EXHIBIT 4.1
EXECUTION VERSION
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
SENIOR SUBORDINATED CONVERTIBLE NOTE
DUE JULY __, 2005
$37,776,716.00 July __, 1999
This Senior Subordinated Convertible Note (the "Note") is executed and
delivered under and pursuant to the terms of that certain Amended and Restated
Exchange Agreement, dated as of June 29, 1999 (the "Agreement"), between Applied
Magnetics Corporation, a Delaware corporation (the "Maker"), and Kennilworth
Partners II LP, a Delaware limited partnership ("Holder").
FOR VALUE RECEIVED, Maker promises to pay to the order of Holder
the principal sum of Thirty-Seven Million Seven Hundred Seventy-Six Thousand
Seven Hundred Sixteen Dollars ($37,776,716) (the "Principal Amount") on July
__, 2005 (the "Maturity Date"), which amount includes a borrowing in the
amount of Twenty-Five Million Dollars ($25,000,000) (the "Borrowing Amount"),
together with zero coupon interest compounded quarterly through July __, 2002
(the "Zero Coupon Date"), and interest from the Zero Coupon Date on the
unpaid Principal Amount at 14% per annum, which interest (the "Interest")
shall accrue on a daily basis using quarterly compounding. The Principal
Amount of and Interest on this Note shall be paid in lawful money of the
United States of America at the principal office of Holder, ▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other place as Holder
may designate to Maker from time to time.
1. INTEREST PAYMENTS. Interest payments on the Note shall be payable
in cash quarterly in arrears on the first day of April, July, October and
January in each year (each such date being referred to herein as a
"Quarterly Interest Payment Date"), commencing on the first Quarterly
Interest Payment Date after the Zero Coupon Date. If
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any Quarterly Interest Payment Date occurs on a day that is not a business
day, any accrued interest payments otherwise payable on such Quarterly
Interest Payment Date shall be paid, without interest, on the next succeeding
business day. Interest payments payable on any Quarterly Interest Payment
Date with respect to a period (a "Interest Period") which is less than a full
fiscal quarter in length will be computed on the basis of a 365-day annual
period and actual days elapsed in such Interest Period. Interest payments on
account of arrears for any past Interest Periods may be declared and paid at
any time to holders of record on the payment date.
2. CONVERSION.
2.1 OPTIONAL CONVERSION BY ▇▇▇▇▇▇. The Note (or any portion
thereof) shall be convertible, at the option of the holder thereof, at any
time, into seven million twenty-eight thousand two hundred twenty-four
(7,028,224) shares of Common Stock (or the applicable PRO RATA portion
thereof). Such conversion reflects a conversion price of $3.557085 per share
of Common Stock (the "Conversion Price"). Notwithstanding the foregoing, if
at any time on or after the date that each of the following shall be true:
(a) the Maker has sold, transferred, pledged, assigned or otherwise
encumbered assets with a market value reasonably estimated at greater than
five million dollars ($5,000,000) when aggregated with all other assets sold,
transferred, pledged, assigned or otherwise encumbered after the date hereof,
other than assets encumbered solely to secure existing Senior Indebtedness
(as described below), and (b) the Maker shall have had negative net income or
negative net operating income in its most recent fiscal quarter (the
"Conversion Price Adjustment Date"), the Conversion Price shall be adjusted
(to the extent such adjustment reflects a decrease in the Conversion Price)
to a 10% premium to the average closing price of the Common Stock as reported
on any of the New York Stock Exchange, any national securities exchange or
the National Market System of the National Association of Securities dealers,
Inc. (an "Exchange") for five (5) business days prior to the Conversion Price
Adjustment Date. Maker shall give prompt written notice to the Holder of the
occurrence of a Conversion Price Adjustment Date which, if practicable, shall
be not less than seven days prior thereto.
2.2 MANDATORY CONVERSION.
2.2.1 MANDATORY CONVERSION BY MAKER IN YEAR ONE. In the event
that, on or prior to July __, 2000, the closing price of the Common Stock as
reported on any Exchange is greater than or equal to ten
dollars and seventy-five cents ($10.75) per share for twenty (20) of thirty
(30) consecutive business days, at the option of the Maker, the Note shall be
converted into seven million twenty-eight thousand two hundred twenty-four
(7,028,224) shares of Common Stock.
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2.2.2 MANDATORY CONVERSION BY MAKER FOLLOWING YEAR ONE. In the
event that, after July __, 2000, the closing price of the Common Stock as
reported by any Exchange is greater than or equal to seven dollars ($7.00)
for twenty (20) of thirty (30) consecutive business days, at the option of
the Maker, the Note shall be converted into seven million twenty-eight
thousand two hundred twenty-four (7,028,224) shares of Common Stock.
2.2.3 MANDATORY CONVERSION TO PREFERRED STOCK. In the event that
(a) Maker meets or exceeds the projections set forth on Schedule 1 hereto for
the four fiscal quarters following the date hereof and (b) Maker consummates
a rights offering with net proceeds of not less than $40,000,000 to Maker,
this Note shall be converted into that number of shares of Maker's Series B
Convertible Preferred Stock equal to a fraction, the numerator of which shall
be the sum of the Borrowing Amount, together with interest accrued on a daily
basis through such conversion date using quarterly compounding at the rate of
14% per annum, and the denominator of which shall be one hundred dollars
($100). The terms of the Series B Convertible Preferred Stock will be exactly
identical to this Note.
2.3 MECHANICS OF CONVERSION.
2.3.1 MECHANICS OF OPTIONAL CONVERSION. In order to convert
the Note into shares of Common Stock pursuant to Section 2.1,
▇▇▇▇▇▇ shall surrender the Note at the office of the transfer agent, together
with written notice (the "Optional Conversion Notice") that Holder elects to
convert the Note (or any part hereof). The Optional Conversion Notice shall
state (i) the Holder's name or the names of the nominees in which the Holder
wishes the certificate or certificates for shares of Common Stock to be
issued and (ii) a designated date of conversion. If required by the Maker,
upon its surrender the Note shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Maker,
duly executed by the registered holder or his or its attorney duly authorized
in writing. The effective date of conversion (the "Optional Conversation
Date") shall be deemed to be the later of (x) the date specified in the
Optional Conversion Notice or (y) the date the Optional Conversion Notice is
received by the Maker. The Maker shall, as soon as practicable after the
Optional Conversion Date, issue and deliver to such holder, or to his
nominees, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled. From and after the Optional
Conversion Date, all interest on the Note shall cease to accrue, all rights
of the Holder (except the right to receive certificates representing the
applicable number of shares of Common Stock upon surrender of the Note) shall
cease with respect to such Note, and the Note shall thereafter not be deemed
to be outstanding for any purpose whatsoever.
2.3.2 MECHANICS OF MANDATORY CONVERSION. In order for the Maker
to convert the Note into shares of Common Stock pursuant to Section 2.2, at
least fifteen (15) days prior to the date set by the Board of Directors on
which the Note will automatically be converted to Common Stock (the
"Mandatory Conversion Date"), written
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notice (the "Mandatory Conversion Notice") shall be given to each Holder at
▇▇▇▇▇▇'s address last shown on the records of the Maker, specifying the
applicable Conversion Price and the Mandatory Conversion Date. On or after
and as of the Mandatory Conversion Date, the Note shall be deemed converted
into shares of Common Stock in accordance with Section 2.2 above. From and
after the Mandatory Conversion Date, all interest on the Note shall cease to
accrue, all rights of the Holder (except the right to receive certificates
representing the applicable number of shares of Common Stock upon surrender
of the Note) shall cease with respect to such Note, and the Note shall
thereafter not be deemed to be outstanding for any purpose whatsoever.
2.4 INTEREST PAYABLE ON CONVERSION. Unpaid Interest accruing from
the Zero Coupon Date through any Optional or Mandatory Conversion Date shall
be due and payable upon conversion and, thereafter, any unpaid amount of
Interest shall be deemed unpaid principal and shall accrue interest at the
rate applicable to the Principal Amount immediately prior to such conversion.
2.5 TERMINATION OF RIGHTS UNDER THE NOTE. All or any portion of
the Note which shall have been surrendered for conversion or automatically
converted as herein provided shall no longer be deemed to be outstanding and
all rights with respect to such shares, including the rights, if any, to
receive dividends and notices, shall immediately cease and terminate on the
Optional or Mandatory Conversion Date (as applicable), except only the right
of the holders thereof to receive shares of Common Stock or Series B
Convertible Preferred Stock in exchange therefor. The conversion rights of
the Note shall continue to, and terminate on, the Maturity Date.
3. SUBORDINATION.
3.1 SUBORDINATION TO SENIOR OBLIGATIONS. The Maker covenants and
agrees, and by its acceptance hereof Holder likewise covenants and agrees,
that, to the extent and in the manner hereinafter set forth in this Section,
this Note, and the payment of the principal and interest hereunder
(collectively, the "Senior Subordinated Obligations"), are hereby expressly
made subordinate and subject in right of payment to the prior payment in full
in cash of all indebtedness of the Maker now existing or hereinafter arising
under (i) the Guarantees entered into by the Company prior to the date hereof
and as amended from time to time relating to loan agreements between Applied
Magnetics (M) SDN BHD, a wholly-owned subsidiary of the Company, and (a) RHB
Bank Berhad, formerly known as DCB Bank of Berhad, dated December 10, 1996,
(b) Arab-Malaysian Bank Berhad, dated July 18, 1996, (c) Ban Hin ▇▇▇ Bank
Berhad, dated April 8, 1997, (d) Malayan Banking Berhad, April 19, 1995, and
(e) United Overseas Bank (Malaysia) Bhd, dated August 18, 1998, as each may
have been amended from time to time, and (ii) its loan agreements with CIT
Group/Business Credit Financing Agreement dated January 11, 1995, as amended
from time to time (together with the Guarantees, the "Senior Indebtedness
Documents"), including any future borrowings under such Senior Indebtedness
Documents, and all related interest, fees, expenses and other amounts payable
thereunder (the "Senior Indebtedness"), provided, that, notwithstanding
anything to the contrary contained herein, at any time of determination, the
Senior Subordinated Obligations shall be subordinated pursuant to the terms
hereof only to that amount of such Senior Indebtedness that at such time
would be permitted to be outstanding under the terms of the Senior
Indebtedness Documents as in effect on the date hereof and without giving
effect to any subsequent amendments thereto. Such Senior Indebtedness shall
constitute the only indebtedness of Maker which shall be higher in priority
to the Senior Subordinated Obligations and Maker agrees that no additional
indebtedness, other than the Senior Indebtedness and any future
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borrowings under the Senior Indebtedness Documents, shall be incurred which
is senior to or pari passu with the Senior Subordinated Obligations. The
Holder hereby agrees not to amend or otherwise modify any provision of this
Section without the prior written consent of the holders of all Senior
Indebtedness. This Section shall be reinstated if at any time any payment of
any of the Senior Indebtedness is rescinded or must otherwise be returned by
any holder of Senior Indebtedness or any agent of such holder. The holders
of the Senior Indebtedness are third-party beneficiaries of the provisions of
this Section and are entitled to rely hereon.
3.2 SENIORITY TO JUNIOR OBLIGATIONS. The Maker covenants and
agrees and, by its acceptance hereof Holder likewise covenants and agrees,
that, to the extent and in the manner set forth in this Section, this Note,
and the payment of the Principal Amount and Interest hereunder, are expressly
made senior to those certain 7% Convertible Subordinated Debentures of the
Company (the "Junior Indebtedness") and all related interest, fees, expenses
and other amounts payable with respect to such Junior Indebtedness.
3.3 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION. In the event of
(a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to Maker or its assets, or (b) any liquidation,
dissolution or other winding up of Maker, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment
for the benefit of creditors or any the marshaling of assets and liabilities
of Maker, then and in any such event:
(x) the holders of Senior Indebtedness shall be entitled to receive
payment in full of all amounts due or to become due on or in respect of all
Senior Indebtedness, before Holder is entitled to receive any payment on
account of the Senior Subordinated Obligations and Holder shall be entitled
to receive payment in full of all amounts due or to become due on or in
respect of this Note, before the holders of the Junior Indebtedness are
entitled to receive any payment on account of the Junior Indebtedness.
(y) any payment or distribution of assets of Maker of any kind or
character to which ▇▇▇▇▇▇ would be entitled but for the provisions of this
Section (other than any payment or distribution in the form of equity
securities or other securities subordinated in right of payment to all
Senior Indebtedness the same extent as, or to a greater extent than, the
Senior Subordinated Obligations) shall be paid to the holders of Senior
Indebtedness, to the extent necessary to make payment in full in cash of
all Senior Indebtedness; and
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(z) in the event that, notwithstanding the foregoing provisions of
this Section, Holder shall have received any such payment or distribution
(but excluding any payment of the character described in the parenthetical
clause in the foregoing clause (y)) before all Senior Indebtedness is paid
in full in cash, then such payment or distribution shall be held in trust
for the holders of the Senior Indebtedness and paid over or delivered
forthwith for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in
full in cash, after giving effect to any concurrent payment or distribution
to or for the holders of Senior Indebtedness, with any excess to be
promptly returned to Holder for application hereto.
If ▇▇▇▇▇▇ fails to file claims or proofs of claim in any proceeding of the
type referred to in the first sentence of this Section earlier than 10 days
prior to the deadline for any such filing, Holder hereby appoints the holders of
the Senior Indebtedness as its attorney (i) to file such claims or proofs of
claim and/or (ii) if Holder fails to vote any such claim at least 10 days prior
to the expiration of the time to vote such claim, to vote such claim; provided,
that the Senior Indebtedness shall have no obligation to file and/or vote any
such claim.
3.4 NON-PAYMENT IN CERTAIN CIRCUMSTANCES. (a) In the event that
any payment of principal of or interest on the Senior Indebtedness is not
paid when due, whether at stated maturity, by mandatory prepayment, by
acceleration or otherwise ("Payment Default"), then no payment shall be made
by Maker, or accepted by Holder, on account of the Senior Subordinated
Obligations, unless and until such payment shall have been made or such Payment
Default is waived in accordance with the terms of the Senior Indebtedness.
(b) In the event that any event of default other than a Payment
Default (each a "Non-Payment Default") has occurred and is continuing and
Maker and Holder shall have received written notice of such Non-Payment
Default (a "Blockage Notice") from the holders of the Senior Indebtedness,
then no payment shall be made by Maker, or accepted by Holder, on account of
the Senior Subordinated Obligations during the period commencing on the date
Maker and Holder received such Blockage Notice and ending on the earlier of
(A) the date 120 days thereafter and (B) the date on which such Non-Payment
Default has been cured or waived; provided, that (x) in any 365 consecutive
day period, irrespective of the number of defaults with respect to Senior
Indebtedness during such period, Blockage Notices may be in effect for no
more than 120 days in the aggregate and (y) a Non-Payment Default, or an
event which, with the giving of notice and/or lapse of time, would become a
Non-Payment Default which existed on the date of the commencement of any such
blockage period and has since matured into an Event of Default, may be used
as the basis for any subsequent Blockage Notice unless such Non-Payment
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Default or event, as the case may be, shall in the interim have been cured or
waived.
(c) The failure of Maker to make any payment with respect to the
Senior Subordinated Obligations by reason of the operation of this Section
shall not be construed as preventing the occurrence of a default hereunder.
Immediately upon the expiration of any period under this Section during which
no payment may be made on account of the Senior Subordinated Obligation,
Maker may resume making any and all payments on account of the Senior
Subordinated Obligations (including any payment of principal, interest or any
other amount missed during such period), which payment (if so made in full)
shall be deemed to have cured, and Holder shall be deemed to have waived, any
default which may arise on account of any such missed payment.
(d) In the event that, notwithstanding the foregoing, Holder shall
have received any payment prohibited by this Section, then and in such event
such payment shall be held in trust for the holders of the Senior Indebtedness
and paid over and delivered forthwith to the agent for the holders of the Senior
Indebtedness for application to the Senior Indebtedness to the extent then
payable, with any excess to be returned promptly to Holder for application
hereto.
3.5 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full in cash of all Senior Indebtedness, Holder
shall be subrogated to the rights of the holders of the Senior Indebtedness
to receive payments and distributions of cash, property and securities
applicable to the Senior Indebtedness until the principal of and interest on
this Note shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness of any cash,
property or securities to which ▇▇▇▇▇▇ would be entitled except for the
provisions of this Section, and no payments pursuant to the provisions of
this Section to the holders of Senior Indebtedness by Holder shall, as among
Maker, its creditors (other than holders of Senior Indebtedness), and Holder
be deemed to be a payment or distribution by Maker to or on account of the
Senior Indebtedness.
3.6 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS. The provisions
of this Section 3 are and are intended solely for the purpose of defining the
relative rights of ▇▇▇▇▇▇ on the one hand and the holders of Senior
Indebtedness on the other hand. Nothing contained in this Section or
elsewhere in this Note is intended to or shall impair, as among Maker and
Holder, the obligation of Maker, which is absolute and unconditional, to pay
to Holder the principal of and interest under this Note as and when the same
shall become due and payable.
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3.7 NO WAIVER OF SUBORDINATION PROVISIONS. No right of any
present or future holder of any Senior Indebtedness to enforce subordination
as herein provided shall at any time in any way be prejudiced or impaired by
any act or failure to act on the part of Maker or by any act or failure to
act, in good faith, by any such holder, or by any non-compliance by Maker
with the terms, provisions and covenants of this Note, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing sentence, the
holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to Holder, without incurring responsibility
to Holder and without impairing or releasing the subordination provided in
this Section or the obligations hereunder of Holder to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner,
place or terms of payment or extend the time of payment of, or renew or
alter, Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding, provided, that the
Senior Indebtedness Documents may not be amended to increase the amount of
any Senior Indebtedness that may be outstanding at any time; (b) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Indebtedness; and (c) exercise or refrain from
exercising any rights against Maker and any other person.
3.8 LIMITATION ON RIGHTS AND REMEDIES: NOTICE OF EXERCISE OF
REMEDIES. Notwithstanding anything contained herein to the contrary, for any
period during which Holder shall be blocked from receiving payments pursuant
to Section 3.4 hereof (but in no event exceeding 60 days), Holder shall not
(i) accelerate any portion of the Senior Subordinated Obligation, (ii)
initiate any judicial proceeding or action to collect any portion of the
Senior Subordinated Obligation, or (iii) initiate any case, proceeding or
other action in respect of Maker of the type referred to in clause (a) or (b)
of clause (b) (each a "Proceeding") hereof unless, prior to the expiration of
such period, (i) the holders of the Senior Indebtedness shall take any such
action in respect of the Senior Indebtedness or (ii) the Senior Indebtedness
and/or the Senior Subordinated Obligations shall have become automatically
due payable in accordance with their respective terms.
3.9 ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(a) Special Definitions. For purposes of this Section, the
following definitions shall apply:
(1) "Option" shall mean rights, options or warrants issued
by the Maker to subscribe for, purchase or otherwise
acquire Common Stock or Convertible Securities.
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(2) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common
Stock.
(3) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or deemed pursuant to
Section 3.9(b) to be issued) by Maker after the date
hereof, other than Key Employee Shares (as defined
below) and other than shares of capital stock issued
or issuable:
(A) upon conversion of shares of Series B Convertible
Preferred Stock;
(B) pursuant to Options or Convertible Securities
outstanding on the date hereof; or
(C) by reason of a dividend, stock split, split-up
or other distribution on shares excluded from
the definition of Additional Shares of Common
Stock by the foregoing clauses (1), (2) or (3).
(4) "Key Employee Shares" shall mean shares of Common
Stock, and/or options to purchase such shares of Common
Stock, issued to officers, directors or employees of or
consultants to the Maker pursuant to any restricted
stock plan or agreement heretofore approved by the
Board of Directors.
(5) "Rights to Acquire Common Stock" (or "Rights") shall
mean all rights issued by this Maker to acquire Common
Stock whether by exercise of a warrant, option or
similar call or conversion of any existing instruments.
(b) ISSUE OF SECURITIES; DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK. If the Maker at any time or from time to time
after the date hereof
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shall issue any Options or Convertible Securities or
other Rights to Acquire Common Stock, then the maximum
number of shares of Common Stock (as set forth in the
instrument relating thereto without regard to any
provision contained therein for a subsequent reduction of
such number) issuable upon the exercise of such Options,
Rights or, in the case of Convertible Securities, the
conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue, provided, that, in
any such case:
(1) No further adjustment in the Conversion Price shall be
made upon the subsequent issue of shares of Common
Stock upon the exercise of such Rights or conversion or
exchange of such Convertible Securities;
(2) Upon the expiration or termination of any unexercised
Option or Right, the Conversion Price shall be
readjusted, and the Additional Shares of Common Stock
deemed issued as the result of the original issue of
such Option or Right shall not be deemed issued for the
purposes of such readjustment or any subsequent
adjustment of the Conversion Price; and
(3) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or
exchange of any Option, Right or Convertible Security
(except Key Employee Shares), including, but not
limited to, a change resulting from the anti-dilution
provisions thereof, the Conversion Price then in effect
shall forthwith be readjusted to such Conversion Price
as would have obtained had the adjustment that was made
upon the issuance of such Option, Right or Convertible
Security not exercised or converted prior to such
change been made upon the basis of such change, but no
further adjustment shall be made for the actual
issuance of Common Stock upon the exercise or
conversion of any such Option, Right or Convertible
Security.
(c) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. If the Maker shall at any time
after the date hereof issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed
to be issued, but excluding shares issued as a stock
split, dividend or distribution and Key Employee Shares),
without consideration or for a consideration per share less
than the Conversion Price in effect immediately prior to
such issue (as adjusted until the Zero Coupon Date to
give effect to a per annum accretion rate of 14%), then and
in such event, such Conversion Price shall be reduced,
concurrently with such issue to a price (calculated to the
nearest cent) determined
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by multiplying such Conversion Price by a fraction, (a)
the numerator of which shall be (1) the number of shares
of Common Stock outstanding immediately prior to such
issue (or deemed issue) on a fully-diluted basis plus (2)
the number of shares of Common Stock which the aggregate
consideration received by the Maker for the total number
of Additional Shares of Common Stock so issued (or deemed
issued) would purchase at such Conversion Price; and (b)
the denominator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to
such issue (or deemed issue) on a fully-diluted basis
plus (2) the number of such Additional Shares of Common
Stock so issued (or deemed issued).
Notwithstanding the foregoing, the applicable Conversion Price shall not be
reduced if the amount of such reduction would be an amount less than One Cent
($.01), but any such amount shall be carried forward and reduction with respect
thereto made at the time of and together with any subsequent reduction which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate One Cent ($.01) or more.
(d) DETERMINATION OF CONSIDERATION. For purposes of this
Section, the consideration received by the Maker for the
issue of any Additional Shares of Common Stock shall be
computed as follows:
(1) CASH AND PROPERTY. Such consideration shall:
(A) insofar as it consists of cash, be computed at
the aggregate of cash received by the Maker,
excluding amounts paid or payable for accrued
interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair market value
thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock
are issued together with other shares or
securities or other assets of the Maker for
consideration which covers both, be the
proportion of such consideration so received,
computed as provided in clauses (A) and (B)
above, as determined in good faith by the
Maker's Board of Directors.
(2) OPTIONS, RIGHTS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Maker for
Additional Shares of
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Common Stock deemed to have been issued pursuant to
Options, Rights and Convertible Securities shall be
determined by dividing
(A) the total amount, if any, received or receivable
by the Maker as consideration for the issue of
such Options, Rights or Convertible Securities,
plus the minimum aggregate amount of additional
consideration (as set forth in the instruments
relating thereto, without regard to any
provision contained therein for a subsequent
increase of such consideration) payable to the
Maker upon the exercise of such Options, Rights
or the conversion or exchange of such
Convertible Securities, by
(B) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto,
without regard to any provision contained
therein for a subsequent reduction of such
number) issuable upon the exercise of such
Options or the conversion or exchange of such
Convertible Securities.
3.10 ADJUSTMENT FOR STOCK SPLITS, DIVIDENDS AND COMBINATIONS. If
the Maker shall at any time or from time to time after the date hereof effect
a subdivision of the outstanding Common Stock or shall issue a dividend in
Common Stock on its outstanding Common Stock, the Conversion Price then in
effect immediately before that subdivision shall be proportionately
decreased. If the Maker shall at any time or from time to time after the date
hereof combine the outstanding shares of Common Stock into a lesser number of
shares of Common Stock, the Conversion Price then in effect immediately
before the combination shall be proportionately increased. Any adjustment
under this paragraph shall become effective as of the record date for such
stock split, dividend or combination.
3.11 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION.
If the Common Stock shall be changed into the same or a different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event upon the conversion of the Note, Holder shall have the right to receive
the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification, or other change, by
holders of the number of shares of Common Stock into which the Note might
have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
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3.12 ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Maker with or into another corporation or the
sale of all or substantially all of the assets of the Maker to another
corporation, the Note shall thereafter be convertible into the kind and
amount of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Maker deliverable upon
conversion of the Note would have been entitled upon such consolidation,
merger or sale; and, in such case, appropriate adjustment (as determined in
good faith by the Board of Directors) shall be made in the application of the
provisions in this Section with respect to the rights and interest thereafter
of Holder, to the end that the provisions set forth in this Section
(including provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Note. In the event that the
consolidation or merger is an all-cash transaction, Holder shall be entitled
to cash payment on an as-converted basis.
3.13 CHANGE IN CONTROL. In addition to any adjustment provided in
Section 3.12, Holder will have the right, at Holder's option, to cause Maker
to purchase the Note, in whole or in part, for a cash amount equal to the
accreted value of the Note, based on the Borrowing Amount, through the
effective date of the purchase by Maker, if a Change of Control (as defined
herein) occurs or has occurred. Notice with respect to the occurrence of a
Change of Control will be given not later than 30 days after the date of the
occurrence of such Change of Control. The date fixed for such purchase will
be a date not less than 30 nor more than 60 days after notice of the
occurrence of a Change of Control is given (except as otherwise required by
law). To be purchased, the Note must be received with a duly executed written
notice at the office of the Maker not later than the fifth business day prior
to the date fixed for such purchase. Upon such purchase, the Note will be
canceled. Following tender of a notice of purchase, ▇▇▇▇▇▇ will be entitled
to revoke its election by delivering a written notice of such revocation to
the Maker on or prior to the date fixed for such purchase.
A "Change of Control" will be deemed to have occurred (i) upon any
merger or consolidation of the Maker with or into any person or any sale,
transfer or other conveyance, whether direct or indirect, of all or
substantially all of the assets of the Maker in one transaction or a series of
related transactions if, immediately after giving effect to such transaction,
any "person" or "group" (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act, whether or not applicable) is or becomes the
beneficial owner, directly or indirectly, of more than 50% of the total voting
power in the aggregate normally entitled to vote in the election of directors,
managers, or trustees, as applicable, of the transferee or surviving entity,
(ii) when any "person" or "group" (as such
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terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act,
whether or not applicable) is or becomes the beneficial owner, directly or
indirectly, of more than 50% of the total voting power in the aggregate
normally entitled to vote in the election of directors, managers, or
trustees, as applicable, of the Maker or (iii) when, during any period of 12
consecutive months after the date hereof, individuals who at the beginning of
any such 12-month period constituted the Board of Directors of the Maker
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Maker was approved
by a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Maker then in office.
3.14 NO IMPAIRMENT. The Maker will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Maker, but will at all times in good faith assist in the carrying out of all
the provisions of this Section and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of Holder
of the Note.
3.15 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section,
the Maker at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to Holder a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based and
shall file a copy of such certificate with its corporate records. The Maker
shall, upon the written request at any time of Holder, furnish or cause to be
furnished to such holder a similar certificate setting forth (1) such
adjustments and readjustments, (2) the Conversion Price then in effect, and
(3) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of the Note.
Despite such adjustment or readjustment, the form of each or all certificates
for the Note, if the same shall reflect the initial or any subsequent
Conversion Price, need not be changed in order for the adjustments or
readjustments to be valued in accordance with the provisions of this Section
which shall control.
4. MISCELLANEOUS.
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of Holder hereof 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
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privilege preclude other or further exercise thereof or of any other right,
power or privilege. All rights and remedies existing hereunder are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
4.2 RESERVATION OF SHARES. The Maker has authorized, and shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to the effect the conversion of this Note
into shares of Common Stock as provided for herein and, if at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of this Note, Maker will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose. The Maker has authorized, and
shall at all times reserve and keep available out of its authorized but
unissued shares of Series B Convertible Preferred Stock, such number of its
shares of Series B Convertible Preferred Stock as shall from time to time be
sufficient to the effect the conversion of this Note into shares of Series B
Convertible Preferred Stock as provided for herein and, if at any time the
number of authorized but unissued shares of Series B Convertible Preferred
shall not be sufficient to effect the conversion of this Note, Maker will
take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Series B
Convertible Preferred Stock to such number of shares as shall be sufficient
for such purpose, provided that, in no event shall any Series B Convertible
Preferred Stock, other than such stock issued upon conversion of and in
exchange for this Note, be issued by the Maker.
4.3 AMENDMENT AND CONSENT. The term "Note" or "this Note" and
all references thereto, as used throughout this instrument, shall mean this
instrument as originally executed or if later amended or supplemented, then,
as so amended or supplemented. This Note may be amended only by a writing
executed by Maker and consented to by ▇▇▇▇▇▇.
4.4 ASSIGNABILITY. This Note shall be binding upon Maker, its
successors and assigns, and shall inure to the benefit of ▇▇▇▇▇▇, and any
successors and assigns of Holder. This Note may be sold, assigned, pledged
or otherwise encumbered, in whole or in part, without the prior written
consent of Maker.
4.5 WAIVERS. The Maker hereby waives presentment, demand for
payment, dishonor, notice of dishonor, protest, notice of protest and any
other notice or formality, to the fullest extent permitted by applicable law.
4.6 COST OF COLLECTION. If default is made in the payment of
this Note or should any other Event of Default occur, Maker shall pay or
reimburse all of Holder's costs of collection, including reasonable
attorneys' fees, which amounts shall be payable on demand and accrue interest
at the rate then applicable to the Borrowed Amount.
4.7 NON-BUSINESS DAYS. If any payment to be made by the Maker
under this Note shall become due on a day other than a Business Day (as
defined in the Agreement), payment shall instead by considered to be due on
the succeeding Business Day and any extension of time shall be reflected in
computing interest.
4.8 GOVERNING LAW. THIS NOTE SHALL BE DELIVERED TO AND ACCEPTED
BY HOLDER IN THE STATE OF NEW YORK, AND SHALL BE
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GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS
THEREOF.
IN WITNESS WHEREOF, Maker has caused this Note to be signed in its
name by its duly authorized officers.
DATED: July__, 1999.
APPLIED MAGNETICS CORPORATION
a Delaware corporation
By __________________________________
Its ________________________________
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SCHEDULE 1
For the quarter ended September 30, 1999:
Net revenues of not less than $33.3 million
Net loss of not more than $31 million
Cash of not less than $32 million
For the quarter ended December 31, 1999:
Net revenues of not less than $49.8 million
Net loss of not more than $21 million
Cash of not less than $23 million
For the quarter ended March 31, 2000:
Net revenues of not less than $66.2 million
Net loss of not more than $10 million
Cash of not less than $27 million
For the quarter ended June 30, 2000:
Net revenues of not less than $85.6 million
Net profit of not less than $2 million
Cash of not less than $44 million
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