any
successor in interest thereof (the "Senior Lender") any security
interest or lien that Investor may have or in the
14
future obtain in any property of the Company. Notwithstanding the
respective dates of attachment or perfection of the security interest
of Investor and the security interest of Senior Lender, the security
interest of the Senior Lender in the property of the Company shall at
all times be prior to the security interest of Investor. Investor
shall not contest validity, perfection, or enforceability of the
security interests or liens of the Senior Lender.
(ii) All indebtedness hereunder (the "Subordinated Debt") is
subordinated in right of payment to all obligations of the Company to
the Senior Lender now existing or hereafter arising, together with all
costs of collecting such obligations (including reasonable attorneys'
fees), including, without limitation, all interest accruing after the
commencement by or against the Company of any bankruptcy,
reorganization or similar proceeding (the "Senior Debt").
(iii) Investor will not receive from the Company (and the
Company will not make to Investor) any payment of all or any part of
the Subordinated Debt, by way of payment, prepayment, setoff, lawsuit
or otherwise, nor will Investor exercise any remedy with respect to
any of the Senior Lender's collateral, nor will Investor commence, or
cause to commence, prosecute or participate in any administrative,
legal or equitable action against the Company for any cash payment of
all or any part of the Subordinated Debt, for so long as any portion
of the Senior Debt remains outstanding. Notwithstanding the
foregoing, the Investor shall be entitled to receive (A) cancellation
of indebtedness hereunder in consideration of the conversion of such
indebtedness into securities of the Company pursuant to the terms of
this Convertible Note, and (B) payments of interest hereunder payable
in the form of equity securities of the Company or cash. Nothing in
this paragraph 6(a) shall prohibit Investor from converting all or any
part of the Subordinated Debt into equity securities of the Company,
or obtaining and receiving interest payments in the form of equity
securities of the Company.
(iv) Investor shall promptly deliver to the Senior Lender in
the form received (except for endorsement or assignment by Investor
where required by the Senior Lender) for application to the Senior
Debt any payment, distribution, security or proceeds received by
Investor with respect to the Subordinated Debt other than in
accordance with this Paragraph 6(a).
(v) In the event of the Company's insolvency, reorganization or
any case or proceeding under any bankruptcy or insolvency law or laws
relating to the relief of debtors, the provisions of this Paragraph
6(a) shall remain in full force and effect, and the Senior Lender's
claims against the Company and the estate of the Company shall be paid
in full before any payment is made to Investor.
(vi) For so long as any of the Senior Debt remains unpaid,
Investor irrevocably appoints the Senior Lender as Investor's
attorney-in-fact, and grants to the Senior Lender a power of attorney
with full power of substitution, in the name of Investor or in the
name of the Senior Lender, for the use and benefit of the Senior
Lender, without notice to Investor, to perform at the Senior Lender's
option the following acts in any bankruptcy, insolvency or similar
proceeding involving the Company:
15
a. To file the appropriate claim or claims in respect
of the Subordinated Debt on behalf of Investor if
Investor does not do so prior to 30 days before the
expiration of the time to file claims in such
proceeding and if the Senior Lender elects, in its
sole discretion, to file such claim or claims.
(vii) This Paragraph 6(a) shall remain effective for so long
as the Company owes any amounts to the Senior Lender. If, at any time
after payment in full of the Senior Debt any payments of the Senior
Debt must be disgorged by the Senior Lender for any reason
(including, without limitation, the bankruptcy of the Company), this
paragraph 6(a) and the relative rights and priorities set forth
herein shall be reinstated as to all such disgorged payments as
though such payments had not been made and Investor shall immediately
pay over to the Senior Lender all payments received with respect to
the Subordinated Debt to the extent that such payments would have
been prohibited hereunder. At any time and from time to time,
without notice to Investor, the Senior Lender may take such actions
with respect to the Senior Debt as the Senior Lender, in its sole
discretion, may deem appropriate, including, without limitation,
terminating advances to the Company, increasing the principal amount,
extending the time of payment, increasing applicable interest rates,
renewing, compromising or otherwise amending the terms of any
documents affecting the Senior Debt and any collateral securing the
Senior Debt, and enforcing or failing to enforce any rights against
the Company or any other person. No such action or inaction shall
impair or otherwise affect Senior Lender's rights hereunder. Investor
waives the benefits, if any, of any statutory or common law rule that
may permit a subordinating creditor to assert any defenses of a
surety or guarantor, or that may give the subordinating creditor the
right to require a senior creditor to marshal assets, and Investor
agrees that it shall not assert any such defenses or rights.
(viii) The provisions of this paragraph 6(a) shall bind any
successors or assignees of Investor and shall benefit any successors
or assigns of the Senior Lender, and, if the Company refinances a
portion of the Senior Debt with a new lender, such new lender shall
be deemed a successor of the Senior Lender for the purposes of this
paragraph 6(a). This paragraph 6(a) is solely for the benefit of
Investor and the Senior Lender and not for the benefit of the Company
or any other party.
(ix) The provisions of this paragraph 6(a) may be amended only
by written instrument signed by Investor and the Senior Lender.
(b) The Company agrees, and the holder hereof by such holder's
acceptance hereof likewise agrees, that anything herein to the contrary
notwithstanding, the indebtedness evidenced by this Convertible Note shall be
subordinate and junior in right of payment, to the extent and in the manner
hereinafter set forth, to all outstanding obligations of the Company at the
date hereof under (i) that certain Guaranty dated February 25, 2003, executed
and delivered by the Company to Shanghai Jinling Co., Ltd to guarantee the
payment obligations of Parlex (Shanghai) Circuit Co., LTD., a subsidiary of
the Company, under that certain Term Note in the original principal amount of
7,000,000 Renminbi (RMB) (approximately US$845,000), issued by Parlex
(Shanghai) Circuit
16
Co., LTD. to International Commercial Bank of China; and (ii) that certain
Guaranty dated June 4, 2002, executed and delivered by the Company to CITIC
Ka Wah Bank Limited to guarantee the payment obligations of Parlex (Shanghai)
Interconnect Products, Co., Ltd., a subsidiary of the Company, under that
certain Term Note in the original principal amount of $5,000,000, issued by
Parlex (Shanghai) Interconnect Products, Co., Ltd. to CITIC Ka Wah Bank
Limited (together, the "Senior Guarantees"):
(i) In the event of any insolvency or bankruptcy proceedings, or
any receivership, liquidation, readjustment, reorganization or other
similar proceedings in connection therewith, relative to the Company or
to its creditors, as such, or to its property, or in the event of any
proceedings for voluntary liquidation, dissolution or other winding up
of the Company, whether or not involving insolvency or bankruptcy, then
the holders of Senior Guarantees shall be entitled to receive payment
in full of all principal and interest on all Senior Guarantees before
the holder of this Convertible Note is entitled to receive any payment
on account of principal or interest on this Convertible Note, and to
that end (but subject to the power of a court of competent jurisdiction
to make other equitable provisions reflecting the rights conferred in
this Convertible Note upon the Senior Guarantees and the holders
thereof with respect to the indebtedness evidenced by this Convertible
Note and the holder thereof by a lawful plan of reorganization under
applicable bankruptcy law) the holders of Senior Guarantees shall be
entitled to receive by application in payment thereof any payment or
distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceedings
in respect of this Convertible Note, including any such payment or
distribution which may be payable or deliverable by virtue of the
provisions of any indebtedness which is subordinate and junior in right
of payment to this Convertible Note, except securities which are
subordinate in right of payment to the payment of the Senior
Guarantees.
(ii) If there occurs a default in the payment of or in the
performance of any other terms or obligations of any or all such
Senior Guarantees, or in the instrument under which any Senior
Guarantees is outstanding, permitting the holder of such Senior
Guarantees to accelerate the maturity thereof, then, unless and until
such event of default shall have been cured or waived or shall have
ceased to exist, or all Senior Guarantees shall have been satisfied,
no payment shall be made in respect of the principal of or interest
on the indebtedness evidenced by this Convertible Note (excepting
only interest payments in the form of equity securities of the
Company), unless within three months after the happening of such
event of default, the maturity of such Senior Guarantees shall not
have been accelerated.
(iii) In the event the holder hereof receives any payment or
property on this Convertible Note in violation of the terms hereof, the
holder hereof will hold the same in trust for, and forthwith pay over
or deliver the same to, the holders of the Senior Guarantees to be
applied pro rata on such Senior Guarantees whether or not the same then
be due. If holders of Senior Guarantees shall receive any
17
payment or distribution of cash, property or securities after the
payment in full in cash of all Senior Guarantees, the Company shall
cause the holders of Senior Guarantees to hold the same in trust for,
and forthwith pay over or deliver the same to, the party or parties
legally entitled thereto.
(iv) No payments on account of principal of, or interest on,
this Convertible Note shall be made unless full payment of amounts then
due, whether at maturity or by reason of any event or action causing
such amounts to become due prior to stated maturity or otherwise, for
principal, premium, if any, sinking fund, and interest on Senior
Guarantees has been made or duly provided for in money or money's
worth.
(c) Upon the payment in full of all Senior Guarantees, the holder of
this Convertible Note shall be subrogated to the rights of the holders of
Senior Guarantees to receive payments or distributions of assets of the
Company applicable to the Senior Guarantees until the principal and interest
on this Convertible Note shall be paid in full; and for the purposes of such
subrogation, no payments or distributions to the holders of Senior Guarantees
of any cash, property or securities to which the holders of this Convertible
Note would be entitled except for the subordination provisions of this
Convertible Note shall, as between the Company, its creditors other than the
holders of Senior Guarantees, and the holder of this Convertible Note, be
deemed to be a payment by the Company to or on account of Senior Guarantees.
(d) No present or future holder of Senior Guarantees shall be
prejudiced in such holder's right to enforce the subordination of this
Convertible Note by any act or failure to act on the part of the Company or
the holder of this Convertible Note. The foregoing provisions as to
subordination are solely for the purpose of defining the relative rights of
the holders of the Senior Guarantees on the one hand, and the holder of this
Convertible Note on the other hand, and none of such provisions shall impair,
as between the Company and the holder of this Convertible Note, the
obligation of the Company, which is unconditional and absolute, to pay to the
holder of this Convertible Note the principal and interest thereon, in
accordance with the terms hereof, nor shall any such provisions prevent any
holder of this Convertible Note from exercising all remedies otherwise
permitted by applicable law or under the terms of this Convertible Note or
the Purchase Agreement upon default thereunder, subject to the rights, if
any, under the foregoing provisions, of holders of Senior Guarantees to
receive cash, property or securities otherwise payable or deliverable to the
holder of this Convertible Note.
(e) This Convertible Note shall be senior in right of payment to all
indebtedness of the Company other than the Senior Debt specified in paragraph
6(a) and the Senior Guarantees specified in paragraph 6(b). The Company
covenants and agrees that so long as any of the Company's 7% convertible
subordinated notes issued pursuant to the Purchase Agreement remains
outstanding, or any liabilities (whether direct or contingent, liquidated
or unliquidated) of the Company to the holders of such notes remain
outstanding, and until payment in full of all obligations of the Company to
such holders, the Company will not, create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) any indebtedness, liabilities or
obligations of the Company to the holders of the 7%
18
convertible subordinated notes; (b) any indebtedness, liabilities or
obligations of the Company as of the date hereof specified under paragraph
6(a) or 6(b) hereof; (c) any refinancing of any of the indebtedness,
liabilities or obligations of the Company specified in paragraphs 6(a) or
6(b) hereof; provided, however that such refinancing is completed with a
commercial bank or other investment grade lending institution and does not
prejudice the rights of the holder hereof to exercise and the Company to
timely pay in cash the Third Anniversary Put Option, the Change of Control
Put Option or to be paid at the term of this Convertible Note; and (d)
indebtedness, liabilities or obligations incurred by the Company in the
ordinary course of business.
7. Registration Rights. The Company covenants and agrees that the
holder of this Convertible Note shall have the rights of an Investor under
the Purchase Agreement and Registration Rights Agreement, each dated July 28,
2003 among the Company and the Investors named on the signature pages
thereto.
8. Restrictions Upon Conversion.
(a) No Investor shall have the right to exercise this Convertible
Note, to the extent that after giving effect to such exercise, such Investor
(together with its affiliates) would beneficially own in excess of 4.99% of
the shares of the Common Stock outstanding immediately after giving effect to
such exercise. For purposes of the foregoing sentence, the aggregate number
of shares of Common Stock beneficially owned by such Investor and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Convertible Note with respect to which the determination
of such sentence is being made, but shall exclude shares of Common Stock
which would be issuable upon (i) exercise of the remaining, unconverted
portion of this Convertible Note beneficially owned by such Investor and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned by such
Investor and its affiliates (including, without limitation, any convertible
notes or convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein. Except
as set forth in the preceding sentence, for purposes of this paragraph,
beneficial ownership shall be calculated in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended. For purposes of this
Convertible Note, in determining the number of outstanding shares of Common
Stock an Investor may rely on the number of outstanding shares of Common
Stock as reflected in (1) the Company's most recent Quarterly Report on Form
10-Q, Annual Report on Form 10-K or other public filing with the SEC, as the
case may be, (2) a more recent public announcement by the Company or (3) any
other notice by the Company or its Transfer Agent setting forth the number of
shares of Common Stock outstanding. For any reason at any time, upon the
written or oral request of the Investor, the Company shall, within three (3)
business days, confirm orally or in writing to the Investor the number of
shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company by the Investor and
its affiliates since the date as of which such number of outstanding shares
of Common Stock was reported. The restriction described in this paragraph 8
may be revoked upon 60 days prior written notice by the Investor to the
Company.
(b) If the Company has not obtained Shareholder Approval (as defined
below), if required by the applicable rules and regulations of the Nasdaq
National Market (or any successor entity), then the Company may not issue
upon conversion of the Convertible Notes issued and
19
outstanding under the Purchase Agreement, in the aggregate, in excess of (i)
19.999% of the number of shares of Common Stock outstanding on the trading
day immediately preceding July 28, 2003 (the "Original Issue Date"), (ii)
less any shares of Common Stock issued as payment of interest or upon
exercise of the Warrants issued to the Investors on the Original Issue Date
pursuant to the Purchase Agreement (such number of shares, the "Issuable
Maximum"). Each Investor shall be entitled to a portion of the Issuable
Maximum equal to the quotient obtained by dividing (x) the aggregate
principal amount of the Convertible Note(s) issued and sold to such Investor
on the Original Issue Date by (y) the aggregate principal amount of all
Convertible Notes issued and sold by the Company on the Original Issue Date.
If any Investor shall no longer hold the Convertible Note(s), then such
Investor's remaining portion of the Issuable Maximum shall be allocated
pro-rata among the remaining Investors. If on any conversion date: (A) the
applicable conversion price then in effect is such that the shares issuable
under this Convertible Note on any conversion date together with the
aggregate number of shares of Common Stock that would then be issuable upon
conversion in full of all then outstanding Convertible Notes would exceed
the Issuable Maximum, and (B) the Company's shareholders shall have
previously disapproved the transactions contemplated by the Purchase
Agreement, as may be required by the applicable rules and regulations of
the Nasdaq National Market (or any successor entity), if any (the
"Shareholder Approval"), then the Company shall issue to the Investor
requesting a conversion a number of shares of Common Stock equal to such
Investor's pro-rata portion (which shall be calculated pursuant to the
terms hereof) of the Issuable Maximum and, with respect to the remainder of
the aggregate principal amount of the Convertible Notes (including any
accrued interest) then held by such Investor for which a conversion in
accordance with the applicable conversion price would result in an issuance
of shares of Common Stock in excess of such Investor's pro-rata portion
(which shall be calculated pursuant to the terms hereof) of the Issuable
Maximum (the "Excess Principal"), the Company shall be prohibited from
converting such Excess Principal, and shall notify the Investor of the
reason therefor. This Convertible Note shall thereafter be unconvertible
until and unless Shareholder Approval is subsequently obtained or is
otherwise not required, but this Convertible Note shall otherwise remain in
full force and effect. The Company and the Investor understand and agree
that shares of Common Stock issued to and then held by the Investor as a
result of conversions of Convertible Notes shall not be entitled to cast
votes on any resolution to obtain Shareholder Approval pursuant hereto.
For clarity, the failure of the Company to actually obtain Shareholder
Approval shall not be a breach of covenant or Event of Default under this
Convertible Note or the Purchase Agreement, provided, that any issuance of
securities which results in an adjustment to the Initial Conversion Price
(other than pursuant to Section 3(ii)) without the Company having
previously sought Shareholder Approval as set forth in the Purchase
Agreement shall be a breach of covenant in the Purchase Agreement and an
Event of Default under Section 8.
9. Miscellaneous.
(a) The Company will not, by amendment of its Articles of
Organization or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Convertible Note. Without limiting
the generality of the foregoing, the
20
Company will not increase the par value of any shares of stock receivable
on the conversion of this Convertible Note above the amount payable
therefor on such conversion.
(b) This Note shall be governed and construed according to the laws
of the Commonwealth of Massachusetts without giving effect to the choice of
laws provisions thereof. The parties hereto hereby submit to the
jurisdiction of the United States federal and state courts located in the
Commonwealth of Massachusetts with respect to any dispute arising under
this Convertible Note.
[signature page follows]
21
PARLEX CORPORATION
By
---------------------------------
Peter J. Murphy
Chief Executive Officer & President
[signature page to convertible note]
22
[FORM OF CONVERSION NOTICE]
The undersigned owner of this 7% Convertible Note due July 28, 2007
(the "Note") issued by Parlex Corporation (the "Company") hereby
irrevocably exercises its option to convert $_____ principal amount of the
Note into shares of the common stock, $.10 par value, of Parlex Corporation
("Common Stock"), in accordance with the terms of the Note. The undersigned
hereby instructs the Company to convert the portion of the Note specified
above into Shares of Common Stock Issued at Conversion in accordance with
the provisions of Paragraph 3 of the Note. The undersigned directs that
the Common Stock issuable and certificates therefor deliverable upon
conversion, the Note recertificated in the principal amount, if any, not
being surrendered for conversion hereby, together with any check in payment
for fractional Common Stock, be issued in the name of and delivered to the
undersigned unless a different name has been indicated below. All
capitalized terms used and not defined herein have the respective meanings
assigned to them in the Note.
By delivering this conversion notice, the undersigned owner
represents and warrants (place "X" next to applicable provision):
[__] 1. that it does not now, nor after giving effect to this
conversion will it, beneficially own in excess of 4.99% of the
outstanding shares of Common Stock of the Company, calculated
pursuant to the provisions of Paragraph 8(a) of the Note; or
[__] 2. that it has provided, at least 60 days prior to the date of
this conversion notice, notice to the Company of its revocation
of the application of Paragraph 8(a) of the Note.
Date ______________________________________________________________________
Signature
___________________________________________________________________________
[Name]
Address:
___________________________________________________________________________
___________________________________________________________________________
23