EXHIBIT 99.4
NEITHER THIS WARRANT NOR THE SHARES OBTAINABLE UPON ITS EXERCISE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS (COLLECTIVELY, THE "ACTS"), AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER ALL APPLICABLE ACTS OR UNLESS AN
OPINION OF COUNSEL IS DELIVERED TO THE ISSUER IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT AN EXEMPTION FROM
REGISTRATION IS AVAILABLE UNDER ALL APPLICABLE ACTS.
THE SALE, ASSIGNMENT, HYPOTHECATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION OF THESE SECURITIES IS RESTRICTED BY THE TERMS OF THIS
INSTRUMENT.
No. 2006- W - 3 February 8, 2006
FARMSTEAD TELEPHONE GROUP, INC.
WARRANT TO PURCHASE SHARES OF STOCK
-----------------------------------
_________________
THIS CERTIFIES THAT, for value received, X.X. Xxxxx Securities, Inc.,
or its registered assigns (the "Holder"), is entitled to subscribe for and
purchase from Farmstead Telephone Group, Inc., a Delaware corporation (the
"Company"), at any time prior to or upon February 8, 2011 (the "Expiration
Date"), the Shares of the Company (as defined below) at the applicable
exercise price set forth below (as adjusted from time to time pursuant to
Section 4 hereof), subject to the provisions and upon the terms and
conditions hereinafter set forth (the "Warrant").
This Warrant is being executed and delivered in connection with that
certain Convertible Promissory Note and Warrant Purchase Agreement
("Purchase Agreement") between the Company and the Holder dated even date
herewith the terms and conditions of which are incorporated herein by
reference. Unless otherwise noted herein, defined terms defined in the
Purchase Agreement shall have the same meaning when used in this Warrant.
This Warrant is subject to the following terms and conditions:
1. Shares. As used herein, the term "Shares" means 150,000 shares of
the Company's Common Stock, $.001 par value per share (the "Common Stock").
The term "Exercise Price" shall mean $1.27 per share. It is understood and
agreed that the number of Shares issuable hereunder and the applicable
Exercise Price are subject to adjustment from time to time pursuant to
Section 4 hereof.
2. Method of Exercise; Payment.
2.1 Cash Exercise. The purchase rights with respect to the Shares
represented by this Warrant may be exercised by the Holder, in whole or in
part, at any time, or from time to time, by the surrender of this Warrant
(together with a duly executed notice of exercise (the "Notice of
Exercise") in a form reasonable acceptable to the Company at the Company's
then current address, and by payment to the Company of an amount equal to
the applicable Exercise Price for the Shares multiplied by the number
of the Shares being purchased, which amount may be paid, at the election of
the Holder, by (i) wire transfer or check payable to the order of the
Company, (ii) cancellation by the Holder of indebtedness or other
obligations of the Company to the Holder or (iii) any combination of (i)
and (ii). The person in whose name any certificate representing the Shares
issuable upon any exercise of this Warrant shall be deemed to have become
the holder of record of, and shall be treated for all purposes as the
record holder of, the Shares represented thereby (and such Shares shall be
deemed to have been issued) immediately prior to the close of business on
the date or dates upon which such surrender and payment are made. As used
herein, the term "person" means any individual or any corporation,
partnership, trust, limited liability company or other entity or
organization of any kind.
2.2 Net Issue Exercise. In lieu of exercising this Warrant
pursuant to Section 2(a) hereof, the Holder may elect to receive a number
of Shares equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the Company
then current address together with a duly executed Notice of Exercise in
which the appropriate alternative is initialed by the Holder. In such
event, the Company shall issue to the Holder the number of Shares computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of Shares to be issued to the Holder.
Y = the number of Shares subject to this Warrant or, if
only a portion of this Warrant is being exercised, the
portion of this Warrant being canceled (at the time of
such calculation).
A = the Fair Market Value of one Share (at the date of such
calculation).
B = the Exercise Price (as adjusted to the date of such
calculation).
2.3 Fair Market Value. For purposes of this Section 2, the Fair
Market Value of one (1) Share shall equal:
(a) the closing sale price of the Common Stock (or any other
security for which this Warrant is then exercisable) quoted in the Over-
The-Counter Market Summary or the closing price quoted on any national
securities exchange on which such securities are listed, whichever is
applicable, as published by Bloomberg LP immediately prior to the date of
exercise; or
(b) if the Common Stock (or any other security for which this
Warrant is then exercisable) is not traded on the Nasdaq Stock Market or
Over-The-Counter or on a national securities exchange, the Fair Market
Value of a Share shall be agreed upon by the parties. If the parties
cannot agree within five (5) business days after the Notice of Exercise,
the Company's Board of Directors in good faith shall determine the Fair
Market Value of a Share, which such determination shall be binding upon the
parties hereto. For purposes of this Warrant, a business day shall be any
day other than Saturday, Sunday or any day in which the banking and
commercial lending institutions are generally closed to the public.
2.4 Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, as promptly as practicable on or after the
date of exercise and in any event within ten (10) days thereafter, the
Company at its expense shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates representing the
number of Shares issued upon such exercise. In the event this Warrant is
exercised in part, as promptly as practicable on or after the date of
exercise and in any event
2
within ten (10) days thereafter, the Company at its sole expense shall
execute and deliver a new Warrant of like tenor exercisable for the number
of Shares for which this Warrant may then be exercised.
2.5 Taxes. The issuance of the Shares upon the exercise of this
Warrant, and the delivery of certificates or other instruments representing
such Shares, shall be made without charge to the Holder for any tax or
other charge of whatever nature (except any applicable income tax upon
sale) in respect of such issuance and the Company shall bear any such taxes
in respect of such issuance.
3. Stock Fully Paid; Reservation of Shares. All of the Shares issuable
upon the exercise of the rights represented by this Warrant shall, upon
issuance and receipt of the applicable Exercise Price therefor, be fully
paid and nonassessable, and free from all preemptive rights, rights of
first refusal or first offer, taxes, liens and charges of whatever nature.
During the period within which the rights represented by this Warrant may
be exercised, the Company shall at all times have authorized and reserved
for issuance a sufficient number of shares of its securities, to provide
for the full exercise of the Shares represented by this Warrant, including
any adjustment of such number of Shares pursuant to Section 4 hereof. The
Company shall take all steps necessary to amend its Certificate of
Incorporation ("Certificate") to provide sufficient reserves of shares of
securities, issuable upon full exercise of this Warrant. The Company
hereby agrees that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the proper certificates for Shares upon
the full or each partial exercise of this Warrant.
4. Adjustment of Exercise Price and Number of Shares. The number and
kind of Shares purchasable upon the exercise of this Warrant and the
Exercise Price therefore shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
4.1 Adjustment for Reclassification, Consolidation or Merger. If
while this Warrant, or any portion hereof, remains outstanding and
unexpired there shall be (i) a reorganization, (ii) a merger or
consolidation of the Company with or into another person in which the
Company is not the surviving entity, or a reverse merger in which the
Company is the surviving entity but the shares of the Company's capital
stock outstanding immediately prior to the merger are converted by virtue
of the merger into other property, whether in the form of securities, cash,
or otherwise, or (iii) a sale or transfer of all or substantially all of
the Company's properties and assets to any other person in one transaction
or a series of related transactions, then, as a part of such
reorganization, merger, consolidation, sale or transfer, all necessary or
appropriate lawful provisions shall be made so that the Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Exercise Price then in
effect, the greatest number of shares of stock or other securities or
property that a holder of the Shares deliverable upon exercise of this
Warrant would have been entitled to receive in such reorganization,
consolidation, merger, sale or transfer if this Warrant had been exercised
immediately prior to such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 4.
If the per Share consideration payable to the Holder for Shares in
connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be
determined in accordance with Section 2 hereof. The foregoing provisions
of this paragraph shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities
of any other corporation that are at the time receivable upon the exercise
of this Warrant. In all events, appropriate adjustment shall be made in
the application of the provisions of this Warrant (including adjustment of
the applicable Exercise Price and number of Shares purchasable pursuant to
the terms and conditions of this Warrant) with respect to the rights and
interests of the Holder after the transaction, to the end that the
provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable
or issuable after such reorganization, merger, consolidation, sale or
transfer upon exercise of this Warrant.
3
4.2 Adjustments for Split, Subdivision or Combination of Shares.
If the Company at any time while this Warrant, or any portion hereof,
remains outstanding and unexpired shall split or subdivide any class of
securities as to which purchase rights under this Warrant exist, into a
greater number of securities of the same class, the Exercise Price for such
class of securities shall be proportionately decreased and the securities
issuable under the Warrant shall be proportionately increased. If the
Company at any time while this Warrant, or any portion hereof, remains
outstanding and unexpired shall combine any class of securities as to which
purchase rights under this Warrant exist, into a lesser number of
securities of the same class, the Exercise Price for such class of
securities shall be proportionately increased and the securities issuable
under the Warrant shall be proportionately decreased.
4.3 Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion hereof, remains
outstanding and unexpired, the holders of any class of securities as to
which purchase rights under this Warrant exist at the time shall have
received, or, on or after the record date fixed for the determination of
eligible stockholders, shall have become entitled to receive, without
payment therefor, other or additional stock or other securities or property
(other than cash) of the Company by way of dividend, then and in each case,
this Warrant shall represent the right to acquire, in addition to the
number of shares of such class of security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property
(other than cash) of the Company that such holder would hold on the date of
such exercise had it been the holder of record of the class of security
receivable upon exercise of this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the
date of such exercise, retained such shares and/or all other additional
stock available by it as aforesaid during said period, giving effect to all
adjustments called for during such period by the provisions of this Section
4.
4.4 Certain Events. If any event occurs of the type contemplated
by the provisions of this Section 4 but not expressly provided for by such
provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity
features, but excluding any equity compensation or incentive plan to the
Company's employees, directors and officers), then the Company's Board of
Directors shall make an appropriate and equitable adjustment in the
Exercise Price and the number of Shares obtainable upon exercise of this
Warrant so as to protect the rights of the Holder of this Warrant.
4.5 Notice of Adjustments. Upon any adjustment of the applicable
Exercise Price for the Shares and any increase or decrease in the number of
Shares purchasable upon the exercise of this Warrant, then, and in each
such case, the Company, within thirty (30) days thereafter, shall give
written notice thereof to the Holder at the address of such Holder as shown
on the books of the Company which notice shall state the Exercise Price for
the Shares as adjusted and, if applicable, the increased or decreased
number of Shares purchasable upon the exercise of this Warrant, setting
forth in reasonable detail the method of calculation of each.
5. Notices.
5.1 In the event that the Company shall propose at any time:
(a) to declare any dividend or distribution upon its capital
stock whether in cash, property, stock or other securities, whether or not
a regular cash dividend and whether or not out of earnings or earned
surplus;
(b) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
4
(c) to effect any reclassification or recapitalization of its
capital stock outstanding involving a change in such securities; or
(d) to merge or consolidate with or into any other
corporation, or sell, transfer, lease, convey, or exclusively license all
or substantially all its property or business, or to voluntarily liquidate,
dissolve or wind up;
then, in connection with each such event, the Company shall send to the
Holder at least ten (10) days prior written notice of the date on which a
record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of capital stock shall
be entitled thereto) or for determining rights to vote, if any.
Notwithstanding the above, the ten days notice requirement may be shortened
or waived upon the written consent of the Holder.
5.2 Any written notice by the Company required or permitted
hereunder shall be given by hand delivery or first class mail, postage
prepaid, addressed to the Holder at the address shown on the books of the
Company for the Holder.
6. Registration Rights. The securities of the Company into which this
Warrant or such part of this Warrant is convertible shall have certain
registration rights as set forth in the Purchase Agreement.
7. Legend. Each certificate evidencing the Shares issued upon exercise
of this Warrant, or transfer of such shares (other than a transfer
registered under the Securities Act of 1933, as amended (the "Securities
Act"), or any subsequent transfer of shares so registered) shall be stamped
or imprinted with legends substantially in the following forms:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS (COLLECTIVELY, THE "ACTS"), AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER ALL APPLICABLE ACTS OR UNLESS AN OPINION OF COUNSEL
IS DELIVERED TO THE ISSUER IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE
UNDER ALL APPLICABLE ACTS.
8. Removal of Legend. Upon request of a holder of a certificate with
the legends required by Section 7 hereof, the Company shall issue to such
holder a new certificate therefor free of any transfer legend, if, with
such request, the Company shall have received an opinion of counsel
satisfactory to the Company in form and substance to the effect that any
transfer by such holder of the shares evidenced by such certificate shall
not violate the Securities Act and any applicable state securities laws.
9. Fractional Shares. No fractional shares will be issued in connection
with any exercise hereunder. Any fraction of a share resulting from any
calculation will be rounded to the nearest whole share.
10. Rights of Stockholders. Subject to Sections 4 and 5 hereof, no
Holder, as such, shall be entitled to vote or receive dividends or be
deemed the holder of the Shares or any other securities of the Company that
may at any time be issuable on the exercise hereof for any purpose, nor
shall anything contained herein be construed to confer upon the Holder, as
such, any of the rights of a stockholder of the Company or any right to
vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights
5
or otherwise until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become issuable, as
provided herein.
11. Expiration of Warrant. This Warrant shall expire and shall no longer
be exercisable as of 5:00 p.m., Eastern Time, on the Expiration Date.
12. Transferability
Subject to compliance with applicable federal and state securities
laws, the Holder may transfer to (i) Holder's subsidiary, affiliate or
parent entity; (ii) Holder's spouse or children or grandchildren (in each
case, natural or adopted), or the spouses of such children or
grandchildren, any trust established solely for Holder's benefit or the
benefit of Holder's spouse or children or grandchildren (in each case,
natural or adopted), or the spouses of such children or grandchildren, or
any corporation or partnership in which the direct and beneficial owner of
all of the equity interest is the Holder or Holder's spouse or children or
grandchildren (in each case, natural or adopted), or the spouses of such
children or grandchildren, or any trust for the benefit of such persons;
(iii) the heirs, executors, administrators, personal representatives or
distributees upon the death of Holder to whom Holder's rights and
obligations under the Warrant are transferred by will or the laws of
descent and distribution on account of death, or upon the incompetency or
disability of such Holder for purposes of the protection and management of
Holder's assets or (iv) any of the other Holders party to the Purchase
Agreement.
13. Miscellaneous.
13.1 This Warrant shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Massachusetts applicable to
agreements made and to be performed entirely within the Commonwealth of
Massachusetts, without regard to the conflicts of law principles thereof.
The Company and the Holder irrevocably consent to the jurisdiction of the
courts of the Commonwealth of Massachusetts or the federal courts located
in that state in connection with any lawsuit, action or proceeding arising
out of or relating to this Warrant.
13.2 The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof.
13.3 The terms of this Warrant shall be binding upon and shall inure
to the benefit of any successors or assigns of the Company and of the
Holder or holders hereof and of the Shares issued or issuable upon the
exercise hereof.
13.4 This Warrant and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof.
13.5 The Company shall not, by amendment of its Certificate or
bylaws, or through any other means, directly or indirectly, avoid or seek
to avoid the observance or performance of any of the terms of this Warrant
and shall at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against
impairment.
13.6 Upon 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, upon delivery of an indemnity
agreement reasonably satisfactory in form and amount to the Company or, in
the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Company, at its expense, shall execute and deliver to the
Holder, in lieu thereof, a new Warrant of like date and tenor.
6
13.7 This Warrant and any provision hereof may be amended, waived
or terminated only by an instrument in writing signed by the Company and
the Holder.
-Remainder of Page Intentionally Left Blank-
7
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
FARMSTEAD TELEPHONE GROUP, INC.
/s/ Xxxxxx X. XxXxxxx
------------------------------------
By: Xxxxxx X. XxXxxxx
Its: Executive Vice President, CFO
