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 [TBD] paid and
------
nonassessable shares of the Common Stock (the "Shares") of Pointe Communications
------
Corporation (the "Company") at the price of [TBD] 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.
1.5. 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. 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.
1.7. 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. 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 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 fractional 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 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:
X = (B x A)-(B x C)
-------------------
C
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 Dollars and Cents ($ ). 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):
(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 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.
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
(e) with reasonable promptness, such other information as from
time to time may be reasonably requested by Holder.
3.4. The Company's delivery obligations under this section shall
terminate upon the Company becoming a Reporting Company.
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
(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 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 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 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.
(d) 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 Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
[4.6 "Market Stand-Off" Agreement. Holder agrees that, during the
------------------------------
period of duration (not to exceed one hundred eighty (180) days) specified by
the Company and an underwriter of Common Stock or other securities of the
Company, following the effective date of a registration statement of the
Company filed for a Registration, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) this Warrant or any of the Shares acquirable or
acquired upon the exercise hereof except Shares included in such Registration;
provided, however, that all officers, directors and holders of one percent (1%)
------- -------
or more of the Company's securities and all other persons with registration
rights enter into similar agreements. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to this
Warrant and the Shares acquirable or acquired upon the exercise hereof (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period. This covenant shall survive the termination of
this Warrant.]
[4.7 Superseding Registration Rights. If (i) the Company closes an
---------------------------------
equity financing after the date hereof which raises Five Hundred Thousand
Dollars ($500,000) or more for the Company, (ii) the Company grants registration
rights to the purchasers of the equity securities in such financing (the "New
---
Registration Rights") and Holder is made a party to the New Registration Rights
------------------
on the same terms and conditions as such purchasers, and (iii) the New
Registration Rights are no less favorable to Holder than the registration rights
granted under this Article 4, then, concurrent with the effectiveness of such
registration rights, the registration rights provisions set forth in this
Article 4 shall terminate without any action by the Company or Holder.]
ARTICLE 5. DEFINITIONS.
-----------
"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.
"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.
-------------
"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 at 5:00 p.m., Pacific Time on February 5, 1999.
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.
6.7. 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.
6.8. 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.
6.9. No Original Issue Discount. The Company and the Holder hereby
-----------------------------
acknowledge and agree that this Warrant 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 term loan made by the Holder to the Company pursuant to the
Loan Agreement (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.
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. 1.1273, the original issue discount on the Loan shall be
considered to be zero.
6.10. 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.
Pointe Communications Corporation
---------------------------------------
By: __________________________________
Title: ________________________________
Date: ________________________________
REVIEWED AND AGREED TO:
ASCEND COMMUNICATIONS, INC.
Title: ________________________________
Date: ________________________________
APPENDIX 1
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase shares of the Common Stock
of _________ pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price of such shares in full.
2. The undersigned hereby elects to convert the attached Warrant into
Shares in the manner specified in the Warrant. This conversion is exercised
with respect to _____________________ of the Shares covered by the Warrant.
[Strike paragraph 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)
