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EXHIBIT 4.3
EXHIBIT A
FORM OF NOTE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY SATISFACTORY TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES. ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTION 2(e)(viii) HEREOF. THE PRINCIPAL AMOUNT AND THE INTEREST
THEREON REPRESENTED BY THIS NOTE MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE
FACE HEREOF PURSUANT TO SECTION 2(e)(viii) OF THIS NOTE.
CONVERTIBLE NOTE
______ __, 200_ $__________
FOR VALUE RECEIVED, KOMAG, INCORPORATED, a Delaware corporation (the
"COMPANY"), hereby promises to pay to the order of __________________ or
registered assigns ("HOLDER") the principal amount of ____________________
Dollars ($___________), on the Maturity Date (as defined below), and to pay
simple interest ("INTEREST") on the unpaid principal balance hereof at the rate
of 8.0% per annum from the date hereof until the same becomes due and payable,
whether at, maturity (or upon payment of principal in full if the Maturity Date
(as defined below) is extended or delayed pursuant to Section 23) or upon
acceleration or by conversion or redemption in accordance with the terms hereof
or otherwise. 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 at the time of conversion or redemption of the principal to
which such interest relates in accordance with Section 1 hereof. Any amount of
interest on this Note, including Liquidity Default Interest (as Defined in
Section 3), which is not paid when due shall bear interest at the rate of 12.25%
per annum from the date thereof until the same is paid ("DEFAULT INTEREST").
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1. Payments of Principal and Interest. All payments of principal and
interest on this Note (to the extent such principal and/or interest is not
converted into Common Stock in accordance with the terms hereof) shall be made
in lawful money of the United States of America by wire transfer of immediately
available funds to such account as the Holder may from time to time designate by
written notice in accordance with the provisions of this Note. Whenever any
amount expressed to be due by the terms of this Note is due on any day which is
not a Business Day (as defined below), the same shall instead be due on the next
succeeding day which is a Business Day and, in the case of any interest payment
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. For purposes of this Note, "BUSINESS
DAY" shall mean any day other than a Saturday, Sunday or a day on which
commercial banks in The City of New York are authorized or required by law or
executive order to remain closed. Each capitalized term used herein, and not
otherwise defined, shall have the meaning ascribed thereto in the Securities
Purchase Agreement, dated June 1, 2000, pursuant to which this Note was
originally issued (the "SECURITIES PURCHASE AGREEMENT"). This Note and the Other
Notes issued by the Company pursuant to the Securities Purchase Agreement are
collectively referred to in this Note as the"NOTES".
2. Conversion of Notes. This Note shall be convertible into shares of
the Company's common stock, par value $0.01 per share (the "COMMON STOCK"), on
the terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of this Note, the
following terms shall have the following meanings:
(i) "ADDITIONAL AMOUNT" means, with respect to any
principal amount of the Note, the sum of (A) Interest, (B)
Liquidity Default Interest and (C) Default Interest, if any, on
the interest referred to in the immediately preceding clauses
(A) and (B).
(ii) "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, director or consultant for
services provided to the Company.
(iii) "CLOSING SALE PRICE" means, for any security as of
any date, the last closing trade price for such security on the
Principal Market as reported by Bloomberg, or, if the Principal
Market is not the principal securities exchange or trading
market for such security, the last closing trade
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price 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 trade price of such security in the
over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no last closing
trade price is reported for such security by Bloomberg, the last
closing ask price of such security as reported by Bloomberg, or,
if no last closing ask price is reported for such security by
Bloomberg, the average of the lowest ask price and the lowest
bid price of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Sale Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Sale Price
of such security on such date shall be the fair market value as
mutually determined by the Company and the holders of Notes. If
the Company and the holders of Notes are unable to agree upon
the fair market value of the Common Stock, then such dispute
shall be resolved pursuant to Section 2(e)(iii) below. All such
determinations to be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such
period.
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(iv) "CONVERSION PRICE" means, as of any Conversion Date
(as defined below) or other date of determination (A) with
respect to any Notes issued on the Initial Issuance Date, 115%
of the average of the Closing Sale Prices of the Common Stock
for the five consecutive trading days immediately following the
first (1st) trading day immediately following the date on which
the Company files the Bank Debt Form 8-K (as defined in Section
4(h) of the Securities Purchase Agreement) with the Securities
Exchange Commission and (B) with respect to any Notes issued
pursuant to an Additional Note Notice (as defined in the
Securities Purchase Agreement) given on a related Additional
Note Notice Date (as defined in the Securities Purchase
Agreement), the product of (y) the Market Price (as defined
below) on such Additional Note Notice Date and (z) 115%, in each
case subject to adjustment as provided herein.
(v) "CONVERSION AMOUNT" means the sum of (A) the
principal amount of this Note to be converted, redeemed or
otherwise with respect to which this determination is being made
and (B) the Additional Amount with respect to such principal
amount.
(vi) "CONVERTIBLE SECURITIES" means any stock or
securities (other than Options) directly or indirectly
convertible into or exchangeable for Common Stock.
(vii) "INITIAL ISSUANCE DATE" means the first date on
which any Notes are issued pursuant to the Securities Purchase
Agreement.
(viii) "ISSUANCE DATE" means, with respect to each Note,
the date of issuance of the applicable Note.
(ix) "HOLDERS" means, the holder of this Note and the
holders of the Other Notes.
(ix) "MARKET PRICE" means, as of any date of
determination, the average of the Closing Sale Prices of the
Common Stock for the five (5) consecutive trading days
immediately preceding such date of determination.
(x) "MATURITY DATE" means the date which is 5 years
after the Issuance Date of the applicable Note, subject to
extension pursuant to Section 2(e)(vii).
(xi) "MINIMUM CONVERSION AMOUNT" means a Conversion
Amount equal to $400,000.
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(xii) "OTHER NOTES" means the convertible notes, other
than this Note, issued by the Company pursuant to the Securities
Purchase Agreement.
(xiii) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust,
an unincorporated organization and a government or any
department or agency thereof.
(xiv) "PRINCIPAL MARKET" means the Nasdaq National
Market.
(xv) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible
Securities.
(b) Holder's Conversion Right; Mandatory Redemption. Subject to
the provisions of Sections 2(d) and 2(e)(i)(A), at any time or times on
or after the Issuance Date (as defined below), the Holder shall be
entitled to convert any part of the outstanding and unpaid Conversion
Amount of this Note into fully paid and nonassessable shares of Common
Stock in accordance with Section 2(d), at the Conversion Rate (as
defined below). If any Conversion Amount of this Note remains
outstanding on the Maturity, then, pursuant to Section 2(e)(vii), all of
such Conversion Amount shall be redeemed by the Company. The Company
shall not issue any fraction of a share of Common Stock upon any
conversion. All shares of Common Stock (including fractions thereof)
issuable upon conversion of this Note by the Holder shall be aggregated
for purposes of determining whether the conversion would result in the
issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, 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 down to the nearest whole share.
(c) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of a Conversion Amount of this Note pursuant to
Section 2(b) shall be determined according to the following formula (the
"CONVERSION RATE"):
<TABLE>
<CAPTION>
Conversion Amount
-----------------
<S> <C>
Conversion Price
</TABLE>
(d) Limitations on Beneficial Ownership. The Company shall not
effect any conversion of this Note and the Holder shall have no right to
convert this Note into shares of Common Stock to the extent that, after
giving effect to such conversion the Holder (together with the Holder's
affiliates), through conversion of this Note or otherwise, would have
acquired beneficial ownership of a number of shares of Common Stock
during the 60-day period ending on and including the date such
conversion was implemented (the "60 DAY PERIOD"), which, when added to
the number of shares of Common Stock beneficially owned by the Holder
and its affiliates at the beginning of the 60 day Period, is in excess
of 10.00% of the shares of Common Stock outstanding immediately after
giving effect to such conversion. For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by the
Holder and its affiliates shall include the number
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of shares of Common Stock issuable upon conversion of this Note with
respect to which the determination of such sentence is being made, but
shall exclude the number of shares of Common Stock which would be
issuable upon (i) conversion of the remaining, nonconverted portion of
this Note beneficially owned by the Holder and its affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company beneficially owned by the Holder and its
affiliates subject to a limitation on conversion or exercise analogous
to the limitation contained herein. Except as set forth in the preceding
sentence, for purposes of this Section 2(d), beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this Section 2(d), in
determining the number of outstanding shares of Common Stock the Holder
may rely on the number of outstanding shares of Common Stock as
reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as
the case may be, (2) a more recent public announcement by the Company or
(3) any other notice by the Company or its Transfer Agent setting forth
the number of shares of Common Stock outstanding. For any reason at any
time, upon the written or oral request of the Holder, the Company shall
within two (2) Business Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion of this Note by the Holder and its
affiliates since the date as of which such number of outstanding shares
of Common Stock was reported.
(e) Mechanics of Conversion. The conversion of this Note at the
option of the Holder shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert this Note
into shares of Common Stock on any date (the "CONVERSION DATE"),
the Holder hereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 3:00 p.m., Pacific Time on
such date, a copy of a fully executed notice of conversion in
the form attached hereto as Exhibit I (the "CONVERSION NOTICE")
to the Company for a Conversion Amount equal to or greater than
the Minimum Conversion Amount and (B) if required by Section
2(e)(viii), surrender to a common carrier for delivery to the
Company as soon as practicable following such date the original
Note being converted (or an indemnification undertaking with
respect to such Note in the case of its loss, theft or
destruction).
(ii) Company's Response. Upon receipt by the Company of
a copy of a Conversion Notice, the Company (1) shall promptly,
and in no event later than one (1) Business Day after receipt,
immediately send, via facsimile, a confirmation of receipt of
such Conversion Notice to such Holder and the Company's
designated transfer agent (the "TRANSFER AGENT"), which
confirmation shall constitute an instruction to the Transfer
Agent to process such Conversion Notice in accordance with the
terms herein and (2) on or before the second Business Day
following the date of receipt by the Company of such Conversion
Notice (the "SHARE DELIVERY DATE"), (A) issue and deliver to the
address as specified in the Conversion Notice,
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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, or (B) provided the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, upon the request of the
holder, 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, provided, however, if the
shares of Common Stock to which a Holder shall be entitled are
delivered through DTC, the Company shall be in compliance with
this Section 3(e)(ii) if such shares of Common Stock are
credited to the Holders or its designee's balance account with
DTC on or before 12 p.m. Eastern Time on the third Business Day
following receipt by the Company of such Conversion Notice.
Subject to Section 2(e)(viii), if less than the Conversion
Amount of this Note is submitted for conversion, then the
Company shall, as soon as practicable and in no event later than
three (3) Business Days after receipt of the Note (the "NOTE
DELIVERY DATE") and at its own expense, issue and deliver to the
Holder a new Note for the outstanding principal amount not
converted.
(iii) Dispute Resolution. In the case of a dispute as to
the determination of the Closing Sale Price or the arithmetic
calculation of the Conversion Rate, the Company shall instruct
the Transfer Agent to issue to the Holder the number of shares
of Common Stock that is not disputed and shall submit the
disputed determinations or arithmetic calculations to the Holder
via facsimile within one (1) Business Day of receipt of such
holder's Conversion Notice. If such Holder and the Company are
unable to agree upon the determination of the Closing Sale Price
or arithmetic calculation of the Conversion Rate within one (1)
Business Day of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Company
shall within one (1) Business Day submit via facsimile (A) the
disputed determination of the Closing Sale Price to an
independent investment bank selected by the Company and approved
by the Holders of the Notes representing a majority of the
Conversion Amounts of the Notes then outstanding or (B) the
disputed arithmetic calculation of the Conversion Rate to the
Company's independent, outside accountant. The Company shall use
its best efforts to cause the investment bank or the accountant,
as the case may be, to perform the determinations or
calculations and notify the Company and the Holders of the
results no later than three (3) 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
manifest error.
(iv) Record Holder. 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.
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(v) Company's Failure to Timely Convert.
(A) Cash Damages. If within five (5) Business
Days after the Company's receipt of a facsimile or other
copy of the Conversion Notice the Company shall fail to
issue a certificate to the Holder or credit the Holder's
balance account with DTC for the number of shares of
Common Stock to which such Holder is entitled upon such
Holder's conversion of this Note, in addition to all
other available remedies which such Holder may pursue
hereunder and under the Securities Purchase Agreement,
the Company shall pay additional damages to such Holder
for each date after the Share Delivery Date such
conversion is not timely effected in an amount equal to
0.25% of the product of (I) the sum of the number of
shares of Common Stock not issued to the Holder on or
prior to the Share Delivery Date and to which such
Holder is entitled and (II) the Closing Sale Price of
the Common Stock on the Share Delivery Date (which
damages shall not exceed 18% for each failure to deliver
certificates or to credit a Holders balance account with
DTC in accordance with Section 2(e)(ii)). If the Company
fails to pay the additional damages set forth in this
Section 2(e)(v) within five Business Days of the date
incurred, then the Holder entitled to such payments
shall have the right at any time, so long as the Company
continues to fail to make such payments, to require the
Company, upon written notice, to immediately issue, in
lieu of such cash damages, the number of shares of
Common Stock equal to the quotient of (X) the aggregate
amount of the damages payments described herein divided
by (Y) the Conversion Price in effect on such Conversion
Date as specified by the Holder in the Conversion
Notice.
(B) Void Conversion Notice; Adjustment to
Conversion Price. If for any reason the Holder has not
received all of the shares of Common Stock prior to the
twentieth (20th) Business Day after the expiration of
the Share Delivery Date with respect to a conversion of
this Note, then the Holder, upon written notice to the
Company, may void its Conversion Notice with respect to,
and retain or have returned, as the case may be, any
principal amount of this Note that has not been
converted pursuant to such Holder's Conversion Notice;
provided that the voiding of a Holder's Conversion
Notice shall not effect the Company's obligations to
make any payments which have accrued prior to the date
of such notice pursuant to Section 2(e)(v)(A) or
otherwise. Thereafter, the Conversion Price of the
principal amount of this Note returned or retained by
the Holder for failure to timely convert shall be
adjusted to the lesser of (I) the Conversion Price as in
effect on the date on which the Holder voided the
Conversion Notice and (II) the lowest Closing Sale Price
during the period beginning on the
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Conversion Date and ending on the date such Holder
voided the Conversion Notice, subject to further
adjustment as provided in this Note.
(vi) Pro Rata Conversion. In the event the Company
receives a Conversion Notice from more than one Holder of the
Notes for the same Conversion Date and the Company can convert
some, but not all, of the Notes submitted for conversion, the
Company shall convert from each Holder electing to have Notes
converted at such time a pro rata amount of such holder's
Conversion Amount submitted for conversion based on the
principal amount of the Notes submitted for conversion on such
date by such Holder relative to the Conversion Amount of all
Notes submitted for conversion on such date.
(vii) Mandatory Redemption at Maturity. If any
Conversion Amount of this Note remains outstanding on the
Maturity Date, then all of the Conversion Amount shall be
redeemed as of such date (a "MATURITY DATE MANDATORY
REDEMPTION") for an amount in cash equal to the Conversion
Amount on the Maturity Date (the "MATURITY DATE REDEMPTION
PRICE"). On the Maturity Date the Company shall pay to the
Holder, by wire transfer of immediately available funds, an
amount equal to the Maturity Date Redemption Price. If the
Company shall fail to redeem all of the Conversion Amount of
this Note outstanding on the Maturity Date by payment of the
Maturity Date Redemption Price, then in addition to any remedy
the Holder may have under this Note, the Securities Purchase
Agreement and the Registration Rights Agreement between the
Company and the initial holders of the Notes (the "REGISTRATION
RIGHTS AGREEMENT"), the Holder shall have the option to require
the Company to convert any or all of the Conversion Amount and
for which the Maturity Date Redemption Price (together with any
interest thereon) has not been paid into the number of shares of
Common Stock the Holder would have received if the Holder had
given a Conversion Notice for such Conversion Amount (together
with any interest thereon) on the Maturity Date.
(viii) 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
thereof shall not be required to physically surrender this Note
to the Company unless the full Conversion Amount represented by
this Note is being converted. The Holder and the Company shall
maintain records showing the Conversion Amount so 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 each such
conversion. In the event of any dispute or discrepancy, such
records of the Company shall be controlling and determinative in
the absence of manifest error. Notwithstanding the foregoing, if
this Note is converted as aforesaid, the Holder may not transfer
this Note unless the Holder first physically surrenders this
Note to the Company, whereupon the Company will forthwith issue
and deliver upon the order of the Holder a new Note of like
tenor, registered as the Holder may request, representing
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in the aggregate the remaining Conversion Amount represented by
this Note. The Holder and any assignee, by acceptance of a this
Note or such new Note, acknowledge and agree that, by reason of
the provisions of this paragraph, following conversion of any
portion of this Note, the Conversion Amount (including the
principal of this Note) represented by this Note may be less
than the principal amount and the accrued interest set forth on
the face hereof. The conversion of any Conversion Amount shall
reduce both principal and interest under this Note such that the
sum of the principal so converted and the accrued and unpaid
interest on such converted principal is equal to such Conversion
Amount.
(f) Taxes. The Company shall pay any and all taxes, other than
income taxes, that may be payable with respect to the issuance and
delivery of Common Stock upon the conversion of Notes.
(g) Adjustments to Conversion Price -- Dilution and Other
Events. In addition to any other adjustments provided herein, the
Conversion Price will be subject to adjustment from time to time as
provided in this Section 2(g).
(i) Adjustment of Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time
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 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.
(ii) Other Events. If any of the following events occur:
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 holders of
the Notes; provided that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this
Section 2(g).
(iii) Notices.
(A) Promptly upon any adjustment of the
Conversion Price, and in no event later than two (2)
Business Days after such adjustment, the Company will
give written notice thereof to the Holder of this Note
setting forth in reasonable detail, and certifying, the
calculation of such adjustment.
(B) The Company will give written notice to the
Holder of this Note at least ten (10) days prior to the
date on which the Company closes
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its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II)
with respect to any pro rata subscription offer to
holders of Common Stock or (III) for determining rights
to vote with respect to any Organic Change (as defined
in Section 4(a)), dissolution or liquidation, provided
that such information shall be made known to the public
prior to or in conjunction with such notice being
provided to each such holder.
(C) The Company will also give written notice to
the Holder of this Note at least ten (10) days prior to
the date on which any Organic Change (as defined below),
dissolution or liquidation will take place, provided
that such information shall be made known to the public
prior to or in conjunction with such notice being
provided to each such holder.
3. Adjustments Upon a Liquidity Default.
(a) Liquidity Defaults. A "LIQUIDITY DEFAULT" shall be deemed to
have occurred at such time as any of the following events:
(i) the failure of a Registration Statement (as defined
in the Registration Rights Agreement) to be declared effective
by the Securities and Exchange Commission (the "SEC") on or
prior to the applicable Effectiveness Deadline (as defined in
the Registration Rights Agreement);
(ii) while a Registration Statement is required to be
maintained effective pursuant to the terms of the Registration
Rights Agreement, the effectiveness of such Registration
Statement lapses for any reason (including, without limitation,
the issuance of a stop order) or is unavailable to the Holder
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 (other than due
to any Allowable Grace Period (as defined in the Registration
Rights Agreement)), and such lapse or unavailability continues
for a period of 10 consecutive trading days;
(iii) the Company's notice to any Holder of Notes,
including by way of public announcement, 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 and other than if such notice
is to inform the Holder that the Company shall not be obligated
to issue the shares of Common Stock issuable upon such
conversion of Notes due to the provisions of Section 9;
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(iv) the failure of the Company to deliver all of the
shares of Common Stock to the Holder with respect to a
conversion of this Note prior to the tenth (10th) Business Day
after a Share Delivery Date.
As soon as practicable but in no event later than one (1) Business Day
after a Liquidity Default Date (as defined below), the Company shall
deliver written notice thereof via facsimile and overnight courier to
each Holder. A "LIQUIDITY DEFAULT DATE" means the date on which a
Liquidity Default first occurs for each occurrence of a Liquidity
Default.
(b) Rights of the Holders upon the Occurrence of a Liquidity
Default. In addition to any other remedies the Holders of the Notes may
have at law or in equity, if a Liquidity Default occurs then:
(i) Upon the occurrence of each Liquidity Default, the
Company shall be obligated to pay an additional interest equal
to Ten and One-Forth Percent (10.25%) per annum on the unpaid
principal balance from the applicable Liquidity Default Date
which shall be due and payable in cash on the first day of every
month following such Liquidity Default Date, subject to increase
pursuant to Section 3(b)(iii) (each a "LIQUIDITY DEFAULT
INTEREST"). The Liquidity Default Interest for a specific
Liquidity Default shall commence accruing on the applicable
Liquidity Default Date and shall cease to accrue on:
(A) for a Liquidity Default resulting from
Sections 3(a)(i), 3(a)(ii) or 3(a)(iv), the date such
Liquidity Default is cured; and
(B) for a Liquidity Default resulting from
Section 3(a)(iii), the date the Company notifies the
Holders in writing that it will honor requests for
conversion of the Notes into shares of Common Stock that
are tendered in accordance with the provisions of the
Notes.
Liquidity Default Interest shall be computed on the basis of a
365-day year and actual days elapsed.
(ii) Upon the occurrence of each Liquidity Default (and
from time to time as applicable), the Conversion Price of the
Notes shall be permanently adjusted (subject to further
adjustment pursuant to the Notes subsequent to such adjustment)
to equal the lesser of (I) the Conversion Price in effect on the
applicable Liquidity Default Date and (II) the product of (a)
0.80 multiplied by (b) the Market Price on such Liquidity
Default Date.
(iii) Upon the occurrence of each Liquidity Default and
so long as Liquidity Default Interest accrues on such Liquidity
Default, (A) the applicable Liquidity Default Interest rate
shall be increased by One-Half Percent (0.5%) on the first day
of every calendar month following the applicable Liquidity
Default
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Date and (B) the Conversion Price in effect on each day
subsequent to a Liquidity Default Date for each Liquidity
Default shall be permanently reduced (subject to further
adjustment pursuant to the Notes subsequent to such adjustment)
by an amount equal to the product of (a) the Conversion Price in
effect as of such date and (b) 0.0001667. The percentage
increase to the Liquidity Default Interest provided for in the
preceding sentence shall be pro rated for the first day of the
first month following a Liquidity Default Date based on the
number of days which elapsed from such Liquidity Default Date to
the first day of the month following such Liquidity Default Date
divided by 30.
4. Other Rights of Holder.
(a) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another Person or other transaction which is effected in such
a way that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets
with respect to or in exchange for Common Stock is referred to herein as
"ORGANIC CHANGE." Prior to the consummation of any (i) sale of all or
substantially all of the Company's assets to an acquiring Person or (ii)
other Organic Change following which the Company is not a surviving
entity, the Company will secure from the Person purchasing such assets
or the successor resulting from such Organic Change (in each case, the
"ACQUIRING ENTITY") a written agreement (in form and substance
reasonably satisfactory to the holders of the Notes representing a
majority of the Conversion Amounts of the Notes then outstanding) to
deliver to the Holder in exchange for this Note, a security of the
Acquiring Entity evidenced by a written instrument substantially similar
in form and substance to this Note, and reasonably satisfactory to the
holders the Notes representing a majority of the Conversion Amounts of
the Notes then outstanding. Prior to the consummation of any other
Organic Change, the Company shall make appropriate provision (in form
and substance reasonably satisfactory to the holders of Notes
representing a majority of the Conversion Amounts of the Notes then
outstanding) to insure that each of the Holder will thereafter have the
right to acquire and receive in lieu of or in addition to (as the case
may be) the shares of Common Stock immediately theretofore acquirable
and receivable upon the conversion of this Note such shares of stock,
securities or assets that would have been issued or payable in such
Organic Change with respect to or in exchange for the number of shares
of Common Stock which would have been acquirable and receivable upon the
conversion of this Note as of the date of such Organic Change (without
taking into account any limitations or restrictions on the
convertibility of this Note).
(b) Optional Redemption Upon Change of Control. In addition to
the rights of the Holder under Section 4(a), upon a Change of Control
(as defined below) of the Company the Holder shall have the right, at
the Holder's option, to require the Company to redeem all or a portion
of the Conversion Amount represented by this Note equal to the sum of
(A) the principle amount of this Note to be redeemed and (B) the
Additional
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<PAGE> 14
Amount related to such principle amount ("CHANGE OF CONTROL REDEMPTION
PRICE"). No sooner than 15 days nor later than 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 (a "NOTICE OF
CHANGE OF CONTROL") to the Holder. At any time during the period
beginning after receipt of a Notice of Change of Control (or, in the
event a Notice of Change of Control is not delivered at least 10 days
prior to a Change of Control, at any time on or after the date which is
10 days prior to a Change of Control) and ending on the date of such
Change of Control, the Holder may require the Company to redeem all or a
portion of the Conversion Amount of this Note then outstanding by
delivering written notice thereof via facsimile and overnight courier (a
"NOTICE OF REDEMPTION UPON CHANGE OF CONTROL") to the Company, which
Notice of Redemption Upon Change of Control shall indicate (i) the
Conversion Amount the Holder is submitting for redemption, and (ii) the
applicable Change of Control Redemption Price, as calculated pursuant to
this Section 4(b). Upon the Company's receipt of a Notice(s) of
Redemption Upon Change of Control from any Holder of Notes, the Company
shall promptly, but in no event later than five (5) Business Days
following such receipt, notify the Holder of this Note by facsimile of
the Company's receipt of such Notice(s) of Redemption Upon Change of
Control. The Company shall deliver the applicable Change of Control
Redemption Price simultaneous with the consummation of the Change of
Control. Payments provided for in this Section 4(b) shall have priority
to payments to other stockholders in connection with a Change of
Control. For purposes of this Section 4(b), "CHANGE OF CONTROL" means
(i) the consolidation, merger or other business combination of the
Company with or into another Person (other than (A) a consolidation,
merger or other business combination in which holders of the Company's
voting power immediately prior to the transaction will continue after
the transaction to hold, 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 (B) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company), (ii) the sale or transfer of all or
substantially all of the Company's assets, or (iii) a purchase, tender
or exchange offer made to and accepted by the holders of more than the
50% of the outstanding shares of Common Stock.
(c) 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 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
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<PAGE> 15
sale of such Purchase Rights, provided that this section shall not be
applicable to the exchange or conversion of the Senior Debt into any
other security of the Company.
(d) Participation. The Holder shall, as a holder of this Note,
be entitled to such dividends paid and distributions made to the holders
of Common Stock to the same extent as 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 before the date on which a
record is taken for such dividends and distributions, or, if no such
record is taken, the date as of which the record holders of Common Stock
are to be determined for the dividends or distributions. Payments or
distributions under the preceding sentence shall be made concurrently
with the dividends or distributions to the holders of the Common Stock.
5. Conversion at the Company's Election. Subject to Section 2(d), on any
date which is (A) during the period beginning on the date which is two years
after the Issuance Date of this Note and ending on the Maturity Date and (B) a
date on which the Closing Sale Price of the Common Stock has been greater than
200% of the Conversion Price in effect on the Issuance Date of the applicable
Notes (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar events) on any seven (7) trading days during the
ten (10) consecutive trading days immediately preceding such date, the Company
shall have the right, in its sole discretion, to require that all or any portion
of the outstanding Conversion Amount of this Note be converted ("COMPANY'S
CONVERSION ELECTION") at the applicable Conversion Rate; provided that the
Conditions to Conversion at the Company's Election (as set forth below) are
satisfied. The Company shall exercise its right to Company's Conversion Election
by providing the Holder of the Notes written notice ("COMPANY'S CONVERSION
ELECTION NOTICE") on such date by facsimile and overnight courier. The date on
which each of the holders of the Notes issued on the Issuance Date receives the
Company's Conversion Election Notice is referred to in this Note as the
"COMPANY'S CONVERSION ELECTION NOTICE DATE". If the Company elects to require
conversion of some, but not all, of the Conversion Amounts of the Notes issued
on the Issuance Date then outstanding, the Company shall require conversion of
the pro rata amount from each Holder of such Notes based on the principal amount
of Notes held by such Holder on the Company's Conversion Election Notice Date
relative to the aggregate principal amount of all Notes outstanding on such date
(such amount with respect to the Holder being referred to herein as its "PRO
RATA CONVERSION AMOUNT"). The Company's Conversion Election Notice shall
indicate (x) the Conversion Amount of Notes held by each Holder of Notes the
Company has selected for conversion, (y) the date selected by the Company for
conversion ("COMPANY'S ELECTION CONVERSION DATE"), which date shall be 10
Business Days after the Company's Conversion Election Notice Date, and (z) each
holder's pro rata share of Conversion Amounts of the Notes selected for
conversion as determined in accordance with the immediately preceding sentence.
Subject to the satisfaction of all the conditions of this Section 5, on the
Company's Election Conversion Date the Holder of this Note will be deemed to
have submitted a Conversion Notice in accordance with Section 2(e)(i) for a
Conversion Amount equal to the Holder's Pro Rata Conversion Amount. "CONDITIONS
TO CONVERSION AT THE COMPANY'S ELECTION" means the following conditions: (i)
during the period beginning on and including the Issuance Date and
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<PAGE> 16
ending on and including the Company's Election Conversion Date, the Company
shall not have failed on more than two occasions to deliver shares of Common
Stock upon conversion of the this Note to the Holder within five (5) Business
Days of the Company's Receipt of a facsimile or other copy of a Conversion
Notice; (ii) during the period beginning on and including the date which is 30
days prior to the Company's Conversion Election Notice Date and ending on and
including the Company's Election Conversion Date, the Company shall have
delivered shares of Common Stock upon conversion of this Note to the Holder
within five (5) Business Days of the Company's receipt of a facsimile or other
copy of a Conversion Notice; (iii) during the period beginning on and including
the Company's Conversion Election Notice Date and ending on and including the
Company's Election Conversion Date the Closing Sale Price of the Common Stock is
greater than 150% of the Conversion Price in effect on the Issuance Date of the
applicable Notes (subject to adjustment for stock splits, stock dividends, stock
combinations and other similar events); (iv) during the period beginning on and
including the date which is 30 days prior to the Company's Conversion Election
Notice Date and ending on and including the Company's Election Conversion Date
the Company otherwise has satisfied its obligations in all material respects
under this Note, the Securities Purchase Agreement and the Registration Rights
Agreement; and (v) the Company is not in default in any material respect under
this Note, the Securities Purchase Agreement and the Registration Rights
Agreement.
6. Reservation of Shares. The Company shall, so long as any principal
amount of the Note is outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Notes, such number of shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all of the principal
amount of the Notes then outstanding; provided that the number of shares of
Common Stock so reserved shall at no time be less than 140% of the number of
shares of Common Stock for which the principal amount of the Notes are at any
time convertible (without regard to any limitations on conversions). 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 time of issuance of the Notes or increase in the number of
reserved shares, as the case may be. In the event a Holder shall sell or
otherwise transfer any of such Holder's Notes, each transferee shall be
allocated a pro rata portion of the number of reserved shares of Common Stock
reserved for such transferor. Any shares of Common Stock reserved and allocated
to any Person which ceases to hold any Notes shall be allocated to the remaining
Holders, pro rata based on the principal amount of the Notes then held by such
Holders.
7. Voting Rights. Holders shall have no voting rights, except as
required by law, including but not limited to the General Corporation Law of the
State of Delaware, and as expressly provided in this Note.
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<PAGE> 17
8. Restriction on Redemption and Cash Dividends. Until all of the
Conversion Amount of this Note has been converted, redeemed or otherwise
satisfied as provided herein, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, its capital
stock without the prior express written consent of the holders of Notes
representing at least fifty-one percent (51%) of the Conversion Amount of the
Notes then outstanding, except for payments on convertible securities of the
Company.
9. Limitation on Number of Conversion Shares. The Company shall not be
obligated to issue any shares of Common Stock upon conversion of this Note in
excess of 19.99% of the number of shares of Common Stock outstanding on the
Initial Issuance Date if the issuance of such shares of Common Stock would
exceed that number of shares of Common Stock which the Company may issue upon
Conversion of the Notes (the "EXCHANGE CAP") without breaching the Company's
obligations under the rules or regulations of the Principal Market, or the
market or exchange where the Common Stock is then traded, except that such
limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market, or the market or exchange where the Common Stock is then
traded, (or any successor rule or regulation) for issuances of Common Stock in
excess of such amount, or (b) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the holders of a majority of the principal amount of
the Notes then outstanding. Until such approval or written opinion is obtained,
or such action is taken by the required number of holders of the Notes, no
purchaser of Notes pursuant to the Securities Purchase Agreement (the
"PURCHASERS") shall be issued, upon conversion of this Note, shares of Common
Stock in an amount greater than the product of (i) the Exchange Cap amount
multiplied by (ii) a fraction, the numerator of which is the principal amount of
the Notes issued to such Purchaser pursuant to the Securities Purchase Agreement
and the denominator of which is the aggregate principal amount of all Notes
issued to the Purchasers pursuant to the Securities Purchase Agreement (the "CAP
ALLOCATION AMOUNT"). In the event that any Purchaser shall sell or otherwise
transfer any of such Purchaser's Notes, the transferee shall be allocated a pro
rata portion of such Purchaser's Cap Allocation Amount. In the event that any
Holder of Notes, shall convert all of such holder's Notes into a number of
shares of Common Stock which, in the aggregate, is less than such holder's Cap
Allocation Amount, then the difference between such holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such Holder
shall be allocated to the respective Cap Allocation Amounts of the remaining
Holders of Notes on a pro rata basis in proportion to Conversion Amount of Notes
then held by each such Holder.
10. Reissuance of Notes. Subject to Section 2(e)(viii) in the event of a
conversion or redemption pursuant to this Note of less than all of the
Conversion Amount represented by this Note, the Company shall promptly cause to
be issued and delivered to the Holder, upon tender by the Holder of the Note
converted or redeemed, a new note of like tenor representing the remaining
principal amount of this Note which has not been so converted or redeemed.
11. Defaults and Remedies.
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<PAGE> 18
(a) Events of Default. An "EVENT OF DEFAULT" is: (i) on or after
the Maturity Date, the default (A) for thirty (30) days in payment of
Interest, Liquidity Default Interest or Default Interest or (B) in
payment of principal on this Note; (ii) the default in payment of the
principal amount of this Note when and as due; (iii) the breach by the
Company of any representation, warranty, covenant (other than Section
4(o) of the Securities Purchase Agreement) or other term or condition of
the Securities Purchase Agreement, the Registration Rights Agreement,
this Note or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby and hereby, except to the extent that such breach would not have
a Material Adverse Effect (as defined in Section 3(a) of the Securities
Purchase Agreement) and except, in the case of a breach of a covenant
which is curable, only if such breach continues for a period of at least
30 days; (iv) the occurrence of a Liquidity Default pursuant to Sections
3(a)(iii) or 3(a)(iv); (v) the occurrence of a Liquidity Default
pursuant to Sections 3(a)(i) or 3(a)(ii) provided that the Company has
failed to use its best efforts to avoid such Liquidity Default pursuant
to Section 3(a)(i) or 3(a)(ii); (vi) any acceleration prior to maturity
of any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed of at least $5,000,000 by the Company or for money borrowed the
repayment of at least $5,000,000 of which is guaranteed by the Company,
whether such indebtedness or guarantee now exists or shall be created
hereafter, (vii) if the Company pursuant to or within the meaning of any
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 Custodian of it or for all or
substantially all of its property; (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 the same become due; or (viii) a
court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (1) is for relief against the Company in an
involuntary case; (2) appoints a Custodian of the Company or for all or
substantially all of its property; or (3) orders the liquidation of the
Company or any subsidiary, and the order or decree remains unstayed and
in effect for ninety (90) days. The Term "BANKRUPTCY LAW" means Title
11, U.S. Code, or any similar Federal or State Law for the relief of
debtors. The term "CUSTODIAN" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
(b) Remedies. If an Event of Default occurs and is continuing,
the Holders of Notes representing a majority of the Conversion Amounts
of the Notes then outstanding may declare all of the outstanding
Conversion Amounts of the Notes, including any Interest, Liquidity
Default Interest and Default Interest and other amounts due, to be due
and payable immediately by providing written notice to the Company (an
"EVENT OF DEFAULT NOTICE"), except that in the case of an Event of
Default arising from events described in clauses (vi), (vii) and (viii)
of Section 11(a), this Note shall become due and payable without further
action or notice. Each Holder shall deliver to the Senior Agent an Event
of Default Notice promptly after sending such notice to the Company.
Such notice shall be sent to the Senior Agent by facsimile at (617)
434-4775 or at such other number provided to such Holder by the Senior
Agent in writing at least five (5) Business Days
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<PAGE> 19
prior to such Holder's sending of an Event of Default Notice (written
confirmation of receipt mechanically or electronically generated by the
sender's facsimile machine containing the time, date, facsimile number
referred to above and an image of the first page of such transmission
shall be rebuttal evidence of receipt by facsimile).
12. Vote to Change the Terms of Notes. This Note and any provision
hereof may only be amended by an instrument in writing signed by the Company and
holders of Notes representing at least two-thirds (2/3) of the aggregate
Conversion Amount of the Notes then outstanding. The term "Note" and all
reference thereto, as used throughout this instrument, shall mean this
instrument (and the other Notes issued pursuant to the Securities Purchase
Agreement) as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
13. Lost or Stolen Notes. Promptly upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note, and, in the case of loss, theft or destruction, of an
indemnification undertaking by the Holder to the Company in a form reasonably
acceptable to the Company and, in the case of mutilation, upon surrender and
cancellation of the Notes, the Company shall execute and deliver new notes of
like tenor and date at the Holder's expense; provided, however, the Company
shall not be obligated to re-issue notes if the Holder contemporaneously
requests the Company to convert such remaining principal amount into Common
Stock.
14. Payment of Collection, Enforcement and Other Costs. If: (i) this
Note is placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding; or (ii) an attorney is
retained to represent the Holder of this Note in 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 to the
Holder all reasonable attorney's fees, costs and expenses incurred in connection
therewith, in addition to all other amounts due hereunder, provided that the
Company shall only be required to pay such fees, costs and expenses relating to
clause (i) above to the extent that the Holder prevails on the claim, or in the
case of claim for monetary damages or collection, a material dollar judgement
(where the materiality of an award shall be judged in proportion to the amount
of the claim).
15. Cancellation. After all principal and accrued interest at any time
owed on this Note has been paid in full pursuant to the terms of this Note, this
Note shall automatically be deemed canceled (regardless of whether this Note is
actually surrendered to the Company), shall be surrendered to the Company for
cancellation and shall not be reissued.
16. 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 principal amounts of at least $500,000)
containing the same terms and conditions and representing in the aggregate the
principal amount of this Note, and each such new Note will represent such
portion of such principal amount as is designated by the Holder at the time of
such surrender. The date the Company initially issues this Note will be deemed
to be the "Issuance Date" hereof regardless of the number of times a new Note
shall be issued.
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<PAGE> 20
17. 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.
18. 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 laws of
the State of Illinois, without giving effect to provisions thereof regarding
conflict of laws.
19. 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, at law or in equity
(including a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a holder's
right to pursue actual damages for any failure by the Company to comply with the
terms of this Note. The Company covenants to each Holder of Notes that there
shall be no characterization concerning this instrument other than as expressly
provided herein. 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 thereof 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 holders of the Notes
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
holders of the Notes 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.
20. Specific Shall Not Limit General; Construction. No specific
provision contained in this Note shall limit or modify any more general
provision contained herein. This Note shall be deemed to be jointly drafted by
the Company and all holders and shall not be construed against any person as the
drafter hereof.
21. Failure or Indulgence Not Waiver. No failure or delay on the part of
this Note 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.
22. 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.
23. Subordination.
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<PAGE> 21
(a) Subordination to Senior Debt. Each Holder, severally
(together with its respective successors and assigns), and the Company
covenants and agrees that, to the extent and in the manner hereinafter
set forth, the payment of any amounts with respect to the Notes or the
Securities Purchase Agreement (collectively, the "SUBORDINATED
OBLIGATIONS") is hereby expressly made subordinate and subject in right
of payment to the prior payment in full of all the Senior Debt (as
defined below) in the manner set forth in this Section 23. Each Senior
Lender (as defined below) shall be deemed to have restructured the
Senior Debt in reliance upon the covenants and provisions contained in
this Section 23.
(b) No Payment Upon Insolvency Event. Upon any payment or
distribution of assets of the Company to its creditors in connection
with any liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors, marshaling of assets or
liabilities, or any bankruptcy, reorganization, receivership, insolvency
or similar proceedings of the Company or its property, whether voluntary
or involuntary (each an "INSOLVENCY PROCEEDING"):
(i) the Senior Lenders shall receive payment in full in
cash of all amounts due on or to become due on or in respect of
all Senior Debt (including any interest accruing thereon at the
rate provided in the Senior Credit Agreement (as defined below)
after the commencement of any such Insolvency Proceeding,
whether or not allowed as a claim against the Company in such
Insolvency Proceeding) before any Holder receives or accepts any
payment or distribution, whether by setoff, exercising
contractual or statutory rights or otherwise and whether in the
form of cash, securities, property or otherwise (other than a
distribution of Reorganization Subordinated Securities which a
Holder may receive and retain); and
(ii) any payment or distribution of assets of the
Company of any kind or character, whether in the form of cash,
property, securities or otherwise, by set-off, exercising
contractual or statutory rights or otherwise, to which any
Holder would be entitled but for the provisions of this Section
23(b) (other than a distribution of Reorganization Subordinated
Securities which Holder may receive and retain), shall be paid
by the Company or the liquidating trustee or agent or other
person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise,
directly to the Senior Agent (as defined below) on behalf of the
Senior Lenders.
In the event that after the commencement of an Insolvency Proceeding,
notwithstanding the foregoing provisions of this Section 23(b), any
Holder shall receive any payment or distribution of assets of the
Company of any kind or character, whether in the form of cash, property,
securities or otherwise (other than a distribution of Reorganization
Subordinated Securities which a Holder may receive and retain) before
all the Senior Debt
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<PAGE> 22
has been paid in full in cash, then such payment or distribution shall
be held in trust for the benefit of, and be immediately paid over to,
the Senior Agent on behalf of the Senior Lenders for application to the
Senior Debt.
(c) Restriction on Payments for Restructure Events of Default.
(i) Senior Payment Defaults. In the event that any
Senior Payment Default (as defined below) shall have occurred
and be existing, no Holder shall receive or accept any payment
or distribution, whether by setoff, exercising contractual or
statutory rights or otherwise and whether in the form of cash,
securities, property or otherwise (other than as provided in
Section 23(m) hereof), on account of the Subordinated
Obligations until the earlier to occur of (a) such Senior
Payment Default having been cured or waived in accordance with
the terms of the Senior Credit Facility and (b) the Senior Debt
(including, without limitation, amounts that have become and
remain due by acceleration, together with any interest accruing
thereon at the rate provided in the Senior Credit Facility)
having been paid in full in cash. For the avoidance of doubt,
the provisions of Section 23(b) hereof shall be applicable
during any Insolvency Proceeding notwithstanding any cure or
reinstatement of the Senior Debt during, or as a consequence of,
such Insolvency Proceeding.
(ii) Senior Covenant Defaults. In the event that a
Senior Covenant Default shall have occurred and be existing, no
Holder shall receive or accept any payment or distribution,
whether by setoff, exercising contractual or statutory rights or
otherwise and whether in the form of cash, securities, property
or otherwise (other than a distribution of Reorganization
Subordinated Securities, payments pursuant to Section 2(e)(v),
or pursuant to Section 23(m)), on account of the Subordinated
Obligations until the earlier to occur of (a) the cure or waiver
of such Senior Covenant Default in accordance with the terms of
the Senior Credit Facility, and (b) the expiration of the
applicable Blockage Period (as defined below), provided however
that nothing contained in this Section 23(c)(ii) shall prohibit
the Company from making, and the Holder from receiving, payments
(whether in cash, property, securities or otherwise) pursuant to
Section 2(e)(v) hereof. For the avoidance of doubt, the
provisions of Section 23(b) hereof shall be applicable during
any Insolvency Proceeding notwithstanding any cure or
reinstatement of the Senior Debt during, or as a consequence of,
such Insolvency Proceeding.
(iii) Prohibited Payments. In the event that the Company
shall have made, or the Holder shall have received, any payment
or distribution of assets of the Company of any kind or
character, whether in the form of cash, property, securities or
otherwise at any time when prohibited by the foregoing
provisions of this Section 23(c), then in such event such
payment shall be held in trust for the
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<PAGE> 23
benefit of, and be immediately paid over to, the Senior Agent on
behalf of the Senior Lenders for application to the Senior Debt.
(d) Waiver of Certain Rights. Each Holder (A) hereby
waives any and all rights that it otherwise might have to
require the Senior Lenders (i) to marshal any property or assets
of the Company or (ii) enforce any guaranty or any security
interest or lien given by any guarantor or other person to
secure the payment of any or all of the Senior Debt, in each
case as a condition precedent to enforcing their rights
hereunder and (B) shall not oppose, interfere or otherwise
attempt to prevent or impair the Senior Lenders from enforcing
their security interests on any collateral securing the
repayment of the Senior Debt or their other rights under the
Senior Credit Agreement and (C) shall not take, or permit to be
taken on its behalf, any action that is inconsistent with the
terms of this Section 23.
(e) No Authority to Act During Insolvency Proceedings.
During the pendency of any Insolvency Proceeding, each Holder
agrees not to take any action which it is prohibited from taking
under this Section 23.
(f) Subrugation to Rights of Senior Lenders. Subject to
the prior payment in full in cash of all Senior Debt, in the
event and to the extent cash, property or securities otherwise
payable or deliverable to the holders of the Subordinated
Obligations shall have been applied pursuant to this Section 23
to the payment of Senior Debt, then and in each such event, the
holders of the Subordinated Obligations shall be subrogated to
the rights of each holder of Senior Debt to receive any further
payment or distribution in respect of or applicable to the
Senior Debt; and, for the purposes of such subrogation, no
payment or distribution to the holders of Senior Debt of any
cash, property or securities to which any holder of Subordinated
Obligations would be entitled except for the provisions of this
Section 23 shall, and no payment over to the holders of Senior
Debt by the holders of the Subordinated Obligations pursuant to
the provisions of this Section 23 shall be deemed, as between
and among the Company, their creditors other than the holders of
Senior Debt and the holders of Subordinated Obligations, to be a
payment by the Company to or on account of Senior Debt.
(g) Provisions Solely To Define Relative Rights. The
provisions of this Section 23 are intended solely for the
purpose of defining the relative rights of each Holder, on the
one hand, and the Senior Lenders, on the other hand. Nothing
contained in this Section 23 or elsewhere shall impair, as among
the Company, its creditors (other than the Senior Lenders) and
the Holders, the obligation of the Company, which is absolute
and unconditional, to pay the principal of, premium, if any,
and, interest on the Senior Debt and the Subordinated
Obligations, in each case in accordance with its terms.
(h) No Waiver of Subordination Provisions. Except as
expressly provided herein, no right of any present or future
Senior Lender to enforce the subordination provisions provided
herein shall at any time be prejudiced or impaired in any manner
by
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<PAGE> 24
any act or failure to act on the part of the Company or any
Holder, by any act or failure to act by any Senior Lenders or by
any noncompliance by the Company or any Holder with the terms,
provisions and covenants of this Section 23, regardless of any
knowledge thereof any Senior Lender may have or be otherwise
charged with.
(i) Amendments, etc. No provision which affects the
superior position of the Senior Lenders will be effective
against the Senior Lenders without the prior written consent of
the Senior Lenders in accordance with the terms of the Senior
Credit Facility.
(j) Third Party Beneficiaries; Specific Enforcement.
(i) The provisions of this Section 23 are
intended for the benefit of, and shall be enforceable
directly by, each Senior Lender. Each Holder
acknowledges and agrees that the terms of this Section
23 are a material inducement to the Senior Lenders to
restructure the Senior Debt, that the Senior Lenders
would not have restructured the Senior Debt without the
benefit of the provisions contained in this Section 23.
Accordingly, each Holder agrees that the Senior Lenders
are third party beneficiaries of this Section 23 and may
enforce all of its terms directly against each Holder.
(ii) Each Senior Lender is hereby authorized to
demand specific performance of the provisions of this
Section 23, whether or not the Company shall have
complied with any of the provisions of this Section 23
applicable to it, at any time when any Holder shall have
failed to comply with any of such provisions of this
Section 23 applicable to it. Each Holder hereby
irrevocably waives any defense based on the adequacy of
a remedy at law that might be asserted as a bar to such
remedy of specific performance, it being agreed that the
Senior Lenders will suffer irreparable harm if the terms
of this Section 23 are not strictly enforced in
accordance with its terms.
(k) Holder's Right of Alternative Subordination
Provision. If, in connection with a restructuring or refinancing
of a portion of the Senior Debt by the Company and one, but not
more than one, Senior lender (together with such Senior Lender's
affiliates) pursuant to which the Company in any manner issues
or sells any debt or convertible securities after the Initial
Issuance Date which are in exchange for the portion of the
Senior Debt held by such Senior Lender (and its affiliates if
applicable) and where the holder of such new debt or convertible
securities agrees to be subordinated to the remaining Senior
Debt, the Company shall provide written notice thereof via
facsimile and overnight courier to the Holder ("SUBORDINATION
NOTICE") on the date of issuance of such debt or convertible
securities which notice shall set forth the terms of the
subordination provisions applicable to such debt or convertible
securities ("NEW SUBORDINATION PROVISION"). If the Holders of
two-thirds (b) of the principal amount of the Notes outstanding
provide written notice via facsimile and overnight courier (the
"SUBORDINATION ELECTION NOTICE") to the Company within twenty
(20) Business Days of receiving a Subordination Notice that the
Holders
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<PAGE> 25
desire to replace the subordination provision contained in this
Section 23 with the New Subordination Provision, then from and
after the date of the Company's receipt of the Subordination
Election Notice the subordination provision contained in this
Section 23 will automatically be amended in its entirety and
replaced with the New Subordination Provision (together with
such modifications to this Note as may be required to give full
effect to the substitution of such New Subordination Provision).
The Holders delivery of a Subordination Election Notice shall
serve as the consent required to amend this Note required
pursuant to Section 12.
(l) Definitions. For purposes of this Section 23 the
following terms are defined as follows:
(i) "BLOCKAGE PERIOD"means (A) with respect to
any payment owing as a result of an Event of Default
pursuant to Sections 11(a)(iv) or 11(a)(v) hereof, the
expiration of 45 days from the date on which an Event of
Default Notice given with respect to Sections 11(a)(iv)
or 11(a)(v) was received by the Senior Agent in
accordance with Section 11(b) and (B) with regard to
payments owing as a result of an Event of Default
pursuant to Section 11(a)(i), the expiration of 180 days
from, the date on which an Event of Default Notice given
with respect to Section 11(a)(i) was received by the
Senior Agent in accordance with Section 11(b).
(ii) "REORGANIZATION SUBORDINATED SECURITIES"
shall mean any debt or equity securities of the Company
or any other person that are distributed to the Holder
in respect of the Subordinated Obligations pursuant to a
confirmed plan of reorganization or adjustment and that
(a) are subordinated in right of payment to the Senior
Debt (or any debt or equity securities issued in
substitution of all or any portion of the Senior Debt)
to at least the same extent as the Subordinated
Obligation is subordinated to the Senior Debt, (b) do
not have the benefit of any obligation of any person
(whether as issuer, guarantor or otherwise) unless the
Senior Debt has at least the same benefit of the
obligation of such person and (c) do not have any terms,
and are not subject to or entitled to the benefit of any
agreement or instrument that has terms, that are more
burdensome to the issuer of or other obligor on such
debt or equity securities than are the terms of the
Senior Debt.
(iii) "SENIOR CREDIT FACILITY" means the Loan
Restructure Agreement, among the Company, the various
financial institutions as are, or shall from time to
time become, parties thereto (together with the Senior
Agent, collectively the "Senior Lenders"), and Fleet
National Bank f/k/a BankBoston, N.A., as restructure
agent (inclusive of all successors thereto, the "Senior
Agent") for the Senior Lenders, together with all
related documents (including without limitation all
guarantees, security agreements, pledge agreements,
mortgages, other collateral documents and other
agreements entered into in connection therewith or
pursuant thereto) as the same may be renewed, extended,
modified, amended, supplemented,
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<PAGE> 26
deferred or otherwise changed from time to time,
including without limitation, any agreements extending
the maturity of, or refinancing or refunding, all or any
portion of the indebtedness under, or increasing the
amount to be borrowed under, any such agreements or
successor agreements whether or not by or among the same
parties.
(iv) "SENIOR COVENANT DEFAULT" means any
Restructure Event of Default under, and as defined in,
the Senior Credit Facility, other than a Senior Payment
Default (as defined below).
(v) "SENIOR DEBT" means (a) the principal of,
and premium, if any, payable on redemption or prepayment
of, and interest on, all indebtedness and letters of
credit now existing or hereafter incurred under the
Senior Credit Facility and all other obligations under
the Senior Credit Facility, including without limitation
all fees, expenses (including reasonable fees and
expenses of counsel), claims, charges, indemnity
obligations and interest accruing subsequent to the
commencement of any Insolvency Proceeding, whether or
not allowed in such Insolvency Proceeding; and (b) all
obligations of the Company under any interest rate swap
agreement, currency exchange agreement or similar
agreement entered into with any Senior Lender pursuant
to the terms and provisions of the Senior Credit
Facility, including interest under any such agreement
(and including interest accruing subsequent to the
commencement of any Insolvency Proceeding), whether or
not allowed in such Insolvency Proceeding); and (c) any
renewals, extensions, modifications, amendments,
supplements, deferrals or other changes to any of the
foregoing, including without limitation, any agreement
extending the maturity of, or refinancing or refunding
of, all or any portion of the indebtedness under, or
increasing the amount to be borrowed under any of the
foregoing, whether or not by and among the same parties,
and the proceeds of any indebtedness used to refinance
any of the foregoing. To the extent any payment with
respect to the Senior Debt (as proceeds of security,
enforcement of any right of setoff or otherwise) is
declared to be fraudulent or preferential, set aside or
required to be paid to a trustee, receiver or similar
person, then such payment or part thereof originally
intended to be satisfied shall be deemed to be
reinstated and outstanding as if such payment had not
occurred.
(vi) "SENIOR PAYMENT DEFAULT" means a
Restructure Event of Default under, and as defined in,
Section 9.1(a) of the Senior Credit Facility.
(m) Right of Holder to Convert and seek Specific Performance.
Notwithstanding anything to the contrary contained in this Section 23,
except for and subject to a payment or distribution of assets of any
kind pursuant to Sections 23(b)(i) and 23(b)(ii), the Holder of this
Note may at any time in accordance with the provision of this Note and
without regard to whether or not any default (including a Senior Payment
Default or a Senior Covenant Default) exists under the Senior Credit
Facility (I) convert this Note and any Conversion Amount into shares of
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<PAGE> 27
Common Stock, (II) exercise the right to seek specific performance,
(III) acquire or receive those rights and benefits granted to such
Holder pursuant to Sections 4(c) and 4(d).
(n) Conflicts. In the event of any conflict between the terms of
this Section 23 and the Securities Purchase Agreement, the Registration
Rights Agreement or the Notes, the terms of this Section 23 shall
prevail in all respects.
* * * * *
-27-
<PAGE> 28
IN WITNESS WHEREOF, the Company has caused this Note to be signed by
___________________, its _______________________________, as of the ____ day of
____________, ______.
KOMAG, INCORPORATED
By:
---------------------------------
Name:
Title:
<PAGE> 29
EXHIBIT I
KOMAG, INCORPORATED
CONVERSION NOTICE
Reference is made to the Note issued by Komag, Incorporated (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, which amount
shall equal or exceed the Minimum Conversion Amount (as defined in the Note),
indicated below into shares of Common Stock, par value $0.01 per share (the
"COMMON STOCK"), of the Company as of the date specified below.
Date of Conversion:
-----------------------------------------------------
Aggregate Conversion Amount to be converted:
----------------------------
Note no(s). of Note 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 and, if
applicable, any check drawn on an account of the Company 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):
-----------------------------------
<PAGE> 30
ACKNOWLEDGMENT
Date:
------------------------------
Via Fax (415) 398-7156 (Follow up with hard copy in mail)
Attn:
----------------------------
ChaseMellon Shareholder Services
235 Montgomery Street, 23rd Floor
San Francisco, CA 94104
Re: Issuance Control No.
-----------------
Ladies and Gentlemen:
You are hereby authorized to issue and deliver the shares of Common Stock as
indicated below. The shares are being issued pursuant to the agreement dated May
__, 2000 between Komag, Incorporated and _________________________________.
Date of Issuance:
-----------------------------
Number of Shares:
-----------------------------
___ Original Issue or
___ Transfer from Treasury Acct. No.
--------
Broker Name:
-----------------------------
Broker's DTC #:
-----------------------------
(if applicable)
Sincerely,
KOMAG, INCORPORATED
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
