EXHIBIT 10.4
[FORM OF SECURED CONVERTIBLE NOTE]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. 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. ANY TRANSFEREE OF THIS NOTE SHOULD
CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(C)(III) AND 20(A)
HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE
SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET
FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(C)(III) OF THIS NOTE.
WHITEHALL JEWELLERS, INC.
SECURED CONVERTIBLE NOTE
Issuance Date: _________ __, 200_ Principal: U.S. $50,000,000
FOR VALUE RECEIVED, WHITEHALL JEWELLERS, INC.., a Delaware
corporation (the "COMPANY"), hereby promises to pay to the order of [PWJ FUNDING
LLC] [OTHER BUYERS] or registered assigns ("HOLDER") the amount set out above as
the Original Principal Amount (as reduced pursuant to the terms hereof pursuant
to redemption, conversion or otherwise, the "PRINCIPAL") when due, whether upon
the Maturity Date (as defined below), acceleration, redemption or otherwise (in
each case in accordance with the terms hereof) and to pay interest ("INTEREST")
on any outstanding Principal at a rate equal to twelve percent (12.0%) per annum
(the "INTEREST RATE"), from the date set out above as the Issuance Date (the
"ISSUANCE DATE") until the same becomes due and payable, whether upon an
Interest Date (as defined below), the Maturity Date, acceleration, conversion,
redemption or otherwise (in each case in accordance with the terms hereof). This
Convertible Note (including all Convertible Notes issued in exchange, transfer
or replacement hereof, this "NOTE") is one of an issue of Convertible Notes
(collectively, the "NOTES" and such other Convertible Notes, the "OTHER NOTES")
issued pursuant to the Securities Purchase Agreement (as defined below). Certain
capitalized terms are defined in Section 30.
(1) MATURITY. On the Maturity Date, the Holder shall surrender
this Note to the Company and the Company shall pay to the Holder an amount in
cash representing all outstanding Principal, accrued and unpaid Interest and
accrued and unpaid Late Charges, if any. The "MATURITY DATE" shall be [insert
three year anniversary from the Issuance Date] (the "ORIGINAL MATURITY DATE"),
as may be extended (a) by the Company as provided in the immediately succeeding
sentence and (b) at the option of the Holder (i) in the event that, and for so
long as, an Event of Default (as defined in Section 4(a)) shall have occurred
and be continuing or any event shall have occurred and be continuing which with
the passage of time and the failure to cure would result in an Event of Default
or (ii) through the date that is ten (10) Business Days after the consummation
of a Change of Control in the event that a Change of Control is publicly
announced or a Change of Control Notice (as defined in Section 5) is delivered
prior to the Maturity Date. The Company shall have the right to extend the
Original Maturity Date until [insert four year anniversary from the issuance
Date] by giving written notice to each Holder not less than 30 nor more than 60
day's notice prior to the Original Maturity Date and, if so extended, may
further extend the Original Maturity Date until [insert five year anniversary
from the Issuance Date] by giving written notice to each Holder not less than 30
nor more than 60 day's notice prior to [insert four year anniversary from the
issuance date]; provided that the Company may not extend the Maturity Date if
between the date such notice is delivered and the Maturity Date (as extended, if
applicable) an Event of Default (as defined in Section 4(a)) shall have occurred
and be continuing or any event shall have occurred and be continuing which with
the passage of time and the failure to cure would result in an Event of Default.
(2) INTEREST; INTEREST RATE. Interest on this Note shall
commence accruing on the Issuance Date and shall be computed on the basis of a
365-day year and actual days elapsed and shall be payable in arrears on the last
day of each Calendar Quarter during the period beginning on the Issuance Date
and ending on, and including, the Maturity Date (each, an "INTEREST DATE") with
the first Interest Date being [insert last day of first Calendar Quarter after
Issuance Date]. If any Interest Date is not a Business Day, Interest shall be
paid on the next Business Day immediately succeeding the applicable Interest
Date. Interest shall be payable on each Interest Date, to the record holder of
this Note on the applicable Interest Date, in a number of fully paid and
nonassessable shares (rounded to the nearest whole share in accordance with
Section 3(a)) of Common Stock ("INTEREST SHARES") equal to the quotient of (a)
the amount of Interest payable on such Interest Date and (b) the Conversion
Price in effect on the applicable Interest Date. In connection with the payment
of Interest Shares paid on an Interest Date, the Company shall (X) provided that
the Company's transfer agent (the "TRANSFER AGENT") is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and
such action is not prohibited by applicable law or regulation or any applicable
policy of DTC, credit such aggregate number of Interest Shares to which the
Holder shall be entitled to the Holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
foregoing shall not apply, issue and deliver on the applicable Interest Date, to
the address set forth in the register maintained by the Company for such purpose
pursuant to the Securities Purchase Agreement or to such address as specified by
the Holder in writing to the Company at least two (2) Business Days prior to the
applicable Interest Date, a certificate, registered in the name of the Holder or
its designee, for the number of Interest Shares to which the Holder shall be
entitled. Notwithstanding the foregoing, the Company may not pay Interest in
Interest Shares but shall be obligated to pay interest in cash on all Interest
Dates occurring after the Original Maturity Date. Prior to the payment of
Interest
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on an Interest Date, Interest on this Note shall accrue at the Interest Rate and
be payable by way of inclusion of the Interest in the Conversion Amount in
accordance with Section 3(b)(i). From and after the occurrence of an Event of
Default, the Interest Rate shall be increased to eighteen percent (18%) (the
"DEFAULT RATE"). In the event that such Event of Default is subsequently cured,
the adjustment referred to in the preceding sentence shall cease to be effective
as of the date of such cure; provided that the Interest as calculated at such
increased rate during the continuance of such Event of Default shall continue to
apply to the extent relating to the days after the occurrence of such Event of
Default through and including the date of cure of such Event of Default. The
Company shall pay any and all documentary stamp or similar taxes that may be
payable with respect to the issuance and delivery of Interest Shares.
(3) CONVERSION OF NOTES. This Note shall be convertible into
shares of common stock of the Company, par value $0.001 per share (the "COMMON
STOCK"), on the terms and conditions set forth in this Section 3.
(a) Conversion Right. At any time or times on or
after the Issuance Date, the Holder shall be entitled to convert any portion of
the outstanding and unpaid Conversion Amount (as defined below) into fully paid
and nonassessable shares of Common Stock in accordance with Section 3(c), at the
Conversion Rate (as defined below). The Company shall not issue any fraction of
a share of Common Stock upon any conversion. If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole share. The Company
shall pay any and all taxes that may be payable with respect to the issuance and
delivery of Common Stock upon conversion of any Conversion Amount.
(b) Conversion Rate. The number of shares of Common
Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a)
shall be determined by dividing (x) such Conversion Amount plus the Make Whole
Interest Amount, if any, by (y) the Conversion Price (the "CONVERSION RATE").
(i) "CONVERSION AMOUNT" means the sum of (A)
the portion of the Principal to be converted, redeemed or otherwise with respect
to which this determination is being made, (B) accrued and unpaid Interest with
respect to such Principal and (C) accrued and unpaid Late Charges with respect
to such Principal and Interest.
(ii) "CONVERSION PRICE" means, as of any
Conversion Date (as defined below) or other date of determination, $.751,
subject to adjustment as provided herein.
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Assumes the number of shares of Common Stock outstanding is 13,969,297 as of the
Closing Date and represents the price determined by dividing the Original
Principal Amount of all Notes by the number of shares of Common Stock that would
represent 87% of the issued and outstanding capital stock of the Company as of
the Closing Date, less the sum of (i) 24,027,753 Interest Shares assumed to be
paid over the term of the Note, at the Interest Rate, and (ii) the number of
shares issuable as of the Closing Date upon exercise of the Warrants. Such
number shall be adjusted to reflect any changes in the outstanding shares of
Common Stock between the Subscription Date and the Closing Date and to reflect
the reverse stock split contemplated by the Securities Purchase Agreement.
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(c) Mechanics of Conversion.
(i) Optional Conversion. To convert any
Conversion Amount into shares of Common Stock on any date (a "CONVERSION DATE"),
the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt
on or prior to 11:59 p.m., New York Time, on such date, a copy of an executed
notice of conversion in the form attached hereto as Exhibit I (the "CONVERSION
NOTICE") to the Company and (B) if required by Section 3(c)(iii), surrender this
Note to a common carrier for delivery to the Company as soon as practicable on
or following such date (or an indemnification undertaking with respect to this
Note in the case of its loss, theft or destruction). On or before the first
(1st) Business Day following the date of receipt of a Conversion Notice, the
Company shall transmit by facsimile a confirmation of receipt of such Conversion
Notice to the Holder and the Transfer Agent. On or before the second (2nd)
Business Day following the date of receipt of a Conversion Notice (the "SHARE
DELIVERY DATE"), the Company shall (X) provided the Transfer Agent is
participating in DTC Fast Automated Securities Transfer Program credit such
aggregate number of shares of Common Stock to which the Holder shall be entitled
to the Holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled. If this Note is
physically surrendered for conversion as required by Section 3(c)(iii) and the
outstanding Principal of this Note is greater than the Principal portion of the
Conversion Amount being converted, then the Company shall as soon as practicable
and in no event later than three (3) Business Days after receipt of this Note
and at its own expense, issue and deliver to the holder a new Note (in
accordance with Section 20(d)) representing the outstanding Principal not
converted. The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the Conversion Date.
(ii) Company's Failure to Timely Convert. In
addition to the foregoing, if within three (3) Trading Days after the Company's
receipt of the facsimile copy of a Conversion Notice the Company shall fail to
issue and deliver a certificate to the Holder or credit the Holder's balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon such holder's conversion of any Conversion Amount (a "CONVERSION
FAILURE"), and if on or after such Trading Day the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by the Holder of Common Stock issuable upon such conversion that the Holder
anticipated receiving from the Company (a "BUY-IN"), then the Company shall,
within three (3) Business Days after the Holder's request and in the Holder's
discretion, either (i) pay cash to the Holder in an amount equal to the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "BUY-IN PRICE"), at which point the Company's
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing Bid
Price on the Conversion Date.
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(iii) Book-Entry. Notwithstanding anything
to the contrary set forth herein, upon conversion of any portion of this Note in
accordance with the terms hereof, the Holder shall not be required to physically
surrender this Note to the Company unless (A) the full Conversion Amount
represented by this Note is being converted or (B) the Holder has provided the
Company with prior written notice (which notice may be included in a Conversion
Notice) requesting physical surrender and reissue of this Note. The Holder and
the Company shall maintain records showing the Principal, Interest and Late
Charges converted and the dates of such conversions or shall use such other
method, reasonably satisfactory to the Holder and the Company, so as not to
require physical surrender of this Note upon conversion.
(iv) Pro Rata Conversion; Disputes. In the
event that the Company receives a Conversion Notice from more than one holder of
Notes for the same Conversion Date and the Company can convert some, but not
all, of such portions of the Notes submitted for conversion, the Company shall
convert from each holder of Notes electing to have Notes converted on such date
a pro rata amount of such holder's portion of its Notes submitted for conversion
based on the principal amount of Notes submitted for conversion on such date by
such holder relative to the aggregate principal amount of all Notes submitted
for conversion on such date. In the event of a dispute as to the number of
shares of Common Stock issuable to the Holder in connection with a conversion of
this Note, the Company shall issue to the Holder the number of shares of Common
Stock not in dispute and resolve such dispute in accordance with Section 25.
(4) RIGHTS UPON EVENT OF DEFAULT.
(a) Event of Default. Each of the following events
shall constitute an "EVENT OF DEFAULT":
(i) the failure of the applicable
Registration Statement required to be filed pursuant to the Registration Rights
Agreement to be declared effective by the SEC on or prior to the date that is
sixty (60) days after the applicable Effectiveness Deadline (as defined in the
Registration Rights Agreement), or, while the applicable Registration Statement
is required to be maintained effective pursuant to the terms of the Registration
Rights Agreement, the effectiveness of the applicable Registration Statement
lapses for any reason (including, without limitation, the issuance of a stop
order) or is unavailable to any holder of the Notes for sale of all of such
holder's Registrable Securities (as defined in the Registration Rights
Agreement) in accordance with the terms of the Registration Rights Agreement,
and such lapse or unavailability continues for a period of ten (10) consecutive
days or for more than an aggregate of thirty (30) days in any 365-day period
(other than days during an Allowable Grace Period (as defined in the
Registration Rights Agreement));
(ii) the Company's (A) failure to cure a
Conversion Failure by delivery of the required number of shares of Common Stock
within ten (10) Business Days after the applicable Conversion Date or (B)
notice, written or oral, to any holder of the Notes, including by way of public
announcement or through any of its agents, at any time, of its intention not to
comply with a request for conversion of any Notes into shares of Common Stock
that is tendered in accordance with the provisions of the Notes;
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(iii) at any time following the forty-fifth
(45th) consecutive Business Day that the Holder's Authorized Share Allocation is
less than the number of shares of Common Stock that the Holder would be entitled
to receive upon a conversion of the full Conversion Amount of this Note (without
regard to any limitations on conversion);
(iv) the Company's failure to pay to the
Holder any amount of Principal, Interest, Late Charges or other amounts when and
as due under this Note or any other Transaction Document (as defined in the
Securities Purchase Agreement), except, in the case of a failure to pay Interest
and Late Charges when and as due, in which case only if such failure continues
for a period of at least three Business Days;
(v) any default shall have occurred and be
continuing that gives the holder of Indebtedness the right to accelerate the
payment of, redemption of or acceleration prior to maturity of any Indebtedness
(as defined in Section 3(s) of the Securities Purchase Agreement) of more than
$1 million individually of the Company or any of its Subsidiaries (as defined in
Section 3(a) of the Securities Purchase Agreement) other than with respect to
any Other Notes;
(vi) the Company or any of its Subsidiaries,
pursuant to or within the meaning of Title 11, U.S. Code, or any similar
Federal, foreign or state law for the relief of debtors (collectively,
"BANKRUPTCY LAW"), (A) commences a voluntary case, (B) consents to the entry of
an order for relief against it in an involuntary case, (C) consents to the
appointment of a receiver, trustee, assignee, liquidator or similar official (a
"CUSTODIAN"), (D) makes a general assignment for the benefit of its creditors or
(E) admits in writing that it is generally unable to pay its debts as they
become due;
(vii) a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that (A) is for relief
against the Company or any of its Subsidiaries in an involuntary case, (B)
appoints a Custodian of the Company or any of its Subsidiaries or (C) orders the
liquidation of the Company or any of its Subsidiaries;
(viii) a final judgment or judgments for the
payment of money aggregating in excess of $250,000 are rendered against the
Company or any of its Subsidiaries and which judgments are not, within ninety
(90) days after the entry thereof, bonded, discharged or stayed pending appeal,
or are not discharged within ninety (90) days after the expiration of such stay;
provided, however, that any judgment which is covered by insurance or an
indemnity from a credit worthy party shall not be included in calculating the
$250,000 amount set forth above so long as the Company provides the Holder a
written statement from such insurer or indemnity provider (which written
statement shall be reasonably satisfactory to the Holder) to the effect that
such judgment is covered by insurance or an indemnity and the Company will
receive the proceeds of such insurance or indemnity within thirty (30) days of
the issuance of such judgment;
(ix) (1) any representation or warranty made
by the Company in the Securities Purchase Agreement was breached in a material
respect when made and was not known by the Majority Buyer (as defined in the
Securities Purchase Agreement) on or before the Closing Date and, if so known,
would have given the Majority Buyer (as so defined) the right not
to have closed under the Securities Purchase Agreement or (2) any covenant or
other term in the Transaction Documents has been breached by the Company and
such breach continues unwaived and uncured for at least (10) consecutive
Business Days after notice thereof is given by the Holder to the Company;
(x) any breach or failure in any respect to
comply with Section 16(a), (b) and (d) of this Note; or
(xi) any Event of Default (as defined in the
Other Notes) occurs with respect to any Other Notes.
(b) Redemption Right. Promptly after the occurrence
of an Event of Default with respect to this Note or any Other Note, the Company
shall deliver written notice thereof via facsimile and overnight courier (an
"EVENT OF DEFAULT NOTICE") to the Holder. At any time after the earlier of the
Holder's receipt of an Event of Default Notice and the Holder becoming aware of
an Event of Default, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (the "EVENT OF DEFAULT
REDEMPTION NOTICE") to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to redeem. Each
portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the Conversion
Amount to be redeemed (the "EVENT OF DEFAULT REDEMPTION PRICE"). Redemptions
required by this Section 4(b) shall be made in accordance with the provisions of
Section 13.
(5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
(a) Assumption. The Company shall not enter into or
be party to a Fundamental Transaction unless (i) the Successor Entity assumes in
writing all of the obligations of the Company under this Note and the other
Transaction Documents in accordance with the provisions of this Section 5(a)
pursuant to written agreements in form and substance satisfactory to the
Required Holders and approved by the Required Holders prior to such Fundamental
Transaction, including agreements to deliver to each holder of Notes in exchange
for such Notes a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to the Notes, including,
without limitation, having a principal amount and interest rate equal to the
principal amounts and the interest rates of the Notes held by such holder and
having similar ranking to the Notes, and satisfactory to the Required Holders or
(ii) in the case of a Fundamental Transaction involving a Change of Control
where the consideration being paid by the acquiring party for the Common Stock
is cash, the Company complies with its obligations under Section 5(b) below (a
"CASH TRANSACTION"). Upon the occurrence of any Fundamental Transaction that is
not a Cash Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note referring to the "Company" shall refer
instead to the Successor Entity), and may exercise every right and power of the
Company and shall assume all of the obligations of the Company under this Note
with the same effect as if such Successor Entity had been named as the Company
herein. In the event that the Successor Entity in a Fundamental Transaction that
is not a Cash Transaction is not a publicly traded entity whose common stock or
equivalent equity
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security is quoted or listed for trading on an Eligible Market but such
Successor Entity has a Parent Entity, the Required Holders may elect to treat
such Parent Entity as the Successor Entity for purposes of this Section 5(a)
and, in such case, upon consummation of the Fundamental Transaction, the
Successor Entity shall deliver to the Holder confirmation that there shall be
issued upon conversion or redemption of this Note at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of the
Company's Common Stock (or other securities, cash, assets or other property)
purchasable upon the conversion or redemption of the Notes prior to such
Fundamental Transaction, such shares of the publicly traded common stock (or its
equivalent) of the Successor Entity (including its Parent Entity), as adjusted
in accordance with the provisions of this Note. The provisions of this Section
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations on the conversion or
redemption of this Note.
(b) Redemption Right. No sooner than fifteen (15)
days nor later than ten (10) days prior to the consummation of a Change of
Control, but not prior to the public announcement of such Change of Control, the
Company shall deliver written notice thereof via facsimile and overnight courier
to the Holder (a "CHANGE OF CONTROL NOTICE"). At any time during the period
beginning after the Holder's receipt of a Change of Control Notice and ending on
the date of the consummation of such Change of Control (or, in the event a
Change of Control Notice is not delivered at least ten (10) days prior to a
Change of Control, at any time on or after the date which is ten (10) days prior
to a Change of Control and ending ten (10) days after the consummation of such
Change of Control), the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof ("CHANGE OF CONTROL
REDEMPTION NOTICE") to the Company, which Change of Control Redemption Notice
shall indicate the Conversion Amount the Holder is electing to redeem. The
portion of this Note subject to redemption pursuant to this Section 5 shall be
redeemed by the Company at a price equal to the greater of (i) the product of
(x) the Conversion Amount being redeemed and (y) the quotient determined by
dividing (A) the Closing Sale Price of the Common Stock immediately following
the public announcement of such proposed Change of Control by (B) the Conversion
Price and (ii) 125% of the Conversion Amount being redeemed (the "CHANGE OF
CONTROL REDEMPTION PRICE"); provided if the Change of Control giving rise to the
payment of the Change of Control Redemption Price is not approved by a majority
of the Company Disinterested Directors (if the approval of the Company's Board
of Directors is required for such Change of Control), "125%" in clause (ii)
above shall be replaced with 100%. Redemptions required by this Section 5 shall
be made in accordance with the provisions of Section 13 and shall have priority
to payments to shareholders in connection with a Change of Control.
(6) RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.
(a) Purchase Rights. If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "PURCHASE RIGHTS"), then the Holder
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which the Holder could have acquired if the Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately
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before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(b) Other Corporate Events. In addition to and not in
substitution for any other rights hereunder, prior to the consummation of any
Fundamental Transaction pursuant to which holders of shares of Common Stock are
entitled to receive securities or other assets with respect to or in exchange
for shares of Common Stock (a "CORPORATE EVENT"), the Company shall make
appropriate provision to insure that the Holder will thereafter have the right
to receive upon a conversion of this Note, (i) in addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets to
which the Holder would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate. Provision made pursuant to the preceding sentence shall be
in a form and substance satisfactory to the Required Holders. The provisions of
this Section shall apply similarly and equally to successive Corporate Events
and shall be applied without regard to any limitations on the conversion or
redemption of this Note.
(7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
(a) Adjustment of Conversion Price upon Issuance of
Common Stock. If and whenever on or after the Subscription Date, the Company
issues or sells, or in accordance with this Section 7(a) is deemed to have
issued or sold, any shares of Common Stock (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the Company, but
excluding shares of Common Stock deemed to have been issued or sold by the
Company in connection with any Excluded Security) for a consideration per share
(the "NEW ISSUANCE PRICE") less than a price (the "APPLICABLE PRICE") equal to
the Conversion Price in effect immediately prior to such issue or sale (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Conversion Price then in effect shall be reduced to an amount equal to the
New Issuance Price. For purposes of determining the adjusted Conversion Price
under this Section 7(a), the following shall be applicable:
(i) Issuance of Options. If the Company in
any manner grants or sells any Options and the lowest price per share for which
one share of Common Stock is issuable upon the exercise of any such Option or
upon conversion or exchange or exercise of any Convertible Securities issuable
upon exercise of such Option is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 7(a)(i), the "lowest price per
share for which one share of Common Stock is issuable upon the exercise of any
such Option or upon conversion or exchange or exercise of any Convertible
Securities issuable upon exercise of such Option" shall be equal to
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the sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to any one share of Common Stock upon granting or
sale of the Option, upon exercise of the Option and upon conversion or exchange
or exercise of any Convertible Security issuable upon exercise of such Option.
No further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock or of such Convertible Securities upon
the exercise of such Options or upon the actual issuance of such Common Stock
upon conversion or exchange or exercise of such Convertible Securities.
(ii) Issuance of Convertible Securities. If
the Company in any manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise thereof is less than the Applicable Price,
then such share of Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the issuance of sale of such
Convertible Securities for such price per share. For the purposes of this
Section 7(a)(ii), the "price per share for which one share of Common Stock is
issuable upon such conversion or exchange or exercise" shall be equal to the sum
of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the issuance or sale
of the Convertible Security and upon the conversion or exchange or exercise of
such Convertible Security. No further adjustment of the Conversion Price shall
be made upon the actual issuance of such share of Common Stock upon conversion
or exchange or exercise of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Conversion Price had been or are to be made pursuant to
other provisions of this Section 7(a), no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of
Conversion. If the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exchange or exercise
of any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exchangeable or exercisable for Common Stock changes at
any time, the Conversion Price in effect at the time of such change shall be
adjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold. For purposes of this Section
7(a)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the Closing Date are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the
Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change. No adjustment shall
be made if such adjustment would result in an increase of the Conversion Price
then in effect.
(iv) Calculation of Consideration Received.
In case any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for an amount mutually
determined in good faith by the Company (as approved by a majority of the
Company Disinterested Directors) and the Required Holders or in the absence of
agreement on the foregoing, in accordance with Section 25 hereof. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible
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Securities are issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Closing Sale Price of such securities on the date of receipt. If any Common
Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the Required
Holders. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "VALUATION EVENT"),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the Required Holders.
The determination of such appraiser shall be deemed binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
by the Company.
(v) Record Date. If the Company takes a
record of the holders of Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the 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.
(b) Adjustment of Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time on or after the
Subscription Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time on or after the Subscription Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.
(c) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 7 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the Holder under this Note;
provided that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 7.
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(8) SECURITY. This Note and the Other Notes are secured to the
extent and in the manner set forth in the Security Documents (as defined in the
Securities Purchase Agreement).
(9) INTENTIONALLY OMITTED.
(10) INTENTIONALLY OMITTED.
(11) NONCIRCUMVENTION. The Company hereby covenants and agrees
that the Company will not, by amendment of its Certificate of Incorporation,
Bylaws or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, 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 Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.
(12) RESERVATION OF AUTHORIZED SHARES.
(a) Reservation. The Company initially shall reserve
out of its authorized and unissued Common Stock a number of shares of Common
Stock for each of the Notes equal to 105% of the Conversion Rate with respect to
the Conversion Amount of each such Note as of the Issuance Date. So long as any
of the Notes are outstanding, the Company shall take all action necessary to
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes, 105% of the
number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Notes then outstanding; provided that at no
time shall the number of shares of Common Stock so reserved be less than the
number of shares required to be reserved of the previous sentence (without
regard to any limitations on conversions) (the "REQUIRED RESERVE AMOUNT"). The
initial number of shares of Common Stock reserved for conversions of the Notes
and each increase in the number of shares so reserved shall be allocated pro
rata among the holders of the Notes based on the principal amount of the Notes
held by each holder at the Closing (as defined in the Securities Purchase
Agreement) or increase in the number of reserved shares, as the case may be (the
"AUTHORIZED SHARE ALLOCATION"). In the event that a holder shall sell or
otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share Allocation. Any
shares of Common Stock reserved and allocated to any Person which ceases to hold
any Notes shall be allocated to the remaining holders of Notes, pro rata based
on the principal amount of the Notes then held by such holders.
(b) Insufficient Authorized Shares. If at any time
while any of the Notes remain outstanding the Company does not have a sufficient
number of authorized and unreserved shares of Common Stock to satisfy its
obligation to reserve for issuance upon conversion of the Notes at least a
number of shares of Common Stock equal to the Required Reserve Amount (an
"AUTHORIZED SHARE FAILURE"), then the Company shall immediately take all action
necessary to increase the Company's authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for the Notes then outstanding. Without limiting the generality of the foregoing
sentence, as soon as practicable
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after the date of the occurrence of an Authorized Share Failure, but in no event
later than 60 days after the occurrence of such Authorized Share Failure, the
Company shall hold a meeting of its shareholders for the approval of an increase
in the number of authorized shares of Common Stock. In connection with such
meeting, the Company shall provide each shareholder with a proxy statement and
shall use its best efforts to solicit its shareholders' approval of such
increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the shareholders that they approve such proposal.
(13) HOLDER'S REDEMPTIONS.
(a) Mechanics. The Company shall deliver the
applicable Event of Default Redemption Price to the Holder within five (5)
Business Days after the Company's receipt of the Holder's Event of Default
Redemption Notice. If the Holder has submitted a Change of Control Redemption
Notice in accordance with Section 5(b), the Company shall deliver the applicable
Change of Control Redemption Price to the Holder concurrently with the
consummation of such Change of Control if such notice is received prior to the
consummation of such Change of Control and within five (5) Business Days after
the Company's receipt of such notice otherwise. In the event of a redemption of
less than all of the Conversion Amount of this Note, the Company shall promptly
cause to be issued and delivered to the Holder a new Note (in accordance with
Section 20(d)) representing the outstanding Principal which has not been
redeemed. In the event that the Company does not pay the Redemption Price to the
Holder within the time period required, at any time thereafter and until the
Company pays such unpaid Redemption Price in full, the Holder shall have the
option, in lieu of redemption, to require the Company to promptly return to the
Holder all or any portion of this Note representing the Conversion Amount that
was submitted for redemption and for which the applicable Redemption Price
(together with any Late Charges thereon) has not been paid. Upon the Company's
receipt of such notice, (x) the Redemption Notice shall be null and void with
respect to such Conversion Amount, (y) the Company shall immediately return this
Note, or issue a new Note (in accordance with Section 20(d)) to the Holder
representing such Conversion Amount and (z) the Conversion Price of this Note or
such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Redemption Notice is voided and (B) the lowest
Closing Bid Price during the period beginning on and including the date on which
the Redemption Notice is delivered to the Company and ending on and including
the date on which the Redemption Notice is voided. The Holder's delivery of a
notice voiding a Redemption Notice and exercise of its rights following such
notice shall not affect the Company's obligations to make any payments of Late
Charges which have accrued prior to the date of such notice with respect to the
Conversion Amount subject to such notice.
(b) Redemption by Other Holders. Upon the Company's
receipt of notice from any of the holders of the Other Notes for redemption or
repayment as a result of an event or occurrence substantially similar to the
events or occurrences described in Section 4(b) or Section 5(b) (each, an "OTHER
REDEMPTION NOTICE"), the Company shall immediately forward to the Holder by
facsimile a copy of such notice. If the Company receives a Redemption Notice and
one or more Other Redemption Notices, during the period beginning on and
including the date which is three (3) Business Days prior to the Company's
receipt of the Holder's Redemption Notice and ending on and including the date
which is three (3) Business Days after the Company's receipt of the Holder's
Redemption Notice and the Company is unable to redeem all
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principal, interest and other amounts designated in such Redemption Notice and
such Other Redemption Notices received during such seven (7) Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven (7) Business Day
period.
(14) RESTRICTION ON REDEMPTION AND CASH DIVIDENDS. Until all
of the Notes have been converted, redeemed or otherwise satisfied in accordance
with their terms, the Company shall not, except as provided in Section 4(cc) of
the Securities Purchase Agreement, directly or indirectly, redeem, repurchase or
declare or pay any cash dividend or distribution on its capital stock without
the prior express written consent of the Required Holders.
(15) VOTING RIGHTS. The Holder shall have no voting rights as
the holder of this Note, except as required by law, including but not limited to
the General Corporate Law of the State of Delaware, and as expressly provided in
this Note.
(16) COVENANTS.
(a) Rank. All payments due under this Note (a) shall
rank pari passu with all Other Notes, (b) shall rank subordinate to the Existing
Senior Indebtedness and (c) shall be senior to all other Indebtedness of the
Company and its Subsidiaries.
(b) Incurrence of Indebtedness. So long as this Note
is outstanding, the Company shall not, and the Company shall not permit any of
its Subsidiaries to, directly or indirectly, incur or guarantee, assume or
suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced by
this Note and the Other Notes and (ii) Permitted Indebtedness.
(c) Existence of Liens. So long as this Note is
outstanding, the Company shall not, and the Company shall not permit any of its
Subsidiaries to, directly or indirectly, allow or suffer to exist any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by the Company
or any of its Subsidiaries (collectively, "LIENS") other than Permitted Liens.
(d) Restricted Payments. Except as provided in
Section 4(cc) of the Securities Purchase Agreement, the Company shall not, and
the Company shall not permit any of its Subsidiaries to, directly or indirectly,
redeem, defease, repurchase, repay or make any payments in respect of, by the
payment of cash or cash equivalents (in whole or in part, whether by way of open
market purchases, tender offers, private transactions or otherwise), all or any
portion of any Permitted Indebtedness (other than the Existing Senior
Indebtedness), whether by way of payment in respect of principal of (or premium,
if any) or interest on, such Indebtedness if at the time such payment is due or
is otherwise made or, after giving effect to such payment, an event
constituting, or that with the passage of time and without being cured would
constitute, an Event of Default has occurred and is continuing.
(17) PARTICIPATION. The Holder, as the holder of this Note,
shall be entitled to such dividends paid and distributions made to the holders
of Common Stock to the
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same extent as if the Holder had converted this Note into Common Stock (without
regard to any limitations on conversion herein or elsewhere) and had held such
shares of Common Stock on the record date for such dividends and distributions.
Payments under the preceding sentence shall be made concurrently with the
dividend or distribution to the holders of Common Stock.
(18) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. This Note
and the Other Notes may be amended or any provision thereof may be waived by the
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting of the Required Holders.
(19) TRANSFER. This Note may be offered, sold, assigned or
transferred by the Holder without the consent of the Company, subject only to
the provisions of Section 2(f) of the Securities Purchase Agreement.
(20) REISSUANCE OF THIS NOTE.
(a) Transfer. If this Note is to be transferred, the
Holder shall surrender this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Note (in
accordance with Section 20(d)), registered as the Holder may request,
representing the outstanding Principal being transferred by the Holder and, if
less then the entire outstanding Principal is being transferred, a new Note (in
accordance with Section 20(d)) to the Holder representing the outstanding
Principal not being transferred. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of Section
3(c)(iii) and this Section 20(a), following conversion or redemption of any
portion of this Note, the outstanding Principal represented by this Note may be
less than the Principal stated on the face of this Note.
(b) Lost, Stolen or Mutilated Note. Upon receipt by
the Company of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Note, and, in the case of loss, theft
or destruction, of any indemnification undertaking by the Holder to the Company
in customary form and, in the case of mutilation, upon surrender and
cancellation of this Note, the Company shall execute and deliver to the Holder a
new Note (in accordance with Section 20(d)) representing the outstanding
Principal.
(c) Note Exchangeable for Different Denominations.
This Note is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Note or Notes (in accordance with
Section 20(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note will
represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.
(d) Issuance of New Notes. Whenever the Company is
required to issue a new Note pursuant to the terms of this Note, such new Note
(i) shall be of like tenor with this Note, (ii) shall represent, as indicated on
the face of such new Note, the Principal remaining outstanding (or in the case
of a new Note being issued pursuant to Section 20(a) or Section 20(c), the
Principal designated by the Holder which, when added to the principal
represented by the other new Notes issued in connection with such issuance, does
not exceed the Principal
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remaining outstanding under this Note immediately prior to such issuance of new
Notes), (iii) shall have an issuance date, as indicated on the face of such new
Note, which is the same as the Issuance Date of this Note, (iv) shall have the
same rights and conditions as this Note, and (v) shall represent accrued
Interest and Late Charges on the Principal and Interest of this Note, from the
Issuance Date.
(21) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES
AND INJUNCTIVE RELIEF. The remedies provided in this Note shall be cumulative
and in addition to all other remedies available under this Note and the other
Transaction Documents at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
Holder's right to pursue actual and consequential damages for any failure by the
Company to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
(22) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If
(a) this Note is placed in the hands of an attorney for collection or
enforcement or is collected or enforced through any legal proceeding or the
Holder otherwise takes action to collect amounts due under this Note or to
enforce the provisions of this Note or (b) there occurs any bankruptcy,
reorganization, receivership of the Company or other proceedings affecting
Company creditors' rights and involving a claim under this Note, then the
Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys' fees
and disbursements.
(23) CONSTRUCTION; HEADINGS. This Note shall be deemed to be
jointly drafted by the Company and all the Purchasers (as defined in the
Securities Purchase Agreement) and shall not be construed against any person as
the drafter hereof. The headings of this Note are for convenience of reference
and shall not form part of, or affect the interpretation of, this Note.
(24) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
(25) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Closing Bid Price or the Closing Sale Price or the
arithmetic calculation of the applicable Conversion Rate or a Redemption Price,
the Company shall submit the disputed determinations or arithmetic calculations
via facsimile within one (1) Business Day of receipt of the Conversion Notice or
Redemption Notice or other event giving rise to such dispute, as the case may
be, to
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the Holder. If the Holder and the Company are unable to agree upon such
determination or calculation within one (1) Business Day of such disputed
determination or arithmetic calculation being submitted to the Holder, or if the
Company and the Holder fail to agree on the allocation of consideration under
the first sentence of Section 7(a)(iv), then the Company shall, within one (1)
Business Day submit via facsimile (a) the disputed determination of the Closing
Bid Price or the Closing Sale Price or the allocation of consideration under the
first sentence of Section 7(a)(iv) to an independent, reputable investment bank
selected by the Company and approved by the Holder or (b) the disputed
arithmetic calculation of the Conversion Rate or such Redemption Price to the
Company's independent, outside accountant. The Company, at the Company's
expense, shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
Holder of the results no later than five (5) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
(26) NOTICES; PAYMENTS.
(a) Notices. Whenever notice is required to be given
under this Note, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Note, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least fifteen
(15) days prior to the date on which the Company closes its books or takes a
record (A) with respect to any dividend or distribution upon the Common Stock,
(B) with respect to any pro rata subscription offer to holders of Common Stock
or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.
(b) Payments. Whenever any payment of cash is to be
made by the Company to any Person pursuant to this Note, such payment shall be
made in lawful money of the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address, in
the case of each of the Purchasers, shall initially be as set forth on the
Schedule of Buyers attached to the Securities Purchase Agreement); provided that
the Holder may elect to receive a payment of cash via wire transfer of
immediately available funds by providing the Company with prior written notice
setting out such request and the Holder's wire transfer instructions. Whenever
any amount expressed to be due by the terms of this Note is due on any day which
is not a Business Day, the same shall instead be due on the next succeeding day
which is a Business Day and, in the case of any Interest Date which is not the
date on which this Note is paid in full, the extension of the due date thereof
shall not be taken into account for purposes of determining the amount of
Interest due on such date. Any amount of Principal or other amounts due under
the Transaction Documents, other than Interest, which is not paid when due shall
result in a late charge being incurred and payable by the Company in an amount
equal
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to interest on such amount at the rate of fifteen percent (15%) per annum from
the date such amount was due until the same is paid in full ("LATE CHARGE").
(27) CANCELLATION. After all Principal, accrued Interest and
other amounts at any time owed on this Note has been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
(28) WAIVER OF NOTICE. To the extent permitted by law, the
Company hereby waives demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or enforcement
of this Note and the Securities Purchase Agreement.
(29) GOVERNING LAW. This Note shall be construed and enforced
in accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any jurisdictions
other than the State of New York.
(30) CERTAIN DEFINITIONS. For purposes of this Note, the
following terms shall have the following meanings:
(a) "APPROVED STOCK PLAN" means any employee benefit
plan which has been approved by the Board of Directors of the Company, pursuant
to which the Company's securities may be issued to any employee, officer or
director for services provided to the Company.
(b) "BLOOMBERG" means Bloomberg Financial Markets.
(c) "BUSINESS DAY" means any day other than Saturday,
Sunday or other day on which commercial banks in The City of New York are
authorized or required by law to remain closed.
(d) "CALENDAR QUARTER" means each of: the period
beginning on and including January 1 and ending on and including March 31; the
period beginning on and including April 1 and ending on and including June 30;
the period beginning on and including July 1 and ending on and including
September 30; and the period beginning on and including October 1 and ending on
and including December 31.
(e) "CHANGE OF CONTROL" means any Fundamental
Transaction other than (i) any reorganization, recapitalization or
reclassification of the Common Shares in which holders of the Company's voting
power immediately prior to such reorganization, recapitalization or
reclassification continue after such reorganization, recapitalization or
reclassification to hold publicly traded securities and, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities, or (ii) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company.
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(f) "CLOSING BID PRICE" and "CLOSING SALE PRICE"
means, for any security as of any date, the last closing bid price and last
closing trade price, respectively, for such security on the Principal Market, as
reported by Bloomberg, or, if the Principal Market begins to operate on an
extended hours basis and does not designate the closing bid price or the closing
trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m., New York Time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If
the Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved pursuant to
Section 25. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.
(g) "CLOSING DATE" shall have the meaning set forth
in the Securities Purchase Agreement, which date is the date the Company
initially issued Notes pursuant to the terms of the Securities Purchase
Agreement.
(h) "COMPANY DISINTERESTED DIRECTORS" shall mean the
directors of the Company (or its successor), as of the date of any relevant
determination hereunder, that are not employees, directors, officers or
beneficial owners of 10% or more of the economic equity interests of the Holder
or any of its Affiliates where "AFFILIATE" shall mean, with respect to any
Person, any Person directly or indirectly controlling, controlled by or under
common control with, such Person, where "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person through the ownership of such Person's voting
securities, by contract or otherwise.
(i) "CONVERTIBLE SECURITIES" means any stock
or securities (other than Options) directly or indirectly convertible into or
exercisable or exchangeable for Common Stock.
(j) "ELIGIBLE MARKET" means The New York Stock
Exchange, Inc., the American Stock Exchange, the Nasdaq National Market or The
Nasdaq SmallCap Market.
(k) "EXCLUDED SECURITIES" means any Common Stock
issued or issuable: (i) in connection with any Approved Stock Plan; (ii) upon
conversion of the Notes or the exercise of the Warrants; (iii) pursuant to a
bona fide firm commitment underwritten public offering with a nationally
recognized underwriter which generates gross proceeds to the
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Company in excess of $30,000,000 (other than an "at-the-market offering" as
defined in Rule 415(a)(4) under the 1933 Act and "equity lines"); (iv) in
connection with the payment of any Interest Shares on the Notes (v) upon
conversion of any Options or Convertible Securities which are outstanding on the
day immediately preceding the Subscription Date, provided that the terms of such
Options or Convertible Securities are not amended, modified or changed on or
after the Subscription Date and (vi) without the approval of a majority of the
Company Disinterested Directors.
(l) "EXISTING SENIOR INDEBTEDNESS" means the
Indebtedness of the Company and its Subsidiaries under the Second Amended and
Restated Revolving Credit and Gold Consignment Agreement,. Dated as of July 29,
2003 (as amended, modified, supplemented or restated and in effect as of the
Subscription Date, the "SENIOR CREDIT AGREEMENT"), by and among the Company, the
banks listed on Schedule 1 thereto, LaSalle National Bank National Association,
as Administrative Agent and Collateral Agent, for the Agents and the Banks. ABN
Amro Bank, N.V. ,as Syndication Agent for the Agents and the Banks and JPMorgan
Chase Bank, as Documentation Agent.
(m) "FUNDAMENTAL TRANSACTION" means that the Company
shall, directly or indirectly, in one or more related transactions, (i)
consolidate or merge with or into (whether or not the Company is the surviving
corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company
to another Person, or (iii) allow another Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the Person or Persons making or party to, or associated or affiliated
with the Persons making or party to, such purchase, tender or exchange offer),
or (iv) consummate a stock purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than the 50% of either the outstanding shares of Common Stock or the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (v) reorganize, recapitalize or
reclassify its Common Stock; provided that the issuance of the Notes, the Other
Notes or the Warrants or the issuance of shares of Common Stock upon the
exercise or conversion thereof shall not constitute a Fundamental Transaction.
(n) "MAKE-WHOLE INTEREST AMOUNT" means, as of the
date of determination of the number of shares of Common Stock issuable upon
conversion of any Conversion Amount prior to the Original Maturity Date, the
aggregate amount of Interest that would have been payable from the date of
determination on the portion of the Principal comprising such Conversion Amount
to be converted through the Original Maturity Date, if such Interest on such
Principal were paid in cash at the Interest Rate, assuming such Principal
remained outstanding through the Original Maturity Date.
(o) "OPTIONS" means any rights, warrants or options
to subscribe for or purchase Common Stock or Convertible Securities.
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(p) "PARENT ENTITY" of a Person means an entity that,
directly or indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or, if
there is more than one such Person or Parent Entity, the Person or Parent Entity
with the largest public market capitalization as of the date of consummation of
the Fundamental Transaction.
(q) "PERMITTED INDEBTEDNESS" means the Existing
Senior Indebtedness and any other Indebtedness expressly permitted under the
Senior Credit Agreement, as in effect on the Subscription Date, as the same may
be refinanced from time to time but only to the extent the principal amount of
Indebtedness does not increase in connection with such refinancing from the
maximum borrowings permitted thereunder on the Subscription Date.
(r) "PERMITTED LIENS" means any "Permitted Lien"
under the Senior Credit Agreement, as in effect on the Subscription Date, as the
same may be refinanced from time to time.
(s) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization, any other entity and a government or any department
or agency thereof.
(t) "PRINCIPAL MARKET" means The New York Stock
Exchange, Inc.
(u) "REGISTRATION RIGHTS AGREEMENT" means that
certain registration rights agreement between the Company and the initial
holders of the Warrants, dated as of the Subscription Date, relating to, among
other things, the registration of the resale of the Common Stock issuable upon
conversion of the Notes and exercise of the Warrants.
(v) "REQUIRED HOLDERS" means the holders of Notes
representing at least a majority of the aggregate principal amount of the Notes
then outstanding.
(w) "SEC" means the United States Securities and
Exchange Commission.
(x) "SECURITIES PURCHASE AGREEMENT" means that
certain securities purchase agreement dated the Subscription Date by and among
the Company and the initial holders of the Notes pursuant to which the Company
issued the Notes.
(y) "SUBSCRIPTION DATE" means October 4, 2005.
(z) "SUCCESSOR ENTITY" means the Person, which may be
the Company, formed by, resulting from or surviving any Fundamental Transaction
or the Person with which such Fundamental Transaction shall have been made.
(aa) "TRADING DAY" means any day on which the Common
Stock are traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock are then traded;
provided that "Trading Day" shall not include any day on which
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the Common Stock are scheduled to trade on such exchange or market for less than
4.5 hours or any day that the Common Stock are suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York Time).
(bb) "WARRANTS" has the meaning ascribed to such term
in the Securities Purchase Agreement, and shall include all warrants issued in
exchange therefor or replacement thereof.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Note to be
duly executed as of the Issuance Date set out above.
WHITEHALL JEWELLERS, INC.
By:________________________________
Name:
Title:
EXHIBIT I
WHITEHALL JEWELLERS, INC.
CONVERSION NOTICE
Reference is made to the Convertible Note (the "NOTE") issued to the undersigned
by WHITEHALL JEWELLERS, INC. (the "COMPANY"). In accordance with and pursuant to
the Note, the undersigned hereby elects to convert the Conversion Amount (as
defined in the Note) of the Note indicated below into shares of Common Stock,
par value $0.001 per share (the "COMMON STOCK"), as of the date specified below.
Date of Conversion: ___________________________________________________
Aggregate Conversion Amount to be converted: ___________________________
Please confirm the following information: ______________________________________
Conversion Price: _____________________________________________________
Number of shares of Common Stock to be issued: ________________________
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to: _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Facsimile Number: _____________________________________________________
Authorization: ________________________________________________________
By: __________________________________________________________
Title: _________________________________________________
Dated: _________________________________________________________________________
Account Number: _______________________________________________________
(if electronic book entry transfer)
Transaction Code Number: ______________________________________________
(if electronic book entry transfer)
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and
hereby directs [INSERT NAME OF TRANSFER AGENT] to issue the above indicated
number of shares of Common Stock in accordance with the Transfer Agent
Instructions dated ______ __, 2005 from the Company and acknowledged and agreed
to by [INSERT NAME OF TRANSFER AGENT].
WHITEHALL JEWELLERS, INC.
By:____________________________________
Name:
Title: