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EXHIBIT 4.2
THIS WARRANT AND THE UNITS 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
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE LLC UNITS
August 8, 1998
THIS WARRANT CERTIFIES THAT, for good and valuable consideration,
ASCEND COMMUNICATIONS, INC. ("Holder") is entitled to purchase the Initial
Number of paid and nonassessable units (the "Units") of BLUESTAR COMMUNICATIONS,
LLC (the "Company") at the price of One Dollar ($1.00) per Unit (the "Warrant
Price"), as adjusted pursuant to Article 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth in this Warrant. The
Initial Number at any time is the number equal to the total principal amount of
the advances (the "Aggregate Principal") made under the $1,000,000 Secured
Promissory Note, dated as of the date hereof, issued by the Company to the order
of Holder (the "Note"); provided, however, that, upon the Company conversion
from a limited liability company to a corporation, this Warrant shall be
substituted for a new warrant issued by the Company which entitles Holder to
purchase at the Warrant Price the number of shares of common stock of the
Company determined by dividing the Aggregate Principal by the then Warrant Price
and multiplying The resulting sum by one tenth.
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 Units 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 Units determined by dividing (a) the aggregate Fair
Market Value of the Units issuable upon exercise of this Warrant minus the
aggregate Warrant Price of such Units by (b) the Fair Market Value of one Unit.
The Fair Market Value of the Units shall be determined pursuant to Section 1.3.
1.3 Fair Market Value. If the Units are traded in a public market, the
Fair Market Value of the Units shall be the closing price of the Units reported
for the business day
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immediately before Holder delivers its Notice of Exercise to the Company. If the
Units are not traded in a public market, the Managers of the Company shall
determine Fair Market Value in its reasonable good faith judgment.
1.4 No Rights as a Member. This Warrant does not entitle Holder to any
voting rights as a shareholder of the Company prior to the exercise hereof.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder a letter
indicating Holder's interest in the Company and, if this Warrant has not been
fully exercised or converted and has not expired, a new Warrant representing the
Units 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, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 Merger or Consolidation of the Company. Upon the closing of any
Acquisition, the successor entity shall 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 Units issuable upon exercise of the
unexercised portion of this Warrant as if such Units were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price shall
be adjusted accordingly.
1.8 Automatic Exercise. If, as of the last day of the term hereof, this
Warrant has not been fully exercised, then as of such date this Warrant shall be
automatically converted, in full, in accordance with Section 1.2, without any
action or notice by the Holder.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Unit Distribution. If the Company distributes Units pro-rata to
Members for no consideration, then upon exercise of this Warrant, for each Unit
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
Units of record as of the date the dividend or subdivision occurred.
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 Units if this Warrant had been exercised
immediately before such reclassification, exchange, substitution, or other
event.
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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 shall
similarly apply to successive reclassifications, exchanges, substitutions, or
other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Units are
combined or consolidated, by reclassification or otherwise, into a lesser number
of Units, the Warrant Price shall be proportionately increased and the number of
Units acquirable hereunder shall be proportionately decreased.
2.4 No Impairment. The Company shall not, by amendment of its Operating
Agreement 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. If the Company takes any action
affecting the Units or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Units issuable upon exercise of this Warrant
shall be adjusted upward in such a manner that the aggregate Warrant Price of
this Warrant is unchanged.
2.5 Fractional Units. No fractional Units shall be issuable upon
exercise or conversion of the Warrant and the number of Units to be issued shall
be rounded down to the nearest whole Unit. If a fractional Unit interest arises
upon any exercise or conversion of the Warrant, the Company shall eliminate such
fractional Unit interest by paying Holder an amount computed by multiplying the
fractional interest by the Fair Market Value of a full Unit.
2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant
Price and the number of Units acquirable hereunder, the Company, at its expense,
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, furnish
Holder a certificate setting forth the Warrant Price in effect on the date
thereof and the number of Units acquirable hereunder on such date and the series
of adjustments leading to such Warrant Price and Unit number.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder that all Units which may be issued upon the exercise of
the purchase
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right represented by this Warrant, 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
applicable federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a)
to distribute Units pro-rata to its members; (b) to offer for subscription pro
rata to the holders of any class or series of its stock any additional Units of
any class or series or other rights; (c) to effect any reclassification or
recapitalization of common stock; or (d) to merge or consolidate with or into
any other corporation, or sell, lease, license, or 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 (1) prompt prior written
notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of Units will be entitled thereto) or for determining rights to vote, if
any, in respect of the matters referred to in (c) and (d) above; and (2) in the
case of the matters referred to in (c) and (d) above, prompt prior written
notice of the date when the same will take place (and specifying the date on
which the holders of Units 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 Units, the Company shall deliver to the Holder:
(a) as soon as practicable after the end of each calendar month,
and in any event within thirty (30) days thereafter, an unaudited balance sheet
of the Company as of the end of such month, cash flow statements and an
unaudited statement of operations of the Company for the portion of the Fiscal
Year ended with such month prepared and certified by the chief financial officer
of the Company, subject, however, to the exclusion of footnotes and to normal
year-end audit adjustments, and a comparison of such statements to the Company's
operating plan or budget then in effect;
(b) as soon as practicable after the end of each Fiscal Year, and
in any event within ninety (90) days thereafter, a copy of its audited financial
statements accompanied by a report thereon by a firm of independent certified
public accountants selected by the Company, which report shall state that such
financial statements fairly present the Company's financial position at the end
of such Fiscal Year;
(c) as soon as available, and in any event, prior to the
commencement of each Fiscal Year, a budget and business plan for the Company for
such Fiscal Year;
(d) promptly upon their becoming available, one copy of each
report, notice or proxy statement sent by the Company to its Members generally
and of each regular or periodic report or registration statement, prospectus or
written communication (other than transmittal letters) filed by the Company with
the Securities and Exchange Commission or any securities exchange on which the
Company's securities are listed; and
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(e) with reasonable promptness, such other information as from time
to time may be reasonably requested by Holder.
The Company's delivery obligations under this section shall terminate upon the
Company becoming a Reporting Company.
ARTICLE 4. MISCELLANEOUS.
4.1 Term. The term of this Warrant shall commence on the date hereof
and terminate on at 5:00 p.m., Pacific Time on the tenth (10) anniversary of the
date hereof.
4.2 Legends. This Warrant and the Units 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.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Units issuable upon exercise of this Warrant 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 reasonable requested by the Company).
4.4 Transfer Procedure. Subject to the provisions of Section 4.3,
Holder may transfer this Warrant or the Units issuable upon exercise of this
Warrant by giving the Company notice setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee. Unless the Company is a
Reporting Company, it shall have the right to refuse to transfer this Warrant or
the Units to any person who directly competes with the Company and/or its
subsidiaries.
4.5 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 by the Company or the
Holder, as the case may be, in writing by the Company or the Holder from time to
time.
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4.6 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.
4.7 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.
4.8 Remedies. Company stipulates that the remedies at law of Holder in
the event of any default or threatened default by Company in the performance of
or compliance with any of the terms of this Warrant are not and will not be
adequate to the fullest extent permitted by law, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
4.9 No Original Issue Discount. The Company and the Holder hereby
acknowledge and agree that this is part of an investment unit within the meaning
of Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended, which
includes the loans made by the Holder to the Company pursuant to the Secured
Promissory Note, dated as of the date hereof (the "Loan"). The Company and the
Holder further agree as between the Company and the Holder that the fair market
value of this Warrant is equal to Five Hundred Dollars ($500) and that, pursuant
to Treas. Reg. Sub. 1.1273-2(h), Five Hundred Dollars ($500) of the issue price
of the investment unit shall be allocable to this Warrant and the balance shall
be allocable to the Loan. The Company and the Holder agree to prepare their
federal income tax returns in a manner consistent with the foregoing agreement
and, pursuant to Treas. Reg. Sub. 1.1273, the original issue discount on the
loan shall be considered to be zero.
4.10 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.
4.11 Conversion. This Warrant is issued in connection with the
conversion of the Company into a corporation, this Warrant shall be exchanged
for a new warrant which is substantially identical to the terms hereof, but
which also includes registration rights provisions reasonably acceptable to
Holder; provided that the final registration rights shall be determined in
consultation with any underwriters employed by the Company.
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BLUESTAR COMMUNICATIONS, LLC.
By /s/ Fredjoseph Xxxxxxx
Title: CEO/President
REVIEWED AND AGREED TO:
ASCEND COMMUNICATIONS, INC.
By /s/Xxxxxxx X. Xxxxx
Title: CFO
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APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ___________ Units of
Bluestar Communications, LLC pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such Units in full.
2. The undersigned hereby elects to convert the attached Warrant into
Units in the manner specified in the Warrant. This conversion is exercised with
respect to _____________________ of the Units covered by the Warrant.
[Strike paragraph 1 that does not apply.]
3. Please issue a certificate or certificates representing said Units
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 Units 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)
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