EXHIBIT 10.20
[FORM OF WARRANT]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, (B) AN OPINION OF
COUNSEL, REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (C) REASONABLE ASSURANCE HAVING BEEN PROVIDED TO THE COMPANY
THAT SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER IS BEING MADE PURSUANT TO RULE 144
OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
VERILINK CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Warrant No.:___________
Number of Shares of Common Stock:_____________
Date of Issuance: March 21, 2005 ("ISSUANCE DATE")
Verilink Corporation, a Delaware corporation (the "COMPANY"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, [BUYERS], the registered holder hereof or its
permitted assigns (the "HOLDER"), is entitled, subject to the terms set forth
below, to purchase from the Company, at the Exercise Price (as defined below)
then in effect, upon surrender of this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in exchange, transfer or
replacement hereof, the "WARRANT"), at any time or times on or after September
21, 2005 but not after 11:59 p.m., New York Time, on the Expiration Date (as
defined below), ______________ (_____________)(1) fully paid nonassessable
shares of Common Stock (as defined below) (the "WARRANT SHARES"). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 15. This Warrant is one of the Warrants to
Purchase Common Stock (the "SPA WARRANTS") issued pursuant to Section 1 of that
certain Securities Purchase Agreement, dated as of March 20, 2005 (the
"SUBSCRIPTION DATE"), by and among the Company and the investors (the "BUYERS")
referred to therein (the "SECURITIES PURCHASE AGREEMENT").
- -----------------------
(1) Insert number of shares equal to (x) 25% of the principal amount of Initial
Notes issued to the Holder pursuant to the Securities Purchase Agreement divided
by (y) $3.01.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions
hereof (including, without limitation, the limitations set forth in Section
1(f)), this Warrant may be exercised by the Holder on any day on or after
September 21, 2005 in whole or in part, by (i) delivery of a written notice, in
the form attached hereto as Exhibit A (the "EXERCISE NOTICE"), of the Holder's
election to exercise this Warrant, (ii) (A) payment to the Company of an amount
equal to the applicable Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (the "AGGREGATE EXERCISE
PRICE") in cash or wire transfer of immediately available funds or (B) by
notifying the Company that this Warrant is being exercised pursuant to a
Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required
to deliver the original Warrant in order to effect the exercise hereunder.
Execution and delivery of the Exercise Notice with respect to less than all of
the Warrant Shares 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. On or before the first Business Day
following the date on which the Company has received each of the Exercise Notice
and the Aggregate Exercise Price (or notice of a Cashless Exercise) (the
"EXERCISE DELIVERY DOCUMENTS"), the Company shall transmit by facsimile an
acknowledgment of confirmation of receipt of the Exercise Delivery Documents to
the Holder and the Company's transfer agent (the "TRANSFER AGENT"). On or before
the third Business Day following the date on which the Company has received all
of the Exercise Delivery Documents (the "SHARE DELIVERY DATE"), the Company
shall (X) provided that the Transfer Agent is participating in The Depository
Trust Company ("DTC") Fast Automated Securities Transfer Program and such action
is not prohibited by applicable law or regulation or any applicable policy of
DTC, upon the request of the Holder, credit such aggregate number of shares of
Common Stock to which the Holder is entitled pursuant to such exercise to the
Holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system, or (Y) if the foregoing shall not apply,
issue and dispatch by overnight courier to the address as specified in the
Exercise Notice, a certificate, registered in the Company's share register in
the name of the Holder or its designee, for the number of shares of Common Stock
to which the Holder is entitled pursuant to such exercise. Upon delivery of the
Exercise Delivery Documents, the Holder shall be deemed for all corporate
purposes to have become the holder of record of the Warrant Shares with respect
to which this Warrant has been exercised, irrespective of the date of delivery
of the certificates evidencing such Warrant Shares. If this Warrant is delivered
to the Company in connection with any exercise pursuant to this Section 1(a) and
the number of Warrant Shares represented by this Warrant submitted for exercise
is greater than the number of Warrant Shares being acquired upon an exercise,
then the Company shall as soon as practicable and in no event later than five
Business Days after the Share Delivery Date and at its own expense, issue a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
number of Warrant Shares purchasable immediately prior to such exercise under
this Warrant, less the number of Warrant Shares with respect to which this
Warrant is exercised. No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock to
be issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant; provided that the Company shall
not be required to pay any tax that may be payable in respect of any issuance
and delivery of Warrant Shares to any Person other than the Holder or with
respect to any income tax due by the Holder with respect to such Warrant Shares.
-2-
(b) Exercise Price. For purposes of this Warrant, "EXERCISE
PRICE" means $3.41, subject to adjustment as provided herein.
(c) Company's Failure to Timely Deliver Securities. If the
Company shall fail for any reason or for no reason to issue to the Holder on or
before the Share Delivery Date, a certificate for the number of shares of Common
Stock to which the Holder is entitled and register such shares of Common Stock
on the Company's share register or to credit the Holder's balance account with
DTC for such number of shares of Common Stock to which the Holder is entitled
upon the Holder's exercise of this Warrant, then, in addition to all other
remedies available to the Holder, the Company shall pay in cash to the Holder on
each day after such Share Delivery Date that the issuance of such shares of
Common Stock is not timely effected an amount equal to 2.0% of the product of
(A) the sum of the number of shares of Common Stock not issued to the Holder on
a timely basis and to which the Holder is entitled and (B) the Closing Sale
Price of the shares of Common Stock on the trading day immediately preceding the
last possible date which the Company could have issued such shares of Common
Stock to the Holder without violating Section 1(a). In addition to the
foregoing, if on or before the Share Delivery Date the Company shall fail to
issue and deliver a certificate to the Holder and register such shares of Common
Stock on the Company's share register or credit the Holder's balance account
with DTC for the number of shares of Common Stock to which the Holder is
entitled upon such holder's exercise hereunder, and if on or after such Share
Delivery Date 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
shares of Common Stock issuable upon such exercise that the Holder anticipated
receiving from the Company (a "BUY-IN"), then the Company shall, within three
Business 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 shares of Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of 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 Bid Price on the date of exercise.
(d) Cashless Exercise. Notwithstanding anything contained
herein to the contrary, if a Registration Statement (as defined in the
Registration Rights Agreement) covering the Warrant Shares that are the subject
of the Exercise Notice (the "UNAVAILABLE WARRANT SHARES") is not available for
the resale of such Unavailable Warrant Shares, the Holder may, in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making the
cash payment otherwise contemplated to be made to the Company upon such exercise
in payment of the Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined according to the
following formula (a "CASHLESS EXERCISE"):
Net Number = (A x B) - (A x C)
-----------------
B
-3-
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is
then being exercised.
B= the Closing Sale Price of the shares of Common Stock (as reported
by Bloomberg) on the date immediately preceding the date of the
Exercise Notice.
C= the Exercise Price then in effect for the applicable Warrant
Shares at the time of such exercise.
(e) Disputes. In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed and resolve such dispute in accordance with Section 12.
(f) Limitations on Exercises.
(i) Beneficial Ownership. Other than in connection with
a Fundamental Transaction pursuant to Section 4(a), the
Company shall not effect the exercise of this Warrant,
and the Holder shall not have the right to exercise this
Warrant, to the extent that after giving effect to such
exercise, such Person (together with such Person's
affiliates) would beneficially own in excess of 4.99%
(the "MAXIMUM PERCENTAGE") of the shares of Common Stock
outstanding immediately after giving effect to such
exercise. For purposes of the foregoing sentence, the
aggregate number of shares of Common Stock beneficially
owned by such Person and its affiliates shall include
the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall
exclude shares of Common Stock which would be issuable
upon (i) exercise of the remaining, unexercised portion
of this Warrant beneficially owned by such Person and
its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other
securities of the Company beneficially owned by such
Person and its affiliates (including, without
limitation, any convertible notes or convertible
preferred stock or warrants) subject to a limitation on
conversion or exercise analogous to the limitation
contained herein. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as
amended. For purposes of this Warrant, in determining
the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of
Common Stock as reflected in (1) the Company's most
recent Form 10-K, Form 10-Q, Current Report on Form 8-K
or other
-4-
public filing with the Securities and Exchange
Commission, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by
the Company or the Transfer Agent setting forth the
number of shares of Common Stock outstanding. For any
reason at any time, upon the written or oral request of
the Holder, the Company shall within one Business Day
confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. In any case,
the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or
exercise of securities of the Company, including the SPA
Securities and the SPA Warrants, by the Holder and its
affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. By
written notice to the Company, the Holder may increase
or decrease the Maximum Percentage to any other
percentage not in excess of 9.99% specified in such
notice; provided that (i) any such increase will not be
effective until the sixty-first (61st) day after such
notice is delivered to the Company, and (ii) any such
increase or decrease will apply only to the Holder and
not to any other holder of SPA Securities.
(ii) Principal Market Regulation. The Company shall not
be obligated to issue any shares of Common Stock upon
exercise of this Warrant if the issuance of such shares
of Common Stock would exceed that number of shares of
Common Stock which the Company may issue upon exercise
or conversion, as applicable, of the SPA Warrants and
SPA Securities without breaching the Company's
obligations under the rules or regulations of the
Principal Market (the "EXCHANGE CAP"),except that such
limitation shall not apply in the event that the Company
(A) obtains the approval of its shareholders as required
by the applicable rules of the Principal Market for
issuances of shares of Common Stock in excess of such
amount or (B) obtains a written opinion from outside
counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory
to the Required Holders. Until such approval or written
opinion is obtained, no Buyer shall be issued in the
aggregate, upon exercise or conversion, as applicable,
of any SPA Warrants or SPA Securities, shares of Common
Stock in an amount greater than the product of the
Exchange Cap multiplied by a fraction, the numerator of
which is the total number of shares of Common Stock
underlying the SPA Warrants issued to such Buyer
pursuant to the Securities Purchase Agreement on the
Issuance Date and the denominator of which is the
aggregate number of shares of Common Stock underlying
the SPA Warrants issued to the Buyers pursuant to the
Securities Purchase Agreement on the Issuance Date (with
respect to each Buyer, the "EXCHANGE CAP ALLOCATION").
In the event that
-5-
any Buyer shall sell or otherwise transfer any of such
Buyer's SPA Warrants, the transferee shall be allocated
a pro rata portion of such Buyer's Exchange Cap
Allocation, and the restrictions of the prior sentence
shall apply to such transferee with respect to the
portion of the Exchange Cap Allocation allocated to such
transferee. In the event that any holder of SPA Warrants
shall exercise all of such holder's SPA Warrants into a
number of shares of Common Stock which, in the
aggregate, is less than such holder's Exchange Cap
Allocation, then the difference between such holder's
Exchange Cap Allocation and the number of shares of
Common Stock actually issued to such holder shall be
allocated to the respective Exchange Cap Allocations of
the remaining holders of SPA Warrants on a pro rata
basis in proportion to the shares of Common Stock
underlying the SPA Warrants then held by each such
holder. In the event that the Company is prohibited from
issuing any Warrant Shares for which an Exercise Notice
has been received as a result of the operation of this
Section 1(f)(ii), the Company shall pay cash in exchange
for cancellation of such Warrant Shares, at a price per
Warrant Share equal to the difference between the
Closing Sale Price and the Exercise Price as of the date
of the attempted exercise.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:
(a) Adjustment upon Issuance of shares of Common Stock. If and
whenever on or after the Subscription Date the Company issues or sells, or in
accordance with this Section 2 is deemed to have issued or sold, any shares of
Common Stock (including the issuance or sale of shares of Common Stock owned or
held by or for the account of the Company, but excluding shares of Common Stock
deemed to have been issued by the Company in connection with any Excluded
Securities (as defined in the SPA Securities) for a consideration per share less
than a price (the "APPLICABLE PRICE") equal to the Exercise Price in effect
immediately prior to such issue or sale or deemed issuance or sale (the
foregoing a "DILUTIVE ISSUANCE"), then immediately after such Dilutive Issuance,
the Exercise Price then in effect shall be reduced to an amount equal to the
product of (A) the Exercise Price in effect immediately prior to such Dilutive
Issuance and (B) the quotient determined by dividing (1) the sum of (I) the
product derived by multiplying the Exercise Price in effect immediately prior to
such Dilutive Issuance and the number of Common Stock Deemed Outstanding
immediately prior to such Dilutive Issuance plus (II) the consideration, if any,
received by the Company upon such Dilutive Issuance, by (2) the product derived
by multiplying (I) the Exercise Price in effect immediately prior to such
Dilutive Issuance by (II) the number of Common Stock Deemed Outstanding
immediately after such Dilutive Issuance. Upon each such adjustment of the
Exercise Price hereunder, the number of Warrant Shares shall be adjusted to the
number of shares of Common Stock determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
acquirable upon exercise of this Warrant immediately prior to such adjustment
and dividing the product thereof by the Exercise Price
-6-
resulting from such adjustment. For purposes of determining the adjusted
Exercise Price under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants
any Options and the lowest price per share for which one share
of Common Stock is issuable upon the exercise of any such
Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such
Option is less than the Applicable Price, then such share of
Common Stock shall be deemed to be outstanding and to have
been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For
purposes of this Section 2(a)(i), the "lowest price per share
for which one share of Common Stock is issuable upon exercise
of such Options or upon conversion, exercise or exchange of
such Convertible Securities" shall be equal to the sum of the
lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon
exercise of the Option and upon conversion, exercise or
exchange of any Convertible Security issuable upon exercise of
such Option. No further adjustment of the Exercise Price or
number of Warrant Shares shall be made upon the actual
issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the
actual issuance of such Common Stock upon conversion, exercise
or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the
lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or
sale of such Convertible Securities for such price per share.
For the purposes of this Section 2(a)(ii), the "lowest price
per share for which one share of Common Stock is issuable upon
the conversion, exercise or exchange" shall be equal to the
sum of the lowest amounts of consideration (if any) received
or receivable by the Company with respect to one share of
Common Stock upon the issuance or sale of the Convertible
Security and upon conversion, exercise or exchange of such
Convertible Security. No further adjustment of the Exercise
Price or number of Warrant Shares shall be made upon the
actual issuance of such Common Stock upon conversion, exercise
or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of this Warrant
has been or is to be made pursuant to other provisions of this
Section 2(a), no further adjustment of the Exercise Price or
number of Warrant Shares shall be made by reason of such issue
or sale.
-7-
(iii) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into
or exercisable or exchangeable for shares of Common Stock
increases or decreases at any time, the Exercise Price and the
number of Warrant Shares in effect at the time of such
increase or decrease shall be adjusted to the Exercise Price
and the number of Warrant Shares which would have been in
effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price,
additional consideration or increased or decreased conversion
rate, as the case may be, at the time initially granted,
issued or sold. For purposes of this Section 2(a)(iii), if the
terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are
increased or decreased in the manner described in the
immediately preceding sentence, then such Option or
Convertible Security and the shares of Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such increase
or decrease. No adjustment pursuant to this Section 2(a) shall
be made if such adjustment would result in an increase of the
Exercise Price then in effect or a decrease in the number of
Warrant Shares.
(iv) Calculation of Consideration Received. In case any Option
is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to
such Options by the parties thereto, the Options will be
deemed to have been issued for a consideration of $.01. If any
shares of Common Stock, Options or Convertible Securities are
issued or sold or deemed to have been issued or sold for cash,
the consideration received therefor will be deemed to be the
net amount received by the Company therefor. If any shares of
Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of such
consideration other than cash received by the Company will be
the fair value of such consideration, except where such
consideration consists of marketable securities, in which case
the amount of consideration received by the Company will be
the Closing Sale Price of such security on the date of
receipt. If any shares of Common Stock, Options or Convertible
Securities are issued to the shareholders of the non-surviving
entity in connection with any merger in which the Company is
the surviving entity, the amount of such consideration will be
deemed to be the fair value of the net assets and business of
the non-surviving entity, calculated on a going-concern basis,
as is attributable to such shares of Common Stock, Options or
Convertible Securities, as the case may be. The fair value of
any consideration other than cash or securities will be
determined jointly by the Company and the Required Holders. If
such parties are unable to reach agreement within
-8-
ten (10) days after the occurrence of an event requiring
valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within five (5) Business Days
after the tenth day following the Valuation Event by an
independent, reputable appraiser jointly selected by the
Company and the Required Holders. The determination of such
appraiser shall be final and binding upon all parties absent
manifest error and the fees and expenses of such appraiser
shall be borne one-half by the Company and one-half by the
Holders. The consideration received by the Company need not be
calculated for shares of Common Stock that are issued or sold
or deemed issued or sold to the extent they constitute
Excluded Securities.
(v) Record Date. If the Company takes a record of the holders
of shares of Common Stock for the purpose of entitling them
(A) to receive a dividend or other distribution payable in
shares of Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase shares of Common Stock,
Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(vi) Until such time as the Company receives the Stockholder
Approval (as defined in the Securities Purchase Agreement), no
adjustment pursuant to Section 2(a) shall cause the Exercise
Price to be less than $2.62, as adjusted for any stock
dividend, stock split, stock combination, reclassification or
similar transaction.
(b) Adjustment upon Subdivision or Combination of shares of
Common Stock. If the Company at any time on or after the Subscription Date
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced and the number of Warrant Shares
will be proportionately increased. If the Company at any time on or after the
Subscription Date combines (by combination, reverse stock split or otherwise)
one or more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination will be proportionately increased and the number of Warrant Shares
will be proportionately decreased. Any adjustment under this Section 2(b) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
(c) Other Events. If any event occurs of the type contemplated
by the provisions of this Section 2 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), then the
Company's Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of Warrant Shares so as to protect the rights of the
Holder;
-9-
provided that no such adjustment pursuant to this Section 2(c) will increase the
Exercise Price or decrease the number of Warrant Shares as otherwise determined
pursuant to this Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare
or make any dividend or other distribution of its assets (or rights to acquire
its assets) to holders of shares of Common Stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) for which adjustment in the Exercise Price of the Warrant
is not otherwise provided hereunder (a "DISTRIBUTION"), at any time after the
issuance of this Warrant, then, in each such case:
(a) any Exercise Price in effect immediately prior to the
close of business on the record date fixed for the determination of holders of
shares of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Exercise Price by a fraction of which (i) the numerator
shall be the Closing Bid Price of the shares of Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of shares of Common Stock, and (ii) the denominator shall be the Closing
Bid Price of the shares of Common Stock on the trading day immediately preceding
such record date; and
(b) the number of Warrant Shares shall be increased to a
number of shares equal to the number of shares of Common Stock obtainable
immediately prior to the close of business on the record date fixed for the
determination of holders of shares of Common Stock entitled to receive the
Distribution multiplied by the reciprocal of the fraction set forth in the
immediately preceding paragraph (a).
4. FUNDAMENTAL TRANSACTIONS.
(a) The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity assumes in writing all
of the obligations of the Company under this Warrant and the other Transaction
Documents in accordance with the provisions of this Section (4)(a) pursuant to
written agreements in form and substance satisfactory to the Required Holders
and approved by the Required Holders prior to such Fundamental Transaction,
including agreements to deliver to each holder of Warrants in exchange for such
Warrants a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant, including, without
limitation, an adjusted exercise price equal to the value for the shares of
Common Stock reflected by the terms of such Fundamental Transaction, and
exercisable for a corresponding number of shares of capital stock equivalent to
the shares of Common Stock acquirable and receivable upon exercise of this
Warrant (without regard to any limitations on the exercise of this Warrant)
prior to such Fundamental Transaction, and satisfactory to the Required Holders
and (ii) the Successor Entity (including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for trading on an Eligible
Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of
such Fundamental Transaction, the provisions of this Warrant referring to the
-10-
"Company" shall refer instead to the Successor Entity), and may exercise every
right and power of the Company and shall assume all of the obligations of the
Company under this Warrant with the same effect as if such Successor Entity had
been named as the Company herein. Upon consummation of the Fundamental
Transaction, the Successor Entity shall deliver to the Holder confirmation that
there shall be issued upon exercise of this Warrant at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of the Common
Stock (or other securities, cash, assets or other property) purchasable upon the
exercise of the Warrant prior to such Fundamental Transaction, such shares of
stock, securities, cash, assets or any other property whatsoever (including
warrants or other purchase or subscription rights) which the Holder would have
been entitled to receive upon the happening of such Fundamental Transaction had
this Warrant been exercised immediately prior to such Fundamental Transaction,
as adjusted in accordance with the provisions of this Warrant. In addition to
and not in substitution for any other rights hereunder, prior to the
consummation of any Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a "CORPORATE EVENT"), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon an exercise of this Warrant at any time after the
consummation of the Fundamental Transaction but prior to the Expiration Date, in
lieu of the shares of the Common Stock (or other securities, cash, assets or
other property) purchasable upon the exercise of the Warrant prior to such
Fundamental Transaction, such shares of stock, securities, cash, assets or any
other property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of such Fundamental Transaction had the Warrant been exercised immediately prior
to such Fundamental Transaction. Provision made pursuant to the preceding
sentence shall be in a form and substance reasonably satisfactory to the
Required Holders. The provisions of this Section shall apply similarly and
equally to successive Fundamental Transactions and Corporate Events. Provision
made pursuant to the preceding sentence shall be in a form and substance
satisfactory to the Required Holders. The provisions of this Section shall apply
similarly and equally to successive Fundamental Transactions and Corporate
Events and shall be applied without regard to any limitations on the exercise of
this Warrant.
(b) In the event of a Fundamental Transaction, if the
Successor Entity is unable to deliver to the Holder the warrant referred to in
Section 4(a) and the Holder has not exercised the Warrant in full prior to the
consummation of the Fundamental Transaction, then the Company may enter into a
Fundamental Transaction pursuant to which the Holder shall receive,
simultaneously with the consummation of the Fundamental Transaction, in lieu of
the warrant referred to in Section 4(a) cash in an amount equal to the value of
the remaining unexercised portion of this Warrant on the date of such
consummation, which value shall be determined by use of the Black and Scholes
Option Pricing Model. Provision made pursuant to this Section shall be in a form
and substance reasonably satisfactory to the Required Holders and approved by
the Required Holders prior to such Fundamental Transactions. The provisions of
this Section shall apply similarly and equally to successive Fundamental
Transactions.
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that
the Company will not, by amendment of its Articles of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or
-11-
performance of any of the terms of this Warrant, and will at all times in good
faith carry out all the provisions of this Warrant and take all action as may be
required to protect the rights of the Holder. Without limiting the generality of
the foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Exercise
Price then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, 130% of the number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a shareholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a shareholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the shareholders of the
Company generally, contemporaneously with the giving thereof to the
shareholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred,
the Holder shall surrender this Warrant to the Company, whereupon the Company
will forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less then the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant
-12-
(in accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no Warrants for
fractional shares of Common Stock shall be given.
(d) Issuance of New Warrants. Whenever the Company is required
to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant
(i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated
on the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance
date, as indicated on the face of such new Warrant which is the same as the
Issuance Date, and (iv) shall have the same rights and conditions as this
Warrant.
-13-
8. NOTICES. Whenever notice is required to be given under this
Warrant, unless otherwise provided herein, such notice shall be given in
accordance with Section 9(f) of the Securities Purchase Agreement. The Company
shall provide the Holder with prompt written notice of all actions taken
pursuant to this Warrant, including in reasonable detail a description of such
action and the reason therefore. Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Exercise Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least fifteen
days (or such lesser period agreed to in writing by the Required Holders) prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common Stock, (B)
with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to all holders of shares of Common Stock or (C) for determining rights to vote
with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the written consent of the Required
Holders; provided that no such action may increase the exercise price of any SPA
Warrant or decrease the number of shares or class of stock obtainable upon
exercise of any SPA Warrant without the written consent of the Holder. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the SPA Warrants then outstanding.
10. GOVERNING LAW. This Warrant shall be governed by and construed
and enforced in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Warrant shall be governed by,
the internal laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.
11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be
jointly drafted by the Company and all the Buyers and shall not be construed
against any person as the drafter hereof. The headings of this Warrant are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Warrant.
12. DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the Holder. If the
Holder and the Company are unable to agree upon such determination or
calculation of the Exercise Price or the Warrant Shares within three Business
Days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two Business Days submit via
facsimile (a) the disputed determination of the Exercise Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to
the Company's independent,
-14-
outside accountant. The Company shall cause at its expense the investment bank
or the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
ten Business Days from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.
13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant and the other Transaction Documents,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder right
to pursue actual damages for any failure by the Company to comply with the terms
of this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
14. TRANSFER. (a)This Warrant may be offered for sale, sold,
transferred or assigned without the consent of the Company, except as may
otherwise be required by Section 2(f) of the Securities Purchase Agreement. Each
Person to whom this Warrant is sold, assigned or transferred by the Holder shall
provide to the Company true and accurate information as to such Person
comparable to that contained in columns (1), (2) and (7) of the Schedule of
Buyers attached to the Securities Purchase Agreement and as to the jurisdiction
of residence of such Person.
(a) The Company shall be entitled to treat the registered
Holder of this Warrant as the absolute owner hereof and shall incur no liability
for the issuance of Common Stock or for other action taken hereunder in good
faith based upon such ownership until such time as a written assignment of this
Warrant is effected by such registered owner, which assignment has been
delivered to the Company and satisfies the requirements of Sections 7(a) and
14(a) hereof.
15. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:
(a) "BLOOMBERG" means Bloomberg Financial Markets.
(b) "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.
(c) "CLOSING BID PRICE" and "CLOSING SALE PRICE" means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing
-15-
trade price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m., New York Time, as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing bid price or last
trade price, respectively, of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price or last
trade price, respectively, of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for such
security by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If
the Closing Bid Price or the Closing Sale Price cannot be calculated for a
security on a particular date on any of the foregoing bases, the Closing Bid
Price or the Closing Sale Price, as the case may be, of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved pursuant to
Section 12. All such determinations to be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during the
applicable calculation period.
(d) "COMMON STOCK" means (i) the Company's shares of Common
Stock, par value $0.01 per share, and (ii) any share capital into which such
Common Stock shall have been changed or any share capital resulting from a
reclassification of such Common Stock.
(e) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock owned or held by or for the account of the Company or
issuable upon conversion and exercise, as applicable, of the SPA Securities and
the Warrants.
(f) "CONVERTIBLE SECURITIES" means any stock or securities
(other than Options) directly or indirectly convertible into or exercisable or
exchangeable for shares of Common Stock.
(g) "ELIGIBLE MARKET" means the Principal Market, The New York
Stock Exchange, Inc., the American Stock Exchange or The Nasdaq SmallCap Market.
(h) "EXPIRATION DATE" means the date sixty months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "HOLIDAY"), the
next date that is not a Holiday.
(i) "FUNDAMENTAL TRANSACTION" means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of the Company to another
Person, (iii) allow another Person to make a purchase, tender or exchange offer
that is
-16-
accepted by the holders of more than the 50% of the outstanding shares of Common
Stock (not including any shares of Common Stock held by the Person or Persons
making or party to, or associated or affiliated with the Persons making or party
to, such purchase, tender or exchange offer) or (iv) consummate a stock purchase
agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock purchase
agreement or other business combination), or (iv) reorganize, recapitalize or
reclassify its Common Stock.
(j) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase shares of Common Stock or Convertible Securities.
(k) "PARENT ENTITY" of a Person means an entity that, directly
or indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or, if
there is more than one such Person or Parent Entity, the Person or Parent Entity
with the largest public market capitalization as of the date of consummation of
the Fundamental Transaction.
(l) "PERSON" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
(m) "PRINCIPAL MARKET" means the Nasdaq National Market.
(n) "REGISTRATION RIGHTS AGREEMENT" means that certain
registration rights agreement by and among the Company and the Buyers.
(o) "REQUIRED HOLDERS" means the holders of the SPA Warrants
representing at least a majority of shares of Common Stock underlying the SPA
Warrants then outstanding.
(p) "SPA SECURITIES" means the Notes issued pursuant to the
Securities Purchase Agreement.
(q) "SUCCESSOR ENTITY" means the Person (or, if so elected by
the Required Holders, the Parent Entity) formed by, resulting from or surviving
any Fundamental Transaction or the Person (or, if so elected by the Required
Holders, the Parent Entity) with which such Fundamental Transaction shall have
been entered into.
[SIGNATURE PAGE FOLLOWS]
-17-
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common
Stock to be duly executed as of the Issuance Date set out above.
VERILINK CORPORATION
By:________________________________
Name:
Title:
EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
VERILINK CORPORATION
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Verilink
Corporation, a Delaware corporation (the "COMPANY"), evidenced by the attached
Warrant to Purchase Common Stock (the "WARRANT"). Capitalized terms used herein
and not otherwise defined shall have the respective meanings set forth in the
Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise
Price shall be made as:
____________ a "Cash Exercise" with respect to _________________
Warrant Shares; and/or
____________ a "Cashless Exercise" with respect to _______________
Warrant Shares.
2. Payment of Exercise Price. In the event that the holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
4. The undersigned confirms that the Warrant Shares have been sold in
compliance with the applicable Registration Statement (as defined in the
Registration Rights Agreement) relative to the registration for resale of such
Warrant Shares.
Yes ______ No_______
Date: ____________ __, ______
________________________________
Name of Registered Holder
By: _____________________________
Name:
Title:
ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs
American Stock Transfer & Trust Company to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
March 21, 2005 from the Company and acknowledged and agreed to by American Stock
Transfer & Trust Company.
VERILINK CORPORATION
By:_________________________________
Name:
Title: