CONVERTIBLE SUBORDINATED NOTE AND WARRANT PURCHASE
AGREEMENT
This Convertible Subordinated Note and Warrant Purchase Agreement (this
"Agreement") is made and entered into as of January 15, 1999 by and among
NetZero, Inc., a California corporation (the "Company"), and the entities
listed on Exhibit A attached hereto (the "Purchasers").
The Company desires to issue and sell and the Purchasers desire to
purchase promissory notes in the form attached hereto as EXHIBIT B (the
"Notes") and warrants to purchase shares of capital stock of the Company in
the form attached hereto as EXHIBIT C (the "Warrants") as further described
herein.
In consideration of the mutual promises contain herein, the parties
agree as follows:
1. Sale of Notes and Warrants:
1.1 COMMITMENT. Subject to the terms and conditions of this
Agreement, the Purchasers agree to purchase from the Company and the Company
agrees to sell and issue to the Purchasers the Notes and the Warrants. The
purchase price of each Note shall be equal to 100% of the principal amount of
such Note as specified on the Schedule of Purchasers attached hereto as
EXHIBIT A and the purchase price of the Warrant to be issued to each
Purchaser shall be as specified on the Schedule of Purchasers, for a purchase
price for each Warrant of $0.01 per share issuable upon exercise of the
Warrant, which amount the parties have determined in good faith, after
consultation with their advisors, to be the fair value of each Warrant. For
purposes of this Agreement, an "Equity Financing" shall have the meaning
given to it in the Note.
1.2 CLOSING. The closing of the purchase and sale of the Notes and
the Warrants hereunder shall be made pursuant to one or more closings (each
of which is a "Closing") held within 60 days of the date hereof, with the
first such closing to be held at the offices of the Company, at 10:00 a.m. on
January 15, 1999 (the "First Closing') or at such other time and place as the
parties shall agree (the date of a Closing is hereinafter referred to as a
"Closing Date"). At the Closing, the Company shall deliver to each Purchaser
the Note and the Warrant to be purchased by such Purchaser against payment of
the purchase price for the Note and the Warrant by cash, check or wire
transfer to a bank account designated by the Company. Any person or entity
who purchases any Notes or Warrants after the First Closing shall become a
party to this Agreement and shall be added to the list of purchasers. The
Company's agreements with each of the Purchasers are separate agreements and
the sale of the Notes and the Warrants to each Purchaser are separate sales.
2. PURCHASE OF STOCK:
2.1 EQUITY FINANCING. If an Equity Financing is completed on or
before June 30, 1999, (a) up to the total amount of the unpaid principal
amount of the Note and any accrued but unpaid interest will automatically be
converted into shares of the Company's capital
stock (the "New Stock") sold in the Financing upon the terms and conditions
set forth in the Note and (b) at the closing of an Equity Financing, each
Purchaser will execute a stock purchase agreement substantially similar to
that executed by other purchasers of the New Stock in an Equity Financing. If
the Company does not complete an Equity Financing on or before June 30, 1999,
(x) the unpaid principal amount of the Note and any accrued but unpaid
interest will automatically be converted into shares of the Company's Series
B Preferred Stock in the' manner set forth in the Note attached hereto as
EXHIBIT B.
2.2 CONDITIONS TO CLOSING; REGISTRATION RIGHTS. The obligations of
the Company to issue shares of New Stock and the obligations of each
Purchaser to purchase such stock as described in Section 2.1 above are
subject to the conditions that:
(a) The Company shall have obtained all requisite approvals of
and made all required filings with applicable federal and state securities
and corporate law authorities;
(b) The Company shall have obtained all appropriate Board and
stockholder consents, waivers and approvals required in connection with the
transaction;
(c) Each Purchaser and the Company shall have executed a stock
purchase agreement covering the sale of shares of New Stock substantially
similar to that executed by the other purchasers in the Equity Financing; and
(d) Such stock purchase agreement shall grant each Purchaser
rights with respect to registration under the Securities Act of 1933, as
amended (the "Securities Act"), of shares of New Stock or of shares of Common
Stock issued or issuable to such Purchaser upon conversion of the New Stock,
as the case may be, issued upon conversion of such Purchaser's Note, which
registration rights shall be substantially identical to those granted to the
other purchasers in the Equity Financing.
2.3 BEST EFFORTS. The Company and the Purchasers will use their best
efforts promptly to fulfill all of the conditions described in Section 2.2
above.
2.4 ISSUANCE OF SECURITIES ON CONVERSION. As soon as practicable
after conversion of each Note, the Company at its expense will cause to be
issued in the name of and delivered to the holder of the Note, a certificate
or certificates for the number of fully paid and non-assessable shares of New
Stock of the Company to which that holder shall be entitled on such
conversion, together with any other securities and property to which the
holder is entitled on conversion under the terms of this Agreement. No
fractional shares will be issued on conversion of the Note. If on conversion
of the Note a fraction of a share results, the Company will pay the cash
value of that fractional share, calculated on the basis of the applicable
conversion price.
3. REPRESENTATIONS OF THE PURCHASERS:
Each Purchaser hereby represents and warrants to the Company that:
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3.1 AUTHORIZATION. This Agreement, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement
of creditors' rights generally, and as limited by laws relating to the
availability of a specific performance, injunctive relief, or other equitable
remedies.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT; ACCREDITED INVESTOR. This
Agreement is made with the Purchaser in reliance upon the Purchaser's
representation to the Company, which by the Purchaser's execution of this
Agreement the Purchaser hereby confirms, that (i) the Notes, the Warrants,
the Preferred Stock issuable upon conversion of the Notes and exercise of the
Warrants and the Common Stock issuable upon conversion of the Preferred Stock
(collectively the "Securities") to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same and (ii) that the
Purchaser is an "accredited investor" as such term is defined under the
Securities Act. By executing this Agreement, the Purchaser further represents
that the Purchaser does not presently have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of
the Securities. The Purchaser represents that it has full power and authority
to enter into this Agreement. Either (i) the Purchaser has not been formed
for the specific purpose of acquiring the Securities or (ii) if the Purchaser
has been formed for the specific purpose of acquiring the Securities, each
person or entity that has an interest in the Purchaser is an accredited
investor.
3.3 DISCLOSURE OF INFORMATION. The Purchaser has had an opportunity
to discuss the Company's business, management, financial affairs and the
terms and conditions of the offering of the Stock with the Company's
management and has had an opportunity to review the Company's facilities. The
Purchaser understands that such discussions, as well as the written
information issued by the Company, were intended to describe the aspects of
the Company's business which it believes to be material.
3.4 RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities
Act, by reason of a specific exemption from the registration provisions of
the Securities Act which depends upon, among other things, the bona fide
nature of the investment intent and the accuracy of the Purchaser's
representations as expressed herein. The Purchaser understands that the
Securities are "restricted securities" under applicable U.S. federal and
state securities laws and that, pursuant to these laws, the Purchaser must
hold the Securities indefinitely unless they are registered with the
Securities and Exchange Commission and qualified by state authorities, or an
exemption from such registration and qualification requirements is available.
The Purchaser acknowledges that the Company has no obligation to register or
qualify the Securities for resale. The Purchaser further acknowledges that if
an exemption from registration or qualification is available, it may be
conditioned on various requirements including, but not limited to, the time
and manner of sale, the holding period for the Securities, and on
requirements relating to the Company which are outside of the
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Purchaser's control, and which the Company is under no obligation and may not
be able to satisfy.
3.5 NO PUBLIC MARKET. The Purchaser understands that no public market
now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.
3.6 LEGENDS. The Purchaser understands that the Securities, and any
securities issued in respect of or exchange for the Securities, may bear one
or all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN
A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933."
(b) Any legend required by the Blue Sky laws of any state to
the extent such laws are applicable to the shares represented by the
certificate so legended.
3.7 LEGAL ADVICE. The Purchaser has had the opportunity to consult
with his or her counsel regarding the matters relevant to this Agreement and
the transactions contemplated hereby.
4. GENERAL PROVISIONS:
4.1 ENTIRE AGREEMENT. This Agreement, together with its exhibits, re
resents the entire agreement between the Company and the Purchasers,
supersedes all prior agreements and understandings, and this Agreement and
the Notes and Warrants issued hereunder may only be amended in writing signed
by the Company and the holders of over fifty percent (50%) of the
indebtedness represented by the Notes. Furthermore, the terms and provisions
of a Note or Warrant may not be amended in a manner different than any other
Note or Warrant, as applicable, without the written consent of the holder of
such Note or Warrant and that of the holders of over fifty percent (50%) of
the indebtedness represented by the Notes. Any amendment or waiver of this
Agreement, the Notes or Warrants effected in accordance with this Agreement
shall be binding upon each Purchaser under this Agreement.
4.2 ASSIGNMENT. This Agreement shall bind and benefit the successors,
assigns, heirs, executors and administrators of the parties (including
without limitation any successor corporation to the Company). The rights of
each Purchaser under this Agreement may not be assigned without the written
consent of the Company.
4.3 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of California.
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4.4 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally or
transmitted by telex or facsimile, or, if sent within the U.S., mailed by
first-class mail, postage prepaid, addressed (i) if to a Purchaser, at the
Purchaser's address set forth below its signature, or at such other address
as the Purchaser shall have furnished to the Company in writing, or (ii) if
to the Company, at its address set forth below, or at such other address as
the Company shall have furnished to the Purchaser in writing. All notices
shall be deemed effectively delivered upon delivery or transmission or three
days after mailing.
4.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[SIGNATURE PAGES FOLLOW]
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The parties hereto have executed this Agreement as of the day and year
first set forth above.
COMPANY:
NETZER0, INC.
By: /s/ Xxxxxx X. Xxxx
----------------------------------
Xxxxxx X. Xxxx, President and
Chief Executive Officer
Address: 00000 Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, XX 00000
SIGNATURE PAGE TO NETZERO, INC.
CONVERTIBLE SUBORDINATED NOTE AND WARRANT PURCHASE
AGREEMENT
PURCHASERS:
IDEALAB! CAPITAL PARTNERS I-A, L.P.
By: /s/ Xxxxxxx X. Xxxxx
--------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Manacuna Member,
idealab! Capital Management I, LLC,
General Partner of idealab!
Capital Partners I-A, LP
IDEALAB! CAPITAL PARTNERS I-B, L.P.
By: /s/ Xxxxxxx X. Xxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Managing Member,
idealab! Capital Management I, LLC,
General Partner of idealab!
Capital Partners I-B, LP
SIGNATURE PAGE TO NETZERO, INC.
CONVERTIBLE SUBORDINATED NOTE AND WARRANT PURCHASE
AGREEMENT
EXHIBIT A
SCHEDULE OF PURCHASERS
DOLLAR AMOUNT
NAME OF INVESTMENT
----------------------------------- ---------------------
idealab! Capital Partners I-A, LP $22,360.00
idealab! Capital Partners I-B, LP $77,640.00
TOTAL: $100,000.00
EXHIBIT B
FORM OF CONVERTIBLE PROMISSORY NOTE
THIS SUBORDINATED CONVERTIBLE PROMISSORY NOTE AND THE SECURITIES ISSUABLE
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
-------------------------------------------------------------------------------
JANUARY 15, 0000
XXXXXXXX XXXXXXX, XXXXXXXXXX
NETZERO, INC.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
FOR THE VALUE RECEIVED, NetZero, Inc., a California corporation (the
"Company"), promises to pay to _______________________________________________
("Holder"), the principal sum of $___________. Interest shall accrue from the
date of this note on the unpaid principal amount at the rate of eight percent
(8.00%) per annum until paid, compounded annually. Such principal amount,
together with accrued but unpaid interest, shall be payable on demand by the
Holder of this Note after June 30, 1999, except as otherwise set forth below
or unless earlier converted in accordance with Section 2 of this Note. Any
term not otherwise defined herein shall have the meaning given to it in that
certain Convertible Subordinated Promissory Note Purchase Agreement dated as
of the date hereof.
1. PAYMENT. All payments shall be made in lawful tender of the
United States of America at such place as the Holder hereof may from time to
time designate in writing to the Company. Payment shall be credited first to
the accrued interest then due and payable and the remainder applied to
principal.
2. AUTOMATIC CONVERSION. Notwithstanding the foregoing, if the
Company consummates an equity financing (in one or a series of closings)
after the date of this Note but on or prior to June 30, 1999 resulting in
gross aggregate proceeds to the Company of at least Two Million Dollars
($2,000,000) (an "Equity Financing"), then the unpaid principal amount of the
Note and any accrued but unpaid interest shall be automatically converted
into fully paid and nonassessable shares of the Company's capital stock (the
"New Stock") sold in such financing. The number of shares of New Stock to be
issued upon such automatic conversion shall be equal to the quotient obtained
by dividing (x) the unpaid principal amount of this Note plus any accrued but
unpaid interest by (y) the price per share of the shares of New Stock. Any
New Stock to be issued to the Holder shall have the same rights preferences
and privileges as those applicable to shares issued in the Equity Financing.
1
If an Equity Financing is not consummated on or prior to June 30,
1999, then the unpaid principal amount of the Note and any accrued but unpaid
interest shall be automatically converted into fully paid and nonassessable
shares of the Company's Series B Preferred Stock ("SERIES B PREFERRED
STOCK"), which shall have rights, preferences and privileges identical to
those of the Company's Series A Preferred, which shall be as set forth in the
Company's Certificate of Incorporation. The number of shares of Series B
Preferred Stock to be issued upon such automatic conversion shall be equal to
the quotient obtained by dividing (a) the unpaid principal amount of this
Note plus any accrued but unpaid interest by (b) $0.2222 (as appropriately
adjusted for stock splits, stock dividends, combinations and the like).
3. SUBORDINATION. The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all the Company's Senior
Indebtedness, as hereinafter defined.
3.1 SENIOR INDEBTEDNESS. As used in this Note, the term "SENIOR
INDEBTEDNESS" shall mean the principal of and unpaid accrued interest on (i)
indebtedness of the Company or with respect to which the Company is a
guarantor, to banks, insurance companies, lease financing institutions or
other financial institutions regularly engaged in the business of lending
money, which is for money borrowed (or purchase or lease of equipment in the
case of lease financing) by the Company (whether or not secured) in the
ordinary course of business, and (ii) any such indebtedness or any
debentures, notes or other evidence of indebtedness issued in exchange for
such Senior Indebtedness, or any indebtedness arising from the satisfaction
of such Senior Indebtedness by a guarantor.
3.2 DEFAULT ON SENIOR INDEBTEDNESS. If there re should occur any
receivership, insolvency, assignment for the benefit of creditors,
bankruptcy, reorganization or arrangements with creditors (whether or not
pursuant to bankruptcy or other insolvency laws), sale of all or
substantially all of the assets, dissolution, liquidation or any other
marshaling of the assets and liabilities of the Company, or if this Note
shall be declared due and payable upon the occurrence of an event of default
with respect to any Senior Indebtedness, then (i) no amount shall be paid by
the Company in respect of the principal of or interest on this Note at the
time outstanding, unless and until the principal of and interest on the
Senior Indebtedness then outstanding shall be paid in full, and (ii) no claim
or proof of claim shall be filled with the Company by or on behalf of the
Holder of this Note that shall assert any right to receive any payments in
respect of the principal of and interest on this Note, except subject to the
payment in full of the principal of and interest on all of the Senior
Indebtedness then outstanding. If there occurs an event of default that has
been declared in writing with respect to any Senior Indebtedness, or in the
instrument under which any Senior Indebtedness is outstanding, permitting the
holder of such Senior Indebtedness to accelerate the maturity thereof, then,
unless and until such event of default shall have been cured or waived or
shall have ceased to exist, or all Senior Indebtedness shall have been paid
in full, no payment shall be made in respect of the principal of or interest
on this Note, unless within 90 days after the happening of such event of
default, the maturity of such Senior Indebtedness shall not have been
accelerated.
2
3.3 EFFECT OF SUBORDINATION. Subject to the rights, if any, of
the holders of Senior Indebtedness under this Section 3 to receive cash,
securities or other properties otherwise payable or deliverable to the Holder
of this Note, nothing contained in this Section 3 shall impair, as between
the Company and the Holder, the obligation of the Company, subject to the
terms and conditions hereof, to pay to the Holder the principal hereof and
interest hereon as and when the same become due and payable, or shall prevent
the Holder of this Note, upon default hereunder, from exercising all rights,
powers and remedies otherwise provided herein or by applicable law.
3.4 SUBROGATION. Subject to the payment in full of all Senior
Indebtedness and until this Note shall be paid in full, the Holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent
of payments or distributions previously made to such holders of Senior
Indebtedness pursuant to the provisions of Section 3 above) to receive
payments or distributions of assets of the Company applicable to the Senior
Indebtedness. No such payments or distributions applicable to the Senior
Indebtedness shall, as between the Company and its creditors, other than the
holders of Senior Indebtedness and the Holder, be deemed to be a payment by
the Company to or on account of this Note; and for the purposes of such
subrogation, no payments or distributions to the holders of Senior
Indebtedness to which the Holder would be entitled except for the provisions
of this Section 3 shall, as between the Company and its creditors, other than
the holders of Senior Indebtedness and the Holder, be deemed to be a payment
by the Company to or on account of the Senior Indebtedness.
3.5 UNDERTAKING. By its acceptance of this Note, the Holder
agrees to execute and deliver such documents as may be reasonably requested
from time to time by the Company or the lender of any Senior Indebtedness in
order to implement the foregoing provisions of this Section 3. The provisions
of this Paragraph 3 shall bind any successors or assignees of Holder and
shall benefit any successors or assigns of Bank, and, if the Company
refinances a portion of the Senior Debt with a new lender, such new lender
shall be deemed a successor of Bank for the purposes of this Paragraph 3.
This Paragraph 3 is solely for the benefit of Holder and Bank and not for the
benefit of the Company or any other party. The provisions of this Paragraph 3
may be amended only by written instrument signed by Holder and Bank. In the
event of any legal action to enforce the rights of a party under this
Paragraph 3, the party prevailing in such action shall be entitled, in
addition to such other relief as may be granted, all reasonable costs and
expenses, including reasonable attorneys' fees, incurred in such action.
4. MISCELLANEOUS.
4.1 COSTS. If action is instituted to collect this Note by
Holder, the Company hereby agrees to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Holder in connection with such action.
4.2 DELAY. No extension of time for payment of any amount
owing hereunder shall affect the liability of the Company for payment of the
indebtedness evidenced hereby. No delay by the Holder or any holder hereof in
exercising any power or right hereunder shall operate as a waiver of any power
or right hereunder.
3
4.3 WAIVER AND AMENDMENT. No waiver or modification of the terms
of this Note shall be valid without the written consent of the holders of
over fifty percent (50%) of the indebtedness represented by this Note and all
other Notes issued by the Company pursuant to the Note Agreement; provided,
however, that any such waiver or modification of Paragraph 3 shall require
the written consent of any holder of Senior Indebtedness and provided,
further, that the terms and provisions of this Note shall not be amended in a
manner different than any other Note without the consent of the Holder and of
the holders of over fifty percent (50%) of the indebtedness represented by
all Notes issued by the Company pursuant to the Note Agreement.
4.4 GOVERNING LAW. This Note shall be governed by and construed
in accordance with the laws of the State of California as applied to
contracts entered into between California residents wholly to be performed in
California.
4.5 SEVERABILITY. In case any provision contained herein (or part
thereof) shall for any, reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or other
unenforceability shall not affect any other provision (or the remaining part
of the affected provision) hereof, but this Note shall be construed as if
such invalid, illegal, or unenforceable provision (or part thereof) had never
been contained herein, but only to the extent that such provision is invalid,
illegal, or unenforceable.
4.6 NOTICE. Any notice or other communication required or
permitted hereunder shall be in writing, and shall be deemed to have been
duly given on the date of service if served personally or by facsimile, or
five days after the date of mailing if mailed, by first class mail,
registered or certified, postage prepaid. Notices shall be addressed as
follows:
To Holder at: idealab! Capital Partners
000 X. Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
To Company at: NetZero, Inc.
000 Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, XX 00000
Attention: President
or to such other address as a party has designated by notice in writing to
the other party in the manner provided by this Section 4.6.
[SIGNATURE PAGE FOLLOWS]
4
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed and delivered by its authorized officer as of the date first above
written.
COMPANY:
NETZERO, INC.
By:
----------------------------------
HOLDER:
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
5
EXHIBIT C
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH
SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
Warrant No. WB- I Number of Shares: _______
Date of Issuance: January 15, 1999 Subject To Adjustment in
The Manner Described Below
NETZERO, INC.
STOCK PURCHASE WARRANT
NetZero, Inc., a California corporation (the "COMPANY") for value
received, hereby certifies that ___________________________________ or its
registered assigns (the "REGISTERED HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Company, at any time after the
date hereof and on or before the earliest December 31, 2002, (ii) the closing
of the Company's sale of all or substantially all of its as assets or the
acquisition of the Company by another entity by means of merger or other
transaction as a result of which stockholders of the Company immediately
prior to such acquisition, possess a minority of the voting power of the
acquiring entity immediately following such acquisition, or (iii) the closing
of the initial public offering of the Company's Common Stock pursuant a
registration statement under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), at a price per share equal to the Purchase Price (as
defined below) that number of shares of Preferred Stock (as defined below)
equal to the quotient obtained by dividing (A) the product of (x) one tenth
of the total original principal dollar amount represented by the Note and (y)
one (1) plus the number of full monthly periods, up to a maximum of 5 of such
periods, that have expired from and after January 1, 1999 prior to the
consummation of an Equity Financing by (B) the Purchase Price of the
Preferred. The Purchase Price and the number and character of shares of
Preferred Stock purchasable under this Warrant are subject to adjustment from
time to time pursuant to the provisions of this Warrant. The number of shares
of Preferred Stock purchasable upon exercise of this Warrant is hereinafter
referred to from time to time as the "WARRANT STOCK."
1. CERTAIN DEFINITIONS. The following definitions shall apply for purposes
of this Warrant:
(a) "EQUITY FINANCING" shall have the same meaning as set forth in
the Purchase Agreement.
1
(b) "PREFERRED STOCK" shall mean (i) the shares of the Company's
preferred stock issued and sold in the Equity Financing on or prior to June
30, 1999, or (ii) if the Company does not complete an Equity Financing on or
prior to June 30, 1999, the Company's Series B Preferred Stock, as such term
is defined in the Purchase Agreement.
(c) "PURCHASE AGREEMENT" shall mean that certain Convertible
Subordinated Promissory Note and Warrant Purchase Agreement, dated December
__, 1998, by and among the Company and the Registered Holder.
(d) "PURCHASE PRICE" shall mean (i) an amount equal to the price per
share at which shares of Preferred Stock are issued and sold in the Equity
Financing, if such Equity Financing occurs on or prior to June 30, 1999 or
(ii) $0.2222 per share (as appropriately adjusted for stock splits,
dividends, combinations and the like) if the Company does not consummate an
Equity Financing on or prior to June 30, 1999.
2. EXERCISE.
(a) This Warrant may be exercised by the Registered Holder, in whole
or in part, by surrendering this Warrant, with the purchase form appended
hereto as EXHIBIT A duly executed by such Registered Holder or by such
Registered Holder's duly authorized attorney, at the principal office of the
Company, or at such other office or agency as the Company may designate,
accompanied by payment in full by cash, check or wire transfer of the
Purchase Price payable in respect of the number of shares of Warrant Stock
purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in Section
2(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Stock shall be issuable upon such exercise as
provided in Section 2(d) below shall be deemed to have become the holder or
holder's of record of the Warrant Stock represented by such certificates.
(c) NET ISSUE EXERCISE.
(i) In the event that this is Warrant is exercised immediately
prior to the closing of the Company's sale of all or substantially all of its
assets or the acquisition of the Company by another entity by means of merger
or other transaction as a result of which shareholders of the Company
immediately prior to such acquisition possess a minority of the voting power
of the acquiring entity immediately following such acquisition (an
"ACQUISITION"), or the closing of the initial public offering of the
Company's Common Stock pursuant to a registration statement under the
Securities Act (the "INITIAL PUBLIC OFFERING"), in lieu of exercising this
Warrant in the manner provided above in Section 2(a), the Registered Holder
may elect to receive shares equal to the value of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with notice of such election in which event
the Company shall issue to holder a number of shares of Preferred Stock
computed using the following formula:
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X Y (A - B)
---------
A
Where X = The number of shares of Preferred Stock to be issued to the
Registered Holder.
Y = The number of shares of Preferred Stock purchasable
under this Warrant (at the date of such calculation).
A = The fair market value of one share of Preferred Stock (at
the date of such calculation).
B = The Purchase Price (as adjusted to the date of such
calculation).
(ii) For purposes of this Section 2(c), the fair market value of
the Company's Preferred Stock shall be the price per share which the Company
receives for a single share of Preferred Stock in the Acquisition, or, if
this Warrant is exercised in connection with the Initial Public Offering, the
fair market value of the Company's Preferred Stock shall be equal to the
mid-price of the range of prices set forth in the registration statement
relating to the Initial Public Offering or, if a subsequent amendment thereto
sets forth a different range of prices (other than a "pricing amendment"
setting forth a single, final price) then the mid-price of the range of
prices set forth in such amendment.
(d) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company at its
expense will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct a certificate or certificates for the
number of shares of Warrant Stock to which such Registered Holder shall
entitled.
3. ADJUSTMENTS.
(a) If, after the closing date of the Equity Financing or the date
upon which all of the Notes issued pursuant to the Purchase Agreement are
converted, outstanding shares of the Company's Preferred Stock shall be
subdivided greater number of shares or a dividend in Preferred Stock shall be
paid in respect of Preferred Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately
after the record date of such dividend be proportionately reduced. If
outstanding shares of Preferred Stock shall be combined into a smaller number
of shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be,
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of shares of Warrant Stock purchasable upon the
exercise of this Warrant shall be changed to the number determined by
dividing (i) an amount equal to the number of shares issuable upon the
exercise of this Warrant immediately prior to such adjustment, multiplied by
the Purchase Price in effect
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immediately prior to such adjustment, by (ii) the Purchase Price in effect
immediately after such adjustment.
(b) In case of any reclassification or change of the outstanding
securities of the Company or of any reorganization of the Company (or any
other corporation the stock or securities of which are at the time receivable
upon the exercise of this Warrant) or any similar corporate reorganization on
or after the date hereof, then and in each such case the holder of this
Warrant, upon the exercise hereof at any time after the consummation of such
reclassification, change, reorganization, merger or conveyance, shall be
entitled to receive, in lieu of the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities or property to which such holder would have been entitled
upon such consummation if such holder had exercised this Warrant immediately
prior thereto, all subject to further adjustment as provided in paragraph
(a); and in each such case, the terms of this Section 2 shall be applicable
to the shares of stock or other securities properly receivable upon the
exercise of this Warrant after such consummation.
(c) When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Registered Holder a certificate
setting forth the Purchase Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. Such certificate
shall also set forth the kind and amount of stock or other securities or
property into which this Warrant shall be exercisable following the
occurrence of any of the events specified in Section 3(a) or (b) above.
(d) In order to avoid doubt, it is acknowledged that the holder of
this Warrant shall be entitled to the benefit of all adjustments in the
number of shares of Common Stock of the Company issuable upon conversion of
the Preferred Stock of the Company which occur prior to the exercise of this
Warrant, including without limitation, any increase in the number of shares
of Common Stock issuable upon conversion as a result of a dilutive issuance
of capital stock.
4. TRANSFERS.
(a) Each holder of this Warrant acknowledges that this Warrant, the
Warrant Stock and the Common Stock of the Company have not been registered
under the Securities Act, and agrees not to sell, pledge, distribute, offer
for sale, transferred or otherwise dispose of this Warrant, any Warrant Stock
issued upon its exercise or any Common Stock issued upon conversion of the
Warrant Stock in the absence of (i) an registration statement under the Act
as to this Warrant, such Warrant Stock or such Common Stock and registration
or qualification of this Warrant, such Warrant Stock or such Common Stock
under any applicable Blue Sky or state securities law then in effect, or (ii)
an opinion of counsel, satisfactory to the Company, that such registration
and qualification are not required. Each certificate or other instrument for
Warrant Stock issued upon the exercise of this Warrant shall bear a legend
substantially to the foregoing effect.
(b) Subject to the provisions of Section 4(a) hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, upon
surrender of the Warrant with a properly
4
executed assignment (in the form of EXHIBIT B hereto) at the principal office
of the Company; PROVIDED, HOWEVER, that this Warrant may not be transferred
in WHOLE or in part without the prior written consent of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; PROVIDED, HOWEVER, that if and when
this warrant is properly assigned in blank, the Company may (but shall not be
required to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
(d) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder
may change such Registered Holder's address as shown on the warrant register
by written notice to the Company requesting such change.
5. NO IMPAIRMENT. The Company will not, by amendment of its charter or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will (subject to Section
15 below) at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or appropriate
in order to protect the rights of the holder of this Warrant against
impairment.
6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
distribution on the Preferred Stock payable otherwise than in cash out of
earnings or earned surplus (determined in accordance with generally accepted
accounting principles) except for a stock dividend payable in shares of
Preferred Stock ( a "LIQUIDATING DIVIDEND"), then the Company will pay or
distribute to the Registered Holder of this Warrant, upon the exercise
hereof, in addition to the Warrant Stock purchased upon such exercise, the
Liquidating Dividend which would have been paid to such Registered Holder if
he had been the owner of record of such ,shares of Warrant Stock immediately
prior to the date on which a record was taken for such Liquidating Dividend
or, if no record was taken, the date as of which the record holders of
Preferred Stock entitled to such dividends or distribution were determined.
7. TERMINATION. This Warrant (and the right to pure securities upon
exercise hereof) shall terminate upon the earliest of. (i) December 31, 2002,
(ii) the closing of the Company's sale of all or substantially all of its assets
or the acquisition of the Company by another entity by means of merger or other
transaction as a result of which stockholders of the Company immediately prior
to such acquisition possess a minority of the voting power of the acquiring
entity immediately following such acquisition, or (iii) the closing of the
Initial Public Offering.
8. NOTICES OF CERTAIN TRANSACTIONS. In case:
(a) the Company shall take a record of the holders of its Preferred
Stock (or other stock or securities at the time deliverable upon the exercise
of this Warrant) for the purpose
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of entitling or enabling them to receive any dividend or other distribution,
or to receive any right to subscribe for or purchase any shares of stock of
any class or any other securities, or to receive any other right, to
subscribe for or purchase any shares of stock of any class or any other
securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company, any consolidation or merger of the Company with or
into another corporation (other than a consolidation or merger in which the
Company is the surviving entity), or any transfer of all or substantially all
of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company, or
(d) of any redemption of the Preferred Stock or mandatory conversion
of the Preferred Stock into Common Stock of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
the Registered Holder of this Warrant a notice specifying, as the case may
be, (i) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, or (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation, winding-up, redemption or conversion is to take
place, and the time, if any is to be fixed, as of which the holders of record
of Preferred Stock (or such other stock or securities at the time deliverable
upon such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation, winding-up, redemption or conversion) are to be
determined. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice.
9. RESERVATION OF STOCK. From and after the date of the issuance of this
Warrant, the Company will at all times reserve and keep available, solely for
the issuance and delivery upon the exercise of this Warrant, such shares of
Warrant Stock and other stock, securities and property, as from time to time
shall be issuable upon the exercise of this Warrant.
10. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section
4 hereof, issue and deliver to or upon the order of such Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of
such Registered Holder or as such Registered Holder upon payment by such
Registered Holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of
Preferred Stock called for on the face or faces of the Warrant or Warrants so
surrendered.
11. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss,
6
theft or destruction) upon delivery of an indemnity agreement (with surety if
reasonably required) in an amount reasonably satisfactory to the Company, or
(in the case of mutilation) upon surrender and cancellation of this Warrant,
the Company will issue, in lieu thereof, a new Warrant of like tenor.
12. MAILING OF NOTICES. Any notice required or permitted pursuant to
this Warrant shall be in writing and shall be deemed sufficient when
delivered personally or sent by telegram or fax or forty-eight (48) hours
after being, deposited in the U.S. mail, as certified or registered mail,
with postage prepaid, addressed (a) if to the Registered Holder, to the
address of the Registered Holder most recently furnished in writing to the
Company and (b) if to the Company, to the address set forth below or
subsequently modified by written notice to the Registered Holder.
13. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. NO FRACTIONAL SHARES. No fractional shares of Preferred Stock will
be issued in connection with any exercise hereunder. In lieu of any
fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market
value of one share of Preferred Stock on the date of exercise, as determined
in good faith by the Company's Board of Director s.
15. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or
waived upon written consent of the Company and the Holder of fifty percent
(50%) of the shares issuable pursuant to the Warrants issued pursuant to that
certain Convertible Subordinated Promissory Note Purchase Agreement dated as
of the date hereof, between the Company and certain investors.
16. HEADINGS. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
17. GOVERNING LAW. This Warrant shall be governed, construed and
interpreted accordance with the laws of the State of Cal without giving
effect to principles of conflicts of law.
[SIGNATURE PAGE FOLLOWS]
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NETZERO, INC.
By:
--------------------------------
Xxxxxx X. Xxxx, President and
Chief Executive Officer
Address:
SIGNATURE PAGE TO NETZERO, INC.
STOCK PURCHASE WARRANT
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