EXECUTION COPY
THE SECURITY EVIDENCED OR CONSTITUTED HEREBY HAS BEEN ACQUIRED FOR INVESTMENT
AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
SECURITY MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE
REGISTRATION PROVISIONS OF SAID ACT (OR AN EXEMPTION THEREFROM) HAVE BEEN
COMPLIED WITH.
COMMON STOCK PURCHASE OPTION
This Common Stock Purchase Option (this "AGREEMENT"), dated as of January
15, 1999, is entered into by and between XXXXXXX XXXXX CREDIT PARTNERS L.P., a
Bermuda limited partnership (the "PURCHASER"), and FLASHNET COMMUNICATIONS,
INC., a Texas corporation (the "COMPANY").
The Company desires to provide the Purchaser with the unilateral right to
subscribe for and purchase from the Company shares of the Company's common
stock, no par value per share (the "SHARES"), under certain circumstances. This
Agreement is the Common Stock Purchase Option contemplated by that certain Term
Loan Agreement dated as of the date hereof by and among the Company, the
Guarantors named therein, the Lenders named therein and the Purchaser as
administrative agent (the "TERM LOAN AGREEMENT"). Capitalized terms used herein
without definitions have the meanings assigned to them in the Term Loan
Agreement. The Company and the Purchaser hereby agree as follows:
1. OPTION TO PURCHASE SHARES. Subject to the terms and conditions set forth
herein, the Company grants to the Purchaser an option to purchase up to the
Specified Number of Shares at the Applicable Price (the "OPTION") on one or more
Closing Dates as described below by giving notice to the Company at any time or
times during the Option Period referred to in Section 6 below. The Option may be
exercised in whole or in part solely at the discretion of the Purchaser. The
Company agrees that under no circumstance will the Purchaser be obligated to
purchase any Shares pursuant to this Agreement. On the date hereof, the
Purchaser hereby assigns all of its rights hereunder to Xxxxxxx, Sachs & Co. who
shall be deemed the "PURCHASER" for all purposes hereunder. The Company hereby
agrees and consents to such assignment to Xxxxxxx, Xxxxx & Co. In connection
with such assignment, Xxxxxxx, Sachs & Co. has delivered to the Company a
written representation to the effect that Xxxxxxx, Xxxxx & Co. is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act.
The "APPLICABLE PRICE" for the Shares purchased under this Agreement shall
be the price per share equal to the price per share at which Shares are first
sold to the public (prior to any underwriting discounts or commissions) in the
initial public offering ("IPO") of the Company; PROVIDED, HOWEVER that in no
event shall the Applicable Price be less than $8.00 per Share, subject to
appropriate adjustments in the event of stock
splits, recombinations, reclassifications, distributions or stock dividends, or
other similar capital adjustments. The "SPECIFIED NUMBER" of Shares subject to
the Option granted pursuant to this Agreement shall be determined by dividing
$5.0 million by the Applicable Price. Payment of the Applicable Price may be
made either in cash (in next day funds) or by surrendering Term Notes valued at
the Original Principal Amount thereof. The "ORIGINAL PRINCIPAL AMOUNT" of any
Term Note shall be the original principal amount thereof as of the date hereof,
without giving effect to any subsequent Capitalized Interest or accrual of
interest. In the event that any Shares purchased pursuant to this Agreement are
paid for in cash after the Term Loans and all Obligations with respect thereto
have been repaid in full but prior to the date that is the sixth month
anniversary of the date of the execution of the Term Loan Agreement, Xxxxxxx
Sachs Credit Partners L.P. will refund a pro rata portion of the Applicable
Repayment Fees based on the actual Specified Number of Shares paid for in cash.
In the event Shares are purchased by surrendering the Term Notes, the Company
shall pay to Xxxxxxx Xxxxx Credit Partners L.P., by wire transfer of immediately
available funds to an account designated by Xxxxxxx Sachs Credit Partners L.P.,
an amount equal to the Capitalized Interest thereon plus accrued and unpaid
interest thereon, plus, on and after the date that is the sixth month
anniversary of the date of execution of the Term Loan Agreement, the Applicable
Repayment Fee to the Closing Date.
2. CLOSING. Each election to purchase Shares pursuant to this Option shall
take place within 180 days after the consummation of the IPO of the Company (the
"CLOSING DATE") and such Shares shall be purchased at such time as the Purchaser
shall direct on at least three Business Days' prior notice to the Company. The
Closing shall occur at the offices of Xxxxxx & Xxxxxxx, 000 Xxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000, or at such other place as the parties may mutually agree.
Upon payment of the Applicable Price in full as provided above, the Company will
deliver to the Purchaser, a certificate or certificates representing the Shares
to be purchased, in such denominations and registered in such names as the
Purchaser shall request, subject to Section 4(b) below.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser as follows:
(a) CORPORATE ORGANIZATION AND AUTHORITY. The Company: (a) is a corporation
duly organized, validly existing, authorized to exercise all its corporate
powers, rights and privileges, and is in good standing in the State of Texas;
(b) has the corporate power and corporate authority to own and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted; and (c) is qualified as a foreign corporation in all jurisdictions in
which such qualification is required.
(b) AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of all obligations under this Agreement and for the
issuance and delivery of the Shares has been taken, and this Agreement
constitutes a legally binding
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and valid obligation of the Company enforceable in accordance with its terms.
(c) VALID ISSUANCE OF SECURITIES The Shares when issued in accordance with
the terms hereof will be duly and validly issued, fully paid and nonassessable
and free of preemptive or similar rights and, will be issued in compliance with
all applicable federal and state securities laws regarding registration or
qualification. The Shares have been duly authorized and validly reserved for
issuance.
(d) NO CONFLICT. The execution, delivery and performance of this Agreement
will not result in any violation of, be in conflict with, or constitute a
default under, with or without the passage of time or the giving of notice: (i)
any provision of the Company's Articles of Incorporation or Bylaws; (ii) any
provision of any judgment, decree or order to which the Company or any of its
subsidiaries is a party or by which it is bound; (iii) any mortgage, indenture,
contract or other material agreement, obligation or commitment to which the
Company or its subsidiaries is a party or by which any of them is bound; or (iv)
any law, statute, rule or regulation applicable to the Company.
4. COVENANTS AND AGREEMENTS OF THE COMPANY AND THE PURCHASER
The Company and the Purchaser, each covenants and agrees as follows:
(a) OPINION OF COUNSEL. On each Closing Date, the Company shall arrange to
deliver to the Purchaser an opinion of its counsel, dated such Closing Date and
addressed to the Purchaser and in form and substance satisfactory to the
Purchaser, confirming the representations and warranties stated in Sections
3(a)-(d).
(b) PRIVATE PLACEMENT EXEMPTION. The Purchaser shall deliver to the
Company, prior to the exercise of the Option, such information, representations,
and warranties as the Company may reasonably request in order for the Company to
be able to satisfy itself that the Shares to be acquired pursuant to the
exercise of the Option are being acquired in accordance with the terms of an
applicable exemption from the securities registration requirements of applicable
federal and state laws.
(c) FURTHER ASSURANCES. The Company shall use its best efforts to take all
actions and to do all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement and to cause its
representations and warranties contained in Section 3 of this Agreement to be
true as of each Closing Date, as if made on and as of such date.
(d) INFORMATION AND REPORTS. During the Option Period, whether or not the
Term Loans are outstanding, the Company shall provide to the Purchaser all
information, reports and other such documents that it would have had to provide
to the Lenders under Section 4.4 of the Term Loan Agreement had it still been
effective.
5. CONDITIONS TO CLOSING. The obligations of the Company hereunder shall be
conditioned upon the Purchaser's payment in full of the Applicable Price and
the
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Purchaser's compliance with all of its obligations hereunder.
6. TERM AND TERMINATION OF OPTION. The term of the Option (the "OPTION
PERIOD") shall terminate at 5:00 p.m. Eastern time on the date of the first
to occur of the following events:
(a) Expiration of the 180 day period immediately following the IPO of the
Company.
(b) The later to occur of (i) the second anniversary of the date hereof and
(ii) the date that is 180 days immediately succeeding the date that the
principal of, the Applicable Repayment Fee and accrued and unpaid interest on
the Term Loans and all other Obligations are paid in full.
(c) On and after the date of the IPO of the Company, the day immediately
preceding the consummation of a: (i) dissolution or liquidation of the Company;
(ii) merger of the Company into another corporation, or any consolidation, share
exchange, combination, reorganization, or like transaction in which the Company
is not the survivor; (iii) sale or transfer (other than as security for the
Company's obligations) of at least a majority of the assets of the Company, or
(iv) sale or transfer of 50% or more of the issued and outstanding common stock
by the holders thereof in a single transaction or in a series of related
transactions, PROVIDED, HOWEVER, that with respect to clauses (ii), (iii) and
(iv) the Purchaser shall have been given reasonable notice by the Company of the
event specified in such clauses, the Purchaser shall have received from the
Company all information reasonably requested with respect to the event specified
in such clauses, and the Purchaser shall have had a reasonable opportunity to
exercise the Option prior to the date of the occurrence of the event specified
in clauses (ii), (iii) and (iv). The Company shall use its best efforts to
provide written notice to the Purchaser of such dissolution, liquidation,
merger, consolidation, share exchange, combination, reorganization, sale,
transfer, or like transaction, at least thirty (30) days prior to the closing of
such transaction to permit the Purchaser to exercise the Option to the extent it
is then exercisable.
(d) If an IPO of the Company has not occurred, the day immediately
preceding the consummation of a: (i) dissolution or liquidation of the Company;
(ii) merger of the Company into another corporation, or any consolidation, share
exchange, combination, reorganization, or like transaction in which the Company
is not the survivor; provided, however, that this clause (ii) shall not be
applicable with respect to any such merger, consolidation, share exchange,
combination, reorganization or like transaction between the Company and a Person
more than 50% of whose outstanding voting securities, or any general
partnership, joint venture, or similar entity more than 50% of whose total
equity interests is owned, directly or indirectly, by the Borrower, any
Subsidiary of the Borrower or any of the holders of the corporate stock of the
Borrower, or any limited partnership of which the Borrower or any Subsidiary of
the Borrower or any holder of the corporate stock of the Borrower is a general
partner; (iii) sale or transfer
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(other than as security for the Company's obligations) of at least a majority of
the assets of the Company, or (iv) sale or transfer of 50% or more of the issued
and outstanding Common Stock by the holders thereof in a single transaction or
in a series of related transactions.
Upon the expiration of the Option Period, this Option, and all unexercised
rights granted to the Purchaser hereunder shall terminate and thereafter be null
and void. The Company shall continue to be obligated to issue any Shares as to
which notice of exercise of this Option was given prior to the expiration of the
Option Period and all other actions with regard to those Shares required by this
Agreement.
7. RIGHTS AS STOCKHOLDER. The Purchaser shall have no rights as a
stockholder with respect to any Shares covered by the Option until the date of
any notice of exercise is given pursuant to Section 1 hereof and the Purchaser's
fulfillment of all obligations hereunder. No adjustment to the Option shall be
made pursuant to Section 9 hereof for dividends paid or declared on or with
respect to the Company's common stock in cash, securities other than common
stock, or other property, for which the record date is prior to the date of
exercise hereof. However, the Purchaser shall have all rights of a stockholder
with respect to any Shares covered by the Option from the date of any notice of
exercise given pursuant to Section 1 hereof and the Purchaser's fulfillment of
all obligations hereunder.
8. LOCK-UP PERIOD. The Purchaser hereby agrees that in connection with the
IPO of the Company, the Purchaser shall not sell or otherwise transfer any
Shares or other securities of the Company during the 180-day period following
the effective date of the IPO registration statement of the Company or for a
60-day period following the date of the exercise of the Option pursuant to
Section 1 hereof, whichever period expires later (the "Market Standoff Period").
The Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such Market Standoff
Period. Notwithstanding any other provision in this Agreement to the contrary,
during the Market Standoff Period, the Purchaser shall have the right to
participate in any registration under the Securities Act by the Company of any
common stock or securities of the Company as set forth in the Equity
Registration Rights Agreement.
9. CHANGE IN CAPITALIZATION. If the number of outstanding shares of the
Company's common stock shall be increased or decreased by a change in par value,
split-up, stock split, reclassification, distribution or common stock dividend,
or other similar capital adjustment, an appropriate adjustment shall be made by
the Board of Directors of the Company in the number and kind of shares as to
which the Option, or the portion thereof then unexercised, shall be or become
exercisable. The adjustment shall be made without change in the total price
applicable to the unexercised portion of the Option and with a corresponding
adjustment in the Applicable Price. No fractional shares shall be issued or made
subject to the Option in making such adjustment. All adjustments made by the
Board of Directors of the Company under this Section 9 shall be final, binding,
and conclusive.
10. LEGENDS. Each certificate representing the Shares purchased upon
exercise of this
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Option shall be endorsed with a legend substantially similar to the following
legend and the Purchaser shall not make any transfer of the Shares without first
complying with the restrictions on transfer described in such legend:
TRANSFER IS RESTRICTED
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, OR HYPOTHECATED UNLESS (1) THERE IS AN EFFECTIVE
REGISTRATION UNDER THE ACT COVERING SUCH SECURITIES, (2) THE TRANSFER IS
MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER THE ACT, OR (3) THE
ISSUER RECEIVES AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
ISSUER, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
The Purchaser agrees that the Company may also endorse any other
legends required by applicable federal or state securities laws.
The Company need not register a transfer of the Shares, and may also
instruct its transfer agent, if any, not to register the transfer of the
Shares unless the conditions specified in the foregoing legends are
satisfied.
11. MISCELLANEOUS.
(a) This Agreement may be executed in one or more counterparts, and
such counterparts shall constitute but one and the same agreement.
(b) The Company may not assign any of its rights nor be relieved of
its obligations hereunder without the prior written consent of the
Purchaser. The Purchaser may assign any of its rights hereunder in
accordance with applicable law and the restrictions on transfer described
in the legend endorsed hereon.
(c) The Company acknowledges the existence of that certain
Registration Rights Agreement dated as of May 7, 1998, as amended, by and
between the Company and the Purchaser and certain other holders of the
Company's common stock named therein.
12. CHOICE OF LAW; VENUE. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York without
regard to principles of conflicts of laws. The parties hereto waive any
trial by jury with respect to any action or proceeding arising in
connection with or as a result of this Agreement. The Company agrees that
any suit or proceeding arising in respect to this Agreement will be tried
exclusively in the U.S. District Court for the Southern District of New
York or, if that court does not have subject matter jurisdiction, in any
state court located in the City of
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New York and the Company agrees to submit to the jurisdiction of, and venue
in, such courts.
SIGNATURE PAGE FOLLOWS
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13. Notice. All notices or communications provided for hereunder shall be
duly given if in writing and delivered in person or mailed by first class
mail (registered or certified, return receipt requested), telecopier or
overnight air courier guaranteeing next day delivery, to the other Person.
All notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; five Business Days
after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and the next Business Day after timely
delivery to the courier, if sent by overnight air courier guaranteeing
next-day delivery. If a notice or communication is mailed in the manner
provided herein within the time prescribed, it is duly given, whether or
not the addressee receives it.
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the day and year first above written.
XXXXXXX XXXXX CREDIT PARTNERS L.P., as
Purchaser
By: /s/ Xxxxxxx Xxxx
-------------------------
Name: Xxxxxxx Xxxx
Title: Authorized Signatory
XXXXXXX, SACHS & Co., as authorized assignee of the
Purchaser
By: /s/ Xxxxxxx, Xxxxx & Co.
--------------------------
(Xxxxxxx, Sachs & Co.)
FLASHNET COMMUNICATIONS, INC., as the
Company
By: /s/ M. Xxxxx Xxxxxx
----------------------------
Name: M. Xxxxx Xxxxxx
Title: President & Secretary
