Common use of Exchange Note Clause in Contracts

Exchange Note. If at any time twelve months from the date hereof, the Average Market Price (as defined in the Certificate) of the Company's Common Stock shall be less than two times the initial Conversion Price per share, upon the request of any Purchaser, the shares of Series A Preferred Stock held by such Purchaser (or any portion thereof as requested by the Purchaser) shall be exchanged by the Company for a convertible promissory note of the Company in the principal amount corresponding to the Purchaser's purchase price for such shares plus an annualized return on such purchase price from the date of purchase equal to 35%, plus all accrued dividends on such shares, bearing interest at 10% per annum (each, an "Exchange Note"). Equal payments of principal and interest shall be payable on the Exchange Notes quarterly over a two year period, commencing six months from the issuance of such Exchange Note. Any Exchange Note shall be convertible at the option of the holder into such number Common Stock as calculated by dividing the principal balance and accrued interest on such Exchange Note by the Conversion Price (as defined in the Certificate). The Exchange Notes shall contain covenants and terms of default no less favorable to such Purchaser than those typically found in commercial loans to businesses presenting a similar risk as the Company, but in no event shall such covenants be less favorable to the Purchaser than those contained herein and in accordance with the rights and privileges of the Series A Preferred Stock. All approval rights granted to the holders of the Series A Preferred Stock shall be granted to the Purchaser as the holder of an Exchange Note, including approval rights equivalent to the voting rights of the number of shares of Series A Preferred Stock exchanged for the Exchange Note. The Company shall covenant to ensure the continued election of the same number of members of the Board of Directors designated by the Purchasers as the Purchasers were entitled to prior to exercising their rights under this section. In the event that (1) the Company's right or ability to manufacture or sell its product in the United States, Europe or Japan is limited as a result of a determination that the Company is infringing on the intellectual property rights of any other person; (2) the claims under any of the patents listed on the Schedule of Exceptions are materially narrowed or invalidated; or (3) the Company is unable to obtain a line of credit of at least $650,000 from a commercial bank acceptable to Telantis Venture Partners V, Inc. by October 31, 1998, then regardless of the Average Market Price at the time of such occurrence, any Purchaser shall have the right to exercise its rights under this section, provided, however, that under such circumstance, the Exchange Notes issued shall be payable on demand.