<PAGE>
FORM 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------------------
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1998
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File Number: 0-18280
PULSEPOINT COMMUNICATIONS
-------------------------------
(Exact name of Registrant as specified in its charter)
California 95-3222624
- ------------------------------ ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6307 Carpinteria Avenue, Carpinteria, California 93013
- --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (805) 566-2000
------------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months or for such shorter period that the
Registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of Registrant's common stock as of
July 31, 1998 was 5,213,927.
<PAGE>
PULSEPOINT COMMUNICATIONS
-------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page Number
-----------
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the
Three Months and Six Months ended
June 30, 1998 and June 30, 1997 4
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 1998
and June 30, 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal proceedings 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
PULSEPOINT COMMUNICATIONS
-------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
Unaudited
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 12,869 $ 20,973
Accounts receivable, less allowance for doubtful accounts of $678
and $527 at June 30, 1998 and December 31, 1997, respectively 6,752 4,111
Inventories, net 4,687 3,876
Other current assets 146 169
-------- --------
Total current assets 24,454 29,129
Property and equipment, at cost:
Computers and other equipment 10,062 9,504
Furniture and fixtures 1,004 999
Leasehold improvements 1,469 1,357
-------- --------
Total property and equipment, at cost 12,535 11,860
Less accumulated depreciation and amortization (7,624) (6,776)
-------- --------
Property and equipment, net of depreciation and amortization 4,911 5,084
Other assets:
Investment securities 1,039 1,030
Other assets 1,732 2,198
-------- --------
Total other assets 2,771 3,228
-------- --------
Total assets $ 32,136 $ 37,441
======== ========
Liabilities & Shareholders' Equity
Current liabilities:
Credit Line $ 2,304 $ 1,581
Shareholder notes payable - 6,613
Accounts payable 3,566 3,532
Accrued payroll and related 2,491 3,102
Other accrued liabilities 2,411 2,170
-------- --------
Total current liabilities 10,772 16,998
Other liabilities 805 -
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, 15,000,000 shares authorized:
Series B, no par value, 3,333,334 and 2,451,667 shares issued and
outstanding at June 30, 1998 and December 31, 1997, respectively. 24,723 18,110
Common stock, no par value - 50,000,000 shares authorized,
5,213,927 and 5,140,398 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 69,489 69,205
Accumulated deficit (73,653) (66,872)
-------- --------
Total shareholders' equity 20,559 20,443
-------- --------
Total liabilities & shareholders' equity $ 32,136 $ 37,441
======== ========
</TABLE>
See accompanying notes
3
<PAGE>
PULSEPOINT COMMUNICATIONS
-------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- ------------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 6,842 $ 5,068 $11,043 $ 8,427
Cost of sales 3,875 2,125 5,754 4,040
------- ------- ------- -------
Gross margin 2,967 2,943 5,289 4,387
Selling, general and administrative 3,767 3,923 7,287 7,823
Engineering and development 2,534 2,795 5,178 5,118
------- ------- ------- -------
6,301 6,718 12,465 12,941
------- ------- ------- -------
Income (loss) from operations (3,334) (3,775) (7,176) (8,554)
Interest and other income 189 90 395 241
------- ------- ------- -------
Income (loss) before provision for income taxes (3,145) (3,685) (6,781) (8,313)
Provision for income taxes: - - - -
------- ------- ------- -------
Net income (loss) $(3,145) $(3,685) $(6,781) $(8,313)
======= ======= ======= =======
Net income (loss) per common and common
equivalent share $ (.61) $ (.72) $ (1.31) $ (1.64)
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding 5,172 5,084 5,157 5,070
======= ======= ======= =======
</TABLE>
See accompanying notes
4
<PAGE>
PULSEPOINT COMMUNICATIONS
-------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
June 30 June 30
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $(6,781) $(8,313)
Adjustments to reconcile net income to
net cash provided (used) by operations:
Depreciation and amortization 1,314 801
Provision for loss on inventory 110 81
Provision for allowance for bad debt 150 25
Changes in operating assets and liabilities:
Accounts receivable (1,986) (230)
Inventories (921) (632)
Other current assets 23 (23)
Investment securities (9) (1,500)
Other assets - 15
Accounts payable 34 901
Accrued payroll and related (559) 353
Other accrued liabilities 241 (99)
Other liabilities - -
------- -------
Net cash provided (used) by
operations (8,384) (8,621)
------- -------
Cash flows from investing activities:
(Additions to) disposition of
property and equipment (675) (1,359)
------- -------
Net cash used in investing activities (675) (1,359)
Cash flows from financing activities:
Net proceeds from line of credit 671 -
Net proceeds from issuance of common stock 284 107
------- -------
Net cash provided from financing
activities 955 107
Net increase (decrease) in cash and equivalents (8,104) (9,873)
Cash and equivalents at beginning of period 20,973 18,187
------- -------
Cash and equivalents at end of period $12,869 $ 8,314
======= =======
</TABLE>
See accompanying notes
5
<PAGE>
PULSEPOINT COMMUNICATIONS
-------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JUNE 30, 1998
-------------
(Unaudited)
NOTE 1. General
- -----------------
All interim financial data is unaudited, but in the opinion of PulsePoint
Communications (the "Company") such unaudited statements include all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results for the interim periods. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. Nevertheless, the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading.
The results of operations for the current interim period are not necessarily
indicative of results to be expected for the current year. In April 1998, the
Company changed its name from Digital Sound Corporation to PulsePoint
Communications.
Revenue recognition. Generally sales are recognized when products are
shipped or when services are performed. Warranty costs are accrued at the time
of sale. Revenue from sales of extended warranties is accounted for as deferred
revenue and recognized into income over the warranty or maintenance period.
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 97-2, "Software Revenue Recognition"
("SOP 97-2"). SOP 97-2 establishes standards relating to the recognition of all
aspects of software revenue. SOP 97-2 is effective for transactions entered
into in fiscal years beginning after December 15, 1997. The Company adopted the
provisions of SOP 97-2 as of March 31, 1998. The adoption had no effect on the
financial statements.
Principles of consolidation. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries Digital Sound
International and DGSD Malaysia Corporation. All significant intercompany
transactions and balances have been eliminated.
Short term investments. The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). The Company adopted
the provisions of SFAS 115 for investments held as of December 31, 1995. The
adoption had no effect on the financial statements. Short term investments
(principally commercial paper and discount notes with maturity dates generally
within 90 days that are considered cash equivalents) are classified as "held to
maturity" based on the Company's positive intent and ability to hold the
securities until maturity. The securities are presented at amortized cost which
approximates fair value. Amortization and interest on securities classified as
"held to maturity" is included in investment income.
Cash and cash equivalents. The Company considers as cash equivalents only
those investments that are short-term, highly liquid, readily convertible to
cash, and so near their maturity that they present insignificant risk of changes
in value because of changes in interest rates. The Company classifies as cash
equivalents only those investments with maturities of three months or less.
Reclassification. Certain data in the 1997 financial statements have been
reclassified to conform to the 1998 presentation.
6
<PAGE>
Reverse Stock Split. All share and per share information in the accompanying
consolidated financial statements and notes thereto has been retroactively
adjusted to reflect a one-for-four reverse stock split approved on April 10,
1998 by the Company's shareholders, effective April 20, 1998.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Form 10-K for the
fiscal year ended December 31, 1997, as filed with the Securities and Exchange
Commission.
NOTE 2. Inventories
- --------------------
Inventories are stated at the lower of standard cost (which approximates the
first-in, first-out method) or market:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ----------
(Unaudited)
<S> <C> <C>
Raw materials and purchased parts $ 1,612 $ 2,077
Work in process 2,557 1,521
Finished goods 518 278
------- -------
$ 4,687 $ 3,876
======= =======
</TABLE>
NOTE 3: Equity
- ---------------
Common and Common Equivalent Stock.
-----------------------------------
At June 30, 1998, there were 5,213,927 shares of the Company's Common Stock
outstanding and 9,533,543 shares of common stock equivalents, as follows:
<TABLE>
<CAPTION>
Number of Common and
Common Equivalent Shares
---------------------------
<S> <C> <C>
(A) Common Stock Outstanding at 6/30/98 - 5,213,927
(B) Conversion of Series B Convertible Preferred
Stock 8,333,336
(C) Shares Grant - 1983 Stock Option Plan 1,045,057
(D) Shares Grant - Directors' Stock Option Plan 61,400
(E) Warrants 100,000
---------
Additional shares issuable 9,539,793
----------
Total Potential Shares of Common Stock 14,753,720
==========
</TABLE>
(A) Number of shares of Common Stock outstanding at June 30, 1998.
(B) Shares of Common Stock issuable upon conversion of the Company's Series B
Convertible Preferred Stock outstanding at June 30, 1998.
(C) Number of shares of Common Stock issuable pursuant to options granted under
the Company's 1983 Stock Option Plan (assuming full vesting).
(D) Number of shares of Common Stock issuable pursuant to options granted under
the Company's Directors' Option Plan (assuming full vesting).
(E) Warrant to purchase 100,000 shares of the Company's Common Stock issued to
a bank.
Reverse Split of Common Stock
- -----------------------------
On April 10, 1998, the Company's Shareholders approved, and the Company
issued, a 1 for 4 reverse split of the Company's Common Stock. In accordance
with SAB 83, the financial statements and footnote disclosure reflects the
reverse stock split for all reporting periods. In addition, the calculation of
earnings (loss) per share has given effect to the reverse stock split.
Preferred Stock
- ---------------
At March 31, 1998, there were outstanding Convertible Promissory Notes in the
amount of $6,612,502.50. At the Company's annual meeting of shareholders held
on April 10, 1998, the Company's shareholders approved a 1 for 4 reverse split
of the Company's Common Stock and the authorization of additional shares of
Common Stock. Upon such approval, the Convertible Promissory Notes were,
pursuant to their terms, automatically converted into shares of Series B
Convertible Preferred Stock. Such automatic conversion resulted in an
additional 881,667 shares of Series B Convertible Preferred Stock outstanding.
NOTE 4. Per Share Information
- ------------------------------
Earnings (loss) per common and common equivalent share are computed based
upon the weighted average number of outstanding shares of common stock and
common stock equivalents. Antidilutive common stock equivalents were excluded
from this calculation for the periods in which a loss was incurred.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
- -----------------------------------------------------------------------------
Net sales increased 35.0% from $5.1 million in 1997 to $6.8 million in 1998.
Compared to the second quarter of 1997, sales into the VIS market increased by
$1.9 million and sales into the CPE market decreased by $0.2 million. System
sales increased by $2.0 million from those of the prior period while sales of
system upgrades and enhancements and services decreased $0.3 million.
Gross margin as a percentage of net sales decreased to 43.4% in the 1998
period as compared to 58.1% for the same period in 1997. System margins were
down from 43.7% in the 1997 period to 38.7% in the second quarter of 1998 and
system upgrades, enhancements and service margins were down from 63.9% in the
second quarter of 1997 to 48.4% in the comparable period in 1998. During the
quarter, the Company established a reserve in the amount of $0.8 million to
allow for certain of the Company's products sold during the quarter to be
potentially traded-in for the Company's new products, when generally available.
The allowance to establish this reserve was recognized in Cost of Goods Sold and
was the primary cause of the lower overall gross margin.
System upgrades and enhancements and services were 71.1% of total sales in
the second quarter of 1997 and 48.2% in the comparable period in 1998.
Selling, general and administrative expenses decreased from $3.9 million in
1997 to $3.8 million in 1998 as the Company instituted cost control measures
company wide. As a result of these controls and the higher volume in net sales,
selling, general and administrative expenses were lower as a percentage of sales
(55.1%) in 1998 as compared to 1997 (77.4%).
Engineering and development expenses decreased from $2.8 million in 1997 to
$2.5 million in 1998. For 1998, engineering and development expenses reflect
the Company's implementation of cost controls. As a result of the decrease in
spending for engineering development in 1998 and the higher volume in net sales,
engineering and development expenses were lower as a percentage of sales in 1998
(37.0%) as compared to 1997 (55.1%).
There was no provision for income taxes in the second quarter of 1998 due to
the loss from operations.
As a result of the above, the Company's net loss for the three months ended
June 30, 1998 was $3.1 million as compared to a net loss of $3.7 million for the
comparable period last year.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
- -------------------------------------------------------------------------
Net sales increased 31.0% from $8.4 million in 1997 to $11.0 million in 1998.
Compared to 1997, sales into the VIS market increased by $2.6 million and sales
into the CPE market had no change. System sales increased from those of the
prior period by $2.1 million while sales of system upgrades and enhancements and
services increased $0.5 million.
Gross margin as a percentage of net sales decreased to 47.9% in the 1998
period as compared to 52.1% for the same period in 1997. System margins were
down from 47.0% in the 1997 period to 40.8% in 1998 and system upgrades,
enhancements and service margins were down from 53.9% in 1997 to 52.6% in the
comparable period in 1998. Margins decreased due to the $0.8 million reserve
for trade-ins established during the quarter.
8
<PAGE>
System upgrades and enhancements and services were 73.6% of total sales in
1997 and 60.4% in the comparable period in 1998.
Selling, general and administrative expenses decreased from $7.8 million in
1997 to $7.3 million in 1998 as the Company instituted cost control measures
company wide. As a result of these controls and of the higher volume of net
sales, selling, general and administrative expenses were lower as a percentage
of sales (66.0%) in 1998 as compared to 1997 (92.8%).
Engineering and development expenses increased from $5.1 million in 1997 to
$5.2 million in 1998. As a result of the higher volume in net sales,
engineering and development expenses were lower as a percentage of sales in
(46.9%) as compared to 1997 (60.7%).
There was no provision for income taxes in the second quarter of 1998 due to
the loss from operations.
As a result of the above, the Company's net loss for the six months ended
June 30, 1998 was $6.8 million as compared to a net loss of $8.3 million for the
comparable period of 1997.
Factors That May Affect Future Results
- --------------------------------------
The Company operates in a rapidly changing environment that involves a number
of risks, some of which are beyond the Company's control. These risks are
discussed in the Company's 1997 Annual Report to Shareholders and incorporated
by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
Liquidity and Capital Resources
- -------------------------------
For the six months ended June 30, 1998, net working capital increased by $1.6
million to $13.7 million compared to $12.1 million at December 31, 1997. The
increase in net working capital resulted principally from the conversion of the
Shareholder Notes Payable to Series B Preferred Stock of $6.6 million, an
increase in accounts receivable of $2.6 million, and an increase in inventory of
$0.8 million partially offset by a decrease in cash of $8.1 million. (See note
9 to the Company's financial statements included in the Company's 1997 Annual
Report to Shareholders and in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.)
At June 30, 1998, the Company had cash and short-term investments of $12.9
million and no long term debt. Through June 30, 1998 capital expenditures were
$0.7 million. The Company has never paid any cash dividends on its stock and
anticipates that, for the foreseeable future, it will continue to retain any
earnings for use in the operation of its business.
The Company's cash and cash equivalents balance has declined by approximately
$8.1 million during the first six months of 1998. The Company's level of sales
during the first half of 1998 has been insufficient to generate net cash from
operations. If the Company's sales were to increase substantially in response
to heightened demand for the Company's new products, the Company initially would
be required to increase its outlays to meet such demand. As a result, the
Company expects its operations to continue to use net cash, and the Company may
be required to seek additional debt or equity financings during the coming
quarters. There can be no assurance that the Company will be able to consummate
debt or equity financings in a timely manner on a basis favorable to the
Company, or at all.
9
<PAGE>
PART II - OTHER INFORMATION
----------------------------
PULSEPOINT COMMUNICATIONS
-------------------------
Item 1. Legal Proceedings
-----------------
As reported in Note 11 to the Company's financial statements included in the
Company's 1997 Annual Report to Shareholders and incorporated by reference in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, the Company is involved in patent litigation with Theis Research, Inc.
("Theis"). This action was stayed pending resolution of Theis' patent
infringement action against Octel Communications Corporation (now a division of
Lucent Technologies) and Northern Telecom Inc. In 1997, the U.S. Court of
Appeals affirmed a district court's decision that the patents Theis asserted
against Octel and Northern Telecom were each either invalid, not infringed or
both. Theis' writ of certiorari to the U.S. Supreme Court was denied on June
26, 1998, exhausting Theis' appeals. The Company has not received notice from
the district court that the stay of the action involving the Company has been
lifted and has not received any communication from Theis regarding lifting the
stay.
Item 5. Other Information
-----------------
New Securities and Exchange Commission ("SEC") rules regarding shareholder
proposals became effective on June 29, 1998. Pursuant to these new rules, if
the Company has not received notice on or before January 11, 1999 of any matter
a shareholder intends to propose for a vote at the 1999 Annual Meeting of
Shareholders, then a proxy solicited by the board of directors may be voted on
such matter in the discretion of the proxy holder, without a discussion of the
matter in the proxy statement soliciting such proxy and without such matter
appearing as a separate matter on the proxy card. As previously disclosed in the
Company's proxy statement for the annual meeting of shareholders held earlier
this year on April 10, 1998, a shareholder who wishes to include a proposal and
the shareholder's statement in support thereof in the Company's proxy statement
must send such material in accordance with SEC Rules to the Company at its
principal executive offices for receipt no later than December 17, 1998.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
10.1 Form of Warrant Agreement between Registrant and NEXTLINK
Communications, Inc.
b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 12, 1998.
PULSEPOINT COMMUNICATIONS
By: /s/ Mark C. Ozur
-----------------------------------
Mark C. Ozur
President, Chief Executive Officer
By: /s/ B. Robert Suh
-----------------------------------
B. Robert Suh
Vice President, Finance
and Chief Financial Officer
11
<PAGE>
EXHIBIT 10.1
WARRANT AGREEMENT
BETWEEN
PULSEPOINT COMMUNICATIONS
AND
NEXTLINK COMMUNICATIONS INC.
________________________________
Dated June 5, 1998
12
<PAGE>
TABLE OF CONTENTS/1/
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. Issuance of Warrants.................................................. 1
SECTION 2. Warrant Certificates.................................................. 2
SECTION 3. Execution of Warrant Certificates..................................... 2
SECTION 4. Registration.......................................................... 2
Section 5. Restriction on Transfer; Registration of Transfers.................... 2
SECTION 6. Warrants; Exercise of Warrants........................................ 3
(a) Warrants................................................................... 3
(b) Exercise of Warrants....................................................... 3
SECTION 7. Payment of Taxes...................................................... 4
SECTION 8. Mutilated or Missing Warrant Certificates............................. 4
SECTION 9. Reservation of Warrant Shares......................................... 4
SECTION 10. Obtaining Stock Exchange Listings.................................... 5
SECTION 11. Adjustment of Exercise Price and Number of Warrant Shares Issuable... 5
(a) Adjustment for Change in Capital Stock..................................... 5
(b) When No Adjustment Required................................................ 6
(c) Notice of Adjustment....................................................... 7
(d) Notice of Certain Transactions............................................. 7
(e) Reorganization of Company.................................................. 8
(f) Adjustment in Number of Warrant Shares..................................... 8
(g) Reorganization of Company.................................................. 8
(h) Adjustment in Number of Warrant Shares..................................... 9
(i) Other Action Affecting Common Stock........................................ 9
SECTION 12. Fractional Interests................................................. 9
SECTION 13. Notices to Warrant holders; Delivery of Financial Statements......... 9
(a) Notices to Warrant Holders................................................. 9
(b) Delivery of Financial Statements........................................... 11
SECTION 14. Registration Rights.................................................. 11
SECTION 15. Notices to the Company and the Warrant Holders....................... 11
SECTION 16. Supplements and Amendments........................................... 11
SECTION 17. Successors........................................................... 12
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
SECTION 18. Termination.......................................................... 12
SECTION 19. Governing Law........................................................ 12
SECTION 20. Benefits of This Agreement........................................... 12
SECTION 21. Counterparts......................................................... 12
</TABLE>
EXHIBITS
- --------
EXHIBIT A - A-1
EXHIBIT B - B-1
EXHIBIT C - C-1
/1/ This Table of Contents does not constitute a part of this Agreement or have
any bearing upon the interpretation of any of its terms or provisions.
14
<PAGE>
This WARRANT AGREEMENT dated as of June 5, 1998 (the "Agreement") is
by and between PulsePoint Communications, a California corporation (the
"Company"), and NEXTLINK Communications Inc., a Washington corporation
("NEXTLINK").
RECITALS
--------
A. The Company proposes to issue to NEXTLINK warrants (the
"Warrants") to purchase shares of Common Stock, no par value, of the Company
("Common Stock") subject to the terms and conditions set forth in this
Agreement.
B. The Warrants represent the right to purchase from the Company
authorized but unissued shares of Common Stock determined as set forth herein
(the Common Stock purchasable on exercise of the Warrants being referred to
herein as the "Warrant Shares") at an initial exercise price of $___ per share
(the "Exercise Price").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Issuance of Warrants. If the following conditions are met,
--------------------
the Company shall issue Warrants to NEXTLINK at the times and in the amounts set
forth below, subject to adjustments, if any, as set forth in Section 11 hereof:
(a) On or before the third anniversary of the date hereof (the "Final
Contract Date"), for each whole ********** of Net Cash Receipts (as defined
herein) received by the Company from NEXTLINK or any other party (each, an
"Affiliate" and together, the "Affiliates") to the Purchase and Support
Agreement effective as of April 9, 1998 (the "Purchase Agreement") between the
Company, NEXTLINK and the Affiliates, the Company shall issue to NEXTLINK
Warrants for the purchase of 14,500 shares of Common Stock at the initial
Exercise Price (subject to the adjustment of such number of shares and Exercise
Price pursuant to paragraph (d) of this Section 1); for purposes of this
Agreement, "Net Cash Receipts" for any period or periods shall mean the sum of:
payments received by the Company from NEXTLINK or an Affiliate on amounts
invoiced to NEXTLINK or an Affiliate less returns, as determined in accordance
with generally accepted accounting principles, applied on the basis consistent
with the present accounting practices of the Company.
(b) The foregoing Section 1(a) hereof notwithstanding, the Company
shall not be required to issue Warrants to NEXTLINK for the purchase of an
aggregate of more than 145,000 shares of Common Stock pursuant to this
Agreement, subject to the adjustment of such number of shares pursuant to
paragraph (d) of this Section 1.
(c) Thirty calendar days following the end of each quarter, the
Company shall provide NEXTLINK a summary of the Net Cash Receipts as of the date
of the end of the respective quarter for which the summary is provided and shall
issue the appropriate number of Warrants to NEXTLINK as determined above.
(d) If an event occurs which would result under Section 11 hereof in
an adjustment to the Exercise Price of outstanding Warrants, if any, then the
number of shares of Common Stock for which Warrants to be issued pursuant to
Section 1(a) hereof are exercisable, and the Exercise Price thereof, shall be
adjusted pursuant to the provisions of Section 11 hereof as though such Warrant
already were issued and outstanding at the time of such event. In addition, the
aggregate number of 145,000 shares of Common Stock referred to in Section 1(b)
shall be similarly adjusted.
SECTION 2. Warrant Certificates. The certificates evidencing the
--------------------
Warrants (the "Warrant Certificates") to be delivered pursuant to this Agreement
shall be substantially in the form set forth in Exhibit A
15
<PAGE>
attached hereto and shall be delivered promptly after the Company determines
that Warrants have been earned pursuant to Section 1.
SECTION 3. Execution of Warrant Certificates. The Warrant
---------------------------------
Certificates shall be signed on behalf of the Company by its President.
SECTION 4. Registration. The Company may deem and treat the
------------
registered holder of a Warrant Certificate as the absolute owner thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for all purposes, and shall not be affected by any notice to the
contrary. References herein to "Warrant holders" shall mean NEXTLINK, so long as
NEXTLINK is registered holder of a Warrant Certificate, and any proper
transferee of a Warrant who has become a registered holder of a Warrant
Certificate.
SECTION 5. Restriction on Transfer; Registration of Transfers.
--------------------------------------------------
Anything in this Agreement to the contrary notwithstanding, the Warrants are not
transferable without the prior written consent of the Company, which consent
shall not be unreasonably withheld. Subject to the preceding sentence, the
Company shall from time to time register the transfer of Warrant Certificates in
a Warrant register to be maintained by the Company upon surrender thereof
accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered holder thereof or
by the duly appointed legal representative thereof or by a duly authorized
attorney. Upon any such registration of transfer, a new Warrant Certificate
shall be issued to the transferee and the surrendered Warrant Certificate shall
be canceled and disposed of by the Company.
Prior to any proposed transfer of a Warrant or of the Warrant Shares,
if such transfer is not made pursuant to an effective Registration Statement
under the Securities Act of 1933, as amended (the "Act"), or an opinion of
counsel, reasonably satisfactory in form and substance to the Company, that the
Warrant or Warrant Shares may be sold publicly without registration under the
Act, the Warrant holder will, if requested by the Company, deliver to the
Company:
(1) an investment representation reasonably satisfactory to the
Company signed by the proposed transferee;
(2) an agreement by the proposed transferee to the impression of the
restrictive investment legend set forth below on the Warrant Certificate or
the certificate representing the Warrant Shares;
(3) an agreement by the proposed transferee that the Company may
place a notation in the stock books of the Company or a "stop transfer
order" with any transfer agent or registrar with respect to the Warrant
Shares; and
(4) an agreement by such transferee to be bound by the provisions of
this Section 5 relating to the transfer of the Warrant or Warrant Shares.
Each certificate representing Warrant Shares will bear the following
legend:
"The securities evidenced or constituted hereby have been acquired for
investment and have not been registered under the Securities Act of
1933, as amended. Such securities may not be sold, transferred,
pledged or hypothecated unless the registration provisions of said Act
have been complied with or unless the Company has received an opinion
of counsel reasonably satisfactory to the Company that such
registration is not required."
SECTION 6. Warrants; Exercise of Warrants.
------------------------------
(a) Warrants. Subject to the provisions of this Agreement, each
--------
Warrant holder shall have the right, upon exercise of his Warrant, to receive
from the Company that number of fully paid and nonassessable Warrant Shares
which the holder may at that time be entitled to receive on exercise of his
16
<PAGE>
Warrant and payment of the Exercise Price then in effect for such Warrant
Shares, which Exercise Price shall initially be $___ per Warrant Share. The
Warrants may be exercised at any time before 5:00 p.m., Pacific Time ("PT") on
December 31, 2003 (the "Expiration Date"). Warrants shall become void and all
rights thereunder and all rights in respect thereof under this Agreement shall
cease as of the Expiration Date. No adjustments as to dividends will be made
upon exercise of the Warrants.
(b) Exercise of Warrants. Subject to the provisions of this
--------------------
Agreement, a Warrant may be exercised upon (i) surrender to the Company at its
office designated for such purpose (the address of which is set forth in Section
14 hereof) of the Warrant Certificate with the form of election to purchase
attached as Exhibit B hereto duly completed and signed, which signature shall be
guaranteed by a bank or trust company having an office or correspondent in the
United States or a broker or dealer which is a member of a registered securities
exchange or the National Association of Securities Dealers, Inc., and (ii)
payment to the Company of the Exercise Price for the number of Warrant Shares in
respect of which the Warrant is exercised. Payment of the Exercise Price shall
be made in cash or by certified or official bank check to the order of the
Company.
Subject to the provisions of Section 7 and Section 10 hereof, upon
such proper surrender of the Warrant Certificate and payment of the Exercise
Price the Company shall cause to be delivered with all reasonable dispatch to or
upon the written order of the Warrant holder, and in such name or names as the
Warrant holder may designate, a certificate or certificates for the number of
full Warrant Shares purchasable upon the exercise of the Warrant together with
cash as provided in Section 12; provided, however, that if any consolidation,
-------- -------
merger or lease or sale of assets is proposed to be effected by the Company as
described in subsection (g) of Section 11 hereof, or a tender offer or an
exchange offer for shares of Common Stock of the Company shall be made, upon
such surrender of the Warrant Certificate and payment of the Exercise Price as
aforesaid, the Company shall, as soon as possible, but in any event not later
than five business days thereafter, issue and cause to be delivered the number
of full Warrant Shares issuable upon the exercise of the Warrant in the manner
described in this sentence together with cash as provided in Section 12. Such
certificate or certificates shall be deemed to have been transferred and any
person so designated to be named therein shall be deemed to have become a holder
of record of such Warrant Shares as of the date of the surrender of the Warrant
Certificate and payment of the Exercise Price.
Warrants shall be exercisable, at the election of the holders thereof,
either in full or from time to time in part and, in the event that a certificate
evidencing Warrants is exercised in respect of fewer than all of the Warrant
Shares issuable on such exercise at any time prior to the Expiration Date, a new
certificate evidencing the remaining Warrant or Warrants will be issued and
delivered pursuant to the provisions of this Section 6 and of Section 3 hereof.
The Company shall keep copies of this Agreement and any notices given
or received hereunder available for inspection by the Warrant holders during
normal business hours at their respective offices.
SECTION 7. Payment of Taxes. The Company will pay all documentary
----------------
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
a Warrant; provided, however, that the Company shall not be required to pay any
-------- -------
tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificate or any certificates for Warrant Shares in a
name other than that of the registered holder of the Warrant Certificate
surrendered upon the exercise of the Warrant, and the Company shall not be
required to issue or deliver a Warrant Certificate or Warrant Shares unless or
until the person or persons requesting the issuance or delivery thereof shall
have paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
SECTION 8. Mutilated or Missing Warrant Certificates. In case a
-----------------------------------------
Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company
shall issue, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor,
but only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction of the Warrant Certificate and indemnity, if
17
<PAGE>
requested, also reasonably satisfactory to it. Applicants for a substitute
Warrant Certificate shall also comply with such other reasonable regulations and
pay such other reasonable charges as the Company may prescribe.
SECTION 9. Reservation of Warrant Shares. The Company will at all
-----------------------------
times reserve and keep available, out of its authorized shares of Common Stock,
for the purpose of enabling it to satisfy its obligation to sell and issue
Warrant Shares upon exercise of the Warrants, the maximum number of shares of
Common Stock which may then be purchasable upon the exercise of the Warrants.
The Company will keep a copy of this Agreement on file with any
transfer agent for the Common Stock (the "Transfer Agent"). The Company will
furnish any such Transfer Agent a copy of all notices of adjustments and
certificates transmitted to the Warrant holders pursuant to Section 13 hereof.
The Company covenants that all Warrant Shares which are issued upon
exercise of Warrants will, upon delivery, be fully paid, nonassessable, and free
from all taxes, liens, charges and security interests.
SECTION 10. Obtaining Stock Exchange Listings. The Company will from
---------------------------------
time to time take all action which may be necessary so that the Warrant Shares,
immediately upon their issuance upon the exercise of the Warrants, will be
listed on the principal securities exchanges within the United States of
America, if any, on which other shares of Common Stock are then listed.
SECTION 11. Adjustment of Exercise Price and Number of Warrant Shares
---------------------------------------------------------
Issuable. The Exercise Price and the number of Warrant Shares purchasable upon
- --------
the exercise of the Warrants issued or issuable pursuant to this Agreement are
subject to adjustment from time to time upon the occurrence of the events
enumerated in this Section 11. For purposes of this Section 11, "Common Stock"
means shares now or hereafter authorized of any class of common stock of the
Company and any other stock of the Company, however designated, that has the
right (subject to any prior rights of any class or series of preferred stock) to
participate in any distribution of the assets or earnings of the Company without
limit as to per share amount. Anything in this Section 11 to the contrary
notwithstanding, the Exercise Price shall not be less than $.01 per share.
(a) Adjustment for Change in Capital Stock.
--------------------------------------------
If the Company:
(1) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a smaller
number of shares;
(4) makes a distribution on its Common Stock in shares of its capital
stock other than Common Stock or preferred stock; or
(5) issues by reclassification of its Common Stock any shares of its
capital stock;
then the Exercise Price in effect immediately prior to such action shall be
proportionately adjusted so that the holder of the Warrants thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which he would have owned immediately following such action if the
Warrants had been exercised immediately prior to such action.
18
<PAGE>
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment the holders of the Warrants upon exercise of it
may receive shares of two or more classes of capital stock of the Company, the
Company shall determine the allocation of the adjusted Exercise Price between
the classes of capital stock. If NEXTLINK is then a holder of a Warrant it
shall have the right of reasonable approval of such allocation. After such
allocation, the exercise privilege and the Exercise Price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Section 11.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) Adjustment for Rights Issue.
---------------------------
If the Company distributes any rights, options or warrants to all
holders of its Common Stock entitling them to purchase shares of Common Stock at
a price per share less than the fair market value of such Common Stock on that
record date, the Exercise Price shall be adjusted in accordance with the
formula:
O + N x P
-----
E' = E x C
-----------
O + N
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
C = the fair market value of a share of Common Stock on the record date.
O = the number of shares of Common Stock outstanding on the record date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
The adjustment shall be made successively whenever any such rights, options or
warrants are issued and shall become effective immediately after the record date
for the determination of shareholders entitled to receive the rights, options or
warrants. If at the end of the period during which such rights, options or
warrants are exercisable, not all rights, options or warrants shall have been
exercised, the Exercise Price shall be immediately readjusted to what it would
have been if "N" in the above formula had been the number of shares actually
issued.
19
<PAGE>
(c) Adjustment for Other Distributions.
If the Company distributes to all holders of its Common Stock any of its assets
(including but not limited to cash), debt securities, preferred stock, or any
rights or warrants to purchase debt securities, preferred stock, assets or other
securities of the Company, the Exercise Price shall be adjusted in accordance
with the formula:
E' = E x C - F
-----
C
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
C = the fair market value of a share of Common Stock on the record date.
F = the fair market value on the record date of the assets, securities,
rights or warrants applicable to one share of Common Stock. The Board
of Directors of the Company shall determine the fair market value.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred
to in subsection (b) of this Section 11.
(d) When No Adjustment Required.
No adjustment need be made for a transaction referred to in
subsections (a) or (c) of this Section 11 if the Warrant holders are to
participate in the transaction on a basis as if they held on the record date for
such dividend, distribution or subdivision the number of Warrant Shares issuable
upon exercise of such Warrants.
No adjustment under this Section 11 shall be made for the sale by the
Company of Common Stock or any other equity securities of the Company or for the
issuance of any option, warrant or other right to purchase Common Stock or other
equity securities. However, in the event that the Company, or any affiliate of
the Company, purchases additional equity securities of the Company after the
date of this Agreement, the Warrant holders shall have the right to participate
in such purchase on that same basis to the extent necessary to preserve their
pro-rata common equity ownership based on the percentage ownership of the
Company represented by the Warrant Shares.
To the extent the Warrants become convertible into cash, no adjustment
need be made thereafter as to the cash. Interest will not accrue on the cash.
(e) Notice of Adjustment.
Whenever the Exercise Price is adjusted, the Company shall provide the
notices required by Section 13 hereof.
(f) Notice of Certain Transactions.
If:
20
<PAGE>
(1) the Company takes any action that would require an adjustment in
the Exercise Price pursuant to subsections (a), (b) or (c) of this Section
11; or
(2) there is a liquidation or dissolution of the Company,
the Company shall mail to the Warrant holders a notice stating the proposed
record date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger, transfer,
lease, liquidation or dissolution. The Company shall mail the notice at least
15 days before such date. Failure to mail the notice or any defect in it shall
not affect the validity of the transaction.
(g) Reorganization of Company.
If the Company consolidates or merges with or into, or transfers or leases all
or substantially all its assets to, any person (any such transaction, a
"Merger"), the formed, surviving (including the Company, if applicable),
transferee or lessee corporation (the "Survivor") shall assume the obligations
of the Company hereunder. The date of such Merger shall be referred to herein
as the "Merger Date." Warrants issued, but unexercised, immediately prior to
the Merger Date shall automatically become exercisable on and after the Merger
Date for the kind and amount of securities, cash or other assets which the
holder of a Warrant would have owned immediately after the Merger if the holder
had exercised the Warrant in full immediately prior to the Merger Date. In
addition, the Survivor shall issue, at the times and in the amounts set forth in
Section 1 hereof, Warrants for the purchase of the kind and amount of
securities, cash or other assets which NEXTLINK would have owned immediately
after the Merger if NEXTLINK had earned and exercised in full such Warrants
immediately prior to the Merger Date. If the substance of the Merger is the
acquisition of the Company then, notwithstanding anything to the contrary
contained in Section 1 hereof, Warrants may not be exercised for Common Stock on
or after the Merger Date. Concurrently with the consummation the Merger, the
Survivor shall enter into a supplemental Warrant Agreement so providing and
which is fair and equitable under the circumstances. The Survivor shall mail to
the Warrant holders a notice describing the supplemental Warrant Agreement.
If this subsection (g) applies, subsections (a), (b) and (c) of this Section 11
do not apply.
(h) Adjustment in Number of Warrant Shares.
Upon each adjustment of the Exercise Price pursuant to this Section 11, the
Warrants, as outstanding prior to the making of the adjustment in the Exercise
Price, shall thereafter evidence the right to receive upon payment of the
adjusted Exercise Price that number of shares of Common Stock (calculated to the
nearest hundredth) obtained from the following formula:
N' = N x E
-
E'
where:
N' = the adjusted number of Warrant Shares issuable upon exercise of the
Warrants by payment of the adjusted Exercise Price.
N = the number or Warrant Shares previously issuable upon exercise of the
Warrants by payment of the Exercise Price prior to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
21
<PAGE>
(i) Other Action Affecting Common Stock. In case after the date
hereof the Company shall take any action affecting its Common Stock, other than
an action described in any of the foregoing paragraphs of this Section 11, and
the failure to make any adjustment would not fairly protect the purchase rights
represented by the Warrants in accordance with the essential intent and
principle of this Section 11, then the Exercise Price shall be adjusted in such
manner and at such time as the Board of Directors of the Company may in good
faith determine to be equitable in the circumstances.
SECTION 12. Fractional Interests. The Company shall not be required to
--------------------
issue any fractional Warrant Share on the exercise of a Warrant. If any fraction
of a Warrant Share would, except for the provisions of this Section 12, be
issuable on the exercise of a Warrant, the Company shall pay an amount in cash
equal to the fair value of one Warrant Share on the day immediately preceding
the date the Warrant is presented for exercise, multiplied by such fraction.
SECTION 13. Notices to Warrant holders; Delivery of Financial
-------------------------------------------------
Statements.
- -----------
a) Notices to Warrant Holders. Upon any adjustment of the Exercise
--------------------------
Price pursuant to Section 11, the Company shall promptly thereafter deliver to
the Warrant holders a certificate signed by the Chief Financial Officer of the
Company setting forth the Exercise Price after such adjustment and setting forth
in reasonable detail the method of calculation and the facts upon which such
calculations are based and setting forth the number of Warrant Shares issuable
after such adjustment in the Exercise Price, upon exercise of the Warrants and
payment of the adjusted Exercise Price, which certificate shall be conclusive
evidence of the correctness of the matters set forth therein unless the Warrant
holders, within 20 days after receipt of such certificate, notify the Company in
writing that they dispute matters set forth in the certificate, in which case,
the Warrant holders may request the firm of independent public accountants who
are the regular auditors of the Company at the Warrant holders' expense to
prepare a certificate concerning the calculation of the adjusted Exercise Price
and the other matters set forth above in the certificate, which accountant's
certificate shall be delivered to the Company and shall be conclusive evidence
of the correctness of the matters set forth therein.
In case:
i) the Company shall authorize the issuance to all holders of shares
of Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants; or
ii) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other
than cash dividends or cash distributions payable out of consolidated
earnings or earned surplus or dividends payable in shares of Common Stock
or distributions referred to in subsection (a) of Section 11 hereof); or
iii) of any consolidation or merger to which the Company is a party
and for which approval of any shareholders of the Company is required, or
of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of
Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or a tender offer
or exchange offer for shares of Common Stock; or
iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
v) the Company proposes to take any action (other than actions of
the character described in subsection (a) of Section 11) which would
require an adjustment of the Exercise Price pursuant to Section 11;
then the Company shall cause to be given to each holder of a Warrant at his
address appearing on the Warrant register, at least 20 days (or 10 days in any
case specified in clauses (i) or (ii) above) prior to the applicable
22
<PAGE>
record date hereinafter specified, or promptly in the case of events for which
there is no record date, by first-class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares of Common Stock
to be entitled to receive any such rights, options, warrants or distribution are
to be determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange such shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure to give the notice
required by this Section 11 or any defect therein shall not affect the legality
or validity of any distribution, right, option, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any action.
Nothing contained in this Agreement or in the Warrant Certificates
shall be construed as conferring upon the holder thereof the right to vote or to
consent or to receive notice as shareholders in respect of the meetings of
shareholders or the election of Directors of the Company or any other matter, or
any rights whatsoever as shareholders of the Company.
b) Delivery of Financial Statements. Promptly after they become
--------------------------------
available but in any event within 90 days after the last day of each fiscal
year, the Company will deliver to each Warrant holder the audited consolidated
financial statements of the Company for such fiscal year.
SECTION 14. Registration Rights. The Company grants registration
-------------------
rights to NEXTLINK as set forth in Exhibit C hereto.
SECTION 15. Notices to the Company and the Warrant Holders. Any notice
----------------------------------------------
or demand authorized by this Agreement to be given or made by the registered
holder of any Warrant Certificate to or on the Company shall be sufficiently
given or made when and if deposited in the mail, first class or registered,
postage prepaid, addressed (until the Warrant holders are otherwise notified in
accordance with this Section 15), as follows:
PulsePoint Communications
6307 Carpinteria Avenue
Carpinteria, California 93013
Attention: Corporate Secretary
Any notice pursuant to this Agreement to be given by the Company to
the registered holder of each Warrant Certificate shall be sufficiently given
when and if deposited in the mail, first-class or registered, postage prepaid,
addressed (until the Company is otherwise notified in accordance with this
Section 15 by such holder) to the Warrant holder at his address appearing on the
Warrant register of the Company.
SECTION 16. Supplements and Amendments. The Company may from time to
--------------------------
time supplement or amend this Agreement with the approval of NEXTLINK, and the
holders of the Warrant Certificates, if any, which approval shall not be
unreasonably withheld, in order to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provision herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Company may deem necessary or
desirable.
SECTION 17. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company shall bind and inure to the
benefit of the respective successors and assigns hereunder.
SECTION 18. Termination. This Agreement shall terminate on the
-----------
Expiration Date. Notwithstanding the foregoing, this Agreement will terminate on
any earlier date if the Warrants have been exercised in full.
23
<PAGE>
SECTION 19. Governing Law. This Agreement and the Warrant
-------------
Certificates issued hereunder shall be deemed to be a contract made under the
laws of the State of California and for all purposes shall be construed in
accordance with the internal laws of said State.
SECTION 20. Benefits of This Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any person, partnership, corporation or other
entity other than the Company and the registered holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole and exclusive benefit of the Company
and the registered holders of the Warrant Certificates.
SECTION 21. Counterparts. This Agreement may be executed in any number
------------
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
PULSEPOINT COMMUNICATIONS
By: ___________________________
Name: Mark C. Ozur
Title: President
Date:__________________________
NEXTLINK COMMUNICATIONS INC.
By: ___________________________
Name:
Title:
Date:__________________________
24
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
[Face]
THE SECURITIES EVIDENCED OR CONSTITUTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THE
REGISTRATION PROVISIONS OF SAID ACT HAVE BEEN COMPLIED WITH OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
EXERCISABLE ON OR BEFORE 5:00 P.M. PACIFIC TIME,
DECEMBER 31, 2003
Warrant Certificate
For
____________ Warrant Shares
PULSEPOINT COMMUNICATIONS
This Warrant Certificate certifies that NEXTLINK Communications Inc.,
or registered assigns, is the registered holder of a Warrant expiring at 5:00
p.m. PACIFIC TIME ("PT") December 31, 2003 (the "Warrant") to purchase shares of
the outstanding Common Stock (the "Common Stock"), of PulsePoint Communications,
a California corporation (the "Company"). The Warrant entitles the holder upon
exercise to receive from Company on or before 5:00 p.m. PT on December 31, 2003,
that number of fully paid and nonassessable shares of Common Stock ("Warrant
Shares") set forth above, and as specified in the Warrant Agreement referred to
below, at the initial exercise price (the "Exercise Price") of $______ per share
payable in lawful money of the United States of America upon surrender of this
Warrant Certificate and payment of the Exercise Price at the office of the
Company designated for such purpose, but only subject to the provisions of, and
satisfaction of the conditions set forth in, the Warrant Agreement. The Exercise
Price and number of Warrant Shares issuable upon exercise of the Warrant are
subject to adjustment upon the occurrence of certain events as set forth in the
Warrant Agreement.
The Warrant may not be exercised after 5:00 p.m., PT on December 31,
2003 and to the extent not exercised by such time the Warrant shall become void.
The Warrant evidenced by this Warrant Certificate entitles the holder
on exercise to receive authorized but unissued shares of Common Stock and is
issued pursuant to a Warrant Agreement dated as of __________, 1998 (the
"Warrant Agreement"), duly executed and delivered by the Company and NEXTLINK
Communications Inc., which Warrant Agreement is hereby incorporated by reference
in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the Warrant holder (the words "Warrant
holder" meaning the registered holder of this Warrant Certificate). A copy of
the Warrant Agreement may be obtained by the holder hereof upon written request
to the Company.
The Warrant is not transferable except in the limited circumstances
set forth in the Warrant Agreement.
IN WITNESS WHEREOF, PulsePoint Communications has caused this Warrant
Certificate to be signed by its President.
25
<PAGE>
Dated: _______________, 19__
PULSEPOINT COMMUNICATIONS
By _______________________________
Name:
Title: President
26
<PAGE>
EXHIBIT B
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive __________ shares of Common
Stock and herewith tenders payment for such shares to PulsePoint Communications
in the amount of $_________ in accordance with the terms hereof. The undersigned
requests that a certificate for such shares be registered in the name of
________________, whose address is _________________________
_________________________ and that such shares be delivered to ________________
whose address is _______________________ _________________________.
The undersigned represents that to the extent the aforesaid shares of
Common Stock are being registered in the name of the undersigned, such shares
are being acquired for the account of the undersigned for investment purposes
only and not with a view to, or for resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended.
Signature:
Date:
Signature Guaranteed:
27
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS
1. Definitions. Terms defined in the foregoing Warrant Agreement
-----------
(the "Agreement") are used as therein defined in this Exhibit C. In addition,
the following term shall have the meaning indicated:
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder, all as the same shall be in
effect from time to time.
2. Piggy-Back Registrations. If at any time the Company proposes to
------------------------
register (other than a registration (1) on Form S-8 or any successor form
thereto, (2) of debt securities of the Company, (3) of preferred stock of the
Company, or (4) of securities for the purpose of consummating any acquisition by
the Company including a registration on Form S-4 or any successor form thereto)
any public offering of shares of Common Stock under the Securities Act, the
Company will give written notice to NEXTLINK of its intention so to do at least
20 days prior to the filing of the registration statement.
A. In the event of an underwritten public offering:
(a) If the representative of the underwriters (the "Representative")
participating in the sale and distribution of the Company's securities covered
by said registration statement agrees that a number of shares of outstanding
Common Stock (the "Permissible Secondary Shares") may be included in the
offering covered by the registration statement, the Company's notice shall
afford NEXTLINK an opportunity to elect to include in such filing all or any
part of the Warrant Shares then held by NEXTLINK or issuable pursuant to the
exercise of a Warrant or Warrants held by NEXTLINK. NEXTLINK shall have 10 days
after receipt of the Company's notice to notify the Company in writing of the
number of Warrant Shares (the "Elected Shares") which NEXTLINK elects to include
in the offering. If, in the good faith judgment of the Representative, the
inclusion of all the Elected Shares requested to be registered hereunder would
interfere with the successful marketing of a smaller number of shares in the
offering at a price per share that is acceptable to the Company, in the case of
a Company-initiated registration, or, in the case of a registration initiated by
a holder or holders of the Common Stock of the Company pursuant to such holders'
demand registration rights, the number of shares of Common Stock of the Company
that may be included in the registration shall be allocated, first, in the case
-----
of a Company-initiated registration, to the Company or, in the case of a
registration by holders of registrable securities of the Company pursuant to
such holders' demand registration rights, to such other holders, and second, to
------
each of the holders of Common Stock of the Company requesting inclusion of their
shares in such registration pursuant to such holders' "piggyback" registration
rights (including NEXTLINK pursuant to its "piggyback" registration rights under
this Agreement) on a pro rata basis among such holders, based upon the number of
shares of Common Stock of the Company subject to such "piggyback" registration
rights held by such holders.
(b) The Company shall afford NEXTLINK the right to participate in
each underwritten registration until NEXTLINK shall have had an opportunity
(whether or not availed of) to participate in at least three effective
registrations in which NEXTLINK's registration rights are not subject to a pro
rata cutback pursuant to Section 2.A(a).
B. In the event of a public offering which is not underwritten:
(a) NEXTLINK shall have 10 days after receipt of the Company's notice
to notify the Company in writing of the number of Warrant Shares which NEXTLINK
elects to include in the offering.
(b) The Company will use its best efforts to prepare and file with
the Commission a registration statement with respect to such Warrant Shares and
shall cause such registration statement to become effective, to prepare and file
with the Commission such amendments and supplements to such
28
<PAGE>
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective until the earlier of the
sale of all shares of Common Stock covered thereby or the expiration of a period
of 120 days after its effective date and to comply with the provisions of the
Securities Act with respect to the disposition of all Warrant Shares covered by
a registration statement pursuant to this Exhibit C. If any Warrant Shares
remain unsold at the end of such period, the Company may file a post-effective
amendment to the registration statement for the purpose of deregistering such
shares.
(c) The Company will furnish to NEXTLINK so many copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as NEXTLINK may
reasonably request.
(d) The Company will use its best efforts to register or qualify the
Warrant Shares covered by such registration statement under such other
securities or blue sky laws of such jurisdictions (not exceeding 10 in number)
as NEXTLINK shall request, and do any and all other acts and things that may be
reasonably necessary or advisable to enable NEXTLINK to consummate the
disposition in such jurisdictions of the Warrant Shares covered by the
registration statement; provided, however, that the Company shall not be
-------- -------
obligated, by reason thereof, to qualify as a foreign corporation or file any
general consent to service of process under the laws of any such jurisdiction or
subject itself to taxation as doing business in any such jurisdiction.
(e) The Company shall notify NEXTLINK when the registration statement
covering the offering of the Warrant Shares to be registered has been filed with
the Commission under the Securities Act and when it has been made effective by
order of the Commission.
C. Anything contained in this Section 2 notwithstanding, the Company
shall have no obligation to NEXTLINK if the Board of Directors of the Company
determines, for any reason, not to complete any proposed public offering of its
securities.
3. Obligations of NEXTLINK. To include any Warrant Shares in any
-----------------------
registration statement, NEXTLINK shall:
(a) cooperate with the Company in preparing each such registration
statement and execute all such agreements as the Representative may deem
reasonably necessary in favor of the underwriters;
(b) promptly supply the Company with all information, documents,
representations and agreements as the Representative or the Company may deem
reasonably necessary in connection with such registration; and
(c) agree in writing not to sell or transfer any shares of the
capital stock of the Company not included in such registration statement during
the period beginning ten days prior to the filing and ending 120 days after the
effective date of such registration statement without the Representative's or
the Company's prior written consent.
4. Conditions. The inclusion of Warrant Shares in an offering
----------
pursuant to Sections 2 or 3 hereof shall be subject to the following conditions:
(a) NEXTLINK shall exercise its Warrant or Warrants representing the
Warrant Shares to be registered in such offering, or irrevocably commit in
writing to do so prior to the effective date of the registration statement on
such terms as the Company may reasonably request, prior to the initial filing of
a registration statement with respect to such Warrant Shares; and
(b) the President or any Vice President, the Chief Executive Officer,
the Chief Financial Officer or the Treasurer of NEXTLINK shall certify in
writing to the Company and, in the case of an underwritten offering, to the
underwriters that NEXTLINK has a present intention to sell all of the Warrant
Shares which NEXTLINK elects to include in such offering.
29
<PAGE>
(c) The inclusion of Warrant Shares in an offering pursuant to
Section 2 shall be subject to the condition that NEXTLINK shall sell its Warrant
Shares to the underwriters on the same terms and conditions as the Company and
any other selling holders of Common Stock.
5. No Registration Required. The Company shall have no obligation
------------------------
under Sections 2 to register any Warrant Shares if the Company shall deliver to
NEXTLINK an opinion reasonably satisfactory to NEXTLINK and its counsel to the
effect that the proposed sale or disposition for which registration was
requested does not require registration under the Securities Act.
6. Registration Expenses. The costs and expenses (other than
---------------------
underwriting discount or commission, fees and disbursements of NEXTLINK's
counsel and such fees for printing, registration and other fees as state
securities officials may require that NEXTLINK pay) of all registrations and
qualifications under the Securities Act, and of all other actions that the
Company is required to take or effect pursuant to this Exhibit C, shall be paid
by the Company (including, without limitation, all registration and filing fees,
printing expenses, costs of special audits incident to or required by any such
registration, and fees and disbursements of counsel for the Company).
7. Indemnification by Company. In the event of any registration
--------------------------
under the Securities Act of any Warrant Shares, the Company hereby agrees to
indemnify and hold harmless NEXTLINK against any losses, claims, damages or
liabilities, joint or several, to which NEXTLINK may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement under
which Warrant Shares were registered under the Securities Act, or in any
preliminary prospectus or final prospectus contained therein or any amendment or
supplement thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (iii) any failure or alleged failure of the Company to
comply with any applicable statute, rule or regulation in connection with the
registration statement or the offering, and will reimburse NEXTLINK for any
legal or other expenses reasonably incurred by NEXTLINK in connection with
investigating or defending any such loss, claim, damage, liability or
proceeding; provided that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, or in said preliminary or final
prospectus or said amendment or supplement, in reliance upon and in conformity
with written information furnished by NEXTLINK for use in the preparation
thereof.
8. Indemnification by NEXTLINK. In the event of any registration
---------------------------
under the Securities Act of any Warrant Shares, NEXTLINK hereby agrees to
indemnify and hold harmless the Company, and each other person, if any, who
controls the Company within the meaning of the Securities Act and each other
person (including each underwriter, and each other person, if any, who controls
such underwriter) who participates in the offering of such Common Shares against
any losses, claims, damages or liabilities, joint or several, to which the
Company, such controlling person or participating person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or proceedings in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement under
which such Warrant Shares were registered under the Securities Act, or in any
preliminary prospectus or final prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such controlling person or participating person for any legal
or other expenses reasonably incurred by the Company or such controlling person
or participating person in connection with investigating or defending any such
loss, claim, damage, liability or proceeding; provided that NEXTLINK will be
liable in any such case to the extent, and only to the extent, that any such
loss claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, or in said preliminary or final prospectus or said
30
<PAGE>
amendment or supplement, in reliance upon and in conformity with written
information furnished by NEXTLINK for use in the preparation thereof.
31
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<PERIOD-START> APR-01-1998
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0
24,723
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