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Page 38 of 81 Pages
interest accrued thereon to be due and payable and any or all other obligations
hereunder to be due and payable, whereupon the full unpaid principal amount
hereof, such accrued interest and any and all other such obligations which shall
be so declared due and payable shall be and become immediately due and payable,
without further notice, demand, or presentment.
6. Conversion of Note.
A. Automatic Conversion. If prior to the Maturity Date, the Company
completes a private placement of its debt or equity securities resulting in
gross proceeds to the Company of at least $15,000,000 (a "Subsequent Placement")
and the terms of the Subsequent Placement are consented to by Commonwealth and
the Committee (a "Subsequent Conversion Placement"), the outstanding Principal
Amount shall be automatically converted as payment for the Payee's investment
into the securities sold in the Subsequent Conversion Placement without any
further action on the part of the Payee. Upon cancellation of this Note in
connection with the Payee's investment in the Subsequent Conversion Placement,
all accrued interest shall be paid. The securities issuable upon conversion of
this Note into the Subsequent Conversion Placement are referred to herein as the
"Placement Securities."
B. Optional Conversion. If this Note has not been converted pursuant
to the provision for automatic conversion set forth in subsection 6A above or
the Company has not otherwise completed a Subsequent Placement on or prior to
April 19, 2000, the Payee shall have the right, at its option, at any time up to
and including the Maturity Date, to convert any portion of the outstanding
Principal Amount of this Note into shares of Common Stock of the Company at a
price equal to $8.50 per share (the "Conversion Price"), subject to adjustment
as provided in subsection 6C below. The shares of Common Stock issuable upon
conversion of this Note at the Conversion Price are referred to herein as the
"Conversion Shares."
C. Adjustment of Conversion Price. The Conversion Price in effect at
any time and the number and kind of securities issuable upon conversion of the
Notes shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(i) In case the Company shall hereafter (i) declare a dividend or
make a distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller number of
shares, the applicable Conversion Price in effect at the time of the
record date for such dividend or distribution or of the effective date of
such subdivision, combination or reclassification shall be adjusted so
that it shall equal the number of shares determined by multiplying the
Conversion Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such
action, and the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such action. Such adjustment shall
be made successively whenever any event listed above shall occur.
(ii) In the event the Company defaults in any payment of principal
under the Notes, the Conversion Price shall be reset to the lower of $4.25
or one-half the Conversion Price then in effect, subject to further
adjustment in accordance with Subsection (i) above.
Page 39 of 81 Pages
(iii) Whenever the Conversion Price payable upon conversion of each
Note is adjusted pursuant to Subsection (i) or (ii) above, the number of
Conversion Shares purchasable upon conversion of this Note shall
simultaneously be adjusted by multiplying the number of Conversion Shares
initially issuable upon conversion of this Note by the Conversion Price in
effect on the date hereof and dividing the product so obtained by the
Conversion Price, as adjusted.
(iv) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments which
by reason of this Subsection (x) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment
required to be made hereunder. All calculations under this Section 6C
shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be. Anything in this Section 6C to the contrary
notwithstanding, the Company shall be entitled, but shall not be required,
to make such changes in the Conversion Price, in addition to those
required by this Section 6C, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision, reclassification or
combination of Common Stock, hereafter made by the Company shall not
result in any Federal Income tax liability to the holders of Common Stock
or securities convertible into Common Stock (including Notes).
(v) Whenever the Conversion Price is adjusted, as herein provided,
the Company shall promptly, but no later than 10 days after any request
for such an adjustment by Commonwealth or the Committee, cause a notice
setting forth the adjusted Conversion Price and adjusted number of Shares
issuable upon conversion of each Note, and, if requested, information
describing the transactions giving rise to such adjustments, to be mailed
to the Holders at their last addresses appearing in the Note Register, and
shall cause a certified copy thereof to be mailed to its transfer agent,
if any. In the event the Company does not provide the Holder with such
notice and information within 10 days of a request by the Holder, then
notwithstanding the provisions of this Section 6C, the Conversion Price
shall be immediately adjusted to equal the lowest Offering Price,
Subscription Price or Conversion Price, as applicable, since the date of
this Note, and the number of Conversion Shares issuable upon conversion of
this Note shall be adjusted accordingly. The Company may retain a firm of
independent certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) to
make any computation required by this Section 6C, and a certificate signed
by such firm shall be conclusive evidence of the correctness of such
adjustment.
(vi) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (i) above, the Holder of this Note thereafter
shall become entitled to receive any shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable
upon conversion of this Note shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Subsections (i)
to (iii), inclusive above.
(vii) Reorganization of the Company. In case of any reclassification
or capital
Page 40 of 81 Pages
reorganization, or in case of any consolidation or merger of the Company
with or into another corporation (other than a merger with a subsidiary in
which merger the Company is the continuing corporation and which does not
result in any reclassification or capital reorganization) or in case of
any sale, lease or conveyance to another corporation of the property of
the Company as an entirety, the Company shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the holder
of this Note shall have the right thereafter upon conversion of this Note
in accordance with the provisions of this Section 6, to purchase the kind
and amount of shares of stock and other securities and property receivable
upon such reclassification, capital reorganization, consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock
which might have been received upon conversion of this Note immediately
prior to such reclassification, consolidation, merger, sale or conveyance.
Any such provision shall include provision for adjustments which shall be
as nearly equivalent as may be practicable to the adjustments provided for
in this Note. The Company shall not effect any such consolidation, merger,
sale, transfer or other disposition, unless prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing or otherwise acquiring such properties shall assume, by written
instrument executed and mailed or delivered to the holder of this Note at
the last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities,
cash or properties as, in accordance with the foregoing provisions, such
holder may be entitled to acquire. The above provisions of this paragraph
shall similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales, transfers or other dispositions. Nothing
herein shall be construed as to require the consent of the holder to any
such reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition.
D. Mechanics of Conversion.
(i) Optional Conversion. Before the Payee shall be entitled to
convert this Note into Conversion Shares pursuant to the provisions of 6B
hereof, the Payee shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company, and shall give
written notice to the Company at its principal corporate office, of the
election to convert the same and shall state therein the name or names in
which the certificate or certificates for the Conversion Shares are to be
issued. The Company shall, as soon as practicable thereafter, issue and
deliver to the Payee, or to the nominee or nominees of Payee, a
certificate or certificates for the number of Conversion Shares to which
such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the
date of such surrender of the Note to be converted (the "Conversion
Date"), and the person or persons entitled to receive the Conversion
Shares issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such
date.
(ii) Automatic Conversion. In the event the Notes are to be
automatically converted into the Subsequent Conversion Placement pursuant
to the provisions of Section 6A hereof, the Company shall deliver to the
Payee at its address appearing on the records of the Company a written
notice of the imminent conversion of this Note (the "Conversion Notice"),
requesting surrender of this Note for cancellation and written
instructions regarding the registration and delivery of certificates for
representing the Placement Securities. In the
Page 41 of 81 Pages
event the Payee receives a Conversion Notice, the Payee shall be required
to surrender this Note for cancellation within five business days of the
Conversion Notice, but the failure of the Payee so to surrender this Note
shall not affect the conversion of the outstanding Principal Amount into
Placement Securities, provided that if a Note is not surrendered, an
affidavit of lost note shall be provided. No holder of this Note shall be
entitled upon conversion of this Note to have the Placement Securities
registered in the name of another person or entity without first complying
with all applicable restrictions on the transfer of this Note. In the
event the Payee does not provide the Company with written instructions
regarding the registration and delivery of certificates for the Placement
Securities, the Company shall issue such securities in the name of the
Payee and shall forward such certificates to the Payee at its address
appearing on the records of the Company. The person entitled to receive
the Placement Securities shall be deemed to have become the holder of
record of such shares at the close of business on the Conversion Date. The
Company may rely on record ownership of this Note for all corporate
purposes, notwithstanding any contrary notice. After the Conversion Date,
this Note shall, until surrendered to the Company, represent the right to
receive the Placement Securities plus accrued and unpaid interest on the
Principal Amount of this Note through, but excluding the Conversion Date.
E Cash Payments. No fractional shares (or scrip representing
fractional shares) of Common Stock shall be issued upon conversion of this Note.
In the event that the conversion of the Principal Amount of this Note would
result in the issuance of a fractional share of Common Stock, the Company shall
pay a cash adjustment in lieu of such fractional share to the holder of this
Note based upon the Conversion Price. Upon the surrender of this Note, accrued
and unpaid interest on the Principal Amount of this Note converted pursuant to
Section 6 shall be paid by the Company to the holder of this Note through but
excluding the Conversion Date.
F. Stamp Taxes, etc. The Company shall pay all documentary, stamp or
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of this Note; provided, however, that the Company
shall not be required to pay any taxes which may be payable in respect of any
transfer involved in the issuance or delivery of any certificate for such shares
in a name other than that of the holder of this Note, and the Company shall not
be required to issue or deliver any such certificate unless and until the person
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the Company's satisfaction that such tax
has been paid.
G. Validity of Stock. All shares of Common Stock or Placement
Securities which may be issued upon conversion of this Note will, upon issuance
by the Company in accordance with the terms of this Note, be validly issued,
free from all taxes and liens with respect to the issuance thereof (other than
those created by the holders), free from all preemptive or similar rights and
fully paid and non-assessable.
H. Reservation of Shares. The Company covenants and agrees that it
will at all times have authorized and reserved, solely for the purpose of such
possible conversion, out of its authorized but unissued shares, a sufficient
number of shares of its Common Stock to provide for the exercise in full of the
conversion rights contained in this Note.
I. Notice of Certain Transactions. In case at any time:
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