Exhibit 4.04
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER
ANY APPLICABLE STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, THE SALE IS MADE
PURSUANT TO RULE 144 UNDER THE ACT, IF AVAILABLE, OR AN OPINION IS OBTAINED FROM
COUNSEL TO THE HOLDER, REASONABLY SATISFACTORY TO COUNSEL TO KNOWLEDGE KIDS
ENTERPRISES, INC., THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE
ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE CLASS B COMMON STOCK
OF
KNOWLEDGE KIDS ENTERPRISES, INC.
July 21, 1998
This certifies that KNOWLEDGE KIDS, L.L.C., a Delaware limited liability
company, or any subsequent holder or designee (the "Holder"), for value
received, is entitled, subject to the adjustments and to the other terms set
forth below, to purchase from KNOWLEDGE KIDS ENTERPRISES, INC., a Delaware
corporation (the "Company"), having a place of business at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at any time from the date hereof until
5:00 P.M. (California time) on July 20, 2003 (the "Expiration Date"), at which
time this Warrant shall expire and become void, Eight Million Two Hundred
Thousand (8,200,000) shares (the "Warrant Shares") of the Company's Class B
Common Stock, par value $0.0001 per share (the "Class B Common Stock"), at an
exercise price (the "Exercise Price") of $5.00 per share, for any one or more
exercises of this Warrant.
This Warrant Certificate is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Shares. This Warrant
is exercisable at the option of the Holder at any time from the date hereof
until 5:00 P.M. (California time) on the Expiration Date for all or a portion of
the Warrant Shares that may be purchased hereunder. This Warrant shall be
exercised upon surrender to the Company at its principal office indicated above
(or such other location as the Company may advise Holder in writing) of this
Warrant properly endorsed with a completed and executed Subscription Agreement
in the form attached hereto as Exhibit A, and upon payment of the aggregate
Exercise Price for the number of Warrant Shares for which this Warrant is being
exercised. At the option of Holder, the aggregate Exercise Price may be paid in
any one or a combination of the following
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forms: (a) in cash or by cashier's check, or (b) by the surrender to the Company
of shares of Class B Common Stock, free and clear of all encumbrances, having a
Fair Value equal to the amount of the Exercise Price being paid in the manner
provided by this clause (b). The Company agrees that any Warrant Shares
purchased under this Warrant shall be deemed to be issued to Holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such Warrant
Shares. Certificates for the Warrant Shares so purchased, together with any
other securities or property to which Holder is entitled upon such exercise,
shall be delivered to Holder (at the address of such Holder as shown on the
books of the Company) by the Company or its transfer agent at the Company's
expense within a reasonable time after the rights represented by this Warrant
have been exercised. Each stock certificate so delivered shall be in such
denominations of Class B Common Stock as may be requested by Holder and shall be
registered in the name of Holder or, subject to the provisions of Section 4 and
6, such other name as shall be designated by Holder. If, upon exercise of this
Warrant, fewer than all of the Warrant Shares subject to this Warrant are
purchased prior to the Expiration Date of this Warrant, one or more new warrants
substantially in the form of, and on the terms in, this Warrant will be issued
for the remaining number of Warrant Shares not purchased upon such exercise. For
purposes of clause (b) above, the Fair Value of the shares of Class B Common
Stock as of a given date shall mean: (i) the average closing price of the shares
of such class of Common Stock on the principal exchange (or NASDAQ NMS) on which
such class of Common Stock is then trading (or if such class is not traded on an
exchange but the Class A Common Stock is, then the average closing price of the
shares of Class A Common Stock), if any (or as reported on any composite index
which includes such principal exchange), on the ten most recent trading days
immediately prior to such date; or (ii) if neither class of Common Stock is
traded on an exchange (or NASDAQ NMS) but either class is quoted on NASDAQ Small
Cap or a successor quotation system, the average mean between the closing bid
and asked prices for shares of Class B Common Stock (or if such class is not
quoted on NASDAQ Small Cap or a successor quotation system but the Class A
Common Stock is, then the average mean between the closing bid and asked prices
for shares of Class A Common Stock) on the ten most recent trading days
immediately prior to such date as reported by NASDAQ Small Cap or such successor
quotation system; or (iii) if neither class of Common Stock is publicly traded
on an exchange (or NASDAQ NMS) or quoted on NASDAQ Small Cap or a successor
quotation system, the Fair Value shall mean, at the option of the Company,
either (x) the value attributed to shares of either class of Common Stock
pursuant to the most recent transaction within the last 12 months involving
shares of either class of Common Stock between the Company and an unrelated
third party prior to the given date, or (y) the appraised value of shares of
Class B Common Stock as of the given date, as determined by a third party
independent appraiser or investment bank selected by the Company in the
Company's sole discretion. For purposes of the foregoing, in no event shall the
Fair Value of a share of Class B Common Stock be less than the Fair Value of a
share of Class A Common Stock. In lieu of exercising this Warrant as provided
above, Holder may from time to time at Holder's option convert this Warrant, in
whole or in part, into a number of shares of Class B Common Stock determined by
dividing (A) the aggregate Fair Value of such shares otherwise issuable upon
exercise of this Warrant minus the aggregate Exercise Price of such shares by
(B) the Fair Value of one such share.
2. Shares to be Fully Paid; Reservation of Shares. The Company
covenants and
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agrees that all Warrant Shares that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof. The Company covenants that it will
reserve and keep available a sufficient number of shares of its authorized but
unissued Class B Common Stock for issuance upon exercise or conversion of this
Warrant. The Company will take all such reasonable action as may be necessary to
assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation.
3. Adjustment of Exercise Price and Number of Warrant Shares. The
Exercise Price and the number of Warrant Shares shall be subject to adjustment
from time to time upon the occurrence of certain events described in this
Section 3. For purposes of this of this Warrant, the term Common Stock shall
mean the Company's Class A Common Stock and/or Class B Common Stock.
3.1 Subdivision or Combination of Common Stock and Stock Dividend.
In the event that, after the date of this Warrant, the Company subdivides its
outstanding shares of Common Stock into a greater number of shares or declares a
dividend upon its Common Stock payable solely in shares of Common Stock, the
Exercise Price in effect immediately prior to such subdivision or declaration
shall automatically be proportionately reduced and the number of Warrant Shares
shall automatically be proportionately increased. Conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased, and the number of Warrant Shares
shall be proportionately reduced.
3.2 Notice of Adjustment. Promptly after any adjustment of the
Exercise Price or any increase or decrease in the number of Warrant Shares, the
Company shall give written notice thereof, by first class mail, postage prepaid,
addressed to the registered holder of this Warrant at the address of such holder
as shown on the books of the Company. The notice shall be signed by the
Company's chief financial officer and shall state the effective date of the
adjustment and the Exercise Price resulting from such adjustment and the
increase or decrease, if any, in the number of Warrant Shares, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
3.3 Other Notices. If at any time:
(a) the Company shall declare any cash dividend upon its
Common Stock;
(b) the Company shall declare any dividend upon its Common
Stock payable in stock (other than a dividend payable solely in shares of Common
Stock) or make any special dividend or other distribution to the holders of its
Common Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
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(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company; or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) there shall be an initial public offering of Company
securities;
then, in any one or more of said cases, the Company shall give to the registered
holder of this Warrant, by the means specified in Section 8 herein, (i) at least
ten (10) days' prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution
or subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, and (ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up or public offering, at least ten (10) days' prior written notice of
the date when the same shall take place. Any notice given in accordance with the
foregoing clause (i) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on or after which the holders of
Common Stock shall be entitled thereto. Any notice given in accordance with the
foregoing clause (ii) shall also specify the date on or after which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up, conversion or
public offering, as the case may be. If the Holder of the Warrant does not
exercise or convert this Warrant prior to the occurrence of an event described
above, except as provided in Sections 3.1 and 3.4, the Holder shall not be
entitled to receive the benefits accruing to existing holders of Common Stock in
such event.
3.4 Changes in Common Stock. In case at any time following the
date of this Warrant, the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, or sale of all or
substantially all of the Company's assets or recapitalization of Common Stock)
in which the previously outstanding Common Stock shall be changed into,
converted or exchanged for other securities of the Company or common stock or
other securities of another corporation or interests in a non-corporate entity
or other property (including cash) or any combination of any of the foregoing
(each such transaction being herein called a "Transaction" and the date of
consummation of a Transaction being herein called a "Consummation Date"), then,
as a condition of the consummation of such Transaction, lawful and adequate
provisions shall be made so that the Holder, upon the exercise or conversion
hereof at any time on or after the Consummation Date of such Transaction, shall
be entitled to receive, and this Warrant shall thereafter represent the right to
receive, in lieu of the Class B Common Stock issuable upon such exercise or
conversion prior to such Consummation Date, the highest amount of securities or
other property to which the Holder would actually have been entitled as a
stockholder if the Holder had exercised this Warrant immediately prior to the
consummation of such Transaction. The provisions of this Section 3.4 shall
similarly apply to successive
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Transactions.
4. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise or conversion of the Warrant shall be made without charge to Holder for
any issue tax in respect thereof; provided, however, that the Company shall not
be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the then Holder of the Warrant being exercised or converted.
5. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder in
respect of meetings of stockholders for the election of directors of the Company
or any other matters or any rights whatsoever as a stockholder of the Company,
until, and only to the extent that, this Warrant shall have been exercised or
converted. Except for the adjustment to the Exercise Price pursuant to Section
3.1 in the event of a dividend on the Common Stock payable in shares of Common
Stock, no dividends or interest shall be payable or accrued in respect of this
Warrant or the Warrant Shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised or converted. No provisions
hereof, in the absence of affirmative action by the Holder to purchase Warrant
Shares, and no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of such Holder for the Exercise Price
or as a stockholder of the Company whether such liability is asserted by the
Company or by its creditors.
6. Investment Representations; Restrictions on Transferability of
Securities.
6.5 Investment Representations. By accepting this Warrant
Certificate, Holder (or any entity for which it is acting as nominee) represents
that it is acquiring this Warrant (and will be acquiring any Warrant Shares
purchased upon exercise or conversion of this Warrant) for its own account, not
as nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended (the "Act").
6.6 Restrictions on Transferability. This Warrant and the Warrant
Shares have not been registered under the Act and shall not be transferable in
the absence of registration under the Act, or an exemption therefrom under said
Act.
6.7 Restrictive Legend. Each certificate representing the Warrant
Shares or any other securities issued in respect of the Warrant Shares shall be
stamped or otherwise imprinted with legends in substantially the following form
(in addition to any legend required under applicable state securities laws):
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY
APPLICABLE STATE SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
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DISPOSED OF UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, THE SALE IS MADE
PURSUANT TO RULE 144 UNDER THE ACT, IF AVAILABLE, OR AN OPINION IS
OBTAINED FROM COUNSEL TO THE HOLDER, REASONABLY SATISFACTORY TO COUNSEL TO
KNOWLEDGE KIDS ENTERPRISES, INC., THAT AN EXEMPTION FROM REGISTRATION IS
AVAILABLE UNDER THE ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH IN A STOCKHOLDERS AGREEMENT, DATED AS
OF SEPTEMBER 24, 1997, AS AMENDED. A COPY OF SUCH AGREEMENT MAY BE
OBTAINED FROM THE COMPANY UPON REQUEST.
7. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
8. Notices. Any notice, request or other document required or permitted
to be given or delivered to the Holder hereof or the Company shall be delivered
or shall be sent by certified or registered mail, postage prepaid, to the Holder
at its address as shown on the books of the Company or if to the Company at the
address indicated therefor in the first paragraph of this Warrant. If the
Holder's address is outside of the United States, Holder shall first be given
notice by telecopy, in addition to being provided with notice as set forth in
the preceding sentence.
9. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Common Stock issuable upon the exercise or conversion of
this Warrant shall survive the exercise or conversion and termination of this
Warrant. All of the covenants and agreements of the Company shall inure to the
benefit of the successors and assigns of the holder hereof.
10. Descriptive Headings and Governing Law. The descriptive headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of Delaware.
11. Lost Warrants or Stock Certificates. The Company represents and
warrants to the Holder that upon receipt of an affidavit reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant or
any stock certificate deliverable upon the exercise or conversion hereof and, in
the case of any such loss, theft or destruction, upon receipt of an indemnity
agreement and, if requested, bond reasonably satisfactory to the Company, or in
the case of any such mutilation, upon surrender and cancellation of this Warrant
or such stock certificate, the Company at its expense will make and deliver a
new Warrant or stock certificate,
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of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
12. Fractional Shares. The Company shall not be required to issue
fractional shares upon exercise or conversion of this Warrant. The Company may,
in lieu of issuing any fractional share, pay the Holder entitled to such
fraction a sum in cash equal to the fair market value of any such fractional
interest as it shall appear on the public market, or if there is no public
market for such shares, then as shall be reasonably determined by the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer effective as of July 21, 1998.
KNOWLEDGE KIDS ENTERPRISES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Vice President
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EXHIBIT A
KNOWLEDGE KIDS ENTERPRISES, INC.
CLASS B COMMON STOCK WARRANT
FORM OF SUBSCRIPTION AGREEMENT
(To be signed and delivered
upon exercise or conversion of Warrant)
KNOWLEDGE KIDS ENTERPRISES, INC.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the [purchase/conversion] right represented by such Warrant
for, and to acquire thereunder, _________________________ shares of [Class B
Common Stock/Class A Common Stock], par value $0.0001 per share (the "Stock"),
of KNOWLEDGE KIDS ENTERPRISES, INC. (the "Company"), and subject to the
following paragraph, herewith makes payment of Dollars ($ ) therefor in
the form of:
________________________________________________________________________________
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to, _____________________________, whose address is
_____________________________.
If the exercise or conversion of this Warrant is not covered by a
registration statement effective under the Securities Act of 1933, as amended
(the "Act"), the undersigned represents that:
(i) the undersigned is acquiring such Stock for investment for
his, her or its own account, not as nominee or agent, and not with a view to the
distribution thereof and the undersigned has not signed or otherwise arranged
for the selling, granting any participation in, or otherwise distributing the
same;
(ii) the undersigned has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of the
undersigned's investment in the Stock;
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(iii) the undersigned has received all of the information the
undersigned has requested from the Company and considers necessary or
appropriate for deciding whether to purchase the shares of Stock;
(iv) the undersigned has the ability to bear the economic risks of
his, her or its prospective investment;
(v) the undersigned is able, without materially impairing its
financial condition, to hold the shares of Stock for an indefinite period of
time and to suffer complete loss on his, her or its investment;
(vi) the undersigned understands and agrees that (A) he may be
unable to readily liquidate his, her or its investment in the shares of Stock
and that the shares must be held indefinitely unless a subsequent disposition
thereof is registered or qualified under the Act and applicable state securities
or Blue Sky laws or is exempt from such registration or qualification, and that
the Company is not required to register the same or to take any action or make
such an exemption available except to the extent provided in the within Warrant
or other applicable agreement to which the Company and the undersigned are
parties, and (B) the exemption from registration under the Act afforded by Rule
144 promulgated by the Securities and Exchange Commission ("Rule 144") depends
upon the satisfaction of various conditions by the undersigned and the Company
and that, if applicable, Rule 144 affords the basis for sales under certain
circumstances in limited amounts, and that if such exemption is utilized by the
undersigned, such conditions must be fully complied with by the undersigned and
the Company, as required by Rule 144;
(vii) the undersigned either (A) is familiar with the definition of
and the undersigned is an "accredited investor" within the meaning of such term
under Rule 501 of Regulation D promulgated under the Act, or (B) is providing
representations and warranties reasonably satisfactory to the Company and its
counsel, to the effect that the sale and issuance of Stock upon exercise or
conversion of such Warrant may be made without registration under the Act or any
applicable state securities and Blue Sky laws; and
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(viii) the address set forth below is the true and correct address
of the undersigned's residence.
_______________________________________
(Name)
_______________________________________
(Address)
_______________________________________
_______________________________________
_______________________________________
(Social Security Number)
If said number of shares shall not be all the shares exchangeable or
purchasable under the within Warrant, a new Warrant is to be issued in the name
of the undersigned for the balance remaining of the shares purchasable
thereunder.
DATED: ___________________________
_______________________________________
(Name of holder must conform in all
respects to name of holder as specified
on the face of the Warrant or with the
name of the assignee appearing on the
assignment form attached hereto.)
_______________________________________
(signature)
_______________________________________
(print name)
_______________________________________
(print title)
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