Exhibit 10.17
WARRANT AGREEMENT
This AGREEMENT (this "Agreement") is made by and between FLUX U.S.
Corporation, a Delaware corporation ("FLUX U.S.") and ITFS Spectrum Advisors
LLC, a Delaware limited liability company ("ISA"), as of the 13th day of
November, 2003 (the "Effective Date"). In consideration of the mutual covenants
and promises made below, and other good and valuable consideration, the parties
agree as follows:
1. RELATIONSHIP. FLUX U.S. and HITN, an affiliate of ISA, are parties to
that certain Master Spectrum Acquisition Agreement dated November __, 2003 (the
"MSA"). In connection with the MSA, ISA shall earn warrants (the "Warrants") to
purchase shares of Class A common stock of FLUX U.S. (the "Warrant Shares")
under this Agreement in consideration of, and based on, ISA's facilitation of
FLUX U.S.'s acquisition of ITFS/MMDS channels (measured in CPOPs as defined in
the MSA) from third parties after the closing of the MSA and during the
twenty-four months following the date of this Agreement. Warrants will be deemed
earned if ISA makes an introduction to FLUX U.S. which results in the
"Acquisition," as defined below, of CPOPs. For purposes of this Agreement, the
term "Acquisition" means any transaction in which FLUX U.S. makes an acquisition
of ITFS, MDS, or MMDS channels (as they are defined by the Federal
Communications Commission) through a spectrum license purchase, lease or
sublease in which ISA has either (x) made an introduction to the third party
whose CPOPs are subject to the transaction or (y) facilitated the transaction
with the third party to closing through its efforts and assistance. FLUX U.S.
and ISA agree to discuss appropriate consideration, if any, that ISA may be
eligible for in connection with transactions that do not qualify as Acquisitions
but in which FLUX U.S. purchases, sell, leases, swaps or secures an option on
ITFS, MDS or MMDS channels and ISA has either (x) made an introduction to the
third party whose CPOPs are subject to the transaction or (y) facilitated the
transaction with the third party to closing through its efforts and assistance.
FLUX U.S. shall have no obligation to negotiate or consummate Acquisitions.
Warrants shall be earned as of the date of closing of any such Acquisition and
shall be subject to the issuance of a Warrant in writing promptly following such
closing.
2. WARRANTS.
2.1 TERMS: WARRANT SHARE LIMITATION. FLUX U.S. shall issue ISA
Warrants to purchase Warrant Shares up to an aggregate share value (as
determined by the Value of Warrant Shares pursuant to Section 2.3 below) of the
sum of (i) Two Million Fifty Thousand Two Hundred and Sixty Two Dollars
($2,050,262) plus (ii) the product of $0.05 multiplied by the number of CPOPs
covered by Extra Spectrum Rights (as defined in the MSA) acquired by FLUX U.S.
pursuant to Section 1.02 of the MSA (the "Share Maximum"), based on the
respective valuations of the Warrant Shares as of each date on which Warrants
are issued to Holder. To the extent the number of CPOPs acquired by FLUX U.S.
pursuant to the MSA at the First Closing (as defined in the MSA) is reduced
during the Adjustment Period (as defined below) below 28,448,074 CPOPs as a
result of the exercise of rights of first refusal ("RFRs") or other post-closing
adjustments, the Share Maximum shall be subject to downward adjustment by an
amount calculated as the product of $0.05 multiplied by reduction in the number
of CPOPs as a result of the exercise of such RFRs or other post-closing
adjustments, and any Warrant issued in excess of the Share Maximum as adjusted
shall be automatically cancelled and replaced by
FLUX U.S. with an amended Warrant in an appropriate amount, upon the delivery of
which ISA or the holder of the Warrant shall immediately surrender the cancelled
Warrant to FLUX U.S . For purposes of this paragraph, the "Adjustment Period" is
defined as the period beginning on the closing date of the MSA (the "Original
Closing") and ending on the day which is one hundred fifty (150) days
thereafter. Warrants shall be issued as more particularly set forth in Section
2.2 below. All Warrants issued under this Agreement will be in the form of the
attached Appendix A and will be priced and issued on the day of closing of the
Acquisition for which any such Warrant is issued. Notwithstanding any other
terms or conditions in this Agreement, FLUX U.S. shall not be obligated under
any circumstances to issue Warrants for more than the Share Maximum.
2.2 CONDITIONS TO EARNING WARRANTS; WARRANT SHARES CALCULATION.
During the Term (as defined in Section 3 below) and subject to
the Share Maximum, ISA shall earn Warrants and FLUX U.S. shall issue a Warrant
upon the closing of an Acquisition after the Original Closing and the transfer
of any CPOPs in connection with the Original Closing. The number of Warrant
Shares subject to each such Warrant shall be calculated as follows: The price
paid per CPOP (the "CPOP Price") shall be calculated by FLUX U.S. for each such
Acquisition. The number of CPOPs acquired by FLUX U.S. in each Acquisition shall
be multiplied by an amount which is fifty per cent (50%) of the difference (if
any), between the CPOP Price and Fifty-two cents ($0.52), assuming the CPOP
Price is less than Fifty-two cents ($0.52). The resulting product of that
multiplication shall be divided by the Value of the Warrant Shares (as defined
in Section 2.3 below) as of the date the Acquisition is closed. The quotient of
that division shall be the number of Warrant Shares earned by ISA as a result of
that Acquisition, and shall be evidenced in the Warrant issued in connection
with that Acquisition.
2.3 VALUE OF WARRANT SHARE. The Value of the Warrant Shares shall be
defined as the greater of (i) the value per Class A common share as determined
by the board of directors of FLUX U.S. from time to time, as in effect on the
respective date the Warrant is issued; or (ii) the price per share of FLUX
U.S.'s common stock in the then most recently completed funding round of FLUX
U.S. in excess of Two Million Dollars ($2,000,000), or, if such funding round
did not include common stock but did include preferred stock or other
convertible securities, the price per share of common stock, based on converting
such preferred stock or other convertible securities to common stock pursuant to
the applicable conversion rights.
2.4 CPOP CALCULATION. The CPOP and household numbers listed on
Schedule I hereto shall be controlling with respect to all calculations of CPOPs
for purposes of this Agreement. For calculations of CPOPs with respect to
Acquisitions made by Flux that are the subject of this Agreement for markets
that are other than those listed on Schedule I, the number of CPOPs will equal
the number of total households within the protected or exclusive service area
specified in the then current FCC Rules ("Service Area") times the number of
ITFS, MMDS or MDS Channels licensed to the applicable entity within such Service
Area. The geographic area encompassed within a Service Area shall define the
limits of a Market Area for purposes of this Agreement. In the event of a
dispute over the correct number of households located within a Service Area for
those markets not listed on Schedule I, the parties agree to
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determine the correct number of households using the most up-to-date commercial
engineering software available for calculating such household numbers.
2.5 ADJUSTMENTS. The number of Warrant Shares for which Warrants
become issuable under this Agreement, the Share Maximum, and the per share
exercise price of the Warrants, shall be subject to proportionate adjustment
from time to time in the event of any stock split, stock dividend, combination,
recapitalization or the like, as set forth in the form of Warrant attached as
Appendix A.
2.6 CPOP PRICE. With respect to any Acquisition, the CPOP Price shall
be defined and calculated on the same basis as the CPOPs acquired pursuant to
the MSA.
3. TERM; TERMINATION. This Agreement shall commence and become effective on
the Effective Date and continue until termination of the MSA and all other
agreements between FLUX U.S. and an ISA, provided that this Agreement shall
terminate immediately and without notice at such time as FLUX U.S. has issued
ISA Warrants under this Agreement for the Share Maximum.
4. OWNERSHIP OF ISA; RESTRICTIONS ON ASSIGNMENT AND TRANSFER;
REPRESENTATIONS AND WARRANTIES.
4.1 OWNERSHIP OF ISA AND TRANSFER. ISA will initially be owned jointly
by Hispanic Information and Telecommunications Network, Inc. ("HITN") and a
limited liability company wholly owned by Xxxxxxx X. Xxxxx ("Xxxxx"). This
Agreement, and any Warrants issued hereunder, shall not be assignable or
transferable by ISA except in strict accordance with the restrictions on
transfer contained in the Warrant. A "Permitted Transferee," for purposes of the
Warrants issued pursuant to this Agreement, is defined as that term is defined
in that certain Stockholders' Agreement of FLUX U.S. dated as of November __,
2003 (the "Stockholders Agreement"). Prior to any issuance of Warrants or any
permitted assignment or transfer, ISA will provide to FLUX U.S. copies of its
own organizational documents, and with respect to any assignees or transferees,
the organizational documents of any such assignee or transferee entity,
including corporate articles and bylaws, LLC operating agreements, partnership
agreements, voting or member agreements, and other governance documents, as
applicable. ISA will provide to FLUX U.S. such further assurances with respect
to its own ownership or the ownership of any assignee or transferee entity as
shall be requested by FLUX U.S. in its sole discretion. Upon execution of this
Agreement, ISA will also execute and be bound by the Stockholders Agreement and
that certain Registration Rights Agreement, dated as of November __, 2003, by
and among FLUX U.S. and certain of its stockholders (the "RRA"). Upon any
transfer of Warrants or shares issued upon exercise of a Warrant to either of
HITN or Xxxxx in accordance with the provisions of such Warrant, each of HITN
and Xxxxx shall agree to execute and become bound by the Stockholders Agreement
and the RRA.
4.2 REPRESENTATIONS AND WARRANTIES. ISA represents and warrants to
FLUX U.S. as follows:
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4.3 ORGANIZATION. ISA is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to carry on its business.
4.4 AUTHORIZATION. All action on the part of ISA, necessary for the
authorization, execution and delivery of this Agreement, has been taken.
4.5 INVESTMENT PURPOSE. ISA is acquiring the Warrants and the Warrant
Shares for ISA's own account (and not as a nominee or agent) for investment only
and not with a view towards, or for resale in connection with, the public sale
or distribution of the Warrants or the Warrant Shares, except pursuant to sales
registered or exempted from registration under the Securities Act of 1933, as
amended (the "Securities Act"), and applicable state securities laws.
4.6 INVESTOR STATUS; INVESTMENT RISK. ISA (a) is and at all relevant
times will be an "accredited investor" as defined in Regulation D under the
Securities Act and (b) is not and at all relevant times will not be a "broker"
or "dealer" as those terms are defined in Section 3 of the Shares Exchange Act
of 1934, as amended. ISA understands that its receipt of the Warrants and the
Warrant Shares involves a high degree of risk, and acknowledges that it is able
to bear the financial risks associated with an investment in the Warrants and
the Warrant Shares, including the loss of its entire investment. ISA has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Warrants and
the Warrant Shares.
4.7 DISCLOSURE. ISA acknowledges and agrees that FLUX U.S. has made
available to ISA, or its attorneys or accountants, all other documents and
information that ISA has requested, and that FLUX U.S. has provided answers to
all of their questions concerning ISA's receipt of the Warrants and the Warrant
Shares. ISA has requested and received all documents and other information that
ISA has deemed necessary for making an evaluation of FLUX U.S.
4.8 RESTRICTED SECURITIES. ISA acknowledges that the Warrant Shares
issuable upon exercise of the Warrants are "restricted securities" under the
federal securities laws and that (a) the Warrant Shares have not been and are
not being registered under the Securities Act or any state securities laws and
(b) FLUX U.S. is not obligated to register the Warrant Shares under the
Securities Act or any state securities laws, or to comply with the terms and
conditions of any exemption under those laws.
4.9 TRANSFER OR RESALE. ISA understands that the Warrant and the
Warrant Shares may not be offered for sale, sold, assigned or transferred unless
(a) the Warrants or Warrant Shares are subsequently registered under federal and
state securities laws, or (b) ISA has delivered to FLUX U.S. an opinion of legal
counsel, in a form reasonably acceptable to FLUX U.S. and its legal counsel, to
the effect that the Warrants or Warrant Shares, as applicable, may be sold,
assigned or transferred pursuant to an exemption from such registration or (c)
ISA provides FLUX U.S. with reasonable assurances that the Warrants or Warrant
Shares can be and are being sold, assigned or transferred in accordance with
Rule 144 under the Securities Act.
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4.10 LEGENDS. ISA hereby consents to the placement of a legend on all
certificates representing the Warrant Shares in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A FORM ACCEPTABLE TO THE ISSUER'S
COUNSEL, THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER THE SECURITIES ACT.
4.11 RELIANCE ON EXEMPTIONS. ISA understands that FLUX U.S. (a) is
issuing the Warrants and will be issuing the Warrant Shares, if at all, to ISA
in reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and (b) is relying in part upon the
truth and accuracy of, and ISA's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of ISA set forth in
this Agreement in order to determine the availability of such exemptions and the
eligibility of ISA to acquire the Warrants and the Warrant Shares.
5. GENERAL PROVISIONS.
5.1 AGREEMENT AUTHORIZED. FLUX U.S. and ISA have full power and
authority to enter into and perform this Agreement, and the person(s) signing
this Agreement on behalf of each party has been properly authorized and
empowered to enter into this Agreement.
5.2 INTEGRATION. The parties acknowledge that each has read,
understands, and agrees to be bound by this Agreement including the Appendix,
which is incorporated into this Agreement by this reference, and that this
Agreement is the complete and entire agreement between the parties regarding the
subject matter described herein and supersedes all prior or contemporaneous
written or oral agreements and/or understandings by or among the parties,
whether express or implied concerning the subject matter contained herein. There
are no representations, agreements, arrangements or understandings, oral or
written, among the parties hereto relating to the subject matter contained in
this Agreement which are not fully set forth herein.
5.3 NONWAIVER. Any failure or delay by any party to exercise or
partially exercise any right, power or privilege hereunder shall not be deemed a
waiver of any of the rights, powers or privileges under this Agreement. The
waiver by any party of a breach of any
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term, condition or provision of this Agreement shall not operate as, or be
construed as, a waiver of any subsequent breach thereof.
5.4 MODIFICATIONS OR WAIVERS. No modifications or amendments to this
Agreement and no waiver of any provisions hereof shall be valid unless made in
writing signed by duly authorized representatives of the parties.
5.5 APPLICABLE LAW. This Agreement shall in all respects, including
all matters of construction, validity, and performance, be governed by, and
construed and enforced in accordance with, the laws of the state of Delaware,
without reference to any rules governing conflicts of laws. However, in light of
FLUX U.S.'s presence and headquarters in the State of Washington, any dispute
arising out of this Agreement shall be resolved in a court of appropriate
jurisdiction or by an arbitration located in King County, Washington. Each party
specifically and expressly consents to the personal jurisdiction of the state
and federal courts located in Seattle, King County, Washington.
5.6 SEVERABILITY. If any term, provision or part of this Agreement is
to any extent held invalid, void or unenforceable by a court of competent
jurisdiction, the remainder of this Agreement shall not be impaired or affected
thereby, and each term, provision, and part shall continue in full force and
effect and be interpreted in a manner consistent with the parties' intent.
5.7 SURVIVAL. The terms, conditions and warranties contained in this
Agreement that by their sense and context are intended to survive the
performance hereof by the parties hereunder shall so survive the completion of
the performance, cancellation or termination of this Agreement.
5.8 TRAVEL AND RELATED EXPENSES. Any travel and related expenses
reasonably incurred by ISA and approved in advance by FLUX U.S. in connection
with its performance of making introductions and facilitating Acquisitions under
Section 1 of this Agreement shall be paid by FLUX U.S. upon the submittal of
documentation of such expenses satisfactory to FLUX U.S.
5.9 ATTORNEY'S FEES. In the event any action is brought to enforce any
rights other than pursuant to an Arbitrable Dispute hereunder, or to declare a
breach of this Agreement, such action shall not be subject to the arbitration
provisions of Section 5.10, and the prevailing party shall be entitled to
recover, in addition to any other amounts awarded, reasonable legal costs
including attorney's fees incurred thereby. An "Arbitrable Dispute" is defined
as (and limited to) any dispute concerning the payment of money hereunder or to
resolve an ambiguity in the drafting of this Agreement.
5.10 ARBITRATION OF ARBITRABLE DISPUTES.
(a) If the parties are unable to resolve any Arbitrable Dispute under
this Agreement, the following baseball decision rules ("Baseball Arbitration")
shall apply. Any such Arbitrable Dispute shall be resolved by a single
Arbitrator. In the event of an Arbitrable Dispute over any provision of this
Agreement, either party may request by written notice to the other party that it
wishes to submit the disputed matter for resolution by Baseball Arbitration. The
parties shall agree to submit the matter to an Arbitrator within 30 days after
the requesting
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party's notice has been received by the other party. Within fifteen (15) days
(the "Submission Period") after the appointment of the arbitrator (the
"Arbitrator") in accordance with the Commercial Arbitration Rules (then in
effect) of the American Arbitration Association for arbitration of commercial
disputes (the "AAA") using the Federal Rules of Civil Procedures, each party
shall submit to the Arbitrator its own proposal for the resolution of the
contested issue. Such submissions shall remain secret until after the Arbitrator
has received each party's proposal, at which time the Arbitrator shall inform
each party of the other's proposal. No such proposal may be amended after it is
submitted to the Arbitrator. The Arbitrator shall compare the proposals. The
Arbitrator shall determine which proposal he or she believes to be the
resolution most closely in accordance with the relevant provisions of this
Agreement and shall order the adoption of such proposal as the relief granted.
If any party fails to submit its proposal by the end of the Submission Period,
the Arbitrator shall order the adoption of the other party's proposal.
(b) The arbitration hearing shall be located in neutral location
agreed upon by the parties or, if they cannot so agree, in a location in
Seattle, Washington selected by the Arbitrator or Arbitration Panel. The Federal
Rules of Evidence shall apply to the arbitration hearing. The party bringing a
particular claim or asserting an affirmative defense will have the burden of
proof with respect thereto. Each party shall bear the burden of persuasion with
respect to its proposal for resolution of the matter. The arbitration
proceedings and all testimony, filings, documents and information relating to or
presented during the arbitration proceedings shall be deemed to be information
subject to the confidentiality provisions of this Agreement. The Arbitrator will
have no power or authority, pursuant to the rules of the AAA or otherwise, to
relieve the parties from their agreement hereunder to arbitrate or otherwise to
amend or disregard any provision of this Agreement, including without limitation
the provisions of this Section 5.10(b).
(c) Should an Arbitrator refuse or be unable to proceed with
arbitration proceedings as called for by this Section 5.10, the Arbitrator shall
be replaced pursuant to the rules of the AAA. If an arbitrator is replaced after
the arbitration hearing has commenced, then a rehearing shall take place in
accordance with this Section 5.10 and the rules of the AAA.
(d) Within fifteen (15) days after the closing of the arbitration
hearing, the Arbitrator will prepare and distribute to the parties a writing
setting forth the Arbitrator's or Arbitration Panel's finding of facts and any
relevant conclusions of law relating to the Arbitrable Dispute, including the
reasons for the giving or denial of any award. The findings and conclusions and
the award, if any, shall be deemed to be information subject to the
confidentiality provisions of this Agreement.
(e) The Arbitrator is instructed to schedule promptly all discovery
and other procedural steps and otherwise to assume case management initiative
and control to effect an efficient and expeditious resolution of the Arbitrable
Dispute. The Arbitrator or Arbitration Panel is authorized to issue monetary
sanctions against either party if, upon a showing of good cause, such party is
unreasonably delaying the proceeding.
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(f) Any award rendered by the Arbitrator will be final, conclusive and
binding upon the parties and any judgment thereon may be entered and enforced in
any court of competent jurisdiction.
(g) Each party will bear an equal one-half of all fees, costs and
expenses of the Arbitrators, and notwithstanding any law to the contrary, each
party will bear all the fees, costs and expenses of its own attorneys, experts
and witnesses; provided, however, in connection with any judicial proceeding to
compel arbitration pursuant to this Agreement or to confirm, vacate or enforce
any award rendered by the Arbitrator, the prevailing party in such a proceeding
shall be entitled to recover reasonable attorney's fees and expenses incurred in
connection with such proceedings, in addition to any other relief to which it
may be entitled.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
ITFS Spectrum Advisors LLC
By: /s/ Xxxxxxx X. Xxxxx
------------------------------------
Xxxxxxx X. Xxxxx as Managing Member
FLUX U.S. Corporation
By: /s/ R. Xxxxxx Xxxxxxx
------------------------------------
R. Xxxxxx Xxxxxxx
[Signature Page to Warrant Agreement]
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APPENDIX A
Form of Warrant
(See Attached)
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