SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the
"Agreement"), dated as of December 15, 1999, is made by and among 8x8,
Inc., a Delaware corporation, with headquarters located at 2445 Mission College
Blvd., Santa Clara, California 95054 (the "Company"), and the investors
listed on the Schedule of Buyers attached hereto (individually, a "Buyer"
and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 of Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933
Act").
B. The Company has authorized two series of
convertible notes of the Company, the Series A Convertible Notes in the form
attached as Exhibit A (together with any convertible notes issued in
replacement thereof in accordance with the terms thereof, the "Series A
Notes") and the Series B Convertible Notes in the form attached as
Exhibit B (together with any convertible notes issued in replacement
thereof in accordance with the terms thereof, the "Series B Notes," and
collectively with the Series A Notes, the "Notes"), which Notes shall be
convertible into shares of the Company's common stock, par value $0.001 per
share (the "Common Stock") (as converted, the "Conversion
Shares"), in accordance with the terms of such Convertible Notes.
C. The Buyers wish to purchase, upon the terms and
conditions stated in this Agreement, (i) Series A Notes in an aggregate
principal amount of up to $3,750,000 in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers, (ii) Series B Notes in an
aggregate principal amount of up to $3,750,000 in the respective amounts set
forth opposite each Buyer's name on the Schedule of Buyers, (iii) for each
Series A Note, Series A Warrants (the "Series A Warrants") to purchase
up to that number of shares of Common Stock equal to the quotient of (A) the
aggregate principal amount of such Series A Note divided by (B) the applicable
Conversion Price (as defined in the Series A Note) of such Series A Note (as
exercised, the "Series A Warrant Shares"), such Series A Warrants to be
substantially in the form attached as Exhibit C and (iv) for each Series
B Note, Series B Warrants (the "Series B Warrants" and collectively with
the Series A Warrants, the "Warrants") to purchase up to that number of
shares of Common Stock equal to the quotient of (A) the aggregate principal
amount of such Series B Note divided by (B) the applicable Conversion Price (as
defined in the Series B Note) of such Series B Note (as exercised, the
"Series B Warrant Shares" and collectively with the Series A Warrant
Shares, the "Warrant Shares"), such Series B Warrants to be substantially
in the form attached as Exhibit C.
D. Contemporaneously with the execution and delivery
of this Agreement, the parties hereto are executing and delivering a
Registration Rights Agreement substantially in the form attached hereto as
Exhibit D (the "Registration Rights Agreement") pursuant to which
the Company has agreed to provide certain registration rights under the 1933
Act, and the rules and regulations promulgated thereunder, and applicable state
securities laws.
NOW THEREFORE, the Company and the Buyers hereby
agree as follows:
1. PURCHASE AND SALE OF NOTES.
a. Purchase of Notes and Warrants. Subject
to satisfaction (or waiver) of the conditions set forth in Sections 6 and 7, the
Company shall issue and sell to each Buyer and each Buyer severally agrees to
purchase from the Company the Series A Notes and the Series B Notes, each in the
principal amount as set forth opposite such Buyer's name on the Schedule of
Buyers, along with the related Warrants (the "Closing"). The aggregate
purchase price of the Notes and the related Warrants at the Closing shall be
$7,500,000 with the purchase price for each Buyer (the "Purchase Price")
of the Notes and related Warrants is as indicated opposite such Buyer's name on
the Schedule of Buyers.
b. The Closing Date. The date and time of
the Closing (the "Closing Date") shall be 10:00 a.m. Central Time, within
three (3) Business Days (as defined below) following the date hereof, subject to
satisfaction (or waiver) of the conditions to the Closing set forth in Sections
6 and 7 (or such later date as is mutually agreed to by the Company and the
Buyers). The Closing shall occur on the Closing Date at the offices of Katten
Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-
3693. "Business Day" means any day other than Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized or required
by law to remain closed.
c. Form of Payment. On the Closing Date
(i) each Buyer shall pay its pro rata portion of the Purchase Price to the
Company for the Notes and the related Warrants to be issued and sold to such
Buyer by wire transfer of immediately available funds in accordance with the
Company's written wire instructions and (ii) the Company shall deliver to
each Buyer Notes (in the principal amounts as such Buyer shall request) (the
"Note Certificates") representing such principal amount of the Notes
which such Buyer is then purchasing (as indicated opposite such Buyer's name on
the Schedule of Buyers) along with the related Warrants, duly executed on behalf
of the Company and registered in the name of such Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to
only itself that:
a. Investment Purpose. Such Buyer (i) is
acquiring the Notes and the Warrants, (ii) upon conversion of the Notes, will
acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof (the
Notes, the Warrants, the Conversion Shares and the Warrant Shares, collectively
are referred to herein as the "Securities"), for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act; provided, however, that by making the
representations contained in this Section 2(a), such Buyer does not agree to
hold any of the Securities for any minimum or other specific term and reserves
the right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer
is an "accredited investor" as that term is defined in Rule 501(a) of Regulation
D.
c. Reliance on Exemptions. Such Buyer
understands that the Securities are being offered and sold to it in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying in part upon the truth
and accuracy of, and such Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Buyer to acquire the Securities.
d. Information. Such Buyer and its
advisors, if any, have been furnished with all materials relating to the
business, finances and operations of the Company and materials relating to the
offer and sale of the Securities which have been requested by such Buyer. Such
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Sections 3 and 9(m) below.
Such Buyer understands that its investment in the Securities involves a high
degree of risk. Such Buyer has sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Securities.
e. No Governmental Review. Such Buyer
understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Securities or the fairness or suitability of the investment
in the Securities nor have such authorities passed upon or endorsed the merits
of the offering of the Securities.
f. Transfer or Resale. Such Buyer
understands that except as provided in the Registration Rights Agreement: (i)
the Securities have not been and are not being registered under the 1933 Act or
any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such Buyer shall
have delivered to the Company an opinion of counsel, in a generally acceptable
form, to the effect that such Securities to be sold, assigned or transferred may
be sold, assigned or transferred pursuant to an exemption from such
registration, (C) such Buyer provides the Company with reasonable assurance
that such Securities can be sold, assigned or transferred pursuant to Rule 144
promulgated under the 1933 Act (or a successor rule thereto) ("Rule 144")
or (D) transferred in accordance with Rule 144A under the 1933 Act (or any
successor rule thereto) ("Rule 144A") to a qualified institutional buyer
(as such term is defined in Rule 144A, and further referred to as a
"QIB"); (ii) any sale of the Securities made in reliance on Rule 144 may
be made only in accordance with the terms of Rule 144 and further, if Rule 144
is not applicable, any resale of the Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder. Notwithstanding the foregoing, the Securities may be pledged in
connection with a bona fide margin account or other loan secured by the
Securities.
g. Legends. Such Buyer understands that
the certificates or other instruments representing the Notes and the Warrants
and, until such time as the sale of the Conversion Shares and the Warrant Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the stock certificates representing the Conversion Shares and
the Warrant Shares, except as set forth below, shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO EITHER RULE
144A UNDER SAID ACT TO A QUALIFIED INSTITUTIONAL BUYER OR RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of the Securities
upon which it is stamped, if (i) such Securities are registered for sale under
the 1933 Act, (ii) in connection with a sale transaction, such holder provides
the Company with an opinion of counsel, in a generally acceptable form to the
Company, to the effect that a public sale, assignment or transfer of such
Securities may be made without registration under the 1933 Act, or (iii) such
holder provides the Company with a representation letter in the form attached
hereto as Exhibit E (a "Representation Letter") relating to the
sale of the Securities pursuant to Rule 144. Such Buyer acknowledges, covenants
and agrees to sell the Securities represented by a certificate(s) from which the
legend has been removed, only pursuant to (i) a registration statement effective
under the 1933 Act, or (ii) advice of counsel that such sale is exempt from
registration required by Section 5 of the 1933 Act.
h. Authorization; Enforcement. This
Agreement and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of such Buyer and are valid and
binding agreements of such Buyer enforceable against such Buyer in accordance
with their terms, subject as to enforceability to general principles of equity
and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of
that jurisdiction specified on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.
The Company represents and warrants to each of the
Buyers that:
a. Organization and Qualification. The
Company and its "Subsidiaries" (which for purposes of this Agreement
means any entity in which the Company, directly or indirectly, owns more than
20% of the aggregate voting power of such entity) are corporations duly
organized and validly existing in good standing under the laws of the
jurisdiction in which they are incorporated, and have the requisite corporate
power and authorization to own properties and to carry on their business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing would not have a Material
Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations or financial condition of the Company and its
Subsidiaries taken as a whole, or on the transactions contemplated hereby or by
the agreements and instruments to be entered into in connection herewith, or on
the authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below). Except as set forth on Schedule 3(a),
the Company does not, directly or indirectly, own any capital stock or hold an
equity or similar interest in any entity.
b. Authorization; Enforcement; Compliance with
Other Instruments. (i) The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as
defined in Section 5), the Notes, the Warrants and each of the other agreements
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms
thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the issuance of the Notes and the Warrants
and the reservation for issuance and the issuance of the Conversion Shares and
the Warrant Shares issuable upon conversion or exercise thereof, have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) the Transaction Documents have been duly executed and
delivered by the Company, and (iv) the Transaction Documents, constitute the
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
c. Capitalization. The authorized capital
stock of the Company consists of (i) 40,000,000 shares of Common Stock, of
which, as of December 10, 1999, 18,539,338 shares were issued and outstanding,
548,614 shares were issuable and reserved for issuance pursuant to the Company's
stock option and purchase plans and, except as disclosed in Schedule
3(c), no shares are issuable and reserved for issuance pursuant to
securities (other than the Notes and the Warrants) exercisable or exchangeable
for, or convertible into, shares of Common Stock and (ii) 5,000,000 shares of
preferred stock, of which as of the date hereof, no shares were issued and
outstanding. All of such outstanding shares have been, or upon issuance will
be, validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), (i) no shares of the Company's capital stock are subject
to preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company; (ii) there are no outstanding debt
securities issued by the Company; (iii) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement); (v) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries; (vi) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement; and (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement. The
Company has furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all
securities convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Notes and
the Warrants are duly authorized and, upon issuance in accordance with the terms
hereof, shall be free from all taxes, liens and charges with respect to the
issue thereof. At least 2,750,000 shares of Common Stock (subject to adjustment
pursuant to the Company's covenant set forth in Section 4(h) below) have been
duly authorized and reserved for issuance upon conversion of the Notes and upon
exercise of the Warrants. Upon conversion or exercise in accordance with the
Notes or the Warrants, as the case may be, the Conversion Shares and the Warrant
Shares will be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock. Assuming,
with respect to the issuance of Warrant Shares other than a Cashless Exercise
(as defined in Section 2(d) of the Warrant), the accuracy as to factual matters
of the representations set forth in Section 6 of the Warrant, the issuance by
the Company of the Securities is exempt from registration under the 1933
Act.
e. No Conflicts. Except as disclosed in
Schedule 3(e), the execution, delivery and performance of the Transaction
Documents by the Company, the performance by the Company of its obligations
under the Notes and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares) will
not (i) result in a violation of the Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
preferred stock of the Company or the By-laws; (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party; or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and regulations
of the Principal Market (as defined below)) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 3(e),
neither the Company nor its Subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or By-laws or their organizational charter or by-laws, respectively.
Except as disclosed in Schedule 3(e), neither the Company or any of its
Subsidiaries is in violation or any term of or in default under any contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
Subsidiaries, except for possible conflicts, defaults, terminations or
amendments which would not have, individually or in the aggregate, a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations the
sanctions for which either, individually or in the aggregate, would not have a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and except such as have been obtained as of the date hereof, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self-
regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents in accordance
with the terms hereof or thereof. Except as disclosed in Schedule 3(e),
all consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is not in
violation of the listing requirements of the Principal Market, including without
limitation, the requirements set forth in Rule 4310(c)(25)(H) of the Nasdaq
National Market as in effect on the date hereof and on the Closing Date and has
no actual knowledge of any facts which would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future.
f. SEC Documents; Financial Statements.
Since March 31, 1998, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to the date hereof and
all exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). The Company has delivered to the Buyers or their
respective representatives true and complete copies of the SEC Documents. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Neither the
Company nor any of its Subsidiaries or any of their officers, directors,
employees or agents have provided the Buyers with any material, nonpublic
information. The Company meets the requirements for the use of Form S-3 for
registration of the resale of the Registrable Securities (as defined in the
Registration Rights Agreement) by each Buyer.
g. Absence of Certain Changes. Except as
disclosed in Schedule 3(g) or in the SEC Documents filed with the SEC
through EDGAR at least five (5) days prior to the date of this Agreement, since
March 31, 1999 there has been no material adverse change and no material adverse
development in the business, properties, operations, financial condition,
liabilities or results of operations of the Company or its Subsidiaries, taken
as a whole. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of its Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings.
Except as disclosed in Schedule 3(g) or in the SEC Documents filed with the SEC
through EDGAR at least five (5) days prior to the date of this Agreement, since
March 31, 1999, the Company has not declared or paid any dividends, sold any
assets (not including inventory) in excess of $1,000,000 outside of the ordinary
course of business or had capital expenditures in excess of $1,000,000.
h. Absence of Litigation. Except as
disclosed in Schedule 3(h), there is no action, suit, proceeding, inquiry
or investigation, before or by any court, public board, government agency, self-
regulatory organization or body pending or, to the knowledge of the Company or
any of its Subsidiaries, threatened against or affecting the Company, the Common
Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such.
Except as set forth in Schedule 3(h), to the knowledge of the Company,
none of the directors or officers of the Company have been involved in
securities-related litigation during the past five years.
i. Acknowledgment Regarding the Buyer's
Purchase of Notes. The Company acknowledges and agrees that each of the
Buyers is acting solely in the capacity of an arm's length purchaser with
respect to the Transaction Documents and the transactions contemplated thereby.
The Company further acknowledges that each Buyer is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
the Transaction Documents and the transactions contemplated thereby and any
advice given by any of the Buyers or any of their respective representatives or
agents in connection with the Transaction Documents and the transactions
contemplated thereby is merely incidental to such Buyer's purchase of the
Securities. The Company further represents to each Buyer that the Company's
decision to enter into the Transaction Documents has been based solely on the
independent evaluation by the Company and its representatives and the
representations and warranties made by each Buyer in Section 2 hereof.
j. No General Solicitation. Neither the
Company, nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 1933 Act) in connection with the
offer or sale of the Securities.
k. No Integrated Offering. Neither the
Company, nor any of its affiliates, nor any person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause this offering
of the Securities to be integrated with prior offerings by the Company for
purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of the Nasdaq
National Market, nor will the Company or any of its Subsidiaries take any action
or steps that would require registration of any of the Securities under the 1933
Act or cause the offering of the Securities to be integrated with other
offerings.
l. Employee Relations. Neither the Company
nor any of its Subsidiaries is involved in any union labor dispute nor, to the
knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened. None of the Company's or its Subsidiaries' employees is a member of
a union and neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company and its Subsidiaries believe
that their relations with their employees are good. No executive officer (as
defined in Rule 501(f) of the 1933 Act) has notified the Company that such
officer intends to leave the Company or otherwise terminate such officer's
employment with the Company and the Company does not expect to terminate any
such officer during the six months following the date hereof.
m. Intellectual Property Rights. Except as
set forth in Schedule 3(m), the Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets and rights necessary to conduct their respective businesses as now
conducted. Except as set forth on Schedule 3(m), none of the trademarks,
trade names, service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, government
authorizations, trade secrets or other intellectual property rights
(collectively, the "Intellectual Property") of the Company have expired
or terminated, or are expected to expire or terminate within two years from the
date of this Agreement, except where such expiration or termination would not
result, individually or in the aggregate, in a Material Adverse Effect. Except
as set forth in Schedule 3(m), the Company and its Subsidiaries do not
have any knowledge of any infringement by the Company or its Subsidiaries of the
Intellectual Property of others. Except as set forth on Schedule 3(m), to
the Company's knowledge no administrative or court action or proceeding has been
made or brought against, or to the Company's knowledge, has been threatened
against, the Company or its Subsidiaries regarding the infringement of the
Intellectual Property of others. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their intellectual properties.
n. Environmental Laws. The Company and its
Subsidiaries (i) are in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or approval
where, in each of the three foregoing cases, the failure to so comply would
have, individually or in the aggregate, a Material Adverse Effect.
o. Title. The Company and its Subsidiaries
have good and marketable title in fee simple to all real property owned by them
and good and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries, in each case free
and clear of all liens, encumbrances and defects except such as are described in
Schedule 3(o) or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Company and any of its Subsidiaries. Any real property and
facilities held under lease by the Company and any of its Subsidiaries are held
by them under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its Subsidiaries.
p. Tax Status. The Company and each of its
Subsidiaries has made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and for which the Company has set aside on its
books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
q. Transactions With Affiliates. Except as
set forth on Schedule 3(q) and in the SEC Documents filed at least ten
days prior to the date hereof and other than the grant of stock options
disclosed on Schedule 3(c), none of the officers, directors, or employees
of the Company is presently a party to any transaction with the Company or any
of its Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
r. Application of Takeover Protections.
The Company and its board of directors have taken all necessary action, if any,
in order to render inapplicable any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or other similar anti-takeover provision under the Certificate of Incorporation
or the laws of the state of its incorporation which is or could become
applicable to the Buyers as a result of the Buyers and the Company fulfilling
their obligations under the Transaction Documents, including, without
limitation, the Company's issuance of the Securities and the Buyers' ownership
of the Securities.
s. Shareholders Rights Plan. As of the
date hereof, the Company has not adopted a shareholder rights plan or similar
arrangement relating to accumulation of beneficial ownership of Common Stock or
a change in control of the Company.
t. Foreign Corrupt Practices. Neither the
Company, nor any of its Subsidiaries, nor, to the Company's knowledge, any
director, officer, agent, employee or other person acting on behalf of the
Company or any of its Subsidiaries has, in the course of its actions for, or on
behalf of, the Company, used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expenses relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback
or other unlawful payment to any foreign or domestic government official or
employee.
u. Year 2000 Compliance. The Company has
initiated a review and assessment of all areas within its and each Subsidiary's
business and operations that could be adversely affected by the "Year 2000
Problem" (that is, the risk that computer applications used by the Company
or any of the Subsidiaries may be unable to recognize and perform properly date-
sensitive functions involving certain dates prior to and any date after December
31, 1999). Based on the foregoing, the Company believes that the computer
applications that are currently material to its or any Subsidiary's business and
operations are reasonably expected to be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000.
v. No Other Agreements. The Company has
not, directly or indirectly, made any agreements with any Buyer relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.
4. COVENANTS.
a. Best Efforts. Each party shall use its
best efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. Form D and Blue Sky. The Company agrees
to file a Form D with respect to the Securities as required under Regulation D
and to provide a copy thereof to each Buyer promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for, or obtain
exemption for the Securities for, sale to the Buyers at the Closing pursuant to
this Agreement under applicable securities or "Blue Sky" laws of the states of
the United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date. The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or "Blue Sky" laws of the states of the United States
following the Closing Date.
c. Reporting Status. Until the earlier of
(i) the date which is one year after the date on which the Investors (as
that term is defined in the Registration Rights Agreement) may sell all of the
Conversion Shares and the Warrant Shares without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto) and (ii) the
date on which (A) the Investors shall have sold all the Conversion Shares and
the Warrant Shares and (B) none of the Notes or the Warrants is outstanding (the
"Reporting Period"), the Company shall file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would otherwise permit such
termination.
d. Use of Proceeds. The Company will use
the proceeds from the sale of the Notes for substantially the same purposes and
in substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company
agrees to send the following to each Investor (as defined in the Registration
Rights Agreement) during the Reporting Period (i) within two (2) Business Days
after the filing thereof with the SEC, unless available through the EDGAR
system, a copy of its Annual Reports on Form 10-K, its Quarterly Reports on Form
10-Q, any Current Reports on Form 8-K and any registration statements (other
than on Form S-8) or amendments filed pursuant to the 1933 Act and (ii) copies
of any notices and other information made available or given to the stockholders
of the Company generally, contemporaneously with the making available or giving
thereof to the stockholders. During the Reporting Period, the Company shall
include each Investor on the Company's distribution list for press releases and
shall provide each Investor with any such press releases in the same manner and
at the same time as others on such distribution list.
f. Additional Registration Statements; Right of
First Refusal. The Company shall not file a registration statement (other
than the Registration Statement (as defined in the Registration Rights
Agreement), a registration statement on Form S-8 or a resale registration
statement covering not more than 134,000 shares of Common Stock required to be
filed pursuant to the terms of the Loan and Stock Restriction Agreement, dated
May 18, 1999, relating to the Company's acquisition of Odisei S.A.) covering the
sale or resale of shares of Common Stock with the SEC during the period
beginning on the date hereof and ending on, and including, the date on which the
Registration Statement has been declared effective by the SEC.
Subject to the exceptions described below, during the
period beginning on the date hereof and ending on, and including, the date which
is six months after the Closing Date, the Company and its Subsidiaries shall not
negotiate or contract with any party for any equity financing (including any
debt financing with an equity component) or issue any equity securities of the
Company or any Subsidiary or securities convertible into or exchangeable for
equity securities of the Company or any Subsidiary (including debt securities
with an equity component) in any form ("Future Offerings"), unless it
shall have first delivered to each Buyer, or a designee appointed by such Buyer,
a written notice (the "Future Offering Notice") describing the proposed
Future Offering, including the size, terms and conditions thereof, and providing
each Buyer an option to purchase up to its Aggregate Percentage (as defined
below) of the securities to be issued in such Future Offering, as of the date of
delivery of the Future Offering Notice, in the Future Offering on the same terms
and conditions set forth in the Future Offering Notice. The limitations referred
to in this Section 4(f) are collectively referred to as the "Capital Raising
Limitations." For purposes of this Section 4(f), "Aggregate
Percentage" at any time with respect to any Buyer shall mean the percentage
obtained by the quotient of (i) the aggregate principal amount of the Notes
issued to such Buyer on the Closing Date by (ii) the aggregate principal amount
of the Notes issued to all Buyers on the Closing Date. A Buyer can exercise its
option to participate in a Future Offering by delivering written notice thereof
to participate to the Company within ten (10) Business Days after receipt of a
Future Offering Notice, which notice shall state the quantity of securities
being offered in the Future Offering that such Buyer will purchase, up to its
Aggregate Percentage, and that number of securities it is willing to purchase in
excess of its Aggregate Percentage. In the event that one or more Buyers fail
to elect to purchase up to each such Buyer's Aggregate Percentage of the Future
Offering, then each Buyer which has indicated that it is willing to purchase a
number of securities in such Future Offering in excess of its Aggregate
Percentage shall be entitled to purchase up to its pro rata portion (determined
in the same manner as described in the preceding sentence) of the securities in
the Future Offering which one or more of the Buyers have not elected to
purchase. In the event the Buyers fail to elect to fully participate in the
Future Offering within the periods described in this Section 4(f), the Company
shall have 60 days thereafter to sell the securities of the Future Offering that
the Buyers did not elect to purchase, upon terms and conditions, no more
favorable to the purchasers thereof than specified in the Future Offering
Notice. In the event the Company has not sold such securities of the Future
Offering within such 60 day period, the Company shall not thereafter issue or
sell such securities without first offering such securities to the Buyers in the
manner provided in this Section 4(f). The Capital Raising Limitations shall not
apply to (i) a loan from a commercial bank, (ii) the Company's issuances of
securities (A) as consideration in a merger or consolidation (B) in connection
with any strategic partnership or joint venture with any entity whose primary
business is not investing in or advising other entities, (iii) the issuance of
Common Stock in a firm commitment, underwritten public offering, (iv) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof
provided the terms of such securities are not amended after the date hereof, and
(v) the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option plan, restricted stock plan or stock
purchase plan for the benefit of the Company's employees, officers or directors
for services provided to the Company. The Buyers shall not be required to
participate or exercise their right of first refusal with respect to a
particular Future Offering in order to exercise their right of first refusal
with respect to later Future Offerings.
g. Right of Participation. Subject to the
exceptions described below, during the period beginning on the date which is six
months after the Closing Date and ending on and including the date which is one
year after the Closing Date, the Company and its Subsidiaries shall not contract
with any party for any equity financing (including any debt financing with an
equity component) or issue any equity securities of the Company or any
Subsidiary or securities convertible into or exchangeable for equity securities
of the Company or any Subsidiary (including debt securities with an equity
component) in any form ("Participation Offering"), unless it shall have
first delivered to each Buyer, or a designee appointed by such Buyer, a written
notice (the "Participation Offering Notice") describing the proposed
Participation Offering, including the size, terms and conditions thereof, and
providing each Buyer an option to purchase up to its Aggregate Participation
Percentage (as defined below) of the securities to be issued in such
Participation Offering, as of the date of delivery of the Participation Offering
Notice, in the Participation Offering on the same terms and conditions as set
forth in the Participation Offering Notice. The limitations referred to in this
sentence are collectively referred to as the "Participation Raising
Limitations"). For purposes of this Section 4(g), "Aggregate
Participating Percentage" at any time with respect to any Buyer shall mean
the percentage obtained by multiplying (I) 50% by (II) the quotient of (i) the
aggregate principal amount of the Notes issued to such Buyer on the Closing Date
by (ii) the aggregate principal amount of the Notes issued to all the Buyers on
the Closing Date. A Buyer can exercise its option to participate in a
Participation Offering by delivering written notice thereof to participate to
the Company within ten (10) business days after receipt of a Participation
Offering Notice, which notice shall state the quantity of securities being
offered in the Participation Offering that such Buyer will purchase, up to its
Aggregate Participating Percentage, and that number of securities it is willing
to purchase in excess of its Aggregate Participating Percentage. In the event
that one or more Buyers fail to elect to purchase up to each such Buyer's
Aggregate Participating Percentage of the Participation Offering, then each
Buyer which has indicated that it is willing to purchase a number of securities
in such Participation Offering in excess of its Aggregate Participating
Percentage shall be entitled to purchase up to its pro rata portion (determined
in the same manner as described in the preceding sentence) of the securities in
the Participation Offering which one or more of the Buyers have not elected to
purchase. In the event the Buyers fail to elect to fully participate in the
Participation Offering within the periods described in this Section 4(g), the
Company shall have 60 days thereafter to sell the securities of the
Participation Offering that the Buyers did not elect to purchase, upon terms and
conditions, no more favorable to the purchasers thereof than specified in the
Participation Offering Notice. In the event the Company has not sold such
securities of the Participation Offering within such 60 day period, the Company
shall not thereafter issue or sell such securities without first offering such
securities to the Buyers in the manner provided in this Section 4(g). The
Participation Raising Limitations shall not apply to (i) a loan from a
commercial bank, (ii) the Company's issuances of securities (A) as consideration
in a merger or consolidation, (B) in connection with any strategic partnership
or joint venture with any entity whose primary business is not investing in or
advising other entities, (iii) the issuance of Common Stock in a firm
commitment, underwritten public offering, (iv) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities outstanding as of the date hereof provided the terms of such
securities are not amended after the date hereof and (v) the grant of additional
options or warrants, or the issuance of additional securities, under any Company
stock option plan, restricted stock plan or stock purchase plan for the benefit
of the Company's employees, officers or directors for services provided to the
Company. The Buyers shall not be required to participate or exercise their
right of participation with respect to any particular Participation Offering in
order to exercise their right of participation with respect to later
Participation Offerings.
h. Reservation of Shares. The Company
shall take all action necessary to at all times have authorized, and reserved
for the purpose of issuance, no less than the sum of (A) 115% of the number of
shares of Common Stock needed to provide for the issuance of the Conversion
Shares and (B) the number of shares of Common Stock needed to provide for the
issuance of the Warrant Shares (without regard to any limitations on conversions
or exercise thereof).
i. Listing. The Company shall promptly
secure the listing of all of the Registrable Securities (as defined in the
Registration Rights Agreement) upon each national securities exchange and
automated quotation system (including the Nasdaq National Market
("NNM")), if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents. The Company shall maintain the Common Stock's authorization for
listing on the NNM or the New York Stock Exchange ("NYSE"). Neither the
Company nor any of its Subsidiaries shall take any action which may result in
the delisting or suspension of the Common Stock on the NNM or NYSE (other than
to switch listings from the NNM to NYSE). The Company shall promptly, and in no
event later than the following Business Day, offer to provide to such Buyer
copies of any notices it receives from the NNM or NYSE regarding the continued
eligibility of the Common Stock for listing on such automated quotation system
or securities exchange, provided that such notices shall not contain any
material non-public information. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(h).
j. Expenses. The Company shall pay an
expense allowance of up to $50,000 to the Buyers or their designees, which
amount shall be withheld from the Purchase Price and the Buyers shall promptly
remit any amount in excess of actual expenses incurred and, at the request of
the Company, invoices or statements for such expenses.
k. Filing of Form 8-K. On or before the
fifth (5th) Business Day following the Closing Date, the Company shall file a
Form 8-K with the SEC describing the terms of the transactions contemplated by
the Transaction Documents in the form required by the 1934 Act.
l. Proxy Statement. The Company shall
provide each stockholder entitled to vote at the next annual meeting of
stockholders of the Company to occur after the Proxy Statement Trigger Date (the
"Stockholder Meeting Deadline"), a proxy statement, which has been
previously reviewed by the Buyers and a counsel of their choice, soliciting each
such stockholder's affirmative vote at such annual stockholder meeting for
approval of the Company's issuance of all of the Securities as described in this
Agreement in accordance with applicable law and the rules and regulations of the
NNM, and the Company shall use its best efforts to solicit its stockholders'
approval of such issuance of the Securities and cause the Board of Directors of
the Company to recommend to the stockholders that they approve such proposal. If
the Company fails to hold a meeting of its stockholders by the Stockholder
Meeting Deadline, then, as partial relief (which remedy shall not be exclusive
of any other remedies available at law or in equity), the Company shall pay to
each holder of Notes an amount in cash equal to the product of (i) the principal
amount of Notes held by such holder of Notes multiplied by (ii) .015 multiplied
by (iii) the quotient of (x) the number of days after the Stockholder Meeting
Deadline and prior to the date that a meeting of the Company's stockholders is
held, divided by (y) 30. The Company shall make the payments referred to in the
immediately preceding sentence within five days of the earlier of (I) the
holding of the meeting of the Company's stockholders and (II) the last day of
each 30-day period beginning on the Stockholder Meeting Deadline. The "Proxy
Statement Trigger Date" shall mean the date which is 90 days after the
Closing Date, if on such date the sum of (i) 115% of the number of Conversion
Shares issued or issuable upon conversion of the Notes (without regards to any
limitations on conversions) and (ii) the number of Warrant Shares issued or
issuable upon exercise of the Warrants (without regards to any limitations on
exercise), each based on the Conversion Price or Warrant Exercise Price in
effect on the date of such determination, is greater than or equal to 20% of the
number of shares of Common Stock issued and outstanding immediately prior to the
Closing.
m. Corporate Existence. So long as any
Buyer beneficially owns any Notes or Warrants, the Company shall maintain its
corporate existence and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction (A) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith and (B)
is a publicly traded corporation whose common stock is listed for trading on the
NNM or NYSE.
n. Trading Restrictions. Each Buyer agrees
that during the five (5) trading days immediately preceding each of (i) the
Closing Date, (ii) the date which is 36 trading days after the Closing Date and
(iii) the date which is 90 days after the Closing Date, it shall not sell any
shares of Common Stock including by way of any "short sales" of the Common Stock
(as defined in Rule 3b-3 of the 1934 Act).
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to
its transfer agent, and any subsequent transfer agent, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by each Buyer to the Company upon conversion of the Notes or exercise of
the Warrants (in the form attached hereto as Exhibit F, the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares and the Warrant Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares and the Warrant Shares, prior to registration of the
Conversion Shares and the Warrant Shares under the 1933 Act) will be given by
the Company to its transfer agent with respect to the Securities and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 5 shall affect in any way each
Buyer's obligations and agreements set forth in Section 2(g) to comply with all
applicable prospectus delivery requirements, if any, upon resale of the
Securities. If a Buyer provides the Company with an opinion of counsel, in a
generally acceptable form to the Company, to the effect that a public sale,
assignment or transfer of the Securities may be made without registration under
the 1933 Act or such Buyer provides the Company with a Representation Letter (as
defined in Section 2(g)) relating to the sale of the Securities pursuant to Rule
144, the Company shall permit the transfer, and, in the case of the Conversion
Shares and the Warrant Shares, promptly instruct its transfer agent to issue one
or more certificates in such name and in such denominations as specified by such
Buyer and without any restrictive legends. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 5, that the Buyers shall be entitled, in addition to
all other available remedies, to an injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO
SELL. The obligation of the Company hereunder to issue and sell the Notes
and the related Warrants to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(a) Such Buyer shall have executed each of this
Agreement and the Registration Rights Agreement and delivered the same to the
Company.
(b) Such Buyer shall have delivered to the Company
the Purchase Price for the Notes and the related Warrants being purchased by
such Buyer at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(c) The representations and warranties of such
Buyer contained herein shall be true and correct as of the date when made and as
of the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by such
Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO
PURCHASE. The obligation of each Buyer hereunder to purchase the Notes and
the related Warrants at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for such Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company and each Buyer with
prior written notice thereof:
(a) The Company shall have executed each of the
Transaction Documents, and delivered the same to such Buyer.
(b) The Common Stock shall be designated for
quotation on the NNM or listed on NYSE, and shall not have been suspended from
trading on or delisted from such exchanges nor shall delisting or suspension by
such exchanges have been threatened either (A) in writing by such exchanges or
(B) by falling below the minimum listing maintenance requirements of such
exchanges and the Company has complied with the listing requirements of the NNM
for the Conversion Shares and the Warrant Shares issuable upon conversion or
exercise of the Notes and the Warrants, as the case may be.
(c) The representations and warranties of the
Company contained herein shall be true and correct as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date, to the foregoing effect and as to such other
matters as such Buyer may reasonably request, including, without limitation, an
update as of the Closing Date regarding the representation contained in Section
3(c) above.
(d) Such Buyer shall have received the opinion of
Wilson Sonsini Goodrich & Rosati dated as of the Closing Date, in
substantially the form of Exhibit G attached hereto.
(e) The Company shall have executed and delivered
to such Buyer the Note Certificates and the Warrants being purchased by such
Buyer at the Closing.
(f) The Board of Directors of the Company shall
have adopted resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "Resolutions").
(g) As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Notes and exercise of the Warrants, at least
2,750,000 shares of Common Stock.
(h) The Irrevocable Transfer Agent Instructions,
in the form of Exhibit F attached hereto, shall have been delivered to
and acknowledged in writing by the Company's transfer agent.
(i) The Company shall have delivered to such Buyer
a certificate evidencing the incorporation and good standing of the Company and
each United States Subsidiary in such corporation's state of incorporation
issued by the Secretary of State of such state of incorporation as of a date
within ten (10) days of the Closing Date.
(j) The Company shall have delivered to such Buyer
a secretary's certificate certifying as to (A) the Resolutions, (B) the
Certificate of Incorporation and (C) the By-laws, each as in effect at the
Closing Date.
(k) The Company shall have delivered to such Buyer
a certified copy of its Certificate of Incorporation as certified by the
Secretary of State of the State of Delaware within ten days of the Closing
Date.
(l) The Company shall have delivered to such Buyer
a letter from the Company's transfer agent certifying the number of shares of
Common Stock outstanding as of a date within five (5) days of the Closing
Date.
(m) The Company shall have made all filings under
all applicable federal and state securities laws necessary to consummate the
issuance of the Securities pursuant to this Agreement in compliance with such
laws.
(n) The Company shall have delivered to such Buyer
such other documents relating to the transactions contemplated by the
Transaction Documents as such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each
Buyer's execution and delivery of the Transaction Documents and acquiring the
Securities thereunder and in addition to all of the Company's other obligations
under the Transaction Documents, the Company shall defend, protect, indemnify
and hold harmless each Buyer and each other holder of the Securities and all of
their stockholders, officers, directors, employees and direct or indirect
investors and any of the foregoing persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action and
suits and from any claims, losses, costs, penalties, fees, liabilities and
damages, and expenses actually suffered or actually paid by such Indemnitee in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by any Indemnitee as a result of, or arising out of,
or relating to (a) any misrepresentation or breach of any representation or
warranty made by the Company in the Transaction Documents or any other
certificate, instrument or document contemplated thereby, provided such
Indemnitee notifies the Company of its claim for indemnification under this
Section 8 for such misrepresentation or breach of a representation or warranty
on or before the date which is one (1) year after the date of this Agreement,
(b) any breach of any covenant, agreement or obligation of the Company contained
in the Transaction Documents or any other certificate, instrument or document
contemplated thereby or (c) any cause of action, suit or claim brought or made
against such Indemnitee (other than a cause of action, suit or claim which is
(x) brought or made by the Company and (y) is not a shareholder derivative suit)
and arising out of or resulting from (i) the execution, delivery, performance or
enforcement of the Transaction Documents, (ii) any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
issuance of the Securities or (iii) solely the status of such Buyer or holder of
the Securities as an investor in the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
Any controversy, claim or dispute arising between the
Company and an Indemnitee concerning the existence, scope or amount of any
Indemnified Liability shall be determined by arbitration in the City of Chicago
by one arbitrator in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "Arbitration Rules"). Such
arbitrator shall be selected by mutual agreement of the Company and such
Indemnitee in accordance with the Arbitration Rules. In the event the Company
and such Indemnitee cannot agree on the selection of the arbitrator within 30
days, the American Arbitration Association shall nomination three persons. Each
of the Company and the Indemnitee shall be entitled to strike one of such three
nominees on a peremptory basis within 10 days after its receipt of such list of
nominees, indicating its order of preference with respect to the remaining
nominees. If two such nominees have been stricken by the parties, the
unstricken nominee shall be the arbitrator. Otherwise, the selection of the
arbitrator shall be made by the American Arbitration Association from the
remaining nominees in accordance with the parties' mutual order of preference,
or by random selection in the absence of a mutual order of preference. The
arbitrator shall base its award on applicable law and judicial precedent, shall
include such award findings of fact and conclusions of law upon which the award
is based and shall not grant any remedy or relief that a court could not grant
under applicable law. The arbitrator's award and findings shall be for purposes
of this Section 8 only and shall not in any way limit or prejudice any other
rights that the Company or such Indemnitee under this Agreement or the other
Transaction Documents or under any applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction; Jury Trial.
The corporate laws of the State of Delaware shall govern all issues concerning
the relative rights of the Company and its stockholders. All other questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the non-exclusive jurisdiction
of the state and federal courts sitting in Cook County, the City of Chicago, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereby irrevocably
waives any right it may have, and agrees not to request, a jury trial for the
adjudication of any dispute hereunder or in connection herewith or arising out
of this Agreement or any transaction contemplated hereby.
b. Counterparts. This Agreement may be
executed in two or more identical counterparts, all of which shall be considered
one and the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party; provided that a
facsimile signature shall be considered due execution and shall be binding upon
the signatory thereto with the same force and effect as if the signature were an
original, not a facsimile signature.
c. Headings. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
d. Severability. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This
Agreement supersedes all other prior oral or written agreements between the
Buyers, the Company, their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Buyers which purchased a majority of the aggregate principal
amount of the Notes on the Closing Date or, if prior to the Closing Date, the
Buyers listed on the Schedule of Buyers as being obligated to purchase a
majority of the aggregate principal amount of the Notes proposed to be issued at
the Closing. No provision hereof may be waived other than by an instrument in
writing signed by the party against whom enforcement is sought. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Notes or Warrants then outstanding. No consideration shall
be offered or paid to any person to amend or consent to a waiver or modification
of any provision of any of the Transaction Documents unless the same
consideration also is offered to all of the parties to the Transaction Documents
or holders of the Notes as the case may be.
f. Notices. Any notices, consents, waivers
or other communications required or permitted to be given under the terms of
this Agreement must be in writing and will be deemed to have been delivered (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
(1) Business Day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
8x8, Inc.
2445 Mission College Blvd.
Santa Clara, California 95054
Telephone: (408) 727-1885
Facsimile: (408) 933-0234
Attention: Chief Executive Officer
With a copy to:
Wilson Sonsini Goodrich & Rosati, Professional
Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: 650-493-9300
Facsimile: 650-493-6811
Attention: John T. Sheridan, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Company
12039 W. Alameda Parkway, Suite Z-2
Lakewood, Colorado 80228
Telephone: 303-986-5400
Facsimile: 303-986-2444
Attention: John Harmann
If to a Buyer, to it at the address and facsimile number
set forth on the Schedule of Buyers, with copies to such Buyer's representatives
as set forth on the Schedule of Buyers, or at such other address and/or
facsimile number and/or to the attention of such other person as the recipient
party has specified by written notice given to each other party five days prior
to the effectiveness of such change. Written confirmation of receipt (A) given
by the recipient of such notice, consent, waiver or other communications, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns, including any purchasers of the Notes. The
Company shall not assign this Agreement or any rights without the prior written
consent of the holders of a majority of the aggregate principal amount of the
Notes then outstanding, except pursuant to a Change of Control (as defined in
the Notes) with respect to which the Company is in compliance with Section 4 of
the Notes. A Buyer may assign some or all of its rights hereunder without the
consent of the Company, provided, however, that any such assignment shall not
release such Buyer from its obligations hereunder unless such obligations are
assumed by such assignee and the Company has consented to such assignment and
assumption. Notwithstanding anything to the contrary contained in the
Transaction Documents, the Buyers shall be entitled to pledge the Securities in
connection with a bona fide margin account or other loan secured by such
Securities.
h. No Third Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
i. Survival. Unless this Agreement is
terminated under Section 9(l), the representations and warranties of the Company
and the Buyers contained in Sections 2 and 3, the agreements and covenants set
forth in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive the Closing. Each Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer
shall have the right to approve before issuance any press releases or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Buyer, to make any press release or other public disclosure with
respect to such transactions as is required by applicable law and regulations
(although each Buyer shall be consulted by the Company in connection with any
such press release or other public disclosure prior to its release and shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do
and perform, or cause to be done and performed, all such further acts and
things, and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. Termination. In the event that the
Closing shall not have occurred with respect to a Buyer on or before three (3)
Business Days from the date hereof due to the Company's or the Buyer's failure
to satisfy the conditions set forth in Sections 6 and 7 above (and the non-
breaching party's failure to waive such unsatisfied condition(s)), the non-
breaching party shall have the option to terminate this Agreement with respect
to such breaching party at the close of business on such date without liability
of any party to any other party; provided, however, that if this Agreement is
terminated pursuant to this Section 9(l), the Company shall remain obligated to
reimburse a non-breaching Buyer for expenses up to the amount described in
Section 4(j) above.
m. Placement Agent. The Company
acknowledges that it has engaged BancBoston Robertson Stephens, Inc. as a
placement agent in connection with the sale of the Notes and the Warrants, which
placement agent may have formally or informally engaged other agents on its
behalf. The Company shall be responsible for the payment of any placement
agent's fees or brokers' commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.
n. No Strict Construction. The language
used in this Agreement will be deemed to be the language chosen by the parties
to express their mutual intent, and no rules of strict construction will be
applied against any party.
o. Remedies. Each Buyer and each holder of
the Securities shall have all rights and remedies set forth in the Transaction
Documents and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by
law.
p. Payment Set Aside. To the extent that
the Company makes a payment or payments to any Buyer hereunder or pursuant to
the Registration Rights Agreement or the Warrants or such Buyer enforces or
exercises its rights hereunder or thereunder, and such payment or payments or
the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
* * * * * *
IN WITNESS WHEREOF, the Buyers and the Company
have caused this Securities Purchase Agreement to be duly executed as of the
date first written above.
|
COMPANY:
|
BUYER:
|
|
8x8, INC.
|
FISHER CAPITAL LTD.
|
|
By: ___________________________
|
By: ___________________________
|
|
Name:
|
Name: Daniel J. Hopkins
|
|
Title:
|
Its: Authorized Signatory
|
|
|
WINGATE CAPITAL LTD.
|
|
|
By: ___________________________
|
|
|
Name: Daniel J. Hopkins
|
|
|
Its: Authorized Signatory
|
SCHEDULE OF BUYERS
|
Investor's Name |
|
Investor Address
and Facsimile Number |
|
Purchase
Price |
|
Principal
Amount of
Series A Notes |
|
Principal
Amount of
Series B Notes |
|
Investor's Legal
Representatives' Address
and Facsimile Number |
|
Fisher Capital Ltd. |
|
Citadel Investment Group,
L.L.C.
225 West Washington Street
Chicago, Illinois 60606
Attention: Daniel J. Hopkins
Facsimile: (312) 338-0780
Telephone: (312) 696-2100
Residence: Illinois |
|
$4,650,000 |
|
$2,325,000 |
|
$2,325,000 |
|
Katten Muchin & Zavis
525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Facsimile: (312) 902-1061
Telephone: (312) 902-5200 |
|
Wingate Capital Ltd. |
|
Citadel Investment Group,
L.L.C.
225 West Washington Street
Chicago, Illinois 60606
Attention: Daniel J. Hopkins
Facsimile: (312) 338-0780
Telephone: (312) 696-2100
Residence: Illinois |
|
$2,850,000 |
|
$1,425,000 |
|
$1,425,000 |
|
Katten Muchin & Zavis
525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Robert J. Brantman, Esq.
Facsimile: (312) 902-1061
Telephone: (312) 902-5200 |
SCHEDULES
Schedule of Buyers
EXHIBITS
Exhibit A - Form of Series A Note
EXHIBIT A
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO EITHER RULE
144A UNDER SAID ACT TO A QUALIFIED INSTITUTIONAL BUYER OR RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES. ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTION 2(d)(viii) HEREOF. THE PRINCIPAL AMOUNT AND THE INTEREST
THEREON REPRESENTED BY THIS NOTE MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE
FACE HEREOF PURSUANT TO SECTION 2(d)(viii) OF THIS NOTE.
SERIES A CONVERTIBLE NOTE
_______ __, ______ $____________
FOR VALUE RECEIVED, 8X8, INC., a Delaware
corporation (the "Company"), hereby promises to pay to the order of
__________________ or registered assigns ("Holder") the principal amount
of ___________________ Dollars ($________________), on the Maturity Date (as
defined below) and to pay interest ("Interest") on the unpaid principal
balance hereof at the rate of 4.0% per annum from the date hereof (the
"Issuance Date") until the same becomes due and payable, whether at,
maturity or upon acceleration or by conversion or redemption in accordance with
the terms hereof or otherwise. Interest on this Note shall commence accruing on
the Issuance Date and shall be computed on the basis of a 365-day year and
actual days elapsed and shall (A) be payable in cash or Common Stock at the
option of the Company on the Interest Dates (as defined below) pursuant to
Section 2(c)(ii) and (B) be included in the Additional Amount (as defined below)
at the time of optional or mandatory conversion or redemption of the principal
to which such interest relates in accordance with Section 1 hereof. Any amount
of interest on this Note which is not paid when due shall bear interest at the
rate of 18% per annum from the date thereof until the same is paid ("Default
Interest").
1. Payments of Principal and Interest. All
payments of principal and interest on this Note (to the extent such principal
and/or interest is not converted into Common Stock in accordance with the terms
hereof) shall be made in lawful money of the United States of America by wire
transfer of immediately available funds to such account as the Holder may from
time to time designate by written notice in accordance with the provisions of
this Note. Whenever any amount expressed to be due by the terms of this Note is
due on any day which is not a Business Day (as defined below), the same shall
instead be due on the next succeeding day which is a Business Day and, in the
case of any interest payment date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date.
For purposes of this Note, "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in The City of New York are
authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in the Securities Purchase Agreement, dated December 15, 1999,
pursuant to which this Note and the Other Notes (as defined below) were
originally issued (the "Securities Purchase Agreement"). This Note and
the Other Notes issued by the Company pursuant to the Securities Purchase
Agreement are collectively referred to in this Note as the "Notes."
2. Conversion of Notes. This Note shall be
convertible into shares of the Company's common stock, par value $0.001 per
share (the "Common Stock"), on the terms and conditions set forth in this
Section 2.
(a) Certain Defined Terms. For purposes of
this Note, the following terms shall have the following meanings:
(i) "Additional Amount" means, with respect to
any principal amount of Notes, the sum of (A) accrued and unpaid Interest, if
any, on such principal amount and (B) Default Interest, if any, on the interest
referred to in the immediately preceding clause (A).
(ii) "Change of Control" means any of the
following: (A) the consolidation, merger or other business combination of the
Company with or into another Person (other than (I) a consolidation, merger or
other business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities, or (II)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company), (B) the sale or transfer of all
or substantially all of the Company's assets, or (C) a purchase, tender or
exchange offer made to and accepted by the holders of more than the 50% of the
outstanding shares of Common Stock.
(iii) "Closing Bid Price" means, for any
security as of any date, the last closing bid price for such security on the
Principal Market (as defined below) as reported by Bloomberg Financial Markets
("Bloomberg"), or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid 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 closing bid price is reported for such security
by Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value as mutually determined by the Company and the Holders
of the Notes. If the Company and the Holders of the Notes are unable to agree
upon the fair market value of the Common Stock, then such dispute shall be
resolved pursuant to Section 2(e)(iii) below with the term "Closing Bid Price"
being substituted for the term "Market Price." All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(iv) "Conversion Amount" means the sum of (A)
the principal amount of this Note to be converted, redeemed or otherwise with
respect to which this determination is being made and (B) the Additional Amount
with respect to such principal amount.
(v) "Conversion Price" means, as of any
Conversion Date (as defined in Section 2(d)(i)) or other date of determination,
the product of (A) 117.5% and (B) the Market Price (as defined below) of the
Common Stock on the date which is 36 trading days after the Issuance Date,
subject to adjustment as provided herein, provided that the Conversion Price
shall not exceed $7.05 (subject to adjustment for stock dividends, stock splits,
stock combinations or other similar transactions) nor be less than $4.00
(subject to adjustment for stock dividends, stock splits, stock combinations or
other similar transactions) except pursuant to adjustments pursuant to Section
2(f), Section 2(d)(v)(B), Section 2(d)(vii), Section 3(e) or Section 4.
(vi) "Convertible Securities" means any stock
or securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(vii) "Issuance Date" means, with respect to
each Note, the date of issuance of the applicable Note.
(viii) "Maturity Date" means the date which is
three (3) years after the Issuance Date of this Note.
(ix) "Market Price" means, with respect to any
security, that price which shall be computed as the arithmetic average of the
Closing Bid Prices for such security during the five (5) consecutive trading
days immediately preceding such date of determination. All such determinations
shall be appropriately adjusted for any stock dividend, stock split or other
similar transaction during such period.
(x) "Options" means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.
(xi) "Other Notes" means the convertible notes
(whether Series A or Series B), other than this Note, issued by the Company
pursuant to the Securities Purchase Agreement.
(xii) "Person" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xiii) "Principal Market" means the Nasdaq
National Market.
(xiv) "Registration Rights Agreement" means
that certain registration rights agreement between the Company and the initial
holders of the Notes relating to the filing of a registration statement covering
the resale of the shares of Common Stock issuable upon conversion of the Notes
and exercise of the Warrants.
(xv) "Restricted Securities" means securities
that are not eligible for resale pursuant to Rule 144(k) under the 1933 Act (or
any successor provision).
(b) Holder's Conversion Right; Mandatory
Redemption. Subject to the provisions of Section 5, at any time or times
on or after the Issuance Date (as defined below), the Holder shall be entitled
to convert any part of the outstanding and unpaid Conversion Amount of this Note
into fully paid and nonassessable shares of Common Stock in accordance with
Section 5, at the Conversion Rate (as defined below). If any Conversion Amount
of this Note remains outstanding on the Maturity Date, then, pursuant to Section
2(d)(vii), all of such Conversion Amount shall be redeemed by the Company. The
Company shall not issue any fraction of a share of Common Stock upon any
conversion. All shares of Common Stock (including fractions thereof) issuable
upon conversion of this Note by the Holder shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(c) Conversion.
(i) Conversion Rate. The number of shares of
Common Stock issuable upon conversion of a Conversion Amount of this Note
pursuant to Section 2(b) shall be determined according to the following formula
(the "Conversion Rate"):
Conversion Amount
Conversion Price
(ii) Cash Payment of Additional Amount. The
Additional Amount shall be payable on the last day of each March and the last
day of each September during the period beginning on the Issuance Date and
ending on, and including, the Maturity Date (each an "Interest Date").
If an Interest Date is not a Business Day then the Additional Amount shall be
due and payable on the Business Day immediately following the Interest Date.
The Additional Amount shall be payable in cash or, at the Company's option, in
shares of Common Stock ("Interest Shares") provided that the Additional
Amount which accrued during any period shall be payable in Conversion Shares
only if the Company provides written notice ("Interest Election Notice")
to each Holder of the Notes at least six (6) trading days prior to the Interest
Date. Interest (as defined in the first paragraph of this Note) to be paid in
shares of Common Stock shall be paid in a number of fully paid and nonassessable
shares (rounded to the nearest whole share in accordance with Section 2(b)) of
Common Stock equal to the quotient of (I) the Additional Amount and (II) the
Market Price of the Common Stock on the applicable Interest Date.
Notwithstanding the foregoing, the Company shall not be entitled to pay the
Additional Amount in shares of Common Stock and shall be required to pay the
Additional Amount in cash if (x) any event constituting a Triggering Event (as
defined in Section 3(b)), or an event that with the passage of time would
constitute a Triggering Event if not cured, has occurred and is continuing on
the date of the Company's Interest Election Notice or on the Interest Date,
unless otherwise consented to in writing by the holders of the Notes
representing a majority of the Conversion Amounts of the Notes entitled to
receive such Interest or (y) the Registration Statement (as defined in the
Registration Rights Agreement) is not effective and available for the resale of
all of the Registrable Securities (as defined in the Registration Rights
Agreement), including but not limited to the Interest Shares, on the Date of the
Company's Interest Election Notice or on the Interest Date. Any accrued and
unpaid Interest which is not paid within five (5) Business Days of such accrued
and unpaid Interest's Interest Date shall bear interest at the rate of 18.0% per
annum from such Interest Date until the same is paid in full (the "Default
Interest").
(d) Mechanics of Conversion. The conversion of
this Note shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert
this Note into shares of Common Stock on any date (the "Conversion
Date"), the Holder hereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 6:00 p.m., Central Time on such date, a
copy of a fully executed notice of conversion in the form attached hereto as
Exhibit I (the "Conversion Notice") to the Company with a copy thereof to
the Company's designated transfer agent (the "Transfer Agent") and (B) if
required by Section 2(d)(viii), surrender to a common carrier for delivery to
the Company as soon as practicable following such date the original Note being
converted (or an indemnification undertaking with respect to such Note in the
case of its loss, theft or destruction). A holder delivering a Conversion
Notice by facsimile shall use its best efforts to send a copy of the Conversion
Notice by overnight mail to the Company by depositing such copy of the
Conversion Notice with a nationally recognized overnight delivery service on the
Conversion Date; provided, however, that the failure of any holder to satisfy
its obligations under this sentence shall not effect the Conversion Date or the
obligations of the Company for any conversion of this Note. The date of the
Company's receipt of such copy of the Conversion Notice shall be deemed to occur
on the Business Day immediately following the day such holder deposits the copy
of the Conversion Notice with a nationally recognized overnight delivery service
(the "Overnight Receipt Date").
(ii) Company's Response. Upon receipt by the
Company of a facsimile or other copy of a Conversion Notice, the Company (1)
shall immediately send, via facsimile, a confirmation of receipt of such
Conversion Notice to such holder and the Transfer Agent, which confirmation
shall constitute an instruction to the Transfer Agent to process such Conversion
Notice in accordance with the terms herein and (2) on or before the second
Business Day following the date of receipt by the Company of such Conversion
Notice (the "Share Delivery Date"), (A) issue and deliver to the address
as specified in the Conversion Notice, a certificate, registered in the name of
the holder or its designee, for the number of shares of Common Stock to which
the holder shall be entitled, or (B) provided the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, upon the request of the holder, credit such
aggregate number of shares of Common Stock to which the holder shall be entitled
to the holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system. Subject to Section 2(d)(viii), if less than
the Conversion Amount of this Note is submitted for conversion, then the Company
shall, as soon as practicable and in no event later than five Business Days
after receipt of the Note (the "Note Delivery Date") and at its own
expense, issue and deliver to the Holder a new Note for the outstanding
principal amount not converted.
(iii) Dispute Resolution. In the case of a
dispute as to the determination of the Market Price or the arithmetic
calculation of the Conversion Rate, the Company shall instruct the Transfer
Agent to issue to the holder the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic calculations
to the holder via facsimile within one (1) Business Day of receipt of such
holder's Conversion Notice. If such holder and the Company are unable to agree
upon the determination of the Market Price or arithmetic calculation of the
Conversion Rate within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall
within one (1) Business Day submit via facsimile (A) the disputed determination
of the Market Price to an independent, reputable investment bank selected by the
Company and approved by the Holders of the Notes representing a majority of the
Conversion Amounts of the Notes then outstanding or (B) the disputed arithmetic
calculation of the Conversion Rate to the Company's independent, outside
accountant. The Company shall cause the investment bank or the accountant, as
the case may be, to perform the determinations or calculations and notify the
Company and the Holders of the results no later than five (5) Business Days from
the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent error.
(iv) Record Holder. The person or persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
(A) Cash Damages. If within four (4) Business
Days after the Overnight Receipt Date the Company shall fail to issue a
certificate to the Holder or credit the Holder's balance account with DTC for
the number of shares of Common Stock to which such Holder is entitled upon such
Holder's conversion of this Note or, subject to Section 2(d)(viii), the Company
shall fail to issue a new Note representing the principal amount to which such
holder is entitled, if any, pursuant to Section 2(d)(ii), in addition to all
other available remedies which such Holder may pursue hereunder and under the
Securities Purchase Agreement (including indemnification pursuant to Section 8
thereof), the Company shall pay additional damages to such Holder for each date
after the Share Delivery Date such conversion is not timely effected and/or each
date after the Note Delivery Date such new Note is not delivered in an amount
equal to 0.5% of the product of (I) the sum of the number of shares of Common
Stock not issued to the Holder on or prior to the Share Delivery Date and to
which such Holder is entitled and, in the event the Company has failed to
deliver a new Note to the Holder on or prior to the Note Delivery Date, the
number of shares of Common Stock issuable upon conversion of the Conversion
Amount represented by the new Note, as of the Note Delivery Date and (II) the
Closing Bid Price of the Common Stock on the Share Delivery Date, in the case of
the failure to deliver Common Stock, or the Note Delivery Date, in the case of
failure to deliver a new Note. If the Company fails to pay the additional
damages set forth in this Section 2(d)(v) within five Business Days of the date
incurred, then the Holder entitled to such payments shall have the right at any
time, so long as the Company continues to fail to make such payments, to require
the Company, upon written notice, to immediately issue, in lieu of such cash
damages, the number of shares of Common Stock equal to the quotient of (X) the
aggregate amount of the damages payments described herein divided by (Y) the
Conversion Price in effect on such Conversion Date as specified by the holder in
the Conversion Notice.
(B) Void Conversion Notice; Adjustment to
Conversion Price. If for any reason the Holder has not received all of the
shares of Common Stock prior to the ninth (9th) Business Day after the Overnight
Receipt Date with respect to a conversion of this Note, then the Holder, upon
written notice to the Company, with a copy to the Transfer Agent, may void its
Conversion Notice with respect to, and retain or have returned, as the case may
be, any principal amount of this Note that has not been converted pursuant to
such Holder's Conversion Notice; provided that the voiding of a Holder's
Conversion Notice shall not effect the Company's obligations to make any
payments which have accrued prior to the date of such notice pursuant to Section
2(d)(v)(A) or otherwise. If for any reason the Holder has not received all of
the shares of Common Stock prior to the fourteenth (14th) Business Day after
the Overnight Receipt Date with respect to a conversion of this Note, then the
Conversion Price of the principal amount of this Note with respect to which the
Company has not delivered shares of Common Stock on or prior to such fourteenth
(14th) Business Day shall be adjusted to the lesser of (I) the Conversion Price
as in effect on the date on which the holder voided the Conversion Notice and
(II) the lowest Closing Bid Price during the period beginning on the Conversion
Date and ending on the date such holder voided the Conversion Notice, subject to
further adjustment as provided in this Note.
(C) Redemption. If for any reason
the Holder has not received all of the shares of Common Stock prior to the ninth
(9th) Business Day after the Overnight Receipt Date with respect to a conversion
of this Note (a "Conversion Failure"), then the Holder, upon written
notice to the Company, may require that the Company redeem any or all of the
Conversion Amount of this Note, including the Conversion Amount previously
submitted for conversion and with respect to which the Company has not delivered
shares of Common Stock, in accordance with Section 3.
(vi) Pro Rata Conversion and Redemption. In
the event the Company receives a Conversion Notice from more than one holder of
the Notes for the same Conversion Date and the Company can convert some, but not
all, of the Notes submitted for conversion, the Company shall convert from each
holder electing to have Notes converted at such time a pro rata amount of such
holder's Conversion Amount submitted for conversion based on the Conversion
Amount of the Notes submitted for conversion on such date by such holder
relative to the Conversion Amount of all Notes submitted for conversion on such
date.
(vii) Mandatory Redemption at Maturity. If any
Conversion Amount of this Note remains outstanding on the Maturity Date, then
all of the Conversion Amount shall be redeemed as of such date (a "Maturity
Date Mandatory Redemption") for an amount in cash equal to the Conversion
Amount on the Maturity Date (the "Maturity Date Redemption Price"). On
the Maturity Date the Company shall pay to each Holder outstanding on the
Maturity Date, by wire transfer of immediately available funds, an amount equal
to the Maturity Date Redemption Price. If the Company shall fail to redeem all
of the Conversion Amount of this Note outstanding on or prior to the date which
is three (3) Business Days after the Maturity Date by payment of the Maturity
Date Redemption Price, then in addition to any remedy the Holder may have under
this Note, the Securities Purchase Agreement and the Registration Rights
Agreement, the Holder shall have the option to require the Company to convert
any or all of the Conversion Amount that the Company should have redeemed under
this Section 2(d)(vii) and for which the Maturity Date Redemption Price
(together with any interest thereon) has not been paid into the number of shares
of Common Stock which the Company would have been required to issue if the
Holder had given a Conversion Notice for such Conversion Amount (together with
any interest thereon) on the Maturity Date at a Conversion Price equal to the
lesser of (A) the Conversion Price in effect on the Maturity Date and (B) 95% of
the Market Price of the Common Stock on the Maturity Date.
(viii) Book-Entry. Notwithstanding anything to
the contrary set forth herein, upon conversion of any portion of this Note in
accordance with the terms hereof, the holder thereof shall not be required to
physically surrender this Note to the Company unless the full Conversion Amount
represented by this Note is being converted. The Holder and the Company shall
maintain records showing the Conversion Amount so converted and the dates of
such conversions or shall use such other method, reasonably satisfactory to the
Holder and the Company, so as not to require physical surrender of this Note
upon each such conversion. In the event of any dispute or discrepancy, such
records of the Company shall be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if this Note is converted as
aforesaid, the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Note of like
tenor, registered as the Holder may request, representing in the aggregate the
remaining Conversion Amount represented by this Note. The Holder and any
assignee, by acceptance of this Note or a new Note, acknowledge and agree that,
by reason of the provisions of this paragraph, following conversion of any
portion of this Note, the Conversion Amount (including the principal of this
Note) represented by this Note may be less than the principal amount and the
accrued interest set forth on the face hereof.
(e) Taxes. The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon the conversion of Notes.
(f) Adjustments to Conversion Price -- Dilution and
Other Events. In addition to any other adjustments provided herein, the
Conversion Price will be subject to adjustment from time to time as provided in
this Section 2(f).
(i) Adjustment of Conversion Price upon Issuance of
Common Stock. If and whenever on or after the date of issuance of the
Notes, the Company issues or sells, or in accordance with this Section 2(f) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with an Approved Stock Plan (as defined below) or
Excluded Securities (as defined below) or upon conversion of the Notes or
exercise of the Warrants (as defined in the Securities Purchase Agreement)) for
a consideration per share less than a price (the "Applicable Price")
equal to the Market Price on the date of such issue or sale, then immediately
after such issue or sale, the Conversion Price then in effect shall be reduced
to an amount equal to the product of (x) the Conversion Price in effect
immediately prior to such issue or sale and (y) the quotient of (1) the sum of
(I) the product of the Applicable Price and the number of shares of Common Stock
Deemed Outstanding (as defined below) immediately prior to such issue or sale
and (II) the consideration, if any, received by the Company upon such issue or
sale, divided by (2) the product of (I) the Applicable Price multiplied by (II)
the number of shares of Common Stock Deemed Outstanding immediately after such
issue or sale. For purposes of determining the adjusted Conversion Price under
this Section 2(f)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any
manner grants or sells any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange of any Convertible Securities issuable upon exercise of
such Option is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share. For purposes of this Section 2(f)(i)(A), the "lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option
or upon conversion or exchange of any Convertible Securities issuable upon
exercise of such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon granting or sale of the Option, upon exercise of
the Option and upon conversion or exchange of any Convertible Security issuable
upon exercise of such Option. No further adjustment of the Conversion Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 2(f)(i)(A) to the extent that such adjustment is based solely on
the fact that the Convertible Securities issuable upon exercise of such Option
are convertible into or exchangeable for Common Stock at a price which varies
with the market price of the Common Stock.
(B) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance of sale of such Convertible
Securities for such price per share. For the purposes of this Section
2(f)(i)(B), the "price per share for which one share of Common Stock is issuable
upon such conversion or exchange" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange of such Convertible
Security. No further adjustment of the Conversion Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other provisions of this
Section 2(f)(i), no further adjustment of the Conversion Price shall be made by
reason of such issue or sale. Notwithstanding the foregoing, no adjustment
shall be made pursuant to this Section 2(f)(i)(B) to the extent that such
adjustment is based solely on the fact that such Convertible Securities are
convertible into or exchangeable for Common Stock at a price which varies with
the market price of the Common Stock.
(C) Change in Option Price or Rate of
Conversion. If the purchase price provided for in any Options, the
additional consideration, if any, payable upon the issue, conversion or exchange
of any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 2(f)(i)(C), if
the terms of any Option or Convertible Security that was outstanding as of the
date of issuance of this Note are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the
Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change. No adjustment
shall be made if such adjustment would result in an increase of the Conversion
Price then in effect.
(D) Calculation of Consideration Received. In
case any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a consideration of
$0.01. If any Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company therefor.
If any Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company will be the fair value of such consideration, except
where such consideration consists of securities, in which case the amount of
consideration received by the Company will be the Market Price of such
securities on the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the holders of the Notes representing a majority of
the Conversion Amount of the Notes then outstanding. If such parties are unable
to reach agreement within 10 days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such consideration
will be determined within five business days after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the holders of the Notes representing a majority of
the Conversion Amounts of the Notes then outstanding. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the
fees and expenses of such appraiser shall be borne by the Company.
(E) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (1) to receive
a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(F) Certain Definitions. For purposes of this
Section 2(f)(i), the following terms have the respective meanings set forth
below:
(I) "Approved Stock Plan" shall mean any
employee benefit plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer or director for services provided to the Company.
(II) "Common Stock Deemed Outstanding" means,
at any given time, the number of shares of Common Stock actually outstanding at
such time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Sections 2(f)(i)(A) and 2(f)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account of the
Company or issuable upon conversion of the Notes or the exercise of the
Warrants.
(III) "Excluded Securities" means any of the
following (a) any issuance by the Company of securities in connection with a
strategic partnership or joint venture with any entity whose primary business is
not investing in or advising other entities, (b) shares of Common Stock issued
by the Company in a firm commitment, underwritten public offering, (c) any
issuance by the Company of securities as consideration for a merger or
consolidation or the acquisition of a business, product, license or other assets
of another person or entity and (d) any issuance by the Company of securities as
consideration to a service provider, which is not an officer or director of the
Company, for services provided to the Company on commercially reasonable terms
and which in the aggregate is less than $1,000,000.
(ii) Adjustment of Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(iii) Other Events. If any event occurs of the
type contemplated by the provisions of this Section 2(f) but not expressly
provided for by such provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the holders of
the Notes; provided that no such adjustment will increase the Conversion Price
as otherwise determined pursuant to this Section 2(f).
(iv) Notices.
(A) Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to each holder of the Notes
setting forth in reasonable detail, and certifying, the calculation of such
adjustment.
(B) The Company will give written notice to each
holder of the Notes at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (I) with respect to any dividend or
distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for determining rights to
vote with respect to any Organic Change (as defined in Section 4(a)),
dissolution or liquidation, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to each
such holder.
(C) The Company will also give written notice to each
holder of the Notes at least twenty (20) days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to each such holder.
3. Redemption at Option of Holder.
(a) Redemption Option Upon Triggering Event.
In addition to all other rights of the Holder contained herein, after a
Triggering Event (as defined below), the Holder shall have the right, at the
Holder's option, to require the Company to redeem all or a portion of this Note
at a price equal to (x) with respect to a Triggering Event described in clauses
(iii) or (vii) of Section 3(b) below, 110% of the Conversion Amount, and (y)
with respect to a Triggering Event described in clauses (i), (ii), (iv), (v) or
(vi) of Section 3(b) below, the greater of (i) 110% of the Conversion Amount and
(ii) the product of (A) the Conversion Rate for the Conversion Amount to be
redeemed in effect at such time as such holder delivers a Notice of Redemption
at Option of Buyer (as defined below) and (B) the Closing Bid Price in effect on
the date such holder delivers a Notice of Redemption at Option of Buyer or, if
such day is not a trading day, the immediately preceding trading day on which
the Principal Market, or the market or exchange where the Common Stock is then
traded, is open for trading ("Redemption Price").
(b) "Triggering Event". A "Triggering
Event" shall be deemed to have occurred at such time as any of the following
events:
(i) the failure of the Registration Statement to be
declared effective by the SEC on or prior to the Effectiveness Deadline (as
defined in the Registration Rights Agreement);
(ii) while the Registration Statement is required to
be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the Holder for sale of all of such Holder's Registrable Securities (as
defined in the Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability continues
for a period of five consecutive trading days or any 10 trading days in a 365-
day period (excluding days during an Allowable Grace Period);
(iii) the suspension from trading or failure of the
Common Stock to be listed on the Nasdaq National Market or The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc. for a period of five
consecutive trading days or for more than an aggregate of 10 trading days in any
365-day period;
(iv) the Company's or the Transfer Agent's notice to
any holder of Notes, including by way of public announcement, at any time, of
its intention not to comply with a request for conversion of any Notes into
shares of Common Stock that is tendered in accordance with the provisions of the
Notes;
(v) a Conversion Failure (as defined in Section
2(d)(v)(C));
(vi) upon the Company's receipt of a Conversion
Notice, the Company shall not be obligated to issue the shares of Common Stock
issuable upon such conversion of Notes due to the provisions of Section 11;
or
(vii) the Company breaches any representation,
warranty, covenant or other term or condition of the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrants, this Note or any
other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby and hereby, except to the
extent that such breach would not have a Material Adverse Effect (as defined in
Section 3(a) of the Securities Purchase Agreement) and except, in the case of a
breach of a covenant which is curable, only if such breach continues for a
period of at least 10 days.
(c) Mechanics of Redemption at Option of Buyer.
Within one (1) Business Day after the occurrence of a Triggering Event described
in clauses (i), (ii), (iii), (iv), (v) or (vi) of Section 3(b), or within one
(1) Business Day of the Company becoming aware of a Triggering Event described
in clause (vii) of Section 3(b), as the case may be, the Company shall deliver
written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of the Notes. At any time after the
earlier of the Holder's receipt of a Notice of Triggering Event and the Holder
becoming aware of a Triggering Event, the Holder may require the Company to
redeem all of such Holder's Notes by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of
Buyer") to the Company, which Notice of Redemption at Option of Buyer shall
indicate (i) the Conversion Amount of the Notes that the Holder is electing to
redeem and (ii) the applicable Redemption Price, as calculated pursuant to
Section 3(a) above.
(d) Payment of Redemption Price. Upon the
Company's receipt of a Notice(s) of Redemption at Option of Buyer from any
holder of Notes, the Company shall immediately notify each holder of Notes by
facsimile of the Company's receipt of such notices. The Company shall deliver
the applicable Redemption Price to the Holder within 10 Business Days after the
Company's receipt of a Notice of Redemption at Option of Buyer; provided that
the Holder's Notes shall have been delivered to the Company. If more than one
holder of Notes submits Notes for redemption and the Company is unable to redeem
all of the Notes submitted for redemption, the Company shall redeem a pro rata
amount from each holder of Notes based on the Conversion Amount represented by
the Notes submitted for redemption by such holder relative to the aggregate
Conversion Amounts of all Notes for redemption by all holders of Notes.
(e) Void Redemption. In the event that the
Company does not pay the Redemption Price within the time period set forth in
Section 3(d), at any time thereafter and until the Company pays such unpaid
applicable Redemption Price in full, the Holder shall have the option (the
"Void Optional Redemption Option") to, in lieu of redemption, require the
Company to promptly return to the Holder the Note that was submitted for
redemption by such Holder under this Section 3 and for which the applicable
Redemption Price (together with any interest thereon) has not been paid, by
sending written notice thereof to the Company via facsimile (the "Void
Optional Redemption Notice"). Upon the Company's receipt of such Void
Optional Redemption Notice, (i) the Notice of Redemption at Option of Buyer
shall be null and void with respect to that portion of the Note subject to the
Void Optional Redemption Notice, (ii) the Company shall immediately return the
Note subject to the Void Optional Redemption Notice, and (iii) the Conversion
Price of such portion of the Note shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Void Optional Redemption
Notice is delivered to the Company and (B) the lowest Closing Bid Price during
the period beginning on the date on which the Notice of Redemption at Option of
Buyer is delivered to the Company and ending on the date on which the Void
Optional Redemption Notice is delivered to the Company.
(f) Disputes; Miscellaneous. In the event of a
dispute as to the determination of the Closing Bid Price or the arithmetic
calculation of the Redemption Price, such dispute shall be resolved pursuant to
Section 2(d)(iii) above with the term "Closing Bid Price" being substituted for
the term "Market Price" and the term "Redemption Price" being substituted for
the term "Conversion Rate". The Holder's delivery of a Void Optional Redemption
Notice and exercise of its rights following such notice shall not effect the
Company's obligations to make any payments which have accrued prior to the date
of such notice. In the event of a redemption pursuant to this Section 3 of less
than all of the Conversion Amount of this Note, the Company shall promptly cause
to be issued and delivered to the Holder a new Note representing the remaining
Conversion Amount which has not been redeemed.
4. Other Rights of Holders.
(a) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets to another Person or other transaction which is effected in
such a way that holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is referred to herein as "Organic Change."
Prior to the consummation of any (i) sale of all or substantially all of the
Company's assets to an acquiring Person or (ii) other Organic Change following
which the Company is not a surviving entity, the Company will secure from the
Person purchasing such assets or the successor resulting from such Organic
Change (in each case, the "Acquiring Entity") a written agreement (in
form and substance reasonably satisfactory to the holders of the Notes
representing a majority of the Conversion Amounts of the Notes then outstanding)
that the Acquiring Entity will assume the obligations represented by this Note
(including, without limitation, the right to convert this Note into the
securities or assets issued to the holders of the Common Stock in connection
with such Organic Change).
(b) Optional Redemption Upon Corporate Event.
In addition to the rights of the Holder under Section 4(a), upon a Corporate
Event (as defined below) of the Company the Holder shall have the right, at the
Holder's option, to require the Company to redeem all or a portion of the
Conversion Amount represented by this Note equal to 110% of the Conversion
Amount ("Corporate Event Redemption Price"). No sooner than 15 days nor
later than 10 days prior to the consummation of a Corporate Event, but not prior
to the public announcement of such Corporate Event, the Company shall deliver
written notice thereof via facsimile and overnight courier (a "Notice of
Corporate Event") to the Holder. At any time during the period beginning
after receipt of a Notice of Corporate Event (or, in the event a Notice of
Corporate Event is not delivered at least 10 days prior to a Corporate Event, at
any time on or after the date which is 10 days prior to a Corporate Event) and
ending on the date of such Corporate Event, the Holder may require the Company
to redeem all or a portion of the Conversion Amount of this Note then
outstanding by delivering written notice thereof via facsimile and overnight
courier (a "Notice of Redemption Upon Corporate Event") to the Company,
which Notice of Redemption Upon Corporate Event shall indicate (i) the
Conversion Amount the Holder is submitting for redemption, and (ii) the
applicable Corporate Event Redemption Price, as calculated pursuant to Section
this Section 4(b). Upon the Company's receipt of a Notice(s) of Redemption Upon
Corporate Event from any holder of Notes, the Company shall promptly, but in no
event later than one (1) Business Day following such receipt, notify the Holder
of this Note by facsimile of the Company's receipt of such Notice(s) of
Redemption Upon Corporate Event. The Company shall deliver the applicable
Corporate Event Redemption Price simultaneous with the consummation of the
Corporate Event; provided that, if required by Section 2(d)(viii), this Note
shall have been so delivered to the Company. Payments provided for in this
Section 4(b) shall have priority to payments to the Company's stockholders in
connection with a Corporate Event. For purposes of this Section 4(b),
"Corporate Event" means any of the following in which the consideration
to be paid per share is less than the Conversion Price: (i) the consolidation,
merger or other business combination of the Company with or into another Person
(other than (A) a consolidation, merger or other business combination in which
holders of the Company's voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the voting power
of the surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation) of
such entity or entities, or (B) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company),
(ii) the sale or transfer of all or substantially all of the Company's assets,
or (iii) a purchase, tender or exchange offer made to and accepted by the
holders of more than the 50% of the outstanding shares of Common Stock.
(c) Purchase Rights. If at any time the
Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "Purchase Rights"), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a 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.
(d) Right to Exchange Note. At any time prior to
the Maturity Date and so long as any principal amount is still outstanding under
this Note, if the Company issues or agrees to issue any equity securities or any
instrument convertible into or exercisable or exchangeable for equity securities
of the Company ("New Equity Securities"), then within one Business Day
after the issuance of such New Equity Securities, the Company shall make an
irrevocable exchange offer to the Holder on such terms and conditions as the
Holder shall reasonably require to either exchange any or all of the Conversion
Amount of this Note for a like amount in value of the New Equity Securities or
replace the Conversion Price then in effect with the issuance price or
conversion price as determined over time pursuant to those documents which
dictate the terms of the New Equity Security. Each such exchange offer shall
remain open for at least 15 Business Days or until such time as the Holder
accepts or rejects, in writing, such exchange offer. In the event the Holder
elects to replace the existing Conversion Price, then from and after the date of
the Company's receipt of the Holder's written acceptance pursuant to this
Section 4(d), the Conversion Price will automatically be replaced with the
issuance price or conversion price formula of the New Equity Security. If the
consummation or terms of the New Equity Security constitutes material non-public
information, then the Company shall disclose the terms of such New Equity
Security on a Form 8-K within one Business Day after the initial issuance of
such New Equity Security. The Company's obligation to provide the "New Financing
Notice" and offer to exchange the existing Note or replace the existing
Conversion Price shall not apply to (i) the Company's issuance of securities (A)
as consideration of a merger or consolidation or (B) in connection with any
strategic partnership or joint venture with any entity whose primary business is
not investing in or advising other entities, (ii) the issuance of Common Stock
in a firm commitment, underwritten public offering, (iii) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the Issuance Date provided the
terms of such securities are not amended after the Issuance Date, and (iv) the
grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option plan, restricted stock plan or stock
purchase plan for the benefit of the Company's employees, officers or directors
for services provided to the Company.
5. Limitations on Beneficial Ownership. The
Company shall not be obligated to effect any conversion of this Note and no
Holder shall have the right to convert any Conversion Amount pursuant to Section
2(b) to the extent that after giving effect to such conversion such Person
(together with such Person's affiliates) would have acquired, through conversion
of the Notes or otherwise, in excess of 10.00% of the outstanding shares of the
Common Stock following such conversion during the 60-day period ending on and
including the date of such conversion. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by a Person and its
affiliates or acquired by a Person and its affiliates, as the case may be, shall
include the number of shares of Common Stock issuable upon conversion of the
Conversion Amount of such Notes with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (i) conversion of the remaining, nonconverted
Conversion Amount of such Notes beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company (including, without limitation,
the Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by such Person and its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 5(a), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this Section 5, in determining the number of outstanding shares of
Common Stock a holder may rely on the number of outstanding shares of Common
Stock as reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as
the case may be, (2) a more recent public announcement by the Company or (3)
any other notice by the Company or its Transfer Agent setting forth the number
of shares of Common Stock outstanding. For any reason at any time, upon the
written or oral request of the Holder, the Company shall within two (2) Business
Days confirm orally and in writing to the Holder the number of shares Common
Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion of the
Conversion Amount of such Notes and exercising the Warrants by the Person and
its affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.
6. Redemption at the Company's Election. At
any time or times during the period beginning on the first anniversary of the
Issuance Date and ending on and including the Maturity Date, the Company shall
have the right, in its sole discretion, to require that some or all of the
outstanding Conversion Amount of the outstanding Notes issued on such Issuance
Date be redeemed ("Redemption at Company's Election") for consideration
equal to (i) in the event that the Company's Election Redemption Date (as
defined below) is prior to the date which is the second anniversary of the
Issuance Date, 175% of the Conversion Amount of such Notes to be redeemed on the
Company Election Redemption Date or (ii) in the event that the Company's
Election Redemption Date is on or after the date which is the second anniversary
of the Issuance Date, 150% of the Conversion Amount of such Notes to be redeemed
on the Company Election Redemption Date (the "Company's Election Redemption
Price"); provided that the Conditions to Redemption at the Company's
Election (as set forth below) are satisfied. The Company shall exercise its
right to Redemption at Company's Election by providing each holder of Notes
written notice ("Notice of Redemption at Company's Election") at least 20
Business Days but not more than 30 Business Days prior to the date of
consummation of such redemption ("Company's Election Redemption Date").
If the Company elects to require redemption of some, but not all, of the
Conversion Amount of the Notes then outstanding, the Company shall require
redemption of the pro rata amount from each holder of such Notes based on the
principal amount of Notes purchased by such holder relative to the aggregate
principal amount of all Notes purchased pursuant to the Securities Purchase
Agreement (such amount with respect to the Holder being referred to herein as
its "Pro Rata Redemption Amount"). The Notice of Redemption at Company's
Election shall indicate (x) the Conversion Amount of the Notes the Company has
elected to redeem from all holder of Notes, (y) the Company's Election
Redemption Date, and (z) each holder's Pro Rata Redemption Amount. If the
Company has exercised its right of Redemption at Company's Election and the
conditions of this Section 6, including the Conditions to Redemption at
Company's Election, have been satisfied, then each holder's Pro Rata Redemption
Amount shall be redeemed as of the Company's Election Redemption Date by payment
by the Company to each holder of the Notes of the Company's Election Redemption
Price. If required by Section 2(d)(viii), all holders of the Notes shall
thereupon and within two Business Days after the Company's Election Redemption
Date or such earlier date as the Company and each holder of Notes mutually
agree, surrender all Notes being redeemed on such date to the Company. If the
Company fails to pay the full Company's Election Redemption Price with respect
to this Note then the Redemption at Company's Election shall be null and void
with respect to this Note and the Holder shall be entitled to all the rights of
a holder of outstanding Notes. "Conditions to Redemption at the Company's
Election" means the following conditions: (i) during the period beginning
on the Issuance Date and ending on and including the Company's Election
Redemption Date, the Company shall have delivered Conversion Shares upon
conversion of the Notes to the holders of the Notes on a timely basis as set
forth in Section 2(d)(ii) of this Note; (ii) on each day during the period
beginning 30 days prior to the date of Notice of Redemption at Company's
Election and ending on and including the Company's Election Redemption Date the
Registration Statement shall be effective and available for the sale of at least
all of the Registrable Securities (as defined in the Registration Rights
Agreement); (iii) on each day during the period beginning 30 days prior to
the date of Notice of Redemption at Company's Election and ending on and
including the Company's Election Redemption Date, the Common Stock is designated
for quotation on the Nasdaq National Market or listed on The New York Stock
Exchange, Inc., is not suspended from trading and neither delisting nor
suspension by such exchanges shall have been threatened either (A) in writing by
such exchanges or (B) by falling below the minimum listing maintenance
requirements of such exchanges; (iv) during the period beginning on the Issuance
Date and ending on and including the Company's Election Redemption Date, there
shall not have occurred a Triggering Event or an event that with the passage of
time and without being cured would constitute a Triggering Event; (v) during
the period beginning on the Issuance Date and ending on and including the
Company's Election Redemption Date, there shall not have occurred the
consummation of a Change of Control or the public announcement of a pending
Change of Control which has not been terminated; and (vi) the Company
otherwise has satisfied its obligations in all material respects and is not in
default in any material respect under this Note, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement. Notwithstanding
the above, but subject to Section 5, the Holder may convert any Conversion
Amount (including Conversion Amounts selected for redemption) into Common Stock
pursuant to Section 2(b) on or prior to the date immediately preceding the
Company's Election Redemption Date. If the Company fails to timely pay any
Company's Election Redemption Price in accordance with this Section 6, then the
Company shall not be permitted to submit another Notice of Redemption at
Company's Election without the prior written consent of the holders of the Notes
representing at least two-thirds (2/3) of the Conversion Amounts of the Notes
then outstanding.
7. Reservation of Shares. The Company shall,
so long as any principal amount of the Note is outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Conversion Amounts of the Notes then outstanding; provided that
the number of shares of Common Stock so reserved shall at no time be less than
115% of the number of shares of Common Stock for which the Conversion Amounts of
the Notes are at any time convertible. The initial number of shares of Common
Stock reserved for conversions of the Notes and each increase in the number of
shares so reserved shall be allocated pro rata among the holders of the Notes
based on the principal amount of the Notes held by each holder at the time of
issuance of the Notes or increase in the number of reserved shares, as the case
may be. 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 the
number of reserved shares of Common Stock reserved for such transferor. Any
shares of Common Stock reserved and allocated to any Person which ceases to hold
any Notes shall be allocated to the remaining holders of the Notes, pro rata
based on the principal amount of the Notes then held by such holders.
8. Voting Rights; Rank. Holders of the Notes
shall have no voting rights, except as required by law, including but not
limited to the General Corporation Law of the State of Delaware, and as
expressly provided in this Note. Payments of principal and interest and other
payments due under this Note, except as otherwise provided herein, shall rank
pari passu with and shall not be subordinated to any other unsecured debt
obligations of the Company.
9. Restriction on Redemption and Dividends.
Until all of the Conversion Amount of this Note has been converted, redeemed or
otherwise satisfied as provided herein, the Company shall not, directly or
indirectly, redeem, or declare or pay any cash dividend or distribution on, its
capital stock without the prior express written consent of the holders of Notes
representing a majority of the Conversion Amounts of the Notes then
outstanding, except for payments on convertible securities of the Company
outstanding on the Issuance Date pursuant to the terms of such convertible
securities as in effect on the Issuance Date.
10. Participation. The holders of the Notes
shall be entitled to such dividends paid and distributions made to the holders
of Common Stock to the same extent as if such holders of Notes had converted the
Notes into Common Stock (without regard to any limitations on conversion herein
or elsewhere) and had held such shares of Common Stock on the record date for
such dividends and distributions. Payments under the preceding sentence shall
be made concurrently with the dividend or distribution to the holders of Common
Stock.
11. Limitation on Number of Conversion Shares.
The Company shall not be obligated to issue any shares of Common Stock upon
conversion of this Note if the issuance of such shares of Common Stock would
exceed that number of shares of Common Stock which the Company may issue upon
conversion of the Notes (the "Exchange Cap") without breaching the
Company's obligations under the rules or regulations of the Principal Market, or
the market or exchange where the Common Stock is then traded, except that such
limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market, or the market or exchange where the Common Stock is then
traded, (or any successor rule or regulation) for issuances of Common Stock in
excess of such amount or (b) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the holders of a majority of the Conversion Amount of
the Notes then outstanding. Until such approval or written opinion is obtained,
no purchaser of Notes pursuant to the Securities Purchase Agreement (the
"Purchasers") shall be issued, upon conversion of the Notes, shares of
Common Stock in an amount greater than the product of (i) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the principal
amount of the Notes issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate principal amount of all
Notes issued to the Purchasers pursuant to the Securities Purchase Agreement
(the "Cap Allocation Amount"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Notes, the transferee shall
be allocated a pro rata portion of such Purchaser's Cap Allocation Amount. In
the event that any holder of Notes, shall convert all of such holder's Notes
into a number of shares of Common Stock which, in the aggregate, is less than
such holder's Cap Allocation Amount, then the difference between such holder's
Cap Allocation Amount and the number of shares of Common Stock actually issued
to such holder shall be allocated to the respective Cap Allocation Amounts of
the remaining Holders of Notes on a pro rata basis in proportion to Conversion
Amount of Notes then held by each such Holder.
12. Reissuance of Notes. Subject to Section
2(d)(viii) in the event of a conversion or redemption pursuant to this Note of
less than all of the Conversion Amount represented by this Note, the Company
shall promptly cause to be issued and delivered to the Holder, upon tender by
the Holder of this Note converted or redeemed, a new note of like tenor
representing the remaining principal amount of this Note which has not been so
converted or redeemed.
13. Defaults and Remedies.
(a) Events of Default. An "Event of
Default" is: (i) default for thirty (30) days in payment of interest or
Default Interest on this Note on or after the Maturity Date; (ii) default in
payment of the principal amount of this Note when and as due; (iii) failure by
the Company for thirty (30) days after notice to it to comply with any other
material provision of this Note; (iv) any default under or acceleration prior to
maturity of any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed of at least $500,000 by the Company or for money borrowed the repayment
of at least $500,000 of which is guaranteed by the Company, whether such
indebtedness or guarantee now exists or shall be created hereafter, (v) if the
Company pursuant to or within the meaning of any Bankruptcy Law; (A) commences a
voluntary case; (B) consents to the entry of an order for relief against it in
an involuntary case; (C) consents to the appointment of a Custodian of it or for
all or substantially all of its property; (D) makes a general assignment for the
benefit of its creditors; or (E) admits in writing that it is generally unable
to pay its debts as the same become due; or (vi) a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that: (1) is
for relief against the Company in an involuntary case; (2) appoints a Custodian
of the Company or for all or substantially all of its property; or (3) orders
the liquidation of the Company or any subsidiary, and the order or decree
remains unstayed and in effect for ninety (90) days. The Term "Bankruptcy
Law" means Title 11, U.S. Code, or any similar Federal or State Law for the
relief of debtors. The term "Custodian" means any receiver, trustee,
assignee, liquidator or similar official under any Bankruptcy Law.
(b) Remedies. If an Event of Default occurs
and is continuing, the Holder of this Note may declare all of this Note,
including any interest and Default Interest and other amounts due, to be due and
payable immediately, except that in the case of an Event of Default arising from
events described in clauses (iv) and (v) of Section 13(a), this Note shall
become due and payable without further action or notice. Holder may not enforce
the provisions of this Section 13 except as provided in this Section 13. In
addition to any remedy such holder of the Notes may have under this Note and the
Securities Purchase Agreement, such unpaid amount shall bear interest at the
rate of 1.5% per month (prorated for partial months) until paid in full
14. Vote to Change the Terms of the Notes. The
Notes and any provision hereof or thereof may only be amended by an instrument
in writing signed by the Company and holders of a majority of the aggregate
Conversion Amount of the Notes then outstanding. The term "Note" and all
reference thereto, as used throughout this instrument, shall mean this
instrument (and the other Notes issued pursuant to the Securities Purchase
Agreement) as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
15. Rule 144A Information Requirement. Within
the period prior to the expiration of the holding period applicable to sales
hereof under Rule 144(k) under the 1933 Act (or any successor provision), the
Company covenants and agrees that it shall, during any period in which it is not
subject to Section 13 or 15(d) under the 1934 Act, make available to the Holder
and the holder of any Common Stock issued upon exercise of this Note which
continue to be Restricted Securities in connection with any sale thereof and any
prospective purchaser of this Note from the Holder, the information required
pursuant to Rule 144A(d)(4) under the 1933 Act upon the request of the Holder
and it will take such further action as the Holder may reasonably request, all
to the extent required from time to time to enable the Holder to sell this Note
without registration under the 1933 Act within the limitation of the exemption
provided by Rule 144A, as Rue 144A may be amended from time to time. Upon the
request of the Holder, the Company will deliver to the Holder a written
statement as to whether it has complied with such requirements.
16. Lost or Stolen Notes. Upon receipt by the
Company of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note, and, in the case of loss, theft or destruction, of
an indemnification undertaking by the Holder to the Company in a customary form
and, in the case of mutilation, upon surrender and cancellation of this Note,
the Company shall execute and deliver new notes of like tenor and date;
provided, however, the Company shall not be obligated to re-issue notes if the
Holder contemporaneously requests the Company to convert such remaining
principal amount into Common Stock.
17. Payment of Collection, Enforcement and Other
Costs. If: (i) this Note is placed in the hands of an attorney for
collection or enforcement or is collected or enforced through any legal
proceeding; or (ii) an attorney is retained to represent the Holder of this Note
in any bankruptcy, reorganization, receivership of the Company or other
proceedings affecting Company creditors' rights and involving a claim under this
Note, then the Company shall pay to the Holders all attorney's fees, costs and
expenses incurred in connection therewith, in addition to all other amounts due
hereunder.
18. Cancellation. After all principal and
accrued interest at any time owed on this Note has been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
19. Note Exchangeable for Different
Denominations. This Note is exchangeable, upon the surrender hereof by the
holder at the principal office of the Company, for a new Note or Notes (in
principal amounts of at least $100,000) containing the same terms and conditions
and representing in the aggregate the principal amount of this Note, and each
such new Note will represent such portion of such principal amount as is
designated by the holder at the time of such surrender. The date the Company
initially issues this Note will be deemed to be the "Issuance Date" hereof
regardless of the number of times a new Note shall be issued.
20. Waiver of Notice. To the extent permitted
by law, the Company hereby waives demand, notice, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Securities Purchase Agreement.
21. Governing Law. This Note shall be
construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Note shall be
governed by, the laws of the State of New York, without giving effect to
provisions thereof regarding conflict of laws.
22. Remedies, Characterizations, Other Obligations,
Breaches and Injunctive Relief. 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), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit the Holder's right to pursue actual damages for any failure by the
Company to comply with the terms of this Note. The Company covenants to the
Holder that there shall be no characterization concerning this instrument other
than as expressly provided herein. Amounts set forth or provided for herein
with respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the Holder thereof and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder of
this Note 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.
23. Specific Shall Not Limit General;
Construction. No specific provision contained in this Note shall limit or
modify any more general provision contained herein. This Note shall be deemed
to be jointly drafted by the Company and the Holder and shall not be construed
against any person as the drafter hereof.
24. Failure or Indulgence Not Waiver. No
failure or delay on the part of this Note in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
25. Notices. Whenever notice is required to be
given under this Note, unless otherwise provided herein, such notice shall be
given in accordance with Section 9(f) of the Securities Purchase Agreement.
* * * * *
IN WITNESS WHEREOF, the Company has caused this
Note to be signed by ___________________, its _______________________, as of the
____ day of ____________, ______.
8X8, INC.
By:
Name: _______________________
Its: _______________________
Exhibit B - Form of Series B Note
EXHIBIT B
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO EITHER RULE
144A UNDER SAID ACT TO A QUALIFIED INSTITUTIONAL BUYER OR RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS NOTE MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES. ANY
TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE,
INCLUDING SECTION 2(d)(viii) HEREOF. THE PRINCIPAL AMOUNT AND THE INTEREST
THEREON REPRESENTED BY THIS NOTE MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE
FACE HEREOF PURSUANT TO SECTION 2(d)(viii) OF THIS NOTE.
SERIES B CONVERTIBLE NOTE
_______ __, ______ $____________
FOR VALUE RECEIVED, 8X8, INC., a Delaware
corporation (the "Company"), hereby promises to pay to the order of
__________________ or registered assigns ("Holder") the principal amount
of ___________________ Dollars ($________________), on the Maturity Date (as
defined below) and to pay interest ("Interest") on the unpaid principal
balance hereof at the rate of 4.0% per annum from the date hereof (the
"Issuance Date") until the same becomes due and payable, whether at,
maturity or upon acceleration or by conversion or redemption in accordance with
the terms hereof or otherwise. Interest on this Note shall commence accruing on
the Issuance Date and shall be computed on the basis of a 365-day year and
actual days elapsed and shall (A) be payable in cash or Common Stock at the
option of the Company on the Interest Dates (as defined below) pursuant to
Section 2(c)(ii) and (B) be included in the Additional Amount (as defined below)
at the time of optional or mandatory conversion or redemption of the principal
to which such interest relates in accordance with Section 1 hereof. Any amount
of interest on this Note which is not paid when due shall bear interest at the
rate of 18% per annum from the date thereof until the same is paid ("Default
Interest").
1. Payments of Principal and Interest. All
payments of principal and interest on this Note (to the extent such principal
and/or interest is not converted into Common Stock in accordance with the terms
hereof) shall be made in lawful money of the United States of America by wire
transfer of immediately available funds to such account as the Holder may from
time to time designate by written notice in accordance with the provisions of
this Note. Whenever any amount expressed to be due by the terms of this Note is
due on any day which is not a Business Day (as defined below), the same shall
instead be due on the next succeeding day which is a Business Day and, in the
case of any interest payment date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date.
For purposes of this Note, "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in The City of New York are
authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in the Securities Purchase Agreement, dated December 15, 1999,
pursuant to which this Note and the Other Notes (as defined below) were
originally issued (the "Securities Purchase Agreement"). This Note and
the Other Notes issued by the Company pursuant to the Securities Purchase
Agreement are collectively referred to in this Note as the "Notes."
2. Conversion of Notes. This Note shall be
convertible into shares of the Company's common stock, par value $0.001 per
share (the "Common Stock"), on the terms and conditions set forth in this
Section 2.
(a) Certain Defined Terms. For purposes of
this Note, the following terms shall have the following meanings:
(i) "Additional Amount" means, with respect to
any principal amount of Notes, the sum of (A) accrued and unpaid Interest, if
any, on such principal amount and (B) Default Interest, if any, on the interest
referred to in the immediately preceding clause (A).
(ii) "Change of Control" means any of the
following: (A) the consolidation, merger or other business combination of the
Company with or into another Person (other than (I) a consolidation, merger or
other business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities, or (II)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company), (B) the sale or transfer of all
or substantially all of the Company's assets, or (C) a purchase, tender or
exchange offer made to and accepted by the holders of more than the 50% of the
outstanding shares of Common Stock.
(iii) "Closing Bid Price" means, for any
security as of any date, the last closing bid price for such security on the
Principal Market (as defined below) as reported by Bloomberg Financial Markets
("Bloomberg"), or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid 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 closing bid price is reported for such security
by Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such date shall
be the fair market value as mutually determined by the Company and the Holders
of the Notes. If the Company and the Holders of the Notes are unable to agree
upon the fair market value of the Common Stock, then such dispute shall be
resolved pursuant to Section 2(e)(iii) below with the term "Closing Bid Price"
being substituted for the term "Market Price." All such determinations to be
appropriately adjusted for any stock dividend, stock split or other similar
transaction during such period.
(iv) "Conversion Amount" means the sum of (A)
the principal amount of this Note to be converted, redeemed or otherwise with
respect to which this determination is being made and (B) the Additional Amount
with respect to such principal amount.
(v) "Conversion Price" means, as of any
Conversion Date (as defined in Section 2(d)(i)) or other date of determination,
the product of (A) 117.5% and (B) the Market Price (as defined below) of the
Common Stock on the date which is 90 days following the Issuance Date, subject
to adjustment as provided herein.
(vi) "Convertible Securities" means any stock
or securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(vii) "Issuance Date" means, with respect to
each Note, the date of issuance of the applicable Note.
(viii) "Maturity Date" means the date which is
three (3) years after the Issuance Date of this Note.
(ix) "Market Price" means, with respect to any
security, that price which shall be computed as the arithmetic average of the
Closing Bid Prices for such security during the five (5) consecutive trading
days immediately preceding such date of determination. All such determinations
shall be appropriately adjusted for any stock dividend, stock split or other
similar transaction during such period.
(x) "Options" means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.
(xi) "Other Notes" means the convertible notes
(whether Series A or Series B), other than this Note, issued by the Company
pursuant to the Securities Purchase Agreement.
(xii) "Person" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xiii) "Principal Market" means the Nasdaq
National Market.
(xiv) "Registration Rights Agreement" means
that certain registration rights agreement between the Company and the initial
holders of the Notes relating to the filing of a registration statement covering
the resale of the shares of Common Stock issuable upon conversion of the Notes
and exercise of the Warrants.
(xv) "Restricted Securities" means securities
that are not eligible for resale pursuant to Rule 144(k) under the 1933 Act (or
any successor provision).
(xvi) "Series A Conversion Price" means the conversion
price of the Series A Notes (as defined in the Securities Purchase Agreement) as
set forth in the Series A Notes.
(b) Holder's Conversion Right; Mandatory
Redemption. Subject to the provisions of Section 5, at any time or times
on or after the Issuance Date (as defined below), the Holder shall be entitled
to convert any part of the outstanding and unpaid Conversion Amount of this Note
into fully paid and nonassessable shares of Common Stock in accordance with
Section 5, at the Conversion Rate (as defined below). If any Conversion Amount
of this Note remains outstanding on the Maturity Date, then, pursuant to Section
2(d)(vii), all of such Conversion Amount shall be redeemed by the Company. The
Company shall not issue any fraction of a share of Common Stock upon any
conversion. All shares of Common Stock (including fractions thereof) issuable
upon conversion of this Note by the Holder shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(c) Conversion.
(i) Conversion Rate. The number of shares of
Common Stock issuable upon conversion of a Conversion Amount of this Note
pursuant to Section 2(b) shall be determined according to the following formula
(the "Conversion Rate"):
Conversion Amount
Conversion Price
(ii) Cash Payment of Additional Amount. The
Additional Amount shall be payable on the last day of each March and the last
day of each September during the period beginning on the Issuance Date and
ending on, and including, the Maturity Date (each an "Interest Date").
If an Interest Date is not a Business Day then the Additional Amount shall be
due and payable on the Business Day immediately following the Interest Date.
The Additional Amount shall be payable in cash or, at the Company's option, in
shares of Common Stock ("Interest Shares") provided that the Additional
Amount which accrued during any period shall be payable in Conversion Shares
only if the Company provides written notice ("Interest Election Notice")
to each Holder of the Notes at least six (6) trading days prior to the Interest
Date. Interest (as defined in the first paragraph of this Note) to be paid in
shares of Common Stock shall be paid in a number of fully paid and nonassessable
shares (rounded to the nearest whole share in accordance with Section 2(b)) of
Common Stock equal to the quotient of (I) the Additional Amount and (II) the
Market Price of the Common Stock on the applicable Interest Date.
Notwithstanding the foregoing, the Company shall not be entitled to pay the
Additional Amount in shares of Common Stock and shall be required to pay the
Additional Amount in cash if (x) any event constituting a Triggering Event (as
defined in Section 3(b)), or an event that with the passage of time would
constitute a Triggering Event if not cured, has occurred and is continuing on
the date of the Company's Interest Election Notice or on the Interest Date,
unless otherwise consented to in writing by the holders of the Notes
representing a majority of the Conversion Amounts of the Notes entitled to
receive such Interest or (y) the Registration Statement (as defined in the
Registration Rights Agreement) is not effective and available for the resale of
all of the Registrable Securities (as defined in the Registration Rights
Agreement), including but not limited to the Interest Shares, on the Date of the
Company's Interest Election Notice or on the Interest Date. Any accrued and
unpaid Interest which is not paid within five (5) Business Days of such accrued
and unpaid Interest's Interest Date shall bear interest at the rate of 18.0% per
annum from such Interest Date until the same is paid in full (the "Default
Interest").
(d) Mechanics of Conversion. The conversion of
this Note shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert
this Note into shares of Common Stock on any date (the "Conversion
Date"), the Holder hereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 6:00 p.m., Central Time on such date, a
copy of a fully executed notice of conversion in the form attached hereto as
Exhibit I (the "Conversion Notice") to the Company with a copy thereof to
the Company's designated transfer agent (the "Transfer Agent") and (B) if
required by Section 2(d)(viii), surrender to a common carrier for delivery to
the Company as soon as practicable following such date the original Note being
converted (or an indemnification undertaking with respect to such Note in the
case of its loss, theft or destruction). A holder delivering a Conversion
Notice by facsimile shall use its best efforts to send a copy of the Conversion
Notice by overnight mail to the Company by depositing such copy of the
Conversion Notice with a nationally recognized overnight delivery service on the
Conversion Date; provided, however, that the failure of any holder to satisfy
its obligations under this sentence shall not effect the Conversion Date or the
obligations of the Company for any conversion of this Note. The date of the
Company's receipt of such copy of the Conversion Notice shall be deemed to occur
on the Business Day immediately following the day such holder deposits the copy
of the Conversion Notice with a nationally recognized overnight delivery service
(the "Overnight Receipt Date").
(ii) Company's Response. Upon receipt by the
Company of a facsimile or other copy of a Conversion Notice, the Company (1)
shall immediately send, via facsimile, a confirmation of receipt of such
Conversion Notice to such holder and the Transfer Agent, which confirmation
shall constitute an instruction to the Transfer Agent to process such Conversion
Notice in accordance with the terms herein and (2) on or before the second
Business Day following the date of receipt by the Company of such Conversion
Notice (the "Share Delivery Date"), (A) issue and deliver to the address
as specified in the Conversion Notice, a certificate, registered in the name of
the holder or its designee, for the number of shares of Common Stock to which
the holder shall be entitled, or (B) provided the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated
Securities Transfer Program, upon the request of the holder, credit such
aggregate number of shares of Common Stock to which the holder shall be entitled
to the holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system. Subject to Section 2(d)(viii), if less than
the Conversion Amount of this Note is submitted for conversion, then the Company
shall, as soon as practicable and in no event later than five Business Days
after receipt of the Note (the "Note Delivery Date") and at its own
expense, issue and deliver to the Holder a new Note for the outstanding
principal amount not converted.
(iii) Dispute Resolution. In the case of a
dispute as to the determination of the Market Price or the arithmetic
calculation of the Conversion Rate, the Company shall instruct the Transfer
Agent to issue to the holder the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic calculations
to the holder via facsimile within one (1) Business Day of receipt of such
holder's Conversion Notice. If such holder and the Company are unable to agree
upon the determination of the Market Price or arithmetic calculation of the
Conversion Rate within one (1) Business Day of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall
within one (1) Business Day submit via facsimile (A) the disputed determination
of the Market Price to an independent, reputable investment bank selected by the
Company and approved by the Holders of the Notes representing a majority of the
Conversion Amounts of the Notes then outstanding or (B) the disputed arithmetic
calculation of the Conversion Rate to the Company's independent, outside
accountant. The Company shall cause the investment bank or the accountant, as
the case may be, to perform the determinations or calculations and notify the
Company and the Holders of the results no later than five (5) Business Days from
the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent error.
(iv) Record Holder. The person or persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
(A) Cash Damages. If within four (4) Business
Days after the Overnight Receipt Date the Company shall fail to issue a
certificate to the Holder or credit the Holder's balance account with DTC for
the number of shares of Common Stock to which such Holder is entitled upon such
Holder's conversion of this Note or, subject to Section 2(d)(viii), the Company
shall fail to issue a new Note representing the principal amount to which such
holder is entitled, if any, pursuant to Section 2(d)(ii), in addition to all
other available remedies which such Holder may pursue hereunder and under the
Securities Purchase Agreement (including indemnification pursuant to Section 8
thereof), the Company shall pay additional damages to such Holder for each date
after the Share Delivery Date such conversion is not timely effected and/or each
date after the Note Delivery Date such new Note is not delivered in an amount
equal to 0.5% of the product of (I) the sum of the number of shares of Common
Stock not issued to the Holder on or prior to the Share Delivery Date and to
which such Holder is entitled and, in the event the Company has failed to
deliver a new Note to the Holder on or prior to the Note Delivery Date, the
number of shares of Common Stock issuable upon conversion of the Conversion
Amount represented by the new Note, as of the Note Delivery Date and (II) the
Closing Bid Price of the Common Stock on the Share Delivery Date, in the case of
the failure to deliver Common Stock, or the Note Delivery Date, in the case of
failure to deliver a new Note. If the Company fails to pay the additional
damages set forth in this Section 2(d)(v) within five Business Days of the date
incurred, then the Holder entitled to such payments shall have the right at any
time, so long as the Company continues to fail to make such payments, to require
the Company, upon written notice, to immediately issue, in lieu of such cash
damages, the number of shares of Common Stock equal to the quotient of (X) the
aggregate amount of the damages payments described herein divided by (Y) the
Conversion Price in effect on such Conversion Date as specified by the holder in
the Conversion Notice.
(B) Void Conversion Notice; Adjustment to
Conversion Price. If for any reason the Holder has not received all of the
shares of Common Stock prior to the ninth (9th) Business Day after the Overnight
Receipt Date with respect to a conversion of this Note, then the Holder, upon
written notice to the Company, with a copy to the Transfer Agent, may void its
Conversion Notice with respect to, and retain or have returned, as the case may
be, any principal amount of this Note that has not been converted pursuant to
such Holder's Conversion Notice; provided that the voiding of a Holder's
Conversion Notice shall not effect the Company's obligations to make any
payments which have accrued prior to the date of such notice pursuant to Section
2(d)(v)(A) or otherwise. If for any reason the Holder has not received all of
the shares of Common Stock prior to the fourteenth (14th) Business Day after
the Overnight Receipt Date with respect to a conversion of this Note, then the
Conversion Price of the principal amount of this Note with respect to which the
Company has not delivered shares of Common Stock on or prior to such fourteenth
(14th) Business Day shall be adjusted to the lesser of (I) the Conversion Price
as in effect on the date on which the holder voided the Conversion Notice and
(II) the lowest Closing Bid Price during the period beginning on the Conversion
Date and ending on the date such holder voided the Conversion Notice, subject to
further adjustment as provided in this Note.
(C) Redemption. If for any reason
the Holder has not received all of the shares of Common Stock prior to the ninth
(9th) Business Day after the Overnight Receipt Date with respect to a conversion
of this Note (a "Conversion Failure"), then the Holder, upon written
notice to the Company, may require that the Company redeem any or all of the
Conversion Amount of this Note, including the Conversion Amount previously
submitted for conversion and with respect to which the Company has not delivered
shares of Common Stock, in accordance with Section 3.
(vi) Pro Rata Conversion and Redemption. In
the event the Company receives a Conversion Notice from more than one holder of
the Notes for the same Conversion Date and the Company can convert some, but not
all, of the Notes submitted for conversion, the Company shall convert from each
holder electing to have Notes converted at such time a pro rata amount of such
holder's Conversion Amount submitted for conversion based on the Conversion
Amount of the Notes submitted for conversion on such date by such holder
relative to the Conversion Amount of all Notes submitted for conversion on such
date.
(vii) Mandatory Redemption at Maturity. If any
Conversion Amount of this Note remains outstanding on the Maturity Date, then
all of the Conversion Amount shall be redeemed as of such date (a "Maturity
Date Mandatory Redemption") for an amount in cash equal to the Conversion
Amount on the Maturity Date (the "Maturity Date Redemption Price"). On
the Maturity Date the Company shall pay to each Holder outstanding on the
Maturity Date, by wire transfer of immediately available funds, an amount equal
to the Maturity Date Redemption Price. If the Company shall fail to redeem all
of the Conversion Amount of this Note outstanding on or prior to the date which
is three (3) Business Days after the Maturity Date by payment of the Maturity
Date Redemption Price, then in addition to any remedy the Holder may have under
this Note, the Securities Purchase Agreement and the Registration Rights
Agreement, the Holder shall have the option to require the Company to convert
any or all of the Conversion Amount that the Company should have redeemed under
this Section 2(d)(vii) and for which the Maturity Date Redemption Price
(together with any interest thereon) has not been paid into the number of shares
of Common Stock which the Company would have been required to issue if the
Holder had given a Conversion Notice for such Conversion Amount (together with
any interest thereon) on the Maturity Date at a Conversion Price equal to the
lesser of (A) the Conversion Price in effect on the Maturity Date and (B) 95% of
the Market Price of the Common Stock on the Maturity Date.
(viii) Book-Entry. Notwithstanding anything to
the contrary set forth herein, upon conversion of any portion of this Note in
accordance with the terms hereof, the holder thereof shall not be required to
physically surrender this Note to the Company unless the full Conversion Amount
represented by this Note is being converted. The Holder and the Company shall
maintain records showing the Conversion Amount so converted and the dates of
such conversions or shall use such other method, reasonably satisfactory to the
Holder and the Company, so as not to require physical surrender of this Note
upon each such conversion. In the event of any dispute or discrepancy, such
records of the Company shall be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if this Note is converted as
aforesaid, the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Note of like
tenor, registered as the Holder may request, representing in the aggregate the
remaining Conversion Amount represented by this Note. The Holder and any
assignee, by acceptance of this Note or a new Note, acknowledge and agree that,
by reason of the provisions of this paragraph, following conversion of any
portion of this Note, the Conversion Amount (including the principal of this
Note) represented by this Note may be less than the principal amount and the
accrued interest set forth on the face hereof.
(e) Taxes. The Company shall pay any and all
taxes that may be payable with respect to the issuance and delivery of Common
Stock upon the conversion of Notes.
(f) Adjustments to Conversion Price -- Dilution and
Other Events. In addition to any other adjustments provided herein, the
Conversion Price will be subject to adjustment from time to time as provided in
this Section 2(f).
(i) Adjustment of Conversion Price upon Issuance of
Common Stock. If and whenever on or after the date of issuance of the
Notes, the Company issues or sells, or in accordance with this Section 2(f) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with an Approved Stock Plan (as defined below) or
Excluded Securities (as defined below) or upon conversion of the Notes or
exercise of the Warrants (as defined in the Securities Purchase Agreement)) for
a consideration per share less than a price (the "Applicable Price")
equal to the Market Price on the date of such issue or sale, then immediately
after such issue or sale, the Conversion Price then in effect shall be reduced
to an amount equal to the product of (x) the Conversion Price in effect
immediately prior to such issue or sale and (y) the quotient of (1) the sum of
(I) the product of the Applicable Price and the number of shares of Common Stock
Deemed Outstanding (as defined below) immediately prior to such issue or sale
and (II) the consideration, if any, received by the Company upon such issue or
sale, divided by (2) the product of (I) the Applicable Price multiplied by (II)
the number of shares of Common Stock Deemed Outstanding immediately after such
issue or sale. For purposes of determining the adjusted Conversion Price under
this Section 2(f)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any
manner grants or sells any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange of any Convertible Securities issuable upon exercise of
such Option is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share. For purposes of this Section 2(f)(i)(A), the "lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option
or upon conversion or exchange of any Convertible Securities issuable upon
exercise of such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon granting or sale of the Option, upon exercise of
the Option and upon conversion or exchange of any Convertible Security issuable
upon exercise of such Option. No further adjustment of the Conversion Price
shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 2(f)(i)(A) to the extent that such adjustment is based solely on
the fact that the Convertible Securities issuable upon exercise of such Option
are convertible into or exchangeable for Common Stock at a price which varies
with the market price of the Common Stock.
(B) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance of sale of such Convertible
Securities for such price per share. For the purposes of this Section
2(f)(i)(B), the "price per share for which one share of Common Stock is issuable
upon such conversion or exchange" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange of such Convertible
Security. No further adjustment of the Conversion Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Conversion Price had been or are to be made pursuant to other provisions of this
Section 2(f)(i), no further adjustment of the Conversion Price shall be made by
reason of such issue or sale. Notwithstanding the foregoing, no adjustment
shall be made pursuant to this Section 2(f)(i)(B) to the extent that such
adjustment is based solely on the fact that such Convertible Securities are
convertible into or exchangeable for Common Stock at a price which varies with
the market price of the Common Stock.
(C) Change in Option Price or Rate of
Conversion. If the purchase price provided for in any Options, the
additional consideration, if any, payable upon the issue, conversion or exchange
of any Convertible Securities, or the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 2(f)(i)(C), if
the terms of any Option or Convertible Security that was outstanding as of the
date of issuance of this Note are changed in the manner described in the
immediately preceding sentence, then such Option or Convertible Security and the
Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change. No adjustment
shall be made if such adjustment would result in an increase of the Conversion
Price then in effect.
(D) Calculation of Consideration Received. In
case any Option is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the parties
thereto, the Options will be deemed to have been issued for a consideration of
$0.01. If any Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the net amount received by the Company therefor.
If any Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company will be the fair value of such consideration, except
where such consideration consists of securities, in which case the amount of
consideration received by the Company will be the Market Price of such
securities on the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the holders of the Notes representing a majority of
the Conversion Amount of the Notes then outstanding. If such parties are unable
to reach agreement within 10 days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such consideration
will be determined within five business days after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the holders of the Notes representing a majority of
the Conversion Amounts of the Notes then outstanding. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the
fees and expenses of such appraiser shall be borne by the Company.
(E) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (1) to receive
a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(F) Certain Definitions. For purposes of this
Section 2(f)(i), the following terms have the respective meanings set forth
below:
(I) "Approved Stock Plan" shall mean any
employee benefit plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer or director for services provided to the Company.
(II) "Common Stock Deemed Outstanding" means,
at any given time, the number of shares of Common Stock actually outstanding at
such time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Sections 2(f)(i)(A) and 2(f)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account of the
Company or issuable upon conversion of the Notes or the exercise of the
Warrants.
(III) "Excluded Securities" means any of the
following (a) any issuance by the Company of securities in connection with a
strategic partnership or joint venture with any entity whose primary business is
not investing in or advising other entities, (b) shares of Common Stock issued
by the Company in a firm commitment, underwritten public offering, (c) any
issuance by the Company of securities as consideration for a merger or
consolidation or the acquisition of a business, product, license or other assets
of another person or entity and (d) any issuance by the Company of securities as
consideration to a service provider, which is not an officer or director of the
Company, for services provided to the Company on commercially reasonable terms
and which in the aggregate is less than $1,000,000.
(ii) Adjustment of Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(iii) Other Events. If any event occurs of the
type contemplated by the provisions of this Section 2(f) but not expressly
provided for by such provisions (including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price so as to protect the rights of the holders of
the Notes; provided that no such adjustment will increase the Conversion Price
as otherwise determined pursuant to this Section 2(f).
(iv) Notices.
(A) Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to each holder of the Notes
setting forth in reasonable detail, and certifying, the calculation of such
adjustment.
(B) The Company will give written notice to each
holder of the Notes at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (I) with respect to any dividend or
distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for determining rights to
vote with respect to any Organic Change (as defined in Section 4(a)),
dissolution or liquidation, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to each
such holder.
(C) The Company will also give written notice to each
holder of the Notes at least twenty (20) days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to each such holder.
3. Redemption at Option of Holder.
(a) Redemption Option Upon Triggering Event.
In addition to all other rights of the Holder contained herein, after a
Triggering Event (as defined below), the Holder shall have the right, at the
Holder's option, to require the Company to redeem all or a portion of this Note
at a price equal to (x) with respect to a Triggering Event described in clauses
(iii) or (vii) of Section 3(b) below, 110% of the Conversion Amount, and (y)
with respect to a Triggering Event described in clauses (i), (ii), (iv), (v) or
(vi) of Section 3(b) below, the greater of (i) 110% of the Conversion Amount and
(ii) the product of (A) the Conversion Rate for the Conversion Amount to be
redeemed in effect at such time as such holder delivers a Notice of Redemption
at Option of Buyer (as defined below) and (B) the Closing Bid Price in effect on
the date such holder delivers a Notice of Redemption at Option of Buyer or, if
such day is not a trading day, the immediately preceding trading day on which
the Principal Market, or the market or exchange where the Common Stock is then
traded, is open for trading ("Redemption Price").
(b) "Triggering Event". A "Triggering
Event" shall be deemed to have occurred at such time as any of the following
events:
(i) the failure of the Registration Statement to be
declared effective by the SEC on or prior to the Effectiveness Deadline (as
defined in the Registration Rights Agreement);
(ii) while the Registration Statement is required to
be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the Holder for sale of all of such Holder's Registrable Securities (as
defined in the Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability continues
for a period of five consecutive trading days or any 10 trading days in a 365-
day period (excluding days during an Allowable Grace Period);
(iii) the suspension from trading or failure of the
Common Stock to be listed on the Nasdaq National Market or The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc. for a period of five
consecutive trading days or for more than an aggregate of 10 trading days in any
365-day period;
(iv) the Company's or the Transfer Agent's notice to
any holder of Notes, including by way of public announcement, at any time, of
its intention not to comply with a request for conversion of any Notes into
shares of Common Stock that is tendered in accordance with the provisions of the
Notes;
(v) a Conversion Failure (as defined in Section
2(d)(v)(C));
(vi) upon the Company's receipt of a Conversion
Notice, the Company shall not be obligated to issue the shares of Common Stock
issuable upon such conversion of Notes due to the provisions of Section 12;
or
(vii) the Company breaches any representation,
warranty, covenant or other term or condition of the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrants, this Note or any
other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby and hereby, except to the
extent that such breach would not have a Material Adverse Effect (as defined in
Section 3(a) of the Securities Purchase Agreement) and except, in the case of a
breach of a covenant which is curable, only if such breach continues for a
period of at least 10 days.
(c) Mechanics of Redemption at Option of Buyer.
Within one (1) Business Day after the occurrence of a Triggering Event described
in clauses (i), (ii), (iii), (iv), (v) or (vi) of Section 3(b), or within one
(1) Business Day of the Company becoming aware of a Triggering Event described
in clause (vii) of Section 3(b), as the case may be, the Company shall deliver
written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of the Notes. At any time after the
earlier of the Holder's receipt of a Notice of Triggering Event and the Holder
becoming aware of a Triggering Event, the Holder may require the Company to
redeem all of such Holder's Notes by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of
Buyer") to the Company, which Notice of Redemption at Option of Buyer shall
indicate (i) the Conversion Amount of the Notes that the Holder is electing to
redeem and (ii) the applicable Redemption Price, as calculated pursuant to
Section 3(a) above.
(d) Payment of Redemption Price. Upon the
Company's receipt of a Notice(s) of Redemption at Option of Buyer from any
holder of Notes, the Company shall immediately notify each holder of Notes by
facsimile of the Company's receipt of such notices. The Company shall deliver
the applicable Redemption Price to the Holder within 10 Business Days after the
Company's receipt of a Notice of Redemption at Option of Buyer; provided that
the Holder's Notes shall have been delivered to the Company. If more than one
holder of Notes submits Notes for redemption and the Company is unable to redeem
all of the Notes submitted for redemption, the Company shall redeem a pro rata
amount from each holder of Notes based on the Conversion Amount represented by
the Notes submitted for redemption by such holder relative to the aggregate
Conversion Amounts of all Notes for redemption by all holders of Notes.
(e) Void Redemption. In the event that the
Company does not pay the Redemption Price within the time period set forth in
Section 3(d), at any time thereafter and until the Company pays such unpaid
applicable Redemption Price in full, the Holder shall have the option (the
"Void Optional Redemption Option") to, in lieu of redemption, require the
Company to promptly return to the Holder the Note that was submitted for
redemption by such Holder under this Section 3 and for which the applicable
Redemption Price (together with any interest thereon) has not been paid, by
sending written notice thereof to the Company via facsimile (the "Void
Optional Redemption Notice"). Upon the Company's receipt of such Void
Optional Redemption Notice, (i) the Notice of Redemption at Option of Buyer
shall be null and void with respect to that portion of the Note subject to the
Void Optional Redemption Notice, (ii) the Company shall immediately return the
Note subject to the Void Optional Redemption Notice, and (iii) the Conversion
Price of such portion of the Note shall be adjusted to the lesser of (A) the
Conversion Price as in effect on the date on which the Void Optional Redemption
Notice is delivered to the Company and (B) the lowest Closing Bid Price during
the period beginning on the date on which the Notice of Redemption at Option of
Buyer is delivered to the Company and ending on the date on which the Void
Optional Redemption Notice is delivered to the Company.
(f) Disputes; Miscellaneous. In the event of a
dispute as to the determination of the Closing Bid Price or the arithmetic
calculation of the Redemption Price, such dispute shall be resolved pursuant to
Section 2(d)(iii) above with the term "Closing Bid Price" being substituted for
the term "Market Price" and the term "Redemption Price" being substituted for
the term "Conversion Rate". The Holder's delivery of a Void Optional Redemption
Notice and exercise of its rights following such notice shall not effect the
Company's obligations to make any payments which have accrued prior to the date
of such notice. In the event of a redemption pursuant to this Section 3 of less
than all of the Conversion Amount of this Note, the Company shall promptly cause
to be issued and delivered to the Holder a new Note representing the remaining
Conversion Amount which has not been redeemed.
4. Other Rights of Holders.
(a) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets to another Person or other transaction which is effected in
such a way that holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is referred to herein as "Organic Change."
Prior to the consummation of any (i) sale of all or substantially all of the
Company's assets to an acquiring Person or (ii) other Organic Change following
which the Company is not a surviving entity, the Company will secure from the
Person purchasing such assets or the successor resulting from such Organic
Change (in each case, the "Acquiring Entity") a written agreement (in
form and substance reasonably satisfactory to the holders of the Notes
representing a majority of the Conversion Amounts of the Notes then outstanding)
that the Acquiring Entity will assume the obligations represented by this Note
(including, without limitation, the right to convert this Note into the
securities or assets issued to the holders of the Common Stock in connection
with such Organic Change).
(b) Optional Redemption Upon Corporate Event.
In addition to the rights of the Holder under Section 4(a), upon a Corporate
Event (as defined below) of the Company the Holder shall have the right, at the
Holder's option, to require the Company to redeem all or a portion of the
Conversion Amount represented by this Note equal to 110% of the Conversion
Amount ("Corporate Event Redemption Price"). No sooner than 15 days nor
later than 10 days prior to the consummation of a Corporate Event, but not prior
to the public announcement of such Corporate Event, the Company shall deliver
written notice thereof via facsimile and overnight courier (a "Notice of
Corporate Event") to the Holder. At any time during the period beginning
after receipt of a Notice of Corporate Event (or, in the event a Notice of
Corporate Event is not delivered at least 10 days prior to a Corporate Event, at
any time on or after the date which is 10 days prior to a Corporate Event) and
ending on the date of such Corporate Event, the Holder may require the Company
to redeem all or a portion of the Conversion Amount of this Note then
outstanding by delivering written notice thereof via facsimile and overnight
courier (a "Notice of Redemption Upon Corporate Event") to the Company,
which Notice of Redemption Upon Corporate Event shall indicate (i) the
Conversion Amount the Holder is submitting for redemption, and (ii) the
applicable Corporate Event Redemption Price, as calculated pursuant to Section
this Section 4(b). Upon the Company's receipt of a Notice(s) of Redemption Upon
Corporate Event from any holder of Notes, the Company shall promptly, but in no
event later than one (1) Business Day following such receipt, notify the Holder
of this Note by facsimile of the Company's receipt of such Notice(s) of
Redemption Upon Corporate Event. The Company shall deliver the applicable
Corporate Event Redemption Price simultaneous with the consummation of the
Corporate Event; provided that, if required by Section 2(d)(viii), this Note
shall have been so delivered to the Company. Payments provided for in this
Section 4(b) shall have priority to payments to the Company's stockholders in
connection with a Corporate Event. For purposes of this Section 4(b),
"Corporate Event" means any of the following in which the consideration
to be paid per share is less than the Conversion Price: (i) the consolidation,
merger or other business combination of the Company with or into another Person
(other than (A) a consolidation, merger or other business combination in which
holders of the Company's voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the voting power
of the surviving entity or entities necessary to elect a majority of the members
of the board of directors (or their equivalent if other than a corporation) of
such entity or entities, or (B) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company),
(ii) the sale or transfer of all or substantially all of the Company's assets,
or (iii) a purchase, tender or exchange offer made to and accepted by the
holders of more than the 50% of the outstanding shares of Common Stock.
(c) Purchase Rights. If at any time the
Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "Purchase Rights"), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a 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.
(d) Right to Exchange Note. At any time prior to
the Maturity Date and so long as any principal amount is still outstanding under
this Note, if the Company issues or agrees to issue any equity securities or any
instrument convertible into or exercisable or exchangeable for equity securities
of the Company ("New Equity Securities"), then within one Business Day
after the issuance of such New Equity Securities, the Company shall make an
irrevocable exchange offer to the Holder on such terms and conditions as the
Holder shall reasonably require to either exchange any or all of the Conversion
Amount of this Note for a like amount in value of the New Equity Securities or
replace the Conversion Price then in effect with the issuance price or
conversion price as determined over time pursuant to those documents which
dictate the terms of the New Equity Security. Each such exchange offer shall
remain open for at least 15 Business Days or until such time as the Holder
accepts or rejects, in writing, such exchange offer. In the event the Holder
elects to replace the existing Conversion Price, then from and after the date of
the Company's receipt of the Holder's written acceptance pursuant to this
Section 4(d), the Conversion Price will automatically be replaced with the
issuance price or conversion price formula of the New Equity Security. If the
consummation or terms of the New Equity Security constitutes material non-public
information, then the Company shall disclose the terms of such New Equity
Security on a Form 8-K within one Business Day after the initial issuance of
such New Equity Security. The Company's obligation to provide the "New Financing
Notice" and offer to exchange the existing Note or replace the existing
Conversion Price shall not apply to (i) the Company's issuance of securities (A)
as consideration of a merger or consolidation or (B) in connection with any
strategic partnership or joint venture with any entity whose primary business is
not investing in or advising other entities, (ii) the issuance of Common Stock
in a firm commitment, underwritten public offering, (iii) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the Issuance Date provided the
terms of such securities are not amended after the Issuance Date, and (iv) the
grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option plan, restricted stock plan or stock
purchase plan for the benefit of the Company's employees, officers or directors
for services provided to the Company.
5. Limitations on Beneficial Ownership. The
Company shall not be obligated to effect any conversion of this Note and no
Holder shall have the right to convert any Conversion Amount pursuant to Section
2(b) to the extent that after giving effect to such conversion such Person
(together with such Person's affiliates) would have acquired, through conversion
of the Notes or otherwise, in excess of 10.00% of the outstanding shares of the
Common Stock following such conversion during the 60-day period ending on and
including the date of such conversion. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by a Person and its
affiliates or acquired by a Person and its affiliates, as the case may be, shall
include the number of shares of Common Stock issuable upon conversion of the
Conversion Amount of such Notes with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon (i) conversion of the remaining, nonconverted
Conversion Amount of such Notes beneficially owned by such Person and its
affiliates and (ii) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company (including, without limitation,
the Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by such Person and its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 5(a), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this Section 5, in determining the number of outstanding shares of
Common Stock a holder may rely on the number of outstanding shares of Common
Stock as reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as
the case may be, (2) a more recent public announcement by the Company or (3)
any other notice by the Company or its Transfer Agent setting forth the number
of shares of Common Stock outstanding. For any reason at any time, upon the
written or oral request of the Holder, the Company shall within two (2) Business
Days confirm orally and in writing to the Holder the number of shares Common
Stock then outstanding. In any case, the number of outstanding shares of
Common Stock shall be determined after giving effect to the conversion of the
Conversion Amount of such Notes and exercising the Warrants by the Person and
its affiliates since the date as of which such number of outstanding shares of
Common Stock was reported.
6. Redemption at the Company's Election. At
any time or times during the period beginning on the first anniversary of the
Issuance Date and ending on and including the Maturity Date, the Company shall
have the right, in its sole discretion, to require that some or all of the
outstanding Conversion Amount of the outstanding Notes issued on such Issuance
Date be redeemed ("Redemption at Company's Election") for consideration
equal to (i) in the event that the Company's Election Redemption Date (as
defined below) is prior to the date which is the second anniversary of the
Issuance Date, 175% of the Conversion Amount of such Notes to be redeemed on the
Company Election Redemption Date or (ii) in the event that the Company's
Election Redemption Date is on or after the date which is the second anniversary
of the Issuance Date, 150% of the Conversion Amount of such Notes to be redeemed
on the Company Election Redemption Date (the "Company's Election Redemption
Price"); provided that the Conditions to Redemption at the Company's
Election (as set forth below) are satisfied. The Company shall exercise its
right to Redemption at Company's Election by providing each holder of Notes
written notice ("Notice of Redemption at Company's Election") at least 20
Business Days but not more than 30 Business Days prior to the date of
consummation of such redemption ("Company's Election Redemption Date").
If the Company elects to require redemption of some, but not all, of the
Conversion Amount of the Notes then outstanding, the Company shall require
redemption of the pro rata amount from each holder of such Notes based on the
principal amount of Notes purchased by such holder relative to the aggregate
principal amount of all Notes purchased pursuant to the Securities Purchase
Agreement (such amount with respect to the Holder being referred to herein as
its "Pro Rata Redemption Amount"). The Notice of Redemption at Company's
Election shall indicate (x) the Conversion Amount of the Notes the Company has
elected to redeem from all holder of Notes, (y) the Company's Election
Redemption Date, and (z) each holder's Pro Rata Redemption Amount. If the
Company has exercised its right of Redemption at Company's Election and the
conditions of this Section 6, including the Conditions to Redemption at
Company's Election, have been satisfied, then each holder's Pro Rata Redemption
Amount shall be redeemed as of the Company's Election Redemption Date by payment
by the Company to each holder of the Notes of the Company's Election Redemption
Price. If required by Section 2(d)(viii), all holders of the Notes shall
thereupon and within two Business Days after the Company's Election Redemption
Date or such earlier date as the Company and each holder of Notes mutually
agree, surrender all Notes being redeemed on such date to the Company. If the
Company fails to pay the full Company's Election Redemption Price with respect
to this Note then the Redemption at Company's Election shall be null and void
with respect to this Note and the Holder shall be entitled to all the rights of
a holder of outstanding Notes. "Conditions to Redemption at the Company's
Election" means the following conditions: (i) during the period beginning
on the Issuance Date and ending on and including the Company's Election
Redemption Date, the Company shall have delivered Conversion Shares upon
conversion of the Notes to the holders of the Notes on a timely basis as set
forth in Section 2(d)(ii) of this Note; (ii) on each day during the period
beginning 30 days prior to the date of Notice of Redemption at Company's
Election and ending on and including the Company's Election Redemption Date the
Registration Statement shall be effective and available for the sale of at least
all of the Registrable Securities (as defined in the Registration Rights
Agreement); (iii) on each day during the period beginning 30 days prior to
the date of Notice of Redemption at Company's Election and ending on and
including the Company's Election Redemption Date, the Common Stock is designated
for quotation on the Nasdaq National Market or listed on The New York Stock
Exchange, Inc., is not suspended from trading and neither delisting nor
suspension by such exchanges shall have been threatened either (A) in writing by
such exchanges or (B) by falling below the minimum listing maintenance
requirements of such exchanges; (iv) during the period beginning on the Issuance
Date and ending on and including the Company's Election Redemption Date, there
shall not have occurred a Triggering Event or an event that with the passage of
time and without being cured would constitute a Triggering Event; (v) during
the period beginning on the Issuance Date and ending on and including the
Company's Election Redemption Date, there shall not have occurred the
consummation of a Change of Control or the public announcement of a pending
Change of Control which has not been terminated; and (vi) the Company
otherwise has satisfied its obligations in all material respects and is not in
default in any material respect under this Note, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement. Notwithstanding
the above, but subject to Section 5, the Holder may convert any Conversion
Amount (including Conversion Amounts selected for redemption) into Common Stock
pursuant to Section 2(b) on or prior to the date immediately preceding the
Company's Election Redemption Date. If the Company fails to timely pay any
Company's Election Redemption Price in accordance with this Section 6, then the
Company shall not be permitted to submit another Notice of Redemption at
Company's Election without the prior written consent of the holders of the Notes
representing at least two-thirds (2/3) of the Conversion Amounts of the Notes
then outstanding.
7. Series B Redemption at the Company's
Election. On the date which is 90 days following the Issuance Date (the
"Series B Redemption Trigger Date"), the Company shall have the right, in
its sole discretion, to require that all of the outstanding Conversion Amounts
of the outstanding Series B Notes issued on such Issuance Date be redeemed
("Series B Redemption at Company's Election") by providing written notice
to each holder of the Series B Notes on such date ("Notice of Series B
Redemption at Company's Election"), provided that the Series B Conditions to
Redemption at the Company's Election (as set forth below) are satisfied. The
Company shall redeem the Series B Notes for consideration equal to (i) in the
event that on the Series B Redemption Trigger Date the Conversion Price is less
than the quotient of (A) the Series A Conversion Price on the Series B
Redemption Trigger Date, divided by (B) 1.175 (the "Redemption Market
Price"), the Conversion Amount of such Series B Notes to be redeemed on the
Company's Series B Election Redemption Date (as defined below) or (ii) in the
event that on the Series B Redemption Trigger Date the Conversion Price is
greater than 200% of the Redemption Market Price, 107.5% of the principal amount
of the Series B Note to be redeemed on the Company's Series B Election
Redemption Date (the "Company's Series B Election Redemption Price").
The Notice of Series B Redemption at Company's Election
shall indicate the date on which the Series B Redemption at Company's Election
will take place which date shall be at least 5 Business Days but not more than
10 Business Days after the date of receipt by each holder of the Series B Notes
of the Notice of Series B Redemption at the Company's Election ("Company's
Series B Election Redemption Date"). If the Company has exercised its right
of Series B Redemption at Company's Election and the conditions of this Section
7, including the Series B Conditions to Redemption at Company's Election, have
been satisfied, then each holder's Series B Notes shall be redeemed as of the
Company's Series B Election Redemption Date by payment by the Company to each
holder of the Series B Notes of the Company's Series B Election Redemption
Price. All holders of the Series B Notes shall thereupon and within two
Business Days after the Company's Series B Election Redemption Date or such
earlier date as the Company and each holder of Series B Notes mutually agree,
surrender all Series B Notes being redeemed on such date to the Company.
If the Company fails to pay the full Company's Series B
Election Redemption Price with respect to this Note then the Series B Redemption
at Company's Election shall be null and void with respect to this Note and the
Holder shall be entitled to all the rights of a Holder of outstanding Series B
Notes. "Series B Conditions to Redemption at the Company's Election"
means the following conditions: (i) during the period beginning on the Issuance
Date and ending on and including the Company's Series B Election Redemption
Date, the Company shall have delivered Conversion Shares upon conversion of the
Series A Notes to the holders of the Series A Notes on a timely basis as set
forth in Section 2(d)(ii) of the Notes; (ii) on the Series B Redemption Trigger
Date the Conversion Price shall either be (A) less than the Redemption Market
Price or (B) greater than 200% of the Redemption Market Price; and (iii) on
each day during the period beginning 30 days prior to the date of Notice of
Series B Redemption at Company's Election and ending on and including the
Company's Series B Election Redemption Date, the Common Stock is designated for
quotation on the Nasdaq National Market or listed on The New York Stock
Exchange, Inc., is not suspended from trading and neither delisting nor
suspension by such exchanges shall have been threatened either (A) in writing by
such exchanges or (B) by falling below the minimum listing maintenance
requirements of such exchanges. If the Company fails to timely pay any
Company's Series B Election Redemption Price in accordance with this Section 7,
then the Company shall not be permitted to submit another Notice of Series B
Redemption at Company's Election without the prior written consent of the
holders of the Series B Notes representing at least two-thirds (2/3) of the
Conversion Amounts of the Series B Notes then outstanding.
8. Reservation of Shares. The Company shall,
so long as any principal amount of the Note is outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all of the Conversion Amounts of the Notes then outstanding; provided that
the number of shares of Common Stock so reserved shall at no time be less than
115% of the number of shares of Common Stock for which the Conversion Amounts of
the Notes are at any time convertible. The initial number of shares of Common
Stock reserved for conversions of the Notes and each increase in the number of
shares so reserved shall be allocated pro rata among the holders of the Notes
based on the principal amount of the Notes held by each holder at the time of
issuance of the Notes or increase in the number of reserved shares, as the case
may be. 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 the
number of reserved shares of Common Stock reserved for such transferor. Any
shares of Common Stock reserved and allocated to any Person which ceases to hold
any Notes shall be allocated to the remaining holders of the Notes, pro rata
based on the principal amount of the Notes then held by such holders.
9. Voting Rights; Rank. Holders of the Notes
shall have no voting rights, except as required by law, including but not
limited to the General Corporation Law of the State of Delaware, and as
expressly provided in this Note. Payments of principal and interest and other
payments due under this Note, except as otherwise provided herein, shall rank
pari passu with and shall not be subordinated to any other unsecured debt
obligations of the Company.
10. Restriction on Redemption and Dividends.
Until all of the Conversion Amount of this Note has been converted, redeemed or
otherwise satisfied as provided herein, the Company shall not, directly or
indirectly, redeem, or declare or pay any cash dividend or distribution on, its
capital stock without the prior express written consent of the holders of Notes
representing a majority of the Conversion Amounts of the Notes then
outstanding, except for payments on convertible securities of the Company
outstanding on the Issuance Date pursuant to the terms of such convertible
securities as in effect on the Issuance Date.
11. Participation. The holders of the Notes
shall be entitled to such dividends paid and distributions made to the holders
of Common Stock to the same extent as if such holders of Notes had converted the
Notes into Common Stock (without regard to any limitations on conversion herein
or elsewhere) and had held such shares of Common Stock on the record date for
such dividends and distributions. Payments under the preceding sentence shall
be made concurrently with the dividend or distribution to the holders of Common
Stock.
12. Limitation on Number of Conversion Shares.
The Company shall not be obligated to issue any shares of Common Stock upon
conversion of this Note if the issuance of such shares of Common Stock would
exceed that number of shares of Common Stock which the Company may issue upon
conversion of the Notes (the "Exchange Cap") without breaching the
Company's obligations under the rules or regulations of the Principal Market, or
the market or exchange where the Common Stock is then traded, except that such
limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market, or the market or exchange where the Common Stock is then
traded, (or any successor rule or regulation) for issuances of Common Stock in
excess of such amount or (b) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the holders of a majority of the Conversion Amount of
the Notes then outstanding. Until such approval or written opinion is obtained,
no purchaser of Notes pursuant to the Securities Purchase Agreement (the
"Purchasers") shall be issued, upon conversion of the Notes, shares of
Common Stock in an amount greater than the product of (i) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the principal
amount of the Notes issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate principal amount of all
Notes issued to the Purchasers pursuant to the Securities Purchase Agreement
(the "Cap Allocation Amount"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Notes, the transferee shall
be allocated a pro rata portion of such Purchaser's Cap Allocation Amount. In
the event that any holder of Notes, shall convert all of such holder's Notes
into a number of shares of Common Stock which, in the aggregate, is less than
such holder's Cap Allocation Amount, then the difference between such holder's
Cap Allocation Amount and the number of shares of Common Stock actually issued
to such holder shall be allocated to the respective Cap Allocation Amounts of
the remaining Holders of Notes on a pro rata basis in proportion to Conversion
Amount of Notes then held by each such Holder.
13. Reissuance of Notes. Subject to Section
2(d)(viii) in the event of a conversion or redemption pursuant to this Note of
less than all of the Conversion Amount represented by this Note, the Company
shall promptly cause to be issued and delivered to the Holder, upon tender by
the Holder of this Note converted or redeemed, a new note of like tenor
representing the remaining principal amount of this Note which has not been so
converted or redeemed.
14. Defaults and Remedies.
(a) Events of Default. An "Event of
Default" is: (i) default for thirty (30) days in payment of interest or
Default Interest on this Note on or after the Maturity Date; (ii) default in
payment of the principal amount of this Note when and as due; (iii) failure by
the Company for thirty (30) days after notice to it to comply with any other
material provision of this Note; (iv) any default under or acceleration prior to
maturity of any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed of at least $500,000 by the Company or for money borrowed the repayment
of at least $500,000 of which is guaranteed by the Company, whether such
indebtedness or guarantee now exists or shall be created hereafter, (v) if the
Company pursuant to or within the meaning of any Bankruptcy Law; (A) commences a
voluntary case; (B) consents to the entry of an order for relief against it in
an involuntary case; (C) consents to the appointment of a Custodian of it or for
all or substantially all of its property; (D) makes a general assignment for the
benefit of its creditors; or (E) admits in writing that it is generally unable
to pay its debts as the same become due; or (vi) a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that: (1) is
for relief against the Company in an involuntary case; (2) appoints a Custodian
of the Company or for all or substantially all of its property; or (3) orders
the liquidation of the Company or any subsidiary, and the order or decree
remains unstayed and in effect for ninety (90) days. The Term "Bankruptcy
Law" means Title 11, U.S. Code, or any similar Federal or State Law for the
relief of debtors. The term "Custodian" means any receiver, trustee,
assignee, liquidator or similar official under any Bankruptcy Law.
(b) Remedies. If an Event of Default occurs
and is continuing, the Holder of this Note may declare all of this Note,
including any interest and Default Interest and other amounts due, to be due and
payable immediately, except that in the case of an Event of Default arising from
events described in clauses (iv) and (v) of Section 14(a), this Note shall
become due and payable without further action or notice. Holder may not enforce
the provisions of this Section 14 except as provided in this Section 14. In
addition to any remedy such holder of the Notes may have under this Note and the
Securities Purchase Agreement, such unpaid amount shall bear interest at the
rate of 1.5% per month (prorated for partial months) until paid in full
15. Vote to Change the Terms of the Notes. The
Notes and any provision hereof or thereof may only be amended by an instrument
in writing signed by the Company and holders of a majority of the aggregate
Conversion Amount of the Notes then outstanding. The term "Note" and all
reference thereto, as used throughout this instrument, shall mean this
instrument (and the other Notes issued pursuant to the Securities Purchase
Agreement) as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
16. Rule 144A Information Requirement. Within
the period prior to the expiration of the holding period applicable to sales
hereof under Rule 144(k) under the 1933 Act (or any successor provision), the
Company covenants and agrees that it shall, during any period in which it is not
subject to Section 13 or 15(d) under the 1934 Act, make available to the Holder
and the holder of any Common Stock issued upon exercise of this Note which
continue to be Restricted Securities in connection with any sale thereof and any
prospective purchaser of this Note from the Holder, the information required
pursuant to Rule 144A(d)(4) under the 1933 Act upon the request of the Holder
and it will take such further action as the Holder may reasonably request, all
to the extent required from time to time to enable the Holder to sell this Note
without registration under the 1933 Act within the limitation of the exemption
provided by Rule 144A, as Rue 144A may be amended from time to time. Upon the
request of the Holder, the Company will deliver to the Holder a written
statement as to whether it has complied with such requirements.
17. Lost or Stolen Notes. Upon receipt by the
Company of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note, and, in the case of loss, theft or destruction, of
an indemnification undertaking by the Holder to the Company in a customary form
and, in the case of mutilation, upon surrender and cancellation of this Note,
the Company shall execute and deliver new notes of like tenor and date;
provided, however, the Company shall not be obligated to re-issue notes if the
Holder contemporaneously requests the Company to convert such remaining
principal amount into Common Stock.
18. Payment of Collection, Enforcement and Other
Costs. If: (i) this Note is placed in the hands of an attorney for
collection or enforcement or is collected or enforced through any legal
proceeding; or (ii) an attorney is retained to represent the Holder of this Note
in any bankruptcy, reorganization, receivership of the Company or other
proceedings affecting Company creditors' rights and involving a claim under this
Note, then the Company shall pay to the Holders all attorney's fees, costs and
expenses incurred in connection therewith, in addition to all other amounts due
hereunder.
19. Cancellation. After all principal and
accrued interest at any time owed on this Note has been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
20. Note Exchangeable for Different
Denominations. This Note is exchangeable, upon the surrender hereof by the
holder at the principal office of the Company, for a new Note or Notes (in
principal amounts of at least $100,000) containing the same terms and conditions
and representing in the aggregate the principal amount of this Note, and each
such new Note will represent such portion of such principal amount as is
designated by the holder at the time of such surrender. The date the Company
initially issues this Note will be deemed to be the "Issuance Date" hereof
regardless of the number of times a new Note shall be issued.
21. Waiver of Notice. To the extent permitted
by law, the Company hereby waives demand, notice, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note and the Securities Purchase Agreement.
22. Governing Law. This Note shall be
construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Note shall be
governed by, the laws of the State of New York, without giving effect to
provisions thereof regarding conflict of laws.
23. Remedies, Characterizations, Other Obligations,
Breaches and Injunctive Relief. 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), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit the Holder's right to pursue actual damages for any failure by the
Company to comply with the terms of this Note. The Company covenants to the
Holder that there shall be no characterization concerning this instrument other
than as expressly provided herein. Amounts set forth or provided for herein
with respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the Holder thereof and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any such breach or threatened breach, the Holder of
this Note 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.
24. Specific Shall Not Limit General;
Construction. No specific provision contained in this Note shall limit or
modify any more general provision contained herein. This Note shall be deemed
to be jointly drafted by the Company and the Holder and shall not be construed
against any person as the drafter hereof.
25. Failure or Indulgence Not Waiver. No
failure or delay on the part of this Note in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
26. Notices. Whenever notice is required to be
given under this Note, unless otherwise provided herein, such notice shall be
given in accordance with Section 9(f) of the Securities Purchase Agreement.
* * * * *
IN WITNESS WHEREOF, the Company has caused this
Note to be signed by ___________________, its _______________________, as of the
____ day of ____________, ______.
8X8, INC.
By:
Name: _______________________
Its: _______________________
Exhibit C - Form of Warrant
EXHIBIT C
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM REASONABLY
SATISFACTORY TO THE ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO EITHER RULE
144A UNDER SAID ACT TO A QUALIFIED INSTITUTIONAL BUYER OR RULE 144 UNDER SAID
ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE
APPLICABLE STATE SECURITIES LAWS. NOTWITHSTANDING THE FOREGOING, THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN
SECURED BY THE SECURITIES.
8X8,
INC.
Warrant To
Purchase Common Stock
Warrant No.: Number of Shares:
Date of Issuance: December __, 1999
8x8, Inc., a Delaware corporation (the "Company"), hereby certifies
that, ____________________, the registered holder hereof or its permitted
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company upon surrender of this warrant (this "Warrant"), at any time or
times on or after the date hereof, but not after 11:59 P.M. Central Time on the
Expiration Date (as defined herein) a number of fully paid nonassessable shares
of Common Stock (as defined herein) of the Company equal to the quotient of the
principal amount of the Series [A / B] Notes held by the holder of this
Warrant on the Series [A / B] Market Price Date (as defined below)
divided by the Conversion Price (as defined in the Series [A / B] Notes)
of the Series [A / B] Notes (as defined below) on the Series [A /
B] Market Price Date (the "Warrant Shares") at the purchase price per
share provided in Section 1(b) below; provided, however, that the Company shall
not effect the exercise of this Warrant and no holder of this Warrant shall have
the right to exercise this Warrant to the extent that after giving effect to
such exercise such Person (together with such Person's affiliates) (A) would
beneficially own in excess of 10.00% of the outstanding shares of the Common
Stock following such conversion or (B) would have acquired, through the exercise
of this Warrant or otherwise, in excess of 10.00% of the outstanding shares of
the Common Stock following such exercise during the 60-day period ending on and
including such exercise date. For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by a Person and its
affiliates or acquired by a Person and its affiliates, as the case may be, shall
include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (i) conversion of the remaining, non-exercised Warrants beneficially owned
by such Person and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without limitation, the Notes (as defined below)) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by such Person and its affiliates. Except as set
forth in the preceding sentence, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.
For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock a holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-Q or Form 10-K, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of any a holder,
the Company shall within two (2) Business Days confirm orally and in writing to
any such holder the number of shares Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the exercise of this Warrant and the conversion of Notes
by such holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
Section 1.
- Securities Purchase Agreement. This Warrant is one of the
warrants of the Company (the "Note Warrants") issued pursuant to the
Securities Purchase Agreement, dated as of December 15, 1999, among the Company
and the investors set forth on the Schedule of Buyers attached thereto (the
"Securities Purchase Agreement").
- Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
- "Approved Stock Plan"
shall mean any employee benefit plan which
has been approved by the Board of Directors of the Company, pursuant to which
the Company's securities may be issued to any employee, officer, director,
consultant or other service provider for services provided to the Company.
- "Business Day" means any day other than Saturday, Sunday or other
day on which commercial banks in the City of New York are authorized or required
by law to remain closed.
- "Closing Bid Price" means, for any security as of any date, the
last closing bid price for such security on the Principal Market (as defined
below) as reported by Bloomberg Financial Markets ("Bloomberg"), or, if
the Principal Market is not the principal trading market for such security, the
last closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid 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 closing bid price is reported for such
security by Bloomberg, the last closing trade price for such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as mutually determined by the Company
and the holders of the Notes. All such determinations to be appropriately
adjusted for any stock dividend, stock split or other similar transaction during
such period.
- "Common Stock" means (i) the Company's common stock, par
value $0.001 per share, and (ii) any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
- "Common Stock Deemed Outstanding" means, at any given time, the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock deemed to be outstanding pursuant to Sections
8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as defined below)
or Convertible Securities (as defined below) are actually exercisable or
convertible at such time, but excluding any shares of Common Stock owned or held
by or for the account of the Company or issuable upon exercise of the
Warrants.
- "Convertible Securities" means any stock or securities (other
than Options) directly or indirectly convertible into or exchangeable for Common
Stock.
- "Excluded Securities" means any of the following (a) any issuance
by the Company of securities in connection with a strategic partnership or joint
venture with any entity whose primary business is not investing in or advising
other entities, (b) shares of Common Stock issued by the Company in a firm
commitment, underwritten public offering, (c) any issuance by the Company of
securities as consideration for a merger or consolidation or the acquisition of
a business, product, license or other assets of another person or entity and (d)
any issuance by the Company of securities as consideration to a service
provider, which is not an officer or director of the Company, for services to
the Company on commercially reasonable terms and which in the aggregate is less
than $1,000,000.
- "Expiration Date" means the date three (3) years from the date of
this Warrant or, if such date falls on a Saturday, Sunday or other day on which
banks are required or authorized to be closed in the City of New York or on
which trading does not take place on the principal exchange or automated
quotation system on which the Common Stock is traded (a "Holiday"), the
next date that is not a Holiday.
- "Notes" means the Series A Notes (as defined below) and the
Series B Notes (as defined below).
- "Options" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
- "Other Securities" means those rights, warrants, options and
convertible securities of the Company issued prior to, and outstanding on, the
date of issuance of this Warrant.
- "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
- "Principal Market" means the Nasdaq National Market.
- "Registration Rights Agreement" means the Registration Rights
Agreement, dated December 15, 1999, by and among the Company and the investors
listed on the Schedule of Investors attached thereto.
- "Restricted Securities" means securities that are not eligible
for resale pursuant to Rule 144(k) under the 1933 Act (or any successor
provision).
- "Securities Act"
means the Securities Act of 1933, as amended.
- "Series [A / B] Market Price Date"
means the [date which is 36
trading days after the Warrant Date {Series A} / date which is 11 trading days
after the date which is 90 days after the Warrant Date {Series B}].
- "Series A Notes"
means the Series A Convertible Notes issued
pursuant to the Securities Purchase Agreement.
- "Series B Notes"
means the Series B Convertible Notes issued
pursuant to the Securities Purchase Agreement.
- "Warrant"
means this Warrant and all Warrants issued in exchange,
transfer or replacement of any thereof.
- "Warrant Exercise Price"
shall be equal to the Conversion Price
(as defined in the [Series A Notes/Series B Notes]), of the [Series
A/Series B] Notes, then in effect (or if no [Series A / Series B]
Notes are outstanding, then the Conversion Price of the [Series A / Series
B] Notes as if such [Series A / Series B] Notes were then
outstanding), subject to adjustment as hereinafter provided.
Section 2. Exercise of Warrant.
- Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any Business Day on or after the opening of
business on the date hereof and prior to 6:00 P.M. Central Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise
Notice"), of such holder's election to exercise this Warrant, which notice
shall specify the number of Warrant Shares to be purchased, (ii) (A)
payment to the Company of an amount equal to the Warrant Exercise Price
multiplied by the number of Warrant Shares as to which this Warrant is being
exercised (plus any applicable issue or transfer taxes) (the "Aggregate
Exercise Price") in cash or by check or wire transfer or (B) by notifying
the Company that this Warrant is being exercised pursuant to a Cashless Exercise
(as defined in Section 2(e)), and (iii) the surrender to a common carrier
for delivery to the Company as soon as practicable following such date, this
Warrant (or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft or destruction); provided, that if such Warrant Shares
are to be issued in any name other than that of the registered holder of this
Warrant, such issuance shall be deemed a transfer and the provisions of Section
7 shall be applicable. In the event of any exercise of the rights represented
by this Warrant in compliance with this Section 2(a), a certificate or
certificates for the Warrant Shares so purchased, in such denominations as may
be requested by the holder hereof and registered in the name of, or as directed
by, the holder, shall be delivered at the Company's expense to, or as directed
by, such holder as soon as practicable, and in no event later than two Business
Days, after the Company's receipt of the Exercise Notice, the Aggregate Exercise
Price (or notice of a Cashless Exercise) and this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) (collectively, the "Exercise Documents"). Upon delivery of
the Exercise Notice and Aggregate Exercise Price referred to in clause (ii)(A)
above or notification to the Company of a Cashless Exercise referred to in
Section 2(e), the holder of this Warrant shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date of delivery
of this Warrant as required by clause (iii) above or the certificates evidencing
such Warrant Shares.
- Unless the rights represented by this Warrant shall have expired or
shall have been fully exercised, the Company shall, as soon as practicable and
in no event later than four (4) Business Days after the Company's receipt of the
Exercise Documents and at its own expense, issue a new Warrant identical in all
respects to this Warrant exercised except it shall represent rights to purchase
the number of Warrant Shares purchasable immediately prior to such exercise
under this Warrant, less the number of Warrant Shares with respect to which such
Warrant is exercised.
- No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.
- If within four (4) Business Days of the Company's receipt of the
Exercise Documents, the Company shall fail to issue to the holder a certificate
for the number of shares of Common Stock to which the holder is entitled upon
the holder's exercise of this Warrant pursuant to Section 2(a) or a new Warrant
for the number of shares of Common Stock to which such holder is entitled
pursuant to Section 2(b) hereof, then the Company shall, in addition to any
other remedies under this Warrant or the Securities Purchase Agreement or
otherwise available to such holder, pay as additional damages in cash to such
holder on each day the issuance of such Common Stock certificate or new Warrant,
as the case may be, is not timely effected an amount equal to 0.5% of the
product of (A) the sum of the number of shares of Common Stock not issued to the
holder on a timely basis and to which the holder is entitled and/or, the number
of shares represented by the portion of this Warrant which is not being
converted, as the case may be, and (B) the average of the Closing Bid Price of
the Common Stock for the three consecutive trading days immediately preceding
the last possible date which the Company could have issued such Common Stock or
Warrant, as the case may be, to the holder without violating this Section
2.
(e) If, despite the Company's obligations under the Registration
Rights Agreement, the Warrant Shares to be issued are not registered and
available for resale pursuant to a registration statement in accordance with the
Registration Rights Agreement, then notwithstanding anything contained herein,
the holder of this Warrant may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "Cashless Exercise"):
Net Number = A x (B - C)
B
For purposes of the foregoing formula:
A = the total number of shares with respect to which this
Warrant is then being exercised.
B = the Closing Bid Price of the Common Stock on the date
immediately preceding the date of the Exercise Notice delivered in connection
with such exercise.
C = the Warrant Exercise Price then in effect at the time of
such exercise.
Section 3. Covenants as to Common Stock. The Company hereby
covenants and agrees as follows:
- This Warrant is, and any Warrants issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.
- All Warrant Shares which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
- During the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized and reserved
100% of the number of shares of Common Stock needed to provide for the exercise
of the rights then represented by this Warrant and the par value of said shares
will at all times be less than or equal to the applicable Warrant Exercise
Price.
- The Company shall promptly secure the listing of the shares of Common
Stock issuable upon exercise of this Warrant upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance upon exercise of
this Warrant) and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall so list on
each national securities exchange or automated quotation system, as the case may
be, and shall maintain such listing of, any other shares of capital stock of the
Company issuable upon the exercise of this Warrant if and so long as any shares
of the same class shall be listed on such national securities exchange or
automated quotation system.
- The Company will not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. The Company (i) will not increase the par value of any
shares of Common Stock receivable upon the exercise of this Warrant above the
Warrant Exercise Price then in effect, and (ii) will take all such actions
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
- This Warrant will be binding upon any entity succeeding to the Company
by merger, consolidation or acquisition of all or substantially all of the
Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which
may be payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as
otherwise specifically provided herein, no holder, as such, of this Warrant
shall be entitled to vote or receive dividends or be deemed the holder of shares
of the Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this
Warrant, by the acceptance hereof, represents that it is acquiring this Warrant
and the Warrant Shares for its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or distribution
of this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any of
the Warrant Shares for any minimum or other specific term and reserves the right
to dispose of this Warrant and the Warrant Shares at any time in accordance with
or pursuant to a registration statement or an exemption under the Securities
Act. The holder of this Warrant further represents, by acceptance hereof, that,
as of this date, such holder is an "accredited investor" as such term is
defined in Rule 501(a) of Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act (an "Accredited Investor").
Upon exercise of this Warrant, the holder shall, if requested by the Company,
confirm in writing, in a form satisfactory to the Company, that the Warrant
Shares so purchased are being acquired solely for the holder's own account and
not as a nominee for any other party, for investment, and not with a view toward
distribution or resale and that such holder is an Accredited Investor. If such
holder cannot make such representations because they would be factually
incorrect, it shall be a condition to such holder's exercise of this Warrant
that the Company receive such other representations as the Company considers
reasonably necessary to assure the Company that the issuance of its securities
upon exercise of this Warrant shall not violate any United States or state
securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee. The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.
(b) This Warrant and the rights granted to the holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed warrant power in the form of Exhibit B attached
hereto; provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant has not been
and is not expected to be, registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (a) subsequently registered thereunder, or (b) such holder
shall have delivered to the Company an opinion of counsel, in generally
acceptable form, to the effect that the securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration; provided that (i) any sale of such securities made in
reliance on Rule 144 promulgated under the Securities Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Securities and Exchange Commission thereunder; and
(ii) neither the Company nor any other person is under any obligation to
register the Warrants under the Securities Act or any state securities laws or
to comply with the terms and conditions of any exemption thereunder.
(d) Company is obligated to register the Warrant Shares for resale under
the Securities Purchase Act pursuant to the Registration Rights Agreement and
the initial holder of this Warrant (and certain assignees thereof) is entitled
to the registration rights in respect of the Warrant Shares as set forth in the
Registration Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price and Number of
Shares. The Warrant Exercise Price and the number of shares of Common Stock
issuable upon exercise of this Warrant shall be adjusted from time to time as
follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever on or after the date of issuance
of this Warrant, the Company issues or sells, or in accordance with Section 8(b)
is deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with an Approved Stock Plan or Excluded Securities
or upon exercise or conversion of the Other Securities) for a consideration per
share less than a price (the "Applicable Price") equal to the average of
the Closing Bid Price of the Common Stock on the five consecutive trading days
immediately preceding such issue or sale, then immediately after such issue or
sale the Warrant Exercise Price then in effect shall be reduced to an amount
equal to the product of (x) the Warrant Exercise Price in effect immediately
prior to such issue or sale and (y) the quotient determined by dividing
(1) the sum of (I) the product derived by multiplying the Applicable
Price by the number of shares of Common Stock Deemed Outstanding immediately
prior to such issue or sale, plus (II) the consideration, if any, received
by the Company upon such issue or sale, by (2) the product derived by
multiplying the (I) Applicable Price by (II) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale. For purposes of
this Section 8(a), the following shall be applicable:
- (i) Issuance of Options. If the Company in any manner
grants any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(a)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" shall be equal to the sum
of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the granting or sale
of the Option, upon exercise of the Option and upon conversion or exchange of
any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities. Notwithstanding the foregoing, no
adjustment shall be made pursuant to this Section 8(a)(i) to the extent that
such adjustment is based solely on the fact that the Convertible Securities
issuable upon exercise of such Option are convertible into or exchangeable for
Common Stock at a price which varies with the market price of the Common
Stock.
- (ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this Section 8(a)(ii),
the "lowest price per share for which one share of Common Stock is issuable upon
such conversion or exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion or exchange of such Convertible Security. No further adjustment
of the Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of the Warrant Exercise Price had been or are
to be made pursuant to other provisions of this Section 8(a), no further
adjustment of the Warrant Exercise Price shall be made by reason of such issue
or sale. Notwithstanding the foregoing, no adjustment shall be made pursuant to
this Section 8(a)(ii) to the extent that such adjustment is based solely on the
fact that such Convertible Securities are convertible into or exchangeable for
Common Stock at a price which varies with the market price of the Common
Stock.
- (iii) Change in Option Price or Rate of Conversion.
If the purchase price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(a)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.
- (iv) Calculation of Consideration Received. In case
any Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the average of the Closing Bid Price of such securities for the twenty
(20) consecutive trading days immediately preceding the date of receipt. If any
Common Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the holders of
Warrants representing a majority of the shares of Common Stock obtainable upon
exercise of the Warrants then outstanding. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such consideration
will be determined within five Business Days after the tenth (10th) day
following the Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the holders of Warrants representing a majority of
the shares of Common Stock obtainable upon exercise of the Warrants then
outstanding. The determination of such appraiser shall be final and binding
upon all parties and the fees and expenses of such appraiser shall be borne by
the Company.
- (v) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(b) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.
(c) Distribution of Assets. If the Company shall declare or make
any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in
each such case:
- (i) the Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing Bid Price on the trading day immediately preceding such
record date minus the value of the Distribution (as determined in good faith by
the Company's Board of Directors) applicable to one share of Common Stock, and
(B) the denominator shall be the Closing Bid Price on the trading day
immediately preceding such record date; and
- (ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).
(d) Certain Events. If any event occurs of the type contemplated
by the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holder of this Warrant;
provided that no such adjustment will increase the Warrant Exercise Price or
decrease the number of shares of Common Stock obtainable as otherwise determined
pursuant to this Section 8.
(e) Notices.
- Immediately upon any adjustment of the Warrant Exercise Price, the
Company will give written notice thereof to the holder of this Warrant, setting
forth in reasonable detail, and certifying, the calculation of such
adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights
to vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the holder of this
Warrant at least twenty (20) days prior to the date on which any Organic Change,
dissolution or liquidation will take place, provided that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to such holder.
Section 9. Exercise at the Company's Election.
(a) Exercise Right. At any time or times on or after the
date which is one year after the Warrant Date, the Company shall have the right,
in its sole discretion, to require that this Warrant be exercised for up to all
of the Warrant Shares subject to this Warrant ("Exercise at Company's
Election") at the Warrant Exercise Price then in effect; provided that the
Conditions to Exercise at the Company's Election (as set forth below) are
satisfied as of the Company's Election Exercise Date (as defined below).
(b) Method of Conversion. The Company shall exercise its
right to Exercise at Company's Election by providing the holder of this Warrant
written notice ("Notice of Exercise at Company's Election") at least five
(5) Business Days prior to the date selected by the Company for exercise
("Company's Election Exercise Date"). The Company shall exercise a pro
rata amount from each holder of Note Warrants based on the number of Warrant
Shares subject to Note Warrants held by such holder relative to the number of
Warrant Shares outstanding on the date of the Company's delivery of the Notice
of Exercise at Company's Election.
The Notice of Exercise at Company's Election shall indicate (x) the
number of Warrant Shares the Company has selected for exercise, (y) the
Company's Election Exercise Date, which date shall be not less than five (5) or
more than ten (10) Business Days after each holder's receipt of such notice, and
(z) each holder's pro rata share of outstanding Warrant Shares. All
Warrant Shares selected for exercise in accordance with the provision of this
Section 9 with respect to which this Warrant has not been exercised shall be
exercised, subject to the satisfaction of the conditions of this Section 9, as
of the Company's Election Exercise Date in accordance with Section 2 as if the
holders of the Note Warrants had given the Exercise Notice on the Company's
Election Exercise Date. All holders of Note Warrants shall thereupon and within
two (2) Business Days after the Company's Election Exercise Date surrender the
Note Warrants to the Company.
(c) "Conditions to Exercise at the Company's Election"
means the following conditions:
(i) on each day during the period beginning 20 days prior to
the Notice of Exercise at the Company's Election and ending on and including the
Company's Election Exercise Date, the Registration Statement shall be effective
and available for the sale of no less than the sum of:
(A) the number of Conversion Shares then issuable upon the conversion
of all outstanding Notes (without regard to any limitations on conversion),
(B) the number of Warrant Shares then issuable upon exercise of all
outstanding Note Warrants (without respect to any limitations on exercise),
including the Warrant Shares to be issued pursuant to this Exercise at Company's
Election and
(C) the number of Conversion Shares and Warrant Shares that are then
held by the holders of the Note Warrants;
(ii) on each day during the period beginning 20 days prior to
the date of the Company's Notice of Exercise at Company's Election and ending on
and including the Company's Election Exercise Date, the Common Stock is
designated for quotation on the Nasdaq National Market or listed on The New York
Stock Exchange, Inc. or The American Stock Exchange, Inc. and is not suspended
from trading;
(iii) on each day during the 15 consecutive trading days
ending on and including the date of the Company's Notice of Exercise at the
Company's Election, the Closing Bid Price of the Common Stock is at least 200%
of the quotient of (A) the Conversion Price (as defined in the Series [A /
B] Notes) then in effect (or if no Series [A / B] Notes are
outstanding, then the Conversion Price of the Series [A / B] Notes as if
such Series [A / B] Notes were then outstanding), divided by (B)
1.175;
(iv) if required by Section 4(l) of the Securities Purchase
Agreement, the Company's stockholders shall have approved the issuance of the
Securities (pursuant to Section 4(l) of the Securities Purchase Agreement) on or
prior to the date of the Company's Notice of Exercise at Company's Election;
(v) during the period beginning on the Warrant Date and ending
on and including the Company's Election Date, the Company shall have delivered
Conversion Shares upon conversion of the Notes and Warrant Shares upon exercise
of the Note Warrants to the Buyers on a timely basis as set forth in Section
2(d)(ii) of Notes and Sections 2(a) and 2(b) of the Note Warrants, respectively;
and
(vi) the Company otherwise has satisfied its obligations and
is not in default under the Notes, the Securities Purchase Agreement, the Note
Warrants and the Registration Rights Agreement.
(d) Notwithstanding the above, the holder of this Warrant may
exercise this Warrant (including Warrant Shares selected for exercise) into
Common Stock pursuant to Section 2(a) on or prior to the date immediately
preceding the Company's Election Exercise Date (and, after such holder's receipt
of the Notice of Exercise at Company's Election, without regard to the
conversion limitations set forth herein).
Section 10. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8 above, if at any
time the Company grants, issues or sells any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property pro rata to all
of the record holders of any class of Common Stock (the "Purchase
Rights"), then the holder of this Warrant 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 exercise of this Warrant
immediately before the date on which a 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.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change."
Prior to the consummation of any (i) sale of all or substantially all of the
Company's assets to an acquiring Person or (ii) other Organic Change following
which the Company is not a surviving entity, the Company will secure from the
Person purchasing such assets or the successor resulting from such Organic
Change (in each case, the "Acquiring Entity") written agreement (in form
and substance satisfactory to the holders of Warrants representing a majority of
the shares of Common Stock obtainable upon exercise of the Warrants then
outstanding) to deliver to each holder of Warrants in exchange for such
Warrants, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant and satisfactory to
the holders of the Warrants (including, an adjusted warrant exercise price equal
to the value for the Common Stock reflected by the terms of such consolidation,
merger or sale, and exercisable for a corresponding number of shares of Common
Stock acquirable and receivable upon exercise of the Warrants, if the value so
reflected is less than the Warrant Exercise Price in effect immediately prior to
such consolidation, merger or sale). Prior to the consummation of any other
Organic Change, the Company shall make appropriate provision (in form and
substance satisfactory to the holders of Warrants representing a majority of the
shares of Common Stock obtainable upon exercise of the Warrants then
outstanding) to insure that each of the holders of the Warrants will thereafter
have the right to acquire and receive in lieu of or in addition to (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the exercise of such holder's Warrants, such shares of stock,
securities or assets that would have been issued or payable in such Organic
Change with respect to or in exchange for the number of shares of Common Stock
which would have been acquirable and receivable upon the exercise of such
holder's Warrant as of the date of such Organic Change (without taking into
account any limitations or restrictions on the exerciseability of this
Warrant).
Section 11. Lost, Stolen, Mutilated or Destroyed Warrant. If
this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on
receipt of an indemnification undertaking, issue a new Warrant of like
denomination and tenor as this Warrant so lost, stolen, mutilated or
destroyed.
Section 12. Notice. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Business Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
8x8, Inc.
2445 Mission College Blvd.
Santa Clara, California 95054
Telephone: (408) 727-1885
Facsimile: (408) 933-0234
Attention: Chief Executive Officer
With copy to:
Wilson Sonsini Goodrich & Rosati, Professional
Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: 650-493-9300
Facsimile: 650-493-6811
Attention: John T. Sheridan, Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Investors to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of
Investors, or at such other address and facsimile as shall be delivered to the
Company upon the issuance or transfer of this Warrant. Each party shall provide
five days' prior written notice to the other party of any change in address or
facsimile number. Written confirmation of receipt (A) given by the recipient of
such notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
Section 13. Amendments. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such change,
waiver, discharge or termination is sought.
Section 14. Date. The date of this Warrant is December ___, 1999
(the "Warrant Date"). This Warrant, in all events, shall be wholly
void and of no effect after the close of business on the Expiration Date, except
that notwithstanding any other provisions hereof, the provisions of Section 7
shall continue in full force and effect after such date as to any Warrant Shares
or other securities issued upon the exercise of this Warrant.
Section 15. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding; provided that no such
action may increase the Warrant Exercise Price of the Warrants or decrease the
number of shares or class of stock obtainable upon exercise of any Warrants
without the written consent of the holder of such Warrant.
Section 16. Descriptive Headings; Governing Law. The descriptive
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York.
Section 17. Rule 144A Information Requirement. Within the period
prior to the expiration of the holding period applicable to sales hereof under
Rule 144(k) under the 1933 Act (or any successor provision), the Company
covenants and agrees that it shall, during any period in which it is not subject
to Section 13 or 15(d) under the 1934 Act, make available to the Holder and the
holder of any Common Stock issued upon exercise of this Warrant which continue
to be Restricted Securities in connection with any sale thereof and any
prospective purchaser of this Warrant from the Holder, the information required
pursuant to Rule 144A(d)(4) under the 1933 Act upon the request of the Holder
and it will take such further action as the Holder may reasonably request, all
to the extent required from time to time to enable the Holder to sell this
Warrant without registration under the 1933 Act within the limitation of the
exemption provided by Rule 144A, as Rule 144A may be amended from time to time.
Upon the request of the Holder, the Company will deliver to the Holder a written
statement as to whether it has complied with such requirements.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by ___________________, its ____________________________, as of the ___
day of ____________, ______.
8X8, INC.
By:
Name:
Title:
