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EXHIBIT 10.17
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Xxxxx.xxx Networks
Number of Shares: 24,671, subject to adjustment
Class of Stock: Series C Preferred, subject to adjustment
Initial Exercise Price: $3.04, subject to adjustment
Issue Date: April 9, 1998
Expiration Date: April 9, 2003
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, IMPERIAL BANK ("Holder") is entitled to
purchase the number of fully paid and nonassessable shares of the class of
securities (the "Shares') of the corporation (the "Company') at the initial
exercise price per Share (the "Warrant Price') all as set forth herein and as
adjusted pursuant to Article 2 of this Warrant, subject to the provisions and
upon the terms and conditions set forth of this Warrant. If the aggregate
Nonformula Advances under the Loan and Security Agreement between the Company
and Holder dated as of the Issue Date (the "Loan Agreement") do not at anytime
exceed $1,000,000, the number of Shares subject to this Warrant shall be 16,447.
If the aggregate Nonformula Advances under the Loan Agreement do not at any time
exceed $500,000, the number of Shares subject to this Warrant shall be 8,224. If
Borrower receives not less than $10,000,000 from the sale or issuance of its
equity securities not later than July 31, 1999 (an "Equity Event), then this
Warrant shall be for the type of securities issued in the Equity Event, and the
Initial Exercise Price shall be the price per share at which such securities
were issued. If the Equity Event occurs after July 31, 1998 but not later than
September 30, 1998, then this Warrant shall be for the type of securities issued
in the Equity Event, and the Initial Exercise Price shall be the average of (a)
$3.04 and (b) the price per share at which such securities were issued. Holder
shall be entitled to purchase an additional 1,000 Shares per day under this
Warrant for each day after September 30, 1998 that any Nonformula Advance is
outstanding, provided the number of such additional Shares shall not exceed the
quotient derived by dividing ten percent of the outstanding Nonformula Advance
by the Warrant Price.
ARTICLE 1 EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon
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exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b)
the fair market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 No Rights as Shareholder. This Warrant does not entitle Holder to
any voting rights as a shareholder of the Company prior to the exercise hereof.
1.4 Fair Market Value. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
and its legal counsel or, in the case of mutilation, or surrender and
cancellation of this Warrant, the Company shall execute and deliver, in lieu of
this Warrant, a new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1 "Acquisition." For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company in which the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2 Assumption of Warrant. If, upon the closing of any
Acquisition, the successor entity shall elect to assume the obligations of this
Warrant, and this Warrant shall be exercisable for the same securities, cash,
and property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly. If the successor entity does not assume the obligations
of this Warrant, this Warrant shall be deemed converted in full pursuant to
Section 1.2, effective immediately prior to the closing of such Acquisition.
ARTICLE 2 ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
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2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation (the "Articles") upon the closing of a registered public offering
of the Company's common stock. The Company or its successor shall promptly issue
to Holder a new Warrant for such new securities or other property. The new
Warrant shall provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Article 2 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant. The provisions
of this Section 2.2 shall similarly apply to successive reclassifications,
exchange, substitutions, or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The number of shares of common
stock issuable upon conversion of the Shares, shall be subject to adjustment,
from time to time in accordance with the provisions of the Articles of
Incorporation in the form provided to Bank which apply to a "sale of Shares
below the Series Preferred Conversion Price."
2.5 No Impairment. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article 2 against impairment.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price, the Company shall promptly compute such adjustment, and furnish Holder
with a certificate of its Chief Financial Officer setting forth such adjustment
and the facts upon which such adjustment is based. The Company shall, upon
written request with reasonable notice, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and there series of
adjustments leading to such Warrant Price.
ARTICLE 3 REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder that all Shares which may be issued upon the exercise of
the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares (assuming payment of the Warrant Price),
shall, upon issuance, be duly authorized, validly issued, fully paid and
nonassessable, and free of any liens and encumbrances except for restrictions on
transfer provided for herein or under
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applicable federal and state securities laws. The issued and outstanding shares
of the Company on the Issue Date are set forth in the capitalization table
attached hereto.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to effect any reclassification or recapitalization of common stock; or (c)
to merge or consolidate with or into any other corporation, or sell, or
otherwise convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; then, in connection with each such event, the Company shall
give Holder such notice as is required under the Amended and Restated Investor
Rights Agreement or, if such does not apply, (1) in respect of the matters
referred to in (b) and (c) above, at least 20 days prior written notice of the
date on which a record will be taken for such dividend or distribution rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any; and (2) in the case of the
matters referred to in (b) and (c) above at least 20 days prior written notice
of the date when the same will take place (and specifying the date on which the
holders of common stock will be entitled to exchange their common stock for
securities or other property deliverable upon the occurrence of such event).
3.3 Information Rights. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder promptly after
mailing, copies of all notices or other written communications it would be
entitled to were it a shareholder.
3.4 Registration Under Securities Act of 1933, as amended. The Holder of
the Warrant shall become a party to the Amended and Restated Investor Rights
Agreement, and the common stock into which the Shares are convertible shall be
subject to the registration rights granted to the purchasers in the Equity Event
or, if this Warrant is for another Series of Preferred Stock, then the
registration rights held by the purchasers of such Preferred Stock.
ARTICLE 4 REPRESENTATIONS AND COVENANTS OF HOLDER.
This Warrant has been entered into by the Company in reliance upon the
following representations and covenants of Holder, which by its acceptance
hereof the Holder (including any permitted transferee of Holder on behalf of
such transferee) hereby confirms:
4.1 Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of Holder's rights contained herein will
be acquired for investment and not with a view to the sale or distribution of
any part thereof, and the Holder has no present intention of selling or engaging
in any public distribution of the same except pursuant to a registration or
exemption.
4.2 Private Issue. Holder understands (i) that the Preferred Stock,
issuable upon exercise of the Holder's rights contained herein is not registered
under the 1933 Act or qualified under applicable state securities laws on the
ground that the issuance contemplated by this Warrant Agreement will be exempt
from the registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 4.
4.3 Financial Risk. Holder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to bear the economic risks of its
investment.
4.4 Risk of No Registration. Holder understands that if the Company does
not register with the Securities and Exchange Commission pursuant to Section 12
of the 1933 Act, or file reports pursuant to Section 15(d) of the Securities
Exchange Act of 1934 (the "1934 Act"), or if a registration statement
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covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Holder also understands that any sale of the rights of the Holder to
purchase Preferred Stock which might be made by it in reliance upon Rule 144
under the 1933 Act may be made only in accordance with the terms and conditions
of that Rule.
4.5 Accredited Investor. Holder is an "accredited investor" within the
meaning of Rule 501 of Regulation D under the Act, as presently in effect
ARTICLE 5 MISCELLANEOUS.
5.1 Term. This Warrant is exercisable, in whole or in part, at any time
and from time to time on or before the Expiration Date.
5.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
5.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.
5.4 Transfer Procedure. Subject to the provisions of Sections 4.2 and
4.3, Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
5.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
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5.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
5.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
"COMPANY"
XXXXX.XXX NETWORKS
By: /s/ Xxxxxxx XxXxxxxx
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Title: CEO and President
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APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _______ shares of the
Common/Series Preferred [strike one] Stock of _______________________ pursuant
to the terms of the attached Warrant, and tenders herewith payment of the
purchase price of such shares in full.
2. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in the Warrant. This conversion is exercised with
respect to _______________ of the Shares covered by the Warrant.
[Strike paragraph that does not apply.]
3. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
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(Name)
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(Address)
4. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
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(Signature)
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(Date)
1.
