8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 8-K

 

 

Current Report

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 9, 2018

 

 

ENDOLOGIX, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   000-28440   68-0328265

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification Number)

2 Musick, Irvine, CA 92618

(Address of principal executive offices, with zip code)

(949) 595-7200

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 1.01 Entry into a Material Definitive Agreement.

Credit Agreement

On August 9, 2018 (the “Agreement Date”), Endologix, Inc. (the “Company”) entered into a Credit Agreement (the “Credit Agreement”) with Deerfield ELGX Revolver, LLC and certain of its affiliates (collectively, “Deerfield”), pursuant to which the Company may borrow up to the lesser of $50 million (upon having a $350 million market capitalization, or otherwise $40 million) or its applicable borrowing base from time to time prior to April 2, 2022 (the “ABL Facility”). The borrowing base consists of eligible accounts, eligible inventory and eligible equipment. On the Agreement Date, availability under the ABL Facility was approximately $24.0 million. Any outstanding principal under the ABL Facility will accrue interest at a rate equal to LIBOR (with a 1% floor) plus 5.50% per annum payable in cash. Interest is payable in cash monthly in arrears on the first business day of the immediately succeeding calendar month and on the maturity date. The interest rate will accrue on a minimum amount of $9,750,000, whether or not such amount is drawn (which amount in excess of the revolver usage accruing interest will not be subject to the unused line fee). The Company is subject to other fees in addition to interest on the outstanding principal amount under the ABL Facility, including an unused line fee in the amount of 0.50% (subject to certain amounts that are below $9,750,000 that are not actually drawn but accruing interest as set forth above), a commitment fee of $500,000 (payable $200,000 upon closing, $200,000 on the first anniversary of the closing and $100,000 on the second anniversary of the closing), a $1,000,000 fee upon the expiration of the ABL Facility and an early ABL commitment termination or reduction fee of 2.50% in the first year, 1.50% in the second year, 0.50% in the third year and 0% thereafter. The Credit Agreement has a $22.5 million liquidity requirement, trailing-twelve month and quarterly net revenue tests, fixed charge coverage, capital expenditure limitations and operating expense tests. The Credit Agreement also contains various representations and warranties, events of default (including a cross-default to the Amended Facility Agreement (as defined below) and certain other indebtedness), and affirmative and negative covenants, customary for financings of this type, including reporting requirements, requirements that the Company maintain timely reporting with the U.S. Securities and Exchange Commission (the “Commission”) and restrictions on the ability of the Company and its subsidiaries to incur additional liens on their assets, incur additional indebtedness and acquire and dispose of assets outside the ordinary course of business. The Credit Agreement provides for full cash dominion. The Company’s obligations under the Credit Agreement are secured by a first priority security interest in substantially all of the Company’s assets, including intellectual property, with the priority of such security interest being pari passu with the security interest granted to Deerfield pursuant to the Company’s Amended Facility Agreement, subject to the Exchanged Deerfield Notes (as defined below) being last out in the waterfall in connection with certain application events in a downside scenario.

Amended and Restated Facility Agreement

Also on August 9, 2018, the Company entered into an Amended and Restated Facility Agreement (the “Amended Facility Agreement”) with Deerfield Private Design Fund IV, L.P. and certain of its related funds and affiliates (collectively, “Deerfield”), in order to, among other things, allow for the Company’s entry into the Credit Agreement and the transactions contemplated therein. The Amended Facility Agreement amends and restates in its entirety the Company’s prior Facility Agreement, dated April 3, 2017 with Deerfield (the “Prior Facility Agreement”).

In connection with entering into the Amended Facility Agreement and certain accommodations, concessions and agreements provided by Deerfield (such as extending out the maturity of such Exchanged Deerfield Notes), Deerfield and the Company have exchanged $40.5 million principal amount 3.25% Senior Note held by Deerfield Partner, L.P. for an additional $40.5 million of indebtedness as a last-out waterfall tranche under the Amended Facility Agreement. Such amounts are being amortized $20.25 million (plus 50% of the paid in-kind interest that has accrued as of such date) on April 2, 2022 and $20.25 million (plus the remaining portion of the paid in-kind interest that has accrued as of such date) on April 2, 2023.

Accordingly, the amount outstanding under the Amended Facility Agreement has been increased to a total of $160.5 million.

Any outstanding principal under the Amended Facility Agreement will accrue interest at a rate equal to 5.00% payable in cash and 4.75% payable in kind. The Amended Facility Agreement contains the same operating and financial covenants applicable to the Credit Agreement.

The Company may issue up to a maximum of 2,526,800 shares of the Company’s common stock to Deerfield pursuant to the Amended Facility Agreement in lieu of paying cash to satisfy a portion of its obligation to pay interest owed to Deerfield with respect to the first-out waterfall loans (but not the last-out waterfall loans). Each share of the Company’s common

 

-2-


stock issued to Deerfield in respect of an obligation to pay interest will be valued at 96% of the lesser of the (i) trailing ten (10) day volume weighted average price per share ending on the last trading date prior to issuance and (ii) the last closing bid price of the Company’s common stock on the last trading date prior to issuance.

The Company’s obligations under the Amended Facility Agreement are secured by a first priority security interest in substantially all of the Company’s assets including intellectual property, with the priority of such security interest being pari passu with the security interest granted to Deerfield pursuant to the Credit Agreement subject to the Exchanged Deerfield Notes (as defined below) being last out in the waterfall in connection with certain application events in a downside scenario.

The Amended Facility Agreement contains various representations and warranties, events of default, and affirmative and negative covenants substantially similar to those contained in the Credit Agreement.

Pursuant to the Amended Facility Agreement, Deerfield has the right, but not the obligation, to convert a portion of the outstanding principal amount of the first-out waterfall loan into shares of the Company’s common stock at 96% of the trailing three (3) day volume weighted average price per share on the date of conversion into a maximum of 14,300,000 shares of the Company’s common stock. The first $60 million of the principal amount of the first-out waterfall loan (or exercise price of the Warrants elected to be paid through a reduction in principal, as described below) converted into the Company’s common stock will be credited first against principal and payable in kind interest obligations due in 2021 and then against principal and payable in kind interest obligations due in 2022. Any additional such amounts will be split between principal and payment in kind interest obligations due in 2022 and 2023 and at maturity. The last-out waterfall loans (the “Exchanged Deerfield Notes”) have no equity components.

The Company also agreed to pay Deerfield a $6,113,750 exit fee (with 5,000,000 owed to the first-out waterfall lenders and the other $1,113,750 owed to the last-out waterfall lenders) upon the termination (or a reduction of the outstanding revolver commitments to less than $10,000,000) under the Amended Facility Agreement and to reimburse Deerfield for all expenses incurred by Deerfield in connection with the negotiation and documentation of the Credit Agreement and the Amended Facility Agreement. There are other certain non-callable make whole amounts, yield enhancement payments and change of control fees set forth in the Amended Facility Agreement.

Warrants

In connection with the execution of the Amended Facility Agreement, the Company issued to Deerfield warrants to purchase an aggregate of 8,750,001 shares of common stock of the Company at an exercise price equal to $4.71 per share, which equals the closing bid price of the Company’s common stock on the date of the Amended Facility Agreement (the “Warrants”). The number of shares of common stock of the Company into which the Warrants are exercisable and the exercise price of the Warrants will be adjusted to reflect any stock splits, recapitalizations or similar adjustments in the number of outstanding shares of common stock of the Company.

The Warrants are exercisable commencing on February 9, 2019 and expire on the seventh anniversary of the Agreement Date. The holders of the Warrants may exercise the Warrants for cash, on a cashless basis, or by reduction of the principal owed to Deerfield pursuant to the Amended Facility Agreement.

Registration Rights Agreement

In connection with the Amended Facility Agreement and the issuance of the Warrants, the Company entered into an Amended and Restated Registration Rights Agreement with Deerfield (the “Amended Registration Rights Agreement”). The Amended Registration Rights Agreement amends and restates in its entirety the Company’s prior Registration Rights Agreement, dated April 3, 2017 with Deerfield and pertains to both the Warrants issued pursuant to the Amended Facility Agreement and the warrants issued pursuant to the Prior Facility Agreement (the “Prior Warrants”).

Pursuant to the terms of the Amended Registration Rights Agreement, the Company has agreed to register for resale the shares of common stock of the Company issuable upon the exercise of the Warrants and the Prior Warrants.

 

-3-


The foregoing descriptions of the terms of the Credit Agreement, the Amended Facility Agreement, the Warrants and the Amended Registration Rights Agreement are qualified in their entirety by reference to the text of such documents, copies of which are filed as Exhibits 10.1, 10.2, 4.1, 4.2, 4.3 and 10.3 to this Current Report on Form 8-K.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information included in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03.

Item 3.02 Unregistered Sales of Equity Securities.

The information included in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.02. The securities discussed in Item 1.01 above were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) by virtue of Section 4(a)(2) of the Securities Act and Rule 506 thereunder and exempt from registration or qualification under applicable state securities (or “blue sky”) laws. The securities were issued solely to “accredited investors” (as defined by Rule 501 under the Securities Act).

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit No.    Description

4.1

   Warrant, issued August 9, 2018, issued by Endologix, Inc. to Deerfield Private Design Fund III, L.P.

4.2

   Warrant, issued August 9, 2018, issued by Endologix, Inc. to Deerfield Private Design Fund IV, L.P.

4.3

   Warrant, issued August 9, 2018, issued by Endologix, Inc. to Deerfield Partners, L.P.

4.4

   First Out Waterfall Note ($40,000,000), issued August 9, 2018, issued by Endologix, Inc. to Deerfield Private Design Fund III, L.P.

4.5

   First Out Waterfall Note ($40,000,000), issued August 9, 2018, issued by Endologix, Inc. to Deerfield Private Design Fund IV, L.P.

4.6

   First Out Waterfall Note ($22,320,000), issued August 9, 2018, issued by Endologix, Inc. to Deerfield Partners, L.P.

4.7

   First Out Waterfall Note ($17,680,000), issued August 9, 2018, issued by Endologix, Inc. to Deerfield Partners, L.P.

4.8

   Note, issued August 9, 2018, issued by Endologix, Inc. and certain of its subsidiaries to Deerfield Private Design Fund III, L.P.

4.9

   Note, issued August 9, 2018, issued by Endologix, Inc. and certain of its subsidiaries to Deerfield Private Design Fund IV, L.P.

4.10

   Note, issued August 9, 2018, issued by Endologix, Inc. and certain of its subsidiaries to Deerfield Partners, L.P.

4.11

   Last Out Waterfall Note ($40,500,000), issued August 9, 2018, issued by Endologix, Inc. to Deerfield Partners, L.P.

10.1

   Credit Agreement, dated August 9, 2018, by and among Endologix, Inc. and Deerfield ELGX Revolver, LLC and certain of its affiliates.

10.2

   Amended and Restated Facility Agreement, dated August 9, 2018, by and among Endologix, Inc. and Deerfield Private Design Fund IV, L.P. and certain of its affiliates.

10.3

   Amended and Restated Registration Rights Agreement, dated August 9, 2018, by and between Endologix, Inc. and Deerfield Private Design Fund IV, L.P.

10.4

   Amended and Restated Guaranty and Security Agreement, dated August 9, 2018, by and among Endologix, Inc., its subsidiaries and Deerfield Private Design Fund IV, L.P.

10.5

   Guaranty and Security Agreement, dated August 9, 2018, by and among Endologix, Inc., its subsidiaries and Deerfield ELGX Revolver, LLC.

10.6

   Intercompany Subordination Agreement, dated August 9, 2018, by and among Endologix, Inc., its subsidiaries and Deerfield Private Design Fund IV, L.P.

10.7

   Intercompany Subordination Agreement, dated August 9, 2018, by and among Endologix, Inc., its subsidiaries and Deerfield ELGX Revolver, LLC.

10.8

   Intercreditor Agreement, dated August 9, 2018, by and among Endologix, Inc., its subsidiaries, Deerfield ELGX Revolver, LLC and Deerfield Private Design Fund IV, L.P.

10.9

   Reaffirmation Agreement, dated August 9, 2018, by and among Endologix, Inc., its subsidiaries and Deerfield Private Design Fund IV, L.P.

 

-4-


10.10

   Patent Security Agreement, dated August 9, 2018, by and among Endologix, Inc., certain of its subsidiaries and Deerfield ELGX Revolver, LLC.

10.11

   Trademark Security Agreement, dated August 9, 2018, by and among Endologix, Inc., certain of its subsidiaries and Deerfield ELGX Revolver, LLC.

10.12

   First Supplement to Patent Security Agreement, dated August 9, 2018, by and among Endologix, Inc., certain of its subsidiaries and Deerfield Private Design Fund IV, L.P.

10.13

   First Supplement to Trademark Security Agreement, dated August 9, 2018, by and among Endologix, Inc., certain of its subsidiaries and Deerfield Private Design Fund IV, L.P.

 

-5-


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    ENDOLOGIX, INC.
Date: August 10, 2018     By:   /s/ Vaseem Mahboob
      Vaseem Mahboob
      Chief Financial Officer

 

-6-

EX-4.1

Exhibit 4.1

WARRANT

THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, INCLUDING PURSUANT TO SECTION 4(A)(7) OF THE SECURITIES ACT OR RULE 144 UNDER THE SECURITIES ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4[(a)](1) AND A HALF SALE.” NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED.

 

Warrant to Purchase

2,916,667 shares

      Warrant Number:    2018-1

Warrant to Purchase Common Stock

of

Endologix, Inc.

THIS CERTIFIES that Deerfield Private Design Fund III, L.P. or any subsequent holder hereof (“Holder”) has the right to purchase from Endologix, Inc., a Delaware corporation (the “Company”), Two Million Nine Hundred Sixteen Thousand Six Hundred Sixty-Seven (2,916,667) fully paid and nonassessable shares of the Company’s common stock, $0.001 par value per share (“Common Stock”), subject to adjustment as provided herein, at a price equal to the Exercise Price (as defined in Section 3 below), at any time during the Exercise Period (as defined in Section 1 below).

Holder agrees with the Company that this Warrant to Purchase Common Stock of the Company (this “Warrant” or this “Agreement”) is issued and all rights hereunder shall be held subject to all of the conditions, limitations and provisions set forth herein.

1. Date of Issuance and Term.

This Warrant shall be deemed to be issued, and shall be in full force and effect commencing, on August 9, 2018 (“Date of Issuance”). The exercise period of this Warrant begins on (and includes) February 9, 2019, and ends at 5:00 p.m., New York City time, on August 9, 2025 (the “Exercise Period”). This Warrant was issued pursuant to that certain Amended and Restated Facility Agreement (as may be amended, restated, supplemented or otherwise modified from


time to time in accordance with the terms thereof, the “Facility Agreement”) by and among the Company, Deerfield Private Design Fund III, L.P., Deerfield Private Design Fund IV, L.P., and Deerfield Partners, L.P., dated as of August 9, 2018, and in conjunction with that certain Amended and Restated Registration Rights Agreement (as may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “Registration Rights Agreement”) by and among the Company, Deerfield Private Design Fund III, L.P., Deerfield Private Design Fund IV, L.P., and Deerfield Partners, L.P., dated as of August 9, 2018.

Notwithstanding anything herein to the contrary, the Company shall not issue to Holder, and Holder may not acquire, a number of shares of Common Stock upon exercise of this Warrant to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by Holder and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with Holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including shares held by any “group” of which Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein), would exceed 4.985% of the total number of shares of Common Stock then issued and outstanding (the “4.985% Cap”); provided, however, that the 4.985% Cap shall only apply to the extent that the Common Stock is deemed to constitute an “equity security” pursuant to Rule 13d-1(i) promulgated under the Exchange Act. For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities and Exchange Commission (the “SEC”), and the percentage held by Holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Upon the written request of Holder, the Company shall, within two (2) Trading Days, confirm orally and in writing to Holder the number of shares of Common Stock then outstanding.

For purposes hereof:

“Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 (“Rule 144”) under the Securities Act of 1933, as amended (the “Securities Act”). With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder shall, for purposes hereof, be deemed to be an Affiliate of such Holder.

“Asset Sale” means a transaction covered by the provisions of clause (B) of the definition of “Major Transaction” involving the sale or transfer of all or substantially all of the assets of the Company (including, for the avoidance of doubt, all or substantially all of the assets of the Company and its Subsidiaries (as defined in the Facility Agreement), taken as a whole) in connection with which the Company has announced its intention to liquidate and distribute its assets to stockholders.

“Black-Scholes Value” shall mean the Black-Scholes value of this Warrant, or applicable portion thereof, as determined by use of the Black-Scholes Option Pricing Model using the criteria set forth on Schedule 1 hereto.

 

2


“Business Day” means a day other than a Saturday or Sunday or any other day on which commercial banks are authorized or required by law to close in New York City.

“Cashless Default Exercise” shall mean an exercise of this Warrant as a “Cashless Default Exercise” in accordance with Sections 3(c) and 11(b) hereof.

“Cashless Major Exercise” shall mean an exercise of this Warrant or portion thereof as a “Cashless Major Exercise” in accordance with Sections 3(b) and 5(b)(i) hereof.

“Cash Out Major Transaction” means a Major Transaction in which the consideration payable to holders of Common Stock in connection with the Major Transaction consists solely of cash.

“Eligible Market” means the New York Stock Exchange, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE American or, in each case, any successor thereto.

“Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of a Major Transaction.

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

“Standard Settlement Period” means the standard settlement period for equity trades effected on securities exchanges in the United States, expressed in a number of Trading Days, as in effect on the applicable Date of Exercise (as defined in Section 2(b)).

“Stock Event” means a stock split, stock combination, reclassification, payment of stock dividend, recapitalization or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or small number of shares.

“Successor Entity” means any Person purchasing the Company’s assets or Common Stock, or any successor entity resulting from such Major Transaction, or if the Warrant is to be exercisable for shares of capital stock of a Parent Entity (as defined above), such Person’s Parent Entity.

“Successor Major Transaction” means either a Takeout Major Transaction or an Asset Sale.

“Successor Major Transaction Consideration” means (i) in the case of a Takeout Major Transaction (other than a Cash Out Major Transaction), the amount of cash and other assets and the number of securities or other property of the Successor Entity or other entity that would be issuable in such Major Transaction, in respect of a number of shares equal to the Successor Major Transaction Conversion Share Amount and (ii) in the case of an Asset Sale or a Cash Out Major Transaction, an amount of cash equal to the Black-Scholes Value of the Warrant.

 

3


“Successor Major Transaction Conversion Share Amount” means an amount equal to the Black-Scholes Value of the Warrant (or such applicable portion subject to a Successor Major Transaction Conversion), divided by the closing price of the Common Stock on the principal securities exchange or other securities market on which the Common Stock is then traded on the Trading Day immediately preceding the date on which the applicable Major Transaction is consummated.

“Takeout Major Transaction” means a transaction covered by the provisions of clause (A) of the definition of “Major Transaction” in which the shares of Common Stock of the Company are converted into the right to receive cash, securities of another entity and/or other assets.

“Trading Day” shall mean any day on which the Common Stock is traded for any period on the NASDAQ Global Select Market (“NasdaqGS”) or, if the NasdaqGS is not the principal trading market for the Common Stock, on the principal securities exchange or other securities market on which the Common Stock is then being traded; provided, however, that during any period in which the Common Stock is not listed or quoted on the NasdaqGS or any other securities exchange or market, the term “Trading Day” shall mean a Business Day.

2. Exercise.

(a) Manner of Exercise. During the Exercise Period (or, in respect of a Cashless Major Exercise, the Cashless Major Exercise Period (as defined below)), this Warrant may be Exercised as to all or any lesser number of whole shares of Common Stock covered hereby (the “Warrant Shares” or the “Shares”) by sending to the Company the Exercise Form attached hereto as Exhibit A-1 (the “Exercise Form”) duly completed and executed, and, if applicable, the full Exercise Price (as defined below, which may be satisfied by a Cash Exercise, a Cashless Exercise or a Note Exchange Exercise, as each is defined below) for each share of Common Stock as to which this Warrant is Exercised, at the office of the Company, 2 Musick, Irvine, CA 92618, Attention: Chief Financial Officer; Phone: (949) 595-7200, Email: vmahboob@endologix.com, or at such other office or agency as the Company may designate in writing, by overnight mail or electronic mail (any such exercise of the Warrant being hereinafter called an “Exercise” of this Warrant).

(b) Date of Exercise. The “Date of Exercise” of the Warrant shall, in each case, be the date that the Exercise Form attached hereto as Exhibit A-1, completed and executed, is sent by electronic mail to the Company, provided that the Exercise Price is satisfied as soon as practicable thereafter but in no event later than two (2) Business Days following the date of such electronic mail. Alternatively, the Date of Exercise shall be defined as the date the original Exercise Form is received by the Company, if Holder has not previously sent the Exercise Form by electronic mail. Upon delivery of the Exercise Form to the Company by electronic mail or otherwise, Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been Exercised, irrespective of the date such Warrant Shares are credited to Holder’s or its designee’s Depository Trust Company (“DTC”) account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be; provided, however, that in the event an Exercise Form in respect of a Cashless Major Exercise is delivered prior to the occurrence of the applicable Major Transaction, Holder shall be deemed to have become the holder of record of the shares issuable upon such exercise immediately prior to the consummation of such Major Transaction and the Date of Exercise shall

 

4


in such event be deemed to have occurred on the date of the occurrence of the Major Transaction. Holder shall not be required to physically surrender this Warrant to the Company until Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days following the date the final Exercise Form is delivered to the Company. Execution and delivery of an Exercise Form with respect to a partial Exercise shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares.

(c) Delivery of Common Stock Upon Exercise. Within the earlier of (x) two (2) Trading Days and (y) the number of Trading Days comprising the Standard Settlement Period after any Date of Exercise (but, in the case of a Cash Exercise, within two (2) Business Days following the Company’s receipt of the full Exercise Price, if later) or in the case of a Cashless Default Exercise (as defined in Section 5(b) below), within the period provided in Section 3(c), as applicable (the “Delivery Period”), the Company shall issue and deliver (or cause its transfer agent (the “Transfer Agent”) to issue and deliver) in accordance with the terms hereof to or upon the order of Holder that number of shares of Common Stock (“Exercise Shares”) for the portion of this Warrant exercised as shall be determined in accordance herewith. Upon the Exercise of this Warrant or any part hereof, the Company shall, at its own cost and expense, take all necessary action, including obtaining and delivering an opinion of counsel, to assure that the Transfer Agent shall issue stock certificates in the name of Holder (or its nominee) or such other persons as designated by Holder and in such denominations as Holder shall specify at Exercise, representing the number of shares of Common Stock issuable upon such Exercise. The Company warrants that no instructions other than these instructions have been or will be given to the Transfer Agent and that, unless waived by Holder, this Warrant and the Exercise Shares will be free-trading, and freely transferable, and will not contain or be subject to a legend (or be subject to any stop transfer instruction) restricting the resale or transferability of the Exercise Shares if the Unrestricted Conditions (as defined below) are met.

The Company shall be responsible for paying all present or future stamp, court or documentary, intangible, recording, filing or similar taxes that arise from any payment or issuance made under, from the execution, delivery, performance or enforcement of, or otherwise with respect to, this Warrant.

(d) Delivery Failure. In addition to any other remedies which may be available to Holder, in the event that the Company fails for any reason to effect delivery of the Exercise Shares by the end of the Delivery Period (a “Delivery Failure”), Holder will be entitled to revoke all or part of the relevant Exercise by delivery of a notice to such effect to the Company whereupon the Company and Holder shall each be restored to their respective positions immediately prior to the delivery of such notice of revocation, except that the Failure Payments under Section 10(b) shall be payable through the date such notice of revocation is given to the Company.

(e) Legends.

(i) Restrictive Legend. Holder understands that until such time as this Warrant, the Exercise Shares and the Failure Payment Shares (as defined below) have been registered under the Securities Act or otherwise may be sold pursuant to Rule 144 or an exemption from registration

 

5


under the Securities Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, this Warrant, the Exercise Shares and the Failure Payment Shares, as applicable, may bear a restrictive legend in substantially the following form (and a stop-transfer order consistent therewith may be placed against transfer of the certificates for such securities):

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SAID ACT INCLUDING PURSUANT TO SECTION 4(A)(7) OF THE SECURITIES ACT OR RULE 144 UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4[(a)](1) AND A HALF” SALE.” NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST 9, 2018, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

(ii) Removal of Restrictive Legends. This Warrant and the certificates (or electronic book entries, if applicable) evidencing the Exercise Shares and the Failure Payment Shares, as applicable, shall not contain or be subject to any legend restricting the transfer thereof (including the legend set forth above in subsection 2(e)(i)) or be subject to any stop-transfer instructions: (A) while a registration statement (including a Registration Statement, as defined in the Registration Rights Agreement) covering the sale or resale of such security is effective under the Securities Act, or (B) following any sale of such Warrant, Exercise Shares and/or Failure Payment Shares pursuant to Rule 144, or (C) if such Warrant, Exercise Shares and/or Failure Payment Shares are eligible for sale under Rule 144(b)(1), or (D) at any time on or after the date hereof on which Holder’s holding period for purposes of Rule 144 under the Securities Act and subsection (d)(3)(iii) thereof with respect to such Warrant, Exercise Shares and/or Failure Payment Shares is at least six (6) months and Holder certifies that it is not an “affiliate” (as defined in Rule 144 under the Securities Act), or (E) if such legend is not required under applicable requirements of the

 

6


Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC) (collectively, the “Unrestricted Conditions”). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Effective Date, or at such other time as any of the Unrestricted Conditions have been met, if required by the Transfer Agent to effect the issuance of this Warrant, the Exercise Shares or the Failure Payment Shares, as applicable, without a restrictive legend or removal of the legend hereunder. If any of the Unrestricted Conditions are met at the time of issuance of this Warrant, the Exercise Shares or the Failure Payment Shares, then such Warrant, Exercise Shares or Failure Payment Shares, as applicable, shall be issued free of all legends and stop-transfer instructions. The Company agrees that following the Effective Date, or at such time as the Unrestricted Conditions are met or such legend is otherwise no longer required under this Section 2(e), it will, no later than the earlier of (x) two (2) Trading Days and (y) the number of Trading Days comprising the Standard Settlement Period following the delivery (the “Unlegended Shares Delivery Deadline”) by Holder to the Company or the Transfer Agent of this Warrant and a certificate representing Exercise Shares and/or Failure Payment Shares, as applicable, issued with a restrictive legend, deliver or cause to be delivered to Holder this Warrant and/or a certificate (or electronic transfer) representing such shares that is free from all restrictive and other legends (and stop transfer instructions). For purposes hereof, “Effective Date” shall mean the date that the first Registration Statement that the Company is required to file pursuant to the Registration Rights Agreement has been declared effective by the SEC.

(iii) Sale of Unlegended Shares. Holder agrees that the removal of the restrictive legend from this Warrant and any certificates representing securities as set forth in Section 2(e) above is predicated upon the Company’s reliance that Holder will sell this Warrant or any Exercise Shares and/or any Failure Payment Shares, as applicable, pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if such securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein.

(f) Cancellation of Warrant. This Warrant shall be canceled upon the full Exercise of this Warrant, and, as soon as practical after the Date of Exercise, Holder shall be entitled to receive Common Stock for the number of shares purchased upon such Exercise of this Warrant, and if this Warrant is not Exercised in full, Holder shall be entitled to receive a new Warrant (containing terms identical to this Warrant) representing any unexercised portion of this Warrant in addition to such Common Stock; provided, however, as set forth in Section 2(b), Holder shall not be required to physically surrender this warrant if the Warrant is not Exercised in full.

(g) Holder of Record. Each person in whose name any Warrant for shares of Common Stock is issued shall, for all purposes, be deemed to be Holder of record of such shares on the Date of Exercise, irrespective of the date of delivery of the Common Stock purchased upon the Exercise of this Warrant. Prior to the exercise of this Warrant, nothing in this Warrant shall be construed as conferring upon Holder any rights as a stockholder of the Company.

(h) Delivery of Electronic Shares. In lieu of delivering physical certificates representing the Common Stock issuable upon Exercise or legend removal, or representing Failure Payment Shares, upon written request of Holder, the Company shall use its best efforts to cause the Transfer Agent to electronically transmit the Common Stock issuable upon Exercise to Holder

 

7


by crediting the account of Holder’s prime broker with DTC through its Deposit/Withdrawal at Custodian (DWAC) system. The time periods for delivery and penalties described herein shall apply to the electronic transmittals described herein. Any delivery not effected by electronic transmission shall be effected by delivery of physical certificates.

(i) Buy-In. In addition to any other rights or remedies available to Holder hereunder or otherwise at law or in equity, if the Company fails to cause its Transfer Agent to deliver to Holder a certificate or certificates, or electronic shares through DWAC, representing the Exercise Shares pursuant to an Exercise on or before the last day of the Delivery Period (other than a failure caused by any incorrect or incomplete information provided by Holder to the Company hereunder), and if after such date Holder is required by its broker to purchase (in an open market transaction or otherwise) or Holder or Holder’s brokerage firm otherwise purchases shares of Common Stock to deliver in satisfaction of a sale by Holder of the Exercise Shares which Holder was entitled to receive upon such Exercise (a “Buy-In”), then the Company shall (1) pay in cash to Holder the amount by which (x) Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Exercise Shares that the Company was required to deliver to Holder in connection with the Exercise at issue by (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of Holder, either reinstate the portion of the Warrant and equivalent number of Exercise Shares for which such Exercise was not honored (and refund the Exercise Price therefor, to the extent paid by Holder, and/or reinstate the principal amount of any indebtedness used to satisfy the applicable Exercise Price) or deliver to Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its Exercise and delivery obligations hereunder. For example, if Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted Exercise to cover the sale of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay Holder $1,000. Holder shall provide the Company written notice indicating the amounts payable to Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon Exercise of the Warrant as required pursuant to the terms hereof.

(j) HSR Submissions. If Holder determines that, in connection with the exercise of this Warrant, it and the Company are required to file Premerger Notification Reports with the Federal Trade Commission (the “FTC”) and the United States Department of Justice (“DOJ”) and observe the Waiting Period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, and the related rules and regulations promulgated thereunder (collectively, the “HSR Act”), the Company agrees to (i) cooperate with Holder in Holder’s preparing and making such submission and any responses to inquiries of the FTC and DOJ; (ii) prepare and make any submission required to be filed by the Company under the HSR Act and respond to inquiries of the FTC and DOJ in connection therewith; and (iii) reimburse Holder for the cost of the required filing fee for Holder’s submission under the HSR Act. For the avoidance of doubt, Holder shall bear all of its other costs and expenses in connection with such submission, including any attorneys’ fees associated therewith.

 

8


3. Payment of Warrant Exercise Price for Cash Exercise or Cashless Exercise; Cashless Major Exercise and Cashless Default Exercise.

(a) Exercise Price. The exercise price shall initially equal $4.71 per share, subject to adjustment pursuant to the terms hereof (as so adjusted, the “Exercise Price”), including but not limited to Section 5 below.

Payment of the Exercise Price may be made by any of the following, or a combination thereof, at the election of Holder:

(i) Cash Exercise: Holder may exercise this Warrant in cash, bank or cashier’s check or wire transfer (a “Cash Exercise”);

(ii) Cashless Exercise: In lieu of paying all or any portion of the Exercise Price in cash, Holder, at its option, may exercise this Warrant (in whole or in part) on a cashless basis by making appropriate notation on the applicable Exercise Form, in which event the Company shall issue Holder a number of shares of Common Stock computed using the following formula (a “Cashless Exercise”):

X = Y (A-B)/A

where:    X = the number of shares of Common Stock to be issued to Holder.

Y = the number of shares of Common Stock for which this Warrant is being Exercised.

A = the Market Price of one (1) share of Common Stock (for purposes of this Section 3(a)(ii), where “Market Price,” as of any date, means the arithmetic average of the Volume Weighted Average Price (as defined below) of the Company’s Common Stock on each of the ten (10) consecutive Trading Days immediately preceding the date in question).

B = the Exercise Price.

As used herein, the “Volume Weighted Average Price” for any security as of any date means the volume weighted average sale price on the NasdaqGS as reported by, or based upon data reported by, Bloomberg Financial Markets or an equivalent, reliable reporting service mutually acceptable to and hereafter designated by the Holder and the Company (“Bloomberg”), or, if the NasdaqGS is not the principal trading market for such security, the volume weighted average sale price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or, if no volume weighted average sale price is reported for such security, then the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security on the OTC Bulletin Board, the OTCQX Market, the OTCQB Market or the “pink” market of OTC Markets Group. If the Volume Weighted Average Price cannot be calculated for such security on such date in the manner provided above, the Volume Weighted Average Price shall be the fair market value as determined by the Company and the Holder. In the event that a Stock Event is

 

9


consummated during any period for which the arithmetic average of the Volume Weighted Average Prices is to be determined (under this Section or otherwise), the Volume Weighted Average Price for all Trading Days during such period prior to the effectiveness of the Stock Event shall be appropriately adjusted to reflect such Stock Event.

(iii) Note Exchange Exercise: In lieu of paying all or any portion of the Exercise Price in cash, Holder, at its option, may exercise this Warrant (in whole or in part) through a reduction of an amount of principal outstanding under any First Out Waterfall Notes in accordance with Section 2.3(b) of the Facility Agreement, then held by Holder (a “Note Exchange Exercise”)

For purposes of Rule 144 and subsection (d)(3)(ii) thereof, it is intended, understood and acknowledged that (x) this Warrant shall be deemed to have been acquired on April 3, 2017 (the date the First Out Waterfall Notes were originally issued), and (y) the shares of Common Stock issuable upon Exercise of this Warrant in a Cashless Exercise (including a Cashless Major Exercise or Cashless Default Exercise) transaction or a Note Exchange Exercise transaction shall be deemed to have been acquired on April 3, 2017. Accordingly, (A) upon any such Exercise, the Rule 144 holding period for the shares of Common Stock issued thereupon shall be in excess of one (1) year, and (B) provided that Holder is not an “affiliate” (as defined in Rule 144 under the Securities Act) of the Company on the date of such Exercise (which the Company shall assume unless advised otherwise in writing by Holder), an Unrestricted Condition shall be satisfied with respect to the shares of Common Stock issued thereupon and such shares will be freely transferable, without restriction or limitation (including any volume limitation or current public information requirement) under Federal or state securities laws, pursuant to Rule 144 under the Securities Act, and will not contain or be subject to a legend or stop transfer order restricting the resale or transferability of thereof.

As provided in Section 2(b), Holder shall only be required to physically surrender this Warrant in the event that Holder is exercising this Warrant in full.

(b) Cashless Major Exercise. To the extent Holder shall exercise this Warrant as a Cashless Major Exercise pursuant to Section 5(b)(i) and 5(b)(iii) below, Holder shall send to the Company (in any manner permitted under Section 2(a)) the Exercise Form indicating that Holder is exercising this Warrant (or any portion thereof) pursuant to a Cashless Major Exercise, in which event the Company shall issue a number of shares of Common Stock equal to the Black-Scholes Value of the Warrant (or such applicable portion being exercised) divided by the closing price of the Common Stock on the principal securities exchange or other securities market on which the Common Stock is then traded on the Trading Day immediately preceding the date on which the applicable Major Transaction is consummated, or, if in respect of a Cashless Major Exercise made after the date of consummation of the applicable Major Transaction, on the Trading Day immediately preceding the date on which the exercise form in respect of such Cashless Major Exercise is delivered. As provided in Section 2(b), Holder shall only be required to physically surrender this Warrant in the event that Holder is exercising this Warrant in full. Holder shall be permitted to make successive Cashless Major Exercises and send successive Exercise Forms in respect of a Cashless Major Exercise from time to time at any time during the Cashless Major Exercise Period.

 

10


(c) Cashless Default Exercise. To the extent Holder exercises this Warrant as a Cashless Default Exercise pursuant to Section 11(b)(i) below, Holder shall send to the Company (in any manner permitted under Section 2(a)) the Exercise Form indicating that Holder is exercising this Warrant pursuant to a Cashless Default Exercise, in which event the Company shall issue to Holder, within five (5) Trading Days of the applicable Default Notice, a number of shares of Common Stock (which shares shall be valued at the closing price of the Common Stock on the principal securities exchange or other securities market on which the Common Stock is then traded on the Trading Day immediately preceding the date on which the Exercise Form in respect of such Cashless Default Exercise is delivered) equal to the Black-Scholes Value of the remaining unexercised portion of this Warrant (or such portion thereof subject to such exercise) as of the date of such Default Notice (or in the case of an Event of Default referred to in Section 11(a)(vi), on the Trading Day immediately preceding the date the dividend or distribution is declared or, if not first declared, is paid). As provided in Section 2(b), the Holder shall be permitted to make successive Cashless Default Exercises and send successive Exercise Forms in respect of a Cashless Default Exercise, from time to time at any time from and after the date of the applicable Default Notice through the Exercise Period of this Warrant.

(d) Dispute Resolution. In the case of a dispute as to the determination of the closing price or the Volume Weighted Average Price of the Company’s Common Stock or the arithmetic calculation of the Exercise Price, Market Price or the Successor Major Transaction Consideration, or the number of shares issuable upon a Cashless Major Exercise, the Company shall submit the disputed determinations or arithmetic calculations via electronic mail within two (2) Business Days of receipt, or deemed receipt, of the Exercise Form or Major Transaction Early Termination Notice, or other event giving rise to such dispute, as the case may be, to Holder. If Holder and the Company are unable to agree upon such determination or calculation within two (2) Business Days of such disputed determination or arithmetic calculation being submitted to Holder, then the Company shall, within two (2) Business Days submit via electronic mail (i) the disputed determination of the closing price or the Volume Weighted Average Price of the Company’s Common Stock to an independent, reputable investment bank selected by the Company and approved by Holder, which approval shall not be unreasonably withheld, or (ii) the disputed arithmetic calculation of the Exercise Price, Market Price, any Successor Major Transaction Consideration or number of shares issuable upon a Cashless Major Exercise to the Company’s independent, outside registered public accountants. The Company shall use its reasonable best efforts to cause the investment bank or the accountants, as the case may be, to perform the determinations or calculations and notify the Company and Holder of the results no later than five (5) Trading Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountants’ determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error, and the Company and Holder shall each pay one half of the fees and costs of such investment banker or accountant. Notwithstanding the existence of a dispute contemplated by this paragraph, if requested by Holder, the Company shall issue to Holder the Exercise Shares not in dispute in accordance with the terms hereof.

4. Transfer and Registration.

(a) Transfer Rights. Subject to the provisions of Section 8 of this Warrant, this Warrant may be transferred on the books of the Company, in whole or in part, in person or by attorney, upon

 

11


surrender of this Warrant properly completed and endorsed. This Warrant shall be canceled upon such surrender and, as soon as practicable thereafter, the person to whom such transfer is made shall be entitled to receive a new Warrant or Warrants as to the portion of this Warrant transferred, and Holder shall be entitled to receive a new Warrant as to the portion hereof retained.

(b) Registrable Securities. The Common Stock issuable upon the Exercise of this Warrant entitles Holder (and applicable assignees or transferees of such Common Stock) to registration and other rights pursuant to the Registration Rights Agreement.

5. Adjustments Upon Certain Events.

(a) Recapitalization or Reclassification. If the Company shall at any time effect a stock split, payment of stock dividend, recapitalization, reclassification or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or smaller number of shares, then upon the effective date thereof, the number of shares of Common Stock which Holder shall be entitled to purchase upon Exercise of this Warrant, shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of Common Stock by reason of such stock split, payment of stock dividend, recapitalization, reclassification or similar transaction, and the Exercise Price shall be, in the case of an increase in the number of shares, proportionally decreased and, in the case of decrease in the number of shares, proportionally increased. The Company shall give Holder the same notice it provides to holders of Common Stock of any transaction described in this Section 5(a).

(b) Rights Upon Major Transaction.

(i) Major Transaction. In the event that a Major Transaction occurs, then (1) in the case of a Successor Major Transaction, Holder, at its option, may elect to cause the conversion of this Warrant (a “Successor Major Transaction Conversion”), in whole or in part, into the right to receive the Successor Major Transaction Consideration, upon consummation of the Major Transaction, and (2) in the case of all other Major Transactions, Holder shall have the right to exercise this Warrant (or any portion thereof), at any time and from time to time following the occurrence of such event, as a Cashless Major Exercise. In the event Holder shall not have exercised any of its rights under clauses (1) or (2) above within the applicable time periods set forth herein, then the Major Transaction shall be treated as an Assumption (as defined below) in accordance with Section 5(b)(ii) below unless Holder waives its rights under this Section 5(b) with respect to such Major Transaction. Each of the following events shall constitute a “Major Transaction”:

(A) a consolidation, merger, exchange of shares, recapitalization, reorganization, business combination or other similar event, (1) following which the holders of Common Stock immediately preceding such consolidation, merger, exchange, recapitalization, reorganization, combination or event either (a) no longer hold a majority of the shares of Common Stock or (b) no longer have the ability to elect a majority of the board of directors of the Company or (2) as a result of which shares of Common Stock shall be changed into (or the shares of Common Stock become entitled to receive) the same or a different

 

12


number of shares of the same or another class or classes of stock or securities of the Company or another entity (collectively, a “Change of Control Transaction”);

(B) the sale or transfer, in one transaction or a series of related transactions, of (I) all or substantially all of the assets of the Company (including, for the avoidance of doubt, all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole) to any Person other than a wholly-owned subsidiary of the Company or (II) assets of the Company (including, for the avoidance of doubt, all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole) for a purchase price equal to more than 50% of the Equity Value (as defined below) of the Company. For purposes of this clause (B), “Equity Value” shall mean (I) the product of (x) the number of issued and outstanding shares of Common Stock on the date the Company delivers the Major Transaction Notice (defined below) multiplied by (y) the per share closing price of the Common Stock on such date on the NasdaqGS as reported by, or based upon data reported by, Bloomberg or, if the NasdaqGS is not the principal trading market for such security, the closing sale price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg;

(C) a purchase, tender or exchange offer made to the holders of outstanding shares of Common Stock, such that following such purchase, tender or exchange offer a Change of Control Transaction shall have occurred;

(D) the liquidation, bankruptcy, insolvency, dissolution or winding-up (or the occurrence of any analogous proceeding) affecting the Company;

(E) the shares of Common Stock cease to be listed, traded or publicly quoted on the NasdaqGS and are not promptly re-listed or requoted on the New York Stock Exchange, the NYSE American, the NASDAQ Global Market or the NASDAQ Capital Market; or

(F) the Common Stock ceases to be registered under Section 12 of the Exchange Act.

(ii) Assumption. Any assumption of Company obligations under this paragraph shall be referred to herein as an “Assumption.” Unless otherwise provided in writing by Holder, the Company shall not consummate a Major Transaction in which the Company is not the surviving entity or as a result of which the Company has a new Parent Entity, unless (A) each Person acquiring the Company’s assets or Common Stock (or Parent Entity thereof, as applicable), or any other successor entity resulting from such Major Transaction (in each case, a “Successor Entity”), assumes in writing all of the obligations of the Company under this Warrant, the Facility Agreement (but, other than with respect to the Company’s obligations pursuant to Section 5.1(e) and 5.1(p) of the Facility Agreement and the other provisions of the Facility Agreement that

 

13


expressly survive the repayment of the Loans (which shall be assumed in any Assumption), only if there are outstanding Loans under the Facility Agreement immediately following the consummation of the Major Transaction) and the Registration Rights Agreement in accordance with the provisions of this Section 5(b)(ii) pursuant to written agreements in form and substance reasonably satisfactory to Holder and approved by Holder prior to the consummation of such Major Transaction (such approval not to be unreasonably withheld or delayed), including agreements to deliver to Holder in exchange for its Warrants a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Warrants, that, among other things, (1) is exercisable for the appropriate number of shares of the Successor Entity’s capital stock (without regard to the 4.985% Cap or any other restriction or limitation on exercise, provided that such instrument shall contain a limitation on exercise comparable to that contained in the second paragraph of Section 1 of this Warrant); (2) has an exercise price similar to the then-effective Exercise Price (taking into account any conversion or exchange ratio applicable to the Common Stock in the Major Transaction) and exercise price adjustment provisions similar to those in the Warrants; (3) entitles Holder to such additional securities or other consideration as Holder would be entitled pursuant to Section 5(b)(i) in connection with the Major Transaction; and (4) provides for registration rights similar to those provided by the Registration Rights Agreement, in each case reasonably satisfactory to Holder, and (B) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. For the avoidance of doubt, Holder’s reasonable satisfaction referred to in the immediately preceding sentence shall be construed only to apply to confirmation that the warrant or other comparable security and registration rights agreement delivered to Holder upon an assumption hereunder shall conform to the requirements of this Section 5(b)(ii), and this Section 5(b)(ii) shall not be construed as granting consent or approval rights to Holder with respect to the terms of such Major Transaction or to permit Holder to demand any additional consideration in respect of this Warrant other than as provided herein. Upon the occurrence of any Major Transaction, any Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Major Transaction, the provisions of this Warrant and the Registration Rights Agreement referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Major Transaction, the Successor Entity shall deliver to Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Major Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) issuable upon the exercise of the Warrants prior to such Major Transaction, such shares of publicly traded common stock (or their equivalent) of the Successor Entity, as adjusted in accordance with the provisions of this Warrant. The provisions of this Section shall apply similarly and equally to successive Major Transactions and shall be applied without regard to any limitations on the exercise of this Warrant other than any applicable beneficial ownership limitations.

(iii) Major Transaction Notice; Major Transaction Early Termination Right; Notice of Cashless Major Exercise. At least thirty (30) days prior to the consummation of any Major Transaction, but, in any event, within five (5) Trading Days following the first to occur of (x) the date of the public announcement of such Major Transaction if such announcement is made before 4:00 p.m., New York City time, or (y) the day following the public announcement of such Major

 

14


Transaction if such announcement is made on and after 4:00 p.m., New York City time, the Company shall deliver written notice thereof via electronic mail and overnight courier to Holder (a “Major Transaction Notice”). At any time during the period beginning after Holder’s receipt of a Major Transaction Notice in respect of a Successor Major Transaction and ending five (5) Trading Days prior to the consummation of such Major Transaction (the “Early Termination Period”), Holder may elect a Successor Major Transaction Conversion by delivering written notice thereof (“Major Transaction Early Termination Notice”) to the Company, which Major Transaction Early Termination Notice shall indicate the portion of the Warrant (with reference to the number of shares of Common Stock issuable upon a Cash Exercise of such portion, without regard to the 4.985% Cap) that Holder is electing to be treated as a Successor Major Transaction Conversion. The portion of this Warrant subject to early termination pursuant to this Section 5(b)(iii), shall be converted into the right to receive the Successor Major Transaction Consideration

To the extent Holder shall elect to effect a Cashless Major Exercise in respect of a Major Transaction, Holder shall deliver its Exercise Form in accordance with Section 3(b), at any time and from time to time following receipt by Holder of the Major Transaction Notice until the later of (x) the last day of the Exercise Period and (y) the one-year anniversary of the applicable Major Transaction (the “Cashless Major Exercise Period”). For the avoidance of doubt, Holder shall be permitted to make successive Cashless Major Exercises and send successive Exercise Forms in respect of a Cashless Major Exercise from time to time at any time during the Cashless Major Exercise Period.

(iv) Escrow; Payment of Successor Major Transaction Consideration. Following the receipt of a Major Transaction Early Termination Notice in respect of a Successor Major Transaction from Holder, the Company shall not effect a Successor Major Transaction with respect to which Holder has elected a Successor Major Transaction Conversion unless either (A) it obtains, as a condition precedent to such Major Transaction, the written agreement of the Successor Entity that payment of the Successor Major Transaction Consideration shall be made to Holder concurrently with consummation of such Successor Major Transaction, or (B) it shall place the Successor Major Transaction Consideration into an escrow account with an independent escrow agent, and shall instruct the escrow agent to deliver the Successor Major Transaction Consideration to Holder, concurrently with the consummation of the Major Transaction. Notwithstanding clauses (A) and (B) above, Holder shall be treated on a pari passu basis with, and shall not have priority to payments to, the holders of Common Stock in connection with a Major Transaction. For purposes of determining the amount required to be placed in escrow pursuant to the provisions of this subsection (iv) and without affecting the amount of the actual Successor Major Transaction Consideration, the calculation of the price referred to in clause (1) of the first column of Schedule 1 hereto with respect to Stock Price shall be determined based on the Closing Market Price (as defined on Schedule 1) of the Common Stock on the Trading Day immediately preceding the date that the Successor Major Transaction Consideration is deposited with the escrow agent.

(v) Injunction. Following the receipt of a Major Transaction Early Termination Notice from Holder, in the event that the Company attempts to consummate a Successor Major Transaction without either (1) placing the Successor Major Transaction Consideration in escrow in accordance with subsection (iv) above, or (2) obtaining the written agreement of the Successor

 

15


Entity as described in subsection (iv) above, Holder shall have the right to apply for an injunction in any state or federal court sitting in the City of New York, borough of Manhattan to prevent the closing of such Major Transaction until the Successor Major Transaction Consideration is delivered to Holder.

An early termination required by this Section 5(b) shall be made in accordance with the provisions of Section 12. To the extent an early termination required by this Section 5(b) is deemed or determined by a court of competent jurisdiction to be prepayments of the Warrant by the Company, such early termination shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, until the Successor Major Transaction Consideration is paid in full, this Warrant may be exercised, in whole or in part, by Holder into shares of Common Stock, or in the event the date of any Exercise is after the consummation of the Major Transaction, shares of publicly traded common stock (or their equivalent) of the Successor Entity pursuant to Section 5(b). The parties hereto agree that in the event of the Company’s early termination of any portion of the Warrant under this Section 5(b), Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for Holder. Accordingly, any premium due under this Section 5(b) is intended by the parties to be, and shall be deemed, a commercially reasonable estimate of Holder’s actual loss of its investment opportunity and not as a penalty.

(c) Exercise Price Adjusted. As used in this Warrant, the term “Exercise Price” shall mean the purchase price per share specified in Section 3(a) of this Warrant, until the occurrence of an event stated in this Section 5 or otherwise set forth in this Warrant, and thereafter shall mean said price as adjusted from time to time in accordance with the provisions of said subsection. No adjustment made pursuant to any provision of this Section 5 shall have the net effect of increasing the aggregate Exercise Price payable hereunder or, except as expressly provided in Section 5(a), otherwise increasing the Exercise Price.

(d) Adjustments: Additional Shares, Securities or Assets. In the event that at any time, as a result of an adjustment made pursuant to this Section 5 or otherwise, Holder shall, upon Exercise of this Warrant, become entitled to receive shares and/or other securities or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this Section 5.

(e) Notice of Adjustments. Whenever the Exercise Price and/or number or type of securities issuable upon Exercise is adjusted pursuant to the terms of this Warrant, the Company shall promptly mail to Holder a notice (an “Exercise Price Adjustment Notice”) setting forth the Exercise Price and/or number or type of securities issuable upon Exercise after such adjustment and setting forth a statement of the facts requiring such adjustment. The Company shall, upon the written request at any time of Holder, furnish to Holder a like Warrant setting forth (i) such adjustment or readjustment, (ii) the Exercise Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon Exercise of the Warrant. For purposes of clarification, whether or not

 

16


the Company provides an Exercise Price Adjustment Notice pursuant to this Section 5(e), upon the occurrence of any event that leads to an adjustment of the Exercise Price, Holder would be entitled to receive a number of Exercise Shares based upon the new Exercise Price, as adjusted, for exercises occurring on or after the date of such adjustment, regardless of whether Holder accurately refers to the adjusted Exercise Price in the Exercise Form.

6. Fractional Interests.

No fractional shares or scrip representing fractional shares shall be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, Holder may purchase only a whole number of shares of Common Stock. If, on Exercise of this Warrant, Holder would be entitled to a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon Exercise shall be the next higher whole number of shares.

7. Reservation of Shares.

From and after the date hereof, the Company shall at all times reserve for issuance such number of authorized and unissued shares of Common Stock (or other securities substituted therefor as herein above provided) as shall be sufficient for the Exercise of this Warrant and payment of the Exercise Price. If at any time the number of shares of Common Stock authorized and reserved for issuance is below the number of shares sufficient for the Exercise of this Warrant (a “Share Authorization Failure”) (based on the Exercise Price in effect from time to time), the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including calling a special meeting of stockholders to authorize additional shares to meet the Company’s obligations under this Section 7, in the case of an insufficient number of authorized shares, and using its best efforts to obtain stockholder approval of an increase in such authorized number of shares. The Company covenants and agrees that upon the Exercise of this Warrant, all shares of Common Stock issuable upon such Exercise shall be duly and validly issued, fully paid and nonassessable and not subject to preemptive rights, rights of first refusal or similar rights of any Person. The Company covenants and agrees that all shares of Common Stock issuable upon Exercise of this Warrant shall be approved for listing on the NasdaqGS, or, if the NasdaqGS is not the principal trading market for the Common Stock, such principal market on which the Common Stock is traded or listed.

8. Restrictions on Transfer.

(a) Registration or Exemption Required. This Warrant has been issued in a transaction exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act and Rule 506 thereunder and exempt from registration or qualification under applicable state securities (or “blue sky”) laws. None of the Warrant, the Exercise Shares or Failure Payment Shares may be pledged, transferred, sold or assigned except pursuant to an effective registration statement or an exemption to the registration requirements of the Securities Act and applicable state laws, including Rule 144 under the Securities Act, Section 4(a)(7) of the Securities Act or a so-called “4[(a)](1) and a half” transaction.

(b) Assignment. Subject to Section 8(a), Holder may sell, transfer, assign, pledge, or otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a written notice to the

 

17


Company, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the Person or Persons to whom the Warrant shall be assigned and the respective number of warrants to be assigned to each assignee. The Company shall effect the assignment within three (3) Business Days of its receipt of a completed and executed form of Assignment (the “Transfer Delivery Period”), and shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of like tenor and terms entitling Holder to purchase the appropriate number of shares. This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder. For avoidance of doubt, in the event Holder notifies the Company that such sale or transfer is a so called “4[(a)](1) and half” transaction, the parties hereto agree that a legal opinion from outside counsel for Holder delivered to counsel for the Company substantially in the form attached hereto as Exhibit C shall be the only requirement to satisfy an exemption from registration under the Securities Act to effectuate such “4[(a)](1) and half” transaction.

9. Noncircumvention.

The Company hereby covenants and agrees that the Company will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

10. Events of Failure; Definition of Black Scholes Value.

(a) Definition.

The occurrence of each of the following shall be considered to be an “Event of Failure.”

(i) A Delivery Failure occurs, where a “Delivery Failure” shall be deemed to have occurred if the Company fails to use its best efforts to deliver Exercise Shares to Holder within any applicable Delivery Period (other than due to the limitation contained in the second paragraph of Section 1);

(ii) A Legend Removal Failure occurs, where a “Legend Removal Failure” shall be deemed to have occurred if the Company fails to use its best efforts to issue this Warrant and/or Exercise Shares without a restrictive legend, or fails to use it best efforts to remove a restrictive legend, when and as required under Section 2(e) hereof;

(iii) a Transfer Delivery Failure occurs, where a “Transfer Delivery Failure” shall be deemed to have occurred if the Company fails to use its best efforts to deliver a Warrant within any applicable Transfer Delivery Period; and

(iv) a Registration Failure (as defined below).

 

18


For purpose hereof, “Registration Failure” means that (A) the Company fails to file with the SEC on or before the Additional Warrant Filing Deadline (as defined in the Registration Rights Agreement) any Registration Statement required to be filed pursuant to Section 2(a) of the Registration Rights Agreement, (B) the Company fails to use its reasonable best efforts to obtain effectiveness with the SEC, prior to the Additional Warrant Registration Deadline (as defined in the Registration Rights Agreement), and if such Registration Statement does not become effective prior to the Additional Warrant Registration Deadline, as soon as possible thereafter, of any Registration Statement (as defined in the Registration Rights Agreement) that is required to be filed pursuant to Section 2(a) of the Registration Rights Agreement, or fails to use its reasonable best efforts to keep such Registration Statement current and effective as required in Section 3 of the Registration Rights Agreement, (C) the Company fails to file any additional Registration Statement required to be filed pursuant to Section 2(a)(ii) of the Registration Rights Agreement on or before the Additional Filing Deadline (as defined in the Registration Rights Agreement) or fails to use its reasonable best efforts to cause such new Registration Statement to become effective on or before the Additional Registration Deadline (as defined in the Registration Rights Agreement), and if such effectiveness does not occur within such period, as soon as possible thereafter, (D) the Company fails to file any amendment to any Registration Statement, or any additional Registration Statement required to be filed pursuant to Section 3(b) of the Registration Rights Agreement within thirty (30) days of the applicable Registration Trigger Date (as defined in the Registration Rights Agreement), or fails to use its reasonable best efforts to cause such amendment and/or new Registration Statement to become effective within ninety (90) days of the applicable Registration Trigger Date, and, if such effectiveness does not occur within such period, as soon as possible thereafter, (E) any Registration Statement required to be filed under the Registration Rights Agreement, after its initial effectiveness and during the applicable Registration Period (as defined in the Registration Rights Agreement), lapses in effect or, other than on a day during an Allowable Grace Period (as defined in the Registration Rights Agreement), sales of all of the Registrable Securities (as defined in the Registration Rights Agreement) cannot otherwise be made thereunder (whether by reason of the Company’s failure to amend or supplement the prospectus included therein in accordance with the Registration Rights Agreement, the Company’s failure to file and use its reasonable best efforts to obtain effectiveness with the SEC of an additional Registration Statement or amended Registration Statement required pursuant to Section 2(a)(ii) or 3(b) of the Registration Rights Agreement, as applicable, or otherwise), or (F) the Company fails to provide a commercially reasonable written response to any comments to any Registration Statement submitted by the SEC within twenty-five (25) days of the date that such SEC comments are received by the Company.

(b) Failure Payments; Black-Scholes Determination. The Company understands that any Event of Failure (as defined above) could result in economic loss to Holder. In the event that any Event of Failure occurs, as compensation to Holder for such economic loss, the Company agrees to pay to Holder an amount payable, at the Company’s option, either (i) in cash or (ii) in shares of Common Stock that are valued for these purposes at the Volume Weighted Average Price on the date of such calculation (“Failure Payments” and such shares, “Failure Payment Shares”), in each case equal to the total economic loss of Holder determined on a commercially reasonable basis in connection with such Event of Failure for the relevant period (as recalculated on the first Business Day of each month thereafter for as long as Failure Payments shall continue to accrue) from the date of such Event of Failure until the Event of Failure is cured; provided, however, that in the event the Company elects to make Failure Payments in Failure Payment Shares, the

 

19


Company shall issue, and Holder shall only receive, up to such number of shares of Common Stock in respect of Failure Payments such that Holder and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with Holder’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) shall not collectively beneficially own greater than 4.985% of the total number of shares of Common Stock of the Company then issued and outstanding, and the balance of such Failure Payments shall be paid in cash. For purposes of clarification, it is agreed and understood that Failure Payments shall continue to accrue following any Event of Default until the applicable Default Amount is paid in full. The Company shall satisfy any Failure Payments under this Section pursuant to Section 10(c) below. Failure Payments are in addition to any Shares that Holder is entitled to receive upon Exercise of this Warrant.

(c) Payment of Accrued Failure Payments. The Failure Payments and Failure Payment Shares representing accrued Failure Payments for each Event of Failure shall be paid or issued and delivered, as the case may be, on or before the fifth (5th) Business Day of each month following a month in which Failure Payments accrued. Nothing herein shall limit Holder’s right to pursue actual damages (to the extent in excess of the Failure Payments) for the Company’s Event of Failure, and Holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief). Notwithstanding the above, if a particular Event of Failure results in an Event of Default pursuant to Section 11 hereof, then the Failure Payment, for that Event of Failure only, shall be considered to have been satisfied upon payment to Holder of an amount equal to the greater of (i) the Failure Payment, or (ii) the Default Amount, payable in accordance with Section 11.

(d) Maximum Interest Rate. Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to Holder and thereby refunded to the Company.

11. Default.

(a) Events Of Default. Each of the following events shall be considered to be an “Event of Default,” unless waived by Holder:

(i) Failure To Effect Registration. With respect to all Registration Failures, a Registration Failure occurs and remains uncured for a period of more than forty-five (45) days (or sixty (60) days in the case where the Company (i) has, by the Filing Deadline (as defined the Registration Rights Agreement) filed a Registration Statement (as defined in the Registration Rights Agreement) covering this Warrant and the number of shares required by the Registration Rights Agreement, and (ii) has responded in writing to any comments to the Registration Statement that the Company has received from the SEC, within ten (10) Business Days of such receipt, and nevertheless the SEC has not declared effective a Registration Statement covering the this

 

20


Warrant and the Shares by the Registration Deadline (as defined in the Registration Rights Agreement)), and such Registration Failure relates solely to the Company’s failure to have the Registration Statement declared effective by the Registration Deadline (as defined in the Registration Rights Agreement) and with respect to a Registration Failure provided in clause (E) of the definition of “Registration Failure,” such Registration Failure occurs and remains uncured for a period of more than forty-five (45) days.

(ii) Failure To Deliver Common Stock. A Delivery Failure (as defined above) occurs and remains uncured for a period of more than twenty (20) days; or at any time, the Company announces or states in writing that it will not honor its obligations to issue shares of Common Stock to Holder upon Exercise by Holder of the Exercise rights of Holder in accordance with the terms of this Warrant.

(iii) Legend Removal Failure. A Legend Removal Failure (as defined above) occurs and remains uncured for a period of twenty (20) days;

(iv) Transfer Delivery Failure. A Transfer Delivery Failure (as defined above) occurs and remains uncured for a period of twenty (20) days;

(v) Corporate Existence; Major Transaction. (A) The Company has failed to (1) place the Successor Major Transaction Consideration into escrow and instruct the escrow agent to release the Successor Major Transaction Consideration to the Holder pursuant to Section 5(b)(iii), or (2) obtain the written agreement of the Successor Entity and cause the Successor Entity to make payment as described in Section 5(b)(iii), (B) the Successor Major Transaction Consideration is not paid contemporaneously with the consummation of the Successor Major Transaction, or (C) with respect to a Major Transaction that is to be treated as an Assumption under the terms hereof, the Company has failed to meet the Assumption requirements of Section 5(b)(i); or

(vi) Section 13 Breach. During the Dividend Restriction Period, the Company declares or pays any dividend or distribution of any kind to the holders of Common Stock of the Company.

(b) Mandatory Early Termination.

(i) Mandatory Early Termination Amount; Cashless Default Exercise. The Company shall notify Holder in writing within two (2) Business Days of the occurrence of an Event of Default. If any Events of Default shall occur then, at the option of Holder, such option exercisable through the delivery of written notice to the Company by such Holder (the “Default Notice”), the Company shall have the right to terminate the outstanding amount of this Warrant and pay to Holder (a “Mandatory Early Termination”), in full satisfaction of its obligations hereunder by delivery of a notice to such effect to Holder within two (2) Business Days following receipt of the Default Notice, an amount payable in cash (the “Mandatory Early Termination Amount” or the “Default Amount”) equal to the Black-Scholes Value of the remaining unexercised portion of this Warrant on the date of such Default Notice (or in the case of an Event of Default referred to in Section 11(a)(vi), on the Trading Day immediately preceding the date the dividend or distribution is declared or, if not first declared, is paid). In the event the Company does not exercise its right to consummate a Mandatory Early Termination, then Holder shall have the right to exercise this Warrant, at any time and from time to time, pursuant to a Cashless Default Exercise in accordance with Section 3(c) above.

 

21


The Mandatory Early Termination Amount shall be payable within five (5) Business Days following the date of the applicable Default Notice.

(ii) Liquidated Damages. The parties hereto acknowledge and agree that the sums payable as Failure Payments or pursuant to a Mandatory Early Termination shall constitute partial liquidated damages and not penalties. The parties further acknowledge that (i) the amount of loss or damages likely to be incurred by Holder is incapable or is difficult to precisely estimate, (ii) the amounts specified bear a reasonable proportion and are not plainly or grossly disproportionate to the probable loss likely to be incurred by Holder, and (iii) the parties are sophisticated business parties and have been represented by sophisticated and able legal and financial counsel and negotiated this agreement at arm’s length.

Upon the occurrence of an Event of Default, the Default Amount, together with all other amounts payable hereunder, shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including legal fees and expenses, of collection, and Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

(c) Posting Of Bond. In the event that any Event of Default occurs hereunder, the Company may not raise as a legal defense (in any Lawsuit, as defined below, or otherwise) or justification to such Event of Default any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, unless the Company has posted a surety bond (a “Surety Bond”) for the benefit of such Holder in the amount of 130% of the aggregate Surety Bond Value (as defined below) of all of Holder’s Warrants (the “Bond Amount”), which Surety Bond shall remain in effect until the completion of litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent Holder obtains judgment.

For purposes hereof, a “Lawsuit” shall mean any lawsuit, arbitration or other dispute resolution filed by either party herein pertaining to any of this Warrant, the Facility Agreement, the Registration Rights Agreement or any other Loan Document (as defined in the Facility Agreement).

“Surety Bond Value,” for the Warrants shall mean 130% of the of the Black-Scholes Value of the remaining unexercised portion of this Warrant on the Trading Day immediately preceding the date that such bond goes into effect.

(d) Injunction And Posting Of Bond. In the event that the Event of Default referred to in subsection (a) of this Section 11 pertains to the Company’s failure to deliver unlegended shares of Common Stock to Holder pursuant to a Warrant Exercise, legend removal request, or otherwise, the Company may not refuse such unlegended share delivery based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, unless an injunction from a court, on prior notice to Holder, restraining and or enjoining Exercise of all or part of said Warrant shall have been sought and obtained by the Company and the Company has posted a Surety Bond for the benefit of such Holder in the amount of the Bond Amount, which Surety Bond shall remain in effect until the completion of litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent Holder obtains judgment.

 

22


(e) Remedies, Other Obligations, Breaches And Injunctive Relief. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, the Facility Agreement, the Registration Rights Agreement and any other Loan Document, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach (including a breach or threatened breach of Section 13), the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

12. Holder’s Early Terminations.

(a) Mechanics of Holders Early Terminations. In the event that the Company does not deliver the applicable Successor Major Transaction Consideration or Default Amount or the Exercise Shares in respect of an election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default or Exercise, as the case may be, to Holder within the time period or as otherwise required pursuant to the terms hereof, at any time thereafter Holder shall have the option, upon notice to the Company, in lieu of an election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, to require the Company to promptly return to Holder all or any portion of this Warrant that was submitted for election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be. Upon the Company’s receipt of such notice, (x) the applicable election of Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, shall be null and void with respect to such applicable portion of this Warrant, (y) the Company shall immediately return this Warrant, or issue a new Warrant to Holder representing the portion of this Warrant that was submitted for election of Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, and (z) the Exercise Price of this Warrant or such new Warrant shall be adjusted to the Exercise Price as in effect on the date on which the applicable election of Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, is voided. Holder’s delivery of a notice voiding an election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, and exercise of its rights following such notice shall not affect the Company’s obligations to make any Failure Payments which have accrued prior to the date of such notice with respect to the Warrant subject to such notice.

13. Dividend Restrictions.

Until the earlier of the expiration of the Exercise Period and the date all of the Warrants are exercised in full (the “Dividend Restriction Period”), the Company shall not declare or pay any dividend or distribution of any kind to the holders of Common Stock of the Company.

14. Benefits of this Warrant.

 

23


Nothing in this Warrant shall be construed to confer upon any person other than the Company and Holder any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and Holder.

15. Governing Law.

All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, stockholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, borough of Manhattan. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

16. Loss of Warrant.

Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.

17. Notice or Demands.

Except as otherwise provided herein, notices or demands pursuant to this Warrant to be given or made by Holder to or on the Company shall be sufficiently given or made if sent by overnight delivery with a nationally recognized overnight courier service, certified or registered mail, return receipt requested, postage prepaid, and addressed, until another address is designated in writing by the Company, to the address set forth in Section 2(a) above. To the extent any notice or demand pursuant to this Warrant can be made by electronic mail, such notice or demand given or made by Holder to or on the Company shall be sufficiently given or made if it is sent by electronic mail to the addresses that the Company shall designate in writing from time to time. Notices or demands pursuant to this Warrant to be given or made by the Company to or on

 

24


Holder shall be sufficiently given or made if sent by overnight delivery with a nationally recognized overnight courier service or certified or registered mail, return receipt requested, postage prepaid, and addressed, to the address of Holder set forth in the Company’s records, until another address is designated in writing by Holder.

18. Construction.

Unless the context otherwise requires, (a) all references to Articles, Sections, Schedules or Exhibits are to Articles, Sections, Schedules or Exhibits contained in or attached to this Warrant, (b) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (c) the use of the word “including” in this Warrant shall be by way of example rather than limitation.

19. Signatures.

In the event that any signature to this Warrant or any amendment hereto is delivered by electronic mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof. Notwithstanding the foregoing, the Company shall be obligated to deliver to Holder an original signature to this Warrant. At the request of any party, each other party shall promptly re-execute an original form of this Warrant or any amendment hereto and deliver the same to the other party. No party hereto shall raise the use of electronic mail delivery of a “.pdf” format data file to deliver a signature to this Warrant or any amendment hereto or the fact that such signature was transmitted or communicated through the use of electronic mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract, and each party hereto forever waives any such defense.

 

25


IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the 9th day of August, 2018.

 

ENDOLOGIX, INC.
By:  

/s/ Vaseem Mahboob

  Print Name: Vaseem Mahboob
  Title: Chief Financial Officer

 

26


EXHIBIT A-1

EXERCISE FORM FOR WARRANT

TO: [                ]

CHECK THE APPLICABLE BOX:

 

 

Cash Exercise, Cashless Exercise or Note Exchange Exercise

The undersigned hereby irrevocably exercises Warrant Number              (the “Warrant”) with respect to 2,916,667 shares of Common Stock (the “Common Stock”) of Endologix, Inc., a Delaware corporation (the “Company”). [IF APPLICABLE: The undersigned hereby encloses $         as payment of the Exercise Price.]

☐ The undersigned is exercising the Warrant with respect to [            ] shares of Common Stock pursuant to a Cashless Exercise, and hereby makes payment of the Exercise Price with respect to such shares in full, all in accordance with the conditions and provisions of the Warrant applicable to such Cashless Exercise.

☐ The undersigned is exercising the Warrant with respect to [            ] shares of Common Stock pursuant to a Note Exchange Exercise. The undersigned hereby agrees to cancel $         of principal outstanding under Notes of the Company held by Holder in satisfaction of the Exercise Price in accordance with the conditions and provisions of the Warrant applicable to such Note Exchange Exercise.

 

 

Cashless Major Exercise

The undersigned hereby irrevocably exercises the Warrant with respect to ____% of the Warrant currently outstanding pursuant to a Cashless Major Exercise in accordance with the terms of the Warrant.

 

 

Cashless Default Exercise

The undersigned hereby irrevocably exercises the Warrant pursuant to a Cashless Default Exercise, in accordance with the terms of the Warrant.

1. The undersigned requests that any stock certificates for such shares be issued free of any restrictive legend, if appropriate, and, if requested by the undersigned, a warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the undersigned and delivered to the undersigned at the address set forth below.

2. Capitalized terms used but not otherwise defined in this Exercise Form shall have the meaning ascribed thereto in the Warrant.

Dated:                    

 

 

Signature

 

 

Print Name

 

 

Address

NOTICE

The signature to the foregoing Exercise Form must correspond to the name as written upon the face of the attached Warrant.

 

27


EXHIBIT B

ASSIGNMENT

(To be executed by the registered holder

desiring to transfer the Warrant)

FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the “Warrant”) hereby sells, assigns and transfers unto the person or persons below named the right to purchase                  shares of the Common Stock of Endologix, Inc., a Delaware corporation, evidenced by the attached Warrant and does hereby irrevocably constitute and appoint                  attorney to transfer the said Warrant on the books of the Company, with full power of substitution in the premises.

 

Dated:                         

 

    Signature
Fill in for new registration of Warrant:    

 

Name

   

 

Address

   

 

Please print name and address of assignee

   
(including zip code number)    

NOTICE

The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached Warrant.

 

28


EXHIBIT C

FORM OF OPINION

            , 20    

[                    ]

 

Re:

[                         ] (the “Company”)

Dear Sir:

[                    ] (“[                ]”) intends to transfer          Warrants (the “Warrants”) of the Company to                  (“            ”) without registration under the Securities Act of 1933, as amended (the “Securities Act”). In connection therewith, we have examined and relied upon the truth of representations contained in an Investor Representation Letter attached hereto and have examined such other documents and issues of law as we have deemed relevant.

Based on and subject to the foregoing, we are of the opinion that the transfer of the Warrants by              to              may be effected without registration under the Securities Act[, provided, however, that the Warrants to be transferred to                  contain a legend restricting its transferability pursuant to the Securities Act and that transfer of the Warrants is subject to a stop order].1

The foregoing opinion is furnished only to                  and may not be used, circulated, quoted or otherwise referred to or relied upon by you for any purposes other than the purpose for which furnished or by any other person for any purpose, without our prior written consent.

Very truly yours,

 

1 

Only if applicable.

 

29


[FORM OF INVESTOR REPRESENTATION LETTER]

            , 20        

[                                 ]

Gentlemen:

             (“    ”) has agreed to purchase                  Warrants (the “Warrants”) of Endologix, Inc., a Delaware corporation (the “Company”) from [                    ] (“[                    ]”). We understand that the Warrants are “restricted securities.” We represent and warrant that                  is a sophisticated institutional investor that would qualify as an “Accredited Investor” as defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”).

            represents and warrants as of the date hereof as follows:

1. That it is acquiring the Warrants and the shares of common stock, $0.001 par value per share underlying such Warrants (the “Exercise Shares”) solely for its account for investment and not with a view to or for sale or distribution of said Warrants or Exercise Shares or any part thereof in violation of the Securities Act.                  also represents that the entire legal and beneficial interests of the Warrants and Exercise Shares                  is acquiring is being acquired for, and will be held for, its account only;

2. That the Warrants and the Exercise Shares must be held indefinitely unless they are registered under the Securities Act or an exemption from such registration is available.              recognizes that the Company has no obligation to register the Warrants, or to comply with any exemption from such registration;

3. That neither the Warrants nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met;

We acknowledge that the Company will place stop orders with respect to the Warrants and the Exercise Shares, and if none of the Unrestricted Conditions (as defined in the Warrants) is satisfied, the Exercise Shares shall bear the following restrictive legend:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SAID ACT INCLUDING PURSUANT TO SECTION 4(A)(7) OF THE SECURITIES ACT OR RULE 144 UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4[(a)](1) AND A HALF” SALE.

 

30


NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST 9, 2018, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

At any time and from time to time after the date hereof,                  shall, without further consideration, execute and deliver to [                ] or the Company such other instruments or documents and shall take such other actions as they may reasonably request to carry out the transactions contemplated hereby.

Very truly yours,

 

31


Schedule 1

Black-Scholes Value

 

    

Calculation Under Sections 3(b) and 5(b)(iii)

  

Calculation Under Section 10(b) or 11(b)

Remaining Term    Number of calendar days from date of public announcement of the Major Transaction until the last date on which the Warrant may be exercised.    Number of calendar days from the date of the Event of Failure, or in the case of an Event of Default, the date of the Default Notice, until the last date on which the Warrant may be exercised.
Interest Rate    A risk-free interest rate corresponding to the US$ LIBOR/Swap rate for a period equal to the remaining Exercise Period.    A risk-free interest rate corresponding to the US$ LIBOR/Swap rate for a period equal to the remaining Exercise Period.
Cost to Borrow    Zero    Zero
Volatility   

If the first public announcement of the Major Transaction is made at or prior to 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the date of such first public announcement, obtained from the HVT or similar function on Bloomberg.

 

If the first public announcement of the Major Transaction is made after 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the next succeeding Trading Day following the date of such first public announcement, obtained from the HVT or similar function on Bloomberg.

   The arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the date of such determination, obtained from the HVT or similar function on Bloomberg.

 

32


Stock Price    As selected by Holder in its commercially reasonable discretion in order to produce a commercially reasonable result, any of: (1) the closing price of the Common Stock on the NasdaqGS, or, if that is not the principal trading market for the Common Stock, such principal market on which the Common Stock is traded or listed (the “Closing Market Price”) on the Trading Day immediately preceding the date on which a Major Transaction is consummated, (2) the first Closing Market Price following the first public announcement of a Major Transaction, (3) the Closing Market Price as of the date immediately preceding the first public announcement of the Major Transaction or (4) the cash amount payable per share of Common Stock. The Company and Holder acknowledge and agree that any of the above will produce a commercially reasonable result.    The volume Weighted Average Price on the date of such determination.
Dividends    Zero.    Zero.
Strike Price    Exercise Price as defined in section 3(a).    Exercise Price as defined in section 3(a).

 

33

EX-4.2

Exhibit 4.2

WARRANT

THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, INCLUDING PURSUANT TO SECTION 4(A)(7) OF THE SECURITIES ACT OR RULE 144 UNDER THE SECURITIES ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4[(a)](1) AND A HALF SALE.” NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED.

 

Warrant to Purchase

2,916,667 shares

   Warrant Number:         2018-2

Warrant to Purchase Common Stock

of

Endologix, Inc.

THIS CERTIFIES that Deerfield Private Design Fund IV, L.P. or any subsequent holder hereof (“Holder”) has the right to purchase from Endologix, Inc., a Delaware corporation (the “Company”), Two Million Nine Hundred Sixteen Thousand Six Hundred Sixty-Seven (2,916,667) fully paid and nonassessable shares of the Company’s common stock, $0.001 par value per share (“Common Stock”), subject to adjustment as provided herein, at a price equal to the Exercise Price (as defined in Section 3 below), at any time during the Exercise Period (as defined in Section 1 below).

Holder agrees with the Company that this Warrant to Purchase Common Stock of the Company (this “Warrant” or this “Agreement”) is issued and all rights hereunder shall be held subject to all of the conditions, limitations and provisions set forth herein.

1. Date of Issuance and Term.

This Warrant shall be deemed to be issued, and shall be in full force and effect commencing, on August 9, 2018 (“Date of Issuance”). The exercise period of this Warrant begins on (and includes) February 9, 2019, and ends at 5:00 p.m., New York City time, on August 9, 2025 (the “Exercise Period”). This Warrant was issued pursuant to that certain Amended and Restated Facility Agreement (as may be amended, restated, supplemented or otherwise modified from


time to time in accordance with the terms thereof, the “Facility Agreement”) by and among the Company, Deerfield Private Design Fund III, L.P., Deerfield Private Design Fund IV, L.P., and Deerfield Partners, L.P., dated as of August 9, 2018, and in conjunction with that certain Amended and Restated Registration Rights Agreement (as may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “Registration Rights Agreement”) by and among the Company, Deerfield Private Design Fund III, L.P., Deerfield Private Design Fund IV, L.P., and Deerfield Partners, L.P., dated as of August 9, 2018.

Notwithstanding anything herein to the contrary, the Company shall not issue to Holder, and Holder may not acquire, a number of shares of Common Stock upon exercise of this Warrant to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by Holder and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with Holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including shares held by any “group” of which Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein), would exceed 4.985% of the total number of shares of Common Stock then issued and outstanding (the “4.985% Cap”); provided, however, that the 4.985% Cap shall only apply to the extent that the Common Stock is deemed to constitute an “equity security” pursuant to Rule 13d-1(i) promulgated under the Exchange Act. For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities and Exchange Commission (the “SEC”), and the percentage held by Holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Upon the written request of Holder, the Company shall, within two (2) Trading Days, confirm orally and in writing to Holder the number of shares of Common Stock then outstanding.

For purposes hereof:

“Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 (“Rule 144”) under the Securities Act of 1933, as amended (the “Securities Act”). With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder shall, for purposes hereof, be deemed to be an Affiliate of such Holder.

“Asset Sale” means a transaction covered by the provisions of clause (B) of the definition of “Major Transaction” involving the sale or transfer of all or substantially all of the assets of the Company (including, for the avoidance of doubt, all or substantially all of the assets of the Company and its Subsidiaries (as defined in the Facility Agreement), taken as a whole) in connection with which the Company has announced its intention to liquidate and distribute its assets to stockholders.

“Black-Scholes Value” shall mean the Black-Scholes value of this Warrant, or applicable portion thereof, as determined by use of the Black-Scholes Option Pricing Model using the criteria set forth on Schedule 1 hereto.

 

2


“Business Day” means a day other than a Saturday or Sunday or any other day on which commercial banks are authorized or required by law to close in New York City.

“Cashless Default Exercise” shall mean an exercise of this Warrant as a “Cashless Default Exercise” in accordance with Sections 3(c) and 11(b) hereof.

“Cashless Major Exercise” shall mean an exercise of this Warrant or portion thereof as a “Cashless Major Exercise” in accordance with Sections 3(b) and 5(b)(i) hereof.

“Cash Out Major Transaction” means a Major Transaction in which the consideration payable to holders of Common Stock in connection with the Major Transaction consists solely of cash.

“Eligible Market” means the New York Stock Exchange, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE American or, in each case, any successor thereto.

“Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of a Major Transaction.

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

“Standard Settlement Period” means the standard settlement period for equity trades effected on securities exchanges in the United States, expressed in a number of Trading Days, as in effect on the applicable Date of Exercise (as defined in Section 2(b)).

“Stock Event” means a stock split, stock combination, reclassification, payment of stock dividend, recapitalization or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or small number of shares.

“Successor Entity” means any Person purchasing the Company’s assets or Common Stock, or any successor entity resulting from such Major Transaction, or if the Warrant is to be exercisable for shares of capital stock of a Parent Entity (as defined above), such Person’s Parent Entity.

“Successor Major Transaction” means either a Takeout Major Transaction or an Asset Sale.

“Successor Major Transaction Consideration” means (i) in the case of a Takeout Major Transaction (other than a Cash Out Major Transaction), the amount of cash and other assets and the number of securities or other property of the Successor Entity or other entity that would be issuable in such Major Transaction, in respect of a number of shares equal to the Successor Major Transaction Conversion Share Amount and (ii) in the case of an Asset Sale or a Cash Out Major Transaction, an amount of cash equal to the Black-Scholes Value of the Warrant.

 

3


“Successor Major Transaction Conversion Share Amount” means an amount equal to the Black-Scholes Value of the Warrant (or such applicable portion subject to a Successor Major Transaction Conversion), divided by the closing price of the Common Stock on the principal securities exchange or other securities market on which the Common Stock is then traded on the Trading Day immediately preceding the date on which the applicable Major Transaction is consummated.

“Takeout Major Transaction” means a transaction covered by the provisions of clause (A) of the definition of “Major Transaction” in which the shares of Common Stock of the Company are converted into the right to receive cash, securities of another entity and/or other assets.

“Trading Day” shall mean any day on which the Common Stock is traded for any period on the NASDAQ Global Select Market (“NasdaqGS”) or, if the NasdaqGS is not the principal trading market for the Common Stock, on the principal securities exchange or other securities market on which the Common Stock is then being traded; provided, however, that during any period in which the Common Stock is not listed or quoted on the NasdaqGS or any other securities exchange or market, the term “Trading Day” shall mean a Business Day.

2. Exercise.

(a) Manner of Exercise. During the Exercise Period (or, in respect of a Cashless Major Exercise, the Cashless Major Exercise Period (as defined below)), this Warrant may be Exercised as to all or any lesser number of whole shares of Common Stock covered hereby (the “Warrant Shares” or the “Shares”) by sending to the Company the Exercise Form attached hereto as Exhibit A-1 (the “Exercise Form”) duly completed and executed, and, if applicable, the full Exercise Price (as defined below, which may be satisfied by a Cash Exercise, a Cashless Exercise or a Note Exchange Exercise, as each is defined below) for each share of Common Stock as to which this Warrant is Exercised, at the office of the Company, 2 Musick, Irvine, CA 92618, Attention: Chief Financial Officer; Phone: (949) 595-7200, Email: vmahboob@endologix.com, or at such other office or agency as the Company may designate in writing, by overnight mail or electronic mail (any such exercise of the Warrant being hereinafter called an “Exercise” of this Warrant).

(b) Date of Exercise. The “Date of Exercise” of the Warrant shall, in each case, be the date that the Exercise Form attached hereto as Exhibit A-1, completed and executed, is sent by electronic mail to the Company, provided that the Exercise Price is satisfied as soon as practicable thereafter but in no event later than two (2) Business Days following the date of such electronic mail. Alternatively, the Date of Exercise shall be defined as the date the original Exercise Form is received by the Company, if Holder has not previously sent the Exercise Form by electronic mail. Upon delivery of the Exercise Form to the Company by electronic mail or otherwise, Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been Exercised, irrespective of the date such Warrant Shares are credited to Holder’s or its designee’s Depository Trust Company (“DTC”) account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be; provided, however, that in the event an Exercise Form in respect of a Cashless Major Exercise is delivered prior to the occurrence of the applicable Major Transaction, Holder shall be deemed to have become the holder of record of the shares issuable upon such exercise immediately prior to the consummation of such Major Transaction and the Date of Exercise shall

 

4


in such event be deemed to have occurred on the date of the occurrence of the Major Transaction. Holder shall not be required to physically surrender this Warrant to the Company until Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days following the date the final Exercise Form is delivered to the Company. Execution and delivery of an Exercise Form with respect to a partial Exercise shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares.

(c) Delivery of Common Stock Upon Exercise. Within the earlier of (x) two (2) Trading Days and (y) the number of Trading Days comprising the Standard Settlement Period after any Date of Exercise (but, in the case of a Cash Exercise, within two (2) Business Days following the Company’s receipt of the full Exercise Price, if later) or in the case of a Cashless Default Exercise (as defined in Section 5(b) below), within the period provided in Section 3(c), as applicable (the “Delivery Period”), the Company shall issue and deliver (or cause its transfer agent (the “Transfer Agent”) to issue and deliver) in accordance with the terms hereof to or upon the order of Holder that number of shares of Common Stock (“Exercise Shares”) for the portion of this Warrant exercised as shall be determined in accordance herewith. Upon the Exercise of this Warrant or any part hereof, the Company shall, at its own cost and expense, take all necessary action, including obtaining and delivering an opinion of counsel, to assure that the Transfer Agent shall issue stock certificates in the name of Holder (or its nominee) or such other persons as designated by Holder and in such denominations as Holder shall specify at Exercise, representing the number of shares of Common Stock issuable upon such Exercise. The Company warrants that no instructions other than these instructions have been or will be given to the Transfer Agent and that, unless waived by Holder, this Warrant and the Exercise Shares will be free-trading, and freely transferable, and will not contain or be subject to a legend (or be subject to any stop transfer instruction) restricting the resale or transferability of the Exercise Shares if the Unrestricted Conditions (as defined below) are met.

The Company shall be responsible for paying all present or future stamp, court or documentary, intangible, recording, filing or similar taxes that arise from any payment or issuance made under, from the execution, delivery, performance or enforcement of, or otherwise with respect to, this Warrant.

(d) Delivery Failure. In addition to any other remedies which may be available to Holder, in the event that the Company fails for any reason to effect delivery of the Exercise Shares by the end of the Delivery Period (a “Delivery Failure”), Holder will be entitled to revoke all or part of the relevant Exercise by delivery of a notice to such effect to the Company whereupon the Company and Holder shall each be restored to their respective positions immediately prior to the delivery of such notice of revocation, except that the Failure Payments under Section 10(b) shall be payable through the date such notice of revocation is given to the Company.

(e) Legends.

(i) Restrictive Legend. Holder understands that until such time as this Warrant, the Exercise Shares and the Failure Payment Shares (as defined below) have been registered under the Securities Act or otherwise may be sold pursuant to Rule 144 or an exemption from registration

 

5


under the Securities Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, this Warrant, the Exercise Shares and the Failure Payment Shares, as applicable, may bear a restrictive legend in substantially the following form (and a stop-transfer order consistent therewith may be placed against transfer of the certificates for such securities):

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SAID ACT INCLUDING PURSUANT TO SECTION 4(A)(7) OF THE SECURITIES ACT OR RULE 144 UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4[(a)](1) AND A HALF” SALE.” NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST 9, 2018, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

(ii) Removal of Restrictive Legends. This Warrant and the certificates (or electronic book entries, if applicable) evidencing the Exercise Shares and the Failure Payment Shares, as applicable, shall not contain or be subject to any legend restricting the transfer thereof (including the legend set forth above in subsection 2(e)(i)) or be subject to any stop-transfer instructions: (A) while a registration statement (including a Registration Statement, as defined in the Registration Rights Agreement) covering the sale or resale of such security is effective under the Securities Act, or (B) following any sale of such Warrant, Exercise Shares and/or Failure Payment Shares pursuant to Rule 144, or (C) if such Warrant, Exercise Shares and/or Failure Payment Shares are eligible for sale under Rule 144(b)(1), or (D) at any time on or after the date hereof on which Holder’s holding period for purposes of Rule 144 under the Securities Act and subsection (d)(3)(iii) thereof with respect to such Warrant, Exercise Shares and/or Failure Payment Shares is at least six (6) months and Holder certifies that it is not an “affiliate” (as defined in Rule 144 under the Securities Act), or (E) if such legend is not required under applicable requirements of the

 

6


Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC) (collectively, the “Unrestricted Conditions”). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Effective Date, or at such other time as any of the Unrestricted Conditions have been met, if required by the Transfer Agent to effect the issuance of this Warrant, the Exercise Shares or the Failure Payment Shares, as applicable, without a restrictive legend or removal of the legend hereunder. If any of the Unrestricted Conditions are met at the time of issuance of this Warrant, the Exercise Shares or the Failure Payment Shares, then such Warrant, Exercise Shares or Failure Payment Shares, as applicable, shall be issued free of all legends and stop-transfer instructions. The Company agrees that following the Effective Date, or at such time as the Unrestricted Conditions are met or such legend is otherwise no longer required under this Section 2(e), it will, no later than the earlier of (x) two (2) Trading Days and (y) the number of Trading Days comprising the Standard Settlement Period following the delivery (the “Unlegended Shares Delivery Deadline”) by Holder to the Company or the Transfer Agent of this Warrant and a certificate representing Exercise Shares and/or Failure Payment Shares, as applicable, issued with a restrictive legend, deliver or cause to be delivered to Holder this Warrant and/or a certificate (or electronic transfer) representing such shares that is free from all restrictive and other legends (and stop transfer instructions). For purposes hereof, “Effective Date” shall mean the date that the first Registration Statement that the Company is required to file pursuant to the Registration Rights Agreement has been declared effective by the SEC.

(iii) Sale of Unlegended Shares. Holder agrees that the removal of the restrictive legend from this Warrant and any certificates representing securities as set forth in Section 2(e) above is predicated upon the Company’s reliance that Holder will sell this Warrant or any Exercise Shares and/or any Failure Payment Shares, as applicable, pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if such securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein.

(f) Cancellation of Warrant. This Warrant shall be canceled upon the full Exercise of this Warrant, and, as soon as practical after the Date of Exercise, Holder shall be entitled to receive Common Stock for the number of shares purchased upon such Exercise of this Warrant, and if this Warrant is not Exercised in full, Holder shall be entitled to receive a new Warrant (containing terms identical to this Warrant) representing any unexercised portion of this Warrant in addition to such Common Stock; provided, however, as set forth in Section 2(b), Holder shall not be required to physically surrender this warrant if the Warrant is not Exercised in full.

(g) Holder of Record. Each person in whose name any Warrant for shares of Common Stock is issued shall, for all purposes, be deemed to be Holder of record of such shares on the Date of Exercise, irrespective of the date of delivery of the Common Stock purchased upon the Exercise of this Warrant. Prior to the exercise of this Warrant, nothing in this Warrant shall be construed as conferring upon Holder any rights as a stockholder of the Company.

(h) Delivery of Electronic Shares. In lieu of delivering physical certificates representing the Common Stock issuable upon Exercise or legend removal, or representing Failure Payment Shares, upon written request of Holder, the Company shall use its best efforts to cause the Transfer Agent to electronically transmit the Common Stock issuable upon Exercise to Holder

 

7


by crediting the account of Holder’s prime broker with DTC through its Deposit/Withdrawal at Custodian (DWAC) system. The time periods for delivery and penalties described herein shall apply to the electronic transmittals described herein. Any delivery not effected by electronic transmission shall be effected by delivery of physical certificates.

(i) Buy-In. In addition to any other rights or remedies available to Holder hereunder or otherwise at law or in equity, if the Company fails to cause its Transfer Agent to deliver to Holder a certificate or certificates, or electronic shares through DWAC, representing the Exercise Shares pursuant to an Exercise on or before the last day of the Delivery Period (other than a failure caused by any incorrect or incomplete information provided by Holder to the Company hereunder), and if after such date Holder is required by its broker to purchase (in an open market transaction or otherwise) or Holder or Holder’s brokerage firm otherwise purchases shares of Common Stock to deliver in satisfaction of a sale by Holder of the Exercise Shares which Holder was entitled to receive upon such Exercise (a “Buy-In”), then the Company shall (1) pay in cash to Holder the amount by which (x) Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Exercise Shares that the Company was required to deliver to Holder in connection with the Exercise at issue by (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of Holder, either reinstate the portion of the Warrant and equivalent number of Exercise Shares for which such Exercise was not honored (and refund the Exercise Price therefor, to the extent paid by Holder, and/or reinstate the principal amount of any indebtedness used to satisfy the applicable Exercise Price) or deliver to Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its Exercise and delivery obligations hereunder. For example, if Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted Exercise to cover the sale of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay Holder $1,000. Holder shall provide the Company written notice indicating the amounts payable to Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon Exercise of the Warrant as required pursuant to the terms hereof.

(j) HSR Submissions. If Holder determines that, in connection with the exercise of this Warrant, it and the Company are required to file Premerger Notification Reports with the Federal Trade Commission (the “FTC”) and the United States Department of Justice (“DOJ”) and observe the Waiting Period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, and the related rules and regulations promulgated thereunder (collectively, the “HSR Act”), the Company agrees to (i) cooperate with Holder in Holder’s preparing and making such submission and any responses to inquiries of the FTC and DOJ; (ii) prepare and make any submission required to be filed by the Company under the HSR Act and respond to inquiries of the FTC and DOJ in connection therewith; and (iii) reimburse Holder for the cost of the required filing fee for Holder’s submission under the HSR Act. For the avoidance of doubt, Holder shall bear all of its other costs and expenses in connection with such submission, including any attorneys’ fees associated therewith.

 

8


3. Payment of Warrant Exercise Price for Cash Exercise or Cashless Exercise; Cashless Major Exercise and Cashless Default Exercise.

(a) Exercise Price. The exercise price shall initially equal $4.71 per share, subject to adjustment pursuant to the terms hereof (as so adjusted, the “Exercise Price”), including but not limited to Section 5 below.

Payment of the Exercise Price may be made by any of the following, or a combination thereof, at the election of Holder:

(i) Cash Exercise: Holder may exercise this Warrant in cash, bank or cashier’s check or wire transfer (a “Cash Exercise”);

(ii) Cashless Exercise: In lieu of paying all or any portion of the Exercise Price in cash, Holder, at its option, may exercise this Warrant (in whole or in part) on a cashless basis by making appropriate notation on the applicable Exercise Form, in which event the Company shall issue Holder a number of shares of Common Stock computed using the following formula (a “Cashless Exercise”):

X = Y (A-B)/A

where: X = the number of shares of Common Stock to be issued to Holder.

Y = the number of shares of Common Stock for which this Warrant is being Exercised.

A = the Market Price of one (1) share of Common Stock (for purposes of this Section 3(a)(ii), where “Market Price,” as of any date, means the arithmetic average of the Volume Weighted Average Price (as defined below) of the Company’s Common Stock on each of the ten (10) consecutive Trading Days immediately preceding the date in question).

B = the Exercise Price.

As used herein, the “Volume Weighted Average Price” for any security as of any date means the volume weighted average sale price on the NasdaqGS as reported by, or based upon data reported by, Bloomberg Financial Markets or an equivalent, reliable reporting service mutually acceptable to and hereafter designated by the Holder and the Company (“Bloomberg”), or, if the NasdaqGS is not the principal trading market for such security, the volume weighted average sale price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or, if no volume weighted average sale price is reported for such security, then the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security on the OTC Bulletin Board, the OTCQX Market, the OTCQB Market or the “pink” market of OTC Markets Group. If the Volume Weighted Average Price cannot be calculated for such security on such date in the manner provided above, the Volume Weighted Average Price shall be the fair market value as determined by the Company and the Holder. In the event that a Stock Event is

 

9


consummated during any period for which the arithmetic average of the Volume Weighted Average Prices is to be determined (under this Section or otherwise), the Volume Weighted Average Price for all Trading Days during such period prior to the effectiveness of the Stock Event shall be appropriately adjusted to reflect such Stock Event.

(iii) Note Exchange Exercise: In lieu of paying all or any portion of the Exercise Price in cash, Holder, at its option, may exercise this Warrant (in whole or in part) through a reduction of an amount of principal outstanding under any First Out Waterfall Notes in accordance with Section 2.3(b) of the Facility Agreement, then held by Holder (a “Note Exchange Exercise”)

For purposes of Rule 144 and subsection (d)(3)(ii) thereof, it is intended, understood and acknowledged that (x) this Warrant shall be deemed to have been acquired on April 3, 2017 (the date the First Out Waterfall Notes were originally issued), and (y) the shares of Common Stock issuable upon Exercise of this Warrant in a Cashless Exercise (including a Cashless Major Exercise or Cashless Default Exercise) transaction or a Note Exchange Exercise transaction shall be deemed to have been acquired on April 3, 2017. Accordingly, (A) upon any such Exercise, the Rule 144 holding period for the shares of Common Stock issued thereupon shall be in excess of one (1) year, and (B) provided that Holder is not an “affiliate” (as defined in Rule 144 under the Securities Act) of the Company on the date of such Exercise (which the Company shall assume unless advised otherwise in writing by Holder), an Unrestricted Condition shall be satisfied with respect to the shares of Common Stock issued thereupon and such shares will be freely transferable, without restriction or limitation (including any volume limitation or current public information requirement) under Federal or state securities laws, pursuant to Rule 144 under the Securities Act, and will not contain or be subject to a legend or stop transfer order restricting the resale or transferability of thereof.

As provided in Section 2(b), Holder shall only be required to physically surrender this Warrant in the event that Holder is exercising this Warrant in full.

(b) Cashless Major Exercise. To the extent Holder shall exercise this Warrant as a Cashless Major Exercise pursuant to Section 5(b)(i) and 5(b)(iii) below, Holder shall send to the Company (in any manner permitted under Section 2(a)) the Exercise Form indicating that Holder is exercising this Warrant (or any portion thereof) pursuant to a Cashless Major Exercise, in which event the Company shall issue a number of shares of Common Stock equal to the Black-Scholes Value of the Warrant (or such applicable portion being exercised) divided by the closing price of the Common Stock on the principal securities exchange or other securities market on which the Common Stock is then traded on the Trading Day immediately preceding the date on which the applicable Major Transaction is consummated, or, if in respect of a Cashless Major Exercise made after the date of consummation of the applicable Major Transaction, on the Trading Day immediately preceding the date on which the exercise form in respect of such Cashless Major Exercise is delivered. As provided in Section 2(b), Holder shall only be required to physically surrender this Warrant in the event that Holder is exercising this Warrant in full. Holder shall be permitted to make successive Cashless Major Exercises and send successive Exercise Forms in respect of a Cashless Major Exercise from time to time at any time during the Cashless Major Exercise Period.

 

10


(c) Cashless Default Exercise. To the extent Holder exercises this Warrant as a Cashless Default Exercise pursuant to Section 11(b)(i) below, Holder shall send to the Company (in any manner permitted under Section 2(a)) the Exercise Form indicating that Holder is exercising this Warrant pursuant to a Cashless Default Exercise, in which event the Company shall issue to Holder, within five (5) Trading Days of the applicable Default Notice, a number of shares of Common Stock (which shares shall be valued at the closing price of the Common Stock on the principal securities exchange or other securities market on which the Common Stock is then traded on the Trading Day immediately preceding the date on which the Exercise Form in respect of such Cashless Default Exercise is delivered) equal to the Black-Scholes Value of the remaining unexercised portion of this Warrant (or such portion thereof subject to such exercise) as of the date of such Default Notice (or in the case of an Event of Default referred to in Section 11(a)(vi), on the Trading Day immediately preceding the date the dividend or distribution is declared or, if not first declared, is paid). As provided in Section 2(b), the Holder shall be permitted to make successive Cashless Default Exercises and send successive Exercise Forms in respect of a Cashless Default Exercise, from time to time at any time from and after the date of the applicable Default Notice through the Exercise Period of this Warrant.

(d) Dispute Resolution. In the case of a dispute as to the determination of the closing price or the Volume Weighted Average Price of the Company’s Common Stock or the arithmetic calculation of the Exercise Price, Market Price or the Successor Major Transaction Consideration, or the number of shares issuable upon a Cashless Major Exercise, the Company shall submit the disputed determinations or arithmetic calculations via electronic mail within two (2) Business Days of receipt, or deemed receipt, of the Exercise Form or Major Transaction Early Termination Notice, or other event giving rise to such dispute, as the case may be, to Holder. If Holder and the Company are unable to agree upon such determination or calculation within two (2) Business Days of such disputed determination or arithmetic calculation being submitted to Holder, then the Company shall, within two (2) Business Days submit via electronic mail (i) the disputed determination of the closing price or the Volume Weighted Average Price of the Company’s Common Stock to an independent, reputable investment bank selected by the Company and approved by Holder, which approval shall not be unreasonably withheld, or (ii) the disputed arithmetic calculation of the Exercise Price, Market Price, any Successor Major Transaction Consideration or number of shares issuable upon a Cashless Major Exercise to the Company’s independent, outside registered public accountants. The Company shall use its reasonable best efforts to cause the investment bank or the accountants, as the case may be, to perform the determinations or calculations and notify the Company and Holder of the results no later than five (5) Trading Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountants’ determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error, and the Company and Holder shall each pay one half of the fees and costs of such investment banker or accountant. Notwithstanding the existence of a dispute contemplated by this paragraph, if requested by Holder, the Company shall issue to Holder the Exercise Shares not in dispute in accordance with the terms hereof.

4. Transfer and Registration.

(a) Transfer Rights. Subject to the provisions of Section 8 of this Warrant, this Warrant may be transferred on the books of the Company, in whole or in part, in person or by attorney, upon

 

11


surrender of this Warrant properly completed and endorsed. This Warrant shall be canceled upon such surrender and, as soon as practicable thereafter, the person to whom such transfer is made shall be entitled to receive a new Warrant or Warrants as to the portion of this Warrant transferred, and Holder shall be entitled to receive a new Warrant as to the portion hereof retained.

(b) Registrable Securities. The Common Stock issuable upon the Exercise of this Warrant entitles Holder (and applicable assignees or transferees of such Common Stock) to registration and other rights pursuant to the Registration Rights Agreement.

5. Adjustments Upon Certain Events.

(a) Recapitalization or Reclassification. If the Company shall at any time effect a stock split, payment of stock dividend, recapitalization, reclassification or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or smaller number of shares, then upon the effective date thereof, the number of shares of Common Stock which Holder shall be entitled to purchase upon Exercise of this Warrant, shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of Common Stock by reason of such stock split, payment of stock dividend, recapitalization, reclassification or similar transaction, and the Exercise Price shall be, in the case of an increase in the number of shares, proportionally decreased and, in the case of decrease in the number of shares, proportionally increased. The Company shall give Holder the same notice it provides to holders of Common Stock of any transaction described in this Section 5(a).

(b) Rights Upon Major Transaction.

(i) Major Transaction. In the event that a Major Transaction occurs, then (1) in the case of a Successor Major Transaction, Holder, at its option, may elect to cause the conversion of this Warrant (a “Successor Major Transaction Conversion”), in whole or in part, into the right to receive the Successor Major Transaction Consideration, upon consummation of the Major Transaction, and (2) in the case of all other Major Transactions, Holder shall have the right to exercise this Warrant (or any portion thereof), at any time and from time to time following the occurrence of such event, as a Cashless Major Exercise. In the event Holder shall not have exercised any of its rights under clauses (1) or (2) above within the applicable time periods set forth herein, then the Major Transaction shall be treated as an Assumption (as defined below) in accordance with Section 5(b)(ii) below unless Holder waives its rights under this Section 5(b) with respect to such Major Transaction. Each of the following events shall constitute a “Major Transaction”:

(A) a consolidation, merger, exchange of shares, recapitalization, reorganization, business combination or other similar event, (1) following which the holders of Common Stock immediately preceding such consolidation, merger, exchange, recapitalization, reorganization, combination or event either (a) no longer hold a majority of the shares of Common Stock or (b) no longer have the ability to elect a majority of the board of directors of the Company or (2) as a result of which shares of Common Stock shall be changed into (or the shares of Common Stock become entitled to receive) the same or a different

 

12


number of shares of the same or another class or classes of stock or securities of the Company or another entity (collectively, a “Change of Control Transaction”);

(B) the sale or transfer, in one transaction or a series of related transactions, of (I) all or substantially all of the assets of the Company (including, for the avoidance of doubt, all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole) to any Person other than a wholly-owned subsidiary of the Company or (II) assets of the Company (including, for the avoidance of doubt, all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole) for a purchase price equal to more than 50% of the Equity Value (as defined below) of the Company. For purposes of this clause (B), “Equity Value” shall mean (I) the product of (x) the number of issued and outstanding shares of Common Stock on the date the Company delivers the Major Transaction Notice (defined below) multiplied by (y) the per share closing price of the Common Stock on such date on the NasdaqGS as reported by, or based upon data reported by, Bloomberg or, if the NasdaqGS is not the principal trading market for such security, the closing sale price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg;

(C) a purchase, tender or exchange offer made to the holders of outstanding shares of Common Stock, such that following such purchase, tender or exchange offer a Change of Control Transaction shall have occurred;

(D) the liquidation, bankruptcy, insolvency, dissolution or winding-up (or the occurrence of any analogous proceeding) affecting the Company;

(E) the shares of Common Stock cease to be listed, traded or publicly quoted on the NasdaqGS and are not promptly re-listed or requoted on the New York Stock Exchange, the NYSE American, the NASDAQ Global Market or the NASDAQ Capital Market; or

(F) the Common Stock ceases to be registered under Section 12 of the Exchange Act.

(ii) Assumption. Any assumption of Company obligations under this paragraph shall be referred to herein as an “Assumption.” Unless otherwise provided in writing by Holder, the Company shall not consummate a Major Transaction in which the Company is not the surviving entity or as a result of which the Company has a new Parent Entity, unless (A) each Person acquiring the Company’s assets or Common Stock (or Parent Entity thereof, as applicable), or any other successor entity resulting from such Major Transaction (in each case, a “Successor Entity”), assumes in writing all of the obligations of the Company under this Warrant, the Facility Agreement (but, other than with respect to the Company’s obligations pursuant to Section 5.1(e) and 5.1(p) of the Facility Agreement and the other provisions of the Facility Agreement that

 

13


expressly survive the repayment of the Loans (which shall be assumed in any Assumption), only if there are outstanding Loans under the Facility Agreement immediately following the consummation of the Major Transaction) and the Registration Rights Agreement in accordance with the provisions of this Section 5(b)(ii) pursuant to written agreements in form and substance reasonably satisfactory to Holder and approved by Holder prior to the consummation of such Major Transaction (such approval not to be unreasonably withheld or delayed), including agreements to deliver to Holder in exchange for its Warrants a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Warrants, that, among other things, (1) is exercisable for the appropriate number of shares of the Successor Entity’s capital stock (without regard to the 4.985% Cap or any other restriction or limitation on exercise, provided that such instrument shall contain a limitation on exercise comparable to that contained in the second paragraph of Section 1 of this Warrant); (2) has an exercise price similar to the then-effective Exercise Price (taking into account any conversion or exchange ratio applicable to the Common Stock in the Major Transaction) and exercise price adjustment provisions similar to those in the Warrants; (3) entitles Holder to such additional securities or other consideration as Holder would be entitled pursuant to Section 5(b)(i) in connection with the Major Transaction; and (4) provides for registration rights similar to those provided by the Registration Rights Agreement, in each case reasonably satisfactory to Holder, and (B) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. For the avoidance of doubt, Holder’s reasonable satisfaction referred to in the immediately preceding sentence shall be construed only to apply to confirmation that the warrant or other comparable security and registration rights agreement delivered to Holder upon an assumption hereunder shall conform to the requirements of this Section 5(b)(ii), and this Section 5(b)(ii) shall not be construed as granting consent or approval rights to Holder with respect to the terms of such Major Transaction or to permit Holder to demand any additional consideration in respect of this Warrant other than as provided herein. Upon the occurrence of any Major Transaction, any Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Major Transaction, the provisions of this Warrant and the Registration Rights Agreement referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Major Transaction, the Successor Entity shall deliver to Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Major Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) issuable upon the exercise of the Warrants prior to such Major Transaction, such shares of publicly traded common stock (or their equivalent) of the Successor Entity, as adjusted in accordance with the provisions of this Warrant. The provisions of this Section shall apply similarly and equally to successive Major Transactions and shall be applied without regard to any limitations on the exercise of this Warrant other than any applicable beneficial ownership limitations.

(iii) Major Transaction Notice; Major Transaction Early Termination Right; Notice of Cashless Major Exercise. At least thirty (30) days prior to the consummation of any Major Transaction, but, in any event, within five (5) Trading Days following the first to occur of (x) the date of the public announcement of such Major Transaction if such announcement is made before 4:00 p.m., New York City time, or (y) the day following the public announcement of such Major

 

14


Transaction if such announcement is made on and after 4:00 p.m., New York City time, the Company shall deliver written notice thereof via electronic mail and overnight courier to Holder (a “Major Transaction Notice”). At any time during the period beginning after Holder’s receipt of a Major Transaction Notice in respect of a Successor Major Transaction and ending five (5) Trading Days prior to the consummation of such Major Transaction (the “Early Termination Period”), Holder may elect a Successor Major Transaction Conversion by delivering written notice thereof (“Major Transaction Early Termination Notice”) to the Company, which Major Transaction Early Termination Notice shall indicate the portion of the Warrant (with reference to the number of shares of Common Stock issuable upon a Cash Exercise of such portion, without regard to the 4.985% Cap) that Holder is electing to be treated as a Successor Major Transaction Conversion. The portion of this Warrant subject to early termination pursuant to this Section 5(b)(iii), shall be converted into the right to receive the Successor Major Transaction Consideration

To the extent Holder shall elect to effect a Cashless Major Exercise in respect of a Major Transaction, Holder shall deliver its Exercise Form in accordance with Section 3(b), at any time and from time to time following receipt by Holder of the Major Transaction Notice until the later of (x) the last day of the Exercise Period and (y) the one-year anniversary of the applicable Major Transaction (the “Cashless Major Exercise Period”). For the avoidance of doubt, Holder shall be permitted to make successive Cashless Major Exercises and send successive Exercise Forms in respect of a Cashless Major Exercise from time to time at any time during the Cashless Major Exercise Period.

(iv) Escrow; Payment of Successor Major Transaction Consideration. Following the receipt of a Major Transaction Early Termination Notice in respect of a Successor Major Transaction from Holder, the Company shall not effect a Successor Major Transaction with respect to which Holder has elected a Successor Major Transaction Conversion unless either (A) it obtains, as a condition precedent to such Major Transaction, the written agreement of the Successor Entity that payment of the Successor Major Transaction Consideration shall be made to Holder concurrently with consummation of such Successor Major Transaction, or (B) it shall place the Successor Major Transaction Consideration into an escrow account with an independent escrow agent, and shall instruct the escrow agent to deliver the Successor Major Transaction Consideration to Holder, concurrently with the consummation of the Major Transaction. Notwithstanding clauses (A) and (B) above, Holder shall be treated on a pari passu basis with, and shall not have priority to payments to, the holders of Common Stock in connection with a Major Transaction. For purposes of determining the amount required to be placed in escrow pursuant to the provisions of this subsection (iv) and without affecting the amount of the actual Successor Major Transaction Consideration, the calculation of the price referred to in clause (1) of the first column of Schedule 1 hereto with respect to Stock Price shall be determined based on the Closing Market Price (as defined on Schedule 1) of the Common Stock on the Trading Day immediately preceding the date that the Successor Major Transaction Consideration is deposited with the escrow agent.

(v) Injunction. Following the receipt of a Major Transaction Early Termination Notice from Holder, in the event that the Company attempts to consummate a Successor Major Transaction without either (1) placing the Successor Major Transaction Consideration in escrow in accordance with subsection (iv) above, or (2) obtaining the written agreement of the Successor

 

15


Entity as described in subsection (iv) above, Holder shall have the right to apply for an injunction in any state or federal court sitting in the City of New York, borough of Manhattan to prevent the closing of such Major Transaction until the Successor Major Transaction Consideration is delivered to Holder.

An early termination required by this Section 5(b) shall be made in accordance with the provisions of Section 12. To the extent an early termination required by this Section 5(b) is deemed or determined by a court of competent jurisdiction to be prepayments of the Warrant by the Company, such early termination shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, until the Successor Major Transaction Consideration is paid in full, this Warrant may be exercised, in whole or in part, by Holder into shares of Common Stock, or in the event the date of any Exercise is after the consummation of the Major Transaction, shares of publicly traded common stock (or their equivalent) of the Successor Entity pursuant to Section 5(b). The parties hereto agree that in the event of the Company’s early termination of any portion of the Warrant under this Section 5(b), Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for Holder. Accordingly, any premium due under this Section 5(b) is intended by the parties to be, and shall be deemed, a commercially reasonable estimate of Holder’s actual loss of its investment opportunity and not as a penalty.

(c) Exercise Price Adjusted. As used in this Warrant, the term “Exercise Price” shall mean the purchase price per share specified in Section 3(a) of this Warrant, until the occurrence of an event stated in this Section 5 or otherwise set forth in this Warrant, and thereafter shall mean said price as adjusted from time to time in accordance with the provisions of said subsection. No adjustment made pursuant to any provision of this Section 5 shall have the net effect of increasing the aggregate Exercise Price payable hereunder or, except as expressly provided in Section 5(a), otherwise increasing the Exercise Price.

(d) Adjustments: Additional Shares, Securities or Assets. In the event that at any time, as a result of an adjustment made pursuant to this Section 5 or otherwise, Holder shall, upon Exercise of this Warrant, become entitled to receive shares and/or other securities or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this Section 5.

(e) Notice of Adjustments. Whenever the Exercise Price and/or number or type of securities issuable upon Exercise is adjusted pursuant to the terms of this Warrant, the Company shall promptly mail to Holder a notice (an “Exercise Price Adjustment Notice”) setting forth the Exercise Price and/or number or type of securities issuable upon Exercise after such adjustment and setting forth a statement of the facts requiring such adjustment. The Company shall, upon the written request at any time of Holder, furnish to Holder a like Warrant setting forth (i) such adjustment or readjustment, (ii) the Exercise Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon Exercise of the Warrant. For purposes of clarification, whether or not

 

16


the Company provides an Exercise Price Adjustment Notice pursuant to this Section 5(e), upon the occurrence of any event that leads to an adjustment of the Exercise Price, Holder would be entitled to receive a number of Exercise Shares based upon the new Exercise Price, as adjusted, for exercises occurring on or after the date of such adjustment, regardless of whether Holder accurately refers to the adjusted Exercise Price in the Exercise Form.

6. Fractional Interests.

No fractional shares or scrip representing fractional shares shall be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, Holder may purchase only a whole number of shares of Common Stock. If, on Exercise of this Warrant, Holder would be entitled to a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon Exercise shall be the next higher whole number of shares.

7. Reservation of Shares.

From and after the date hereof, the Company shall at all times reserve for issuance such number of authorized and unissued shares of Common Stock (or other securities substituted therefor as herein above provided) as shall be sufficient for the Exercise of this Warrant and payment of the Exercise Price. If at any time the number of shares of Common Stock authorized and reserved for issuance is below the number of shares sufficient for the Exercise of this Warrant (a “Share Authorization Failure”) (based on the Exercise Price in effect from time to time), the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including calling a special meeting of stockholders to authorize additional shares to meet the Company’s obligations under this Section 7, in the case of an insufficient number of authorized shares, and using its best efforts to obtain stockholder approval of an increase in such authorized number of shares. The Company covenants and agrees that upon the Exercise of this Warrant, all shares of Common Stock issuable upon such Exercise shall be duly and validly issued, fully paid and nonassessable and not subject to preemptive rights, rights of first refusal or similar rights of any Person. The Company covenants and agrees that all shares of Common Stock issuable upon Exercise of this Warrant shall be approved for listing on the NasdaqGS, or, if the NasdaqGS is not the principal trading market for the Common Stock, such principal market on which the Common Stock is traded or listed.

8. Restrictions on Transfer.

(a) Registration or Exemption Required. This Warrant has been issued in a transaction exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act and Rule 506 thereunder and exempt from registration or qualification under applicable state securities (or “blue sky”) laws. None of the Warrant, the Exercise Shares or Failure Payment Shares may be pledged, transferred, sold or assigned except pursuant to an effective registration statement or an exemption to the registration requirements of the Securities Act and applicable state laws, including Rule 144 under the Securities Act, Section 4(a)(7) of the Securities Act or a so-called “4[(a)](1) and a half” transaction.

(b) Assignment. Subject to Section 8(a), Holder may sell, transfer, assign, pledge, or otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a written notice to the

 

17


Company, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the Person or Persons to whom the Warrant shall be assigned and the respective number of warrants to be assigned to each assignee. The Company shall effect the assignment within three (3) Business Days of its receipt of a completed and executed form of Assignment (the “Transfer Delivery Period”), and shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of like tenor and terms entitling Holder to purchase the appropriate number of shares. This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder. For avoidance of doubt, in the event Holder notifies the Company that such sale or transfer is a so called “4[(a)](1) and half” transaction, the parties hereto agree that a legal opinion from outside counsel for Holder delivered to counsel for the Company substantially in the form attached hereto as Exhibit C shall be the only requirement to satisfy an exemption from registration under the Securities Act to effectuate such “4[(a)](1) and half” transaction.

9. Noncircumvention.

The Company hereby covenants and agrees that the Company will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

10. Events of Failure; Definition of Black Scholes Value.

(a) Definition.

The occurrence of each of the following shall be considered to be an “Event of Failure.”

(i) A Delivery Failure occurs, where a “Delivery Failure” shall be deemed to have occurred if the Company fails to use its best efforts to deliver Exercise Shares to Holder within any applicable Delivery Period (other than due to the limitation contained in the second paragraph of Section 1);

(ii) A Legend Removal Failure occurs, where a “Legend Removal Failure” shall be deemed to have occurred if the Company fails to use its best efforts to issue this Warrant and/or Exercise Shares without a restrictive legend, or fails to use it best efforts to remove a restrictive legend, when and as required under Section 2(e) hereof;

(iii) a Transfer Delivery Failure occurs, where a “Transfer Delivery Failure” shall be deemed to have occurred if the Company fails to use its best efforts to deliver a Warrant within any applicable Transfer Delivery Period; and

(iv) a Registration Failure (as defined below).

 

18


For purpose hereof, “Registration Failure” means that (A) the Company fails to file with the SEC on or before the Additional Warrant Filing Deadline (as defined in the Registration Rights Agreement) any Registration Statement required to be filed pursuant to Section 2(a) of the Registration Rights Agreement, (B) the Company fails to use its reasonable best efforts to obtain effectiveness with the SEC, prior to the Additional Warrant Registration Deadline (as defined in the Registration Rights Agreement), and if such Registration Statement does not become effective prior to the Additional Warrant Registration Deadline, as soon as possible thereafter, of any Registration Statement (as defined in the Registration Rights Agreement) that is required to be filed pursuant to Section 2(a) of the Registration Rights Agreement, or fails to use its reasonable best efforts to keep such Registration Statement current and effective as required in Section 3 of the Registration Rights Agreement, (C) the Company fails to file any additional Registration Statement required to be filed pursuant to Section 2(a)(ii) of the Registration Rights Agreement on or before the Additional Filing Deadline (as defined in the Registration Rights Agreement) or fails to use its reasonable best efforts to cause such new Registration Statement to become effective on or before the Additional Registration Deadline (as defined in the Registration Rights Agreement), and if such effectiveness does not occur within such period, as soon as possible thereafter, (D) the Company fails to file any amendment to any Registration Statement, or any additional Registration Statement required to be filed pursuant to Section 3(b) of the Registration Rights Agreement within thirty (30) days of the applicable Registration Trigger Date (as defined in the Registration Rights Agreement), or fails to use its reasonable best efforts to cause such amendment and/or new Registration Statement to become effective within ninety (90) days of the applicable Registration Trigger Date, and, if such effectiveness does not occur within such period, as soon as possible thereafter, (E) any Registration Statement required to be filed under the Registration Rights Agreement, after its initial effectiveness and during the applicable Registration Period (as defined in the Registration Rights Agreement), lapses in effect or, other than on a day during an Allowable Grace Period (as defined in the Registration Rights Agreement), sales of all of the Registrable Securities (as defined in the Registration Rights Agreement) cannot otherwise be made thereunder (whether by reason of the Company’s failure to amend or supplement the prospectus included therein in accordance with the Registration Rights Agreement, the Company’s failure to file and use its reasonable best efforts to obtain effectiveness with the SEC of an additional Registration Statement or amended Registration Statement required pursuant to Section 2(a)(ii) or 3(b) of the Registration Rights Agreement, as applicable, or otherwise), or (F) the Company fails to provide a commercially reasonable written response to any comments to any Registration Statement submitted by the SEC within twenty-five (25) days of the date that such SEC comments are received by the Company.

(b) Failure Payments; Black-Scholes Determination. The Company understands that any Event of Failure (as defined above) could result in economic loss to Holder. In the event that any Event of Failure occurs, as compensation to Holder for such economic loss, the Company agrees to pay to Holder an amount payable, at the Company’s option, either (i) in cash or (ii) in shares of Common Stock that are valued for these purposes at the Volume Weighted Average Price on the date of such calculation (“Failure Payments” and such shares, “Failure Payment Shares”), in each case equal to the total economic loss of Holder determined on a commercially reasonable basis in connection with such Event of Failure for the relevant period (as recalculated on the first Business Day of each month thereafter for as long as Failure Payments shall continue to accrue) from the date of such Event of Failure until the Event of Failure is cured; provided, however, that in the event the Company elects to make Failure Payments in Failure Payment Shares, the

 

19


Company shall issue, and Holder shall only receive, up to such number of shares of Common Stock in respect of Failure Payments such that Holder and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with Holder’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) shall not collectively beneficially own greater than 4.985% of the total number of shares of Common Stock of the Company then issued and outstanding, and the balance of such Failure Payments shall be paid in cash. For purposes of clarification, it is agreed and understood that Failure Payments shall continue to accrue following any Event of Default until the applicable Default Amount is paid in full. The Company shall satisfy any Failure Payments under this Section pursuant to Section 10(c) below. Failure Payments are in addition to any Shares that Holder is entitled to receive upon Exercise of this Warrant.

(c) Payment of Accrued Failure Payments. The Failure Payments and Failure Payment Shares representing accrued Failure Payments for each Event of Failure shall be paid or issued and delivered, as the case may be, on or before the fifth (5th) Business Day of each month following a month in which Failure Payments accrued. Nothing herein shall limit Holder’s right to pursue actual damages (to the extent in excess of the Failure Payments) for the Company’s Event of Failure, and Holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief). Notwithstanding the above, if a particular Event of Failure results in an Event of Default pursuant to Section 11 hereof, then the Failure Payment, for that Event of Failure only, shall be considered to have been satisfied upon payment to Holder of an amount equal to the greater of (i) the Failure Payment, or (ii) the Default Amount, payable in accordance with Section 11.

(d) Maximum Interest Rate. Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to Holder and thereby refunded to the Company.

11. Default.

(a) Events Of Default. Each of the following events shall be considered to be an “Event of Default,” unless waived by Holder:

(i) Failure To Effect Registration. With respect to all Registration Failures, a Registration Failure occurs and remains uncured for a period of more than forty-five (45) days (or sixty (60) days in the case where the Company (i) has, by the Filing Deadline (as defined the Registration Rights Agreement) filed a Registration Statement (as defined in the Registration Rights Agreement) covering this Warrant and the number of shares required by the Registration Rights Agreement, and (ii) has responded in writing to any comments to the Registration Statement that the Company has received from the SEC, within ten (10) Business Days of such receipt, and nevertheless the SEC has not declared effective a Registration Statement covering the this

 

20


Warrant and the Shares by the Registration Deadline (as defined in the Registration Rights Agreement)), and such Registration Failure relates solely to the Company’s failure to have the Registration Statement declared effective by the Registration Deadline (as defined in the Registration Rights Agreement) and with respect to a Registration Failure provided in clause (E) of the definition of “Registration Failure,” such Registration Failure occurs and remains uncured for a period of more than forty-five (45) days.

(ii) Failure To Deliver Common Stock. A Delivery Failure (as defined above) occurs and remains uncured for a period of more than twenty (20) days; or at any time, the Company announces or states in writing that it will not honor its obligations to issue shares of Common Stock to Holder upon Exercise by Holder of the Exercise rights of Holder in accordance with the terms of this Warrant.

(iii) Legend Removal Failure. A Legend Removal Failure (as defined above) occurs and remains uncured for a period of twenty (20) days;

(iv) Transfer Delivery Failure. A Transfer Delivery Failure (as defined above) occurs and remains uncured for a period of twenty (20) days;

(v) Corporate Existence; Major Transaction. (A) The Company has failed to (1) place the Successor Major Transaction Consideration into escrow and instruct the escrow agent to release the Successor Major Transaction Consideration to the Holder pursuant to Section 5(b)(iii), or (2) obtain the written agreement of the Successor Entity and cause the Successor Entity to make payment as described in Section 5(b)(iii), (B) the Successor Major Transaction Consideration is not paid contemporaneously with the consummation of the Successor Major Transaction, or (C) with respect to a Major Transaction that is to be treated as an Assumption under the terms hereof, the Company has failed to meet the Assumption requirements of Section 5(b)(i); or

(vi) Section 13 Breach. During the Dividend Restriction Period, the Company declares or pays any dividend or distribution of any kind to the holders of Common Stock of the Company.

(b) Mandatory Early Termination.

(i) Mandatory Early Termination Amount; Cashless Default Exercise. The Company shall notify Holder in writing within two (2) Business Days of the occurrence of an Event of Default. If any Events of Default shall occur then, at the option of Holder, such option exercisable through the delivery of written notice to the Company by such Holder (the “Default Notice”), the Company shall have the right to terminate the outstanding amount of this Warrant and pay to Holder (a “Mandatory Early Termination”), in full satisfaction of its obligations hereunder by delivery of a notice to such effect to Holder within two (2) Business Days following receipt of the Default Notice, an amount payable in cash (the “Mandatory Early Termination Amount” or the “Default Amount”) equal to the Black-Scholes Value of the remaining unexercised portion of this Warrant on the date of such Default Notice (or in the case of an Event of Default referred to in Section 11(a)(vi), on the Trading Day immediately preceding the date the dividend or distribution is declared or, if not first declared, is paid). In the event the Company does not exercise its right to consummate a Mandatory Early Termination, then Holder shall have the right to exercise this Warrant, at any time and from time to time, pursuant to a Cashless Default Exercise in accordance with Section 3(c) above.

 

21


The Mandatory Early Termination Amount shall be payable within five (5) Business Days following the date of the applicable Default Notice.

(ii) Liquidated Damages. The parties hereto acknowledge and agree that the sums payable as Failure Payments or pursuant to a Mandatory Early Termination shall constitute partial liquidated damages and not penalties. The parties further acknowledge that (i) the amount of loss or damages likely to be incurred by Holder is incapable or is difficult to precisely estimate, (ii) the amounts specified bear a reasonable proportion and are not plainly or grossly disproportionate to the probable loss likely to be incurred by Holder, and (iii) the parties are sophisticated business parties and have been represented by sophisticated and able legal and financial counsel and negotiated this agreement at arm’s length.

Upon the occurrence of an Event of Default, the Default Amount, together with all other amounts payable hereunder, shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including legal fees and expenses, of collection, and Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

(c) Posting Of Bond. In the event that any Event of Default occurs hereunder, the Company may not raise as a legal defense (in any Lawsuit, as defined below, or otherwise) or justification to such Event of Default any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, unless the Company has posted a surety bond (a “Surety Bond”) for the benefit of such Holder in the amount of 130% of the aggregate Surety Bond Value (as defined below) of all of Holder’s Warrants (the “Bond Amount”), which Surety Bond shall remain in effect until the completion of litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent Holder obtains judgment.

For purposes hereof, a “Lawsuit” shall mean any lawsuit, arbitration or other dispute resolution filed by either party herein pertaining to any of this Warrant, the Facility Agreement, the Registration Rights Agreement or any other Loan Document (as defined in the Facility Agreement).

“Surety Bond Value,” for the Warrants shall mean 130% of the of the Black-Scholes Value of the remaining unexercised portion of this Warrant on the Trading Day immediately preceding the date that such bond goes into effect.

(d) Injunction And Posting Of Bond. In the event that the Event of Default referred to in subsection (a) of this Section 11 pertains to the Company’s failure to deliver unlegended shares of Common Stock to Holder pursuant to a Warrant Exercise, legend removal request, or otherwise, the Company may not refuse such unlegended share delivery based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, unless an injunction from a court, on prior notice to Holder, restraining and or enjoining Exercise of all or part of said Warrant shall have been sought and obtained by the Company and the Company has posted a Surety Bond for the benefit of such Holder in the amount of the Bond Amount, which Surety Bond shall remain in effect until the completion of litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent Holder obtains judgment.

 

22


(e) Remedies, Other Obligations, Breaches And Injunctive Relief. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, the Facility Agreement, the Registration Rights Agreement and any other Loan Document, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach (including a breach or threatened breach of Section 13), the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

12. Holder’s Early Terminations.

(a) Mechanics of Holders Early Terminations. In the event that the Company does not deliver the applicable Successor Major Transaction Consideration or Default Amount or the Exercise Shares in respect of an election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default or Exercise, as the case may be, to Holder within the time period or as otherwise required pursuant to the terms hereof, at any time thereafter Holder shall have the option, upon notice to the Company, in lieu of an election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, to require the Company to promptly return to Holder all or any portion of this Warrant that was submitted for election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be. Upon the Company’s receipt of such notice, (x) the applicable election of Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, shall be null and void with respect to such applicable portion of this Warrant, (y) the Company shall immediately return this Warrant, or issue a new Warrant to Holder representing the portion of this Warrant that was submitted for election of Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, and (z) the Exercise Price of this Warrant or such new Warrant shall be adjusted to the Exercise Price as in effect on the date on which the applicable election of Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, is voided. Holder’s delivery of a notice voiding an election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, and exercise of its rights following such notice shall not affect the Company’s obligations to make any Failure Payments which have accrued prior to the date of such notice with respect to the Warrant subject to such notice.

13. Dividend Restrictions.

Until the earlier of the expiration of the Exercise Period and the date all of the Warrants are exercised in full (the “Dividend Restriction Period”), the Company shall not declare or pay any dividend or distribution of any kind to the holders of Common Stock of the Company.

14. Benefits of this Warrant.

 

23


Nothing in this Warrant shall be construed to confer upon any person other than the Company and Holder any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and Holder.

15. Governing Law.

All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, stockholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, borough of Manhattan. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

16. Loss of Warrant.

Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.

17. Notice or Demands.

Except as otherwise provided herein, notices or demands pursuant to this Warrant to be given or made by Holder to or on the Company shall be sufficiently given or made if sent by overnight delivery with a nationally recognized overnight courier service, certified or registered mail, return receipt requested, postage prepaid, and addressed, until another address is designated in writing by the Company, to the address set forth in Section 2(a) above. To the extent any notice or demand pursuant to this Warrant can be made by electronic mail, such notice or demand given or made by Holder to or on the Company shall be sufficiently given or made if it is sent by electronic mail to the addresses that the Company shall designate in writing from time to time. Notices or demands pursuant to this Warrant to be given or made by the Company to or on

 

24


Holder shall be sufficiently given or made if sent by overnight delivery with a nationally recognized overnight courier service or certified or registered mail, return receipt requested, postage prepaid, and addressed, to the address of Holder set forth in the Company’s records, until another address is designated in writing by Holder.

18. Construction.

Unless the context otherwise requires, (a) all references to Articles, Sections, Schedules or Exhibits are to Articles, Sections, Schedules or Exhibits contained in or attached to this Warrant, (b) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (c) the use of the word “including” in this Warrant shall be by way of example rather than limitation.

19. Signatures.

In the event that any signature to this Warrant or any amendment hereto is delivered by electronic mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof. Notwithstanding the foregoing, the Company shall be obligated to deliver to Holder an original signature to this Warrant. At the request of any party, each other party shall promptly re-execute an original form of this Warrant or any amendment hereto and deliver the same to the other party. No party hereto shall raise the use of electronic mail delivery of a “.pdf” format data file to deliver a signature to this Warrant or any amendment hereto or the fact that such signature was transmitted or communicated through the use of electronic mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract, and each party hereto forever waives any such defense.

 

25


IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the 9th day of August, 2018.

 

ENDOLOGIX, INC.
By:  

/s/ Vaseem Mahboob

  Print Name: Vaseem Mahboob
  Title: Chief Financial Officer

 

26


EXHIBIT A-1

EXERCISE FORM FOR WARRANT

TO: [                    ]

CHECK THE APPLICABLE BOX:

 

Cash Exercise, Cashless Exercise or Note Exchange Exercise

The undersigned hereby irrevocably exercises Warrant Number              (the “Warrant”) with respect to 2,916,667 shares of Common Stock (the “Common Stock”) of Endologix, Inc., a Delaware corporation (the “Company”). [IF APPLICABLE: The undersigned hereby encloses $         as payment of the Exercise Price.]

 

The undersigned is exercising the Warrant with respect to [            ] shares of Common Stock pursuant to a Cashless Exercise, and hereby makes payment of the Exercise Price with respect to such shares in full, all in accordance with the conditions and provisions of the Warrant applicable to such Cashless Exercise.

 

The undersigned is exercising the Warrant with respect to [            ] shares of Common Stock pursuant to a Note Exchange Exercise. The undersigned hereby agrees to cancel $         of principal outstanding under Notes of the Company held by Holder in satisfaction of the Exercise Price in accordance with the conditions and provisions of the Warrant applicable to such Note Exchange Exercise.

 

Cashless Major Exercise

The undersigned hereby irrevocably exercises the Warrant with respect to ____% of the Warrant currently outstanding pursuant to a Cashless Major Exercise in accordance with the terms of the Warrant.

 

Cashless Default Exercise

The undersigned hereby irrevocably exercises the Warrant pursuant to a Cashless Default Exercise, in accordance with the terms of the Warrant.

1. The undersigned requests that any stock certificates for such shares be issued free of any restrictive legend, if appropriate, and, if requested by the undersigned, a warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the undersigned and delivered to the undersigned at the address set forth below.

2. Capitalized terms used but not otherwise defined in this Exercise Form shall have the meaning ascribed thereto in the Warrant.

Dated:                    

 

 

Signature

 

 

Print Name

 

 

Address

NOTICE

The signature to the foregoing Exercise Form must correspond to the name as written upon the face of the attached Warrant.

 

27


EXHIBIT B

ASSIGNMENT

(To be executed by the registered holder

desiring to transfer the Warrant)

FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the “Warrant”) hereby sells, assigns and transfers unto the person or persons below named the right to purchase                      shares of the Common Stock of Endologix, Inc., a Delaware corporation, evidenced by the attached Warrant and does hereby irrevocably constitute and appoint                      attorney to transfer the said Warrant on the books of the Company, with full power of substitution in the premises.

 

Dated:                         

 

    Signature
Fill in for new registration of Warrant:    

 

Name

   

 

Address

   

 

Please print name and address of assignee

   
(including zip code number)    

NOTICE

The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached Warrant.

 

28


EXHIBIT C

FORM OF OPINION

            , 20        

[                        ]

Re:    [                 ] (the “Company”)

Dear Sir:

[                    ] (“[                    ]”) intends to transfer              Warrants (the “Warrants”) of the Company to                  (“            ”) without registration under the Securities Act of 1933, as amended (the “Securities Act”). In connection therewith, we have examined and relied upon the truth of representations contained in an Investor Representation Letter attached hereto and have examined such other documents and issues of law as we have deemed relevant.

Based on and subject to the foregoing, we are of the opinion that the transfer of the Warrants by              to              may be effected without registration under the Securities Act[, provided, however, that the Warrants to be transferred to              contain a legend restricting its transferability pursuant to the Securities Act and that transfer of the Warrants is subject to a stop order].1

The foregoing opinion is furnished only to                          and may not be used, circulated, quoted or otherwise referred to or relied upon by you for any purposes other than the purpose for which furnished or by any other person for any purpose, without our prior written consent.

Very truly yours,

 

1 

Only if applicable.

 

29


[FORM OF INVESTOR REPRESENTATION LETTER]

            , 20        

[                             ]

Gentlemen:

                 (“    ”) has agreed to purchase                  Warrants (the “Warrants”) of Endologix, Inc., a Delaware corporation (the “Company”) from [                    ] (“[                ]”). We understand that the Warrants are “restricted securities.” We represent and warrant that              is a sophisticated institutional investor that would qualify as an “Accredited Investor” as defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”).

            represents and warrants as of the date hereof as follows:

1. That it is acquiring the Warrants and the shares of common stock, $0.001 par value per share underlying such Warrants (the “Exercise Shares”) solely for its account for investment and not with a view to or for sale or distribution of said Warrants or Exercise Shares or any part thereof in violation of the Securities Act.                  also represents that the entire legal and beneficial interests of the Warrants and Exercise Shares                  is acquiring is being acquired for, and will be held for, its account only;

2. That the Warrants and the Exercise Shares must be held indefinitely unless they are registered under the Securities Act or an exemption from such registration is available.                  recognizes that the Company has no obligation to register the Warrants, or to comply with any exemption from such registration;

3. That neither the Warrants nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met;

We acknowledge that the Company will place stop orders with respect to the Warrants and the Exercise Shares, and if none of the Unrestricted Conditions (as defined in the Warrants) is satisfied, the Exercise Shares shall bear the following restrictive legend:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SAID ACT INCLUDING PURSUANT TO SECTION 4(A)(7) OF THE SECURITIES ACT OR RULE 144 UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4[(a)](1) AND A HALF” SALE.

 

30


NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST 9, 2018, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

At any time and from time to time after the date hereof,                  shall, without further consideration, execute and deliver to [                ] or the Company such other instruments or documents and shall take such other actions as they may reasonably request to carry out the transactions contemplated hereby.

Very truly yours,

 

31


Schedule 1

Black-Scholes Value

 

    

Calculation Under Sections 3(b) and 5(b)(iii)

  

Calculation Under Section 10(b) or 11(b)

Remaining Term    Number of calendar days from date of public announcement of the Major Transaction until the last date on which the Warrant may be exercised.    Number of calendar days from the date of the Event of Failure, or in the case of an Event of Default, the date of the Default Notice, until the last date on which the Warrant may be exercised.
Interest Rate    A risk-free interest rate corresponding to the US$ LIBOR/Swap rate for a period equal to the remaining Exercise Period.    A risk-free interest rate corresponding to the US$ LIBOR/Swap rate for a period equal to the remaining Exercise Period.
Cost to Borrow    Zero    Zero
Volatility   

If the first public announcement of the Major Transaction is made at or prior to 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the date of such first public announcement, obtained from the HVT or similar function on Bloomberg.

If the first public announcement of the Major Transaction is made after 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the next succeeding Trading Day following the date of such first public announcement, obtained from the HVT or similar function on Bloomberg.

   The arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the date of such determination, obtained from the HVT or similar function on Bloomberg.

 

32


Stock Price    As selected by Holder in its commercially reasonable discretion in order to produce a commercially reasonable result, any of: (1) the closing price of the Common Stock on the NasdaqGS, or, if that is not the principal trading market for the Common Stock, such principal market on which the Common Stock is traded or listed (the “Closing Market Price”) on the Trading Day immediately preceding the date on which a Major Transaction is consummated, (2) the first Closing Market Price following the first public announcement of a Major Transaction, (3) the Closing Market Price as of the date immediately preceding the first public announcement of the Major Transaction or (4) the cash amount payable per share of Common Stock. The Company and Holder acknowledge and agree that any of the above will produce a commercially reasonable result.    The volume Weighted Average Price on the date of such determination.
Dividends    Zero.    Zero.
Strike Price    Exercise Price as defined in section 3(a).    Exercise Price as defined in section 3(a).

 

33

EX-4.3

Exhibit 4.3

WARRANT

THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, INCLUDING PURSUANT TO SECTION 4(A)(7) OF THE SECURITIES ACT OR RULE 144 UNDER THE SECURITIES ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4[(a)](1) AND A HALF SALE.” NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS INVOLVED.

 

Warrant to Purchase

2,916,667 shares

   Warrant Number:     2018-3

Warrant to Purchase Common Stock

of

Endologix, Inc.

THIS CERTIFIES that Deerfield Partners, L.P. or any subsequent holder hereof (“Holder”) has the right to purchase from Endologix, Inc., a Delaware corporation (the “Company”), Two Million Nine Hundred Sixteen Thousand Six Hundred Sixty-Seven (2,916,667) fully paid and nonassessable shares of the Company’s common stock, $0.001 par value per share (“Common Stock”), subject to adjustment as provided herein, at a price equal to the Exercise Price (as defined in Section 3 below), at any time during the Exercise Period (as defined in Section 1 below).

Holder agrees with the Company that this Warrant to Purchase Common Stock of the Company (this “Warrant” or this “Agreement”) is issued and all rights hereunder shall be held subject to all of the conditions, limitations and provisions set forth herein.

1. Date of Issuance and Term.

This Warrant shall be deemed to be issued, and shall be in full force and effect commencing, on August 9, 2018 (“Date of Issuance”). The exercise period of this Warrant begins on (and includes) February 9, 2019, and ends at 5:00 p.m., New York City time, on August 9, 2025 (the “Exercise Period”). This Warrant was issued pursuant to that certain Amended and Restated Facility Agreement (as may be amended, restated, supplemented or otherwise modified from


time to time in accordance with the terms thereof, the “Facility Agreement”) by and among the Company, Deerfield Private Design Fund III, L.P., Deerfield Private Design Fund IV, L.P., and Deerfield Partners, L.P., dated as of August 9, 2018, and in conjunction with that certain Amended and Restated Registration Rights Agreement (as may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof, the “Registration Rights Agreement”) by and among the Company, Deerfield Private Design Fund III, L.P., Deerfield Private Design Fund IV, L.P., and Deerfield Partners, L.P., dated as of August 9, 2018.

Notwithstanding anything herein to the contrary, the Company shall not issue to Holder, and Holder may not acquire, a number of shares of Common Stock upon exercise of this Warrant to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by Holder and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with Holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including shares held by any “group” of which Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein), would exceed 4.985% of the total number of shares of Common Stock then issued and outstanding (the “4.985% Cap”); provided, however, that the 4.985% Cap shall only apply to the extent that the Common Stock is deemed to constitute an “equity security” pursuant to Rule 13d-1(i) promulgated under the Exchange Act. For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities and Exchange Commission (the “SEC”), and the percentage held by Holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Upon the written request of Holder, the Company shall, within two (2) Trading Days, confirm orally and in writing to Holder the number of shares of Common Stock then outstanding.

For purposes hereof:

“Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 (“Rule 144”) under the Securities Act of 1933, as amended (the “Securities Act”). With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Holder shall, for purposes hereof, be deemed to be an Affiliate of such Holder.

“Asset Sale” means a transaction covered by the provisions of clause (B) of the definition of “Major Transaction” involving the sale or transfer of all or substantially all of the assets of the Company (including, for the avoidance of doubt, all or substantially all of the assets of the Company and its Subsidiaries (as defined in the Facility Agreement), taken as a whole) in connection with which the Company has announced its intention to liquidate and distribute its assets to stockholders.

“Black-Scholes Value” shall mean the Black-Scholes value of this Warrant, or applicable portion thereof, as determined by use of the Black-Scholes Option Pricing Model using the criteria set forth on Schedule 1 hereto.

 

2


“Business Day” means a day other than a Saturday or Sunday or any other day on which commercial banks are authorized or required by law to close in New York City.

“Cashless Default Exercise” shall mean an exercise of this Warrant as a “Cashless Default Exercise” in accordance with Sections 3(c) and 11(b) hereof.

“Cashless Major Exercise” shall mean an exercise of this Warrant or portion thereof as a “Cashless Major Exercise” in accordance with Sections 3(b) and 5(b)(i) hereof.

“Cash Out Major Transaction” means a Major Transaction in which the consideration payable to holders of Common Stock in connection with the Major Transaction consists solely of cash.

“Eligible Market” means the New York Stock Exchange, the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ Global Select Market, the NYSE American or, in each case, any successor thereto.

“Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of a Major Transaction.

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

“Standard Settlement Period” means the standard settlement period for equity trades effected on securities exchanges in the United States, expressed in a number of Trading Days, as in effect on the applicable Date of Exercise (as defined in Section 2(b)).

“Stock Event” means a stock split, stock combination, reclassification, payment of stock dividend, recapitalization or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or small number of shares.

“Successor Entity” means any Person purchasing the Company’s assets or Common Stock, or any successor entity resulting from such Major Transaction, or if the Warrant is to be exercisable for shares of capital stock of a Parent Entity (as defined above), such Person’s Parent Entity.

“Successor Major Transaction” means either a Takeout Major Transaction or an Asset Sale.

“Successor Major Transaction Consideration” means (i) in the case of a Takeout Major Transaction (other than a Cash Out Major Transaction), the amount of cash and other assets and the number of securities or other property of the Successor Entity or other entity that would be issuable in such Major Transaction, in respect of a number of shares equal to the Successor Major Transaction Conversion Share Amount and (ii) in the case of an Asset Sale or a Cash Out Major Transaction, an amount of cash equal to the Black-Scholes Value of the Warrant.

 

3


“Successor Major Transaction Conversion Share Amount” means an amount equal to the Black-Scholes Value of the Warrant (or such applicable portion subject to a Successor Major Transaction Conversion), divided by the closing price of the Common Stock on the principal securities exchange or other securities market on which the Common Stock is then traded on the Trading Day immediately preceding the date on which the applicable Major Transaction is consummated.

“Takeout Major Transaction” means a transaction covered by the provisions of clause (A) of the definition of “Major Transaction” in which the shares of Common Stock of the Company are converted into the right to receive cash, securities of another entity and/or other assets.

“Trading Day” shall mean any day on which the Common Stock is traded for any period on the NASDAQ Global Select Market (“NasdaqGS”) or, if the NasdaqGS is not the principal trading market for the Common Stock, on the principal securities exchange or other securities market on which the Common Stock is then being traded; provided, however, that during any period in which the Common Stock is not listed or quoted on the NasdaqGS or any other securities exchange or market, the term “Trading Day” shall mean a Business Day.    

2. Exercise.

(a) Manner of Exercise. During the Exercise Period (or, in respect of a Cashless Major Exercise, the Cashless Major Exercise Period (as defined below)), this Warrant may be Exercised as to all or any lesser number of whole shares of Common Stock covered hereby (the “Warrant Shares” or the “Shares”) by sending to the Company the Exercise Form attached hereto as Exhibit A-1 (the “Exercise Form”) duly completed and executed, and, if applicable, the full Exercise Price (as defined below, which may be satisfied by a Cash Exercise, a Cashless Exercise or a Note Exchange Exercise, as each is defined below) for each share of Common Stock as to which this Warrant is Exercised, at the office of the Company, 2 Musick, Irvine, CA 92618, Attention: Chief Financial Officer; Phone: (949) 595-7200, Email: vmahboob@endologix.com, or at such other office or agency as the Company may designate in writing, by overnight mail or electronic mail (any such exercise of the Warrant being hereinafter called an “Exercise” of this Warrant).

(b) Date of Exercise. The “Date of Exercise” of the Warrant shall, in each case, be the date that the Exercise Form attached hereto as Exhibit A-1, completed and executed, is sent by electronic mail to the Company, provided that the Exercise Price is satisfied as soon as practicable thereafter but in no event later than two (2) Business Days following the date of such electronic mail. Alternatively, the Date of Exercise shall be defined as the date the original Exercise Form is received by the Company, if Holder has not previously sent the Exercise Form by electronic mail. Upon delivery of the Exercise Form to the Company by electronic mail or otherwise, Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been Exercised, irrespective of the date such Warrant Shares are credited to Holder’s or its designee’s Depository Trust Company (“DTC”) account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be; provided, however, that in the event an Exercise Form in respect of a Cashless Major Exercise is delivered prior to the occurrence of the applicable Major Transaction, Holder shall be deemed to have become the holder of record of the shares issuable upon such exercise immediately prior to the consummation of such Major Transaction and the Date of Exercise shall

 

4


in such event be deemed to have occurred on the date of the occurrence of the Major Transaction. Holder shall not be required to physically surrender this Warrant to the Company until Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days following the date the final Exercise Form is delivered to the Company. Execution and delivery of an Exercise Form with respect to a partial Exercise shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares.

(c) Delivery of Common Stock Upon Exercise. Within the earlier of (x) two (2) Trading Days and (y) the number of Trading Days comprising the Standard Settlement Period after any Date of Exercise (but, in the case of a Cash Exercise, within two (2) Business Days following the Company’s receipt of the full Exercise Price, if later) or in the case of a Cashless Default Exercise (as defined in Section 5(b) below), within the period provided in Section 3(c), as applicable (the “Delivery Period”), the Company shall issue and deliver (or cause its transfer agent (the “Transfer Agent”) to issue and deliver) in accordance with the terms hereof to or upon the order of Holder that number of shares of Common Stock (“Exercise Shares”) for the portion of this Warrant exercised as shall be determined in accordance herewith. Upon the Exercise of this Warrant or any part hereof, the Company shall, at its own cost and expense, take all necessary action, including obtaining and delivering an opinion of counsel, to assure that the Transfer Agent shall issue stock certificates in the name of Holder (or its nominee) or such other persons as designated by Holder and in such denominations as Holder shall specify at Exercise, representing the number of shares of Common Stock issuable upon such Exercise. The Company warrants that no instructions other than these instructions have been or will be given to the Transfer Agent and that, unless waived by Holder, this Warrant and the Exercise Shares will be free-trading, and freely transferable, and will not contain or be subject to a legend (or be subject to any stop transfer instruction) restricting the resale or transferability of the Exercise Shares if the Unrestricted Conditions (as defined below) are met.

The Company shall be responsible for paying all present or future stamp, court or documentary, intangible, recording, filing or similar taxes that arise from any payment or issuance made under, from the execution, delivery, performance or enforcement of, or otherwise with respect to, this Warrant.

(d) Delivery Failure. In addition to any other remedies which may be available to Holder, in the event that the Company fails for any reason to effect delivery of the Exercise Shares by the end of the Delivery Period (a “Delivery Failure”), Holder will be entitled to revoke all or part of the relevant Exercise by delivery of a notice to such effect to the Company whereupon the Company and Holder shall each be restored to their respective positions immediately prior to the delivery of such notice of revocation, except that the Failure Payments under Section 10(b) shall be payable through the date such notice of revocation is given to the Company.

(e) Legends.

(i) Restrictive Legend. Holder understands that until such time as this Warrant, the Exercise Shares and the Failure Payment Shares (as defined below) have been registered under the Securities Act or otherwise may be sold pursuant to Rule 144 or an exemption from registration

 

5


under the Securities Act without any restriction as to the number of securities as of a particular date that can then be immediately sold, this Warrant, the Exercise Shares and the Failure Payment Shares, as applicable, may bear a restrictive legend in substantially the following form (and a stop-transfer order consistent therewith may be placed against transfer of the certificates for such securities):

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SAID ACT INCLUDING PURSUANT TO SECTION 4(A)(7) OF THE SECURITIES ACT OR RULE 144 UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4[(a)](1) AND A HALF” SALE.” NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST 9, 2018, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

(ii) Removal of Restrictive Legends. This Warrant and the certificates (or electronic book entries, if applicable) evidencing the Exercise Shares and the Failure Payment Shares, as applicable, shall not contain or be subject to any legend restricting the transfer thereof (including the legend set forth above in subsection 2(e)(i)) or be subject to any stop-transfer instructions: (A) while a registration statement (including a Registration Statement, as defined in the Registration Rights Agreement) covering the sale or resale of such security is effective under the Securities Act, or (B) following any sale of such Warrant, Exercise Shares and/or Failure Payment Shares pursuant to Rule 144, or (C) if such Warrant, Exercise Shares and/or Failure Payment Shares are eligible for sale under Rule 144(b)(1), or (D) at any time on or after the date hereof on which Holder’s holding period for purposes of Rule 144 under the Securities Act and subsection (d)(3)(iii) thereof with respect to such Warrant, Exercise Shares and/or Failure Payment Shares is at least six (6) months and Holder certifies that it is not an “affiliate” (as defined in Rule 144 under the Securities Act), or (E) if such legend is not required under applicable requirements of the

 

6


Securities Act (including judicial interpretations and pronouncements issued by the staff of the SEC) (collectively, the “Unrestricted Conditions”). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the Effective Date, or at such other time as any of the Unrestricted Conditions have been met, if required by the Transfer Agent to effect the issuance of this Warrant, the Exercise Shares or the Failure Payment Shares, as applicable, without a restrictive legend or removal of the legend hereunder. If any of the Unrestricted Conditions are met at the time of issuance of this Warrant, the Exercise Shares or the Failure Payment Shares, then such Warrant, Exercise Shares or Failure Payment Shares, as applicable, shall be issued free of all legends and stop-transfer instructions. The Company agrees that following the Effective Date, or at such time as the Unrestricted Conditions are met or such legend is otherwise no longer required under this Section 2(e), it will, no later than the earlier of (x) two (2) Trading Days and (y) the number of Trading Days comprising the Standard Settlement Period following the delivery (the “Unlegended Shares Delivery Deadline”) by Holder to the Company or the Transfer Agent of this Warrant and a certificate representing Exercise Shares and/or Failure Payment Shares, as applicable, issued with a restrictive legend, deliver or cause to be delivered to Holder this Warrant and/or a certificate (or electronic transfer) representing such shares that is free from all restrictive and other legends (and stop transfer instructions). For purposes hereof, “Effective Date” shall mean the date that the first Registration Statement that the Company is required to file pursuant to the Registration Rights Agreement has been declared effective by the SEC.

(iii) Sale of Unlegended Shares. Holder agrees that the removal of the restrictive legend from this Warrant and any certificates representing securities as set forth in Section 2(e) above is predicated upon the Company’s reliance that Holder will sell this Warrant or any Exercise Shares and/or any Failure Payment Shares, as applicable, pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if such securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein.

(f) Cancellation of Warrant. This Warrant shall be canceled upon the full Exercise of this Warrant, and, as soon as practical after the Date of Exercise, Holder shall be entitled to receive Common Stock for the number of shares purchased upon such Exercise of this Warrant, and if this Warrant is not Exercised in full, Holder shall be entitled to receive a new Warrant (containing terms identical to this Warrant) representing any unexercised portion of this Warrant in addition to such Common Stock; provided, however, as set forth in Section 2(b), Holder shall not be required to physically surrender this warrant if the Warrant is not Exercised in full.

(g) Holder of Record. Each person in whose name any Warrant for shares of Common Stock is issued shall, for all purposes, be deemed to be Holder of record of such shares on the Date of Exercise, irrespective of the date of delivery of the Common Stock purchased upon the Exercise of this Warrant. Prior to the exercise of this Warrant, nothing in this Warrant shall be construed as conferring upon Holder any rights as a stockholder of the Company.

(h) Delivery of Electronic Shares. In lieu of delivering physical certificates representing the Common Stock issuable upon Exercise or legend removal, or representing Failure Payment Shares, upon written request of Holder, the Company shall use its best efforts to cause the Transfer Agent to electronically transmit the Common Stock issuable upon Exercise to Holder

 

7


by crediting the account of Holder’s prime broker with DTC through its Deposit/Withdrawal at Custodian (DWAC) system. The time periods for delivery and penalties described herein shall apply to the electronic transmittals described herein. Any delivery not effected by electronic transmission shall be effected by delivery of physical certificates.

(i) Buy-In. In addition to any other rights or remedies available to Holder hereunder or otherwise at law or in equity, if the Company fails to cause its Transfer Agent to deliver to Holder a certificate or certificates, or electronic shares through DWAC, representing the Exercise Shares pursuant to an Exercise on or before the last day of the Delivery Period (other than a failure caused by any incorrect or incomplete information provided by Holder to the Company hereunder), and if after such date Holder is required by its broker to purchase (in an open market transaction or otherwise) or Holder or Holder’s brokerage firm otherwise purchases shares of Common Stock to deliver in satisfaction of a sale by Holder of the Exercise Shares which Holder was entitled to receive upon such Exercise (a “Buy-In”), then the Company shall (1) pay in cash to Holder the amount by which (x) Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Exercise Shares that the Company was required to deliver to Holder in connection with the Exercise at issue by (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of Holder, either reinstate the portion of the Warrant and equivalent number of Exercise Shares for which such Exercise was not honored (and refund the Exercise Price therefor, to the extent paid by Holder, and/or reinstate the principal amount of any indebtedness used to satisfy the applicable Exercise Price) or deliver to Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its Exercise and delivery obligations hereunder. For example, if Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted Exercise to cover the sale of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay Holder $1,000. Holder shall provide the Company written notice indicating the amounts payable to Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company. Nothing herein shall limit Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon Exercise of the Warrant as required pursuant to the terms hereof.

(j) HSR Submissions. If Holder determines that, in connection with the exercise of this Warrant, it and the Company are required to file Premerger Notification Reports with the Federal Trade Commission (the “FTC”) and the United States Department of Justice (“DOJ”) and observe the Waiting Period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, and the related rules and regulations promulgated thereunder (collectively, the “HSR Act”), the Company agrees to (i) cooperate with Holder in Holder’s preparing and making such submission and any responses to inquiries of the FTC and DOJ; (ii) prepare and make any submission required to be filed by the Company under the HSR Act and respond to inquiries of the FTC and DOJ in connection therewith; and (iii) reimburse Holder for the cost of the required filing fee for Holder’s submission under the HSR Act. For the avoidance of doubt, Holder shall bear all of its other costs and expenses in connection with such submission, including any attorneys’ fees associated therewith.

 

8


3. Payment of Warrant Exercise Price for Cash Exercise or Cashless Exercise; Cashless Major Exercise and Cashless Default Exercise.

(a) Exercise Price. The exercise price shall initially equal $4.71 per share, subject to adjustment pursuant to the terms hereof (as so adjusted, the “Exercise Price”), including but not limited to Section 5 below.

Payment of the Exercise Price may be made by any of the following, or a combination thereof, at the election of Holder:

(i) Cash Exercise: Holder may exercise this Warrant in cash, bank or cashier’s check or wire transfer (a “Cash Exercise”);

(ii) Cashless Exercise: In lieu of paying all or any portion of the Exercise Price in cash, Holder, at its option, may exercise this Warrant (in whole or in part) on a cashless basis by making appropriate notation on the applicable Exercise Form, in which event the Company shall issue Holder a number of shares of Common Stock computed using the following formula (a “Cashless Exercise”):

X = Y (A-B)/A

 

where:    X = the number of shares of Common Stock to be issued to Holder.
   Y = the number of shares of Common Stock for which this Warrant is being Exercised.
   A = the Market Price of one (1) share of Common Stock (for purposes of this Section 3(a)(ii), where “Market Price,” as of any date, means the arithmetic average of the Volume Weighted Average Price (as defined below) of the Company’s Common Stock on each of the ten (10) consecutive Trading Days immediately preceding the date in question).
   B = the Exercise Price.
   As used herein, the “Volume Weighted Average Price” for any security as of any date means the volume weighted average sale price on the NasdaqGS as reported by, or based upon data reported by, Bloomberg Financial Markets or an equivalent, reliable reporting service mutually acceptable to and hereafter designated by the Holder and the Company (“Bloomberg”), or, if the NasdaqGS is not the principal trading market for such security, the volume weighted average sale price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or, if no volume weighted average sale price is reported for such security, then the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security on the OTC Bulletin Board, the OTCQX Market, the OTCQB Market or the “pink” market of OTC Markets Group. If the Volume Weighted Average Price cannot be calculated for such security on such date in the manner provided above, the Volume Weighted Average Price shall be the fair market value as determined by the Company and the Holder. In the event that a Stock Event is

 

9


   consummated during any period for which the arithmetic average of the Volume Weighted Average Prices is to be determined (under this Section or otherwise), the Volume Weighted Average Price for all Trading Days during such period prior to the effectiveness of the Stock Event shall be appropriately adjusted to reflect such Stock Event.

(iii) Note Exchange Exercise: In lieu of paying all or any portion of the Exercise Price in cash, Holder, at its option, may exercise this Warrant (in whole or in part) through a reduction of an amount of principal outstanding under any First Out Waterfall Notes in accordance with Section 2.3(b) of the Facility Agreement, then held by Holder (a “Note Exchange Exercise”)

For purposes of Rule 144 and subsection (d)(3)(ii) thereof, it is intended, understood and acknowledged that (x) this Warrant shall be deemed to have been acquired on April 3, 2017 (the date the First Out Waterfall Notes were originally issued), and (y) the shares of Common Stock issuable upon Exercise of this Warrant in a Cashless Exercise (including a Cashless Major Exercise or Cashless Default Exercise) transaction or a Note Exchange Exercise transaction shall be deemed to have been acquired on April 3, 2017. Accordingly, (A) upon any such Exercise, the Rule 144 holding period for the shares of Common Stock issued thereupon shall be in excess of one (1) year, and (B) provided that Holder is not an “affiliate” (as defined in Rule 144 under the Securities Act) of the Company on the date of such Exercise (which the Company shall assume unless advised otherwise in writing by Holder), an Unrestricted Condition shall be satisfied with respect to the shares of Common Stock issued thereupon and such shares will be freely transferable, without restriction or limitation (including any volume limitation or current public information requirement) under Federal or state securities laws, pursuant to Rule 144 under the Securities Act, and will not contain or be subject to a legend or stop transfer order restricting the resale or transferability of thereof.

As provided in Section 2(b), Holder shall only be required to physically surrender this Warrant in the event that Holder is exercising this Warrant in full.

(b) Cashless Major Exercise. To the extent Holder shall exercise this Warrant as a Cashless Major Exercise pursuant to Section 5(b)(i) and 5(b)(iii) below, Holder shall send to the Company (in any manner permitted under Section 2(a)) the Exercise Form indicating that Holder is exercising this Warrant (or any portion thereof) pursuant to a Cashless Major Exercise, in which event the Company shall issue a number of shares of Common Stock equal to the Black-Scholes Value of the Warrant (or such applicable portion being exercised) divided by the closing price of the Common Stock on the principal securities exchange or other securities market on which the Common Stock is then traded on the Trading Day immediately preceding the date on which the applicable Major Transaction is consummated, or, if in respect of a Cashless Major Exercise made after the date of consummation of the applicable Major Transaction, on the Trading Day immediately preceding the date on which the exercise form in respect of such Cashless Major Exercise is delivered. As provided in Section 2(b), Holder shall only be required to physically surrender this Warrant in the event that Holder is exercising this Warrant in full. Holder shall be permitted to make successive Cashless Major Exercises and send successive Exercise Forms in respect of a Cashless Major Exercise from time to time at any time during the Cashless Major Exercise Period.

 

10


(c) Cashless Default Exercise. To the extent Holder exercises this Warrant as a Cashless Default Exercise pursuant to Section 11(b)(i) below, Holder shall send to the Company (in any manner permitted under Section 2(a)) the Exercise Form indicating that Holder is exercising this Warrant pursuant to a Cashless Default Exercise, in which event the Company shall issue to Holder, within five (5) Trading Days of the applicable Default Notice, a number of shares of Common Stock (which shares shall be valued at the closing price of the Common Stock on the principal securities exchange or other securities market on which the Common Stock is then traded on the Trading Day immediately preceding the date on which the Exercise Form in respect of such Cashless Default Exercise is delivered) equal to the Black-Scholes Value of the remaining unexercised portion of this Warrant (or such portion thereof subject to such exercise) as of the date of such Default Notice (or in the case of an Event of Default referred to in Section 11(a)(vi), on the Trading Day immediately preceding the date the dividend or distribution is declared or, if not first declared, is paid). As provided in Section 2(b), the Holder shall be permitted to make successive Cashless Default Exercises and send successive Exercise Forms in respect of a Cashless Default Exercise, from time to time at any time from and after the date of the applicable Default Notice through the Exercise Period of this Warrant.

(d) Dispute Resolution. In the case of a dispute as to the determination of the closing price or the Volume Weighted Average Price of the Company’s Common Stock or the arithmetic calculation of the Exercise Price, Market Price or the Successor Major Transaction Consideration, or the number of shares issuable upon a Cashless Major Exercise, the Company shall submit the disputed determinations or arithmetic calculations via electronic mail within two (2) Business Days of receipt, or deemed receipt, of the Exercise Form or Major Transaction Early Termination Notice, or other event giving rise to such dispute, as the case may be, to Holder. If Holder and the Company are unable to agree upon such determination or calculation within two (2) Business Days of such disputed determination or arithmetic calculation being submitted to Holder, then the Company shall, within two (2) Business Days submit via electronic mail (i) the disputed determination of the closing price or the Volume Weighted Average Price of the Company’s Common Stock to an independent, reputable investment bank selected by the Company and approved by Holder, which approval shall not be unreasonably withheld, or (ii) the disputed arithmetic calculation of the Exercise Price, Market Price, any Successor Major Transaction Consideration or number of shares issuable upon a Cashless Major Exercise to the Company’s independent, outside registered public accountants. The Company shall use its reasonable best efforts to cause the investment bank or the accountants, as the case may be, to perform the determinations or calculations and notify the Company and Holder of the results no later than five (5) Trading Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountants’ determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error, and the Company and Holder shall each pay one half of the fees and costs of such investment banker or accountant. Notwithstanding the existence of a dispute contemplated by this paragraph, if requested by Holder, the Company shall issue to Holder the Exercise Shares not in dispute in accordance with the terms hereof.

4. Transfer and Registration.

(a) Transfer Rights. Subject to the provisions of Section 8 of this Warrant, this Warrant may be transferred on the books of the Company, in whole or in part, in person or by attorney, upon

 

11


surrender of this Warrant properly completed and endorsed. This Warrant shall be canceled upon such surrender and, as soon as practicable thereafter, the person to whom such transfer is made shall be entitled to receive a new Warrant or Warrants as to the portion of this Warrant transferred, and Holder shall be entitled to receive a new Warrant as to the portion hereof retained.

(b) Registrable Securities. The Common Stock issuable upon the Exercise of this Warrant entitles Holder (and applicable assignees or transferees of such Common Stock) to registration and other rights pursuant to the Registration Rights Agreement.

5. Adjustments Upon Certain Events.

(a) Recapitalization or Reclassification. If the Company shall at any time effect a stock split, payment of stock dividend, recapitalization, reclassification or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or smaller number of shares, then upon the effective date thereof, the number of shares of Common Stock which Holder shall be entitled to purchase upon Exercise of this Warrant, shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of Common Stock by reason of such stock split, payment of stock dividend, recapitalization, reclassification or similar transaction, and the Exercise Price shall be, in the case of an increase in the number of shares, proportionally decreased and, in the case of decrease in the number of shares, proportionally increased. The Company shall give Holder the same notice it provides to holders of Common Stock of any transaction described in this Section 5(a).

(b) Rights Upon Major Transaction.

(i) Major Transaction. In the event that a Major Transaction occurs, then (1) in the case of a Successor Major Transaction, Holder, at its option, may elect to cause the conversion of this Warrant (a “Successor Major Transaction Conversion”), in whole or in part, into the right to receive the Successor Major Transaction Consideration, upon consummation of the Major Transaction, and (2) in the case of all other Major Transactions, Holder shall have the right to exercise this Warrant (or any portion thereof), at any time and from time to time following the occurrence of such event, as a Cashless Major Exercise. In the event Holder shall not have exercised any of its rights under clauses (1) or (2) above within the applicable time periods set forth herein, then the Major Transaction shall be treated as an Assumption (as defined below) in accordance with Section 5(b)(ii) below unless Holder waives its rights under this Section 5(b) with respect to such Major Transaction. Each of the following events shall constitute a “Major Transaction”:

(A) a consolidation, merger, exchange of shares, recapitalization, reorganization, business combination or other similar event, (1) following which the holders of Common Stock immediately preceding such consolidation, merger, exchange, recapitalization, reorganization, combination or event either (a) no longer hold a majority of the shares of Common Stock or (b) no longer have the ability to elect a majority of the board of directors of the Company or (2) as a result of which shares of Common Stock shall be changed into (or the shares of Common Stock become entitled to receive) the same or a different

 

12


number of shares of the same or another class or classes of stock or securities of the Company or another entity (collectively, a “Change of Control Transaction”);

(B) the sale or transfer, in one transaction or a series of related transactions, of (I) all or substantially all of the assets of the Company (including, for the avoidance of doubt, all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole) to any Person other than a wholly-owned subsidiary of the Company or (II) assets of the Company (including, for the avoidance of doubt, all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole) for a purchase price equal to more than 50% of the Equity Value (as defined below) of the Company. For purposes of this clause (B), “Equity Value” shall mean (I) the product of (x) the number of issued and outstanding shares of Common Stock on the date the Company delivers the Major Transaction Notice (defined below) multiplied by (y) the per share closing price of the Common Stock on such date on the NasdaqGS as reported by, or based upon data reported by, Bloomberg or, if the NasdaqGS is not the principal trading market for such security, the closing sale price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg;

(C) a purchase, tender or exchange offer made to the holders of outstanding shares of Common Stock, such that following such purchase, tender or exchange offer a Change of Control Transaction shall have occurred;

(D) the liquidation, bankruptcy, insolvency, dissolution or winding-up (or the occurrence of any analogous proceeding) affecting the Company;

(E) the shares of Common Stock cease to be listed, traded or publicly quoted on the NasdaqGS and are not promptly re-listed or requoted on the New York Stock Exchange, the NYSE American, the NASDAQ Global Market or the NASDAQ Capital Market; or

(F) the Common Stock ceases to be registered under Section 12 of the Exchange Act.

(ii) Assumption. Any assumption of Company obligations under this paragraph shall be referred to herein as an “Assumption.” Unless otherwise provided in writing by Holder, the Company shall not consummate a Major Transaction in which the Company is not the surviving entity or as a result of which the Company has a new Parent Entity, unless (A) each Person acquiring the Company’s assets or Common Stock (or Parent Entity thereof, as applicable), or any other successor entity resulting from such Major Transaction (in each case, a “Successor Entity”), assumes in writing all of the obligations of the Company under this Warrant, the Facility Agreement (but, other than with respect to the Company’s obligations pursuant to Section 5.1(e) and 5.1(p) of the Facility Agreement and the other provisions of the Facility Agreement that

 

13


expressly survive the repayment of the Loans (which shall be assumed in any Assumption), only if there are outstanding Loans under the Facility Agreement immediately following the consummation of the Major Transaction) and the Registration Rights Agreement in accordance with the provisions of this Section 5(b)(ii) pursuant to written agreements in form and substance reasonably satisfactory to Holder and approved by Holder prior to the consummation of such Major Transaction (such approval not to be unreasonably withheld or delayed), including agreements to deliver to Holder in exchange for its Warrants a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Warrants, that, among other things, (1) is exercisable for the appropriate number of shares of the Successor Entity’s capital stock (without regard to the 4.985% Cap or any other restriction or limitation on exercise, provided that such instrument shall contain a limitation on exercise comparable to that contained in the second paragraph of Section 1 of this Warrant); (2) has an exercise price similar to the then-effective Exercise Price (taking into account any conversion or exchange ratio applicable to the Common Stock in the Major Transaction) and exercise price adjustment provisions similar to those in the Warrants; (3) entitles Holder to such additional securities or other consideration as Holder would be entitled pursuant to Section 5(b)(i) in connection with the Major Transaction; and (4) provides for registration rights similar to those provided by the Registration Rights Agreement, in each case reasonably satisfactory to Holder, and (B) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. For the avoidance of doubt, Holder’s reasonable satisfaction referred to in the immediately preceding sentence shall be construed only to apply to confirmation that the warrant or other comparable security and registration rights agreement delivered to Holder upon an assumption hereunder shall conform to the requirements of this Section 5(b)(ii), and this Section 5(b)(ii) shall not be construed as granting consent or approval rights to Holder with respect to the terms of such Major Transaction or to permit Holder to demand any additional consideration in respect of this Warrant other than as provided herein. Upon the occurrence of any Major Transaction, any Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Major Transaction, the provisions of this Warrant and the Registration Rights Agreement referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein. Upon consummation of the Major Transaction, the Successor Entity shall deliver to Holder confirmation that there shall be issued upon exercise of this Warrant at any time after the consummation of the Major Transaction, in lieu of the shares of Common Stock (or other securities, cash, assets or other property) issuable upon the exercise of the Warrants prior to such Major Transaction, such shares of publicly traded common stock (or their equivalent) of the Successor Entity, as adjusted in accordance with the provisions of this Warrant. The provisions of this Section shall apply similarly and equally to successive Major Transactions and shall be applied without regard to any limitations on the exercise of this Warrant other than any applicable beneficial ownership limitations.

(iii) Major Transaction Notice; Major Transaction Early Termination Right; Notice of Cashless Major Exercise. At least thirty (30) days prior to the consummation of any Major Transaction, but, in any event, within five (5) Trading Days following the first to occur of (x) the date of the public announcement of such Major Transaction if such announcement is made before 4:00 p.m., New York City time, or (y) the day following the public announcement of such Major

 

14


Transaction if such announcement is made on and after 4:00 p.m., New York City time, the Company shall deliver written notice thereof via electronic mail and overnight courier to Holder (a “Major Transaction Notice”). At any time during the period beginning after Holder’s receipt of a Major Transaction Notice in respect of a Successor Major Transaction and ending five (5) Trading Days prior to the consummation of such Major Transaction (the “Early Termination Period”), Holder may elect a Successor Major Transaction Conversion by delivering written notice thereof (“Major Transaction Early Termination Notice”) to the Company, which Major Transaction Early Termination Notice shall indicate the portion of the Warrant (with reference to the number of shares of Common Stock issuable upon a Cash Exercise of such portion, without regard to the 4.985% Cap) that Holder is electing to be treated as a Successor Major Transaction Conversion. The portion of this Warrant subject to early termination pursuant to this Section 5(b)(iii), shall be converted into the right to receive the Successor Major Transaction Consideration

To the extent Holder shall elect to effect a Cashless Major Exercise in respect of a Major Transaction, Holder shall deliver its Exercise Form in accordance with Section 3(b), at any time and from time to time following receipt by Holder of the Major Transaction Notice until the later of (x) the last day of the Exercise Period and (y) the one-year anniversary of the applicable Major Transaction (the “Cashless Major Exercise Period”). For the avoidance of doubt, Holder shall be permitted to make successive Cashless Major Exercises and send successive Exercise Forms in respect of a Cashless Major Exercise from time to time at any time during the Cashless Major Exercise Period.

(iv) Escrow; Payment of Successor Major Transaction Consideration. Following the receipt of a Major Transaction Early Termination Notice in respect of a Successor Major Transaction from Holder, the Company shall not effect a Successor Major Transaction with respect to which Holder has elected a Successor Major Transaction Conversion unless either (A) it obtains, as a condition precedent to such Major Transaction, the written agreement of the Successor Entity that payment of the Successor Major Transaction Consideration shall be made to Holder concurrently with consummation of such Successor Major Transaction, or (B) it shall place the Successor Major Transaction Consideration into an escrow account with an independent escrow agent, and shall instruct the escrow agent to deliver the Successor Major Transaction Consideration to Holder, concurrently with the consummation of the Major Transaction. Notwithstanding clauses (A) and (B) above, Holder shall be treated on a pari passu basis with, and shall not have priority to payments to, the holders of Common Stock in connection with a Major Transaction. For purposes of determining the amount required to be placed in escrow pursuant to the provisions of this subsection (iv) and without affecting the amount of the actual Successor Major Transaction Consideration, the calculation of the price referred to in clause (1) of the first column of Schedule 1 hereto with respect to Stock Price shall be determined based on the Closing Market Price (as defined on Schedule 1) of the Common Stock on the Trading Day immediately preceding the date that the Successor Major Transaction Consideration is deposited with the escrow agent.

(v) Injunction. Following the receipt of a Major Transaction Early Termination Notice from Holder, in the event that the Company attempts to consummate a Successor Major Transaction without either (1) placing the Successor Major Transaction Consideration in escrow in accordance with subsection (iv) above, or (2) obtaining the written agreement of the Successor

 

15


Entity as described in subsection (iv) above, Holder shall have the right to apply for an injunction in any state or federal court sitting in the City of New York, borough of Manhattan to prevent the closing of such Major Transaction until the Successor Major Transaction Consideration is delivered to Holder.

An early termination required by this Section 5(b) shall be made in accordance with the provisions of Section 12. To the extent an early termination required by this Section 5(b) is deemed or determined by a court of competent jurisdiction to be prepayments of the Warrant by the Company, such early termination shall be deemed to be voluntary prepayments. Notwithstanding anything to the contrary in this Section 5, until the Successor Major Transaction Consideration is paid in full, this Warrant may be exercised, in whole or in part, by Holder into shares of Common Stock, or in the event the date of any Exercise is after the consummation of the Major Transaction, shares of publicly traded common stock (or their equivalent) of the Successor Entity pursuant to Section 5(b). The parties hereto agree that in the event of the Company’s early termination of any portion of the Warrant under this Section 5(b), Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for Holder. Accordingly, any premium due under this Section 5(b) is intended by the parties to be, and shall be deemed, a commercially reasonable estimate of Holder’s actual loss of its investment opportunity and not as a penalty.

(c) Exercise Price Adjusted. As used in this Warrant, the term “Exercise Price” shall mean the purchase price per share specified in Section 3(a) of this Warrant, until the occurrence of an event stated in this Section 5 or otherwise set forth in this Warrant, and thereafter shall mean said price as adjusted from time to time in accordance with the provisions of said subsection. No adjustment made pursuant to any provision of this Section 5 shall have the net effect of increasing the aggregate Exercise Price payable hereunder or, except as expressly provided in Section 5(a), otherwise increasing the Exercise Price.

(d) Adjustments: Additional Shares, Securities or Assets. In the event that at any time, as a result of an adjustment made pursuant to this Section 5 or otherwise, Holder shall, upon Exercise of this Warrant, become entitled to receive shares and/or other securities or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this Section 5.

(e) Notice of Adjustments. Whenever the Exercise Price and/or number or type of securities issuable upon Exercise is adjusted pursuant to the terms of this Warrant, the Company shall promptly mail to Holder a notice (an “Exercise Price Adjustment Notice”) setting forth the Exercise Price and/or number or type of securities issuable upon Exercise after such adjustment and setting forth a statement of the facts requiring such adjustment. The Company shall, upon the written request at any time of Holder, furnish to Holder a like Warrant setting forth (i) such adjustment or readjustment, (ii) the Exercise Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon Exercise of the Warrant. For purposes of clarification, whether or not

 

16


the Company provides an Exercise Price Adjustment Notice pursuant to this Section 5(e), upon the occurrence of any event that leads to an adjustment of the Exercise Price, Holder would be entitled to receive a number of Exercise Shares based upon the new Exercise Price, as adjusted, for exercises occurring on or after the date of such adjustment, regardless of whether Holder accurately refers to the adjusted Exercise Price in the Exercise Form.

6. Fractional Interests.

No fractional shares or scrip representing fractional shares shall be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, Holder may purchase only a whole number of shares of Common Stock. If, on Exercise of this Warrant, Holder would be entitled to a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon Exercise shall be the next higher whole number of shares.

7. Reservation of Shares.

From and after the date hereof, the Company shall at all times reserve for issuance such number of authorized and unissued shares of Common Stock (or other securities substituted therefor as herein above provided) as shall be sufficient for the Exercise of this Warrant and payment of the Exercise Price. If at any time the number of shares of Common Stock authorized and reserved for issuance is below the number of shares sufficient for the Exercise of this Warrant (a “Share Authorization Failure”) (based on the Exercise Price in effect from time to time), the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including calling a special meeting of stockholders to authorize additional shares to meet the Company’s obligations under this Section 7, in the case of an insufficient number of authorized shares, and using its best efforts to obtain stockholder approval of an increase in such authorized number of shares. The Company covenants and agrees that upon the Exercise of this Warrant, all shares of Common Stock issuable upon such Exercise shall be duly and validly issued, fully paid and nonassessable and not subject to preemptive rights, rights of first refusal or similar rights of any Person. The Company covenants and agrees that all shares of Common Stock issuable upon Exercise of this Warrant shall be approved for listing on the NasdaqGS, or, if the NasdaqGS is not the principal trading market for the Common Stock, such principal market on which the Common Stock is traded or listed.

8. Restrictions on Transfer.

(a) Registration or Exemption Required. This Warrant has been issued in a transaction exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act and Rule 506 thereunder and exempt from registration or qualification under applicable state securities (or “blue sky”) laws. None of the Warrant, the Exercise Shares or Failure Payment Shares may be pledged, transferred, sold or assigned except pursuant to an effective registration statement or an exemption to the registration requirements of the Securities Act and applicable state laws, including Rule 144 under the Securities Act, Section 4(a)(7) of the Securities Act or a so-called “4[(a)](1) and a half” transaction.

(b) Assignment. Subject to Section 8(a), Holder may sell, transfer, assign, pledge, or otherwise dispose of this Warrant, in whole or in part. Holder shall deliver a written notice to the

 

17


Company, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the Person or Persons to whom the Warrant shall be assigned and the respective number of warrants to be assigned to each assignee. The Company shall effect the assignment within three (3) Business Days of its receipt of a completed and executed form of Assignment (the “Transfer Delivery Period”), and shall deliver to the assignee(s) designated by Holder a Warrant or Warrants of like tenor and terms entitling Holder to purchase the appropriate number of shares. This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder. For avoidance of doubt, in the event Holder notifies the Company that such sale or transfer is a so called “4[(a)](1) and half” transaction, the parties hereto agree that a legal opinion from outside counsel for Holder delivered to counsel for the Company substantially in the form attached hereto as Exhibit C shall be the only requirement to satisfy an exemption from registration under the Securities Act to effectuate such “4[(a)](1) and half” transaction.

9. Noncircumvention.

The Company hereby covenants and agrees that the Company will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

10. Events of Failure; Definition of Black Scholes Value.

(a) Definition.

The occurrence of each of the following shall be considered to be an “Event of Failure.”

(i) A Delivery Failure occurs, where a “Delivery Failure” shall be deemed to have occurred if the Company fails to use its best efforts to deliver Exercise Shares to Holder within any applicable Delivery Period (other than due to the limitation contained in the second paragraph of Section 1);

(ii) A Legend Removal Failure occurs, where a “Legend Removal Failure” shall be deemed to have occurred if the Company fails to use its best efforts to issue this Warrant and/or Exercise Shares without a restrictive legend, or fails to use it best efforts to remove a restrictive legend, when and as required under Section 2(e) hereof;

(iii) a Transfer Delivery Failure occurs, where a “Transfer Delivery Failure” shall be deemed to have occurred if the Company fails to use its best efforts to deliver a Warrant within any applicable Transfer Delivery Period; and

(iv) a Registration Failure (as defined below).

 

18


For purpose hereof, “Registration Failure” means that (A) the Company fails to file with the SEC on or before the Additional Warrant Filing Deadline (as defined in the Registration Rights Agreement) any Registration Statement required to be filed pursuant to Section 2(a) of the Registration Rights Agreement, (B) the Company fails to use its reasonable best efforts to obtain effectiveness with the SEC, prior to the Additional Warrant Registration Deadline (as defined in the Registration Rights Agreement), and if such Registration Statement does not become effective prior to the Additional Warrant Registration Deadline, as soon as possible thereafter, of any Registration Statement (as defined in the Registration Rights Agreement) that is required to be filed pursuant to Section 2(a) of the Registration Rights Agreement, or fails to use its reasonable best efforts to keep such Registration Statement current and effective as required in Section 3 of the Registration Rights Agreement, (C) the Company fails to file any additional Registration Statement required to be filed pursuant to Section 2(a)(ii) of the Registration Rights Agreement on or before the Additional Filing Deadline (as defined in the Registration Rights Agreement) or fails to use its reasonable best efforts to cause such new Registration Statement to become effective on or before the Additional Registration Deadline (as defined in the Registration Rights Agreement), and if such effectiveness does not occur within such period, as soon as possible thereafter, (D) the Company fails to file any amendment to any Registration Statement, or any additional Registration Statement required to be filed pursuant to Section 3(b) of the Registration Rights Agreement within thirty (30) days of the applicable Registration Trigger Date (as defined in the Registration Rights Agreement), or fails to use its reasonable best efforts to cause such amendment and/or new Registration Statement to become effective within ninety (90) days of the applicable Registration Trigger Date, and, if such effectiveness does not occur within such period, as soon as possible thereafter, (E) any Registration Statement required to be filed under the Registration Rights Agreement, after its initial effectiveness and during the applicable Registration Period (as defined in the Registration Rights Agreement), lapses in effect or, other than on a day during an Allowable Grace Period (as defined in the Registration Rights Agreement), sales of all of the Registrable Securities (as defined in the Registration Rights Agreement) cannot otherwise be made thereunder (whether by reason of the Company’s failure to amend or supplement the prospectus included therein in accordance with the Registration Rights Agreement, the Company’s failure to file and use its reasonable best efforts to obtain effectiveness with the SEC of an additional Registration Statement or amended Registration Statement required pursuant to Section 2(a)(ii) or 3(b) of the Registration Rights Agreement, as applicable, or otherwise), or (F) the Company fails to provide a commercially reasonable written response to any comments to any Registration Statement submitted by the SEC within twenty-five (25) days of the date that such SEC comments are received by the Company.

(b) Failure Payments; Black-Scholes Determination. The Company understands that any Event of Failure (as defined above) could result in economic loss to Holder. In the event that any Event of Failure occurs, as compensation to Holder for such economic loss, the Company agrees to pay to Holder an amount payable, at the Company’s option, either (i) in cash or (ii) in shares of Common Stock that are valued for these purposes at the Volume Weighted Average Price on the date of such calculation (“Failure Payments” and such shares, “Failure Payment Shares”), in each case equal to the total economic loss of Holder determined on a commercially reasonable basis in connection with such Event of Failure for the relevant period (as recalculated on the first Business Day of each month thereafter for as long as Failure Payments shall continue to accrue) from the date of such Event of Failure until the Event of Failure is cured; provided, however, that in the event the Company elects to make Failure Payments in Failure Payment Shares, the

 

19


Company shall issue, and Holder shall only receive, up to such number of shares of Common Stock in respect of Failure Payments such that Holder and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with Holder’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which Holder is a member, but excluding shares beneficially owned by virtue of the ownership of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) shall not collectively beneficially own greater than 4.985% of the total number of shares of Common Stock of the Company then issued and outstanding, and the balance of such Failure Payments shall be paid in cash. For purposes of clarification, it is agreed and understood that Failure Payments shall continue to accrue following any Event of Default until the applicable Default Amount is paid in full. The Company shall satisfy any Failure Payments under this Section pursuant to Section 10(c) below. Failure Payments are in addition to any Shares that Holder is entitled to receive upon Exercise of this Warrant.

(c) Payment of Accrued Failure Payments. The Failure Payments and Failure Payment Shares representing accrued Failure Payments for each Event of Failure shall be paid or issued and delivered, as the case may be, on or before the fifth (5th) Business Day of each month following a month in which Failure Payments accrued. Nothing herein shall limit Holder’s right to pursue actual damages (to the extent in excess of the Failure Payments) for the Company’s Event of Failure, and Holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief). Notwithstanding the above, if a particular Event of Failure results in an Event of Default pursuant to Section 11 hereof, then the Failure Payment, for that Event of Failure only, shall be considered to have been satisfied upon payment to Holder of an amount equal to the greater of (i) the Failure Payment, or (ii) the Default Amount, payable in accordance with Section 11.

(d) Maximum Interest Rate. Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to Holder and thereby refunded to the Company.

11. Default.

(a) Events Of Default. Each of the following events shall be considered to be an “Event of Default,” unless waived by Holder:

(i) Failure To Effect Registration. With respect to all Registration Failures, a Registration Failure occurs and remains uncured for a period of more than forty-five (45) days (or sixty (60) days in the case where the Company (i) has, by the Filing Deadline (as defined the Registration Rights Agreement) filed a Registration Statement (as defined in the Registration Rights Agreement) covering this Warrant and the number of shares required by the Registration Rights Agreement, and (ii) has responded in writing to any comments to the Registration Statement that the Company has received from the SEC, within ten (10) Business Days of such receipt, and nevertheless the SEC has not declared effective a Registration Statement covering the this

 

20


Warrant and the Shares by the Registration Deadline (as defined in the Registration Rights Agreement)), and such Registration Failure relates solely to the Company’s failure to have the Registration Statement declared effective by the Registration Deadline (as defined in the Registration Rights Agreement) and with respect to a Registration Failure provided in clause (E) of the definition of “Registration Failure,” such Registration Failure occurs and remains uncured for a period of more than forty-five (45) days.

(ii) Failure To Deliver Common Stock. A Delivery Failure (as defined above) occurs and remains uncured for a period of more than twenty (20) days; or at any time, the Company announces or states in writing that it will not honor its obligations to issue shares of Common Stock to Holder upon Exercise by Holder of the Exercise rights of Holder in accordance with the terms of this Warrant.

(iii) Legend Removal Failure. A Legend Removal Failure (as defined above) occurs and remains uncured for a period of twenty (20) days;

(iv) Transfer Delivery Failure. A Transfer Delivery Failure (as defined above) occurs and remains uncured for a period of twenty (20) days;

(v) Corporate Existence; Major Transaction. (A) The Company has failed to (1) place the Successor Major Transaction Consideration into escrow and instruct the escrow agent to release the Successor Major Transaction Consideration to the Holder pursuant to Section 5(b)(iii), or (2) obtain the written agreement of the Successor Entity and cause the Successor Entity to make payment as described in Section 5(b)(iii), (B) the Successor Major Transaction Consideration is not paid contemporaneously with the consummation of the Successor Major Transaction, or (C) with respect to a Major Transaction that is to be treated as an Assumption under the terms hereof, the Company has failed to meet the Assumption requirements of Section 5(b)(i); or

(vi) Section 13 Breach. During the Dividend Restriction Period, the Company declares or pays any dividend or distribution of any kind to the holders of Common Stock of the Company.

(b) Mandatory Early Termination.

(i) Mandatory Early Termination Amount; Cashless Default Exercise. The Company shall notify Holder in writing within two (2) Business Days of the occurrence of an Event of Default. If any Events of Default shall occur then, at the option of Holder, such option exercisable through the delivery of written notice to the Company by such Holder (the “Default Notice”), the Company shall have the right to terminate the outstanding amount of this Warrant and pay to Holder (a “Mandatory Early Termination”), in full satisfaction of its obligations hereunder by delivery of a notice to such effect to Holder within two (2) Business Days following receipt of the Default Notice, an amount payable in cash (the “Mandatory Early Termination Amount” or the “Default Amount”) equal to the Black-Scholes Value of the remaining unexercised portion of this Warrant on the date of such Default Notice (or in the case of an Event of Default referred to in Section 11(a)(vi), on the Trading Day immediately preceding the date the dividend or distribution is declared or, if not first declared, is paid). In the event the Company does not exercise its right to consummate a Mandatory Early Termination, then Holder shall have the right to exercise this Warrant, at any time and from time to time, pursuant to a Cashless Default Exercise in accordance with Section 3(c) above.

 

21


The Mandatory Early Termination Amount shall be payable within five (5) Business Days following the date of the applicable Default Notice.

(ii) Liquidated Damages. The parties hereto acknowledge and agree that the sums payable as Failure Payments or pursuant to a Mandatory Early Termination shall constitute partial liquidated damages and not penalties. The parties further acknowledge that (i) the amount of loss or damages likely to be incurred by Holder is incapable or is difficult to precisely estimate, (ii) the amounts specified bear a reasonable proportion and are not plainly or grossly disproportionate to the probable loss likely to be incurred by Holder, and (iii) the parties are sophisticated business parties and have been represented by sophisticated and able legal and financial counsel and negotiated this agreement at arm’s length.

Upon the occurrence of an Event of Default, the Default Amount, together with all other amounts payable hereunder, shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including legal fees and expenses, of collection, and Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

(c) Posting Of Bond. In the event that any Event of Default occurs hereunder, the Company may not raise as a legal defense (in any Lawsuit, as defined below, or otherwise) or justification to such Event of Default any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, unless the Company has posted a surety bond (a “Surety Bond”) for the benefit of such Holder in the amount of 130% of the aggregate Surety Bond Value (as defined below) of all of Holder’s Warrants (the “Bond Amount”), which Surety Bond shall remain in effect until the completion of litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent Holder obtains judgment.

For purposes hereof, a “Lawsuit” shall mean any lawsuit, arbitration or other dispute resolution filed by either party herein pertaining to any of this Warrant, the Facility Agreement, the Registration Rights Agreement or any other Loan Document (as defined in the Facility Agreement).

“Surety Bond Value,” for the Warrants shall mean 130% of the of the Black-Scholes Value of the remaining unexercised portion of this Warrant on the Trading Day immediately preceding the date that such bond goes into effect.

(d) Injunction And Posting Of Bond. In the event that the Event of Default referred to in subsection (a) of this Section 11 pertains to the Company’s failure to deliver unlegended shares of Common Stock to Holder pursuant to a Warrant Exercise, legend removal request, or otherwise, the Company may not refuse such unlegended share delivery based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, unless an injunction from a court, on prior notice to Holder, restraining and or enjoining Exercise of all or part of said Warrant shall have been sought and obtained by the Company and the Company has posted a Surety Bond for the benefit of such Holder in the amount of the Bond Amount, which Surety Bond shall remain in effect until the completion of litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent Holder obtains judgment.

 

22


(e) Remedies, Other Obligations, Breaches And Injunctive Relief. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant, the Facility Agreement, the Registration Rights Agreement and any other Loan Document, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the right of Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach (including a breach or threatened breach of Section 13), the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

12. Holder’s Early Terminations.

(a) Mechanics of Holders Early Terminations. In the event that the Company does not deliver the applicable Successor Major Transaction Consideration or Default Amount or the Exercise Shares in respect of an election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default or Exercise, as the case may be, to Holder within the time period or as otherwise required pursuant to the terms hereof, at any time thereafter Holder shall have the option, upon notice to the Company, in lieu of an election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, to require the Company to promptly return to Holder all or any portion of this Warrant that was submitted for election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be. Upon the Company’s receipt of such notice, (x) the applicable election of Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, shall be null and void with respect to such applicable portion of this Warrant, (y) the Company shall immediately return this Warrant, or issue a new Warrant to Holder representing the portion of this Warrant that was submitted for election of Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, and (z) the Exercise Price of this Warrant or such new Warrant shall be adjusted to the Exercise Price as in effect on the date on which the applicable election of Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, is voided. Holder’s delivery of a notice voiding an election of a Successor Major Transaction Conversion, Cashless Major Exercise, Cashless Default Exercise or Exercise, as the case may be, and exercise of its rights following such notice shall not affect the Company’s obligations to make any Failure Payments which have accrued prior to the date of such notice with respect to the Warrant subject to such notice.

13. Dividend Restrictions.

Until the earlier of the expiration of the Exercise Period and the date all of the Warrants are exercised in full (the “Dividend Restriction Period”), the Company shall not declare or pay any dividend or distribution of any kind to the holders of Common Stock of the Company.

14. Benefits of this Warrant.

 

23


Nothing in this Warrant shall be construed to confer upon any person other than the Company and Holder any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and Holder.

15. Governing Law.

All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, stockholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, borough of Manhattan. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

16. Loss of Warrant.

Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.

17. Notice or Demands.

Except as otherwise provided herein, notices or demands pursuant to this Warrant to be given or made by Holder to or on the Company shall be sufficiently given or made if sent by overnight delivery with a nationally recognized overnight courier service, certified or registered mail, return receipt requested, postage prepaid, and addressed, until another address is designated in writing by the Company, to the address set forth in Section 2(a) above. To the extent any notice or demand pursuant to this Warrant can be made by electronic mail, such notice or demand given or made by Holder to or on the Company shall be sufficiently given or made if it is sent by electronic mail to the addresses that the Company shall designate in writing from time to time. Notices or demands pursuant to this Warrant to be given or made by the Company to or on

 

24


Holder shall be sufficiently given or made if sent by overnight delivery with a nationally recognized overnight courier service or certified or registered mail, return receipt requested, postage prepaid, and addressed, to the address of Holder set forth in the Company’s records, until another address is designated in writing by Holder.

18. Construction.

Unless the context otherwise requires, (a) all references to Articles, Sections, Schedules or Exhibits are to Articles, Sections, Schedules or Exhibits contained in or attached to this Warrant, (b) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (c) the use of the word “including” in this Warrant shall be by way of example rather than limitation.

19. Signatures.

In the event that any signature to this Warrant or any amendment hereto is delivered by electronic mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof. Notwithstanding the foregoing, the Company shall be obligated to deliver to Holder an original signature to this Warrant. At the request of any party, each other party shall promptly re-execute an original form of this Warrant or any amendment hereto and deliver the same to the other party. No party hereto shall raise the use of electronic mail delivery of a “.pdf” format data file to deliver a signature to this Warrant or any amendment hereto or the fact that such signature was transmitted or communicated through the use of electronic mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract, and each party hereto forever waives any such defense.

 

25


IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the 9th day of August, 2018.

 

ENDOLOGIX, INC.
By:  

/s/ Vaseem Mahboob

  Print Name: Vaseem Mahboob
  Title: Chief Financial Officer

 

26


EXHIBIT A-1

EXERCISE FORM FOR WARRANT

TO: [                ]

CHECK THE APPLICABLE BOX:

 

Cash Exercise, Cashless Exercise or Note Exchange Exercise

The undersigned hereby irrevocably exercises Warrant Number              (the “Warrant”) with respect to 2,916,667 shares of Common Stock (the “Common Stock”) of Endologix, Inc., a Delaware corporation (the “Company”). [IF APPLICABLE: The undersigned hereby encloses $         as payment of the Exercise Price.]

☐ The undersigned is exercising the Warrant with respect to [            ] shares of Common Stock pursuant to a Cashless Exercise, and hereby makes payment of the Exercise Price with respect to such shares in full, all in accordance with the conditions and provisions of the Warrant applicable to such Cashless Exercise.

☐ The undersigned is exercising the Warrant with respect to [            ] shares of Common Stock pursuant to a Note Exchange Exercise. The undersigned hereby agrees to cancel $         of principal outstanding under Notes of the Company held by Holder in satisfaction of the Exercise Price in accordance with the conditions and provisions of the Warrant applicable to such Note Exchange Exercise.

 

Cashless Major Exercise

The undersigned hereby irrevocably exercises the Warrant with respect to         % of the Warrant currently outstanding pursuant to a Cashless Major Exercise in accordance with the terms of the Warrant.

 

Cashless Default Exercise

The undersigned hereby irrevocably exercises the Warrant pursuant to a Cashless Default Exercise, in accordance with the terms of the Warrant.

1. The undersigned requests that any stock certificates for such shares be issued free of any restrictive legend, if appropriate, and, if requested by the undersigned, a warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the undersigned and delivered to the undersigned at the address set forth below.

2. Capitalized terms used but not otherwise defined in this Exercise Form shall have the meaning ascribed thereto in the Warrant.

Dated: _______________

 

 

Signature

 

 

Print Name

 

 

Address

NOTICE

The signature to the foregoing Exercise Form must correspond to the name as written upon the face of the attached Warrant.

 

27


EXHIBIT B

ASSIGNMENT

(To be executed by the registered holder

desiring to transfer the Warrant)

FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the “Warrant”) hereby sells, assigns and transfers unto the person or persons below named the right to purchase              shares of the Common Stock of Endologix, Inc., a Delaware corporation, evidenced by the attached Warrant and does hereby irrevocably constitute and appoint              attorney to transfer the said Warrant on the books of the Company, with full power of substitution in the premises.

 

Dated: _______________

 

 

 

Signature

Fill in for new registration of Warrant:

 

 

Name

 

Address

 

Please print name and address of assignee

(including zip code number)

NOTICE

The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached Warrant.

 

28


EXHIBIT C

FORM OF OPINION

            , 20        

[                        ]

Re:    [                 ] (the “Company”)

Dear Sir:

[                ] (“[                ]”) intends to transfer              Warrants (the “Warrants”) of the Company to                  (“                ”) without registration under the Securities Act of 1933, as amended (the “Securities Act”). In connection therewith, we have examined and relied upon the truth of representations contained in an Investor Representation Letter attached hereto and have examined such other documents and issues of law as we have deemed relevant.

Based on and subject to the foregoing, we are of the opinion that the transfer of the Warrants by                  to                  may be effected without registration under the Securities Act[, provided, however, that the Warrants to be transferred to                 contain a legend restricting its transferability pursuant to the Securities Act and that transfer of the Warrants is subject to a stop order].1

The foregoing opinion is furnished only to                  and may not be used, circulated, quoted or otherwise referred to or relied upon by you for any purposes other than the purpose for which furnished or by any other person for any purpose, without our prior written consent.

Very truly yours,

 

1 

Only if applicable.

 

29


[FORM OF INVESTOR REPRESENTATION LETTER]

            , 20        

[                ]

Gentlemen:

                 (“        ”) has agreed to purchase                  Warrants (the “Warrants”) of Endologix, Inc., a Delaware corporation (the “Company”) from [                ] (“[                ]”). We understand that the Warrants are “restricted securities.” We represent and warrant that                  is a sophisticated institutional investor that would qualify as an “Accredited Investor” as defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”).

___                 represents and warrants as of the date hereof as follows:

1. That it is acquiring the Warrants and the shares of common stock, $0.001 par value per share underlying such Warrants (the “Exercise Shares”) solely for its account for investment and not with a view to or for sale or distribution of said Warrants or Exercise Shares or any part thereof in violation of the Securities Act.                  also represents that the entire legal and beneficial interests of the Warrants and Exercise Shares                  is acquiring is being acquired for, and will be held for, its account only;

2. That the Warrants and the Exercise Shares must be held indefinitely unless they are registered under the Securities Act or an exemption from such registration is available.                  recognizes that the Company has no obligation to register the Warrants, or to comply with any exemption from such registration;

3. That neither the Warrants nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met;

We acknowledge that the Company will place stop orders with respect to the Warrants and the Exercise Shares, and if none of the Unrestricted Conditions (as defined in the Warrants) is satisfied, the Exercise Shares shall bear the following restrictive legend:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SAID ACT INCLUDING PURSUANT TO SECTION 4(A)(7) OF THE SECURITIES ACT OR RULE 144 UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4[(a)](1) AND A HALF” SALE.

 

30


NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST 9, 2018, AS AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

At any time and from time to time after the date hereof,                  shall, without further consideration, execute and deliver to [                ] or the Company such other instruments or documents and shall take such other actions as they may reasonably request to carry out the transactions contemplated hereby.

Very truly yours,

 

31


Schedule 1

Black-Scholes Value

 

    

Calculation Under Sections 3(b) and 5(b)(iii)

  

Calculation Under Section 10(b) or 11(b)

Remaining Term    Number of calendar days from date of public announcement of the Major Transaction until the last date on which the Warrant may be exercised.    Number of calendar days from the date of the Event of Failure, or in the case of an Event of Default, the date of the Default Notice, until the last date on which the Warrant may be exercised.
Interest Rate    A risk-free interest rate corresponding to the US$ LIBOR/Swap rate for a period equal to the remaining Exercise Period.    A risk-free interest rate corresponding to the US$ LIBOR/Swap rate for a period equal to the remaining Exercise Period.
Cost to Borrow    Zero    Zero
Volatility   

If the first public announcement of the Major Transaction is made at or prior to 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the date of such first public announcement, obtained from the HVT or similar function on Bloomberg.

 

If the first public announcement of the Major Transaction is made after 4:00 p.m., New York City time, the arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the next succeeding Trading Day following the date of such first public announcement, obtained from the HVT or similar function on Bloomberg.

   The arithmetic mean of the historical volatility for the 10, 30 and 50 Trading Day periods ending on the date of such determination, obtained from the HVT or similar function on Bloomberg.

 

32


Stock Price    As selected by Holder in its commercially reasonable discretion in order to produce a commercially reasonable result, any of: (1) the closing price of the Common Stock on the NasdaqGS, or, if that is not the principal trading market for the Common Stock, such principal market on which the Common Stock is traded or listed (the “Closing Market Price”) on the Trading Day immediately preceding the date on which a Major Transaction is consummated, (2) the first Closing Market Price following the first public announcement of a Major Transaction, (3) the Closing Market Price as of the date immediately preceding the first public announcement of the Major Transaction or (4) the cash amount payable per share of Common Stock. The Company and Holder acknowledge and agree that any of the above will produce a commercially reasonable result.    The volume Weighted Average Price on the date of such determination.
Dividends    Zero.    Zero.
Strike Price    Exercise Price as defined in section 3(a).    Exercise Price as defined in section 3(a).

 

33

EX-4.4

Exhibit 4.4

FIRST OUT WATERFALL NOTE

THE SECURITIES REPRESENTED BY THIS NOTE (AS DEFINED BELOW) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN, FINANCING OR INDEBTEDNESS ARRANGEMENT SECURED BY THE SECURITIES.

THE FOLLOWING INFORMATION IS PROVIDED PURSUANT TO TREAS. REG. SECTION 1.1275-3: THE BORROWER (AS DEFINED BELOW) WILL MAKE AVAILABLE ON REQUEST TO HOLDER(S) OF THIS NOTE THE FOLLOWING INFORMATION: ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE AND YIELD TO MATURITY. THIS NOTE IS BEING AMENDED AND RESTATED AS PART OF AND PURSUANT TO A PLAN OF RECAPITALIZATION AND REORGANIZATION OF THE BORROWER DESCRIBED IN SECTION 368(A)(1)(E) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.

FIRST OUT WATERFALL NOTE

 

First Out Waterfall Lender: Deerfield Private Design Fund III, L.P.
Principal Amount: $40,000,000               Original Issue Date: April 3, 2017
  Amendment and Restatement Date: August 9, 2018

FOR VALUE RECEIVED, the undersigned, Endologix, Inc., a Delaware corporation (the “Borrower”), hereby unconditionally promises to pay to the First Out Waterfall Lender set forth above (the “Lender”) the “Principal Amount” set forth above, or, if less, the aggregate unpaid Principal (as defined below) amount of the First Out Waterfall Loan (as defined in the Facility Agreement referred to below) of the Lender to the Borrower, payable at such times and in such amounts as are specified in the Facility Agreement.

The Borrower promises to pay interest on the outstanding Principal amount of the First Out Waterfall Loan and any overdue interest from and after the Amendment and Restatement Date (as defined below) until such outstanding Principal amount of the First Out Waterfall Loan and any overdue interest are paid in full, payable at such times and at such interest rates as are specified in the Facility Agreement. The Borrower promises to pay any Non-Callable Make Whole Amount, any CoC Fee and the First Out Waterfall Exit Payment (each, as defined in the Facility Agreement) that is due on the First Out Waterfall Loan in accordance with the Facility Agreement.

 

1


In lieu of making any payment of interest in cash (but not (i) interest payable pursuant to the second sentence of Section 2.6(a) of Facility Agreement, (ii) interest payable-in-kind or (iii) in connection with any Event of Default or late payment hereunder or any other interest payable pursuant to Section 2.7 of the Facility Agreement) and subject to the conditions set forth in Section 2.6 of the Facility Agreement and Exhibit 2.6 to the Facility Agreement, the Borrower may elect to satisfy all or any such payment by the issuance to the Lender of shares of Freely Tradable Common Shares (as defined in Exhibit 2.6) in accordance with the provisions of Exhibit 2.6.

This First Out Waterfall Note (this “Note”) was originally issued on April 3, 2017 and amended and restated on August 9, 2018 (the “Amendment and Restatement Date”) and is one of the “First Out Waterfall Notes”, “Loan Notes” and “Notes” referred to in, and is entitled to the benefits of, the Amended and Restated Facility Agreement, dated as of August 9, 2018 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Facility Agreement”), by and among the Borrower, the other Loan Parties party thereto, the Lenders party thereto and Deerfield Private Design Fund IV, L.P., as agent for the Secured Parties, and the other Loan Documents.

The Facility Agreement, among other things, (a) provides for the making of a First Out Waterfall Loan by the Lender to the Borrower in an aggregate amount not to exceed at any time outstanding the “Principal Amount” set forth above, the indebtedness of the Borrower resulting from such First Out Waterfall Loan being evidenced by this Note and (b) contains provisions for acceleration of the maturity of the unpaid Principal amount of this Note upon the happening of certain stated events and also for prepayments pursuant to Section 2.3(c) or Section 5.3 of the Facility Agreement on account of the Principal hereof prior to the maturity hereof upon the terms and conditions specified therein.

1. Definitions.

(a) Certain Defined Terms. Capitalized terms used herein without definition are used as defined in the Facility Agreement. For purposes of this Note, the following terms shall have the following meanings:

(i) “Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Lender, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Lender will be deemed to be an Affiliate of such Lender. As used in this definition of “Affiliate,” the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other ownership interest, by contract, or otherwise.

(ii) “Common Stock” means the fully paid and nonassessable shares of the Borrower’s common stock, $0.001 par value per share.

 

2


(iii) “Conversion Amount” means the Principal amount to be converted.

(iv) “Conversion Date” means the date of delivery via facsimile or electronic mail of a Conversion Notice.

(v) “Conversion Issuance Limit” means 4,766,667 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(vi) “Conversion Price” means, as of any Conversion Date, ninety-six percent (96%) of the arithmetic average of the Volume Weighted Average Prices per share of Common Stock on each of the three (3) Trading Days period preceding the Conversion Date (the “Measurement Period”); provided, that in the event that a stock split, stock combination, reclassification, payment of stock dividend, recapitalization or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or small number of shares (a “Stock Event”) is consummated during the Measurement Period, the Volume Weighted Average Price for all Trading Days during the Measurement Period prior to the effectiveness of such Stock Event shall be appropriately adjusted to reflect such Stock Event, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(vii) “Conversion Shares” means fully paid and nonassessable shares of Common Stock issued in connection with the conversion of a Note.

(viii) “First Amortization Cap” means 3,166,667 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(ix) “First Amortization Date” means April 2, 2021.

(x) “Market Disruption Event” means, with respect to any Trading Day and any security of Borrower, (a) a failure by the Principal Market to open for trading during its entire regular trading session, (b) the occurrence or existence prior to 1:00 p.m., New York City time, on such day for such securities of Borrower for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant securities exchange or otherwise) in such securities or in any options, contracts or future contracts relating to such securities, or (c) to the extent “Volume Weighted Average Price” is determined in accordance with clause (b) of the definition thereof, the suspension of trading for the one-half hour period ending on the scheduled close of trading on such day (by reason of movements in price exceeding limits permitted by the stock exchange or otherwise) in such securities of Borrower.

(xi) “Monthly Conversion Cap” means 1,733,333 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

 

3


(xii) “Monthly Conversion Cap Period” means the period commencing on the Amendment and Restatement Date and ending on (and including) August 31, 2018, and each calendar month that begins after the Amendment and Restatement Date and prior to the Maturity Date.

(xiii) “Principal” means the outstanding principal amount of this Note as of any date of determination.

(xiv) “Required Lenders” means the Required First Out Waterfall Lenders.

(xv) “Second Amortization Cap” means 1,600,000 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(xvi) “Second Amortization Date” means April 2, 2022.

(xvii) “Trading Day” means any day on which the Common Stock is traded for any period on the Principal Market; provided, that for purposes of the definition of “Conversion Shares,” Trading Day shall not include any Trading Day on which there is a Market Disruption Event.

(xviii) “Volume Weighted Average Price” for any security as of any Trading Day means (a) the volume weighted average sale price of such security on the principal U.S. national or regional securities exchange on which such security is traded as reported by Bloomberg Financial Markets or an equivalent, reliable reporting service mutually acceptable to and hereinafter designated by the Required Lenders and the Borrower (“Bloomberg”), or (b) if no volume weighted average sale price is reported for such security, then the closing price per share of such security, or, if no closing price per share is reported for such security by Bloomberg, the average of the last bid and last ask price (or if more than one in either case, the average of the average last bid and average last ask prices) on such Trading Day as reported in the composite transactions for the principal U.S. national or regional securities exchange on which such security is traded. If the security is not listed for trading on a U.S. national or regional securities exchange on the relevant Trading Day, then the Volume Weighted Average Price will be the average of the mid-point of the last bid and last ask prices of the security in the over-the-counter market on the relevant Trading Day as reported by OTC Markets Group or similar organization. If the Volume Weighted Average Price cannot be calculated for such security on such date in the manner provided above, the Volume Weighted Average Price shall be the fair market value as mutually determined by the Borrower and the Lenders holding a majority of the aggregate outstanding Principal amount of the Notes being converted for which the calculation of the Volume Weighted Average Price is required in order to determine the Conversion Price of such Notes. Volume Weighted Average Price will be determine without regard to after-hours trading or any other trading outside of the regular trading hours.

2. Conversion Rights. This Note may be converted into shares of Common Stock on the terms and conditions set forth in this Section 2 (subject to Section 2.3(a) of the Facility Agreement).

 

4


(a) Conversion at Option of the Lender. At any time during the period commencing on (and including) the Amendment and Restatement Date and ending on the close of business on the second business day immediately prior to the Maturity Date, the Lender shall be entitled to convert all or any part of the Principal into Conversion Shares in accordance with this Section 2 at the Conversion Rate (as defined in Section 2(b)). The Borrower shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, then the Borrower shall round such fraction of a share of Common Stock up or down to the nearest whole share (with 0.5 rounded up).

(b) Conversion Rate. The number of Conversion Shares issuable upon a conversion of any portion of this Note pursuant to Section 2 shall be determined according to the following formula (the “Conversion Rate”):

Conversion Amount

Conversion Price

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

(i) Lender’s Delivery Requirements. To convert a Conversion Amount into Conversion Shares pursuant to Section 2(a) above on any date, Lender shall (A) transmit by facsimile or electronic mail (or otherwise deliver), for receipt on or prior to 5:00 p.m. New York City time on such date, a copy of an executed conversion notice in the form attached hereto as Exhibit A (the “Conversion Notice”) to the Borrower (at 2 Musick, Irvine, CA 92618, Attention: Chief Financial Officer; Email: vmahboob@endologix.com, or at such other office or agency as the Borrower may designate in writing), and (B) if required by Section 2(c)(vi), surrender to a common carrier for delivery to the Borrower, no later than three (3) Business Days after the Conversion Date, of the original Note being converted (or an indemnification undertaking in customary form with respect to this Note in the case of its loss, theft or destruction).

(ii) Borrower’s Response. Upon receipt or deemed receipt by the Borrower of a copy of a Conversion Notice, the Borrower (A) shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to the Lender and the Borrower’s designated transfer agent (the “Transfer Agent”), which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein, and (B) on or before the second (2nd) Business Day following the date of receipt or deemed receipt by the Borrower of such Conversion Notice (or, if earlier, the end of the standard settlement period for U.S. broker-dealer securities transactions) (the “Share Delivery Date”), shall credit such aggregate number of Conversion Shares to which the Lender shall be entitled to the Lender’s or its designee’s balance account with The Depository Trust Company (“DTC”) through its Deposit/Withdrawal At Custodian (DWAC) system, for the number of Conversion Shares to which the Lender shall be entitled. If notwithstanding the provisions of Section 2(c)(vi), the Lender elects to physically surrender this Note for conversion and the Principal represented by this Note is greater than the Principal being converted, then the Borrower shall, as soon as practicable and in no event later than three (3) Business Days after

 

5


receipt of this Note and at its own expense, issue and deliver to the Lender a new Note representing the Principal not converted and cancel this Note. For purposes of Rule 144 under the Securities Act, any Conversion Shares issued to Lender shall be deemed to have been acquired by such Lender on April 3, 2017 (the date this Note was originally issued). Accordingly, (A) upon any conversion of this Note, the Rule 144 holding period for the Conversion Shares acquired thereupon shall be in excess of one (1) year, and (B) provided the Lender is not an Affiliate of the Borrower on the Conversion Date and has not been an Affiliate of the Borrower within the three-month period immediately preceding the Conversion Date (the “Unrestricted Condition”), which the Borrower shall assume and Lender hereby represents unless the Lender advises the Borrower otherwise in writing, the Conversion Shares issued to Lender will be freely transferable, without restriction or limitation (including any volume limitation) under Federal or state securities laws, pursuant to Rule 144 under the Securities Act and will not contain or be subject to a legend or stop transfer order restricting the resale or transferability of thereof.

(iii) Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price or the arithmetic calculation of the Conversion Rate, the Borrower shall instruct the Transfer Agent to issue to the Lender the number of Conversion Shares that is not disputed and shall transmit an explanation of the disputed determinations or arithmetic calculations to the Lender via facsimile within two (2) Business Days of receipt or deemed receipt of the Lender’s Conversion Notice or other date of determination. If the Lender and the Borrower are unable to agree upon the determination of the Conversion Price or arithmetic calculation of the Conversion Rate within one (1) Business Day of such disputed determination or arithmetic calculation being transmitted to the Lender, then the Borrower shall promptly (and in any event within two (2) Business Days) submit via facsimile (A) the disputed determination of the Conversion Price to an independent, reputable investment banking firm agreed to by the Borrower and the Required Lenders, or (B) the disputed arithmetic calculation of the Conversion Rate to the Borrower’s independent registered public accounting firm, as the case may be. The Borrower shall direct the investment bank or the accounting firm, as the case may be, to perform the determinations or calculations and notify the Borrower and the Lender of the results no later than two (2) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accounting firm’s determination or calculation, as the case may be, shall be binding upon all parties absent manifest error, and the fees and expenses of such investment bank or accountant shall be paid one-half by the Borrower and one-half by the Lender. Notwithstanding the existence of a dispute contemplated by this paragraph, if requested by the Lender, the Borrower shall issue to the Lender the Conversion Shares not in dispute in accordance with the terms hereof.

(iv) Record Holder. The person or persons entitled to receive the Conversion Shares issuable upon a conversion of this Note shall be treated for all purposes as the legal and record holder or holders of such shares of Common Stock upon delivery by the Lender of the Conversion Notice, or in the case of Conversion Shares the issuance of which is subject to a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(c)(iii), the first Business Day after the resolution of such bona fide dispute.

(v) Borrower’s Failure to Timely Convert.

 

6


(A) Cash Damages. If by the Share Delivery Date, the Borrower shall fail to credit the Lender’s or its designee’s balance account with DTC with the number of Conversion Shares (free of any restrictive legend, provided the Unrestricted Condition is satisfied), then, in addition to all other available remedies that the Lender may pursue hereunder and under the Facility Agreement, the Borrower shall pay additional damages to the Lender for each day after the Share Delivery Date such conversion is not timely effected in an amount equal to one and one-half percent (1.5%) of the product of (I) the number of Conversion Shares not issued to the Lender or its designee on or prior to the Share Delivery Date and to which the Lender is entitled and (II) the Volume Weighted Average Price of the Common Stock on the Share Delivery Date. Alternatively in lieu of the foregoing damages, subject to Section 2(c)(iii), at the written election of the Lender made in the Lender’s sole discretion, if, on or after the applicable Conversion Date, the Lender purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Lender of Conversion Shares that such Lender anticipated receiving from the Borrower (such purchased shares, “Buy-In Shares”), the Borrower shall be obligated to promptly pay to such Lender (in addition to all other available remedies that the Lender may otherwise have), 110% of the amount by which (A) such Lender’s total purchase price (including brokerage commissions, if any) for such Buy-In Shares exceeds (B) the net proceeds received by such Lender from the sale of a number of shares equal to up to the number of Conversion Shares such Lender was entitled to receive but had not received on the Share Delivery Date. If the Borrower fails to pay the additional damages set forth in this Section 2(c)(v)(A) within five (5) Business Days of the date incurred, then the Lender entitled to such payments shall have the right at any time, so long as the Borrower continues to fail to make such payments, to require the Borrower, upon written notice, to immediately issue, in lieu of such cash damages, the number of shares of Common Stock equal to the quotient of (X) the aggregate amount of the damages payments described herein divided by (Y) the Conversion Price specified by the Lender in the Conversion Notice.

(B) Conversion Failure. If for any reason the Lender has not received all of the Conversion Shares it is entitled to prior to the tenth (10th) Business Day after the Share Delivery Date with respect to a conversion of this Note (a “Conversion Failure”), then the Lender, upon written notice to the Borrower (a “Void Conversion Notice”), may void its conversion with respect to, and retain or have returned, as the case may be, any portion of this Note that has not been converted pursuant to the Lender’s Conversion Notice; provided, that the voiding of the Lender’s Conversion Notice shall not affect the Borrower’s obligations to make any payments that have accrued prior to the date of such notice pursuant to Section 2(c)(v)(A) or otherwise. A Conversion Failure shall constitute an Event of Default under the Facility Agreement and entitle the Lenders to all payments and remedies provided under the Facility Agreement upon the occurrence of an Event of Default.

(vi) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion or repayment of this Note in accordance with the terms hereof, the Lender shall not be required to physically surrender this Note to the Borrower unless all of the Principal is being converted or repaid. The Lender and the Borrower shall maintain records showing the Principal converted or repaid and the dates of such conversions or repayments or shall use such other method, reasonably satisfactory to the Lender and the Borrower, so as not to require physical surrender of this Note upon any such partial conversion or repayment. Notwithstanding the foregoing, if this Note is converted or repaid as aforesaid, the Lender may

 

7


not transfer this Note unless the Lender first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Lender a new Note of like tenor, registered as the Lender may request, representing in the aggregate the remaining Principal represented by this Note. The Lender and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion or repayment of any portion of this Note, the Principal of this Note may be less than the “Principal Amount” stated on the face hereof.

(d) Limitations on Conversions.

(i) Beneficial Ownership. Notwithstanding anything herein to the contrary, the Borrower shall not issue to the Lender, and the Lender may not acquire, a number of shares of Common Stock upon conversion of this Note or otherwise issue any shares of Common Stock pursuant hereto or the Facility Agreement to the extent that, upon such conversion, the number of shares of Common Stock then beneficially owned by the Lender and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Lender’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which the Lender is a member, but excluding shares beneficially owned by virtue of the ownership of the Warrants or other securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) would exceed 4.985% of the total number of shares of common stock then issued and outstanding (the “4.985% Cap”); provided, however, that the 4.985% Cap shall only apply to the extent that the Common Stock is deemed to constitute an “equity security” pursuant to Rule 13d-1(i) promulgated under the Exchange Act. For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the SEC, and the percentage held by the Lender shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Upon the written request of the Lender, the Borrower shall, within two (2) Trading Days, confirm orally and in writing to the Lender the number of shares of Common Stock then outstanding.

(ii) Conversion Issuance Limit. Notwithstanding anything to the contrary contained herein, the Borrower shall not issue any shares of Common Stock upon conversion of this Note (including pursuant to Section 2(c)(v)(A) hereof) to the extent that the issuance of such shares of Common Stock together with any previous issuances of shares of Common Stock under this Note would exceed the Conversion Issuance Limit, and Section 2.5(c)(v) shall not apply in respect to any excess amount.

(iii) Other Applicable Limitations on Conversion of the Note. Notwithstanding anything to the contrary herein, this Note shall not be convertible, and the Borrower shall not issue shares of Common Stock upon conversion of this Note (a) at any time after the First Amortization Date, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares of Common Stock previously issued to Lender upon conversion of this Note after the First Amortization Date, would exceed the First Amortization Cap, or (b) at any time after the Second Amortization Date, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares of Common Stock previously issued to Lender upon conversion of this Note after the Second Amortization

 

8


Date, would exceed the Second Amortization Cap, or (c) during any Monthly Conversion Cap Period, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares previously issued to Lender upon conversion of this Note during the such Monthly Conversion Cap Period, would exceed the Monthly Conversion Cap. For the avoidance of doubt, if the number of shares of Common Stock to be issued as set forth in an Conversion Notice transmitted by the Lender to the Borrower would otherwise require the Borrower to issue a number of shares in excess of the Conversion Issuance Limit, the First Amortization Cap (if after the First Amortization Date), the Second Amortization Cap (if after the Second Amortization Date) or the Monthly Share Cap, the Borrower shall issue to the Lender in accordance herewith the maximum number of shares of Common Stock issuable without exceeding any such applicable limitation, and Section 2.5(c)(v) shall not apply to any excess amount.

3. Voting Rights. Except as required by law, the Lender shall have no voting rights with respect to any of the Conversion Shares until the Conversion Date relating to the conversion of this Note upon which such Conversion Shares are issuable (or in the case of Conversion Shares the issuance of which is subject to a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(c)(iii), the first Business Day after the resolution of such bona fide dispute).

4. Amendment; Waiver. The provisions of this Note may only be waived or amended, restated, supplemented or otherwise modified in accordance with the Facility Agreement.

5. Specific Shall Not Limit General; Construction. No specific provision contained in this Note shall limit or modify any more general provision contained herein. This Note shall be deemed to be jointly drafted by the Borrower and all Lenders pursuant to the Facility Agreement and shall not be construed against any Person as the drafter hereof.

6. Failure or Indulgence Not Waiver. No delay or omission by the Lender in exercising any power or right hereunder shall impair such right or power or be construed to be a waiver of any default, nor shall any single or partial exercise of any power or right hereunder preclude the full exercise thereof or the exercise of any other power or right. No renewal or extension of this Note or the Facility Agreement, no delay in the enforcement of payment under this Note or the Facility Agreement, and no delay or omission in exercising any right or power under this Note or the Facility Agreement shall affect the liability of the Borrower or any endorser of this Note.

7. Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 6.1 of the Facility Agreement.

8. Restrictions on Transfer.

(a) Registration or Exemption Required. This Note has been issued in a transaction exempt from the registration requirements of the Securities Act. None of the Note or

 

9


the Conversion Shares issued hereunder may be transferred, sold, assigned, hypothecated or otherwise disposed of except pursuant to an effective registration statement or an exemption to the registration requirements of the Securities Act and applicable state laws, including Rule 144 under the Securities Act, Section 4(a)(7) of the Securities Act or a so-called “4[(a)](1) and a half” transaction.

(b) Assignment. This Note is assignable or transferable, in whole or in part, only to the extent such assignment or transfer is permitted pursuant to the terms of the Facility Agreement; provided that (i) the Lender shall deliver a written notice to the Borrower, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the Person or Persons to whom the Note shall be assigned and the respective Principal amount of the Note to be assigned to each assignee. The Borrower shall effect the assignment within three (3) business days, and shall deliver to the assignee(s) designated by the Lender a Note or Notes of like tenor and terms for the appropriate Principal amount. This Note and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Lender. The provisions of this Note are intended to be for the benefit of all Lenders from time to time of this Note, and shall be enforceable by any such Lender. This Note is not (and any rights or obligations hereunder are not) not assignable or transferable by the Borrower under any circumstance and any such prohibited assignment or transfer is absolutely void ab initio.

9. Payment of Collection, Enforcement and Other Costs. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; or (b) an attorney is retained to represent the Lender in any bankruptcy, reorganization, receivership of the Borrower or other proceedings affecting Borrower creditors’ rights and involving a claim under this Note, then the Borrower shall pay the costs incurred by the Lender for such collection, enforcement or action, including reasonable attorneys’ fees and disbursements. Subject to the terms of the Facility Agreement, all payments and issuances of shares of Common Stock hereunder will be free and clear of, and without deduction or withholding for, any present or future taxes. The Borrower shall pay all and any costs (administrative or otherwise) imposed by the Borrower’s banks, clearing houses, or any other financial institution, in connection with making any payments and issuing any shares of Common Stock hereunder. The Borrower shall pay all costs and expenses (including attorney’s fees) of the Lender incurred in connection with this Note in accordance with Section 6.3 of the Facility Agreement.

10. Waiver of Notice. Other than those notices required to be provided by the Lender to the Borrower under the terms of the Facility Agreement, the Borrower and every endorser of this Note, or the obligations represented hereby, expressly waives diligence, presentment, protest, demand, notice of dishonor, non-payment or default, and notice of any kind with respect to this Note and the Facility Agreement or the performance of the obligations under this Note and/or the Facility Agreement.

11. Miscellaneous. This Note is a Loan Document, is entitled to the benefits of the Loan Documents and is subject to certain provisions of the Facility Agreement, including Sections 1.2 (Interpretation) and 6.4 (Governing Law; Venue; Jurisdiction; Service of Process; Waiver of Jury Trial) thereof.

 

10


12. Additional Interpretative Matters. Unless the context otherwise requires, (a) all references to Sections or Exhibits are to Sections or Exhibits contained in or attached to this Note, (b) each accounting term not otherwise defined in this Note has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (d) the use of the word “including” in this Note shall be by way of example rather than limitation. If a Stock Event occurs during any period over which an average price is being determined, then an appropriate adjustment will be made to such average to reflect such Stock Event.

13. Signatures. In the event that any signature to this Note or any amendment hereto is delivered by electronic mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof. Notwithstanding the foregoing, the Borrower shall be obligated to deliver to the Lender an original signature to this Note. At the request of any party, each other party shall promptly re-execute an original form of this Note or any amendment hereto and deliver the same to the other party. No party hereto shall raise the use of electronic mail delivery of a “.pdf” format data file to deliver a signature to this Note or any amendment hereto or the fact that such signature was transmitted or communicated through the use of electronic mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract, and each party hereto forever waives any such defense.

14. This Note is an amendment and restatement of that certain Loan Note originally issued on April 3, 2017, in the principal amount of $40,000,000.00 (the “Prior Note”) and evidences an extension, continuation, and renewal of the indebtedness evidenced by the Prior Note, but this Note replaces the Prior Note with the indebtedness evidenced by the Prior Note now evidenced by this Note. Such Prior Note shall be of no further force and effect upon execution of this Note. The Borrower hereby acknowledges and agrees that the indebtedness under the Prior Note has not been repaid or extinguished and that the execution hereof does not constitute a novation of the Prior Note. Moreover, this Note shall be entitled to all security and collateral to which the Prior Note was entitled, without change or diminution in the priority of any lien or security interest granted to secure the Prior Note.

[Signature Page Follows]

 

11


IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered by its duly authorized officer as of the day and year set forth above.

 

ENDOLOGIX, INC.,

a Delaware corporation

By: /s/ Vaseem Mahboob                                    
Name: Vaseem Mahboob
Title: Chief Financial Officer

 

12


Exhibit A

CONVERSION NOTICE

Reference is made to the First Out Waterfall Note (the “Note”) of ENDOLOGIX, INC., a Delaware corporation (the “Borrower”), in the original principal amount of $40,000,000.00. In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of common stock, par value $0.001 per share (the “Common Stock”), of the Borrower, as of the date specified below.

Date of Conversion:                                 

Aggregate Conversion Amount to be converted at the Conversion Price (as defined in the Note):

 

                                                                          

Principal, applicable thereto, to be converted:                                                                          

Please confirm the following information:

Conversion Price:                                                                                                                                                        

Number of shares of Common Stock to be issued:                                                                                                   

Please issue the Common Stock into which the Note is being converted in the following name and to the following address:

Issue to:                                                                                                                                                                      

Facsimile Number:                                                                                                                                                    

Authorization:                                                                              

By:                                                                            

Title:                                                                          

Dated:                                                                                       

DTC Participant Number and Name:                                                                                                                                      

Account Number:                                                                                                                                                                    

 

13


Exhibit B

ASSIGNMENT

(To be executed by the registered holder

desiring to transfer the Note)

FOR VALUE RECEIVED, the undersigned holder of the attached First Out Waterfall Note (the “Note”) hereby sells, assigns and transfers unto the person or persons below named the right to receive the principal amount of $                     from Endologix, Inc., a Delaware corporation (the “Borrower”), evidenced by the attached Note and does hereby irrevocably constitute and appoint                      attorney to transfer the said Note on the books of the Borrower, with full power of substitution in the premises.

 

Dated:                                                  

 

    Signature
Fill in for new registration of Note:    

 

   
Name    

 

   
Address    

 

   
Please print name and address of assignee    
(including zip code number)    

NOTICE

The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached Note.

 

14

EX-4.5

Exhibit 4.5

FIRST OUT WATERFALL NOTE

THE SECURITIES REPRESENTED BY THIS NOTE (AS DEFINED BELOW) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN, FINANCING OR INDEBTEDNESS ARRANGEMENT SECURED BY THE SECURITIES.

THE FOLLOWING INFORMATION IS PROVIDED PURSUANT TO TREAS. REG. SECTION 1.1275-3: THE BORROWER (AS DEFINED BELOW) WILL MAKE AVAILABLE ON REQUEST TO HOLDER(S) OF THIS NOTE THE FOLLOWING INFORMATION: ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE AND YIELD TO MATURITY. THIS NOTE IS BEING AMENDED AND RESTATED AS PART OF AND PURSUANT TO A PLAN OF RECAPITALIZATION AND REORGANIZATION OF THE BORROWER DESCRIBED IN SECTION 368(A)(1)(E) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.

FIRST OUT WATERFALL NOTE

 

First Out Waterfall Lender: Deerfield Private Design Fund IV, L.P.
Principal Amount: $40,000,000               Original Issue Date: April 3, 2017
  Amendment and Restatement Date: August 9, 2018

FOR VALUE RECEIVED, the undersigned, Endologix, Inc., a Delaware corporation (the “Borrower”), hereby unconditionally promises to pay to the First Out Waterfall Lender set forth above (the “Lender”) the “Principal Amount” set forth above, or, if less, the aggregate unpaid Principal (as defined below) amount of the First Out Waterfall Loan (as defined in the Facility Agreement referred to below) of the Lender to the Borrower, payable at such times and in such amounts as are specified in the Facility Agreement.

The Borrower promises to pay interest on the outstanding Principal amount of the First Out Waterfall Loan and any overdue interest from and after the Amendment and Restatement Date (as defined below) until such outstanding Principal amount of the First Out Waterfall Loan and any overdue interest are paid in full, payable at such times and at such interest rates as are specified in the Facility Agreement. The Borrower promises to pay any Non-Callable Make Whole Amount, any CoC Fee and the First Out Waterfall Exit Payment (each, as defined in the Facility Agreement) that is due on the First Out Waterfall Loan in accordance with the Facility Agreement.

 

1


In lieu of making any payment of interest in cash (but not (i) interest payable pursuant to the second sentence of Section 2.6(a) of Facility Agreement, (ii) interest payable-in-kind or (iii) in connection with any Event of Default or late payment hereunder or any other interest payable pursuant to Section 2.7 of the Facility Agreement) and subject to the conditions set forth in Section 2.6 of the Facility Agreement and Exhibit 2.6 to the Facility Agreement, the Borrower may elect to satisfy all or any such payment by the issuance to the Lender of shares of Freely Tradable Common Shares (as defined in Exhibit 2.6) in accordance with the provisions of Exhibit 2.6.

This First Out Waterfall Note (this “Note”) was originally issued on April 3, 2017 and amended and restated on August 9, 2018 (the “Amendment and Restatement Date”) and is one of the “First Out Waterfall Notes”, “Loan Notes” and “Notes” referred to in, and is entitled to the benefits of, the Amended and Restated Facility Agreement, dated as of August 9, 2018 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Facility Agreement”), by and among the Borrower, the other Loan Parties party thereto, the Lenders party thereto and Deerfield Private Design Fund IV, L.P., as agent for the Secured Parties, and the other Loan Documents.

The Facility Agreement, among other things, (a) provides for the making of a First Out Waterfall Loan by the Lender to the Borrower in an aggregate amount not to exceed at any time outstanding the “Principal Amount” set forth above, the indebtedness of the Borrower resulting from such First Out Waterfall Loan being evidenced by this Note and (b) contains provisions for acceleration of the maturity of the unpaid Principal amount of this Note upon the happening of certain stated events and also for prepayments pursuant to Section 2.3(c) or Section 5.3 of the Facility Agreement on account of the Principal hereof prior to the maturity hereof upon the terms and conditions specified therein.

1. Definitions.

(a) Certain Defined Terms. Capitalized terms used herein without definition are used as defined in the Facility Agreement. For purposes of this Note, the following terms shall have the following meanings:

(i) “Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Lender, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Lender will be deemed to be an Affiliate of such Lender. As used in this definition of “Affiliate,” the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other ownership interest, by contract, or otherwise.

(ii) “Common Stock” means the fully paid and nonassessable shares of the Borrower’s common stock, $0.001 par value per share.

 

2


(iii) “Conversion Amount” means the Principal amount to be converted.

(iv) “Conversion Date” means the date of delivery via facsimile or electronic mail of a Conversion Notice.

(v) “Conversion Issuance Limit” means 4,766,667 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(vi) “Conversion Price” means, as of any Conversion Date, ninety-six percent (96%) of the arithmetic average of the Volume Weighted Average Prices per share of Common Stock on each of the three (3) Trading Days period preceding the Conversion Date (the “Measurement Period”); provided, that in the event that a stock split, stock combination, reclassification, payment of stock dividend, recapitalization or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or small number of shares (a “Stock Event”) is consummated during the Measurement Period, the Volume Weighted Average Price for all Trading Days during the Measurement Period prior to the effectiveness of such Stock Event shall be appropriately adjusted to reflect such Stock Event, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(vii) “Conversion Shares” means fully paid and nonassessable shares of Common Stock issued in connection with the conversion of a Note.

(viii) “First Amortization Cap” means 3,166,667 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(ix) “First Amortization Date” means April 2, 2021.

(x) “Market Disruption Event” means, with respect to any Trading Day and any security of Borrower, (a) a failure by the Principal Market to open for trading during its entire regular trading session, (b) the occurrence or existence prior to 1:00 p.m., New York City time, on such day for such securities of Borrower for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant securities exchange or otherwise) in such securities or in any options, contracts or future contracts relating to such securities, or (c) to the extent “Volume Weighted Average Price” is determined in accordance with clause (b) of the definition thereof, the suspension of trading for the one-half hour period ending on the scheduled close of trading on such day (by reason of movements in price exceeding limits permitted by the stock exchange or otherwise) in such securities of Borrower.

(xi) “Monthly Conversion Cap” means 1,733,333 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

 

3


(xii) “Monthly Conversion Cap Period” means the period commencing on the Amendment and Restatement Date and ending on (and including) August 31, 2018, and each calendar month that begins after the Amendment and Restatement Date and prior to the Maturity Date.

(xiii) “Principal” means the outstanding principal amount of this Note as of any date of determination.

(xiv) “Required Lenders” means the Required First Out Waterfall Lenders.

(xv) “Second Amortization Cap” means 1,600,000 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(xvi) “Second Amortization Date” means April 2, 2022.

(xvii) “Trading Day” means any day on which the Common Stock is traded for any period on the Principal Market; provided, that for purposes of the definition of “Conversion Shares,” Trading Day shall not include any Trading Day on which there is a Market Disruption Event.

(xviii) “Volume Weighted Average Price” for any security as of any Trading Day means (a) the volume weighted average sale price of such security on the principal U.S. national or regional securities exchange on which such security is traded as reported by Bloomberg Financial Markets or an equivalent, reliable reporting service mutually acceptable to and hereinafter designated by the Required Lenders and the Borrower (“Bloomberg”), or (b) if no volume weighted average sale price is reported for such security, then the closing price per share of such security, or, if no closing price per share is reported for such security by Bloomberg, the average of the last bid and last ask price (or if more than one in either case, the average of the average last bid and average last ask prices) on such Trading Day as reported in the composite transactions for the principal U.S. national or regional securities exchange on which such security is traded. If the security is not listed for trading on a U.S. national or regional securities exchange on the relevant Trading Day, then the Volume Weighted Average Price will be the average of the mid-point of the last bid and last ask prices of the security in the over-the-counter market on the relevant Trading Day as reported by OTC Markets Group or similar organization. If the Volume Weighted Average Price cannot be calculated for such security on such date in the manner provided above, the Volume Weighted Average Price shall be the fair market value as mutually determined by the Borrower and the Lenders holding a majority of the aggregate outstanding Principal amount of the Notes being converted for which the calculation of the Volume Weighted Average Price is required in order to determine the Conversion Price of such Notes. Volume Weighted Average Price will be determine without regard to after-hours trading or any other trading outside of the regular trading hours.

2. Conversion Rights. This Note may be converted into shares of Common Stock on the terms and conditions set forth in this Section 2 (subject to Section 2.3(a) of the Facility Agreement).

 

4


(a) Conversion at Option of the Lender. At any time during the period commencing on (and including) the Amendment and Restatement Date and ending on the close of business on the second business day immediately prior to the Maturity Date, the Lender shall be entitled to convert all or any part of the Principal into Conversion Shares in accordance with this Section 2 at the Conversion Rate (as defined in Section 2(b)). The Borrower shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, then the Borrower shall round such fraction of a share of Common Stock up or down to the nearest whole share (with 0.5 rounded up).

(b) Conversion Rate. The number of Conversion Shares issuable upon a conversion of any portion of this Note pursuant to Section 2 shall be determined according to the following formula (the “Conversion Rate”):

Conversion Amount

Conversion Price

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

(i) Lender’s Delivery Requirements. To convert a Conversion Amount into Conversion Shares pursuant to Section 2(a) above on any date, Lender shall (A) transmit by facsimile or electronic mail (or otherwise deliver), for receipt on or prior to 5:00 p.m. New York City time on such date, a copy of an executed conversion notice in the form attached hereto as Exhibit A (the “Conversion Notice”) to the Borrower (at 2 Musick, Irvine, CA 92618, Attention: Chief Financial Officer; Email: vmahboob@endologix.com, or at such other office or agency as the Borrower may designate in writing), and (B) if required by Section 2(c)(vi), surrender to a common carrier for delivery to the Borrower, no later than three (3) Business Days after the Conversion Date, of the original Note being converted (or an indemnification undertaking in customary form with respect to this Note in the case of its loss, theft or destruction).

(ii) Borrower’s Response. Upon receipt or deemed receipt by the Borrower of a copy of a Conversion Notice, the Borrower (A) shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to the Lender and the Borrower’s designated transfer agent (the “Transfer Agent”), which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein, and (B) on or before the second (2nd) Business Day following the date of receipt or deemed receipt by the Borrower of such Conversion Notice (or, if earlier, the end of the standard settlement period for U.S. broker-dealer securities transactions) (the “Share Delivery Date”), shall credit such aggregate number of Conversion Shares to which the Lender shall be entitled to the Lender’s or its designee’s balance account with The Depository Trust Company (“DTC”) through its Deposit/Withdrawal At Custodian (DWAC) system, for the number of Conversion Shares to which the Lender shall be entitled. If notwithstanding the provisions of Section 2(c)(vi), the Lender elects to physically surrender this Note for conversion and the Principal represented by this Note is greater than the Principal being converted, then the Borrower shall, as soon as practicable and in no event later than three (3) Business Days after

 

5


receipt of this Note and at its own expense, issue and deliver to the Lender a new Note representing the Principal not converted and cancel this Note. For purposes of Rule 144 under the Securities Act, any Conversion Shares issued to Lender shall be deemed to have been acquired by such Lender on April 3, 2017 (the date this Note was originally issued). Accordingly, (A) upon any conversion of this Note, the Rule 144 holding period for the Conversion Shares acquired thereupon shall be in excess of one (1) year, and (B) provided the Lender is not an Affiliate of the Borrower on the Conversion Date and has not been an Affiliate of the Borrower within the three-month period immediately preceding the Conversion Date (the “Unrestricted Condition”), which the Borrower shall assume and Lender hereby represents unless the Lender advises the Borrower otherwise in writing, the Conversion Shares issued to Lender will be freely transferable, without restriction or limitation (including any volume limitation) under Federal or state securities laws, pursuant to Rule 144 under the Securities Act and will not contain or be subject to a legend or stop transfer order restricting the resale or transferability of thereof.

(iii) Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price or the arithmetic calculation of the Conversion Rate, the Borrower shall instruct the Transfer Agent to issue to the Lender the number of Conversion Shares that is not disputed and shall transmit an explanation of the disputed determinations or arithmetic calculations to the Lender via facsimile within two (2) Business Days of receipt or deemed receipt of the Lender’s Conversion Notice or other date of determination. If the Lender and the Borrower are unable to agree upon the determination of the Conversion Price or arithmetic calculation of the Conversion Rate within one (1) Business Day of such disputed determination or arithmetic calculation being transmitted to the Lender, then the Borrower shall promptly (and in any event within two (2) Business Days) submit via facsimile (A) the disputed determination of the Conversion Price to an independent, reputable investment banking firm agreed to by the Borrower and the Required Lenders, or (B) the disputed arithmetic calculation of the Conversion Rate to the Borrower’s independent registered public accounting firm, as the case may be. The Borrower shall direct the investment bank or the accounting firm, as the case may be, to perform the determinations or calculations and notify the Borrower and the Lender of the results no later than two (2) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accounting firm’s determination or calculation, as the case may be, shall be binding upon all parties absent manifest error, and the fees and expenses of such investment bank or accountant shall be paid one-half by the Borrower and one-half by the Lender. Notwithstanding the existence of a dispute contemplated by this paragraph, if requested by the Lender, the Borrower shall issue to the Lender the Conversion Shares not in dispute in accordance with the terms hereof.

(iv) Record Holder. The person or persons entitled to receive the Conversion Shares issuable upon a conversion of this Note shall be treated for all purposes as the legal and record holder or holders of such shares of Common Stock upon delivery by the Lender of the Conversion Notice, or in the case of Conversion Shares the issuance of which is subject to a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(c)(iii), the first Business Day after the resolution of such bona fide dispute.

(v) Borrower’s Failure to Timely Convert.

 

6


(A) Cash Damages. If by the Share Delivery Date, the Borrower shall fail to credit the Lender’s or its designee’s balance account with DTC with the number of Conversion Shares (free of any restrictive legend, provided the Unrestricted Condition is satisfied), then, in addition to all other available remedies that the Lender may pursue hereunder and under the Facility Agreement, the Borrower shall pay additional damages to the Lender for each day after the Share Delivery Date such conversion is not timely effected in an amount equal to one and one-half percent (1.5%) of the product of (I) the number of Conversion Shares not issued to the Lender or its designee on or prior to the Share Delivery Date and to which the Lender is entitled and (II) the Volume Weighted Average Price of the Common Stock on the Share Delivery Date. Alternatively in lieu of the foregoing damages, subject to Section 2(c)(iii), at the written election of the Lender made in the Lender’s sole discretion, if, on or after the applicable Conversion Date, the Lender purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Lender of Conversion Shares that such Lender anticipated receiving from the Borrower (such purchased shares, “Buy-In Shares”), the Borrower shall be obligated to promptly pay to such Lender (in addition to all other available remedies that the Lender may otherwise have), 110% of the amount by which (A) such Lender’s total purchase price (including brokerage commissions, if any) for such Buy-In Shares exceeds (B) the net proceeds received by such Lender from the sale of a number of shares equal to up to the number of Conversion Shares such Lender was entitled to receive but had not received on the Share Delivery Date. If the Borrower fails to pay the additional damages set forth in this Section 2(c)(v)(A) within five (5) Business Days of the date incurred, then the Lender entitled to such payments shall have the right at any time, so long as the Borrower continues to fail to make such payments, to require the Borrower, upon written notice, to immediately issue, in lieu of such cash damages, the number of shares of Common Stock equal to the quotient of (X) the aggregate amount of the damages payments described herein divided by (Y) the Conversion Price specified by the Lender in the Conversion Notice.

(B) Conversion Failure. If for any reason the Lender has not received all of the Conversion Shares it is entitled to prior to the tenth (10th) Business Day after the Share Delivery Date with respect to a conversion of this Note (a “Conversion Failure”), then the Lender, upon written notice to the Borrower (a “Void Conversion Notice”), may void its conversion with respect to, and retain or have returned, as the case may be, any portion of this Note that has not been converted pursuant to the Lender’s Conversion Notice; provided, that the voiding of the Lender’s Conversion Notice shall not affect the Borrower’s obligations to make any payments that have accrued prior to the date of such notice pursuant to Section 2(c)(v)(A) or otherwise. A Conversion Failure shall constitute an Event of Default under the Facility Agreement and entitle the Lenders to all payments and remedies provided under the Facility Agreement upon the occurrence of an Event of Default.

(vi) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion or repayment of this Note in accordance with the terms hereof, the Lender shall not be required to physically surrender this Note to the Borrower unless all of the Principal is being converted or repaid. The Lender and the Borrower shall maintain records showing the Principal converted or repaid and the dates of such conversions or repayments or shall use such other method, reasonably satisfactory to the Lender and the Borrower, so as not to require physical surrender of this Note upon any such partial conversion or repayment. Notwithstanding the foregoing, if this Note is converted or repaid as aforesaid, the Lender may

 

7


not transfer this Note unless the Lender first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Lender a new Note of like tenor, registered as the Lender may request, representing in the aggregate the remaining Principal represented by this Note. The Lender and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion or repayment of any portion of this Note, the Principal of this Note may be less than the “Principal Amount” stated on the face hereof.

(d) Limitations on Conversions.

(i) Beneficial Ownership. Notwithstanding anything herein to the contrary, the Borrower shall not issue to the Lender, and the Lender may not acquire, a number of shares of Common Stock upon conversion of this Note or otherwise issue any shares of Common Stock pursuant hereto or the Facility Agreement to the extent that, upon such conversion, the number of shares of Common Stock then beneficially owned by the Lender and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Lender’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which the Lender is a member, but excluding shares beneficially owned by virtue of the ownership of the Warrants or other securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) would exceed 4.985% of the total number of shares of common stock then issued and outstanding (the “4.985% Cap”); provided, however, that the 4.985% Cap shall only apply to the extent that the Common Stock is deemed to constitute an “equity security” pursuant to Rule 13d-1(i) promulgated under the Exchange Act. For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the SEC, and the percentage held by the Lender shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Upon the written request of the Lender, the Borrower shall, within two (2) Trading Days, confirm orally and in writing to the Lender the number of shares of Common Stock then outstanding.

(ii) Conversion Issuance Limit. Notwithstanding anything to the contrary contained herein, the Borrower shall not issue any shares of Common Stock upon conversion of this Note (including pursuant to Section 2(c)(v)(A) hereof) to the extent that the issuance of such shares of Common Stock together with any previous issuances of shares of Common Stock under this Note would exceed the Conversion Issuance Limit, and Section 2.5(c)(v) shall not apply in respect to any excess amount.

(iii) Other Applicable Limitations on Conversion of the Note. Notwithstanding anything to the contrary herein, this Note shall not be convertible, and the Borrower shall not issue shares of Common Stock upon conversion of this Note (a) at any time after the First Amortization Date, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares of Common Stock previously issued to Lender upon conversion of this Note after the First Amortization Date, would exceed the First Amortization Cap, or (b) at any time after the Second Amortization Date, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares of Common Stock previously issued to Lender upon conversion of this Note after the Second Amortization

 

8


Date, would exceed the Second Amortization Cap, or (c) during any Monthly Conversion Cap Period, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares previously issued to Lender upon conversion of this Note during the such Monthly Conversion Cap Period, would exceed the Monthly Conversion Cap. For the avoidance of doubt, if the number of shares of Common Stock to be issued as set forth in an Conversion Notice transmitted by the Lender to the Borrower would otherwise require the Borrower to issue a number of shares in excess of the Conversion Issuance Limit, the First Amortization Cap (if after the First Amortization Date), the Second Amortization Cap (if after the Second Amortization Date) or the Monthly Share Cap, the Borrower shall issue to the Lender in accordance herewith the maximum number of shares of Common Stock issuable without exceeding any such applicable limitation, and Section 2.5(c)(v) shall not apply to any excess amount.

3. Voting Rights. Except as required by law, the Lender shall have no voting rights with respect to any of the Conversion Shares until the Conversion Date relating to the conversion of this Note upon which such Conversion Shares are issuable (or in the case of Conversion Shares the issuance of which is subject to a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(c)(iii), the first Business Day after the resolution of such bona fide dispute).

4. Amendment; Waiver. The provisions of this Note may only be waived or amended, restated, supplemented or otherwise modified in accordance with the Facility Agreement.

5. Specific Shall Not Limit General; Construction. No specific provision contained in this Note shall limit or modify any more general provision contained herein. This Note shall be deemed to be jointly drafted by the Borrower and all Lenders pursuant to the Facility Agreement and shall not be construed against any Person as the drafter hereof.

6. Failure or Indulgence Not Waiver. No delay or omission by the Lender in exercising any power or right hereunder shall impair such right or power or be construed to be a waiver of any default, nor shall any single or partial exercise of any power or right hereunder preclude the full exercise thereof or the exercise of any other power or right. No renewal or extension of this Note or the Facility Agreement, no delay in the enforcement of payment under this Note or the Facility Agreement, and no delay or omission in exercising any right or power under this Note or the Facility Agreement shall affect the liability of the Borrower or any endorser of this Note.

7. Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 6.1 of the Facility Agreement.

8. Restrictions on Transfer.

(a) Registration or Exemption Required. This Note has been issued in a transaction exempt from the registration requirements of the Securities Act. None of the Note or

 

9


the Conversion Shares issued hereunder may be transferred, sold, assigned, hypothecated or otherwise disposed of except pursuant to an effective registration statement or an exemption to the registration requirements of the Securities Act and applicable state laws, including Rule 144 under the Securities Act, Section 4(a)(7) of the Securities Act or a so-called “4[(a)](1) and a half” transaction.

(b) Assignment. This Note is assignable or transferable, in whole or in part, only to the extent such assignment or transfer is permitted pursuant to the terms of the Facility Agreement; provided that (i) the Lender shall deliver a written notice to the Borrower, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the Person or Persons to whom the Note shall be assigned and the respective Principal amount of the Note to be assigned to each assignee. The Borrower shall effect the assignment within three (3) business days, and shall deliver to the assignee(s) designated by the Lender a Note or Notes of like tenor and terms for the appropriate Principal amount. This Note and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Lender. The provisions of this Note are intended to be for the benefit of all Lenders from time to time of this Note, and shall be enforceable by any such Lender. This Note is not (and any rights or obligations hereunder are not) not assignable or transferable by the Borrower under any circumstance and any such prohibited assignment or transfer is absolutely void ab initio.

9. Payment of Collection, Enforcement and Other Costs. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; or (b) an attorney is retained to represent the Lender in any bankruptcy, reorganization, receivership of the Borrower or other proceedings affecting Borrower creditors’ rights and involving a claim under this Note, then the Borrower shall pay the costs incurred by the Lender for such collection, enforcement or action, including reasonable attorneys’ fees and disbursements. Subject to the terms of the Facility Agreement, all payments and issuances of shares of Common Stock hereunder will be free and clear of, and without deduction or withholding for, any present or future taxes. The Borrower shall pay all and any costs (administrative or otherwise) imposed by the Borrower’s banks, clearing houses, or any other financial institution, in connection with making any payments and issuing any shares of Common Stock hereunder. The Borrower shall pay all costs and expenses (including attorney’s fees) of the Lender incurred in connection with this Note in accordance with Section 6.3 of the Facility Agreement.

10. Waiver of Notice. Other than those notices required to be provided by the Lender to the Borrower under the terms of the Facility Agreement, the Borrower and every endorser of this Note, or the obligations represented hereby, expressly waives diligence, presentment, protest, demand, notice of dishonor, non-payment or default, and notice of any kind with respect to this Note and the Facility Agreement or the performance of the obligations under this Note and/or the Facility Agreement.

11. Miscellaneous. This Note is a Loan Document, is entitled to the benefits of the Loan Documents and is subject to certain provisions of the Facility Agreement, including Sections 1.2 (Interpretation) and 6.4 (Governing Law; Venue; Jurisdiction; Service of Process; Waiver of Jury Trial) thereof.

 

10


12. Additional Interpretative Matters. Unless the context otherwise requires, (a) all references to Sections or Exhibits are to Sections or Exhibits contained in or attached to this Note, (b) each accounting term not otherwise defined in this Note has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (d) the use of the word “including” in this Note shall be by way of example rather than limitation. If a Stock Event occurs during any period over which an average price is being determined, then an appropriate adjustment will be made to such average to reflect such Stock Event.

13. Signatures. In the event that any signature to this Note or any amendment hereto is delivered by electronic mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof. Notwithstanding the foregoing, the Borrower shall be obligated to deliver to the Lender an original signature to this Note. At the request of any party, each other party shall promptly re-execute an original form of this Note or any amendment hereto and deliver the same to the other party. No party hereto shall raise the use of electronic mail delivery of a “.pdf” format data file to deliver a signature to this Note or any amendment hereto or the fact that such signature was transmitted or communicated through the use of electronic mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract, and each party hereto forever waives any such defense.

14. This Note is an amendment and restatement of that certain Loan Note originally issued on April 3, 2017, in the principal amount of $40,000,000.00 (the “Prior Note”) and evidences an extension, continuation, and renewal of the indebtedness evidenced by the Prior Note, but this Note replaces the Prior Note with the indebtedness evidenced by the Prior Note now evidenced by this Note. Such Prior Note shall be of no further force and effect upon execution of this Note. The Borrower hereby acknowledges and agrees that the indebtedness under the Prior Note has not been repaid or extinguished and that the execution hereof does not constitute a novation of the Prior Note. Moreover, this Note shall be entitled to all security and collateral to which the Prior Note was entitled, without change or diminution in the priority of any lien or security interest granted to secure the Prior Note.

[Signature Page Follows]

 

11


IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered by its duly authorized officer as of the day and year set forth above.

 

ENDOLOGIX, INC.,

a Delaware corporation

By: /s/ Vaseem Mahboob                                    
Name: Vaseem Mahboob
Title: Chief Financial Officer

 

12


Exhibit A

CONVERSION NOTICE

Reference is made to the First Out Waterfall Note (the “Note”) of ENDOLOGIX, INC., a Delaware corporation (the “Borrower”), in the original principal amount of $40,000,000.00. In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of common stock, par value $0.001 per share (the “Common Stock”), of the Borrower, as of the date specified below.

Date of Conversion:                                 

Aggregate Conversion Amount to be converted at the Conversion Price (as defined in the Note):

 

                                                                          

Principal, applicable thereto, to be converted:                                                                          

Please confirm the following information:

Conversion Price:                                                                                                                                                    

Number of shares of Common Stock to be issued:                                                                                                   

Please issue the Common Stock into which the Note is being converted in the following name and to the following address:

Issue to:                                                                                                                                                                      

Facsimile Number:                                                                                                                                                    

Authorization:                                                                              

By:                                                                            

Title:                                                                          

Dated:                                                                                       

DTC Participant Number and Name:                                                                                                                                      

Account Number:                                                                                                                                                                    

 

13


Exhibit B

ASSIGNMENT

(To be executed by the registered holder

desiring to transfer the Note)

FOR VALUE RECEIVED, the undersigned holder of the attached First Out Waterfall Note (the “Note”) hereby sells, assigns and transfers unto the person or persons below named the right to receive the principal amount of $                 from Endologix, Inc., a Delaware corporation (the “Borrower”), evidenced by the attached Note and does hereby irrevocably constitute and appoint                 attorney to transfer the said Note on the books of the Borrower, with full power of substitution in the premises.

 

Dated:                                                  

 

    Signature
Fill in for new registration of Note:    

 

   
Name    

 

   
Address    

 

   
Please print name and address of assignee    
(including zip code number)    

NOTICE

The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached Note.

 

14

EX-4.6

Exhibit 4.6

FIRST OUT WATERFALL NOTE

THE SECURITIES REPRESENTED BY THIS NOTE (AS DEFINED BELOW) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN, FINANCING OR INDEBTEDNESS ARRANGEMENT SECURED BY THE SECURITIES.

THE FOLLOWING INFORMATION IS PROVIDED PURSUANT TO TREAS. REG. SECTION 1.1275-3: THE BORROWER (AS DEFINED BELOW) WILL MAKE AVAILABLE ON REQUEST TO HOLDER(S) OF THIS NOTE THE FOLLOWING INFORMATION: ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE AND YIELD TO MATURITY. THIS NOTE IS BEING AMENDED AND RESTATED AS PART OF AND PURSUANT TO A PLAN OF RECAPITALIZATION AND REORGANIZATION OF THE BORROWER DESCRIBED IN SECTION 368(A)(1)(E) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.

FIRST OUT WATERFALL NOTE

 

First Out Waterfall Lender: Deerfield Partners, L.P.    Original Issue Date: April 3, 2017
Principal Amount: $22,320,000.00    Re-Issuance Date: January 1, 2018
   Amendment and Restatement Date: August 9, 2018

FOR VALUE RECEIVED, the undersigned, Endologix, Inc., a Delaware corporation (the “Borrower”), hereby unconditionally promises to pay to the First Out Waterfall Lender set forth above (the “Lender”) the “Principal Amount” set forth above, or, if less, the aggregate unpaid Principal (as defined below) amount of the First Out Waterfall Loan (as defined in the Facility Agreement referred to below) of the Lender to the Borrower, payable at such times and in such amounts as are specified in the Facility Agreement.

The Borrower promises to pay interest on the outstanding Principal amount of the First Out Waterfall Loan and any overdue interest from and after the Amendment and Restatement Date (as defined below) until such outstanding Principal amount of the First Out Waterfall Loan and any overdue interest are paid in full, payable at such times and at such interest rates as are specified in the Facility Agreement. The Borrower promises to pay any Non-Callable Make Whole Amount, any CoC Fee and the First Out Waterfall Exit Payment (each, as defined in the Facility Agreement) that is due on the First Out Waterfall Loan in accordance with the Facility Agreement.

 

1


In lieu of making any payment of interest in cash (but not (i) interest payable pursuant to the second sentence of Section 2.6(a) of Facility Agreement, (ii) interest payable-in-kind or (iii) in connection with any Event of Default or late payment hereunder or any other interest payable pursuant to Section 2.7 of the Facility Agreement) and subject to the conditions set forth in Section 2.6 of the Facility Agreement and Exhibit 2.6 to the Facility Agreement, the Borrower may elect to satisfy all or any such payment by the issuance to the Lender of shares of Freely Tradable Common Shares (as defined in Exhibit 2.6) in accordance with the provisions of Exhibit 2.6.

This First Out Waterfall Note (this “Note”) was originally issued on April 3, 2017, reissued on January 1, 2018, and amended and restated on August 9, 2018 (the “Amendment and Restatement Date”) and is one of the “First Out Waterfall Notes”, “Loan Notes” and “Notes” referred to in, and is entitled to the benefits of, the Amended and Restated Facility Agreement, dated as of August 9, 2018 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Facility Agreement”), by and among the Borrower, the other Loan Parties party thereto, the Lenders party thereto and Deerfield Private Design Fund IV, L.P., as agent for the Secured Parties, and the other Loan Documents.

The Facility Agreement, among other things, (a) provides for the making of a First Out Waterfall Loan by the Lender to the Borrower in an aggregate amount not to exceed at any time outstanding the “Principal Amount” set forth above, the indebtedness of the Borrower resulting from such First Out Waterfall Loan being evidenced by this Note and (b) contains provisions for acceleration of the maturity of the unpaid Principal amount of this Note upon the happening of certain stated events and also for prepayments pursuant to Section 2.3(c) or Section 5.3 of the Facility Agreement on account of the Principal hereof prior to the maturity hereof upon the terms and conditions specified therein.

1. Definitions.

(a) Certain Defined Terms. Capitalized terms used herein without definition are used as defined in the Facility Agreement. For purposes of this Note, the following terms shall have the following meanings:

(i) “Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Lender, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Lender will be deemed to be an Affiliate of such Lender. As used in this definition of “Affiliate,” the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other ownership interest, by contract, or otherwise.

(ii) “Common Stock” means the fully paid and nonassessable shares of the Borrower’s common stock, $0.001 par value per share.

 

2


(iii) “Conversion Amount” means the Principal amount to be converted.

(iv) “Conversion Date” means the date of delivery via facsimile or electronic mail of a Conversion Notice.

(v) “Conversion Issuance Limit” means 2,659,800 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(vi) “Conversion Price” means, as of any Conversion Date, ninety-six percent (96%) of the arithmetic average of the Volume Weighted Average Prices per share of Common Stock on each of the three (3) Trading Days period preceding the Conversion Date (the “Measurement Period”); provided, that in the event that a stock split, stock combination, reclassification, payment of stock dividend, recapitalization or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or small number of shares (a “Stock Event”) is consummated during the Measurement Period, the Volume Weighted Average Price for all Trading Days during the Measurement Period prior to the effectiveness of such Stock Event shall be appropriately adjusted to reflect such Stock Event, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(vii) “Conversion Shares” means fully paid and nonassessable shares of Common Stock issued in connection with the conversion of a Note.

(viii) “First Amortization Cap” means 1,767,000 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(ix) “First Amortization Date” means April 2, 2021.

(x) “Market Disruption Event” means, with respect to any Trading Day and any security of Borrower, (a) a failure by the Principal Market to open for trading during its entire regular trading session, (b) the occurrence or existence prior to 1:00 p.m., New York City time, on such day for such securities of Borrower for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant securities exchange or otherwise) in such securities or in any options, contracts or future contracts relating to such securities, or (c) to the extent “Volume Weighted Average Price” is determined in accordance with clause (b) of the definition thereof, the suspension of trading for the one-half hour period ending on the scheduled close of trading on such day (by reason of movements in price exceeding limits permitted by the stock exchange or otherwise) in such securities of Borrower.

(xi) “Monthly Conversion Cap” means 967,200 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

 

3


(xii) “Monthly Conversion Cap Period” means the period commencing on the Amendment and Restatement Date and ending on (and including) August 31, 2018, and each calendar month that begins after the Amendment and Restatement Date and prior to the Maturity Date.

(xiii) “Principal” means the outstanding principal amount of this Note as of any date of determination.

(xiv) “Required Lenders” means the Required First Out Waterfall Lenders.

(xv) “Second Amortization Cap” means 892,800 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(xvi) “Second Amortization Date” means April 2, 2022.

(xvii) “Trading Day” means any day on which the Common Stock is traded for any period on the Principal Market; provided, that for purposes of the definition of “Conversion Shares,” Trading Day shall not include any Trading Day on which there is a Market Disruption Event.

(xviii) “Volume Weighted Average Price” for any security as of any Trading Day means (a) the volume weighted average sale price of such security on the principal U.S. national or regional securities exchange on which such security is traded as reported by Bloomberg Financial Markets or an equivalent, reliable reporting service mutually acceptable to and hereinafter designated by the Required Lenders and the Borrower (“Bloomberg”), or (b) if no volume weighted average sale price is reported for such security, then the closing price per share of such security, or, if no closing price per share is reported for such security by Bloomberg, the average of the last bid and last ask price (or if more than one in either case, the average of the average last bid and average last ask prices) on such Trading Day as reported in the composite transactions for the principal U.S. national or regional securities exchange on which such security is traded. If the security is not listed for trading on a U.S. national or regional securities exchange on the relevant Trading Day, then the Volume Weighted Average Price will be the average of the mid-point of the last bid and last ask prices of the security in the over-the-counter market on the relevant Trading Day as reported by OTC Markets Group or similar organization. If the Volume Weighted Average Price cannot be calculated for such security on such date in the manner provided above, the Volume Weighted Average Price shall be the fair market value as mutually determined by the Borrower and the Lenders holding a majority of the aggregate outstanding Principal amount of the Notes being converted for which the calculation of the Volume Weighted Average Price is required in order to determine the Conversion Price of such Notes. Volume Weighted Average Price will be determine without regard to after-hours trading or any other trading outside of the regular trading hours.

2. Conversion Rights. This Note may be converted into shares of Common Stock on the terms and conditions set forth in this Section 2 (subject to Section 2.3(a) of the Facility Agreement).

 

4


(a) Conversion at Option of the Lender. At any time during the period commencing on (and including) the Amendment and Restatement Date and ending on the close of business on the second business day immediately prior to the Maturity Date, the Lender shall be entitled to convert all or any part of the Principal into Conversion Shares in accordance with this Section 2 at the Conversion Rate (as defined in Section 2(b)). The Borrower shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, then the Borrower shall round such fraction of a share of Common Stock up or down to the nearest whole share (with 0.5 rounded up).

(b) Conversion Rate. The number of Conversion Shares issuable upon a conversion of any portion of this Note pursuant to Section 2 shall be determined according to the following formula (the “Conversion Rate”):

Conversion Amount

Conversion Price

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

(i) Lender’s Delivery Requirements. To convert a Conversion Amount into Conversion Shares pursuant to Section 2(a) above on any date, Lender shall (A) transmit by facsimile or electronic mail (or otherwise deliver), for receipt on or prior to 5:00 p.m. New York City time on such date, a copy of an executed conversion notice in the form attached hereto as Exhibit A (the “Conversion Notice”) to the Borrower (at 2 Musick, Irvine, CA 92618, Attention: Chief Financial Officer; Email: vmahboob@endologix.com, or at such other office or agency as the Borrower may designate in writing), and (B) if required by Section 2(c)(vi), surrender to a common carrier for delivery to the Borrower, no later than three (3) Business Days after the Conversion Date, of the original Note being converted (or an indemnification undertaking in customary form with respect to this Note in the case of its loss, theft or destruction).

(ii) Borrower’s Response. Upon receipt or deemed receipt by the Borrower of a copy of a Conversion Notice, the Borrower (A) shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to the Lender and the Borrower’s designated transfer agent (the “Transfer Agent”), which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein, and (B) on or before the second (2nd) Business Day following the date of receipt or deemed receipt by the Borrower of such Conversion Notice (or, if earlier, the end of the standard settlement period for U.S. broker-dealer securities transactions) (the “Share Delivery Date”), shall credit such aggregate number of Conversion Shares to which the Lender shall be entitled to the Lender’s or its designee’s balance account with The Depository Trust Company (“DTC”) through its Deposit/Withdrawal At Custodian (DWAC) system, for the number of Conversion Shares to which the Lender shall be entitled. If notwithstanding the provisions of Section 2(c)(vi), the Lender elects to physically surrender this Note for conversion and the Principal represented by this Note is greater than the Principal being converted, then the Borrower shall, as soon as practicable and in no event later than three (3) Business Days after

 

5


receipt of this Note and at its own expense, issue and deliver to the Lender a new Note representing the Principal not converted and cancel this Note. For purposes of Rule 144 under the Securities Act, any Conversion Shares issued to Lender shall be deemed to have been acquired by such Lender on April 3, 2017 (the date this Note was originally issued). Accordingly, (A) upon any conversion of this Note, the Rule 144 holding period for the Conversion Shares acquired thereupon shall be in excess of one (1) year, and (B) provided the Lender is not an Affiliate of the Borrower on the Conversion Date and has not been an Affiliate of the Borrower within the three-month period immediately preceding the Conversion Date (the “Unrestricted Condition”), which the Borrower shall assume and Lender hereby represents unless the Lender advises the Borrower otherwise in writing, the Conversion Shares issued to Lender will be freely transferable, without restriction or limitation (including any volume limitation) under Federal or state securities laws, pursuant to Rule 144 under the Securities Act and will not contain or be subject to a legend or stop transfer order restricting the resale or transferability of thereof.

(iii) Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price or the arithmetic calculation of the Conversion Rate, the Borrower shall instruct the Transfer Agent to issue to the Lender the number of Conversion Shares that is not disputed and shall transmit an explanation of the disputed determinations or arithmetic calculations to the Lender via facsimile within two (2) Business Days of receipt or deemed receipt of the Lender’s Conversion Notice or other date of determination. If the Lender and the Borrower are unable to agree upon the determination of the Conversion Price or arithmetic calculation of the Conversion Rate within one (1) Business Day of such disputed determination or arithmetic calculation being transmitted to the Lender, then the Borrower shall promptly (and in any event within two (2) Business Days) submit via facsimile (A) the disputed determination of the Conversion Price to an independent, reputable investment banking firm agreed to by the Borrower and the Required Lenders, or (B) the disputed arithmetic calculation of the Conversion Rate to the Borrower’s independent registered public accounting firm, as the case may be. The Borrower shall direct the investment bank or the accounting firm, as the case may be, to perform the determinations or calculations and notify the Borrower and the Lender of the results no later than two (2) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accounting firm’s determination or calculation, as the case may be, shall be binding upon all parties absent manifest error, and the fees and expenses of such investment bank or accountant shall be paid one-half by the Borrower and one-half by the Lender. Notwithstanding the existence of a dispute contemplated by this paragraph, if requested by the Lender, the Borrower shall issue to the Lender the Conversion Shares not in dispute in accordance with the terms hereof.

(iv) Record Holder. The person or persons entitled to receive the Conversion Shares issuable upon a conversion of this Note shall be treated for all purposes as the legal and record holder or holders of such shares of Common Stock upon delivery by the Lender of the Conversion Notice, or in the case of Conversion Shares the issuance of which is subject to a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(c)(iii), the first Business Day after the resolution of such bona fide dispute.

(v) Borrower’s Failure to Timely Convert.

 

6


(A) Cash Damages. If by the Share Delivery Date, the Borrower shall fail to credit the Lender’s or its designee’s balance account with DTC with the number of Conversion Shares (free of any restrictive legend, provided the Unrestricted Condition is satisfied), then, in addition to all other available remedies that the Lender may pursue hereunder and under the Facility Agreement, the Borrower shall pay additional damages to the Lender for each day after the Share Delivery Date such conversion is not timely effected in an amount equal to one and one-half percent (1.5%) of the product of (I) the number of Conversion Shares not issued to the Lender or its designee on or prior to the Share Delivery Date and to which the Lender is entitled and (II) the Volume Weighted Average Price of the Common Stock on the Share Delivery Date. Alternatively in lieu of the foregoing damages, subject to Section 2(c)(iii), at the written election of the Lender made in the Lender’s sole discretion, if, on or after the applicable Conversion Date, the Lender purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Lender of Conversion Shares that such Lender anticipated receiving from the Borrower (such purchased shares, “Buy-In Shares”), the Borrower shall be obligated to promptly pay to such Lender (in addition to all other available remedies that the Lender may otherwise have), 110% of the amount by which (A) such Lender’s total purchase price (including brokerage commissions, if any) for such Buy-In Shares exceeds (B) the net proceeds received by such Lender from the sale of a number of shares equal to up to the number of Conversion Shares such Lender was entitled to receive but had not received on the Share Delivery Date. If the Borrower fails to pay the additional damages set forth in this Section 2(c)(v)(A) within five (5) Business Days of the date incurred, then the Lender entitled to such payments shall have the right at any time, so long as the Borrower continues to fail to make such payments, to require the Borrower, upon written notice, to immediately issue, in lieu of such cash damages, the number of shares of Common Stock equal to the quotient of (X) the aggregate amount of the damages payments described herein divided by (Y) the Conversion Price specified by the Lender in the Conversion Notice.

(B) Conversion Failure. If for any reason the Lender has not received all of the Conversion Shares it is entitled to prior to the tenth (10th) Business Day after the Share Delivery Date with respect to a conversion of this Note (a “Conversion Failure”), then the Lender, upon written notice to the Borrower (a “Void Conversion Notice”), may void its conversion with respect to, and retain or have returned, as the case may be, any portion of this Note that has not been converted pursuant to the Lender’s Conversion Notice; provided, that the voiding of the Lender’s Conversion Notice shall not affect the Borrower’s obligations to make any payments that have accrued prior to the date of such notice pursuant to Section 2(c)(v)(A) or otherwise. A Conversion Failure shall constitute an Event of Default under the Facility Agreement and entitle the Lenders to all payments and remedies provided under the Facility Agreement upon the occurrence of an Event of Default.

(vi) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion or repayment of this Note in accordance with the terms hereof, the Lender shall not be required to physically surrender this Note to the Borrower unless all of the Principal is being converted or repaid. The Lender and the Borrower shall maintain records showing the Principal converted or repaid and the dates of such conversions or repayments or shall use such other method, reasonably satisfactory to the Lender and the Borrower, so as not to require physical surrender of this Note upon any such partial conversion or repayment. Notwithstanding the foregoing, if this Note is converted or repaid as aforesaid, the Lender may

 

7


not transfer this Note unless the Lender first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Lender a new Note of like tenor, registered as the Lender may request, representing in the aggregate the remaining Principal represented by this Note. The Lender and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion or repayment of any portion of this Note, the Principal of this Note may be less than the “Principal Amount” stated on the face hereof.

(d) Limitations on Conversions.

(i) Beneficial Ownership. Notwithstanding anything herein to the contrary, the Borrower shall not issue to the Lender, and the Lender may not acquire, a number of shares of Common Stock upon conversion of this Note or otherwise issue any shares of Common Stock pursuant hereto or the Facility Agreement to the extent that, upon such conversion, the number of shares of Common Stock then beneficially owned by the Lender and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Lender’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which the Lender is a member, but excluding shares beneficially owned by virtue of the ownership of the Warrants or other securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) would exceed 4.985% of the total number of shares of common stock then issued and outstanding (the “4.985% Cap”); provided, however, that the 4.985% Cap shall only apply to the extent that the Common Stock is deemed to constitute an “equity security” pursuant to Rule 13d-1(i) promulgated under the Exchange Act. For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the SEC, and the percentage held by the Lender shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Upon the written request of the Lender, the Borrower shall, within two (2) Trading Days, confirm orally and in writing to the Lender the number of shares of Common Stock then outstanding.

(ii) Conversion Issuance Limit. Notwithstanding anything to the contrary contained herein, the Borrower shall not issue any shares of Common Stock upon conversion of this Note (including pursuant to Section 2(c)(v)(A) hereof) to the extent that the issuance of such shares of Common Stock together with any previous issuances of shares of Common Stock under this Note would exceed the Conversion Issuance Limit, and Section 2.5(c)(v) shall not apply in respect to any excess amount.

(iii) Other Applicable Limitations on Conversion of the Note. Notwithstanding anything to the contrary herein, this Note shall not be convertible, and the Borrower shall not issue shares of Common Stock upon conversion of this Note (a) at any time after the First Amortization Date, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares of Common Stock previously issued to Lender upon conversion of this Note after the First Amortization Date, would exceed the First Amortization Cap, or (b) at any time after the Second Amortization Date, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares of Common Stock previously issued to Lender upon conversion of this Note after the Second Amortization

 

8


Date, would exceed the Second Amortization Cap, or (c) during any Monthly Conversion Cap Period, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares previously issued to Lender upon conversion of this Note during the such Monthly Conversion Cap Period, would exceed the Monthly Conversion Cap. For the avoidance of doubt, if the number of shares of Common Stock to be issued as set forth in an Conversion Notice transmitted by the Lender to the Borrower would otherwise require the Borrower to issue a number of shares in excess of the Conversion Issuance Limit, the First Amortization Cap (if after the First Amortization Date), the Second Amortization Cap (if after the Second Amortization Date) or the Monthly Share Cap, the Borrower shall issue to the Lender in accordance herewith the maximum number of shares of Common Stock issuable without exceeding any such applicable limitation, and Section 2.5(c)(v) shall not apply to any excess amount.

3. Voting Rights. Except as required by law, the Lender shall have no voting rights with respect to any of the Conversion Shares until the Conversion Date relating to the conversion of this Note upon which such Conversion Shares are issuable (or in the case of Conversion Shares the issuance of which is subject to a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(c)(iii), the first Business Day after the resolution of such bona fide dispute).

4. Amendment; Waiver. The provisions of this Note may only be waived or amended, restated, supplemented or otherwise modified in accordance with the Facility Agreement.

5. Specific Shall Not Limit General; Construction. No specific provision contained in this Note shall limit or modify any more general provision contained herein. This Note shall be deemed to be jointly drafted by the Borrower and all Lenders pursuant to the Facility Agreement and shall not be construed against any Person as the drafter hereof.

6. Failure or Indulgence Not Waiver. No delay or omission by the Lender in exercising any power or right hereunder shall impair such right or power or be construed to be a waiver of any default, nor shall any single or partial exercise of any power or right hereunder preclude the full exercise thereof or the exercise of any other power or right. No renewal or extension of this Note or the Facility Agreement, no delay in the enforcement of payment under this Note or the Facility Agreement, and no delay or omission in exercising any right or power under this Note or the Facility Agreement shall affect the liability of the Borrower or any endorser of this Note.

7. Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 6.1 of the Facility Agreement.

8. Restrictions on Transfer.

(a) Registration or Exemption Required. This Note has been issued in a transaction exempt from the registration requirements of the Securities Act. None of the Note or

 

9


the Conversion Shares issued hereunder may be transferred, sold, assigned, hypothecated or otherwise disposed of except pursuant to an effective registration statement or an exemption to the registration requirements of the Securities Act and applicable state laws, including Rule 144 under the Securities Act, Section 4(a)(7) of the Securities Act or a so-called “4[(a)](1) and a half” transaction.

(b) Assignment. This Note is assignable or transferable, in whole or in part, only to the extent such assignment or transfer is permitted pursuant to the terms of the Facility Agreement; provided that (i) the Lender shall deliver a written notice to the Borrower, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the Person or Persons to whom the Note shall be assigned and the respective Principal amount of the Note to be assigned to each assignee. The Borrower shall effect the assignment within three (3) business days, and shall deliver to the assignee(s) designated by the Lender a Note or Notes of like tenor and terms for the appropriate Principal amount. This Note and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Lender. The provisions of this Note are intended to be for the benefit of all Lenders from time to time of this Note, and shall be enforceable by any such Lender. This Note is not (and any rights or obligations hereunder are not) not assignable or transferable by the Borrower under any circumstance and any such prohibited assignment or transfer is absolutely void ab initio.

9. Payment of Collection, Enforcement and Other Costs. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; or (b) an attorney is retained to represent the Lender in any bankruptcy, reorganization, receivership of the Borrower or other proceedings affecting Borrower creditors’ rights and involving a claim under this Note, then the Borrower shall pay the costs incurred by the Lender for such collection, enforcement or action, including reasonable attorneys’ fees and disbursements. Subject to the terms of the Facility Agreement, all payments and issuances of shares of Common Stock hereunder will be free and clear of, and without deduction or withholding for, any present or future taxes. The Borrower shall pay all and any costs (administrative or otherwise) imposed by the Borrower’s banks, clearing houses, or any other financial institution, in connection with making any payments and issuing any shares of Common Stock hereunder. The Borrower shall pay all costs and expenses (including attorney’s fees) of the Lender incurred in connection with this Note in accordance with Section 6.3 of the Facility Agreement.

10. Waiver of Notice. Other than those notices required to be provided by the Lender to the Borrower under the terms of the Facility Agreement, the Borrower and every endorser of this Note, or the obligations represented hereby, expressly waives diligence, presentment, protest, demand, notice of dishonor, non-payment or default, and notice of any kind with respect to this Note and the Facility Agreement or the performance of the obligations under this Note and/or the Facility Agreement.

11. Miscellaneous. This Note is a Loan Document, is entitled to the benefits of the Loan Documents and is subject to certain provisions of the Facility Agreement, including Sections 1.2 (Interpretation) and 6.4 (Governing Law; Venue; Jurisdiction; Service of Process; Waiver of Jury Trial) thereof.

 

10


12. Additional Interpretative Matters. Unless the context otherwise requires, (a) all references to Sections or Exhibits are to Sections or Exhibits contained in or attached to this Note, (b) each accounting term not otherwise defined in this Note has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (d) the use of the word “including” in this Note shall be by way of example rather than limitation. If a Stock Event occurs during any period over which an average price is being determined, then an appropriate adjustment will be made to such average to reflect such Stock Event.

13. Signatures. In the event that any signature to this Note or any amendment hereto is delivered by electronic mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof. Notwithstanding the foregoing, the Borrower shall be obligated to deliver to the Lender an original signature to this Note. At the request of any party, each other party shall promptly re-execute an original form of this Note or any amendment hereto and deliver the same to the other party. No party hereto shall raise the use of electronic mail delivery of a “.pdf” format data file to deliver a signature to this Note or any amendment hereto or the fact that such signature was transmitted or communicated through the use of electronic mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract, and each party hereto forever waives any such defense.

14. This Note is an amendment and restatement of that certain Loan Note originally issued on April 3, 2017 and re-issued on January 1, 2018, in the principal amount of $22,320,000.00 (the “Prior Note”) and evidences an extension, continuation, and renewal of the indebtedness evidenced by the Prior Note, but this Note replaces the Prior Note with the indebtedness evidenced by the Prior Note now evidenced by this Note. Such Prior Note shall be of no further force and effect upon execution of this Note. The Borrower hereby acknowledges and agrees that the indebtedness under the Prior Note has not been repaid or extinguished and that the execution hereof does not constitute a novation of the Prior Note. Moreover, this Note shall be entitled to all security and collateral to which the Prior Note was entitled, without change or diminution in the priority of any lien or security interest granted to secure the Prior Note.

[Signature Page Follows]

 

11


IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered by its duly authorized officer as of the day and year set forth above.

 

ENDOLOGIX, INC.,
a Delaware corporation
By:   /s/ Vaseem Mahboob
Name: Vaseem Mahboob
Title: Chief Financial Officer

 

12


Exhibit A

CONVERSION NOTICE

Reference is made to the First Out Waterfall Note (the “Note”) of ENDOLOGIX, INC., a Delaware corporation (the “Borrower”), in the original principal amount of $22,320,000.00. In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of common stock, par value $0.001 per share (the “Common Stock”), of the Borrower, as of the date specified below.

Date of Conversion:                     

Aggregate Conversion Amount to be converted at the Conversion Price (as defined in the Note):

 

                                                             

Principal, applicable thereto, to be converted:                                                                  

Please confirm the following information:

Conversion Price:                                                                                                   

Number of shares of Common Stock to be issued:                                              

Please issue the Common Stock into which the Note is being converted in the following name and to the following address:

Issue to:                                                                                                                   

Facsimile Number:                                                                                                   

Authorization:                                                                          

By:                                                                                   

Title:                                                                                

Dated:                                                                                       

DTC Participant Number and Name:                                                                                                               

Account Number:                                                                                                                                              

 

13


Exhibit B

ASSIGNMENT

(To be executed by the registered holder

desiring to transfer the Note)

FOR VALUE RECEIVED, the undersigned holder of the attached First Out Waterfall Note (the “Note”) hereby sells, assigns and transfers unto the person or persons below named the right to receive the principal amount of $             from Endologix, Inc., a Delaware corporation (the “Borrower”), evidenced by the attached Note and does hereby irrevocably constitute and appoint                  attorney to transfer the said Note on the books of the Borrower, with full power of substitution in the premises.

 

Dated: _______________    

 

    Signature
Fill in for new registration of Note:    

 

   
Name    

 

   
Address    

 

   
Please print name and address of assignee    
(including zip code number)    

NOTICE

The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached Note.

 

14

EX-4.7

Exhibit 4.7

FIRST OUT WATERFALL NOTE

THE SECURITIES REPRESENTED BY THIS NOTE (AS DEFINED BELOW) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN, FINANCING OR INDEBTEDNESS ARRANGEMENT SECURED BY THE SECURITIES.

THE FOLLOWING INFORMATION IS PROVIDED PURSUANT TO TREAS. REG. SECTION 1.1275-3: THE BORROWER (AS DEFINED BELOW) WILL MAKE AVAILABLE ON REQUEST TO HOLDER(S) OF THIS NOTE THE FOLLOWING INFORMATION: ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE DISCOUNT, ISSUE DATE AND YIELD TO MATURITY. THIS NOTE IS BEING AMENDED AND RESTATED AS PART OF AND PURSUANT TO A PLAN OF RECAPITALIZATION AND REORGANIZATION OF THE BORROWER DESCRIBED IN SECTION 368(A)(1)(E) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.

FIRST OUT WATERFALL NOTE

 

First Out Waterfall Lender: Deerfield Partners, L.P.    Original Issue Date: April 3, 2017
Principal Amount: $17,680,000.00    Amendment and Restatement Date: August 9, 2018

FOR VALUE RECEIVED, the undersigned, Endologix, Inc., a Delaware corporation (the “Borrower”), hereby unconditionally promises to pay to the First Out Waterfall Lender set forth above (the “Lender”) the “Principal Amount” set forth above, or, if less, the aggregate unpaid Principal (as defined below) amount of the First Out Waterfall Loan (as defined in the Facility Agreement referred to below) of the Lender to the Borrower, payable at such times and in such amounts as are specified in the Facility Agreement.

The Borrower promises to pay interest on the outstanding Principal amount of the First Out Waterfall Loan and any overdue interest from and after the Amendment and Restatement Date (as defined below) until such outstanding Principal amount of the First Out Waterfall Loan and any overdue interest are paid in full, payable at such times and at such interest rates as are specified in the Facility Agreement. The Borrower promises to pay any Non-Callable Make Whole Amount, any CoC Fee and the First Out Waterfall Exit Payment (each, as defined in the Facility Agreement) that is due on the First Out Waterfall Loan in accordance with the Facility Agreement.

 

1


In lieu of making any payment of interest in cash (but not (i) interest payable pursuant to the second sentence of Section 2.6(a) of Facility Agreement, (ii) interest payable-in-kind or (iii) in connection with any Event of Default or late payment hereunder or any other interest payable pursuant to Section 2.7 of the Facility Agreement) and subject to the conditions set forth in Section 2.6 of the Facility Agreement and Exhibit 2.6 to the Facility Agreement, the Borrower may elect to satisfy all or any such payment by the issuance to the Lender of shares of Freely Tradable Common Shares (as defined in Exhibit 2.6) in accordance with the provisions of Exhibit 2.6.

This First Out Waterfall Note (this “Note”) was originally issued on April 3, 2017 and amended and restated on August 9, 2018 (the “Amendment and Restatement Date”) and is one of the “First Out Waterfall Notes”, “Loan Notes” and “Notes” referred to in, and is entitled to the benefits of, the Amended and Restated Facility Agreement, dated as of August 9, 2018 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Facility Agreement”), by and among the Borrower, the other Loan Parties party thereto, the Lenders party thereto and Deerfield Private Design Fund IV, L.P., as agent for the Secured Parties, and the other Loan Documents.

The Facility Agreement, among other things, (a) provides for the making of a First Out Waterfall Loan by the Lender to the Borrower in an aggregate amount not to exceed at any time outstanding the “Principal Amount” set forth above, the indebtedness of the Borrower resulting from such First Out Waterfall Loan being evidenced by this Note and (b) contains provisions for acceleration of the maturity of the unpaid Principal amount of this Note upon the happening of certain stated events and also for prepayments pursuant to Section 2.3(c) or Section 5.3 of the Facility Agreement on account of the Principal hereof prior to the maturity hereof upon the terms and conditions specified therein.

1. Definitions.

(a) Certain Defined Terms. Capitalized terms used herein without definition are used as defined in the Facility Agreement. For purposes of this Note, the following terms shall have the following meanings:

(i) “Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Lender, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Lender will be deemed to be an Affiliate of such Lender. As used in this definition of “Affiliate,” the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or partnership or other ownership interest, by contract, or otherwise.

(ii) “Common Stock” means the fully paid and nonassessable shares of the Borrower’s common stock, $0.001 par value per share.

 

2


(iii) “Conversion Amount” means the Principal amount to be converted.

(iv) “Conversion Date” means the date of delivery via facsimile or electronic mail of a Conversion Notice.

(v) “Conversion Issuance Limit” means 2,106,867 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(vi) “Conversion Price” means, as of any Conversion Date, ninety-six percent (96%) of the arithmetic average of the Volume Weighted Average Prices per share of Common Stock on each of the three (3) Trading Days period preceding the Conversion Date (the “Measurement Period”); provided, that in the event that a stock split, stock combination, reclassification, payment of stock dividend, recapitalization or other similar transaction of such character that the shares of Common Stock shall be changed into or become exchangeable for a larger or small number of shares (a “Stock Event”) is consummated during the Measurement Period, the Volume Weighted Average Price for all Trading Days during the Measurement Period prior to the effectiveness of such Stock Event shall be appropriately adjusted to reflect such Stock Event, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(vii) “Conversion Shares” means fully paid and nonassessable shares of Common Stock issued in connection with the conversion of a Note.

(viii) “First Amortization Cap” means 1,399,667 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(ix) “First Amortization Date” means April 2, 2021.

(x) “Market Disruption Event” means, with respect to any Trading Day and any security of Borrower, (a) a failure by the Principal Market to open for trading during its entire regular trading session, (b) the occurrence or existence prior to 1:00 p.m., New York City time, on such day for such securities of Borrower for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant securities exchange or otherwise) in such securities or in any options, contracts or future contracts relating to such securities, or (c) to the extent “Volume Weighted Average Price” is determined in accordance with clause (b) of the definition thereof, the suspension of trading for the one-half hour period ending on the scheduled close of trading on such day (by reason of movements in price exceeding limits permitted by the stock exchange or otherwise) in such securities of Borrower.

(xi) “Monthly Conversion Cap” means 766,133 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

 

3


(xii) “Monthly Conversion Cap Period” means the period commencing on the Amendment and Restatement Date and ending on (and including) August 31, 2018, and each calendar month that begins after the Amendment and Restatement Date and prior to the Maturity Date.

(xiii) “Principal” means the outstanding principal amount of this Note as of any date of determination.

(xiv) “Required Lenders” means the Required First Out Waterfall Lenders.

(xv) “Second Amortization Cap” means 707,200 shares of Common Stock, subject to appropriate adjustment for any Stock Event that occurs after the Amendment and Restatement Date.

(xvi) “Second Amortization Date” means April 2, 2022.

(xvii) “Trading Day” means any day on which the Common Stock is traded for any period on the Principal Market; provided, that for purposes of the definition of “Conversion Shares,” Trading Day shall not include any Trading Day on which there is a Market Disruption Event.

(xviii) “Volume Weighted Average Price” for any security as of any Trading Day means (a) the volume weighted average sale price of such security on the principal U.S. national or regional securities exchange on which such security is traded as reported by Bloomberg Financial Markets or an equivalent, reliable reporting service mutually acceptable to and hereinafter designated by the Required Lenders and the Borrower (“Bloomberg”), or (b) if no volume weighted average sale price is reported for such security, then the closing price per share of such security, or, if no closing price per share is reported for such security by Bloomberg, the average of the last bid and last ask price (or if more than one in either case, the average of the average last bid and average last ask prices) on such Trading Day as reported in the composite transactions for the principal U.S. national or regional securities exchange on which such security is traded. If the security is not listed for trading on a U.S. national or regional securities exchange on the relevant Trading Day, then the Volume Weighted Average Price will be the average of the mid-point of the last bid and last ask prices of the security in the over-the-counter market on the relevant Trading Day as reported by OTC Markets Group or similar organization. If the Volume Weighted Average Price cannot be calculated for such security on such date in the manner provided above, the Volume Weighted Average Price shall be the fair market value as mutually determined by the Borrower and the Lenders holding a majority of the aggregate outstanding Principal amount of the Notes being converted for which the calculation of the Volume Weighted Average Price is required in order to determine the Conversion Price of such Notes. Volume Weighted Average Price will be determine without regard to after-hours trading or any other trading outside of the regular trading hours.

2. Conversion Rights. This Note may be converted into shares of Common Stock on the terms and conditions set forth in this Section 2 (subject to Section 2.3(a) of the Facility Agreement).

 

4


(a) Conversion at Option of the Lender. At any time during the period commencing on (and including) the Amendment and Restatement Date and ending on the close of business on the second business day immediately prior to the Maturity Date, the Lender shall be entitled to convert all or any part of the Principal into Conversion Shares in accordance with this Section 2 at the Conversion Rate (as defined in Section 2(b)). The Borrower shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, then the Borrower shall round such fraction of a share of Common Stock up or down to the nearest whole share (with 0.5 rounded up).

(b) Conversion Rate. The number of Conversion Shares issuable upon a conversion of any portion of this Note pursuant to Section 2 shall be determined according to the following formula (the “Conversion Rate”):

Conversion Amount

Conversion Price

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

(i) Lender’s Delivery Requirements. To convert a Conversion Amount into Conversion Shares pursuant to Section 2(a) above on any date, Lender shall (A) transmit by facsimile or electronic mail (or otherwise deliver), for receipt on or prior to 5:00 p.m. New York City time on such date, a copy of an executed conversion notice in the form attached hereto as Exhibit A (the “Conversion Notice”) to the Borrower (at 2 Musick, Irvine, CA 92618, Attention: Chief Financial Officer; Email: vmahboob@endologix.com, or at such other office or agency as the Borrower may designate in writing), and (B) if required by Section 2(c)(vi), surrender to a common carrier for delivery to the Borrower, no later than three (3) Business Days after the Conversion Date, of the original Note being converted (or an indemnification undertaking in customary form with respect to this Note in the case of its loss, theft or destruction).

(ii) Borrower’s Response. Upon receipt or deemed receipt by the Borrower of a copy of a Conversion Notice, the Borrower (A) shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to the Lender and the Borrower’s designated transfer agent (the “Transfer Agent”), which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein, and (B) on or before the second (2nd) Business Day following the date of receipt or deemed receipt by the Borrower of such Conversion Notice (or, if earlier, the end of the standard settlement period for U.S. broker-dealer securities transactions) (the “Share Delivery Date”), shall credit such aggregate number of Conversion Shares to which the Lender shall be entitled to the Lender’s or its designee’s balance account with The Depository Trust Company (“DTC”) through its Deposit/Withdrawal At Custodian (DWAC) system, for the number of Conversion Shares to which the Lender shall be entitled. If notwithstanding the provisions of Section 2(c)(vi), the Lender elects to physically surrender this Note for conversion and the Principal represented by this Note is greater than the Principal being converted, then the Borrower shall, as soon as practicable and in no event later than three (3) Business Days after

 

5


receipt of this Note and at its own expense, issue and deliver to the Lender a new Note representing the Principal not converted and cancel this Note. For purposes of Rule 144 under the Securities Act, any Conversion Shares issued to Lender shall be deemed to have been acquired by such Lender on April 3, 2017 (the date this Note was originally issued). Accordingly, (A) upon any conversion of this Note, the Rule 144 holding period for the Conversion Shares acquired thereupon shall be in excess of one (1) year, and (B) provided the Lender is not an Affiliate of the Borrower on the Conversion Date and has not been an Affiliate of the Borrower within the three-month period immediately preceding the Conversion Date (the “Unrestricted Condition”), which the Borrower shall assume and Lender hereby represents unless the Lender advises the Borrower otherwise in writing, the Conversion Shares issued to Lender will be freely transferable, without restriction or limitation (including any volume limitation) under Federal or state securities laws, pursuant to Rule 144 under the Securities Act and will not contain or be subject to a legend or stop transfer order restricting the resale or transferability of thereof.

(iii) Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price or the arithmetic calculation of the Conversion Rate, the Borrower shall instruct the Transfer Agent to issue to the Lender the number of Conversion Shares that is not disputed and shall transmit an explanation of the disputed determinations or arithmetic calculations to the Lender via facsimile within two (2) Business Days of receipt or deemed receipt of the Lender’s Conversion Notice or other date of determination. If the Lender and the Borrower are unable to agree upon the determination of the Conversion Price or arithmetic calculation of the Conversion Rate within one (1) Business Day of such disputed determination or arithmetic calculation being transmitted to the Lender, then the Borrower shall promptly (and in any event within two (2) Business Days) submit via facsimile (A) the disputed determination of the Conversion Price to an independent, reputable investment banking firm agreed to by the Borrower and the Required Lenders, or (B) the disputed arithmetic calculation of the Conversion Rate to the Borrower’s independent registered public accounting firm, as the case may be. The Borrower shall direct the investment bank or the accounting firm, as the case may be, to perform the determinations or calculations and notify the Borrower and the Lender of the results no later than two (2) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accounting firm’s determination or calculation, as the case may be, shall be binding upon all parties absent manifest error, and the fees and expenses of such investment bank or accountant shall be paid one-half by the Borrower and one-half by the Lender. Notwithstanding the existence of a dispute contemplated by this paragraph, if requested by the Lender, the Borrower shall issue to the Lender the Conversion Shares not in dispute in accordance with the terms hereof.

(iv) Record Holder. The person or persons entitled to receive the Conversion Shares issuable upon a conversion of this Note shall be treated for all purposes as the legal and record holder or holders of such shares of Common Stock upon delivery by the Lender of the Conversion Notice, or in the case of Conversion Shares the issuance of which is subject to a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(c)(iii), the first Business Day after the resolution of such bona fide dispute.

(v) Borrower’s Failure to Timely Convert.

 

6


(A) Cash Damages. If by the Share Delivery Date, the Borrower shall fail to credit the Lender’s or its designee’s balance account with DTC with the number of Conversion Shares (free of any restrictive legend, provided the Unrestricted Condition is satisfied), then, in addition to all other available remedies that the Lender may pursue hereunder and under the Facility Agreement, the Borrower shall pay additional damages to the Lender for each day after the Share Delivery Date such conversion is not timely effected in an amount equal to one and one-half percent (1.5%) of the product of (I) the number of Conversion Shares not issued to the Lender or its designee on or prior to the Share Delivery Date and to which the Lender is entitled and (II) the Volume Weighted Average Price of the Common Stock on the Share Delivery Date. Alternatively in lieu of the foregoing damages, subject to Section 2(c)(iii), at the written election of the Lender made in the Lender’s sole discretion, if, on or after the applicable Conversion Date, the Lender purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Lender of Conversion Shares that such Lender anticipated receiving from the Borrower (such purchased shares, “Buy-In Shares”), the Borrower shall be obligated to promptly pay to such Lender (in addition to all other available remedies that the Lender may otherwise have), 110% of the amount by which (A) such Lender’s total purchase price (including brokerage commissions, if any) for such Buy-In Shares exceeds (B) the net proceeds received by such Lender from the sale of a number of shares equal to up to the number of Conversion Shares such Lender was entitled to receive but had not received on the Share Delivery Date. If the Borrower fails to pay the additional damages set forth in this Section 2(c)(v)(A) within five (5) Business Days of the date incurred, then the Lender entitled to such payments shall have the right at any time, so long as the Borrower continues to fail to make such payments, to require the Borrower, upon written notice, to immediately issue, in lieu of such cash damages, the number of shares of Common Stock equal to the quotient of (X) the aggregate amount of the damages payments described herein divided by (Y) the Conversion Price specified by the Lender in the Conversion Notice.

(B) Conversion Failure. If for any reason the Lender has not received all of the Conversion Shares it is entitled to prior to the tenth (10th) Business Day after the Share Delivery Date with respect to a conversion of this Note (a “Conversion Failure”), then the Lender, upon written notice to the Borrower (a “Void Conversion Notice”), may void its conversion with respect to, and retain or have returned, as the case may be, any portion of this Note that has not been converted pursuant to the Lender’s Conversion Notice; provided, that the voiding of the Lender’s Conversion Notice shall not affect the Borrower’s obligations to make any payments that have accrued prior to the date of such notice pursuant to Section 2(c)(v)(A) or otherwise. A Conversion Failure shall constitute an Event of Default under the Facility Agreement and entitle the Lenders to all payments and remedies provided under the Facility Agreement upon the occurrence of an Event of Default.

(vi) Book-Entry. Notwithstanding anything to the contrary set forth herein, upon conversion or repayment of this Note in accordance with the terms hereof, the Lender shall not be required to physically surrender this Note to the Borrower unless all of the Principal is being converted or repaid. The Lender and the Borrower shall maintain records showing the Principal converted or repaid and the dates of such conversions or repayments or shall use such other method, reasonably satisfactory to the Lender and the Borrower, so as not to require physical surrender of this Note upon any such partial conversion or repayment. Notwithstanding the foregoing, if this Note is converted or repaid as aforesaid, the Lender may

 

7


not transfer this Note unless the Lender first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Lender a new Note of like tenor, registered as the Lender may request, representing in the aggregate the remaining Principal represented by this Note. The Lender and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion or repayment of any portion of this Note, the Principal of this Note may be less than the “Principal Amount” stated on the face hereof.

(d) Limitations on Conversions.

(i) Beneficial Ownership. Notwithstanding anything herein to the contrary, the Borrower shall not issue to the Lender, and the Lender may not acquire, a number of shares of Common Stock upon conversion of this Note or otherwise issue any shares of Common Stock pursuant hereto or the Facility Agreement to the extent that, upon such conversion, the number of shares of Common Stock then beneficially owned by the Lender and its Affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with the Lender’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which the Lender is a member, but excluding shares beneficially owned by virtue of the ownership of the Warrants or other securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) would exceed 4.985% of the total number of shares of common stock then issued and outstanding (the “4.985% Cap”); provided, however, that the 4.985% Cap shall only apply to the extent that the Common Stock is deemed to constitute an “equity security” pursuant to Rule 13d-1(i) promulgated under the Exchange Act. For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the SEC, and the percentage held by the Lender shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Upon the written request of the Lender, the Borrower shall, within two (2) Trading Days, confirm orally and in writing to the Lender the number of shares of Common Stock then outstanding.

(ii) Conversion Issuance Limit. Notwithstanding anything to the contrary contained herein, the Borrower shall not issue any shares of Common Stock upon conversion of this Note (including pursuant to Section 2(c)(v)(A) hereof) to the extent that the issuance of such shares of Common Stock together with any previous issuances of shares of Common Stock under this Note would exceed the Conversion Issuance Limit, and Section 2.5(c)(v) shall not apply in respect to any excess amount.

(iii) Other Applicable Limitations on Conversion of the Note. Notwithstanding anything to the contrary herein, this Note shall not be convertible, and the Borrower shall not issue shares of Common Stock upon conversion of this Note (a) at any time after the First Amortization Date, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares of Common Stock previously issued to Lender upon conversion of this Note after the First Amortization Date, would exceed the First Amortization Cap, or (b) at any time after the Second Amortization Date, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares of Common Stock previously issued to Lender upon conversion of this Note after the Second Amortization

 

8


Date, would exceed the Second Amortization Cap, or (c) during any Monthly Conversion Cap Period, to the extent that the number of shares of Common Stock that would otherwise be issuable to Lender upon such conversion, together with all shares previously issued to Lender upon conversion of this Note during the such Monthly Conversion Cap Period, would exceed the Monthly Conversion Cap. For the avoidance of doubt, if the number of shares of Common Stock to be issued as set forth in an Conversion Notice transmitted by the Lender to the Borrower would otherwise require the Borrower to issue a number of shares in excess of the Conversion Issuance Limit, the First Amortization Cap (if after the First Amortization Date), the Second Amortization Cap (if after the Second Amortization Date) or the Monthly Share Cap, the Borrower shall issue to the Lender in accordance herewith the maximum number of shares of Common Stock issuable without exceeding any such applicable limitation, and Section 2.5(c)(v) shall not apply to any excess amount.

3. Voting Rights. Except as required by law, the Lender shall have no voting rights with respect to any of the Conversion Shares until the Conversion Date relating to the conversion of this Note upon which such Conversion Shares are issuable (or in the case of Conversion Shares the issuance of which is subject to a bona fide dispute that is subject to and being resolved pursuant to, and in compliance with the time periods and other provisions of, the dispute resolution provisions of Section 2(c)(iii), the first Business Day after the resolution of such bona fide dispute).

4. Amendment; Waiver. The provisions of this Note may only be waived or amended, restated, supplemented or otherwise modified in accordance with the Facility Agreement.

5. Specific Shall Not Limit General; Construction. No specific provision contained in this Note shall limit or modify any more general provision contained herein. This Note shall be deemed to be jointly drafted by the Borrower and all Lenders pursuant to the Facility Agreement and shall not be construed against any Person as the drafter hereof.

6. Failure or Indulgence Not Waiver. No delay or omission by the Lender in exercising any power or right hereunder shall impair such right or power or be construed to be a waiver of any default, nor shall any single or partial exercise of any power or right hereunder preclude the full exercise thereof or the exercise of any other power or right. No renewal or extension of this Note or the Facility Agreement, no delay in the enforcement of payment under this Note or the Facility Agreement, and no delay or omission in exercising any right or power under this Note or the Facility Agreement shall affect the liability of the Borrower or any endorser of this Note.

7. Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with Section 6.1 of the Facility Agreement.

8. Restrictions on Transfer.

(a) Registration or Exemption Required. This Note has been issued in a transaction exempt from the registration requirements of the Securities Act. None of the Note or

 

9


the Conversion Shares issued hereunder may be transferred, sold, assigned, hypothecated or otherwise disposed of except pursuant to an effective registration statement or an exemption to the registration requirements of the Securities Act and applicable state laws, including Rule 144 under the Securities Act, Section 4(a)(7) of the Securities Act or a so-called “4[(a)](1) and a half” transaction.

(b) Assignment. This Note is assignable or transferable, in whole or in part, only to the extent such assignment or transfer is permitted pursuant to the terms of the Facility Agreement; provided that (i) the Lender shall deliver a written notice to the Borrower, substantially in the form of the Assignment attached hereto as Exhibit B, indicating the Person or Persons to whom the Note shall be assigned and the respective Principal amount of the Note to be assigned to each assignee. The Borrower shall effect the assignment within three (3) business days, and shall deliver to the assignee(s) designated by the Lender a Note or Notes of like tenor and terms for the appropriate Principal amount. This Note and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Lender. The provisions of this Note are intended to be for the benefit of all Lenders from time to time of this Note, and shall be enforceable by any such Lender. This Note is not (and any rights or obligations hereunder are not) not assignable or transferable by the Borrower under any circumstance and any such prohibited assignment or transfer is absolutely void ab initio.

9. Payment of Collection, Enforcement and Other Costs. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding; or (b) an attorney is retained to represent the Lender in any bankruptcy, reorganization, receivership of the Borrower or other proceedings affecting Borrower creditors’ rights and involving a claim under this Note, then the Borrower shall pay the costs incurred by the Lender for such collection, enforcement or action, including reasonable attorneys’ fees and disbursements. Subject to the terms of the Facility Agreement, all payments and issuances of shares of Common Stock hereunder will be free and clear of, and without deduction or withholding for, any present or future taxes. The Borrower shall pay all and any costs (administrative or otherwise) imposed by the Borrower’s banks, clearing houses, or any other financial institution, in connection with making any payments and issuing any shares of Common Stock hereunder. The Borrower shall pay all costs and expenses (including attorney’s fees) of the Lender incurred in connection with this Note in accordance with Section 6.3 of the Facility Agreement.

10. Waiver of Notice. Other than those notices required to be provided by the Lender to the Borrower under the terms of the Facility Agreement, the Borrower and every endorser of this Note, or the obligations represented hereby, expressly waives diligence, presentment, protest, demand, notice of dishonor, non-payment or default, and notice of any kind with respect to this Note and the Facility Agreement or the performance of the obligations under this Note and/or the Facility Agreement.

11. Miscellaneous. This Note is a Loan Document, is entitled to the benefits of the Loan Documents and is subject to certain provisions of the Facility Agreement, including Sections 1.2 (Interpretation) and 6.4 (Governing Law; Venue; Jurisdiction; Service of Process; Waiver of Jury Trial) thereof.

 

10


12. Additional Interpretative Matters. Unless the context otherwise requires, (a) all references to Sections or Exhibits are to Sections or Exhibits contained in or attached to this Note, (b) each accounting term not otherwise defined in this Note has the meaning assigned to it in accordance with GAAP, (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter and (d) the use of the word “including” in this Note shall be by way of example rather than limitation. If a Stock Event occurs during any period over which an average price is being determined, then an appropriate adjustment will be made to such average to reflect such Stock Event.

13. Signatures. In the event that any signature to this Note or any amendment hereto is delivered by electronic mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof. Notwithstanding the foregoing, the Borrower shall be obligated to deliver to the Lender an original signature to this Note. At the request of any party, each other party shall promptly re-execute an original form of this Note or any amendment hereto and deliver the same to the other party. No party hereto shall raise the use of electronic mail delivery of a “.pdf” format data file to deliver a signature to this Note or any amendment hereto or the fact that such signature was transmitted or communicated through the use of electronic mail delivery of a “.pdf” format data file as a defense to the formation or enforceability of a contract, and each party hereto forever waives any such defense.

14. This Note is an amendment and restatement of that certain Loan Note originally issued on April 3, 2017, in the principal amount of $17,680,000.00 (the “Prior Note”) and evidences an extension, continuation, and renewal of the indebtedness evidenced by the Prior Note, but this Note replaces the Prior Note with the indebtedness evidenced by the Prior Note now evidenced by this Note. Such Prior Note shall be of no further force and effect upon execution of this Note. The Borrower hereby acknowledges and agrees that the indebtedness under the Prior Note has not been repaid or extinguished and that the execution hereof does not constitute a novation of the Prior Note. Moreover, this Note shall be entitled to all security and collateral to which the Prior Note was entitled, without change or diminution in the priority of any lien or security interest granted to secure the Prior Note.

[Signature Page Follows]

 

11


IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered by its duly authorized officer as of the day and year set forth above.

 

ENDOLOGIX, INC.,
a Delaware corporation
By:   /s/ Vaseem Mahboob
Name: Vaseem Mahboob
Title: Chief Financial Officer

 

12


Exhibit A

CONVERSION NOTICE

Reference is made to the First Out Waterfall Note (the “Note”) of ENDOLOGIX, INC., a Delaware corporation (the “Borrower”), in the original principal amount of $17,680,000.00. In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of common stock, par value $0.001 per share (the “Common Stock”), of the Borrower, as of the date specified below.

Date of Conversion:                     

Aggregate Conversion Amount to be converted at the Conversion Price (as defined in the Note):

 

                                                             

Principal, applicable thereto, to be converted:                                                                  

Please confirm the following information:

Conversion Price:                                                                                                   

Number of shares of Common Stock to be issued:                                              

Please issue the Common Stock into which the Note is being converted in the following name and to the following address:

Issue to:                                                                                                                   

Facsimile Number:                                                                                                   

Authorization:                                                                          

By:                                                                                   

Title:                                                                                

Dated:                                                                                       

DTC Participant Number and Name:                                                                                                               

Account Number:                                                                                                                                              

 

13


Exhibit B

ASSIGNMENT

(To be executed by the registered holder

desiring to transfer the Note)

FOR VALUE RECEIVED, the undersigned holder of the attached First Out Waterfall Note (the “Note”) hereby sells, assigns and transfers unto the person or persons below named the right to receive the principal amount of $             from Endologix, Inc., a Delaware corporation (the “Borrower”), evidenced by the attached Note and does hereby irrevocably constitute and appoint                  attorney to transfer the said Note on the books of the Borrower, with full power of substitution in the premises.

 

Dated: _______________    

 

    Signature
Fill in for new registration of Note:    

 

   
Name    

 

   
Address    

 

   
Please print name and address of assignee    
(including zip code number)    

NOTICE

The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached Note.

 

14

EX-4.8

Exhibit 4.8

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN, FINANCING OR INDEBTEDNESS ARRANGEMENT SECURED BY THE SECURITIES.

NOTE

 

Lender: Deerfield Private Design Fund III, L.P.

Principal Amount: $16,666,666.66

   August 9, 2018

FOR VALUE RECEIVED, each of the undersigned, Endologix, Inc., a Delaware corporation, CVD/RMS Acquisition Corp., a Delaware corporation, Nellix, Inc., a Delaware corporation, TriVascular Technologies, Inc., a Delaware corporation, TriVascular, Inc., a California corporation, TriVascular Canada, LLC, a Delaware limited liability company, TriVascular Sales LLC, a Texas limited liability company, and RMS/Endologix Sideways Merger Corp., a Delaware corporation (collectively, the “Borrowers”), hereby unconditionally promises to pay to the Lender set forth above (the “Lender”) the principal amount set forth above, or, if less, the aggregate unpaid principal amount of the Loan (as defined in the Credit Agreement referred to below) of the Lender to the Borrowers, payable at such times and in such amounts as are specified in the Credit Agreement.

The Borrowers promise to pay interest on the outstanding principal amount of the Loan and any overdue interest from and after the Closing Date until such outstanding principal amount of the Loan and any overdue interest are paid in full, payable at such times and at such interest rates as are specified in the Credit Agreement. Demand, diligence, presentment, protest and notice of non-payment and protest are hereby waived by each Borrower.

Principal and interest are payable in Dollars to the Lender in the manner set forth in the Credit Agreement.

This Note (this “Note”) is one of the “Notes” referred to in, and is entitled to the benefits of, the Credit Agreement, dated as of August 9, 2018 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among the Borrowers, the other Credit Parties party thereto, the Lenders party thereto and Deerfield ELGX Revolver, LLC, as agent for the Secured Parties, and the other Security Documents. Capitalized terms used herein without definition are used as defined in the Credit Agreement.

The Credit Agreement, among other things, (a) provides for the making of Loans by the Lender to the Borrowers in an aggregate amount not to exceed at any time outstanding the principal amount set forth above, the indebtedness of the Borrowers resulting from such Loan being evidenced by this Note and (b) contains provisions for acceleration of the maturity of the unpaid principal amount of this Note and the termination of the Revolver Commitments upon the happening of certain stated events and also for prepayments pursuant to Section 2.03 and the other provisions of the Credit Agreement on account of the principal hereof prior to the maturity hereof upon the terms and conditions specified therein.

 

1


This Note is a Loan Document, is entitled to the benefits of the Loan Documents and is subject to certain provisions of the Credit Agreement, including Section 1.04 (Construction) and Article XII (CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE PROVISION) thereof.

This Note is assignable or transferable only to the extent such assignment or transfer is permitted pursuant to the terms of the Credit Agreement.

Subject to the terms of the Credit Agreement, all payments will be free and clear of, and without deduction or withholding for, any present or future taxes. The Borrowers shall pay all and any costs (administrative or otherwise) imposed by the Borrowers’ banks, clearing houses, or any other financial institution, in connection with making any payments hereunder.

The Borrowers shall pay all costs and expenses (including attorney’s fees) of the Lender incurred in connection with this Note in accordance with Section 15.07 of the Credit Agreement.

Other than those notices expressly required to be provided by the Lender to the Borrower Representative under the terms of the Credit Agreement, the Borrowers and every endorser of this Note, or the obligations represented hereby, expressly waives presentment, protest, demand, notice of dishonor or default, and notice of any kind with respect to this Note and the Credit Agreement or the performance of the obligations under this Note and/or the Credit Agreement. No renewal or extension of this Note or the Credit Agreement, no delay in the enforcement of payment of this Note or the Credit Agreement, and no delay or omission in exercising any right or power under this Note or the Credit Agreement shall affect the liability of any Borrower or any endorser of this Note.

No delay or omission by the Lender in exercising any power or right hereunder shall impair such right or power or be construed to be a waiver of any default, nor shall any single or partial exercise of any power or right hereunder preclude the full exercise thereof or the exercise of any other power or right. The provisions of this Note may be waived or amended, restated, supplemented or otherwise modified only in a writing signed by the Borrower Representative and the Lender.

This Note shall be governed by, and be construed and enforced in accordance with, the laws of the State of New York applicable to contracts made and to be performed in such State.

[Signature Page Follows]

 

2


IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed and delivered by their duly authorized officers as of the day and year set forth above.

 

ENDOLOGIX, INC.,
a Delaware corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
CVD/RMS ACQUISITION CORP.,
a Delaware corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
NELLIX, INC.,
a Delaware corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer

TRIVASCULAR TECHNOLOGIES, INC.,

a Delaware corporation

By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
TRIVASCULAR, INC.,
a California corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
TRIVASCULAR CANADA, LLC,
a Delaware limited liability company
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer

[Signature Page to Note]


TRIVASCULAR SALES LLC,

a Texas limited liability company

By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer and Secretary

RMS/ENDOLOGIX SIDEWAYS

MERGER CORP.,

a Delaware corporation

By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer and Secretary

[Signature Page to Note]

EX-4.9

Exhibit 4.9

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN, FINANCING OR INDEBTEDNESS ARRANGEMENT SECURED BY THE SECURITIES.

NOTE

 

Lender: Deerfield Private Design Fund IV, L.P.

  

Principal Amount: $16,666,666.67

   August 9, 2018

FOR VALUE RECEIVED, each of the undersigned, Endologix, Inc., a Delaware corporation, CVD/RMS Acquisition Corp., a Delaware corporation, Nellix, Inc., a Delaware corporation, TriVascular Technologies, Inc., a Delaware corporation, TriVascular, Inc., a California corporation, TriVascular Canada, LLC, a Delaware limited liability company, TriVascular Sales LLC, a Texas limited liability company, and RMS/Endologix Sideways Merger Corp., a Delaware corporation (collectively, the “Borrowers”), hereby unconditionally promises to pay to the Lender set forth above (the “Lender”) the principal amount set forth above, or, if less, the aggregate unpaid principal amount of the Loan (as defined in the Credit Agreement referred to below) of the Lender to the Borrowers, payable at such times and in such amounts as are specified in the Credit Agreement.

The Borrowers promise to pay interest on the outstanding principal amount of the Loan and any overdue interest from and after the Closing Date until such outstanding principal amount of the Loan and any overdue interest are paid in full, payable at such times and at such interest rates as are specified in the Credit Agreement. Demand, diligence, presentment, protest and notice of non-payment and protest are hereby waived by each Borrower.

Principal and interest are payable in Dollars to the Lender in the manner set forth in the Credit Agreement.

This Note (this “Note”) is one of the “Notes” referred to in, and is entitled to the benefits of, the Credit Agreement, dated as of August 9, 2018 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among the Borrowers, the other Credit Parties party thereto, the Lenders party thereto and Deerfield ELGX Revolver, LLC, as agent for the Secured Parties, and the other Security Documents. Capitalized terms used herein without definition are used as defined in the Credit Agreement.

The Credit Agreement, among other things, (a) provides for the making of Loans by the Lender to the Borrowers in an aggregate amount not to exceed at any time outstanding the principal amount set forth above, the indebtedness of the Borrowers resulting from such Loan being evidenced by this Note and (b) contains provisions for acceleration of the maturity of the unpaid principal amount of this Note and the termination of the Revolver Commitments upon the happening of certain stated events and also for prepayments pursuant to Section 2.03 and the other provisions of the Credit Agreement on account of the principal hereof prior to the maturity hereof upon the terms and conditions specified therein.

 

1


This Note is a Loan Document, is entitled to the benefits of the Loan Documents and is subject to certain provisions of the Credit Agreement, including Section 1.04 (Construction) and Article XII (CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE PROVISION) thereof.

This Note is assignable or transferable only to the extent such assignment or transfer is permitted pursuant to the terms of the Credit Agreement.

Subject to the terms of the Credit Agreement, all payments will be free and clear of, and without deduction or withholding for, any present or future taxes. The Borrowers shall pay all and any costs (administrative or otherwise) imposed by the Borrowers’ banks, clearing houses, or any other financial institution, in connection with making any payments hereunder.

The Borrowers shall pay all costs and expenses (including attorney’s fees) of the Lender incurred in connection with this Note in accordance with Section 15.07 of the Credit Agreement.

Other than those notices expressly required to be provided by the Lender to the Borrower Representative under the terms of the Credit Agreement, the Borrowers and every endorser of this Note, or the obligations represented hereby, expressly waives presentment, protest, demand, notice of dishonor or default, and notice of any kind with respect to this Note and the Credit Agreement or the performance of the obligations under this Note and/or the Credit Agreement. No renewal or extension of this Note or the Credit Agreement, no delay in the enforcement of payment of this Note or the Credit Agreement, and no delay or omission in exercising any right or power under this Note or the Credit Agreement shall affect the liability of any Borrower or any endorser of this Note.

No delay or omission by the Lender in exercising any power or right hereunder shall impair such right or power or be construed to be a waiver of any default, nor shall any single or partial exercise of any power or right hereunder preclude the full exercise thereof or the exercise of any other power or right. The provisions of this Note may be waived or amended, restated, supplemented or otherwise modified only in a writing signed by the Borrower Representative and the Lender.

This Note shall be governed by, and be construed and enforced in accordance with, the laws of the State of New York applicable to contracts made and to be performed in such State.

[Signature Page Follows]

 

2


IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed and delivered by their duly authorized officers as of the day and year set forth above.

 

ENDOLOGIX, INC.,
a Delaware corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
CVD/RMS ACQUISITION CORP.,
a Delaware corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
NELLIX, INC.,
a Delaware corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer

TRIVASCULAR TECHNOLOGIES, INC.,

a Delaware corporation

By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
TRIVASCULAR, INC.,
a California corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
TRIVASCULAR CANADA, LLC,
a Delaware limited liability company
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer

[Signature Page to Note]


TRIVASCULAR SALES LLC,

a Texas limited liability company

By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer and Secretary
RMS/ENDOLOGIX SIDEWAYS

MERGER CORP.,

a Delaware corporation

By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer and Secretary

[Signature Page to Note]

EX-4.10

Exhibit 4.10

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN, FINANCING OR INDEBTEDNESS ARRANGEMENT SECURED BY THE SECURITIES.

NOTE

 

Lender: Deerfield Partners, L.P.

  

Principal Amount: $16,666,666.67

   August 9, 2018

FOR VALUE RECEIVED, each of the undersigned, Endologix, Inc., a Delaware corporation, CVD/RMS Acquisition Corp., a Delaware corporation, Nellix, Inc., a Delaware corporation, TriVascular Technologies, Inc., a Delaware corporation, TriVascular, Inc., a California corporation, TriVascular Canada, LLC, a Delaware limited liability company, TriVascular Sales LLC, a Texas limited liability company, and RMS/Endologix Sideways Merger Corp., a Delaware corporation (collectively, the “Borrowers”), hereby unconditionally promises to pay to the Lender set forth above (the “Lender”) the principal amount set forth above, or, if less, the aggregate unpaid principal amount of the Loan (as defined in the Credit Agreement referred to below) of the Lender to the Borrowers, payable at such times and in such amounts as are specified in the Credit Agreement.

The Borrowers promise to pay interest on the outstanding principal amount of the Loan and any overdue interest from and after the Closing Date until such outstanding principal amount of the Loan and any overdue interest are paid in full, payable at such times and at such interest rates as are specified in the Credit Agreement. Demand, diligence, presentment, protest and notice of non-payment and protest are hereby waived by each Borrower.

Principal and interest are payable in Dollars to the Lender in the manner set forth in the Credit Agreement.

This Note (this “Note”) is one of the “Notes” referred to in, and is entitled to the benefits of, the Credit Agreement, dated as of August 9, 2018 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among the Borrowers, the other Credit Parties party thereto, the Lenders party thereto and Deerfield ELGX Revolver, LLC, as agent for the Secured Parties, and the other Security Documents. Capitalized terms used herein without definition are used as defined in the Credit Agreement.

The Credit Agreement, among other things, (a) provides for the making of Loans by the Lender to the Borrowers in an aggregate amount not to exceed at any time outstanding the principal amount set forth above, the indebtedness of the Borrowers resulting from such Loan being evidenced by this Note and (b) contains provisions for acceleration of the maturity of the unpaid principal amount of this Note and the termination of the Revolver Commitments upon the happening of certain stated events and also for prepayments pursuant to Section 2.03 and the other provisions of the Credit Agreement on account of the principal hereof prior to the maturity hereof upon the terms and conditions specified therein.

 

1


This Note is a Loan Document, is entitled to the benefits of the Loan Documents and is subject to certain provisions of the Credit Agreement, including Section 1.04 (Construction) and Article XII (CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE PROVISION) thereof.

This Note is assignable or transferable only to the extent such assignment or transfer is permitted pursuant to the terms of the Credit Agreement.

Subject to the terms of the Credit Agreement, all payments will be free and clear of, and without deduction or withholding for, any present or future taxes. The Borrowers shall pay all and any costs (administrative or otherwise) imposed by the Borrowers’ banks, clearing houses, or any other financial institution, in connection with making any payments hereunder.

The Borrowers shall pay all costs and expenses (including attorney’s fees) of the Lender incurred in connection with this Note in accordance with Section 15.07 of the Credit Agreement.

Other than those notices expressly required to be provided by the Lender to the Borrower Representative under the terms of the Credit Agreement, the Borrowers and every endorser of this Note, or the obligations represented hereby, expressly waives presentment, protest, demand, notice of dishonor or default, and notice of any kind with respect to this Note and the Credit Agreement or the performance of the obligations under this Note and/or the Credit Agreement. No renewal or extension of this Note or the Credit Agreement, no delay in the enforcement of payment of this Note or the Credit Agreement, and no delay or omission in exercising any right or power under this Note or the Credit Agreement shall affect the liability of any Borrower or any endorser of this Note.

No delay or omission by the Lender in exercising any power or right hereunder shall impair such right or power or be construed to be a waiver of any default, nor shall any single or partial exercise of any power or right hereunder preclude the full exercise thereof or the exercise of any other power or right. The provisions of this Note may be waived or amended, restated, supplemented or otherwise modified only in a writing signed by the Borrower Representative and the Lender.

This Note shall be governed by, and be construed and enforced in accordance with, the laws of the State of New York applicable to contracts made and to be performed in such State.

[Signature Page Follows]

 

2


IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed and delivered by their duly authorized officers as of the day and year set forth above.

 

ENDOLOGIX, INC.,
a Delaware corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
CVD/RMS ACQUISITION CORP.,
a Delaware corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
NELLIX, INC.,
a Delaware corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer

TRIVASCULAR TECHNOLOGIES, INC.,

a Delaware corporation

By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
TRIVASCULAR, INC.,
a California corporation
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer
TRIVASCULAR CANADA, LLC,
a Delaware limited liability company
By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer

[Signature Page to Note]


TRIVASCULAR SALES LLC,

a Texas limited liability company

By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer and Secretary
RMS/ENDOLOGIX SIDEWAYS

MERGER CORP.,

a Delaware corporation

By:  

/s/ Vaseem Mahboob

Name:   Vaseem Mahboob
Title:   Chief Financial Officer and Secretary

[Signature Page to Note]

EX-4.11

Exhibit 4.11

LAST OUT WATERFALL NOTE

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN, FINANCING OR INDEBTEDNESS ARRANGEMENT SECURED BY THE SECURITIES.

LAST OUT WATERFALL NOTE

 

Last Out Waterfall Lender: DEERFIELD PARTNERS, L.P.   
Principal Amount: $40,500,000    August 9, 2018

FOR VALUE RECEIVED, the undersigned, Endologix, Inc., a Delaware corporation (the “Borrower”), hereby unconditionally promises to pay to the Last Out Waterfall Lender set forth above (the “Last Out Waterfall Lender”) the Principal Amount set forth above (the “Principal Amount”), or, if less, the aggregate unpaid principal amount of the Last Out Waterfall Loan (as defined in the Facility Agreement referred to below) of the Last Out Waterfall Lender to the Borrower, payable at such times and in such amounts as are specified in the Facility Agreement.

The Borrower promises to pay interest on the outstanding principal amount of the Last Out Waterfall Loan and any overdue interest from and after the Agreement Date until such outstanding principal amount of the Last Out Waterfall Loan and any overdue interest are paid in full, payable at such times, in such type (such as cash or paid in-kind) and at such interest rates as are specified in the Facility Agreement. The Borrower promises to pay any Non-Callable Make Whole Amount, any CoC Fee and the Exit Payment that is due on the Last Out Waterfall Loan in accordance with the Facility Agreement. Demand, diligence, presentment, protest and notice of non-payment and protest are hereby waived by the Borrower.

Principal and interest (and any Non-Callable Make Whole Amount, any CoC Fee and the Exit Payment) are payable in Dollars (provided that the PIK Interest Payment is paid in-kind pursuant to Section 2.6(a) of the Facility Agreement) to the Last Out Waterfall Lender in the manner set forth in the Facility Agreement.

This Last Out Waterfall Note (this “Last Out Waterfall Note”) is one of the “Last Out Waterfall Notes”, “Loan Notes” and “Notes” referred to in, and is entitled to the benefits of, the Amended and Restated Facility Agreement, dated as of August 9, 2018 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Facility Agreement”), by and among the Borrower, the other Loan Parties party thereto, the Lenders (including the Last Out Waterfall Lender) party thereto and Deerfield Private Design Fund IV, L.P., as agent for the Secured Parties, and the other Loan Documents. Capitalized terms used herein without definition are used as defined in the Facility Agreement.

 

1


The Facility Agreement, among other things, (a) provides for the making of a Last Out Waterfall Loan by the Last Out Waterfall Lender to the Borrower in an aggregate amount not to exceed at any time outstanding the Principal Amount, the indebtedness of the Borrower resulting from such Last Out Waterfall Loan being evidenced by this Last Out Waterfall Note and (b) contains provisions for acceleration of the maturity of the unpaid principal amount of this Last Out Waterfall Note upon the happening of certain stated events and also for prepayments pursuant to Section 2.3(c) or Section 5.3 of the Facility Agreement on account of the principal hereof prior to the maturity hereof upon the terms and conditions specified therein.

This Last Out Waterfall Note is a Loan Document, is entitled to the benefits of the Loan Documents and is subject to certain provisions of the Facility Agreement, including Sections 1.2 (Interpretation) and 6.4 (Governing Law; Venue; Jurisdiction; Service of Process; Waiver of Jury Trial) thereof.

This Last Out Waterfall Note is assignable or transferable to the extent such assignment or transfer is permitted pursuant to the terms of the Facility Agreement.

Subject to the terms of the Facility Agreement, all payments will be free and clear of, and without deduction or withholding for, any present or future taxes. The Borrower shall pay all and any costs (administrative or otherwise) imposed by the Borrower’s banks, clearing houses, or any other financial institution, in connection with making any payments hereunder.

The Borrower shall pay all costs and expenses (including attorney’s fees) of the Last Out Waterfall Lender incurred in connection with this Last Out Waterfall Note in accordance with Section 6.3 of the Facility Agreement.

Other than those notices required to be provided by the Last Out Waterfall Lender to the Borrower under the terms of the Facility Agreement, the Borrower and every endorser of this Last Out Waterfall Note, or the obligations represented hereby, expressly waives presentment, protest, demand, notice of dishonor or default, and notice of any kind with respect to this Last Out Waterfall Note and the Facility Agreement or the performance of the obligations under this Last Out Waterfall Note and/or the Facility Agreement. No renewal or extension of this Last Out Waterfall Note or the Facility Agreement, no delay in the enforcement of payment of this Last Out Waterfall Note or the Facility Agreement, and no delay or omission in exercising any right or power under this Last Out Waterfall Note or the Facility Agreement shall affect the liability of the Borrower or any endorser of this Last Out Waterfall Note.

No delay or omission by the Last Out Waterfall Lender in exercising any power or right hereunder shall impair such right or power or be construed to be a waiver of any default, nor shall any single or partial exercise of any power or right hereunder preclude the full exercise thereof or the exercise of any other power or right. The provisions of this Last Out Waterfall Note may be waived or amended, restated, supplemented or otherwise modified only in a writing signed by the Borrower and the Last Out Waterfall Lender.

This Last Out Waterfall Note shall be governed by, and be construed and enforced in accordance with, the laws of the State of New York applicable to contracts made and to be performed in such State.

[Signature Page Follows]

 

2


IN WITNESS WHEREOF, the Borrower has caused this Last Out Waterfall Note to be executed and delivered by its duly authorized officer as of the day and year set forth above.

 

ENDOLOGIX, INC.,

a Delaware corporation

By:   /s/ Vaseem Mahboob
Name:   Vaseem Mahboob
Title:   Chief Executive Officer

 

3

EX-10.1

Exhibit 10.1

Execution Version

 

 

 

CREDIT AGREEMENT

by and among

DEERFIELD ELGX REVOLVER, LLC,

as Agent,

THE LENDERS THAT ARE PARTIES HERETO,

as the Lenders,

ENDOLOGIX, INC.,

each of its direct and indirect subsidiaries listed on the signature pages hereto and any additional borrower that hereafter becomes party hereto, each as Borrower, and collectively as Borrowers

Closing Date: August 9, 2018

 

 

 


TABLE OF CONTENTS

 

         Page  

ARTICLE I. DEFINITIONS AND CONSTRUCTION

     1  

1.01

  Definitions      1  

1.02

  Accounting Terms      48  

1.03

  Code      48  

1.04

  Construction      48  

1.05

  Time References      49  

1.06

  Schedules and Exhibits      49  

ARTICLE II. LOANS AND TERMS OF PAYMENT

     49  

2.01

  Revolving Loans      49  

2.02

  Borrowing Procedures and Settlements      50  

2.03

  Payments; Reductions of Commitments; Prepayments      53  

2.04

  Promise to Pay; Promissory Notes      56  

2.05

  Interest Rates: Rates, Payments, and Calculations      56  

2.06

  [Reserved]      58  

2.07

  Designated Account      58  

2.08

  Maintenance of Loan Account; Statements of Obligations      59  

2.09

  Fees, Changes, Damages and Revolver Exit Payment      59  

2.10

  [Reserved]      62  

2.11

  Capital Requirements      62  

2.12

  Collections; Crediting Payments      63  

2.13

  Appointment of Borrower Representative      64  

2.14

  Joint and Several Liability of Borrowers      65  

ARTICLE III. CONDITIONS; TERM OF AGREEMENT

     68  

3.01

  Conditions Precedent to the Initial Extension of Credit      68  

3.02

  Conditions Precedent to all Extensions of Credit      70  

3.03

  Effect of Maturity      71  

3.04

  Conditions Subsequent      71  

ARTICLE IV. REPRESENTATIONS AND WARRANTIES

     71  

4.01

  Due Organization and Qualification; No Event of Default; Solvency      72  

4.02

  Existence; Power and Authority      72  

4.03

  Litigation      72  

4.04

  Due Authorization; No Conflict      73  

4.05

  Permits and Authorizations      74  

4.06

  Title to Assets; No Encumbrances      74  

4.07

  Intellectual Property      74  

4.08

  No Default      75  

4.09

  Taxes      75  

4.10

  Compliance with Laws      75  

4.11

  SEC Filings      76  

4.12

  Financial Statements      76  

 

-i-


TABLE OF CONTENTS

(continued)

 

         Page  

4.13

  Internal Controls      77  

4.14

  ERISA      77  

4.15

  Subsidiaries      78  

4.16

  No Dividends      78  

4.17

  Stock      78  

4.18

  Material Contracts      79  

4.19

  Use of Proceeds      79  

4.20

  Environmental Condition      79  

4.21

  Governmental Regulation      80  

4.22

  Employee and Labor Matters      80  

4.23

  Name and Address; Properties      81  

4.24

  Sanctions      81  

4.25

  Anti-Money Laundering      81  

4.26

  Anti-Corruption      81  

4.27

  Anti-Terrorism      81  

4.28

  Sarbanes-Oxley      82  

4.29

  Accounting Practices      82  

4.30

  Common Stock      82  

4.31

  DTC      82  

4.32

  Fees      82  

4.33

  Products; Regulatory Required Permits      83  

4.34

  No Violation of Healthcare Laws      83  

4.35

  No Third Party Payor Program      84  

4.36

  Conduct of Business at Facilities      84  

4.37

  No Adulteration; Product Manufacturing      84  

4.38

  FDA      84  

4.39

  Margin Stock      85  

4.40

  Complete Disclosure      85  

4.41

  Investments      85  

4.42

  Schedules      85  

4.43

  Eligible Accounts      86  

4.44

  Eligible Inventory      86  

4.45

  Location of Inventory      86  

4.46

  Inventory and Equipment Records      86  

4.47

  No Violation of Usury Laws      86  

4.48

  Eligible Equipment      86  

ARTICLE V. AFFIRMATIVE COVENANTS

     87  

5.01

  Existence; Permits      87  

5.02

  Compliance with Laws      87  

5.03

  Insurance      87  

5.04

  Taxes      88  

5.05

  Reports, Notices      88  

5.06

  Inspection      90  

5.07

  Disclosure Updates      90  

 

-ii-


TABLE OF CONTENTS

(continued)

 

         Page  

5.08

  Cash Management      91  

5.09

  Further Assurances      91  

5.10

  Environmental      92  

5.11

  ERISA      92  

5.12

  FDA; Healthcare Laws      93  

5.13

  Regulatory Required Permits      93  

5.14

  Material Contracts      93  

5.15

  Notices Regarding Indebtedness      93  

5.16

  Reporting      93  

5.17

  Lender Meetings      95  

5.18

  Location of Collateral      95  

5.19

  Updated Borrowing Base Certificate      95  

5.20

  Announcing Form 8-K      95  

5.21

  Eligible Equipment      97  

5.22

  Maximum Revolver Related Notices      97  

ARTICLE VI. NEGATIVE COVENANTS

     98  

6.01

  Restrictions on Fundamental Changes      98  

6.02

  Joint Ventures; Restricted Payments      98  

6.03

  Liens      99  

6.04

  Disposal of Assets      99  

6.05

  Indebtedness      99  

6.06

  Investments      99  

6.07

  Transactions with Affiliates      99  

6.08

  ERISA      100  

6.09

  Nature of Business      100  

6.10

  Amendments to Organizational Documents and Material Contracts      100  

6.11

  Changes to Fiscal Year; GAAP      101  

6.12

  Prepayments and Amendments      101  

6.13

  Restrictions on Distributions      101  

6.14

  Sanctions; Anti-Corruption      101  

6.15

  Sale Leaseback Transactions      102  

6.16

  Environmental      102  

6.17

  Investment Company      102  

6.18

  Intercreditor Agreement; Term Debt      102  

6.19

  Payment of Convertible Notes      102  

6.20

  Commingling of Assets      103  

6.21

  Limitation on Issuance of Stock      103  

6.22

  Use of Proceeds      103  

6.23

  Anti-Layering      103  

6.24

  Convertible Notes Restrictions      103  

ARTICLE VII. FINANCIAL COVENANTS

     104  

7.01

  Financial Covenants      104  

 

-iii-


TABLE OF CONTENTS

(continued)

 

         Page  

ARTICLE VIII. EVENTS OF DEFAULT

     105  

8.01

  Payments      105  

8.02

  Covenants      106  

8.03

  Representations, etc.      106  

8.04

  Insolvency; Bankruptcy      106  

8.05

  Judgments      107  

8.06

  No Governmental Authorization      107  

8.07

  Agreement Invalid Under Applicable Law      107  

8.08

  Cross-Default      107  

8.09

  Loan Documents; Security Interests      107  

8.10

  ERISA      108  

8.11

  Product Withdrawal      108  

8.12

  Change in Law      108  

8.13

  Material Contract Default      108  

8.14

  Other Default or Breach      108  

8.15

  Criminal Proceedings      109  

8.16

  Payment of Subordinated Debt      109  

8.17

  Any Intercreditor Agreement Provisions Invalid      109  

8.18

  Guaranty      109  

8.19

  Subordination Provisions      109  

8.20

  Change in Control      109  

8.21

  Not Publicly Traded      109  

8.22

  Term Debt Defaults      109  

ARTICLE IX. RIGHTS AND REMEDIES

     110  

9.01

  Rights and Remedies      110  

9.02

  Remedies Cumulative      110  

ARTICLE X. WAIVERS; INDEMNIFICATION

     111  

10.01

  Demand; Protest; etc.      111  

10.02

  The Lender Group’s Liability for Collateral      111  

10.03

  Indemnification      111  

ARTICLE XI. NOTICES

     112  

ARTICLE XII. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE PROVISION

     113  

ARTICLE XIII. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS

     115  

13.01

  Assignments and Participations      115  

13.02

  Successors      118  

 

-iv-


TABLE OF CONTENTS

(continued)

 

         Page  

ARTICLE XIV. AMENDMENTS; WAIVERS

     119  

14.01

  Amendments and Waivers      119  

14.02

  [Reserved]      120  

14.03

  No Waivers; Cumulative Remedies      120  

ARTICLE XV. AGENT; THE LENDER GROUP

     120  

15.01

  Appointment and Authorization of Agent      120  

15.02

  Delegation of Duties      121  

15.03

  Liability of Agent      121  

15.04

  Reliance by Agent      122  

15.05

  Notice of Default or Event of Default      122  

15.06

  Credit Decision      122  

15.07

  Costs and Expenses; Indemnification      123  

15.08

  Agent in Individual Capacity      123  

15.09

  Assignment by Agent; Resignation of Agent; Successor Agent      123  

15.10

  Lender in Individual Capacity      124  

15.11

  Collateral Matters      124  

15.12

  Restrictions on Actions by Lenders; Sharing of Payments      126  

15.13

  Agency for Perfection      126  

15.14

  Payments by Agent to the Lenders      127  

15.15

  Concerning the Collateral and Related Loan Documents      127  

15.16

  Several Obligations; No Liability      127  

15.17

  Right to Request and Act on Instructions      127  

ARTICLE XVI. WITHHOLDING TAXES

     128  

16.01

  Payments      128  

16.02

  Exemptions      128  

16.03

  Refunds      130  

ARTICLE XVII. GENERAL PROVISIONS

     130  

17.01

  Effectiveness      130  

17.02

  Article and Section Headings      130  

17.03

  Interpretation      130  

17.04

  Severability of Provisions      131  

17.05

  Debtor-Creditor Relationship      131  

17.06

  Counterparts; Electronic Execution      131  

17.07

  Revival and Reinstatement of Obligations; Certain Waivers      131  

17.08

  Confidentiality      131  

17.09

  Survival      132  

17.10

  Patriot Act      133  

17.11

  Integration      133  

17.12

  No Setoff      133  

 

-v-


TABLE OF CONTENTS

(continued)

 

         Page  

17.13

 

Intercreditor Agreement

     133  

 

-vi-


EXHIBITS AND SCHEDULES

 

Exhibit A-1

   Form of Assignment and Acceptance

Exhibit B-1

   Form of Borrowing Base Certificate (Agent)

Exhibit B-2

   Form of Borrowing Base Certificate (Third Party Agent)

Exhibit C-1

   Form of Compliance Certificate

Exhibit P-1

   Form of Perfection Certificate

Schedule A-1

   Agent’s Account

Schedule A-2

   Authorized Person

Schedule C-1

   Commitments

Schedule D-1

   Designated Account

Schedule E-1

   Approved Account Debtor

Schedule P-1

   Existing Investments

Schedule 4.01(d)

   Existing Liens

Schedule 4.01(f)

   Existing Indebtedness

Schedule 4.03

   Litigation

Schedule 4.06

   Real Estate

Schedule 4.07

   Intellectual Property

Schedule 4.15

   Borrower’s Subsidiaries

Schedule 4.17

   Borrower’s Outstanding Shares of Stock, Options and Warrants

Schedule 4.18

   Material Contracts

Schedule 4.20

   Environmental

Schedule 4.22

   Labor Relations

Schedule 4.23

   Jurisdiction of Organization, Legal Name, Organizational Identification Number and Chief Executive Office

Schedule 4.33(a)

   FDA/Governmental Notices

Schedule 4.41

   Stock of the Subsidiaries of the Loan Parties

Schedule 4.45

   Inventory Location

Schedule 5.20

   Other Loan Documents to be Form 8-K Exhibits

Schedule 6.05

   Contingent Obligations

Schedule 6.07

   Transactions with Affiliates

 

-vii-


CREDIT AGREEMENT

THIS CREDIT AGREEMENT (this “Agreement”), is entered into as of August 9, 2018, by and among the lenders identified on the signature pages hereof (each of such lenders, together with its successors and permitted assigns, is referred to hereinafter as a “Lender”, as that term is hereinafter further defined), DEERFIELD ELGX REVOLVER, LLC, a Delaware limited liability company, as Agent for each member of the Lender Group, Endologix, Inc., a Delaware corporation (“Endologix”), each of its direct and indirect Subsidiaries set forth on the signature pages hereto and any additional borrower that may hereafter be added to this Agreement (individually as a “Borrower”, and collectively with any entities that become party hereto as Borrower and each of their successors and permitted assigns, the “Borrowers”).

RECITALS

Borrowers have requested that Lenders make available to Borrowers the financing facility described herein. Lenders are willing to extend such credit to Borrowers under the terms and conditions set forth.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

ARTICLE I.

DEFINITIONS AND CONSTRUCTION.

1.01 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below:

2.25% Convertible Note Documents” means the 2.25% Convertible Notes, the 2.25% Senior Note Indenture and each other document or agreement from time to time entered into in connection with the foregoing.

2.25% Convertible Notes” means those certain 2.25% senior unsecured notes, governed by the terms of a base indenture, as supplemented by the first supplemental indenture relating to the 2.25% senior notes (together, the “2.25% Senior Notes Indenture”), between Endologix and Wells Fargo Bank, National Association, as trustee, each of which were entered into on December 10, 2013.

2.25% Senior Notes Indenture” has the meaning provided therefor in the definition of “2.25% Convertible Notes.”

3.25% Convertible Notes” means those certain 3.25% senior unsecured notes, governed by the terms of a base indenture, as supplemented by the second supplemental indenture relating to the 3.25% senior notes (together, the “3.25% Senior Notes Indenture”), between Endologix and Wells Fargo Bank, National Association, as trustee, each of which were entered into on November 2, 2015, as the same may be amended, restated, refinanced, supplemented or otherwise modified in connection with a Permitted 3.25% Convertible Note Refinancing.

3.25% Convertible Note Documents” means the 3.25% Convertible Notes, the 3.25% Senior Note Indenture and each other document or agreement from time to entered into in connection with the


foregoing, as the same may be amended, restated, refinanced, supplemented or otherwise modified in on with a Permitted 3.25% Convertible Note Refinancing.

3.25% Senior Notes Indenture” has the meaning provided therefor in the definition of “3.25% Convertible Notes.”

10-K” means an annual report on Form 10-K (or successor form thereto), as required to be filed pursuant to the Exchange Act.

10-Q” means a quarterly report on Form 10-Q (or successor form thereto), as required to be filed pursuant to the Exchange Act.

Account” means an account (as that term is defined in the Code).

Account Debtor” means any Person who is obligated on an Account, chattel paper, or a general intangible.

Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of fifty percent (50%) of the Stock of any Person or otherwise causing any Person to become a Subsidiary of the Borrower, (c) a merger or consolidation or any other combination with another Person or (d) the acquisition (including through licensing) of any Product or Intellectual Property of or from another Person if the Acquisition Consideration paid in connection with such acquisition is in excess of $5,000,000 individually or in the aggregate with respect to all such acquisitions in any twelve (12) month period.

Acquisition Consideration” has the meaning specified therefor in the definition of “Permitted Acquisitions.”

Administrative Questionnaire” has the meaning specified therefor in Section 13.01(a).

Affected Lender” has the meaning specified therefor in Section 2.11(b).

Affiliate” means, with respect to any Person, (a) any Person that directly or indirectly controls such Person, (b) any Person which is controlled by or is under common control with such controlling Person, and (c) each of such Person’s (other than, with respect to any Lender, any Lender’s) officers or directors (or Persons functioning in substantially similar roles) and the spouses, parents, descendants and siblings of such officers, directors or other Persons. As used in this definition, the term “control” of a Person means the possession, directly or indirectly, of the power to vote five percent (5%) or more of any class of voting securities of such Person or to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

Agent” means Deerfield Revolver, in its capacity as administrative agent for itself and for the other members of the Lender Group hereunder, as such capacity is established in, and subject to the provisions of, Article XV, and the successors and assigns of Deerfield Revolver in such capacity, and including, when the context may require, during any Third Party Agent Retention Period, any Third Party Agent.

Agent-Related Persons” means Agent (including, for the avoidance of doubt, any Third Party Agent), together with its Affiliates, controlling persons and their respective directors, officers, employees,

 

2


partners, advisors, agents and other representatives of each of the foregoing and their respective successors.

Agent’s Account” means the Deposit Account of Agent (or, during a Third Party Agent Retention Period, any Third Party Agent) identified on Schedule A-1 (or such other Deposit Account of Agent (or, during a Third Party Agent Retention Period, such Third Party Agent) that has been designated as such, in writing, by Agent (or, during a Third Party Agent Retention Period, such Third Party Agent) to Borrowers and the Lenders).

Agent’s Liens” means the Liens granted by Borrowers or their Subsidiaries to Agent (or any Third Party Agent) under the Loan Documents and securing the Obligations.

Agreement” means this Credit Agreement.

All-in Yield” means the interest rate (including margins and floors), original issue discount and fees paid to all lenders (or consenting lenders) of such debt or their Affiliates (based on the remaining life to maturity), but not including any fees not paid to all lenders (such as fees to initial purchasers (i.e., investment banks in Rule 144A offerings), underwriters or lead agents).

Announcing Form 8-K” has the meaning specified therefor in Section 5.20.

Anti-Corruption Laws” means any and all laws, rules, and regulations of any jurisdiction applicable to any Loan Party or any Subsidiary of any Loan Party from time to time concerning or relating to bribery or corruption, including, without limitation, the FCPA, as amended, the UK Bribery Act 2010 and other similar legislation in any other jurisdictions.

Anti-Money Laundering Laws” means any and all laws, rules, and regulations in effect from time to time related to terrorism or money laundering, including, without limitation, (i) all applicable requirements of the Currency and Foreign Transactions Reporting Act of 1970 (31 U.S.C. 5311 et. seq., (the Bank Secrecy Act)), as amended by Title III of the USA Patriot Act, (ii) the Trading with the Enemy Act, (iii) Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (66 Fed. Reg. 49079), and any other enabling legislation, executive order or regulations issued pursuant or relating thereto and (iv) other applicable federal or state laws relating to “know your customer” or anti-money laundering rules and regulations.

Anti-Terrorism Laws” means any and all laws, regulations, rules, orders, etc. in effect from time to time relating to anti-money laundering and terrorism, including, without limitation, Executive Order No. 13224 (effective September 24, 2001), Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended), and the USA Patriot Act (Pub. L. No. 107-56 (Oct. 12, 2001)).

Applicable Laws” means, with respect to any Person, the common law and any federal, state, local, foreign, multinational or international laws, statutes, codes, treaties, standards, rules and regulations, guidelines, ordinances, orders, judgments, writs, injunctions, decrees (including administrative or judicial precedents or authorities) and the interpretation or administration thereof by, and other determinations, directives, requirements or requests of, any Governmental Authority, in each case whether or not having the force of law and that are applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. “Applicable Laws” includes Healthcare Laws and Environmental Laws.

Applicable Revolver Reduction Premium” has the meaning specified in Section 2.09(d)(iii).

 

3


Application Event” means the occurrence of (a) a failure by Borrowers to repay all of the Obligations in full in cash on the Maturity Date, or (b) an Event of Default and the election by Agent or the Required Lenders to require that payments and proceeds of Collateral be applied pursuant to Section 2.03(b)(ii).

Approved Fund” means any (a) investment company, fund, trust, securitization vehicle or conduit that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit, or (b) any Person (other than a natural person) which temporarily warehouses loans for any Lender or any entity described in the preceding clause (a) and that, with respect to each of the preceding clauses (a) and (b), is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender, or (iii) a Person (other than a natural person) or an Affiliate of a Person (other than a natural person) that administers or manages a Lender.

Assignee” has the meaning specified therefor in Section 13.01(a).

Assignment and Acceptance” means an Assignment and Acceptance Agreement substantially in the form of Exhibit A-1 or any other form agreed by the Agent.

Authorizations” means, with respect to any Person, any permits (including Regulatory Required Permits), approvals, authorizations, licenses, registrations, certificates, clearances, concessions, grants, franchises, variances or permissions from, and any other contractual obligations with, any Governmental Authority, in each case whether or not having the force of law and applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, and any supplements or amendments with respect to the foregoing.

Authorized Person” means any one of the individuals identified on Schedule A-2, as such schedule is updated from time to time by written notice from Borrowers to Agent (and, during any Third Party Agent Retention Period, also to the Third Party Agent).

Authorized Officer” means the chief executive officer, the president or the chief financial officer of the Borrower Representative or any other officer of the Borrower Representative having substantially the same authority and responsibility.

Availability” means, as of any date of determination, the amount that Borrowers are entitled to borrow as Revolving Loans under Section 2.01 (after giving effect to the then outstanding Revolver Usage).

Average Availability” means, with respect to any period, the sum of the aggregate amount of Availability for each Business Day in such period (calculated as of the end of each respective Business Day) divided by the number of Business Days in such period.

Average Revolver Usage” means, with respect to any period, the sum of the aggregate amount of Revolver Usage for each Business Day in such period (calculated as of the end of each respective Business Day) divided by the number of Business Days in such period.

Bank of America Cash Collateral Account” means that certain deposit account #1453234066 of Borrower at Bank of America, N.A. (or such replacement deposit account provided by Bank of America, N.A. or by another commercial bank) established and maintained for the sole purpose of providing cash collateral in favor of Bank of America, N.A. (or such replacement commercial bank) for obligations of the Borrower in respect of certain commercial credit cards (or with respect to a replacement commercial bank, similar commercial credit cards to those provided by Bank of America, N.A. as of the Closing

 

4


Date) provided to the Borrower by Bank of America, N.A. (or such replacement commercial bank); provided that the aggregate amount on deposit in such deposit account (or such replacement deposit account) shall not at any time exceed $2,500,000.

Bankruptcy Code” means title 11 of the United States Code, as in effect from time to time.

Blocked Account” has the meaning specified therefor in Section 2.12(a).

Board of Governors” means the Board of Governors of the Federal Reserve System of the United States (or any successor).

Borrowers” has the meaning specified therefor in the preamble.

Borrower Representative” means Endologix, in its capacity as Borrower Representative pursuant to the provisions of Section 2.13, or any successor Borrower Representative selected by Borrowers and approved by Agent.

Borrowing” means a borrowing consisting of Loans made on the same day by the Lenders (or Agent on behalf thereof), or by Agent in the case of an Extraordinary Advance.

Borrowing Base means, as of any date of determination, an amount equal to:

(a) the lesser of:

(i) the Maximum Revolver Amount, and

(ii) an amount equal to:

(A) an amount not to exceed 85% of the aggregate amount of Eligible Accounts; less

(B) the amount, if any, of the Dilution Reserve; plus

(C) the least of (1) the product of 50% multiplied by the value (calculated at the lower of cost or market based on the Borrowers’ historical accounting practices) of Eligible Inventory at such time, (2) the product of 85% multiplied by the Net Orderly Liquidation Value of Eligible Inventory (such determination may be made as to different categories of Eligible Inventory based upon the Net Orderly Liquidation Value applicable to such categories) at such time, (3) the Inventory Cap and (4) an amount equal to 40% of the Borrowing Base; plus

(D) an amount not to exceed 50% of the Net Book Value of Eligible Equipment;

less

(b) the aggregate amount of all Reserves in effect at such time;

provided, that, the Borrowing Base will be automatically adjusted down, if necessary, such that (1) availability from Eligible Foreign Accounts shall never exceed the lesser of (x) $5,000,000 and (y) 20% of the Borrowing Base and (2) availability from Eligible Equipment shall never exceed $2,000,000; and

 

5


provided, further, that, as of any date of determination prior to the Trigger Date, the Borrowing Base shall never exceed an amount equal to (i) 75% of the Borrowing Base plus (ii) Qualified Cash as of such date.

Borrowing Base Certificate” means each of the Borrowing Base Certificate (Agent) and Borrowing Base Certificate (Third Party Agent), as the context may require.

Borrowing Base Certificate (Agent)” means a certificate in the form of Exhibit B-1, which Borrowing Base Certificate (Agent) shall be delivered to Agent in accordance with the terms of this Agreement.

Borrowing Base Certificate (Third Party Agent)” means a certificate in the form of Exhibit B-2, which Borrowing Base Certificate (Third Party Agent) shall be delivered to a Third Party Agent during a Third Party Agent Retention Period in accordance with the terms of this Agreement.

Business Day” means any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or which is a day on which Agent (or, during any Third Party Agent Retention Period, the Third Party Agent) is otherwise closed for transacting business with the public, except that, if a determination of a Business Day shall relate to amounts accruing interest at the LIBOR Rate, the term “Business Day” also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market.

Capital Expenditures” means, with respect to any Person for any period, the amount of all expenditures by such Person and its Subsidiaries during such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed, but excluding, without duplication (a) expenditures made during such period in connection with the replacement, substitution, or restoration of assets or properties, (b) with respect to the purchase price of assets that are purchased substantially contemporaneously with the trade-in of existing assets during such period, the amount that the gross amount of such purchase price is reduced by the credit granted by the seller of such assets for the assets being traded in at such time, (c) expenditures made during such period to consummate one or more Permitted Acquisitions, (d) expenditures made during such period to the extent made with the identifiable proceeds of an equity investment in Borrowers which equity investment is made substantially contemporaneously with the making of the expenditure, and (e) expenditures during such period that, pursuant to a written agreement, are reimbursed by a third Person (excluding the Loan Parties and their Affiliates).

Capital Lease” means, with respect to any Person, any lease of or other arrangement conveying the right to use, any property by such Person as lessee that has been or should be accounted for as a capital lease on a balance sheet of such Person prepared in accordance with GAAP.

Capital Lease Obligations” means, at any time, with respect to any Capital Lease, any lease entered into as part of any sale leaseback transaction of any Person or any synthetic lease, the amount of all obligations of such Person that is (or that would be, if such synthetic lease or other lease were accounted for as a Capital Lease) capitalized on a balance sheet of such Person prepared in accordance with GAAP.

Capped Call” means the capped call transactions referenced in Schedule 6.05 in respect of the 2.25% Convertible Notes and any like transactions that are economically similar to such transactions entered into in connection with any Indebtedness contemplated under clause (j) of the definition of Permitted Indebtedness.

 

6


Cash Equivalents” means (a) any readily-marketable securities (i) issued by, or directly, unconditionally and fully guaranteed or insured by the United States federal government or (ii) issued by any agency of the United States federal government the obligations of which are fully backed by the full faith and credit of the United States federal government, (b) any readily-marketable direct obligations issued by any other agency of the United States federal government, any state of the United States or any political subdivision of any such state or any public instrumentality thereof, in each case having a rating of at least “A-1” from S&P or at least “P-1” from Moody’s, (c) any commercial paper rated at least “A-1” by S&P or “P-1” by Moody’s and issued by any Person organized under the laws of any state of the United States, (d) any United States dollar-denominated time deposit, insured certificate of deposit, overnight bank deposit or bankers’ acceptance issued or accepted by any commercial bank that is (A) organized under the laws of the United States, any state thereof or the District of Columbia, (B) “adequately capitalized” (as defined in the regulations of its primary federal banking regulators) and (C) has Tier 1 capital (as defined in such regulations) in excess of $250,000,000, (e) shares of any United States money market fund that (i) has substantially all of its assets invested continuously in the types of investments referred to in clause (a), (b), (c) or (d) above with maturities as set forth in the proviso below, (ii) has net assets in excess of $500,000,000 and (iii) has obtained from either S&P or Moody’s the highest rating obtainable for money market funds in the United States; provided, however, that the maturities of all obligations specified in any of clauses (a), (b), (c) or (d) above shall not exceed one year and (f) investments made in accordance with Endologix’ investment policy in effect as of the Closing Date that was provided to the Agent’s counsel on March 14, 2017 at 12:15 p.m. New York time, and any amendments thereto that do not, when taken as a whole, materially increase the risk of the investments made by Endologix from time to time from Endologix’ investment policy in effect as of the Closing Date.

Cash Management Services” means any cash management or related services including treasury, depository, return items, overdraft, controlled disbursement, merchant store value cards, e-payables services, electronic funds transfer, interstate depository network, automatic clearing house transfer (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) and other customary cash management arrangements.

Change in Law” means the occurrence after the Closing Date of: (a) the adoption or effectiveness of any law, rule, regulation, judicial ruling, judgment or treaty, (b) any change in any law, rule, regulation, judicial ruling, judgment or treaty or in the administration, interpretation, implementation or application by any Governmental Authority of any law, rule, regulation, guideline or treaty, or (c) the making or issuance by any Governmental Authority of any request, rule, guideline or directive, whether or not having the force of law; provided that notwithstanding anything in the Agreement to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives concerning capital adequacy promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities shall, in each case, be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.

Change in Control” or “Change of Control” means any of the following events: (a) any Person or two or more Persons acting in concert shall have acquired beneficial ownership, directly or indirectly, of, or shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation, will result in its or their acquisition of or control over, voting Stock of Endologix (or other securities convertible into such voting Stock) representing more than 50% of the combined voting power of all voting Stock of Endologix; (b) Endologix shall have ceased to own, directly or indirectly, 100% of the Stock of any of its Subsidiaries (with the exception of any Subsidiaries permitted to be dissolved or merged to the extent otherwise permitted by this Agreement and other than,

 

7


solely with respect to Foreign Subsidiaries, directors qualifying shares as necessary to comply with foreign law); (c) the occurrence of a “Change of Control”, “Change in Control”, “Fundamental Change” or terms of similar import under the 2.25% Convertible Note Documents, the 3.25% Convertible Note Documents, the Term Debt Documents or any Permitted Japan Lifeline Unsecured Debt Documents; or (d) the occurrence of any “Major Transaction” (as defined in any Warrant). As used herein, “beneficial ownership” shall have the meaning provided in Rule 13d-3 of the SEC under the Exchange Act; provided that no Change in Control shall be deemed to have occurred with respect to a “Permitted Successor Transaction” (as defined in the Term Loan Credit Agreement as in effect on the Closing Date) which prohibits the Term Lenders from delivering a “Put Notice” (as defined in the Term Loan Credit Agreement as in effect on the Closing Date) under the Term Loan Credit Agreement as in effect on the Closing Date.

Closing Date” means the date of this Agreement.

CMS” means the federal Centers for Medicare and Medicaid Services (formerly the federal Health Care Financing Administration), and any successor Governmental Authority.

Code” means the New York Uniform Commercial Code, as in effect from time to time.

Collateral” means all assets and interests in assets and proceeds thereof now owned or hereafter acquired by Borrowers or any of their Subsidiaries in or upon which a Lien is granted by such Person in favor of Agent (or, during any Third Party Agent Retention Period, the Third Party Agent) or the Lenders under any of the Loan Documents, including the “Collateral” (as defined in the Guaranty and Security Agreement).

Collateral Access Agreement” means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Loan Parties’ or their Subsidiaries’ Collateral or books and records, in each case, in form and substance reasonably satisfactory to Agent and the Lenders.

Commitment” means, with respect to each Lender, its Revolver Commitment and, with respect to all Lenders, their Revolver Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 or in the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder, as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.01.

Commitment Fee” has the meaning specified therefor in Section 2.09(e).

Common Stock” means the “Common Stock” of Endologix, with a $0.001 par value per share.

Compliance Certificate” means a certificate, duly executed by an Authorized Officer of the Borrower Representative, appropriately completed and substantially in the form of Exhibit C-1 hereto.

Contingent Obligation” means, with respect to any Person, any direct or indirect liability of such Person: (a) with respect to any Indebtedness of another Person (a “Third Party Obligation”) if the purpose or intent of such Person incurring such liability, or the effect thereof, is to provide assurance to the obligee of such Third Party Obligation that such Third Party Obligation will be paid or discharged, or that any agreement relating thereto will be complied with, or that any holder of such Third Party Obligation will be protected, in whole or in part, against loss with respect thereto; (b) with respect to any undrawn portion of any letter of credit issued for the account of such Person or as to which such Person is otherwise liable for the reimbursement of any drawing; (c) under any Swap Contract, to the extent not yet

 

8


due and payable; (d) to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement; or (e) for any obligations of another Person pursuant to any Guarantee or pursuant to any agreement to purchase, repurchase or otherwise acquire any obligation or any property constituting security therefor, to provide funds for the payment or discharge of such obligation or to preserve the solvency, financial condition or level of income of another Person. The amount of any Contingent Obligation shall be equal to the amount of the obligation so Guaranteed or otherwise supported or, if not a fixed and determinable amount, the maximum amount so Guaranteed or otherwise supported.

Control Agreement” means a control agreement, in form and substance reasonably satisfactory to Agent and the Lenders, executed and delivered by Borrowers or one of their Subsidiaries, Agent, Term Agent and the applicable securities intermediary (with respect to a Securities Account) or bank (with respect to a Deposit Account).

Convertible Note Documents” means, collectively the 2.25% Convertible Note Documents and the 3.25% Convertible Note Documents (which, for the avoidance of doubt, shall include the indenture and each other document or agreement from time to time entered into in connection with any Permitted 3.25% Convertible Note Refinancing, in each case, to the extent such indenture, documents or agreements are permitted pursuant to the terms of the definition of “Permitted 3.25% Convertible Note Refinancing”).

Copyrights” has the meaning specified therefor in the Guaranty and Secured Agreement.

Copyright Security Agreement” has the meaning specified therefor in the Guaranty and Security Agreement.

Correction” means the repair, modification, adjustment, relabeling, destruction, or inspection (including patient monitoring) of a product or device without its physical removal from its point of use to some other location.

Cortland” means Cortland Capital Market Services LLC, a Delaware limited liability company, and its Affiliates and its and their successors and assigns.

DEA” means the Drug Enforcement Administration of the United States of America, any comparable state or local Governmental Authority, any comparable Governmental Authority in any non-United States jurisdiction, and any successor agency of any of the foregoing.

Deerfield Revolver” means Deerfield ELGX Revolver, LLC and its successors and assigns.

Default” means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.

Deposit Account” means any deposit account (as that term is defined in the Code).

Depositary Bank” has the meaning specified therefor in Section 2.12(a).

Designated Account” means the Deposit Account of Borrower Representative identified on Schedule D-1 (or such other Deposit Account of Borrower Representative located at Designated Account Bank that has been designated as such, in writing, by Borrowers to Agent (and, during any Third Party Agent Retention Period, also to the Third Party Agent)).

 

9


Designated Account Bank” has the meaning specified therefor in Schedule D-1 (or such other bank that is located within the United States that has been designated as such, in writing, by Borrowers to Agent (and, during any Third Party Agent Retention Period, also to the Third Party Agent)).

Dilution” means, as of any date of determination, a percentage, based upon the experience of the immediately prior three (3) months, that is the result of dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising allowances, credits, or other dilutive items with respect to Borrowers’ Accounts during such period, by (b) Borrowers’ billings with respect to Accounts during such period.

Dilution Reserve” means, as of any date of determination, an amount sufficient to reduce the advance rate against Eligible Accounts by one (1) percentage point for each percentage point by which Dilution is in excess of 5%.

Dispose” and “Disposition” mean (a) the sale, lease, license, transfer, assignment, conveyance or other disposition of any assets or property (including any transfer or conveyance of any assets or property pursuant to a division or split of a limited liability company or other entity or Person into two or more limited liability companies or other entities or Persons), and (b) the sale or transfer by the Borrower or any Subsidiary of the Borrower of any Stock issued by any Subsidiary of the Borrower.

Disqualified Stock” means any Stock which, by its terms (or by the terms of any security or other Stock into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition, (a) matures or is mandatorily redeemable (other than solely for Stock that does not constitute Disqualified Stock), pursuant to a sinking fund obligation or otherwise, or is redeemable (in each case, other than solely for Stock that does not constitute Disqualified Stock) at the option of the holder thereof, in whole or in part, on or prior to the date that is one year and one day following the Maturity Date (excluding any provisions requiring redemption upon a “change in control” or similar event, provided that such “change in control” or similar event results in the occurrence of the payment in full in cash of all of the Obligations (other than unasserted contingent indemnification obligations) and the termination of all of the Commitments, (b) is convertible into or exchangeable for (i) debt securities or (ii) any Stock referred to in (a) above, in each case, at any time on or prior to the date that is one year and one day following the Maturity Date at the time such Stock was issued, or (c) is entitled to receive scheduled dividends or distributions in cash prior to the date that is one year and one day following the Maturity Date.

Dollars” or “$” means United States dollars.

Domestic Subsidiary” means, with respect to any Person, a Subsidiary of such Person, which is organized, incorporated or otherwise formed under the laws of the United States or any state thereof or the District of Columbia.

 

10


Drug Application” means a new drug application, an abbreviated drug application, or a product license application for any Product, as appropriate, as those terms are defined in the FDCA.

DTC” has the meaning specified therefor in Section 4.31.

EBITDA” means, for any period, Borrowers and their Subsidiaries’ net income, plus (to the extent deducted from net income in the determination thereof) interest expense, taxes, depreciation and amortization for such period, all calculated on a consolidated basis in accordance with GAAP, consistently applied and determined as of and at the end of such period. For purposes of this Agreement, EBITDA for any period shall be determined by disregarding any extraordinary, unusual or non-recurring items of income during such period.

Eligible Accounts” means Eligible Domestic Accounts and Eligible Foreign Accounts.

Eligible Domestic Accounts” means those Accounts created by a Borrower in the ordinary course of its business, that arise out of its sale of goods or rendition of services in the United States that have been acknowledged as accepted by the applicable Account Debtor, that comply with each of the representations and warranties respecting Eligible Domestic Accounts made in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the excluding criteria set forth below; provided, that such criteria may be revised from time to time by Agent in Agent’s (including, during any Third Party Agent Retention Period, the Third Party Agent’s) Permitted Discretion to address the results of any field examination performed by (or on behalf of) Agent (or, during any Third Party Agent Retention Period, the Third Party Agent) from time to time after the Closing Date. In determining the amount to be included, Eligible Domestic Accounts shall be calculated net of customer deposits, unapplied cash, taxes, discounts, credits, allowances, and rebates. Subject to the proviso to the first sentence of this definition, Eligible Domestic Accounts shall not include the following:

(a) Accounts that the Account Debtor has failed to pay within 90 days of original invoice date, Accounts that are more than 60 days past due or have a credit balance that is more than 60 days past due, or Accounts with selling terms of more than 60 days (or, with respect to Twins & Martin, 120 days),

(b) Accounts owed by an Account Debtor (or its Affiliates) where 50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above,

(c) Accounts with respect to which the Account Debtor is an Affiliate of a Loan Party or an employee or agent of a Loan Party or any Affiliate of a Loan Party,

(d) Accounts arising in a transaction wherein goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold, or any other terms by reason of which the payment by the Account Debtor may be conditional,

(e) Accounts that are not payable in Dollars,

(f) Accounts with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States or (ii) is not organized under the laws of the United States or any state thereof,

(g) Accounts of a Loan Party with respect to which the Account Debtor is either (i) the United States or any department, agency, or instrumentality of the United States (exclusive, however, of (x) Accounts with respect to which such Loan Party has complied, to the reasonable satisfaction of Agent

 

11


(or, at the sole option of Agent during any Third Party Agent Retention Period, the Third Party Agent), with the Assignment of Claims Act, 31 USC §3727 and (y) up to $1,000,000, in the aggregate, of Accounts where the Account Debtor is satisfactory to Agent (including, during any Third Party Agent Retention Period, the Third Party Agent) in its Permitted Discretion), or (ii) any state of the United States,

(h) Accounts with respect to which the Account Debtor is a creditor of a Loan Party, has or has asserted a right of recoupment or setoff, or has disputed its obligation to pay all or any portion of the Account, but only to the extent of such claim, right of recoupment or setoff, or dispute,

(i) Accounts with respect to an Account Debtor whose total obligations owing to the Loan Parties exceed 20% of all Eligible Accounts, to the extent of the obligations owing by such Account Debtor in excess of such percentage; provided, that, in each case, the amount of Eligible Accounts that are excluded because they exceed the foregoing percentage shall be determined by Agent (or, at the sole option of Agent during any Third Party Agent Retention Period, the Third Party Agent) based on all of the otherwise Eligible Accounts prior to giving effect to any eliminations based upon the foregoing concentration limit,

(j) Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to which a Loan Party has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor,

(k) Accounts, the collection of which, Agent (including, during any Third Party Agent Retention Period, the Third Party Agent), in its Permitted Discretion, believes to be doubtful, including by reason of the Account Debtor’s financial condition,

(l) Accounts that are not subject to a valid and perfected first priority Agent’s Lien,

(m) Accounts with respect to which (i) the goods giving rise to such Account have not been shipped and billed to the Account Debtor, or (ii) the services giving rise to such Account have not been performed and billed to the Account Debtor,

(n) Accounts with respect to which the Account Debtor is a Sanctioned Person or Sanctioned Entity,

(o) Accounts with respect to which the Account Debtor is an individual,

(p) Accounts that represent the right to receive progress payments or other advance billings that are due prior to the completion of performance by a Loan Party of the subject contract for goods or services, or

(q) Accounts where the Account or the applicable Account Debtor fails to meet such other specifications and requirements which may be from time to time established by Agent (including, during any Third Party Agent Retention Period, the Third Party Agent) in its Permitted Discretion.

Eligible Assignee” means (a) a Lender, (b) an Affiliate of a Lender, (c) a Related Fund, and (d) any other Person (other than a natural person) approved by Agent; provided, however, that solely with respect to clause (d) above, no such Person shall include (i) Borrowers or any of Borrowers’ Affiliates or (ii) unless an Event of Default has occurred and is continuing, (A) any direct competitor of the Loan Parties, in each case, as determined by Agent in its reasonable discretion, (B) any investor or fund that has