EXHIBIT 4.2
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF
THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
VERSO TECHNOLOGIES, INC.
WARRANT
Warrant No. VW D-002A Dated: July 25, 2005
Verso Technologies, Inc., a Minnesota corporation (the "COMPANY"), hereby
certifies that, for value received, HEIMDALL INVESTMENTS, LTD. or its registered
assigns (the "HOLDER"), is entitled to purchase from the Company up to a total
of 1,500,000 shares of common stock, $0.01 par value per share (the "COMMON
STOCK"), of the Company (each such share, a "WARRANT SHARE" and all such shares,
the "WARRANT SHARES") at an exercise price equal to $0.50 per share (as adjusted
from time to time as provided in Section 9, the "EXERCISE PRICE"), at any time
and from time to time, from and after, November 22, 2005 and through and
including the Expiration Date. The "EXPIRATION DATE" shall be January 1, 2007,
unless all of the Debentures (as defined in the Amendment) are paid in full on
or before November 22, 2005 in which case the Expiration Date shall be November
22, 2005. This Warrant (this "WARRANT") is one of a series of similar warrants
issued pursuant to that certain Amendment to the 7.50% Convertible Debentures,
dated as of the date hereof, by and among the Company and the Holders identified
therein (the "AMENDMENT"). All such warrants are referred to herein,
collectively, as the "WARRANTS."
1. Definitions.
"BUSINESS DAY" means any day other than Saturday, Sunday or other
day on which commercial banks in The City of New York are authorized or
required by law to remain closed.
"CLOSING PRICE" means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common Stock is
then listed or quoted on an Eligible Market or any other national
securities exchange, the closing price per share of the Common Stock for
such date (or the nearest preceding date) on the primary Eligible Market
or exchange on which the Common Stock is then listed or quoted; (b) if
prices for
the Common Stock are then quoted on the OTC Bulletin Board, the closing
bid price per share of the Common Stock for such date (or the nearest
preceding date) so quoted; (c) if prices for the Common Stock are then
reported in the "Pink Sheets" published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent closing bid price per
share of the Common Stock so reported; or (d) in all other cases, the fair
market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by Purchasers holding a majority of the
Securities.
"COMMISSION" means the Securities and Exchange Commission.
"DTC" means the Depository Trust Corporation.
"EFFECTIVE DATE" means the date that the Registration Statement is
first declared effective by the Commission.
"ELIGIBLE MARKET" means any of the New York Stock Exchange, the
American Stock Exchange, the NASDAQ National Market or the NASDAQ SmallCap
Market.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"PERSON" shall have the meaning ascribed to it in the Registration
Rights Agreement.
"PROSPECTUS" shall have the meaning ascribed to it in the
Registration Rights Agreement.
"REGISTRATION RIGHTS AGREEMENT" the Registration Rights Agreement
dated as of the date hereof between the Company and the signatories
thereto.
"REGISTRATION STATEMENT" shall have the meaning ascribed to it in
the Registration Rights Agreement.
"RULE 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARY" means any Person in which the Company, directly or
indirectly, owns capital stock or holds an equity or similar interest.
"TRADING DAY" means (a) any day on which the Common Stock is listed
or quoted and traded on its primary Trading Market, (b) if the Common
Stock is not then listed or quoted and traded on any Eligible Market, then
a day on which trading occurs on the NASDAQ National Market (or any
successor thereto), or (c) if trading ceases to occur on the NASDAQ
National Market (or any successor thereto), any Business Day.
2
"TRADING MARKET" means the Nasdaq SmallCap Market or any other
Eligible Market, or any national securities exchange, market or trading or
quotation facility on which the Common Stock is then listed or quoted.
"TRANSACTION DOCUMENTS" means this Warrant, the Amendment, the
Registration Rights Agreement, the Debentures and any other document or
agreements executed in connection with the transactions contemplated
thereunder.
"TRANSFER AGENT" means American Stock Transfer & Trust Company.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
exercise of the Warrants and any New Warrant (as hereinafter defined).
In addition to the terms defined elsewhere in this Warrant, capitalized terms
that are not otherwise defined herein have the meanings given to such terms in
the other Transaction Documents.
2. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "WARRANT
REGISTER"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
3. Registration of Transfers. Subject to Section 11(a), the Company shall
register the transfer of any portion of this Warrant in the Warrant Register,
upon surrender of this Warrant, with the Form of Assignment attached hereto duly
completed and signed, to the Transfer Agent or to the Company at its address
specified herein. Upon any such registration or transfer, a new warrant to
purchase Common Stock, in substantially the form of this Warrant (any such new
warrant, a "NEW WARRANT"), evidencing the portion of this Warrant so transferred
shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance by such transferee of all of the rights and
obligations of a holder of a Warrant.
4. Exercise and Duration of Warrants.
(a) This Warrant shall be exercisable by the registered Holder at
any time and from time to time on or after November 22, 2005 to and including
the Expiration Date. At 6:30 P.M., New York City time on the Expiration Date,
the portion of this Warrant not exercised prior thereto shall be and become void
and of no value. Notwithstanding anything to the contrary herein, the Expiration
Date shall be extended for each day following November 22, 2005 that the
Registration Statement is not effective.
(b) From and after November 22, 2005, a Holder may exercise this
Warrant by delivering to the Company (i) an exercise notice, in the form
attached hereto (the "EXERCISE NOTICE"), appropriately completed and duly
signed, and (ii) payment of the Exercise Price for the number of Warrant Shares
as to which this Warrant is being exercised (which may take the form of a
"cashless exercise" if so indicated in the Exercise Notice and if a "cashless
exercise" may
3
occur at such time pursuant to Section 10 below), and the date such items are
delivered to the Company (as determined in accordance with the notice provisions
hereof) is an "EXERCISE DATE." The Holder shall not be required to deliver the
original Warrant in order to effect an exercise hereunder. Execution and
delivery of the Exercise Notice shall have the same effect as cancellation of
the original Warrant and issuance of a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares.
5. Delivery of Warrant Shares.
(a) Upon exercise of this Warrant, the Company shall promptly (but
in no event later than three Trading Days after the Exercise Date) issue or
cause to be issued and cause to be delivered to or upon the written order of the
Holder and in such name or names as the Holder may designate, a certificate for
the Warrant Shares issuable upon such exercise, free of restrictive legends
unless a registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder is not then effective and
the Warrant Shares are not freely transferable without volume restrictions
pursuant to Rule 144 under the Securities Act. The Holder, or any Person so
designated by the Holder to receive Warrant Shares, shall be deemed to have
become holder of record of such Warrant Shares as of the Exercise Date. If the
Holder requests in the Exercise Notice and if the Warrant Shares can be issued
free of restrictive legends pursuant to this section 5(a), then the Company
shall promptly (but in no event later than three Trading Days after the Exercise
Date) deliver the Warrant Shares hereunder electronically by crediting the
Holder's balance account with DTC or another established clearing corporation
performing similar functions.
(b) This Warrant is exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. Upon surrender of
this Warrant following one or more partial exercises, the Company shall issue or
cause to be issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares.
(c) In addition to any other rights available to a Holder, if the
Company fails to deliver to the Holder a certificate representing Warrant Shares
by the third Trading Day after the date on which delivery of such certificate is
required by this Warrant, and if after such third Trading Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares that the
Holder anticipated receiving from the Company, then the Company shall, within
three Trading Days after the Holder's request and in the Holder's discretion,
either (i) pay cash to the Holder in an amount equal to the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "BUY-IN PRICE"), at which point the Company's
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing
Price on the date of the event giving rise to the Company's obligation to
deliver such certificate.
(d) The Company's obligations to issue and deliver Warrant Shares in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or
4
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of
law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of Warrant Shares. Nothing herein shall
limit a Holder's right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company's failure to
timely deliver certificates representing shares of Common Stock upon exercise of
the Warrant as required pursuant to the terms hereof.
6. Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the registration of any
certificates for Warrant Shares or Warrants in a name other than that of the
Holder or an Affiliate thereof. The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this Warrant
or receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable bond or indemnity, if requested. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe.
8. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (after giving
effect to the adjustments and restrictions of Section 9, if any). The Company
covenants that all Warrant Shares so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable. The Company will take all such action as may be necessary to
assure that such shares of Common Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of any
securities exchange or automated quotation system upon which the Common Stock
may be listed.
9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.
5
(a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.
(b) Pro Rata Distributions. If the Company, at any time while this Warrant
is outstanding, distributes to holders of Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) any other asset (in each case, "DISTRIBUTED
PROPERTY"), then in each such case the Exercise Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution shall be adjusted (effective on such record date) to
equal the product of such Exercise Price times a fraction of which the
denominator shall be the average of the Closing Prices for the five Trading Days
immediately prior to (but not including) such record date and of which the
numerator shall be such average less the then fair market value of the
Distributed Property distributed in respect of one outstanding share of Common
Stock, as determined by the Company's independent certified public accountants
that regularly examine the financial statements of the Company, (an
"APPRAISER"). In such event, the Holder, after receipt of the determination by
the Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case such fair
market value shall be deemed to equal the average of the values determined by
each of the Appraiser and such appraiser. As an alternative to the foregoing
adjustment to the Exercise Price, at the request of the Holder delivered before
the 90th day after such record date, the Company will deliver to such Holder,
within five Trading Days after such request (or, if later, on the effective date
of such distribution), the Distributed Property that such Holder would have been
entitled to receive in respect of the Warrant Shares for which this Warrant
could have been exercised immediately prior to such record date. If such
Distributed Property is not delivered to a Holder pursuant to the preceding
sentence, then upon expiration of or any exercise of the Warrant that occurs
after such record date, such Holder shall remain entitled to receive, in
addition to the Warrant Shares otherwise issuable upon such exercise (if
applicable), such Distributed Property.
(c) Fundamental Transactions. If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or
6
property (other than as a result of a subdivision or combination of shares of
Common Stock covered by Section 9(a) above) (in any such case, a "FUNDAMENTAL
TRANSACTION"), then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant, the same amount and kind of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of the number of Warrant Shares then issuable upon
exercise in full of this Warrant (the "ALTERNATE CONSIDERATION"). The aggregate
Exercise Price for this Warrant will not be affected by any such Fundamental
Transaction, but the Company shall apportion such aggregate Exercise Price among
the Alternate Consideration in a reasonable manner reflecting the relative value
of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. At the Holder's request, any successor
to the Company or surviving entity in such Fundamental Transaction shall issue
to the Holder a new warrant consistent with the foregoing provisions and
evidencing the Holder's right to purchase the Alternate Consideration for the
aggregate Exercise Price upon exercise thereof. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this paragraph (c) and insuring that the Warrant (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction. In the event of a Fundamental Transaction where
either (i) the surviving entity in such Fundamental Transaction does not have a
class of equity security registered pursuant to Section 12 of the Exchange Act,
or (ii) such equity security does not trade on an Eligible Market, then, at the
request of the Holder, the Company shall repurchase this Warrant for an amount
equal to the value of this Warrant calculated pursuant to the Black-Scholes
pricing model.
(d) Subsequent Equity Sales.
(i) If, at any time while this Warrant is outstanding, the
Company or any Subsidiary issues additional shares of Common Stock or
rights, warrants, options or other securities or debt convertible,
exercisable or exchangeable for shares of Common Stock or otherwise
entitling any Person to acquire shares of Common Stock (collectively,
"COMMON STOCK EQUIVALENTS") at an effective net price to the Company per
share of Common Stock (the "EFFECTIVE PRICE") less than the Exercise Price
(as adjusted hereunder to such date), then the Exercise Price shall be
reduced to equal the product of (A) the Exercise Price in effect
immediately prior to such issuance of Common Stock or Common Stock
Equivalents times (B) a fraction, the numerator of which is the sum of (1)
the number of shares of Common Stock outstanding immediately prior to such
issuance, plus (2) the number of shares of Common Stock which the
aggregate Effective Price of the Common Stock issued (or deemed to be
issued) would purchase at the Exercise Price, and the denominator of which
is the aggregate number of shares of Common Stock outstanding or deemed to
be outstanding immediately after such issuance. For purposes of this
paragraph, in connection with any issuance of any Common Stock
Equivalents, (I) the maximum number of shares of Common Stock potentially
issuable at any time upon conversion, exercise or exchange of such Common
Stock Equivalents (the "DEEMED NUMBER") shall be deemed to be outstanding
upon issuance of such Common
7
Stock Equivalents, (II) the Effective Price applicable to such Common
Stock shall equal the minimum dollar value of consideration payable to the
Company to purchase such Common Stock Equivalents and to convert, exercise
or exchange them into Common Stock (net of any discounts, fees,
commissions and other expenses), divided by the Deemed Number, and (III)
no further adjustment shall be made to the Exercise Price upon the actual
issuance of Common Stock upon conversion, exercise or exchange of such
Common Stock Equivalents.
(ii) If, at any time while this Warrant is outstanding, the
Company or any Subsidiary issues Common Stock Equivalents with an
Effective Price or a number of underlying shares that floats or resets or
otherwise varies or is subject to adjustment based (directly or
indirectly) on market prices of the Common Stock (a "FLOATING PRICE
SECURITY"), then for purposes of applying the preceding paragraph in
connection with any subsequent exercise, the Effective Price will be
determined separately on each Exercise Date and will be deemed to equal
the lowest Effective Price at which any holder of such Floating Price
Security is entitled to acquire Common Stock on such Exercise Date
(regardless of whether any such holder actually acquires any shares on
such date).
(iii) Notwithstanding the foregoing, no adjustment will be
made under this paragraph (d) in respect of: (A) any issuances of
securities by the Company as consideration in a merger, consolidation or
acquisition of assets, or in connection with any strategic partnership or
joint venture (the primary purpose of which is not to raise equity
capital), or as consideration for the acquisition of a business, product
or license by the Company; (ii) any issuance of securities by the Company
upon the exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof; or (iii)
any grant of options or warrants, or any issuance of additional
securities, by the Company under any duly authorized Company stock option,
restricted stock plan or stock purchase plan for the benefit of the
Company's employees, officers, directors or consultants.
(e) Number of Warrant Shares. Simultaneously with any adjustment to
the Exercise Price pursuant to paragraphs (a) or (b) of this Section, the number
of Warrant Shares that may be purchased upon exercise of this Warrant shall be
increased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased number of Warrant Shares shall be the
same as the aggregate Exercise Price in effect immediately prior to such
adjustment.
(f) Calculations. All calculations under this Section 9 shall be
made to the nearest cent or the nearest 1/100th of a share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.
(g) Notice of Adjustments. Upon the occurrence of each adjustment
pursuant to this Section 9, the Company at its expense will promptly compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Warrant
8
Shares or other securities issuable upon exercise of this Warrant (as
applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based. Upon written
request, the Company will promptly deliver a copy of each such certificate to
the Holder and to the Company's Transfer Agent.
(h) Notice of Corporate Events. If the Company (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then the Company shall deliver to the Holder a notice describing
the material terms and conditions of such transaction, at least 20 calendar days
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds; provided, however, that if at any time after the
applicable holding period requirement of Rule 144 has been satisfied, there is
not an effective registration statement covering the resale of the Warrant
Shares, then the Holder may satisfy its obligation to pay the Exercise Price
through a "cashless exercise," in which event the Company shall issue to the
Holder the number of Warrant Shares determined as follows:
X = Y [(A-B)/A]
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the Closing Prices for the five Trading
Days immediately prior to (but not including) the Exercise
Date.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Amendment.
9
11. Transfer Restrictions.
(a) This Warrant, any New Warrant and the Underlying Shares
(collectively, the "SECURITIES") may only be disposed of pursuant to an
effective registration statement under the Securities Act, or pursuant to an
available exemption from or in a transaction not subject to the registration
requirements of the Securities Act, and in compliance with any applicable
federal and state securities laws. The Company, hereby consents to and agrees to
register on the books of the Company and with the Transfer Agent for the
securities of the Company any transfer of Securities by a Holder to an Affiliate
(as such term is defined in Rule 501(a) under the Securities Act) of such
Holder, and any transfer among any such Affiliates, provided that the transferee
certifies to the Company that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act and that it is acquiring the Securities solely
for investment purposes (subject to the qualifications hereof).
(b) Each Holder agrees to the imprinting, so long as is required by
Section 10(c), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
(c) Underlying Shares shall not contain the legend set forth above
nor any other legend if, in the opinion of counsel to the Company, such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission) or (ii) the holding period set forth in Rule 144(k) of the
Securities Act shall have expired.
12. Call Right. Subject to the provisions of this Section 12, if the
Closing Prices for any 10 consecutive Trading Days exceeds $0.65 (the "THRESHOLD
PRICE"), then the Company will have the right, but not obligation (the "CALL
RIGHT"), to redeem any unexercised portion of this Warrant for which an Exercise
Notice has not yet been delivered (the "CALL AMOUNT") for $0.001 per share (the
"CALL PRICE PER SHARE"). To exercise this Call Right, the Company shall deliver
to the Holder (a) an irrevocable written notice (a "CALL NOTICE"), indicating
the Call Amount and (b) an amount in cash equal to the product from multiplying
the Call Amount by the Call Price Per Share.
(a) Any portion of the Call Amount that is not exercised by 6:30
p.m. (New York City time) on the 10th Trading Day following the date of receipt
of a bona fide Call Notice
10
(the "REDEMPTION DATE") shall be cancelled. Any unexercised portion of this
Warrant to which the Call Notice does not pertain will be unaffected by such
Call Notice. The Company covenants and agrees that it will honor any Exercise
Notice with respect to the Call Amount that are tendered from the date of
receipt by the Holder of the Call Notice through and including 6:30 p.m. (New
York City time) on the Redemption Date.
(b) Notwithstanding anything to the contrary set forth in this
Warrant, the Company may not require the cancellation of any unexercised Call
Amount (and any Call Notice will be void), unless from the beginning of the 10
consecutive Trading Days used to determine whether the Common Stock has achieved
the Threshold Price through the date on which the Company delivers the Call
Notice to the Holder (the "CALL PERIOD"): (i) the Closing Prices for each
Trading Day during such Call Period exceeds the Threshold Price, (ii) the
Company shall have honored in accordance with the terms of this Warrant any
Exercise Notice delivered by 6:30 p.m. (New York City time) on the Redemption
Date, and (iii) the Registration Statement shall be effective as to all Warrant
Shares and the Prospectus thereunder available for use by the Holder for the
resale all such Warrant Shares.
13. Limitation on Exercise.
(a) Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by the Holder upon any
exercise of this Warrant (or otherwise in respect hereof) shall be limited to
the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned by
such Holder and its Affiliates and any other Persons whose beneficial ownership
of Common Stock would be aggregated with the Holder's for purposes of Section
13(d) of the Exchange Act, does not exceed 4.99% (the "MAXIMUM PERCENTAGE") of
the total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
Company's obligation to issue shares in excess of the foregoing limitation shall
be suspended until such time, if any, as such shares of Common Stock may be
issued in compliance with such limitation. Additionally, by written notice to
the Company, the Holder may waive the provisions of this Section 13(a) or
increase or decrease the Maximum Percentage to any other percentage specified in
such notice, but (i) any such waiver or increase will not be effective until the
61st day after such notice is delivered to the Company, and (ii) any such waiver
or increase or decrease will apply only to the Holder and not to any other
holder of Warrants.
(b) Notwithstanding anything to the contrary contained herein, the
maximum number of shares of Common Stock that the Company may issue pursuant to
the Transaction Documents at an effective purchase price less than the Closing
Price on the Trading Day immediately preceding the Closing Date shall equal
19.99% of the shares of Common Stock outstanding on the Closing Date (the
"ISSUABLE MAXIMUM"), unless the Company obtains the necessary stockholder
approvals required by the rules and regulations of the Trading Market. If, at
the time any Holder requests an exercise of any of the Warrants, the Actual
Minimum (excluding any shares issued or issuable at an effective purchase price
in excess of the Closing Price on the Trading Day immediately preceding the
Closing Date) exceeds the Issuable
11
Maximum (and if the Company has not previously obtained the required stockholder
approval), then the Company shall issue to the Holder requesting such exercise a
number of shares of Common Stock not exceeding such Holder's pro-rata portion of
the Issuable Maximum (based on such Holder's share (vis-a-vis other Holders) of
the aggregate face value of the Debentures and taking into account any Warrant
Shares previously issued to such Holder). For the purposes hereof, "ACTUAL
MINIMUM" shall mean, as of any date, the maximum aggregate number of shares of
Common Stock then issued or potentially issuable in the future pursuant to the
Transaction Documents, including any Underlying Shares issuable upon exercise in
full of all Warrants, without giving effect to any limits on the number of
shares of Common Stock that may be owned by a Holder at any one time.
14. Use of Proceeds. The Company shall use the net proceeds from the
exercise of this Warrant solely for its payment obligations under the
Debentures, so that 50% of such net proceeds are allocated towards the next
payment under the Debentures and that the other 50% of such net proceeds are
allocated towards the final payment under the Debentures.
15. Fractional Shares. The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this Warrant. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded up to the nearest whole share.
16. Notices. Any and all notices or other communications or deliveries
hereunder (including without limitation any Exercise Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given.
17. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new
warrant agent. Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or stockholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
18. Miscellaneous.
(a) Subject to the restrictions on transfer set forth on the first
page hereof, this Warrant may be assigned by the Holder. This Warrant may not be
assigned by the Company except to a successor in the event of a Fundamental
Transaction. This Warrant shall be binding
12
on and inure to the benefit of the parties hereto and their respective
successors and assigns. Subject to the preceding sentence, nothing in this
Warrant shall be construed to give to any Person other than the Company and the
Holder any legal or equitable right, remedy or cause of action under this
Warrant. This Warrant may be amended only in writing signed by the Company and
the Holder and their successors and assigns.
(b) The Company will not, by amendment of its governing documents or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will 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. Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any Warrant Shares above the amount payable therefor on such exercise, (ii) will
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its stockholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
(C) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF
NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES
TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD
AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
(d) The headings herein are for convenience only, do not constitute
a part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Warrant shall not in any way be
affected or impaired thereby and the parties will attempt in good faith to agree
upon a valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
13
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS]
14
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
VERSO TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxxxxx
------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: EVP & CFO
15
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To: VERSO TECHNOLOGIES, INC.
The undersigned is the Holder of Warrant No. _______ (the "WARRANT") issued by
Verso Technologies, Inc., a Minnesota corporation (the "COMPANY"). Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.
1. The Warrant is currently exercisable to purchase a total of ______________
Warrant Shares.
2. The undersigned Holder hereby exercises its right to purchase ____________
Warrant Shares pursuant to the Warrant.
3. The Holder hereby represents and warrants to the Company that it is an
"accredited investor" as defined under Rule 501(a) promulgated under the
Securities Act of 1933, as amended.
4. The Holder intends that payment of the Exercise Price shall be made as
(check one):
____ "Cash Exercise" under Section 10
____ "Cashless Exercise" under Section 10
5. If the holder has elected a Cash Exercise, the holder shall pay the sum of
$____________ to the Company in accordance with the terms of the Warrant.
6. Pursuant to this exercise, the Company shall deliver to the Holder
_______________ Warrant Shares in accordance with the terms of the
Warrant, [which delivery shall be made electronically by crediting the
following balance account ______________ with DTC through its Deposit
Withdrawal Agent Commission System].
7. Following this exercise, the Warrant shall be exercisable to purchase a
total of ______________ Warrant Shares.
Dated:__________________ , ______ Name of Xxxxxx:
(Print)________________________
By:____________________________
Name:__________________________
Title:_________________________
(Signature must conform in all respects
to name of Xxxxxx as specified on the
face of the Warrant)
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Verso Technologies,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of Verso Technologies, Inc. with full power
of substitution in the premises.
Dated:__________________ , ________
___________________________________
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant)
_________________________________
Address of Transferee
_________________________________
_________________________________
In the presence of:
______________________
