Subordinated Secured Convertible Promissory Note - Atari Corp. and JT Storage Inc.
THIS NOTE AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
SUBORDINATED SECURED CONVERTIBLE PROMISSORY NOTE
$25,000,000.00 February 13, 1996
San Jose, California
FOR VALUE RECEIVED, JT Storage, Inc., a Delaware corporation (the
"Company"), promises to pay to Atari Corporation, a Nevada corporation (the
"Holder"), or its assigns, the principal sum of Twenty Five Million Dollars
($25,000,000.00), or such lesser amount as shall equal the outstanding
principal amount hereof, together with interest from the date of this Note on
the unpaid principal balance at a rate equal to eight and one-half percent
(8.5%) per annum, computed on the basis of the actual number of days elapsed
and a year of 365 days. All unpaid principal, together with any then unpaid
and accrued interest and other amounts payable hereunder, shall be due and
payable on the "Maturity Date" which date shall be the earlier of (i) September
30 , 1996, or (ii) when such amounts are declared due and payable by the Holder
(or made automatically due and payable) upon or after the occurrence of an
Event of Default (as defined below).
THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY
AGREEMENT (THE "SECURITY AGREEMENT") DATED AS OF THE DATE HEREOF AND EXECUTED
BY THE COMPANY IN FAVOR OF THE HOLDER. ADDITIONAL RIGHTS OF THE HOLDER ARE SET
FORTH IN THE SECURITY AGREEMENT.
The following is a statement of the rights of the Holder and the
conditions to which this Note is subject, and to which the Holder, by the
acceptance of this Note, agrees:
1. DEFINITIONS. As used in this Note, the following capitalized
terms have the following meanings:
(a) the "Company" includes the corporation initially
executing this Note and any Person which shall succeed to or assume the
obligations of the Company under this Note.
(b) "Certificate" shall mean the Restated Certificate of
Incorporation of Company as in effect on the date hereof.
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(c) "Equity Securities" of any Person shall mean (a) all
common stock, preferred stock, participations, shares, partnership interests or
other equity interests in and of such Person (regardless of how designated and
whether or not voting or non-voting) and (b) all warrants, options and other
rights to acquire any of the foregoing.
(d) "Event of Default" has the meaning given in Section 7
hereof.
(e) "Financial Statements" shall mean, with respect to
any accounting period for any Person, statements of operations, retained
earnings and cash flows of such Person for such period, and balance sheets of
such Person as of the end of such period, setting forth in each case in
comparative form figures for the corresponding period in the preceding fiscal
year if such period is less than a full fiscal year or, if such period is a
full fiscal year, corresponding figures from the preceding fiscal year, all
prepared in reasonable detail and in accordance with generally accepted
accounting principles (except, with respect to monthly or quarterly financials,
for footnotes and year end adjustments). Unless otherwise indicated, each
reference to Financial Statements of any Person shall be deemed to refer to
Financial Statements prepared on a consolidated basis.
(f) "Holder" shall mean the Person specified in the
introductory paragraph of this Note or any Person who shall at the time be the
holder of this Note.
(g) "Indebtedness" shall mean and include the aggregate
amount of, without duplication (a) all obligations for borrowed money, (b) all
obligations evidenced by bonds, debentures, notes or other similar instruments,
(c) all obligations to pay the deferred purchase price of property or services
(other than accounts payable incurred in the ordinary course of business
determined in accordance with generally accepted accounting principals), (d)
all obligations with respect to capital leases, (e) all guaranty obligations;
(f) all obligations created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person, (g)
all reimbursement and other payment obligations, contingent or otherwise, in
respect of letters of credit.
(h) "Investment" of any Person shall mean any loan or
advance of funds by such Person to any other Person (other than advances to
employees of such Person for moving and travel expense, drawing accounts and
similar expenditures in the ordinary course of business), any purchase or other
acquisition of any Equity Securities or Indebtedness of any other Person, any
capital contribution by such Person to or any other investment by such Person
in any other Person (including, without limitation, any Indebtedness incurred
by such Person of the type described in clauses (a) and (b) of the definition
of "Indebtedness" on behalf of any other Person); provided, however, that
Investments shall not include accounts receivable or other indebtedness owed by
customers of such Person which are current assets and arose from sales or
non-exclusive licensing in the ordinary course of such Person's business.
(i) "Lien" shall mean, with respect to any property, any
security interest, mortgage, pledge, lien, claim, charge or other encumbrance
in, of, or on such property or the income therefrom, including, without
limitation, the interest of a vendor or lessor under a conditional sale
agreement, capital lease or other title retention agreement, or any agreement
to provide any of the foregoing, and the filing
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of any financing statement or similar instrument under the Uniform Commercial
Code or comparable law of any jurisdiction.
(j) "Material Adverse Effect" shall mean a material
adverse effect on (a) the business, assets, operations, or financial or other
condition of the Company; (b) the ability of the Company to pay or perform the
Obligations in accordance with the terms of this Note and the other Transaction
Documents and to avoid a default or Event of Default under any Transaction
Document; or (c) the rights and remedies of Holder under this Note, the other
Transaction Documents or any related document, instrument or agreement.
(k) "Merger Agreement" shall mean that certain Agreement
and Plan of Reorganization dated as of February 12, 1996 by and between the
Company and the Holder.
(l) "Obligations" has the meaning given in Section 1 of
the Security Agreement.
(m) "Permitted Indebtedness" means:
(i) Indebtedness of Company in favor of the
Holder arising under this Note;
(ii) The existing Indebtedness disclosed on the
JTS Disclosure Schedule (as defined in the Merger Agreement) (the "Schedule");
(iii) Indebtedness to trade creditors, including,
without limitation, affiliates of Company, incurred in the ordinary course of
business, provided that the amount of such Indebtedness related to Moduler
Electronics (India) Pvt. Ltd. shall not exceed $30.0 million at any time;
(iv) Other Indebtedness of Company, not exceeding
$1.0 million in the aggregate outstanding at any time;
(v) Contingent obligations of Company consisting
of guarantees (and other credit support) of the obligations of vendors and
suppliers of Company in respect of transactions entered into in the ordinary
course of business;
(vi) Indebtedness with respect to capital lease
obligations and Indebtedness secured by Permitted Liens;
(vii) Extensions, renewals, refundings,
refinancings, modifications, amendments and restatements of any of the items of
Permitted Indebtedness (a) through (f) above, provided that the principal
amount thereof is not increased or the terms thereof are not modified to impose
more burdensome terms upon Company.
(n) "Permitted Investments" shall mean and include: (a)
deposits with commercial banks organized under the laws of the United States or
a state thereof to the extent such deposits are fully insured by the Federal
Deposit Insurance Corporation; (b) Investments in marketable obligations issued
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or fully guaranteed by the United States and maturing not more than one (1)
year from the date of issuance; (c) Investments in open market commercial paper
rated at least "A1" or "P1" or higher by a national credit rating agency and
maturing not more than one (1) year from the creation thereof; (d) Investments
pursuant to or arising under currency agreements or interest rate agreements
entered into in connection with bona fide hedging arrangements; (e) Investments
consisting of deposit accounts of the Company in which the Holder has a
perfected security interest and deposit accounts of its Subsidiaries maintained
in the ordinary course of business; (f) Investments existing on the Closing
Date disclosed in the Schedule; (g) Extensions of credit in the nature of
accounts receivable or notes receivable arising from the same or lease of goods
or services in the ordinary course of business; (h) Investments consisting of
the endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; (i) Investments (including
debt obligations) received in connection with the bankruptcy or reorganization
of customers or suppliers and in settlement of delinquent obligations of, and
other disputes with, customers or suppliers arising in the ordinary course of
business; (j) Investments consisting of (i) compensation of employees, officers
and directors of borrower so long as the Board of Directors of Company
determines that such compensation is in the best interests of Company, (ii)
travel advances, employee relocation loans and other employee loans and
advances in the ordinary course of business, (iii) loans to employees, officers
or directors relating to the purchase of equity securities of Company, (iv)
other loans to officers and employees approved by the Board of Directors; and
(k) other Investments aggregating not in excess of $1,000,000 at any time.
(o) "Permitted Liens" shall mean and include: (i) Liens
for taxes or other governmental charges not at the time delinquent or
thereafter payable without penalty or being contested in good faith, provided
provision is made to the reasonable satisfaction of Holder for the eventual
payment thereof if subsequently found payable; (ii) Liens of carriers,
warehousemen, mechanics, materialmen, vendors, and landlords incurred in the
ordinary course of business for sums not overdue or being contested in good
faith, provided provision is made to the reasonable satisfaction of Holder for
the eventual payment thereof if subsequently found payable; (iii) deposits
under workers' compensation, unemployment insurance and social security laws or
to secure the performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, or to secure statutory obligations of
surety or appeal bonds or to secure indemnity, performance or other similar
bonds in the ordinary course of business; (iv) Liens securing obligations under
a capital lease if such lease is permitted under the Security Agreement and
such Liens do not extend to property other than the property leased under such
capital lease; (v) Liens upon any equipment acquired or held by Company or any
of its Subsidiaries to secure the purchase price of such equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such equipment; (vi) easements, reservations, rights of way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property in a manner not materially or adversely
affecting the value or use of such property; (vii) Liens in favor of the
Holder; (viii) Liens existing on the date hereof in favor of holders of Senior
Indebtedness; (ix) any liens existing as of the date hereof and disclosed in
the Schedule; (x) liens on equipment leased by Company pursuant to an operating
lease in the ordinary course of business (including proceeds thereof and
accessions thereto) incurred solely for the purpose of financing the lease of
such equipment (including Liens arising from UCC financing statements regarding
such leases); (xi) liens arising from judgements, decrees or attachments to the
extent and only so long as such judgment, decree or attachment does not
constitute an Event of Default under 7(h); (xii) liens in favor of customs and
revenue authorities arising as a matter of law to secure payment
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of customs duties in connection with the importation of goods; (xiii) liens
arising solely by virtue of any statutory or common law provision relating to
banker's liens, rights off setoff or similar rights and remedies as to deposit
accounts or other funds maintained with a creditor depository institution; and
(xiv) liens incurred in connection with the extension, renewal, refunding,
refinancing, modification, amendment or restatement of the indebtedness secured
by Liens of the type described in clauses (i) and (xiii) above, provided that
any extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
being extended, renewed or refinanced does not increase.
(p) "Person" shall mean and include an individual, a
partnership, a corporation (including a business trust), a joint stock company,
a limited liability company, an unincorporated association, a joint venture or
other entity or a governmental authority.
(q) "Senior Indebtedness" shall mean the principal of,
unpaid interest on and other amounts due in connection with the Company's
Business Loan Agreement dated as of December 18, 1995 with Silicon Valley Bank
in an amount not to exceed $5.0 million at any time.
(r) "Series A Preferred" shall mean the Company's
presently authorized Series A Preferred Stock.
(s) "Subsidiary" shall mean (a) any corporation of which
more than 50% of the issued and outstanding equity securities having ordinary
voting power to elect a majority of the Board of Directors of such corporation
is at the time directly or indirectly owned or controlled by Company, (b) any
partnership, joint venture, or other association of which more than 50% of the
equity interest having the power to vote, direct or control the management of
such partnership, joint venture or other association is at the time directly or
indirectly owned and controlled by Company (c) any other entity included in the
financial statements of Company on a consolidated basis.
(t) "Transaction Documents" shall mean this Note, the
Security Agreement, the Warrant (as defined in Section 11 hereof) and the
Merger Agreement.
2. REPRESENTATIONS AND WARRANTIES OF COMPANY. The Company
represents and warrants to the Holder that except as disclosed in the JTS
Disclosure Schedule (as defined in the Merger Agreement) delivered concurrently
herewith:
(a) Due Incorporation and Qualification. Each of Company
and its Subsidiaries (i) is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation; (ii) has
the power and authority to own, lease and operate its properties and carry on
its business as now conducted and as proposed to be conducted; and (iii) is
duly qualified, licensed to do business and in good standing as a foreign
corporation in each jurisdiction where the failure to be so qualified or
licensed could reasonably be expected to have a Material Adverse Effect.
(b) Authority. The execution, delivery and performance
by Company of each Transaction Document to be executed by Company and the
consummation of the transactions
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contemplated thereby (i) are within the power of Company and (ii) have been
duly authorized by all necessary actions on the part of Company.
(c) Enforceability. Each Transaction Document executed,
or to be executed, by Company has been, or will be, duly executed and delivered
by Company and constitutes, or will constitute, a legal, valid and binding
obligation of Company, enforceable against Company in accordance with its
terms, except as limited by bankruptcy, insolvency or other laws of general
application relating to or affecting the enforcement of creditors' rights
generally and general principles of equity.
(d) Non-Contravention. The execution and delivery by
Company of the Transaction Documents executed by Company and the performance
and consummation of the transactions contemplated thereby do not and will not
(i) violate the Certificate of Incorporation or Bylaws of the Company or any
material judgment, order, writ, decree, statute, rule or regulation applicable
to Company; (ii) violate any provision of, or result in the breach or the
acceleration of, or entitle any other Person to accelerate (whether after the
giving of notice or lapse of time or both), any material mortgage, indenture,
agreement, instrument or contract to which Company is a party or by which it is
bound; or (iii) result in the creation or imposition of any Lien upon any
property, asset or revenue of Company (other than any Lien arising under the
Transaction Documents) or the suspension, revocation, impairment, forfeiture,
or nonrenewal of any material permit, license, authorization or approval
applicable to Company, its business or operations, or any of its assets or
properties.
(e) Approvals. No consent, approval, order or
authorization of, or registration, declaration or filing with, any governmental
authority or other Person (including, without limitation, the shareholders of
any Person) is required in connection with the execution and delivery of the
Transaction Documents executed by Company and the performance and consummation
of the transactions contemplated thereby, except such as may be required
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, in connection with any conversion of the principal balance of this
Note pursuant to Section 10 hereof.
(f) No Violation or Default. None of the Company or the
Company's Subsidiaries is in violation of or in default with respect to (i) its
Certificate of Incorporation or Bylaws or equivalent charter document or any
material judgment, order, writ, decree, statute, rule or regulation applicable
to such Person; (ii) any material mortgage, indenture, agreement, instrument or
contract to which such Person is a party or by which it is bound (nor is there
any waiver in effect which, if not in effect, would result in such a violation
or default), where, in each case, such violation or default, individually, or
together with all such violations or defaults, could reasonably be expected to
have a Material Adverse Effect.
(g) Litigation. No actions (including, without
limitation, derivative actions), suits, proceedings or investigations are
pending or, to the knowledge of the Company, threatened against the Company or
the Company's Subsidiaries at law or in equity in any court or before any other
governmental authority which if adversely determined (i) would (alone or in the
aggregate) have a Material Adverse Effect or (ii) seeks to enjoin, either
directly or indirectly, the execution, delivery or performance by the Company
of the Transaction Documents or the transactions contemplated thereby.
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(h) Title. The Company and the Company's Subsidiaries
own and have good and marketable title in fee simple absolute to, or a valid
leasehold interest in, all their respective real properties and good title to
their other respective assets and properties as reflected in the most recent
Financial Statements delivered to Purchasers (except those assets and
properties disposed of in the ordinary course of business since the date of
such Financial Statements) and all respective assets and properties acquired by
Company and Company's Subsidiaries since such date (except those disposed of in
the ordinary course of business). Such assets and properties are subject to no
Lien, except for Permitted Liens.
(i) Equity Securities. The authorized capital stock of
the Company consists of 90,000,000 shares of Common Stock, $.000001 par value,
and 70,000,000 shares of Preferred Stock, $.000001 par value, all of which is
designated Series A Preferred Stock, of which there are issued and outstanding,
7,466,729 shares of Common Stock and 28,696,370 shares of Series A Preferred.
There are no other outstanding shares of capital stock or voting securities.
Each outstanding share of the Company's Series A Preferred Stock is convertible
into one (1) share of the Company's Common Stock. All outstanding shares of
the Company's Common Stock and the Company's Series A Preferred Stock are duly
authorized, validly issued, fully paid and non-assessable and are free of any
Liens other than any Liens created by or imposed upon the holders thereof, and
are not subject to preemptive rights or rights of first refusal created by
statute, the Certificate of Incorporation or Bylaws of the Company or any
agreement to which the Company is a party or by which it is bound. The Company
has reserved (i) 4,300,000 shares of Common Stock for issuance to employees and
consultants pursuant to the Company's 1995 Stock Option Plan, of which 16,729
shares have been issued pursuant to option exercises, and 3,885,747 shares are
subject to outstanding, unexercised options, and (ii) 600,000 shares of Common
Stock for issuance upon the exercise of outstanding, unexercised warrants.
There are no other options, warrants, calls, rights, commitments or agreements
of any character to which the Company is a party or by which it is bound
obligating the Company to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of capital
stock of the Company or obligating the Company to grant, extend, accelerate the
vesting of, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. Except as set forth in
the Registration Rights Agreement dated as of February 3, 1995 by and among the
Company and certain other persons and as contemplated by Section 11(g) hereof,
no Person has the right to demand or other rights to cause Company to file any
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), relating to any Equity Securities of Company presently
outstanding or that may be subsequently issued, or any right to participate in
any such registration statement.
3. REPRESENTATIONS AND WARRANTIES OF HOLDER. The Holder
represents and warrants to the Company that such Holder has been advised that
neither this Note nor the securities which may be issued upon the conversion
hereof have been registered under the Securities Act, or any state securities
laws and, therefore, cannot be resold unless registered under the Securities
Act and applicable state securities laws or unless an exemption from such
registration requirements is available. Such Holder is aware that the Company
is under no obligation to effect any such registration with respect to the Note
or to file for or comply with any exemption from registration. Such Holder has
not been formed solely for the purpose of making this investment and is
purchasing the Note to be acquired by such Holder hereunder for its own account
for investment, not as a nominee or agent, and not with a view to, or for
resale in connection
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with, the distribution thereof. Such Holder has such knowledge and experience
in financial and business matters that such Purchaser is capable of evaluating
the merits and risks of such investment, is able to incur a complete loss of
such investment and is able to bear the economic risk of such investment for an
indefinite period of time. Such Holder is an accredited investor as such term
is defined in Rule 501 of Regulation D under the Securities Act.
4. INTEREST. Accrued interest on the outstanding principal
balance on this Note shall be payable on the Maturity Date.
5. PREPAYMENT. Upon fifteen (15) days prior written notice to
the Holder, the Company may prepay this Note in whole or in part; provided that
any such prepayment will be applied first to the payment of expenses due under
this Note, second to interest accrued on this Note and third, if the amount of
prepayment exceeds the amount of all such expenses and accrued interest, to the
payment of principal of this Note.
6. CERTAIN COVENANTS. While any amount is outstanding under the
Note, without the prior written consent of the Holder:
(a) Indebtedness. Neither Company nor any of its
Subsidiaries shall create, incur, assume or permit to exist any Indebtedness
except Senior Indebtedness and Permitted Indebtedness.
(b) Liens. Neither the Company nor any of its
Subsidiaries shall create, incur, assume or permit to exist any Lien on or with
respect to any of its assets or property of any character, whether now owned or
hereafter acquired, except for Permitted Liens.
(c) Asset Dispositions. Neither the Company nor any of
its Subsidiaries shall sell, lease, transfer, license or otherwise dispose of
any of its assets or property (collectively, a "Transfer"), whether now owned
or hereafter acquired, except (i) transfers in the ordinary course of its
business consisting of the sale of inventory and sales of worn-out or obsolete
equipment and (ii) transfers not in excess of $3.0 million for fair value and
other than to any affiliate of the Company.
(d) Mergers, Acquisitions, Etc. Neither the Company nor
any of its Subsidiaries shall consolidate with or merge into any other Person
or permit any other Person to merge into it, or acquire all or substantially
all of the assets or capital stock of any other Person.
(e) Investments. Neither the Company nor any of its
Subsidiaries shall make any Investment except for Permitted Investments.
(f) Dividends, Redemptions, Etc. Neither the Company nor
any of its Subsidiaries shall (i) pay any dividends or make any distributions
on its equity securities; (ii) purchase, redeem, retire, decease or otherwise
acquire for value any of its equity securities; (iii) return any capital to any
holder of its equity securities; (iv) make any distribution of assets, Equity
Securities, obligations or securities to any holder of its Equity Securities;
or (v) set apart any sum for any such purpose; other than payments of principal
and interest on outstanding bridge loans and repurchases of shares from
terminated employees
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<PAGE> 9
pursuant to the terms of restricted stock purchase agreements, and provided,
however, that any Subsidiary may pay cash dividends to Company.
(g) Indebtedness Payments. Except as set forth on JTS
Disclosure Schedule (as defined in the Merger Agreement), neither the Company
nor any of its Subsidiaries shall (i) prepay, redeem, purchase, decrease or
otherwise satisfy in any manner prior to the scheduled repayment thereof any
Indebtedness for borrowed money (other than (A) amounts due under this Note and
(B) Senior Indebtedness) or lease obligations, (ii) amend, modify or otherwise
change the terms of any Indebtedness for borrowed money (other than (A)
Obligations under this Note and (B) Senior Indebtedness) or lease obligations
so as to accelerate the scheduled repayment thereof or (iii) repay any notes to
officers, directors or stockholders.
(h) Information Rights; Notices. The Company shall
furnish to the Holder the following:
(i) Monthly Financial Statements. Within thirty
(30) days after the last day of each month, a copy of the Financial
Statements of the Company for such quarter and for the fiscal year to
date, certified by the chief financial officer or controller of the
Company to present fairly the financial condition, results of
operations and other information presented therein and to have been
prepared in accordance with generally accepted accounting principals
consistently applied, subject to normal year end adjustments and
except that no footnotes need be included with such Financial
Statements;
(ii) Annual Financial Statements. Within ninety
(90) days after the close of each fiscal year of the Company, (i)
copies of the audited Financial Statements of Company for such year,
audited by nationally recognized independent certified public
accountants, (ii) copies of the unqualified opinions and management
letters delivered by such accountants in connection with such
Financial Statements, and (iii) a report containing a description of
projected business prospects (including capital expenditures) and
management's discussion and analysis of financial condition and
results of operation of Company and its Subsidiaries;
(iii) SEC Reports. At such time as the Company is
subject to the reporting requirement of the Exchange Act, as soon as
possible and in no event later than five (5) days after they are sent,
made available or filed, copies of all registration statements and
reports filed by Company with the Securities and Exchange Commission
and all reports, proxy statements and financial statements sent or
made available by Company to its stockholders generally; and
(iv) Notice of Defaults. Promptly upon the
occurrence thereof, written notice of the occurrence of any Event of
Default hereunder or any event of default with respect to any Senior
Indebtedness.
(i) Inspection Rights. The Holder and its
representatives shall have the right, at any time during normal business hours,
upon reasonable prior notice, to visit and inspect the properties of the
Company and its corporate, financial and operating records, and make abstracts
therefrom, and to discuss
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the Company's affairs, finances and accounts with its directors, officers and
independent public accountants.
(j) Use of Proceeds. The Company shall use the proceeds
from all borrowings under this Note solely for (A) interim financing for
capital equipment prior to obtaining lease financing for such equipment, (B)
leasehold improvements, tooling and other fixed assets in an aggregate amount
not to exceed $5.3 million, (C) repayment of the Bridge Notes (as defined in
the JTS Disclosure Schedule) in the aggregate principal amount of $2,005,000,
and (D) working capital purposes.
7. EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an "Event of Default" under this Note and the other
Transaction Documents:
(a) Failure to Pay. The Company shall fail to pay (i)
when due any principal payment on the due date hereunder or (ii) any interest
or other payment required under the terms of this Note or any other Transaction
Document on the date due and such payment shall not have been made within five
(5) days of Company's receipt of the Holder's written notice to Company of such
failure to pay; or
(b) Breaches of Certain Covenants. The Company or any of
its Subsidiaries shall fail to observe or perform any covenant, obligation,
condition or agreement set forth in Section 6(d), 6(f) or 6(j) of this Note;
or
(c) Breaches of Other Covenants. The Company or any of
its Subsidiaries shall fail to observe or perform any other covenant,
obligation, condition or agreement contained in this Note or the other
Transaction Documents (other than those specified in Sections 7(a) and 7(b))
and (i) such failure shall continue for fifteen (15) days, or (ii) if such
failure does not result from the payment of money or the failure to pay money
and is not curable within such fifteen (15) day period, but is reasonably
capable of cure within forty-five (45) days, either (A) such failure shall
continue for forty-five (45) days or (B) the Company or its Subsidiary shall
not have commenced a cure in a manner reasonably satisfactory to the Holder
within the initial fifteen (15) day period; or
(d) Representations and Warranties. Any representation,
warranty, certificate, or other statement (financial or otherwise) made or
furnished by or on behalf of the Company to the Holder in writing in connection
with this Note or any of the other Transaction Documents, or as an inducement
to the Holder to enter into this Note and the other Transaction Documents,
shall be false, incorrect, incomplete or misleading in any respect when made or
furnished, except any such false, incorrect, incomplete or misleading statement
which will not result in a Material Adverse Effect on the Company; or
(e) Other Payment Obligations. Except pursuant to the
Company's Business Loan Agreement with Silicon Valley Bank and the capital
equipment loan from Venture Lending and Leasing, Inc., each as described in the
JTS Disclosure Schedule (as defined in the Merger Agreement), the Company or
any of its Subsidiaries shall (i)(A) fail to make any payment when due under
the terms of any bond, debenture, note or other evidence of Indebtedness,
including the Senior Indebtedness, to be paid by such Person (excluding this
Note and the other Transaction Documents but including any other
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evidence of Indebtedness of Company or any of its Subsidiaries to the Holder)
and such failure shall continue beyond any period of grace provided with
respect thereto, or (B) default in the observance or performance of any other
agreement, term or condition contained in any such bond, debenture, note or
other evidence of Indebtedness, and (ii) the effect of such failure or default
is to cause, or permit the holder or holders thereof to cause, Indebtedness in
an aggregate amount of Two Hundred Fifty Thousand Dollars ($250,000) or more to
become due prior to its stated date of maturity, unless such acceleration shall
have been rescinded and such failure to pay cured within thirty (30) days from
the date of such acceleration; or
(f) Voluntary Bankruptcy or Insolvency Proceedings. The
Company or any of its Subsidiaries shall (i) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian of itself or of all
or a substantial part of its property, (ii) be unable, or admit in writing its
inability, to pay its debts generally as they mature, (iii) make a general
assignment for the benefit of its or any of its creditors, (iv) be dissolved or
liquidated in full or in part, (v) become insolvent (as such term may be
defined or interpreted under any applicable statute), (vi) commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it, or (vii) take any
action for the purpose of effecting any of the foregoing; or
(g) Involuntary Bankruptcy or Insolvency Proceedings.
Proceedings for the appointment of a receiver, trustee, liquidator or custodian
of the Company or any of its Subsidiaries or of all or a substantial part of
the property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to the Company or any
of its Subsidiaries or the debts thereof under any bankruptcy, insolvency or
other similar law now or hereafter in effect shall be commenced and an order
for relief entered or such proceeding shall not be dismissed or discharged
within sixty (60) days of commencement; or
(h) Judgments. A final judgment or order for the payment
of money in excess of Two Hundred Fifty Thousand Dollars ($250,000) (exclusive
of amounts covered by insurance issued by an insurer not an affiliate of
Company) shall be rendered against the Company or any of its Subsidiaries and
the same shall remain undischarged for a period of thirty (30) days during
which execution shall not be effectively stayed, or any judgment, writ,
assessment, warrant of attachment, or execution or similar process shall be
issued or levied against a substantial part of the property of the Company or
any of its Subsidiaries and such judgment, writ, or similar process shall not
be released, stayed, vacated or otherwise dismissed within thirty (30) days
after issue or levy; or
(i) Transaction Documents. Any Transaction Document
(other than the Merger Agreement) or any material term thereof shall cease to
be, or be asserted by the Company not to be, a legal, valid and binding
obligation of Company enforceable in accordance with its terms or if the Liens
of the Holder in any of the assets of Company or its Subsidiaries shall cease
to be or shall not be valid and perfected Liens or the Company or any
Subsidiary shall assert that such Liens are not valid and perfected Liens.
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<PAGE> 12
8. RIGHTS OF HOLDER UPON DEFAULT. Upon the occurrence or
existence of any Event of Default (other than an Event of Default referred to
in Sections 7(f) and 7(g)) and at any time thereafter during the continuance of
such Event of Default, the Holder may, by written notice to the Company,
declare all outstanding Obligations payable by the Company hereunder to be
immediately due and payable without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the other Transaction Documents to the contrary
notwithstanding. Upon the occurrence or existence of any Event of Default
described in Sections 7(f) and 7(g), immediately and without notice, all
outstanding Obligations payable by Company hereunder shall automatically become
immediately due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything
contained herein or in the other Transaction Documents to the contrary
notwithstanding. In addition to the foregoing remedies, upon the occurrence or
existence of any Event of Default, the Holder may exercise any other right,
power or remedy granted to it by the Transaction Documents or otherwise
permitted to it by law, either by suit in equity or by action at law, or both.
9. SUBORDINATION. The indebtedness evidenced by this Note is
hereby expressly subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full of the Senior
Indebtedness.
(a) Insolvency Proceedings. If there shall occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization, or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation, or any other marshaling of the assets and
liabilities of the Company, (i) no amount shall be paid by the Company in
respect of the principal of, interest on or other amounts due with respect to
this Note at the time outstanding, unless and until the principal of and
interest on the Senior Indebtedness then outstanding shall be paid in full, and
(ii) no claim or proof of claim shall be filed with the Company by or on behalf
of Holder of this Note which shall assert any right to receive any payments in
respect of the principal of and interest on this Note except subject to the
payment in full of the principal of and interest on all of the Senior
Indebtedness then outstanding.
(b) Default on Senior Indebtedness. If there shall occur
an event of default which has been declared in writing with respect to any
Senior Indebtedness, as defined therein, or in the instrument under which it is
outstanding, permitting the holder to accelerate the maturity thereof and the
Holder shall have received written notice thereof from the holder of such
Senior Indebtedness, then, unless and until such event of default shall have
been cured or waived or shall have ceased to exist, or all Senior Indebtedness
shall have been paid in full, no payment shall be made in respect of the
principal of or interest on this Note, unless within one hundred eighty (180)
days after the happening of such event of default, the maturity of such Senior
Indebtedness shall not have been accelerated. Not more than one notice may be
given to Holder pursuant to the terms of this Section 9(b) during any 360 day
period.
(c) Further Assurances. By acceptance of this Note, the
Holder agrees to execute and deliver customary forms of subordination agreement
requested from time to time by holders of Senior Indebtedness, and as a
condition to the Holder's rights hereunder, the Company may require that the
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<PAGE> 13
Holder execute such forms of subordination agreement; provided that such forms
shall not impose on the Holder terms less favorable than those provided herein
and in the Security Agreement.
(d) Other Indebtedness. No indebtedness which does not
constitute Senior Indebtedness shall be senior in any respect to the
indebtedness represented by this Note.
(e) Subrogation. Subject to the payment in full of all
Senior Indebtedness, the Holder shall be subrogated to the rights of the
holder(s) of such Senior Indebtedness (to the extent of the payments or
distributions made to the holder(s) of such Senior Indebtedness pursuant to the
provisions of this Section 9) to receive payments and distributions of assets
of the Company applicable to the Senior Indebtedness. No such payments or
distributions applicable to the Senior Indebtedness shall, as between the
Company and its creditors, other than the holders of Senior Indebtedness and
the Holder, be deemed to be a payment by the Company to or on account of this
Note; and for purposes of such subrogation, no payments or distributions to the
holders of Senior Indebtedness to which the Holder would be entitled except for
the provisions of this Section 9 shall, as between the Company and its
creditors, other than the holders of Senior Indebtedness and the Holder, be
deemed to be a payment by the Company to or on account of the Senior
Indebtedness.
(f) No Impairment. Subject to the rights, if any, of the
holders of Senior Indebtedness under this Section 9 to receive cash, securities
or other properties otherwise payable or deliverable to the Holder, nothing
contained in this Section 9 shall impair, as between the Company and the
Holder, the obligation of the Company, subject to the terms and conditions
hereof, to pay to the Holder the principal hereof and interest hereon as and
when the same become due and payable, or shall prevent the Holder, upon default
hereunder, from exercising all rights, powers and remedies otherwise provided
herein or by applicable law.
(g) Lien Subordination. Any Lien of the Holder, whether
now or hereafter existing in connection with the amounts due under this Note,
on any assets or property of the Company or any proceeds or revenues therefrom
which the Holder may have at any time as security for any amounts due and
obligations under this Note shall be subordinate to all Liens now or hereafter
granted to a holder of Senior Indebtedness by Company or by law,
notwithstanding the date, order or method of attachment or perfection of any
such Lien or the provisions of any applicable law.
(h) Reliance of Holders of Senior Indebtedness. The
Holder, by its acceptance hereof, shall be deemed to acknowledge and agree that
the foregoing subordination provisions are, and are intended to be, an
inducement to and a consideration of each holder of Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
creation of the indebtedness evidenced by this Note, and each such holder of
Senior Indebtedness shall be deemed conclusively to have relied on such
subordination provisions in acquiring and holding, or in continuing to hold,
such Senior Indebtedness.
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<PAGE> 14
10. CONVERSION.
(a) Conversion by Holder. In the event that the Merger
Agreement is terminated pursuant to Section 8(a), 8(b) or 8(d) (i) through
8(d)(iv) thereof or upon the occurrence of an Event of Default hereunder, then
from and after such date, the Holder shall have the right, at such Holder's
option, at any time prior to payment in full of the principal balance of this
Note, to convert this Note, in accordance with the provisions of Section 10(c)
hereof, in whole or in part, into fully paid and nonassessable shares of Series
A Preferred, provided that the Holder shall provide at least thirty (30) days
notice to the Company of Holder's election to convert this Note into shares of
Series A Preferred upon the occurrence of an Event of Default. The number of
shares of Series A Preferred into which this Note may be converted shall be
determined by dividing the aggregate amount of this Note to be converted by the
Conversion Price (as defined below) in effect at the time of such conversion.
The initial "Conversion Price" shall be equal to $1.00 per share. The
Conversion Price shall be subject to adjustment from time to time pursuant to
Section 12 hereof and the terms of the Company's Certificate.
(b) Conversion by the Company. In the event that the
Merger Agreement is terminated pursuant to Section 8(c), 8(d)(v) or 8(d)(vi)
thereof, the Company shall have the right, at the Company's option, to convert
this Note, in accordance with the provisions of Section 10(c) hereof, in whole
or in part, into fully paid and nonassessable shares of Series A Preferred.
The number of shares of Series A Preferred into which this Note may be
converted shall be determined by dividing the aggregate amount of this Note to
be converted by the Conversion Price in effect at the time of such conversion.
(c) Conversion Procedure.
(i) Conversion Pursuant to Section 10(a). Before
the Holder shall be entitled to convert this Note into shares of Series A
Preferred, it shall surrender this Note, duly endorsed, at the office of the
Company and shall give written notice, postage prepaid, to the Company at its
principal corporate office, of the election to convert the same pursuant to
Section 10(a), and shall state therein the amount of the unpaid principal
amount of this Note to be converted and the name or names in which the
certificate or certificates for shares of Series A Preferred are to be issued.
The Company shall, as soon as practicable thereafter (but in any event within
ten (10) days thereafter), issue and deliver to the Holder of this Note a
certificate or certificates for the number of shares of Series A Preferred to
which the Holder shall be entitled upon conversion (bearing such legends as are
required by applicable state and federal securities laws), together with a
replacement Note (if any principal amount is not converted) and any other
securities and property to which the Holder is entitled upon such conversion
under the terms of this Note, including a check payable to Holder for any cash
amounts payable as described in Section 10(d). The conversion shall be deemed
to have been made immediately prior to the close of business on the date of the
surrender of this Note, and the Person or Persons entitled to receive the
shares of Series A Preferred upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Series A Preferred
as of such date.
(ii) Conversion Pursuant to Section 10(b). If
this Note is converted by the Company pursuant to Section 10(b), written notice
shall be delivered to the Holder notifying the Holder
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<PAGE> 15
of the conversion to be effected, specifying the Conversion Price, the
principal amount of the Note to be converted, the date on which such conversion
is expected to occur and calling upon such Holder to surrender to Company, in
the manner and at the place designated, the Note. Upon such conversion of this
Note, the Holder shall surrender this Note, duly endorsed, at the principal
office of Company. At its expense, the Company shall, as soon as practicable
thereafter (but in any event within ten (10) days thereafter), issue and
deliver to such Holder a certificate or certificates for the number of shares
to which Holder shall be entitled upon such conversion (bearing such legends as
are required by applicable state and federal securities laws), together with
any other securities and property to which the Holder is entitled upon such
conversion under the terms of this Note, including a check payable to the
Holder for any cash amounts payable as described in Section 10(d). Any
conversion of this Note pursuant to Section 10(b) shall be deemed to have been
made immediately prior to the closing of the issuance and sale of shares as
described in Section 10(b) and on and after such date the Person entitled to
receive the shares issuable upon such conversion shall be treated for all
purpose as the record Holder of such shares as of such date.
(d) Fractional Shares; Interest; Effect of Conversion.
No fractional shares shall be issued upon conversion of this Note. In lieu of
the Company issuing any fractional shares to the Holder upon the conversion of
this Note, the Company shall pay to the Holder an amount equal to the product
obtained by multiplying the Conversion Price by the fraction of a share not
issued pursuant to the previous sentence. In addition, the Company shall pay
to the Holder any interest accrued on the amount converted and on the amount to
be paid to the Company pursuant to the previous sentence. Upon conversion of
this Note in full and the payment of the amounts specified in this Section
10(d), the Company shall be forever released from all its obligations and
liabilities under this Note.
11. ISSUANCES OF WARRANTS. In the event that the Holder elects to
convert all or any portion of this Note into shares of Series A Preferred
pursuant to Section 10(a) hereof, or in the event the Company elects to convert
all or any portion of this Note into shares of Series A Preferred pursuant to
Section 10(b) hereof the Company hereby agrees to issue to the Holder warrants
to purchase shares of Series A Preferred (the "Warrant") as set forth below:
(a) No Warrant shall be issued if the principal amount of
this Note to be converted together with any principal amount of this Note
previously converted is less than $5,000,001.
(b) If the principal amount of this Note to be converted
together with any principal amount of this Note previously converted is more
than $5,000,000, the Company shall issue to the Holder concurrent with the
issuance of the shares of Series A Preferred to be issued upon such conversion,
a Warrant to purchase up to 7,500,000 shares of Series A Preferred. The number
of shares subject to the first Warrant to be issued shall be determined by
multiplying 7,500,000 times a fraction, the numerator of which is the amount by
which the aggregate principal amount to be converted exceeds $5,000,000 and the
denominator of which is $20,000,000. The number of shares subject to any
subsequent Warrant to be issued shall be determined by multiplying 7,500,000
times a fraction, the numerator of which is the aggregate principal amount to
be converted and the denominator of which is $20,000,000.
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<PAGE> 16
(c) Each Warrant to be issued by the Company pursuant to
this Section 11 shall have an exercise price of $2.00 per share, a term of five
(5) years and such other terms as are set forth in the form of Warrant attached
hereto as Exhibit A.
(d) The shares of Series A Preferred issuable upon the
exercise of any Warrants issued pursuant to this Section 11 shall be entitled
to registration rights which are pari passu with the registration rights held
by the holders of the Company's Series A Preferred Stock.
12. CONVERSION PRICE ADJUSTMENTS.
(a) Adjustments for Stock Splits and Subdivisions. In
the event the Company should at any time or from time to time after the date of
issuance hereof fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Series A Preferred or the
determination of holders of Series A Preferred entitled to receive a dividend
or other distribution payable in additional shares of Series A Preferred or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Series A Preferred
(hereinafter referred to as "Series A Preferred Equivalents") without payment
of any consideration by such holder for the additional shares of Series A
Preferred or the Series A Preferred Equivalents (including the additional
shares of Series A Preferred issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Conversion Price of this Note
shall be appropriately decreased so that the number of shares of Series A
Preferred issuable upon conversion of this Note shall be increased in
proportion to such increase of outstanding shares.
(b) Adjustments for Reverse Stock Splits. If the number
of shares of Series A Preferred outstanding at any time after the date hereof
is decreased by a combination of the outstanding shares of Series A Preferred,
then, following the record date of such combination, the Conversion Price for
this Note shall be appropriately increased so that the number of shares of
Series A Preferred issuable on conversion hereof shall be decreased in
proportion to such decrease in outstanding shares.
(c) Conversion or Redemption of Series A Preferred Stock.
Should all of Company's Series A Preferred Stock be, or if outstanding would
be, at any time prior to full payment of this Note, redeemed or converted into
shares of Company's Common Stock in accordance with the Certificate, then this
Note shall immediately become convertible into that number of shares of
Company's Common Stock equal to the number of shares of the Common Stock that
would have been received if this Note had been converted in full and the Series
A Preferred Stock received thereupon had been simultaneously converted
immediately prior to such event, and the Conversion Price shall be immediately
adjusted to equal the quotient obtained by dividing (x) the aggregate
Conversion Price of the maximum number of shares of Series A Preferred Stock
into which this Note was convertible immediately prior to such conversion or
redemption, by (y) the number of shares of Common Stock for which this Note is
convertible immediately after such conversion or redemption.
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<PAGE> 17
(d) Notices of Record Date, etc. In the event of:
(i) Any taking by the Company of a record of the
holders of any class of securities of the Company for the purpose of
determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend payable out of earned surplus at
the same rate as that of the last such cash dividend theretofore paid)
or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
(ii) Any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all of the assets of
the Company to any other Person or any consolidation or merger
involving the Company; or
(iii) Any voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
the Company will mail to Holder of this Note at least ten (10) days prior to
the earliest date specified therein, a notice specifying (A) the date on which
any such record is to be taken for the purpose of such dividend, distribution
or right, and the amount and character of such dividend, distribution or right;
and (B) the date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding-up is expected to
become effective and the record date for determining stockholders entitled to
vote thereon.
(e) Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Series A Preferred solely for the purpose of effecting the
conversion of this Note such number of its shares of Series A Preferred (and
shares of its Common Stock for issuance on conversion of such Series A
Preferred) as shall from time to time be sufficient to effect the conversion of
the Note; and if at any time the number of authorized but unissued shares of
Series A Preferred (and shares of its Common Stock for issuance on conversion
of such Series A Preferred) shall not be sufficient to effect the conversion of
the entire outstanding principal amount of this Note, without limitation of
such other remedies as shall be available to the holder of this Note, the
Company will use its best efforts to take such corporate action as may, in the
opinion of counsel, be necessary to increase its authorized but unissued shares
of Series A Preferred (and shares of its Common Stock for issuance on
conversion of such Series A Preferred) to such number of shares as shall be
sufficient for such purposes.
13. SUCCESSORS AND ASSIGNS. Neither this Note nor any of the
rights, interests or obligations hereunder may be assigned, by operation of law
or otherwise, in whole or in part, by the Company without the prior written
consent of the Holder or, prior to the termination of the Merger Agreement, by
the Holder without the prior written consent of the Company. Subject to the
foregoing and the restrictions on transfer described in Section 15 below, the
rights and obligations of the Company and the Holder shall be binding upon and
benefit the successors, assigns, heirs, administrators and transferees of the
parties.
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<PAGE> 18
14. WAIVER AND AMENDMENT. Any provision of this Note may be
amended, waived or modified upon the written consent of the Company and the
Holder.
15. TRANSFER OF THIS NOTE OR SECURITIES ISSUABLE ON CONVERSION
HEREOF. With respect to any offer, sale or other disposition of this Note or
any securities into which this Note may be converted, the Holder will give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of the Holder's counsel, to the effect
that such offer, sale or other distribution may be effected without
registration or qualification under any federal or state law then in effect.
Promptly upon receiving such written notice and reasonably satisfactory
opinion, if so requested and subject to Section 13, the Company, as promptly as
practicable, shall notify the Holder that the Holder may sell or otherwise
dispose of this Note or such securities, all in accordance with the terms of
the notice delivered to the Company. If a determination has been made pursuant
to this Section 15 that the opinion of counsel for the Holder is not reasonably
satisfactory to the Company, the Company shall so notify the Holder promptly
after such determination has been made. Each Note thus transferred and each
certificate representing the securities thus transferred shall bear a legend as
to the applicable restrictions on transferability in order to ensure compliance
with the Act, unless in the opinion of counsel for the Company such legend is
not required in order to ensure compliance with the Act. The Company may issue
stop transfer instructions to its transfer agent in connection with such
restrictions.
16. NOTICES. Any notice, request or other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or mailed by registered or certified mail,
postage prepaid, or by recognized overnight courier or personal delivery,
addressed (i) if to the Holder, at such Holder's address set forth at the end
of this Agreement, or at such other address as such Holder shall have furnished
the Company in writing, or (ii) if to the Company, at its address set forth at
the end of this Agreement, or at such other address as the Company shall have
furnished to the Holder in writing. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given when received.
17. PAYMENT. Payment shall be made in lawful tender of the United
States.
18. DEFAULT RATE; USURY. During any period in which an Event of
Default has occurred and is continuing, the Company shall pay interest on the
unpaid principal balance hereof at a rate per annum equal to the rate
otherwise applicable hereunder plus two percent (2%). In the event any
interest is paid on this Note which is deemed to be in excess of the then legal
maximum rate, then that portion of the interest payment representing an amount
in excess of the then legal maximum rate shall be deemed a payment of principal
and applied against the principal of this Note.
19. EXPENSES; WAIVERS. If action is instituted to collect
this Note, the Company promises to pay all costs and expenses, including,
without limitation, reasonable attorneys' fees and costs, incurred in
connection with such action. The Company hereby waives notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor
and all other notices or demands relative to this instrument. The Company
shall pay on demand all reasonable fees and expenses, including reasonable
attorneys' fees and expenses, incurred by the Holder with respect to the
enforcement or attempted enforcement of any of the obligations of the Company
to the Holder under the Transaction
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<PAGE> 19
Documents or in preserving any of the Holder's rights and remedies (including,
without limitation, all such fees and expenses incurred in connection with any
"workout" or restructuring affecting the Transaction Documents or the
obligations thereunder or any bankruptcy or similar proceeding involving
Company or any of its Subsidiaries).
20. FINANCING STATEMENTS. The Company agrees to execute all UCC-1
financing statements and other documents and instruments which the Holder may
reasonably request to perfect its security interest in the collateral described
in the Security Agreement.
21. REPLACEMENT NOTE. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note and (a) in the case of loss, theft or
destruction, of indemnity reasonably satisfactory to it; or (b) in the case of
mutilation, upon surrender thereof; the Company, at its expense, will execute
and deliver in lieu thereof a new Note executed in the same manner as the Note
being replaced, in the same principal amount as the unpaid principal amount of
such Note and dated the date to which interest shall have been paid on such
Note or, if no interest shall have yet been so paid, dated the date of such
Note.
22. GOVERNING LAW. This Note and all actions arising out of or in
connection with this Note shall be governed by and construed in accordance with
the laws of the State of California, without regard to the conflicts of law
provisions of the State of California or of any other state.
IN WITNESS WHEREOF, the Company has caused this Note to be
issued as of the date first written above.
JT STORAGE, INC.
a Delaware corporation
By: /s/David T. Mitchell
--------------------------------
Title: President
Accepted and Agreed to:
ATARI CORPORATION
a Nevada corporation
By: /s/Sam Tramiel
----------------------------------
Title: President
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<PAGE> 20
EXHIBIT A TO
SUBORDINATED CONVERTIBLE SECURED PROMISSORY NOTE
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY
BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED,
(iii) RECEIPT OF A NO-ACTION LETTER FROM THE APPROPRIATE GOVERNMENTAL
AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF
SECTION 7 OF THIS WARRANT.
JT STORAGE, INC.
WARRANT TO PURCHASE __________ SHARES
OF SERIES A PREFERRED STOCK
THIS CERTIFIES THAT, for value received, Atari Corporation, a Nevada
Corporation, is entitled to subscribe for and purchase up to ________ shares of
the fully paid and nonassessable Series A Preferred Stock, $0.00001 par value
(as adjusted pursuant to Section 4 hereof, the "Shares"), of JT Storage, Inc.,
a Delaware corporation (the "Company"), at a price of $2.00 per share (such
price and such other price as shall result, from time to time, from the
adjustments specified in Section 4 hereof is herein referred to as the "Warrant
Price"), subject to the provisions and upon the terms and conditions
hereinafter set forth. As used herein, (a) the term "Series A Preferred" shall
mean the Company's presently authorized Series A Preferred Stock, and any stock
into or for which such Series A Preferred Stock may hereafter be converted or
exchanged, (b) the term "Date of Grant" shall mean __________, 1996 and (c) the
term "Other Warrants" shall mean any other warrants issued by the Company in
connection with the transaction with respect to which this Warrant was issued,
and any warrant issued upon transfer or partial exercise of this Warrant. The
term "Warrant" as used herein shall be deemed to include Other Warrants unless
the context clearly requires otherwise.
1. Term. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through five (5) years after the Date of Grant.
2. Method of Exercise: Payment: Issuance of New Warrant. Subject
to Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, by
either, at the election of the holder hereof, (a) the surrender of this Warrant
(with the notice of exercise form attached hereto as Exhibit A-1 duly executed)
at the principal office of the Company and by the payment to the Company, by
check, of an amount equal to the then applicable Warrant Price multiplied by
the number of Shares then being purchased, or (b) if in connection with a
registered public offering of the Company's securities, the surrender of this
Warrant (with the notice of
<PAGE> 21
exercise form attached hereto as Exhibit A-2 duly executed) at the principal
office of the Company together with notice of arrangements reasonably
satisfactory to the Company and the managing underwriters of any such public
offering for payment to the Company either by check or from the proceeds of the
sale of shares to be sold by the holder in such public offering of an amount
equal to the then applicable Warrant Price per share multiplied by the number
of Shares then being purchased. The person or persons in whose name(s) any
certificate(s) representing shares of Series A Preferred shall be issuable upon
exercise of this Warrant shall be deemed to have become the holder(s) of record
of, and shall be treated for all purposes as the record holder(s) of, the
shares represented thereby (and such shares shall be deemed to have been
issued) immediately prior to the close of business on the date or dates upon
which this Warrant is exercised. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of stock so purchased
shall be delivered to the holder hereof as soon as possible and in any event
within ten (10) days after such exercise and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such ten (10)-day period.
3. Stock Fully Paid: Reservation of Shares. All Shares that may
be issued upon the exercise of the rights represented by this Warrant will,
upon issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Series A
Preferred to provide for the exercise of the rights represented by this Warrant
and a sufficient number of shares of its Common Stock to provide for the
conversion of the Series A Preferred into Common Stock.
4. Adjustment of Warrant Price and Number of Shares. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Reclassification or Merger. In case of any
reclassification, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or in case of any merger of the Company with or
into another corporation (other than a merger with another corporation in which
the Company is the acquiring and the surviving corporation and which does not
result in any reclassification or change of outstanding securities issuable
upon exercise of this Warrant), or in case of any sale of all or substantially
all of the assets of the Company, the Company, or such successor or purchasing
corporation, as the case may be, shall duly execute and deliver to the holder
of this Warrant a new Warrant (in form and substance reasonably satisfactory to
the holder of this Warrant), so that the holder of this Warrant shall have the
right to receive, at a total purchase price not to exceed that payable upon the
exercise of the unexercised portion of this Warrant, and in lieu of the shares
of Series A Preferred theretofore issuable upon exercise of this Warrant, the
kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change or merger by a holder of the
number of shares of Series A Preferred then purchasable under this Warrant.
Such new Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable
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<PAGE> 22
to the adjustments provided for in this Section 4. The provisions of this
subparagraph (a) shall similarly apply to successive reclassifications,
changes, mergers, consolidations and transfers.
(b) Subdivision or Combination of Shares. If the Company
at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its outstanding shares of Series A Preferred, the Warrant
Price shall be proportionately decreased in the case of a subdivision or
increased in the case of a combination, effective at the close of business on
the date the subdivision or combination becomes effective.
(c) Stock Dividends and Other Distributions. If the
Company at any time while this Warrant is outstanding and unexpired shall (i)
pay a dividend with respect to Series A Preferred payable in Series A
Preferred, or (ii) make any other distribution with respect to Series A
Preferred (except any distribution specifically provided for in the foregoing
subparagraphs (a) and (b)) then the Warrant Price shall be adjusted, from and
after the date of determination of shareholders entitled to receive such
dividend or distribution, to that price determined by multiplying the Warrant
Price in effect immediately prior to such date of determination by a fraction
(i) the numerator of which shall be the total number of shares of Series A
Preferred outstanding immediately prior to such dividend or distribution, and
(ii) the denominator of which shall be the total number of shares of Series A
Preferred outstanding immediately after such dividend or distribution.
(d) Adjustment of Number of Shares. Upon each adjustment
in the Warrant Price pursuant to this Section 4, the number of Shares of Series
A Preferred purchasable hereunder shall be adjusted, to the nearest whole
share, to the product obtained by multiplying the number of Shares purchasable
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately prior to such
adjustment and the denominator of which shall be the Warrant Price immediately
thereafter.
(e) Antidilution Rights. The other antidilution rights
applicable to the Series A Preferred are set forth in Section 4(d) of Article
III of the Company's Restated Certificate of Incorporation, as amended through
the Date of Grant (the "Charter"), a true and complete copy of which is
attached hereto as Exhibit C. Such antidilution rights shall not be restated,
amended, modified or waived in any manner without the prior written consent of
the holders of a majority of the shares of Series A Preferred, including, for
purposes of this Section 4(e), shares of Series A Preferred issuable upon
exercise of this Warrant. The Company shall promptly provide the holder hereof
with any restatement, amendment, modification or waiver of the Charter promptly
after the same has been made.
5. Notice of Adjustments. Whenever the Warrant Price or the
number of Shares purchasable hereunder shall be adjusted pursuant to Section 4
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Warrant Price and the number of Shares purchasable
hereunder after giving effect to such adjustment, which shall be mailed to the
holder of this Warrant. In addition, whenever the conversion price or
conversion ratio of the Series A Preferred shall be adjusted, the Company shall
make a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the
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<PAGE> 23
method by which such adjustment was calculated, and the conversion price or
ratio of the Series A Preferred after giving effect to such adjustment, and
shall cause copies of such certificate to be mailed to the holder of this
Warrant.
6. Fractional Shares. No fractional shares of Series A Preferred
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
fair market value of the Series A Preferred on the date of exercise as
reasonably determined in good faith by the Company's Board of Directors.
7. Compliance with Securities Act: Disposition of Warrant or
Shares of Series A Preferred.
(a) Compliance with Securities Act. The holder of this
Warrant, by acceptance hereof, agrees that this Warrant, and the shares of
Series A Preferred to be issued upon exercise hereof and any Common Stock
issued upon conversion thereof are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant, or any shares
of Series A Preferred to be issued upon exercise hereof or any Common Stock
issued upon conversion thereof except under circumstances which will not result
in a violation of the Act. Upon exercise of this Warrant, unless the Shares
being acquired are registered under the Act or an exemption from such
registration is available, the holder hereof shall confirm in writing, by
executing the form attached as Exhibit B hereto, that the shares of Series A
Preferred so purchased (and any shares of Common Stock issued upon conversion
thereof) are being acquired for investment and not with a view toward
distribution or resale. This Warrant and all shares of Series A Preferred
issued upon exercise of this Warrant and all shares of Common Stock issued upon
conversion thereof (unless registered under the Act) shall be stamped or
imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR
THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER FROM
THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR OTHERWISE COMPLYING WITH
THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE
SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the
holder specifically represents to the Company by acceptance of this Warrant as
follows:
(1) The holder is aware of the Company's business
affairs and financial condition, and has acquired information about the Company
sufficient to reach an informed and knowledgeable decision to acquire this
Warrant. The holder is acquiring this Warrant for its own account for
investment purposes only and not with a view to, or for the resale in
connection with, any "distribution" thereof for purposes of the Act.
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<PAGE> 24
(2) The holder understands that this Warrant has
not been registered under the Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the holder's investment intent as expressed herein. In this
connection, the holder understands that, in the view of the SEC, the statutory
basis for such exemption may be unavailable if the holder's representation was
predicated solely upon a present intention to hold the Warrant for the minimum
capital gains period specified under tax statutes, for a deferred sale, for or
until an increase or decrease in the market price of the Warrant, or for a
period of one year or any other fixed period in the future.
(3) The holder further understands that this
Warrant must be held indefinitely unless subsequently registered under the Act
and any applicable state securities laws, or unless exemptions from
registration are otherwise available.
(4) The holder is aware of the provisions of Rule
144 and 144A, promulgated under the Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions, if applicable,
including, among other things: The availability of certain public information
about the Company, the resale occurring not less than two years after the party
has purchased and paid for the securities to be sold; the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934, as amended) and the amount of securities being sold
during any three-month period not exceeding the specified limitations stated
therein.
(5) The holder further understands that at the
time it wishes to sell this Warrant there may be no public market upon which to
make such a sale, and that, even if such a public market then exists, the
Company may not be satisfying the current public information requirements of
Rule 144 and 144A, and that, in such event, the holder may be precluded from
selling this Warrant under Rule 144 and 144A even if the two-year minimum
holding period had been satisfied.
(6) The holder further understands that in the
event all of the requirements of Rule 144 and 144A are not satisfied,
registration under the Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact
that Rule 144 and 144A are not exclusive, the Staff of the SEC has expressed
its opinion that persons proposing to sell private placement securities other
than in a registered offering and otherwise than pursuant to Rule 144 and 144A
will have a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their
own risk.
(b) Disposition of Warrant or Shares. With respect to
any offer, sale or other disposition of this Warrant or any shares of Series A
Preferred acquired pursuant to the exercise of this Warrant or any shares of
Common Stock issued upon conversion of the Series A Preferred, in each case
prior to registration of such Warrant or shares, the holder hereof and each
subsequent holder of this Warrant agrees to give written notice to the Company
prior thereto, describing the manner thereof, together with a written opinion
of such holder's counsel, if reasonably requested by the Company, to the
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<PAGE> 25
effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal
or state law then in effect) of this Warrant or such shares of Series A
Preferred or Common Stock and indicating whether or not under the Act
certificates for this Warrant or such shares of Series A Preferred to be sold
or otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to ensure compliance with such laws.
Promptly upon receiving such written notice and reasonably satisfactory
opinion, if so requested, the Company, as promptly as practicable, shall notify
such holder that such holder may sell or otherwise dispose of this Warrant or
such shares of Series A Preferred or Common Stock, all in accordance with the
terms of the notice delivered to the Company. If a determination has been made
pursuant to this subsection (b) that the opinion of counsel for the holder is
not reasonably satisfactory to the Company, the Company shall so notify the
holder promptly after such determination has been made and shall specify its
reasons for any such conclusion. Notwithstanding the foregoing, this Warrant
or such shares of Series A Preferred or Common Stock may, as to such federal
laws, be offered, sold or otherwise disposed of in accordance with Rule 144 or
144A under the Act, provided that the Company shall have been furnished with
such information as the Company may reasonably request to provide assurance
that the provisions of Rule 144 or 144A have been satisfied. Each certificate
representing this Warrant or the shares of Series A Preferred or Common Stock
thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a
legend as to the applicable restrictions on transferability in order to ensure
compliance with such laws, unless in the aforesaid opinion of counsel for the
holder, such legend is not required in order to ensure compliance with such
laws. The Company may issue stop transfer instructions to its transfer agent
in connection with such restrictions.
(c) Excepted Transfers. Neither any restrictions of any
legend described in this Warrant nor the requirements of Section 7(b) above
shall apply to any transfer without any additional consideration of, or grant
of a security interest in, this Warrant or any part hereof (i) to a partner of
the holder if the holder is a partnership, (ii) by the holder to a partnership
of which the holder is a general partner, or (iii) to any affiliate of the
holder if the holder is a corporation; provided, however in any such transfer,
the transferee shall on the Company's request agree in writing to be bound by
the terms of this Warrant as if an original signatory hereto.
8. Rights as Shareholders: Information. No holder of this
Warrant, as such, shall be entitled to vote or receive dividends or be deemed
the holder of Series A Preferred or any other securities of the Company which
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until this Warrant shall
have been exercised and the Shares purchasable upon the exercise hereof shall
have become deliverable, as provided herein. Notwithstanding the foregoing, the
Company will transmit to the holder of this Warrant such information,
documents, notices and reports as are generally distributed to the holders of
any class or series of the securities of the Company concurrently with the
distribution thereof to the shareholders.
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<PAGE> 26
9. Registration Rights. The Company covenants and agrees as
follows:
9.1 Definitions. For purposes of this Section 9:
(a) The term "Registrable Shares" means (i) the
Common Stock issuable or issued upon conversion of the Series A Preferred
issuable or issued upon exercise or conversion of this Warrant or upon exercise
or conversion of the Other Warrants, and (ii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, such Common Stock or
Series A Preferred; provided, however, that Registrable Shares shall not
include any (A) shares of Common Stock which have previously been registered,
or (B) shares of Common Stock which have previously been sold to the public;
(b) The term "Shareholder" means any person
owning or having the right to acquire Registrable Shares or any assignee
thereof; and
(c) The term "Registration Rights Agreement"
means that certain Registration Rights Agreement, dated as of February 3, 1995,
as amended, by and among the Company and certain persons named therein.
9.2 Grant of Rights. The Company hereby grants to the
Shareholders the rights set forth in the Registration Rights Agreement. A true
and complete copy of the Registration Rights Agreement is attached hereto as
Exhibit D. The Company represents and warrants to the Shareholders that the
Company has obtained all consents of parties to the Registration Rights
Agreement and of any other persons that are required in order for the
Registrable Shares to be included in the definition of "Registrable Securities"
and for the Shareholders to be included in the definition of "Holders," as such
terms are used in the Registration Rights Agreement.
9.3 No Conflicting Agreements. The Company represents
and warrants to the Shareholders that the Company is not a party to any
agreement that conflicts in any manner with the Shareholders' rights to cause
the Company to register Registrable Shares pursuant to the Registration Rights
Agreement and this Section 9. The Company covenants and agrees that it shall
not, without the prior written consent of the Shareholders holding a majority
of the outstanding Registrable Shares, amend, modify or restate the
Registration Rights Agreement if the rights of the Shareholders would be
subordinated, diminished or otherwise adversely affected.
9.4 Rights and Obligations Survive Exercise and
Expiration of Warrant. The rights and obligations of the Company, of the
holder of this Warrant and of the Registrable Shares contained in the
Registration Rights Agreement and this Section 9 shall survive exercise,
conversion and expiration of this Warrant.
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<PAGE> 27
10. Right to Convert Warrant into Common Stock: Net Issuance.
10.1 Right to Convert. In addition to and without
limiting the rights of the holder under the terms of this Warrant, but only to
the extent this Warrant has not otherwise been exercised, the holder shall have
the right to convert this Warrant or any portion thereof (the "Conversion
Right") into shares of Series A Preferred (or Common Stock if the Series A
Preferred has been automatically converted into Common Stock) as provided in
this Section 10 at any time or from time to time during the term of this
Warrant. Upon exercise of the Conversion Right with respect to a particular
number of shares subject to this Warrant (the "Converted Warrant Shares"), the
Company shall deliver to the holder (without payment by the holder of any
exercise price or any cash or other consideration) (X) that number of shares of
fully paid and nonassessable Series A Preferred (or Common Stock if the Series
A Preferred has been automatically converted into Common Stock) equal to the
quotient obtained by dividing the value of this Warrant (or the specified
portion hereof) on the Conversion Date (as defined in Section 10.2 hereof),
which value shall be determined by subtracting (A) the aggregate Warrant Price
of the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right from (B) the aggregate fair market value of the Converted
Warrant Shares issuable upon exercise of this Warrant (or the specified portion
hereof) on the Conversion Date (as herein defined) by (Y) the fair market value
of one share of Series B Preferred (or Common Stock if the Series A Preferred
has been automatically converted into Common Stock) on the Conversion Date (as
herein defined).
Expressed as a formula, such conversion shall be computed as follows:
X= B - A
-------
Y
Where: X = the number of shares of Series A Preferred
(or Common Stock) that may be issued to holder
Y = the fair market value (FMV) of one share
of Series A Preferred (or Common Stock)
A = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
B = the aggregate FMV (i.e., FMV x Converted
Warrant Shares)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to
the holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined).
10.2 Method of Exercise. The Conversion Right may be
exercised by the holder by the surrender of this Warrant at the principal
office of the Company together with a written statement
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<PAGE> 28
specifying that the holder thereby intends to exercise the Conversion Right and
indicating the number of shares subject to this Warrant which are being
surrendered (referred to in Section 10.1 hereof as the Converted Warrant
Shares) in exercise of the Conversion Right. Such conversion shall be
effective upon receipt by the Company of this Warrant together with the
aforesaid written statement, or on such later date as is specified therein (the
"Conversion Date"), and, at the election of the holder hereof, may be made
contingent upon the closing of the sale of the Company's Common Stock to the
public in a public offering pursuant to a Registration Statement under the Act
(a "Public Offering"). Certificates for the shares issuable upon exercise of
the Conversion Right and, if applicable, a new warrant evidencing the balance
of the shares remaining subject to this Warrant, shall be issued as of the
Conversion Date and shall be delivered to the holder within ten (10) days
following the Conversion Date. Any conversion from Series A Preferred to
Common Stock shall be in a ratio of one (1) share of Common Stock for each
share of Series A Preferred (as adjusted herein and in the Charter).
10.3 Determination of Fair Market Value. For purposes of
this Section 10.3, "fair market value" of a share of Series A Preferred (or
Common Stock if the Series A Preferred has been automatically converted into
Common Stock) as of a particular date (the "Determination Date") shall mean:
(a) If the Conversion Right is exercised in
connection with and contingent upon a Public Offering, and if the Company's
Registration Statement relating to such Public Offering ("Registration
Statement") has been declared effective by the SEC, then the initial "Price to
Public" specified in the final prospectus with respect to such offering
multiplied by the number of shares of Common Stock into which each share of
Series A Preferred is then convertible.
(b) If the Conversion Right is not exercised in
connection with and contingent upon a Public Offering, then as follows:
(i) If traded on a securities exchange,
the fair market value of the Common Stock shall be deemed to be the closing
price of the Common Stock on such exchange on the trading day prior to the
Determination Date, and the fair market value of the Series A Preferred shall
be deemed to be such fair market value of the Common Stock multiplied by the
number of shares of Common Stock into which each share of Series A Preferred is
then convertible;
(ii) If traded over-the-counter, the fair
market value of the Common Stock shall be deemed to be the closing bid price of
the Common Stock on the trading day prior to the Determination Date, and the
fair market value of the Series A Preferred shall be deemed to be such fair
market value of the Common Stock multiplied by the number of shares of Common
Stock into which each share of Series A Preferred is then convertible; and
(iii) If there is no public market for the
Common Stock, then fair market value shall be determined by mutual agreement of
the holder of this Warrant and the Company, and if the holder and the Company
are unable to so agree, by an appraiser approved by both the Company and the
holder of this Warrant, such approvals not to be unreasonably withheld. The
fees and expenses of such appraiser shall be borne equally by the parties.
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<PAGE> 29
11. Representations and Warranties. The Company represents and
warrants to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by
the Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and
other equitable remedies;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions
granted to or imposed upon the Series A Preferred and the holders thereof are
as set forth in the Charter, as amended to the Date of the Grant, a true and
complete copy of which has been delivered to the original holder of this
Warrant and is attached hereto as Exhibit C;
(d) The shares of Common Stock issuable upon conversion
of the Shares have been duly authorized and reserved and, when issued in
accordance with the terms of the Charter, as amended, will be validly issued,
fully paid and nonassessable; and
(e) The execution and delivery of this Warrant are not,
and the issuance of the Shares upon exercise of this Warrant in accordance with
the terms hereof will not be, inconsistent with the Company's Certificate of
Incorporation or by-laws, do not and will not contravene any material law,
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene any provision of, or
constitute a default under, any material indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or require
the consent or approval of, the giving of notice to, the registration or filing
with or the taking of any action in respect of or by, any federal, state or
local government authority or agency or other person, except for the filing of
notices pursuant to federal and state securities laws, which filings will be
effected by the time required thereby.
(f) There are no actions, suits, audits, investigations
or proceedings pending or, to the knowledge of the Company, threatened against
the Company in any court or before any governmental commission, board or
authority which, if adversely determined, will have a material adverse effect
on the ability of the Company to perform its obligations under this Warrant.
12. Modification and Waiver. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books
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<PAGE> 30
of the Company or to the Company at the address indicated therefor on the
signature page of this Warrant.
14. Binding Effect on Successors. Except as otherwise set forth
herein, this Warrant shall be binding upon any corporation succeeding the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets, and all of the obligations of the Company relating to the
Series A Preferred issuable upon the exercise or conversion of this Warrant
shall survive the exercise, conversion and termination of this Warrant and all
of the covenants and agreements of the Company shall inure to the benefit of
the successors and assigns of the holder hereof. The Company will, at the time
of the exercise or conversion of this Warrant, in whole or in part, upon
request of the holder hereof but at the Company's expense, acknowledge in
writing its continuing obligation to the holder hereof in respect of any rights
(including, without limitation, any right to registration of the Registrable
Shares) to which the holder hereof shall continue to be entitled after such
exercise or conversion in accordance with this Warrant; provided, that the
failure of the holder hereof to make any such request shall not affect the
continuing obligation of the Company to the holder hereof in respect of such
rights.
15. Lost Warrants or Stock Certificates. The Company covenants to
the holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of California.
18. Survival of Representations, Warranties and Agreements. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained
herein shall survive indefinitely until, by their respective terms, they are no
longer operative.
19. Remedies. In case any one or more of the covenants and
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case of
a breach by a holder), may proceed to protect and enforce their or its rights
either by suit in equity and/or by action at law, including, but not limited
to, an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Warrant.
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<PAGE> 31
20. No Impairment of Rights. The Company will not, by amendment
of its Certificate of Incorporation or through any other means, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the holder of this Warrant against impairment.
JT STORAGE, INC.
By:
------------------------------------------
Title:
---------------------------------------
Address:
------------------------------------
------------------------------------
Date: __________, 1996
Accepted and Agreed to:
ATARI CORPORATION
By:
----------------------
Title:
-------------------
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<PAGE> 32
EXHIBIT A-1
NOTICE OF EXERCISE
To: JT Storage, Inc.
1. The undersigned hereby elects to purchase __________ shares of
Series A Preferred Stock of JT Storage, Inc. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of such
shares in full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
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(Name)
--------------------------------------------
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(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undersigned has executed an Investment Representation
Statement attached hereto as Schedule 1.
--------------------------------------------
(Signature)
--------------------------
(Date)
<PAGE> 33
EXHIBIT A-2
NOTICE OF EXERCISE
To: JT Storage, Inc. (the "Company")
1. Contingent upon and effective immediately prior to
the closing (the "Closing") of the Company's public offering contemplated by
the Registration Statement on Form S-______-_____ filed _______________, 199_,
the undersigned hereby elects to purchase ________ shares of Series A Preferred
Stock of the Company (or such lesser number of shares as may be sold on behalf
of the undersigned at the Closing) pursuant to the terms of the attached
Warrant.
2. Please deliver to the custodian for the selling
shareholders a stock certificate representing such _______ shares.
3. The undersigned has instructed the custodian for the
selling shareholders to deliver to the Company $___________ or, if less, the
net proceeds due the undersigned from the sale of shares in the aforesaid
public offering. If such net proceeds are less than the purchase price for
such shares, the undersigned agrees to deliver the difference to the Company
prior to the Closing at which time the shares of Series A Preferred Stock will
be purchased.
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(Signature)
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(Date)
<PAGE> 34
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: JT Storage, Inc.
Security: Series A Preferred Stock
Amount:
Date:
In connection with the purchase of the above-listed securities and
underlying Common Stock issuable upon conversion of the securities
(collectively, the "Securities"), the undersigned (the "Purchaser") represents
to the Company as follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Act").
(b) The Purchaser understands that the Securities have not been
registered under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange
Commission ("SEC"), the statutory basis for such exemption may be unavailable
if the Purchaser's representation was predicated solely upon a present
intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) The Purchaser further understands that the Securities must be
held indefinitely unless subsequently registered under the Act or unless an
exemption from registration is otherwise available. Moreover, the Purchaser
understands that the Company is under no obligation to register the Securities
except as set forth in the Warrant under which the Securities are being
acquired. In addition, the Purchaser understands that the certificate
evidencing the Securities will be imprinted with the legend referred to in the
Warrant under which the Securities are being purchased.
(d) The Purchaser is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among
other things: The availability of
<PAGE> 35
certain public information about the Company, the resale occurring not less
than two years after the party has purchased and paid for the securities to be
sold; the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the amount
of securities being sold during any three-month period not exceeding the
specified limitations stated therein.
(e) The Purchaser further understands that at the time it wishes
to sell the Securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not
be satisfying the current public information requirements of Rule 144 and 144A,
and that, in such event, the Purchaser may be precluded from selling the
Securities under Rule 144 and 144A even if the two-year minimum holding period
had been satisfied.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive,
the Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers
or sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Purchaser:
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Date: 199
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