Exhibit 4.2
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"),
AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL
BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON THE LAST DAY OF THE
EXERCISE PERIOD, AS DEFINED BELOW
5,100,000 SHARES OF COMMON STOCK ISSUANCE DATE: SEPTEMBER 22, 2004
CONVERSION SERVICES INTERNATIONAL, INC.
COMMON STOCK PURCHASE WARRANT
This is to certify that, FOR VALUE RECEIVED, SANDS BROTHERS VENTURE
CAPITAL III LLC ("HOLDER"), is entitled to purchase from Conversion Services
International, Inc., a Delaware corporation (the "COMPANY"), subject to the
provisions of this Common Stock Purchase Warrant (this "WARRANT"), at the
Initial Exercise Price (as defined below), subject to adjustment as provided in
this Warrant, FIVE MILLION ONE HUNDRED THOUSAND (5,100,000) shares of the
Company's common stock, $.001 par value per share (the "COMMON STOCK").
1. ISSUANCE OF WARRANT; CERTAIN DEFINED TERMS. This Warrant is being
issued in connection with a loan being made as of the date hereof by the Holder
to the Company. As used herein, the following capitalized terms have the
meanings set forth below:
"EXERCISE PERIOD" shall mean the period: (i) commencing on the earlier
to occur of: (A) the date of the closing of the first Qualified Financing (as
defined below) occurring after the date hereof or (B) September 7, 2005 and (ii)
ending at 5:00 p.m. (New York City time) on the earlier to occur of: (A) the
three (3) year anniversary of the closing of such Qualified Financing or (ii)
September 7, 2008.
"EXERCISE PRICE "shall mean the exercise price for the purchase of a
share of Common Stock pursuant to this Warrant in effect at any time and as
adjusted from time to time in accordance with the terms hereof. If this Warrant
is still outstanding, the Exercise Price shall be increased by 10% (but no more
than cumulatively 30%) for every $10 million of Gross Sales (as defined below)
above $60 million for the fiscal year ending December 31, 2005 and $100 million
for fiscal year ending December 31, 2006. In addition, the exercise price shall
be decreased by 20% (but no more than cumulatively 60%) for every $10 million of
Gross Sales below $60 million for the fiscal year ending December 31, 2005 and
$100 million for fiscal year ending December 31, 2006.
"GROSS SALES" shall be defined as the Company's total sales as reported
in its Annual Report on Form 10-KSB or Form 10-K, as the case may be.
"INITIAL EXERCISE PRICE" shall mean a price equal to forty percent
(40%) of the price per share of Common Stock received by the Company in
connection with the first Qualified Financing (as defined below) occurring after
the date hereof. Notwithstanding the foregoing, in the event that the Company
does not consummate a Qualified Financing on or before September 7, 2005, the
Initial Exercise Price commencing after September 7, 2005 shall be adjusted to
$0.14 per share (which Exercise Price, however, shall be subject to immediate or
subsequent adjustment, as the case may be, as provided for in the definition of
"Exercise Price" contained herein and as provided for in Section 8 hereof).
"QUALIFIED FINANCING" means any single convertible debt or equity
financing of the Company which raises $5 million or greater in gross proceeds to
the Company.
"WARRANT SHARES" shall mean the shares of Common Stock issuable upon
the valid exercise of this Warrant.
2. EXERCISE OF WARRANT.
(a) This Warrant may be exercised, in whole or in part, at any
time during (but not following) the Exercise Period, by presentation and
surrender of this Warrant to the Company at its principal office, with the
Purchase Form annexed hereto duly executed and accompanied by payment of an
aggregate price in cash (except as provided for in Section 2(b) hereof) equal to
the Exercise Price multiplied by the number of shares of Common Stock to be
purchased. Upon receipt by the Company of this Warrant at its office in proper
form for exercise and accompanied by payment as herein provided, the Company
shall promptly issue and cause to be delivered to the Holder a certificate,
issued in the name of the Holder, for the full number of Warrant Shares so
purchased. Upon proper exercise of this Warrant, the Holder shall be deemed to
be the holder of record of the Warrant Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares shall not then be actually
delivered to the Holder. All taxes, if any, applicable to such exercise shall be
paid by the Holder upon exercise.
(b) The aggregate Exercise Price may also be paid in full or
in part at the election of the Holder on a cashless basis: (i) in the form of
Common Stock owned by the Holder (based on the Fair Market Value (as defined
below) of such Common Stock on the date of exercise) or (ii) in the form of
Warrant Shares withheld by the Company from the Warrant Shares otherwise to be
received upon exercise of this Warrant having an aggregate Fair Market Value on
the date of exercise equal to the aggregate Exercise Price of the Warrant. For
purposes of this Warrant, the term "FAIR MARKET VALUE" means the average closing
price of the publicly-traded shares of Common Stock for the five (5) trading
days immediately preceding the applicable exercise date on the principal
securities exchange or market on which shares of Common Stock are listed or
quoted, if the shares of Common Stock are so listed or quoted or, if not so
listed or quoted, as determined by the Company in good faith and in a reasonable
manner, based on the information available to it.
3. REDEMPTION. This Warrant may be called for redemption by the Company
in the event that: (i) (A) Gross Sales exceed $60,000,000 for the fiscal year
ended December 31, 2005 or (B) Gross Sales exceed $100,000,000 for the fiscal
year ended December 31, 2006 and (ii) the closing price of the Common Stock is,
for five (5) consecutive trading days following the public reporting of such
Gross Sales numbers, at or above two hundred percent (200%) of the then current
Exercise Price. In order to effectively exercise its redemption right, the
Company shall, within fifteen (15) business days following the satisfaction of
the conditions set forth in this Section 3, provide the Holder with thirty (30)
days written notice of such exercise (the thirtieth (30th) day following such
written notice being referred to herein as the "REDEMPTION DATE"). In the event
that the Holder does not exercise this Warrant in full prior to the Redemption
Date, the unexercised portion, if any, of this Warrant will be redeemed by the
Company, without any further action required (other than payment by check or
wire transfer) of the Company or the Holder, at a price of $0.01.
4. RESERVATION OF SHARES. The Company hereby covenants and agrees that,
at all times during the period this Warrant is outstanding, it will reserve for
issuance and delivery upon exercise of this Warrant such number of shares of its
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Common Stock as shall be required for issuance and delivery upon exercise of
this Warrant. If it becomes necessary at any time to increase the number of
reserved shares for issuance hereunder, the Board of Directors of the Company
shall promptly increase the number of authorized and/or reserved shares to a
number sufficient to provide for the number of shares that may be at that time
issuable to the Holder as described above. If it is necessary to increase the
number of authorized shares for issuance hereunder, the Board of Directors will
use its best efforts to obtain any required approval of this increase by the
shareholders.
5. FRACTIONAL SHARES. No fractional shares or stock representing
fractional shares shall be issued upon the exercise of this Warrant. All
fractional shares issuable upon the exercise of this Warrant shall be rounded to
the nearest whole Warrant Share.
6. TRANSFER, EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT.
(a) This Warrant and the Warrant Shares may be assigned or
transferred only to an affiliate of the Holder, and provided that such
assignment or transfer is conducted in compliance with the Securities Act of
1933, as amended. Any purported transfer or assignment made other than in
accordance with this Paragraph 6(a) shall be null and void ab initio and of no
force and effect.
(b) Any assignment permitted hereunder may be in whole or in
part and shall be made by surrender of this Warrant to the Company at its
principal office with the Assignment Form annexed hereto duly executed, together
with funds sufficient to pay any transfer tax. In such event the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee
named in such Assignment Form and this Warrant shall promptly be cancelled (and
a new Warrant issued to the Holder if the assignment is in part).
(c) Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction, or mutilation of this Warrant, and, in the case
of loss, theft, or destruction, upon reasonably satisfactory indemnification,
and, in the case of mutilation, upon surrender and cancellation of this Warrant,
the Company will execute and deliver a new Warrant of like tenor and date, and
any such lost, stolen, destroyed, or mutilated Warrant shall thereupon become
void. Any such new Warrant executed and delivered shall constitute an additional
contractual obligation on the part of the Company, whether or not the Warrant
that was so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
7. RIGHTS OF THE HOLDER. The Holder shall not, by virtue of ownership
of this Warrant, be entitled to any rights as a stockholder of the Company,
either at law or equity, and the rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against the Company except to
the extent set forth herein.
8. CERTAIN ADJUSTMENTS. The Exercise Price and the number of Warrant
Shares issuable upon the exercise of the Warrant shall be subject to adjustment
from time-to-time as follows:
(a) Recapitalization. In the event the Company should at any
time or from time to time while this Warrant remains in force, effect a
recapitalization of such character that the number of Common Shares outstanding
is increased or decreased by stock split, reverse stock split, or other
modification of the capital structure of the Company, then thereafter the number
of Warrant Shares which the Holder of this Warrant shall be entitled to purchase
hereunder shall be increased or decreased, as the case may be, in direct
proportion to the increase or decrease in the number of Common Shares by reason
of such recapitalization, and the Exercise Price per share hereunder shall in
the case of an increase in the number of shares be proportionally reduced and in
the case of a decrease in the number of shares be proportionally increased.
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(b) Merger, Consolidation, etc. In case of: (i) any
consolidation or merger of the Company with or into a company, where the Company
is not the surviving entity, or (ii) the conveyance of all or substantially all
of the assets of the Company to another company, this Warrant shall thereafter
be exercisable into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Company issuable upon exercise of the Warrant would have been entitled upon such
consolidation, merger or conveyance; and, in any such case, appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights and
interest thereafter of the Holder of the Warrant to the end that the provisions
set forth herein (including provisions with respect to changes in and other
adjustments of the Exercise Price) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the exercise of this Warrant.
(c) Certain Adjustments to Exercise Price. If at any time the
Company shall issue or sell any shares of Common Stock (other than in connection
with Permitted Issuances (as defined below)) in exchange for consideration in an
amount per share of Common Stock less than the then current Exercise Price, then
the Exercise Price shall be adjusted so that it shall equal the price determined
by multiplying the Exercise Price in effect immediately prior to such event by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding on the date of issuance plus the number of additional shares of
Common Stock which the aggregate offering price would purchase based upon the
Exercise Price, and the denominator of which shall be the number of shares of
Common Stock outstanding on the date of issuance plus the number of additional
shares of Common Stock issued or issuable in such offering. As used herein, the
term "PERMITTED ISSUANCES" shall mean: (i) Common Stock issued pursuant to
Section 8(a) or (b) hereof, (ii) Common Stock issuable or issued to employees,
consultants or directors of the Company directly or pursuant to a stock plan or
other compensation arrangement approved by the Board of Directors of the
Company, (iii) capital stock, debt instruments convertible into capital stock or
options or warrants to purchase capital stock, issued to financial institutions,
investors or lessors in connection with commercial credit arrangements,
equipment financings or similar transactions, provided that the terms of such
transaction or transactions are approved by the Board of Directors of the
Company, and (iv) capital stock, debt instruments convertible into capital stock
or warrants or options to purchase capital stock issued in connection with bona
fide acquisitions, mergers, technology licenses or purchases, corporate
partnering agreements, joint ventures or similar transactions, the terms of
which are approved by the Board of Directors of the Company.
(d) Adjustment in Number of Securities. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Section 8, the number
of shares of Common Stock issuable upon the exercise of this Warrant shall be
adjusted to the nearest full amount by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock issuable upon exercise of this Warrant immediately prior
to such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
(e) Certain Notices. Upon any adjustment of the Exercise Price
as provided for in Sections 8(a), (b) or (c) hereof, in each such case the
Company shall promptly deliver a notice to the Holder, which notice shall state
the Exercise Price resulting from such adjustment and the increase or decrease,
if any, in the number of shares Common Stock receivable at such price upon the
conversion hereof, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
9. NO IMPAIRMENT. The Company will not, by amendment of its certificate
of incorporation or through any reorganization, recapitalization, 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 to be observed or performed hereunder by the Company, but will
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at all times in good faith assist in the carrying out of all the provisions of
this Warrant and in the taking of all such action as may be necessary or
appropriate in order to protect the exercise rights of the Holder of the Warrant
against impairment.
10. REPLACEMENT OF WARRANT. 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 of this
Warrant, upon delivery of indemnity by the Holder reasonably satisfactory to the
Company in form and amount or, in the case of any mutilation, upon surrender of
this Warrant for cancellation at the office of the Company, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor
and dated the date hereof.
11. NOTICES. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or mailed by registered or certified mail, postage
prepaid, or by overnight courier (prepaid) or if delivered by facsimile
transmission, to the Company at the address or facsimile number set forth in the
Company's SEC filings or to the Holder at the addresses or facsimiles number set
forth in the records of the Company. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall be deemed to have
been given (a) upon personal delivery, if delivered by hand, (b) three days
after the date of deposit in the mails, postage prepaid, or (c) the next
business day if sent by facsimile transmission (if receipt is electronically
confirmed) or by a prepaid overnight courier service.
12. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
conflicts of laws principals thereof.
13. AMENDMENTS; WAIVERS; HEADINGS. 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. The headings in this Warrant are for convenience of
reference only and are not part of this Warrant.
IN WITNESS WHEREOF, the Company has executed this Warrant as of this
22nd day of September, 2004.
CONVERSION SERVICES INTERNATIONAL, INC.
/s/ Xxxxx Xxxxxx
By: _______________________________
Name: Xxxxx Xxxxxx
Title: President and Chief Executive Officer
[Exhibits Follow]
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Exhibit A
WARRANT
PURCHASE FORM
(to be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right
represented by this Warrant to purchase ______________________________ shares of
the common stock, par value $.001 per share (the "COMMON STOCK") of Conversion
Services International, Inc.
Check as applicable:
[ ] The undersigned herewith tenders payment for such Common Stock in
the amount of $_______________.
[ ] The undersigned hereby tenders payments for such Common Stock on a
cashless basis in accordance with Section 2(b) of the attached Warrant via 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)
The undersigned requests that a certificate for such Common Stock be
registered in the name of _______________________, whose address is
_____________________________________________.
If such number of shares of Common Stock is less than all of the Common
Stock purchasable pursuant to the Warrant, the undersigned requests that a new
Warrant representing the remaining shares of Common Stock purchasable thereunder
be issued in the name of ______________________________, and that such new
Warrant be delivered to ________________________________________________, whose
address is ____________________________________________________ .
Date:_________________ Signature: _____________________________________
(signature must conform in all
respects to name of Holder as
specified on the face of the Warrant.)
Exhibit B
WARRANT
ASSIGNMENT FORM
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant with respect to _______________________ shares of common stock, par
value $.001 per share, of Conversion Services International, Inc. unto:
Name of Assignee Address No. of Common Shares
---------------- -------------------------- --------------------
The undersigned does also hereby irrevocably constitute and appoint
____________________ as attorney, to transfer the same on the books of the
Company with full power of substitution in the premises.
DATED this ______ day of __________________, _____.
By:
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