Exhibit A
to
Securities
Purchase
Agreement
THIS CONVERTIBLE NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE
SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE UNDER AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
CONVERTIBLE NOTE
Date: July 25, 2000 $___________
FOR VALUE RECEIVED, LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC., a
corporation organized under the laws of the State of Delaware (the
"Corporation"), hereby promises to pay to the order of ______________________ or
any assign registered on the books and records of the Corporation (individually,
the "Holder," and collectively with the holders of all other notes of same like
and tenor, the "Holders") the sum of __________________ Dollars ($_____) on the
five-year anniversary of the date hereof (the "Scheduled Maturity Date"), and to
pay interest on the unpaid principal balance hereof for each year (or portion
thereof) that this Note is outstanding in an amount equal to seven and one-half
percent (7.5%) per annum, compounded annually. Interest shall accrue on the
unpaid principal balance hereof from the date hereof (the "Issue Date") until
the same becomes due and payable, whether at maturity or upon prepayment,
repayment or otherwise. Any amounts on this Note which are not paid when due
shall bear interest at the rate equal to the lower of fifteen percent (15%) per
annum and the highest rate permitted by law from the due date thereof until the
same is paid. Interest shall be calculated based on a 360-day year and shall
commence accruing on the Issue Date and, to the extent not converted in
accordance with the provisions hereof, shall be payable in arrears at such time
as the outstanding principal balance hereof with respect to which such interest
has accrued becomes due and payable hereunder. All payments of principal and
interest (to the extent not converted in accordance with the terms hereof) shall
be made in, and all references herein to monetary denominations shall refer to,
lawful money of the United States of America. All payments shall be made at such
address as the Holder shall have given or shall hereafter give to the Borrower
by written notice in accordance with the provisions of this Note.
This Note is being issued by the Borrower along with similar
convertible term notes (the "Other Notes" and, together with this Note, the
"Notes") pursuant to that certain Securities Purchase
Agreement, dated as of the date hereof, by and among the Borrower and the other
signatories thereto (the "Securities Purchase Agreement").
ARTICLE I
PREPAYMENT
Upon the occurrence of an Event of Default (as defined below) and
the election by the Holder to require prepayment, this Note shall be prepaid by
the Corporation in accordance with the provisions of Article VII hereof. This
Note may not be prepaid at the option of Borrower without the prior written
consent of the Holder.
ARTICLE II
CERTAIN DEFINITIONS
The following terms shall have the following meanings:
A. "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal United States securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg Financial Markets (or a comparable reporting service of national
reputation selected by the Corporation and reasonably acceptable to Holders of a
majority of the aggregate principal amount represented by the then outstanding
Notes ("Majority Holders") if Bloomberg Financial Markets is not then reporting
closing bid prices of such security) (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported sale 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 sale price is reported for such security by
Bloomberg, the average of the bid prices of all market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each
case for such date or, if such date was not a trading date for such security, on
the next preceding date which was a trading date. If the Closing Bid Price
cannot be calculated for such security as of either of such dates on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Corporation and reasonably acceptable to the Majority Holders,
with the costs of such appraisal to be borne by the Corporation.
B. "Conversion Amount" means the portion of the principal amount of
this Note being converted plus any accrued and unpaid interest thereon through
the Conversion Date, each as specified in the notice of conversion in the form
attached hereto (the "Notice of Conversion").
C. "Conversion Date" means, for any Optional Conversion (as defined
below), the date specified in the Notice of Conversion so long as the copy of
the Notice of Conversion is faxed (or delivered by other means resulting in
notice) to the Corporation at or before 11:59 p.m., New York City time, on the
Conversion Date indicated in the Notice of Conversion; provided, however, that
if the Notice of Conversion is not so faxed or otherwise delivered before such
time, then the Conversion Date shall be the date the Holder faxes or otherwise
delivers the Notice of Conversion to the Corporation.
-2-
D. "Conversion Price" means, for any Conversion Date, the lower of
the Fixed Conversion Price and the Variable Conversion Price, but in no event
less than the Floor Price, each in effect as of such date and subject to
adjustment as provided herein.
E. "Fixed Conversion Price" means $25.00, and shall be subject to
adjustment as provided herein.
F. "Floor Price" means $7.00, subject to adjustment as provided
herein.
G. "Variable Conversion Price" means, as of any date of
determination, the average of the Closing Bid Prices for the Corporation's
common stock, par value $.001 per share ("Common Stock"), for the five
consecutive trading days ending on the trading day immediately preceding such
date of determination (subject to equitable adjustment for any stock splits,
stock dividends, reclassifications or similar events during such five trading
day period), and shall be subject to adjustment as provided herein. For the
avoidance of doubt, the trading day immediately preceding any Conversion Date is
the last calendar day that is a trading day and that is immediately preceding
the Conversion Date.
H. "Warrant" shall mean the warrants issued by the Company to the
initial Holder pursuant to the Securities Purchase Agreement.
I. "Fixed Amounts" means, collectively, the Fixed Conversion Price
and the Floor Price.
J. "Volume Weighted Average Price" means, for any security as of any
date, the Volume Weighted Average Price of such security on the principal United
States securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing does not apply, the last
reported sale 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
sale price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc., in each case for such date or, if such
date was not a trading date for such security, on the next preceding date which
was a trading date. If the Volume Weighted Average Price cannot be calculated
for such security as of either of such dates on any of the foregoing bases, the
Volume Weighted Average Price of such security on such date shall be the fair
market value as reasonably determined by an investment banking firm selected by
the Corporation and reasonably acceptable to the Majority Holders, with the
costs of such appraisal to be borne by the Corporation.
-3-
ARTICLE III
CONVERSION
A. Conversion at the Option of the Holder. Subject to the
limitations on conversions contained in Paragraph D of this Article III, the
Holder may, at any time and from time to time on or after the Issue Date,
convert (an "Optional Conversion") all or any part of the outstanding principal
amount of this Note, plus all accrued interest thereon through the Conversion
Date, into a number of fully paid and nonassessable shares of Common Stock
determined in accordance with the following formula:
Conversion Amount
-----------------
Conversion Price
B. Mechanics of Conversion. In order to effect an Optional
Conversion, a Holder shall: (x) fax (or otherwise deliver) a copy of the fully
executed Notice of Conversion to the Corporation and (y) surrender or cause to
be surrendered this Note, duly endorsed, along with a copy of the Notice of
Conversion as soon as practicable thereafter to the Corporation. Upon receipt by
the Corporation of a facsimile copy of a Notice of Conversion from a Holder, the
Corporation shall immediately send, via facsimile, a confirmation to such Holder
stating that the Notice of Conversion has been received, the date upon which the
Corporation expects to deliver the Common Stock issuable upon such conversion
and the name and telephone number of a contact person at the Corporation
regarding the conversion. The Corporation shall not be obligated to issue shares
of Common Stock upon a conversion unless either this Note is delivered to the
Corporation as provided above, or the Holder notifies the Corporation or the
transfer agent that this Note has been lost, stolen or destroyed and delivers
the documentation to the Corporation required by Article IX.H hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of this Note accompanied by a Notice of Conversion, the Corporation
shall, no later than the later of (a) the second business day following the
Conversion Date and (b) the business day following the date of such surrender
(or, in the case of lost, stolen or destroyed certificates, after delivery of
the documentation required by Article IX.H) (the "Delivery Period"), issue and
deliver to the Holder or its nominee (x) that number of shares of Common Stock
issuable upon conversion of the portion of this Note being converted and (y) a
new Note in the form hereof representing the balance of the principal amount
hereof not being converted, if any. If the Corporation's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, and so long as the certificates therefor do not bear a legend
and the Holder thereof is not then required to return such certificate for the
placement of a legend thereon, the Corporation shall cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the Holder
by crediting the account of the Holder or its nominee with DTC through its
Deposit Withdrawal Agent Commission system ("DTC Transfer"). If the
aforementioned conditions to a DTC Transfer are not satisfied, the Corporation
shall deliver to the Holder physical certificates representing the Common Stock
issuable upon conversion. Further, a Holder may instruct the Corporation to
deliver to the Holder physical certificates representing the Common Stock
issuable upon conversion in lieu of delivering such shares by way of DTC
Transfer.
-4-
(ii) Taxes. The Corporation shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of the shares
of Common Stock upon the conversion of this Note.
(iii) No Fractional Shares. If any conversion of this Note
would result in the issuance of a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion of the Notes shall be the next higher whole number of
shares.
(iv) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price or the
Conversion Amount, the Corporation shall submit the disputed calculations to an
independent outside accountant via facsimile within two business days of receipt
of the Notice of Conversion. The accountant, at the Corporation's sole expense,
shall review the calculations and notify the Corporation and the Holder of the
results no later than two business days from the date it receives the disputed
calculations. If after such independent accountant's review the Corporation and
the Holder cannot resolve such dispute, the Corporation and the Holder shall use
their best efforts to resolve such dispute through mediation prior to commencing
litigation. Upon resolution of such dispute (through mediation or otherwise),
the Corporation shall then issue the appropriate number of shares of Common
Stock in accordance with subparagraph (i) above.
C. Mandatory Conversion
(i) If at any time all of the Required Conditions (as defined
in subparagraph (iii) below) are satisfied, the Corporation shall have the
right, subject to the limitations set forth in Article III.D, to require the
conversion (a "Mandatory Conversion") of the outstanding principal amount of
this Note, plus all accrued interest thereon, into a number of fully paid and
nonassessable shares of Common Stock at the Conversion Price in effect on the
Effective Date of Mandatory Conversion (as defined below). If the Mandatory
Conversion occurs, the Corporation and the Holders shall follow the applicable
conversion procedures set forth in Article III.B (including the requirement that
the Holder deliver this Note to the Corporation); provided, however, that the
Holder shall not be required to deliver a Notice of Conversion to the
Corporation. The Holder may convert all or any portion of the outstanding
principal amount of this Note, plus all accrued interest thereon, into a number
of fully paid and nonassessable shares of Common Stock by delivering a Notice of
Conversion to the Corporation at any time prior to the Effective Date of
Mandatory Conversion.
(ii) The Corporation shall effect a Mandatory Conversion by
giving at least 30 trading days but not more than 40 trading days prior written
notice (the "Mandatory Conversion Notice") to the Holder, of the date on which
such Mandatory Conversion is to become effective (the "Effective Date of
Mandatory Conversion"), which Mandatory Conversion Notice shall be deemed to
have been delivered to the Holder on the trading day after the Corporation's fax
(with a copy sent by overnight courier) of such notice to the Holder. No
Mandatory Conversion Notice shall be effective hereunder unless it is delivered
to all Holders of Notes within ten trading days of any
-5-
satisfaction of all of the Required Conditions set forth in subparagraph (iii)
below; provided, however, the Corporation shall be entitled to deliver such
notice after such ten day period if all of the Required Conditions continue to
be satisfied. The failure of the Company to deliver a Mandatory Conversion
Notice upon satisfaction of the Required Conditions shall not preclude the
Company from subsequently delivering such notice if the Required Conditions are
again satisfied. Upon the surrender of this Note, the Corporation shall issue
and deliver to the Holder the shares of Common Stock to which the Holder is
entitled upon the Mandatory Conversion.
(iii) The "Required Conditions" shall consist of the
following:
(1) at least 30 months shall have elapsed since the
Issue Date;
(2) the Volume Weighted Average Price for the Common
Stock for any 40 consecutive trading day period equals or exceeds $50.00
(subject to equitable adjustment for stock splits, stock dividends,
recapitalizations and similar events ("Equitable Adjustments")), provided that
such period commences after or during the final two months of the 30-month
period referred to in subparagraph (1) above;
(3) the average trading volume (excluding block trades)
of the Common Stock on the NASDAQ National Market ("NASDAQ") or, if the Common
Stock is not then traded on NASDAQ, the principal United States securities
exchange where the Common Stock is then traded, during such 40 consecutive
trading period equals or exceeds 120,000 shares per day;
(4) all shares of Common Stock issuable upon conversion
of this Note are then (a) authorized and reserved for issuance, (b) registered
under the Securities Act for resale by the Holders (and, in the case of
subparagraphs (2) and (3) above, have been so registered throughout such 40
consecutive trading day period) or may be immediately resold by the Holders
pursuant to Rule 144 under the Securities Act without any limitation on the
number of such shares that can be immediately resold and (c) eligible to be
listed or traded on any of the New York Stock Exchange ("NYSE"), the American
Stock Exchange ("AMEX") or the NASDAQ (or the successor to any of them); and
(5) no Event of Default (as defined in Article VII
below) shall have occurred without having been cured.
For purposes of this Note, a "block trade" is a trade of either 25,000 or more
shares or a quantity of shares having a market value of $200,000 or more.
(iv) In addition, the Corporation shall have the right,
subject to the limitations set forth in Article III.D., to require the
conversion of the outstanding principal amount of this Note, plus all accrued
interest thereon, into a number of fully paid and nonassessable shares of Common
Stock at the Conversion Price in effect on the closing of a transaction not
approved by the Board of Directors of the Corporation (as such Board is
constituted immediately prior to the first announcement or disclosure of an
intention to acquire control of the Corporation by a prospective
-6-
purchaser) as a result of which a majority of the assets or outstanding capital
stock of the Corporation is beneficially owned by persons or entities that
beneficially own less than 5% of the outstanding Common Stock (determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder) prior to the closing of such
transaction, and in which the purchase price per share is equal to or greater
than $50.00 (subject to Equitable Adjustments); provided, however, in the event
of such a change of control, the Holder shall receive consideration consisting
entirely of cash or securities that are registered under an effective
registration statement filed under the Securities Act, or a combination thereof.
If any such conversion occurs, the Holder shall be required to deliver this Note
to the Corporation, but shall not be required to deliver a Notice of Conversion
to the Corporation.
D. Limitations on Conversions. The conversion of this Note shall be
subject to the following limitations (each of which limitations shall be applied
independently):
(i) Cap Amount. If, prior to the Shareholder Approval Date (as
hereinafter defined), the Corporation is prohibited by Rule 4460(i) of the
National Association of Securities Dealers, Inc. ("NASD"), or any successor or
similar rule, or the rules or regulations of any other securities exchange on
which the Common Stock is then listed or traded, from issuing a number of shares
of Common Stock in excess of a prescribed amount (the "Cap Amount"), then the
Corporation shall not be required to issue shares upon conversion of this Note
or exercise of the Warrants in excess of the Cap Amount; provided, however, that
this limitation in this Article III.D (i) shall not apply and shall be of no
further force and effect after the date of the effectiveness of the shareholder
approval (the "Shareholder Approval Date") referred to in Section 4(m) of the
Securities Purchase Agreement. On the date hereof, the portion of the Cap Amount
attributable to the Notes and the Warrants is 6,855,978 shares. The Cap Amount
shall be allocated pro rata to the Holders of the Notes as provided in Article
X.D. In the event the Corporation is prohibited from issuing shares of Common
Stock as a result of the operation of this subparagraph (i), the Corporation
shall comply with Article V.
(ii) No Five Percent Holders. In no event shall a Holder of
the Notes have the right to convert any portion of this Note into shares of
Common Stock or to dispose of any portion of this Note to the extent that such
right to effect such conversion or disposition would result in the Holder or any
of its affiliates beneficially owning more than 4.99% of the outstanding shares
of Common Stock. To the extent the Holder of this Note owns other securities
with a limitation on conversion, exercise or disposition analogous to the
limitation set forth in this Article III.D, the limitations on conversion,
exercise and disposition of this Note and such securities shall be applied
collectively to all such securities so that the Holder may select the order in
which it wishes to convert, exercise or dispose of such securities and the
Holder of this Note will only have the right to effect conversions, exercises
and dispositions of all such securities to the extent that such conversions,
exercises and dispositions do not result in the Holder or any of its affiliates
beneficially owning more than 4.99% of the outstanding shares of Common Stock.
For purposes of this subparagraph, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13 D-G thereunder. The restriction contained in this
subparagraph D shall not be altered, amended, deleted or changed in any manner
-7-
whatsoever unless the holders of a majority of the outstanding shares of Common
Stock, the Holder and the Holders of a majority of the outstanding principal
amount of the Notes shall approve, in writing, such alteration, amendment,
deletion or change.
ARTICLE IV
RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. On the Issue Date, the Corporation shall reserve
10,800,000 shares of the authorized but unissued shares of Common Stock for
issuance upon conversion of the Notes, and upon exercise of the Warrants and
thereafter the number of authorized but unissued shares of Common Stock so
reserved (the "Reserved Amount") shall not be decreased and shall at all times
be sufficient to provide for the conversion of the Notes (including an amount
equal to the interest that would accrue over a two-year period on the original
principal balance of this Note) at a price equal to the lower of (i) $7.00
(subject to Equitable Adjustments) and (ii) the Conversion Price, in each case
then in effect, taking into account any adjustments pursuant to Article VIII
hereof, and to provide for any shares of Common Stock issued or then issuable as
a result of a Conversion Default hereunder, the occurrence of an Event of
Default hereunder, the exercise of the Warrants or any other payment convertible
into shares of Common Stock pursuant to the terms hereof or that certain
Registration Rights Agreement by and among the Corporation and the other
signatories thereto entered in connection with the Securities Purchase Agreement
(the "Registration Rights Agreement"). The Reserved Amount shall be allocated to
the Holders of the Notes as provided in Article X.D.
B. Adjustment to Conversion Price. If the Corporation is prohibited,
at any time, from issuing shares of Common Stock upon conversion of the Notes to
any Holder because the Corporation does not then have available a sufficient
number of authorized and unissued shares of Common Stock, then the Fixed
Conversion Price in respect of any Notes held by any Holder (including Notes
submitted to the Corporation for conversion, but for which shares of Common
Stock have not been issued to any such Holder) shall be adjusted as provided in
Article V.A and the Holder shall be entitled to exercise the remedies set forth
in Article VII.
ARTICLE V
FAILURE TO SATISFY CONVERSIONS
A. Conversion Defaults; Adjustments to Conversion Price. The
following shall constitute a "Conversion Default": (i) following the submission
by a Holder of a Notice of Conversion, the Corporation fails for any reason to
deliver, in accordance with the delivery instructions contained in the Notice of
Conversion, on or prior to the fifth trading day following the expiration of the
Delivery Period for such conversion, such number of freely tradeable shares of
Common Stock to which such Holder is entitled upon such conversion or (ii) the
Corporation provides notice (or otherwise indicates) to any Holder at any time
of its intention not to issue freely tradeable shares of Common Stock upon
exercise by any Holder of its conversion rights in accordance with the terms of
the Notes, or (iii) the Corporation is prohibited, at any time, from issuing
shares of Common Stock upon conversion of the Notes to any Holder because the
-8-
Corporation (a) does not have available a sufficient number of authorized and
unissued shares of Common Stock or (b) if after November 30, 2000, such issuance
would exceed the then unissued portion of such Holder's Cap Amount. In the case
of a Conversion Default described in clause (i) above, the Fixed Conversion
Price in respect of any Notes held by such Holder (including Notes submitted to
the Corporation for conversion, but for which shares of Common Stock have not
been issued to such Holder) shall thereafter be the lesser of (x) the Fixed
Conversion Price on the date of the Conversion Default and (y) the lowest
Variable Conversion Price in effect during the period beginning on, and
including, such date through and including the earlier of (1) the day such
shares of Common Stock are delivered to the Holder and (2) the day on which the
Holder regains its rights as a Holder of the Notes with respect to such
unconverted Notes pursuant to the provisions of Article X.L hereof (in either
case without reference to or limitation by any Floor Price). In addition, in the
case of a Conversion Default described in clause (i) above, the Corporation
shall pay to such Holder an amount equal to (A) the outstanding principal amount
of the Notes to be converted by such Holder multiplied by (B) .24 multiplied by
(C) a fraction, the numerator of which is the number of days after such
Conversion Default until the Corporation issues the number of freely tradable
shares of Common Stock to which such Holder is entitled upon such conversion and
the denominator of which is 365. In the case of a Conversion Default described
in clause (ii) or clause (iii) above, the Fixed Conversion Price with respect to
any conversion thereafter shall be the lowest Conversion Price (without
reference to or limitation by any Floor Price) in effect at any time during the
period beginning on, and including, the date of the occurrence of such
Conversion Default through and including the Default Cure Date (as defined
below). Following any adjustment to the Fixed Conversion Price pursuant to this
Article V.A, the Fixed Conversion Price shall thereafter be subject to further
adjustment for any events described in Article VIII. Upon the occurrence of each
reset of the Fixed Conversion Price pursuant to this Paragraph A, the
Corporation, at its expense, shall promptly compute the new Fixed Conversion
Price and prepare and furnish to each Holder of the Notes a certificate setting
forth such new Fixed Conversion Price and showing in detail each Conversion
Price in effect during such reset period. In addition, upon the occurrence of a
Conversion Default and until the Default Cure Date, the Holder shall be entitled
to the remedies set forth in Article VII; provided, however, that the Holder
shall not be entitled to exercise the remedies set forth in Article VII hereof
for a Conversion Default of the type enumerated in Article V(A)(i) hereof until
the tenth trading day after the date that such Conversion Default remains
uncured.
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (i) of its definition, the date the Corporation effects the
conversion of all of the outstanding Notes, subject to the applicable Notice of
Conversion, and (ii) with respect to a Conversion Default described in clause
(ii) of its definition, the date the Corporation issues freely tradeable shares
of Common Stock in satisfaction of all conversions of the Notes in accordance
with Article III.A, and (iii) with respect to either type of a Conversion
Default, the date on which the Corporation prepays the Notes held by such Holder
pursuant to paragraph B of this Article V.
ARTICLE VI
INTENTIONALLY OMITTED
-9-
ARTICLE VII
EVENTS OF DEFAULT
A. Events of Default. In the event (each of the events described in
clauses (i)-(xi) below after expiration of the applicable cure period (if any)
being an "Event of Default"):
(i) the Corporation fails to pay the principal hereof or any
accrued and unpaid interest hereon when due, whether at maturity, upon
acceleration or otherwise and such failure continues for a period of five
trading days after the due date thereof;
(ii) the Corporation either (a) fails to pay, when due, or
within any applicable grace period, any payment with respect to any indebtedness
of the Corporation in excess of $100,000 due to any third party (including,
without limitation, any of the Other Notes), other than payments contested by
the Corporation in good faith, or otherwise is in breach or violation of any
agreement for monies owed or owing in an amount in excess of $100,000 which
breach or violation permits the other party thereto to declare a default or
otherwise accelerate amounts due thereunder, or (b) suffers to exist any other
default or event of default under any agreement binding the Corporation which
default or event of default would or is likely to have a material adverse effect
on the business, operations, properties, prospects or financial condition of the
Corporation, other than as set forth in Article VII.A(viii);
(iii) the Common Stock (including any of the shares of Common
Stock issuable upon conversion of the Notes) is suspended from trading on any
of, or is not listed (and authorized) for trading on at least one of, the NYSE,
the AMEX or NASDAQ for an aggregate of ten trading days in any nine month
period;
(iv) the Registration Statement referred to in Section 2(a) of
the Registration Rights Agreement has not been declared effective by the 270th
day following the Issue Date or such Registration Statement (or any successor
registration statement on Form S-3), after being declared effective, cannot be
utilized by the Holders of the Notes for the resale of all of their Registrable
Securities (as defined in the Registration Rights Agreement) for an aggregate of
more than 30 days;
(v) the Corporation fails to remove any restrictive legend on
any certificate or any shares of Common Stock issued to the Holders of the Notes
upon conversion of any of the Notes as and when required by this Note, the
Securities Purchase Agreement or the Registration Rights Agreement (a "Legend
Removal Failure"), and any such failure continues uncured for ten trading days
after the Corporation has been notified thereof in writing by the Holder;
(vi) the Corporation provides notice (or otherwise indicates)
to any Holder of the Notes, including by way of public announcement, at any
time, of its intention not to issue, or otherwise refuses to issue, shares of
Common Stock to any Holder of the Notes upon conversion in accordance with the
terms of the Notes;
(vii) [intentionally omitted]
-10-
(viii) the Corporation otherwise shall breach any material
term hereunder (other than as set forth in Article VII.A(i) and including,
without limitation, Article IV hereof) or under the Securities Purchase
Agreement, the Registration Rights Agreement or the Warrants (as defined in the
Securities Purchase Agreement), including, without limitation, the
representations and warranties contained therein and if such breach if curable,
remains uncured for more than 60 days after the Corporation has been notified
thereof in writing by the Holder or the Corporation fails to diligently pursue
the cure of such breach during such 60-day period;
(ix) the Corporation or any subsidiary of the Corporation
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business, or such a receiver or trustee shall otherwise be
appointed;
(x) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation and if instituted against the Corporation by a
third party, shall not be dismissed within 60 days of their initiation; or
(xi) the minimum vote specified in Rule 4460(i) of the NASD
with respect to the approval and ratification of the terms of the Securities
Purchase Agreement and the consummation of the transactions contemplated thereby
by the Corporation shall not have been obtained on or before December 31, 2000;
then, upon the occurrence of any such Event of Default, at the option of each
Holder, exercisable in whole or in part at any time and from time to time by
delivery of a Default Notice (as defined below) to the Corporation while such
Event of Default continues, the Corporation shall pay such Holder (and upon the
occurrence of an Event of Default specified in subparagraphs (ix) and (x) of
this Paragraph A, the Corporation shall be required to pay the Holders), in
satisfaction of its obligation to pay the outstanding principal amount of the
Notes and accrued and unpaid interest thereon, an amount equal to the Default
Amount and such Default Amount shall immediately become due and payable, all
without demand, presentment or notice, all of which are hereby expressly waived,
together with all costs, including, without limitation, legal fees and expenses
of collection, and the Holder shall be entitled to exercise all other rights and
remedies available at law or in equity. For the avoidance of doubt, the
occurrence of any event described in clauses (vi), (ix) or (x) above shall
immediately constitute an Event of Default and there shall be no cure period. In
addition, upon the occurrence of an Event of Default, if the Corporation
receives from any Holder a Default Notice (as hereinafter defined) and demands
all amounts immediately due and payable hereunder, the Floor Price shall
permanently be reset to $.001 and not be subject to any further adjustment
pursuant to Article VIII hereof or otherwise, and the Vesting Date (as defined
in the Warrants) shall be deemed to have occurred, thereby rendering the
Warrants immediately exercisable in accordance with their terms.
-11-
Following the submission of a Default Notice, the Holder
of this Note shall have the right to continue to submit Notices of Conversion
and to convert this Note until such time (if any) as the Corporation pays to the
Holder the Default Amount.
Upon the Corporation's receipt of any Default Notice
hereunder (other than during the three trading day period following the
Corporation's delivery of a Default Announcement (as defined below) to all of
the Holders in response to the Corporation's initial receipt of a Default Notice
from a Holder of the Notes), the Corporation shall immediately (and in any event
within one trading day following such receipt) deliver a written notice (a
"Default Announcement") to all Holders of the Notes stating the date upon which
the Corporation received such Default Notice and the amount of the Notes covered
thereby. The Corporation shall not redeem any Notes during the three trading day
period following the delivery of a required Default Announcement hereunder. At
any time and from time to time during such three trading day period, each Holder
of the Notes may request (either orally or in writing) information from the
Corporation with respect to the instant default (including, but not limited to,
the aggregate principal amount outstanding of Notes covered by Default Notices
received by the Corporation) and the Corporation shall furnish (either orally or
in writing) as soon as practicable such requested information to such requesting
Holder. In the event the Corporation is not able to repay all of the outstanding
Notes within five trading days after its receipt of a notice requiring such
payment (a "Default Notice") the Corporation shall repay the outstanding Notes
to each Holder pro rata, based on the total amounts due under the Notes at the
time of repayment included by such Holder in all Default Notices delivered prior
to the date upon which such repayment is to be effected relative to the total
amounts due under all Notes at the time of repayment included in all of the
Default Notices delivered prior to the date upon which such repayment is to be
effected; provided, however, the foregoing shall not constitute a waiver by any
Holder of its rights to payment in full of the total Default Amount due under
each such Holder's Notes.
B. Definition of Default Amount. The "Default Amount" with respect
to a Note means an amount equal to the greater of:
(i) V x M
-------------
C P
and (ii) V x 115%
where:
"V" means the aggregate principal amount of the Notes being paid
plus all accrued and unpaid interest thereon through the payment date;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Default Notice; and
-12-
"M" means with respect to all repayments other than repayments, the
highest Closing Bid Price of the Corporation's Common Stock during the period
beginning on the date on which the Corporation receives the Default Notice and
ending on the date immediately preceding the date of payment of the Default
Amount.
ARTICLE VIII
ADJUSTMENTS TO THE CONVERSION PRICE AND FIXED AMOUNTS
The Conversion Price and Fixed Amounts shall be subject to
adjustment from time to time as follows:
A. Stock Splits, Stock Dividends, Etc. If, at any time on or after
the Issue Date, the number of outstanding shares of Common Stock is increased by
a stock split, stock dividend, combination, or other similar event, each Fixed
Amount shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a reverse stock split, combination or
reclassification of shares, or other similar event, each Fixed Amount shall be
proportionately increased. In such event, the Corporation shall notify the
Corporation's transfer agent of such change on or before the effective date
thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time
after the Issue Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "Corporate Change"), then the Holders of the Notes
shall thereafter have the right to receive upon conversion, in lieu of the
shares of Common Stock otherwise issuable, such shares of stock, securities
and/or other property as would have been issued or payable in such Corporate
Change with respect to or in exchange for the number of shares of Common Stock
which would have been issuable upon conversion (without giving effect to the
limitations contained in Article III.D) had such Corporate Change not taken
place, and in any such case, appropriate provisions (in form and substance
reasonably satisfactory to the Holders of a majority of the principal amount of
the Notes then outstanding) shall be made with respect to the rights and
interests of the Holders of the Notes to the end that the economic value of the
Notes are in no way diminished by such Corporate Change and that the provisions
hereof (including, without limitation, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity is not the
Corporation, an immediate adjustment of each Fixed Amount so that each Fixed
Amount immediately after the Corporate Change reflects the same relative value
as compared to the value of the surviving entity's common stock that existed
between such Fixed Amount and the value of the Corporation's Common Stock
immediately prior to such Corporate Change and an immediate revision to the
Variable Conversion Price so that it is determined as provided in Article II.H
but based on the price of the common stock of the surviving entity and the
market in which such common stock is traded) shall
-13-
thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof. The Corporation shall not effect any Corporate Change unless
(i) each Holder of the Notes has received written notice of such transaction at
least 30 days prior thereto, but in no event later than 20 days prior to the
record date for the determination of stockholders entitled to vote with respect
thereto, (ii) if required by Section 4(h) of the Securities Purchase Agreement,
the consent of Purchasers (as defined in the Securities Purchase Agreement)
shall have been obtained in accordance with such Section 4(h), and (iii) the
resulting successor or acquiring entity (if not the Corporation) assumes by
written instrument (in form and substance reasonably satisfactory to the Holders
of a majority of the principal amount of the Notes then outstanding) the
obligations of the Notes. The above provisions shall apply regardless of whether
or not there would have been a sufficient number of shares of Common Stock
authorized and available for issuance upon conversion of the Notes outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
C. Adjustment Due to Distribution. If, at any time after the Issue
Date, the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"Distribution"), then the Holders of the Notes shall be entitled, upon any
conversion of the Notes after the date of record for determining stockholders
entitled to such Distribution, to receive the amount of such assets which would
have been payable to the Holder with respect to the shares of Common Stock
issuable upon such conversion (without giving effect to the limitations
contained in Article III.C) had such Holder been the holder of such shares of
Common Stock on the record date for the determination of stockholders entitled
to such Distribution. If the Distribution involves rights, warrants, options or
any other form of convertible securities and the right to exercise or convert
such securities would expire in accordance with its terms prior to the
conversion of this Note, then the terms of such securities shall provide that
such exercise or convertibility right shall remain in effect until 30 days after
the date the Holder of the Notes receive such securities pursuant to the
conversion hereof.
D. Issuance of Other Securities. If, at any time after the Issue
Date, the Corporation shall issue any securities which are convertible into or
exchangeable for Common Stock ("Convertible Securities") at a conversion price
or exchange rate which is more favorable to the holders of such Convertible
Securities than the Conversion Price mechanism provided for herein, then, at the
option of the Holder, such conversion price or exchange rate shall be applicable
hereto.
E. Purchase Rights. If, at any time after the Issue Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the Holders of the Notes will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if such Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Notes (without giving effect to the limitations contained in
Article III.D) immediately before the date on which a
-14-
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 sale of such Purchase Rights.
F. Adjustment of Floor Price. Except as otherwise provided in
Paragraphs A and B of this Article VIII, if, at any time prior to the Scheduled
Maturity Date, the Corporation issues or sells any shares of Common Stock for no
consideration or for a consideration per share less than the Market Price (as
defined in the Warrant) on the date of issuance (a "Dilutive Issuance"), then,
if the Floor Price then in effect is more than such consideration per share,
effective immediately upon the Dilutive Issuance, the Floor Price will be
automatically reset to an amount equal to such consideration per share (or $.001
in the case of any issuance for no consideration) and the Vesting Date under the
Warrants shall be deemed to have occurred, thereby rendering the Warrant
immediately exercisable in accordance with its terms; provided, however, no
adjustment to the Floor Price will be made and the Vesting Date will not be
deemed to have occurred (i) upon the exercise of any warrants, options or
convertible securities issued and outstanding on the Issue Date and set forth on
Schedule 3(d) of the Securities Purchase Agreement in accordance with the terms
of such securities as of such date; (ii) upon the grant or exercise of any stock
or options which may hereafter be granted or exercised under any employee
benefit plan of the Corporation now existing or to be implemented in the future,
so long as the issuance of such stock or options is approved by a majority of
the non-employee members of the Board of Directors of the Corporation or a
majority of the members of a committee of non-employee directors established for
such purpose; or (iii) upon conversion of the Notes or exercise of the Warrants.
The consideration per share paid to the Corporation in connection with any
Dilutive Issuance shall be determined in accordance with Section 4(b) of the
Warrants.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price or Fixed Amounts pursuant to this Article
VIII, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each Holder of the Notes a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any Holder of the Notes, furnish to such
Holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price or Fixed Amounts at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of any Note.
H. Other Action Affecting Conversion Price. If the Corporation takes
any action affecting the Common Stock after the date hereof that would be
covered by Article VIII.A through G, but for the manner in which such action is
taken or structured, which would in any way diminish the value of this Note,
then the Conversion Price shall be adjusted in such manner as the Board of
Directors of the Company shall in good faith determine to be equitable under the
circumstances.
-15-
ARTICLE IX
OPTIONAL REDEMPTION
A. Redemption Events. In the event (each of the events described in
clauses (i) - (iii) below being a "Redemption Event"), the Corporation shall:
(i) sell, convey or dispose of all or substantially all of its
assets (the presentation of any such transaction for stockholder approval being
conclusive evidence that such transaction involves the sale of all or
substantially all of the assets of the Corporation);
(ii) unless the Corporation may exercise its rights under
Article III.C(iv), merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation and other than pursuant to a merger in which the Corporation is
the surviving or continuing entity and its capital stock is unchanged; or
(iii) have fifty percent (50%) or more of the voting power of
its capital stock owned beneficially by one person, entity or "group" (as such
term is used under Section 13(d) of the Securities Exchange Act of 1934, as
amended), other than Dr. S. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and Molex
Incorporated, acting together, or Molex Incorporated acting individually;
then, upon the occurrence of any such Redemption Event, at the option of each
Holder, exercisable in whole or in part at any time and from time to time by
delivery of a Redemption Notice (as defined below) to the Corporation, the
Corporation shall redeem the Notes for a redemption price, payable in cash, in
an amount equal to the Redemption Amount (as defined below), plus all other
ancillary amounts payable hereunder, together with all costs, including, without
limitation, legal fees and expenses. In addition, automatically upon the
occurrence of a Redemption Event (without the need to file a Redemption Notice
hereunder), the Vesting Date (as defined in the Warrants) shall be deemed to
have occurred, thereby rendering the Warrants immediately exercisable in
accordance with their terms.
Upon the Corporation's receipt of any Redemption Notice
hereunder (other than during the three trading day period following the
Corporation's delivery of a Redemption Announcement (as defined below) to all of
the Holders in response to the Corporation's initial receipt of a Redemption
Notice from a Holder of the Notes), the Corporation shall immediately (and in
any event within one trading day following such receipt) deliver a written
notice (a "Redemption Announcement") to all Holders of the Notes stating the
date upon which the Corporation received such Redemption Notice and the amount
of the Notes covered thereby. At any time and from time to time during such
three trading day period, each Holder of the Notes may request (either orally or
in writing) information from the Corporation with respect to the applicable
Redemption Event (including, but not limited to, the aggregate principal amount
outstanding of Notes covered by Redemption Notices received by the Corporation)
and the Corporation shall furnish (either orally or in writing) as soon as
practicable such requested information to such requesting Holder. In the event
the Corporation is not able to redeem all of the outstanding Notes within five
trading days after
-16-
its receipt of a notice of redemption (a "Redemption Notice") the Corporation
shall repay the outstanding Notes to each Holder pro rata, based on the total
amounts due under the Notes at the time of redemption included by such Holder in
all Redemption Notices delivered prior to the date upon which such redemption is
to be effected relative to the total amounts due under all Notes at the time of
redemption included in all of the Redemption Notices delivered prior to the date
upon which such redemption is to be effected; provided, however, the foregoing
shall not constitute a waiver by any Holder of its rights to payment in full of
the total Redemption Amount due under each such Holder's Notes pursuant to this
Article VIII.
B. Definition of Redemption Amount. The "Redemption Amount" with
respect to a Note means an amount equal to the greater of:
(i) V x M
------------
C P
and (ii) V x 115%
where:
"V" means the aggregate principal amount of the Notes being redeemed
plus all accrued and unpaid interest thereon through the redemption date;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Redemption Notice; and
"M" means the greater of (i) the highest Closing Bid Price of the
Corporation's Common Stock during the period beginning on the date on which the
Corporation receives the Redemption Notice and ending on the date immediately
preceding the date of payment of the Redemption Amount and (ii) the fair market
value, as of the date on which the Corporation receives the Redemption Notice,
of the consideration payable to the holder of a share of Common Stock pursuant
to the transaction which triggers the redemption obligation. For purposes of
this definition, "fair market value" shall be determined by the mutual agreement
of the Corporation and Holders of a majority-in-interest of the then outstanding
principal amount of the Notes to be redeemed, or if such agreement cannot be
reached within five trading days prior to the date of redemption, by an
investment banking firm selected by the Corporation and reasonably acceptable to
Holders of a majority-in-interest of the then outstanding principal amount of
the Notes to be redeemed, with the costs of such appraisal to be borne by the
Corporation.
ARTICLE IX
MISCELLANEOUS
A. Failure or Indulgency Not Waiver. No failure or delay on the part
of any Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall
-17-
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.
B. Notices. Any notices required or permitted to be given under the
terms of this Note shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Corporation:
Lumenon Innovative Lightwave Technology, Inc.
▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
De Grandpre Chaurette ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Holder, to the address set forth under such Holder's name
on the signature page to the Securities Purchase Agreement executed by such
Holder. Each party shall provide notice to the other parties of any change in
address.
C. Amendment Provision. Except as set forth in Article III.D, this
Note and any provision hereof may only be amended by an instrument in writing
signed by the Corporation and all of the Holders. The term "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.
-18-
D. Assignability; Allocation of Cap Amount Reserved Amount; Selling
Restrictions. This Note shall be binding upon the Corporation and its successors
and assigns and shall inure to the benefit of the Holder and its successors and
assigns. The initial Cap Amount and Reserved Amount shall be allocated pro rata
among the Holders of the Notes based on the aggregate principal amount of Notes
issued to each Holder. 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 such transferor's Cap Amount and Reserved Amount. Each increase to
the Reserved Amount shall be allocated pro rata among the Holders of Notes based
on the outstanding principal amount of Notes held by each Holder at the time of
the increase in the Reserved Amount. Any portion of the Reserved Amount or Cap
Amount which remains allocated to any person or entity which does not hold any
Notes shall be allocated to the remaining Holders of Notes, pro rata based on
the outstanding principal amount of Notes then held by such Holders. Each
transferee of this Note or any portion hereof shall be bound by the selling
restrictions set forth in Section 4(k) of the Securities Purchase Agreement,
which Section is incorporated herein by reference.
E. Cost of Collection. If default is made in the payment of this
Note, the Corporation shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees.
F. Governing Law; Jurisdiction. This Note shall be governed by and
construed in accordance with the laws of the State of Delaware. The Corporation
irrevocably consents to the jurisdiction of the United States federal courts and
the state courts located in the State of Delaware in any suit or proceeding
based on or arising under this Note and irrevocably agrees that all claims in
respect of such suit or proceeding may be determined in such courts. The
Corporation irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Corporation further agrees that
service of process upon the Corporation mailed by first class mail shall be
deemed in every respect effective service of process upon the Corporation in any
such suit or proceeding. Nothing herein shall affect the right of any Holder to
serve process in any other manner permitted by law. The Corporation agrees that
a final non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.
G. Denominations. At the request of Holder, upon surrender of this
Note, the Corporation shall promptly issue new Notes in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $25,000 as Holder shall request.
H. Lost or Stolen Notes. Upon receipt by the Corporation from a
Holder of (i) evidence of the loss, theft, destruction or mutilation of any Note
and (ii) (y) in the case of loss, theft or destruction, of indemnity (without
any bond or other security) reasonably satisfactory to the Corporation, or (z)
in the case of mutilation, upon surrender and cancellation of any Note, the
Corporation shall execute and deliver a new Note of like tenor and date.
However, the Corporation shall not be obligated to reissue such lost or stolen
Note if the Holder contemporaneously requests the Corporation to convert such
Note.
-19-
I. Quarterly Statements of Available Shares. For each calendar
quarter beginning in the quarter in which the initial registration statement
required to be filed pursuant to Section 2(a) of the Registration Rights
Agreement is declared effective and thereafter so long as any Notes are
outstanding, the Corporation shall deliver (or cause its transfer agent to
deliver) to each Holder a written report notifying the Holders of any occurrence
which prohibits the Corporation from issuing Common Stock upon any such
conversion. The report shall also specify (i) the total outstanding principal
amounts of Notes as of the end of such quarter, (ii) the total number of shares
of Common Stock issued upon all conversions of Notes prior to the end of such
quarter, (iii) the total number of shares of Common Stock which are reserved for
issuance upon conversion of the Notes as of the end of such quarter and (iv) the
total number of shares of Common Stock which may thereafter be issued by the
Corporation upon conversion of the Notes before the Corporation would exceed the
Cap Amount and the Reserved Amount. The Corporation (or its transfer agent)
shall deliver the report for each quarter to each Holder prior to the tenth day
of the calendar month following the quarter to which such report relates. In
addition, the Corporation (or its transfer agent) shall provide, within 15 days
after delivery to the Corporation of a written request by any Holder, any of the
information enumerated in clauses (i) - (iv) of this Paragraph I as of the date
of such request.
J. [Intentionally Omitted.]
K. Restrictions on Shares. The shares of Common Stock issuable upon
conversion of this Note may not be sold or transferred unless (i) they first
shall have been registered under the Securities Act and applicable state
securities laws, (ii) the Corporation shall have been furnished with an opinion
of legal counsel (in form, substance and scope customary for opinions in such
circumstances) to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act or (iii) they are sold under
Rule 144 under the Act. Except as otherwise provided in the Securities Purchase
Agreement, each certificate for shares of Common Stock issuable upon conversion
of this Note that have not been so registered and that have not been sold under
an exemption that permits removal of the legend, shall bear a legend
substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT
BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER
APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR
TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon conversion of this Note, the Corporation shall remove the
foregoing legend from the certificate and issue to such holder a new certificate
therefor free of any transfer legend, if (i) with such request,
-20-
the Corporation shall have received either (A) an opinion of counsel, in form,
substance and scope customary for opinions in such circumstances, to the effect
that any such legend may be removed from such certificate, or (B) satisfactory
representations from the Holder that the Holder is eligible to sell such
security under Rule 144 or (ii) a registration statement under the Securities
Act covering the resale of such securities is in effect. Nothing in this Note
shall (i) limit the Corporation's obligation under the Registration Rights
Agreement, or (ii) affect in any way the Holder's obligations to comply with
applicable securities laws upon the resale of the securities referred to herein.
L. Status as Note Holder. Upon submission of a Notice of Conversion
by a Holder of the Notes, (i) the principal amount of the Notes and the interest
thereon covered thereby (other than any portion of the Notes, if any, which
cannot be converted because their conversion could exceed such Holder's
allocated portion of the Reserved Amount or Cap Amount) shall be deemed
converted into shares of Common Stock as of the Conversion Date and (ii) the
Holder's rights as a holder of such Notes shall cease and terminate (but only
with respect to that portion of the Notes covered by such Notice of Conversion),
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such Holder because of a failure by the Corporation to comply with the terms
of the Notes. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth trading day after
the expiration of the Delivery Period with respect to a conversion of Notes for
any reason, then (unless the Holder otherwise elects to retain its status as a
holder of Common Stock by so notifying the Corporation within five trading days
after the expiration of such ten trading day period) the portion of the
principal amount and interest thereon subject to such conversion shall be deemed
outstanding under the Notes and the Corporation shall, as soon as practicable,
return the Notes to the Holder. In all cases, the Holder shall retain all of its
rights and remedies (including, without limitation, (i) the right to receive
payments pursuant to Article V.C to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent conversions determined in
accordance with Article V.A) for the Corporation's failure to convert the Notes.
M. Obligation to Cure. If the Corporation is prohibited from issuing
shares of Common Stock to a Holder for any reason, the Corporation shall
immediately notify the Holders of Notes of such occurrence and shall take
immediate action (including, if necessary, seeking the approval of its
stockholders) to eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or any of
its securities on the Corporation's ability to issue shares of Common Stock.
N. Remedies Cumulative. 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), and nothing herein shall limit a Holder's right to pursue
actual damages for any failure by the Corporation to comply with the terms of
this Note. The Corporation acknowledges that a breach by it of its obligations
hereunder will cause irreparable
-21-
harm to the Holders of the Notes and that the remedy at law for any such breach
may be inadequate. The Corporation therefore agrees, in the event of any such
breach or threatened breach, that 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.
O. Trading Days. For purposes of this Note, the term "trading day"
means any day on which NASDAQ or, if the Common Stock is not then traded on
NASDAQ, the principal United States securities exchange or trading market where
the Common Stock is then listed or traded, is open for trading.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
-22-
IN WITNESS WHEREOF, Borrower has caused this Convertible Note to be
executed by its duly authorized officer.
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
By:
--------------------------------------
Name: S. ▇▇▇▇ ▇▇▇▇▇▇
Title: President
-23-
Exhibit 1
---------
NOTICE OF CONVERSION
To: Lumenon Innovative Lightwave Technology, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇
Attention:
------------------
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
The undersigned hereby elects to convert $____________ principal amount of the
Note (the "Conversion"), into shares of common stock ("Common Stock") of Lumenon
Innovative Lightwave Technology, Inc. (the "Corporation") according to the
conditions of the Convertible Note dated ____________, 2000 (the "Note"), as of
the date written below. If securities are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any.
The Corporation shall electronically transmit the Common Stock issuable pursuant
to this Notice of Conversion to the account of the undersigned or its nominee
(which is ________________) with DTC through its Deposit Withdrawal Agent
Commission System ("DTC Transfer").
In the event of partial exercise, please reissue an appropriate Note(s) for the
principal balance which shall not have been converted.
Check Box if Applicable:
/ / In lieu of receiving the shares of Common Stock issuable
pursuant to this Notice of Conversion by way of DTC
Transfer, the undersigned hereby requests that the
Corporation issue and deliver to the undersigned or its
nominee (if applicable) physical certificates
representing such shares of Common Stock.
Date of Conversion:
----------------------------
Applicable Conversion Price:
-------------------
Amount of Accrued and Unpaid
Interest on the Principal Amount
to be converted, if any:
-----------------------
Default Amount to be converted,
if any:
----------------------------------------
Number of Shares of
Common Stock to be Issued:
----------------------------
Signature:
-------------------------------------
Name:
------------------------------------------
Address:
---------------------------------------
-25-