WARRANT TO PURCHASE STOCK
Exhibit 10.16
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE
PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW OR, IN
THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES,
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
Company: |
Next Estate Communications, Inc., a Delaware corporation | |
Number of Shares: |
283,786 | |
Class: |
Series C-1 Preferred | |
Warrant Price: |
$1.409515 per share | |
Issue Date: |
February 11, 2005 | |
Expiration Date: |
February 11, 2012 |
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other good and
valuable consideration, including without limitation the mutual promises contained in that certain
Loan and Security Agreement (the “Loan Agreement”) of even date herewith entered into by and
between Next Estate Communications, Inc. (the “Company”), and Gold Hill Venture Lending 03, LP (the
“Holder”), the Holder is entitled to purchase the number of fully paid and nonassessable shares of
the class of the Securities (the “Shares”) of the Company at the Warrant Price, all as set forth
above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the
terms and conditions set forth in this Warrant. This Warrant is issued in connection with the Loan
Agreement.
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 Article 1.2,
Holder shall also deliver to the Company a check, wire transfer (to an account designated by the
Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for
the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in Article 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 or other securities
otherwise 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 Article 1.3.
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1.3 Fair Market Value. If the Company’s common stock is traded in a public market and
the Shares are common stock, the fair market value of each Share shall be the closing price of a
Share reported for the business day immediately before Holder delivers its Notice of Exercise to
the Company (or in the instance where the Warrant is exercised immediately prior to the
effectiveness of the Company’s initial public offering, the “price to public” per share price
specified in the final prospectus relating to such offering). If the Company’s common stock is
traded in a public market and the Shares are preferred stock, the fair market value of a Share
shall be the closing price of a share of the Company’s common stock reported for the business day
immediately before Holder delivers its Notice of Exercise to the Company (or, in the instance where
the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public
offering, the initial “price to public” per share price specified in the final prospectus relating
to such offering), in both cases, multiplied by the number of shares of the Company’s common stock
into which a Share is then convertible. If the Company’s common stock is 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, but in an event within ten 10 days of such exercise or conversion, and, if
applicable, the Company receives payment of the aggregate Warrant Price, 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 or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company shall, at its expense, execute and deliver, in lieu of this Warrant, a new warrant of
like tenor.
1.6 Treatment of Warrant Upon Acquisition of Company.
1.6.1 “Acquisition”. For the purpose of this Warrant, “Acquisition” means any sale,
license, or other disposition of all or substantially all of the assets of the Company, or any
reorganization, consolidation, or merger of the Company where the holders of the Company’s
securities before the transaction beneficially own less than 50% of the outstanding voting
securities of the surviving entity after the transaction.
1.6.2 Treatment of Warrant at Acquisition.
(a) Upon the written request of the Company, Holder agrees that, in the event of an
Acquisition in which the sole consideration is cash, either (a) Holder shall exercise its
conversion or purchase right under this Warrant and such exercise will be deemed effective
immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise
the Warrant, this Warrant will expire upon the consummation of such Acquisition. The Company shall
provide the Holder with written notice of its request relating to the foregoing (together with such
reasonable information as the Holder may request in
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connection with such contemplated Acquisition giving rise to such notice), which is to be
delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.
(b) Upon the written request of the Company, Holder agrees that, in the event of an
Acquisition that is an “arms length” sale of all or substantially all of the Company’s assets to a
third party that is not an Affiliate (as defined below) of the Company (a “True Asset Sale”),
either (a) Holder shall exercise its conversion or purchase right under this Warrant and such
exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b)
if Holder elects not to exercise the Warrant, this Warrant will continue until the Expiration Date
if the Company continues as a going concern following the closing of any such True Asset Sale (but
expire upon a dissolution of the Company following such Acquisition). The Company shall provide
the Holder with written notice of its request relating to the foregoing (together with such
reasonable information as the Holder may request in connection with such contemplated Acquisition
giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior
to the closing of the proposed Acquisition.
(c) Upon the closing of any Acquisition other than those particularly described in subsections
(a) and (b) above, 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 on 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
and/or number of Shares shall be adjusted accordingly.
As used herein “Affiliate” shall mean any person or entity that owns or controls directly
or indirectly ten (10) percent or more of the stock of Company, any person or entity that controls
or is controlled by or is under common control with such persons or entities, and each of such
person’s or entity’s officers, directors, joint venturers or partners, as applicable.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on the
Shares payable in common stock, or other securities, 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 occurred. If the Company subdivides the Shares by reclassification or otherwise
into a greater number of Shares, the number of shares purchasable hereunder shall be
proportionately increased and the Warrant Price shall be proportionately decreased. 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
shall be proportionately decreased.
2.2 Reclassification, Exchange, Combinations 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
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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 Certificate 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 an amendment
to this Warrant setting forth the number and kind of such new securities or other property issuable
upon exercise or conversion of this Warrant as a result of such reclassification, exchange,
substitution or other event that results in a change of the number and/or class of securities
issuable upon exercise or conversion of this Warrant. The amendment to this 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 Article 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3 Adjustments for Diluting Issuances. The Warrant Price and the number of Shares
issuable upon exercise of this Warrant or, if the Shares are Preferred Stock, the number of shares
of common stock issuable upon conversion of the Shares, shall be subject to adjustment, from time
to time in the manner set forth in the Company’s Certificate of Incorporation as if the Shares were
issued and outstanding on and as of the date of any such required adjustment. The provisions set
forth for the Shares in the Company’s Certificate of Incorporation relating to the above in effect
as of the Issue Date may not be amended, modified or waived, without the prior written consent of
Holder unless such amendment, modification or waiver affects the rights associated with the Shares
in the same manner as such amendment, modification or waiver affects the rights associated with all
other shares of the same series and class as the Shares granted to the Holder.
2.4 No Impairment. The Company shall not, by amendment of its Certificate 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 Warrant against impairment.
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 the amount
computed by multiplying the fractional interest by the fair market value of a full Share.
2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the
Company shall promptly notify Holder in writing, and, at the Company’s expense, promptly compute
such adjustment, and furnish Holder with a certificate of its Chief
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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 upon the date thereof and the series of adjustments leading to such Warrant
Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company represents and warrants to the Holder
as follows:
(a) The initial Warrant Price referenced on the first page of this Warrant is the price per
share paid by the investors for the Company’s Series C-1 Preferred Stock in connection with the
Company’s Series C-1 Preferred Stock equity round.
(b) All Shares which may be issued upon the exercise of the purchase right represented by this
Warrant, and all securities, if any, issuable upon conversion of the Shares, 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.
(c) The Company further covenants and agrees that, during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have authorized and
reserved for the purpose of issue or transfer upon exercise of the subscription rights evidenced by
this Warrant, a sufficient number of Shares of authorized but unissued stock, or other securities
and property, when and as required to provide for the exercise of the rights represented by this
Warrant.
(d) The Capitalization Table previously provided to Holder remains true and complete as of the
Issue Date.
3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any
dividend or distribution upon any of its stock, whether in cash, property, stock, or other
securities and whether or not a regular cash dividend; (b) to offer for sale additional shares of
any class or series of the Company’s stock; (c) to effect any reclassification or recapitalization
of any of its 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) at least 10 days
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; (2) in the case of the matters referred to in (c) and (d) above at least 10
days 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); and (3) in the case of the matter
referred to in (e) above, the same notice as is given to the holders of such registration rights.
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3.3 Registration Rights. Concurrently with the granting of this Warrant, Holder shall
become a “Holder” under the Company’s Fourth Amended and Restated Registration Rights Agreement
dated as of March 26, 2004, to the extent not inconsistent with the terms of Sections 5.3 and 5.4
of this Warrant.
3.4 No Shareholder Rights. Except as provided in this Warrant, the Holder will not
have any rights as a shareholder of the Company until the exercise of this Warrant.
ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder represents and warrants
to the Company as follows:
4.1 Purchase for Own Account. This Warrant and the securities to be acquired upon
exercise of this Warrant by the Holder will be acquired for investment for the Holder’s account,
not as a nominee or agent, and not with a view to the public resale or distribution within the
meaning of the Securities Act of 1933, as amended (the “Act”). Holder also represents that the
Holder has not been formed for the specific purpose of acquiring this Warrant or the Shares.
4.2 Disclosure of Information. The Holder has received or has had full access to all
the information it considers necessary or appropriate to make an informed investment decision with
respect to the acquisition of this Warrant and its underlying securities. The Holder further has
had an opportunity to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of this Warrant and its underlying securities and to obtain additional
information (to the extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify any information furnished to the Holder or to
which the Holder has access.
4.3 Investment Experience. The Holder understands that the purchase of this Warrant
and its underlying securities involves substantial risk. The Holder has experience as an investor
in securities of companies in the development stage and acknowledges that the Holder can bear the
economic risk of such Holder’s investment in this Warrant and its underlying securities and has
such knowledge and experience in financial or business matters that the Holder is capable of
evaluating the merits and risks of its investment in this Warrant and its underlying securities
and/or has a preexisting personal or business relationship with the Company and certain of its
officers, directors or controlling persons of a nature and duration that enables the Holder to be
aware of the character, business acumen and financial circumstances of such persons.
4.4 Accredited Investor Status. The Holder is an “accredited investor” within the
meaning of Regulation D promulgated under the Act.
4.5 The Act. The Holder understands that this Warrant and the Shares issuable upon
exercise or conversion hereof have not been registered under the Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the
Holder’s investment intent as expressed herein. The Holder understands that this Warrant and the
Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently
registered under the 1933 Act and qualified
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under applicable state securities laws, or unless exemption from such registration and
qualification are otherwise available.
ARTICLE 5. MISCELLANEOUS.
5.1 Term: This Warrant is exercisable in whole or in part at any time and from time to
time on or before the Expiration Date (or earlier termination hereof as set forth in Section 1.6).
5.2 Legends. This Warrant and the Shares (and the securities issuable, directly or
indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in
substantially the following form:
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
ACT, OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS
OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAW OR, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.
5.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares issuable
upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion
of the Shares, if any) 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 any affiliate of Holder.
Additionally, the Company shall also not require an opinion of counsel 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. At the written request of the Holder, who proposes to sell
Shares issuable upon the exercise of the Warrant in compliance with Rule 144, within ten (10) days
after receipt of such request, a written statement confirming the Company’s compliance with the
filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such
Rule may be amended from time to time. In addition, the Company agrees to provide the Holder
within ten (10) days of written request such additional documents as the Holder may reasonably
require in order to exercise its rights under this Warrant and transfer the Shares issued hereunder
and carry out the intent of this Warrant, including, without limitation, an opinion of counsel for
the benefit of the Holder or any underwriter or broker.
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5.4 Transfer Procedure. Upon receipt by Holder of the executed Warrant, Holder may
transfer all of this Warrant to any Affiliate of Holder by execution of an Assignment substantially
in the form of Appendix 2. Subject to the provisions of Article 5.3 and upon providing Company
with written notice, any subsequent Holder may transfer all or part of this Warrant or the Shares
issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon
conversion of the Shares, if any) to any transferee, provided, however, in connection with any such
transfer, any subsequent Holder will give the Company notice of the portion of the Warrant being
transferred with the name, address and taxpayer identification number of the transferee and Holder
will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if
applicable). The Company may refuse to transfer this Warrant or the Shares to any person who
directly competes with the Company, unless, in either case, the stock of the Company is publicly
traded.
5.5 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 to the
Company or the Holder, as the case may (or on the first business day after transmission by
facsimile) be, in writing by the Company or such holder from time to time. Notices to the Holder
shall be addressed as follows until the Company receives notice of a change of address in
connection with a transfer or otherwise:
Gold Hill Venture Lending 03, LP
0000 Xxxxxx Xxxxx, XX 000
Xxxxx Xxxxx, XX 00000
Attention: ______________
Telephone: _____________
Facsimile: _____________
0000 Xxxxxx Xxxxx, XX 000
Xxxxx Xxxxx, XX 00000
Attention: ______________
Telephone: _____________
Facsimile: _____________
Notice to the Company shall be addressed as follows until the Holder receives notice of a
change in address:
Next Estate Communications, Inc.
Attn: Director of Legal Affairs
0000 Xxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Telephone: ____________
Facsimile: _____________
Attn: Director of Legal Affairs
0000 Xxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Telephone: ____________
Facsimile: _____________
5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the Holder and the Company.
5.7 Attorney’s 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 attorney’s
fees.
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5.8 Automatic Conversion upon Expiration. In the event that, upon the Expiration
Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as
determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such
date, then this Warrant shall automatically be deemed on and as of such date to be converted
pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not
previously have been exercised or converted, and the Company shall promptly deliver a certificate
representing the Shares (or such other securities) issued upon such conversion to the Holder.
5.9 Counterparts. This Warrant may be executed in counterparts, all of which together
shall constitute one and the same agreement.
5.10 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.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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| “COMPANY” NEXT ESTATE COMMUNICATIONS, INC. |
||||
| By: | /s/ Xxxxxx X. Xxxxxx | |||
| Name: | Xxxxxx X. Xxxxxx (Print) |
|||
| Title: | CEO | |||
| “HOLDER” GOLD HILL VENTURE LENDING 03, LP |
||||
| By: | /s/ Xxxxxxxx | |||
| Name: | Xxxxxxxx (Print) |
|||
| Title: | Partner | |||
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APPENDIX 1
NOTICE OF EXERCISE
1. Holder elects to
purchase ____________ shares of the Common/Series ____________ Preferred
[strike one] Stock of Next Estate Communications, Inc. pursuant to the terms of the attached
Warrant, and tenders payment of the purchase price of the shares in full.
[or]
1. Holder elects to convert the attached Warrant
into Shares/cash [strike one] in the manner
specified in the Warrant. This conversion is exercised for
_________ of the Shares
covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates
representing the shares in the name specified
below:
Holders Name
(Address)
3. By its execution below and for the benefit of the Company, Holder hereby restates each of
the representations and warranties in Article 4 of the Warrant as the date hereof.
| HOLDER: |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| (Date): | ||||
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APPENDIX 2
ASSIGNMENT
For value received, Gold Hill Venture Lending 03, LP hereby sells, assigns and transfers
unto
Name:
Address:
Address:
Tax ID:
that certain Warrant to Purchase Stock issued by Next Estate Communications, Inc.
(the “Company”), on February 11, 2005 (the “Warrant”) together with all rights, title and
interest therein.
| GOLD HILL VENTURE LENDING 03, LP |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Date: ____________, 2005
By its execution below, and for the benefit of the
Company, ________________________ makes each of
the representations and warranties set forth in Article 4 of the Warrant as of the date hereof.
| By: | ||||
| Name: | ||||
| Title: | ||||
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