Exhibit 4.2
EXHIBIT A
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NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION OF
THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE BORROWER. THESE SECURITIES AND THE SECURITIES ISSUABLE
UPON CONVERSION OF THESE SECURITIES MAY BE PLEDGED IN A MANNER CONSISTENT
WITH THE SECURITIES ACT IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
SECURED BY SUCH SECURITIES.
No. __ $________________
Original Issue Date: October 14, 2004
ZOLTEK COMPANIES, INC.
SENIOR SECURED 7.5% CONVERTIBLE NOTE DUE APRIL 14, 2008
THIS NOTE is one of a series of duly authorized and issued
notes of Zoltek Companies, Inc., a Missouri corporation (the "BORROWER"),
designated as its 7.5% Senior Secured Convertible Notes due April 14, 2008,
in the original aggregate principal amount of ($20,000,000) (collectively,
the "NOTES" and each Note comprising the Notes, a "NOTE").
FOR VALUE RECEIVED, the Borrower promises to pay to the
order of ________________ or its registered assigns (the "LENDER"), the
principal sum of __________ million dollars ($_____________), on April 14,
2008 or such earlier date as this Note is required to be repaid as provided
hereunder (the "MATURITY DATE"), and to pay interest to the Lender on the
principal amount of this Note outstanding from time to time in accordance
with the provisions hereof. All holders of Notes are referred to
collectively, as the "LENDERS." This Note is subject to the following
additional provisions:
1. Definitions. In addition to the terms defined elsewhere
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in this Note: (a) capitalized terms that are used but not otherwise defined
herein have the meanings given to such terms in the Loan and Warrant
Agreement, dated as of the Original Issue Date, among the Borrower, the
lenders identified therein and Omicron Master Trust, as Administrative Agent
thereunder (the "LOAN AGREEMENT"), and (b) the following terms have the
meanings indicated below:
"BANKRUPTCY EVENT" means any of the following events: (a) the Borrower
or any Subsidiary commences a case or other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
relating to the Borrower or any Subsidiary thereof; (b) there is commenced
against the Borrower or any Subsidiary any such case or proceeding that is
not dismissed within 60 days after commencement; (c) the Borrower or any
Subsidiary is adjudicated by a court of competent jurisdiction insolvent or
bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Borrower or any Subsidiary suffers any
appointment of any custodian or the like for it or any substantial part of
its property that is not discharged or stayed within 60 days; (e) under
applicable law the Borrower or any Subsidiary makes a general assignment for
the benefit of creditors; (f) the Borrower or any Subsidiary fails to pay,
or states that it is unable to pay or is unable to pay, its debts generally
as they become due; (g) the Borrower or any Subsidiary calls a meeting of
its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (h) the Borrower or any Subsidiary, by any
act or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action
for the purpose of effecting any of the foregoing.
"BOOK VALUE" shall mean, with respect to any item of Collateral
Security, the historical cost thereof set forth on the books of Opco in
accordance with applicable accounting principles, less all accumulated
depreciation, reserve, allowance and impairment with respect thereto in
accordance with applicable accounting principles.
"BORROWER PREPAYMENT AMOUNT" for any principal amount of Notes which
shall be subject to prepayment, shall equal the sum of (1) the greater of:
(A) 115% of such outstanding principal amount, plus all accrued but unpaid
interest on such Notes, through the date of payment, or (B) the product of
(x) the Event Equity Value and (y) the number of the Underlying Shares
issuable upon conversion in full of such principal amount and all such
accrued but unpaid interest thereon (without regard to any conversion
limitation contained herein), and (2) the amount of any unpaid liquidated
damages and other amounts then owing (other than interest and principal)
under the Transaction Documents.
"CHANGE OF CONTROL" means the occurrence of any of the following in
one or a series of related transactions: (i) an acquisition after the date
hereof by an individual or legal entity or "group" (as described in Rule
13d-5(b)(1) under the Exchange Act) of more than one-third of the voting
rights or equity interests in the Borrower; (ii) a replacement of more than
one-half of the members of the Borrower's board of directors in a single
election of directors that is not approved by those individuals who are
members of the board of directors on the date hereof (or other directors
previously approved by such individuals); (iii) a Fundamental Transaction
(as defined in Section 11(c)), a merger or consolidation of the Borrower or
any Subsidiary or a sale of more than one-half of the assets of the Borrower
in one or a series of related transactions, unless following such
transaction or series of transactions, the holders of the Borrower's
securities prior to the first such transaction continue to hold at least
two-thirds of the voting rights and equity interests in the surviving entity
or acquirer of such assets; (iv) a
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recapitalization, reorganization or other transaction involving the Borrower
or any Subsidiary that constitutes or results in a transfer of more than
one-third of the voting rights or equity interests in the Borrower, unless
following such transaction or series of transactions, the holders of the
Borrower's securities prior to the first such transaction continue to hold
at least two-thirds of the voting rights and equity interests in the
surviving entity or acquirer of such assets; (v) consummation of a "Rule
13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act with
respect to the Borrower, or (vi) the execution by the Borrower or its
controlling shareholders of an agreement providing for or reasonably likely
to result in any of the foregoing events.
"CLOSING PRICE" means, for any date, the price determined by the first
of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on an Eligible Market, the closing sale price per share of
the Common Stock for such date (or the nearest preceding date) on the
primary Eligible Market or exchange on which the Common Stock is then listed
or quoted; (b) if prices for the Common Stock are then quoted on the OTC
Bulletin Board, the closing sale price per share of the Common Stock for
such date (or the nearest preceding date) so quoted; (c) if prices for the
Common Stock are then reported in the "Pink Sheets" published by the
National Quotation Bureau Incorporated (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent sale price
per share of the Common Stock so reported; or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an independent
qualified appraiser selected in good faith and paid for by a majority in
interest of the Lenders.
"COMMON STOCK" means the common stock of the Borrower, $0.01 par value
per share, and any securities into which such common stock may hereafter be
reclassified.
"COMMON STOCK EQUIVALENTS" means any securities of the Borrower or a
subsidiary thereof which entitle the holder thereof to acquire Common Stock
at any time, including without limitation, any debt, preferred stock,
rights, options, warrants or other instrument that is at any time
convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock or other securities that entitle the holder
to receive, directly or indirectly, Common Stock.
"CONVERSION DATE" means the date a Conversion Notice together with the
Conversion Schedule is delivered to the Borrower in accordance with
Section 5(a).
"CONVERSION NOTICE" means a written notice in the form attached hereto
as Exhibit A.
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"CONVERSION PRICE" means $12.00, subject to adjustment from time to
time pursuant to Section 11.
"DEFAULT" means any event or condition which constitutes an Event of
Default or that upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"ELIGIBLE MARKET" means any of the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap
Market.
"EQUITY CONDITIONS ARE SATISFIED" means, as of any date of
determination, that each of the
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following conditions is (or would be) satisfied on such date, if the
Borrower were to issue on such date all of the Underlying Shares then
issuable upon (1) conversion in full of the outstanding principal amount of
all convertible debt issued by the Borrower (including the Notes), (2) the
exercise of all options and warrants for Common Stock (including the
Warrants) and (3) the payment of accrued and unpaid interest on such
Interest Payment Date under all convertible debt (including the Notes) of
the Borrower: (i) the number of authorized but unissued and otherwise
unreserved shares of Common Stock is sufficient for such issuance, (ii) the
Common Stock is listed or quoted (and is not suspended from trading) on an
Eligible Market and such shares of Common Stock are approved for listing on
such Eligible Market upon issuance, (iii) such Common Stock is registered
for resale under the Registration Statement, (iv) such issuance would be
permitted in full without violating, (x) in the case of Section 13, Section
5(b)(i) hereof, or (y) in all other cases, Section 5(b) hereof or the rules
or regulations of the Eligible Market on which such shares are listed or
quoted, (v) both immediately before and after giving effect thereto, no
Default shall or would exist, and (vi) no public announcement of a pending
or proposed Change of Control transaction has occurred that has not been
consummated.
"EVENT EQUITY VALUE" means the average of the Closing Prices for the
five consecutive Trading Days preceding either: (a) the date of an Event
Notice or the date the Borrower becomes obligated to pay the Event Price
under Section 7(b), as applicable, or (b) the date on which the Event Price
with respect thereto (together with any other payments, expenses and
liquidated damages then due and payable under the Transaction Documents) is
paid in full, whichever is greater.
"EVENT OF DEFAULT" means any one of the following events (whatever the
reason and whether it shall be voluntary or involuntary or effected by
operation of law or pursuant to any judgment, decree or order of any court,
or any order, rule or regulation of any administrative or governmental
body):
(i) any default in the payment (free of any claim of
subordination), when the same becomes due and payable (whether on a
Conversion Date or the Borrower Conversion Date, a Prepayment Date, the
Maturity Date or by acceleration or prepayment or otherwise), of principal,
interest or liquidated damages in respect of this Note which default
continues unremedied for a period of three Trading Days after the date on
which written notice of such default is first given to the Borrower by the
Holder.
(ii) the Borrower or any Subsidiary (1) fails to pay
when due any monetary obligation (regardless of amount) under any currently
existing or hereafter arising debenture (other than a Note) or any mortgage,
credit agreement or other facility, indenture agreement, factoring agreement
or other instrument under which there may be issued, or by which there may
be secured or evidenced, any Indebtedness or under any long term leasing or
factoring arrangement, if the aggregate amount of the obligations and
liabilities of the Borrower and the Subsidiaries thereunder exceed $350,000
(each of the foregoing a "Material Debt Agreement"), or (2) fails to observe
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or perform any other obligation under any Material Debt Agreement, and such
failure results in the obligations thereunder becoming or being declared due
and payable prior to the date on which they would otherwise become due and
payable.
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(iii) the occurrence or entering into by the Borrower
or any Subsidiary, or consummation of, any Change of Control transaction.
(iv) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Sections 4.4, 4.6, 4.8, 4.9,
4.10, 4.12, 4.16 or in Article 5 of the Loan Agreement.
(v) the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in any Transaction Document
(other than those specified in clause (i) or (iv) above and clause (xvii)
below), and such failure shall continue unremedied for a period of ten
Trading Days after the date on which written notice of such default is first
given to the Borrower by the Holder (it being understood that no prior
notice need be given in the case of a default that cannot reasonably be
cured within ten Trading Days).
(vi) the occurrence and continuance of an Event of
Default under any other Note.
(vii) any prepayment by the Borrower of any other Note
or any other Indebtedness (other than (a) the Borrower's outstanding
Indebtedness to Southwest Bank of St. Louis and Beal Bank, SSB, and (b) the
2003 Debentures (as defined below) or 2004 Debentures (as defined below),
each in accordance with their respective terms), issued by it or outstanding
under any issuance of securities in exchange for any Notes issued by it
(other than Underlying Shares upon conversion of such Notes in accordance
with their terms as in effect on the Original Issue Date thereof), except in
each case (1) if the Borrower offers to the Lender in writing the same
prepayment of this Note and all other Notes then held by such Lender on the
same economic terms on which the Borrower prepays or offers to prepay
(whichever is more favorable to the holder of such Note) such Notes, (2) in
accordance with the prepayment provisions of Section 13 of this Note and,
(3) in accordance with the prepayment provisions of Section 15 of the
Security Agreement.
(viii) any of the Borrower's representations and warranties
set forth in the Loan Agreement shall be incorrect in any material respect
as of the Original Issue Date.
(ix) the occurrence of a Bankruptcy Event.
(x) one or more judgments for the payment of money in
an aggregate amount in excess of (1) with respect to the existing litigation
pertaining to Scott Macon Securities, $850,000, or (2) in all other cases,
$350,000, shall be rendered against the Borrower or any Subsidiary or any
combination thereof (which shall not be fully covered by insurance without
taking into account any applicable deductibles) and the same shall remain
undischarged or unbonded for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to attach or levy upon any assets of the
Borrower or any Subsidiary to enforce any such judgment.
(xi) any Transaction Document shall cease, for any
reason, to be in full force and effect, or the Borrower shall so assert in
writing or shall disavow any of its obligations thereunder.
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(xii) the Common Stock shall not be listed or quoted,
or is suspended from trading, on an Eligible Market for a period of three
Trading Days (which need not be consecutive Trading Days).
(xiii) the Borrower fails to deliver a stock certificate
evidencing Underlying Shares to a Lender within three Trading Days after a
Conversion Date, or in the case of exercises under a Warrant, within three
Trading Days after a Date of Exercise under, and as such term is defined in,
such Warrant, or the conversion or exercise rights of the Lenders pursuant
to the terms hereof or the terms of the Warrants are otherwise suspended for
any reason (other than as a result of the limitations set forth in Section
5(b)(ii)).
(xiv) the Borrower fails to have available a sufficient
number of authorized but unissued and otherwise unreserved shares of Common
Stock available to issue Underlying Shares upon any conversion of Notes or
upon any exercise of Warrants.
(xv) the Borrower effects or publicly announces its
intention to effect any exchange, recapitalization or other transaction that
effectively requires or rewards physical delivery of certificates evidencing
the Common Stock, unless following such transaction, the holders of the
Borrower's securities prior to the first such transaction continue to
beneficially own at least two-thirds of the voting rights and equity
interests in the surviving entity or acquirer of such assets.
(xvi) a Registration Statement under the Registration
Rights Agreement is not declared effective by the Commission by the 365th
day following the Closing Date, or is not effective as to all Registrable
Securities (as defined in the Registration Rights Agreement), and available
for use by the holders of Registrable Securities, for in excess of an
aggregate of 60 Trading Days (which need not be consecutive Trading Days)
during the Effectiveness Period (as defined in the Registration Rights
Agreement).
(xvii) the Borrower fails to make any cash payment
required under the Transaction Documents (other than as set forth in
paragraph (i) above) and such failure is not cured within five Trading Days
after notice of such default is first given to the Borrower by a Lender.
(xviii) there shall be an Event of Default under and as
defined in any debenture issued by the Borrower in respect of the Securities
Purchase Agreement dated as of December 19, 2003 (the "2003 SECURITIES
PURCHASE AGREEMENT") (such debentures, the "2003 DEBENTURES").
(xix) there shall be an Event of Default under and as
defined in any debenture issued by the Borrower in respect of the Securities
Purchase Agreement dated as of March 11, 2004 (the "2004 SECURITIES PURCHASE
AGREEMENT") (such debentures, the "2004 DEBENTURES").
(xx) the Borrower shall fail to certify to each Lender,
within 60 days after the end of each fiscal quarter of the Borrower, the
Book Value of the Collateral Security, taken as a whole, as of the end of
such quarter, expressed in U.S. Dollars at the prevailing
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exchange rate therefor as of such fiscal quarter end, and the Borrower fails
to cure such failure within 7 days of any demand therefor by the
Administrative Agent or any Lender.
(xxi) the Collateral Security, taken as a whole, shall
fail as of the end of any calendar month to have a Book Value (expressed in
U.S. Dollars at the prevailing exchange rate therefor as of such date or, in
the event that such date is not a fiscal quarter end of the Borrower, as of
the immediately preceding fiscal quarter end), of at least one and one-half
times the aggregate outstanding principal balance of the Loans, and the
Borrower fails to cure such failure within 14 days of any demand therefor by
the Administrative Agent or any Lender.
(xxii) the Borrower shall agree to amend, waive or
otherwise modify the Shareholders Agreement other than in accordance with
Section 8.4 of the Loan Agreement.
"GUARANTEE" of or by any Person shall mean any obligation, contingent
or otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person (the "primary obligor") in
any manner, whether directly or indirectly, and including any obligation of
such Person, direct or indirect, (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any security
for the payment of such Indebtedness, (b) to purchase property, securities
or services for the purpose of assuring the owner of such Indebtedness of
the payment of such Indebtedness or (c) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness,
provided, that the term Guarantee shall not include endorsements for
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collection or deposit, in either case in the ordinary course of business.
"INDEBTEDNESS" of any Person shall mean, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person upon which interest charges are customarily paid,
(d) all obligations of such Person under conditional sale or other title
retention agreements relating to property or assets purchased by such
Person, (e) all obligations of such Person issued or assumed as the deferred
purchase price of property or services (other than unsecured accounts
payable incurred in the ordinary course of business), (f) all Indebtedness
of others secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person,
(i) all obligations of such Person in respect of interest rate protection
agreements, foreign currency exchange agreements or other interest or
exchange rate hedging arrangements that exceed amounts necessary to hedge
the Borrower's interest rate or cross-currency exposure and (j) all
obligations of such Person as an account party in respect of letters of
credit and bankers' acceptances. The Indebtedness of any Person shall
include the Indebtedness of any partnership in which such Person is a
general partner.
"ORIGINAL ISSUE DATE" has the meaning set forth on the face of this
Note.
"REGISTRATION STATEMENT" shall have the meaning set forth in the Loan
Agreement.
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"SECURITY AGREEMENT" shall have the meaning set forth in the Loan
Agreement.
"TRADING DAY" means (i) a day on which the Common Stock is traded on a
Trading Market (other than the OTC Bulletin Board), or (ii) if the Common
Stock is not traded on a Trading Market, a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin Board
or the National Quotation Bureau Incorporated, or (iii) if the Common Stock
is not traded on a Trading Market, a day on which the Common Stock is quoted
in the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices); provided, that in the event that the Common
Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof,
then Trading Day shall mean a Business Day.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of the Notes and payment of interest thereunder, and upon
exercise of the Warrants.
"VWAP" means, with respect to any date of determination, the daily
volume weighted average price (as reported by Bloomberg using the VAP
function) of the Common Stock on such date of determination, or if there is
no such price on such date of determination, then the daily volume weighted
average price on the date nearest preceding such date.
"WARRANTS" shall have the meaning ascribed in the Loan Agreement.
2. Interest.
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(a) The Borrower shall pay interest to the Lender on the
aggregate unconverted and then outstanding principal amount of this Note at
the rate of 7.5% per annum, payable quarterly in cash or, subject to the
conditions of Section 2(b), in shares of Common Stock, in arrears on each
March 31, June 30, September 30 and December 31, beginning December 31,
2004, except if such date is not a Trading Day, in which case such interest
shall be payable on the next succeeding Trading Day. Interest shall be
calculated on the basis of a 360-day year for the actual number of days
elapsed and shall accrue daily commencing on the Original Issue Date.
(b) Subject to the conditions and limitations set forth below,
the Borrower may at its option, on each Interest Payment Date, pay accrued
interest on this Note either: (i) in cash, or (ii) by delivering by the
Third Trading Day following the applicable Interest Payment Date, a number
of freely tradable shares of Common Stock equal to the quotient obtained by
dividing the amount of such interest by 93% of the arithmetic average of the
VWAP for each of the 20 consecutive Trading Days immediately preceding (but
not including) such Interest Payment Date. The Borrower must deliver written
notice to the Lender indicating the manner in which it intends to pay
interest at least ten Trading Days prior to each Interest Payment Date, but
the Borrower may indicate in any such notice that the election contained
therein shall continue for subsequent Interest Payment Dates until
rescinded. Failure to timely provide such written notice shall be deemed an
irrevocable election by the Borrower to pay such interest in cash. All
interest payable in respect of the Notes on any Interest Payment Date must
be paid in the same manner. Notwithstanding the foregoing, the Borrower may
not pay interest
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in shares of Common Stock on any Interest Payment Date unless, on the date
thereof, the Equity Conditions Are Satisfied.
3. Registration of Notes. The Borrower shall register the Notes
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upon records maintained by the Borrower for that purpose (the "NOTE
REGISTER") in the name of each record Lender thereof from time to time. The
Borrower may deem and treat the registered Lender of this Note as the
absolute owner hereof for the purpose of any conversion hereof or any
payment of interest hereon, and for all other purposes, absent actual notice
to the contrary from such record Lender. The Borrower shall at any time and
from time to time, upon one Business Days' prior notice by the
Administrative Agent or any Lender, make the Note Register available for
inspection by the Administrative Agent, such Lender or the representative(s)
of the Administrative Agent or such Lender, at the chief executive office of
the Borrower during normal business hours. The Administrative Agent shall be
permitted to rely on the information set forth in the Note Register.
4. Registration of Transfers and Exchanges. The Borrower shall
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register the transfer of any portion of this Note in the Note Register upon
surrender of this Note to the Borrower at its address for notice set forth
herein. Upon any such registration or transfer, a new Note, in substantially
the form of this Note (any such new debenture, a "NEW NOTE"), evidencing the
portion of this Note so transferred shall be issued to the transferee and a
New Note evidencing the remaining portion of this Note not so transferred,
if any, shall be issued to the transferring Lender. The acceptance of the
New Note by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a holder of a Note. The
Borrower agrees that its prior consent is not required for the transfer of
any portion of this Note; provided, however, that the Borrower shall be
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entitled to reasonable assurance, including an opinion of counsel reasonably
acceptable to Borrower, that such transfer complies with applicable federal
and state securities laws. This Note is exchangeable for an equal aggregate
principal amount of Notes of different authorized denominations, as
requested by the Lender surrendering the same. No service charge or other
fee will be imposed in connection with any such registration of transfer or
exchange.
5. Conversion.
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(a) (i) At the Option of the Lender. All or any portion of
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the principal amount of this Note then outstanding together with any accrued
and unpaid interest hereunder shall be convertible into shares of Common
Stock at the Conversion Price (subject to limitations set forth in Section
5(b)), at the option of the Lender, at any time and from time to time from
and after the Original Issue Date. The Lender may effect conversions under
this Section 5(a), by delivering to the Borrower a Conversion Notice
together with a schedule in the form of Schedule 1 attached hereto (the
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"CONVERSION SCHEDULE"). If the Lender is converting less than all of the
principal amount represented by this Note, or if a conversion hereunder may
not be effected in full due to the application of Section 5(b), the Borrower
shall honor such conversion to the extent permissible hereunder and shall
promptly deliver to the Lender a Conversion Schedule indicating the
principal amount which has not been converted.
(ii) At Option of the Borrower. Subject to the
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provisions of this Section 5(a)(ii), at any time after the Effective Date,
the Borrower may deliver a written notice
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(such notice, a "BORROWER CONVERSION NOTICE") to the Lender stating its
irrevocable election to convert at the Conversion Price all (but not less
than all) of the outstanding principal amount of this Note, provided that:
(i) the VWAP of the Common Stock for each of the 30 consecutive Trading Days
prior to the date of such Borrower Conversion Notice is greater than $21.50
(subject to equitable adjustment as a result of the events set forth in
Sections 11(a), (b) and (c)), (ii) on each date during the entire period
referred to in clause (i) above and through the Borrower Conversion Date (as
defined below), the Equity Conditions Are Satisfied, (iii) the average daily
trading volume of the Common Stock during the entire period referred to in
clause (i) above and through the Borrower Conversion Date (as defined below)
shall be at least 40,000 shares, (iv) immediately before or after giving
effect to such issuance on such date, no Default shall or would exist, and
(v) immediately after giving effect thereto on the Borrower Conversion Date,
none of the other Notes, or any of the 2003 Debentures or 2004 Debentures,
would be or remain outstanding. Subject to the terms and conditions of this
Section 5(a)(ii), the Borrower shall effect the conversion of this Note
pursuant to a Borrower Conversion Notice on the 10th Trading Day immediately
succeeding the date of the Borrower Conversion Notice (the "BORROWER
CONVERSION DATE"). Notwithstanding anything to the contrary set forth in
this Note, the Lender shall have the right to nullify such Borrower
Conversion Notice if any of the conditions set forth in this Section
5(a)(ii) shall not have been met from the date of the Borrower Conversion
Notice through the Borrower Conversion Date. The Borrower covenants and
agrees that it will honor all Conversion Notices tendered from the time of
delivery of the Borrower Conversion Notice through 6:30 p.m. on the Trading
Day prior to the Borrower Conversion Date. Notwithstanding the foregoing,
the Borrower and the Lender agree that, if and to the extent Section 5(b) of
this Note would restrict the right of the Borrower to issue or the right of
the Lender to receive any of the Underlying Shares otherwise issuable upon
the conversion in respect of a Borrower Conversion Notice, then
notwithstanding anything to the contrary set forth in the Borrower
Conversion Notice, the Borrower Conversion Notice shall be deemed
automatically amended to apply only to such portion of this Note as would
permit conversion in full in compliance with Section 5(b). The Lender will
promptly (and, in any event, prior to the Borrower Conversion Date) notify
the Borrower in writing following receipt of a Borrower Conversion Notice if
Section 5(b)(i) would restrict its right to receive the full number of
otherwise issuable Underlying Shares following such Borrower Conversion
Notice.
(b) Certain Conversion Restrictions.
-------------------------------
(i) Notwithstanding anything to the contrary contained
herein, the number of shares of Common Stock that may be acquired by a
Lender upon each conversion of Notes (or otherwise in respect hereof) shall
be limited to the extent necessary to insure that, following such conversion
(or other issuance), the total number of shares of Common Stock then
beneficially owned by such Lender and its Affiliates and any other Persons
whose beneficial ownership of Common Stock would be aggregated with such
Lender's for purposes of Section 13(d) of the Exchange Act, does not exceed
9.999% of the total number of issued and outstanding shares of Common Stock
(including for such purpose the shares of Common Stock issuable upon such
conversion). For such purposes, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder. This provision shall not restrict the
number of shares of Common Stock which a Lender may receive or beneficially
own in order to determine the amount of securities or other
10
consideration that such Lender may receive in the event of a Fundamental
Transaction (defined below) involving the Borrower as contemplated herein.
This restriction may not be waived.
(ii) Notwithstanding anything to the contrary in this Note,
if the Borrower has not previously obtained Shareholder Approval (as defined
below), then the Borrower may not issue shares of Common Stock in excess of
the Issuable Maximum upon conversions of this Note at a conversion price
which is less than the Closing Price on the Trading Day immediately
preceding the Original Issue Date (the "THRESHOLD PRICE"). The "Issuable
Maximum" means, as of any date, a number of shares of Common Stock equal to
3,289,196, less such number of shares of Common Stock as have been issued at
a price below the Threshold Price (1) upon exercise of the Warrants issued
under the Loan Agreement and warrants issued under the 2003 Securities
Purchase Agreement or the 2004 Securities Purchase Agreement, (2) upon
conversion of the 2003 Debentures and the 2004 Debentures, and (3) upon
conversion of the Notes, or in payment of interest thereunder. Each Lender
shall be entitled to a portion of the Issuable Maximum equal to the quotient
obtained by dividing: (x) the principal amount of Notes issued and sold to
such Lender on the Original Issue Date by (y) the aggregate principal amount
of all Notes issued and sold by the Borrower on the Original Issue Date. If
any Lender shall no longer hold Notes, then such Lender's remaining portion
of the Issuable Maximum (other than those represented by the remaining
portion of the Warrant and the other warrants referenced in clause (1)
above) shall be allocated pro-rata among the remaining Lenders, giving
effect to the Borrower's desire to allocate this limitation among the class
of securities known as the Notes. If on any Conversion Date or Borrower
Conversion Date, or at such time as a Lender shall notify the Company that
the condition in (A) following this clause shall be in effect: (A) the
aggregate number of shares of Common Stock that would then be issuable upon
conversion in full of all then outstanding principal amount of Notes would
exceed the Issuable Maximum on such date, and (B) the Borrower shall not
have previously obtained the vote of shareholders, as may be required by the
applicable rules and regulations of the Nasdaq Stock Market (or any
successor entity or any other Eligible Market on which the Borrower's
securities then trade), applicable to approve the issuance of shares of
Common Stock in excess of the Issuable Maximum pursuant to the terms hereof
(the "SHAREHOLDER APPROVAL"), then, the Borrower shall issue to the Lender a
number of shares of Common Stock equal to the Issuable Maximum and, with
respect to the remainder of the principal amount of Notes then held by the
Lenders for which a conversion would result in an issuance of shares of
Common Stock in excess of the Issuable Maximum, the Borrower must seek
Shareholder Approval as soon as possible, but in any event not later than
the 90th day following such Conversion Date, Borrower Conversion Date or the
date of such request. The Borrower and the Lender understand and agree that
shares of Common Stock issued to and then held by the Lender as a result of
conversions of Notes shall not be entitled to cast votes on any resolution
to obtain Shareholder Approval pursuant hereto.
6. Mechanics of Conversion.
-----------------------
(a) The number of Underlying Shares issuable upon any
conversion hereunder shall equal the outstanding principal amount of this
Note to be converted, divided by the Conversion Price on the Conversion
Date, plus (if indicated in the applicable Conversion Notice or the Borrower
Conversion Notice) the amount of any accrued but unpaid interest on this
Note through the Conversion Date, divided by the Conversion Price on the
Conversion Date.
11
(b) The Borrower shall promptly following each Conversion
Date (but in no event later than three Trading Days after such Conversion
Date) issue or cause to be issued and cause to be delivered to or upon the
written order of the Lender and in such name or names as the Lender may
designate a certificate for the Underlying Shares issuable upon such
conversion, free of restrictive legends. The Lender, or any Person so
designated by the Lender to receive Underlying Shares, shall be deemed to
have become holder of record of such Underlying Shares as of such Conversion
Date. The Borrower shall, upon request of the Lender, use its best efforts
to deliver Underlying Shares hereunder electronically (via a DWAC) through
the Depository Trust Corporation or another established clearing corporation
performing similar functions.
(c) The Lender shall not be required to deliver the original
Note in order to effect a conversion hereunder. Execution and delivery of
the Conversion Notice shall have the same effect as cancellation of the Note
and issuance of a New Note representing the remaining outstanding principal
amount.
(d) The Borrower's obligations to issue and deliver Underlying
Shares upon conversion of this Note in accordance with the terms hereof are
absolute and unconditional, irrespective of any action or inaction by the
Lender to enforce the same, any waiver or consent with respect to any
provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the Lender or
any other Person of any obligation to the Borrower or any violation or
alleged violation of law by the Lender or any other Person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Borrower to the Lender in connection with the issuance of such Underlying
Shares.
(e) If by the third Trading Day after a Conversion Date or the
Borrower Conversion Date the Borrower fails to deliver to the Lender such
Underlying Shares in such amounts and in the manner required pursuant to
Section 5, then the Lender will have the right to rescind the Conversion
Notice or the Borrower Conversion Notice pertaining thereto by giving
written notice to the Borrower prior to such Lender's receipt of such
Underlying Shares.
(f) If by the third Trading Day after a Conversion Date or
the Borrower Conversion Date the Borrower fails to deliver to the Lender the
required number of Underlying Shares in the manner required pursuant to
Section 5, and if after such third Trading Day and prior to the receipt of
such Underlying Shares, the Lender purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
the Lender of the Underlying Shares which the Lender anticipated receiving
upon such conversion (a "BUY-IN"), then the Borrower shall: (1) pay in cash
to the Lender (in addition to any other remedies available to or elected by
the Lender) the amount by which (x) the Lender's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (A) the number of
Underlying Shares that the Borrower was required to deliver to the Lender in
connection with the exercise at issue by (B) the Closing Price at the time
of the obligation giving rise to such purchase obligation and (2) at the
option of the Lender, either void the conversion at issue and reinstate the
principal amount of Notes (plus accrued interest therein) for which such
conversion was not timely honored or deliver to the Lender the number of
shares of Common Stock that would have been
12
issued had the Borrower timely complied with its exercise and delivery
obligations hereunder. The Lender shall provide the Borrower reasonably
detailed evidence or written notice indicating the amounts payable to the
Lender in respect of the Buy-In.
7. Events of Default.
-----------------
(a) At any time or times following the occurrence and during
the continuance of an Event of Default (other than under clause (ix) of such
defined term with respect to the Borrower), the Lender may by notice to the
Borrower (an "EVENT NOTICE"), require the Borrower to purchase all or any
portion of the outstanding principal amount of this Note, as indicated in
such Event Notice, at a purchase price in Dollars in cash equal to the
greater of: (A) 100% of such outstanding principal amount, plus all accrued
but unpaid interest thereon and any unpaid liquidated damages and other
amounts then owing to the Lender under the Transaction Documents, through
the date of purchase, or (B) the Event Equity Value of the Underlying Shares
that would be issuable upon conversion of such principal amount and payment
in Common Stock of all such accrued but unpaid interest thereon (without
regard to any condition precedent or conversion limitation contained
herein). The aggregate amount payable pursuant to the preceding sentence is
referred to as the "EVENT PRICE." The Borrower shall pay the aggregate Event
Price to the Lender (free of any claim of subordination) no later than the
third Trading Day following the date of delivery of the Event Notice, and
upon receipt thereof the Lender shall deliver the original Note so
repurchased to the Borrower.
(b) Upon the occurrence of any Bankruptcy Event with respect
to the Borrower, all outstanding principal and accrued but unpaid interest
on this Note and any unpaid liquidated damages and other amounts then owing
under the Transaction Documents shall immediately become due and payable in
full in Dollars in cash (free of any claim of subordination), without any
action by the Lender, and the Borrower shall immediately be obligated to
repurchase this Note held by such Lender at the Event Price pursuant to the
preceding paragraph as if the Lender had delivered an Event Notice
immediately prior to the occurrence of such Bankruptcy Event.
(c) In connection with any Event of Default, the Lender need
not provide and the Borrower hereby waives any presentment, demand, protest
or other notice of any kind (other than the Event Notice), and the Lender
may immediately enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Any such
declaration may be rescinded and annulled by the Lender at any time prior to
payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereto.
8. Ranking. This Note ranks senior to or pari passu with all
-------
other Notes now or hereafter issued pursuant to the Transaction Documents
and is senior to or pari passu with all existing and hereafter created
unsecured Indebtedness of the Borrower. No unsecured Indebtedness of the
Borrower is senior to this Note in right of payment, whether with respect of
interest, damages or upon liquidation or dissolution or otherwise. The
Borrower will not, directly or indirectly, enter into, create, incur, assume
or suffer to exist any unsecured indebtedness of any kind, on or with
respect to any of its property or assets now owned or hereafter acquired or
13
any interest therein or any income or profits therefrom, that is senior in
any respect to the Borrower's obligations under the Notes.
9. Charges, Taxes and Expenses. Issuance of certificates for
---------------------------
Underlying Shares upon conversion of (or otherwise in respect of) this Note
shall be made without charge to the Lender for any issue or transfer tax,
withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Borrower; provided, however, that the Borrower shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the registration of any certificates for Underlying
Shares or Notes in a name other than that of the Lender. The Lender shall be
responsible for all other tax liability that may arise as a result of
holding or transferring this Note or receiving Underlying Shares in respect
hereof.
10. Reservation of Underlying Shares. The Borrower covenants that
--------------------------------
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued and otherwise unreserved Common Stock, solely for
the purpose of enabling it to issue Underlying Shares as required hereunder,
the number of Underlying Shares which are then issuable and deliverable upon
the conversion of (and otherwise in respect of) this entire Note (taking
into account the adjustments of Section 11), free from preemptive rights or
any other contingent purchase rights of persons other than the Lender. The
Borrower covenants that all Underlying Shares so issuable and deliverable
shall, upon issuance in accordance with the terms hereof, be duly and
validly authorized, issued and fully paid and nonassessable.
11. Certain Adjustments. The Conversion Price is subject to
-------------------
adjustment from time to time as set forth in this Section 11.(1)
(a) Stock Dividends and Splits. If the Borrower, at any time
--------------------------
while this Note is outstanding: (i) pays a stock dividend on its Common
Stock or otherwise makes a distribution on any class of capital stock that
is payable in shares of Common Stock, (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, or (iii) combines outstanding
shares of Common Stock into a smaller number of shares, then in each such
case the Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the
number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.
(b) Pro Rata Distributions. If the Borrower, at any time while
----------------------
this Note is outstanding, distributes to all holders of Common Stock (i)
evidences of its indebtedness, (ii) any security (other than a distribution
of Common Stock covered by the preceding paragraph), (iii) rights or
warrants to subscribe for or purchase any security, or (iv) any other asset
(in each case, "DISTRIBUTED PROPERTY"), then, at the request of the Lender
delivered before the 90th day after the record date fixed for determination
of shareholders entitled to receive such
<FN>
- --------
(1) This provision will not be in the Notes issued to directors and officers
of the Company.
14
distribution, the Borrower will deliver to the Lender, within five Trading
Days after such request (or, if later, on the effective date of such
distribution), the Distributed Property that the Lender would have been
entitled to receive in respect of the Underlying Shares for which this Note
could have been converted immediately prior to such record date. If such
Distributed Property is not delivered to the Lender pursuant to the
preceding sentence, then upon any conversion of this Note that occurs after
such record date, the Lender shall be entitled to receive, in addition to
the Underlying Shares otherwise issuable upon such conversion, the
Distributed Property that the Lender would have been entitled to receive in
respect of such number of Underlying Shares had the Lender been the record
holder of such Underlying Shares immediately prior to such record date.
Notwithstanding the foregoing, this Section 11(b) shall not apply to any
distribution of rights or securities in respect of adoption by the Borrower
of a shareholder rights plan, which events shall be covered by Section 11(a).
(c) Fundamental Transactions. If, at any time while this Note
------------------------
is outstanding, (i) the Borrower effects any merger or consolidation of the
Borrower with or into another Person, (ii) the Borrower effects any sale of
all or substantially all of its assets in one or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the
Borrower or another Person) is completed pursuant to which holders of Common
Stock tender or exchange their shares for other securities, cash or
property, or (iv) the Borrower effects any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or
property (other than as a result of a subdivision or combination of shares
of Common Stock covered by Section 11(a) above) (in any such case, a
"FUNDAMENTAL TRANSACTION"), then upon any subsequent conversion of this
Note, the Lender shall have the right to: (x) declare an Event of Default
pursuant to clause (iii) thereunder, (y) receive, for each Underlying Share
that would have been issuable upon such conversion absent such Fundamental
Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental
Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one share of Common Stock (the "ALTERNATE
CONSIDERATION") or (z) require the surviving entity to issue to the Lender
and instrument identical to this Note (with an appropriate adjustments to
the conversion price). For purposes of any such conversion, the Borrower
shall apportion the Conversion Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components
of the Alternate Consideration. If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a
Fundamental Transaction, then the Lender shall be given the same choice as
to the Alternate Consideration it receives upon any conversion of this Note
following such Fundamental Transaction. To the extent necessary to
effectuate the foregoing provisions, any successor to the Borrower or
surviving entity in such Fundamental Transaction (or, if different, the
ultimate parent of such successor or entity or the entity issuing the
Alternate Consideration) shall issue to the Lender a new debenture
consistent with the foregoing provisions and evidencing the Lender's right
to convert such debenture into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply
with the provisions of this paragraph (c) and insuring that this Note (or
any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction.
(d) Subsequent Equity Sales.
-----------------------
15
(i) If the Borrower or any subsidiary thereof, as
applicable, at any time while this Note is outstanding, shall issue shares
of Common Stock or Common Stock Equivalents entitling any Person to acquire
shares of Common Stock, at a price per share less than the Conversion Price
(if the holder of the Common Stock or Common Stock Equivalent so issued
shall at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise,
or due to warrants, options or rights issued in connection with such
issuance, be entitled to receive shares of Common Stock at a price less than
the Conversion Price, such issuance shall be deemed to have occurred for
less than the Conversion Price), then, the Conversion Price shall be
adjusted to the lowest conversion, exchange or purchase price for such
Common Stock or Common Stock Equivalents (including any reset provisions
thereof) at issue. Such adjustment shall be made whenever such Common Stock
or Common Stock Equivalents are issued. The Borrower shall notify the Lender
in writing, no later than the Trading Day following the issuance of any
Common Stock or Common Stock Equivalent subject to this section, indicating
therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms. No further
adjustments shall be made to the Conversion Price upon the actual issuance
of Common Stock upon conversion or exercise of the applicable Common Stock
Equivalent.
(ii) For purposes of this subsection 11(d), the following
subsections (d)(ii)(l) to (d)(ii)(6) shall also be applicable:
(1) Issuance of Rights or Options. In case at any
-----------------------------
time the Company shall in any manner grant (directly and not by assumption
in a merger or otherwise) any warrants or other rights to subscribe for or
to purchase, or any options for the purchase of, Common Stock or any stock
or security convertible into or exchangeable for Common Stock (such
warrants, rights or options being called "OPTIONS" and such convertible or
exchangeable stock or securities being called "CONVERTIBLE SECURITIES")
whether or not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such Options or upon
the conversion or exchange of such Convertible Securities (determined by
dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Options, plus (y) the
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus (z), in the case of such Options which
relate to Convertible Securities, the aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than
the Conversion Price in effect immediately prior to the time of the granting
of such Options, then the total number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the
total amount of such Convertible Securities issuable upon the exercise of
such Options shall be deemed to have been issued for such price per share as
of the date of granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding for purposes of
adjusting the Conversion Price. Except as otherwise provided in subsection
11(d)(ii)(3), no adjustment of the Conversion Price shall be made upon the
actual issue of such Common Stock or of such
16
Convertible Securities upon exercise of such Options or upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities.
(2) Issuance of Convertible Securities. In case the
----------------------------------
Company shall in any manner issue (directly and not by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (i) the
sum (which sum shall constitute the applicable consideration) of (x) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus (y) the aggregate amount
of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (ii) the total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then the total maximum number of
shares of Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued for such price
per share as of the date of the issue or sale of such Convertible Securities
and thereafter shall be deemed to be outstanding for purposes of adjusting
the Conversion Price, provided that (a) except as otherwise provided in
subsection 11(d)(ii)(3), no adjustment of the Conversion Price shall be made
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities and (b) no further adjustment of the Conversion
Price shall be made by reason of the issue or sale of Convertible Securities
upon exercise of any Options to purchase any such Convertible Securities for
which adjustments of the Conversion Price have been made pursuant to the
other provisions of subsection 11(d).
(3) Change in Option Price or Conversion Rate. Upon
-----------------------------------------
the happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subsection 11(d)(ii)(l) hereof,
the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subsections
11(d)(ii)(l) or 11(d)(ii)(2), or the rate at which Convertible Securities
referred to in subsections 11(d)(ii)(l) or 11(d)(ii)(2) are convertible into
or exchangeable for Common Stock shall change at any time (including, but
not limited to, changes under or by reason of provisions designed to protect
against dilution), the Conversion Price in effect at the time of such event
shall forthwith be readjusted to the Conversion Price which would have been
in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. On the termination of any Option for which any
adjustment was made pursuant to this subsection 11(d) or any right to
convert or exchange Convertible Securities for which any adjustment was made
pursuant to this subsection 11(d) (including without limitation upon the
redemption or purchase for consideration of such Convertible Securities by
the Company), the Conversion Price then in effect hereunder shall forthwith
be changed to the Conversion Price which would have been in effect at the
time of such termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such termination, never been issued.
(4) Stock Dividends. Subject to the provisions of
---------------
this Section 11(d), in case the Company shall declare a dividend or make any
other distribution upon any stock of the Company (other than the Common
Stock) payable in Common Stock, Options
17
or Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(5) Consideration for Stock. In case any shares of
-----------------------
Common Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the net
amount received by the Company therefor, after deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or
allowed by the Company in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the 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, after deduction of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith. In case any Options shall be issued in connection with the issue
and sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been
issued for such consideration as determined in good faith by the Board of
Directors of the Company. If Common Stock, Options or Convertible Securities
shall be issued or sold by the Company and, in connection therewith, other
Options or Convertible Securities (the "ADDITIONAL RIGHTS") are issued, then
the consideration received or deemed to be received by the Company shall be
reduced by the fair market value of the Additional Rights (as determined
using the Black-Scholes option pricing model or another method mutually
agreed to by the Company and the Lender). The Board of Directors of the
Company shall respond promptly, in writing, to an inquiry by the Lenders as
to the fair market value of the Additional Rights. In the event that the
Board of Directors of the Company and the Lenders are unable to agree upon
the fair market value of the Additional Rights, the Company and the Lenders
shall jointly select an appraiser, who is experienced in such matters. The
decision of such appraiser shall be final and conclusive, and the cost of
such appraiser shall be borne evenly by the Company and the Lender.
(6) Record Date. In case the Company shall take a
-----------
record of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common Stock,
Options or Convertible Securities or (ii) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such record date shall
be deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(iii) Notwithstanding the foregoing, no adjustment will
be made under this paragraph (d) in respect of: (A) the issuance of
securities upon the exercise or conversion of any Common Stock Equivalents
issued by the Borrower prior to the Original Issue Date of this Note (but
will apply to any amendments, modifications and reissuances thereof), and
(B) the grant of options or warrants, or the issuance of additional
securities, under any duly authorized Borrower stock option, stock incentive
plan, restricted stock plan or stock purchase plan in existence on the
Closing Date; (C) the issuance of Common Stock in payment of interest on
18
Notes or on the 2003 Debentures or 2004 Debentures; or (D) the issuance of
Common Stock Equivalents pursuant to a Strategic Transaction.
(e) Reclassifications; Share Exchanges. In case of any
----------------------------------
reclassification of the Common Stock, or any compulsory share exchange
pursuant to which the Common Stock is converted into other securities, cash
or property (other than compulsory share exchanges which constitute Change
of Control transactions), the Lenders of the Notes then outstanding shall
have the right thereafter to convert such shares only into the shares of
stock and other securities, cash and property receivable upon or deemed to
be held by holders of Common Stock following such reclassification or share
exchange, and the Lenders shall be entitled upon such event to receive such
amount of securities, cash or property as a holder of the number of shares
of Common Stock of the Borrower into which such shares of Notes could have
been converted immediately prior to such reclassification or share exchange
would have been entitled. This provision shall similarly apply to successive
reclassifications or share exchanges.
(f) Calculations. All calculations under this Section 11 shall
------------
be made to the nearest cent or the nearest 1/100th of a share, as
applicable. The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of the
Borrower, and the disposition of any such shares shall be considered an
issue or sale of Common Stock.
(g) Notice of Adjustments. Upon the occurrence of each
---------------------
adjustment pursuant to this Section 11, the Borrower at its expense will
promptly compute such adjustment in accordance with the terms hereof and
prepare a certificate describing in reasonable detail such adjustment and
the transactions giving rise thereto, including all facts upon which such
adjustment is based. Upon written request, the Borrower will promptly
deliver a copy of each such certificate to the Lender.
(h) Notice of Corporate Events. If the Borrower (i) declares
--------------------------
a dividend or any other distribution of cash, securities or other property
in respect of its Common Stock, including without limitation any granting of
rights or warrants to subscribe for or purchase any capital stock of the
Borrower or any Subsidiary, (ii) authorizes and publicly approves, or enters
into any agreement contemplating or solicits shareholder approval for any
Fundamental Transaction or (iii) publicly authorizes the voluntary
dissolution, liquidation or winding up of the affairs of the Borrower, then
the Borrower shall deliver to the Lender a notice describing the material
terms and conditions of such transaction, at least 20 calendar days prior to
the applicable record or effective date on which a Person would need to hold
Common Stock in order to participate in or vote with respect to such
transaction, and the Borrower will take all steps reasonably necessary in
order to insure that the Lender is given the practical opportunity to
convert this Note prior to such time so as to participate in or vote with
respect to such transaction; provided, however, that the failure to deliver
such notice or any defect therein shall not affect the validity of the
corporate action required to be described in such notice.
12. Fractional Shares. The Borrower shall not be required to issue
-----------------
or cause to be issued fractional Underlying Shares on conversion of this
Note. If any fraction of an Underlying Share would, except for the
provisions of this Section, be issuable upon conversion
19
of this Note or payment of interest hereon, the number of Underlying Shares
to be issued will be rounded up to the nearest whole share.
13. Prepayment at Option of Borrower. Subject to the provisions
--------------------------------
of this Section, at any time after the Effective Date, the Borrower may
deliver a written notice (such notice, a "PREPAYMENT NOTICE") to the Lender
stating its irrevocable undertaking to prepay at the Borrower Prepayment
Amount all (but not less than all) of the outstanding principal amount of
all Notes held by such Lender, together with all accrued and unpaid
interest, liquidated damages and other amounts then owing thereon through
the date the Borrower Prepayment Amount is paid, provided that: (i) VWAP of
the Common Stock for each of 30 consecutive Trading Days prior to the date
of the Prepayment Notice is greater than $21.50 (subject to equitable
adjustment as a result of the events set forth in Section 11(a), (b) and
(c)), (ii) on each date during the entire period referenced in clause (i)
above and through the Prepayment Date (as defined below), the Equity
Conditions Are Satisfied, (iii) the average daily trading volume of the
Common Stock during the entire period referred to in clause (i) above and
through the Borrower Conversion Date (as defined below) shall be at least
40,000 shares, (iv) there shall not exist any Default, (v) the prepayment
contemplated under this Section shall be free of all subordination rights of
other Persons, (vi) the Borrower shall not have previously defaulted on its
obligation to pay the full Borrower Prepayment Amount due in respect of any
prior Prepayment Notice, (vii) at the time the Borrower delivers the
Prepayment Notice, none of the 2003 Debentures or 2004 Debentures remain
outstanding, and (viii) on the Prepayment Date, none of the other Notes
would remain outstanding. If the conditions for delivery of a Prepayment
Notice set forth in clauses (i) - (vii) above are satisfied during the
period from the date of the Prepayment Notice through and including the
Prepayment Date, then the Borrower shall deliver to the Lender the full
Borrower Prepayment Amount in cash on the 31st Trading Day following the
date of the Prepayment Notice (the "PREPAYMENT DATE"), subject to (i)
reduction for principal and interest of the Lender's Notes that shall have
been converted between the date of the Prepayment Notice and the Prepayment
Date, (ii) the right of the Lender to nullify such Prepayment Notice if any
of such conditions shall not have been met from the date of the Prepayment
Notice through the Prepayment Date or if the Borrower shall during such
period fail to honor any Conversion Notice as contemplated in the
immediately following sentence, and (iii) the operation of the automatic
amendment to such Prepayment Notice in accordance with the last sentence of
this Section. The Borrower covenants and agrees that it will honor all
Conversion Notices tendered from the time of delivery of the Prepayment
Notice through 6:30 p.m. (New York City time) on the Trading Day prior to
the Prepayment Date. In addition, if any portion of the Borrower Prepayment
Amount remains unpaid after the Prepayment Date, the Lender subject to such
prepayment may elect by written notice to the Borrower to invalidate ab
initio the Prepayment Notice with respect to the unpaid amount,
notwithstanding anything herein contained to the contrary. If the Lender
makes such an election, this Note shall be reinstated with respect to such
unpaid amount and the Borrower shall no longer have any prepayment rights
under this Section. Notwithstanding the foregoing, the Borrower and the
Lender agree that, if and to the extent Section 5(b)(i) of this Note would
restrict the right of the Borrower to issue or the right of the Lender to
receive any of the Underlying Shares otherwise issuable upon the conversion
in full of the principal amount and interest then outstanding on all of the
Lender's Notes, then notwithstanding anything to the contrary set forth in a
Prepayment Notice, the Prepayment Notice shall be deemed automatically
amended to apply only to such portion of such Lender's Notes as would permit
conversion in full in compliance with Section 5(b)(i). The Lender will
promptly (and, in any event, prior to the
20
Prepayment Date) notify the Borrower in writing following receipt of a
Prepayment Notice if Section 5(b)(i) would restrict its right to receive the
full number of otherwise issuable Underlying Shares under such
circumstances.
14. Notices. Any and all notices or other communications or
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deliveries hereunder (including without limitation any Conversion Notice or
the Borrower Conversion Notice) shall be in writing and shall be deemed
given and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) the next Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
number specified in this Section on a day that is not a Trading Day or later
than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom
such notice is required to be given. The addresses for such communications
shall be: (i) if to the Borrower, to 3101 McKelvey Road, St. Louis, Missouri
63044, facsimile: (314) 291-9082, attention Chief Financial Officer, (ii) if
to the Lender, to the address or facsimile number appearing on the
Borrower's shareholder records or such other address or facsimile number as
the Lender may provide to the Borrower in accordance with this Section, or
(iii) if to the Administrative Agent, to the address or facsimile number
therefor set forth in the Loan Agreement.
15. Miscellaneous.
-------------
(a) This Note shall be binding on and inure to the benefit of
the parties hereto and their respective successors and assigns.
(b) Subject to Section 15(a), above, nothing in this Note
shall be construed to give to any person or corporation other than the
Borrower and the Lender any legal or equitable right, remedy or cause under
this Note. This Note shall inure to the sole and exclusive benefit of the
Borrower and the Lender.
(c) All questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by and
construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all proceedings shall be commenced exclusively in the
state and federal courts sitting in the City of New York, Borough of
Manhattan (the "NEW YORK COURTS"). Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for any
proceeding, and hereby irrevocably waives, and agrees not to assert in any
proceeding, any claim that it is not personally subject to the jurisdiction
of any New York Court or that a New York Court is an inconvenient forum for
such proceeding. Each party hereto hereby irrevocably waives personal
service of process and consents to process being served in any such
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to
serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any legal
21
proceeding. The prevailing party in a proceeding shall be reimbursed by the
other party for its reasonable attorneys' fees and other costs and expenses
incurred with the investigation, preparation and prosecution of such
proceeding.
(d) The headings herein are for convenience only, do not
constitute a part of this Note and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this Note
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Note shall not
in any way be affected or impaired thereby and the parties will attempt in
good faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Note.
(f) No provision of this Note may be waived, amended or
otherwise modified except in accordance with the requirements set forth in
the Loan Agreement. No waiver of any default with respect to any provision,
condition or requirement of this Note shall be deemed to be a continuing
waiver in the future or a waiver of any subsequent default or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
(g) To the extent it may lawfully do so, the Borrower hereby
agrees not to insist upon or plead or in any manner whatsoever claim, and
will resist any and all efforts to be compelled to take the benefit or
advantage of, usury laws wherever enacted, now or at any time hereafter in
force, in connection with any claim, action or proceeding that may be
brought by any Lender in order to enforce any right or remedy under the
Notes. Notwithstanding any provision to the contrary contained in the Notes,
it is expressly agreed and provided that the total liability of the Borrower
under the Notes for payments in the nature of interest shall not exceed the
maximum lawful rate authorized under applicable law (the "MAXIMUM RATE"),
and, without limiting the foregoing, in no event shall any rate of interest
or default interest, or both of them, when aggregated with any other sums in
the nature of interest that the Borrower may be obligated to pay under the
Notes exceed such Maximum Rate. It is agreed that if the maximum contract
rate of interest allowed by law and applicable to the Notes is increased or
decreased by statute or any official governmental action subsequent to the
date hereof, the new maximum contract rate of interest allowed by law will
be the Maximum Rate of interest applicable to the Notes from the effective
date forward, unless such application is precluded by applicable law. If
under any circumstances whatsoever, interest in excess of the Maximum Rate
is paid by the Borrower to any Lender with respect to indebtedness evidenced
by the Notes, such excess shall be applied by such Lender to the unpaid
principal balance of any such indebtedness or be refunded to the Borrower,
the manner of handling such excess to be at such Lender's election.
(h) Subject to Section 15 of the Security Agreement and
Sections 13 and 5(a)(ii) herein, the outstanding principal amount and
interest under this Note may not be prepaid or required to be converted by
the Borrower without the prior written consent of the Lender.
22
(i) The obligations under this Note are secured pursuant to
the Security Agreement, the Guarantee Agreement and the Mortgage.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed by a duly authorized officer as of the date first above indicated.
ZOLTEK COMPANIES, INC.
By:
------------------------------
Name:
Title:
23
EXHIBIT A
CONVERSION NOTICE
(To be Executed by the Registered Lender
in order to convert Notes)
The undersigned hereby elects to convert the principal amount of
Note indicated below, into shares of Common Stock of Zoltek Companies, Inc.,
as of the date written below. If shares are to be issued in the name of a
Person other than undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates
and opinions as reasonably requested by the Borrower in accordance
therewith. No fee will be charged to the Lender for any conversion, except
for such transfer taxes, if any. All terms used in this notice shall have
the meanings set forth in the Note.
Conversion calculations:
-----------------------------------------------------
Date to Effect Conversion
-----------------------------------------------------
Principal amount of Note owned prior to conversion
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Principal amount of Note to be Converted
-----------------------------------------------------
Principal amount of Note remaining after Conversion
-----------------------------------------------------
Number of shares of Common Stock to be Issued
-----------------------------------------------------
Applicable Conversion Price
-----------------------------------------------------
Name of Lender
By:
--------------------------------------------------
Name:
Title:
By the delivery of this Conversion Notice the Lender represents and
warrants to the Borrower that its ownership of the Common Stock does not
exceed the restrictions set forth in Section 5(b) of the Note.
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SCHEDULE 1
Zoltek Companies, Inc.
7.5% Senior Secured Convertible Notes due April 14, 2008
CONVERSION SCHEDULE
This Conversion Schedule reflects conversions made under the above
referenced Notes.
Dated:
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Date of Conversion Amount of Aggregate Principal Applicable Conversion
Conversion Amount Remaining Price
Subsequent to
Conversion
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