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 COMMON STOCK
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, ASCEND
COMMUNICATIONS, INC. ("HOLDER") is entitled to purchase Four Hundred Thousand
(400,000) paid and nonassessable shares of the Common Stock (the "SHARES") of
WEBSITE MANAGEMENT COMPANY, INC. dba FLASHNET COMMUNICATIONS (the "COMPANY") at
the price of one cent ($.01) per Share (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.
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 issuable upon 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
to Section 1.3.
1.3 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
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.
1.4 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
1.5 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.
1.6 MERGER OR CONSOLIDATION OF THE COMPANY.
(a) "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 where 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.
(b) ASSUMPTION OF WARRANT. 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 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.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common
stock, 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.
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 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
2
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 Shares are
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased and
the number of Shares acquirable hereunder shall be proportionately decreased.
2.4 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
against impairment. If the Company takes any action affecting the Shares 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 Shares 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 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 an amount
computed by multiplying the factional interest by the Fair Market Value of a
full Share.
2.6 ADJUSTMENT OF WARRANT PRICE AND SHARES PURCHASABLE.
(a) ADJUSTMENTS FOR DILUTIVE ISSUANCES.
(1) ADJUSTMENT PROCEDURE. Upon each Issuance of Common Stock
after the date hereof (which, as indicated in the definition of "Actual
Issuance of Common Stock", shall not encompass any exercise of an Option
granted, or which the Company has an obligation to grant, prior to the date
hereof or any conversion of a Convertible Security issued prior to the date
hereof) without consideration or for a consideration per share less than the
Measuring Price in effect immediately prior to such Issuance of Common Stock
(a "DILUTIVE ISSUANCE"), the number of shares of Common Stock issuable upon
exercise of the Conversion Right shall be increased by the number of shares
of Common Stock determined under the following formula:
3
Where: X= The increase in the number of shares of Common Stock acquirable
hereunder
B= The shares of Common Stock acquirable hereunder immediately prior
to the Issuance of Common Stock
A= The Measuring Price in effect immediately prior to the Issuance
of Common Stock
C= The Adjusted Share Value
For purposes hereof, the Adjusted Share Value, upon the closing of any
Issuance of Common Stock, shall be the amount equal to the sum of (i) the
amount obtained by multiplying the Common Stock Outstanding immediately prior
to the Issuance of Common Stock by the Measuring Price in effect immediately
prior to the Issuance of Common Stock, and (ii) the Aggregate Consideration
that the Company receives from the Issuance of Common Stock, and dividing the
resulting sum by the Common Stock Outstanding immediately after the Issuance
of Common Stock. In addition, the Measuring Price as of any date is the
Original Measuring Price, as adjusted from time to time in accordance with
the terms hereof. The Original Measuring Price is Eight Dollars ($8.00). Upon
each Issuance of Common Stock described in this section, the Measuring Price
shall be adjusted to the Adjusted Share Value resulting from such Issuance of
Common Stock. The Measuring Price shall be adjusted in accordance with
Sections 2.1 and 2.3, concurrent with any adjustment of the Warrant Price, in
the same proportion and manner as the Warrant Price is adjusted thereunder.
For example, if the Warrant Price is doubled under Section 2.3 as a result of
a combination of the Common Stock, then the Measuring Price shall be
concurrently doubled.
Concurrent with each adjustment in the number of Shares acquirable hereunder
as a result of a Dilutive Issuance, the Warrant Price shall be adjusted to
the amount equal to the price obtained by multiplying the Warrant Price in
effect immediately prior to the Dilutive Issuance by a fraction, the
numerator of which is the number of Shares acquirable hereunder immediately
prior to the Dilutive Issuance and the denominator of which is the number of
Shares acquirable hereunder immediately after the Dilutive Issuance.
Adjustments in the number of Shares under this section shall not occur with
respect to Issuances of Common Stock while the Company is a Reporting
Company. Under no circumstances shall the aggregate Warrant Price payable by
Holder upon exercise of this Warrant increase as a result of any adjustment
arising from a Dilutive Issuance.
(2) SPECIAL PROVISIONS. Notwithstanding the provisions of
subsection (1) of this section, the following provisions shall govern the
adjustment formula set forth in subsection (1):
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(a) DEEMED ISSUANCES OF COMMON STOCK. Whenever an adjustment
is made in the shares of Common Stock acquirable hereunder and the Warrant
Price pursuant to subsection (1) based upon a Deemed Issuance of Common
Stock, except as provided in paragraph (c) of this subsection, no further
adjustment in the shares of Common Stock acquirable hereunder and the Warrant
Price shall be made upon the subsequent actual issuance of the shares of
Common Stock subject to the applicable Convertible Securities or Options, nor
shall the exercise of any Convertible Security or Option included in such
Deemed Issuance of Common Stock constitute an issuance of securities for
which an adjustment in the number of shares of Common Stock and the Warrant
Price may be made under this section.
(b) CHANGE IN EXERCISE PRICE OR CONVERSION RATE. If,
subsequent to any Deemed Issuance of Common Stock, there is a change (other
than a change required by anti-dilution provisions of any Convertible
Security or Option intended to serve the same purpose as the provisions of
this section) in (i) the purchase or exercise price provided for in any
Option included in such Deemed Issuance of Common Stock (an "EXERCISE PRICE")
or (ii) the conversion price or exchange ratio (a "CONVERSION RATE") of any
Convertible Security included in such Deemed Issuance of Common Stock, such
that the changed Exercise Price or Conversion Rate, as the case may be, had
it been in effect at the time of such Deemed Issuance of Common Stock, would
have resulted in an increase in the number of shares of Common Stock
acquirable hereunder as a result of such Deemed Issuance of Common Stock
resulting in a lower Aggregate Consideration or greater number of shares of
Common Stock Outstanding, then (A) the Aggregate Consideration and/or number
of shares of Common Stock Outstanding shall be recalculated and the shares of
Common Stock acquirable hereunder then in effect shall forthwith be
readjusted to such number of shares of Common Stock acquirable as would have
been in effect at such time had all of such Options or Convertible Securities
that remain outstanding at the time of such change (or that may be issued
upon the exercise of any Option or Convertible Securities included in such
Deemed Issuance of Common Stock and that then remain outstanding) provided
for such changed Exercise Price or Conversion Rate, as the case may be, at
the time of such Deemed Issuance of Common Stock and (B) each other
adjustment, if any, made to the shares of Common Stock acquirable hereunder
subsequent to such Deemed Issuance of Common Stock based on subsequent
Issuances of Common Stock shall be recalculated, utilizing for such purpose
the Common Stock Outstanding, Deemed Consideration and the shares of Common
Stock acquirable as recalculated or as readjusted pursuant to clause (A) of
this paragraph (b).
(c) EXPIRATION OF OPTION OR CONVERTIBLE RIGHT. With respect
to any Deemed Issuance of Common Stock, effective as of the close of business
on the first business day on which no share of Common Stock may thereafter be
issued upon an exercise of an Option or Convertible Security included in such
Deemed Issuance of Common Stock (whether by reason of (i) the full exercise
of all Options and/or Convertible Securities Included in such Deemed Issuance
of Common Stock or (ii) the expiration or termination of any right to
exercise any Options and/or Convertible Securities included in such Deemed
Issuance of Common
5
Stock that have not theretofore been exercised and/or (iii) the purchase by
the Company and cancellation or retirement of some or all Options and/or
Convertible Securities included in such Deemed Issuance of Common Stock that
have not theretofore been exercised), the shares of Common Stock then
acquirable shall be adjusted by (A) recalculating pursuant hereto the
adjustment of the Warrant Price and the shares of Common Stock acquirable
immediately prior to such Deemed Issuance of Common Stock, basing such
recalculation on each issuance of shares of Common Stock upon an exercise of
an Option or Convertible Security included in such Deemed Issuance of Common
Stock, rather than the Common Stock Outstanding on which the original
calculation was based and (B) recalculating each other adjustment, if any,
made to the Warrant Price and the shares of Common Stock acquirable
subsequent to such Deemed Issuance of Common Stock based on subsequent
Issuances of Common Stock, utilizing the Warrant Price and the shares of
Common Stock acquirable as adjusted pursuant to clause (A) of this paragraph
(c) and including in Common Stock Outstanding for such purpose only the
shares of Common Stock actually issued upon the exercise of Options and/or
Convertible Securities included in such Deemed Issuance of Common Stock in
place of the shares of Common Stock Outstanding in respect of such Deemed
Issuance of Common Stock as utilized in the original calculations of those
adjustments.
(d) WARRANT PRICE ADJUSTMENT. Concurrent with each adjustment
in the number of shares of Common Stock acquirable hereunder pursuant to
paragraphs (b) and (c) of this subsection, the Warrant Price shall be
adjusted to the amount equal to the price obtained by multiplying the Warrant
Price in effect immediately prior to such adjustment by a fraction, the
numerator of which is the number of shares of Common Stock acquirable
hereunder immediately prior to the adjustment and the denominator of which is
the number of shares of Common Stock acquirable hereunder immediately after
the adjustment.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price and the number of Shares 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 Shares acquirable hereunder
on such date and the series of adjustments leading to such Warrant Price and
Share 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 Shares which may be issued upon the exercise
of the purchase 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.
6
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 offer for subscription pro rata to the holders of any class
or series of its stock any additional shares of stock 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 common stock 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 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:
(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 one hundred twenty (120) 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 within sixty (60) days
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 shareholders
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
7
(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.
3.4 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 4. REGISTRATION RIGHTS.
4.1 PIGGYBACK REGISTRATION RIGHTS.
(a) If the Company determines to Register any of its securities
either for its own account or the account of a shareholder(s) exercising
demand Registration rights, other than a Registration relating solely to
employee benefit plans, or a Registration relating solely to a transaction
pursuant to Rule 145 promulgated under the Securities Act or a Registration
on any Registration form which does not permit secondary sales or does not
include substantially the same information as would be required to be
included in a Registration statement covering the sale of the Shares, the
Company shall promptly give to Holder written notice thereof and include in
such Registration (and any related qualification under blue sky laws), and in
any underwriting involved therein, the number of Shares specified in a
written request made by Holder within ten (10) days after receipt of such
written notice from the Company.
(b) If the Registration of which the Company gives notice is for a
Registered public offering involving an underwriting, Holder's right to
Registration shall be conditioned upon (i) Holder's participation in such
underwriting and (ii) the inclusion of Holder's Shares in the underwriting
pursuant to an underwriting agreement in customary form with the underwriter
or underwriters selected by the Company; PROVIDED, HOWEVER, that in the event
of any reduction in the securities to be included in the Registration, the
securities that may be included in the Registration and underwriting shall be
allocated (1) first, to the Company, and (2) second, among the Holder and the
other security holders distributing their securities through such
underwriting, in proportion (as nearly as practicable) to the number of
shares owned by each such party.
4.2 FORM S-3 REGISTRATION RIGHTS. If the Company receives from Holder a
written request or requests that it effect a Registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities of Holder, the Company shall:
(a) promptly give written notice of the proposed Registration, and
any related qualification or compliance, to all other holders; and
8
(b) as soon as practicable, effect such Registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of the
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other shareholder(s)
joining in such request as are specified in a written request given within
twenty (20) days after receipt of such written notice from the Company;
PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such
Registration, qualification or compliance, pursuant to this section:
(1) if Form S-3 is not available for such offering by Holder
and the other shareholder(s);
(2) if Holder, together with the holders of any other
securities of the Company entitled to inclusion in such Registration, propose
to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than Five Hundred Thousand Dollars ($500,000);
(3) if the Company furnishes to Holder and the shareholder(s)
proposing to participate in such Registration, a certificate signed by the
Company's President stating that, in the good faith judgment of the Company's
Board of Directors, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 Registration statement for a period of not more than one hundred twenty
(120) days after receipt of Holder's request under this section; PROVIDED,
HOWEVER, that the Company shall not utilize this right more than once in any
twelve (12) month period;
(4) if the Company has, within the twenty-four (24) month
period preceding the date of such request, already effected two (2)
Registrations on Form S-3 for Holder pursuant to this section; or
(5) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to
service of process in effecting such Registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall use its best
efforts to file a registration statement covering the Registrable Securities
and other securities so requested to be Registered as soon as practicable
after receipt of Holder's request.
4.3 EXPENSES OF COMPANY REGISTRATIONS. The Company shall bear all
Registration Expenses incurred in connection with any Registration,
qualification or compliance pursuant to this Article 4 (exclusive of Selling
Expenses).
4.4 REGISTRATION PROCEDURES. In the case of each Registration,
qualification or compliance effected by the Company pursuant hereto, the
Company shall keep Holder advised in writing as to the initiation of each
Registration, qualification and
9
compliance and as to the completion thereof. At its expense, the Company
shall:
(a) Keep such Registration, qualification or compliance effective
for a period of one hundred twenty (120) days or until Holder has completed
the distribution described in the registration statement relating thereto,
whichever first occurs;
(b) Furnish such number of prospectuses and other documents
incident thereto as Holder from time to time may reasonably request;
(c) Prepare and file with the Securities and Exchange Commission
such amendments and supplements to such Registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement;
(d) Use its best efforts to Register and qualify the securities
covered by such registration statement under such other securities or blue
sky laws of such jurisdictions as Holder reasonably requests; PROVIDED,
HOWEVER, that the Company shall not be required in connection therewith or as
a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Holder shall
also enter into and perform its obligations under such an agreement;
(f) Notify Holder at any time when a prospectus relating to Shares
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing;
(g) Provide a transfer agent and registrar for all Registrable
Securities Registered pursuant to such registration statement and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such Registration; and
(h) Furnish, at Holder's request, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with such Registration, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such Registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, and (ii) a letter, dated such
date, from the Company's independent certified public accountants, in form
and substance as is customarily given by
10
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters.
4.5 INDEMNIFICATION.
(a) The Company shall indemnify Holder, each of Holder's
directors, officers, employees and agents, and each entity or person
controlling Holder within the meaning of Section 15 of the Securities Act,
with respect to which Registration, qualification or compliance has been
effected pursuant to this Article 4, and each underwriter, if any, and each
entity or person who controls any underwriter within the meaning of Section
15 of the Securities Act, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident
to any such Registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, or any violation
by the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such Registration, qualification or
compliance, and shall reimburse Holder, each of Holder's directors, officers,
employees and agents, and each entity or person controlling Holder, each such
underwriter and each entity or person who controls any such underwriter, for
any legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability
or action, provided that the Company shall not be liable to Holder or an
underwriter in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by Holder or an underwriter and stated to be specifically for
use therein.
(b) Holder shall, if Shares are included in the securities as to
which a Registration, qualification or compliance has been effected pursuant
to this Article 4, indemnify the Company, each of its directors and officers,
each underwriter, if any, of the Company's securities covered by such
Registration, qualification or compliance, each entity or person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each of its directors, officers, employees and agents,
against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of
any litigation commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or
any amendment or supplement thereto, incident to any such Registration,
qualification or compliance or based on any omission (or alleged omission) to
state therein a material
11
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company in connection
with any such Registration, qualification, or compliance, and shall reimburse
the Company, such directors, officers, employees, agents, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by Holder and stated to be
specifically for use therein; PROVIDED, HOWEVER, that Holder's obligations
hereunder shall be limited to an amount equal to the proceeds Holder received
for Shares sold as contemplated herein.
(c) Each party entitled to indemnification under this section (the
"INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in
such defense at its own expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this section unless such failure
resulted in actual detriment to the Indemnifying Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party a release
from all liability in respect of such claim or litigation.
If the indemnification provided for in this section is held by a court
of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability, claim, damage,
or expense in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified
12
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
ARTICLE 5. DEFINITIONS.
"ACTUAL CONSIDERATION" means the aggregate consideration that the
Company receives with respect to an Actual Issuance of Common Stock.
"ACTUAL ISSUANCE OF COMMON STOCK" means any issuance by the Company
of Common Stock other than pursuant to conversion of a Convertible Security
or exercise of an Option.
"AGGREGATE CONSIDERATION" means with respect to an Issuance of
Common Stock, an amount equal to (i) the Actual Consideration received with
respect to Common Stock, if any, issued and (ii) the Deemed Consideration
received with respect to the Options and Convertible Securities, if any,
issued.
"COMMON STOCK OUTSTANDING" means as of any date (i) all shares of
Common Stock that are outstanding as of such date, PLUS (ii) all shares of
Common Stock issuable upon conversion of Convertible Securities outstanding
as of such date, whether or not convertible as of such date, PLUS (iii) all
shares of Common Stock issuable upon exercise of Options outstanding as of
such date, whether or not such Options are exercisable as of such date
(assuming for this purpose that Convertible Securities acquirable upon
exercise of any such Options are converted into Common Stock as of such date).
"CONVERTIBLE SECURITIES" means evidence of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for,
with or without payment of additional consideration, shares of Common Stock,
either immediately or upon the arrival of a specified date or the happening
of a specified event or both.
"DEEMED CONSIDERATION" means the aggregate consideration received
or deemed received by the Company with respect to a Deemed Issuance of Common
Stock, determined by adding (i) the aggregate amount, if any, received or
receivable by the Company as consideration in respect of the issuance of
Options and/or Convertible Securities constituting such Deemed Issuance of
Common Stock, and (ii) the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the full exercise of the
Options (and if Options to acquire Convertible Securities, upon full exercise
of the conversion rights with respect to such Convertible Securities) and
upon full conversion of the Convertible Securities in order to acquire the
underlying shares of Common Stock.
"DEEMED ISSUANCE OF COMMON STOCK" means an issuance by the Company
of a Convertible Security or an Option.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
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"FISCAL YEAR" means the fiscal year of the Company.
"ISSUANCE OF COMMON STOCK" means (i) an Actual Issuance of Common
Stock or (ii) a Deemed Issuance of Common Stock.
"OPTION" means any right, warrant or option to subscribe or
purchase shares of Common Stock or Convertible Securities.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of the effectiveness of
such registration statement.
"REGISTRABLE SECURITIES" means (i) the Shares, and (ii) shares of
Common Stock issued as a dividend or other distribution with respect to or in
exchange for or in replacement of the Shares; PROVIDED, HOWEVER, that any
shares described in the foregoing clauses that have been resold to the public
shall cease to be Registrable Securities.
"REGISTRATION EXPENSES" means all expenses the Company incurs in
complying with Article 4, including, without limitation, all Registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, Blue Sky fees and expenses, and the expenses of any special audits
incident to or required by any such Registration.
"REPORTING COMPANY" means that the Company is subject to the
periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange
Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means (i) all underwriting discounts and selling
commissions applicable to the sale of securities Registered and sold pursuant
to Article 4, (ii) any additional costs and disbursements of counsel for the
Company that result from inclusion of Registrable Securities in the
Registration, and (iii) the expenses of qualifying the securities covered by
the Registration in a jurisdiction to the extent that the jurisdiction
requires such qualification expenses to be borne by the selling security
holders.
ARTICLE 6. MISCELLANEOUS.
6.1 TERM. The term of this Warrant shall commence on the date hereof
and terminate on the later to occur of: (i) 5:00 p.m., Pacific Time on the
tenth (10th) anniversary of the date hereof, or (ii) 5:00 p.m., Pacific Time
on the fifth (5th) anniversary of the closing of the Company's initial sale
and issuance of shares of Common Stock in an underwritten public offering,
pursuant to a Registration.
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6.2 LEGENDS. This Warrant and the Shares 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.
6.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares 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 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.
6.4 TRANSFER PROCEDURE. Subject to the provisions of Section 6.3,
Holder may transfer this Warrant or the Shares 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 Shares to any person who directly competes with the Company
and/or its subsidiaries.
6.5 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.
6.6 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.
15
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6.7 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.
WEBSITE MANAGEMENT COMPANY INC.
dba FLASHNET COMMUNICATIONS
By /s/ Xxxxx Xxxxxx
-------------------------------
Xxxxx Xxxxxx, President
12/10/97
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APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ________ shares of
the Common Stock of Flashnet 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 1 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:
------------------------
(Name)
------------------------
------------------------
(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.
------------------------
(Signature)
------------------------
(Date)
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