SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of December 17, 2013,
by and among eOn Communications Corporation, a Delaware corporation, with
headquarters located at 1703 Sawyer Road, Corinth, MS 38834 (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 each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(a)(2) of the Securities Act of 1933, as amended (the "1933 Act"),
and Rule 506(b) of Regulation D ("Regulation D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the 1933 Act.

 

B.           The Company has authorized a new series of convertible preferred
stock of the Company designated as Series B Convertible Preferred Stock, the
terms of which are set forth in the certificate of designation for such series
of preferred stock (the "Certificate of Designations") in the form attached
hereto as Exhibit A (together with any convertible preferred shares issued in
replacement thereof in accordance with the terms thereof, the "Preferred
Shares"), which Preferred Shares shall be convertible into the Company's common
stock, par value $0.005 per share (the "Common Stock"), in accordance with the
terms of the Certificate of Designations (as converted, collectively, the
"Conversion Shares").

 

C.           Each Buyer wishes to purchase, and the Company wishes to sell, upon
the terms and conditions stated in this Agreement, (i) that aggregate number of
Preferred Shares set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers (which aggregate number for all Buyers shall be 2,750) and
(ii) Warrants, in substantially the form attached hereto as Exhibit B (the
"Warrants"), representing the right to acquire that number of shares of Common
Stock set forth opposite such Buyer's name in column (4) on the Schedule of
Buyers (which aggregate number for all Buyers shall be 1,401,870) (as exercised,
collectively, the "Warrant Shares").

 

D.           Contemporaneously with the execution and delivery of this
Agreement, the Company and Buyers whose Purchase Price (as defined below)
payable at the Closing (as defined below) equals or exceeds $350,000 are
executing and delivering a Registration Rights Agreement, substantially in the
form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.

 

E.           The Preferred Shares, the Conversion Shares, the Warrants and the
Warrant Shares collectively are referred to herein as the "Securities".

 

 

 

 

NOW, THEREFORE, the Company and each Buyer hereby agree as follows:

 

1.          PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.

 

(a)          Purchase of Preferred Shares and Warrants. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to each Buyer, and each Buyer severally, but
not jointly, agrees to purchase from the Company on the Closing Date (as defined
below), (x) the number of Preferred Shares as is set forth opposite such Buyer's
name in column (3) on the Schedule of Buyers and (y) Warrants to acquire up to
that number of Warrant Shares as is set forth opposite such Buyer's name in
column (4) on the Schedule of Buyers (the "Closing").

 

(b)          Closing. The date and time of the Closing (the "Closing Date")
shall be 10:00 a.m., New York City time, on the date hereof (or such other date
and time as is mutually agreed to by the Company and each Buyer) after
notification of satisfaction (or waiver) of the conditions to the Closing set
forth in Sections 6 and 7 below, at the offices of Schulte Roth & Zabel LLP, 919
Third Avenue, New York, New York 10022.

 

(c)          Purchase Price. The aggregate purchase price for the Preferred
Shares and the Warrants to be purchased by each Buyer at the Closing (the
"Purchase Price") shall be the amount set forth opposite each Buyer's name in
column (5) of the Schedule of Buyers. Each Buyer shall pay $1,000 for each
Preferred Share and related Warrants to be purchased by such Buyer at the
Closing.

 

(d)          Form of Payment. On the Closing Date, (i) each Buyer shall pay its
Purchase Price to the Company for the Preferred Shares and the Warrants to be
issued and sold to such Buyer at the Closing 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 the Preferred Shares (in such
denominations as is set forth opposite such Buyer's name in column (3) on the
Schedule of Buyers) which such Buyer is then purchasing hereunder along with the
Warrants (exercisable for the number of shares of Common Stock as is set forth
opposite such Buyer's name in column (4) on the Schedule of Buyers) which such
Buyer is purchasing hereunder, in each case duly executed on behalf of the
Company and registered in the name of such Buyer or its designee.

 

2.          BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and
not jointly, represents and warrants with respect to only itself that:

 

(a)          No Public Sale or Distribution. Such Buyer is (i) acquiring the
Preferred Shares and the Warrants, (ii) upon conversion of the Preferred Shares
will acquire the Conversion Shares and (iii) upon exercise of the Warrants
(other than pursuant to a Cashless Exercise (as defined in the Warrants)) will
acquire the Warrant Shares issuable upon exercise of the Warrants, in each case,
solely for its own account 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 herein, 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. Such Buyer is
acquiring the Securities hereunder in the ordinary course of its business. Such
Buyer does not presently have any agreement or understanding, directly or
indirectly, with any Person (as defined below) to distribute any of the
Securities or act in concert or as a group with any other Buyer with respect to
the transactions contemplated by the Transaction Documents or the several
obligations of the Buyers thereunder. For purposes of this Agreement, "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.

 

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(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
that have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company and its
senior management. 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 herein. 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.

 

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(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, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, as amended, (or a successor rule thereto) (collectively, "Rule 144");
(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 the 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 or financing arrangement secured by the
Securities and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document (as defined in Section 3(b)), including, without
limitation, this Section 2(f).

 

(g)          Legends. Such Buyer understands that the certificates or other
instruments representing the Preferred Shares and the Warrants and, until such
time as the resale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act, 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):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE BEEN][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 MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.

 

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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 or issue to such holder by electronic delivery at the applicable balance
account at The Depository Trust Company ("DTC"), if (i) such Securities are
registered for resale under the 1933 Act, (ii) in connection with a sale,
assignment or other transfer, such holder provides the Company with an opinion
of counsel, in a generally acceptable form, to the effect that such sale,
assignment or transfer of the Securities may be made without registration under
the applicable requirements of the 1933 Act, or (iii) the Securities can be
sold, assigned or transferred pursuant to Rule 144 or Rule 144A. The Company
shall be responsible for the fees of its transfer agent and all DTC fees
associated with such issuance.

 

(h)          Organization; Validity; Enforcement. Such Buyer is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with full right, corporate or partnership
power and authority to enter into and consummate the transactions contemplated
by this Agreement and otherwise carry out its obligations hereunder. This
Agreement and the other Transaction Documents to which such Buyer is a party
have been duly and validly authorized, executed and delivered on behalf of such
Buyer and shall constitute the legal, valid and binding obligations of such
Buyer enforceable against such Buyer in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
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)           No Conflicts. The execution, delivery and performance by such
Buyer of this Agreement and the other Transaction Documents to which such Buyer
is a party and the consummation by such Buyer of the transactions contemplated
hereby and thereby will not (i) result in a violation of the organizational
documents of such Buyer or (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 such Buyer is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws) applicable to
such Buyer, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Buyer to perform its obligations hereunder.

 

(j)           Residency. Such Buyer is a resident of that jurisdiction specified
below its address on the Schedule of Buyers.

 

(k)          No General Solicitation and Advertising. Such Buyer represents and
acknowledges that, to its knowledge, it has not been solicited to offer to
purchase or to purchase any Securities by means of any general solicitation or
advertising within the meaning of Regulation D under the 1933 Act.

 

(l)           Not a 10% Owner. Upon acquisition of the Preferred Shares and
Warrants contemplated by this Agreement, such Buyer will not be a “beneficial
owner” (as determined in accordance with Rule 13d-3 of the 1934 Act) of more
than 10% of the shares of Common Stock.

 

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(m)         Certain Transactions and Confidentiality. Other than consummating
the transactions contemplated hereunder, such Buyer has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with such Buyer, executed any purchases or sales, including Short
Sales (as defined in SEC Rule 200), of the securities of the Company during the
period commencing as of the time that such Buyer first received a term sheet
(written or oral) from the Company or any other Person representing the Company
setting forth the material terms of the transactions contemplated hereunder and
ending immediately prior to the execution hereof. Notwithstanding the foregoing,
in the case of a Buyer that is a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such Buyer’s assets and
the portfolio managers have no direct knowledge of the investment decisions made
by the portfolio managers managing other portions of such Buyer’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than disclosure (i) to
other Persons party to this Agreement, (ii) its representatives, counsel and
agents, and (iii) to employees, officers, directors and stockholders of
Inventergy, Inc. ("Inventergy"), such Buyer has maintained the confidentiality
of all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Notwithstanding the foregoing, for
avoidance of doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to effect
Short Sales or similar transactions in the future.

 

(n)          Registration Rights Agreement. Such Buyer acknowledges and agrees
that only Buyers whose Purchase Price, as set forth opposite such Buyer's name
in column (5) of the Schedule of Buyers, equals or exceeds $350,000 will become
a party to the Registration Rights Agreement.

 

3.          REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each of the Buyers that:

 

(a)          Organization and Qualification. Each of the Company and its
"Subsidiaries" (which for purposes of this Agreement means any joint venture or
any entity in which the Company, directly or indirectly, owns any of the capital
stock or holds an equity or similar interest) are entities duly organized and
validly existing and in good standing under the laws of the jurisdiction in
which they are formed, and have the requisite power and authorization to own
their properties and to carry on their business as now being conducted. Each of
the Company and its Subsidiaries is duly qualified as a foreign entity 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 reasonably be expected to 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, condition (financial or otherwise) or prospects of the Company and
its Subsidiaries taken as a whole, or on the transactions contemplated hereby or
in the other Transaction Documents (as defined in Section 3(b)) or by the
agreements and instruments to be entered into in connection herewith or
therewith, or on the authority or ability of the Company to perform its
obligations under the Transaction Documents except as set forth in Schedule
3(a). The Company has no Subsidiaries except as set forth in Schedule 3(a).

 

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(b)          Authorization; Enforcement; Validity. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Certificate of Designations, the Warrants, the Registration
Rights Agreement, the Irrevocable Transfer Agent Instructions (as defined in
Section 5(b)), the Voting Agreements (as defined in Section 4(q)), the Lock-Up
Agreements (as defined in Section 7(xii)), the Letters of Credit (as defined in
Section 4(p)) 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 hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance of the Preferred Shares and the Warrants, the reservation for issuance
and the issuance of the Conversion Shares issuable upon conversion of the
Preferred Shares and the reservation for issuance and issuance of Warrant Shares
issuable upon exercise of the Warrants have been duly authorized by the
Company's Board of Directors and (other than the filing with the SEC of one or
more Registration Statements (as defined in the Registration Rights Agreement)
in accordance with the requirements of the Registration Rights Agreement and
other filings as may be required by state securities agencies) no further
filing, consent, or authorization is required by the Company, its Board of
Directors or its stockholders. This Agreement and the other Transaction
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective 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 applicable creditors' rights and
remedies. The Certificate of Designations in the form attached hereto as Exhibit
A has been filed with the Secretary of State of the State of Delaware and is in
full force and effect, enforceable against the Company in accordance with its
terms and has not been amended.

 

(c)          Issuance of Securities. The issuance of the Preferred Shares and
the Warrants are duly authorized and, upon issuance in accordance with the terms
of the Transaction Documents, shall be validly issued and free from all taxes,
liens and charges with respect to the issue thereof and the Preferred Shares
shall be entitled to the rights and preferences set forth in the Certificate of
Designations. As of the Closing, a number of shares of Common Stock shall have
been duly authorized and reserved for issuance which equals or exceeds (the
"Required Reserved Amount) the sum of (i) 130% of the maximum number of
Conversion Shares issuable upon conversion of the Preferred Shares (assuming for
purposes hereof, that the Preferred Shares are convertible at the Conversion
Price and without taking into account any limitations on the conversion of the
Preferred Shares set forth in the Certificate of Designations), and (ii) the
maximum number of Warrant Shares issuable upon exercise of the Warrants (without
taking into account any limitations on the exercise of the Warrants set forth in
the Warrants). As of the date hereof, there are 6,969,303 shares of Common Stock
authorized and unissued. Upon conversion of the Preferred Shares in accordance
with the Certificate of Designations or exercise of the Warrants in accordance
with the Warrants, as the case may be, the Conversion Shares and the Warrant
Shares, respectively, will be validly issued, fully paid and nonassessable and
free from all preemptive or similar rights, 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 the accuracy of each of the
representations and warranties of the Buyers set forth in Section 2 of this
Agreement, the offer and issuance by the Company of the Securities is exempt
from registration under the 1933 Act.

 

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(d)          No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Preferred Shares and the Warrants and 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 or Bylaws (each, as
defined in Section 3(r)) of the Company, any memorandum of association,
certificate of incorporation, certificate of formation, any certificate of
designations or other constituent documents of the Company or any of its
Subsidiaries, any capital stock of the Company or any of its Subsidiaries or the
articles of association or bylaws of the Company or any of its Subsidiaries or
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) in any respect 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) assuming the accuracy of the representations
of the Buyers in Section 2, 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 NASDAQ Capital Market (the
"Principal Market") and applicable laws of the State of Delaware and any other
state laws) 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.

 

(e)          Consents. The Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its obligations
under or contemplated by the Transaction Documents, in each case in accordance
with the terms hereof or thereof, other than the filing and acceptance of a
Listing of Additional Shares application with the Principal Market. 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 Closing Date, and the Company and its Subsidiaries
are unaware of any facts or circumstances that might prevent the Company or any
of its Subsidiaries from obtaining or effecting any of the consent,
registration, application or filings pursuant to the preceding sentence. Except
as set forth in Schedule 3(e), the Company is not in violation of the listing
requirements of the Principal Market and has no knowledge of any facts that
would reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future. The issuance by the Company of the Securities shall not have
the effect of delisting or suspending the Common Stock from the Principal
Market.

 

(f)           Acknowledgment Regarding Buyer's Purchase of Securities. The
Company acknowledges and agrees that each Buyer is acting solely in the capacity
of an arm's length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) an "affiliate" of
the Company or any of its Subsidiaries (as defined in Rule 144) or (iii) to the
knowledge of the Company, a "beneficial owner" of more than 10% of the shares of
Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange
Act of 1934, as amended (the "1934 Act")). The Company further acknowledges that
no Buyer is acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and 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.

 

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(g)          No General Solicitation; Placement Agent's Fees. Neither the
Company, nor any of its Subsidiaries or 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) in connection with the offer or
sale of the Securities. The Company shall be responsible for the payment of any
placement agent's fees, financial advisory fees, or brokers' commissions (other
than for persons engaged by any Buyer or its investment advisor) 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, attorney's fees and out-of-pocket expenses) arising in
connection with any such claim. Neither the Company nor any of its Subsidiaries
has engaged any placement agent or other agent in connection with the sale of
the Securities.

 

(h)          No Integrated Offering. None of the Company, its Subsidiaries, any
of their affiliates, and any Person acting on 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, whether through integration with prior
offerings or otherwise, or cause this offering of the Securities to require the
approval of the stockholders of the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated (except for the
Stockholder Approval requirements contemplated pursuant to Section 4(s) of this
Agreement and as required pursuant to the Certificate of Designations). None of
the Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence 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 for
purposes of any such applicable stockholder approval provisions.

 

(i)           Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Preferred Shares
will increase in certain circumstances. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designations,
and its obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.

 

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(j)           Application of Takeover Protections; Rights Agreement. 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 jurisdiction of its formation which is or could become applicable to any
Buyer as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Securities and any Buyer's
ownership of the Securities. The Company has not adopted a stockholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company.

 

(k)          SEC Documents; Financial Statements. Except as disclosed in
Schedule 3(k), during the two (2) years prior to the date hereof, the Company
has timely 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 1934 Act (all of the foregoing filed prior to the date hereof or prior to
the Closing Date, and all exhibits included therein and financial statements,
notes 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, correct and complete
copies of each of the SEC Documents not available on the EDGAR system. As of
their respective filing 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 the
light of the circumstances under which they were made, not misleading. As of
their respective filing 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 as in effect as of the time of filing. Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles, consistently applied, during the
periods involved ("GAAP") (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).

 

(l)           Absence of Certain Changes. Except as disclosed in Schedule 3(l),
since July 31, 2013, there has been no material adverse change and no material
adverse development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries. Except as disclosed in Schedule 3(l), since July 31, 2013,
neither the Company nor any of its Subsidiaries has (i) declared or paid any
dividends, (ii) sold any assets, individually or in the aggregate, in excess of
$100,000 outside of the ordinary course of business or (iii) had capital
expenditures, individually or in the aggregate, in excess of $100,000. Neither
the Company nor any of its Subsidiaries has taken any steps to seek protection
pursuant to any bankruptcy law nor does the Company have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact that would reasonably lead a
creditor to do so. The Company and its Subsidiaries, individually and on a
consolidated basis, are not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below). For purposes of this Section 3(l), "Insolvent"
means, with respect to any Person, (i) the present fair saleable value of such
Person's assets is less than the amount required to pay such Person's total
Indebtedness (as defined in Section 3(s)), (ii) such Person is unable to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.

 

- 10 -

 

 

(m)         No Undisclosed Events, Liabilities, Developments or Circumstances.
No event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company on its SEC Documents
pursuant to the 1934 Act and which has not been publicly announced, other than
the information to be disclosed in the 8-K Filing, as contemplated in Section
4(i) hereof.

 

(n)          Conduct of Business; Regulatory Permits. Neither the Company nor
any of its Subsidiaries is in violation of any term of or in default under any
certificate of designations of any outstanding series of preferred stock of the
Company (if any), its Certificate of Incorporation or Bylaws or their
organizational charter or memorandum of association or certificate of
incorporation or articles of association or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to the Company or
any of its Subsidiaries, and neither the Company nor any of its Subsidiaries
will conduct its business in violation of any of the foregoing, except, in each
case, for possible violations which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, except as set forth in Schedule 3(n), the Company
is not in violation of any of the rules, regulations or requirements of the
Principal Market and has no knowledge of any facts or circumstances that would
reasonably lead to delisting or suspension of the Common Stock by the Principal
Market in the foreseeable future. Except as set forth in Schedule 3(n), during
the two (2) years prior to the date hereof, the Common Stock has been designated
for quotation on the Principal Market. Except as set forth in Schedule 3(n),
during the two (2) years prior to the date hereof, (i) trading in the Common
Stock has not been suspended by the SEC or the Principal Market and (ii) the
Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Common Stock from
the Principal Market. The Company and its Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, except
where the failure to possess such certificates, authorizations or permits would
not have, individually or in the aggregate, a Material Adverse Effect, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.

 

(o)          Foreign Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor to the knowledge of the Company or any of its Subsidiaries,
any director or executive officer has, in the course of its actions for, or on
behalf of, the Company or any of its Subsidiaries (i) used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful expenses
relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.

 

- 11 -

 

 

(p)          Sarbanes-Oxley Act. The Company is in material compliance with any
and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are
effective as of the date hereof, and any and all applicable rules and
regulations promulgated by the SEC thereunder that are effective as of the date
hereof.

 

(q)         Transactions With Affiliates. Except as set forth in Schedule 3(q),
none of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees, officers
or 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
such officer, director or employee or, to the knowledge of the Company or any of
its Subsidiaries, any corporation, partnership, trust or other entity in which
any such officer, director, or employee has a substantial interest or is an
officer, director, trustee or partner.

 

(r)           Equity Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 10,000,000 shares of Common Stock,
of which as of the date hereof, 3,030,697 shares are issued and outstanding,
339,797 shares are reserved for issuance pursuant to the Company's stock option
and purchase plans and zero (0) shares are reserved for issuance pursuant to
securities (other than the aforementioned options, the Preferred Shares and the
Warrants) exercisable or exchangeable for, or convertible into, Common Stock and
(ii) 10,000,000 shares of preferred stock, par value $0.001 per share, of which
as of the date hereof, no shares are 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(r): (i) none of
the Company's capital stock is 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 options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, 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, or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its Subsidiaries; (iii) there
are no outstanding debt securities, notes, credit agreements, credit facilities
or other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) 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 pursuant to the Registration Rights Agreement); (vi) 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; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
any of its Subsidiary's' respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company has
furnished or made available to the Buyers true, correct and complete 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 Bylaws, as
amended and as in effect on the date hereof (the "Bylaws"), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.

 

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(s)          Indebtedness and Other Contracts. Except as disclosed in Schedule
3(s), neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect. For purposes of this Agreement: (x)
"Indebtedness" of any Person means, without duplication (A) all indebtedness for
borrowed money, (B) all obligations issued, undertaken or assumed as the
deferred purchase price of property or services, including, without limitation,
"capital leases" in accordance with GAAP (other than trade payables entered into
in the ordinary course of business consistent with past practice), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP is classified as a capital lease, (G) all indebtedness
referred to in clauses (A) through (F) above secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any mortgage, lien, pledge, charge, security interest or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by any Person, even though the Person which owns such assets or
property has not assumed or become liable for the payment of such indebtedness,
and (H) all Contingent Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (A) through (G) above; and (y)
"Contingent Obligation" means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

- 13 -

 

 

(t)           Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by the Principal Market, any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries, the Common Stock or any of the Company's Subsidiaries or
any of the Company's or its Subsidiaries' officers or directors, whether of a
civil or criminal nature or otherwise, in their capacities as such, except as
set forth in Schedule 3(t). The matters set forth in Schedule 3(t) would not
reasonably be expected to have a Material Adverse Effect.

 

(u)          Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.

 

(v)          Employee Relations.

 

(i)          Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. No executive
officer of the Company or any of its Subsidiaries (as defined in Rule 501(f) of
the 1933 Act) has notified the Company or any such Subsidiary that such officer
intends to leave the Company or any such Subsidiary or otherwise terminate such
officer's employment with the Company or any such Subsidiary. No executive
officer of the Company or any of its Subsidiaries, to the knowledge of the
Company or any of its Subsidiaries, is, or is now expected to be, in violation
of any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each such executive officer does not subject the Company or any of its
Subsidiaries to any liability with respect to any of the foregoing matters.

 

(ii)         The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not, either individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.

 

- 14 -

 

 

(w)         Title. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property 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 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.

 

(x)           Intellectual Property Rights. 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, original works of
authorship, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor necessary to conduct
their respective businesses as now conducted ("Intellectual Property Rights").
Except as set forth in Schedule 3(x), none of the Company's Intellectual
Property Rights have expired or terminated or have been abandoned or are
expected to expire or terminate or are expected to be abandoned, within three
years from the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or any of its Subsidiaries of Intellectual
Property Rights of others, except as set forth in Schedule 3(x). There is no
claim, action or proceeding being made or brought, or to the knowledge of the
Company or any of its Subsidiaries, being threatened, against the Company or any
of its Subsidiaries regarding its Intellectual Property Rights, except as set
forth in Schedule 3(x). Neither the Company nor any of its Subsidiaries is aware
of any facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.

 

(y)          Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (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 foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. The term "Environmental Laws" means
all federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.

 

- 15 -

 

 

(z)          Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.

 

(aa)        Investment Company Status. The Company is not, and upon consummation
of the sale of the Securities, will not be, an "investment company," a company
controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended, nor does the
Company ever intend to become an "investment company".

 

(bb)        Tax Status. Except as set forth in Schedule 3(bb), the Company and
each of its Subsidiaries (i) has made or filed all U.S. federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject, (ii) 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 (iii) 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.

 

(cc)        Internal Accounting and Disclosure Controls. The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset and liability accountability, (iii)
access to assets or incurrence of liabilities is permitted only in accordance
with management's general or specific authorization and (iv) the recorded
accountability for assets and liabilities is compared with the existing assets
and liabilities at reasonable intervals and appropriate action is taken with
respect to any difference. The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15 under the 1934 Act) that are
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported, within the time periods specified in the
rules and forms of the SEC, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the 1934 Act is
accumulated and communicated to the Company's management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure. During the twelve months prior to the date hereof neither the
Company nor any of its Subsidiaries has received any notice or correspondence
from any accountant relating to any potential material weakness in any part of
the system of internal accounting controls of the Company or any of its
Subsidiaries.

 

- 16 -

 

 

(dd)       Off Balance Sheet Arrangements. There is no transaction, arrangement,
or other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its 1934
Act filings and is not so disclosed or that otherwise would be reasonably likely
to have a Material Adverse Effect.

 

(ee)        Eligibility for Registration. The Company is eligible to register
the Conversion Shares and the Warrant Shares for resale by the Buyers using Form
S-3 promulgated under the 1933 Act, subject to any limitations on the amount of
such securities that may be registered imposed by the Staff of the SEC in any
particular instance.

 

(ff)         Transfer Taxes. On the Closing Date, all stock transfer or other
taxes (other than income or similar taxes) which are required to be paid in
connection with the sale and transfer of the Securities to be sold to each Buyer
hereunder will be, or will have been, fully paid or provided for by the Company,
and all laws imposing such taxes will be or will have been complied with.

 

(gg)       Manipulation of Price. The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result, or that could reasonably be expected to cause or
result, in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of any of the Securities, (ii) sold,
bid for, purchased, or paid any compensation for soliciting purchases of, any of
the Securities, or (iii) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Company.

 

(hh)       Acknowledgement Regarding Buyers' Trading Activity. The Company
acknowledges and agrees that (i) none of the Buyers has been asked to agree, nor
has any Buyer agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) any Buyer,
and counter-parties in "derivative" transactions to which any such Buyer is a
party, directly or indirectly, presently may have a "short" position in the
Common Stock, and (iii) each Buyer shall not be deemed to have any affiliation
with or control over any arm's length counter-party in any "derivative"
transaction. The Company further understands and acknowledges that one or more
Buyers may engage in hedging and/or trading activities at various times during
the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Conversion Shares and/or the Warrant
Shares are being determined and (b) such hedging and/or trading activities, if
any, can reduce the value of the existing stockholders' equity interest in the
Company both at and after the time the hedging and/or trading activities are
being conducted. The Company acknowledges that such aforementioned hedging
and/or trading activities do not constitute a breach of this Agreement or any of
the Transaction Documents.

 

(ii)          U.S. Real Property Holding Corporation. The Company is not, has
never been, and so long as any Securities remain outstanding, shall not become,
a U.S. real property holding corporation within the meaning of Section 897 of
the Internal Revenue Code of 1986, as amended, and the Company shall so certify
upon any Buyer's request.

 

- 17 -

 

 

(jj)          Bank Holding Company Act. Neither the Company nor any of its
Subsidiaries or affiliates is subject to the Bank Holding Company Act of 1956,
as amended (the "BHCA") and to regulation by the Board of Governors of the
Federal Reserve System (the "Federal Reserve"). Neither the Company nor any of
its Subsidiaries or affiliates owns or controls, directly or indirectly, five
percent (5%) or more of the outstanding shares of any class of voting securities
or twenty-five percent (25%) or more of the total equity of a bank or any entity
that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

 

(kk)        No Additional Agreements. Neither the Company nor any of its
Subsidiaries has any agreement or understanding with any Buyer with respect to
the transactions contemplated by the Transaction Documents other than as
specified in the Transaction Documents.

 

(ll)          Disclosure. The representations and warranties by the Company
contained in this Agreement, including any disclosures made in the disclosure
schedules to this Agreement, are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Each press release issued by the
Company or any of its Subsidiaries during the twelve (12) months preceding the
date of this Agreement did not at the time of release contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. Except
for the events, circumstances and information contemplated to be disclosed in
the 8-K Filing pursuant to Section 4(i) hereof, no event or circumstance has
occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed. The Company acknowledges and agrees that no
Buyer makes or has made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Agreement.

 

(mm)      Shell Company Status. The Company is not, and has never been, an
issuer identified in Rule 144(i)(1) of the 1933 Act.

 

(nn)       Stock Option Plans. Each stock option granted by the Company was
granted (i) in accordance with the terms of the applicable stock option plan of
the Company and (ii) with an exercise price at least equal to the fair market
value of the Common Stock on the date such stock option would be considered
granted under GAAP and applicable law. No stock option granted under the
Company's stock option plan has been backdated. The Company has not knowingly
granted, and there is no and has been no policy or practice of the Company to
knowingly grant, stock options prior to, or otherwise knowingly coordinate the
grant of stock options with, the release or other public announcement of
material information regarding the Company or its Subsidiaries or their
financial results or prospects.

 

- 18 -

 

 

(oo)       No Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company and the Company is current with respect to
any fees owed to its accountants and lawyers which could affect the Company's
ability to perform any of its obligations under any of the Transaction
Documents. In addition, on or prior to the date hereof, the Company had
discussions with its accountants about its financial statements previously filed
with the SEC. Based on those discussions, the Company has no reason to believe
that it will need to restate any such financial statements or any part thereof.

 

(pp)       No Disqualification Events.  With respect to Securities to be offered
and sold hereunder in reliance on Rule 506 under the 1933 Act ("Regulation D
Securities"), none of the Company, any of its predecessors, any affiliated
issuer, any director, executive officer, other officer of the Company
participating in the offering hereunder, any beneficial owner of 20% or more of
the Company’s outstanding voting equity securities, calculated on the basis of
voting power, nor any promoter (as that term is defined in Rule 405 under the
1933 Act) connected with the Company in any capacity at the time of sale (each,
an "Issuer Covered Person" and, together, "Issuer Covered Persons") is subject
to any of the "Bad Actor" disqualifications described in Rule 506(d)(1)(i) to
(viii) under the 1933 Act (a "Disqualification Event"), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has
exercised reasonable care to determine whether any Issuer Covered Person is
subject to a Disqualification Event. The Company has complied, to the extent
applicable, with its disclosure obligations under Rule 506(e), and has furnished
to the Buyers a copy of any disclosures provided thereunder.

 

(qq)       Other Covered Persons. The Company is not aware of any person (other
than any Issuer Covered Person that has been or will be paid (directly or
indirectly) remuneration for solicitation of Buyers or potential purchasers in
connection with the sale of any Regulation D Securities.

 

(rr)         Notice of Disqualification Events. The Company will notify the
Buyers in writing, prior to the Closing Date of (i) any Disqualification Event
relating to any Issuer Covered Person and (ii) any event that would, with the
passage of time, become a Disqualification Event relating to any Issuer Covered
Person.

 

4.          COVENANTS.

 

(a)          Reasonable Best Efforts. Each party shall use its reasonable best
efforts timely to satisfy each of the covenants and 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 in order to obtain an exemption for or to qualify 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 (or to obtain an exemption from such qualification), 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.

 

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(c)          Reporting Status. Until the date on which the Buyers shall have
sold all of the Conversion Shares and Warrant Shares and none of the Preferred
Shares or Warrants are outstanding (the "Reporting Period"), the Company shall
timely 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 no longer require or otherwise permit such
termination, and the Company use its reasonable best efforts to maintain its
eligibility to register the Conversion Shares and Warrant Shares for resale by
the Investors on Form S-3.

 

(d)          Use of Proceeds. The Company shall use (i) not more than $2,000,000
of the proceeds from the sale of the Securities for the payment of the Initial
Dividend (as defined in the Certificate of Designations) and the repayment of
the Outstanding Notes (as defined in the Certificate of Designations) and (ii)
at least $500,000 of the proceeds from the sale of the Securities for general
corporate and for working capital purposes, and, with respect to clause (ii),
not for (A) repayment of any outstanding Indebtedness of the Company or any of
its Subsidiaries or (B) redemption or repurchase of any of its or its
Subsidiaries' equity securities.

 

(e)          Financial Information. The Company agrees to send the following to
each Investor during the Reporting Period (i) unless the following are filed
with the SEC through EDGAR and are available to the public through the EDGAR
system, within one (1) Business Day after the filing thereof with the SEC, a
copy of its Annual Reports on Form 10-K, any Quarterly Reports on Form 10-Q, any
Current Reports on Form 8-K (or any analogous reports under the 1934 Act) and
any registration statements (other than on Form S-8) or amendments filed
pursuant to the 1933 Act, (ii) on the same day as the release thereof, facsimile
or e-mailed copies of all press releases issued by the Company or any of its
Subsidiaries, and (iii) 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. As used herein, "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.

 

(f)           Listing. The Company shall promptly secure the listing of all of
(i) the Registrable Securities (as defined in the Registration Rights Agreement)
and (ii) the shares of Common Stock issuable upon the conversion of the
Preferred Shares and upon exercise of the Warrants of such Buyers that are not a
party to the Registration Rights Agreement (collectively, the "Underlying
Shares"), upon each national securities exchange and automated quotation system,
if any, upon which the Common Stock is then listed (subject to official notice
of issuance) and shall maintain such listing of all Underlying Securities from
time to time issuable under the terms of the Transaction Documents. The Company
shall use reasonable best efforts to maintain the authorization for quotation of
the Common Stock on the Principal Market or any other Eligible Market (as
defined in the Warrants). Neither the Company nor any of its Subsidiaries shall
take any action which would be reasonably expected to result in the delisting or
suspension of the Common Stock on the Principal Market. The Company shall pay
all fees and expenses in connection with satisfying its obligations under this
Section 4(f).

 

- 20 -

 

 

(g)          Fees. The Company shall be responsible for the payment of any
placement agent's fees or commissions, financial advisory fees, or broker's
commissions (other than for Persons engaged by any Buyer) 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, reasonable attorney's fees and out-of-pocket expenses) arising in
connection with any claim relating to any such payment. Except as otherwise set
forth in the Transaction Documents, each party to this Agreement shall bear its
own expenses in connection with the sale of the Securities to the Buyers.

 

(h)          Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) hereof;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. The Company hereby agrees to execute
and deliver such documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by an
Investor.

 

- 21 -

 

 

(i)           Disclosure of Transactions and Other Material Information. On or
before 8:30 a.m., New York City time, on the first Business Day following the
date of this Agreement, the Company shall issue a press release and file a
Current Report on Form 8-K describing the terms of the transactions contemplated
by the Transaction Documents in the form required by the 1934 Act and attaching
the material Transaction Documents (including, without limitation, this
Agreement (and all schedules and exhibits to this Agreement), the form of the
Certificate of Designations, the form of Warrant, the form of the Registration
Rights Agreement, the form of Letter of Credit, the form of Voting Agreement and
the form of Lock-Up Agreement as exhibits to such filing (including all
attachments), the "8-K Filing"). In addition, the Company hereby covenants and
agrees that it shall include in the 8-K Filing any information that constitutes,
or could reasonably be expected to constitute, material, nonpublic information
regarding the Company or any of its Subsidiaries received by any of the Buyers
from the Company or any of its Subsidiaries or any of their respective officers,
directors, affiliates or agents, as well as any information received by the
Company from Inventergy that Inventergy has represented to the Company
constitutes or could reasonably be expected to constitute, material, nonpublic
information regarding Inventergy received by any of the Buyers from Inventergy
or its respective officers, directors, affiliates or agents. Accordingly, from
and after the filing of the 8-K Filing with the SEC, no Buyer shall be in
possession of any material, nonpublic information received from the Company,
Inventergy (based solely on Inventergy’s representations to the Company), any of
their respective Subsidiaries or any of their respective officers, directors,
employees or agents, that is not disclosed in the 8-K Filing. The Company
understands and confirms that each of the Buyers will rely on the foregoing in
effecting transactions in securities of the Company. The Company shall not, and
shall cause its Subsidiaries and its and each of their respective officers,
directors, employees and agents, not to, provide any Buyer with any material,
nonpublic information regarding the Company, Inventergy or any of their
respective Subsidiaries from and after the filing of the 8-K Filing with the SEC
without the express prior written consent of such Buyer. If a Buyer has, or
believes it has, received any such material, nonpublic information regarding the
Company, Inventergy or any of their respective Subsidiaries from the Company,
Inventergy any of their respective Subsidiaries or any of their respective
officers, directors, affiliates or agents, it may provide the Company with
written notice thereof. The Company shall, within two (2) Trading Days (as
defined in the Warrants) of receipt of such notice, make public disclosure of
such material, nonpublic information. In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, a Buyer shall have the
right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, Inventergy, their respective Subsidiaries, or any
of its or their respective officers, directors, employees or agents. No Buyer
shall have any liability to the Company, Inventergy, their respective
Subsidiaries, or any of its or their respective officers, directors, employees,
stockholders or agents for any such disclosure. To the extent that the Company
delivers any material, non-public information to a Buyer without such Buyer's
consent, the Company hereby covenants and agrees that, as between the Company
and such Buyer, such Buyer shall not have any duty of confidentiality with
respect to, or a duty not to trade on the basis of, such material, non-public
information. Subject to the foregoing, neither the Company, its Subsidiaries nor
any Buyer shall issue 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 any Buyer, to make any
press release or other public disclosure with respect to such transactions (i)
in substantial conformity with the 8-K Filing and contemporaneously therewith
and (ii) as is required by applicable law and regulations, including, without
limitation, the rules and regulations of the Principal Market (provided that in
the case of clause (i) each Buyer shall be consulted by the Company in
connection with any such press release or other public disclosure prior to its
release). Except for the Registration Statement required to be filed pursuant to
the Registration Rights Agreement, and this Agreement, which will be filed as an
exhibit to the 8-K Filing, without the prior written consent of any applicable
Buyer, neither the Company nor any of its Subsidiaries or affiliates shall
disclose the name of such Buyer in any filing, announcement, release or
otherwise, unless required by applicable federal, state or local law, regulation
or a valid order issued by a court or governmental agency of competent
jurisdiction.

 

(j)           Additional Preferred Shares; Variable Securities. So long as any
Buyer beneficially owns any Securities, the Company will not issue any Preferred
Shares other than to the Buyers as contemplated hereby and the Company shall not
issue any other securities that would cause a breach or default under the
Certificate of Designations or Warrants. Until the earlier of (i) the date that
no Preferred Shares or Warrants remain outstanding and (ii) the two (2) year
anniversary of the Closing Date, the Company shall not, in any manner, issue or
sell any rights, warrants or options to subscribe for or purchase Common Stock
or directly or indirectly convertible into or exchangeable or exercisable for
Common Stock at a price which varies or may vary with the market price of the
Common Stock, including by way of one or more reset(s) to any fixed price unless
the conversion, exchange or exercise price of any such security cannot be less
than the then applicable Conversion Price (as defined in the Certificate of
Designations) with respect to the Common Stock into which any Preferred Shares
is convertible or the then applicable Exercise Price (as defined in the
Warrants) with respect to the Common Stock into which any Warrant is exercisable
(such security, a "Variable Security"). For the avoidance of doubt, no security
shall be deemed a Variable Security solely by virtue of the fact that such
security provides for full ratchet or weighted average dilution adjustments.

 

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(k)          Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall (i) maintain its corporate existence and (ii) not
be party to any Fundamental Transaction (as defined in the Certificate of
Designations) unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Certificate of Designations
and the Warrants.

 

(l)           Reservation of Shares. So long as any Buyer owns any Securities,
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 (i) 130% of the
maximum number of Conversion Shares issuable upon conversion of the Preferred
Shares (assuming for purposes hereof, that the Preferred Shares are convertible
at the then current Conversion Price and without taking into account any
limitations on the conversion of the Preferred Shares set forth in the
Certificate of Designations), and (ii) the maximum number of shares of Common
Stock issuable upon exercise of the Warrants then outstanding (without taking
into account any limitations on the exercise of the Warrants set forth in the
Warrants). If at any time the number of shares of Common Stock authorized and
reserved for issuance is not sufficient to meet the Required Reserved Amount,
the Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of stockholders to authorize additional shares to meet the
Company's obligations under Section 3(c), in the case of an insufficient number
of authorized shares, obtain stockholder approval of an increase in such
authorized number of shares, and voting the management shares of the Company in
favor of an increase in the authorized shares of the Company to ensure that the
number of authorized shares is sufficient to meet the Required Reserved Amount.

 

(m)         Conduct of Business. The business of the Company and its
Subsidiaries shall not be conducted in violation of any law, ordinance or
regulation of any governmental entity, except where such violations would not
result, either individually or in the aggregate, in a Material Adverse Effect.

 

(n)          Filing of Registration Statements. From the date hereof until the
date that is the earlier of (i) the date that one or more Registration
Statement(s) covering the resale of all Registrable Securities has been
effective and available for the re-sale of all such Registrable Securities and
(ii) the date the Conversion Shares and the Warrant Shares are eligible for sale
by non-affiliates of the Company without restriction pursuant to Rule 144 and
without the requirement to be in compliance with Rule 144(c)(1) (or any
successor thereto) promulgated under the 1933 Act, the Company will not,
directly or indirectly, file any registration statement with the SEC other than
the Registration Statements and the S-4 Registration Statement (each as defined
in the Registration Rights Agreement). Notwithstanding the foregoing, the
Company may file one or more registration statements on Form S-8 registering
shares of Common Stock issued or issuable pursuant to an Approved Stock Plan (as
defined in the Certificate of Designations), provided that such shares either
(i) shall not vest prior to the date that is the one (1) year anniversary of the
consummation of the Reverse Merger or (ii) shall be subject to a lock-up
agreement until at least the one (1) year anniversary of the consummation of the
Reverse Merger, in each case, such that no such shares of Common Stock shall be
sold prior to such date.

 

- 23 -

 

 

(o)          Public Information. At any time during the period commencing from
the six (6) month anniversary of the Closing Date and ending at such time that
all of the Securities, if a registration statement is not available for the
resale of all of the Securities, may be sold without restriction or limitation
pursuant to Rule 144 by a non-affiliate of the Company and without the
requirement to be in compliance with Rule 144(c)(1), if the Company shall (i)
fail for any reason to satisfy the requirements of Rule 144(c)(1), including,
without limitation, the failure to satisfy the current public information
requirement under Rule 144(c) or (ii) if the Company has ever been an issuer
described in Rule 144(i)(1)(i) or becomes such an issuer in the future, and the
Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (a
"Public Information Failure") then, as partial relief for the damages to any
holder of Securities by reason of any such delay in or reduction of its ability
to sell the Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity), the Company shall pay to each such
holder an amount in cash equal to two percent (2.0%) of the aggregate Purchase
Price of such holder's Securities still owned by such holder on the day of a
Public Information Failure and on every thirtieth day (pro rated for periods
totaling less than thirty days) thereafter until the earlier of (i) the date
such Public Information Failure is cured and (ii) such time that such public
information is no longer required pursuant to Rule 144. The payments to which a
holder shall be entitled pursuant to this Section 4(o) are referred to herein as
"Public Information Failure Payments." Public Information Failure Payments shall
be paid on the earlier of (I) the last day of the calendar month during which
such Public Information Failure Payments are incurred and (II) the third
Business Day after the event or failure giving rise to the Public Information
Failure Payments is cured. In the event the Company fails to make Public
Information Failure Payments in a timely manner, such Public Information Failure
Payments shall bear interest at the rate of 1.5% per month (prorated for partial
months) until paid in full.

 

(p)          Letters of Credit.

 

(i)          On or prior to the Closing Date, the Company shall obtain an
irrevocable letter of credit for each Buyer (each, a "Letter of Credit" and
collectively, the "Letters of Credit"), each Letter of Credit in the amount of
the Purchase Price set forth opposite the applicable Buyer's name in column (5)
on the Schedule of Buyers attached hereto (as may be decreased pursuant to the
terms of this Section 4(p), the "Letter of Credit Amount") issued in favor of
such Buyer by Wells Fargo, National Association (the "Letter of Credit Bank"),
and in form and substance acceptable to such Buyer. Each Letter of Credit,
including any renewals, extensions or replacements referred to below, shall
expire not earlier than the one (1) year anniversary of the Closing Date (the
"LC Expiration Date"), unless such Letter of Credit shall have been reduced to
zero in accordance with the terms contained in this Section 4(p) prior to such
date. The Company shall obtain such renewals, extensions or replacements of each
Letter of Credit as necessary to ensure that such Letter of Credit shall not
expire prior to the LC Expiration Date (unless such Letter of Credit shall have
been reduced to zero in accordance with the terms contained in this Section 4(p)
prior to such date). If, at any time, the Company cannot obtain a renewal,
extension or replacement of a Letter of Credit such that the Letter of Credit
will expire prior to the LC Expiration Date (a "Withdrawal Event"), the Company
and the Letter of Credit Bank shall each give each Buyer written notice of the
occurrence of a Withdrawal Event at least forty-five (45) days prior to the then
current expiration date of the Letter of Credit. Following a Withdrawal Event,
each Buyer shall be entitled to draw down the Letter of Credit Amount in its
entirety and hold such amount as collateral security for the obligations under
the Certificate of Designations to the applicable Buyer for the benefit of such
Buyer.

 

- 24 -

 

 

(ii)         Upon a Holder Optional Redemption or a Change of Control Redemption
(each, as defined in the Certificate of Designations) by a Buyer, such Buyer
shall be entitled to draw under its applicable Letter of Credit, including any
renewals, extensions or replacements referred to above, for the applicable
Holder Optional Redemption Triggering Event Redemption Price or Change of
Control Redemption Price, as applicable, up to such Buyer's Letter of Credit
Amount then available thereunder. If at any time a Buyer is entitled to draw
down on its Letter of Credit pursuant to the immediately preceding sentence then
such Buyer may issue a written instruction to the Letter of Credit Bank (with a
copy to the Company) to request the reduction of its Letter of Credit Amount by
an amount equal to the applicable Holder Optional Redemption Triggering Event
Price or Change of Control Redemption Price, as applicable and the payment in
cash by wire of immediately available funds of such amount to such Buyer
pursuant to wire instructions provided in writing by such Buyer. If at any time
a Buyer has drawn on its Letter of Credit pursuant to the immediately preceding
sentence and has received the amount drawn down from the Letter of Credit Bank
(the "Draw Down Amount"), then on the Business Day following the receipt of such
Draw Down Amount, such amount will be applied to redeem a number of Preferred
Shares equal to the Stated Value (as defined in the Certificate of Designations)
of such Buyer's Preferred Shares in an amount equal to the Draw Down Amount and
a corresponding percentage of the outstanding Warrants issued to such Buyer at
Closing. In the event a Buyer does not elect to draw under its applicable Letter
of Credit within thirty (30) days after the occurrence of a Holder Optional
Redemption or a Change of Control Redemption in accordance hereof, such Buyer
shall within three (3) Business Days after the expiration of such period issue a
written instruction to the Letter of Credit Bank (with a copy to the Company) to
cancel its applicable Letter of Credit Amount and to deliver any remaining
Letter of Credit Amount in cash by wire transfer of immediately available funds
to the Company pursuant to wire instructions provided by the Company in writing.

 

(iii)        After the latest of (i) the Stockholder Approval Date, (ii) the
date that the Initial Registration Statement registering the Initial Required
Registration Amount (as such terms are defined in the Registration Rights
Agreement) is declared effective and has been continuously available for at
least ten (10) Trading Days, (iii) the date that the Company has given notice to
each Buyer as to the date scheduled for the consummation of the Reverse Merger
(as defined in the Certificate of Designations); provided, however, that the
requirements set forth in clause (ii) above shall be deemed to have been
satisfied with respect to a Buyer if the SEC refuses to declare the Initial
Registration Statement effective solely because it requires such Buyer to be
named as an underwriter therein (the “Scheduled Closing Date”), which notice
shall be given at least ten (10) Trading Days prior to the Scheduled Closing
Date and (iv) all conditions to the consummation of the Reverse Merger,
including, without limitation, the occurrence of the Reverse Split (as defined
in the Certificate of Designations), either have been satisfied or are
reasonably expected to be satisfied by the Scheduled Closing Date, each Buyer
shall issue a written instruction to the Letter of Credit Bank (with a copy to
the Company) not later than three (3) Trading Days prior to Scheduled Closing
Date to cancel its applicable Letter of Credit Amount and to deliver any
remaining Letter of Credit Amount in cash by wire transfer of immediately
available funds to the Company pursuant to wire instructions provided by the
Company in writing.

 

- 25 -

 

 

(iv)        In the event that any Buyer shall convert all or a portion of such
Buyer's Preferred Shares, which leaves such Buyer with an aggregate Stated Value
(as defined in the Certificate of Designations) of Preferred Shares that is less
than such Buyer's Letter of Credit Allocation, then each Buyer shall promptly
issue a written instruction to the Letter of Credit Bank (with a copy to the
Company) to request the reduction of its Letter of Credit Amount to the Stated
Value of Preferred Shares held by such Buyer, and to deliver in cash by wire
transfer of immediately available funds the amount by which such Letter of
Credit Amount is being reduced to the Company pursuant to wire instructions
provided by the Company in writing.

 

(v)         In the event that any Buyer shall sell or otherwise transfer any of
such Buyer's Preferred Shares, the transferee shall be allocated a pro rata
portion of such Buyer's Letter of Credit Amount, and the rights of the
applicable transferor contained in this Section 4(p) shall apply to the
applicable transferee with respect to the portion of the Letter of Credit Amount
allocated to such transferee as if the transferee were a Buyer hereunder. Any
Buyer that transfers any Preferred Shares shall provide written notice to the
Company and the Letter of Credit Bank contemporaneously with any such transfer,
identifying such transferee and providing any information reasonably requested
by the Letter of Credit Bank.

 

(q)          Voting Agreement. The Company shall use its reasonable best efforts
to effectuate the transactions contemplated by the Voting Agreements,
substantially in the form attached hereto as Exhibit D (the "Voting
Agreements"), executed by the Company and each of David Lee and Lee Family Trust
(together, the "Principal Stockholders"). The Company shall not amend or waive
any provision of the Voting Agreements and shall enforce the provisions of the
Voting Agreements in accordance with its terms. If any of the Principal
Stockholders breaches any provisions of the Voting Agreements, the Company shall
promptly use its reasonable best efforts to seek specific performance of the
terms of the Voting Agreements in accordance with Section 4.02 thereof. In
addition, if the Company receives any notice from any Principal Stockholder
pursuant to any Voting Agreement, the Company shall promptly, but in no event
later than two (2) Business Days, deliver a copy of such notice to each Buyer.

 

(r)           Lock-Up. The Company shall not amend or waive any provision of any
of the Lock-Up Agreements except to extend the term of the lock-up period and
shall enforce the provisions of each Lock-Up Agreement in accordance with its
terms. If any officer or director that is a party to a Lock-Up Agreement
breaches any provision of a Lock-Up Agreement, the Company shall promptly use
its reasonable best efforts to seek specific performance of the terms of such
Lock-Up Agreement.

 

(s)          Stockholder Approval. The Company shall provide each stockholder
entitled to vote at a special or annual meeting of stockholders of the Company
(the "Stockholder Meeting"), which shall be called as promptly as practicable
after the date hereof, but in no event later than the date of the meeting of
stockholders called to vote for the Reverse Merger and the Reverse Split, which
shall not be later than the date that is five (5) months immediately following
the Closing Date (the "Stockholder Meeting Deadline"), a proxy statement, which
may be contained in the S-4 Registration Statement, in a form reasonably
acceptable to the Buyers after review by Schulte Roth & Zabel LLP, soliciting
each such stockholder's affirmative vote at the Stockholder Meeting for approval
of resolutions (the "Resolutions") providing for the issuance of all of the
Securities as described in the Transaction Documents in accordance with
applicable law, the provisions of the Bylaws and the rules and regulations of
the Principal Market without giving effect to the Exchange Cap provisions set
forth in the Certificate of Designations and the Warrants (such affirmative
approvals being referred to herein, collectively, as the "Stockholder Approval"
and the date such approval is obtained, the "Stockholder Approval Date"), and
the Company shall use its reasonable best efforts to solicit its stockholders'
approval of such Resolutions and to cause the Board of Directors of the Company
to recommend to the stockholders that they approve the Resolutions, subject to
the Company's Board of Directors compliance with its fiduciary duties under
applicable law. The Company shall be obligated to seek to obtain the Stockholder
Approval by the Stockholder Meeting Deadline.

 

- 26 -

 

 

(t)           Record Date. The Company shall cause the record date for holders
of Common Stock to receive the Initial Dividend to be no later than ten (10)
days prior to the date of the Stockholder Meeting.

 

(u)          Closing Documents. On or prior to fourteen (14) calendar days after
the Closing Date, the Company agrees to deliver, or cause to be delivered, to
each Buyer and Schulte Roth & Zabel LLP a complete closing set of the executed
Transaction Documents, Securities and any other documents required to be
delivered to any party pursuant to Section 7 hereof or otherwise.

 

5.          REGISTER; TRANSFER AGENT INSTRUCTIONS.

 

(a)          Register. 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 each holder of Securities), a register for the Preferred Shares and
the Warrants in which the Company shall record the name and address of the
Person in whose name the Preferred Shares and the Warrants have been issued
(including the name and address of each transferee), the Stated Value of
Preferred Shares held by such Person, the number of Conversion Shares issuable
upon conversion of the Preferred Shares and the number of Warrant Shares
issuable upon exercise of the Warrants held by such Person. The Company shall
keep the register open and available at all times during business hours for
inspection of any Buyer or its legal representatives.

 

(b)          Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, in the
form of Exhibit E attached hereto (the "Irrevocable Transfer Agent
Instructions") to issue certificates or credit shares to the applicable balance
accounts at DTC, registered in the name of each Buyer or its respective
nominee(s), for the Conversion Shares and the Warrant Shares issued at the
Closing or upon conversion of the Preferred Shares or exercise of the Warrants
in such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares or exercise of the Warrants. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(f) hereof, 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 other Transaction Documents. If a Buyer
effects a sale, assignment or transfer of the Securities in accordance with
Section 2(f), the Company shall permit the transfer and shall promptly instruct
its transfer agent to issue one or more certificates or credit shares to the
applicable balance accounts at DTC in such name and in such denominations as
specified by such Buyer to effect such sale, transfer or assignment. In the
event that such sale, assignment or transfer involves the Conversion Shares or
the Warrant Shares sold, assigned or transferred pursuant to an effective
registration statement or pursuant to Rule 144, the transfer agent shall issue
such Securities to the Buyer, assignee or transferee, as the case may be,
without any restrictive legend. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to a Buyer. Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Section 5(b) will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 5(b), that
a Buyer shall be entitled, in addition to all other available remedies, to an
order and/or 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.

 

- 27 -

 

 

6.          CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Preferred Shares
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:

 

(i)          Such Buyer shall have executed each of the Transaction Documents to
which it is a party and delivered the same to the Company.

 

(ii)         Such Buyer shall have delivered to the Letter of Credit Bank the
Purchase Price for the Preferred Shares 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 Letter of Credit Bank.

 

(iii)        The representations and warranties of such Buyer 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 which shall be true and correct as of such specified date), and such Buyer
shall have performed, satisfied and complied in all respects 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.

 

(iv)        No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

 

7.          CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

 

The obligation of each Buyer hereunder to purchase the Preferred Shares 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 each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:

 

- 28 -

 

 

(i)          The Company shall have duly executed and delivered to such Buyer
(A) each of the Transaction Documents (other than the Registration Rights
Agreement), (B) the Preferred Shares (in such numbers as is set forth across
from such Buyer's name in column (3) of the Schedule of Buyers), being purchased
by such Buyer at the Closing pursuant to this Agreement and (C) the related
Warrants (allocated in such amounts as is set forth opposite such Purchaser's
name in column (4) of the Schedule of Buyers) being purchased by such Buyer at
the Closing pursuant to this Agreement.

 

(ii)         Such Buyer shall have received the opinion of Baker, Donelson,
Bearman, Caldwell & Berkowitz, PC, the Company's outside counsel, dated as of
the Closing Date, in substantially the form of Exhibit F attached hereto.

 

(iii)        The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, in the form of Exhibit E attached
hereto, which instructions shall have been delivered to and acknowledged in
writing by the Company's transfer agent.

 

(iv)        The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company and each of its
Subsidiaries in such entity's jurisdiction of formation issued by the Secretary
of State (or comparable office) of such jurisdiction of formation, as of a date
within ten (10) days of the Closing Date.

 

(v)         The Company shall have delivered to such Buyer a certificate
evidencing the Company's qualification as a foreign corporation and good
standing issued by the Secretary of State (or comparable office) of each
jurisdiction in which the Company conducts business and is required to so
qualify, as of a date within ten (10) days of the Closing Date.

 

(vi)        The Company shall have delivered to such Buyer a certified copy of
the Certificate of Incorporation as certified by the Secretary of State (or
comparable office) of the State of Delaware within ten (10) days of the Closing
Date.

 

(vii)       The Company shall have delivered to such Buyer a certificate,
executed by the Secretary of the Company and dated as of the Closing Date, as to
(i) the resolutions consistent with Section 3(b) as adopted by the Company's
Board of Directors in a form reasonably acceptable to such Buyer, (ii) the
Certificate of Incorporation and (iii) the Bylaws, each as in effect at the
Closing, in the form attached hereto as Exhibit G.

 

(viii)      The representations and warranties of the Company 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 which shall be true and correct as of such specified date) and the Company
shall have performed, satisfied and complied in all respects 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 may be reasonably requested by such Buyer in the form
attached hereto as Exhibit H.

 

- 29 -

 

 

(ix)         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.

 

(x)          The Common Stock (I) shall be designated for quotation or listed on
the Principal Market and (II) shall not have been suspended, as of the Closing
Date, by the SEC or the Principal Market from trading on the Principal Market
nor shall suspension by the SEC or the Principal Market have been threatened, as
of the Closing Date, either (A) in writing by the SEC or the Principal Market or
(B) by falling below the minimum listing maintenance requirements of the
Principal Market.

 

(xi)         The Letter of Credit Bank shall have issued a Letter of Credit to
such Buyer in the amount set forth opposite such Buyer's name in column (5) of
the Schedule of Buyers, each in form and substance satisfactory to the Required
Holders.

 

(xii)        The Voting Agreements shall have been executed and delivered to
such Buyer by the Company and each of the Principal Stockholders.

 

(xiii)       The Company shall have delivered to each Buyer a lock-up agreement
in the form attached hereto as Exhibit I executed and delivered by each of the
Persons listed on Schedule 7(xii) (collectively, the "Lock Up Agreements").

 

(xiv)      The Certificate of Designations in the form attached here to as
Exhibit A shall have been filed with the Secretary of State of the State of
Delaware and shall be in full force and effect, enforceable against the Company
in accordance with its terms and shall not have been amended.

 

(xv)       The Company shall have executed and delivered the Registration Rights
Agreement to each Buyer whose Purchase Price, as set forth opposite such Buyer's
name in column (5) of the Schedule of Buyers, equals or exceeds $350,000.

 

(xvi)      The Company shall have obtained all governmental, regulatory or third
party consents and approvals, if any, necessary for the sale of the Securities.

 

(xvii)     The Company shall have delivered to such Buyer such other documents
relating to the transactions contemplated by this Agreement as such Buyer or its
counsel may reasonably request.

 

8.          TERMINATION. In the event that the Closing shall not have occurred
with respect to a Buyer on or before ten (10) Business Days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date by delivering a written notice to that effect to each
other party to this Agreement and without liability of any party to any other
party.

 

- 30 -

 

 

9.          MISCELLANEOUS.

 

(a)          Governing Law; Jurisdiction; Jury Trial. All 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 exclusive jurisdiction of the state and
federal courts sitting in The City of New York, Borough of Manhattan, 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 WITH 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 is prohibited by
law or otherwise determined to be invalid or unenforceable by a court of
competent jurisdiction, the provision that would otherwise be prohibited,
invalid or unenforceable shall be deemed amended to apply to the broadest extent
that it would be valid and enforceable, and the invalidity or unenforceability
of such provision shall not affect the validity of the remaining provisions of
this Agreement so long as this Agreement as so modified continues to express,
without material change, the original intentions of the parties as to the
subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

- 31 -

 

 

(e)          Entire Agreement; Amendments. This Agreement and the other
Transaction Documents supersede 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, the
other Transaction Documents and the instruments referenced herein and therein
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. 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 the holders of
at least sixty percent (60%) of the aggregate number of shares of Common Stock
issued or issuable hereunder and under the Preferred Shares and Warrants (the
"Required Holders"); provided that any such amendment or waiver that complies
with the foregoing but that disproportionately, materially and adversely affects
the rights and obligations of any Buyer relative to the comparable rights and
obligations of the other Buyers shall require the prior written consent of such
adversely affected Buyer. Any amendment or waiver effected in accordance with
this Section 9(e) shall be binding upon each Buyer and subsequent holder of
Securities and the Company. No such amendment shall be effective to the extent
that it applies to less than all of the Buyers or holders of 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 the Transaction Documents
unless the same consideration (other than the reimbursement of legal fees) also
is offered to all of the parties to the Transaction Documents, holders of
Preferred Shares or holders of the Warrants, as the case may be. The Company has
not, directly or indirectly, made any agreements with any Buyers relating to the
terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents. Without limiting the
foregoing, the Company confirms that, except as set forth in this Agreement, no
Buyer has made any commitment or promise or has any other obligation to provide
any financing to the Company or otherwise.

 

(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 by electronic mail; or (iii) one Business
Day after deposit with an overnight courier service, in each case properly
addressed to the party to receive the same. The addresses, facsimile numbers and
e-mail addresses for such communications shall be:

 

If to the Company:

 

eOn Communications Corporation

1703 Sawyer Road

Corinth, MS 38834

 

- 32 -

 

 

Telephone:408-694-3339

Facsimile:408-996-9722

Attention:David Lee, Chairman

E-mail:mking@sparktech.com

 

With a copy to:

 

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

First Tennessee Building

165 Madison Avenue

Suite 2000

Memphis, Tennessee 38103

Telephone:(901) 577-8114

Facsimile:(901) 577-0762

Attention:Jackie Prester, Esq.

E-mail:jprester@bakerdonelson.com

 

If to the Transfer Agent:

 

Computershare Trust Company, N.A.

350 Indiana St. Suite 750

Golden, CO 80401

Telephone:(303) 262-0765

Facsimile:(303) 262-0610

Attention:Adam Burnham

 

If to a Buyer, to its address, facsimile number and e-mail address set forth on
the Schedule of Buyers, with copies to such Buyer's representatives as set forth
on the Schedule of Buyers,

 

with a copy (for informational purposes only) to:

 

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022 

Telephone:(212) 756-2000

Facsimile:(212) 593-5955

Attention:Eleazer N. Klein, Esq.

E-mail:eleazer.klein@srz.com

 

or to such other address, facsimile number and/or e-mail address and/or to the
attention of such other Person as the recipient party has specified by written
notice given to each other party five (5) 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 or e-mail containing
the time, date, recipient facsimile number and an image of the first page of
such transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from an
overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.

 

- 33 -

 

 

(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 Preferred Shares or the Warrants. The Company
shall not assign this Agreement or any rights or obligations hereunder without
the prior written consent of the Required Holders, including by way of a
Fundamental Transaction (unless the Company is in compliance with the applicable
provisions governing Fundamental Transactions set forth in the Certificate of
Designations and the Warrants). A Buyer may assign some or all of its rights
hereunder without the consent of the Company, in which event such assignee shall
be deemed to be a Buyer hereunder with respect to such assigned rights.

 

(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, except that each Indemnitee shall have the right to
enforce the obligations of the Company with respect to Section 9(k).

 

(i)           Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5
and 9 shall survive the Closing and the deliver and exercise of Securities, as
applicable. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.

 

(j)           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
any 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.

 

- 34 -

 

 

(k)          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,
partners, members, 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"),
as incurred, from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses 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 hereby or thereby, (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 hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (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, (iii) any
disclosure made by such Buyer pursuant to Section 4(i) hereof except to the
extent such Indemnified Liabilities arise solely as a result of such Buyer’s
breach of this Agreement, 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) or willful misconduct, or
(iv) the status of such Buyer or holder of the Securities as an investor in the
Company pursuant to the transactions contemplated by the Transaction Documents.
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 that is permissible
under applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 9(k)
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.

 

(l)           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.

 

(m)         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. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.

 

(n)          Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.

 

- 35 -

 

 

(o)          Payment Set Aside. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their 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, foreign, 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.

 

(p)          Independent Nature of Buyers' Obligations and Rights. The
obligations of each Buyer under any Transaction Document are several and not
joint with the obligations of any other Buyer, and no Buyer shall be responsible
in any way for the performance of the obligations of any other Buyer under any
Transaction Document. Nothing contained herein or in any other Transaction
Document, and no action taken by any Buyer pursuant hereto or thereto, shall be
deemed to constitute the Buyers as, and the Company acknowledges that the Buyers
do not so constitute, a partnership, an association, a joint venture or any
other kind of entity, or create a presumption that the Buyers are in any way
acting in concert or as a group, and the Company shall not assert any such claim
with respect to such obligations or the transactions contemplated by the
Transaction Documents and the Company acknowledges that, to its knowledge, the
Buyers are not acting in concert or as a group with respect to such obligations
or the transactions contemplated by the Transaction Documents. The Company
acknowledges and each Buyer confirms that it has independently participated in
the negotiation of the transaction contemplated hereby with the advice of its
own counsel and advisors. Each Buyer shall be entitled to independently protect
and enforce its rights, including, without limitation, the rights arising out of
this Agreement or out of any other Transaction Documents, and it shall not be
necessary for any other Buyer to be joined as an additional party in any
proceeding for such purpose.

 

[Signature Page Follows]

 

- 36 -

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  COMPANY:       EON COMMUNICATIONS CORPORATION       By: /s/ David S. Lee    
Name: David S. Lee     Title:  Chairman

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  BUYERS:       HUDSON BAY IP OPPORTUNITIES MASTER FUND LP       By: Hudson Bay
Capital Management LP, as its Investment Manager       By: /s/ Yoav Roth    
Name:  Yoav Roth     Title:  Authorized Signatory

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  /s/ Michael Howard Brauser     Michael Howard Brauser  

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  MELECHDAVID, INC.       By: /s/ Mark Groussman     Name:  Mark Groussman    
Title: President

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  MELECHDAVID, INC. RETIREMENT PLAN         By: /s/ Mark Groussman     Name:
Mark Groussman     Title: Trustee

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  /s/ Jill Strauss  

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  /s/ Hope Adams Custodian for Sara Adams   Name:  Hope Adams  
Title:  Custodian for Sara Adams

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  /s/ John Hampton Ford     John Hampton Ford

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  /s/ Jonathan Honig    Jonathan Honig

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  EMPERY ASSET MASTER, LTD.       By: EMPERY ASSET MANAGEMENT, LP,   its
Authorized Agent       By: EMPERY AM GP, LLC,   its General Partner       By /s/
Martin D. Hoe     Name: Martin D. Hoe      Title: Managing Member 

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  ALLIANCE FUNDS, LLC       By: /s/ Thomas P. Walsh     Name:  Thomas P. Walsh  
  Title: President

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.

 

  /s/ Barry C. Honig   Barry C. Honig

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

SCHEDULE OF BUYERS

 

(1)  (2)  (3)   (4)   (5)   (6)                     Buyer  Address and
Facsimile Number  Aggregate
Number of Preferred
Shares   Number of
Warrant Shares   Purchase Price   Legal Representative's Address and
Facsimile Number                     Hudson Bay IP Opportunities Master Fund LP 
777 Third Avenue, 30th Floor
New York, NY 10017
Attention: Yoav Roth
Facsimile: 646-214-7946
Telephone: 212-571-1244
Residence: Cayman Islands
E-mail: investments@hudsonbaycapital.com
          operations@hudsonbaycapital.com   1,120    570,943   $1,120,000  
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York  10022
Attention:  Eleazer Klein, Esq.
Facsimile: (212) 593-5955
Telephone:  (212) 756-2376                        Barry C. Honig  215 SE Spanish
Trail
Boca Raton, FL 33432
Telephone: 561-235-5379
                     561-302-2287
E-mail: brhonig@aol.com
   361    184,027   $361,000                            Alliance Funds, LLC  61
Kinderkamack Road
Woodcliffe Lake, NJ 07677
Attention: Thomas P. Walsh
Facsimile: 914-669-0220
Telephone: 201-424-4573
Residence: Delaware
E-mail: twalsh@alliancefund.net   60    30,586   $60,000                    
       Empery Asset Master Ltd.  c/o Empery Asset Management, LP
One Rockefeller Plaza, Suite 1205
New York, NY 10020
Attention: Ryan M. Lane
Facsimile: 212-608-3307
Telephone: 212-608-3300
Residence: Cayman Islands
Email: notices@emperyam.com   200    101,954   $200,000                         
  Jonathan Honig 

4263 NW 61st Lane

Boca Raton, FL 33496

Telephone: 561-241-4749

     561-445-3665

Email: jonathanhonig@aol.com

   279    142,226   $279,000                            John Hampton Ford  PO
Box 471
Bolinas, CA 94924
Telephone: 415-2348215
Email: bajarest@gmail.com   30    15,293   $30,000                           
Hope Adams Custodian For Sara Adams  1601 Sunset Plaza Drive
Los Angeles, CA 90069
Attention: Hope Adams
Facsimile: 310-855-9375
Email: hopeadamsemail@gmail.com
           susan@5stardiscounthomes.com   130    66,270   $130,000          
                 Jill Strauss  224 Quadro Vecchio Drive
Pacific Palisades, CA 90272
Facsimile: 310-855-9475
Telephone: 516-297-8585
E-mail: jillys12@aol.com   70    35,684   $70,000                           
Melechdavid Inc.  100 S Pointe Drive #1405
Miami Beach, FL 33139
Attention: Mark Groussman
Facsimile: 8000-476-1582
Telephone: 212-628-1591
Residence: Florida
Email: mgman@bullhunterllc.com   210    107,052   $210,000                    
       Michael Howard Brauser 

3164 NE 31st Avenue

Lighhouse Point, FL 33064

Facsimile: 305-576-9298

Telephone: 305-576-5116

Email: mike@marlincapital.com

   250    127,443   $250,000                            Melechdavid Inc.
Retirement Plan 

100 S Pointe Drive #1405

Miami Beach, FL 33139

Attention: Mark Groussman

Facsimile: 8000-476-1582

Telephone: 212-628-1591

Residence: Florida

Email: mgman@bullhunterllc.com

   

40

    

20,391

   $

40,000

    

 

[Signature Page to Securities Purchase Agreement]

 

 

 

 

EXHIBITS

 

Exhibit A Form of Certificate of Designations Exhibit B Form of Warrants Exhibit
C Form of Registration Rights Agreement Exhibit D Form of Voting Agreement
Exhibit E Form of Irrevocable Transfer Agent Instructions Exhibit F Form of
Opinion of Company Counsel Exhibit G Form of Secretary's Certificate Exhibit H
Form of Officer's Certificate Exhibit I Form of Lock-Up Agreement

 

SCHEDULES 

 

Schedule 3(a) Subsidiaries Schedule 3(e) Consents Schedule 3(k) SEC Documents
Schedule 3(l) Absence of Certain Changes Schedule 3(n) Regulatory Permits
Schedule 3(q) Transactions with Affiliates Schedule 3(r) Equity Capitalization
Schedule 3(s) Indebtedness and Other Contracts Schedule 3(t)  Absence of
Litigation Schedule 3(x) Intellectual Property Rights Schedule 3(bb) Tax Status
Schedule 7(xii) Lock-Up Parties

 

 

 

 

EXHIBIT A:

 

FORM OF CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
EON COMMUNICATIONS CORPORATION

 

eOn Communications Corporation (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"DGCL"), does hereby certify that, pursuant to authority conferred upon the
Board of Directors of the Company by the Certificate of Incorporation, as
amended, of the Company, and pursuant to the provisions of the DGCL, the Board
of Directors of the Company adopted resolutions (i) designating a series of the
Company's previously authorized preferred stock, par value $0.001 per share, and
(ii) providing for the designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, of two thousand seven hundred fifty (2,750) shares of Series B
Convertible Preferred Stock of the Company, as follows:

 

RESOLVED, that the Company is authorized to issue two thousand seven hundred
fifty (2,750) shares of Series B Convertible Preferred Stock, par value $0.001
per share (the "Preferred Shares"), which shall have the following powers,
designations, preferences and other special rights:

 

(1)         Dividends. Subject to Section 14, the holders of the Preferred
Shares (each, a "Holder" and collectively, the "Holders"), as a class, shall not
be entitled to receive dividends ("Dividends").

 

(2)         Conversion of Preferred Shares. On or after the Initial
Convertibility Date, Preferred Shares shall be convertible into shares of the
Company's Common Stock, par value $0.005 per share (the "Common Stock"), on the
terms and conditions set forth in this Section 2.

 

(a)          Holder's Conversion Right. Subject to the provisions of Section
2(f), at any time or times on or after the Initial Convertibility Date, any
Holder shall be entitled to convert any whole number of Preferred Shares into
fully paid and nonassessable shares of Common Stock in accordance with Section
2(c) at the Conversion Rate (as defined below).

 

(b)          Conversion. The number of shares of Common Stock issuable upon
conversion of each Preferred Share pursuant to Section 2(a) shall be determined
according to the following formula (the "Conversion Rate"):

 

Conversion Amount
Conversion Price

 

 

 

 

No fractional shares of Common Stock are to be issued upon the conversion of any
Preferred Share, but rather the number of shares of Common Stock to be issued in
the aggregate upon any conversion shall be rounded up to the nearest whole
number.

 

(c)          Mechanics of Conversion. The conversion of Preferred Shares shall
be conducted in the following manner:

 

(i)           Holder's Delivery Requirements. To convert Preferred Shares into
shares of Common Stock on any date (a "Conversion Date"), the Holder shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59
p.m., New York City Time, on such date, a copy of a properly completed notice of
conversion executed by the registered Holder of the Preferred Shares subject to
such conversion in the form attached hereto as Exhibit I (the "Conversion
Notice") to the Company and 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 certificates representing the Preferred Shares being converted
(or compliance with the procedures set forth in Section 14) (the "Preferred
Stock Certificates").

 

(ii)           Company's Response. Upon receipt by the Company of copy of a duly
completed Conversion Notice, the Company shall (I) as soon as practicable, but
in any event within one (1) Trading Day, send, via facsimile, a notice of any
dispute pursuant to Section 2(c)(iii) below or 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 (II) on or before the third (3rd)
Trading Day following the date of receipt by the Company of such Conversion
Notice (the "Share Delivery Date"), (1) provided the Transfer Agent is
participating in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program and the Conversion Shares are subject to an effective resale
registration statement in favor of the Holder or, if converted at a time when
Rule 144 would be available for immediate resale of the Conversion Shares by
such 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 At Custodian system, or (2) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer Program
or the Conversion Shares are not subject to an effective resale registration
statement in favor of such Holder and Rule 144 is not available for immediate
resale of the Conversion Shares by such Holder, 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. If the number of Preferred Shares represented by
the Preferred Stock Certificate(s) submitted for conversion, as may be required
pursuant to Section 2(c)(vii), is greater than the number of Preferred Shares
being converted, then the Company shall, as soon as practicable and in no event
later than three (3) Business Days after receipt of the Preferred Stock
Certificate(s) (the "Preferred Stock Delivery Date") and at its own expense,
issue and deliver to the Holder a new Preferred Stock Certificate representing
the number of Preferred Shares not converted. The Person or Persons entitled to
receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.

 

- 2 -

 

 

(iii)           Dispute Resolution. In the case of a dispute as to the
determination of the Closing Sale Price, Closing Bid Price, Weighted Average
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 transmit an explanation of the
disputed determinations or arithmetic calculations to the Holder via facsimile
within one (1) Business Day of receipt of such Holder's Conversion Notice or
other date of determination. If such Holder and the Company are unable to agree
upon the determination of the Closing Sale Price, Closing Bid Price or Weighted
Average Price or arithmetic calculation of the Conversion Rate within two (2)
Business Days of such disputed determination or arithmetic calculation being
transmitted to the Holder, then the Company shall within one (1) Business Day
after approval of the investment bank or outside accountant by the Required
Holders submit via facsimile the disputed determination of the Closing Sale
Price, Closing Bid Price or Weighted Average Price, as applicable, or the
disputed arithmetic calculation of the Conversion Rate to an independent,
reputable investment bank selected by the Company and approved by the Required
Holders or to the Company's independent, outside accountant. The Company shall
cause, at the Company's expense, 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 two (2) 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 manifest error.

 

(iv)          Record Holder. The Person or Persons entitled to receive the
shares of Common Stock issuable upon a conversion of Preferred Shares 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.

 

- 3 -

 

 

(A)         Cash Damages. If (x) within three (3) Trading Days after the
Company's receipt of the facsimile copy of a duly completed Conversion Notice
the Company shall fail to credit a Holder's balance account with DTC, if the
Transfer Agent is participating in the DTC Fast Automated Securities Transfer
Program and the Conversion Shares are eligible for immediate resale by such
Holder, or issue and deliver a certificate to such Holder, if the Transfer Agent
is not participating in the DTC Fast Automated Securities Transfer Program, in
each case for the number of shares of Common Stock to which such Holder is
entitled upon such Holder's conversion of Preferred Shares (subject to the
resolution of any bona fide dispute pursuant to Section 2(c)(iii) above solely
as to any disputed shares) or (y) within three (3) Trading Days of the Company's
receipt of a Preferred Stock Certificate the Company shall fail to issue and
deliver a new Preferred Stock Certificate representing the number of Preferred
Shares to which such Holder is entitled pursuant to Section 2(c)(ii), then in
addition to all other available remedies which such holder may pursue hereunder
and under the Securities Purchase Agreement (including indemnification pursuant
to Section 9(k) thereof), the Company shall pay additional damages to such
Holder for each day after the Share Delivery Date that such conversion is not
timely effected in an amount equal to one and one half percent (1.5%) 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 as set forth in the applicable Conversion Notice and the terms of this
Certificate of Designations and (II) the Closing Sale Price of the Common Stock
on the Share Delivery Date, in the case of the failure to deliver Common Stock.
If the Company fails to pay the additional damages set forth in this Section
2(c)(v)(A) within five (5) Trading 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. In addition to the foregoing, if on the Share Delivery Date the Company
shall fail to issue and deliver a certificate to a Holder, if the Transfer Agent
is not participating in the DTC Fast Automated Securities Transfer Program, or
credit such Holder's balance account with DTC, if the Transfer Agent is
participating in the DTC Fast Automated Securities Transfer Program and the
Conversion Shares are eligible for immediate resale by such Holder, in each case
for the number of shares of Common Stock to which such Holder is entitled upon
such Holder's conversion or the Company's Conversion, as applicable, of
Preferred Shares, and if on or after such Trading Day the Holder purchases (in
an open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the shares of Common Stock issuable upon
such conversion that the Holder anticipated receiving from the Company (a
"Buy-In"), then the Company shall, within three (3) Trading Days after the
Holder's request and in the Holder's discretion, either (i) pay cash to the
Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions and out-of-pocket expenses, if any) for the shares of
Common Stock so purchased (the "Buy-In Price"), at which point the Company's
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing Sale
Price on the Conversion Date. Nothing herein shall limit a Holder's right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon conversion of the
Preferred Shares as required pursuant to the terms hereof.

 

- 4 -

 

 

(B)         Void Conversion Notice; Adjustment of Conversion Price. If for any
reason a Holder has not received all of the shares of Common Stock to which such
Holder is entitled prior to the fifth (5th) Trading Day after the Share Delivery
Date with respect to a conversion of Preferred Shares, 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 Preferred Shares that have not been converted pursuant to such Holder's
Conversion Notice; provided that the voiding of a Holder's Conversion Notice
shall not affect the Company's obligations to make any payments which have
accrued prior to the date of such notice pursuant to Section 2(c)(v)(A) or
otherwise.

 

(C)         Conversion Failure. If for any reason a Holder has not received all
of the shares of Common Stock to which such Holder is entitled prior to the
tenth (10th) Trading Day after the Share Delivery Date with respect to a
conversion of Preferred Shares, subject to the resolution of any bona fide
dispute pursuant to Section 2(c)(iii) above, then the Holder, upon written
notice to the Company, may require that the Company redeem all Preferred Shares
held by such Holder, including the Preferred Shares previously submitted for
conversion and with respect to which the Company has not delivered shares of
Common Stock, in accordance with Section 3.

 

- 5 -

 

 

(vi) Pro Rata Conversion; Disputes. In the event the Company receives a
Conversion Notice from more than one Holder for the same Conversion Date and the
Company can convert some, but not all, of such Preferred Shares, the Company
shall convert from each Holder electing to have Preferred Shares converted at
such time a pro rata amount of such Holder's Preferred Shares submitted for
conversion based on the number of Preferred Shares submitted for conversion on
such date by such Holder relative to the number of Preferred Shares submitted
for conversion on such date. In the event of a dispute as to the number of
shares of Common Stock issuable to a Holder in connection with a conversion of
Preferred Shares, the Company shall issue to such Holder the number of shares of
Common Stock not in dispute and resolve such dispute in accordance with Section
2(c)(iii).

 

(vii) Book-Entry. Notwithstanding anything to the contrary set forth herein,
upon conversion of Preferred Shares in accordance with the terms hereof, the
Holder thereof shall not be required to physically surrender the certificate
representing the Preferred Shares to the Company unless (A) the full or
remaining number of Preferred Shares represented by the certificate are being
converted or (B) a Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting reissuance of
Preferred Shares upon physical surrender of any Preferred Shares. The Holder and
the Company shall maintain records showing the number of Preferred Shares 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 the certificate representing the Preferred Shares upon
each such conversion. In the event of any dispute or discrepancy, such records
of the Company establishing the number of Preferred Shares to which the record
holder is entitled shall be controlling and determinative in the absence of
manifest error. Notwithstanding the foregoing, if Preferred Shares represented
by a certificate are converted as aforesaid, a Holder may not transfer the
certificate representing the Preferred Shares unless such Holder first
physically surrenders the certificate representing the Preferred Shares to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of such Holder a new certificate of like tenor, registered as such Holder may
request, representing in the aggregate the remaining number of Preferred Shares
represented by such certificate. A Holder and any assignee, by acceptance of a
certificate, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of any Preferred Shares, the number of Preferred
Shares represented by such certificate may be less than the number of Preferred
Shares stated on the face thereof. Each certificate for Preferred Shares shall
bear the following legend:

 

- 6 -

 

 

ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE
COMPANY'S CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE, INCLUDING SECTION 2(c)(vii) THEREOF. THE NUMBER
OF PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER
OF PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT TO SECTION 2(c)(vii) OF
THE CERTIFICATE OF DESIGNATIONS RELATING TO THE PREFERRED SHARES REPRESENTED BY
THIS CERTIFICATE.

 

(d)          Adjustments to Conversion Price. The Conversion Price will be
subject to adjustment from time to time as provided in this Section 2(d).

 

(i) Adjustment of Conversion Price upon Issuance of Common Stock. If and
whenever on or after the Subscription Date, the Company issues or sells, or in
accordance with this Section 2(d)(i) 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 any Excluded
Securities) for a consideration per share (the "New Issuance Price") less than a
price (the "Applicable Price") equal to the Conversion Price in effect
immediately prior to such issuance or sale (a "Dilutive Issuance"), then
immediately after such Dilutive Issuance, the Conversion Price then in effect
shall be reduced to an amount equal to the New Issuance Price. For purposes of
determining the adjusted Conversion Price under this Section 2(d)(i), the
following shall be applicable:

 

- 7 -

 

 

(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
or exercise of any Convertible Securities issuable upon exercise of such Option
is less than the Applicable Price, then each such share of Common Stock
underlying such Option 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(d)(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 or exercise 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 or
exercise of any Convertible Security issuable upon exercise of such Option less
any consideration paid or payable by the Company to the Holder thereof with
respect to such one share of Common Stock upon the granting or sale of such
Option, upon exercise of such Option and upon conversion exercise 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 share of 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 or exercise of such Convertible Securities.

 

(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 or
exercise thereof is less than the Applicable Price, then each such share of
Common Stock underlying such Convertible Securities 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 2(d)(i)(B), the "lowest price per share for which
one share of Common Stock is issuable upon such conversion or exchange or
exercise" 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 or exercise of such Convertible Security less any
consideration paid or payable by the Company to the Holder thereof with respect
to such one share of Common Stock upon the issuance or sale of such Convertible
Security and upon conversion, exercise or exchange of such Convertible Security.
No further adjustment of the Conversion Price shall be made upon the actual
issuance of such share of Common Stock upon conversion or exchange or exercise
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(d)(i), no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.

 

- 8 -

 

 

(C)         Change in Option Price or Rate of Conversion. If the purchase or
exercise price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable or exercisable 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(d)(i)(C), if
the terms of any Option or Convertible Security that was outstanding as of the
Subscription Date 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. For clarity,
adjustments to the purchase price or exercise price of Options already provided
for in the terms of such outstanding Options or adjustments to the rate at which
Convertible Securities are convertible into or exchangeable or exercisable for
Common Stock already provided for in the terms of such outstanding Convertible
Securities (or assumed by the Company in the Reverse Merger) shall not result in
the deemed issuance of Common Stock as of the date of such adjustment, if any.
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, (x) the Options will be deemed
to have been issued for the Option Value and (y) the other securities issued or
sold in such integrated transaction shall be deemed to have been issued for the
difference of (I) the aggregate consideration received by the Company less any
consideration paid or payable by the Company pursuant to the terms of such other
securities of the Company, less (II) the Option Value. 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 or receivable therefor will
be deemed to be the gross purchase price paid by the purchaser 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 publicly traded securities, in which case the amount
of consideration received by the Company will be the Closing Sale Price of such
securities on the date of receipt of such securities. The fair value of any
consideration other than cash or publicly traded securities will be determined
jointly by the Company and the Required Holders. 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 (5) Business Days after the tenth (10th) day following
the Valuation Event by an independent, reputable appraiser jointly selected by
the Company and the Required Holders. The determination of such appraiser shall
be final and binding upon all parties absent manifest error and the fees and
expenses of such appraiser shall be borne by the party whose calculation is
farther from the determination or calculation of the appraiser.

 

- 9 -

 

 

(E)         Record Date. If the Company takes a record of the holders of Common
Stock for the purpose of entitling them (I) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(II) 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.

 

(ii) Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. If the Company at any time after the Subscription Date subdivides (by any
stock split, stock dividend, recapitalization or otherwise) 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 after the Subscription Date combines (by combination,
reverse stock split, including, without limitation, the Reverse Split, or
otherwise) 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(d) 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; provided that no
such adjustment will increase the Conversion Price as otherwise determined
pursuant to this Section 2(d).

 

- 10 -

 

  

(iv) Voluntary Adjustment By Company. Subject to compliance with any applicable
listing rules of the Principal Market, the Company may at any time reduce the
then current Conversion Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.

 

(e)          Notices.

 

(i) Immediately upon any adjustment of the Conversion Price pursuant to Section
2(d), the Company will give written notice thereof to each Holder, setting forth
in reasonable detail, and certifying, the calculation of such adjustment. In the
case of a dispute as to the determination of such adjustment, then such dispute
shall be resolved in accordance with the procedures set forth in Section
2(c)(iii).

 

(ii) The Company will give written notice to each Holder at least ten (10)
Business 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 Fundamental
Transaction or Liquidation Event, 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 each Holder at least ten (10)
Business Days prior to the date on which any Fundamental Transaction or
Liquidation Event 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.

 

- 11 -

 

 

(f)          Automatic Conversion. On and after the Initial Convertibility Date,
each share of Preferred Stock shall automatically be converted into shares of
Common Stock (an "Automatic Conversion"), based on the then-effective applicable
Conversion Price (A) five (5) Trading Days following the affirmative election of
the Required Holders, or (B) provided that there is no Equity Conditions
Failure, five (5) Trading Days following (I) the closing of an underwritten
public offering on a firm commitment basis with a nationally recognized
underwriter of Common Stock of the Company pursuant to an effective registration
statement under the Securities Act, with an anticipated aggregate offering price
to the public of not less than $20,000,000 (before deduction of underwriters
commissions, fees and expenses) at a price per share that equals or exceeds
$1.61 (as adjusted for any stock dividend, stock split, reverse stock split,
stock combination, reclassification or similar transaction after the
Subscription Date), as determined on the applicable date of determination, that
results in the listing of Common Stock of the Company on a national securities
exchange and (II) the redemption in full of those certain senior secured notes
issued by Inventergy, Inc., a Delaware corporation, on May 10, 2013. Upon the
occurrence of either of the events specified in this Section 2(f), all of the
outstanding shares of Preferred Stock shall be converted automatically without
any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or the
Transfer Agent; provided, however, that to the extent that an Automatic
Conversion would result in a Holder and its other Attribution Parties exceeding
the Maximum Percentage (as defined in Section 9(i)), if applicable, then such
Holder's Series B Preferred Stock shall not be automatically converted into
Common Stock (and such Holder's shares of Series B Preferred Stock shall remain
outstanding and benefit from all preferences and rights set forth in this
Certificate of Designations (except that the provisions set forth in Sections 4
and 12 shall immediately terminate and be of no further force and effect) to
such extent (and shall not be entitled to beneficial ownership of such shares of
Common Stock as a result of such Automatic Conversion (and beneficial ownership)
to such extent) and the shares of Common Stock issuable upon the automatic
conversion of Series B Preferred Stock to such extent shall be held in abeyance
for such Holder until such time or times as conversion of such Series B
Preferred Stock would not result in such Holder and its other Attribution
Parties exceeding the Maximum Percentage, at which time or times such Holder
shall be issued such shares of Common Stock (and any shares of Common Stock
granted or issued with respect to the shares of Common Stock issuable upon
conversion of Series B Preferred Stock to be held similarly in abeyance) to the
same extent as if there had been no such limitation; provided, further, that the
Company shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless the certificates evidencing
such shares of Preferred Stock are either delivered to the Company or the
Transfer Agent as provided below, or the Holder provides evidence that such
certificates have been lost, stolen or destroyed in accordance with Section 16.
Upon the occurrence of such Automatic Conversion of the Preferred Stock, the
holders of Preferred Stock shall surrender the certificates representing such
shares at the office of the Company or any Transfer Agent for the Preferred
Stock. Thereupon, there shall be issued and delivered to such holder promptly at
such office and in its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of Preferred Stock surrendered were convertible on
the date on which such Automatic Conversion occurred.

 

- 12 -

 

 

(3)         Redemption at Option of Holders.

 

(a)          Holder Optional Redemption. In addition to all other rights of the
Holders contained herein, in the event (i) the Company has not entered into
definitive documentation on terms and conditions reasonably acceptable to the
Required Holders providing for the consummation of the Reverse Merger on or
before the date that is two (2) months after the Issuance Date, (ii) the Company
amends the definitive documentation with respect to the Reverse Merger without
the consent of the Required Holders, which consent shall not be unreasonably
withheld, (iii) the Reverse Merger has not been consummated in accordance with
the definitive documentation with respect to the Reverse Merger by the date that
is six (6) months following the Issuance Date, (iv) the Reverse Split has not
occurred by the date that is five (5) months following the Issuance Date or (v)
the Company has not obtained the approval of its stockholders as required by the
applicable rules of the Principal Market for issuances of Common Stock in excess
of the Exchange Cap by the date that is five (5) months following the Issuance
Date, each Holder shall have the right, at such Holder's option (each, a "Holder
Optional Redemption Triggering Event"), to require the Company to redeem (a
"Holder Optional Redemption") all or a portion of such Holder's Preferred Shares
at a price per Preferred Share equal to 100% of the Conversion Amount (the
"Holder Optional Redemption Triggering Event Redemption Price").

 

(b)          Mechanics of Redemption at Option of Buyer. Within two (2) Business
Days after the occurrence of any Holder Optional Redemption Triggering Event,
the Company shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Holder Optional Redemption Triggering Event") to each
Holder. At any time after the earlier of a Holder's receipt of a Notice of
Holder Optional Redemption Triggering Event and such Holder becoming aware of a
Holder Optional Redemption Triggering Event, but in no event later than thirty
(30) days after such Holder's receipt of a Notice of Holder Optional Redemption
Triggering Event, any Holder of Preferred Shares then outstanding may require
the Company to redeem up to all of such Holder's Preferred Shares by delivering
written notice thereof via facsimile and overnight courier ("Notice of
Redemption at Option of Holder") to the Company, which Notice of Redemption at
Option of Holder shall indicate the number of Preferred Shares that such Holder
is electing to redeem.

 

(c)          Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Holder from any Holder, the Company shall
within one (1) Business Day of such receipt notify each other Holder by
facsimile of the Company's receipt of such notice(s). The Company shall deliver
on the fifth (5th) Business Day after the Company's receipt of the first Notice
of Redemption at Option of Holder (the "Holder Optional Redemption Triggering
Event Redemption Date") by wire transfer of immediately available funds, an
amount in cash equal to the applicable Holder Optional Redemption Triggering
Event Redemption Price to all Holders that deliver a Notice of Redemption at
Option of Holder prior to the fifth (5th) Business Day after the Company's
receipt of the first Notice of Redemption at Option of Holder, to the extent not
paid by means of the Holder drawing on its Letter of Credit (as defined in the
Securities Purchase Agreement). To the extent redemptions required by this
Section 3 are deemed or determined by a court of competent jurisdiction to be
prepayments of the Preferred Shares by the Company, such redemptions shall be
deemed to be voluntary prepayments. If the Company is unable to redeem all of
the Preferred Shares submitted for redemption, the Company shall redeem a pro
rata amount from each Holder based on the number of Preferred Shares submitted
for redemption by such Holder relative to the total number of Preferred Shares
submitted for redemption by all Holders. The Holders and Company agree that in
the event of the Company's redemption of any Preferred Shares under this Section
3, the Holders' damages would be uncertain and difficult to estimate because of
the parties' inability to predict future interest rates and the uncertainty of
the availability of a suitable substitute investment opportunity for the
Holders. Accordingly, any redemption premium due under this Section 3 is
intended by the parties to be, and shall be deemed, a reasonable estimate of the
Holders' actual loss of its investment opportunity and not as a penalty.

 

- 13 -

 

 

(4)         Change of Control. No sooner than thirty (30) days nor later than
five (5) days prior to the consummation of a Change of Control or a Non-Public
Fundamental Transaction, but not prior to the public announcement of such Change
of Control or Non-Public Fundamental Transaction, as applicable, the Company
shall deliver written notice thereof via facsimile and overnight courier to the
Holders (a "Change of Control Notice") setting forth a description of such
transaction in reasonable detail and the anticipated Change of Control
Redemption Date if then known. At any time during the period (the "Change of
Control Period") beginning after a Holder's receipt of a Change of Control
Notice and ending on the date that is twenty (20) Trading Days after the
consummation of such Change of Control or Non-Public Fundamental Transaction, as
applicable, such Holder may require the Company to redeem (a "Change of Control
Redemption") all or any portion of such Holder's Preferred Shares by delivering
written notice thereof ("Change of Control Redemption Notice") to the Company,
which Change of Control Redemption Notice shall indicate the Conversion Amount
the Holder is electing to redeem. Any Preferred Shares subject to redemption
pursuant to this Section 4 shall be redeemed by the Company in cash at a price
equal to the greater of (i) 125% of the Conversion Amount being redeemed and
(ii) the product of (A) the Conversion Amount being redeemed and (B) the
quotient determined by dividing (1) the greatest Closing Sale Price of the
Common Stock during the period commencing as of the Trading Day immediately
prior to the public announcement of such proposed Change of Control or
Non-Public Fundamental Transaction, as applicable, and ending as of the Trading
Day immediately prior to the consummation of such Change of Control or
Non-Public Fundamental Transaction, as applicable , by (2) the Conversion Price
(the "Change of Control Redemption Price"). The Company shall make payment of
the Change of Control Redemption Price concurrently with the consummation of
such Change of Control or Non-Public Fundamental Transaction, as applicable, if
such a Change of Control Redemption Notice is received prior to the consummation
of such Change of Control or Non-Public Fundamental Transaction, as applicable,
and within five (5) Trading Days after the Company's receipt of such notice
otherwise (the "Change of Control Redemption Date"), to the extent not paid by
means of the Holder drawing on its Letter of Credit. To the extent redemptions
required by this Section 4 are deemed or determined by a court of competent
jurisdiction to be prepayments of the Preferred Shares by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 4, until the Change of Control
Redemption Price (together with any interest thereon) is paid in full, the
Conversion Amount submitted for redemption under this Section 4 may be
converted, in whole or in part, by the Holder into shares of Common Stock, or in
the event the Conversion Date is after the consummation of the Change of
Control, shares or equity interests of the Successor Entity substantially
equivalent to the Company's Common Stock pursuant to Section 2(c). The parties
hereto agree that in the event of the Company's redemption of any portion of the
Preferred Shares under this Section 4, the Holder's damages would be uncertain
and difficult to estimate because of the parties' inability to predict future
interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder. Accordingly, any redemption premium due
under this Section 4 is intended by the parties to be, and shall be deemed, a
reasonable estimate of the Holder's actual loss of its investment opportunity
and not as a penalty. In the event that the Company does not pay the Change of
Control Redemption Price on the Change of Control Redemption Date, then the
Holder shall have the right to void the redemption pursuant to Section 5(a).

 

- 14 -

 

 

(5)         Redemptions.

 

(a)          Void Redemption. In the event that the Company does not pay a
Redemption Price within the applicable time period and the applicable Letter of
Credit is not drawn, at any time thereafter and until the Company pays such
unpaid applicable Redemption Price in full (whether by payment by the Company or
such Holder being paid by means of such Holder drawing on its Letter of Credit,
or a combination thereof) a Holder shall have the option to, in lieu of
redemption, require the Company to promptly return to such Holder any or all of
the Preferred Shares that were submitted for redemption by such Holder and for
which the applicable Redemption Price 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 Redemption Notice of Holder shall be null and void with respect to those
Preferred Shares subject to the Void Optional Redemption Notice and (ii) the
Company shall immediately return any Preferred Shares subject to the Void
Optional Redemption Notice.

 

(b)          Disputes; Miscellaneous. In the event of a dispute as to the
determination of the arithmetic calculation of any Redemption Price, such
dispute shall be resolved pursuant to Section 2(c)(iii) above with the term
"Redemption Price" being substituted for the term "Conversion Rate". A Holder's
delivery of a Void Optional Redemption Notice and exercise of its rights
following such notice shall not affect 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 Certificate of Designations of less than all of the
Preferred Shares represented by a particular Preferred Stock Certificate, the
Company shall promptly cause to be issued and delivered to the Holder of such
Preferred Shares a Preferred Stock Certificate representing the remaining
Preferred Shares which have not been redeemed, if necessary.

 

(6)         Company Optional Redemption. In the event of any Holder Optional
Redemption Triggering Event and after thirty (30) days have elapsed since such
Holder Optional Redemption Triggering Event (the "Company Optional Redemption
Date"), the Company may redeem all, but not less than all, of the outstanding
Preferred Shares (a "Company Optional Redemption") at any time upon not less
than ten (10) days prior written notice to each Holder (the "Company Optional
Redemption Deadline"). Such Preferred Shares shall be redeemed by providing
written notice via facsimile and overnight courier to the Holders (the "Notice
of Company Redemption") on or prior to the Company Optional Redemption Deadline
and shall be redeemed at a redemption price equal to the Stated Value of the
Preferred Shares. The Company shall deliver to Holders owning outstanding
Preferred Shares to be redeemed by the Company by wire transfer of immediately
available funds an amount in cash equal to the Stated Value of the Preferred
Shares being redeemed no later than five (5) days after providing the Notice of
Company Redemption. If the Company elects to cause a Company Optional Redemption
pursuant to Section 6(a), then it must simultaneously take the same action in
the same proportion with respect to all the outstanding Preferred Shares.

 

- 15 -

 

 

(7)         Other Rights of Holders.

 

(a)          Assumption. The Company shall not enter into or be party to a
Fundamental Transaction (other than the Reverse Merger) unless the Successor
Entity assumes in writing all of the obligations of the Company under this
Certificate of Designations and the other Transaction Documents (as defined in
the Securities Purchase Agreement) in accordance with the provisions of this
Section 7 pursuant to written agreements in form and substance reasonably
satisfactory to the Required Holders and approved by the Required Holders prior
to such Fundamental Transaction, including agreements to deliver to each Holder
of Preferred Shares in exchange for such Preferred Shares a security of the
Successor Entity evidenced by a written instrument substantially similar in form
and substance to this Certificate of Designations including, without limitation,
having a stated value equal to the Stated Value of the Preferred Shares held by
such Holder and having similar ranking to the Preferred Shares, and reasonably
satisfactory to the Required Holders. Upon the occurrence of any Fundamental
Transaction, the Successor Entity shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Certificate of Designations referring to the "Company" shall refer instead
to the Successor Entity), and may exercise every right and power of the Company
and shall assume all of the obligations of the Company under this Certificate of
Designations with the same effect as if such Successor Entity had been named as
the Company herein. Upon consummation of the Fundamental Transaction with a
Successor Entity whose stock is publicly traded, such Successor Entity shall
deliver to the Holder confirmation that there shall be issued upon conversion of
the Preferred Shares at any time after the consummation of the Fundamental
Transaction, in lieu of the shares of Common Stock (or other securities, cash,
assets or other property) issuable upon the conversion of the Preferred Shares
prior to such Fundamental Transaction (without regard to any limitations on the
conversion of the Preferred Shares, including without limitation, the Maximum
Percentage), such shares of publicly traded common stock (or their equivalent)
of the Successor Entity, as adjusted in accordance with the provisions of this
Certificate of Designations, which the Holder would have been entitled to
receive had such Holder converted the Preferred Shares in full (without regard
to any limitations on conversion, including without limitation, the Maximum
Percentage) immediately prior to such Fundamental Transaction (provided,
however, to the extent that a Holder's right to receive any such shares of
publicly traded common stock (or their equivalent) of the Successor Entity would
result in such Holder and its other Attribution Parties exceeding the Maximum
Percentage, if applicable, then such Holder shall not be entitled to receive
such shares to such extent (and shall not be entitled to beneficial ownership of
such shares of publicly traded common stock (or their equivalent) of the
Successor Entity as a result of such consideration to such extent) and the
portion of such shares shall be held in abeyance for such Holder until such time
or times, as its right thereto would not result in such Holder and its other
Attribution Parties exceeding the Maximum Percentage, at which time or times
such Holder shall be delivered such shares to the extent as if there had been no
such limitation). Provision made pursuant to the preceding sentence shall be in
a form and substance reasonably satisfactory to the Required Holders. In
addition to and not in substitution for any other rights hereunder, prior to the
occurrence or consummation of any Fundamental Transaction pursuant to which
holders of shares of Common Stock are entitled to receive securities, cash,
assets or other property with respect to or in exchange for shares of Common
Stock (a "Corporate Event"), the Company shall make appropriate provision to
ensure that, and any applicable Successor Entity or Successor Entities shall
ensure that, and it shall be a required condition to the occurrence or
consummation of such Corporate Event that, if so elected by a Holder on or prior
to the occurrence or consummation of such Corporate Event, such Holder will have
the right to receive upon surrender of such Holder's Preferred Shares upon the
occurrence or consummation of the Corporate Event, in lieu of the shares of
Common Stock (or other securities, cash, assets or other property) such Holder
is entitled to receive upon the conversion of such Holder's Preferred Shares
prior to such Corporate Event (but not in lieu of such items still issuable
under Sections 7(b) and 14, which shall continue to be receivable on the Common
Stock or on such shares of stock, securities, cash, assets or any other property
otherwise receivable with respect to or in exchange for shares of Common Stock),
such shares of stock, securities, cash, assets or any other property whatsoever
(including warrants or other purchase or subscription rights and any shares of
Common Stock) which the Holder would have been entitled to receive upon the
occurrence or consummation of such Corporate Event or the record, eligibility or
other determination date for the event resulting in such Corporate Event, had
such Holder's Preferred Shares been converted immediately prior to such
Corporate Event or the record, eligibility or other determination date for the
event resulting in such Corporate Event (without regard to any limitations on
conversion, including without limitation, the Maximum Percentage) (provided,
however, to the extent that a Holder's right to receive any such shares of
publicly traded common stock (or their equivalent) of the Successor Entity would
result in such Holder and its other Attribution Parties exceeding the Maximum
Percentage, if applicable, then such Holder shall not be entitled to receive
such shares to such extent (and shall not be entitled to beneficial ownership of
such shares of publicly traded common stock (or their equivalent) of the
Successor Entity as a result of such consideration to such extent) and the
portion of such shares shall be held in abeyance for such Holder until such time
or times, as its right thereto would not result in such Holder and its other
Attribution Parties exceeding the Maximum Percentage, at which time or times
such Holder shall be delivered such shares to the extent as if there had been no
such limitation). Provision made pursuant to the preceding sentence shall be in
a form and substance reasonably satisfactory to the Required Holders. The
provisions of this Section shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
on the conversion of Preferred Shares.

 

- 16 -

 

 

(b)          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 Holders will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Holder could have acquired if such Holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
Preferred Shares (without taking into account any limitations or restrictions on
the convertibility of the Preferred Shares) 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
(provided, however, that to the extent that a Holder's right to participate in
any such Purchase Right would result in such Holder and its other Attribution
Parties exceeding the Maximum Percentage, if applicable, then such Holder shall
not be entitled to participate in such Purchase Right to such extent (and shall
not be entitled to beneficial ownership of such shares of Common Stock as a
result of such Purchase Right (and beneficial ownership) to such extent) and
such Purchase Right to such extent shall be held in abeyance for such Holder
until such time or times as its right thereto would not result in such Holder
and its other Attribution Parties exceeding the Maximum Percentage, at which
time or times such Holder shall be granted such right (and any Purchase Right
granted, issued or sold on such initial Purchase Right or on any subsequent
Purchase Right to be held similarly in abeyance) to the same extent as if there
had been no such limitation).

 

(8)         Reservation of Shares.

 

(a)          The Company shall have sufficient authorized and unissued shares of
Common Stock for each of the Preferred Shares equal to 130% of the number of
shares of Common Stock necessary to effect the conversion at the Conversion Rate
(without regard to any limitations or restrictions herein on any such
conversion) with respect to the Conversion Amount of each such Preferred Share
as of the Issuance Date. The Company shall, so long as any of the Preferred
Shares are outstanding, take all action necessary to reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversions of the Preferred Shares, such number of shares of
Common Stock as shall from time to time be necessary to effect the conversion of
all of the Preferred Shares then outstanding; provided that at no time shall the
number of shares of Common Stock so reserved be less than 130% of the number of
shares of Common Stock for which the Preferred Shares are at any time
convertible (without regard to any limitations or restrictions on conversions)
(the "Required Reserve Amount"). The initial number of shares of Common Stock
reserved for conversions of the Preferred Shares and each increase in the number
of shares so reserved shall be allocated pro rata among the Holders based on the
number of Preferred Shares held by each Holder at the time of issuance of the
Preferred Shares or increase in the number of reserved shares, as the case may
be (the "Authorized Share Allocation"). In the event a Holder shall sell or
otherwise transfer any of such Holder's Preferred Shares, 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 Preferred Shares (other than pursuant to
a transfer of Preferred Shares in accordance with the immediately preceding
sentence) shall be allocated to the remaining Holders of Preferred Shares, pro
rata based on the number of Preferred Shares then held by such Holders.

 

- 17 -

 

 

(b)          Insufficient Authorized Shares. If at any time while any of the
Preferred Shares remain outstanding the Company does not have a sufficient
number of authorized and unreserved shares of Common Stock to satisfy its
obligation to reserve for issuance upon conversion of the Preferred Shares at
least a number of shares of Common Stock equal to the Required Reserve Amount
(an "Authorized Share Failure"), then the Company shall immediately take all
action necessary to increase the Company's authorized shares of Common Stock to
an amount sufficient to allow the Company to reserve the Required Reserve Amount
for the Preferred Shares then outstanding. Without limiting the generality of
the foregoing sentence, as soon as practicable after the date of the occurrence
of an Authorized Share Failure, but in no event later than seventy-five (75)
days after the occurrence of such Authorized Share Failure, the Company shall
hold a meeting of its stockholders for the approval of an increase in the number
of authorized shares of Common Stock. In connection with such meeting, the
Company shall provide each stockholder with a proxy statement and shall use its
reasonable best efforts to solicit its stockholders' approval of such increase
in authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal. Notwithstanding
the foregoing, if at such time of an Authorized Share Failure, the Company is
able, consistent with its Certificate of Incorporation and Bylaws as then in
effect, to obtain the written consent of a majority of the shares of its issued
and outstanding Common Stock to approve the increase in the number of authorized
shares of Common Stock, the Company may satisfy this obligation by obtaining
such consent and submitting for filing with the SEC an Information Statement on
Schedule 14C.

 

- 18 -

 

 

(9)         Limitations on Conversion.

 

(i) Beneficial Ownership Limitation on Conversions. The Company shall not effect
the conversion of any portion of the Preferred Shares, and no Holder shall have
the right to convert any portion of the Preferred Shares, to the extent that
after giving effect to such conversion, the beneficial owner of such shares
(together with such Person's Affiliates) would have acquired, through conversion
of Preferred Shares or otherwise, beneficial ownership of a number of shares of
Common Stock that exceeds 4.99% (the "Maximum Percentage") of the shares of
Common Stock outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentences, the aggregate number of shares of Common
Stock beneficially owned by a Holder and the other Attribution Parties shall
include the number of shares of Common Stock held by such Holder and all of its
other Attribution Parties plus the number of shares of Common Stock issuable
upon conversion of the Preferred Shares with respect to which the determination
of such sentences is being made, but shall exclude shares of Common Stock which
would be issuable upon (A) conversion of the remaining, nonconverted Preferred
Shares beneficially owned by such Holder or any of the other Attribution Parties
and (B) exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company (including, without limitation, any convertible
notes or convertible preferred stock or warrants, including the Preferred
Shares) beneficially owned by such Holder or any of its other Attribution
Parties subject to a limitation on conversion or exercise analogous to the
limitation contained in this Section. For purposes of this Section 9(i),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act. For purposes of determining the number of outstanding shares of
Common Stock, a Holder may acquire upon the conversion of the Preferred Shares
without exceeding the Maximum Percentage, such Holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on
Form 8-K or other public filing with the SEC, as the case may be, (2) a more
recent public announcement by the Company, or (3) any other written notice by
the Company or the 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 Holder, the Company shall within one (1) Business Day confirm orally and
in writing or by electronic mail to such Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including the Preferred Shares, by such Holder and
any of its other Attribution Parties since the date as of which such number of
outstanding shares of Common Stock was reported. Upon delivery of a written
notice to the Company, any Holder may from time to time increase or decrease the
Maximum Percentage to any other percentage not in excess of 9.99% as specified
in such notice; provided that (i) any such increase in the Maximum Percentage
will not be effective until the sixty-first (61st) day after such notice is
delivered to the Company, and (ii) any such increase or decrease will apply only
to such Holder and its other Attribution Parties and not to any other holder of
Preferred Shares that is not an Attribution Party. For purposes of clarity, the
shares of Common Stock underlying the Preferred Shares in excess of the Maximum
Percentage shall not be deemed to be beneficially owned by the Holder for any
purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the
Exchange Act. Holder providing such written notice and not to any other Holder.
The provisions of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section 9(i) to the
extent necessary to correct this paragraph or any portion of this paragraph
which may be defective or inconsistent with the intended beneficial ownership
limitation contained in this Section 9(i) or to make changes or supplements
necessary or desirable to properly give effect to such limitation.

 

- 19 -

 

 

(ii) Principal Market Regulation. The Company shall not be obligated to issue
any shares of Common Stock upon conversion of Preferred Shares, and the Holders
of Preferred Shares shall not have the right to receive upon conversion of
Preferred Shares (x) any shares of Common Stock or (y) any compensatory payments
solely in respect of the Company's failure to obtain Stockholder Approval (as
defined in the Securities Purchase Agreement), if the issuance of such shares of
Common Stock would exceed the aggregate number of shares of Common Stock which
the Company may issue upon conversion of Preferred Shares or otherwise without
breaching the Company's obligations under the rules or regulations of the
Principal Market, whether or not the Common Stock is listed on the Principal
Market (the "Exchange Cap"), except that such limitation shall not apply in the
event that the Company obtains the approval of its stockholders as required by
the applicable rules of the Principal Market for issuances of Common Stock in
excess of such amount. Until such approval is obtained, no Holder of Preferred
Shares shall be issued in the aggregate, upon conversion or payment, as
applicable, of Preferred Shares, shares of Common Stock in an amount greater
than the product of the Exchange Cap multiplied by a fraction, the numerator of
which is the number of Preferred Shares issued to such Holder pursuant to the
Securities Purchase Agreement on the Closing Date (as defined in the Securities
Purchase Agreement) and the denominator of which is the aggregate number of all
Preferred Shares issued to the Holders pursuant to the Securities Purchase
Agreement on the Closing Date (with respect to each such Holder, the "Exchange
Cap Allocation"). In the event that any Holder shall sell or otherwise transfer
any of such Holder's Preferred Shares, the transferee shall be allocated a pro
rata portion of such Holder's Exchange Cap Allocation, and the restrictions of
the prior sentence shall apply to such transferee with respect to the portion of
the Exchange Cap Allocation allocated to such transferee. In the event that any
Holder shall convert all of such Holder's Preferred Shares into a number of
shares of Common Stock which, in the aggregate, is less than such holder's
Exchange Cap Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the
remaining Holders of Preferred Shares on a pro rata basis in proportion to the
shares of Common Stock underlying the Preferred Shares then held by each such
Holder.

 

- 20 -

 

 

(10)        Voting Rights. Each Holder shall be entitled to the whole number of
votes equal to the number of shares of Common Stock into which such Holder's
Preferred Shares would be convertible on the record date for the vote or consent
of stockholders, but in lieu of using the Conversion Price in effect as of the
record date, such votes shall calculated based on the higher of (i) the initial
Conversion Price of $1.07 per share and (ii) the Closing Bid Price on the
Closing Date (the "Number of Preferred Share Votes"); provided that if the
Company at any time after the Subscription Date subdivides (by any stock split,
stock dividend, recapitalization or otherwise) its outstanding shares of Common
Stock into a greater number of shares, the Number of Preferred Share Votes in
effect immediately prior to such subdivision will be proportionately increased
and if the Company at any time after the Subscription Date combines (by
combination, reverse stock split, including, without limitation, the Reverse
Split, or otherwise) its outstanding shares of Common Stock into a smaller
number of shares, the Number of Preferred Share Votes in effect immediately
prior to such combination will be proportionately decreased. Each Holder shall
otherwise have voting rights and powers equal to the voting rights and powers of
the Common Stock, subject to Section 9(ii) hereof and except that such Holder
shall have no right to vote the Preferred Shares to approve the issuance of
shares of Common Stock in excess of the Exchange Cap. Each Holder shall be
entitled to receive the same prior notice of any stockholders' meeting as is
provided to the holders of Common Stock in accordance with the bylaws of the
Company, as well as prior notice of all stockholder actions to be taken by
legally available means in lieu of a meeting, and shall vote as a class with the
holders of Common Stock as if they were a single class of securities upon any
matter submitted to a vote of stockholders, except those matters required by law
or by the terms hereof to be submitted to a class vote of the Holders of
Preferred Shares, in which case the Holders of Preferred Shares only shall vote
as a separate class.

 

(11)        Liquidation. In the event of a Liquidation Event, the Holders shall
be entitled to receive in cash out of the assets of the Company, whether from
capital or from earnings available for distribution to its stockholders (the
"Liquidation Funds"), before any amount shall be paid to the holders of any of
the Capital Stock of the Company of any class junior in rank to the Preferred
Shares in respect of the preferences as to distributions and payments on the
liquidation, dissolution and winding up of the Company, an amount per Preferred
Share equal to the Conversion Amount; provided that, if the Liquidation Funds
are insufficient to pay the full amount due to the Holders and holders of shares
of other classes or series of preferred stock of the Company that are of equal
rank with the Preferred Shares as to payments of Liquidation Funds (such stock
being referred to hereinafter collectively as the "Pari Passu Stock"), if any,
then each Holder and each holder of any such Pari Passu Shares shall receive a
percentage of the Liquidation Funds equal to the full amount of Liquidation
Funds payable to such Holder as a liquidation preference, in accordance with
their respective Certificate of Designations, Preferences and Rights, as a
percentage of the full amount of Liquidation Funds payable to all holders of
Preferred Shares and Pari Passu Shares. After the foregoing distributions, the
Holders shall be entitled, on a pari passu basis with the holders of Common
Stock and treating for the purpose thereof all of the Preferred Shares as having
been converted into Common Stock pursuant to Section 2, to participate in the
distribution of any remaining assets of the Company to the holders of the
outstanding Common Stock. To the extent necessary, the Company shall cause such
actions to be taken by any of its Subsidiaries so as to enable, to the maximum
extent permitted by law, the proceeds of a Liquidation Event to be distributed
to the Holders in accordance with this Section. All the preferential amounts to
be paid to the Holders under this Section shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any Liquidation Funds of the Company to the holders of, shares
of other classes or series of preferred stock of the Company junior in rank to
the Preferred Shares in connection with a Liquidation Event as to which this
Section applies. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a Liquidation Event.

 

- 21 -

 

 

(12)Covenants.

 

(a)  Prior to the consummation or termination of the Reverse Merger and except
as permitted under the terms of the definitive documentation providing for the
consummation of the Reverse Merger, the Company shall not, and shall not permit
any of the Subsidiaries to, directly or indirectly incur or guarantee, assume or
suffer to exist any Indebtedness, other than trade payables incurred in the
ordinary course of business consistent with past practice.

 

(b)  Prior to the consummation or termination of the Reverse Merger and except
as permitted under the terms of the definitive documentation providing for the
consummation of the Reverse Merger, the Company shall not enter into, or be a
party to, a Fundamental Transaction.

 

(c)  Prior to the consummation or termination of the Reverse Merger and except
as permitted under the terms of the definitive documentation providing for the
consummation of the Reverse Merger, the Company shall not (i) grant, issue or
sell any Purchase Rights, (ii) declare or make any Distribution (other than the
Initial Dividend) or (iii) repay any outstanding Indebtedness of the Company or
any of its Subsidiaries (other than the repayment of the Outstanding Notes), and
in cases of clause (ii) and (iii) only in compliance with Section 12(e).

 

(d)  Prior to the consummation of the Reverse Merger and except pursuant to
definitive documentation on terms and conditions acceptable to the Required
Holders providing for the consummation of the Reverse Merger, the Company will
not, directly or indirectly, offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition of) any of its or its Subsidiaries' equity or
equity equivalent securities, including without limitation any debt, preferred
stock or other instrument or security that is, at any time during its life and
under any circumstances, convertible into or exchangeable or exercisable for
Common Stock or Common Stock Equivalents or (ii) be party to any solicitations,
negotiations or discussions with regard to the foregoing.

 

(e)  The aggregate amount of the Initial Dividend and any payments to the
holders of the Outstanding Notes being paid with proceeds received from the
Holders in respect of the Company's issuance and sale of the Preferred Shares,
shall not exceed $2,000,000.

 

(f)  The Company shall distribute the Initial Dividend and make the payment to
the holders of the Outstanding Notes, subject to the limitation set forth in
Section 12(e) above, contemporaneously with the consummation of the Reverse
Merger.

 

- 22 -

 

 

(13)        Ranking. All shares of Common Stock shall be of junior rank to all
Preferred Shares with respect to the preferences as to dividends, distributions
and payments upon the liquidation, dissolution and winding up of the Company.
The rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. Without the prior express written
consent of the Required Holders, the Company shall not hereafter authorize or
issue additional or other Capital Stock that is of senior or pari-passu rank to
the Preferred Shares in respect of the preferences as to distributions and
payments upon a Liquidation Event. The Company shall be permitted to issue
preferred stock that is junior in rank to the Preferred Shares in respect of the
preferences as to dividends and other distributions, amortization and redemption
payments and payments upon the liquidation, dissolution and winding up of the
Company. In the event of the merger or consolidation of the Company with or into
another corporation, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.

 

(14)        Participation. Except for the Initial Dividend as to which the
Holders shall have no right, the Holders shall, as holders of Preferred Stock,
be entitled to such dividends paid and distributions made to the holders of
Common Stock to the same extent as if such Holders had converted the Preferred
Shares into Common Stock (without regard to any limitations on conversion,
including, without limitation, the Maximum Percentage (as defined in Section
9(i), if applicable) 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. Following the occurrence of a Liquidation Event and the payment in
full to a Holder of its applicable liquidation preference, other than as set
forth in Section 11, such Holder shall cease to have any rights hereunder to
participate in any future dividends or distributions made to the holders of
Common Stock. Subject to any voting or consent rights contained herein, except
for the Initial Dividend, the Company shall not declare or pay any dividends on
any other shares of Capital Stock whether such Capital Stock is Pari Passu Stock
or junior (such stock being referred to hereinafter collectively as "Junior
Stock") unless the holders of Preferred Shares then outstanding shall
simultaneously receive a dividend on a pro rata basis as if the Preferred Shares
had been converted into shares of Common Stock pursuant to Section 2 immediately
prior to the record date for determining the stockholders eligible to receive
such dividends. Notwithstanding the foregoing, to the extent that a Holder's
right to participate in any such dividend or distribution pursuant to this
Section 14 would result in such Holder and its other Attribution Parties
exceeding the Maximum Percentage, if applicable, then such Holder shall not be
entitled to participate in such dividend or distribution to such extent (and
shall not be entitled to beneficial ownership of such shares of Common Stock as
a result of such dividend or distribution (and beneficial ownership) to such
extent) and the portion of such dividend or distribution shall be held in
abeyance for such Holder until such time or times as its right thereto would not
result in such Holder and its other Attribution Parties exceeding the Maximum
Percentage, at which time or times such Holder shall be granted such rights (and
any rights under this Section 14 on such initial rights or on any subsequent
such rights to be held similarly in abeyance) to the same extent as if there had
been no such limitation.

 

- 23 -

 

 

(15)        Vote to Change the Terms of or Issue Preferred Shares. In addition
to any other rights provided by law, except where the vote or written consent of
the holders of a greater number of shares is required by law or by another
provision of the Certificate of Incorporation, the affirmative vote at a meeting
duly called for such purpose or the written consent without a meeting of the
Required Holders, voting together as a single class, shall be required before
the Company may: (a) amend or repeal any provision of, or add any provision to,
the Certificate of Incorporation or bylaws, or file any articles of amendment,
certificate of designations, preferences, limitations and relative rights of any
series of preferred stock, if such action would adversely alter or change the
preferences, rights, privileges or powers of, or restrictions provided for the
benefit of the Preferred Shares, regardless of whether any such action shall be
by means of amendment to the Certificate of Incorporation or by merger,
consolidation or otherwise other than with respect to the Reverse Merger and the
Reverse Split; (b) increase or decrease (other than by conversion) the
authorized number of shares of Preferred Shares; (c) create or authorize (by
reclassification or otherwise) any new class or series of shares that has a
preference over or is on a parity with the Preferred Shares with respect to
dividends or the distribution of assets on the liquidation, dissolution or
winding up of the Company; (d) purchase, repurchase or redeem any shares of
Common Stock (other than pursuant to equity incentive agreements with employees
giving the Company the right to repurchase shares upon the termination of
services at cost); (e) pay dividends or make any other distribution on the
Common Stock or other Junior Stock other than the Initial Dividend; (f) amend or
waive any provision of the Certificate of Designation with respect to the
Preferred Shares; provided that any such amendment or waiver that complies with
the foregoing but that disproportionately, materially and adversely affects the
rights and obligations of any Holder relative to the comparable rights and
obligations of the other Holders shall require the prior written consent of such
adversely affected Holder or (g) whether or not prohibited by the terms of the
Preferred Shares, circumvent a right of the Preferred Shares. Any Preferred
Shares which are converted, repurchased or redeemed shall be automatically and
immediately cancelled and shall not be reissued, sold or transferred.

 

(16)        Lost or Stolen Certificates. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the Holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the Holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.

 

(17)        Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, 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.
Nothing herein shall limit a Holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each 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 Holders 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 Holders 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 -

 

 

(18)        Construction. This Certificate of Designations shall be deemed to be
jointly drafted by the Company and all Buyers (as defined in the Securities
Purchase Agreement) and shall not be construed against any person as the drafter
hereof.

 

(19)        Failure or Indulgence Not Waiver. No failure or delay on the part of
a Holder 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.

 

(20)        Notice. Whenever notice or other communication is required to be
given under this Certificate of Designations, unless otherwise provided herein,
such notice shall be given in accordance with Section 9(f) of the Securities
Purchase Agreement (provided that if the Preferred Shares are not held by a
Buyer then substituting the words "holder of securities" for the word "Buyer).

 

(21)        Transfer of Preferred Shares. A Holder may assign some or all of the
Preferred Shares and the accompanying rights hereunder held by such Holder
without the consent of the Company; provided that such assignment is in
compliance with applicable securities laws.

 

(22)        Preferred Share Register. 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 Holders), a register for the Preferred Shares, in
which the Company shall record the name and address of the persons in whose name
the Preferred Shares have been issued, as well as the name and address of each
transferee. The Company may treat the person in whose name any Preferred Share
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
properly made transfers.

 

(23)        Stockholder Matters. Subject to any contrary provision in the
Company's Certificate of Incorporation, as amended or Bylaws, as amended, any
stockholder action, approval or consent required, desired or otherwise sought by
the Company pursuant to the rules and regulations of the Principal Market, the
DGCL, this Certificate of Designations or otherwise with respect to the issuance
of the Preferred Shares or the Common Stock issuable upon conversion thereof may
be effected by written consent of the Company's stockholders or at a duly called
meeting of the Company's stockholders, all in accordance with the applicable
rules and regulations of the Principal Market and the DGCL. This provision is
intended to comply with the applicable sections of the DGCL permitting
stockholder action, approval and consent affected by written consent in lieu of
a meeting.

 

- 25 -

 

 

(24)        Disclosure. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Certificate of Designations, unless the
Company has in good faith determined that the matters relating to such notice do
not constitute material, nonpublic information relating to the Company or any of
its Subsidiaries, the Company shall within one (1) Business Day after any such
receipt or delivery publicly disclose such material, nonpublic information on a
Current Report on Form 8-K or otherwise. In the event that the Company believes
that a notice contains material, nonpublic information relating to the Company
or its Subsidiaries, the Company shall so indicate to the Holders
contemporaneously with delivery of such notice, and in the absence of any such
indication, the Holders shall be allowed to presume that all matters relating to
such notice do not constitute material, nonpublic information relating to the
Company or its Subsidiaries.

 

(25)        Certain Definitions. For purposes of this Certificate of
Designations, the following terms shall have the following meanings:

 

(a)           "Affiliate" means, with respect to any Person, any other Person
that directly or indirectly controls, is controlled by, or is under common
control with, such Person, it being understood for purposes of this definition
that "control" of a Person means the power directly or indirectly either to vote
10% or more of the stock having ordinary voting power for the election of
directors of such Person or direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.

 

(b)          "Approved Stock Plan" means 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 or
consultant for services provided to the Company; provided, that the aggregate
number of shares of Common Stock (together with securities convertible,
exercisable or exchangeable into Common Stock) issued pursuant to an Approved
Stock Plan does not exceed ten percent (10%) of the number of shares of Common
Stock issued and outstanding as of the Subscription Date; provided, further,
that and securities issued pursuant to an Approved Stock Plan shall be issued a
price (or with a conversion price, exchange price or exercise price) equal to or
greater than the then prevailing market price of the Common Stock.

 

(c)           "Attribution Parties" means, collectively, the following Persons
and entities: (i) any investment vehicle, including, any funds, feeder funds or
managed accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder's investment manager or
any of its Affiliates or principals, (ii) any direct or indirect Affiliates of
the Holder or any of the foregoing, (iii) any Person acting or who could be
deemed to be acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the Company's Common
Stock would or could be aggregated with the Holder's and the other Attribution
Parties for purposes of Section 13(d) of the Exchange Act. For clarity, the
purpose of the foregoing is to subject collectively the Holder and all other
Attribution Parties to the Maximum Percentage.

 

- 26 -

 

 

(d)           "Bloomberg" means Bloomberg Financial Markets.

 

(e)           "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.

 

(f)           "Capital Stock" means: (A) in the case of a corporation, corporate
stock; (B) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock; (C) in the case of a partnership or limited liability company,
partnership interests (whether general or limited) or membership or limited
liability company interests; and (D) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.

 

(g)          "Certificate of Designations" means this Certificate of
Designations, Preferences and Rights of Series B Convertible Preferred Stock of
the Company.

 

(h)          "Change of Control" means any Fundamental Transaction other than
(A) any reorganization, recapitalization or reclassification of the Common Stock
in which holders of the Company's voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, 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, (B) pursuant to a migratory merger effected solely for the purpose of
changing the jurisdiction of incorporation of the Company, or (C) the Reverse
Merger.

 

(i)            "Closing Bid Price" and "Closing Sale Price" mean, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security (by trading volume for the prior 365 consecutive
calendar days), the last closing bid price or last trade price, respectively, 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 or last trade price, respectively, 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 or last
trade price, respectively, is reported for such security by Bloomberg, the
average of the bid prices, or the ask prices, respectively, of any market makers
for such security as reported in the OTC Link or "pink sheets" by OTC Markets
Group Inc. (formerly Pink OTC Markets Inc.). If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as
the case may be, of such security on such date shall be the fair market value as
mutually determined by the Company and the Required Holders. If the Company and
the Required Holders are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 2(c)(iii). All
such determinations to be appropriately adjusted for any stock dividend, stock
split, stock combination, reclassification or similar transaction during the
applicable calculation period.

 

- 27 -

 

 

(j)            "Common Stock Equivalents" means, collectively, Options and
Convertible Securities.

 

(k)           "Contingent Obligation" means, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.

 

(l)            "Conversion Amount" means the Stated Value.

 

(m)          "Conversion Price" means $1.07, subject to adjustment as provided
herein.

 

(n)          "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exchangeable or exercisable
for Common Stock.

 

(o)          "Eligible Market" means the Principal Market, The New York Stock
Exchange, Inc., the NYSE MKT LLC, The NASDAQ Global Select Market or The NASDAQ
Global Market.

 

(p)          "Equity Conditions" means each of the following conditions: (i)
either (a) a registration statement shall be effective and available for the
resale of all Registrable Securities pursuant to Rule 415 and there shall not
have been any postponement or failure to maintain the effectiveness of such
registration statement and the Company shall have no knowledge of any fact that
would cause such registration statement not to be effective and available for
the resale of all remaining Registrable Securities or (b) all Registrable
Securities shall be eligible for sale without restriction or limitation pursuant
to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1)
(or any successor thereto) promulgated under the Securities Act and without the
need for registration under any applicable federal or state securities laws and
the Company shall have no knowledge of any fact that would cause the Registrable
Securities not to be eligible for sale without restriction pursuant to Rule 144
and without the requirement to be in compliance with Rule 144(c)(1) (or any
successor thereto) promulgated under the Securities Act and any applicable
federal or state securities laws; (ii) any applicable shares of Common Stock to
be issued in connection with the event requiring determination may be issued in
full, subject to any shares that must be held in abeyance due to the provisions
of Section 9 hereof, and without violating the rules or regulations of the
Principal Market or any other applicable Eligible Market; (iii) during the
Equity Conditions Measuring Period, the Company shall not have failed to timely
make any payments within five (5) Business Days of when such payment is due
pursuant to any Transaction Document (as defined in the Securities Purchase
Agreement); (vi) during the Equity Conditions Measuring Period, there shall not
have occurred the public announcement of a pending, proposed or intended
Fundamental Transaction which has not been abandoned, terminated or consummated;
(v) during the Equity Conditions Measuring Period, the Company otherwise shall
have been in compliance with and shall not have breached any provision,
covenant, representation or warranty of any Transaction Document; and (vi) no
Holder shall be in possession of any material, nonpublic information received
from the Company, any Subsidiary or its respective agent or affiliates.

 

- 28 -

 

 

(q)          "Equity Conditions Failure" means that on the applicable date of
determination, any of the Equity Conditions have not been satisfied (or waived
in writing by the Required Holders).

 

(r)           "Equity Conditions Measuring Period" means the period beginning
thirty (30) Trading Days prior to the applicable date of determination and
ending on and including the applicable date of determination.

 

(s)           "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

 

(t)           "Excluded Securities" means any Common Stock issued or issuable or
deemed to be issued in accordance with Section 2(d) hereof by the Company: (A)
under any Approved Stock Plan; (B) in respect of a conversion or redemption of
the Preferred Shares in accordance herewith; (C) upon the exercise of the
Warrants; provided that the Warrants are not amended, modified or changed on or
after the Subscription Date; (D) upon conversion, exercise or exchange of any
Options or Convertible Securities which are outstanding on the day immediately
preceding the Subscription Date, provided that such issuance of Common Stock
upon exercise of such Options or Convertible Securities is made pursuant to the
terms of such Options or Convertible Securities in effect on the date
immediately preceding the Subscription Date and such Options or Convertible
Securities are not amended, modified or changed on or after the Subscription
Date; and (E) securities issued pursuant to acquisitions or strategic
transactions approved by a majority of the disinterested directors of the
Company, provided that any such issuance shall only be to a Person (or to the
equityholders of a Person) which is, itself or through its subsidiaries, an
operating company or an owner of an asset in a business synergistic with the
business of the Company and shall provide to the Company additional benefits in
addition to the investment of funds, but shall not include a transaction in
which the Company is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities.

 

- 29 -

 

 

(u)          "Fundamental Transaction" means (i) that the Company shall,
directly or indirectly, including through subsidiaries, Affiliates or otherwise,
in one or more related transactions, (a) consolidate or merge with or into
(whether or not the Company is the surviving corporation) another Subject
Entity, or (b) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Company or any of its
"significant subsidiaries" (as defined in Rule 1-02 of Regulation S-X) to one or
more Subject Entities, or (c) make, or allow one or more Subject Entities to
make, or allow the Company to be subject to or have its Common Stock be subject
to or party to one or more Subject Entities making, a purchase, tender or
exchange offer that is accepted by the holders of at least either (1) 50% of the
outstanding shares of Common Stock, (2) 50% of the outstanding shares of Common
Stock calculated as if any shares of Common Stock held by all Subject Entities
making or party to, or Affiliated with any Subject Entities making or party to,
such purchase, tender or exchange offer were not outstanding; or (3) such number
of shares of Common Stock such that all Subject Entities making or party to, or
Affiliated with any Subject Entity making or party to, such purchase, tender or
exchange offer, become collectively the beneficial owners (as defined in Rule
13d-3 under the Exchange Act) of at least 50% of the outstanding shares of
Common Stock, or (d) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with one or more Subject Entities whereby
such Subject Entities, individually or in the aggregate, acquire, either (1) at
least 50% of the outstanding shares of Common Stock, (2) at least 50% of the
outstanding shares of Common Stock calculated as if any shares of Common Stock
held by all the Subject Entities making or party to, or Affiliated with any
Subject Entity making or party to, such stock purchase agreement or other
business combination were not outstanding; or (3) such number of shares of
Common Stock such that the Subject Entities become collectively the beneficial
owners (as defined in Rule 13d-3 under the Exchange Act) of at least 50% of the
outstanding shares of Common Stock, or (e) reorganize, recapitalize or
reclassify its Common Stock, (ii) that the Company shall, directly or
indirectly, including through subsidiaries, Affiliates or otherwise, in one or
more related transactions, allow any Subject Entity individually or the Subject
Entities in the aggregate to be or become the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, whether through
acquisition, purchase, assignment, conveyance, tender, tender offer, exchange,
reduction in outstanding shares of Common Stock, merger, consolidation, business
combination, reorganization, recapitalization, spin-off, scheme of arrangement,
reorganization, recapitalization or reclassification or otherwise in any manner
whatsoever, of either (a) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock, (b) at least 50% of the
aggregate ordinary voting power represented by issued and outstanding Common
Stock not held by all such Subject Entities as of the date of this Certificate
of Designations calculated as if any shares of Common Stock held by all such
Subject Entities were not outstanding, or (c) a percentage of the aggregate
ordinary voting power represented by issued and outstanding shares of Common
Stock or other equity securities of the Company sufficient to allow such Subject
Entities to effect a statutory short form merger or other transaction requiring
other stockholders of the Company to surrender their shares of Common Stock
without approval of the stockholders of the Company or (iii) directly or
indirectly, including through subsidiaries, Affiliates or otherwise, in one or
more related transactions, the issuance of or the entering into any other
instrument or transaction structured in a manner to circumvent, or that
circumvents, the intent of this definition in which case this definition shall
be construed and implemented in a manner otherwise than in strict conformity
with the terms of this definition to the extent necessary to correct this
definition or any portion of this definition which may be defective or
inconsistent with the intended treatment of such instrument or transaction.

 

- 30 -

 

 

(v)          "GAAP" means United States generally accepted accounting
principles, consistently applied.

 

(w)          "Group" means a "group" as that term is used in Section 13(d) of
the Exchange Act and as defined in Rule 13d-5 thereunder.

 

(x)           "Indebtedness" of any Person means, without duplication (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including
(without limitation) "capital leases" in accordance with GAAP (other than trade
payables entered into in the ordinary course of business), (iii) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (iv) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(v) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (vi) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above.

 

(y)          "Initial Convertibility Date" means the date that is the earliest
of (i) the date that one or more Registration Statement(s) (as defined in the
Registration Rights Agreement) has been declared effective, (ii) the date as of
which Conversion Shares may be sold pursuant to Rule 144 promulgated under the
Securities Act and (iii) the date on which the Company obtained the approval of
its stockholders for the Reverse Merger, but in no event prior to the day after
the record date for holders of Common Stock to receive the Initial Dividend so
long as such record date is not later than ten (10) days prior to the date of
the Stockholder Meeting (as defined in the Securities Purchase Agreement).

 

- 31 -

 

 

(z)           "Initial Dividend" means that certain dividend to be distributed
by the Company to its common stockholders contemporaneously with the
consummation of the Reverse Merger.

 

(aa)         "Issuance Date" means December [__], 2013.

 

(bb)        "Liquidation Event" means the voluntary or involuntary liquidation,
dissolution or winding up of the Company or such Subsidiaries the assets of
which constitute all or substantially all of the assets of the business of the
Company and its Subsidiaries taken as a whole, in a single transaction or series
of transactions, or adoption of any plan for the same.

 

(cc)         "Non-Public Fundamental Transaction" means any Fundamental
Transaction other than one in which the Successor Entity is a publicly traded
corporation whose Common Stock is quoted on or listed for trading on an Eligible
Market assumes the Preferred Shares such that the Preferred Shares shall be
convertible for the publicly traded Common Stock of such Successor Entity.

 

(dd)         "Option Value" means the value of an Option based on the Black and
Scholes Option Pricing Model obtained from the "OV" function on Bloomberg
determined as of (A) the Trading Day prior to the public announcement of the
issuance of the applicable Option, if the issuance of such Option is publicly
announced or (B) the Trading Day immediately following the issuance of the
applicable Option if the issuance of such Option is not publicly announced, for
pricing purposes and reflecting (i) a risk-free interest rate corresponding to
the U.S. Treasury rate for a period equal to the remaining term of the
applicable Option as of the applicable date of determination, (ii) an expected
volatility equal to the 100 day volatility obtained from the HVT function on
Bloomberg, (iii) the underlying price per share used in such calculation shall
be the average of the Weighted Average Prices for each Trading Day during the
period beginning on the day prior to the execution of definitive documentation
relating to the issuance of the applicable Option and ending on (A) the Trading
Day immediately following the public announcement of such issuance, if the
issuance of such Option is publicly announced or (B) the Trading Day immediately
following the issuance of the applicable Option if the issuance of such Option
is not publicly announced, (iv) a zero cost of borrow, and (v) a 360 day
annualization factor.

 

(ee)         "Options" means any rights, warrants or options to subscribe for or
purchase (i) Common Stock or (ii) Convertible Securities.

 

(ff)          "Outstanding Notes" means that certain Contingent Note issued by
the Company, dated April 1, 2009, in the original principal amount of $11,000,00
in favor of former stockholders of Cortelco Systems Holding Corp.

 

(gg)        "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.

 

(hh)        "Principal Market" means The NASDAQ Capital Market.

 

- 32 -

 

 

(ii)           "Redemption Prices" means, collectively, the Holder Optional
Redemption Triggering Event Redemption Price, the Change of Control Redemption
Price and any other redemption price set forth herein, each of the foregoing,
individually, a Redemption Price.

 

(jj)           "Registration Rights Agreement" means the registration rights
agreement, dated as of the Subscription Date, by and among the Company and the
investors referred to therein, as such agreement further may be amended from
time to time as provided in such agreement.

 

(kk)         "Required Holders" means the Holders of Preferred Shares
representing at least sixty percent (60%) of the aggregate Preferred Shares then
outstanding.

 

(ll)           "Reverse Merger" means a merger by and among the Company, a
Subsidiary of the Company and Inventergy, Inc., a Delaware corporation, on terms
acceptable to the Required Holders.

 

(mm)       "Reverse Split" means a reverse split of the Company's shares of
Common Stock in a ratio between one-for-three and one-for-five effected by the
Company on or before the consummation of the Reverse Merger.

 

(nn)        "SEC" means the Securities and Exchange Commission.

 

(oo)        "Securities Act" means the Securities Act of 1933, as amended.

 

(pp)        "Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of the Subscription Date, by and among the Company and the
investors referred to therein, as such agreement further may be amended from
time to time as provided in such agreement.

 

(qq)        "Stated Value" means $1,000.

 

(rr)          "Subject Entity" means any Person, Persons or Group or any
Affiliate or associate of any such Person, Persons or Group.

 

(ss)         "Subscription Date" means December 16, 2013.

 

(tt)          "Subsidiaries" means any joint venture or entity in which the
Company, directly or indirectly, owns a majority of the Capital Stock or an
equity or similar interest or a majority of the voting power with respect
thereto, including any subsidiaries, joint ventures or entities formed or
acquired after the Subscription Date.

 

(uu)        "Successor Entity" means one or more Person or Persons formed by,
resulting from or surviving any Fundamental Transaction or one or more Person or
Persons with which such Fundamental Transaction shall have been entered into.

 

- 33 -

 

 

(vv)        "Trading Day" means any day on which shares of Common Stock are
traded on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the principal securities exchange
or securities market on which the shares of Common Stock are then traded;
provided that "Trading Day" shall not include any day on which the shares of
Common Stock are scheduled to trade on such exchange or market for less than 4.5
hours or any day that the shares of Common Stock are suspended from trading
during the final hour of trading on such exchange or market (or if such exchange
or market does not designate in advance the closing time of trading on such
exchange or market, then during the hour ending at 4:00:00 p.m., New York Time).

 

(ww)        "Transaction Documents" means this Certificate of Designations, the
Securities Purchase Agreement, the Registration Rights Agreement and the
Warrants.

 

(xx)         "Weighted Average Price" means, for any security as of any date,
the dollar volume-weighted average price for such security on the Principal
Market during the period beginning at 9:30:01 a.m., New York Time (or such other
time as the Principal Market publicly announces is the official open of
trading), and ending at 4:00:00 p.m., New York Time (or such other time as the
Principal Market publicly announces is the official close of trading) as
reported by Bloomberg through its "Volume at Price" functions, or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York Time (or
such other time as such market publicly announces is the official open of
trading), and ending at 4:00:00 p.m., New York Time (or such other time as such
market publicly announces is the official close of trading) as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the OTC Link or "pink sheets" by OTC Markets Group Inc.
(formerly Pink OTC Markets Inc.). If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Weighted Average Price of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the
Company and the Required Holders are unable to agree upon the fair market value
of such security, then such dispute shall be resolved pursuant to Section
2(c)(iii) with the term "Weighted Average Price" being substituted for the term
"Conversion Rate.". All such determinations to be appropriately adjusted for any
stock dividend, stock split, stock combination, reclassification or similar
transaction during the applicable calculation period.

 

(yy)        "Warrants" means the warrants to purchase Common Stock issued in
connection with the Preferred Shares on the Issuance Date.

 

* * * * *

 

- 34 -

 

 

IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to
be signed by [     ], its [    ], as of the [    ]th day of December, 2013.

 

  EON COMMUNICATIONS CORPORATION         By:       Name:     Title:

 

 

 

 

EXHIBIT I

 

EON COMMUNICATIONS CORPORATION

 

CONVERSION NOTICE

 

Reference is made to the Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock of eOn Communications Corporation (the
"Certificate of Designations"). In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to convert the number
of shares of Series B Convertible Preferred Stock, par value $0.001 per share
(the "Preferred Shares"), of eOn Communications Corporation, a Delaware
corporation (the "Company"), indicated below into shares of Common Stock, par
value $0.005 per share (the "Common Stock"), of the Company, as of the date
specified below. By affixing its signature hereto, the undersigned agrees that
the information contained herein is accurate and complete to the best of its
knowledge on the date hereof. The undersigned agrees and undertakes to notify
the Company until the Share Delivery Date immediately of any development it
become aware of that renders the information contained herein inaccurate or
incomplete.

 

Date of Conversion:  

 

Number of Preferred Shares to be converted:  

 

Stock certificate no(s). of Preferred Shares to be converted:  

 

Tax ID Number (If applicable):  

 

Please confirm the following information:  

 

Conversion Price:  

 

Number of shares of Common Stock to be issued:  

 

The undersigned represents and warrants that it is not and has not been during
the preceding three months, an “affiliate” of the Company, as such term is
defined by Rule 144(a).  (Circle one)   YES     NO

 

The undersigned represents and warrants that it has beneficially owned the
Preferred Shares and they have been paid for in full since ________________.

 

Please issue the Common Stock into which the Preferred Shares are being
converted in the following name and to the following address:

 

Issue to:      

 

 

 

 

Address:  

 

Telephone Number:  

 

Facsimile Number:  

 

Authorization:  

 

By:   Title:  

 

Dated:

 

Account Number (if electronic book entry transfer):  

 

Transaction Code Number (if electronic book entry transfer):  

 

[NOTE TO HOLDER — THIS FORM MUST BE SENT CONCURRENTLY TO TRANSFER AGENT]

 

- 37 -

 

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Conversion Notice and hereby directs [NAME
OF TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Irrevocable Transfer Agent Instructions dated December
__, 2013 from the Company and acknowledged and agreed to by [NAME OF TRANSFER
AGENT].

 

  EON COMMUNICATIONS CORPORATION         By:               Name:       Title:  
 

 

- 38 -

 

 

EXHIBIT B

 

[FORM OF WARRANT]

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL SELECTED BY THE HOLDER, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE
144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

EON COMMUNICATIONS CORPORATION

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.: ______

Number of Shares of Common Stock:_____________

Date of Issuance: December 17, 2013 ("Issuance Date")

 

eOn Communications Corporation, a Delaware corporation (the "Company"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, [BUYER], the registered holder hereof or its
permitted assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company, at the Exercise Price (as defined below)
then in effect, at any time or times on or after the Initial Exercise Date, but
not after 11:59 p.m., New York time, on the Expiration Date, (as defined below),
______________ (_____________)1 fully paid nonassessable shares of Common Stock,
subject to adjustment as provided herein (the "Warrant Shares"). Except as
otherwise defined herein, capitalized terms in this Warrant to Purchase Common
Stock (including any Warrants to Purchase Common Stock issued in exchange,
transfer or replacement hereof, this "Warrant"), shall have the meanings set
forth in Section 17. This Warrant is one of the Warrants to purchase Common
Stock (the "SPA Warrants") issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of December 17, 2013 (the "Subscription
Date"), by and among the Company and the investors (the "Buyers") referred to
therein (the "Securities Purchase Agreement"). Capitalized terms used herein and
not otherwise defined shall have the definitions ascribed to such terms in the
Securities Purchase Agreement.

 

 

1 Insert the Holder's pro rata share of 1,401,870 based on the Stated Value of
Preferred Shares the Holder is purchasing pursuant to the Securities Purchase
Agreement based on the total Stated Value of Preferred Shares issued by the
Company pursuant to the Securities Purchase Agreement on the Issuance Date.

 

 

 

 

10.EXERCISE OF WARRANT.

 

(i)Mechanics of Exercise. Subject to the terms and conditions hereof (including,
without limitation, the limitations set forth in Section 1(f)), this Warrant may
be exercised by the Holder at any time or times on or after the Initial Exercise
Date, in whole or in part, by (i) delivery of a written notice, in the form
attached hereto as Exhibit A (the "Exercise Notice"), of the Holder's election
to exercise this Warrant and (ii) (A) payment to the Company of an amount equal
to the applicable Exercise Price multiplied by the number of Warrant Shares as
to which this Warrant is being exercised (the "Aggregate Exercise Price") in
cash or by wire transfer of immediately available funds or (B) if the provisions
of Section 1(d) are applicable, by notifying the Company that this Warrant is
being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)).
The Holder shall not be required to deliver the original Warrant in order to
effect an exercise hereunder. Execution and delivery of the Exercise Notice with
respect to less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant evidencing
the right to purchase the remaining number of Warrant Shares. On or before the
first (1st) Trading Day following the date on which the Company has received the
Exercise Notice, the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of the Exercise Notice to the Holder and the Company's
transfer agent (the "Transfer Agent"). On or before the third (3rd) Trading Day
following the date on which the Company has received the Exercise Notice, so
long as the Holder delivers the Aggregate Exercise Price (or notice of a
Cashless Exercise) on or prior to the second (2nd) Trading Day following the
date on which the Company has received the Exercise Notice (the "Share Delivery
Date") (provided that if the Aggregate Exercise Price has not been delivered by
such date, the Share Delivery Date shall be one (1) Trading Day after the
Aggregate Exercise Price (or notice of a Cashless Exercise) is delivered), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and
the Warrant Shares are subject to an effective resale registration statement in
favor of the Holder or, if exercised via Cashless Exercise, at a time when Rule
144 would be available for immediate resale of the Warrant Shares by the Holder,
credit such aggregate number of Warrant Shares to which the Holder is entitled
pursuant to such exercise to the Holder's or its designee's balance account with
DTC through its Deposit / Withdrawal At Custodian system, or (Y) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer Program
or the Warrant Shares are not subject to an effective resale registration
statement in favor of the Holder or, if exercised via Cashless Exercise, at a
time when Rule 144 would not be available for immediate resale of the Warrant
Shares by the Holder, issue and dispatch by overnight courier to the address as
specified in the Exercise Notice, a certificate, registered in the Company's
share register in the name of the Holder or its designee, for the number of
Warrant Shares to which the Holder is entitled pursuant to such exercise. The
Company shall be responsible for all fees and expenses of the Transfer Agent and
all fees and expenses with respect to the issuance of Warrant Shares via DTC, if
any. Upon delivery of the Exercise Notice and payment of the Aggregate Exercise
Price (whether in cash or pursuant to a Cashless Exercise, as applicable), the
Holder 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 such Warrant Shares are credited to the
Holder's DTC account or the date of delivery of the certificates evidencing such
Warrant Shares, as the case may be. If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant Shares
represented by this Warrant submitted for exercise is greater than the number of
Warrant Shares being acquired upon an exercise, then the Company shall as soon
as practicable and in no event later than three (3) Trading Days after any
exercise and at its own expense, issue a new Warrant (in accordance with Section
7(d)) representing the right to purchase the number of Warrant Shares issuable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional
Warrant Shares are to be issued upon the exercise of this Warrant, but rather
the number of Warrant Shares to be issued shall be rounded up to the nearest
whole number. 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. The Company's obligations to issue and deliver Warrant Shares in
accordance with the terms and subject to the conditions hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination.

 

- 40 -

 

 

(ii)Exercise Price. For purposes of this Warrant, "Exercise Price" means $1.33,
subject to adjustment as provided herein.

 

(iii)Company's Failure to Timely Deliver Securities. If the Company shall fail
for any reason or for no reason to issue to the Holder on or prior to the Share
Delivery Date either (I) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program or the Warrant Shares are not
eligible for immediate resale by the Holder, a certificate for the number of
shares of Common Stock to which the Holder is entitled and register such shares
of Common Stock on the Company's share register or if the Transfer Agent is
participating in the DTC Fast Automated Securities Transfer Program, to credit
the Holder's balance account with DTC, as applicable, for such number of shares
of Common Stock to which the Holder is entitled upon the Holder's exercise of
this Warrant or (II) if the Registration Statement (as defined in the
Registration Rights Agreement) covering the resale of the Warrant Shares that
are the subject of the Exercise Notice (the "Unavailable Warrant Shares") is not
available for the resale of such Unavailable Warrant Shares and the Company
fails to promptly, but in no event later than as required pursuant to the
Registration Rights Agreement so notify the Holder (the event described in the
immediately foregoing clause (II) is hereinafter referred as a "Notice Failure"
and together with the event described in clause (I) above, an "Exercise
Failure"), then, in addition to all other remedies available to the Holder, (X)
the Company shall pay in cash to the Holder on each day after the Share Delivery
Date and during such Exercise Failure an amount equal to 1.5% of the product of
(A) 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 the Holder is entitled, and (B)
the Closing Sale Price of the Common Stock on the Trading Day immediately
preceding the last possible date which the Company could have issued such shares
of Common Stock to the Holder without violating Section 1(a), and (Y) the
Holder, upon written notice to the Company, may void its Exercise Notice with
respect to, and retain or have returned, as the case may be, any portion of this
Warrant that has not been exercised pursuant to such Exercise Notice; provided
that the voiding of an Exercise Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such
notice pursuant to this Section 1(c) or otherwise. In addition to the foregoing,
if on or prior to the Share Delivery Date either (I) if the Transfer Agent is
not participating in the DTC Fast Automated Securities Transfer Program, the
Company shall fail to issue and deliver a certificate to the Holder and register
such shares of Common Stock on the Company's share register or, if the Transfer
Agent is participating in the DTC Fast Automated Securities Transfer Program and
the Warrant Shares are eligible for immediate resale by the Holder, credit the
Holder's balance account with DTC for the number of shares of Common Stock to
which the Holder is entitled upon the Holder's exercise hereunder or pursuant to
the Company's obligation pursuant to clause (ii) below or (II) a Notice Failure
occurs, and if on or after such Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of shares of Common Stock issuable upon
such exercise that the Holder anticipated receiving from the Company (a
"Buy-In"), then the Company shall, within three (3) Trading Days after the
Holder's request and in the Holder's discretion, either (i) pay cash to the
Holder in an amount equal to the Holder's total purchase price (including
brokerage commissions and other out-of-pocket expenses, if any) for the shares
of Common Stock so purchased (the "Buy-In Price"), at which point the Company's
obligation to deliver such certificate (and to issue such shares of Common
Stock) or credit such Holder's balance account with DTC for such shares of
Common Stock shall terminate, or (ii) promptly honor its obligation to deliver
to the Holder a certificate or certificates representing such shares of Common
Stock or credit such Holder's balance account with DTC and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing Bid
Price on the date of exercise. Nothing shall limit the Holder's right to pursue
any other remedies available to it hereunder, at law or in equity, including,
without limitation, a decree of specific performance and/or injunctive relief
with respect to the Company's failure to timely deliver certificates
representing shares of Common Stock (or to electronically deliver such shares of
Common Stock) upon the exercise of this Warrant as required pursuant to the
terms hereof.

 

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(iv)Cashless Exercise. Notwithstanding anything contained herein to the
contrary, if the Registration Statement (as defined in the Registration Rights
Agreement) covering the resale of the Unavailable Warrant Shares is not
available for the resale of such Unavailable Warrant Shares, the Holder may, 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) - (A x C)

      D

 

For purposes of the foregoing formula:

 

 

A=the total number of shares with respect to which this Warrant is then being
exercised.

 

- 42 -

 

 

B=the arithmetic average of the Closing Sale Prices of the Common Stock for the
five (5) consecutive Trading Days ending on the date immediately preceding the
date of the Exercise Notice.

 

C=the Exercise Price then in effect for the applicable Warrant Shares at the
time of such exercise.

 

D=the Closing Sale Price of the Common Stock on the date of the Exercise Notice.

 

For purposes of Rule 144(d) promulgated under the 1933 Act, as in effect on the
date hereof, it is intended that the Warrant Shares issued in a Cashless
Exercise shall be deemed to have been acquired by the Holder, and the holding
period for the Warrant Shares shall be deemed to have commenced, on the date
this Warrant was originally issued pursuant to the Securities Purchase
Agreement.

 

(v)Disputes. In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the Holder the number of Warrant Shares that are not disputed
and resolve such dispute in accordance with Section 12.

 

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(vi)(i) Limitation on Beneficial Ownership. Notwithstanding anything to the
contrary contained herein, the Company shall not effect the exercise of any
portion of this Warrant, and the Holder shall not have the right to exercise any
portion of this Warrant, pursuant to the terms and conditions of this Warrant
and any such exercise shall be null and void and treated as if never made, to
the extent that after giving effect to such exercise, the Holder together with
the other Attribution Parties collectively would beneficially own in excess of
4.99% (the "Maximum Percentage") of the number of shares of Common Stock
outstanding immediately after giving effect to such exercise. For purposes of
the foregoing sentence, the aggregate number of shares of Common Stock
beneficially owned by the Holder and the other Attribution Parties shall include
the number of shares of Common Stock held by the Holder and all other
Attribution Parties plus 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 (A) exercise of the remaining, unexercised portion
of this Warrant beneficially owned by the Holder or any of the other Attribution
Parties and (B) exercise or conversion of the unexercised or unconverted portion
of any other securities of the Company (including, without limitation, any
convertible notes or convertible preferred stock or warrants, including the
other SPA Warrants) beneficially owned by the Holder or any other Attribution
Party subject to a limitation on conversion or exercise analogous to the
limitation contained in this Section 1(f)(i). For purposes of this Section
1(f)(i), beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). For
purposes of this Warrant, in determining the number of outstanding shares of
Common Stock the Holder may acquire upon the exercise of this Warrant without
exceeding the Maximum Percentage, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company's most recent
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on
Form 8-K or other public filing with the Securities and Exchange Commission (the
"SEC"), as the case may be, (y) a more recent public announcement by the Company
or (3) any other written notice by the Company or the Transfer Agent setting
forth the number of shares of Common Stock outstanding (the "Reported
Outstanding Share Number"). If the Company receives an Exercise Notice from the
Holder at a time when the actual number of outstanding shares of Common Stock is
less than the Reported Outstanding Share Number, the Company shall (i) notify
the Holder in writing of the number of shares of Common Stock then outstanding
and, to the extent that such Exercise Notice would otherwise cause the Holder's
beneficial ownership, as determined pursuant to this Section 1(f)(i), to exceed
the Maximum Percentage, the Holder must notify the Company of a reduced number
of Warrant Shares to be purchased pursuant to such Exercise Notice (the number
of shares by which such purchase is reduced, the "Reduction Shares") and (ii) as
soon as reasonably practicable, the Company shall return to the Holder any
exercise price paid by the Holder for the Reduction Shares. For any reason at
any time, upon the written or oral request of the Holder, the Company shall
within one (1) Business Day confirm orally and in writing or by electronic mail
to the Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder and any other Attribution Party since the
date as of which the Reported Outstanding Share Number was reported. In the
event that the issuance of shares of Common Stock to the Holder upon exercise of
this Warrant results in the Holder and the other Attribution Parties being
deemed to beneficially own, in the aggregate, more than the Maximum Percentage
of the number of outstanding shares of Common Stock (as determined under Section
13(d) of the 1934 Act), the number of shares so issued by which the Holder's and
the other Attribution Parties' aggregate beneficial ownership exceeds the
Maximum Percentage (the "Excess Shares") shall be deemed null and void and shall
be cancelled ab initio, and the Holder shall not have the power to vote or to
transfer the Excess Shares. As soon as reasonably practicable after the issuance
of the Excess Shares has been deemed null and void, the Holder shall return such
Excess Shares to the Company or the Transfer Agent for cancellation and the
Company shall return to the Holder the exercise price paid by the Holder for the
Excess Shares. Upon delivery of a written notice to the Company, the Holder may
from time to time increase (with such increase not effective until the
sixty-first (61st) day after delivery of such notice) or decrease the Maximum
Percentage to any other percentage not in excess of 9.99% as specified in such
notice; provided that (i) any such increase in the Maximum Percentage will not
be effective until the sixty-first (61st) day after such notice is delivered to
the Company and (ii) any such increase or decrease will apply only to the Holder
and the other Attribution Parties and not to any other holder of SPA Warrants
that is not an Attribution Party of the Holder. For purposes of clarity, the
shares of Common Stock issuable pursuant to the terms of this Warrant in excess
of the Maximum Percentage shall not be deemed to be beneficially owned by the
Holder for any purpose including for purposes of Section 13(d) or Rule
16a-1(a)(1) of the 1934 Act. No prior inability to exercise this Warrant
pursuant to this paragraph shall have any effect on the applicability of the
provisions of this paragraph with respect to any subsequent determination of
exercisability. The provisions of this paragraph shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this Section 1(f)(i) to the extent necessary to correct this paragraph or any
portion of this paragraph which may be defective or inconsistent with the
intended beneficial ownership limitation contained in this Section 1(f)(i) or to
make changes or supplements necessary or desirable to properly give effect to
such limitation. The limitation contained in this paragraph may not be waived
and shall apply to a successor holder of this Warrant.

 

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(ii) Principal Market Regulation. The Company shall not be obligated to issue
any shares of Common Stock upon exercise of this Warrant and the Holder shall
not have the right to receive upon exercise of this Warrant (x) any shares of
Common Stock or (y) any compensatory payments solely in respect of the Company's
failure to obtain Stockholder Approval (as defined in the Securities Purchase
Agreement), if the issuance of such shares of Common Stock would exceed that
number of shares of Common Stock which the Company may issue upon exercise of
the SPA Warrants or otherwise without breaching the Company's obligations under
any applicable rules or regulations of any applicable Eligible Market (the
"Exchange Cap"), except that such limitation shall not apply in the event that
the Company obtains the approval of its stockholders as required by the
applicable rules of the Eligible Market for issuances of shares of Common Stock
in excess of such amount. Until such approval is obtained, no Holder shall be
issued in the aggregate, upon exercise of any SPA Warrants, shares of Common
Stock in an amount greater than the product of the Exchange Cap multiplied by a
fraction, the numerator of which is the total number of shares of Common Stock
underlying the SPA Warrants issued to such Holder pursuant to the Securities
Purchase Agreement on the Issuance Date and the denominator of which is the
aggregate number of shares of Common Stock underlying the SPA Warrants issued to
the Buyers pursuant to the Securities Purchase Agreement on the Issuance Date
(with respect to each Holder, the "Exchange Cap Allocation"). In the event that
any Holder shall sell or otherwise transfer any of such Holder's SPA Warrants,
the transferee shall be allocated a pro rata portion of such Holder's Exchange
Cap Allocation, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation allocated
to such transferee. In the event that any holder of SPA Warrants shall exercise
all of such holder's SPA Warrants into a number of shares of Common Stock which,
in the aggregate, is less than such holder's Exchange Cap Allocation, then the
difference between such holder's Exchange Cap Allocation and the number of
shares of Common Stock actually issued to such holder shall be allocated to the
respective Exchange Cap Allocations of the remaining holders of SPA Warrants on
a pro rata basis in proportion to the shares of Common Stock underlying the SPA
Warrants then held by each such holder.

 

(vii)Insufficient Authorized Shares. If at any time while this Warrant remains
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of this Warrant at least a number of shares of Common
Stock equal to the number of shares of Common Stock as shall from time to time
be necessary to effect the exercise of all of this Warrant then outstanding (the
"Required Reserve Amount" and the failure to have such sufficient number of
authorized and unreserved shares of Common Stock, an "Authorized Share
Failure"), then the Company shall immediately take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for this Warrant
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than seventy-five (75) days after the occurrence
of such Authorized Share Failure, the Company shall hold a meeting of its
shareholders for the approval of an increase in the number of authorized shares
of Common Stock. In connection with such meeting, the Company shall provide each
shareholder with a proxy statement and shall use its best efforts to solicit its
shareholders' approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the shareholders that they
approve such proposal. Notwithstanding the foregoing, if any such time of an
Authorized Share Failure, the Company is able, consistent with its Certificate
of Incorporation and Bylaws as then in effect, to obtain the written consent of
a majority of the shares of its issued and outstanding Common Stock to approve
the increase in the number of authorized shares of Common Stock, the Company may
satisfy this obligation by obtaining such consent and submitting for filing with
the SEC an Information Statement on Schedule 14C. In the event that upon any
exercise of this Warrant, the Company does not have sufficient authorized shares
to deliver in satisfaction of such exercise, then unless the Holder elects to
void such attempted exercise, the Holder may require the Company to pay to the
Holder within three (3) Trading Days of the applicable exercise, cash in an
amount equal to the difference between (i) the arithmetic average of the two (2)
highest intra-day trading prices of the Common Stock (as reported by Bloomberg)
on the date of attempted exercise (or, if such date is not a Trading Day, the
Trading Day immediately prior to such date) and (ii) the Exercise Price, if
positive, multiplied by the number of Warrant Shares specified in the Notice of
Exercise.

 

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11.          ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:

 

(i)Intentionally omitted.

 

(ii)Voluntary Adjustment By Company. Subject to compliance with any applicable
listing rules of the Principal Market, the Company may at any time during the
term of this Warrant reduce the then current Exercise Price to any amount and
for any period of time deemed appropriate by the Board of Directors of the
Company.

 

(iii)Adjustment Upon Subdivision or Combination of Shares of Common Stock. If
the Company at any time on or after the Subscription Date 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 Warrant Shares will be proportionately
increased. If the Company at any time on or after the Subscription Date combines
(by combination, reverse stock split, including, without limitation, the Reverse
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
Warrant Shares will be proportionately decreased. Any adjustment under this
Section 2(c) shall become effective at the close of business on the date the
subdivision or combination becomes effective.

 

(iv)Other Events. If any event occurs of the type contemplated by the provisions
of this Section 2 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 Warrant Shares, as mutually determined by the Company’s Board of
Directors and the Required Holders, so as to protect the rights of the Holder;
provided that no such adjustment pursuant to this Section 2(d) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise determined
pursuant to this Section 2.

 

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12.         RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or
make any dividend (other than the Initial Dividend (as defined in the
Certificate of Designations)) or other distribution of its assets (or rights to
acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash,
stock or other securities, property, options, evidence of indebtedness or any
other assets by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case, the Holder shall be entitled to participate in such Distribution to
the same extent that the Holder would have participated therein if the Holder
had held the number of shares of Common Stock acquirable upon complete exercise
of this Warrant (without regard to any limitations or restrictions on exercise
of this Warrant, including without limitation, the Maximum Percentage)
immediately before the date of which a record is taken for such Distribution,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the participation in such
Distribution (provided, however, that to the extent that the Holder's right to
participate in any such Distribution would result in the Holder and the other
Attribution Parties exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Distribution to such extent (and shall not be
entitled to beneficial ownership of such shares of Common Stock as a result of
such Distribution (and beneficial ownership) to such extent) and the portion of
such Distribution shall be held in abeyance for the benefit of the Holder until
such time or times as its right thereto would not result in the Holder and the
other Attribution Parties exceeding the Maximum Percentage, at which time or
times the Holder shall be granted such Distribution (and any Distributions
declared or made on such initial Distribution or on any subsequent Distribution
held similarly in abeyance) to the same extent as if there had been no such
limitation). Notwithstanding the foregoing, in the event such Distribution is a
cash dividend (a "Cash Distribution"), the Holder shall only be entitled to
receive the amount of any such Cash Distribution upon an exercise of this
Warrant, in whole or in part, to the same extent that the Holder would have
received if the Holder had held, immediately before the date on which a record
is taken for such Cash Distribution, or, if no such record is taken, the date as
of which the record holders of shares of Common Stock are to be determined for
the participation in such Cash Distribution, the number of shares of Common
Stock that the Holder is entitled to receive upon such exercise. From the time
of any Cash Distribution until this Warrant is exercised or expires, the Company
shall hold such Cash Distribution for the benefit of the Holder.

 

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13.          PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

 

(i)Purchase Rights. In addition to any adjustments pursuant to Section 2 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 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 exercise of this Warrant (without regard to any
limitations or restrictions on exercise of this Warrant, including without
limitation, the Maximum Percentage) 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 shares of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights (provided, however, that to the extent that the Holder's right to
participate in any such Purchase Right would result in the Holder and the other
Attribution Parties exceeding the Maximum Percentage, then the Holder shall not
be entitled to participate in such Purchase Right to such extent (and shall not
be entitled to beneficial ownership of such shares of Common Stock as a result
of such Purchase Right (and beneficial ownership) to such extent) and such
Purchase Right to such extent shall be held in abeyance for the benefit of the
Holder until such time or times as its right thereto would not result in the
Holder and the other Attribution Parties exceeding the Maximum Percentage, at
which time or times the Holder shall be granted such right (and any Purchase
Right granted, issued or sold on such initial Purchase Right or on any
subsequent Purchase Right held similarly in abeyance) to the same extent as if
there had been no such limitation).

 

(ii)Fundamental Transactions. The Company shall not enter into or be party to a
Fundamental Transaction unless the Successor Entity assumes in writing all of
the obligations of the Company under this Warrant and the other Transaction
Documents which remain applicable at the effective time of such Fundamental
Transaction in accordance with the provisions of this Section 4(b) pursuant to
written agreements in form and substance reasonably satisfactory to the holders
of sixty percent (60%) of the Preferred Shares (as defined in the Securities
Purchase Agreement) then outstanding (the "Required Preferred Holders") and
approved by the Required Preferred Holders prior to such Fundamental
Transaction, including agreements , if so requested by the Holder, to deliver to
each holder of the SPA Warrants in exchange for such SPA Warrants a security of
the Successor Entity evidenced by a written instrument substantially similar in
form and substance to this Warrant, including, without limitation, exercisable
for a corresponding number of shares of capital stock equivalent to the shares
of Common Stock acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such
Fundamental Transaction, and reasonably satisfactory to the Required Preferred
Holders, and with an exercise price which applies the exercise price hereunder
to such shares of capital stock (but taking into account the relative value of
the shares of Common Stock pursuant to such Fundamental Transaction and the
value of such shares of capital stock, such adjustments to the number of shares
of capital stock and such exercise price being for the purpose of protecting the
economic value of this Warrant immediately prior to the occurrence or
consummation of such Fundamental Transaction. Any security issuable or
potentially issuable to the Holder pursuant to the terms of this Warrant on the
consummation of a Fundamental Transaction shall be registered and freely
tradable by the Holder without any restriction or limitation or the requirement
to be subject to any holding period pursuant to any applicable securities laws
if any securities issued to any other equityholder of the Company are registered
on Form S-4 or any successor form. Upon the occurrence or consummation of any
Fundamental Transaction, and it shall be a required condition to the occurrence
or consummation of any Fundamental Transaction that, the Company and the
Successor Entity or Successor Entities, jointly and severally, shall succeed to,
and the Company shall cause any Successor Entity or Successor Entities to
jointly and severally succeed to, and be added to the term "Company" under this
Warrant (so that from and after the date of such Fundamental Transaction, each
and every provision of this Warrant referring to the "Company" shall refer
instead to each of the Company and the Successor Entity or Successor Entities,
jointly and severally), and the Company and the Successor Entity or Successor
Entities, jointly and severally, may exercise every right and power of the
Company prior thereto and shall assume all of the obligations of the Company
prior thereto under this Warrant with the same effect as if the Company and such
Successor Entity or Successor Entities, jointly and severally, had been named as
the Company in this Warrant.

 

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(iii)Notwithstanding the foregoing, in the event of a Non-Reverse Merger
Fundamental Transaction other than one in which a Successor Entity that is a
publicly traded corporation whose stock is quoted or listed for trading on an
Eligible Market assumes this Warrant such that the Warrant shall be exercisable
for the publicly traded Common Stock of such Successor Entity, at the request of
the Holder delivered before the ninetieth (90th) day after the occurrence or
consummation of such Non-Reverse Merger Fundamental Transaction, the Company (or
the Successor Entity) shall purchase this Warrant from the Holder by paying to
the Holder, within five (5) Business Days after such request (or, if later, on
the effective date of the Non-Reverse Merger Fundamental Transaction), cash in
an amount equal to the Black Scholes Value of the remaining unexercised portion
of this Warrant on the date of such Non-Reverse Merger Fundamental Transaction.

 

14.         NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation or Bylaws, or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, 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
of this Warrant, and will at all times in good faith carry out all of the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall 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, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, the number of shares of Common Stock as shall from time to time be
necessary to effect the exercise of the SPA Warrants then outstanding (without
regard to any limitations on exercise).

 

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15.          WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, 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 the Warrant Shares which such
Person 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 the 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 6, the Company shall provide the Holder 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.

 

16.          REISSUANCE OF WARRANTS.

 

(i)Transfer of Warrant. If this Warrant is to be transferred, the Holder shall
surrender this Warrant to the Company, whereupon the Company will forthwith
issue and deliver upon the order of the Holder a new Warrant (in accordance with
Section 7(d)), registered as the Holder may request, representing the right to
purchase the number of Warrant Shares being transferred by the Holder and, if
less than the total number of Warrant Shares then underlying this Warrant is
being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder
representing the right to purchase the number of Warrant Shares not being
transferred.

 

(ii)Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder to the Company in customary form
and, in the case of mutilation, upon surrender and cancellation of this Warrant,
the Company shall execute and deliver to the Holder a new Warrant (in accordance
with Section 7(d)) representing the right to purchase the Warrant Shares then
underlying this Warrant.

 

(iii)Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for a new
Warrant or Warrants (in accordance with Section 7(d)) representing in the
aggregate the right to purchase the number of Warrant Shares then underlying
this Warrant, and each such new Warrant will represent the right to purchase
such portion of such Warrant Shares as is designated by the Holder at the time
of such surrender; provided, however, that no SPA Warrants for fractional
Warrant Shares or any amounts with an aggregate Exercise Price of less than
$1,000 (other than any final remainder) shall be given.

 

(iv)Issuance of New Warrants. Whenever the Company is required to issue a new
Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of
like tenor with this Warrant, (ii) shall represent, as indicated on the face of
such new Warrant, the right to purchase the Warrant Shares then underlying this
Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a)
or Section 7(c), the Warrant Shares designated by the Holder which, when added
to the number of shares of Common Stock underlying the other new Warrants issued
in connection with such issuance, does not exceed the number of Warrant Shares
then underlying this Warrant), (iii) shall have an issuance date, as indicated
on the face of such new Warrant which is the same as the Issuance Date, and (iv)
shall have the same rights and conditions as this Warrant.

 

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17.          NOTICES. Whenever notice is required to be given under this
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefor. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Exercise Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least fifteen
(15) 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 shares of
Common Stock, (B) with respect to any grants, issuances or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of shares of Common Stock or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or
liquidation; provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder.

 

18.          AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended or waived 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
Holder.

 

19.          GOVERNING LAW; JURISDICTION; JURY TRIAL. This Warrant shall be
governed by and construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance 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. The Company hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, 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. The Company 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 the Company at the address set forth in Section 9(f)
of the Securities Purchase 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. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to collect on the Company's
obligations to the Holder, to realize on any collateral or any other security
for such obligations, or to enforce a judgment or other court ruling in favor of
the Holder. THE COMPANY 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 WITH OR ARISING OUT OF THIS WARRANT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

 

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20.           CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the Buyers and shall not be construed against any
Person as the drafter hereof. The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.

 

21.           DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two (2) Business Days of receipt of the
Exercise Notice giving rise to such dispute, as the case may be, to the Holder.
If the Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three (3)
Business Days of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within two (2) Business Days
submit via facsimile the disputed determination of the Exercise Price or number
of Warrant Shares (a) to an independent, reputable investment bank selected by
the Company and approved by the Holder or (b) to the Company's independent,
outside accountant. The Company shall cause at its expense the investment bank
or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
ten (10) 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
demonstrable error.

 

22.          REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. 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 Warrant 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.           TRANSFER.  This Warrant and the Warrant Shares may be offered for
sale, sold, transferred, pledged or assigned without the consent of the Company,
except as may otherwise be required by Section 2(f) of the Securities Purchase
Agreement.

 

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24.           SEVERABILITY.  If any provision of this Warrant is prohibited by
law or otherwise determined to be invalid or unenforceable by a court of
competent jurisdiction, the provision that would otherwise be prohibited,
invalid or unenforceable shall be deemed amended to apply to the broadest extent
that it would be valid and enforceable, and the invalidity or unenforceability
of such provision shall not affect the validity of the remaining provisions of
this Warrant so long as this Warrant as so modified continues to express,
without material change, the original intentions of the parties as to the
subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

25.          DISCLOSURE. Upon receipt or delivery by the Company of any notice
in accordance with the terms of this Warrant, unless the Company has in good
faith determined that the matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its Subsidiaries (as
defined in the Securities Purchase Agreement), the Company shall within one (1)
Business Day after any such receipt or delivery publicly disclose such material,
nonpublic information on a Current Report on Form 8-K or otherwise. In the event
that the Company believes that a notice contains material, nonpublic information
relating to the Company or its Subsidiaries, the Company so shall indicate to
such Holder contemporaneously with delivery of such notice, and in the absence
of any such indication, the Holder shall be allowed to presume that all matters
relating to such notice do not constitute material, nonpublic information
relating to the Company or its Subsidiaries.

 

26.          CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:

 

(i)"1933 Act" means the Securities Act of 1933, as amended.

 

(ii)"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person, it being understood for purposes of this definition that
"control" of a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.

 

(i)"Attribution Parties" means, collectively, the following Persons and
entities: (i) any investment vehicle, including, any funds, feeder funds or
managed accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder's investment manager or
any of its Affiliates or principals, (ii) any direct or indirect Affiliates of
the Holder or any of the foregoing, (iii) any Person acting or who could be
deemed to be acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the Company's Common
Stock would or could be aggregated with the Holder's and the other Attribution
Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose
of the foregoing is to subject collectively the Holder and all other Attribution
Parties to the Maximum Percentage.

 

- 53 -

 

 

(ii)"Black Scholes Value" means the value of this Warrant based on the
Black-Scholes Option Pricing Model obtained from the "OV" function on Bloomberg
determined as of the day immediately following the public announcement of the
applicable Fundamental Transaction, or, if the Fundamental Transaction is not
publicly announced, the date the Fundamental Transaction is consummated, for
pricing purposes and reflecting (i) a risk-free interest rate corresponding to
the U.S. Treasury rate for a period equal to the remaining term of this Warrant
as of such date of request, (ii) an expected volatility equal to the 100 day
volatility obtained from the HVT function on Bloomberg as of the day immediately
following the public announcement of the applicable Fundamental Transaction, or,
if the Fundamental Transaction is not publicly announced, the date the
Fundamental Transaction is consummated, (iii) the underlying price per share
used in such calculation shall be the sum of the price per share being offered
in cash, if any, plus the value of any non-cash consideration, if any, being
offered in the Fundamental Transaction, (iv) a zero cost of borrow and (v) a 360
day annualization factor.

 

(iii)"Bloomberg" means Bloomberg Financial Markets.

 

(iv)"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.

 

(v)"Closing Bid Price" and "Closing Sale Price" mean, for any security as of any
date, the last closing bid price and last closing trade price, respectively, for
such security on the Principal Market, as reported by Bloomberg, or, if the
Principal Market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price, as the case may be,
then the last bid price or the last trade price, respectively, of such security
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the
Principal Market is not the principal securities exchange or trading market for
such security (by trading volume for the prior 365 consecutive calendar days),
the last closing bid price or last trade price, respectively, 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 or last trade price, respectively, 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 or last trade price,
respectively, is reported for such security by Bloomberg, the average of the bid
prices, or the ask prices, respectively, of any market makers for such security
as reported in the OTC Link or "pink sheets" by OTC Markets Group Inc. (formerly
Pink OTC Markets Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 12. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination, reclassification or other
similar transaction during the applicable calculation period.

 

- 54 -

 

 

(vi)"Common Stock" means (i) the Company's shares of Common Stock, par value
$0.005 per share, and (ii) any share capital into which such Common Stock shall
have been changed or any share capital resulting from a reclassification of such
Common Stock.

 

(vii)"Convertible Securities" means any stock or securities (other than Options)
directly or indirectly convertible into or exercisable or exchangeable for
shares of Common Stock.

 

(viii)"Eligible Market" means the Principal Market, the NYSE MKT LLC, The NASDAQ
Global Market, The NASDAQ Global Select Market or The New York Stock Exchange,
Inc.

 

(ix)"Expiration Date" means the earlier of (i) the date twenty-four (24) months
after the Initial Exercise Date or, if such date falls on a day other than a
Business Day or on which trading does not take place on the Principal Market (a
"Holiday"), the next day that is not a Holiday and (ii) the date the Reverse
Merger is terminated in writing by the parties thereto or is deemed terminated
by lapse of time as provided therein.

 

(x)"Fundamental Transaction" means (A) that the Company shall, directly or
indirectly, including through subsidiaries, Affiliates or otherwise, in one or
more related transactions, (i) consolidate or merge with or into (whether or not
the Company is the surviving corporation) another Subject Entity, or (ii) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company or any of its "significant subsidiaries" (as
defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or
(iii) make, or allow one or more Subject Entities to make, or allow the Company
to be subject to or have its Common Stock be subject to or party to one or more
Subject Entities making, a purchase, tender or exchange offer that is accepted
by the holders of at least either (x) 50% of the outstanding shares of Common
Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any
shares of Common Stock held by all Subject Entities making or party to, or
Affiliated with any Subject Entities making or party to, such purchase, tender
or exchange offer were not outstanding; or (z) such number of shares of Common
Stock such that all Subject Entities making or party to, or Affiliated with any
Subject Entity making or party to, such purchase, tender or exchange offer,
become collectively the beneficial owners (as defined in Rule 13d-3 under the
1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with one or more Subject Entities whereby all such Subject
Entities, individually or in the aggregate, acquire, either (x) at least 50% of
the outstanding shares of Common Stock, (y) at least 50% of the outstanding
shares of Common Stock calculated as if any shares of Common Stock held by all
the Subject Entities making or party to, or Affiliated with any Subject Entity
making or party to, such stock purchase agreement or other business combination
were not outstanding; or (z) such number of shares of Common Stock such that the
Subject Entities become collectively the beneficial owners (as defined in Rule
13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common
Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, such that
such modified Common Stock no longer has the residual right to dividends or
distributions from the Company or the residual right to vote on matters given to
common stockholders under Delaware law, (B) that the Company shall, directly or
indirectly, including through subsidiaries, Affiliates or otherwise, in one or
more related transactions, allow any Subject Entity individually or the Subject
Entities in the aggregate to be or become the "beneficial owner" (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, whether through
acquisition, purchase, assignment, conveyance, tender, tender offer, exchange,
reduction in outstanding shares of Common Stock, merger, consolidation, business
combination, reorganization, recapitalization, spin-off, scheme of arrangement,
reorganization, recapitalization or reclassification or otherwise in any manner
whatsoever, of either (x) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock, (y) at least 50% of the
aggregate ordinary voting power represented by issued and outstanding Common
Stock not held by all such Subject Entities as of the date of this Warrant
calculated as if any shares of Common Stock held by all such Subject Entities
were not outstanding, or (z) a percentage of the aggregate ordinary voting power
represented by issued and outstanding shares of Common Stock or other equity
securities of the Company sufficient to allow such Subject Entities to effect a
statutory short form merger or other transaction requiring other stockholders of
the Company to surrender their shares of Common Stock without approval of the
stockholders of the Company or (C) directly or indirectly, including through
subsidiaries, Affiliates or otherwise, in one or more related transactions, the
issuance of or the entering into any other instrument or transaction structured
in a manner to circumvent, or that circumvents, the intent of this definition in
which case this definition shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this definition to the
extent necessary to correct this definition or any portion of this definition
which may be defective or inconsistent with the intended treatment of such
instrument or transaction.

 

- 55 -

 

 

(xi)"Group" means a "group" as that term is used in Section 13(d) of the 1934
Act and as defined in Rule 13d-5 thereunder.

 

(xii)"Initial Exercise Date" means the Business Day following the date the
Holder has issued instructions to the Letter of Credit Bank (as defined in the
Securities Purchase Agreement) pursuant to Section 4(p) of the Securities
Purchase Agreement to distribute the entire Letter of Credit Amount, to the
Company, but in no event prior to the day after the record date for holders of
Common Stock to receive the Initial Dividend so long as such record date is not
later than ten (10) days prior to the date of the Stockholder Meeting (as
defined in the Securities Purchase Agreement).

 

(xiii)"Non-Reverse Merger Fundamental Transaction" means any Fundamental
Transaction other than the Reverse Merger.

 

(xiv)"Options" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.

 

(xv)"Person" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.

 

(xvi)"Principal Market" means The NASDAQ Capital Market.

 

- 56 -

 

 

(xvii)"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of the Subscription Date by and among the Company and the
Buyers.

 

(xviii)"Required Holders" means the holders of the SPA Warrants representing at
least sixty percent (60%) of the shares of Common Stock underlying the SPA
Warrants then outstanding.

 

(xix)"Reverse Merger" means a merger by and among the Company, a Subsidiary of
the Company and Inventergy, Inc., a Delaware corporation, on terms acceptable to
the Required Holders.

 

(xx)"Reverse Split" means a one-for-three reverse split with respect to all of
the Company's shares of Common Stock to be effected by the Company on or before
the consummation of the Reverse Merger.

 

(xxi)"Subject Entity" means any Person, Persons or Group or any Affiliate or
associate of any such Person, Persons or Group.

 

(xxii)"Successor Entity" means one or more Person or Persons which may be the
entity formed by, resulting from or surviving any Fundamental Transaction or one
or more Person or Persons with which such Fundamental Transaction shall have
been entered into.

 

(xxiii)"Trading Day" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time).

 

(xxiv)"Weighted Average Price" means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York time (or such other time
as the Principal Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York time (or such other time as the Principal
Market publicly announces is the official close of trading), as reported by
Bloomberg through its "Volume at Price" function or, if the foregoing does not
apply, the dollar volume-weighted average price of such security in the
over-the-counter market on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York time (or such other time
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York time (or such other time as such market publicly
announces is the official close of trading), as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the OTC Link or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC
Markets Inc.). If the Weighted Average Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Weighted Average Price
of such security on such date shall be the fair market value as mutually
determined by the Company and the Holder. If the Company and the Holder are
unable to agree upon the fair market value of such security, then such dispute
shall be resolved pursuant to Section 12 with the term "Weighted Average Price"
being substituted for the term "Exercise Price." All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock
combination, reclassification or other similar transaction during the applicable
calculation period.

 

[Signature Page Follows]

 

- 57 -

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock
to be duly executed as of the Issuance Date set out above.

 

  EON COMMUNICATIONS CORPORATION         By:       Name:   Title:

 

 

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS 

WARRANT TO PURCHASE COMMON STOCK

 

eOn communications corporation

The undersigned holder hereby exercises the right to purchase _________________
of the shares of Common Stock ("Warrant Shares") of eOn Communications
Corporation, a Delaware corporation (the "Company"), evidenced by the attached
Warrant to Purchase Common Stock (the "Warrant"). Capitalized terms used herein
and not otherwise defined shall have the respective meanings set forth in the
Warrant. By affixing its signature hereto, the undersigned agrees that the
information contained herein is accurate and complete to the best of its
knowledge on the date hereof. The undersigned agrees and undertakes to notify
the Company until the Share Delivery Date immediately of any development it
become aware of that renders the information contained herein inaccurate or
incomplete.

 

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price
shall be made as:

 

____________ a "Cash Exercise" with respect to _________________ Warrant Shares;
and/or

 

____________ a "Cashless Exercise" with respect to _______________ Warrant
Shares.

 

2. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

 

3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

 

4. Confirmation.

a.           The undersigned represents and warrants that it is not and has not
been during the preceding three months, an “affiliate” of the Company, as such
term is defined by Rule 144(a). (Circle one) YES NO

 

b.           The undersigned represents and warrants that it has beneficially
owned the Warrant and it has been paid for in full since ________________.

 

Date: _______________ __, ______

 

    Name of Registered Holder  

 

By:       Name:     Title:  

 

 

 

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exercise Notice and hereby directs [NAME OF
TRANSFER AGENT] to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated December 16, 2013 from the
Company and acknowledged and agreed to by [NAME OF TRANSFER AGENT].

 

  EON COMMUNICATIONS CORPORATION         By:       Name:     Title:          

 

 

 

 

EXHIBIT C

 

FORM OF

 

REGISTRATION RIGHTS AGREEMENT

 

REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December 17, 2013,
by and among eOn Communications Corporation, a Delaware corporation, with
headquarters located at 1703 Sawyer Road, Corinth, MS 38834 (the "Company"), and
the investors listed on the Schedule of Buyers attached hereto (each, 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 each Buyer (i) shares of the
Company's Series B Convertible Preferred Stock, par value $0.001 per share (the
"Preferred Shares"), which will, among other things, be convertible into a
certain number of shares of the Company's common stock, par value $0.005 per
share (the "Common Stock as converted, the "Conversion Shares") in accordance
with the terms of the Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock (the "Certificate of Designations") and
(ii) warrants (the "Warrants") which will be exercisable to purchase shares of
Common Stock (as exercised, the "Warrant Shares") in accordance with the terms
of the Warrants.

 

B.            In accordance with the terms of 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.

 

Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement. As used in
this Agreement, the following terms shall have the following meanings:

 

(a)          "Additional Effective Date" means the date the Additional
Registration Statement is declared effective by the SEC.

 

 

 

 

(b)          "Additional Effectiveness Deadline" means the date which is (i) in
the event that the Additional Registration Statement is not subject to a full
review by the SEC, thirty (30) calendar days after the earlier of the Additional
Filing Date and the Additional Filing Deadline or (ii) in the event that the
Additional Registration Statement is subject to a full review by the SEC,
seventy-five (75) calendar days after the earlier of the Additional Filing Date
and the Additional Filing Deadline.

 

(c)          "Additional Filing Date" means the date on which the Additional
Registration Statement is filed with the SEC.

 

(d)          "Additional Filing Deadline" means if Cutback Shares are required
to be included in any Additional Registration Statement, the later of (i) the
date sixty (60) days after the date substantially all of the Registrable
Securities registered under the immediately preceding Registration Statement are
sold and (ii) the date six (6) months from the Initial Effective Date or the
most recent Additional Effective Date, as applicable.

 

(e)          "Additional Registrable Securities" means, (i) any Cutback Shares
not previously included on a Registration Statement and (ii) any capital stock
of the Company issued or issuable with respect to the Preferred Shares, the
Conversion Shares, the Warrants, the Warrant Shares, or the Cutback Shares, as
applicable, as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise, without regard to any limitations on
conversion of the Preferred Shares or exercise of the Warrants, unless any of
such Additional Registrable Securities are already deemed registered pursuant to
Rule 416 under the 1933 Act.

 

(f)           "Additional Registration Statement" means a registration statement
or registration statements of the Company filed under the 1933 Act covering any
Additional Registrable Securities.

 

(g)          "Additional Required Registration Amount" means any Cutback Shares
not previously included on a Registration Statement, all subject to adjustment
as provided in Section 2(f), without regard to any limitations on conversion of
the Preferred Shares or exercise of the Warrants.

 

(h)          "Business Day" means any day other than Saturday, Sunday or any
other day on which commercial banks in The City of New York are authorized or
required by law to remain closed.

 

(i)           "Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.

 

(j)           "Cutback Shares" means any of the Initial Required Registration
Amount or the Additional Required Registration Amount of Registrable Securities
not included in all Registration Statements previously declared effective
hereunder as a result of a limitation on the maximum number of shares of Common
Stock of the Company permitted to be registered by the staff of the SEC pursuant
to Rule 415. The number of Cutback Shares shall be allocated pro rata among the
Investors with each Investor entitled to elect the portion of its Conversion
Shares and/or Warrant Shares that are to be considered Cutback Shares. For the
purpose of determining the Cutback Shares, in order to determine any applicable
Required Registration Amount, unless an Investor gives written notice to the
Company to the contrary with respect to the allocation of its Cutback Shares,
first the Warrant Shares shall be excluded on a pro rata basis among the
Investors until all of the Warrant Shares have been excluded and second the
Conversion Shares shall be excluded on a pro rata basis among the Investors
until all of the Conversion Shares have been excluded.

 

2

 

 

(k)          "Effective Date" means the Initial Effective Date and the
Additional Effective Date, as applicable.

 

(l)           "Effectiveness Deadline" means the Initial Effectiveness Deadline
and the Additional Effectiveness Deadline, as applicable.

 

(m)         "Eligible Market" means the Principal Market, the NYSE MKT LLC, The
NASDAQ Global Market, The NASDAQ Global Select Market or The New York Stock
Exchange, Inc.

 

(n)          "Filing Deadline" means the Initial Filing Deadline and the
Additional Filing Deadline, as applicable.

 

(o)          "Initial Effective Date" means the date that the Initial
Registration Statement has been declared effective by the SEC.

 

(p)          "Initial Effectiveness Deadline" means the date on which the S-4
Registration Statement is declared effective by the SEC.

 

(q)          "Initial Filing Deadline" means the date which is within one (1)
Business Day of the date on which the S-4 Registration Statement is filed with
the SEC.

 

(r)           "Initial Registrable Securities" means (i) the Conversion Shares
issued or issuable upon conversion of the Preferred Shares, (ii) the Warrant
Shares issued or issuable upon exercise of the Warrants and (iii) any capital
stock of the Company issued or issuable, with respect to the Conversion Shares,
the Preferred Shares, the Warrant Shares or the Warrants as a result of any
stock split, stock dividend, recapitalization, exchange or similar event or
otherwise, without regard to any limitations on conversion of the Preferred
Shares or exercise of the Warrants, unless any of such Initial Registrable
Securities are deemed registered pursuant to Rule 416 under the 1933 Act.

 

(s)          "Initial Registration Statement" means a registration statement or
registration statements of the Company filed under the 1933 Act covering the
Initial Registrable Securities.

 

(t)           "Initial Required Registration Amount" means a number of shares of
Common Stock equal to 20% of the number of shares of Common Stock issued and
outstanding as of the date of this Agreement.

 

(u)          "Investor" means a Buyer, any transferee or assignee thereof 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.

 

3

 

 

(v)          "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.

 

(w)         "Principal Market" means the NASDAQ Capital Market.

 

(x)           "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, and the declaration or ordering of effectiveness of such Registration
Statement(s) by the SEC.

 

(y)          "Registrable Securities" means the Initial Registrable Securities
and the Additional Registrable Securities; provided, that as of the earlier of
(i) the date on which the Investors may sell all of the Registrable Securities
covered by such Registration Statement without restriction or limitation
pursuant to Rule 144 and without the requirement to be in compliance with Rule
144(c)(1) (or any successor thereto) promulgated under the 1933 Act or (ii) the
date on which the Investors shall have sold all of the Registrable Securities
covered by such Registration Statement, such otherwise Registrable Securities
shall cease to be Registrable Securities.

 

(z)           "Registration Statement" means the Initial Registration Statement
and the Additional Registration Statement, as applicable.

 

(aa)         "Required Holders" means the holders of at least sixty percent
(60%) of the Registrable Securities.

 

(bb)        "Required Registration Amount" means either the Initial Required
Registration Amount or the Additional Required Registration Amount, as
applicable.

 

(cc)        "Reverse Merger" shall have the meaning ascribed to such term in the
Certificate of Designations.

 

(dd)        "Rule 415" means Rule 415 promulgated under the 1933 Act or any
successor rule providing for offering securities on a continuous or delayed
basis.

 

(ee)        "S-4 Registration Statement" means the registration statement to be
filed by the Company in connection with the Reverse Merger.

 

(ff)          "SEC" means the United States Securities and Exchange Commission.

 

(gg)        "Trading Day" means any day on which the Common Stock is traded on
the Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time).

 

4

 

 

2.            Registration.

 

(a)           Initial Mandatory Registration. The Company shall prepare, and, as
soon as practicable but in no event later than the Initial Filing Deadline, file
with the SEC the Initial Registration Statement on Form S-3 covering the resale
of the Initial Required Registration Amount of Initial Registrable Securities,
subject to any required reduction by the SEC to the number of Registrable
Securities allowed to be included in such Initial Registration Statement. In the
event that Form S-3 is unavailable for such a registration, the Company shall
use Form S-1 or such other form as is available for such a registration on
another appropriate form reasonably acceptable to the Required Holders, subject
to the provisions of Section 2(e). The Initial Registration Statement prepared
pursuant hereto shall register for resale at least the number of shares of
Common Stock equal to the Initial Required Registration Amount determined as of
the date the Initial Registration Statement is initially filed with the SEC,
subject to adjustment as provided in Section 2(f). The Initial Registration
Statement shall contain (except if otherwise directed by the Required Holders)
the "Selling Stockholders" and "Plan of Distribution" sections in substantially
the form attached hereto as Exhibit B. The Company shall use its reasonable best
efforts to have the Initial Registration Statement declared effective by the SEC
as soon as practicable, but in no event later than the Initial Effectiveness
Deadline. By 9:30 a.m. New York time on the Business Day following the Initial
Effective Date, the Company shall file with the SEC in accordance with Rule 424
under the 1933 Act the final prospectus to be used in connection with sales
pursuant to such Initial Registration Statement.

 

(b)          Additional Mandatory Registrations. The Company shall prepare, and,
as soon as practicable but in no event later than the Additional Filing
Deadline, file with the SEC an Additional Registration Statement on Form S-3
covering the resale of all of the Additional Registrable Securities not
previously registered on an Additional Registration Statement hereunder. To the
extent the staff of the SEC does not permit the Additional Required Registration
Amount to be registered on an Additional Registration Statement, the Company
shall file Additional Registration Statements successively trying to register on
each such Additional Registration Statement the maximum number of remaining
Additional Registrable Securities until the Additional Required Registration
Amount has been registered with the SEC. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such Form S-1 or
other form as is available for such a registration on another appropriate form
reasonably acceptable to the Required Holders, subject to the provisions of
Section 2(e). Each Additional Registration Statement prepared pursuant hereto
shall register for resale at least that number of shares of Common Stock equal
to the Additional Required Registration Amount determined as of the date such
Additional Registration Statement is initially filed with the SEC, subject to
adjustment as provided in Section 2(f). Each Additional Registration Statement
shall contain (except if otherwise directed by the Required Holders) the
"Selling Stockholders" and "Plan of Distribution" sections in substantially the
form attached hereto as Exhibit B. The Company shall use its reasonable best
efforts to have each Additional Registration Statement declared effective by the
SEC as soon as practicable, but in no event later than the Additional
Effectiveness Deadline. By 9:30 a.m. New York time on the Business Day following
the Additional Effective Date, the Company shall file with the SEC in accordance
with Rule 424 under the 1933 Act the final prospectus to be used in connection
with sales pursuant to such Additional Registration Statement.

 

5

 

 

(c)          Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and any increase
or decrease 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 or decrease thereof is
declared effective by the SEC. In the event that an Investor sells or otherwise
transfers any of such Investor'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 covered
by such Registration Statement shall be allocated to the remaining Investors,
pro rata based on the number of Registrable Securities then held by such
Investors which are covered by such Registration Statement. In no event shall
the Company include any securities other than Registrable Securities on any
Registration Statement without the prior written consent of the Required
Holders.

 

(d)          Legal Counsel. Subject to Section 5 hereof, the Required Holders
shall have the right to select one legal counsel to review and oversee any
registration pursuant to this Section 2 ("Legal Counsel"), which shall be
Schulte Roth & Zabel LLP or such other counsel as thereafter designated by the
Required Holders. The Company and Legal Counsel shall reasonably cooperate with
each other in performing the Company's obligations under this Agreement.

 

(e)          Ineligibility for Form S-3. In the event that Form S-3 is not
available for the registration of the resale of Registrable Securities
hereunder, the Company shall (i) register the resale of the Registrable
Securities on Form S-1 or another appropriate form reasonably acceptable to the
Required Holders 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.

 

(f)           Sufficient Number of Shares Registered. In the event the number of
shares available under a Registration Statement filed pursuant to Section 2(a)
or Section 2(b) is insufficient to cover all of the Registrable Securities
required to be covered by such Registration Statement or an Investor's allocated
portion of the Registrable Securities pursuant to Section 2(c) (other than
Cutback Shares), the Company shall amend the applicable Registration Statement,
or file a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover at least the Required Registration Amount
as of the Trading Day immediately preceding the date of the filing of such
amendment or new Registration Statement, 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 reasonable 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 shares of Common Stock available for resale under the
Registration Statement is less than the product determined by multiplying (i)
the Required Registration Amount as of such time by (ii) 0.90. The calculation
set forth in the foregoing sentence shall be made without regard to any
limitations on conversion of the Preferred Shares or exercise of the Warrants
and such calculation shall assume that the Preferred Shares are then convertible
into shares of Common Stock at the then prevailing Conversion Rate (as defined
in the Certificate of Designations and the Warrants are then exercisable for
shares of Common Stock at the then prevailing Exercise Price (as defined in the
Warrants).

 

6

 

 

(g)          Effect of Failure to File and Obtain and Maintain Effectiveness of
Registration Statement. If (i) the Initial Registration Statement when declared
effective fails to register the Initial Required Registration Amount of Initial
Registrable Securities (a "Registration Failure"), (ii) a Registration Statement
covering (A) all of the Registrable Securities required to be covered thereby
and required to be filed by the Company pursuant to this Agreement is not filed
with the SEC on or before the applicable Filing Deadline (a "Filing Failure") or
(B) all of the Registrable Securities required to be covered thereby (other than
Cutback Shares) and required to be filed by the Company pursuant to this
Agreement is not declared effective by the SEC on or before the applicable
Effectiveness Deadline, (an "Effectiveness Failure") or (iii) on any day after
the applicable Effective Date sales of all of the Registrable Securities
required to be included on such Registration Statement cannot be made (other
than during an Allowable Grace Period (as defined in Section 3(r)) pursuant to
such Registration Statement or otherwise (including, without limitation, because
of the suspension of trading or any other limitation imposed by an Eligible
Market, a failure to keep such Registration Statement effective, a failure to
disclose such information as is necessary for sales to be made pursuant to such
Registration Statement, a failure to register a sufficient number of shares of
Common Stock (other than Cutback Shares) or a failure to maintain the listing of
the Common Stock) (a "Maintenance Failure") then, as partial relief for the
damages to any holder by reason of any such delay in or reduction of its ability
to sell the underlying shares of Common Stock (which remedy shall not be
exclusive of any other remedies available at law or in equity, including,
without limitation, specific performance), the Company shall pay to each holder
of Registrable Securities relating to such Registration Statement an amount in
cash equal to one and one-half percent (1.5%) of the aggregate Purchase Price
(as such term is defined in the Securities Purchase Agreement) of such
Investor's Registrable Securities not included in such Registration Statement
(other than Cutback Shares in case the event triggering the provisions of this
Section 2(g) is an Effectiveness Failure) on each of the following dates: (i)
the day of a Registration Failure; (ii) the day of a Filing Failure; (iii) the
day of an Effectiveness Failure; (iv) the initial day of a Maintenance Failure;
(v) on the thirtieth day after the date of a Registration Failure and every
thirtieth day thereafter (pro rated for periods totaling less than thirty days)
until such Registration Failure is cured; (vi) on the thirtieth day after the
date of a Filing Failure and every thirtieth day thereafter (pro rated for
periods totaling less than thirty days) until such Filing Failure is cured;
(vii) on the thirtieth day after the date of an Effectiveness Failure and every
thirtieth day thereafter (pro rated for periods totaling less than thirty days)
until such Effectiveness Failure is cured; and (viii) on the thirtieth day after
the initial date of a Maintenance Failure and every thirtieth day thereafter
(pro rated for periods totaling less than thirty days) until such Maintenance
Failure is cured. The payments to which a holder shall be entitled pursuant to
this Section 2(g) are referred to herein as "Registration Delay Payments."
Registration Delay Payments shall be paid on the earlier of (I) the dates set
forth above and (II) the third Business Day after the event or failure giving
rise to the Registration Delay Payments is cured. In the event the Company fails
to make Registration Delay Payments in a timely manner, such Registration Delay
Payments shall bear interest at the rate of one and one-half percent (1.5%) per
month (prorated for partial months) until paid in full.

 

7

 

 

3.            Related Obligations.

 

At such time as the Company is obligated to file a Registration Statement with
the SEC pursuant to Section 2(a), 2(b), 2(e) or 2(f), the Company will use its
reasonable 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 and use its
reasonable best efforts to cause such Registration Statement relating to the
Registrable Securities to become effective as soon as practicable after such
filing (but in no event later than the Effectiveness Deadline). The Company
shall keep each 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 covered by such Registration Statement without
restriction or limitation pursuant to Rule 144 and without the requirement to be
in compliance with Rule 144(c)(1) (or any successor thereto) promulgated under
the 1933 Act or (ii) the date on which the Investors shall have sold all of the
Registrable Securities covered by such Registration Statement (the "Registration
Period"). The Company shall ensure that each 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 the case of prospectuses, in the light of the circumstances in which they
were made) not misleading. The term "reasonable best efforts" shall mean, among
other things, that the Company shall submit to the SEC, within two (2) Business
Days after the later of the date that (i) 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 a particular Registration Statement, as the
case may be, and (ii) the approval of Legal Counsel pursuant to Section 3(c)
(which approval is immediately sought), a request for acceleration of
effectiveness of such Registration Statement to a time and date not later than
two (2) Business Days after the submission of such request. The Company shall
respond in writing to comments made by the SEC in respect of a Registration
Statement as soon as practicable, but in no event later than fifteen (15) days
after the receipt of comments by or notice from the SEC that an amendment is
required in order for a Registration Statement to be declared effective;
provided, that in connection with the Initial Registration Statement, comments
with respect to the financial statements of Inventergy, Inc. or the pro forma
financial statements of the Company giving effect to the Reverse Merger shall
have no specified deadline for filing an amendment.

 

8

 

 

(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 have incorporated such report by reference into
such Registration Statement, if applicable, or 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 such
Registration Statement.

 

(c)           The Company shall (A) permit Legal Counsel to review and comment
upon (i) a Registration Statement at least five (5) Business Days prior to its
filing with the SEC and (ii) all amendments and supplements to all Registration
Statements (except for Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, and any similar or successor reports) within
a reasonable number of days prior to their filing with the SEC, and (B) not file
any Registration Statement or amendment or supplement thereto 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 or delayed and no Registration Delay Payments
shall accrue in respect of any period in which the Company is delayed solely
because it is waiting for approval of Legal Counsel. The Company shall furnish
to Legal Counsel, without charge, (i) copies of 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, all documents incorporated therein
by reference, if requested by an Investor, 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, to
the extent any of such documents are not available on the EDGAR system. 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, all documents incorporated therein by reference, if
requested by an Investor, all exhibits and each preliminary prospectus, (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, to the extent any of such documents are not
available on the EDGAR system.

 

9

 

 

(e)          The Company shall use its reasonable best efforts to (i) register
and qualify, unless an exemption from registration and qualification applies,
the resale by Investors of the Registrable Securities covered by a Registration
Statement under such other securities or "blue sky" laws of all applicable
jurisdictions in the United States, (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 threatening of any proceeding for such purpose.

 

(f)           The Company shall notify Legal Counsel and each Investor in
writing of the happening of any event, as promptly as practicable after becoming
aware of such event but in any event on the same Trading Day as such 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 the light of the circumstances under which they were made, not
misleading (provided that in no event shall such notice contain any material,
nonpublic information), and, subject to Section 3(r), promptly prepare and file
with the SEC a supplement or amendment to such Registration Statement to correct
such untrue statement or omission. 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 or email on the same day of such effectiveness), (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. By 9:30 a.m. New York City time on the date following the date
any post-effective amendment has become effective, the Company shall file with
the SEC in accordance with Rule 424 under the 1933 Act the final prospectus to
be used in connection with sales pursuant to such Registration Statement.

 

(g)          The Company shall use its reasonable 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.

 

10

 

 

(h)          Intentionally omitted.

 

(i)           If any Investor is required under applicable securities laws to be
described in the Registration Statement as an underwriter or an Investor
believes that it could reasonably be deemed to be an underwriter of Registrable
Securities, the Company shall make available for inspection by (i) such
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 agree in writing to 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
Agreement. 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. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investors' ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations. The Company shall have no obligation to
disclose publicly, in an amendment to the Registration Statement or otherwise,
any confidential information provided to any Inspector unless the Company
determines, in its sole discretion, that such information is required to be
disclosed pursuant to the 1933 Act, and the Company shall have no liability to
any Investor who may be unable to thereafter sell any of the Company’s
securities due the Investor’s obtaining any material nonpublic information as a
result of such due diligence investigation. Notwithstanding the immediately
preceding sentence, the Company shall not provide any Investor with any
material, nonpublic information without the prior written consent of such
Investor. For the avoidance of doubt, with respect to any Investor that has
information barriers in place, the Company acknowledges and agrees that
disclosure of material, nonpublic information to an Inspector in accordance with
this Section 3(i) shall not automatically restrict portfolio managers or other
employees of such Investor, who do not have access to such material, nonpublic
information, from trading in the Company's securities.

 

11

 

 

(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 reasonable best efforts either to (i)
cause all of 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 the inclusion for quotation of all of the Registrable Securities on
The NASDAQ Capital Market or (iii) if, despite the Company's reasonable best
efforts, the Company is unsuccessful in satisfying the preceding clauses (i) and
(ii), to use reasonable best efforts to secure the inclusion for quotation on an
Eligible Market for such Registrable Securities and, without limiting the
generality of the foregoing, to use its reasonable best efforts to arrange for
at least two market makers to register with the Financial Industry Regulatory
Authority, Inc. ("FINRA") as such with respect to such Registrable Securities.
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, 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)          If requested by an Investor, the Company shall as soon as
practicable (i) incorporate in a prospectus supplement or post-effective
amendment such information as an Investor reasonably 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 to be
sold in such offering; (ii) make all required filings of such prospectus
supplement or post-effective amendment after being 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 reasonably
requested by an Investor holding any Registrable Securities.

 

(n)          The Company shall use its reasonable best efforts to cause the
Registrable Securities covered by a 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.

 

12

 

 

(o)          The Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with, and in
the manner provided by, 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 applicable Effective Date of a Registration
Statement.

 

(p)          The Company shall otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the SEC in connection with
any registration hereunder.

 

(q)          Within two (2) Business Days after a Registration Statement which
covers 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.

 

(r)           Notwithstanding anything to the contrary herein, at any time after
the Effective Date, 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 and its
counsel, in the best interest of the Company (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 Period shall exceed five
(5) consecutive Trading Days (unless such Grace Period relates to a material
acquisition, in which case the Grace Period shall not exceed twenty (20)
consecutive Trading Days) and during any three hundred sixty five (365) day
period such Grace Periods shall not exceed an aggregate of twenty (20) Trading
Days (forty-five (45) Trading Days in the case of material acquisitions) and the
first day of any Grace Period must be at least five (5) Trading Days after the
last day of any prior Grace Period (each, 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 Investors receive the notice referred to
in clause (i) and shall end on and include the later of the date the Investors
receive the notice referred to in clause (ii) and the date referred to in such
notice. The provisions of Section 3(g) 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. 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 the notice of a Grace Period and for
which the Investor has not yet settled.

 

13

 

 

(s)           Neither the Company nor any Subsidiary or affiliate thereof shall
identify any Investor as an underwriter in any public disclosure or filing with
the SEC, the Principal Market or any Eligible Market without the prior written
consent of such Investor and any Investor being deemed an underwriter by the SEC
shall not relieve the Company of any obligations it has under this Agreement or
any other Transaction Document (as defined in the Securities Purchase
Agreement); provided, however, that the foregoing shall not prohibit the Company
from including the disclosure found in the "Plan of Distribution" section
attached hereto as Exhibit B in the Registration Statement. If the SEC requires
that an Investor be identified as an underwriter in the Registration Statement,
the Investor shall either so consent, or such Investor’s Registrable Securities
shall be omitted from such Registration Statement without further obligation
hereunder by the Company.

 

(t)           Except with respect to a Registration Rights Agreement dated May
17, 2013 between Inventergy, Inc. and the investors signatory thereto, which
obligations will be assumed by the Company in the Reverse Merger, neither the
Company nor any of its Subsidiaries has entered, as of the date hereof, nor
shall the Company or any of its Subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities, that would
have the effect of impairing the rights granted to the Buyers in this Agreement
or otherwise conflicts with the provisions hereof.

 

4.            Obligations of the Investors.

 

(a)          At least five (5) Business 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 any 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 and maintain the effectiveness of 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 copies of
the supplemented or amended prospectus as 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(g) or the first sentence of 3(f) and for which the Investor has not
yet settled.

 

14

 

 

(d)          Each Investor covenants and agrees that it will comply with the
prospectus delivery requirements of the 1933 Act as applicable to it or an
exemption therefrom in connection with sales of Registrable Securities pursuant
to the Registration Statement.

 

5.            Expenses of Registration.

 

All reasonable expenses, other than underwriting discounts and 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, and fees and disbursements of
counsel for the Company shall be paid by the Company. The Company shall not be
responsible for the fees and expenses of Legal Counsel or of any Inspector.

 

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, members, 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, reasonable
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 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 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 reasonable legal fees 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 for 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); and (ii) 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 or delayed. 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.

 

15

 

 

(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, officers,
partners, members, employees, agents, and representatives, 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(c), such
Investor shall reimburse the Indemnified Party for any legal or other expenses
reasonably incurred by an Indemnified Party 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 or delayed; 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.

 

16

 

 

(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 all such
Indemnified Person or Indemnified Party to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the Indemnified Person or
Indemnified Party, as the case may be, 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 at least 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 reasonably cooperate with the
indemnifying party in connection with any settlement 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 and such settlement shall not include any
admission as to fault on the part of the Indemnified Party. 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.

 

17

 

 

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 Person
involved in the sale of Registrable Securities which Person is guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) in connection with such sale shall be entitled to contribution from any
Person involved in such sale 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 amount of net proceeds (sale price
less sales commissions) 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 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, if
true, that it has complied with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, (ii) 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 such Investor's 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 or 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.

 

18

 

 

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 the Required
Holders; provided that any such amendment or waiver that complies with the
foregoing but that disproportionately, materially and adversely affects the
rights and obligations of any Investor relative to the comparable rights and
obligations of the other Investors shall require the prior written consent of
such adversely affected Investor. 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 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 such record 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 by electronic mail; 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, facsimile numbers and
e-mail addresses for such communications shall be:

 

If to the Company:

 

eOn Communications Corporation

1703 Sawyer Road

Corinth, MS 38834

Telephone: 408-694-3339 Facsimile: 408-996-9722 Attention: David Lee, Chairman
E-mail: mking@sparktech.com

 

With a copy (for informational purposes only) to:

 

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

First Tennessee Building

165 Madison Avenue

 

19

 

 

Suite 2000

Memphis, Tennessee 38103

Telephone: (901) 577-8114 Facsimile: (901) 577-0762 Attention: Jackie Prester,
Esq. E-mail: jprester@bakerdonelson.com

 

If to the Transfer Agent:

 

Computershare Trust Company, N.A.

350 Indiana St. Suite 750

Golden, CO 80401

Telephone: (303) 262-0765 Facsimile: (303) 262-0610 Attention: Adam Burnham

 

If to Legal Counsel:

 

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York 10022

Telephone: (212) 756-2000 Facsimile: (212) 593-5955 Attention: Eleazer Klein,
Esq. Email: eleazer.klein@srz.com

 

If to a Buyer, to its address, facsimile number and/or email address set forth
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, facsimile number and/or email address to the attention of such other
Person as the recipient party has specified by written notice given to each
other party five (5) 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 or email containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a courier or overnight courier 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.

 

20

 

 

(d)          All 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
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, 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.

 

(e)           If any provision of this Agreement is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

(f)           This Agreement, the other Transaction Documents (as defined in the
Securities Purchase Agreement) and the instruments referenced herein and therein
constitute 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 other Transaction Documents and the instruments
referenced herein and therein supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.

 

(g)          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.

 

(h)          The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

 

21

 

 

(i)           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.

 

(j)           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 any 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.

 

(k)          All consents and other determinations required to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by the Required Holders, determined as if all of the
Preferred Shares and Warrants held by Investors then outstanding have been
exercised for Registrable Securities without regard to any limitations on
conversion of the Preferred Shares or exercise of the Warrants.

 

(l)           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.

 

(m)         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.

 

(n)          The obligations of each Investor hereunder are several and not
joint with the obligations of any other Investor, and no provision of this
Agreement is intended to confer any obligations on any Investor vis-à-vis any
other Investor. Nothing contained herein, and no action taken by any Investor
pursuant hereto, shall be deemed to constitute the Investors as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated herein.

 

* * * * * *

 

[Signature Page Follows]

 

22

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused its respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.

 

  COMPANY:       EON COMMUNICATIONS CORPORATION       By:       Name:     Title:

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused its respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.

 

  BUYERS:       HUDSON BAY IP OPPORTUNITIES MASTER FUND LP       By: Hudson Bay
Capital Management LP, Investment Manager       By:       Name:     Title:

 

 

 

 

IN WITNESS WHEREOF, each Buyer and the Company have caused its respective
signature page to this Registration Rights Agreement to be duly executed as of
the date first written above.

 

     

 

 

 

 

SCHEDULE OF BUYERS

 

27. Buyer   Buyer Address
and Facsimile Number   Buyer's Representative's Address 
and Facsimile Number          

Hudson Bay IP Opportunities

Master Fund LP

 

c/o Hudson Bay Capital Management LP

777 Third Ave., 30th Floor

New York, NY 10017
Attention: Yoav Roth
Facsimile:  (646) 214-7946
Telephone: (212) 571-1244

E-mail: investments@hudsonbaycapital.com

    operations@hudsonbaycapital.com

 

Schulte Roth & Zabel LLP

919 Third Avenue

New York, NY 10022

Attn:  Eleazer Klein, Esq. 

Facsimile:  (212) 593-5955

Telephone:  (212) 756-2000

Email: Eleazer.Klein@srz.com

          Barry C. Honig  

215 SE Spanish Trail

Boca Raton, FL 33432

Telephone: 561-235-5379

     561-302-2287

E-mail: brhonig@aol.com

   

 

 

 

 

EXHIBIT A

 

FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT

 

Computershare Trust Company, N.A.

350 Indiana St. Suite 750

Golden, CO 80401

Telephone: (303) 262-0765 Facsimile: (303) 262-0610 Attention: Adam Burnham

 

Re:eOn Communications Corporation

 

Ladies and Gentlemen:

 

We are counsel to eOn Communications Corporation, a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement, dated as of December 17, 2013 (the "Securities
Purchase Agreement"), entered into by and among the Company and the buyers named
therein (collectively, the "Holders") pursuant to which the Company issued to
the Holders shares of the Company's Series B Convertible Preferred Stock shares,
par value $0.001 per share (the "Preferred Shares") convertible into the
Company's common stock, par value $0.005 per share (the "Common Stock") and
warrants exercisable for shares of Common Stock (the "Warrants"). Pursuant to
the Securities Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the "Registration Rights
Agreement") pursuant to which the Company agreed, among other things, to
register the resale of the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issuable
upon conversion of the Preferred Shares and the shares of Common Stock issuable
upon exercise of the Warrants under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the Registration
Rights Agreement, on ____________ ___, 2013, the Company filed a Registration
Statement on Form S-3 (File No. 333-_____________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Registrable Securities which names each of the Holders as a selling
stockholder thereunder.

 

In connection with the foregoing, we advise you that a member of the SEC's staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.

 

Based on the foregoing, we are of the opinion that the shares of Common Stock
are freely transferable by the Holders without legend or other restrictions
pursuant to the Registration Statement. You need not require further letters
from us or any confirmation of sale letters from Holder to effect any future
legend-free issuance or reissuance of shares of Common Stock to the Holders as
contemplated by the Company's Irrevocable Transfer Agent Instructions dated
December 17, 2013.

 

  Very truly yours,       [ISSUER'S COUNSEL]       By:   CC:   [LIST NAMES OF
HOLDERS]  

 

A-1

 

 

EXHIBIT B

SELLING STOCKHOLDERS

 

The shares of common stock being offered by the selling stockholders are those
issuable upon conversion of the convertible preferred shares and upon exercise
of the warrants. For additional information regarding the issuances of the
convertible preferred shares and the warrants, see "Private Placement of the
Convertible Preferred Shares and Warrants" above. We are registering the shares
of common stock in order to permit the selling stockholders to offer the shares
for resale from time to time. Except for the ownership of the convertible
preferred shares and the warrants, the selling stockholders have not had any
material relationship with us within the past three years.

 

The table below lists the selling stockholders and other information regarding
the beneficial ownership of the shares of common stock by each of the selling
stockholders. The second column lists the number of shares of common stock
beneficially owned by each selling stockholder, based on its ownership of the
shares of the convertible preferred shares and the warrants, as of ________,
2013, assuming conversion of all convertible preferred shares and exercise of
the warrants held by the selling stockholders on that date, without regard to
any limitations on conversions and/or redemptions of the convertible preferred
shares or exercises of the warrants.

 

The third column lists the shares of common stock being offered by this
prospectus by the selling stockholders.

 

In accordance with the terms of a registration rights agreement with the holders
of the convertible preferred shares and the warrants, this prospectus generally
covers the resale of at least a number of shares of Common Stock equal to 20% of
the number of shares of Common Stock issued and outstanding as of December 16,
2013. The fourth column assumes the sale of all of the shares offered by the
selling stockholders pursuant to this prospectus.

 

Under the terms of the convertible preferred shares and the warrants, a selling
stockholder may not convert the convertible preferred shares or exercise the
warrants, to the extent such conversion or exercise would cause such selling
stockholder, together with its affiliates, to beneficially own a number of
shares of common stock which would exceed 4.99% of our then outstanding shares
of common stock following such conversion or exercise, excluding for purposes of
such determination shares of common stock issuable upon conversion of the
convertible preferred shares which have not been converted and upon exercise of
the warrants which have not been exercised. The number of shares in the second
column does not reflect this limitation. The selling stockholders may sell all,
some or none of their shares in this offering. See "Plan of Distribution."

 

Annex I-1

 

 

Name of Selling stockholder  

Number of Shares of 

Common Stock Owned 

Prior to Offering

 

Maximum Number of Shares 

of Common Stock to be Sold 

Pursuant to this Prospectus

 

Number of Shares of 

Common Stock Owned 

After Offering

              Hudson Bay IP Opportunities Master Fund LP (1)                    
      Barry Honig            

 

(1)           Hudson Bay Capital Management LP, the investment manager of Hudson
Bay IP Opportunities Master Fund LP, has voting and investment power over these
securities. Sander Gerber is the managing member of Hudson Bay Capital GP LLC,
which is the general partner of Hudson Bay Capital Management LP. Each of Hudson
Bay IP Opportunities Master Fund LP and Sander Gerber disclaims beneficial
ownership over these securities.

 

Annex I-2

 

 

PLAN OF DISTRIBUTION

 

We are registering the shares of common stock issuable upon conversion of the
convertible preferred shares and the shares of common stock issuable upon
exercise of the warrants to permit the resale of these shares of common stock by
the holders of the convertible preferred shares and warrants from time to time
after the date of this prospectus. We will not receive any of the proceeds from
the sale by the selling stockholders of the shares of common stock. We will bear
all fees and expenses incident to our obligation to register the shares of
common stock.

 

The selling stockholders may sell all or a portion of the shares of common stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the shares of
common stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent's commissions. The shares of common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions,

 

·on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale;

 

·in the over-the-counter market;

 

·in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;

 

·through the writing of options, whether such options are listed on an options
exchange or otherwise;

 

·ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

 

·block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;

 

·purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

 

·an exchange distribution in accordance with the rules of the applicable
exchange;

 

·privately negotiated transactions;

 

·short sales;

 

·sales pursuant to Rule 144;

 

Annex I-3

 

 

·broker-dealers may agree with the selling securityholders to sell a specified
number of such shares at a stipulated price per share;

 

·a combination of any such methods of sale; and

 

·any other method permitted pursuant to applicable law.

 

If the selling stockholders effect such transactions by selling shares of common
stock to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales of
the shares of common stock or otherwise, the selling stockholders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the shares of common stock in the course of hedging in positions they
assume. The selling stockholders may also sell shares of common stock short and
deliver shares of common stock covered by this prospectus to close out short
positions and to return borrowed shares in connection with such short sales. The
selling stockholders may also loan or pledge shares of common stock to
broker-dealers that in turn may sell such shares.

 

The selling stockholders may pledge or grant a security interest in some or all
of the convertible preferred shares or warrants or shares of common stock owned
by them and, if they default in the performance of their secured obligations,
the pledgees or secured parties may offer and sell the shares of common stock
from time to time pursuant to this prospectus or any amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933, as amended, amending, if necessary, the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer and donate the shares of common stock in other circumstances in which
case the transferees, donees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus.

 

The selling stockholders and any broker-dealer participating in the distribution
of the shares of common stock may be deemed to be "underwriters" within the
meaning of the Securities Act, and any commission paid, or any discounts or
concessions allowed to, any such broker-dealer may be deemed to be underwriting
commissions or discounts under the Securities Act. At the time a particular
offering of the shares of common stock is made, a prospectus supplement, if
required, will be distributed which will set forth the aggregate amount of
shares of common stock being offered and the terms of the offering, including
the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling stockholders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.

 

Under the securities laws of some states, the shares of common stock may be sold
in such states only through registered or licensed brokers or dealers. In
addition, in some states the shares of common stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.

 

Annex I-4

 

 

There can be no assurance that any selling stockholder will sell any or all of
the shares of common stock registered pursuant to the registration statement, of
which this prospectus forms a part.

 

The selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of common stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of common
stock to engage in market-making activities with respect to the shares of common
stock. All of the foregoing may affect the marketability of the shares of common
stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.

 

We will pay all expenses of the registration of the shares of common stock
pursuant to the registration rights agreement, estimated to be $[     ] in
total, including, without limitation, Securities and Exchange Commission filing
fees and expenses of compliance with state securities or "blue sky" laws;
provided, however, that a selling stockholder will pay all underwriting
discounts and selling commissions, if any. We will indemnify the selling
stockholders against liabilities, including some liabilities under the
Securities Act, in accordance with the registration rights agreements, or the
selling stockholders will be entitled to contribution. We may be indemnified by
the selling stockholders against civil liabilities, including liabilities under
the Securities Act, that may arise from any written information furnished to us
by the selling stockholder specifically for use in this prospectus, in
accordance with the related registration rights agreement, or we may be entitled
to contribution.

 

Once sold under the registration statement, of which this prospectus forms a
part, the shares of common stock will be freely tradable in the hands of persons
other than our affiliates.

 

Annex I-5

 

 

EXHIBIT D

 

FORM OF

 

VOTING AGREEMENT

 

VOTING AGREEMENT, dated as of December __, 2013 (this "Agreement"), by and among
eOn Communications Corporation, a Delaware corporation (the "Company"), and
[INSERT] (the "Stockholder").

 

WHEREAS, the Company and certain investors (each, an "Investor", and
collectively, the "Investors") have entered into a Securities Purchase
Agreement, dated as December __, 2013 (the "Securities Purchase Agreement"),
pursuant to which, among other things, the Company has agreed to issue and sell
to the Investors and the Investors have agreed to purchase (i) shares of Series
B Convertible Preferred Stock of the Company, par value $0.001 per share (the
"Preferred Shares"), which are convertible into shares of the common stock of
the Company, par value $0.005 per share (the "Common Stock") and (ii) warrants
(the "Warrants"), which are exercisable to purchase shares of Common Stock.

 

WHEREAS, as of the date hereof, the Stockholder owns [ ] shares of Common Stock;
and

 

WHEREAS, as a condition to the willingness of the Investors to enter into the
Securities Purchase Agreement and to consummate the transactions contemplated
thereby (collectively, the "Transaction"), the Investors have required that the
Stockholder agree, and in order to induce the Investors to enter into the
Securities Purchase Agreement, the Stockholder has agreed, to enter into this
Agreement with respect to all the Common Stock now owned and which may hereafter
be acquired by the Stockholder and any other securities, if any, which the
Stockholder is currently entitled to vote, or after the date hererof, becomes
entitled to vote, at any meeting of stockholders of the Company (the "Other
Securities").

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:

 

ARTICLE I

 

VOTING AGREEMENT OF THE STOCKHOLDER

 

SECTION 1.01.         Voting Agreement. Subject to the last sentence of this
Section 1.01, the Stockholder hereby agrees that at any meeting of the
stockholders of the Company, however called, and in any action by written
consent of the Company's stockholders, the Stockholder shall vote the Common
Stock and the Other Securities owned by the Stockholder: (a) in favor of the
Stockholder Approval (as defined in the Securities Purchase Agreement) as
described in Section 4(s) of the Securities Purchase Agreement; and (b) against
any proposal or any other corporate action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Securities Purchase Agreement or which could
result in any of the conditions to the Company's obligations under the
Securities Purchase Agreement not being fulfilled. The Stockholder acknowledges
receipt and review of a copy of the Securities Purchase Agreement and the other
Transaction Documents (as defined in the Securities Purchase Agreement). The
obligations of the Stockholder under this Section 1.01 shall terminate
immediately following the occurrence of the Stockholder Approval.

 

 

 

 

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER

 

The Stockholder hereby represents and warrants, severally but not jointly, to
each of the Investors as follows:

 

SECTION 2.01.         Authority Relative to This Agreement. The Stockholder has
all necessary legal capacity, power and authority to execute and deliver this
Agreement, to perform his obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Stockholder and constitutes a legal, valid and binding
obligation of the Stockholder, enforceable against the Stockholder in accordance
with its terms, except (a) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws now or hereafter in effect relating to, or affecting generally the
enforcement of creditors' and other obligees' rights, (b) where the remedy of
specific performance or other forms of equitable relief may be subject to
certain equitable defenses and principles and to the discretion of the court
before which the proceeding may be brought, and (c) where rights to indemnity
and contribution thereunder may be limited by applicable law and public policy.

 

SECTION 2.02.         No Conflict. (a) The execution and delivery of this
Agreement by the Stockholder does not, and the performance of this Agreement by
the Stockholder shall not, (i) conflict with or violate any federal, state or
local law, statute, ordinance, rule, regulation, order, judgment or decree
applicable to the Stockholder or by which the Common Stock or the Other
Securities owned by the Stockholder are bound or affected or (ii) result in any
breach of or constitute a default (or an event that 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, or result in the
creation of a lien or encumbrance on any of the Common Stock or the Other
Securities owned by the Stockholder pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Stockholder is a party or by which the
Stockholder or the Common Stock or Other Securities owned by the Stockholder are
bound.

 

(b)          The execution and delivery of this Agreement by the Stockholder
does not, and the performance of this Agreement by the Stockholder shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental entity by the Stockholder.

 

SECTION 2.03.         Title to the Stock. As of the date hereof, the Stockholder
is the owner of the number of shares of Common Stock set forth opposite its name
on Appendix A attached hereto, entitled to vote, without restriction, on all
matters brought before holders of capital stock of the Company, which Common
Stock represent on the date hereof the percentage of the outstanding stock and
voting power of the Company set forth on such Appendix. Such Common Stock are
all the securities of the Company owned, either of record or beneficially, by
the Stockholder. Such Common Stock are owned free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Stockholder's voting rights, charges and other encumbrances
of any nature whatsoever. The Stockholder has not appointed or granted any
proxy, which appointment or grant is still effective, with respect to the Common
Stock or Other Securities owned by the Stockholder.

 

Signature Page to Voting Agreement

 

 

 

 

ARTICLE III

 

COVENANTS

 

SECTION 3.01.         No Disposition or Encumbrance of Stock. The Stockholder
hereby covenants and agrees that, until the Stockholder Approval has been
obtained, except as contemplated by this Agreement, the Stockholder shall not
offer or agree to sell, transfer, tender, assign, hypothecate or otherwise
dispose of, grant a proxy or power of attorney with respect to, or create or
permit to exist any security interest, lien, claim, pledge, option, right of
first refusal, agreement, limitation on the Stockholder's voting rights, charge
or other encumbrance of any nature whatsoever ("Encumbrance") with respect to
the Common Stock or Other Securities, directly or indirectly, initiate, solicit
or encourage any person to take actions which could reasonably be expected to
lead to the occurrence of any of the foregoing; provided, however, that the
Stockholder may assign, sell or transfer any Common Stock or Other Securities
provided that any such recipient of the Common Stock or Other Securities has
delivered to the Company and each Investor a written agreement in a form
reasonably satisfactory to the Investors that the recipient shall be bound by,
and the Common Stock and/or Other Securities so transferred, assigned or sold
shall remain subject to this Agreement.

 

SECTION 3.02.         Company Cooperation. The Company hereby covenants and
agrees that it will not, and the Stockholder irrevocably and unconditionally
acknowledges and agrees that the Company will not (and waives any rights against
the Company in relation thereto), recognize any Encumbrance or agreement on any
of the Common Stock or Other Securities subject to this Agreement unless the
provisions of Section 3.01 have been complied with. The Company agrees to use
its reasonable best efforts to ensure that at any time in which any Stockholder
Approval is required pursuant to Section 4(s) of the Securities Purchase
Agreement, it will cause holders of Common Stock or Other Securities
representing the percentage of outstanding capital stock required to vote in
favor of the Transaction in order for the Company to comply with its obligations
under Section 4(s) of the Securities Purchase Agreement to become party to and
bound by the terms and conditions of this Agreement and the Common Stock and
Other Securities held by such holders to be subject to the terms and conditions
of this Agreement.

 

ARTICLE IV

 

MISCELLANEOUS

 

SECTION 4.01.         Further Assurances. The Stockholder will execute and
deliver such further documents and instruments and take all further action as
may be reasonably necessary in order to consummate the transactions contemplated
hereby.

 

Signature Page to Voting Agreement

 

 

 

 

SECTION 4.02.         Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that any Investor (without
being joined by any other Investor) shall be entitled to specific performance of
the terms hereof, in addition to any other remedy at law or in equity. Any
Investor shall be entitled to its reasonable attorneys' fees in any action
brought to enforce this Agreement in which it is the prevailing party.

 

SECTION 4.03.         Entire Agreement. This Agreement constitutes the entire
agreement among the Company and the Stockholder with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between the Company and the Stockholder with respect to the
subject matter hereof.

 

SECTION 4.04.         Amendment. The provisions of this Agreement may not be
amended or waived, nor may this Agreement be terminated by the Company other
than pursuant to the provisions of Section 4.07.

 

SECTION 4.05.         Severability. If any provision of this Agreement is
prohibited by law or otherwise determined to be invalid or unenforceable by a
court of competent jurisdiction, the provision that would otherwise be
prohibited, invalid or unenforceable shall be deemed amended to apply to the
broadest extent that it would be valid and enforceable, and the invalidity or
unenforceability of such provision shall not affect the validity of the
remaining provisions of this Agreement so long as this Agreement as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter hereof and the prohibited nature, invalidity or
unenforceability of the provision(s) in question does not substantially impair
the respective expectations or reciprocal obligations of the parties or the
practical realization of the benefits that would otherwise be conferred upon the
parties. The parties will endeavor in good faith negotiations to replace the
prohibited, invalid or unenforceable provision(s) with a valid provision(s), the
effect of which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

SECTION 4.06.         Governing Law. All 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. The parties hereby agree that
all actions or proceedings arising directly or indirectly from or in connection
with this Agreement shall be litigated only in the Supreme Court of the State of
New York or the United States District Court for the Southern District of New
York located in New York County, New York. The parties consent to the
jurisdiction and venue of the foregoing courts and consent that any process or
notice of motion or other application to any of said courts or a judge thereof
may be served inside or outside the State of New York or the Southern District
of New York by registered mail, return receipt requested, directed to the party
being served at its address set forth on the signature ages to this Agreement
(and service so made shall be deemed complete three (3) days after the same has
been posted as aforesaid) or by personal service or in such other manner as may
be permissible under the rules of said courts. Each of the Company and the
Stockholder irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action, or proceeding brought in such a court and any claim that
suit, action, or proceeding has been brought in an inconvenient forum. 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 WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

 

Signature Page to Voting Agreement

 

 

 

 

SECTION 4.07.         Termination. This Agreement shall terminate immediately
following the occurrence of the Stockholder Approval.

 

[Signature Page Follows]

 

Signature Page to Voting Agreement

 

 

 

 

IN WITNESS WHEREOF, the Stockholder and the Company has duly executed this
Agreement.

 

  THE COMPANY:       EON COMMUNICATIONS CORPORATION         By:      
Name:  Stephen Swartz     Title:  Principal Executive Officer Dated: December
___, 2013    

  Address: eOn Communications Corporation     1703 Sawyer Road     Corinth, MS
38834

 

Signature Page to Voting Agreement

 

 

 

 

    STOCKHOLDER:             Dated: December ___, 2013         Address:      

Signature Page to Voting Agreement

 

 

 

 

APPENDIX A

 

Stockholder   Common Stock
Owned  

Percentage of Stock

Outstanding

  Voting Percentage
of Stock
Outstanding          

 

 

 

 

EXHIBIT I

 

FORM OF LOCK UP AGREEMENT

 

EON COMMUNICATIONS CORPORATION

 

December __, 2013

 

eOn Communications Corporation

1703 Sawyer Road

Corinth, MS 38834

 

Re: eOn Communications Corporation– Lock-Up Agreement

 

Dear Sir:

 

This Lock-Up Agreement is being delivered to you in connection with the
Securities Purchase Agreement (the "Purchase Agreement"), dated as of December
__, 2013 by and among eOn Communications Corporation (the "Company") and the
investors party thereto (the "Buyers"), with respect to the issuance of (i)
Series B Convertible Preferred Shares, par value $0.001 per share (the
"Preferred Shares") which will be convertible into the Company's common stock,
par value $0.005 per share (the "Common Stock") pursuant to the terms of the
Certificate of Designations, Preferences and Rights of Series B Convertible
Preferred Stock (the "Certificate of Designations") and (ii) warrants (the
"Warrants") which Warrants will be exercisable to purchase Common Stock.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Purchase Agreement.

 

In order to induce the Buyers to enter into the Purchase Agreement, the
undersigned agrees that, commencing on the date hereof and ending on the
earliest of (i) date the Reverse Merger (as defined in the Certificate of
Designations) has been consummated , (ii) the date no Preferred Shares are
outstanding and (iii) seven (7) months from the Closing Date (as defined in the
Purchase Agreement) (the "Lock-Up Period"), the undersigned will not, and will
cause all affiliates (as defined in Rule 144) of the undersigned or any person
in privity with the undersigned or any affiliate of the undersigned not to, (1)
sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any
option to purchase, make any short sale or otherwise dispose of or agree to
dispose of, directly or indirectly, any shares of Common Stock or Common Stock
Equivalents, or establish or increase a put equivalent position or liquidate or
decrease a call equivalent position within the meaning of Section 16 of the
Securities and Exchange Act of 1934, as amended and the rules and regulations of
the Securities and Exchange Commission promulgated thereunder with respect to
any shares of Common Stock or Common Stock Equivalents owned directly by the
undersigned (including holding as a custodian) or with respect to which the
undersigned has beneficial ownership within the rules and regulations of the
Securities and Exchange Commission (collectively, the "Undersigned's Shares"),
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of any of the
Undersigned's Shares, whether any such transaction described in clause (1) or
(2) above is to be settled by delivery of shares of Common Stock or other
securities, in cash or otherwise, (3) make any demand for or exercise any right
or cause to be filed a registration statement, including any amendments thereto,
with respect to the registration of any shares of Common Stock or Common Stock
Equivalents or (4) publicly disclose the intention to do any of the foregoing.
Notwithstanding the foregoing, the undersigned, the undersigned’s affiliates and
any person in privity with the undersigned or any affiliate of the undersigned
may, at any time from and after the date hereof, exercise any derivative
security of the Company owned by the undersigned, the undersigned’s affiliates
or any person in privity with the undersigned or any affiliate of the
undersigned, whether such derivative security is exercised on a cashless basis
or otherwise; provided, however, that any shares of Common Stock or other
securities of the Company underlying such derivative security of the Company
issued upon such exercise shall be subject to the restrictions set forth herein.

 

 

 

 

The foregoing restriction is expressly agreed to preclude the undersigned, and
any affiliate of the undersigned and any person in privity with the undersigned
or any affiliate of the undersigned, from engaging in any hedging or other
transaction which is designed to or which reasonably could be expected to lead
to or result in a sale or disposition of the Undersigned's Shares even if the
Undersigned's Shares would be disposed of by someone other than the undersigned.
Such prohibited hedging or other transactions would include, without limitation,
any short sale or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any of the Undersigned's
Shares or with respect to any security that includes, relates to, or derives any
significant part of its value from the Undersigned's Shares.

 

Notwithstanding the foregoing, the undersigned may transfer the Undersigned's
Shares (i) as a bona fide gift or gifts, provided that the donee or donees
thereof agree to be bound in writing by the restrictions set forth herein and
(ii) to any trust for the direct or indirect benefit of the undersigned or the
immediate family of the undersigned, provided that the trustee of the trust
agrees to be bound in writing by the restrictions set forth herein, and provided
further that any such transfer shall not involve a disposition for value. For
purposes of this Lock-Up Agreement, "immediate family" shall mean any
relationship by blood, marriage or adoption, not more remote than first cousin.
The undersigned now has, and, except as contemplated by the immediately
preceding sentence, for the duration of this Lock-Up Agreement will have, good
and marketable title to the Undersigned's Shares, free and clear of all liens,
encumbrances, and claims whatsoever. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar (the "Transfer Agent") against the transfer of the Undersigned's
Shares except in compliance with the foregoing restrictions.

 

In order to enforce this covenant, the Company shall impose irrevocable
stop-transfer instructions preventing the Transfer Agent from effecting any
actions in violation of this Lock-Up Agreement.

 

The undersigned acknowledges that the execution, delivery and performance of
this Lock-Up Agreement is a material inducement to each Buyer to complete the
transactions contemplated by the Purchase Agreement and that the Company shall
be entitled to specific performance of the undersigned's obligations hereunder.
The undersigned hereby represents that the undersigned has the power and
authority to execute, deliver and perform this Lock-Up Agreement, that the
undersigned has received adequate consideration therefor and that the
undersigned will indirectly benefit from the closing of the transactions
contemplated by the Purchase Agreement.

 

 

 

 

The undersigned understands and agrees that this Lock-Up Agreement is
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors, and assigns.

 

This Lock-Up Agreement may be executed in two counterparts, each of which shall
be deemed an original but both of which shall be considered one and the same
instrument.

 

This Lock-Up Agreement will be governed by and construed in accordance with the
laws of the State of New York, without giving effect to any choice of law or
conflicting provision or rule (whether of the State of New York, or any other
jurisdiction) that would cause the laws of any jurisdiction other than the State
of New York to be applied. In furtherance of the foregoing, the internal laws of
the State of New York will control the interpretation and construction of this
Lock-Up Agreement, even if under such jurisdiction's choice of law or conflict
of law analysis, the substantive law of some other jurisdiction would ordinarily
apply.

 

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  Very truly yours,           Exact Name of Stockholder           Authorized
Signature           Title

 

Agreed to and Acknowledged:   EON COMMUNICATIONS CORPORATION     By:       Name:
    Title: