1
EXHIBIT 10.3
PAYMENT OF THE PRINCIPAL AMOUNT OF, ACCRUED INTEREST ON, FEES AND EXPENSES
RELATING TO, AND ANY OTHER INDEBTEDNESS EVIDENCED BY THIS NOTE IS SUBORDINATED
TO THE EXTENT AND IN THE MANNER PROVIDED IN THAT CERTAIN SUBORDINATION AGREEMENT
REFERRED TO BELOW. XXXXXX AND ANY SUBSEQUENT HOLDER OF THIS NOTE, BY ACCEPTANCE
HEREOF, ACKNOWLEDGE AND AGREE TO BE BOUND BY SUCH SUBORDINATION AGREEMENT.
THIS NOTE AND THE SALE AND ISSUANCE OF THE SECURITIES ISSUABLE UPON CONVERSION
OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE OR OTHER
JURISDICTION. SUCH SECURITIES SHALL HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE DISTRIBUTION THEREOF. SUCH SECURITIES
MAY NOT BE OFFERED, SOLD, PLEDGED, OR TRANSFERRED UNLESS (I) A REGISTRATION
STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH SECURITIES AND SUCH OFFER, SALE,
PLEDGE, OR TRANSFER IS IN COMPLIANCE WITH APPLICABLE SECURITIES LAW OF ANY STATE
OR OTHER JURISDICTION OR (II) THERE IS AN OPINION OF COUNSEL OR OTHER EVIDENCE,
IN EITHER CASE, SATISFACTORY TO THE BORROWER, THAT AN EXEMPTION THEREFROM IS
AVAILABLE AND THAT SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS IN COMPLIANCE WITH
APPLICABLE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION. THE CONVERSION OF
THIS NOTE IS SUBJECT TO THE APPLICABLE RE-QUIREMENTS OF THE XXXX-XXXXX-XXXXXX
ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED.
SECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTE
$5,000,000 April 20, 2001
FOR VALUE RECEIVED, the undersigned, FUTURELINK CORP, a Delaware
corporation ("Borrower"), promises to pay to PEQUOT PRIVATE EQUITY FUND II,
L.P., a Delaware limited partnership ("Holder"), the principal sum of FIVE
MILLION DOLLARS ($5,000,000), or such lesser amount advanced hereunder, with
interest from the date hereof, at the rate of ten percent (10%) per annum on the
2
outstanding unpaid balance until paid or until Default (as defined in Section
4), both principal and interest being payable in lawful money of the United
States of America, at 000 Xxxxx Xxxx Xxxx, Xxxxxxxx, Xxxxxxxxxxx 00000, or at
such place as the Holder may designate in writing. The obligations of the
Borrower under this Note are secured as set forth in the Security Agreement
dated as of the date hereof between the Borrower, the subsidiary guarantors
named therein (the "Subsidiary Guarantors") and the Holder (as modified and
supplemented and in effect from time to time, the "Security Agreement"). The
principal under this Note shall be advanced by Holder to the Borrower as
follows:
(i) Upon the Borrower's request, the Holder shall advance to the
Borrower on the date hereof the principal amount of THREE MILLION
FIVE HUNDRED THOUSAND DOLLARS ($3,500,000) (the "Initial
Advance"); and
(ii) Upon the Borrower's request, the Holder shall advance to the
Borrower an additional principal amount of ONE MILLION FIVE
HUNDRED THOUSAND DOLLARS ($1,500,000) (the "Subsequent Advance")
upon the earlier to occur of (A) the closing of the next round of
equity or convertible debt financing in which the Borrower
receives aggregate gross proceeds of at least $5,000,000
(excluding amounts received upon conversion of this Note,
including amounts from both the Initial Advance and the Subsequent
Advance) (a "Subsequent Financing") and (B) May 31, 2001. The
obligation of the Holder to make the Subsequent Advance is subject
to the condition that, both immediately prior to the making of
such Subsequent Advance and after giving effect thereto and to the
intended use thereof (a) no Default shall have occurred and be
continuing, and (b) the representations and warranties made by the
Borrower in Section 2 hereof shall be true and complete on and as
of the date of the making of such Subsequent Advance with the same
force and effect as if made on and as of such date. The request
for the Subsequent Advance by the Borrower hereunder shall
constitute a certification by the Borrower to the effect set forth
in the preceding sentence.
The principal and interest on this Note shall be due and payable as
follows:
(i) The entire unpaid balance shall be due and payable in full on June
30, 2001 (the "Due Date"); and
(ii) Interest shall be due and payable on the Due Date. All
computations of interest payable hereunder shall be on the basis
of a 360-day year and actual days elapsed in the period of which
such interest is payable.
The principal under this Note and all interest accrued hereon may
not be prepaid without the written consent of the Holder.
ANY PAYMENT OF THE PRINCIPAL AMOUNT OF, ACCRUED INTEREST ON, FEES AND EXPENSES
RELATING TO, AND ANY OTHER INDEBTEDNESS
2
3
EVIDENCED BY THIS NOTE SHALL BE SUBORDINATED TO THE EXTENT AND IN THE MANNER
PROVIDED IN THAT CERTAIN PEQUOT SUBORDINATION AGREEMENT BETWEEN HOLDER AND
FOOTHILL CAPITAL CORPORATION, A CALIFORNIA CORPORATION (THE "SUBORDINATION
AGREEMENT"). XXXXXX AND ANY SUBSEQUENT HOLDER OF THIS NOTE, BY ACCEPTANCE
HEREOF, ACKNOWLEDGE AND AGREE TO BE BOUND BY THE SUBORDINATION AGREEMENT.
1. Optional Conversion.
(a) Subject to Section 1(c), at the sole option of the Holder, the
Initial Advance and any accrued interest thereon may be converted into Units (as
defined in Exhibit A hereto), generally in accordance with the terms of Exhibit
A hereto (which terms shall be subject to the execution of definitive
agreements); provided, however, that the conversion price of the underlying
preferred stock and common stock shall be as set forth in Exhibit A hereto. The
Holder's option to convert this Note under this Section 1 may be exercised until
all amounts due under this Note are paid in full.
(b) Subject to Section 1(c), at the sole option of the Holder, the
Subsequent Advance and any accrued interest thereon may be converted into Units
(as defined in Exhibit A hereto), generally in accordance with the terms of
Exhibit A hereto (which terms shall be subject to the execution of definitive
agreements); provided, however, that the conversion price of the underlying
preferred stock and common stock shall be as set forth in Exhibit A hereto.
(c) The Holder's right to convert this Note shall commence upon
the earlier to occur of (i) the closing of a Subsequent Financing and (ii) May
31, 2001, and shall continue until all amounts due under this Note are paid in
full.
2. Representations and Warranties of the Borrower. The Borrower hereby
represents and warrants to the Holder as follows:
2.1. Organization and Qualification; Subsidiaries.
(a) The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. The
Borrower has all requisite corporate power and authority to own, operate, lease
and encumber its properties and carry on its business as now conducted, and to
issue this Note and to enter into the Security Agreement. The issuance of this
Note and the transactions contemplated hereby (including Exhibit A hereto) have
been approved by a special disinterested committee of the Board of Directors of
the Borrower.
(b) Each of the Subsidiary Guarantors is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, and has the corporate,
partnership or limited liability company power and authority to own its
properties and to carry on its business as it is now being conducted, and to
enter into the Subsidiary Guaranty dated as of the date
3
4
hereof between the Subsidiary Guarantors and the Holder (the "Subsidiary
Guaranty") and the Security Agreement.
(c) Each of the Borrower and the Subsidiary Guarantors is duly
qualified to do business and in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business requires such
qualification, except for any failures to be so qualified or to be in good
standing as would not, individually or in the aggregate, reasonably be expected
to result in a material adverse effect on the financial condition, results of
operations, business or prospects of the Borrower and its Subsidiaries taken as
a whole (a "Material Adverse Effect").
(d) Schedule 2.1(d) sets forth the name of each Subsidiary of the
Borrower (whether owned, directly or indirectly, through one or more
intermediaries). All of the outstanding shares of capital stock of, or other
equity interest in, each of the Subsidiary Guarantors are duly authorized,
validly issued, fully paid and nonassessable, and are owned, directly or
indirectly, by the Borrower free and clear of all Liens, except as set forth in
Schedule 2.1(d). The following information for each Subsidiary Guarantor is set
forth in Schedule 2.1(d), if applicable: (i) its name and jurisdiction of
incorporation or organization, and (ii) the type of and percentage interest held
by the Borrower in such Subsidiary Guarantor and the names of and percentage
interest held by the other interest holders, if any, in the Subsidiary
Guarantor. For purposes of this Note, "Subsidiary" shall mean with respect to
any person, any corporation, partnership, limited liability company, joint
venture, business trust or other entity, of which such person, directly or
indirectly, owns or controls 50% or more of the securities or other interests
entitled to vote in the election of directors or others performing similar
functions with respect to such corporation or other organization, or to
otherwise control such corporation, partnership, limited liability company,
joint venture, business trust or other entity.
2.2. Authority Relative to Agreements; Board Approval.
(a) The execution, delivery and performance of this Note and the
Security Agreement, have been duly and validly authorized by all necessary
corporate action on the part of the Borrower. This Note and the Security
Agreement have been duly executed and delivered by the Borrower for itself and
constitute the valid and legally binding obligations of the Borrower,
enforceable against the Borrower in accordance with their terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights or general principles of equity.
(b) The respective Boards of Directors of each Subsidiary
Guarantor have approved the Security Agreement and the Subsidiary Guaranty and
the transactions contemplated thereby.
(c) Except as set forth in Schedule 2.2(c), the issuance and sale
of the Note will not give any person the right to demand payment for its shares
or give rise to any preemptive or similar rights.
4
5
2.3. No Conflicts; No Defaults; Required Filings and Consents.
Except as set forth on Schedule 2.3, neither the execution and delivery by the
Borrower hereof nor the consummation by the Borrower of the transactions
contemplated hereby in accordance with the terms hereof will:
(a) conflict with or result in a breach of any provision of the
Certificate of Incorporation or the Bylaws of the Borrower;
(b) result in a breach or violation of, a default under, or the
triggering of any payment or other obligations pursuant to, or accelerate
vesting under, any employment agreement, any compensation plan or any grant or
award made under any of the foregoing;
(c) violate or conflict with any statute, regulation, judgment,
order, writ, decree or injunction applicable to the Borrower or the Subsidiary
Guarantors;
(d) violate or conflict with or result in a breach of any
provision of, or constitute a default (or any event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
or in a right of termination or cancellation of, or accelerate the performance
required by, or result in the creation of any lien upon any of the properties of
the Borrower or the Subsidiary Guarantors under, or result in being declared
void, voidable or without further binding effect, any of the terms, conditions
or provisions of any material note, bond, mortgage, indenture, deed of trust or
any license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which the Borrower or any Subsidiary Guarantor is a
party, or by which the Borrower or any Subsidiary Guarantor or any of their
properties is bound or affected, other than with respect to the obtaining of
consents thereunder, the failure of which to obtain will not result in a
Material Adverse Effect; or
(e) require any consent, approval or authorization of, or
declaration, filing or registration with, any government authority, other than
any filings required under the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and state securities laws ("Blue Sky Laws").
2.4. SEC and Other Documents; Financial Statements.
(a) The Borrower has delivered or made available to the Holder
each registration statement, report, proxy statement or information statement
and all exhibits, amendments and supplements thereto prepared by it or relating
to its properties since December 31, 2000, which are listed on Schedule 2.4(a),
each in the form (including exhibits and any amendments and supplements thereto)
filed with the SEC (collectively, the "Borrower Reports"). The Borrower Reports
were filed with the SEC in a timely manner and constitute all forms, reports and
documents required to be filed by the Borrower under the Securities Act, the
Exchange Act and the rules and regulations promulgated thereunder (the
"Securities Laws"). As of their respective dates, the Borrower Reports (i)
complied as to form in all material respects with the applicable
5
6
requirements of the Securities Laws and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. There is no
unresolved violation asserted by any government authority with respect to any of
the Borrower Reports.
(b) Each of the balance sheets included in or incorporated by
reference into the Borrower Reports (including the related notes and schedules)
fairly presented the financial position of the entity or entities to which it
relates as of its date and each of the statements of operations, stockholders'
equity (deficit) and cash flows included in or incorporated by reference into
the Borrower Reports (including any related notes and schedules) fairly
presented the results of operations, retained earnings or cash flows, as the
case may be, of the entity or entities to which it relates for the periods set
forth therein, in each case in accordance with United States generally accepted
accounting principles consistently applied during the periods involved, except
as may be noted therein and except, in the case of the unaudited statements, for
the absence of notes thereto, and subject to normal recurring year-end
adjustments which have not been and will not be material in nature or amount.
2.5. Absence of Certain Changes or Events. Except as previously
disclosed in writing to Lender or otherwise disclosed in the Borrower Reports
filed with the SEC prior to the date hereof, since December 31, 2000, the
Borrower and each of its Subsidiaries has conducted its business only in the
ordinary course, and there has not been (a) any change, circumstance or event
that could reasonably be expected to result in a Material Adverse Effect, (b)
any declaration, setting aside or payment of any dividend or other distribution
with respect to the Borrower's common stock, (c) any commitment, contractual
obligation, borrowing, capital expenditure or transaction entered into by the
Borrower or any of its Subsidiaries outside the ordinary course of business, or
(d) any material change in the Borrower's accounting principles, practices or
methods.
2.6. No Default. Immediately prior to the issuance of the Note and
after giving effect thereto, no Default shall have occurred and be continuing.
2.7. No Undisclosed Liabilities. Except as and to the extent set
forth in the Borrower Reports and the Borrower's financial statements filed with
the SEC or in any Schedule hereto, none of the Borrower or any of its
Subsidiaries has any liabilities (nor do there exist any circumstance which are
likely to give rise to liabilities) other than liabilities incurred in the
ordinary course of business and consistent with past practice since December 31,
2000.
2.9. Disclosure. None of this Note, the Security Agreement nor any
certificate, instrument or written statement furnished or made to the Holder by
or on behalf of the Borrower pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein in light of the
circumstances under which they were made not misleading.
6
7
3. Representations and Warranties of the Holder. The Holder hereby
represents and warrants to the Borrower as follows:
3.1. Authorization. The Holder is a duly incorporated and validly
existing limited partnership in good standing under and by virtue of the laws of
the State of Delaware and has all requisite power and authority to enter into
and perform its obligations under this Note and the transactions contemplated
hereby.
3.2. Investment. The Holder is acquiring this Note, and, upon
conversion of this Note, will acquire Units comprised of (a) convertible notes
of the Borrower which are convertible into either (i) shares of Series B
convertible preferred stock of the Borrower which are, convertible into shares
of the Borrower's common stock or (ii) common stock of the Borrower, and (b)
warrants to purchase shares of the Borrower's common stock (collectively, the
"Securities"). The Holder is acquiring this Note and will acquire the Securities
for investment for its own account, not as a nominee or agent, and not with a
view to, or for resale in connection with, any distribution thereof. The Holder
understands that this Note and each of the Securities have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or
registered or qualified under any applicable securities laws, by reason of a
specific exemption from the registration provisions of the Securities Act or
applicable state securities law.
3.3. Disclosure of Information. The Holder has had full access to
all information it considers necessary or appropriate to make an informed
investment decision with respect to this Note and the Securities. The Holder
further has had an opportunity to ask questions and receive answers from the
Borrower regarding the terms and conditions of this Note and the Securities and
to obtain additional information necessary to verify any information furnished
to the Holder or to which the Holder had access.
3.4. Investment Experience. The Holder understands that the
purchase of this Note and the Securities involves substantial risk and may
result in a complete loss of its investment. The Holder has experience as an
investor in securities of companies and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment in this Note and Securities
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of this investment in this Note
and Securities and protecting its own interests in connection with this
investment.
3.5. Accredited Investor Status. The Holder is an "accredited
investor" within the meaning of Regulation D promulgated under the Securities
Act.
3.6. Restricted Securities. The Holder understands that this Note
and each of the Securities are characterized as "restricted securities" under
the Securities Act inasmuch as they are being acquired from the Borrower in a
transaction not involving a public offering and that under the Securities Act
and applicable regulations thereunder such securities may not be resold without
registration under the Securities Act or an exemption from such registration.
The Holder is familiar with Rule 144 of the SEC, as
7
8
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act. The Holder understands that the Borrower is under no
obligation to register or qualify under federal or state securities laws this
Note (but is so obligated with respect to shares of common stock underlying such
Note).
4. Default. In the case of one or more of the following events (each, a
"Default") (i) the Borrower fails to pay when due any payment of principal or
interest hereof, or (ii) the Borrower applies for a trustee, receiver or other
custodian for it or a substantial part of its property; a trustee, receiver or
other custodian is appointed for the Borrower or for a substantial part of its
property; or any bankruptcy, reorganization, debt arrangement, or other case of
proceeding, is commenced in respect of the Borrower which continues for sixty
(60) days without being dismissed, bonded or discharged, or (iii) any of the
representations or warranties made herein or in the Security Agreement or the
Subsidiary Guaranty are untrue in any material respect, or (iv) any event or
condition shall occur which results in the acceleration of the maturity of any
indebtedness for borrowed money of the Borrower (A) owed to the Holder and/or
its affiliates or (B) in excess of $500,000 (other than with respect to (x) that
certain lease agreement, dated April 27, 2000, between FutureLink Corp. and GATX
Technology Services Corporation, (y) that Master Loan and Security Agreement,
dated November 3, 1999, among TransAmerica Business Credit Corporation,
FutureLink Distribution Corp., and FutureLink Micro Visions Corp. and that
certain Security Agreement, dated November 3, 1999, between TransAmerica
Business Credit Corporation and FutureLink Distribution Corp. and (z) (a) the
portion of that certain lease agreement number 12035 between EMC2 and FutureLink
Corp. (the "Master Lease") that has been assigned to Fleet Capital Leasing and
(b) the portion of the Master Lease that has been assigned to De Xxxx Xxxxxx
Financial Services, Inc.; provided, however, that this exception shall only
apply until the earlier of (I) June 30, 2001 and (II) with respect to any such
foregoing agreement, the taking of any remedial action by the lessor party to
such agreement against the Borrower or any Subsidiary Guarantor that impairs the
operations of the Borrower or any of its Subsidiaries to be determined by Holder
in its sole discretion) or (C) with respect to the Senior Indebtedness (as
defined in Section 6), or (v) the Borrower or any Subsidiary Guarantor breaches
any of the covenants or agreements contained in the Security Agreement, any
Subsidiary Guaranty or this Note (other than that covered by clause (i) above),
if and when applicable, if such breach remains uncured for a period of thirty
(30) days after receipt of written notice from the Holder of such breach; then,
upon the occurrence of any such event, the Holder may, without notice, declare
the unpaid principal and interest on this Note, and all other obligations of the
Borrower to the Holder, at once due and payable, whereupon such principal and
interest shall become at once due and payable. Failure to exercise this option
shall not constitute a waiver of the right to exercise the same at any other
time. The principal of this Note and any part thereof, and accrued interest, if
any, shall bear interest at the rate of twelve percent (12%) per annum
("Post-Default Rate") after Default until paid; provided, that if such
Post-Default Rate exceeds the maximum rate permitted by law, such Post-Default
Rate shall be reduced to the maximum rate of interest permitted by law.
5. Use of Proceeds. The Borrower shall use the proceeds of this Note for
working capital and general corporate purposes. The Borrower may not transfer
any of
8
9
the proceeds of this Note to, or use any of the proceeds for, FutureLink Europe
Limited, a company organized under the laws of England and Wales, and KNS
Holdings Limited, a company organized under the laws of England and Wales. The
proceeds of this Note shall not be used to make any payments with respect to any
Senior Indebtedness.
6. Subordination. Notwithstanding anything to the contrary in this Note
or in the Security Agreement or in the Subsidiary Guaranty, all rights of the
Holder, its successors, transferees and assigns, and the indebtedness evidenced
by this Note, shall be subordinate to the rights of Foothill Capital
Corporation, a California Corporation, its successors, transferees and assigns
("Foothill") and the indebtedness of Borrower to Foothill under that certain
Loan and Security Agreement dated as of November 16, 2000, as amended, by and
among the Borrower, the subsidiaries named therein and Foothill (the "Foothill
Loan Agreement"), the "Loan Documents", the "UK Loan Agreement", and the "UK
Loan Documents" (as such terms are defined in the Foothill Loan Agreement) (the
"Senior Indebtedness").
7. Senior Indebtedness. The Borrower agrees that the aggregate principal
amount of the Senior Indebtedness shall not exceed $25,000,000.
8. Waiver of Certain Rights. Subject to notices required hereunder or
under the Security Agreement or any Subsidiary Guaranty and any applicable
notice periods, all parties to this Note, including maker and any sureties,
endorsers, or guarantors, hereby waive protest, presentment, notice of dishonor,
and notice of acceleration of maturity and agree to continue to remain bound for
the payment of principal, interest and all other sums due under this Note
notwithstanding any change or changes by way of release, surrender, exchange,
modification or substitution of any security for this Note or by way of any
extension or extensions of time for the payment of principal and interest; and
all such parties waive all and every kind of notice of such change or changes
and agree that the same may be without notice or consent of any of them.
9. Enforcement. Upon Default the Holder may employ an attorney to enforce
the Holder's rights and remedies and the maker, principal, surety, guarantor and
endorsers of this Note hereby agree to pay to the Holder reasonable attorneys'
fees, plus all other reasonable expenses incurred by the Holder in exercising
any of the Holder's rights and remedies upon Default. The rights and remedies of
the Holder as provided in this Note shall be cumulative and may be pursued
singly, successively, or together against any other funds, property or security
held by the Holder for payment or security, in the sole discretion of the
holder. The failure to exercise any such right or remedy shall not be a waiver
or release of such rights or remedies or the right to exercise any of them at
another time.
10. No Shareholder Rights. The Holder shall not be deemed a shareholder
of the Borrower by virtue of holding this Note. Nothing contained in this Note
shall be construed as conferring upon the Holder or any other person the right
to vote or to consent or to receive notice as a shareholder of the Borrower.
9
10
11. Expenses. The Borrower shall pay the expenses of the Holder
(including the legal fees and expenses of Xxxxx Xxxxxxxxxx LLP, counsel to the
Holder) incurred in connection with this Note and the transactions contemplated
hereby.
12. Conditions to Closing. The Initial Advance is subject to the
satisfaction of each of the following conditions:
(a) the execution and delivery of this Note by the Borrower and
the Holder;
(b) the execution and delivery of the Security Agreement by the
Borrower, the Subsidiary Guarantors named therein and the Holder;
(c) the execution and delivery of the Subsidiary Guaranty by each
of the Subsidiary Guarantors named therein;
(d) receipt by the Holder of an opinion of counsel to the Borrower
and the Subsidiary Guarantors, in form a substance reasonably satisfactory to
the Holder;
(e) appropriately completed and duly executed copies of Uniform
Commercial Code Financing Statements and such other documents (including, but
not limited to, filings with the United States Patent and Trademark Office,
United States Copyright Office and Canadian Patent and Trademark Offices) as the
Holder may have requested to perfect the security interests created pursuant to
the Security Agreement.
(f) execution and delivery of the Subordination Agreement by
Foothill, the Holder and the acknowledgement thereof by the Holder and the
Subsidiary Guarantors;
(g) execution and delivery of that certain Amendment Number Two to
Loan and Security Agreement, dated as of the date hereof, by and among Foothill,
the Borrower and certain of the Subsidiary Guarantors and the Reaffirmation and
Consent by certain of the Subsidiary Guarantors;
(h) execution and delivery of that certain Amendment Number One to
Loan Agreement, dated as of the date hereof, between Foothill and FutureLink
Europe Limited, and that certain Reaffirmation and Consent by KNS Holdings
Limited, the Borrower, and certain of the Subsidiary Guarantors; and
(i) all consents required for the issuance of this Note and the
consummation of the transactions contemplated hereby shall have been obtained or
waived.
13. Miscellaneous. The following general provisions apply:
(a) This Note, and the obligations and rights of the Borrower
hereunder, shall be binding upon and inure to the benefit of the Borrower, the
Holder, and their respective heirs, personal representatives, successors and
assigns, except that the
10
11
Borrower may not assign or transfer any of its rights or obligations under this
Note without the prior written consent of the Holder. The Holder may not assign
or transfer this Note without the prior written consent of the Borrower (which
consent may not be unreasonably withheld); provided, that the Holder may assign
this Note, or any portion thereof, without the Borrower's consent to any
affiliate of the Holder or to JDS Capital Management, Inc. and/or its
affiliates. In connection with any permitted assignment of this Note, or any
portion thereof, the Borrower, at its own expense, upon surrender of this Note
shall promptly issue a new note or notes to replace this Note to reflect any
such assignment.
(b) Changes in or amendments or additions to this Note may be
made, or compliance with any term, covenant, agreement, condition or provision
set forth herein may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively), upon written consent of the
Borrower and the Holder.
(c) All payments shall be made in such coin and currency of the
United States of America as at the time of payment shall be legal tender therein
for the payment of public and private debts.
(d) All notices, requests, consents and demands shall be made in
writing and shall be mailed postage prepaid, or delivered by reliable overnight
courier service, or delivered by hand, to the Borrower or to the Holder at their
respective addresses set forth below or to such other address as may be
furnished in writing to the other party hereto and shall be effective upon
receipt:
If to the Borrower, at 0 Xxxxx Xxxxxx Xxxxx, Xxxx Xxxxxx,
Xxxxxxxxxx 00000, Attention: Chief Financial Officer and General Counsel.
If to Holder, at Pequot Capital Management, Inc., 000 Xxxxx Xxxx
Xxxx, Xxxxxxxx, Xxxxxxxxxxx 00000, Attention: Xxxxx Xxxxxx and Xxxxx Xxxxxx.
(e) This Note shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the State of New
York.
[Remainder of Page Intentionally Left Blank]
11
12
IN WITNESS WHEREOF, each party hereto has caused this instrument
to be executed in its corporate name by its duly authorized officer as of the
day and year first above written.
BORROWER
FUTURELINK CORP.
By: /s/ XXXXXX X. XXXXXX
-------------------------------------
Xxxxxx X. Xxxxxx, President
and Chief Executive Officer
HOLDER
PEQUOT PRIVATE EQUITY FUND II, L.P.
By: Pequot Capital Management, Inc.,
its Investment Manager
By: /s/ XXXXX X. X'XXXXX
-------------------------------------
Xxxxx X. X'Xxxxx, General Counsel
12
13
SCHEDULE 2.1(d)
LIST OF SUBSIDIARIES
1. FutureLink Micro Visions Corp., a Delaware corporation, doing business as
FutureLink
2. FutureLink Pleasanton Corp., a Delaware corporation, doing business as
FutureLink
3. FutureLink Async Corp., a Delaware corporation, doing business as
FutureLink
4. FutureLink VSI Corp., a Maryland corporation, doing business as
FutureLink
5. FutureLink Madison Corp., a Delaware corporation, doing business as
FutureLink
6. FutureLink Canada Corp., an Ontario corporation, doing business as
FutureLink
7. KNS Holdings Limited, a U.K. corporation, which wholly owns FutureLink
Europe Limited, a U.K. corporation
8. 3045207 Nova Scotia Company, a Nova Scotia unlimited liability company
which wholly owns 1423280 Ontario Inc., an Ontario corporation
The former shareholders of Charon Systems Inc. ("Charon") hold 2,199,965 shares
of the capital stock of 1423280 Ontario Inc., which shares were issued in
connection with the Borrower's acquisition of Charon. These shares represent a
minority interest in 1423280 Ontario Inc. Each share so held by the former
Charon shareholders is convertible into one share of Borrower's common stock at
the option of the holders.
With respect to all other capital stock of each Subsidiary, the Borrower owns
all of the capital stock of each Subsidiary, provided that the Borrower has
granted a security interest in the capital stock of each Subsidiary to Foothill
Capital Corporation as security for the Foothill Indebtedness.
14
SCHEDULE 2.2(c)
Each of Pequot Private Equity Fund II, L.P., Pequot Partners Fund, L.P., Pequot
International Fund, Inc., Pequot Endowment Fund, L.P., Dimensional Partners Ltd.
and Dimensional Partners L.P., each as buyers under one or both of those certain
Securities Purchase Agreements by and between the Borrower, Pequot Private
Equity Fund II, L.P. and each of the other buyers and dated October 15, 1999 and
April 28, 2000, have certain preemptive rights which may be triggered by
execution of this Note and the transactions contemplated thereby.
Additionally, the terms of the optional conversion pursuant to Section 1 of the
Note may trigger anti-dilution provisions of several outstanding warrants to
purchase common stock of the Borrower and anti-dilution provisions contained in
the Borrower's Series A Preferred Stock Certificate of Designation.
14
15
SCHEDULE 2.3
(a) -- (b) None.
(d) MATERIAL AGREEMENTS REQUIRING CONSENT OR WAIVER DUE TO TRANSACTIONS
CONTEMPLATED BY NOTE
The Borrower has requested in writing consent to the Note and the
transactions contemplated hereby under the agreements marked with an
asterisk (*).
1. Microsoft Application Services Agreement, dated 12/23/00, between
Microsoft Corporation and FutureLink Corp; prohibits a transaction that
results in the transfer of 20% of any class of Borrower's capital stock
to another entity and prohibits assignment of Maker's interest in such
agreement.*
2. Microsoft Direct Commercial Service License Agreement between Microsoft
Corporation and FutureLink Distribution Corp., dated 5/21/99; prohibits
assignment of Borrower's interest in such agreement.*
3. Microsoft Alliance Agreement, dated 6/29/00, prohibits acquisition of
direct or indirect control of Borrower.*
4. Citrix Application Service Provider Agreement, and related "iLicense"
Agreement dated 1/12/00 between Citrix Systems, Inc. and FutureLink
Corp.; prohibits transfer or assignment of any rights under such
agreement.*
5. Loan and Security Agreement among Foothill Capital Corporation,
FutureLink Corp., and certain of its Subsidiaries, dated 11/16/00, and
related documents, including without limitation, the Loan and Security
Agreement between Foothill Capital Corporation, and FutureLink Europe
Limited, dated December 13, 2000 and the documents related thereto;
prohibits incurrence of debt and prohibits the grant of a security
interest in Borrower's assets. [The consent of Foothill Capital
Corporation has been provided pursuant to the amendments to such
agreements executed on the date hereof.]
6. Master Loan and Security Agreement among TransAmerica Business Credit
Corporation, FutureLink Distribution Corp., and FutureLink Micro Visions
Corp., dated 11/3/99 and Security Agreement between TransAmerica Business
Credit Corporation and FutureLink Distribution Corp., dated 11/3/99;
prohibits granting a security interest in Borrower's assets securing the
obligation, prohibits assigning
15
16
Borrower's rights under such agreement, and prohibits a material change
in Borrower's capital structure.*
7. Master Lease and Financing Agreement between Compaq Financial Services
and FutureLink Corp., dated 11/15/99; prohibits the incurrence of a
substantial amount of debt, prohibits granting a security interest in the
equipment leased to Borrower pursuant to such agreement, and prohibits
assigning Borrower's rights under such agreement.*
8. Master Lease Agreement between EMC(2) and FutureLink Corp., dated
12/16/99; prohibits granting a security interest in the equipment leased
to Borrower pursuant to such agreement and prohibits assigning Borrower's
rights under such agreement.*
9. Lease Agreement between GATX and FutureLink Corp., dated 10/6/00;
prohibits granting a security interest in the equipment leased to
Borrower pursuant to such agreement and prohibits assigning Borrower's
rights under such agreement.*
10. Lease Agreement dated April 27, 2000 between Xxxx Commercial Realty Corp.
and FutureLink Micro Visions Corporation for 0 Xxxxx Xxxxxx Xx., Xxxx
Xxxxxx, Xx.; prohibits a lien on Borrower's interest in the lease.*
11. Lease Agreement dated August 8, 2000 between Transwestern Lexington, LLC
and FutureLink Corp. for 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx; prohibits a lien
on Borrower's interest in the lease.*
12. Lease Agreement related to 000 Xxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxxxx
facility; prohibits a lien on Borrower's interest in the lease.*
13. Lease Agreement related to Walled Lake, Michigan facility; prohibits a
lien on Xxxxxxxx's interest in the lease.*
14. Financing Agreement between Hewlett Packard and FutureLink Corp. dated as
of May 22, 2000; prohibits granting a security interest in the equipment
leased to Borrower pursuant to such agreement and prohibits assigning
Borrower's rights under such agreement.*
15. Master Lease Agreement between Data General Corporation and FutureLink
MicroVisions Corp. dated as of September 28, 1999; prohibits granting a
security interest in the equipment leased to Borrower pursuant to such
agreement and prohibits assigning Xxxxxxxx's rights under such
agreement.*
16
17
16. Security Agreement General and Purchase Money between Xxxxxx Micro Inc.
and FutureLink Distribution Corp. (now FutureLink Canada Corp.) dated as
of May 12, 2000; prohibits granting a security interest in any assets of
FutureLink Canada Corp.*
17. General Security Agreement between Merisel Canada Inc. and Sysgold Ltd.
(now FutureLink Canada Corp.) dated as of May 5, 1995; prohibits granting
a security interest in any assets of FutureLink Canada Corp.*
18. General Security Agreement between Tech Data Canada Inc. and Charon
Systems Inc. (now FutureLink Canada Corp.) dated as of June 15, 2000;
prohibits granting a security interest in any assets of FutureLink Canada
Corp.*
(c) & (e) REGULATORY CONSENTS OR APPROVALS
1. Under the rules of the Nasdaq Stock Market, shareholder approval of the
transactions contemplated by the Note (or a waiver of such approval by
Nasdaq) may be required. The Borrower intends to seek a waiver of the
shareholder approval requirements. In the alternative, the Borrower will
seek shareholder approval at a special stockholders meeting.
2. Under the rules of the Nasdaq Stock Market, a Notification Form: Listing
of Additional Shares may have been required to be filed at least 15 days
prior to the issuance of the Note. Such filing has not yet been made. The
Borrower intends to make such filing as soon as practicable after the
execution of this Note.
17
18
SCHEDULE 2.4(a)
1. Annual Report for the year ended December 31, 2000 on Form 10-KSB as
filed on 4/2/01
2. Current report on Form 8-K Filed on 4/2/01
3. Registration Statement on Form S-8 Filed on 3/30/01
4. Amendment No. 2 to Tender Offer on Schedule TO-I Filed on 3/19/01
5. Amendment No. 1 to Tender Offer on Schedule TO-I Filed on 3/9/01
6. Prospectus to Registration Statement on Form S-3 Filed Pursuant to Rule
424(b)(3) Filed on 2/16/01
7. Amendment No. 1 on Form S-3 to Registration Statement on Form SB-2 Filed
on 2/12/01
8. Tender Offer on Schedule TO-I Filed on 2/12/01
9. Current Report on Form 8-K Filed on 2/9/01
18
19
EXHIBIT A
UNITS: Each Unit shall consist of (i) a $100,000
Senior Subordinated Convertible Note (the
"Notes") and (ii) warrants to purchase 15%
of the shares of Common Stock issuable upon
conversion of the Notes as set forth below
(the "Warrants"). Each $100,000 of principal
and interest due and owing on the $5,000,000
Secured Subordinated Convertible Promissory
Note to which this Exhibit A is attached
(the "Bridge Note") shall convert into one
Unit. The Units issued on conversion of the
Initial Advance (as defined in the Bridge
Note) are referred to as the "First Tranche
Units" and the Units issued on conversion of
the Subsequent Advance (as defined in the
Bridge Note) are referred to as the "Second
Tranche Units." The holders of the Units are
collectively referred to as the "Investor".
Pequot Capital Management, Inc. and/or its
affiliates and/or JDS Capital Management,
Inc. and/or its affiliates shall also have
the right to purchase a pro rata portion of
up to an additional amount of $2,500,000 in
the next round of equity or convertible debt
financing in which the Company receives
aggregate gross proceeds of at least
$5,000,000 (for a total of up to $7,500,000)
(the "Third Party Financing").
THE NOTES:
Interest Rate: The Notes shall bear interest at 8%
per annum, payable quarterly in cash, or, at
the investors option, in kind.
Maturity: The Maturity Date shall be the earlier of
(i) 36 months from the date of issuance or
(ii) upon a Liquidation Event (as
hereinafter defined).
Conversion: At any time on or prior to the Maturity
Date, at the option of the holder, all or
any portion of the principal amount of the
Notes and all accrued and unpaid interest
due on such Notes, may be converted into (i)
the number of shares of one or more series
of preferred stock of the Company (the "New
Preferred Stock"), each senior to the
outstanding Series A Preferred Stock of the
Company and with the terms and conditions
described herein, and, if the Third Party
Financing occurs, with the exception of the
Common Stock Conversion Price, on
substantially the same terms and conditions
as the
20
preferred stock to be issued in the Third
Party Financing, equal to the portion of the
principal and accrued and unpaid interest
due on such Notes which the holder decides
to convert, divided by the Preferred Stock
Conversion Price or (ii) the number of
shares of Common Stock of the Company
("Common Stock") equal to the portion of the
principal and accrued and unpaid interest
due on such Notes which the holder decides
to convert, divided by the Common Stock
Conversion Price.
Conversion Price: The Preferred Stock Conversion Price shall
be $10.00.
The Common Stock Conversion Price of the
First Tranche Units shall be the average
closing bid price of the Common Stock for
the five trading days preceding the date of
the Initial Advance (the "Initial Funding
Date").
The Common Stock Conversion Price of the
Second Tranche Units shall be determined as
follows: (a) if the Third Party Financing
closes within 15 days of the Initial Funding
Date, the Common Stock Conversion Price
shall be the lower of the average closing
bid price of the Common Stock for the five
trading days preceding the Initial Funding
Date and the five trading days preceding the
closing date of the Third Party Financing
(the "Third Party Financing Common Stock
Conversion Price"); (b) if the Third Party
Financing closes more than 15 days after the
Initial Funding Date but on or before May
30, 2001, the Common Stock Conversion Price
shall be the lower of $0.60 and the Third
Party Financing Common Stock Conversion
Price and (c) if the Third Party Financing
closes after May 30, 2001, the Common Stock
Conversion Price shall be the same as the
Common Stock Conversion Price of the First
Tranche Units.
Notwithstanding the preceding paragraph, if
and solely to the extent necessary to comply
with the Nasdaq Stock Marketplace Rules (the
"Nasdaq Rules"), (a) the Common Stock
Conversion Price for the Second Tranche
Units shall be fixed at the average closing
bid price of the Common Stock for the five
trading days preceding the date of the
Subsequent Advance and (b) if such Common
Stock Conversion Price for the Second
Tranche Units is less than the Common Stock
Conversion Price for the First Tranche
Units, the Company shall issue to the
Investor special warrants to purchase
additional shares of Common Stock in an
2
21
amount equal to (i) the difference between
the Common Stock Conversion Price for the
First Tranche Units less the Common Stock
Conversion Price for the Second Tranche
Units (ii) multiplied by the number of
shares of Common Stock into which the Second
Tranche Units are convertible (the "Special
Warrants"). The exercise price of the
Special Warrants shall be equal to the
Common Stock Conversion Price of the Second
Tranche Units.
Conversion Limitation: In order to be in compliance with the Nasdaq
Rules relating to shareholder approval of a
transaction by an issuer other than a public
offering, the holders of the Units
(including the Investor) will agree not to
convert the securities which comprise the
Units into a number of shares of Common
Stock which, together with any securities
issued in connection with the Third Party
Financing, in the aggregate, would result in
the issuance of more than 19.9 % of the
outstanding shares of Common Stock before
the issuance of the Units (the "Conversion
Limitation"), until the receipt of
stockholder approval of the transaction or a
waiver of such requirement from Nasdaq. The
Company agrees to seek shareholder approval
of the transactions contemplated by the Note
and this Exhibit A or such a waiver as soon
as reasonably practicable, but in no event
later than June 30, 2001.
Call Provision: The Notes shall be callable by the Company,
at such time as the closing bid price for
the Common Stock of the Company has equaled
or exceeded, in each case for the 30
consecutive trading days prior to the
Company's notice to holders to call such
Notes, (i) twice the Common Stock Conversion
Price during year one, (ii) two and a half
times the Common Stock Conversion Price
during year two, and (iii) three times the
Common Stock Conversion Price during year
three or beyond, provided the Common Stock
of the Company is trading on a national
securities exchange or the NASDAQ SmallCap
or National Market System, and the shares
underlying the Notes are fully registered
for resale and not subject to any lock-up
provisions. The Investor shall have the
right to convert all of the Notes before the
call date and the Company may not call the
Notes if the Investor's right to convert
such Notes is restricted in any way.
Put Provision: In the event that at the two-year
anniversary of the closing of the First
Tranche Units (the "Anniversary Date"), the
average closing bid price of the Company's
3
22
Common Stock for the 30 consecutive trading
days immediately preceding such two-year
anniversary (the "Average Trading Price") is
less than the Common Stock Conversion Price,
the Noteholder will have the right to
accelerate the Maturity Date of the Notes to
a date twenty days after the Anniversary
Date (the "Put"). In the event of such Put,
the Company shall have the option to pay
such redemption price in cash or in shares
of the Company's common stock valued at the
Average Trading Price provided the shares to
be issued are fully registered for resale
pursuant to an effective registration
statement and are not subject to any lock-up
provisions.
Security/Ranking: The Notes shall be secured by substantially
all of the assets of the Company and shall
rank senior to any existing or future
indebtedness but shall be subordinate to
Senior Indebtedness (to be defined in the
definitive documentation).
Covenants: The Notes shall contain standard affirmative
and negative covenants including
restrictions on incurrence of debt, payment
of dividends, mergers, increases in
compensation, related party transactions,
etc.
Antidilution: If the Third Party Financing closes on or
before May 30, 2001 and the Third Party
Financing Common Stock Conversion Price is
less than the Common Stock Conversion Price
for the First Tranche Units, then the Common
Stock Conversion Price for the First Tranche
Units shall be reduced to the Third Party
Financing Common Stock Conversion Price and
the number of shares of Common Stock into
which the Units are convertible (the
"Conversion Shares") shall be adjusted
accordingly.
Notwithstanding the preceding paragraph, if
and solely to the extent necessary to comply
with the Nasdaq Stock Marketplace Rules (the
"Nasdaq Rules"), (a) the Common Stock
Conversion Price for the First Tranche Units
shall be fixed at the average closing bid
price of the Common Stock for the five
trading days preceding the Initial Funding
Date and (b) if the Third Party Financing
Common Stock Conversion Price is less than
the Common Stock Conversion Price for the
First Tranche Units, the Company shall issue
to the Investor special warrants to purchase
additional shares of Common Stock in an
amount equal to (i) the Common Stock
Conversion Price for the First Tranche Units
less the Third Party Financing Common Stock
Conversion
4
23
Price (ii) multiplied by the number of
shares of Common Stock into which the First
Tranche Units are convertible (the
"Additional Special Warrants"). The exercise
price of the Additional Special Warrants
shall be equal to the average closing bid
price of the Common Stock for the five
trading days preceding the closing date of
the Third Party Financing.
In the event that after the Initial Funding
Date (except as provided in this Exhibit A)
the Company issues any other shares of
Common Stock, preferred stock, options,
warrants or convertible securities at a
purchase price, conversion price or exercise
price (including any adjustments thereof)
per share less then the fair market value
(the "Purchase Price"), then the applicable
Conversion Price and the number of
Conversion Shares shall be adjusted on a
weighted-average basis (subject to certain
customary exceptions to be agreed to by the
parties), unless any such issuance occurs
within one-year after the initial closing of
the First Tranche Units and the Purchase
Price is below the Conversion Price, in
which event the Conversion Price shall be
automatically reduced to such lower price,
and the number of Conversion Shares shall be
adjusted accordingly. Notwithstanding the
foregoing, no anti-dilution adjustment shall
be applicable in the event that (i) the
Purchase Price of any securities issued
equals twice the Conversion Price and (ii)
the Conversion Shares are fully registered
for resale pursuant to an effective
registration statement and are not subject
to any lock-up provisions.
Appropriate adjustments shall be made in the
applicable Conversion Price and the number
of Conversion Shares for stock splits,
reverse splits, combinations,
reclassifications and similar changes.
Registration Rights: The Company shall file a registration
statement covering the shares of Common
Stock underlying the Units (without giving
effect to the potential anti-dilution
calculations) within three months after the
closing of the First Tranche Units, and
shall use its best efforts to cause such
registration statement to become effective
within two months after such filing, subject
to the lock-up provision set forth below.
Unlimited piggyback registration rights. In
the event that such registration statement
is not effective within six months or the
effectiveness and use thereof is suspended
beyond certain mutually agreed periods then
the applicable
5
24
Conversion Price shall be reduced by 5% for
each month, or portion thereof, until such
time as the registration statement is
effective or the suspension ceases and the
prospectus may be used.
Amendments/Waivers: The provisions of the Notes may from time to
time be amended, modified or waived, if such
amendment, modification or waiver is in
writing and consented to by the Company and
the holders of not less than 50% in
principal amount of the Notes.
NEW PREFERRED STOCK: The New Preferred Stock shall have the same
covenants and antidilution rights as the
Notes. The New Preferred Stock shall have
customary terms, including, but not limited
to, customary conversion rights and voting
rights. In addition, the New Preferred Stock
shall have the following terms:
Original Issue Price: The Original Issue Price for each share of
New Preferred Stock shall be $10.00.
Liquidation Value/Preference: Each share of
New Preferred Stock shall be entitled to
receive, in preference to holders of common
stock and the holders of any shares of
Series A Preferred Stock, an amount such
that holders of each share of New Preferred
Stock shall receive a compound annual return
on the Original Issue Price equal to 33%,
(the "Liquidation Preference"). In no event
shall the holders of New Preferred Stock
receive a return on the Original Issue Price
of less than 15%, irrespective of the date
of such a Liquidation Event. After payment
in full of the Liquidation Preference, the
holders of shares of New Preferred Stock
shall be entitled to participation in the
Company's remaining assets, and any assets
available for distribution shall be
distributed to the holders of the Common
Stock and the holders of New Preferred Stock
in proportion to the number of shares of
Common Stock then held by them and the
number of shares of Common Stock which they
then have the right to acquire upon
conversion of the shares of New Preferred
Stock then held by them. A merger or
consolidation, where existing stockholders
do not retain more than 50% of the voting
power or interest, a sale of all or
substantially all of the Company's assets or
an acquisition of 50% or more of the voting
power or interest in the Company by a single
person or Section 13D (except in a
transaction provided in this Exhibit A)
group shall be deemed to be a liquidation
for purposes
6
25
hereof except to the extent that such
acquisition, merger or consolidation
transaction involves the formation of a
holding company or is an internal
reorganization or reclassification, the
effect of which is that more than 50% of the
voting power remain constant ("Liquidation
Event").
Dividends: Holders of New Preferred Stock shall be
entitled to receive, prior to any payments
of dividends to holders of the Common Stock
or other series of preferred stock of the
Company, cumulative dividends payable
quarterly in the amount of 8% per annum per
share. To the extent that the dividend is
not declared and paid quarterly, it shall
accumulate. At the option of the holder,
dividends may be paid in-kind or paid in
cash.
WARRANTS; SPECIAL WARRANTS: The Company shall issue seven-year Warrants
to purchase a number of shares of Common
Stock equal to 15% of the number of shares
of Common Stock initially issuable upon
conversion of the Notes, at an exercise
price equal to 100% of the Common Stock
Conversion Price (the "Warrant Exercise
Price"). The Company shall issue seven year
Special Warrants and Additional Special
Warrants as described herein. The number of
shares to be issued upon exercise of the
Warrants, Special Warrants and Additional
Special Warrants are hereinafter referred to
as the Warrant Shares. The Warrants, Special
Warrants and Additional Special Warrants
shall contain the same anti-dilution rights
as provided in the Notes and shall provide
for cashless exercise.
7
