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Delaware
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77-0142404
|
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification Number)
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2445 Mission College Blvd.
Santa Clara, CA 95054
(Address of Principal Executive Offices including Zip Code)
(408) 727-1885
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
The number of shares of the Registrant's Common Stock outstanding as of
February 11, 2000 was 18,924,880.
8X8, INC.
FORM 10-Q
INDEX
PART I. Financial Information
Item 1. Financial statements
Condensed Consolidated Balance Sheets as of
December 31, 1999 and March 31, 1999
Condensed Consolidated Statements of Operations for the three months
and nine months ended December 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows for the
nine months ended December 31, 1999 and 1998
Notes to Unaudited Condensed Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Results of Operations
Year 2000
Liquidity and Capital Resources
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. Other Information
Item 6: Exhibits and Reports on Form 8-K
Signatures
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
8X8, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, unaudited)
December 31, March 31,
1999 1999
------------ ------------
ASSETS
Current assets:
Cash, cash equivalents and
short-term investments ........................ $21,781 $15,810
Accounts receivable, net ......................... 1,395 5,886
Inventory ........................................ 1,536 3,915
Prepaid expenses and other assets ................ 1,084 878
------------ ------------
Total current assets ........................... 25,796 26,489
Property and equipment, net ........................ 2,260 2,163
Intangibles and other assets ....................... 3,307 57
Deferred debt issuance costs........................ 2,346 --
------------ ------------
$33,709 $28,709
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $1,750 $1,917
Accrued compensation ............................. 1,875 1,236
Accrued warranty ................................. 643 1,043
Deferred revenue ................................. 1,331 4,089
Other accrued liabilities ........................ 1,300 1,601
------------ ------------
Total current liabilities ...................... 6,899 9,886
------------ ------------
Convertible subordinated debentures................. 7,500 --
------------ ------------
Total liabilities .............................. 14,399 9,886
------------ ------------
Stockholders' equity:
Common stock ..................................... 19 15
Additional paid-in capital ....................... 63,835 48,363
Notes receivable from stockholders ............... (235) (266)
Deferred compensation ............................ -- (197)
Accumulated other comprehensive loss ............. -- (193)
Accumulated deficit .............................. (44,309) (28,899)
------------ ------------
Total stockholders' equity ..................... 19,310 18,823
------------ ------------
$33,709 $28,709
============ ============
The accompanying notes are an integral part of these financial statements.
8X8, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Product revenues ....................... $4,941 $7,611 $15,715 $22,497
License and other revenues ............. 1,297 2,468 3,127 3,685
--------- --------- --------- ---------
Total revenues ......................... 6,238 10,079 18,842 26,182
--------- --------- --------- ---------
Cost of product revenues ............... 1,937 5,621 6,678 15,874
Cost of license and other revenues ..... 56 9 114 59
--------- --------- --------- ---------
Gross profit ........................... 4,245 4,449 12,050 10,249
--------- --------- --------- ---------
Operating expenses:
Research and development ............. 2,854 2,512 8,137 7,877
Selling, general and administrative... 3,545 5,409 10,918 14,061
In-process research and development... -- -- 10,100 --
Amortization of intangibles .......... 189 -- 424 --
--------- --------- --------- ---------
Total operating expenses .... 6,588 7,921 29,579 21,938
--------- --------- --------- ---------
Loss from operations ................... (2,343) (3,472) (17,529) (11,689)
Other income, net ...................... 109 249 2,185 845
--------- --------- --------- ---------
Loss before provision for income taxes.. (2,234) (3,223) (15,344) (10,844)
Provision for income taxes ............. -- -- 66 --
--------- --------- --------- ---------
Net loss ............................... ($2,234) ($3,223) ($15,410) ($10,844)
========= ========= ========= =========
Net loss per share:
Basic and diluted .................... ($0.12) ($0.21) ($0.88) ($0.73)
Shares used in per share calculations:
Basic and diluted .................... 18,035 15,105 17,421 14,945
The accompanying notes are an integral part of these financial statements.
8X8, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Nine Months Ended
December 31,
----------------------
1999 1998
---------- ----------
Cash flows from operating activities:
Net loss ............................................... ($15,410) ($10,844)
Adjustment to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ...................... 1,310 684
Amortization of deferred compensation .............. 87 329
Purchased in-process research and development ...... 10,100 --
Gain on sale of investments, net ................... (1,687) --
Other .............................................. -- (192)
Net effect of changes in current and other assets
and current liabilities ................................ 3,265 940
---------- ----------
Net cash used in operating activities ............... (2,335) (9,083)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment .................... (950) (1,473)
Proceeds from sale of nonmarketable equity investment .. 1,880 --
Cash paid for acquisitions, net ........................ (133) --
Purchases of common stock from minority interest
in subsidiary ...................................... -- (85)
Short-term investments-trading activity, net ........... -- 60
---------- ----------
Net cash provided by (used in) investing activities.. 797 (1,498)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net ............ 577 489
Proceeds from issuance of convertible subordinated
debentures ......................................... 7,500 --
Debt issuance costs .................................... (556) --
Loans to stockholders .................................. (76) --
Repurchase of common stock ............................. (10) --
Repayment of notes receivable from stockholders ........ 74 479
---------- ----------
Net cash provided by financing activities .......... 7,509 968
---------- ----------
Net increase (decrease) in cash and cash equivalents ...... 5,971 (9,613)
Cash and cash equivalents at the beginning of the period .. 15,810 26,677
---------- ----------
Cash and cash equivalents at the end of the period ........ $21,781 $17,064
========== ==========
See accompanying notes to condensed consolidated financial statements.
8X8, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
8x8, Inc. ("We" or "8x8") was incorporated in California in
February 1987. In December 1996, 8x8 was reincorporated in Delaware.
We develop, manufacture and market telecommunication
equipment and software focused primarily on multimedia Internet protocol (IP)
applications. Our products are highly integrated, leverage our proprietary
technology and are comprised of multimedia communication semiconductors,
multimedia compression algorithms, network protocols and embedded system design.
Our products are used in applications including voice-over-IP, videoconferencing
and video monitoring. We currently market our products mainly to
original equipment manufacturers (OEMs), and also to distributors, dealers and
end users for our video monitoring system products.
In an effort to expand the available market for our
multimedia communication products, we began developing low-cost consumer
videophones and marketing these products to consumers under the ViaTV
brand name in 1997. However in the fourth quarter of fiscal 1999, we determined
that a combination of factors including the high cost of maintaining a consumer
distribution channel, the slower than expected growth rate of the consumer
videophone market, and the low gross margins typical of a consumer electronics
product made it unlikely that the consumer videophone business would be
profitable in the foreseeable future. Therefore, we announced in April 1999
that we would cease production of the ViaTV product line and withdraw
from our distribution channels over the subsequent several quarters. We do not
expect to be able to generate revenues from our other products to compensate for
the loss of ViaTV revenues for at least the next twelve months, if at
all. If we cannot adequately compensate for lower revenues with decreased
manufacturing overhead expenses and with lower operating expenses, it could have
a material adverse effect on our business and operating results.
2. BASIS OF PRESENTATION
Our fiscal year ends on the last Thursday on or before
March 31. Fiscal 2000 will be a 53 week year, while fiscal 1999 was a 52
week year. Our fiscal quarters end on the last Thursday on or before the end of
each calendar quarter. The three and nine month periods ended December 30, 1999
included 13 weeks and 40 weeks of operations, respectively. The three and nine
month periods ended December 31, 1998 included 14 weeks and 40 weeks of
operations, respectively. For purposes of these condensed consolidated financial
statements, we have indicated our fiscal year as ending on March 31 and our
interim periods as ending on December 31.
The accompanying interim condensed consolidated financial
statements are unaudited and have been prepared on substantially the same basis
as our annual financial statements for the year ended March 31, 1999. In our
opinion, these financial statements reflect all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation of our
financial position, results of operations and cash flows for the periods
presented. These financial statements should be read in conjunction with our
audited financial statements for the year ended March 31, 1999, including notes
thereto, included in our fiscal 1999 Annual Report on Form 10-K.
The results of operations for the interim periods included in
these financial statements are not necessarily indicative of the results to be
expected for any future period or the entire fiscal year.
3. BALANCE SHEET DETAIL
(in thousands)
December 31, March 31,
1999 1999
------------ ------------
Inventory:
Raw materials.................... $123 $952
Work-in-process.................. 605 892
Finished goods................... 808 2,071
------------ ------------
$1,536 $3,915
============ ============
4. CONVERTIBLE SUBORDINATED DEBENTURES
In December 1999, we issued $7.5 million of 4% Series A and Series B
convertible subordinated debentures (the "Debentures"). The Debentures mature on
December 17, 2002, unless converted or redeemed earlier.
The $3.75 million Series A debentures are convertible into 8x8's common stock
at a conversion price equal to 117.5% of the average closing bid price of 8x8's
common stock for the five trading days starting February 1, 2000. The
conversion price per share cannot be higher than $7.05 or lower than $4.00. The
$3.75 million Series B debentures are convertible into 8x8's common stock at a
conversion price equal to 117.5% of the average closing bid price of 8x8's
common stock for the five trading days starting March 8, 2000. We have the
option to redeem the Series B debentures at par in the event that the Series B
conversion price is lower than the Series A conversion price divided by 1.175.
In addition, we have the option to redeem the Series B debentures at 107% of par
in the event that the Series B conversion price is greater than two times the
Series A conversion price.
For each of the Debentures, the lender received a three year warrant to
purchase common shares of 8x8 equal in number to the amount of the corresponding
debentures divided by the conversion price of the debentures. The exercise
price of the warrants will be equal to the conversion price of the corresponding
debentures. We also issued warrants to the placement agent equal to 10% of the
total warrants issued to the lender at substantially the same terms granted to
the lender. If the Series B debentures are redeemed by 8x8, the related
warrants will be terminated.
Using the Black-Scholes pricing model, we estimated that the fair value of
the warrants issued in connection with the Series A debentures approximated $1.8
million at December 31, 1999. We will reflect the amortization of the fair value
of the warrants as a non-cash charge to interest expense over the term of the
warrants. We recognized $32,000 of interest expense associated with these
warrants during the quarter ended December 31, 1999. We have not estimated the
fair value of the warrants accompanying the Series B debentures as of December
31, 1999 because of our potential ability to redeem said debentures under the
conditions discussed above.
Under the Securities Act of 1933, as amended, we have agreed to register for
resale of the common stock issuable upon conversion of the debentures and
exercise of the warrants. We are obligated to file a registration statement
covering such shares within 95 days after the closing and will use our best
efforts to have the registration statement declared effective within 150 days
after closing.
On January 23, 2000, 8x8, the lender and the placement agent agreed to fix
the conversion price of the Series A debentures and the related warrants at
$7.05 per share.
5. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss), as defined, includes all changes in equity (net
assets) during a period from non-owner sources. For us, the primary difference
between net income (loss) and comprehensive income (loss) is gains and losses on
short-term investments classified as available-for-sale. Comprehensive income
(loss) for the current reporting and comparable periods in the prior year is as
follows (in thousands):
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Net loss, as reported........... ($2,234) ($3,223) ($15,410) ($10,844)
Unrealized gains (losses)
on investments................ -- (124) 193 (186)
--------- --------- --------- ---------
Comprehensive loss.............. ($2,234) ($3,347) ($15,217) ($11,030)
========= ========= ========= =========
6. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net
income (loss) available to common stockholders (numerator) by the weighted
average number of common shares outstanding during the period (denominator).
Diluted net income (loss) per share is computed using the weighted average
number of common shares and potential common shares outstanding during the
period. Potential common shares result from the assumed exercise, using the
treasury stock method, of common stock options and warrants, unvested restricted
common stock, and common stock issuable upon the conversion of convertible
subordinated debentures having a dilutive effect. The numerators for each
period presented are equal to the reported net loss. Additionally, due to net
losses incurred for all periods presented, weighted average basic and diluted
shares outstanding for the respective three and nine month periods are the same.
The following equity instruments were not included in the computations of net
income (loss) per share because the effect on the calculations would be anti-
dilutive (in thousands):
Three and Nine Month
Periods Ended
December 31,
--------------------------
1999 1998
------------ ------------
Common stock options................. 4,163 3,346
Unvested restricted common stock..... 501 187
Common stock issuable upon the
conversion of subordinated 1,300 --
debentures.........................
Common stock warrants................ 1,430 --
------------ ------------
Total 7,394 3,533
============ ============
Common stock issuable upon conversion of the Series A and
Series B subordinated debentures and related warrants was estimated using a
conversion price calculated based upon the average closing bid price of our
common stock for the five trading days ended December 31, 1999.
7. SEGMENT REPORTING
Due to a change in 8x8's organizational structure and
enhancements in our systems for internal reporting during our second quarter
ended September 30, 1999, we determined that we have two reportable segments,
Broadband Communications and Video Monitoring, as defined by Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Due to limitations in our internal
reporting systems, it is not practicable to disclose results for the segments
for either the nine month period ended December 31, 1999 or the three and nine
month periods ended December 31, 1998. There are no intersegment revenues
between the two reportable segments. Shared support service functions such as
human resources, facilities management and other infrastructure support and
overhead aren't allocated, but rather are included in the Corporate and Other
category. In addition, all activities associated with our ViaTV product
line, which has been discontinued as discussed in Note 1, have been included in
the Corporate and Other category. Special charges determined to be significant
are reported separately in the Condensed Consolidated Statements of Operations
and are not assigned or allocated to the segments. All other accounting policies
are applied consistently to the segments, where applicable.
(In thousands)
Three Months Ended Six Months Ended
December 31, 1999 December 31, 1999
--------------------- --------------------
Operating Operating
Revenues Loss Revenues Loss
---------- ---------- --------- ----------
Broadband Communications......... $4,279 ($191) $8,549 $110
Video Monitoring................. 1,574 (63) 2,966 (518)
Corporate and Other.............. 385 (2,089) 1,433 (3,502)
---------- ---------- --------- ----------
Total $6,238 ($2,343) $12,948 ($3,910)
========== ========== ========= ==========
The only asset allocated by segment is inventory. Inventory allocated to the
Broadband Communications and Video Monitoring segments at December 31, 1999 was
approximately $867,000 and $669,000, respectively.
8. ACQUISITION OF ODISEI
During the first quarter of fiscal 2000, we acquired Odisei
S.A., a privately held, development stage company based in Sophia Antipolis,
France, that develops software for managing voice-over-IP networks. The
condensed consolidated financial statements reflect the acquisition of Odisei on
May 24, 1999 for approximately 2,868,000 shares of our common stock. In
addition, 8x8 issued approximately 154,000 8x8 options in exchange for certain
Odisei options outstanding. Certain of the shares issued to Odisei employees
are subject to repurchase at a price per share of approximately $1.30 if the
employee departs prior to vesting. The purchase price of the acquisition of
approximately $13.5 million, which included approximately $244,000 of
acquisition related costs and $648,000 for the exchange of Odisei options for
our options, was used to acquire the net assets of Odisei. The purchase price
was allocated to tangible assets acquired and liabilities assumed based on the
book value of Odisei's current assets and liabilities, which we believe
approximates their fair value. In addition, we engaged an independent appraiser
to value the intangible assets, including amounts allocated to Odisei's in-
process research and development. The in-process research and development
relates to Odisei's initial product for which technological feasibility had not
been established and was estimated to be approximately 60% complete. The fair
value of the in-process technology was based on a discounted cash flow model,
similar to the traditional "Income Approach," which discounts expected future
cash flows to present value, net of tax. In developing cash flow projections,
revenues were forecasted based on relevant factors, including aggregate revenue
growth rates for the business as a whole, characteristics of the potential
market for the technology and the anticipated life of the technology. Projected
annual revenues for the in-process research and development projects were
assumed to ramp up initially and decline significantly at the end of the in-
process technology's economic life. Operating expenses and resulting profit
margins were forecasted based on the characteristics and cash flow generating
potential of the acquired in-process technology. Associated risks include the
inherent difficulties and uncertainties in completing the project and thereby
achieving technological feasibility, and risks related to the impact of
potential changes in market conditions and technology. The resulting estimated
net cash flows were discounted at a rate of 27%. This discount rate was based
on the estimated cost of capital plus an additional discount for the increased
risk associated with in-process technology. Based on the independent appraisal,
the value of the acquired Odisei in-process research and development, which was
expensed in the first quarter of fiscal 2000, is $10.1 million. The excess of
the purchase price over the net tangible and intangible assets acquired and
liabilities assumed was allocated to goodwill. Amounts allocated to goodwill and
workforce are being amortized on a straight-line basis over five and three
years, respectively. The allocation of the purchase price is as follows (in
thousands):
In-process research and development........ $10,100
Workforce.................................. 200
Odisei net tangible liabilities............ (246)
Goodwill................................... 3,452
---------
$13,506
=========
The consolidated results of 8x8 include the results of the operations
of Odisei from the date of the acquisition. Had the acquisition of Odisei taken
place as of the beginning of the fiscal year, the pro forma net loss of 8x8
would have been substantially the same as that reported for the period.
9. NONSTATUTORY STOCK OPTION PLAN
In December 1999, our Board of Directors approved the 1999
Nonstatutory Stock Option Plan (the "Plan") with 200,000 shares initially
reserved for issuance thereunder. Under terms of the Plan, options may not be
issued to either Officers or Directors of 8x8; provided, however, that options
may be granted to an Officer in connection with the Officer's initial employment
by 8x8. The Plan has not received stockholder approval.
10. SUBSEQUENT EVENT
On January 24, 2000, we entered into a Common Stock Purchase Agreement with
STMicroelectronics NV ("STM") for the private sale of 3.7 million shares of our
common stock to STM at a purchase price of $7.50 per share. The closing is
subject to certain conditions including the expiration or early termination
of the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended.
Upon closing of the transaction we will appoint a designee of STM to our
Board of Directors. In addition, we will execute an agreement pursuant to which
we will grant a non-exclusive license to certain of our technology to a
subsidiary of STM, and an agreement which outlines certain joint development
activities that we will conduct with said subsidiary.
11. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position No. 98-1 ("SOP 98-1"),
"Software for Internal Use," which provides guidance on accounting for the cost
of computer software developed or obtained for internal use. We adopted SOP 98-
1 in fiscal 2000. The adoption of SOP 98-1 did not have a material impact on our
consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." We are required to adopt FAS
133 in fiscal 2001. FAS 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. We do not expect that the adoption of FAS 133
will have a material impact on our consolidated financial statements.
In December 1998, the AICPA issued Statement of Position 98-9
("SOP 98-9"), "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions", which amends SOP 97-2, "Software Revenue
Recognition" and supercedes SOP 98-4. We adopted SOP 98-9 in fiscal 2000. The
adoption of SOP 98-9 did not have a material impact on our consolidated results
of operations.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This Report on Form 10-Q contains forward-looking
statements, including but not limited to those specifically identified as such,
that involve risks and uncertainties. The statements contained in this Report
on Form 10-Q that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, including without limitation statements regarding our
expectations, beliefs, estimates, intentions or strategies regarding the future.
All forward-looking statements included in this Report on Form 10-Q are based on
information available to us on the date hereof, and we assume no obligation to
update any such forward-looking statements. You should not place undue reliance
on these forward-looking statements. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of a
number of factors, including, but not limited to, those set forth below under
the heading "Factors That May Affect Future Results" and elsewhere in this
Report on Form 10-Q.
Overview
Since June 1995, we have been executing a business
strategy designed to focus our efforts exclusively on the development,
manufacture and marketing of multimedia communication semiconductors, software
and systems. To date, we have marketed our multimedia communication
semiconductors and related technology to OEMs and distributors, mainly for
videoconferencing and videophone applications. This product line includes the
LVP, VCP and VCPex semiconductors.
In an effort to expand the available market for our
multimedia communication products, and to capitalize on our vertically
integrated technology, we began developing low-cost consumer videophones and
marketing these products to consumers under the ViaTV brand name in 1997.
The ViaTV videophone enables phone call participants to both hear and see
each other while communicating over a standard analog telephone line. We
shipped our first ViaTV product in February 1997, and over the next two
years introduced several new videophone products, expanded our distribution
channels in North America, Europe and Asia, and became a leading manufacturer of
consumer videophones. However in the fourth quarter of fiscal 1999, we
determined that a combination of factors including the high cost of maintaining
a consumer distribution channel, the slower than expected growth rate of the
consumer videophone market, and the low gross margins typical of a consumer
electronics product made it unlikely that the consumer videophone business would
be profitable in the foreseeable future. Therefore, we announced in April 1999
that we would cease production of the ViaTV product line and withdraw
from our distribution channels over the subsequent several quarters. In
conjunction with this decision we recorded a $5.7 million charge associated with
the write-off of ViaTV videophone inventories in the fourth fiscal
quarter of 1999. We do not expect to be able to generate revenues from our other
products to compensate for the loss of ViaTV revenues for at least the
next twelve months, if at all. If we cannot adequately compensate for lower
revenues with decreased manufacturing overhead expenses and with lower operating
expenses, it could have a material adverse effect on our business and operating
results.
In June 1998, we entered the market for video monitoring
products with our RSM-1500 Remote Surveillance Module. In August
1999, we announced the RSM-1600 Master Transceiver, an upgrade version of
the RSM-1500 module, and the RSM-700 Video/Alarm Expander. The RSM-
1500 and RSM-1600 modules enable real-time remote video monitoring
over POTS lines. The target market for video monitoring is primarily owners of
small businesses such as convenience stores and restaurants who need the ability
to view their premises from any remote location in the world at any time. We
currently sell video monitoring products to security distributors and dealers in
North America, and are attempting to expand our distribution channels into
Europe and Asia.
In December 1998, we introduced the Audacity Internet
telephony processor, which combines telephony protocols with audio
compression/decompression algorithms and implements multiple, simultaneous
Internet protocol (IP) phone calls on a single integrated circuit. In April
1999, we announced our Symphony Media Hub, an integrated system product
that is based on the Audacity semiconductor and that connects up to four
analog telephone lines to an IP network. In September 1999, we announced the
Audacity-T2 IP Telephone Processor, an IP phone on a chip, and the
IntraSwitch iPBX Evaluation System, a full-function IP-based private branch
exchange (PBX). These products reflect our continuing efforts to develop
broadband telephony technology. In the three and nine month periods ended
December 31, 1999, we realized revenues of approximately $264,000 and $404,000,
respectively, associated primarily with the sale of evaluation units of
broadband telephony systems and the license of related software and reference
designs.
During the first quarter of fiscal 2000, we acquired Odisei
S.A., a privately held, development stage company based in Sophia Antipolis,
France, that develops software for managing voice-over-IP networks. The
condensed consolidated financial statements reflect the acquisition of Odisei on
May 24, 1999 for approximately 2,868,000 shares of our common stock. In
addition, 8x8 issued approximately 154,000 8x8 options in exchange for certain
Odisei options outstanding. Certain of the shares issued to Odisei employees
are subject to repurchase at a price per share of approx. $1.30 if the employee
departs prior to vesting. The purchase price of the acquisition of
approximately $13.5 million, which included $244,000 of acquisition related
costs and $648,000 for the exchange of Odisei options for our options, was used
to acquire the net assets of Odisei. The purchase price was allocated to
tangible assets acquired and liabilities assumed based on the book value of
Odisei's current assets and liabilities, which we believe approximates their
fair value. In addition, we engaged an independent appraiser to value the
intangible assets, including amounts allocated to Odisei's in-process research
and development. The in-process research and development relates to Odisei's
initial product for which technological feasibility had not been established and
was estimated to be approximately 60% complete. The fair value of the in-process
technology was based on a discounted cash flow model, similar to the traditional
"Income Approach," which discounts expected future cash flows to present value,
net of tax. In developing cash flow projections, revenues were forecasted based
on relevant factors, including aggregate revenue growth rates for the business
as a whole, characteristics of the potential market for the technology and the
anticipated life of the technology. Projected annual revenues for the in-
process research and development projects were assumed to ramp up initially and
decline significantly at the end of the in-process technology's economic life.
Operating expenses and resulting profit margins were forecasted based on the
characteristics and cash flow generating potential of the acquired in-process
technology. Associated risks include the inherent difficulties and
uncertainties in completing the project and thereby achieving technological
feasibility, and risks related to the impact of potential changes in market
conditions and technology. The resulting estimated net cash flows were
discounted at a rate of 27%. This discount rate was based on the estimated cost
of capital plus an additional discount for the increased risk associated with
in-process technology. Based on the independent appraisal, the value of the
acquired Odisei in-process research and development, which was expensed in the
first quarter of fiscal 2000, is $10.1 million. The excess of the purchase price
over the net tangible and intangible assets acquired and liabilities assumed has
been allocated to goodwill. Amounts allocated to goodwill and workforce are
being amortized on a straight-line basis over five and three years,
respectively. The allocation of the purchase price is as follows (in
thousands):
In-process research and development........ $10,100
Workforce.................................. 200
Odisei net tangible liabilities............ (246)
Goodwill................................... 3,452
---------
$13,506
=========
Results of Operations
The following discussion should be read in
conjunction with our Condensed Consolidated Statements of Operations and the
notes thereto:
Revenues
($ in millions)
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------------- ----------------------------
1999 1998 1999 1998
Product revenues: -------------- -------------- -------------- -------------
Multimedia communication
semiconductor............. $2.8 $1.9 $8.1 $8.5
Video monitoring............ 1.6 1.1 4.5 2.0
Consumer videophone......... 0.4 4.6 2.9 12.0
Broadband telephony......... 0.1 -- 0.2 --
------- ------- ------- -------
Total product revenues........ $4.9 79% $7.6 75% $15.7 84% $22.5 86%
License and other revenues.... 1.3 21% 2.5 25% 3.1 16% 3.7 14%
------- ------ ------- ------ ------- ------ ------- -----
Total revenues............ $6.2 100% $10.1 100% $18.8 100% $26.2 100%
======= ====== ======= ====== ======= ====== ======= =====
Total product revenues decreased by $2.7 million in the third
quarter of fiscal 2000 as compared to the third quarter of fiscal 1999, and
decreased by $6.8 million in the first nine months of fiscal 2000 as compared to
the first nine months of fiscal 1999. The decrease in product revenues in the
third quarter of fiscal 2000 is due primarily to a decrease in both units sold
and ASPs for our ViaTV products due to our exit from the consumer
videophone market. This decrease was partially offset by increases in unit
shipments of our multimedia communication semiconductor and video monitoring
systems products. The decrease in product revenues for the nine months ended
December 31, 1999 as compared to the prior year period is due primarily to a
significant decrease in both units sold and ASPs for our ViaTV products
as well as a slight decrease in both units sold and ASPs for our multimedia
communication semiconductor products. These decreases were partially offset by
an increase in sales of our video monitoring systems products.
License and other revenues consist of technology
licenses, including royalties required under such licenses, and nonrecurring
engineering fees for services that we perform for our customers. License and
other revenues decreased by approximately $1.2 million in the third quarter of
fiscal 2000 as compared to the third quarter of fiscal 1999, and decreased by
$558,000 in the first nine months of fiscal 2000 as compared to the first nine
months of fiscal 1999. There can be no assurance that we will receive any
revenues from licensing or other such arrangements in the future. See "Factors
That May Affect Future Results-No Assurance of Future License and Other
Revenues" and "Factors That May Affect Future Results-Dependence on Key
Customers."
No customer represented 10% or more of our total revenues for
the quarter ended December 31, 1999. Revenues derived from ViaTV products
sold-through by one distribution customer represented approximately 14% of our
total revenues for the quarter ended December 31, 1998. No customer represented
10% or more of our total revenues for the nine month periods ended December 31,
1999 and 1998, respectively.
Revenues derived from customers outside of the United States
as a percentage of total revenues were as follows (See "Factors That May Affect
Future Results-International Operations."):
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Asia Pacific.......... 25% 31% 21% 27%
Europe................ 27% 18% 24% 19%
--------- --------- --------- ---------
Total............... 52% 49% 45% 46%
========= ========= ========= =========
Gross Profit
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
($ in millions) 1999 1998 1999 1998
--------- --------- --------- ---------
Gross profit from product
revenues.................. $3.0 $2.0 $9.0 $6.6
Gross margin................ 61% 26% 57% 29%
Gross profit from license
and other revenues........ $1.2 $2.5 $3.0 $3.6
Gross margin................ 92% 100% 97% 97%
Product gross margins increased to 61% in the third quarter
of fiscal 2000 as compared to 26% in the third quarter of fiscal 1999, and
increased to 57% in the first nine months of fiscal 2000 from 29% for the first
nine months of fiscal 1999. The increase in
product gross margins during the three and nine month periods ended December 31,
1999 as compared to the prior year is due to an increase in higher margin
multimedia communication semiconductor and video monitoring system revenues as a
percentage of total revenues and due to significantly higher gross margins
realized on sales of our ViaTV products.
As discussed above, we recorded a $5.7 million reserve
associated with the write-off of ViaTV product inventory in the fourth
quarter of fiscal 1999 due to our decision to cease production of the
ViaTV product line and withdraw from our distribution channels. Gross
margins on ViaTV product sales during the three and nine month periods
ended December 31, 1999 were impacted significantly as we released excess
reserves due to much better than expected ViaTV unit sales and related
selling prices and due to the liquidation of certain raw material inventories
rendered excess or obsolete when we ceased production of the ViaTV
product line.
Gross profit from license and other revenues decreased by
approximately $1.3 million in the third quarter of fiscal 2000 as compared to
the third quarter of fiscal 1999, and decreased by approximately $613,000 in the
first nine months of fiscal 2000 as compared to the first nine months of fiscal
1999. There can be no assurance that we will receive any revenues from such
license and other revenue sources in the future. See "Factors That May Affect
Future Results-No Assurance of Future License and Other Revenues."
The markets for our products are characterized by falling
average selling prices, which could have a material adverse effect on our future
business and operating results if we cannot achieve lower cost of sales and/or
higher sales volumes. We expect that, as a result of competitive pressures and
other factors, gross profit as a percentage of revenue for our multimedia
communication semiconductor products will likely decrease for the foreseeable
future. Gross profit as a percent of revenue is substantially lower for the
sales of video monitoring systems products than for sales of our multimedia
communication semiconductors. If our systems product revenues grow as a
percentage of total product revenue, we expect that gross profit as a percentage
of total product revenue will decrease. See "Factors That May Affect Future
Results-Fluctuations in Operating Results."
Research and Development Expenses
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
($ in millions) 1999 1998 1999 1998
--------- --------- --------- ---------
Research and development... $2.9 $2.5 $8.1 $7.9
As a % of total revenues... 47% 25% 43% 30%
Research and development expenses consist primarily of
personnel, system prototype design and fabrication, mask, prototype wafer and
equipment costs necessary for us to conduct our development efforts. Research
and development costs, including software development costs, are expensed as
incurred. Research and development expenses increased by $342,000 in the third
quarter of fiscal 2000 as compared to the third quarter of fiscal 1999, and
increased by approximately $260,000 in the first nine months of fiscal 2000 as
compared to the first nine months of fiscal 1999. Higher research and
development expenses during the three and nine months ended December 31, 1999 as
compared to the comparable periods in the prior year primarily reflects
increased expenses associated with our Odisei subsidiary, which we acquired in
May 1999. These increases were offset primarily by lower ViaTV product
design and prototype costs due to the discontinuation of ViaTV
product development efforts in April 1999.
We expect to continue to allocate substantial resources to
research and development. However, future research and development costs may
vary both in absolute dollars and as a percentage of total revenues. See
"Factors That May Affect Future Results-Rapid Technological Change; Dependence
on New Product Introduction."
Selling, General and Administrative Expenses
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
($ in millions) 1999 1998 1999 1998
--------- --------- --------- ---------
Selling, general and
administrative........... $3.5 $5.4 $10.9 $14.1
As a % of total revenues... 56% 53% 58% 54%
Selling, general and administrative expenses consist
primarily of personnel and related overhead costs for sales, marketing, finance,
human resources and general management. Such costs also include advertising,
sales commissions, trade show and other marketing and promotional expenses.
Selling, general and administrative expenses decreased by $1.9 million in the
third quarter of fiscal 2000 as compared to the third quarter of fiscal 1999,
and decreased by approximately $3.2 million in the first nine months of fiscal
2000 as compared to the first nine months of fiscal 1999. These decreases are
due primarily to lower costs associated with the marketing, advertising and
promotion of the ViaTV product line and lower headcount required to
support these activities as we exited from the consumer videophone business. As
we introduce and promote new broadband telephony products, and attempt to expand
distribution channels for such products, future selling, general and
administrative costs may vary both in absolute dollars and as a percentage of
total revenues. See "Factors That May Affect Future Results-Potential
Fluctuations in Operating Results."
In-process Research and Development and Amortization of
Intangibles
As part of the May 1999 acquisition of Odisei, we
recorded intangible assets related to goodwill and workforce that are being
amortized on a straight-line basis over five and three years, respectively.
Amortization of goodwill and workforce charged to operations was $189,000 and
$424,000 in the three and nine month periods ended December 31, 1999,
respectively. In addition, we incurred an in-process research and development
charge of $10.1 million in the first quarter of fiscal 2000 related to the
acquisition of Odisei.
Other Income, Net
In the third quarter of fiscal 2000, other income, net,
was $109,000 and consisted primary of interest income earned on our cash
equivalents, offset by approximately $46,000 of interest expense associated with
the convertible subordinated debentures and related warrants issued in December
1999. Other income, net, for the third quarter of fiscal 1999 was $249,000 and
consisted primary of interest income earned on our cash equivalents. Other
income, net, was $2.2 million for the nine month period ended December 31, 1999
compared to $845,000 for the comparable period in the prior year. Other income,
net, for the nine months ended December 31, 1999 includes both a $1.9 million
gain realized from the sale of a nonmarketable equity investment and
approximately $193,000 of losses realized on the sale of certain of our cash
equivalent investments.
Provision for Income Taxes
There was no tax provision for the three month period
ended December 31, 1999 or during the three and nine month periods ended
December 31, 1998 due to net losses incurred. The tax provision for the nine
month period ended December 31, 1999 represented certain foreign withholding
taxes.
Year 2000
Through the first two weeks of February 2000, we have not encountered any
disruption to our business operations due to Year 2000 issues in our internal
systems and so far we consider the transition to calendar year 2000 to be
smooth. While still too early to determine the effects of the Year 2000 issues
on transactions with our customers and suppliers, so far we have not encountered
any significant disruptions to our business operations or been notified by our
customers of any Year 2000 problems with respect to our products. We continue
to monitor closely both our internal systems and transactions with customers and
suppliers for any indication of Year 2000 related problems.
As of the end of the third quarter of fiscal 2000, total costs incurred by
8x8 regarding the testing of current products for Year 2000 readiness, and
answering and responding to customer requests related to Year 2000 issues,
including both incremental spending and redeployed resources, has not exceeded
$100,000. With our Year 2000 readiness programs essentially complete, we do not
anticipate incurring any significant costs beyond the third quarter of fiscal
2000 related to such programs. Our expectation regarding incurring additional
Year 2000 related costs is based upon currently known circumstances and various
assumptions regarding future events, and does not take into account costs
related to the potential failure of key suppliers to timely address or correct
Year 2000 issues, potential costs related to any customer or other product
liability claims or the cost of internal software and hardware replaced in the
ordinary course of business. Actual costs incurred could differ materially from
our current estimates.
Liquidity and Capital Resources
As of December 31, 1999, we had cash and liquid
investments totaling $21.8 million, representing an increase of approximately
$6.0 million from March 31, 1999. We currently have no line of credit
arrangements.
Cash used in operations of approximately $2.3 million in the
first nine months of fiscal 2000 is primarily attributable to the net loss of
$15.4 million, decreases in deferred revenue and accrued warranty of $2.8
million and $400,000, respectively, and a net gain resulting from the sale of
investments of $1.7 million. Cash used in operations was partially offset by
decreases in accounts receivable, net, and inventory of $4.5 million and $2.4
million, respectively, an increase in accrued compensation of $304,000, and
noncash items, including a charge for purchased in-process research and
development of $10.1 million and depreciation and amortization of $1.3 million.
Cash used in operations of $9.1 million in the first nine months of fiscal 1999
reflected a net loss of approximately $10.8 million, an increase of $2.2 million
in accounts receivable, and a $224,000 decrease in accrued warranty, offset
primarily by a decrease of $2.0 million in inventory, increases of $1.0 million
in deferred revenue and $345,000 in accrued compensation and $821,000 of noncash
items.
Cash provided by investing activities in the nine month
period ended December 31, 1999 is primarily attributable to proceeds from the
sale of a nonmarketable equity investment of $1.9 million, offset by capital
expenditures of $950,000 and net cash paid of $133,000 related to the
acquisition of Odisei. Cash used in investing activities in
the nine month period ended December 31, 1998 is primarily attributable to
capital expenditures of $1.5 million and the repurchase of common stock from
minority shareholders of a subsidiary of 8x8 in conjunction with its merger with
8x8 in August 1998.
Cash provided by financing activities in the nine month
period ended December 31, 1999 included $7.5 million of proceeds from the
issuance of convertible subordinated debentures and $577,000 of net proceeds
from sales of our common stock upon the exercise of employee stock options,
offset by cash paid for debt issuance related costs of $556,000. Cash provided
by financing activities in the nine month period ended December 31, 1998
consisted primarily of proceeds from the repayment of stockholders' notes
receivable and net proceeds from sales of our common stock upon the exercise of
employee stock options.
We believe that we will be able to fund planned
expenditures and satisfy our cash requirements for at least the next twelve
months from existing cash balances and cash flow from operations, if any.
However, we may seek to explore business opportunities, including acquiring or
investing in complementary businesses or products, that will require additional
capital from equity or debt sources. Additionally, the development and
marketing of new products could require a significant commitment of resources,
which could in turn require us to obtain additional financing earlier than
otherwise expected. We may not be able to obtain additional financing as needed
on acceptable terms, or at all, which would force us to delay our plans for
growth and implementation of our strategy which could seriously harm our
business, financial condition and results of operations. If we issue additional
equity or convertible debt securities to raise funds, the ownership percentage
of our existing stockholders would be reduced. New investors may demand rights,
preferences or privileges senior to those of existing holders of our common
stock.
Subsequent Event
On January 24, 2000, we entered into a Common Stock Purchase Agreement with
STMicroelectronics NV ("STM") for the private sale of 3.7 million shares of our
common stock to STM at a purchase price of $7.50 per share. The closing is
subject to certain conditions including the expiration or early termination
of the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended.
Upon closing of the transaction we will appoint a designee of
STM to 8x8's Board of Directors. In addition, we will execute an agreement
pursuant to which we will grant a non-exclusive license to certain of our
technology to a subsidiary of STM, and an agreement which outlines certain joint
development activities that we will conduct with said subsidiary.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Our financial market risk includes risks associated with international
operations and related foreign currencies. We derive a significant portion of
our revenues from customers in Europe and Asia. In order to reduce the risk
from fluctuation in foreign exchange rates, the vast majority of our sales are
denominated in U.S. dollars. In addition, all of our arrangements with our
semiconductor foundry and assembly vendors, and with our subcontract
manufacturer for our video monitoring and broadband telephony systems, are
denominated in U.S. dollars. We have subsidiaries in Europe, and as such we are
exposed to market risk from changes in exchange rates. We have not entered into
any currency hedging activities. To date, our exposure to exchange rate
volatility has not been significant, however, there can be no assurance that
there will not be a material impact in the future.
Factors That May Affect Future Results
The following factors should be considered in conjunction
with the information in this Report on Form 10-Q.
We have a history of losses and we are uncertain as to our
future profitability.
We recorded an operating loss of $17.5 million in
the nine month period ended December 31, 1999. In addition, we recorded
operating losses for the year ended March 31, 1999 and in three of the four
quarters in fiscal 1998. We would not have been profitable in fiscal 1998 had
we not received nonrecurring license and other revenues. We expect to continue
to incur operating losses for the foreseeable future, and such losses may be
substantial. We will need to generate significant revenue growth to achieve
profitability. Given our history of fluctuating revenues and operating losses,
we cannot be certain that we will be able to achieve profitability on either a
quarterly or annual basis.
Our operating results may decline from previous periods if
we are unable to secure future license and other sources of revenues.
In the past, we have received substantial revenues
from licensing of technology. License and other revenues, all of which were
nonrecurring, were $3.1 million and $3.7 million for the nine month periods
ended December 31, 1999 and 1998, respectively, and were $5.5 million and $14.5
million in the fiscal years ended March 31, 1999 and 1998, respectively. If we
do not receive additional revenues from licensing of our technology in the
future, our operating results may decline from previous periods.
We have discontinued our ViaTV product line and if we
cannot lower expenses, our operating results may decline.
We announced in April 1999 that we would cease
production of our ViaTV product line and withdraw from our distribution
channels over the next several quarters. In the third quarter and nine months
ended December 31, 1999, ViaTV product revenues represented approximately
8% and 18% of total product revenues, respectively. For the years ended March
31, 1999 and 1998, ViaTV revenues represented 49% and 38% of product
revenues, respectively. We have been successful in selling the majority of
existing ViaTV related inventories as of December 31, 1999 and,
therefore, we do not anticipate any material revenues from our ViaTV
product line in the future. We do not expect to be able to generate revenues
from our other products to compensate for the loss of ViaTV revenues for at
least the next twelve months, if at all. If we cannot adequately compensate for
lower revenues with decreased manufacturing overhead expenses and with lower
operating expenses, it could have a material adverse effect on our business and
operating results.
Our operating results historically have been subject to
increased seasonality with sales higher during our third fiscal quarter,
corresponding to the Christmas shopping season. Our discontinuation of
ViaTV products may result in substantially different patterns in
operating results.
The growth of our business and future profitability
depends on future broadband telephony revenue.
We believe that our business and future profitability
will be largely dependent on widespread market acceptance of our broadband
telephony products. Neither our multimedia communications semiconductor
business nor our video monitoring business have provided, nor are they expected
to provide, sufficient revenues to profitably operate our business. To date, we
have not generated significant revenue from the sale of our broadband telephony
products. If we are not able to generate significant revenues selling into the
broadband telephony market, it would have a material adverse effect on our
business and operating results.
The growth of our business depends on the growth of the IP
telephony market.
Success of our broadband telephony product
strategy assumes that there will be future demand for IP telephony systems. In
order for the IP telephony market to continue to grow, several things need to
occur. Telephone service providers must continue to invest in the deployment of
high speed broadband networks to residential and commercial customers. IP
networks must improve quality of service for real-time communications, managing
effects such as packet jitter, packet loss and unreliable bandwidth, so that
toll-quality service can be provided. IP telephony equipment must achieve the
99.999% reliability that users of the public switched telephone network have
come to expect from their telephone service. IP telephony service providers
must offer cost and feature benefits to their customers that are sufficient to
cause the customers to switch away from traditional telephony service providers.
If any or all of these factors fail to occur our business will not grow.
Our future operating results may not follow past or
expected trends due to many factors and any of these could cause our stock price
to fall.
Our historical operating results have fluctuated
significantly and will likely continue to fluctuate in the future, and a decline
in our operating results could cause our stock price to fall. On an annual and
a quarterly basis there are a number of factors that may affect our operating
results, many of which are outside our control. These include, but are not
limited to:
- changes in market demand;
- the timing of customer orders;
- competitive market conditions;
- lengthy sales cycles, regulatory approval
cycles;
- new product introductions by us or our
competitors;
- market acceptance of new or existing products;
- the cost and availability of components;
- the mix of our customer base and sales channels;
- the mix of products sold;
- the management of inventory;
- the level of international sales;
- continued compliance with industry standards;
and
- general economic conditions.
Our gross margin is affected by a number of factors
including, product mix, the recognition of license and other revenues for which
there may be no or little corresponding cost of revenues, product pricing, the
allocation between international and domestic sales, the percentage of direct
sales and sales to resellers, and manufacturing and component costs. The
markets for our products are characterized by falling average selling prices.
We expect that, as a result of competitive pressures and other factors, gross
profit as a percentage of revenue for our semiconductor products will likely
decrease for the foreseeable future. The market for IP telephony semiconductors
is likely to be a high volume market characterized by commodity pricing. We
will not be able to generate average selling prices or gross margins for our IP
telephony semiconductors similar to those that we have historically commanded
for our videoconferencing semiconductors. In addition, the gross margins for
our video monitoring and broadband systems products are, and will
likely continue to be, substantially lower than the gross margins for our
videoconferencing semiconductors. In the likely event that we encounter
significant price competition in the markets for our products, we could be at a
significant disadvantage compared to our competitors, many of which have
substantially greater resources, and therefore may be better able to withstand
an extended period of downward pricing pressure.
Variations in timing of sales may cause significant
fluctuations in future operating results. In addition, because a significant
portion of our business may be derived from orders placed by a limited number of
large customers, including OEM customers, the timing of such orders can also
cause significant fluctuations in our operating results. Anticipated orders from
customers may fail to materialize. Delivery schedules may be deferred or
canceled for a number of reasons, including changes in specific customer
requirements or international economic conditions. The adverse impact of a
shortfall in our revenues may be magnified by our inability to adjust spending
to compensate for such shortfall. Announcements by us or our competitors of new
products and technologies could cause customers to defer purchases of our
existing products, which would also have a material adverse effect on our
business and operating results.
As a result of these and other factors, it is likely that
in some future period our operating results will be below the expectations of
securities analysts or investors, which would likely result in a significant
reduction in the market price for our common stock.
We may not be able to manage our inventory levels
effectively which may lead to inventory obsolescence which would force us to
lower our prices.
Our products have lead times of up to several months, and
are built to forecasts that are necessarily imprecise. Because of our practice
of building our products to necessarily imprecise forecasts, it is likely that,
from time to time, we will have either excess or insufficient product inventory.
For example, we had significant inventory quantities of ViaTV products,
both on hand and at our retail distributors when we discontinued production in
April 1999. In the fourth quarter ended March 31, 1999, cost of product
revenues included a $5.7 million charge associated with the write off of
inventories related to our decision to cease production of our ViaTV
product line. Excess inventory levels would subject us to the risk of inventory
obsolescence and the risk that our selling prices may drop below our inventory
costs, while insufficient levels of inventory may negatively affect relations
with customers. Any of these factors could have a material adverse effect on
our operating results and business.
We may need to raise additional capital to support our
growth, and failure to do so in a timely manner may cause us to delay our plans
for growth.
As of December 31, 1999, we had approximately
$21.8 million in cash and cash equivalents. We believe that we will be able to
fund planned expenditures and satisfy our cash requirements for at least the
next twelve months from cash flow from operations, if any, and existing cash
balances. However, we may seek to exploit business opportunities, including
acquiring or investing in complementary businesses or products, that will
require additional capital from equity or debt sources. Additionally, the
development and marketing of new products could require a significant commitment
of resources, which could in turn require us to obtain additional financing
earlier than otherwise expected. We may not be able to obtain additional
financing as needed on acceptable terms, or at all, which would force us to
delay our plans for growth and implementation of our strategy which could
seriously harm our business, financial condition and results of operations. If
we issue additional equity or convertible debt securities to raise funds, the
ownership percentage of our existing stockholders would be reduced. New
investors may demand rights, preferences or privileges senior to those of
existing holders of our common stock.
We depend on purchase orders from key customers and
failure to receive significant purchase orders in the future would cause a
decline in our operating results.
Historically, a significant portion of our sales
have been to relatively few customers, although the composition of these
customers has varied. Revenues from our ten largest customers for the third
quarter and nine months ended December 31, 1999 accounted for approximately 44%
and 40%, respectively, of total revenues. Revenues from our ten largest
customers for the fiscal years ended March 31, 1999 and 1998 accounted for 40%
and 61%, respectively, of total revenues. 3Com accounted for 20% of total
revenues during the year ended March 31, 1998. Substantially all of our product
sales have been made, and are expected to continue to be made, on a purchase
order basis. None of our customers has entered into a long-term agreement
requiring it to purchase our products. In the future, we will need to gain
purchase orders for our products to earn additional revenue. Further, all of
our license and other revenues are nonrecurring.
Technical and quality difficulties could impede market
acceptance of our video monitoring products which would limit our growth.
Due to bandwidth constraints, certain of our video
monitoring products transmit video over a plain old telephone system, which is
known as POTS, at a frame rate and resolution that are significantly less than
the frame rate and resolution of standard closed circuit TV monitors.
Furthermore, audio transmitted over a POTS line has a fidelity that is often
less than toll quality and that degrades in the presence of background noise.
The POTS infrastructure varies widely in configuration and integrity, can
degrade, make unreliable or even eliminate the digital connections between our
video monitoring products. The security industry demands a high degree of
quality, robustness and reliability of its products. Actual or perceived
technical difficulties or insufficient video or audio quality could cause our
existing customers to forego future purchases or cause potential customers to
seek alternative solutions, either of which would limit the growth of our
business.
Competition
We compete with both manufacturers of digital signal
processing semiconductors and gateway products developed for the growing VoIP
marketplace. We also compete with manufacturers of multimedia communication
semiconductors and systems. In addition, we compete with manufacturers of PBX
systems focused on small and medium size businesses. The markets for our
products are characterized by intense competition, declining average selling
prices and rapid technological change.
IP Telephony and Videoconferencing
The principal competitive factors in the market for IP
telephony and videoconferencing semiconductors include product definition,
product design, system integration, chip size, functionality, time-to-market,
adherence to industry standards, price and reliability. We have a number of
competitors in this market including Analog Devices, AudioCodes Ltd., Broadcom
Corporation, Conexant, DSP Group, Lucent Technologies, Motorola, Inc., Neo
Paradigm Labs, Philips Electronics, Texas Instruments, Inc. and Winbond
Electronics. Certain of our competitors for IP telephony and videoconferencing
semiconductors maintain their own semiconductor foundries and may therefore
benefit from certain capacity, cost and technical advantages.
Principle competitive factors in the market for VoIP
gateway products include product definition, product design, system integration,
system functionality, time-to-market, interoperability with common network
equipment, adherence to industry standards, price and reliability. Currently
there are a large number of system suppliers offering carrier-class gateway
products such as Ascend Communications, Inc., Cisco Systems, Inc., Clarent
Corporation, Mediatrix, NX Networks, Nokia Corporation, Nortel Networks, Nuera
Communications, Inc., VocalTec Communications, and Lucent Technologies. At this
time there is limited competition in the residential and small office
VoIP gateway market. We expect, however, that this market will be
characterized by intense competition, declining average selling price and rapid
technology change. In addition, our presence in the VoIP systems
business may result in certain customers or potential customers perceiving us as
a competitor or potential competitor, which may be used by other semiconductor
manufacturers to their advantage.
Principle competitive factors in the market for PBX products include product
definition, product design, system integration, system functionality,
time-to-market, interoperability with common network equipment, adherence to
industry standards, price and reliability. Currently there are a number of
suppliers of PBX related products and services including, but not limited to,
3Com, Cisco Systems, Inc., Coppercom, Lucent Technologies, NEC, Nortel
Networks, Siemens and Tundo. We expect, however, that this market will be
characterized by intense competition, declining average selling price and rapid
technology change.
Video Monitoring Products
The competitive factors in the market for our video
monitoring products include audio and video quality, acceptable phone
line transmission rates, ability to connect and maintain stable connections,
ease of use, price, access to enabling technologies, product design, time-to-
market, adherence to industry standards, interoperability, strength of
distribution channels, customer support, reliability and brand name. We expect
intense competition for our video monitoring products. Competition is expected
from:
- Large security equipment manufacturers. We may
face intense competition for our video monitoring products from many well known,
established suppliers of security equipment, such as Ademco, Pelco and Ultrek
Electronics Limited who have continually reduced the cost of their products and
may enter the market for lower cost video communication products.
- Personal computer system and software manufacturers.
Potential customers for our remote surveillance module products may
elect instead to buy PCs pre-equipped with video communication software
capabilities or a third-party software application for use on a PC. As a
result, we face or may face competition from Intel, and PC software suppliers
such as Microsoft, Netscape, Javelin and Prism.
ADVIS, C-Phone Corporation, Leadtek Research, Inc., Truedox
Technology Corporation and Video Communication Systems GmbH are among the
companies selling low-cost products targeted specifically at the video
monitoring marketplace. We expect that additional companies will introduce
products that compete with our video monitoring products in the future. Certain
manufacturers or potential manufacturers of low-cost videophones have licensed
or purchased, or may license or purchase, our technology and semiconductors in
order to do so. KME and 3Com in particular have licensed substantially all of
the technology underlying our ViaTV products, and may use such technology
to introduce products that compete with our video monitoring products. Each of
Leadtek Research, Inc. and Truedox Technology Corporation license our technology
and purchase our multimedia communication semiconductors. We aggressively
license our semiconductor, software and systems technology and sell our
semiconductor and system products to third parties. Thus, it is likely that
other OEM customers will become competitors with respect to our video
monitoring products business. Other competitors may purchase multimedia
communication semiconductors and related technology from other suppliers.
Our reliance on developing vertically integrated technology,
comprising systems, circuit boards, software and semiconductors, places a
significant strain on us and on our research and development resources.
Competitors that focus on one aspect of technology, such as systems or
semiconductors, may have a considerable advantage. In addition, many of our
current and potential competitors have longer operating histories, are
substantially larger, and have greater financial, manufacturing, marketing,
technical and other resources. Many of our competitors also have greater name
recognition and a larger installed base of products. Competition in our markets
may result in significant price reductions. As a result of their greater
resources, many current and potential competitors may be better able to initiate
and withstand significant price competition or downturns in the economy. There
can be no assurance that we will be able to continue to compete effectively, and
any failure to do so would have a material adverse effect on our business and
operating results.
Our markets are subject to rapid technological change and
we depend on new product introduction in order to maintain and grow our
business.
IP telephony and video monitoring are emerging markets
and are characterized by rapid changes in customer requirements, frequent
introductions of new and enhanced products, and continuing and rapid
technological advancement. To compete successfully in these emerging markets,
as well as in the more established videoconferencing market, we must continue to
design, develop, manufacture and sell new and enhanced products that provide
increasingly higher levels of performance and reliability and lower cost, take
advantage of technological advancements and changes, and respond to new customer
requirements. Our success in designing, developing, manufacturing and selling
such products will depend on a variety of factors, including:
- the identification of market demand for new
products;
- product selection;
- timely implementation of product design and
development;
- product performance;
- cost-effectiveness of products under
development;
- effective manufacturing processes; and
- the success of promotional efforts.
We have in the past experienced delays in the development of
new products and the enhancement of existing products, and such delays will
likely occur in the future. If we are unable, due to resource constraints or
technological or other reasons, to develop and introduce new or enhanced
products in a timely manner, if such new or enhanced products do not achieve
sufficient market acceptance or if such new product introductions decrease
demand for existing products our operating results would decline and our
business would not grow.
If we do not develop and maintain successful partnerships
for broadband telephony products, we may not be able to successfully market our
solutions.
We are entering into new market areas and our success
is partly dependent on our ability to forge new marketing and engineering
partnerships. IP telephony communications systems are extremely complex
and no single company possesses all the required technology components needed to
build a complete end to end solution. Partnerships will be required to augment
our development programs and to assist us in marketing complete solutions to our
customer base. We may not be able to develop such partnerships in the course of
our product development. Even if we do establish the necessary partnerships, we
may not be able to adequately capitalize on these partnerships to aid in the
success of our business.
Inability to protect our proprietary technology or
infringement by us of a third party's proprietary technology would disrupt our
business.
We rely in part on trademark, copyright and trade
secret law to protect our intellectual property in the United States and abroad.
We seek to protect our software, documentation and other written materials under
trade secret and copyright law, which afford only limited protection. We also
rely in part on patent law to protect our intellectual property in the United
States and abroad. We currently hold sixteen United States patents, including
patents relating to programmable integrated circuit architectures, telephone
control arrangements, software structures and memory architecture technology,
and have a number of United States and foreign patent applications pending. We
cannot predict whether such patent applications will result in an issued patent.
We may not be able to protect our proprietary rights in the United States or
abroad (where effective intellectual property protection may be unavailable or
limited) and competitors may independently develop technologies that are similar
or superior to our technology, duplicate our technology or design around any
patent of ours. We have in the past licensed and in the future expect to
continue licensing our technology to others, many of whom are located or may be
located abroad. There are no assurances that such licensees will protect our
technology from misappropriation. Moreover, litigation may be necessary in the
future to enforce our intellectual property rights, to determine the validity
and scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation could result in substantial costs
and diversion of management time and resources and could have a material adverse
effect on our business and operating results.
There has been substantial litigation in the semiconductor,
electronics and related industries regarding intellectual property rights, and
from time to time third parties may claim infringement by us of their
intellectual property rights. Our broad range of technology, including systems,
digital and analog circuits, software and semiconductors, increases the
likelihood that third parties may claim infringement by us of their intellectual
property rights. If we were found to be infringing on the intellectual property
rights of any third party, we could be subject to liabilities for such
infringement, which could be material, and we could be required to refrain from
using, manufacturing or selling certain products or using certain processes,
either of which could have a material adverse effect on our business and
operating results. From time to time, we have received, and may continue to
receive in the future, notices of claims of infringement, misappropriation or
misuse of other parties' proprietary rights. There can be no assurance that we
will prevail in these discussions and actions, or that other actions alleging
infringement by the Company of third-party patents will not be asserted or
prosecuted against the Company.
We rely on certain technology, including hardware and
software licensed from third parties. The loss of, or inability to maintain,
existing licenses could have a material adverse effect on our business and
operating results.
The failure of IP networks to meet the reliability and
quality standards required for voice communications would render our products
obsolete.
Circuit-switched networks such as the public switched
telephone network feature a very high reliability, with a guaranteed quality of
service. The common standard for reliability of carrier-grade real-time voice
communications is 99.999%, meaning that the network can be down for only a few
minutes per year. In addition, such networks have imperceptible delay and
consistently satisfactory audio quality. Emerging broadband IP networks such as
LANs, WANs and the Internet, or emerging last mile technologies such as cable,
DSL and wireless local loop will not be used for telephony unless such networks
and technologies can provide reliability and quality consistent with these
standards.
Our products must comply with industry standards and FCC
regulations, and changes may require us to modify existing products.
In addition to reliability and quality standards, the
market acceptance of telephony over broadband IP networks is dependent upon the
adoption of industry standards so that products from multiple manufacturers are
able to communicate with each other. Broadband telephony products rely
heavily on standards such as H.323, SIP, SGCP, MGCP, and H.GCP to interoperate
with other vendors' equipment. There is currently a lack of agreement among
industry leaders about which standard should be used for a particular
application, and about the definition of the standards themselves. Furthermore,
the industry has had difficulty achieving true multivendor interoperability for
highly complex standards such as H.323. We also must comply with certain rules
and regulations of the Federal Communications Commission regarding
electromagnetic radiation and safety standards established by Underwriters
Laboratories as well as similar regulations and standards applicable in other
countries. Standards are continuously being modified and replaced. As
standards evolve, we may be required to modify our existing products or develop
and support new versions of our products. The failure of our products to
comply, or delays in compliance, with various existing and evolving industry
standards could delay or interrupt volume production of our broadband
telephony products, which would have a material adverse effect on our
business and operating results.
Future regulation or legislation could restrict our
business or increase our cost of doing business.
At present there are few laws or regulations that
specifically address access to or commerce on the Internet, including broadband
IP telephony. We are unable to predict the impact, if any, that future
legislation, legal decisions or regulations concerning the Internet may have on
our business, financial condition and results of operations. Regulation may be
targeted towards, among other things, assessing access or settlement charges,
imposing tariffs or imposing regulations based on encryption concerns or the
characteristics and quality of products and services, which could restrict our
business or increase our cost of doing business. The increasing growth of the
broadband IP telephony market and popularity of broadband IP telephony products
and services heighten the risk that governments will seek to regulate broadband
IP telephony and the Internet. In addition, large, established
telecommunications companies may devote substantial lobbying efforts to
influence the regulation of the broadband IP telephony market, which may be
contrary to our interests.
We may transition to smaller geometry process technologies
and higher levels of design integration which could disrupt our business.
We continuously evaluate the benefits, on an
integrated circuit, product-by-product basis, of migrating to smaller geometry
process technologies in order to reduce costs. We have commenced migration of
certain future products to smaller geometry processes. We believe that the
transition of our products to increasingly smaller geometries will be important
for us to remain competitive. We have in the past experienced difficulty in
migrating to new manufacturing processes, which has resulted and could continue
to result in reduced yields, delays in product deliveries and increased expense
levels. Moreover, we are dependent on relationships with our foundries and
their partners to migrate to smaller geometry processes successfully. If any
such transition is substantially delayed or inefficiently implemented we may
experience delays in product introductions and incur increased expenses. As
smaller geometry processes become more prevalent, we expect to integrate greater
levels of functionality as well as customer and third-party intellectual
property into our products. Some of this intellectual property includes analog
components for which we have little or no experience or in-house expertise. We
cannot predict whether higher levels of design integration or the use of third-
party intellectual property will adversely affect our ability to deliver new
integrated products on a timely basis, or at all.
If we discover product defects, we may have product-
related liabilities which may cause us to lose revenues or delay market
acceptance of our products.
Products as complex as those offered by us frequently
contain errors, defects and functional limitations when first introduced or as
new versions are released. We have in the past experienced such errors, defects
or functional limitations. We sell products into markets that are extremely
demanding of robust, reliable, fully functional products. Therefore delivery of
products with production defects or reliability, quality or compatibility
problems could significantly delay or hinder market acceptance of such products,
which could damage our credibility with our customers and adversely affect our
ability to retain our existing customers and to attract new customers.
Moreover, such errors, defects or functional limitations could cause problems,
interruptions, delays or a cessation of sales to our customers. Alleviating
such problems may require significant expenditures of capital and resources by
us. Despite testing by us, our suppliers or our customers may find errors,
defects or functional limitations in new products after commencement of
commercial production, resulting in additional development costs, loss of, or
delays in, market acceptance, diversion of technical and other resources from
our other development efforts, product repair or replacement costs, claims by
our customers or others against us, or the loss of credibility with our current
and prospective customers.
Manufacturing
We outsource the manufacturing of our semiconductors and
our broadband telephony and video monitoring system products to independent
foundries and subcontract manufacturers, respectively. Our primary
semiconductor manufacturer is Taiwan Semiconductor Manufacturing Corporation.
Subcontract manufacturers include EFA Corporation in Taiwan and Flash
Electronics in Fremont, California. We also rely on Amkor/Anam Electronics in
South Korea for packaging and testing of our semiconductors. We do not have
long-term purchase agreements with our subcontract manufacturers or our
component suppliers. There can be no assurance that our subcontract
manufacturers will be able or willing to reliably manufacture our products, or
that our component suppliers will be able or willing to reliably supply
components for our products, in volumes, on a cost effective basis or in a
timely manner. We may experience difficulties due to our reliance on
independent semiconductor foundries, subcontract manufacturers and component
suppliers that could have a material adverse effect on our business and
operating results.
In addition, from time to time we may issue non-cancelable
purchase orders to our third-party manufacturers for raw materials used in our
video monitoring or other potential system-level products to ensure
availability for long lead-time items or to take advantage of favorable pricing
terms. If we should experience decreased demand for our video monitoring
products or future system-level products, we would still be required to take
delivery of and make payment for such raw materials. In the event of a
significant decrease in system level product demand, such purchase
commitments could have a material adverse effect on our business and operating
results.
We have significant international operations, which
subjects us to risks that could cause our operating results to decline.
Sales to customers outside of the United States
represented 45%, 43% and 47% of total revenues in the nine months ended December
31, 1999 and the fiscal years ended March 31, 1999 and 1998, respectively.
Specifically, sales to customers in the Asia Pacific region represented 21%, 26%
and 25% of our total revenues in the nine months ended December 31, 1999 for the
fiscal years ended March 31, 1999 and 1998, respectively, while sales to
customers in Europe represented 24%, 17% and 22% of our total revenues for the
same periods, respectively.
International sales of our semiconductors will continue to
represent a substantial portion of our product revenues for the foreseeable
future. In addition, substantially all of our current products are, and
substantially all of our future products will be, manufactured, assembled and
tested by independent third parties in foreign countries. International sales
and manufacturing are subject to a number of risks, including general economic
conditions in regions such as Asia, changes in foreign government regulations
and telecommunications standards, export license requirements, tariffs and
taxes, other trade barriers, fluctuations in currency exchange rates, difficulty
in collecting accounts receivable and difficulty in staffing and managing
foreign operations. We are also subject to geopolitical risks, such as
political, social and economic instability, potential hostilities and changes in
diplomatic and trade relationships, in connection with its international
operations. A significant decline in demand from foreign markets, which may
result from the current economic conditions in the Asia Pacific region, or for
other reasons could have a material adverse effect on our business and operating
results.
We need to expand our management systems and hire and
retain key personnel to support our products.
The development and marketing of our broadband telephony
and video monitoring products will continue to place a
significant strain on our limited personnel, management and other resources.
Our ability to manage any future growth effectively will require us to
successfully attract, train, motivate, retain and manage employees, particularly
key engineering and sales managerial personnel, to effectively integrate new
employees into our operations and to continue to improve our operational,
financial and management systems. Our failure to manage growth and changes in
our business effectively and to attract and retain key personnel could limit our
growth and the success of our products and business.
Further, we are highly dependent on the continued service of
and our ability to attract and retain qualified technical, marketing, sales and
managerial personnel. The competition for such personnel is intense,
particularly in the San Francisco Bay area where we are located. The loss of
any key person or the failure to recruit additional key technical and sales
personnel in a timely manner would have a material adverse effect on our
business and operating results. We currently do not have employment contracts
with any of our employees and we do not maintain key person life insurance
policies on any of our employees.
Our stock price has been volatile and we cannot assure you
that our stock price will not decline.
The market price of the shares of our common stock has been
and is likely to be highly volatile. It may be significantly affected by
factors such as:
- actual or anticipated fluctuations in our operating
results;
- announcements of technical innovations;
- loss of key personnel;
- new products or new contracts by us, our competitors or
their customers;
- governmental regulatory action;
- developments with respect to patents or proprietary
rights, general market conditions, changes in financial estimates by securities
analysts and other factors which could be unrelated to, or outside our
control.
The stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stocks of technology companies and that have often
been unrelated to the operating performance of particular companies. These
broad market fluctuations may adversely affect the market price of our common
stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
initiated against the issuing company. If our stock price is volatile, we may
also be subject to such litigation. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which would
disrupt business and could cause a decline in our operating results. Any
settlement or adverse determination in such litigation would also subject us to
significant liability.
PART II - OTHER INFORMATION.
ITEM 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index.
(b) Reports on Form 8-K.
On November 9, 1999, we filed a Current Report on Form 8-K reporting
that we announced the appointment of Lee Camp and Joseph Markee to our Board of
Directors effective October 21, 1999.
On December 23, 1999, we filed a Current Report on Form 8-K reporting that we
had completed a $7.5 million private placement of subordinated Series A and
Series B convertible debentures with funds managed by an institutional investor
effective December 17, 1999.
8X8, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 14, 2000
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8X8, INC.
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(Registrant)
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By: |
/s/ DAVID STOLL
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David M. Stoll
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Chief Financial Officer and
Vice President of Finance
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(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
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Exhibit Number
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Description
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4.1
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Securities Purchase Agreement by and among Wingate Capital Ltd. and
Fisher Capital Ltd. (collectively the "Buyers") and 8x8, Inc. dated
December 15, 1999, with Schedule and Exhibits.
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4.2
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Registration Rights Agreement by and among 8x8, Inc. and the Buyers
dated December 15, 1999.
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4.3
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Form of Series A Warrant by and among 8x8, Inc. and FleetBoston
Robertson Stephens, Inc. dated December 16, 1999.
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4.4
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Form of Series B Warrant by and among 8x8, Inc. and FleetBoston
Robertson Stephens Inc. dated December 16, 1999.
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4.5
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Registration Rights Agreement by and among 8x8, Inc. and FleetBoston
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10.1
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1999 Nonstatutory Stock Option Plan, as amended, and form of Stock Option Agreement.
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27.1+
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Financial Data Schedule.
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All other schedules are omitted because they are not required,
are not applicable or the information is included in the Condensed Consolidated Financial
Statements or notes thereto.
SECURITIES
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:
RIGHTS
REGISTRATION
RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this
"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 undersigned
Buyers (individually a "Buyer" and collectively the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase
Agreement by and among the parties hereto of even date herewith (the
"Securities Purchase Agreement"), the Company has agreed, upon the terms
and subject to the conditions of the Securities Purchase Agreement, to issue and
sell to the Buyers (i) Series A Convertible Notes (the "Series A Notes")
and Series B Convertible Notes (the "Series B Notes" and collectively
with the Series A Notes, the "Notes"), which will be convertible into
shares (as converted, the "Conversion Shares") of the Company's common
stock, par value $0.001 per share (the "Common Stock"), in accordance
with the terms of the Notes and (ii) warrants to purchase shares of Common Stock
(the "Warrants" and, as exercised, the "Warrant Shares").
B. To induce the Buyers to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises
and the mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and each of the Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall
have the following meanings:
a. "Investor" means a Buyer and any
transferee or assignee thereof about whom the Buyer provides notice to the
Company in accordance with Section 9 and to whom a Buyer assigns its rights
under this Agreement and who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 and any transferee or assignee thereof to
whom a transferee or assignee assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in accordance with
Section 9.
b. "Person" means a corporation, a limited
liability company, an association, a partnership, an organization, a business,
an individual, a governmental or political subdivision thereof or a governmental
agency.
c. "Register," "registered," and
"registration" refer to a registration effected by preparing and filing
one or more Registration Statements (as defined below) in compliance with the
1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous or delayed basis ("Rule
415"), and the declaration or ordering of effectiveness of such Registration
Statement(s) by the United States Securities and Exchange Commission (the
"SEC").
d. "Registrable Securities" means (i) the
Conversion Shares issued or issuable upon conversion of the Notes, (ii) the
Warrant Shares issued or issuable upon exercise of the Warrants, (iii) the
Interest Shares (as defined in Section 2(c)(ii) of the Notes) issuable upon
conversion of the Additional Amount and (iv) any shares of capital stock
issued or issuable with respect to the Conversion Shares, the Notes, the Warrant
Shares, the Warrants or the Interest Shares as a result of any stock split,
stock dividend, recapitalization, exchange or similar event or otherwise,
without regard to any limitations on conversions of the Notes or exercises of
Warrants.
e. "Registration Statement" means a
registration statement or registration statements of the Company filed under the
1933 Act covering the Registrable Securities.
Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company
shall prepare, and, as soon as practicable, but in no event later than the first
Business Day after the date which is 95 days after the Closing Date (as defined
in the Securities Purchase Agreement) (the "Filing Deadline") file with
the SEC a Registration Statement or Registration Statements (as necessary) on
Form S-3 covering the resale of the number of Registrable Securities as provided
for in this Section 2(a). In the event that Form S-3 is unavailable for such a
registration, the Company shall use such other form as is available for such a
registration, subject to the provisions of Section 2(d). Any first
Registration Statement prepared pursuant hereto shall register for resale at
least that number of shares of Common Stock equal to the sum of (y) the product
of (i) 1.15 and (ii) the number of Conversion Shares issuable upon conversion of
the Notes (without regard to any limitations on conversions) as of the date
immediately preceding the date the Registration Statement is initially filed
with the SEC, subject to adjustment as provided in Section 2(f), plus (z) the
number of Warrant Shares issuable upon exercise of the Warrants (without regard
to any limitations on exercise) as of the date immediately preceding the date
the Registration Statement is initially filed with the SEC, subject to
adjustment as provided in Section 2(f). The Company shall use its best efforts
to cause such Registration Statement to be declared effective by the SEC as soon
as practicable, but in no event later than the date which is 150 days after the
Closing Date (the "Effectiveness Deadline"); provided, however, if the
SEC reviews the S-3, the Effectiveness Deadline shall be the date which is 180
days after the Closing Date.
b. Allocation of Registrable Securities.
The initial number of Registrable Securities included in any Registration
Statement and each increase in the number of Registrable Securities included
therein shall be allocated pro rata among the Investors based on the number of
Registrable Securities held by each Investor at the time the Registration
Statement covering such initial number of Registrable Securities or increase
thereof is declared effective by the SEC. In the event that an Investor sells
or otherwise transfers any of such Person's Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number of
Registrable Securities included in such Registration Statement for such
transferor. Any shares of Common Stock included in a Registration Statement and
which remain allocated to any Person which ceases to hold any Registrable
Securities shall be allocated to the remaining Investors, pro rata based on the
number of Registrable Securities then held by such Investors.
c. Legal Counsel. Subject to Section 5
hereof, the Buyers holding a majority of the Registrable Securities shall have
the right to select one legal counsel to review and oversee any offering
pursuant to this Section 2 ("Legal Counsel"), which shall be Katten
Muchin & Zavis or such other counsel as thereafter designated by the holders
of a majority of Registrable Securities. The Company shall reasonably cooperate
with Legal Counsel in performing the Company's obligations under this
Agreement.
d. Ineligibility for Form S-3. In the
event that Form S-3 is not available for any registration of Registrable
Securities hereunder, the Company shall (i) register the sale of the Registrable
Securities on another appropriate form and (ii) undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.
e. Effect of Failure to Obtain and Maintain
Effectiveness of Registration Statement.
(i) Failure to Obtain Effectiveness.
If a Registration Statement covering all the applicable Registrable Securities
and required to be filed by the Company pursuant to this Agreement is not
declared effective by the SEC on or before the Effectiveness Deadline then, as
partial relief for the damages to any holder (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each holder of the Notes an amount in cash equal to the sum of the
following:
(A) Delay in Effectiveness from the Effectiveness
Deadline Until 30 days Thereafter. The product of (i) The aggregate
principal amount of Notes held by such holder of Notes multiplied by (ii) the
product of (I) 0.000333 for any day during the period beginning on the
Effectiveness Deadline and ending on and including the date which is 30 days
after the Effectiveness Deadline and (II) the number of days after the
Effectiveness Deadline that a Registration Statement is not declared effective
by the SEC; plus
(B) Delay in Effectiveness from the 31st
Day after the Effectiveness Deadline and Thereafter. The product of (i) The
aggregate principal amount of Notes held by such holder of Notes multiplied by
(ii) the product of (I) 0.005 for any day commencing on the 31st day
after the Effectiveness Deadline and thereafter multiplied by (II) the number of
days after the 31st day after the Effectiveness Deadline that a
Registration Statement is not declared effective by the SEC.
(ii) Failure to Maintain Effectiveness. If on
any day after a Registration Statement has been declared effective by the SEC
(including days during a Grace Period), sales of all the Registrable Securities
required to be included on such Registration Statement cannot be made pursuant
to such Registration Statement for any reason (including, without limitation,
because of a failure to keep the Registration Statement effective, to disclose
such information as is necessary for sales to be made pursuant to such
Registration Statement or to have registered a sufficient number of shares of
Common Stock) for a period of more than five (5) consecutive trading days or
more than ten (10) trading days in a 365-day period (including days during a
Grace Period), then, as partial relief for the damages to any holder (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Company shall pay to each holder of the Notes an amount in cash
equal to: (A) the product of (i) the aggregate principal amount of Notes held
by such holder of Notes and (ii) the product of (I) 0.0025 and (II) the number
of days after effectiveness of a Registration Statement that it has lapsed or is
unavailable (as described above) in excess of a five (5) consecutive
trading day period or in excess of ten (10) trading days in any
365-day period.
(iii) Date of Payment. The payments to which a
holder shall be entitled pursuant to this Section 2(e) are referred to herein as
"Registration Delay Payments." Registration Delay Payments shall be paid on the earlier of (I) the
last day of the calendar month during which such Registration Delay Payments are
incurred and (II) the third business day after the event or failure giving rise
to the Registration Delayed Payments is cured.
f. Sufficient Number of Shares Registered.
In the event the number of shares available under a Registration Statement filed
pursuant to Section 2(a) is insufficient to cover all of the Registrable
Securities or an Investor's allocated portion of the Registrable Securities
pursuant to Section 2(b), the Company shall amend the Registration Statement, or
file a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover at least 115% of the Registrable
Securities, in each case, as soon as practicable, but in any event not later
than fifteen (15) days after the necessity therefor arises. The Company shall
use its best efforts to cause such amendment and/or new Registration Statement
to become effective as soon as practicable following the filing thereof. For
purposes of the foregoing provision, the number of shares available under a
Registration Statement shall be deemed "insufficient to cover all of the
Registrable Securities" if at any time the number of Registrable Securities
issued or issuable upon conversion of the Notes and exercise of the Warrants is
greater than the number of shares of Common Stock available for resale under
such Registration Statement. For purposes of the calculation set forth in the
foregoing sentence, any restrictions on the convertibility of the Notes or
exercise of the Warrants shall be disregarded and such calculation shall assume
that the Notes are then convertible into, and the Warrants are then exercisable,
for shares of Common Stock at the then prevailing Conversion Rate (as defined in
the Notes) or Warrant Exercise Price (as defined in the Warrants), respectively,
if applicable.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a
Registration Statement with the SEC pursuant to Section 2(a) or 2(f), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file
with the SEC a Registration Statement with respect to the Registrable Securities
(but in no event later than the Filing Deadline) and use its best efforts to
cause such Registration Statement relating to the Registrable Securities to
become effective as soon as possible after such filing (but in no event later
than the Effectiveness Deadline) and keep such Registration Statement effective
pursuant to Rule 415 at all times until the earlier of (i) the date as of which
the Investors may sell all of the Registrable Securities without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) or
(ii) the date on which (A) the Investors shall have sold all the Registrable
Securities and (B) none of the Notes or Warrants is outstanding (the
"Registration Period"), which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. The term
"best efforts" as used in the first sentence of this Section 3(a) shall mean,
among other things, that the Company shall submit to the SEC, within two
business days after the Company learns that no review of a particular
Registration Statement will be made by the staff of the SEC or that the staff
has no further comments on the Registration Statement, as the case may be, a
request for acceleration of effectiveness of such Registration Statement to a
time and date not later than 48 hours after the submission of such request.
b. The Company shall prepare and file with the SEC
such amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration
Statement which are required to be filed pursuant to this Agreement (including
pursuant to this Section 3(b)) by reason of the Company filing a report on Form
10-K, Form 10-Q or Form 8-K or any analogous report under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), the Company shall file
such amendments or supplements with the SEC on the same day on which the 1934
Act report is filed which created the requirement for the Company to amend or
supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to
review and comment upon a Registration Statement and all amendments and
supplements thereto at least seven (7) days prior to their filing with the SEC
and (b) not file any document in a form to which Legal Counsel reasonably
objects. The Company shall not submit a request for acceleration of the
effectiveness of a Registration Statement or any amendment or supplement thereto
without the prior approval of Legal Counsel, which consent shall not be
unreasonably withheld. The Company shall furnish to Legal Counsel, without
charge, (i) any correspondence from the SEC or the staff of the SEC to the
Company or its representatives relating to any Registration Statement, (ii)
promptly after the same is prepared and filed with the SEC, one copy of any
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, and all exhibits and (iii) upon the effectiveness of
any Registration Statement, one copy of the prospectus included in such
Registration Statement and all amendments and supplements thereto. The Company
shall reasonably cooperate with Legal Counsel in performing the Company's
obligations pursuant to this Section 3.
d. The Company shall furnish to each Investor
whose Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, and all exhibits, (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the prospectus
included in such Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Investor may reasonably request)
and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order
to facilitate the disposition of the Registrable Securities owned by such
Investor.
e. The Company shall use reasonable efforts to (i)
register and qualify the Registrable Securities covered by a Registration
Statement under such other securities or "blue sky" laws of such jurisdictions
in the United States as legal Counsel or any Investor reasonably requests, (ii)
prepare and file in those jurisdictions, such amendments (including post-
effective amendments) and supplements to such registrations and qualifications
as may be necessary to maintain the effectiveness thereof during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (x) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(e), (y) subject itself to general taxation in any such jurisdiction,
or (z) file a general consent to service of process in any such jurisdiction.
The Company shall promptly notify Legal Counsel and each Investor who holds
Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or "blue sky" laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.
f. As promptly as practicable after becoming aware
of such event or development, the Company shall notify Legal Counsel and each
Investor in writing of the happening of any event as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading (provided
that such notice shall not contain any material, nonpublic information), and
promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to Legal Counsel and each Investor (or such other number
of copies as Legal Counsel or such Investor may reasonably request). The
Company shall also promptly notify Legal Counsel and each Investor in writing
(i) when a prospectus or any prospectus supplement or post-effective amendment
has been filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such effectiveness shall be
delivered to Legal Counsel and each Investor by facsimile on the same day of
such effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
g. The Company shall use its best efforts to
prevent the issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
h. At the reasonable request of any Buyer and at
such Buyer's expense, the Company shall furnish to such Buyer, on the date of
the effectiveness of the Registration Statement and thereafter from time to time
upon any change or addition (including by way of incorporation by reference) to
the financial statements or financial information included in the Registration
Statement (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to such Buyer and the Company, and (ii) an opinion,
dated as of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to such Buyer.
i. The Company shall make available for inspection
by (i) any Investor, (ii) Legal Counsel and (iii) one firm of accountants or
other agents retained by the Investors (collectively, the "Inspectors")
all pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be
reasonably deemed necessary by each Inspector, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request; provided, however, that each Inspector shall hold in strict
confidence and shall not make any disclosure (except to an Investor) or use of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector has knowledge. Each Investor
agrees that it shall, upon learning that disclosure of such Records is sought in
or by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.
j. The Company shall hold in confidence and not
make any disclosure of information concerning an Investor provided to the
Company unless (i) disclosure of such information is necessary to comply with
federal or state securities laws, (ii) the disclosure of such information is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other final, non-appealable order from a court or governmental body
of competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this Agreement
or any other agreement. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt written notice to such Investor and allow such Investor, at the
Investor's expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.
k. The Company shall use its best efforts either
to (i) cause all the Registrable Securities covered by a Registration Statement
to be listed on each securities exchange on which securities of the same class
or series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on The Nasdaq SmallCap Market, the Nasdaq National
Market The American Stock Exchange, Inc., or The New York Stock Exchange, Inc.
The Company shall pay all fees and expenses in connection with satisfying its
obligation under this Section 3(k).
l. The Company shall cooperate with the Investors
who hold Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may request.
m. The Company shall provide a transfer agent and
registrar of all such Registrable Securities not later than the effective date
of such Registration Statement.
n. If requested by an Investor, the Company shall
(i) immediately incorporate in a prospectus supplement or post-effective
amendment such information as an Investor requests to be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being offered or sold, the purchase price being paid therefor and any
other terms of the offering of the Registrable Securities; (ii) make all
required filings of such prospectus supplement or post-effective amendment as
soon as notified of the matters to be incorporated in such prospectus supplement
or post-effective amendment; and (iii) supplement or make amendments to any
Registration Statement if requested by an Investor of such Registrable
Securities.
o. The Company shall use its best efforts to cause
the Registrable Securities covered by the applicable Registration Statement to
be registered with or approved by such other governmental agencies or
authorities as may be necessary to consummate the disposition of such
Registrable Securities.
p. The Company shall make generally available to
its security holders as soon as practical, but not later than 90 days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
q. The Company shall otherwise use its best
efforts to comply with all applicable rules and regulations of the SEC in
connection with any registration hereunder.
r. Within two (2) business days after a
Registration Statement which includes the Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
for the Company to deliver, to the transfer agent for such Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) confirmation that such Registration
Statement has been declared effective by the SEC in the form attached hereto as
Exhibit A.
s. The Company shall take all other reasonable
actions necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.
t. Notwithstanding anything to the contrary in
Section 3(f), at any time after the applicable Registration Statement has been
declared effective by the SEC, the Company may delay the disclosure of material
non-public information concerning the Company the disclosure of which at the
time is not, in the good faith opinion of the Board of Directors of the Company,
in the best interest of the Company and, in the opinion of counsel to the
Company, otherwise required (a "Grace Period"); provided, that the
Company shall promptly (i) notify the Investors in writing of the existence of
material non-public information giving rise to a Grace Period (provided that in
each notice the Company will not disclose the content of such material non-
public information to the Investors) and the date on which the Grace Period will
begin, and (ii) notify the Investors in writing of the date on which the Grace
Period ends; and, provided further, that no Grace Periods shall exceed 15
consecutive days and during any consecutive 365 day period, such Grace Periods
shall not exceed an aggregate of 30 days (an "Allowable Grace Period").
For purposes of determining the length of a Grace Period above, the Grace Period
shall begin on and include the date the holders receive the notice referred to
in clause (i) and shall end on and include the later of the date the holders
receive the notice referred to in clause (ii) and the date referred to in such
notice. The provisions of Section 3(f) hereof shall not be applicable during
the period of any Allowable Grace Period. Upon expiration of the Grace Period,
the Company shall again be bound by the first sentence of Section 3(f) with
respect to the information giving rise thereto unless such material non-public
information is no longer applicable.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first
anticipated filing date of a Registration Statement, the Company shall notify
each Investor in writing of the information the Company requires from each such
Investor if such Investor elects to have any of such Investor's Registrable
Securities included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request.
b. Each Investor by such Investor's acceptance of
the Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f), such Investor will immediately
discontinue disposition of Registrable Securities pursuant to any Registration
Statement(s) covering such Registrable Securities until such Investor's receipt
of the copies of the supplemented or amended prospectus contemplated by Section
3(g) or the first sentence of 3(f) or receipt of notice that no supplement or
amendment is required. Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee of an Investor in accordance with the terms of the Securities
Purchase Agreement in connection with any sale of Registrable Securities with
respect to which an Investor has entered into a contract for sale prior to the
Investor's receipt of a notice from the Company of the happening of any event of
the kind described in Section 3(f) or the first sentence of 3(h) and for which
the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting
discounts and brokerage commissions, incurred in connection with registrations,
filings or qualifications pursuant to Sections 2 and 3, including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees shall be paid by the Company. In addition, the Company shall
reimburse the Investors for the reasonable fees and disbursements of Legal
Counsel in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3 of this Agreement (other than Section 3(h)) which amount
combined with expenses incurred by the Buyers pursuant to Section 4(j) of the
Securities Purchase Agreement shall not exceed $50,000.
6. INDEMNIFICATION.
In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the
Company will, and hereby does, indemnify, hold harmless and defend each
Investor, the directors, officers, partners, employees, agents, representatives
of, and each Person, if any, who controls any Investor within the meaning of the
1933 Act or the 1934 Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities, judgments, fines, penalties, charges,
costs, attorneys' fees, amounts paid in settlement or expenses, joint or
several, (collectively, "Claims") incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or appeal
taken from the foregoing by or before any court or governmental, administrative
or other regulatory agency, body or the SEC, whether pending or threatened,
whether or not an indemnified party is or may be a party thereto
("Indemnified Damages"), to which any of them may become subject insofar
as such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon: (i) any untrue statement or
alleged untrue statement of a material fact in a Registration Statement or any
post-effective amendment thereto or in any filing made in connection with the
qualification of the offering under the securities or other "blue sky" laws of
any jurisdiction in which Registrable Securities are offered ("Blue Sky
Filing"), or the omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement or (iv) any material
violation of this Agreement (the matters in the foregoing clauses (i) through
(iv) being, collectively, "Violations"). Subject to Section 6(c), the
Company shall reimburse the Indemnified Persons, promptly as such expenses are
incurred and are due and payable, for any legal fees or disbursements or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d); (ii) shall not be available
to the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3(d);
and (iii) shall not apply to amounts paid in settlement of any Claim, if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
b. In connection with any Registration Statement
in which an Investor is participating, each such Investor agrees to severally
and not jointly indemnify, hold harmless and defend, to the same extent and in
the same manner as is set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement and each
Person, if any, who controls the Company within the meaning of the 1933 Act or
the 1934 Act (each an "Indemnified Party"), against any Claim or
Indemnified Damages to which any of them may become subject, under the 1933 Act,
the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise
out of or are based upon any Violation, in each case to the extent, and only to
the extent, that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for use
in connection with such Registration Statement; and, subject to Section 6(d),
such Investor will reimburse any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) and the
agreement with respect to contribution contained in Section 7 shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the prospectus was corrected on a timely
basis in the prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person
or Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses of not more than one counsel for such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding. In the case of
an Indemnified Person, legal counsel referred to in the immediately preceding
sentence shall be selected by the Investors holding a majority in interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate
fully with the indemnifying party in connection with any negotiation or defense
of any such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of
any action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
d. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or Indemnified
Damages are incurred.
e. The indemnity agreements contained herein shall
be in addition to (i) any cause of action or similar right of the Indemnified
Party or Indemnified Person against the indemnifying party or others, and (ii)
any liabilities the indemnifying party may be subject to pursuant to the
law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that: (i) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (ii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities pursuant to
such Registration Statement.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the
benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule
144"), the Company agrees to:
a. make and keep public information available, as
those terms are understood and defined in Rule 144;
b. file with the SEC in a timely manner all
reports and other documents required of the Company under the 1933 Act and the
1934 Act so long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations under
Section 4(c) of the Securities Purchase Agreement) and the filing of such
reports and other documents is required for the applicable provisions of Rule
144; and
c. furnish to each Investor so long as such
Investor owns Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
the 1934 Act or, if applicable, that there is publicly available the information
concerning the Company described in Rule 144(C)(2), (ii) unless available on the
EDGAR system, a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the investors to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be
automatically assignable by the Investors to any transferee of all or any
portion of Registrable Securities if: (i) the Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities laws;
(iv) at or before the time the Company receives the written notice contemplated
by clause (ii) of this sentence the transferee or assignee agrees in writing
with the Company to be bound by all of the provisions contained herein; and (v)
such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and Investors who then hold two-thirds (2/3) of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Registrable Securities. 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 this
Agreement unless the same consideration also is offered to all of the parties to
this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of
Registrable Securities whenever such Person owns or is deemed to own of record
such Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. 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
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. Sheriden, Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to a Buyer, to its address and facsimile number on the
Schedule of Buyers attached hereto, with copies to such Buyer's representatives
as set forth on the Schedule of Buyers or to 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 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.
c. Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
d. 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 in 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. 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. 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.
e. This Agreement, the Securities Purchase
Agreement, the Warrants and the Notes the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement, the Securities Purchase
Agreement, the Warrants and the Notes supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 9, this
Agreement shall inure to the benefit of and be binding upon the permitted
successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
h. This Agreement may be executed in identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a
party, may be delivered to the other party hereto by facsimile transmission of a
copy of this Agreement bearing the signature of the party so delivering this
Agreement.
i. 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.
j. All consents and other determinations to be
made by the Investors pursuant to this Agreement shall be made, unless otherwise
specified in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Notes and the Warrants then outstanding
have been converted into or exercised for Registrable Securities without regard
to any limitation on conversions of the Notes or exercises of the Warrants.
k. 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.
l. 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.
IN WITNESS WHEREOF, the parties have caused this
Registration Rights Agreement to be duly executed as of day and year first above
written.
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COMPANY:
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BUYER:
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8x8, INC.
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FISHER CAPITAL LTD.
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By: ___________________________
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By: ___________________________
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Name:
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Name: Daniel J. Hopkins
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Title:
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Its: Authorized Signatory
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WINGATE CAPITAL LTD.
|
|
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By: ___________________________
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Name: Daniel J. Hopkins
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Its: Authorized Signatory
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SCHEDULE OF BUYERS
|
Investor Name |
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Address
and Facsimile Number |
|
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Fisher Capital Ltd. |
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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 |
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|
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Wingate Capital Ltd. |
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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 |
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SERIES A
THIS WARRANT AND THE SECURITIES WHICH MAY BE PURCHASED UPON
THE EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE
SECURITIES LAWS.
WARRANT TO PURCHASE COMMON STOCK
of
8x8, INC.
Void December 16, 2002
THIS CERTIFIES THAT, for value received, FleetBoston Robertson
Stephens Inc. (the "Holder") is entitled, subject to the terms set forth
below, to purchase from 8x8, Inc., a Delaware corporation (the
"Company"), the number of shares of the Company's Common Stock (the
"Shares") equal to ten percent (10%) of $3,750,000 divided by the
Conversion Price (as defined below), at the Conversion Price (the "Exercise
Price"). The number, character and Exercise Price of the Shares are subject
to adjustment as provided below. The term "Warrant" as used herein shall
include this Warrant and any warrants delivered in substitution or exchange
therefor as provided herein. "Conversion Price" means 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 from the date hereof, provided that the Conversion
Price shall not exceed $7.05 (subject to adjustment for stock dividends, stock
splits, stock combinations or other similar transactions (each, a
"Recapitalization")) nor be less than $4.00 (subject to any
Recapitalizations with respect to such shares). "Market Price" shall
mean, 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
Recapitalizations with respect to such shares.
- Term of Warrant.
- Term of Warrant. Except as otherwise provided herein, this Warrant
shall be exercisable, in whole or in part, during the term commencing on the
date which is 36 trading days from the date hereof and ending at 5:00 p.m.,
Pacific Standard Time, on December 16, 2002, and shall be void
thereafter.
- Exercise Of Warrants.
- Cash Exercise. The purchase rights set forth in this Warrant are
exercisable by the Holder, in whole or in part, at any time, or from time to
time commencing on the date which is 36 trading days from the date hereof, prior
to the expiration of the term set forth in Section 1 above, by the tender
to the Company at its principal office of a notice of exercise in the form
attached hereto as Exhibit A (the "Notice of Exercise"), duly
completed and executed on behalf of the Holder and the payment to the Company by
certified, cashier's or other check acceptable to the Company or by wire
transfer of immediately available funds to such account as may be designated by
the Company, of the aggregate purchase price of the Shares being purchased.
- Net Issue Exercise
. Notwithstanding the payment provisions set forth
in Section 2(a) above, if the Shares to be issued upon exercise of this Warrant
are not registered and available for resale pursuant to a registration statement
in accordance with the Registration Rights Agreement between the Company and the
Holder, dated December ___, 1999 the Holder may elect to receive Shares equal to
the value of this Warrant (or of any portion thereof remaining unexercised) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Notice of Exercise and notice of such election, in which
event the Company shall issue to the Holder that number of Shares computed using
the following formula:
X = Y(A-B)
A
Where:
X = the number of Shares to be issued to the Holder;
Y = the number of Shares purchasable under this Warrant or, if only a portion
of the Warrant is being exercised, the portion of the Warrant being
cancelled (at the date of such calculation);
A = the fair market value of one share of the Shares (at the date of such
calculation); and
B = the Exercise Price (as adjusted to the date of such calculation).
For purposes of the calculation above, the fair market value per share shall
be the product of (i) the average of the closing bid and asked prices of the
Common Stock quoted in the Over-The-Counter Market Summary or the last reported
sale price of the Common Stock or the closing price quoted on the Nasdaq
National Market or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Wall Street Journal for the five
(5) trading days prior to the date of determination of fair market value and
(ii) the number of Shares for which this Warrant is exercisable.
- Stock Certificates
. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its tender
for exercise as provided above, and the persons entitled to receive the Shares
issuable upon such exercise shall be treated for all purposes as the holder of
record of such Shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company, at its expense, shall deliver to the person or persons
entitled to receive the same a certificate or certificates for that number of
shares issuable upon such exercise. In the event that this Warrant is exercised
in part, the Company shall, at its expense, execute and deliver a new Warrant
with the same terms and conditions for the number of Shares that remain subject
to this Warrant.
- Taxes
. The issuance of the Shares upon the exercise of this Warrant,
and the delivery of certificates or other instruments representing such Shares,
shall be made without charge to the Holder for any tax or other charge in
respect of such issuance. The Company shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the issue
and delivery of any certificate in a name other than that of the Holder and the
Company shall not be required to issue or deliver any such certificate unless
and until the person or persons requesting the issue thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of such fractional share to which the Holder would otherwise
be entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
No Rights As Stockholders. This Warrant does not entitle the
Holder to any voting right or other rights as a stockholder of the Company prior
to the exercise of the Holder's rights to purchase the Shares as provided for
herein.
Transfer of Warrants.
Warrant Register. The Company shall maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change its
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register, the
Company may treat the Holder as shown on the Warrant Register as the absolute
owner of this Warrant for all purposes, notwithstanding any notice to the
contrary.
Transferability and Non-negotiability of Warrant. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company); provided, however, that this Warrant may be assigned by the Holder
to any person or entity affiliated with or established by the Holder. Subject
to the provisions of this Warrant with respect to compliance with the Securities
Act of 1933, as amended (the "Act"), title to this Warrant may be
transferred by endorsement (by the Holder executing the assignment form (the
"Assignment Form") attached hereto as Exhibit B) and delivery in
the same manner as a negotiable instrument transferable by endorsement and
delivery.
Exchange of Warrant Upon a Transfer. On surrender of this Warrant
for exchange, properly endorsed on the Assignment Form and subject to the
provisions of this Warrant with respect to compliance with the Act and with the
limitations on assignments and transfers contained in this Section 5, the
Company, at its expense, shall issue to or on the order of the Holder a new
warrant or warrants with the same terms and conditions, in the name of the
Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, for the number of shares issuable upon exercise thereof.
Compliance with Securities Laws.
- The Holder of this Warrant, by acceptance hereof, acknowledges that this
Warrant and the Shares to be issued upon exercise hereof are being acquired
solely for the Holder's own account and not as a nominee for any other party,
and for investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any Shares to be issued upon exercised hereof except
under circumstances that will not result in a violation of the Act or any state
securities laws. 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 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; provided, however, that the Holder shall be able
to transfer such Warrant or Shares (x) as provided in subparagraph (b) above and
(y) in such other transactions as may be effected without registration pursuant
to the Act or qualification pursuant to any relevant state securities laws and
shall confirm such other matters related thereto as may be reasonably requested
by the Company.
- This Warrant and all Shares issued upon exercise hereof or conversion
thereof shall be stamped or imprinted with a legend in substantially the
following form:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
THE ACT AND ANY APPLICABLE SECURITIES LAWS. COPIES OF THE AGREEMENT COVERING
THE PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO
THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY.
Representations and Warranties by the Holder. The Holder
represents and warrants to the Company as follows:
- Investment Purpose
. The right to Shares issuable upon exercise of
the Holder's rights contained herein will be acquired for investment and not
with a view to the sale or distribution of any part thereof, except as provided
in Section 5 of this Agreement or pursuant to an effective registration
statement under the Act, and the Holder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption from the Act.
- Private Issue
. The Holder understands (i) that the Shares issuable
upon exercise of the Holder's rights contained herein is not registered under
the Act or qualified under applicable state securities laws on the ground that
the issuance contemplated by this Warrant will be exempt from the registration
and qualifications requirements thereof, and (ii) that the Company's reliance on
such exemption is predicated on the representations set forth in this Section
6.
- Financial Risk
. The Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to bear the economic risks of its
investment.
- Risk of No Registration
. The Holder understands that if the Company
does not register with the Securities and Exchange Commission pursuant to
Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act"),
or file reports pursuant to Section 15(d) of the Exchange Act, or if a
registration statement covering the securities under the Act is not in effect
when it desires to sell (i) the rights to purchase the Shares pursuant to this
Warrant or (ii) the Shares issuable upon exercise of this Warrant, it may be
required to hold such securities for an indefinite period. The Holder is aware
of the provisions of Rule 144 promulgated under the Act.
Reservation of Stock. The Company covenants that during the
term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of the Shares upon the exercise of this Warrant and, from time to time,
will take all steps necessary to amend its Certificate of Incorporation (the
"Certificate") to provide sufficient reserves of shares of Common Stock
issuable upon exercise of the Warrant. The Company further covenants that all
shares that may be issued upon the exercise of rights represented by this
Warrant and payment of the Exercise Price, all as set forth herein, will be free
from all taxes, liens and charges in respect of the issue thereof (other than
taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein). The Company agrees that its issuance of this Warrant shall
constitute full authority of its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
the Shares upon the exercise of this Warrant.
Adjustment Rights.
The Exercise Price and the number of shares purchasable hereunder are
subject to adjustment from time to time, as follows:
- 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 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 employee benefit plan which has been
approved by the Board of Directors of the Company or Excluded Securities (as
defined below) 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 (5)
consecutive trading days immediately preceding such issue or sale, then
immediately after such issue or sale the Exercise Price then in effect shall be
reduced to an amount equal to the product of (x) the 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 (as
defined below) 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, "Excluded Securities" shall
mean 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 issues 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. "Common Stock
Deemed Outstanding" shall mean, 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(a)(i) and 8(a)(ii)
hereof, regardless of whether any options or convertible securities 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. For purposes of this Section 8(a), the
following shall be applicable:
- Issuance of Options
. If the Company in any manner grants any rights,
warrants or options to subscribe for or purchase Common Stock or convertible
securities (an "Option") 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 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.
- 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 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 Exercise Price had been or are to be made pursuant to
other provisions of this Section 8(a), no further adjustment of the 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.
- 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 Exercise Price in effect at the time of such
change shall be adjusted to the 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 Exercise Price then in
effect.
- 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.
- 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.
- 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 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 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.
- 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:
- the 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 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
- 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).
- 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 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 Exercise Price or decrease the number of shares of
Common Stock obtainable as otherwise determined pursuant to this Section 8.
- Notice of Adjustments
. In the event that: (i) the Company shall
declare any dividend or distribution upon its stock, whether in cash, property,
stock or other securities; (ii) the Company shall offer for subscription
pro rata to the holders of any class of its Preferred Stock or other convertible
stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization, reclassification,
consolidation or merger; or (iv) there shall be any voluntary or
involuntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Holder:
- At least twenty (20) days prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such capital reorganization, reclassification, consolidation, merger,
dissolution, liquidation or winding up; and
- In the case of any such capital reorganization, reclassification,
consolidation, merger or sale of all of substantially all of the Company's
assets, dissolution, liquidation or winding up, at least twenty (20) days prior
written notice of the date when the same shall take place and specifying the
date on which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such capital
reorganization, reclassification, consolidation, merger, dissolution,
liquidation or winding up).
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment,
(iii) the method by which such adjustment was calculated, (iv) the
Exercise Price, and (v) the number of shares subject to purchase hereunder
after giving effect to such adjustment, and shall be given by first class mail,
postage prepaid, addressed to the Holder, at the address as shown on the books
of the Company.
Purchase Rights; Reorganization, Reclassification, Consolidation,
Merger or Sale.
- 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.
- Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to any
individual, limited liability company, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof (each, a "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 acknowledgment (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).
Miscellaneous.
Effective Date. The provisions of this Warrant shall be construed
and shall be given effect in all respects as if it had been executed and
delivered by the Company on the date hereof. This Warrant shall be binding upon
any successors or assigns of the Company.
Attorneys' Fees. In any litigation, arbitration or court proceeding
between the Company and the Holder relating hereto, the prevailing party shall
be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant.
Governing Law. This Warrant shall be governed by and construed for
all purposes under and in accordance with the laws of the State of
California.
Counterparts. This Warrant may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Warrant are for convenience and are not to be considered in construing
this Agreement.
Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail, by registered or certified mail, addressed
(i) to the Holder at the address set forth on the signature page hereof, and
(ii) to the Company at 2445 Mission College Blvd., Santa Clara, CA 95054, or at
such other address as any such party may subsequently designate by written
notice to the other party.
Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
shall survive the execution and delivery of this Warrant.
Amendments. Any provision of this Warrant may be amended by a
written instrument signed by the Company and by the Holder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by its officers thereunto duly authorized.
COMPANY:
8x8, INC.
Dated: December 16, 1999 By:
Paul Voois, Chief Executive Officer
HOLDER:
FLEETBOSTON ROBERTSON STEPHENS INC.
By:
Title:
Address:
(Signature Page(s) to Warrant)
EXHIBIT A
NOTICE OF EXERCISE
(1) The undersigned Holder hereby elects to purchase ________ shares
of the Common Stock of 8x8, Inc., pursuant to the terms of the Warrant dated the
___ day of December, 1999 (the "Warrant") between 8x8, Inc. and the
Holder, and tenders herewith payment of the purchase price for such shares in
full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Common Stock of 8x8, Inc.,
the undersigned hereby confirms and acknowledges the investment representations
and warranties made in Section 6 of the Warrant.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
Name
Signature
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
Name
Date Signature
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
|
Name of Assignee |
Address |
No. of Shares |
| |
|
|
| |
|
|
| |
|
|
and does irrevocably constitute and appoint Paul Voois to make such transfer
on the books of 8x8, Inc., maintained for the purpose, with full power of
substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof or conversion thereof are being acquired for investment and that
the Assignee will not offer, sell or otherwise dispose of this Warrant or any
shares of stock to be issued upon exercise hereof or conversion thereof except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended, or any state securities laws. Further, the Assignee has
acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of stock so purchased are being acquired for investment
and not with a view toward distribution or resale in violation of the Securities
Act of 1933, as amended, or any applicable state securities law.
Dated: ______________________
Signature of Holder
SERIES B
THIS WARRANT AND THE SECURITIES WHICH MAY BE PURCHASED UPON
THE EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN EXEMPTION THEREFROM UNDER THE ACT AND ANY APPLICABLE
SECURITIES LAWS.
WARRANT TO PURCHASE COMMON STOCK
of
8x8, INC.
Void December 16, 2002
THIS CERTIFIES THAT, for value received, FleetBoston Robertson
Stephens Inc. (the "Holder") is entitled, subject to the terms set forth
below, to purchase from 8x8, Inc., a Delaware corporation (the
"Company"), the number of shares of the Company's Common Stock (the
"Shares") equal to ten percent (10%) of $3,750,000 divided by the
Conversion Price (as defined below) on the date which is 11 trading days after
the date which is 90 days from the date hereof, at the Conversion Price (the
"Exercise Price"); provided however, if the Company redeems the
Series B Convertible Notes issued to Fisher Capital Ltd. and Wingate Capital
Ltd. on December 16, 1999 (the "Notes") pursuant to Section 7 thereof and
the Warrants (numbered WB1 and WB2) issued in connection with the Notes become
null and void, this Warrant shall become null and void. The number, character
and Exercise Price of the Shares are subject to adjustment as provided below.
The term "Warrant" as used herein shall include this Warrant and any
warrants delivered in substitution or exchange therefor as provided herein.
"Conversion Price" means 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 from
the date hereof (subject to adjustment for stock dividends, stock splits, stock
combinations or other similar transactions (each, a "Recapitalization")).
"Market Price" shall mean, 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 Recapitalizations with respect to such shares.
- Term of Warrant.
- Term of Warrant. Except as otherwise provided herein, this Warrant
shall be exercisable, in whole or in part, during the term commencing on the
date which is 11 trading days after the date which is 90 days from the date
hereof and ending at 5:00 p.m., Pacific Standard Time, on December 16, 2002, and
shall be void thereafter.
- Exercise Of Warrants.
- Cash Exercise. The purchase rights set forth in this Warrant are
exercisable by the Holder, in whole or in part, at any time, or from time to
time commencing on the date which is 11 trading days after the date which is 90
days from the date hereof, prior to the expiration of the term set forth in
Section 1 above, by the tender to the Company at its principal office of a
notice of exercise in the form attached hereto as Exhibit A (the
"Notice of Exercise"), duly completed and executed on behalf of the
Holder and the payment to the Company by certified, cashier's or other check
acceptable to the Company or by wire transfer of immediately available funds to
such account as may be designated by the Company, of the aggregate purchase
price of the Shares being purchased.
- Net Issue Exercise
. Notwithstanding the payment provisions set forth
in Section 2(a) above, if the Shares to be issued upon exercise of this Warrant
are not registered and available for resale pursuant to a registration statement
in accordance with the Registration Rights Agreement between the Company and the
Holder, dated December ___, 1999 the Holder may elect to receive Shares equal to
the value of this Warrant (or of any portion thereof remaining unexercised) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Notice of Exercise and notice of such election, in which
event the Company shall issue to the Holder that number of Shares computed using
the following formula:
X = Y(A-B)
A
Where:
X = the number of Shares to be issued to the Holder;
Y = the number of Shares purchasable under this Warrant or, if only a portion
of the Warrant is being exercised, the portion of the Warrant being
cancelled (at the date of such calculation);
A = the fair market value of one share of the Shares (at the date of such
calculation); and
B = the Exercise Price (as adjusted to the date of such calculation).
For purposes of the calculation above, the fair market value per share shall
be the product of (i) the average of the closing bid and asked prices of the
Common Stock quoted in the Over-The-Counter Market Summary or the last reported
sale price of the Common Stock or the closing price quoted on the Nasdaq
National Market or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Wall Street Journal for the five
(5) trading days prior to the date of determination of fair market value and
(ii) the number of Shares for which this Warrant is exercisable.
- Stock Certificates
. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its tender
for exercise as provided above, and the persons entitled to receive the Shares
issuable upon such exercise shall be treated for all purposes as the holder of
record of such Shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company, at its expense, shall deliver to the person or persons
entitled to receive the same a certificate or certificates for that number of
shares issuable upon such exercise. In the event that this Warrant is exercised
in part, the Company shall, at its expense, execute and deliver a new Warrant
with the same terms and conditions for the number of Shares that remain subject
to this Warrant.
- Taxes
. The issuance of the Shares upon the exercise of this Warrant,
and the delivery of certificates or other instruments representing such Shares,
shall be made without charge to the Holder for any tax or other charge in
respect of such issuance. The Company shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved in the issue
and delivery of any certificate in a name other than that of the Holder and the
Company shall not be required to issue or deliver any such certificate unless
and until the person or persons requesting the issue thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of such fractional share to which the Holder would otherwise
be entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
No Rights As Stockholders. This Warrant does not entitle the
Holder to any voting right or other rights as a stockholder of the Company prior
to the exercise of the Holder's rights to purchase the Shares as provided for
herein.
Transfer of Warrants.
Warrant Register. The Company shall maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change its
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register, the
Company may treat the Holder as shown on the Warrant Register as the absolute
owner of this Warrant for all purposes, notwithstanding any notice to the
contrary.
Transferability and Non-negotiability of Warrant. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company); provided, however, that this Warrant may be assigned by the Holder
to any person or entity affiliated with or established by the Holder. Subject
to the provisions of this Warrant with respect to compliance with the Securities
Act of 1933, as amended (the "Act"), title to this Warrant may be
transferred by endorsement (by the Holder executing the assignment form (the
"Assignment Form") attached hereto as Exhibit B) and delivery in
the same manner as a negotiable instrument transferable by endorsement and
delivery.
Exchange of Warrant Upon a Transfer. On surrender of this Warrant
for exchange, properly endorsed on the Assignment Form and subject to the
provisions of this Warrant with respect to compliance with the Act and with the
limitations on assignments and transfers contained in this Section 5, the
Company, at its expense, shall issue to or on the order of the Holder a new
warrant or warrants with the same terms and conditions, in the name of the
Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, for the number of shares issuable upon exercise thereof.
Compliance with Securities Laws.
- The Holder of this Warrant, by acceptance hereof, acknowledges that this
Warrant and the Shares to be issued upon exercise hereof are being acquired
solely for the Holder's own account and not as a nominee for any other party,
and for investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any Shares to be issued upon exercised hereof except
under circumstances that will not result in a violation of the Act or any state
securities laws. 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 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; provided, however, that the Holder shall be able
to transfer such Warrant or Shares (x) as provided in subparagraph (b) above and
(y) in such other transactions as may be effected without registration pursuant
to the Act or qualification pursuant to any relevant state securities laws and
shall confirm such other matters related thereto as may be reasonably requested
by the Company.
- This Warrant and all Shares issued upon exercise hereof or conversion
thereof shall be stamped or imprinted with a legend in substantially the
following form:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
THE ACT AND ANY APPLICABLE SECURITIES LAWS. COPIES OF THE AGREEMENT COVERING
THE PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO
THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY.
Representations and Warranties by the Holder. The Holder
represents and warrants to the Company as follows:
- Investment Purpose
. The right to Shares issuable upon exercise of
the Holder's rights contained herein will be acquired for investment and not
with a view to the sale or distribution of any part thereof, except as provided
in Section 5 of this Agreement or pursuant to an effective registration
statement under the Act, and the Holder has no present intention of selling or
engaging in any public distribution of the same except pursuant to a
registration or exemption from the Act.
- Private Issue
. The Holder understands (i) that the Shares issuable
upon exercise of the Holder's rights contained herein is not registered under
the Act or qualified under applicable state securities laws on the ground that
the issuance contemplated by this Warrant will be exempt from the registration
and qualifications requirements thereof, and (ii) that the Company's reliance on
such exemption is predicated on the representations set forth in this Section
6.
- Financial Risk
. The Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to bear the economic risks of its
investment.
- Risk of No Registration
. The Holder understands that if the Company
does not register with the Securities and Exchange Commission pursuant to
Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act"),
or file reports pursuant to Section 15(d) of the Exchange Act, or if a
registration statement covering the securities under the Act is not in effect
when it desires to sell (i) the rights to purchase the Shares pursuant to this
Warrant or (ii) the Shares issuable upon exercise of this Warrant, it may be
required to hold such securities for an indefinite period. The Holder is aware
of the provisions of Rule 144 promulgated under the Act.
Reservation of Stock. The Company covenants that during the
term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of the Shares upon the exercise of this Warrant and, from time to time,
will take all steps necessary to amend its Certificate of Incorporation (the
"Certificate") to provide sufficient reserves of shares of Common Stock
issuable upon exercise of the Warrant. The Company further covenants that all
shares that may be issued upon the exercise of rights represented by this
Warrant and payment of the Exercise Price, all as set forth herein, will be free
from all taxes, liens and charges in respect of the issue thereof (other than
taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein). The Company agrees that its issuance of this Warrant shall
constitute full authority of its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
the Shares upon the exercise of this Warrant.
Adjustment Rights.
The Exercise Price and the number of shares purchasable hereunder are
subject to adjustment from time to time, as follows:
- 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 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 employee benefit plan which has been
approved by the Board of Directors of the Company or Excluded Securities (as
defined below) 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 (5)
consecutive trading days immediately preceding such issue or sale, then
immediately after such issue or sale the Exercise Price then in effect shall be
reduced to an amount equal to the product of (x) the 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 (as
defined below) 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, "Excluded Securities" shall
mean 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 issues 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. "Common Stock
Deemed Outstanding" shall mean, 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(a)(i) and 8(a)(ii)
hereof, regardless of whether any options or convertible securities 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. For purposes of this Section 8(a), the
following shall be applicable:
- Issuance of Options
. If the Company in any manner grants any rights,
warrants or options to subscribe for or purchase Common Stock or convertible
securities (an "Option") 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 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.
- 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 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 Exercise Price had been or are to be made pursuant to
other provisions of this Section 8(a), no further adjustment of the 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.
- 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 Exercise Price in effect at the time of such
change shall be adjusted to the 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 Exercise Price then in
effect.
- 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.
- 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.
- 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 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 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.
- 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:
- the 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 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
- 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).
- 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 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 Exercise Price or decrease the number of shares of
Common Stock obtainable as otherwise determined pursuant to this Section 8.
- Notice of Adjustments
. In the event that: (i) the Company shall
declare any dividend or distribution upon its stock, whether in cash, property,
stock or other securities; (ii) the Company shall offer for subscription
pro rata to the holders of any class of its Preferred Stock or other convertible
stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization, reclassification,
consolidation or merger; or (iv) there shall be any voluntary or
involuntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Holder:
- At least twenty (20) days prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such capital reorganization, reclassification, consolidation, merger,
dissolution, liquidation or winding up; and
- In the case of any such capital reorganization, reclassification,
consolidation, merger or sale of all of substantially all of the Company's
assets, dissolution, liquidation or winding up, at least twenty (20) days prior
written notice of the date when the same shall take place and specifying the
date on which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such capital
reorganization, reclassification, consolidation, merger, dissolution,
liquidation or winding up).
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment,
(iii) the method by which such adjustment was calculated, (iv) the
Exercise Price, and (v) the number of shares subject to purchase hereunder
after giving effect to such adjustment, and shall be given by first class mail,
postage prepaid, addressed to the Holder, at the address as shown on the books
of the Company.
Purchase Rights; Reorganization, Reclassification, Consolidation,
Merger or Sale.
- 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.
- Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to any
individual, limited liability company, partnership, joint venture, corporation,
trust, unincorporated organization or government or any department or agency
thereof (each, a "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 acknowledgment (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).
Miscellaneous.
Effective Date. The provisions of this Warrant shall be construed
and shall be given effect in all respects as if it had been executed and
delivered by the Company on the date hereof. This Warrant shall be binding upon
any successors or assigns of the Company.
Attorneys' Fees. In any litigation, arbitration or court proceeding
between the Company and the Holder relating hereto, the prevailing party shall
be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant.
Governing Law. This Warrant shall be governed by and construed for
all purposes under and in accordance with the laws of the State of
California.
Counterparts. This Warrant may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Warrant are for convenience and are not to be considered in construing
this Agreement.
Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail, by registered or certified mail, addressed
(i) to the Holder at the address set forth on the signature page hereof, and
(ii) to the Company at 2445 Mission College Blvd., Santa Clara, CA 95054, or at
such other address as any such party may subsequently designate by written
notice to the other party.
Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
shall survive the execution and delivery of this Warrant.
Amendments. Any provision of this Warrant may be amended by a
written instrument signed by the Company and by the Holder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by its officers thereunto duly authorized.
COMPANY:
8x8, INC.
Dated: December 16, 1999 By:
Paul Voois, Chief Executive Officer
HOLDER:
FLEETBOSTON ROBERTSON STEPHENS INC.
By:
Title:
Address:
(Signature Page(s) to Warrant)
EXHIBIT A
NOTICE OF EXERCISE
(1) The undersigned Holder hereby elects to purchase ________ shares
of the Common Stock of 8x8, Inc., pursuant to the terms of the Warrant dated the
___ day of December, 1999 (the "Warrant") between 8x8, Inc. and the
Holder, and tenders herewith payment of the purchase price for such shares in
full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Common Stock of 8x8, Inc.,
the undersigned hereby confirms and acknowledges the investment representations
and warranties made in Section 6 of the Warrant.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
Name
Signature
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
Name
Date Signature
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
|
Name of Assignee |
Address |
No. of Shares |
| |
|
|
| |
|
|
| |
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and does irrevocably constitute and appoint Paul Voois to make such transfer
on the books of 8x8, Inc., maintained for the purpose, with full power of
substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof or conversion thereof are being acquired for investment and that
the Assignee will not offer, sell or otherwise dispose of this Warrant or any
shares of stock to be issued upon exercise hereof or conversion thereof except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended, or any state securities laws. Further, the Assignee has
acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of stock so purchased are being acquired for investment
and not with a view toward distribution or resale in violation of the Securities
Act of 1933, as amended, or any applicable state securities law.
Dated: ______________________
Signature of Holder
FleetBoston Rights
8X8, INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement")
is made as of December 16, 1999, between 8x8, Inc., a Delaware corporation
("8x8"), and FleetBoston Robertson Stephens Inc. ("RS").
- Definitions. As used in this
Agreement:
- "Closing Date" means the Closing Date as defined
in Section 1(b) of that certain Securities Purchase Agreement dated as of
December 15, 1999 by and among 8x8 and the Buyers listed therein.
- "Form S-3" means such form under the
Securities Act as in effect on the date hereof or any registration form under
the Securities Act subsequently adopted by the SEC which similarly permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the commission.
- "Material Event" means the happening of any event
during the period that the registration statement described in Section 2
hereof is required to be effective as a result of which, in the reasonable
judgment of 8x8, such registration statement or the related prospectus contains
or may contain any untrue statement of a material fact or omits or may omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
- "Registrable Securities" means (i) the 8x8 shares
of Common Stock issuable upon exercise of that certain Warrant, dated
December 16, 1999, made by 8x8 and issued to RS and (ii) any shares of
capital stock issued or issuable with respect to the 8x8 shares of Common Stock
as a result of any stock split, stock dividend, recapitalization, exchange or
similar event or otherwise.
- "SEC" means the Securities and Exchange
Commission.
- "Securities Act" means the Securities Act of 1933,
as amended.
Terms not otherwise defined herein have the meanings given to
them in the Share Exchange Agreement.
- Registration. 8x8 shall use commercially
reasonable efforts to file with the SEC a registration statement no later than
the first business day after the date which is 95 days after the Closing
Date and shall use commercially reasonable efforts to cause to become effective,
a Form S-3 covering the Registrable Securities within 150 days after the Closing
Date; provided, however, that (i) RS shall provide all such information
and materials relating to RS, and take all such action as may be required in
order to permit 8x8 to comply with all the applicable requirements of the SEC
and to obtain any desired acceleration of the effective date of such Form S-3,
such provision of information and materials to be a condition precedent to the
obligations of 8x8 pursuant to this Agreement and (ii) if the SEC reviews the
registration statement, the Company shall have 180 days to cause the
registration statement to be effective. The offerings made pursuant to such
registrations shall not be underwritten. Notwithstanding the foregoing, 8x8
shall not be required to cause the Registrable Securities to be registered if
8x8's legal counsel delivers a legal opinion to RS that such sale may be
effected in a single three-month period without registration under the
Securities Act pursuant to Rule 144 under the Securities Act.
- Postponement of Registration.
- Registration. Notwithstanding Section 2
above, 8x8 shall be entitled to postpone the declaration of effectiveness of any
Form S-3 prepared and filed pursuant to Section 2 for a reasonable period
of time, but not in excess of 60 calendar days after the applicable deadline, if
the Board of Directors of 8x8, acting in good faith, determines that there
exists material non-public information about 8x8.
- Material Event. RS agrees that, upon receipt of
any notice from 8x8 of the happening of a Material Event, RS will forthwith
discontinue disposition of the Registrable Securities pursuant to any Form S-3
described in Section 2 until RS's receipt of copies of supplemented or
amended prospectuses prepared by 8x8 (which 8x8 will use its commercially
reasonable efforts to prepare and file promptly), and, if so directed by 8x8, RS
will deliver to 8x8 all copies in their possession, other than permanent file
copies then in RS's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. In no event shall 8x8
delay causing to be effective a supplement or post-effective amendment to any
Form S-3 pursuant to Section 2 or the related prospectus, for more than 15
consecutive days or 30 days during any 365 consecutive calendar day
period.
- Obligations of 8x8. Except as set forth in
Sections 2 and 3, 8x8 shall (i) prepare and file with the SEC the Form S-3
in accordance with Section 2 hereof with respect to the shares of
Registrable Securities and shall use commercially reasonable efforts to cause
such Form S-3 to become effective as provided in Section 2 and to keep such
Form S-3 continuously effective until the earlier to occur of (A) the sale
of all of the Registrable Securities so registered and (B) the first
anniversary of the Effective Time; (ii) furnish to RS such number of copies
of any prospectus (including any preliminary prospectus and any amended or
supplemented prospectus), as RS may reasonably request in order to effect the
offering and sale of the shares of the Registrable Securities to be offered and
sold, but only while 8x8 shall be required under the provisions hereof to cause
such Form S-3 to remain current; (iii) use its commercially reasonable
efforts to register or qualify the shares of the Registrable Securities covered
by such Form S-3 under the securities or blue sky laws of such jurisdictions as
RS shall reasonably request (provided that 8x8 shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such jurisdiction where it
has not been qualified), and do any and all other acts or things which may be
reasonably necessary or advisable to enable RS to consummate the public sale or
other disposition of the Registrable Securities in such jurisdictions;
(iv) cause all such Registrable Securities to be listed on each securities
exchange or National Association of Securities Dealers, Inc. Automated Quotation
System on which similar securities issued by 8x8 are then listed;
(v) notify RS upon the happening of any event as a result of which the
prospectus included in such Form S-3, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing; (vi) so long as the Form S-3
remains effective, promptly prepare, file and furnish to RS a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of the Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
then existing; (vii) notify RS promptly after it shall receive notice
thereof, of the date and time any Form S-3 and each post-effective amendment
thereto has become effective or a supplement to any prospectus forming a part of
such Form S-3 has been filed; (viii) notify RS promptly of any request by
the SEC for the amending or supplementing of such Form S-3 or prospectus or for
additional information; and (ix) advise RS promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of any Form S-3 or the initiation or threatening of
any proceeding for that purpose and promptly use commercially reasonable efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued.
- Ineligibility for Form S-3. In the event
that Form S-3 is not available for any registration of Registrable Securities
hereunder, the Company shall (i) register the sale of the Registrable Securities
on another appropriate form and (ii) undertake to register the Registrable
Securities on Form S-3 as soon as such form is available, provided that the
Company shall maintain the effectiveness of the registration statement then in
effect until such time as a registration statement on Form S-3 covering the
Registrable Securities has been declared effective by the SEC.
- Expenses. 8x8 shall pay the expenses
incurred by 8x8 in connection with any registration of Registrable Securities
pursuant to this Agreement including all SEC, NASD and blue sky registration and
filing fees, printing expenses, transfer agents' and registrars' fees, and the
reasonable fees and disbursements of 8x8's outside counsel and independent
accountants. RS shall be responsible for all commissions and transfer taxes, as
well as any other expenses incurred by RS.
- Indemnification. In the event of any
offering registered pursuant to this Agreement:
- 8x8 will indemnify RS with respect to any registration
effected pursuant to this Agreement, against all expenses, claims, losses,
damages and liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, or any amendment or
supplement thereto, or prospectus related thereto, incident to any such
registration, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading,
or any violation by 8x8 of any rule or regulation promulgated under the
Securities Act, or state securities laws, or common law, applicable to 8x8 in
connection with any such registration, and will reimburse RS, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that 8x8 will not be liable in any such case (i) to the extent that any
such claim, loss, damage, liability or expense arises out of or is based in any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to 8x8 by an
instrument duly executed by RS and stated to be specifically for use therein or
(ii) if a copy of the final prospectus relating to any registration statement
(as then amended or supplemented if 8x8 shall have furnished any amendments or
supplements thereto) (the "Final Prospectus") was not sent or
given by or on behalf of RS to a purchaser of RS's Registrable Securities, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Registrable Securities to such purchaser, and if
the final prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage or liability.
- RS will severally indemnify 8x8, each of its directors
and officers, each person who controls 8x8 within the meaning of Section 15
of the Securities Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) or a material fact contained in any registration
statement, or any amendment or supplement thereto, or prospectus related
thereto, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement or prospectus in reliance upon and in conformity with written
information furnished to 8x8 by an instrument duly executed by RS and stated to
be specifically for use therein and will reimburse 8x8, the remaining
Shareholders, such directors, officers, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement or prospectus, in reliance upon
and in conformity with written information furnished to 8x8 by an instrument
duly executed by RS and stated to be specifically for use therein.
- Each party entitled to indemnification under this
Section 6 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly
after such Indemnified Party has notice of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, and the Indemnified Party may
participate in such defense at such party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement, except
to the extent, but only to the extent, that the Indemnifying Party's ability to
defend against such claim or litigation is impaired as a result of such failure
to give notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Whether or not the defense of any claim or action is assumed by the
Indemnifying Party, such Indemnifying Party will not be subject to any liability
for any settlement without its consent.
- The obligations of 8x8 and RS under this Section 6
shall survive the completion of any offering of stock in a registration
statement under this Agreement.
- Non-Assignment of Registration Rights. The
rights to cause 8x8 to register Registrable Securities pursuant to this
Agreement may not be assigned by RS to any person or entity; provided,
however, that RS may assign the rights to cause 8x8 to register Registrable
Securities pursuant to this Agreement to any affiliates and up to two (2) non-
affiliates.
- Amendment of Registration Rights. This
Agreement may be amended by the holders of a majority of the Registrable
Securities and 8x8 at any time by execution of an instrument in writing signed
on behalf of each of the parties.
- Termination. The registration rights set
forth in this Agreement shall terminate at such time as all of the Registrable
Securities then held by RS can be sold by RS in a single 3-month period in
accordance with Rule 144 under the Securities Act.
- Grant of Additional Registration Rights.
RS acknowledges that 8x8 may grant registration rights to any other person or
entity with respect to their shares of 8x8 on terms which may be materially
different than the terms of this Agreement.
- Notices. All notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed effectively given upon delivery to the party to be notified in person or
by courier service or five days after deposit with the United States mail,
postage prepaid, addressed (a) if to RS, at RS's addresses as set forth in
the securities register of 8x8 as the case may be or (b) if to 8x8 at 2445
Mission College Blvd. Santa Clara, California 95054, Attention: Chief
Executive Officer.
- Governing Law; Interpretation. This
Agreement shall be construed in accordance and governed for all purposes by the
laws of the State of California regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
- Severability; Survival. If any portion of
this Agreement is held by a court of competent jurisdiction to conflict with any
federal, state or local law, or to be otherwise invalid or unenforceable, such
portion of this Agreement shall be of no force or effect, and this Agreement
shall otherwise remain in full force and effect and be construed as if such
portion had not been included in this Agreement.
- Entire Agreement. This Agreement contains
the entire agreement and understanding of the parties and supersedes all prior
discussions, agreement and understandings relating to the subject matter
hereof.
- Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart.
IN WITNESS WHEREOF, 8x8 and RS have caused this Agreement to
be executed as of the date first above written.
8X8, INC.
By:
Name: Paul Voois
Title: Chief Executive Officer
FLEETBoston Robertson Stephens
Inc.
By:
Name:
Title:
Stock Option Plan
8X8, INC.
1999 NONSTATUTORY STOCK OPTION PLAN
(as amended January 18, 2000)
- Purposes of the Plan. The
purposes of this Nonstatutory Stock Option Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees and
Consultants, and
- to promote the success of the Company's
business.
Options granted under the Plan will be Nonstatutory Stock
Options.
- Definitions. As used herein, the following
definitions shall apply:
- "Administrator" means the Board or any of its
Committees as shall be administering the Plan, in accordance with Section 4 of
the Plan.
- "Applicable Laws" means the requirements relating
to the administration of stock option plans under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where Options are, or
will be, granted under the Plan.
- "Board" means the Board of Directors of the
Company.
- "Code" means the Internal Revenue Code of 1986, as
amended.
- "Committee" means a committee of Directors
appointed by the Board in accordance with Section 4 of the Plan.
- "Common Stock" means the Common Stock of the
Company.
- "Company" means 8x8, Inc., a Delaware
corporation.
- "Consultant" means any person, including an
advisor, engaged by the Company or a Parent or Subsidiary to render services to
such entity.
- "Director" means a member of the Board.
- "Disability" means total and permanent disability
as defined in Section 22(e)(3) of the Code.
- "Employee" means any person, including Officers,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
- "Exchange Act" means the Securities Exchange Act
of 1934, as amended.
- "Fair Market Value" means, as of any date, the
value of Common Stock determined as follows:
- If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
- If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
- In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
- "Notice of Grant" means a written or electronic
notice evidencing certain terms and conditions of an individual Option grant.
The Notice of Grant is part of the Option Agreement.
- "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
- "Option" means a nonstatutory stock option granted
pursuant to the Plan, that is not intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.
- "Option Agreement" means an agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of
the Plan.
- "Option Exchange Program" means a program whereby
outstanding options are surrendered in exchange for options with a lower
exercise price.
- "Optioned Stock" means the Common Stock
subject to an Option.
- "Optionee" means the holder of an outstanding
Option granted under the Plan.
- "Parent" means a "parent corporation," whether now
or hereafter existing, as defined in Section 424(e) of the Code.
- "Plan" means this 1999 Nonstatutory Stock Option
Plan.
- "Service Provider" means an Employee including an
Officer, Consultant or Director.
- "Share" means a share of the Common Stock, as
adjusted in accordance with Section 12 of the Plan.
- "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the
Code.
- Stock Subject to the Plan.
Subject to the provisions of Sections 12 and 17 of the Plan, the maximum
aggregate number of Shares that may be optioned and sold under the Plan is
600,000 Shares. The Shares may be authorized, but unissued, or reacquired
Common Stock.
If an Option expires or becomes unexercisable without having
been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall become available
for future grant or sale under the Plan (unless the Plan has terminated).
- Administration of the Plan.
- Administration. The Plan shall be administered by
(i) the Board or (ii) a Committee, which committee shall be
constituted to satisfy Applicable Laws.
- Powers of the Administrator.
Subject to the provisions of the Plan, and in the case of a Committee, subject
to the specific duties delegated by the Board to such Committee, the
Administrator shall have the authority, in its discretion:
- to determine the Fair Market Value of the Common
Stock;
- to select the Service Providers to whom Options may be
granted hereunder;
- to determine whether and to what extent Options are
granted hereunder;
- to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
- to approve forms of agreement for use under the
Plan;
- to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
- to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was
granted;
- to institute an Option Exchange Program;
- to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
- to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
- to modify or amend each Option (subject to Section 14(b)
of the Plan), including the discretionary authority to extend the post-
termination exercisability period of Options longer than is otherwise provided
for in the Plan;
- to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;
- to determine the terms and restrictions applicable to
Options;
- to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal to
the amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable; and
- to make all other determinations deemed necessary or
advisable for administering the Plan.
- Effect of Administrator's Decision.
The Administrator's decisions, determinations and interpretations shall be final
and binding on all Optionees and any other holders of Options.
- Eligibility. Options may be granted to Service
Providers except Officers and Directors; provided, however, that Options may be
granted to Officers in connection with the Officer's initial employment by the
Company.
- Limitation. Neither the Plan nor any Option shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
- Term of Plan. The Plan shall become
effective upon its adoption by the Board. It shall continue in effect for ten
(10) years, unless sooner terminated under Section 14 of the Plan.
- Term of Option. The term of each Option shall be
stated in the Option Agreement.
- Option Exercise Price and Consideration.
- Exercise Price. The per share exercise price for
the Shares to be issued pursuant to exercise of an Option shall be determined by
the Administrator.
- Waiting Period and Exercise Dates. At the time an
Option is granted, the Administrator shall fix the period within which the
Option may be exercised and shall determine any conditions that must be
satisfied before the Option may be exercised.
- Form of Consideration. The Administrator shall
determine the acceptable form of consideration for exercising an Option,
including the method of payment. Such consideration may consist entirely
of:
- cash;
- check;
- promissory note;
- other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;
- consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the
Plan;
- a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
- such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or
- any combination of the foregoing methods of
payment.
- Exercise of Option.
- Procedure for Exercise; Rights as a
Shareholder. Any Option granted hereunder shall be exercisable according to
the terms of the Plan and at such times and under such conditions as determined
by the Administrator and set forth in the Option Agreement. An Option may not
be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
- Termination of Relationship as a Service
Provider. If an Optionee ceases to be a Service Provider, other than upon
the Optionee's death or Disability, the Optionee may exercise his or her Option,
but only within such period of time as is specified in the Option Agreement, and
only to the extent that the Option is vested on the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for three (3) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
- Disability of Optionee. If an Optionee ceases to
be a Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement, to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
- Death of Optionee. If an Optionee dies
while a Service Provider, the Option may be exercised within such period of time
as is specified in the Option Agreement (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant), by
the Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance, but only to the extent that the Option is
vested on the date of death. In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, at the time of death, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall immediately revert to the Plan. The Option may be
exercised by the executor or administrator of the Optionee's estate or, if none,
by the person(s) entitled to exercise the Option under the Optionee's will or
the laws of descent or distribution. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
- Buyout Provisions. The Administrator may at any
time offer to buy out for a payment in cash or Shares, an Option previously
granted based on such terms and conditions as the Administrator shall establish
and communicate to the Optionee at the time that such offer is
made.
- Non-Transferability of Options. Unless
determined otherwise by the Administrator, an Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. If the Administrator makes an
Option transferable, such Option shall contain such additional terms and
conditions as the Administrator deems appropriate.
- Adjustments Upon Changes in Capitalizati
on, Dissolution, Merger or Asset Sale.
- Changes in Capitalization. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
- Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until ten (10) days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable. In
addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Option shall lapse as to
all such Shares, provided the proposed dissolution or liquidation takes place at
the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option will terminate immediately prior to the
consummation of such proposed action.
- Merger or Asset Sale. In the event of a merger of
the Company with or into another corporation, or the sale of substantially all
of the assets of the Company, each outstanding Option shall be assumed or an
equivalent option or right substituted by the successor corporation or a Parent
or Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option, the Optionee shall
fully vest in and have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully vested and exercisable for a period of fifteen (15) days
from the date of such notice, and the Option shall terminate upon the expiration
of such period. For the purposes of this paragraph, the Option shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned
Stock, immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger or
sale of assets by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the merger or
sale of assets is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option,
for each Share of Optioned Stock to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
- Date of Grant. The date of grant of an Option
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option, or such other later date as is determined by
the Administrator. Notice of the determination shall be provided to each
Optionee within a reasonable time after the date of such grant.
- Amendment and Termination of the Pl
an.
- Amendment and Termination. The Board may at any
time amend, alter, suspend or terminate the Plan.
- Effect of Amendment or Termination.
No amendment, alteration, suspension or termination of the Plan shall impair the
rights of any Optionee, unless mutually agreed otherwise between the Optionee
and the Administrator, which agreement must be in writing and signed by the
Optionee and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to options granted under the Plan prior to the date of such
termination.
- Conditions Upon Issuance of Shares.
- Legal Compliance. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares shall comply with Applicable Laws and shall
be further subject to the approval of counsel for the Company with respect to
such compliance.
- Investment Representations. As a condition to the
exercise of an Option the Company may require the person exercising such Option
to represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
- Inability to Obtain Authority. The inability of
the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
- Reservation of Shares. The Company,
during the term of this Plan, will at all times reserve and keep available such
number of Shares as shall be sufficient to satisfy the requirements of the
Plan.
8x8, INC.
1999 NONSTATUTORY STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the
Plan shall have the same defined meanings in this Option Agreement.
- NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock
of the Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price per Share $
Total Number of Shares Granted
Total Exercise Price $
Type of Option: Nonstatutory Stock Option
Term/Expiration Date:
Vesting Schedule:
Subject to the Optionee continuing to be a Service Provider
on such dates, this Option shall vest and become exercisable in accordance with
the following schedule:
[25% of the Shares subject to the Option shall vest twelve
months after the Vesting Commencement Date, and 1/48th of the Shares subject to
the Option shall vest upon the last day of each month thereafter.]
Termination Period:
This Option may be exercised for _____ [days/months]
after Optionee ceases to be a Service Provider. Upon the death or Disability of
the Optionee, this Option may be exercised for such longer period as provided in
the Plan. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
- AGREEMENT
- Grant of Option. The Plan Administrator of the
Company hereby grants to the Optionee named in the Notice of Grant attached as
Part I of this Agreement (the "Optionee") an option (the "Option") to purchase
the number of Shares, as set forth in the Notice of Grant, at the exercise price
per share set forth in the Notice of Grant (the "Exercise Price"), subject to
the terms and conditions of the Plan, which is incorporated herein by reference.
Subject to Section 14(b) of the Plan, in the event of a conflict between the
terms and conditions of the Plan and the terms and conditions of this Option
Agreement, the terms and conditions of the Plan shall prevail.
- Exercise of Option.
- Right to Exercise. This Option is exercisable
during its term in accordance with the Vesting Schedule set out in the Notice of
Grant and the applicable provisions of the Plan and this Option
Agreement.
- Method of Exercise. This Option is exercisable by
delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall
be completed by the Optionee and delivered to [Title]. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with Applicable Laws.
Assuming such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.
- Method of Payment. Payment of the aggregate
Exercise Price shall be by any of the following, or a combination thereof, at
the election of the Optionee:
- cash;
- check;
- consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
- surrender of other Shares which (i) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and
(ii) have a Fair Market Value on the date of surrender equal to the
aggregate Exercise Price of the Exercised Shares.
- Non-Transferability of Option. This Option may
not be transferred in any manner otherwise than by will or by the laws of
descent or distribution and may be exercised during the lifetime of Optionee
only by the Optionee. The terms of the Plan and this Option Agreement shall be
binding upon the executors, administrators, heirs, successors and assigns of the
Optionee.
- Term of Option. This Option may be exercised only
within the term set out in the Notice of Grant, and may be exercised during such
term only in accordance with the Plan and the terms of this Option
Agreement.
- Tax Consequences. Some of the federal tax
consequences relating to this Option, as of the date of this Option, are set
forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
- Exercising the Option. The Optionee may incur
regular federal income tax liability upon exercise of an NSO. The Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price.
If the Optionee is an Employee or a former Employee, the Company will be
required to withhold from his or her compensation or collect from Optionee and
pay to the applicable taxing authorities an amount in cash equal to a percentage
of this compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
- Disposition of Shares. If the Optionee holds NSO
Shares for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal income tax
purposes.
- Entire Agreement; Governing Law. The Plan is
incorporated herein by reference. The Plan and this Option Agreement constitute
the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not be
modified adversely to the Optionee's interest except by means of a writing
signed by the Company and Optionee. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.
- NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE
ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING
SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL
OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION
OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By your signature and the signature of the Company's
representative below, you and the Company agree that this Option is granted
under and governed by the terms and conditions of the Plan and this Option
Agreement. Optionee has reviewed the Plan and this Option Agreement in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option Agreement and fully understands all provisions of the Plan
and Option Agreement. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Administrator upon any
questions relating to the Plan and Option Agreement. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
OPTIONEE 8x8, INC.
Signature By
Print Name Title
____________________________________
Residence Address
____________________________________
EXHIBIT A
8x8, INC.
1999 NONSTATUTORY STOCK OPTION PLAN
EXERCISE NOTICE
8x8, Inc.
2445 Mission College Blvd.
Suite 105
Santa Clara, CA 95054
Attention: [Title]
- Exercise of Option. Effective as of today,
________________, _____, the undersigned ("Purchaser") hereby elects to purchase
______________ shares (the "Shares") of the Common Stock of 8x8, Inc. (the
"Company") under and pursuant to the 1999 Nonstatutory Stock Option Plan (the
"Plan") and the Stock Option Agreement dated, _________, ___ (the "Option
Agreement"). The purchase price for the Shares shall be $__________, as
required by the Option Agreement.
- Delivery of Payment. Purchaser herewith delivers
to the Company the full purchase price for the Shares.
- Representations of Purchaser. Purchaser
acknowledges that Purchaser has received, read and understood the Plan and the
Option Agreement and agrees to abide by and be bound by their terms and
conditions.
- Rights as Shareholder. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. The Shares
so acquired shall be issued to the Optionee as soon as practicable after
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date of issuance, except as
provided in Section 12 of the Plan.
- Tax Consultation. Purchaser understands that
Purchaser may suffer adverse tax consequences as a result of Purchaser's
purchase or disposition of the Shares. Purchaser represents that Purchaser has
consulted with any tax consultants Purchaser deems advisable in connection with
the purchase or disposition of the Shares and that Purchaser is not relying on
the Company for any tax advice.
- Entire Agreement; Governing Law. The Plan and
Option Agreement are incorporated herein by reference. This Agreement, the Plan
and the Option Agreement constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and Purchaser with respect to the
subject matter hereof, and may not be modified adversely to the Purchaser's
interest except by means of a writing signed by the Company and Purchaser. This
agreement is governed by the internal substantive laws, but not the choice of
law rules, of California.
Submitted by: Accepted by:
PURCHASER 8X8, INC.
Signature By
Print Name Title
_____________________________________
Date Received
Address: Address:
2445 Mission College Blvd.,
Suite 105
Santa Clara, CA 95054
5
1,000
9-MOS
MAR-31-2000
APR-01-1999
DEC-31-1999
21,781
0
1,395
0
1,536
25,796
2,260
0
33,709
6,899
0
0
0
19
19,291
33,709
15,715
18,842
6,678
6,792
29,579
0
0
(15,344)
66
(15,410)
0
0
0
(15,410)
(0.88)
(0.88)
ITEM SHOWN NET OF ALLOWANCE, CONSISTENT WITH THE BALANCE SHEET PRESENTATION.
