Exhibit 99.4
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO FARMSTEAD TELEPHONE GROUP, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
Right to Purchase up to 500,000 Shares of Common Stock of
Farmstead Telephone Group, Inc.
(subject to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. _________________ Issue Date: March 31, 2005
FARMSTEAD TELEPHONE GROUP, INC., a corporation organized under the
laws of the State of Delaware (the "Company"), hereby certifies that, for
value received, LAURUS MASTER FUND, LTD., or assigns (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from the
Company (as defined herein) from and after the Issue Date of this Warrant
and at any time or from time to time before 5:00 p.m., New York time,
through the close of business March 31, 2010 (the "Expiration Date"), up to
500,000 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $0.001 par value per share, at the applicable Exercise Price per
share (as defined below). The number and character of such shares of
Common Stock and the applicable Exercise Price per share are subject to
adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include Farmstead Telephone
Group, Inc. and any person or entity which shall succeed, or assume
the obligations of, Farmstead Telephone Group, Inc. hereunder.
(b) The term "Common Stock" includes (i) the Company's Common
Stock, par value $0.001 per share; and (ii) any other securities into
which or for which any of the securities described in the preceding
clause (i) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or
otherwise.
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holder of the Warrant at
any time shall be entitled to receive, or shall have
received, on the exercise of the Warrant, in lieu of or in addition
to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or
Other Securities pursuant to Section 4 or otherwise.
(d) The "Exercise Price" applicable under this Warrant shall
be a price of $1.82 [130% of the average closing price of Common
Stock for the ten (10) trading days immediately prior to the date
hereof] per share.
1. Exercise of Warrant.
1.1 Number of Shares Issuable upon Exercise/Repurchase
Option. From and after the date hereof through and including the
Expiration Date, the Holder shall be entitled to receive, upon exercise of
this Warrant in whole or in part, by delivery of an original or fax copy of
an exercise notice in the form attached hereto as Exhibit A (the "Exercise
Notice"), shares of Common Stock of the Company, subject to adjustment
pursuant to Section 4. The Company shall have two (2) hours from the time
that such Exercise Notice is delivered to the Parent to provide the Holder
with written notice (delivered to Holder via facsimile or email) of the
Parent's decision to purchase the number of shares of Common Stock
otherwise deliverable to the Holder pursuant to the Exercise Notice (the
"Designated Shares") for a purchase price determined by multiplying the
Designated Shares by the intraday high price of the Common Stock on the day
the Exercise Notice was submitted to the Company (the "Disposition Price").
The Disposition Price shall be paid by the Company to the Holder by wire
transfer of immediately available funds within two (2) business days of the
date of the Exercise Notice.
1.2 Fair Market Value. For purposes hereof, the "Fair Market
Value" of a share of Common Stock as of a particular date (the
"Determination Date") shall mean:
(a) If the Company's Common Stock is traded on the American
Stock Exchange or another national exchange or is quoted on the
National or SmallCap Market of The Nasdaq Stock Market, Inc.
("Nasdaq"), then the closing or last sale price, respectively,
reported for the last business day immediately preceding the
Determination Date.
(b) If the Company's Common Stock is not traded on the
American Stock Exchange or another national exchange or on the Nasdaq
but is traded on the NASD Over The Counter Bulletin Board, then the
mean of the average of the closing bid and asked prices reported for
the last business day immediately preceding the Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the
Company agree or in the absence of agreement by arbitration in
accordance with the rules then in effect of the American Arbitration
Association, before a single arbitrator to be chosen from a panel of
persons qualified by education and training to pass on the matter to
be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all
amounts to be payable per share to holders of the
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Common Stock pursuant to the charter in the event of such
liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under
the charter, assuming for the purposes of this clause (d) that all of
the shares of Common Stock then issuable upon exercise of the Warrant
are outstanding at the Determination Date.
1.3 Company Acknowledgment. The Company will, at the time of
the exercise of this Warrant, upon the request of the holder hereof
acknowledge in writing its continuing obligation to afford to such holder
any rights to which such holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant. If the holder
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder any such
rights.
1.4 Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the holders of this
Warrant pursuant to Subsection 3.2, such bank or trust company shall have
all the powers and duties of a warrant agent (as hereinafter described) and
shall accept, in its own name for the account of the Company or such
successor person as may be entitled thereto, all amounts otherwise payable
to the Company or such successor, as the case may be, on exercise of this
Warrant pursuant to this Section 1.
2. Procedure for Exercise.
2.1 Delivery of Stock Certificates, Etc., on Exercise. The
Company agrees that the shares of Common Stock purchased upon exercise of
this Warrant shall be deemed to be issued to the 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 shares in
accordance herewith. As soon as practicable after the exercise of this
Warrant in full or in part, and in any event within three (3) business days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and
delivered to the Holder, or as such Holder (upon payment by such Holder of
any applicable transfer taxes) may direct in compliance with applicable
securities laws, a certificate or certificates for the number of duly and
validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such Holder shall be entitled on such exercise,
plus, in lieu of any fractional share to which such holder would otherwise
be entitled, cash equal to such fraction multiplied by the then Fair Market
Value of one full share, together with any other stock or other securities
and property (including cash, where applicable) to which such Holder is
entitled upon such exercise pursuant to Section 1 or otherwise.
2.2 Exercise.
(a) Payment may be made either (i) in cash or by certified or
official bank check payable to the order of the Company equal to the
applicable aggregate Exercise Price, (ii) by delivery of this
Warrant, or shares of Common Stock and/or Common Stock receivable
upon exercise of this Warrant in accordance with the formula set
forth in subsection (b) below, or (iii) by a combination of any of
the foregoing methods, for the number of Common Shares specified in
such Exercise Notice (as such exercise number shall be adjusted to
reflect any adjustment in the total number of shares of Common
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Stock issuable to the Holder per the terms of this Warrant) and the
Holder shall thereupon be entitled to receive the number of duly
authorized, validly issued, fully-paid and non-assessable shares of
Common Stock (or Other Securities) determined as provided herein.
(b) Notwithstanding any provisions herein to the contrary, if
the Fair Market Value of one share of Common Stock is greater than
the Exercise Price (at the date of calculation as set forth below),
in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being exercised) by surrender of this
Warrant at the principal office of the Company together with the
properly endorsed Exercise Notice in which event the Company shall
issue to the Holder a number of shares of Common Stock computed using
the following formula:
X= Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock purchasable under this
Warrant or, if only a portion of this Warrant is being
exercised, the portion of this Warrant being exercised (at the
date of such calculation)
A = the Fair Market Value of one share of the Company's Common
Stock (at the date of such calculation)
B = the Exercise Price per share (as adjusted to the date of such
calculation)
3. Effect of Reorganization, Etc.; Adjustment of Exercise Price.
3.1 Reorganization, Consolidation, Merger, Etc. In case at
any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, as a condition to the consummation of
such a transaction, proper and adequate provision shall be made by the
Company whereby the Holder, on the exercise hereof as provided in Section 1
at any time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution, as the case may be, shall
receive, in lieu of the Common Stock (or Other Securities) issuable on such
exercise prior to such consummation or such effective date, the stock and
other securities and property (including cash) to which such Holder would
have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such Holder had so exercised this
Warrant, immediately prior thereto, all subject to further adjustment
thereafter as provided in Section 4.
3.2 Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its
properties or assets, the Company, concurrently with any distributions made
to holders of its Common Stock, shall at its expense deliver or cause to be
delivered to the Holder the stock and other securities and property
(including cash, where
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applicable) receivable by the Holder pursuant to Section 3.1, or, if the
Holder shall so instruct the Company, to a bank or trust company specified
by the Holder and having its principal office in New York, NY as trustee
for the Holder.
3.3 Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any
transfer) referred to in this Section 3, this Warrant shall continue in
full force and effect and the terms hereof shall be applicable to the
shares of stock and other securities and property receivable on the
exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any
such transfer, as the case may be, and shall be binding upon the issuer of
any such stock or other securities, including, in the case of any such
transfer, the person acquiring all or substantially all of the properties
or assets of the Company, whether or not such person shall have expressly
assumed the terms of this Warrant as provided in Section 4. In the event
this Warrant does not continue in full force and effect after the
consummation of the transactions described in this Section 3, then the
Company's securities and property (including cash, where applicable)
receivable by the Holder will be delivered to the Holder or the Trustee as
contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that
the Company shall (a) issue additional shares of the Common Stock as a
dividend or other distribution on outstanding Common Stock or any preferred
stock issued by the Company, (b) subdivide its outstanding shares of Common
Stock, (c) combine its outstanding shares of the Common Stock into a
smaller number of shares of the Common Stock, then, in each such event, the
Exercise Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after
such event, and the product so obtained shall thereafter be the Exercise
Price then in effect. The Exercise Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 4. The number of shares of Common
Stock that the holder shall thereafter, on the exercise hereof as provided
in Section 1, be entitled to receive shall be adjusted to a number
determined by multiplying the number of shares of Common Stock that would
otherwise (but for the provisions of this Section 4) be issuable on such
exercise by a fraction of which (a) the numerator is the Exercise Price
that would otherwise (but for the provisions of this Section 4) be in
effect, and (b) the denominator is the Exercise Price in effect on the date
of such exercise (taking into account the provisions of this Section 4).
5. Certificate as to Adjustments. In each case of any adjustment
or readjustment in the shares of Common Stock (or Other Securities)
issuable on the exercise of this Warrant, the Company at its expense will
promptly cause its Chief Financial Officer or other appropriate designee to
compute such adjustment or readjustment in accordance with the terms of
this Warrant and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration
received or receivable by the Company for any additional shares of Common
Stock (or Other Securities) issued or sold or deemed to have been issued or
sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and
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(c) the Exercise Price and the number of shares of Common Stock to be
received upon exercise of this Warrant, in effect immediately prior to such
adjustment or readjustment and as adjusted or readjusted as provided in
this Warrant. The Company will forthwith mail a copy of each such
certificate to the holder and any Warrant agent of the Company (appointed
pursuant to Section 11 hereof).
6. Reservation of Stock, Etc., Issuable on Exercise of Warrant.
The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of this Warrant, shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of
this Warrant.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby,
may be transferred by any registered holder hereof (a "Transferor") in
whole or in part. On the surrender for exchange of this Warrant, with the
Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable
securities laws, which shall include, without limitation, a legal opinion
from the Transferor's counsel (at the Company's expense) that such transfer
is exempt from the registration requirements of applicable securities laws,
the Company at its expense (but with payment by the Transferor of any
applicable transfer taxes) will issue and deliver to or on the order of the
Transferor thereof a new Warrant of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor
Endorsement Form (each a "Transferee"), calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock called for
on the face or faces of the Warrant so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation
of this Warrant and, in the case of any such loss, theft or destruction of
this Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
9. Registration Rights. The Holder has been granted certain
registration rights by the Company. These registration rights are set
forth in a Registration Rights Agreement entered into by the Company and
Holder dated as of the date hereof, as the same may be amended, modified
and/or supplemented from time to time.
10. Section 9 of the 1934 Act. The Holder agrees to comply with
the provisions of Section 9 of the Securities Exchange Act of 1934, as
amended, to the extent applicable.
Maximum Exercise. Notwithstanding anything contained herein to the
contrary, the Holder shall not be entitled to exercise this Warrant in
connection with that number of shares of Common Stock which would exceed
the difference between (i) 4.99% of the issued and outstanding shares of
Common Stock and (ii) the number of shares of Common Stock beneficially
owned by the Holder. For purposes of the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as
6
amended, and Regulation 13d-3 thereunder. The limitation described in the
first sentence of this Section 10 shall automatically become null and void
without any notice to the Company upon the occurrence and during the
continuance of an Event of Default (as defined in the Security Agreement
dated as of the date hereof among the Holder, the Company and various
subsidiaries of the Company, as amended, modified, restated and/or
supplemented from time to time, the "Security Agreement"), or upon 75 days
prior notice to the Company, except that at no time shall the number of
shares of Common Stock beneficially owned by the Holder exceed 19.99% of
the outstanding shares of Common Stock. Notwithstanding anything contained
herein to the contrary, the number of shares of Common Stock issuable by
the Company and acquirable by the Holder at a price below $2.30 [insert the
greater of market price or book value of the Common Stock as of the date
hereof] per share pursuant to the terms of this Warrant, the Security
Agreement, any Ancillary Agreement (as defined in the Security Agreement)
or otherwise, shall not exceed an aggregate of 664,104 shares of Common
Stock (subject to appropriate adjustment for stock splits, stock dividends,
or other similar recapitalizations affecting the Common Stock) (the
"Maximum Common Stock Issuance"), unless the issuance of Common Shares
hereunder in excess of the Maximum Common Stock Issuance shall first be
approved by the Company's shareholders. If at any point in time and from
time to time the number of shares of Common Stock issued pursuant to the
terms of this Warrant, the Security Agreement, any Ancillary Agreement (as
defined in the Security Agreement) or otherwise, together with the number
of shares of Common Stock that would then be issuable by the Company to the
Holder in the event of a conversion pursuant to the terms of this Warrant,
the Security Agreement, any Ancillary Agreement (as defined in the Security
Agreement) or otherwise, would exceed the Maximum Common Stock Issuance but
for this Section 10, the Company shall promptly call a shareholders meeting
to solicit shareholder approval for the issuance of the shares of Common
Stock hereunder in excess of the Maximum Common Stock Issuance.
11. Warrant Agent. The Company may, by written notice to the each
Holder of the Warrant, appoint an agent for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to
Section 1, exchanging this Warrant pursuant to Section 7, and replacing
this Warrant pursuant to Section 8, or any of the foregoing, and thereafter
any such issuance, exchange or replacement, as the case may be, shall be
made at such office by such agent.
12. Transfer on the Company's Books. Until this Warrant is
transferred on the books of the Company, the Company may treat the
registered holder hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
13. Notices, Etc. All notices and other communications from the
Company to the Holder shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished
to the Company in writing by such Holder or, until any such Holder
furnishes to the Company an address, then to, and at the address of, the
last Holder who has so furnished an address to the Company.
14. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF
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THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
ANY ACTION BROUGHT CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS WARRANT
SHALL BE BROUGHT ONLY IN STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS
LOCATED IN THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT THE HOLDER MAY
CHOOSE TO WAIVE THIS PROVISION AND BRING AN ACTION OUTSIDE THE STATE OF NEW
YORK. The individuals executing this Warrant on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by jury.
The prevailing party shall be entitled to recover from the other party its
reasonable attorneys' fees and costs. In the event that any provision of
this Warrant is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision of this Warrant. The headings in this Warrant are
for purposes of reference only, and shall not limit or otherwise affect any
of the terms hereof. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision hereof. The Company acknowledges that legal counsel participated
in the preparation of this Warrant and, therefore, stipulates that the rule
of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Warrant to favor
any party against the other party.
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
FARMSTEAD TELEPHONE GROUP, INC.
WITNESS:
By: /s/ Xxxxxx X XxXxxxx
--------------------------------
Name: Xxxxxx X. XxXxxxx
------------------------------
Title: Chief Financial Officer
------------------------- -----------------------------
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EXHIBIT A
FORM OF SUBSCRIPTION
(To Be Signed Only On Exercise Of Warrant)
TO: Farmstead Telephone Group, Inc.
00 Xxxxxxxx Xxxx Xxxxxx
Xxxx Xxxxxxxx, XX 00000
Facsimile: 000-000-0000
Attention: Chief Financial Officer
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.____), hereby irrevocably elects to purchase (check applicable
box):
________ ________ shares of the common stock covered by such warrant; or
________ the maximum number of shares of common stock covered by such
warrant pursuant to the cashless exercise procedure set forth in
Section 2.
The undersigned herewith makes payment of the full Exercise Price for
such shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or
boxes):
________ $__________ in lawful money of the United States; and/or
________ the cancellation of such portion of the attached Warrant as is
exercisable for a total of _______ shares of Common Stock (using
a Fair Market Value of $_______ per share for purposes of this
calculation); and/or
________ the cancellation of such number of shares of Common Stock as is
necessary, in accordance with the formula set forth in Section
2.2, to exercise this Warrant with respect to the maximum number
of shares of Common Stock purchasable pursuant to the cashless
exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be
issued in the name of, and delivered to ___________________________________
whose address is _________________________________________________________.
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable upon exercise of the within
Warrant shall be made pursuant to registration of the Common Stock under
the Securities Act of 1933, as amended (the "Securities Act") or pursuant
to an exemption from registration under the Securities Act.
Dated: ____________________________ ____________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
Address: __________________________
__________________________
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EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To Be Signed Only On Transfer Of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees"
the right represented by the within Warrant to purchase the percentage and
number of shares of Common Stock of Farmstead Telephone Group, Inc. into
which the within Warrant relates specified under the headings "Percentage
Transferred" and "Number Transferred," respectively, opposite the name(s)
of such person(s) and appoints each such person Attorney to transfer its
respective right on the books of Farmstead Telephone Group, Inc. with full
power of substitution in the premises.
Percentage Number
Transferees Address Transferred Transferred
----------- ------- ----------- -----------
Dated: ____________________________ ____________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
Address: _________________________
_________________________
SIGNED IN THE PRESENCE OF:
____________________________________
(Name)
ACCEPTED AND AGREED:
[TRANSFEREE]
___________________________________
(Name)
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