FORM OF SERIES D
WARRANT
NEITHER THE ISSUANCE AND SALE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO
WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
CHINA VOIP & DIGITAL TELECOM INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.:
Number of Shares of Common Stock:
7,500,000
Date of Issuance: December 8, 2008
(" Issuance Date ")
China VoIP & Digital Telecom Inc., a
Nevada corporation, (the " Company "), hereby certifies
that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, CASTLERIGG MASTER
INVESTMENTS LTD., the registered holder hereof or its permitted
assigns (the " Holder "), is entitled, subject to the terms
set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including any Warrants to
purchase Common Stock issued in exchange, transfer or replacement
hereof, the " Warrant "), at any time or times on or after
the date hereof, but not after 11:59 p.m., New York Time, on the
Expiration Date (as defined below), SEVEN MILLION FIVE HUNDRED
THOUSAND (7,500,000) fully paid nonassessable shares of Common
Stock (as defined below) (the " Warrant Shares ").
Except as otherwise defined herein, capitalized terms in this
Warrant shall have the meanings set forth in Section 16. This
Warrant is one of the Warrants to Purchase Common Stock (the "
SPA Warrants ") issued pursuant to Section 1 of that certain
Amendment and Exchange Agreement, dated as of December 8, 2008 (the
" Replacement Date "), by and between the Buyer (as defined
in the Securities Purchase Agreement) and the Company (the "
Amendment and Exchange Agreement ").
1.
EXERCISE OF WARRANT
.
(a)
Mechanics of Exercise
. Subject to the terms and
conditions hereof (including, without limitation, the limitations
set forth in Section 1(f)), this Warrant may be exercised by the
Holder on any day on or after the date hereof in whole or in part,
by (i) delivery of a written notice, in the form attached
hereto as Exhibit A (the " Exercise Notice "), of the
Holder's election to exercise this Warrant and (ii) (A)
payment to the Company of an amount equal to the applicable
Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the " Aggregate Exercise
Price ") in cash or by wire transfer of immediately available
funds or (B) by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in Section
1(d)). The Holder shall not be required to deliver the
original Warrant in order to effect an exercise hereunder.
Execution and delivery of the Exercise Notice with respect to
less than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant
Shares. On or before the first Business Day following the
date on which the Company has received each of the Exercise Notice
and the Aggregate Exercise Price (or notice of a Cashless Exercise)
(the " Exercise Delivery Documents "), the Company shall
transmit by facsimile an acknowledgment of confirmation of receipt
of the Exercise Delivery Documents to the Holder and the Company's
transfer agent (the " Transfer Agent "). On or before
the third Trading Day following the date on which the Company has
received all of the Exercise Delivery Documents (the " Share
Delivery Date "), the Company shall (X) provided that the
Transfer Agent is participating in The Depository Trust Company ("
DTC ") Fast Automated Securities Transfer Program, upon the
request of the Holder, credit such aggregate number of shares of
Common Stock to which the Holder is entitled pursuant to such
exercise to the Holder's or its designee's balance account with DTC
through its Deposit Withdrawal Agent Commission system, or (Y) if
the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and dispatch by overnight
courier to the address as specified in the Exercise Notice, a
certificate, registered in the Company's share register in the name
of the Holder or its designee, for the number of shares of Common
Stock to which the Holder is entitled pursuant to such exercise.
Upon delivery of the Exercise Delivery Documents, the Holder
shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this
Warrant has been exercised, irrespective of the date such Warrant
Shares are credited to the Holder's DTC account or the date of
delivery of the certificates evidencing such Warrant Shares, as the
case may be. If this Warrant is submitted in connection with
any exercise pursuant to this Section 1(a) and the number of
Warrant Shares represented by this Warrant submitted for exercise
is greater than the number of Warrant Shares being acquired upon an
exercise, then the Company shall as soon as practicable and in no
event later than three Business Days after any exercise and at its
own expense, issue a new Warrant (in accordance with Section 7(d))
representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant,
less the number of Warrant Shares with respect to which this
Warrant is exercised. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but rather the
number of shares of Common Stock to be issued shall be rounded up
to the nearest whole number. The Company shall pay any and
all taxes which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant.
(b)
Exercise Price . For purposes of this Warrant, " Exercise
Price " means $0.2168, subject to adjustment as provided
herein.
(c)
Company's Failure to Timely Deliver
Securities . If the Company
shall fail for any reason or for no reason to issue to the Holder
within three (3) Trading Days of receipt of the Exercise Delivery
Documents, a certificate for the number of shares of Common Stock
to which the Holder is entitled and register such shares of Common
Stock on the Company's share register or to credit the Holder's
balance account with DTC for such number of shares of Common Stock
to which the Holder is entitled upon the Holder's exercise of this
Warrant, then, in addition to all other remedies available to the
Holder, the Company shall pay in cash to the Holder on each day
after such third Trading Day that the issuance of such shares of
Common Stock is not timely effected an amount equal to 1.5% of the
product of (A) the sum of the number of shares of Common Stock not
issued to the Holder on a timely basis and to which the Holder is
entitled and (B) the Closing Sale Price of the shares of Common
Stock on the Trading Day immediately preceding the last possible
date which the Company could have issued such shares of Common
Stock to the Holder without violating Section 1(a). In
addition to the foregoing, if within three (3) Trading Days after
the Company's receipt of the facsimile copy of a Exercise Notice
the Company shall fail to issue and deliver a certificate to the
Holder and register such shares of Common Stock on the Company's
share register or credit the Holder's balance account with DTC for
the number of shares of Common Stock to which the Holder is
entitled upon the Holder's exercise hereunder, and if on or after
such Trading Day the Holder purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving
from the Company (a " Buy-In "), then the Company shall,
within three Business Days after the Holder's request and in the
Holder's discretion, either (i) pay cash to the Holder in an amount
equal to the Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased
(the " Buy-In Price "), at which point the Company's
obligation to deliver such certificate (and to issue such shares of
Common Stock) or credit such Holder's balance account with DTC
shall terminate, or (ii) promptly honor its obligation to deliver
to the Holder a certificate or certificates representing such
shares of Common Stock or credit such Holder's balance account with
DTC and pay cash to the Holder in an amount equal to the excess (if
any) of the Buy-In Price over the product of (A) such number of
shares of Common Stock, times (B) the Closing Bid Price on the date
of exercise.
(d)
Cashless Exercise
. Notwithstanding anything
contained herein to the contrary, if a registration statement
covering the resale of the Warrant Shares that are the subject of
the Exercise Notice (the " Unavailable Warrant Shares ") is
not available for the resale of such Unavailable Warrant Shares,
the Holder may, in its sole discretion, exercise this Warrant in
whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive
upon such exercise the "Net Number" of shares of Common Stock
determined according to the following formula (a " Cashless
Exercise "):
Net Number = (A x B) - (A x
C)
B
For purposes of the foregoing
formula:
A= the total number of shares with
respect to which this Warrant is then being exercised.
B= the Closing Sale Price of the shares
of Common Stock (as reported by Bloomberg) on the date immediately
preceding the date of the Exercise Notice.
C= the Exercise Price then in effect for
the applicable Warrant Shares at the time of such
exercise.
(e)
Disputes . In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation
of the Warrant Shares, the Company shall promptly issue to the
Holder the number of Warrant Shares that are not disputed and
resolve such dispute in accordance with Section 12.
(f)
Limitations on Exercises
.
(i)
Beneficial Ownership
. The Company shall not effect the
exercise of this Warrant, and the Holder shall not have the right
to exercise this Warrant, to the extent that after giving effect to
such exercise, such Person (together with such Person's affiliates)
would beneficially own in excess of 4.99% (the " Maximum
Percentage ") of the shares of Common Stock outstanding
immediately after giving effect to such exercise. For
purposes of the foregoing sentence, the aggregate number of shares
of Common Stock beneficially owned by such Person and its
affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude
shares of Common Stock which would be issuable upon (A) exercise of
the remaining, unexercised portion of this Warrant beneficially
owned by such Person and its affiliates and (B) exercise or
conversion of the unexercised or unconverted portion of any other
securities of the Company beneficially owned by such Person and its
affiliates (including, without limitation, any convertible notes or
convertible preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained
herein. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the " Exchange Act ").
For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in (1)
the Company's most recent Form 10-K, Form 10-KSB, Form 10-Q, Form
10-QSB, Current Report on Form 8-K or other public filing with
the
Securities and Exchange Commission, as
the case may be, (2) a more recent public announcement by the
Company or (3) any other notice by the Company or the Transfer
Agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written or
oral request of the Holder, the Company shall within one (1)
Business Day confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of
the Company, including the SPA Securities and the SPA Warrants, by
the Holder and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. By
written notice to the Company, the Holder may from time to time
increase or decrease the Maximum Percentage to any other percentage
not in excess of 9.99% specified in such notice; provided that (i)
any such increase will not be effective until the sixty-first (61
st ) day after such notice is delivered to the Company,
and (ii) any such increase or decrease will apply only to the
Holder and not to any other holder of SPA Warrants. The
provisions of this paragraph shall be construed and implemented in
a manner otherwise than in strict conformity with the terms of this
Section 1(f) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended beneficial
ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such
limitation.
(ii)
Principal Market Regulation
. The Company shall not be
obligated to issue any shares of Common Stock upon exercise of this
Warrant or conversion of SPA Securities and no Buyer shall be
entitled to receive any shares of Common Stock if the issuance of
such shares of Common Stock would exceed that number of shares of
Common Stock which the Company may issue upon exercise or
conversion, as applicable, of the SPA Warrants and SPA Securities
or otherwise without breaching the Company's obligations under the
rules or regulations of any applicable Eligible Market (the "
Exchange Cap "), except that such limitation shall not apply
in the event that the Company (A) obtains the approval of its
shareholders as required by the applicable rules of the Eligible
Market for issuances of shares of Common Stock in excess of such
amount or (B) obtains a written opinion from outside counsel to the
Company that such approval is not required, which opinion shall be
reasonably satisfactory to the Required Holders. Until such
approval or written opinion is obtained, no Buyer shall be issued
in the aggregate, upon exercise or conversion, as applicable, of
any SPA Warrants or SPA Securities, shares of Common Stock in an
amount greater than the product of the Exchange Cap multiplied by a
fraction, the numerator of which is the total number of shares of
Common Stock underlying the SPA Warrants issued to such Buyer
pursuant to the Securities Purchase Agreement on the Issuance Date
and the denominator of which is the aggregate number of shares
of
Common Stock underlying the SPA Warrants
issued to the Buyers pursuant to the Securities Purchase Agreement
on the Issuance Date (with respect to each Buyer, the " Exchange
Cap Allocation "). In the event that any Buyer shall sell
or otherwise transfer any of such Buyer's SPA Warrants, the
transferee shall be allocated a pro rata portion of such Buyer's
Exchange Cap Allocation, and the restrictions of the prior sentence
shall apply to such transferee with respect to the portion of the
Exchange Cap Allocation allocated to such transferee. In the
event that any holder of SPA Warrants shall exercise all of such
holder's SPA Warrants into a number of shares of Common Stock
which, in the aggregate, is less than such holder's Exchange Cap
Allocation, then the difference between such holder's Exchange Cap
Allocation and the number of shares of Common Stock actually issued
to such holder shall be allocated to the respective Exchange Cap
Allocations of the remaining holders of SPA Warrants on a pro rata
basis in proportion to the shares of Common Stock underlying the
SPA Warrants then held by each such holder.
(g)
Insufficient Authorized
Shares . If at any time
while this Warrant remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common
Stock to satisfy its obligation to reserve for issuance upon
exercise of this Warrant at least a number of shares of Common
Stock equal to 130% (the " Required Reserve Amount ") of the
number of shares of Common Stock as shall from time to time be
necessary to effect the exercise of all of this Warrant then
outstanding (an " Authorized Share Failure "), then the
Company shall immediately take all action necessary to increase the
Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for
this Warrant then outstanding. Without limiting the
generality of the foregoing sentence, as soon as practicable after
the date of the occurrence of an Authorized Share Failure, but in
no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its
stockholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such
meeting, the Company shall provide each stockholder with a proxy
statement and shall use its best efforts to solicit its
stockholders' approval of such increase in authorized shares of
Common Stock and to cause its board of directors to recommend to
the stockholders that they approve such proposal.
2.
ADJUSTMENT OF EXERCISE PRICE AND
NUMBER OF WARRANT SHARES .
The Exercise Price and the number of Warrant Shares shall be
adjusted from time to time as follows:
(a)
Adjustment upon Issuance of shares of
Common Stock . If and
whenever on or after the Subscription Date the Company issues or
sells, or in accordance with this Section 2 is deemed to have
issued or sold, any shares of Common Stock (including the issuance
or sale of shares of Common Stock owned or held by or for the
account of the Company, but excluding shares of Common Stock deemed
to have been issued by the Company in connection with any Excluded
Securities) for a consideration per share (the " New Issuance
Price ") less than the Exercise Price (the " Applicable
Price ") in effect immediately prior to such issue or sale
or
deemed issuance or sale (the foregoing a
" Dilutive Issuance "), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an
amount equal to the New Issuance Price. Upon each such
adjustment of the Exercise Price hereunder, the number of Warrant
Shares shall be adjusted to the number of shares of Common Stock
determined by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Shares acquirable
upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price resulting
from such adjustment. For purposes of determining the
adjusted Exercise Price under this Section 2(a), the following
shall be applicable:
(i)
Issuance of Options
. If the Company in any manner
grants any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such
Option or upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such
price per share. For purposes of this Section 2(a)(i), the
"lowest price per share for which one share of Common Stock is
issuable upon exercise of such Options or upon conversion, exercise
or exchange of such Convertible Securities issuable upon exercise
of any such Option" shall be equal to the sum of the lowest amounts
of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the granting or
sale of the Option, upon exercise of the Option and upon
conversion, exercise or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment
of the Exercise Price or number of Warrant Shares shall be made
upon the actual issuance of such shares of Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Convertible Securities.
(ii)
Issuance of Convertible
Securities . If the
Company in any manner issues or sells any Convertible Securities
and the lowest price per share for which one share of Common Stock
is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold
by the Company at the time of the issuance or sale of such
Convertible Securities for such price per share. For the
purposes of this Section 2(a)(ii), the "lowest price per share for
which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof" shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by
the Company with respect to one share of Common Stock upon the
issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further
adjustment of the Exercise Price or
number of Warrant Shares shall be made
upon the actual issuance of such shares of Common Stock upon
conversion, exercise or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of this
Warrant has been or is to be made pursuant to other provisions of
this Section 2(a), no further adjustment of the Exercise Price or
number of Warrant Shares shall be made by reason of such issue or
sale.
(iii)
Change in Option Price or Rate of
Conversion. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion, exercise
or exchange of any Convertible Securities, or the rate at which any
Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at
any time, the Exercise Price and the number of Warrant Shares in
effect at the time of such increase or decrease shall be adjusted
to the Exercise Price and the number of Warrant Shares which would
have been in effect at such time had such Options or Convertible
Securities provided for such increased or decreased purchase price,
additional consideration or increased or decreased conversion rate,
as the case may be, at the time initially granted, issued or sold.
For purposes of this Section 2(a)(iii), if the terms of any
Option or Convertible Security that was outstanding as of the date
of issuance of this Warrant are increased or decreased in the
manner described in the immediately preceding sentence, then such
Option or Convertible Security and the shares of Common Stock
deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such increase or
decrease. No adjustment pursuant to this Section 2(a)(iii)
shall be made if such adjustment would result in an increase of the
Exercise Price then in effect or a decrease in the number of
Warrant Shares.
(iv)
Calculation of Consideration
Received . In case any
Option or Convertible Security is issued in connection with the
issue or sale of other securities of the Company, together
comprising one integrated transaction, (x) the Options will be
deemed to have been issued for a value determined by use of the
Black Scholes Option Pricing Model (the " Option Value ")
and (y) the other securities issued or sold in such integrated
transaction shall be deemed to have been issued for the difference
of (I) the aggregate consideration received by the Company, less
(II) the Option Value. If any shares of Common Stock, Options
or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will
be deemed to be the net amount received by the Company therefor.
If any shares of Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash,
the amount of such consideration received by the Company will be
the fair value of such consideration, except where
such consideration consists of publicly
traded securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such
security on the date of receipt. If any shares
