FULLNET COMMUNICATIONS, INC.
(an Oklahoma corporation)
WARRANT AGREEMENT
___________ ____, 2000
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FullNet Communications, Inc., an Oklahoma corporation (the "Company"),
agrees to issue to you warrants (the "Warrants") to purchase the number of
shares of common stock, par value $0.00001 per share (the "Common Stock"), of
the Company set forth herein, subject to the terms and conditions contained
herein.
1. Issuance of Warrants; Exercise Price. The Warrants, which shall be
certificated in the form attached hereto as EXHIBIT "A," (each, a "Warrant
Certificate") shall be issued to you concurrently with the execution hereof in
consideration of the Promissory Loan in the amount of $____________ pursuant to
the terms of the 14% Promissory Note dated of even date herewith (the "Note").
The Warrants shall provide that you, or such other holder or holders of the
Warrants to whom transfer is authorized in accordance with the terms of this
Agreement, shall have the right to purchase an aggregate of ________ shares of
Common Stock for an exercise price equal to $.01 per share (the "Exercise
Price"); provided, however, that in the event the Company desires to extend for
ninety (90) days the maturity date of the Note, the Company shall issue to you
the right to purchase an additional ________ shares of Common Stock at the
Exercise Price. The Company shall have the option to extend for two (2) ninety
(90) day periods the maturity date of the Note, subject in each case to the
grant of additional Warrants as set forth in the preceding sentence.
2. Exercise of Warrants. At any time and from time to time after the
date hereof and expiring on the fifth anniversary of the effective date of this
Agreement at 5:00 p.m., Central Standard Time, Warrants may be exercised as to
all or any portion of the whole number of shares of Common Stock covered by the
Warrants by the holder thereof by surrender of the Warrants, accompanied by a
subscription for shares to be purchased in the form attached to each Warrant
Certificate and by payment to the Company as set forth in the Warrant
Certificate in the amount required for purchase of the shares as to which the
Warrant is being exercised, delivered to the Company at its principal office at
000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxx Xxxx, Xxxxxxxx 00000, Attention:
President. Upon the exercise of a Warrant, in whole or in part, the Company
will, within ten (10) days thereafter, at its expense (including the payment by
the Company of any applicable issue or transfer taxes), cause to be issued in
the name of and delivered to the holder a certificate or certificates for the
number of fully paid and non-assessable shares of Common Stock to which such
holder is entitled upon exercise of the Warrant. In the event such holder is
entitled to a fractional share, in lieu thereof, such holder shall be paid a
cash amount equal to such fraction, multiplied by the Current Value (as
hereafter defined) of one full share of Common Stock on the date of exercise.
Certificates for shares of Common Stock issuable by reason of the exercise of
the Warrant or Warrants shall be dated and shall be effective as the date of the
surrendering of the certificates for the shares so purchased. In the event a
Warrant is exercised, as to less than the aggregate amount of all shares of
Common Stock issuable upon exercise of all Warrants held by such person, the
Company shall issue a new Warrant to the holder of the Warrant so exercised
covering the aggregate number of shares of Common Stock as to which Warrants
remain unexercised.
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For purposes of this section, Current Value is defined (i) in
the case for which a public market exists for the Common Stock at the time of
such exercise, the average of the daily closing prices of the Common Stock for
twenty (20) consecutive business days commencing thirty (30) business days
before the date of exercise, and (ii) in the case no public market exists at the
time of such exercise, at the Appraised Value. For the purposes of this
Agreement, "Appraised Value" is the value determined in accordance with the
following procedures. For a period of five (5) days after the date of an event
(a "Valuation Event") requiring determination of Current Value at a time when no
public market exists for the Common Stock (the "Negotiation Period"), each party
to this Agreement agrees to negotiate in good faith to reach agreement upon the
Appraised Value of the securities or property at issue, as of the date of the
Valuation Event, which will be the fair market value of such securities or
property, without premium for control or discount for minority interests,
illiquidity or restrictions on transfer. In the event that the parties are
unable to agree upon the Appraised Value of such securities or other property by
the end of the Negotiation Period, then the Appraised Value of such securities
or property will be determined for purposes of this Agreement by a recognized
appraisal or investment banking firm mutually agreeable to the holders of the
Warrants and the Company (the "Appraiser"). If the holders of the Warrants and
the Company cannot agree on an Appraiser within two (2) business days after the
end of the Negotiation Period, the Company, on the one hand, and the holders of
the Warrants, on the other hand, will each select an Appraiser within ten (10)
business days after the end of the Negotiation Period and those two (2)
Appraisers will select ten (10) days after the end of the Negotiation Period an
independent Appraiser to determine the fair market value of such securities or
property, without premium for control or discount for minority interests. Such
independent Appraiser will be directed to determine fair market value of such
securities as soon as practicable, but in no event later than thirty (30) days
from the date of its selection. The determination by an Appraiser of the fair
market value will be conclusive and binding on all parities to this Agreement.
Appraised Value of each share of Common stock at a time when (i) the Company is
not a reporting company under the Exchange Act and (ii) the Common Stock is not
traded in the organized securities markets, will, in all cases, be calculated by
determining the Appraised Value of the entire Company taken as a whole and
dividing that value by the number of shares of Common Stock then outstanding,
without premium for control or discount for minority interests, illiquidity or
restrictions on transfer. The costs of the Appraiser will be borne by the
Company. In no event will the Appraised Value of the Common Stock be less than
the per share consideration received or receivable with respect to the Common
Stock or securities or property of the same class in connection with a pending
transaction involving a sale, merger, recapitalization, reorganization,
consolidation, or share exchange, dissolution of the Company, sale or transfer
of all or a majority of its assets or revenue or income generating capacity, or
similar transaction.
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3. Registration Rights.
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(a) S-3 Registration Rights. The Company will register the
shares of Common Stock underlying the Warrants (the "Warrant Shares")
within thirty (30) days following the date upon which the Company shall
become eligible to register its securities on Form S-3 under the
Securities Act of 1933, as amended (the "Securities Act") or any
successor to such form in a manner that will, upon being declared
effective, constitute a "shelf" registration for purposes of Rule 415
under the Securities Act, pursuant to which the Warrant Shares may be
sold from time to time and in such amounts as the holder(s) thereof may
hereafter determine, all in a manner consistent with all applicable
provisions of the Securities Act; provided, however, if at the time of
such S-3 eligibility, the Company has formulated plans to file within
60 days thereof a registration statement covering the sale of any of
its securities in a public offering under the Securities Act, no
registration of the Warrant Shares shall be initiated under this
Section 3(a) until 90 days after the effective date of such
registration statement unless the Company is no longer proceeding
diligently to secure the effectiveness of such registration statement;
provided that the Company shall provide the Warrant holder(s) the right
to participate in such public offering pursuant to, and subject to,
Section 3(b). The Company will use its best efforts to have the Form
S-3 declared effective. At its expense, the Company will keep such
registration effective for a period of one hundred eighty (180) days or
until the holder or holders have completed the distribution described
in the registration statement relating thereto, whichever first occurs;
and furnish such number of prospectuses and other documents incident
thereto as a holder from time to time may reasonably request.
(b) Piggyback Registration Rights. At any time following the
date hereof, whenever the Company proposes to register any Common Stock
for its own or the account of others under the Securities Act for a
public offering, other than (i) any shelf registration of shares to be
used as consideration for acquisitions of additional businesses by the
Company and (ii) registrations relating to employee benefit plans, the
Company shall give each Warrant holder prompt written notice of its
intent to do so. Upon the written request of any Warrant holder given
within 15 business days after receipt of such notice, the Company shall
cause to be included in such registration all Warrant Securities
(including any shares of Common Stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of
such Warrant Securities) which any Warrant holder requests; provided,
however, if the Company is advised in writing in good faith by any
managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section
3(b) that the number of shares to be sold by persons other than the
Company is greater than the number of such shares which can be offered
without adversely affecting the offering, the Company may reduce pro
rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by such person) to a number
deemed satisfactory by such managing underwriter.
(c) Lock-up Agreement. In consideration for the Company's
agreeing to its obligations under this Section 3, each Warrant holder
agrees that, effective upon the request of the underwriters managing
the Company's initial public offering, such holder shall be obligated,
so long as all executive officers and directors of the Company are
bound by a comparable obligation, not to sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any
shares of Common Stock underlying the Warrants (other than those
included in the registration) without the prior written consent of such
underwriters, for such period of time (not to exceed one hundred eighty
(180) days) from the effective date of such initial public offering as
the underwriters may specify.
4. Specific Performance. The Company stipulates that remedies at law,
in money damages, available to the holder of a Warrant, or of a holder of Common
Stock issued pursuant to exercise of a Warrant, in the event of any default or
threatened default by the Company in the performance of or compliance with any
of the terms of this Agreement are not and will not be adequate. Therefore, the
Company agrees that the terms of this Agreement 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.
5. Successors and Assigns; Binding Effect. This Agreement shall be
binding upon and insure to the benefit of you and the Company and their
respective successors and permitted assigns.
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6. Notices. Any notice hereunder shall be given by registered or
certified mail, if to the Company, at its principal office, and, if to the
holders, to the respective addresses shown in the Warrant ledger of the Company,
provided that any holder may at any time on three (3) days' written notice to
the Company designate or substitute another address where notice is to be given.
Notice shall be deemed given and received after a certified or registered
letter, properly addressed with postage prepaid, is deposited in the U.S. mail.
7. Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the remainder of this
Agreement.
8. Assignment; Replacement of Warrants. If the Warrant or Warrants are
assigned, in whole or in part, the Warrants shall be surrendered at the
principal office of the Company, and thereupon, in the case of a partial
assignment, a new Warrant shall be issued to the holder thereof covering the
number of shares not assigned, and the assignee shall be entitled to receive a
new Warrant covering the number of shares so assigned. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of any Warrant and appropriate bond or indemnification protection,
the Company shall issue a new Warrant of like tenor. The Warrants will not be
transferred, sold, or otherwise hypothecated by you or any other person and the
Warrants will be nontransferable, except to (i) one or more persons, each of
which on the date of transfer is an officer, shareholder, or employee of you;
(ii) a partnership or partnerships, the partners of which are you and one or
more persons, each of whom on the date of transfer is an officer of you; (iii) a
successor to you in merger or consolidation; (iv) a purchaser of all or
substantially all of your assets; or (v) a person that receives a Warrant upon
death of a holder pursuant to will, trust, or the laws of intestate succession.
9. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Oklahoma without giving effect to the
principles of choice of laws thereof.
10. Definition. All references to the word "you" in this Agreement
shall be deemed to apply with equal effect to any persons or entities to whom
Warrants have been transferred in accordance with the terms hereof, and, where
appropriate, to any persons or entities holding shares of Common Stock issuable
upon exercise of Warrants.
11. Headings. The headings herein are for purposes of reference only
and shall not limit or otherwise affect the meaning of any of the provisions
hereof.
12. Counterparts. This Agreement may be executed in two or more
counterparts, and it will not be necessary that the signatures of all parties
hereto be contained on any one counterpart hereof. Each counterpart will be
deemed an original, but all counterparts together will constitute one and the
same instrument. The parties agree that a facsimile of this Agreement signed by
the parties will constitute an agreement in accordance with the terms hereof as
if all of the parties had executed an original of this Agreement.
Very truly yours,
FULLNET COMMUNICATIONS, INC.
By:
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Xxxxxxx X. Xxxxxxxx, President and CEO
ACCEPTED AS OF THE ________ DAY OF ____________, 2000:
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