UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
March 17, 1999
Date of Report (Date of earliest event reported)
COVOL TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 0-27808 87-0547337
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(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
3280 N. Frontage Road
Lehi, UT 84043
(Address of principal executive offices)
(Zip Code)
(801) 768-4481
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
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Certain statements in this Report constitute forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. As such,
actual results may vary materially from current expectations. For a discussion
of certain of the factors that could cause actual results to differ from
expectations, please see the information set forth under the caption entitled
"Forward Looking Statements" in ITEM 2 of Covol's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1998. There can be no assurance that Covol's
results of operations will not be adversely affected by such factors. Covol
undertakes no obligation to revise or publicly release the results of any
revision to these forward looking statements. Readers are cautioned not to place
undue reliance on these forward looking statements, which reflect management's
opinion only as of the date hereof.
Item 5. Other Events
On March 17, 1999, Covol completed a financing transaction (the "Financing")
with OZ Master Fund, Ltd., an affiliate of the Och-Ziff Capital Management
Group. The Financing consisted of the issuance of $20,000,000 of convertible
secured debt, issued at a 50% discount, and the issuance of $6,000,000 of
cumulative convertible preferred stock, for total gross proceeds of $16,000,000.
Costs related to the Financing totaled approximately $1,200,000, and consisted
of private placement fees of $800,000, legal expenses of approximately $350,000
and other expenses of approximately $50,000. Warrants for the purchase of common
stock were also issued as part of the Financing, as described herein. Covol
received net cash proceeds of approximately $14,800,000, which will be used to
retire maturing short-term debt and related accrued interest of approximately
$4,900,000, for working capital uses and other general corporate purposes. So
long as any debt or preferred stock issued in connection with this Financing is
outstanding, the holders have the right, as a group, to elect one director to
Covol's Board of Directors.
Convertible Secured Debt
The convertible debt has a five-year term and bears interest at a stated rate of
2.5% per annum on the $20,000,000 face amount, with interest payable
semiannually on January 1 and July 1, beginning July 1, 1999. The debt is
redeemable by Covol at any time prior to September 17, 2001 for an amount equal
to the face amount of the debt. The debt is redeemable by Covol from September
18, 2001 and prior to March 17, 2002 for an amount equal to 109.85% of the face
amount of the debt. The debt is convertible into common stock of Covol at the
option of the noteholders at a discount to the market price at the time of
conversion as described below. The debt is not convertible by the holder until
after March 17, 2002 except upon the occurrence of an event of default. If
converted, the number of shares into which the debt can be converted would be
calculated based on a price per share of common stock equal to 33% of the then
market price at the time of conversion, but not less than $6.67 per share nor
more than $10.00 per share. Covol's present intent is to redeem the debt prior
to March 17, 2002, assuming sufficient cash from operations or future equity or
debt offerings is available.
Covol will be in default of the provisions of the debt agreement if certain
events occur. These events include, but are not limited to, incurring one or
more judgments in excess of $5,000,000, which judgments are not discharged,
stayed or otherwise satisfied within 30 days of the judgments, and the failure
to meet certain earnings targets. The earnings targets apply initially to the
quarter ending December 31, 1999, and then to subsequent quarterly periods.
Consolidated earnings before interest, taxes, depreciation and amortization, and
certain other adjustments as defined in the note agreement, of $5,000,000 or
more are required for the quarter ending December 31, 1999. In subsequent
quarters, earnings targets increase incrementally up to $6,500,000 for the
quarter ending December 31, 2001 and subsequent quarters. There are provisions
for the carryover of earnings beyond these amounts to subsequent quarters, if
necessary, subject to certain limitations. The debt is collateralized by license
fees payable to Covol from the production and sale of synthetic fuel from four
synthetic fuel facilities located in Virginia and West Virginia. The owner of
these facilities has entered into licensing agreements to use Covol's
technologies in return for a royalty based on the production and sale of
synthetic fuel, subject to prescribed adjustments.
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In the event of default, the interest rate on the debt increases immediately by
1% and increases automatically by 1% at the end of each succeeding 90-day
period, to the extent permitted by law, until the event is cured. Depending on
the nature of the event of default, in most instances, either 1) all unpaid
principal and interest become immediately due and payable; or 2) the notes and
accrued interest become immediately convertible into common stock and the
conversion price is subject to adjustment, based on the market price of Covol's
common stock and other factors, as provided for in the loan agreement.
Cumulative Convertible Preferred Stock
The preferred stock consists of 60,000 shares of a new series of preferred
stock, Series D Cumulative Convertible Preferred Stock, with a liquidation value
of $100 per share. This series of preferred stock is senior, with respect to
dividend rights, payments upon liquidation, or redemption, to all other capital
stock of Covol, including the other series of preferred stock which are
outstanding or which may be issued in the future. Dividends accrue at a rate of
7% per annum whether or not declared or paid. At Covol's option, dividends can
be paid in additional shares of preferred stock in lieu of cash. Dividends are
payable quarterly beginning July 1, 1999. With the exception that holders of the
preferred stock and debt vote as a group for one director, holders of the
preferred stock have voting rights as to all matters voted on by the holders of
common stock. The holders of the preferred stock are entitled to one vote for
each share of common stock issuable upon conversion of the preferred stock.
The preferred stock is redeemable through March 17, 2002 at 125% of its
liquidation value, subject to adjustment for changes in the value of Covol's
common stock. The preferred stock is convertible at the option of the
stockholders beginning June 15, 1999, up to a maximum of 20% of the outstanding
shares of preferred stock. Each month thereafter, the amount of preferred stock
that can be converted increases by 20% until October 13, 1999, at which time all
of the preferred stock can be converted into common stock. On March 17, 2002,
all outstanding preferred stock automatically converts to common stock. The
number of shares of common stock into which the preferred stock is convertible
is determined by multiplying the number of preferred shares by $100 and dividing
by the lesser of $5.25 or 90% of the market value of Covol's common stock on the
date of conversion.
Warrants
Warrants for the purchase of a total of approximately 1,300,000 shares of common
stock were issued in connection with the Financing. The number of shares
issuable upon exercise of the warrants is subject to certain antidilution
provisions including but not limited to the issuance of common stock at prices
below the market price of Covol's common stock. Warrants to purchase 400,000
shares of common stock are initially exercisable at prices of $5.00 per share
for 200,000 shares and $10.00 per share for 200,000 shares, for the period of
time beginning on March 17, 2002 through March 17, 2004, subject to adjustment
upon the occurrence of certain events. Warrants to purchase approximately
900,000 shares of common stock are initially exercisable at prices ranging from
$5.25 to $6.56 per share for the period of time beginning on September 13, 1999
through March 17, 2002, subject to adjustment upon the occurrence of certain
events.
Registration Rights
The restricted common stock issuable pursuant to the conversion of the
convertible secured debt and related interest, convertible preferred stock,
preferred stock dividends, and exercise of approximately 971,000 warrant shares
have been provided demand and piggyback registration rights. The remaining
warrants have been provided piggyback registration rights.
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Other Significant Obligations or Restrictions
Terms of the agreements entered into by Covol in connection with the Financing
provide for limits and restrictions common to such financing arrangements, as
well as certain specific limitations or restrictions, including, but not limited
to prohibitions of the following:
o transactions with related parties having a value of $100,000 or more
for a single transaction or $250,000 or more in the aggregate;
o increasing the size of the Board of Directors to greater than eight
members;
o selling a material portion of Covol's assets;
o issuance of stock options at less than fair market value at the date of
grant;
o any additional indebtedness in excess of $4,000,000;
o entering into a business combination through merger or any similar
transaction;
o capital expenditures generally in excess of $300,000 in a fiscal year,
except as specifically provided for in the agreements.
Covol is obligated to pay an additional financing fee of $100,000 on March 17,
2002. Covol is also obligated to file a registration statement on Form S-3
before June 17, 1999 and to use its best efforts to file a proxy statement on or
before June 30, 1999 and to obtain the vote of its shareholders to approve the
sale and issuance of common stock issuable upon 1) the conversion of the
convertible debt, convertible preferred stock and related dividends; and 2) the
exercise of warrants to purchase common stock. In no event is the approval of
shareholders to occur later than March 31, 2000.
Item 7. Exhibits
(c) The following exhibits are included herein:
3.1.6 Certificate of Designations, Number, Voting Powers, Preferences
and Rights of the Series of the Preferred Stock of Covol
Technologies, Inc. to be Designated Series D 7% Cumulative
Convertible Preferred Stock
4.4 Convertible Secured Note executed by Covol in favor of OZ
Master Fund, Ltd. dated as of March 17, 1999 (filed as Exhibit
10.58.1 hereto)
10.58 Securities Purchase Agreement between Covol Technologies, Inc.
and OZ Master Fund, Ltd. dated as of March 17, 1999
10.58.1 Convertible Secured Note executed by Covol in favor of OZ
Master Fund, Ltd. dated as of March 17, 1999
10.58.2 Registration Rights Agreement between Covol Technologies, Inc.
and OZ Master Fund, Ltd. dated as of March 17, 1999
10.58.3 Security Agreement between Covol Technologies, Inc. and OZ
Master Fund, Ltd. dated as of March 17, 1999
10.58.4 Series A Warrant in favor of OZ Master Fund, Ltd. dated
March 17, 1999
10.58.5 Series B Warrant in favor of OZ Master Fund, Ltd. dated
March 17, 1999
10.58.6 Series C Warrant in favor of OZ Master Fund, Ltd. dated
March 17, 1999
10.58.7 Series D Warrant in favor of OZ Master Fund, Ltd. dated
March 17, 1999
10.58.8 Series E Warrant in favor of Leeds Group dated March 17, 1999
10.58.9 Series E Warrant in favor of Howard L. Schwartz dated March 17,
1999
10.58.10 Series E Warrant in favor of Jack A. Schwebel dated March 17,
1999
10.58.11 Series E Warrant in favor of Brent M. Lockwood dated March 17,
1999
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COVOL TECHNOLOGIES, INC.
Registrant
Date: March 24, 1999 /s/ Brent M. Cook
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Brent M. Cook
Chief Executive Officer and Principal
Executive Officer
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CERTIFICATE OF DESIGNATIONS, NUMBER, VOTING POWERS, PREFERENCES
AND RIGHTS OF THE SERIES OF THE PREFERRED STOCK OF COVOL
TECHNOLOGIES, INC.
(THE "COMPANY") TO BE DESIGNATED SERIES D
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Section 1. Dividends.
1A. General Obligation. When and as declared by the Company's
Board of Directors and to the extent permitted under the General Corporation Law
of Delaware, the Company shall pay preferential dividends in cash to the holders
of the Series D Cumulative Convertible Preferred Stock (the "Preferred Stock")
as provided in this Section 1. Except as otherwise provided herein, dividends on
each share of the Preferred Stock (a "Share") shall accrue, whether or not
declared or paid, on a daily basis at the rate of 7% per annum (computed on the
basis of a year of 360 days for the actual number of days (including the first
day but excluding the last day) elapsed) of the sum of the Liquidation Value
thereof plus all accumulated and unpaid dividends thereon from and including the
date of issuance of such Share to and including the first to occur of (i) the
date on which the Liquidation Value of such Share (plus all accrued and unpaid
dividends thereon) is paid to the holder thereof in connection with the
liquidation of the Company or the Redemption Price of such Share (plus all
accrued and unpaid dividends thereon) is paid to the holder thereof in
connection with the redemption of such Share by the Company, (ii) the date on
which such Share is converted into shares of Conversion Stock hereunder, or
(iii) the date on which such Share is otherwise acquired by the Company. Such
dividends shall accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Company legally available for
the payment of dividends, and such dividends shall be cumulative. The date on
which the Company initially issues any Share shall be deemed to be its "date of
issuance" regardless of the number of times a transfer of such Share is made on
the stock records maintained by or for the Company and regardless of the number
of certificates which may be issued to evidence such Share.
1B. Dividend Payment Dates. All dividends which have accrued
on the Preferred Stock shall be payable on January 1, April 1, July 1 and
October 1 of each year, beginning July 1, 1999 (collectively, the "Dividend
Payment Dates").
1C. Distribution of Partial Dividend Payments. Except as
otherwise provided herein, if at any time the Company pays less than the total
amount of dividends then accrued with respect to the Preferred Stock, such
payment shall be distributed pro rata among the holders thereof based upon the
aggregate accrued but unpaid dividends on the Shares held by each such holder.
1D. Payment of Dividends with Shares. Notwithstanding any
other provision of this Section 1, in the sole discretion of the Company, any
dividends accruing on the Preferred Stock may be paid in lieu of cash dividends
by the issuance of additional Shares (including fractional Shares) having an
aggregate Liquidation Value at the time of such payment equal to the amount of
the dividend to be paid; provided, that if the Company pays less than the total
amount of dividends then accrued on the Preferred Stock in the form of
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additional Shares, such payment in Shares shall be made pro rata among the
holders of Preferred Stock based upon the aggregate accrued but unpaid dividends
on the Shares held by each such holder. If and when any Shares are issued under
this paragraph 1D for the payment of accrued dividends, such Shares shall be
deemed to be validly issued and outstanding and fully paid and nonassessable.
1E. Participating Dividends. In the event that the Company
declares or pays any dividends upon the Common Stock (whether payable in cash,
securities or other property) other than dividends payable solely in shares of
Common Stock, the Company shall also declare and pay to the holders of the
Preferred Stock at the same time that it declares and pays such dividends to the
holders of the Common Stock, the dividends which would have been declared and
paid with respect to the Common Stock issuable upon conversion of the Preferred
Stock had all of the outstanding Preferred Stock been converted immediately
prior to the record date for such dividend, or if no record date is fixed, the
date as of which the record holders of Common Stock entitled to such dividends
are to be determined.
Section 2. Liquidation.
Upon any liquidation, dissolution or winding up of the Company
(whether voluntary or involuntary), each holder of Preferred Stock shall be
entitled to be paid, before any distribution or payment is made upon any Junior
Securities, an amount in cash equal to the aggregate Liquidation Value of all
Shares held by such holder (plus all accrued and unpaid dividends thereon). If
upon any such liquidation, dissolution or winding up of the Company, the
Company's assets to be distributed among the holders of the Preferred Stock are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid under this Section 2, then the entire assets
available to be distributed to the Company's stockholders shall be distributed
pro rata among such Preferred Stock holders based upon the aggregate Liquidation
Value (plus all accrued and unpaid dividends) of the Preferred Stock held by
each such holder. Prior to the liquidation, dissolution or winding up of the
Company, the Company shall declare for payment all accrued and unpaid dividends
with respect to the Preferred Stock, but only to the extent of funds of the
Company legally available for the payment of dividends. Not less than 60 days
prior to the payment date stated therein, the Company shall mail written notice
of any such liquidation, dissolution or winding up to each record holder of
Preferred Stock, setting forth in reasonable detail the amount of proceeds to be
paid with respect to each Share and each share of Common Stock in connection
with such liquidation, dissolution or winding up.
Section 3. Priority of Preferred Stock on Dividends and
Redemptions.
3A. No Payments With Respect to Junior Securities.
So long as any Preferred Stock remains outstanding, without
the prior written consent of the holders of two-thirds of the outstanding shares
of Preferred Stock, the Company shall not, nor shall it permit any Subsidiary
to, redeem, purchase or otherwise acquire directly
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or indirectly any Junior Securities, nor shall the Company directly or
indirectly pay or declare any dividend or make any distribution upon any Junior
Securities.
3B. No Issuance of Senior or pari passu Securities.
The Preferred Stock shall be senior to all other series of
capital stock or other equity securities of the Company as to rights to
dividends and payments upon liquidation, redemption or otherwise. For so long as
any Preferred Stock remains outstanding, without the prior written consent of
the holders of two-thirds of the outstanding shares of the Preferred Stock, the
Company shall not amend its Certificate of Incorporation or take any other
action to approve or issue any capital stock (including increasing the number of
authorized shares of Preferred Stock) of the Company that is senior or pari
passu in right to the payment of dividends, payment upon liquidation, redemption
or otherwise to the Preferred Stock. Additionally, so long as any Preferred
Stock remains outstanding, without the prior written consent of the holders of
two-thirds of the outstanding shares of Preferred Stock, the Company shall not
amend its Certificate of Incorporation or take any other action that would alter
the rights, preferences or privileges of the Preferred Stock as in effect on the
date of the original issuance of the Preferred Stock.
Section 4. Redemptions.
4A. Optional Redemption. On any date following the date of
issuance, at the option of the Company, the Company may redeem all or part of
the outstanding Preferred Stock at a price per Share equal to the Redemption
Price (plus accrued and unpaid dividends thereon).
4B. Redemption Payments. For each Share which is to be
redeemed hereunder, the Company shall be obligated on the applicable Redemption
Date to pay to the holder thereof (upon surrender by such holder at the
Company's principal office of the certifi cate representing such Share) an
amount in cash in immediately available funds equal to the Redemption Price of
such Share (plus all accrued and unpaid dividends thereon and any premium
payable with respect thereto). If the funds of the Company legally available for
redemption of Shares on any Redemption Date are insufficient to redeem the total
number of Shares to be redeemed on such date, those funds which are legally
available shall be used to redeem the maximum possible number of Shares pro rata
among the holders of the Shares to be redeemed based upon the aggregate
Liquidation Value of such Shares held by each such holder (plus all accrued and
unpaid dividends thereon and any premium payable with respect thereto). Prior to
any redemption of Preferred Stock, the Company shall declare for payment all
accrued and unpaid dividends with respect to the Shares which are to be
redeemed, but only to the extent of funds of the Company legally available for
the payment of dividends.
4C. Notice of Redemption. The Company shall mail written
notice of each redemption of any Preferred Stock (other than a redemption at the
request of a holder or holders of Preferred Stock) to each record holder thereof
not less than 10 days prior to the date
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on which such redemption is to be made. In case fewer than the total number of
Shares represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Shares shall be issued to the holder
thereof without cost to such holder within five (5) Business Days after
surrender of the certificate representing the redeemed Shares.
4D. Dividends After Redemption Date. No Share shall be
entitled to any dividends accruing after the date on which the Redemption Price
of such Share (plus all accrued and unpaid dividends thereon) is paid to the
holder of such Share. On such date, all rights of the holder of such Share shall
cease, and such Share shall no longer be deemed to be issued and outstanding.
4E. Redeemed or Otherwise Acquired Shares. Any Shares which
are redeemed or otherwise acquired by the Company shall be canceled and retired
to authorized but unissued shares and shall not be reissued, sold or transferred
so long as any Shares remain outstanding.
4F. Other Redemptions or Acquisitions. The Company shall not,
nor shall it permit any Subsidiary to, redeem or otherwise acquire any Shares,
except as expressly authorized herein or pursuant to a purchase offer made pro
rata to all holders of Preferred Stock on the basis of the number of Shares
owned by each such holder.
4G. Payment of Accrued Dividends. The Company may not redeem
any Preferred Stock, unless all dividends accrued on the outstanding Preferred
Stock through the immediately preceding Dividend Payment Date have been declared
and paid in full.
4H. Change of Control. If a Change of Control has occurred or
the Company obtains knowledge that a Change of Control is proposed to occur, the
Company shall give prompt written notice of such Change of Control describing in
reasonable detail the material terms and date of consummation thereof to each
holder of Preferred Stock, but in any event such notice shall not be given later
than five days after the occurrence of such Change of Control, and the Company
shall give each holder of Preferred Stock prompt written notice of any material
change in the terms or timing of such transaction. Any holder of Preferred Stock
may, at its option (i) require the Company to redeem all or any portion of the
Preferred Stock (including any fraction of a Share) owned by such holder at a
price per Share equal to the Redemption Price or (ii) convert all or a portion
of such holder's Preferred Stock (including any fraction of a Share) into a
number of shares of Conversion Stock computed by dividing (A) the sum of (x) the
product obtained by multiplying the number of Shares to be converted by $100 and
(y) all accrued and unpaid dividends, by (B) the Change of Control Conversion
Price. For purposes hereof, "Change of Control Conversion Price" shall mean the
lower of (1) the lower of (a) the Maximum Conversion Price and (b) 90% of the
Market Price of a share of Common Stock on the Business Day immediately
preceding the public announcement of the Change of Control transaction and (2)
the lower of (c) the Maximum Conversion Price and (d) the Market Price of a
share of Common Stock on the Business Day immediately following such public
announcement. Any holder who elects to convert such holder's Preferred Stock
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may, immediately prior to the consummation of the transaction, convert all or a
portion of such holder's Preferred Stock (including any fraction of a Share)
into the number of shares of Conversion Stock calculated as set forth above or
may elect to receive the consideration such holder would have received had such
holder converted his shares of Preferred Stock at the Change in Control
Conversion Price immediately prior to the consummation of the Change of Control
transaction.
Upon receipt of an election to redeem the shares, the Company
shall be obligated to redeem the aggregate number of Shares specified therein
upon the occurrence of the Change of Control. Upon receipt of a notice of
conversion, the Company shall at the option of the holder, either effect the
immediate conversion into Common Stock (if the holder has requested conversion
into Common Stock) or (if the holder has requested conversion into the
consideration to be paid in the Change of Control transaction) upon consummation
of the Change of Control transaction the Company shall remit to the holder for
each share for which such holder's Preferred Stock would have been convertible
hereunder immediately prior to the Change of Control transaction an amount equal
to the per share consideration paid to holders of Conversion Stock in the Change
of Control transaction. If any proposed Change of Control does not occur, all
requests for redemption or conversion in connection therewith shall be
automatically rescinded, or if there has been a material change in the terms or
the timing of the transaction, any holder of Preferred Stock may rescind such
holder's request for redemption or conversion by giving written notice of such
rescission to the Company.
The term "Change of Control" means (a) any sale, transfer or
issuance or series of sales, transfers and/or issuances of Common Stock by the
Company or any holders thereof which results in any Person or group of Persons
(as the term "group" is used under the Exchange Act), beneficially owning (as
such term is used in the Exchange Act) more than 50% of the Common Stock
outstanding at the time of such sale, transfer or issuance or series of sales,
transfers and/or issuances, (b) any sale or transfer of more than 50% of the
assets of the Company and its Subsidiaries on a consolidated basis (measured
either by book value in accordance with generally accepted accounting principles
consistently applied or by fair market value determined in the reasonable good
faith judgment of the Board of Directors) in any transaction or series of
transactions (other than sales in the ordinary course of business and excluding
the sale of the synthetic fuel facilities set forth on Schedule 8.1(e) of the
Purchase Agreement) and (c) any merger or consolidation to which the Company is
a party, except for a merger in which the Company is the surviving Company, the
terms of the Preferred Stock are not changed and the Preferred Stock is not
exchanged for cash, securities or other property, and after giving effect to
such merger, the holders of the Company's outstanding capital stock possessing a
majority of the voting power (under ordinary circumstances) to elect a majority
of the Board of Directors immediately prior to the merger shall continue to own
the Company's outstanding capital stock possessing the voting power (under
ordinary circumstances) to elect a majority of the Board of Directors.
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Section 5. Voting Rights.
5A. Election of Directors. In the election of directors of the
Company, the holders of the Preferred Stock, voting separately as a single class
to the exclusion of all other classes of the Company's capital stock and with
each Share entitled to one vote, shall be entitled to elect one director to
serve on the Board of Directors until his/her successor is duly elected by the
holders of the Preferred Stock or he/she is removed from office by the holders
of the Preferred Stock. If the holders of the Preferred Stock for any reason
fail to elect anyone to fill any such directorship, such position shall remain
vacant until such time as the holders of the Preferred Stock elect a director to
fill such position and shall not be filled by resolution or vote of the Board of
Directors or the Company's other stockholders.
5B. Other Voting Rights.
(i) The holders of the Preferred Stock shall be entitled to
notice of all stockholders' meetings, and except as otherwise required by
applicable law or set forth below, the holders of the Preferred Stock shall be
entitled to vote on all matters submitted to the stockholders for a vote
together with the holders of the Common Stock voting together as a single class
with each share of Common Stock entitled to one vote per share and each Share
entitled to one vote for each share of Common Stock issuable upon conversion of
such Share as of the record date for such vote or, if no record date is
specified, as of the date of such vote; and
(ii) Without the prior written consent of the holders of at
least two-thirds (or such higher percentage of holders as may be required by
law) of the outstanding Shares, and for so long as any of the Shares remain
outstanding, the Company shall not, and shall not permit any Subsidiary to:
(a) become subject to any agreement or instrument
which by its terms would (under any circumstances) restrict or impair
the Company's right to comply with the terms of or fulfill its
obligations under the Purchase Agreement or any of the Related
Documents (as defined in the Purchase Agreement);
(b) use the proceeds from the sale of the securities
pursuant to the Purchase Agreement other than for repayment of
indebtedness, working capital and other general corporate purposes;
provided, that the Company will in no event use the proceeds to invest
in any securities other than short-term, interest-bearing government
securities;
(c) enter into any transaction or series of
transactions with any stockholder, director, officer, employee or
affiliate, including, without limitation, the purchase, sale, lease or
exchange of any property, the rendering of any service or any
investment, loan or advance, unless such transaction (i) is consummated
by the Company in good faith on an arm's-length basis, (ii) is less
than $100,000 per
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occurrence or $250,000 in the aggregate and (iii) is approved by the
Company's Board of Directors, including by a majority of the Company's
disinterested directors;
(d) expand the Company's Board of Directors to
greater than eight (8) members;
(e) except with respect to the sale of the Company's
Mountaineer Synfuel, Pocahontas Synfuel, Commonwealth Synfuel and
Carbon Synfuel synthetic fuel facilities, sell all or any material
portion of its assets, determined on a consolidated basis;
(f) declare or pay any dividends, purchase or
otherwise acquire for value any of its membership interests or other
capital stock now or hereafter outstanding, return any capital to its
members as such, or make any other payment or distribution of assets to
its stockholders as such, or permit any of its Subsidiaries to do any
of the foregoing or to purchase or otherwise acquire for value any
capital stock of the Company or its Subsidiaries, or make any payment
or prepayment of principal of, premium, if any, or interest on, or
redeem, decrease or otherwise retire, any Indebtedness (as defined in
the Purchase Agreement) before its scheduled due date;
(g) materially alter or change the business of the
Company;
(h) issue any stock option at less than the fair
market value at the time of grant;
(i) create, incur or suffer to exist, or permit any
of its Subsidiaries to create, incur or suffer to exist, any
Indebtedness (as defined in the Purchase Agreement), other than:
(1) Indebtedness created under the Purchase
Agreement and under the Company's $20,000,000 in aggregate
principal amount Convertible Secured Notes (the "Notes");
(2) Indebtedness existing on the date of
original issuance of the Preferred Stock, as set forth on
Schedule 8.1 to the Purchase Agreement, and any extension of
maturity, refinancing or modification of the terms thereof;
provided, however, that such extension, refinancing or
modification (A) is pursuant to terms that are not materially
less favorable to the holders of the Preferred Stock than the
terms of the Indebtedness being extended, refinanced or modified
and (B) after giving effect to the extension, refinancing or
modification, such Indebtedness is not greater than the amount of
Indebtedness outstanding immediately prior to such extension,
refinancing or modification;
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(3) Indebtedness under Capitalized Leases
(as defined in the Purchase Agreement); and
(4) additional Indebtedness at any one time
outstanding not to exceed $4,000,000.
(j) enter into any merger, combination,
consolidation, reorganization, recapitalization, liquidation or other
similar transaction of the Company or any agreement with respect to any
of the foregoing, other than a transaction for the purpose of changing
the Company's domicile;
(k) amend the Company's Certificate of Incorporation
or Bylaws or alter the rights, preferences and privileges of the
Preferred Stock, the Notes or the Warrants (as defined in the Purchase
Agreement) or the Conversion Stock or Warrant Shares (as defined in the
Purchase Agreement);
(l) create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien (as defined in the
Purchase Agreement) upon or with respect to any of its properties,
rights or other assets, whether now owned or hereafter acquired, or
assign or otherwise transfer, or permit any of its Subsidiaries to
assign or otherwise transfer, any right to receive income, other than
Permitted Liens (as defined in the Purchase Agreement);
(m) assume, guarantee, endorse or otherwise become
directly or contingently liable (including, without limitation, liable
by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in the debtor
or otherwise to assure the creditor against loss), in connection with
any Indebtedness of any other Person (other than, in the case of the
Company, guaranties of Indebtedness of any Subsidiaries), other than:
(1) guaranties by endorsement of negotiable
instruments for deposit or collection in the ordinary course
of business; and
(2) guaranties existing on the date of
original issuance of the Preferred Stock and guaranties set
forth in Schedule 8.1(m) to the Purchase Agreement, but not
any renewal or other modification thereof;
(n) make, or permit any of its Subsidiaries to make,
any loan or advance to any Person or purchase or otherwise acquire or
permit any of its Subsidiaries to purchase or otherwise acquire, any
capital stock, properties, assets or obligations of, or any interest
in, any Person, other than (1) raw material purchased in the ordinary
course of business and (2) trade credit extended in the ordinary course
of business;
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(o) create, incur or suffer to exist, or permit any
of its Subsidiaries to create, incur or suffer to exist, any
obligations as lessee (1) for the payment of rent for any real or
personal property in connection with any sale and leaseback
transaction, or (2) for the payment of rent for any real or personal
property under Capitalized Leases (as defined in the Purchase
Agreement) which would cause the aggregate amount of all obligations
under Capitalized Leases entered into after the date of original
issuance of the Preferred Stock owing by the Company in any fiscal year
to exceed the amounts set forth in subsection (p) of this paragraph 5B.
(p) except as set forth on the schedules to the
Purchase Agreement, make or be committed to make, or permit any of its
Subsidiaries to make or be committed to make, any Capital Expenditure
(as defined in the Purchase Agreement) (by purchase or capitalized
lease) other than Capital Expenditures (including obligations under
Capitalized Leases) which would not cause the aggregate amount of all
such Capital Expenditures to exceed the greater of (1) $300,000 and (2)
15% of the greater of (A) Consolidated EBITDA (as defined in the Notes)
for the prior fiscal year of the Company and (B) Consolidated EBITDA
for the current fiscal year of the Company, in any fiscal year of the
Company;
(q) allow the use, handling, generation, storage,
treatment, release or disposal of Hazardous Materials (as defined in
the Purchase Agreement) at any property owned or leased by the Company
or any of its Subsidiaries except in compliance with Environmental Laws
(as defined in the Purchase Agreement) and so long as such use,
handling, generation, storage, treatment, release or disposal of
Hazardous Materials does not result in a violation of Environmental Law
which would result in a Material Adverse Change (as defined in the
Purchase Agreement);
(r) (1) engage or permit any ERISA Affiliate (as
defined in the Purchase Agreement) to engage in any transaction
described in Section 4069 of ERISA (as defined in the Purchase
Agreement); (2) engage, or permit any ERISA Affiliate to engage, in any
prohibited transaction described in Section 406 of ERISA or 4975 of the
Code for which a statutory or class exemption is not available or a
private exemption has not previously been obtained from the Department
of Labor; (3) adopt or permit any ERISA Affiliate to adopt any employee
welfare benefit plan within the meaning of Section 3(1) of ERISA which
provides benefits to employees after termination of employment other
than as required by Section 601 of ERISA or applicable law; (4) fail,
to make any contribution or payment to any Multiemployer Plan (as
defined in the Purchase Agreement) which the Company or any Subsidiary
or any ERISA Affiliate may be required to make under any agreement
relating to such Multiemployer Plan, or any law pertaining thereof; (5)
fail, or permit any ERISA Affiliate to fail, to pay any required
installment or any other payment required under Section 412 of the Code
on or before the due date for such installment or other payment; and
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(s) grant any rights of registration under the
Securities Act of 1933, as amended, relating to any of its shares of
capital stock or other securities to any Person other than pursuant to
the Purchase Agreement, unless (1) the rights so granted to another
Person do not limit, restrict or impair the rights of the Purchasers
under the Purchase Agreement and under the Related Documents and (2)
such rights so granted to another Person do not grant priority in
registration rights to such other person over rights granted to
Purchasers under the Purchase Agreement and under the Related
Documents.
Section 6. Conversion.
6A. Conversion Procedure.
(i) During the time periods indicated in the table below, any
holder of Preferred Stock may convert up to that percentage of the Preferred
Stock indicated in the table below (including any fraction of a Share) held by
such holder into a number of shares of Conversion Stock computed by dividing (A)
the sum of (x) the product obtained by multiplying the number of Shares to be
converted by $100 and (y) all accrued and unpaid dividends, by (B) the
Conversion Price then in effect:
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June 15, 1999 through July 14, 1999 20%
July 15, 1999 through August 13, 1999 40%
August 14, 1999 through September 12, 1999 60%
September 13, 1999 through October 12, 1999 80%
October 13, 1999 through June 15, 2002 100%
Notwithstanding the foregoing:
(a) on or before the first day of each of the time periods presented
above, the Company shall provide written notice (which shall be binding) to
each of the holders of the Preferred Stock with respect to whether or not
the Company will, during the applicable 30- day time period to which such
notice relates, exercise its right of redemption pursuant to Section 4A if,
during such 30-day time period, (x) any holder of Preferred Stock chooses to
convert any Preferred Stock pursuant to this Section 6A and (y) the
Conversion Price applicable to such conversion is lower than $5.25, and such
notice shall specify the Conversion Price below which the Company will
exercise its right of redemption;
(b) if pursuant to Section 4A, the Company chooses to exercise its
right of redemption and the Conversion Price in effect immediately prior to
the Redemption Date
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is less than $5.25, the holders of the Preferred Stock shall have no further
rights of conversion pursuant to this Section 6A(i) with respect to the
Shares the Company has so called for redemption unless the Company shall
fail to pay to the holder thereof the Redemption Price of such Share (plus
all accrued and unpaid dividends thereon and any premium payable with
respect thereto) on the Redemption Date;
(c) if pursuant to this Section 6A(i), any holder of Preferred Stock
provides a Notice of Conversion to the Company and the Conversion Price in
effect immediately prior to such date of conversion is less than $5.25, the
Company shall have the right to redeem such Preferred Stock pursuant to the
provisions of Section 4 herein; provided, that the Company shall have timely
provided a redemption notice to the holders of the Preferred Stock pursuant
to Section 6A(i)(a) on which it has elected to redeem Shares submitted for
conversion during the applicable period; and
(d) on the third anniversary of the date of issuance, all Shares
outstanding shall automatically convert into that number of shares of
Conversion Stock computed by adding (x) the product obtained by multiplying
the number of Shares outstanding by $100 plus (y) all accrued and unpaid
dividends and dividing the result by the Conversion Price then in effect.
(ii) Holders of Shares may convert their Shares by delivering to the
Company or its agent a written notice of conversion (the "Notice of
Conversion"), substantially in the form of Exhibit A attached hereto duly signed
by or on behalf of the holder. The Notice of Conversion shall state the number
of Shares to be converted and shall set forth the converting holder's
calculations as to the applicable Conversion Price which shall be the Conversion
Price in effect on the date of the delivery of the Notice of Conversion. Such
notices may be delivered to the Company or its agent by telephone line
facsimile, and shall be delivered prior to 6:00 p.m., New York time, on the day
prior to the date of requested conversion. The Company will confirm its receipt
of the Notice of Conversion, and confirm the calculations therein or indicate
alternative calculations, by return facsimile by 11:00 a.m., New York time, on
the following Business Day. Failure of the Company to send such return facsimile
shall evidence its acceptance of the calculations in the Notice of Conversion.
(iii) A holder of Shares will not be required physically to surrender
the certificate(s) representing its converted Shares to the Company or its
agent, unless and until all of the Shares represented by a given certificate of
the holder are so converted. Each holder of Shares and the Company will maintain
records showing the number of Shares so converted by such holder and the dates
of such conversions, or will use such other method, satisfactory to such holder
and the Company, so as not to require physical surrender of such certificates on
each such conversion. Except as otherwise provided herein, each conversion of
Preferred Stock shall be deemed to have been effected as of the close of
business on the date specified by the holder in the Notice of Conversion. At the
time any such conversion has been effected, the rights of the holder of the
Shares converted as a holder of Preferred Stock shall cease and the Person or
Persons in whose name or names any certificate or certificates for shares of
Conversion
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<PAGE>
Stock are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Conversion Stock represented
thereby.
(iv) The conversion rights of any Share subject to redemption hereunder
shall terminate on the Redemption Date for such Share unless the Company has
failed to pay to the holder thereof the Redemption Price of such Share (plus all
accrued and unpaid dividends thereon and any premium payable with respect
thereto) on such Redemption Date.
(v) Notwithstanding any other provision hereof, if a conversion of
Preferred Stock is to be made in connection with a Change of Control or other
transaction affecting the Company, the conversion of any Shares of Preferred
Stock may, at the election of the holder thereof, be conditioned upon the
consummation of such transaction, in which case such conversion shall not be
deemed to be effective until such transaction has been consummated.
(vi) On receipt by the Company from a holder of Shares of a Notice of
Conversion by telephone line facsimile transmission meeting the requirements for
conversion herein, the Company shall deliver to the converting holder:
(a) a certificate or certificates representing the number of shares
of Conversion Stock issuable by reason of such conversion in such name or
names and such denomination or denominations as the converting holder has
specified;
(b) payment in cash in an amount equal to all accrued dividends with
respect to each Share converted which have not been paid or included in such
conversion prior thereto, plus the amount payable under subparagraph (xi)
below with respect to such conversion; and
(c) a certificate representing any Shares which were represented by
the certificate or certificates delivered to the Company in connection with
such conversion but which were not converted.
(vii) The Company shall declare the payment of all dividends
payable under subparagraph (vi)(b) above. If the Company is not permitted under
applicable law to pay any portion of the accrued and unpaid dividends on the
Preferred Stock being converted, the Company shall pay such dividends to the
converting holder as soon thereafter as funds of the Company are legally
available for such payment. At the request of any such converting holder, the
Company shall provide such holder with written evidence of its obligation to
such holder. If for any reason the Company is unable to pay any portion of the
accrued and unpaid dividends on Preferred Stock being converted, such dividends
may, at the converting holder's option, be converted into an additional number
of shares of Conversion Stock determined by dividing the amount of the unpaid
dividends to be applied for such purpose, by the lesser of (a) the Conversion
Price then in effect and (b) the Market Price of a share of Common Stock.
(viii) The issuance of certificates for shares of Conversion
Stock upon conversion of the Preferred Stock shall be made without charge to the
holders of such
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<PAGE>
Preferred Stock for any tax in respect thereof or other cost incurred by the
Company in connection with such conversion and the related issuance of shares of
Conversion Stock. Upon conversion of each Share, the Company shall take all such
actions as are necessary in order to insure that the Conversion Stock issuable
with respect to such conversion shall be validly issued, fully paid and
nonassessable, free and clear of all taxes, liens, charges and encumbrances with
respect to the issuance thereof.
(ix) The Company shall not close its books against the
transfer of Preferred Stock or of Conversion Stock issued or issuable upon
conversion of Preferred Stock in any manner which interferes with the timely
conversion of Preferred Stock. The Company shall assist and cooperate with any
holder of Shares required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of Shares
hereunder (including, without limitation, making any filings required to be made
by the Company).
(x) The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Stock, solely
for the purpose of issuance upon the conversion of Preferred Stock, such number
of shares of Conversion Stock issuable upon the conversion of all then
outstanding Preferred Stock (assuming a Conversion Price of $5.25). All shares
of Conversion Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges. The Company shall take all such actions as may be necessary to assure
that all such shares of Conversion Stock may be so issued without violation of
any applicable law or governmental regulation or any requirements of any
domestic securities exchange upon which shares of Conversion Stock may be listed
(except for official notice of issuance which shall be immediately delivered by
the Company upon each such issuance). The Company shall not take any action
which would cause the number of authorized but unissued shares of Conversion
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon conversion of Preferred Stock.
(xi) If any fractional interest in a share of Conversion
Stock would, except for the provisions of this subparagraph, be delivered upon
any conversion of Preferred Stock, the Company, in lieu of delivering the
fractional share therefor, shall pay an amount to the holder thereof equal to
the Market Price of such fractional interest as of the date of conversion.
(xii) If the shares of Conversion Stock issuable by reason of
conversion of Preferred Stock are convertible into or exchangeable for any other
stock or securities of the Company, the Company shall, at the converting
holder's option, upon surrender of the Shares to be converted by such holder as
provided herein together with any notice, statement or payment required to
effect such conversion or exchange of Conversion Stock, deliver to such holder
or as otherwise specified by such holder a certificate or certificates
representing the stock or securities into which the shares of Conversion Stock
issuable by reason of such conversion are so convertible or exchangeable,
registered in such name or names and in such denomination or denominations as
such holder has specified.
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<PAGE>
6B. Conversion Price.
(i) As used herein, the term "Conversion Price" shall mean
the lower of (a) $5.25 (the "Maximum Conversion Price") and (b) 90% of the
Market Price of a share of Common Stock on the day as of which such Conversion
Price is being determined. Notwithstanding the foregoing, in order to prevent
dilution of the conversion rights granted under this Section 6 and give effect
to the Events of Noncompliance under Section 9, the Conversion Price shall be
subject to adjustment from time to time pursuant to the provisions of paragraphs
6B, 6C, 6D, 6E and 6F and the provisions of paragraph 9B, as applicable.
(ii) If and whenever on or after the original date of
issuance of the Preferred Stock the Company issues or sells, or in accordance
with paragraph 6C is deemed to have issued or sold, any shares of its Common
Stock for a consideration per share less than the Market Price in effect
immediately prior to the time of such issue or sale, then immediately upon such
issue or sale or deemed issue or sale the Maximum Conversion Price shall be
reduced to the Maximum Conversion Price determined by multiplying such Maximum
Conversion Price by a fraction equal to the quotient obtained by dividing (a)
the sum of the product derived by multiplying the Market Price in effect
immediately prior to such issue or sale by the number of shares of Common Stock
Deemed Outstanding immediately prior to the earlier of the date on which such
sale or issue is made public or the date of such issue or sale, plus the
consideration, if any, received by the Company upon such issue or sale, by (b)
the product of (1) the Market Price in effect immediately prior to the earlier
of the date on which such sale or issue is made public or the date of such issue
of sale and (2) the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale.
(iii) Notwithstanding the foregoing, there shall be no
adjustment in the Maximum Conversion Price as a result of any issue or sale (or
deemed issue or sale) of up to an aggregate number of 1,200,000 shares of Common
Stock to directors, officers and employees of the Company and its Subsidiaries
pursuant to stock option plans and stock ownership plans approved by the
Company's Board of Directors (as such number of shares is proportionately
adjusted for subsequent stock splits, combinations and dividends affecting the
Common Stock and as such number includes all such stock options and purchase
rights outstanding at the time of the issuance of the Preferred Stock); provided
that the exercise price per share of any stock option granted after the date of
original issuance of the Preferred Stock shall be equal to or greater than the
fair market value of a share of Common Stock on the date of grant of such
option.
6C. Effect on Conversion Price of Certain Events. For purposes
of determining the adjusted Conversion Price under paragraph 6B, the following
shall be applicable:
(i) Issuance of Rights or Options. If the Company in any
manner grants or sells any Options and the price per share for which Common
Stock is issuable upon the exercise of such Options, or upon conversion or
exchange of any Convertible Securities
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<PAGE>
issuable upon exercise of such Options, is less than the Market Price in effect
immediately prior to the time of the granting or sale of such Options, then the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options 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 Options for such price per share. For
purposes of this paragraph, the "price per share for which Common Stock is
issuable" shall be determined by dividing (a) the total amount, if any, received
or receivable by the Company as consideration for the granting or sale of such
Options, plus the minimum aggregate amount of additional consideration payable
to the Company upon exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the issuance or
sale of such Convertible Securities and the conversion or exchange thereof, by
(b) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Maximum Conversion Price shall be made when Convertible
Securities are actually issued upon the exercise of such Options or when Common
Stock is actually issued upon the exercise of such Options or the conversion 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 price per share
for which Common Stock is issuable upon conversion or exchange thereof is less
than the Market Price in effect immediately prior to the time of such issue or
sale, then the maximum number of shares of Common Stock issuable upon conversion
or exchange of such Convertible Securities 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 paragraph, the "price per share for which Common Stock is issuable" shall
be determined by dividing (a) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (b) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No further adjustment of the Maximum Conversion
Price shall be made when Common Stock is actually issued upon the conversion 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
adjustments of the Maximum Conversion Price had been or are to be made pursuant
to other provisions of this Section 6, no further adjustment of the Maximum
Conversion Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities or
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, the Maximum Conversion Price
in effect at the time of such change shall be immediately adjusted to the
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Maximum Conversion Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the case may be,
at the time initially granted, issued or sold; provided that if such adjustment
would result in an increase of the Conversion Price then in effect, such
adjustment shall not be effective until 30 days after written notice thereof has
been given by the Company to all holders of the Preferred Stock. For purposes of
paragraph 6C, if the terms of any Option or Convertible Security which was
outstanding as of the date of issuance of the Preferred Stock are changed in the
manner described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change; provided that no such change shall at any time cause the
Minimum Conversion Price hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Maximum Conversion Price then in effect hereunder shall be
adjusted immediately to the Maximum Conversion Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued; provided that if such expiration
or termination would result in an increase in the Maximum Conversion Price then
in effect, such increase shall not be effective until 30 days after written
notice thereof has been given by the Company to all holders of the Preferred
Stock. For purposes of paragraph 6C, the expiration or termination of any Option
or Convertible Security which was outstanding as of the date of issuance of the
Preferred Stock shall not cause the Maximum Conversion Price hereunder to be
adjusted unless, and only to the extent that, a change in the terms of such
Option or Convertible Security caused it to be deemed to have been issued after
the date of issuance of the Preferred Stock.
(v) Calculation of Consideration Received. If any Common
Stock, Option or Convertible Security is issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Company therefor (net of discounts, commissions
and related expenses). If any Common Stock, Option or Convertible Security is
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company shall be the
Market Price thereof as of the date of receipt. If any Common Stock, Option or
Convertible Security is issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving corporation,
the amount of consideration therefor shall be deemed to be the fair value of
such portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Option or Convertible Security, as the case
may be. The fair value of any consideration other than cash and securities shall
be determined jointly by the Company and the holders of two-thirds of the
outstanding Preferred Stock. If such parties are unable to
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reach agreement within a reasonable period of time, the fair value of such
consideration shall be determined by an independent appraiser experienced in
valuing such type of consideration jointly selected by the Company and the
holders of two-thirds of the outstanding Preferred Stock. The determination of
such appraiser shall be final and binding upon the parties, and the fees and
expenses of such appraiser shall be borne by the Company.
(vi) Integrated Transactions. 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 Option by the parties thereto, the Option shall be deemed to
have been issued for a consideration of $.01.
(vii) Treasury Shares. 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 or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (a) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (b) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date shall 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 upon the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
6D. Subdivision or Combination of Common Stock. If the Company
at any time 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 Maximum Conversion Price in effect immediately
prior to such subdivision shall be proportionately reduced, and if the Company
at any time combines (by reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Maximum Conversion Price in effect immediately prior to such combination shall
be proportionately increased.
6E. Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets or other
transaction, in each case which is effected in such a manner that the holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock, is referred to herein as an "Organic Change". Prior to the
consummation of any Organic Change, the Company shall make appropriate
provisions (in form and substance reasonably satisfactory to the holders of
two-thirds of the Preferred Stock then outstanding) to insure that each of the
holders of Preferred Stock shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the shares of
Conversion Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's
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Preferred Stock, such shares of stock, securities or assets as such holder would
have received in connection with such Organic Change if such holder had
converted its Preferred Stock immediately prior to such Organic Change. In each
such case, the Company shall also make appropriate provisions (in form and
substance satisfactory to the holders of two-thirds of the Preferred Stock then
outstanding) to insure that the provisions of this Section 6 and Sections 7 and
8 hereof shall thereafter be applicable to the Preferred Stock (including, in
the case of any such consolidation, merger or sale in which the successor entity
or purchasing entity is other than the Company, an immediate adjustment of the
Maximum Conversion Price to the value for the Common Stock reflected by the
terms of such consolidation, merger or sale, and a corresponding immediate
adjustment in the number of shares of Conversion Stock acquirable and receivable
upon conversion of Preferred Stock, if the value so reflected is less than the
Maximum Conversion Price in effect immediately prior to such consolidation,
merger or sale). The Company shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof, the successor entity (if other
than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form and substance
satisfactory to the holders of two-thirds of the Preferred Stock then
outstanding), the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
6F. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 6 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 shall make an appropriate adjustment in
the Maximum Conversion Price so as to protect the rights of the holders of
Preferred Stock; provided that no such adjustment shall increase the Conversion
Price as otherwise determined pursuant to this Section 6 or decrease the number
of shares of Conversion Stock issuable upon conversion of each Share.
6G. Notices.
(i) Immediately upon any adjustment of the Maximum
Conversion Price, the Company shall give written notice thereof to all holders
of Preferred Stock, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Company shall give written notice to all holders of
Preferred Stock at least 20 days prior to the date on which the Company closes
its books or takes a record (a) with respect to any dividend or distribution
upon Common Stock, (b) with respect to any pro rata subscription offer to
holders of Common Stock or (c) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
holders of Preferred Stock at least 20 days prior to the date on which any
Organic Change shall take place.
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6H. Conversion Limit. Notwithstanding anything
herein to the contrary, unless and until the Company shall have obtained the
approval of its stockholders for the issuance and sale of securities pursuant to
the Purchase Agreement which are convertible into and exchangeable for, in the
aggregate, more than 19.9% of the common equity of the Company (calculated as
provided in and required by the rules of the Nasdaq Stock Market), to the extent
that the rules of the Nasdaq Stock Market requiring a stockholder vote are
applicable to such issuance and sale or the Company shall have obtained such
other stockholder approval as may be required to comply with the rules of such
other national securities exchange upon which the Common Stock may then be
traded (such percentage of Common Stock or other restriction, the "Conversion
Limit"), the Company will not be required to issue shares of Common Stock upon
conversion of any shares of Preferred Stock which when taken together with all
other shares of Common Stock previously issued upon conversion of the Preferred
Stock and the conversion of the Notes and exercise of the Warrants issued
pursuant to the Purchase Agreement, exceeds the Conversion Limit. In the event
that any shares of Preferred Stock shall be submitted for conversion into shares
of Common Stock, or shall be deemed to be automatically converted into shares of
Common Stock in accordance with the terms hereof, and the number of shares of
Common Stock into which the Preferred Stock shall be convertible in accordance
with the terms hereof exceeds the Conversion Limit, then in lieu of issuing
shares of Common Stock in excess of the Conversion Limit (the "Excess Shares")
the Company shall pay to the holder on the date set for conversion an amount
equal to the product of (x) the quotient obtained by dividing the Redemption
Price by eighty (80) and (y) the Conversion Price (together with all accrued and
unpaid dividends thereon) for each such Excess Share.
Section 7. Liquidating Dividends.
If the Company declares or pays a dividend upon the Common
Stock payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Company shall pay to the holders of
Preferred Stock at the time of payment thereof the Liquidating Dividends which
would have been paid on the shares of Conversion Stock that would have been
issued had such Preferred Stock been converted immediately prior to the date on
which a record is taken for such Liquidating Dividend, or, if no record is
taken, the date as of which the record holders of Common Stock entitled to such
dividends are to be determined.
Section 8. Purchase Rights.
If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then each holder of Preferred Stock shall
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Conversion Stock acquirable upon conversion of
such holder's
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Preferred Stock immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
Section 9. Events of Noncompliance.
9A. Definition. An Event of Noncompliance shall have
occurred if:
(i) the Company fails to pay on any Dividend Payment Date
the full amount of dividends then accrued on the Preferred Stock, whether or not
such payments are legally permissible or are prohibited by any agreement to
which the Company is subject;
(ii) the Company fails to make any redemption payment
(whether following the giving of notice pursuant to paragraph 4C or otherwise)
with respect to the Preferred Stock which it is required to make hereunder,
whether or not such payment is legally permissible or is prohibited by any
agreement to which the Company is subject;
(iii) the Company breaches or otherwise fails to perform or
observe any material provision contained herein, in the Purchase Agreement or in
the Related Documents (as defined in the Purchase Agreement) and (other than
with respect to Section 8.1 or 8.2(m) of the Purchase Agreement, Section 1(f)(i)
of the Registration Rights Agreement or paragraph 6 hereof, the breach of or
failure to perform which shall result in an immediate Event of Noncompliance)
such failure is not cured within fifteen (15) days after the occurrence thereof;
(iv) any representation or warranty contained in the Purchase
Agreement or required to be furnished to any holder of Preferred Stock pursuant
to the Purchase Agreement, or any information contained in writing required to
be furnished by the Company or any Subsidiary to any holder of Preferred Stock,
is false or misleading in any material respect on the date made or furnished;
(v) the Company or any Subsidiary makes an assignment for
the benefit of creditors or admits in writing its inability to pay its debts
generally as they become due; or an order, judgment or decree is entered
adjudicating the Company or any Subsidiary bankrupt or insolvent; or any order
for relief with respect to the Company or any Subsidiary is entered under the
Federal Bankruptcy Code; or the Company or any Subsidiary petitions or applies
to any tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Company or any Subsidiary or of any substantial part of the
assets of the Company or any Subsidiary, or commences any proceeding (other than
a proceeding for the voluntary liquidation and dissolution of any Subsidiary)
relating to the Company or any Subsidiary under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction; or the Company or any Subsidiary takes any action to authorize
any of the foregoing; or any such petition or application is filed, or any such
proceeding is commenced, against the Company or any Subsidiary and either (a)
the Company
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or any such Subsidiary by any act indicates its approval thereof, consent
thereto or acquiescence therein or (b) such petition, application or proceeding
is not dismissed within 60 days;
(vi) one or more judgments in excess of $5,000,000 in the
aggregate is rendered against the Company or any Subsidiary and, such judgment
is not (a) discharged, bonded or otherwise satisfied within 30 days from the
entry thereof, (b) covered by adequate insurance, or (c) the execution of such
judgment is not stayed pending appeal, or within 30 days after the expiration of
any such stay, discharged or otherwise satisfied in full;
(vii) the Company or any Subsidiary defaults in the
performance of any obligations or agreements if the effect of such default is to
cause an amount exceeding $3,000,000 in the aggregate from the date of issuance
of the Preferred Stock to become due prior to its stated maturity or the holder
or holders of any obligation or obligations cause an amount exceeding $3,000,000
to become due prior to its stated maturity;
(viii) any material provision of the Purchase Agreement, the
Notes or any Related Document shall at any time for any reason be declared to be
null and void, or the validity or enforceability thereof shall be contested by
any party thereto, or a proceeding shall be commenced by the Company or any
Governmental Authority or other regulatory body having jurisdiction over the
Company, seeking to establish the invalidity or enforceability thereof, or the
Company shall deny in writing that it has any liability or obligation purported
to be created under the Purchase Agreement or any Related Document;
(ix) any non-monetary judgment or order shall be entered
against the Company or any Subsidiary which does, or could reasonably be
expected to, result in a Material Adverse Change (as defined in the Purchase
Agreement), and there shall be a period of ten consecutive days during which a
stay of enforcement of such judgment or order shall not be in effect;
(x) Section 29 of the Code is repealed, replaced or amended
and such repeal, replacement or amendment could reasonably be expected to have a
Material Adverse Effect (as defined in the Purchase Agreement) on the Company;
(xi) (A) any registration statement required to be filed and
declared effective by the Company pursuant to the Registration Rights Agreement
(as defined in the Purchase Agreement) shall cease to be effective or fail to be
usable for its intended purpose without being succeeded within two (2) business
days by a post-effective amendment to such registration statement that cures
such failure and that is itself immediately declared effective or (B) the
Securities and Exchange Commission shall issue any stop order suspending the
effectiveness under the Securities Act of any registration statement required to
be filed and declared effective by the Company pursuant to the Registration
Rights Agreement or any state securities commission suspends the qualification
of the Registrable Securities covered thereby
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for offering or sale in any jurisdiction, or (C) any proceeding for purposes of
either (A) or (B) above is initiated; or
(xii) the occurrence of a Material Adverse Change (as defined
in the Purchase Agreement).
9B. Consequences of Events of Noncompliance.
(i) If an Event of Noncompliance (other than an Event of
Noncompliance due to paragraph 9A(v)) has occurred and is continuing, (a) any
holder of any shares of Preferred Stock then outstanding may demand (by written
notice delivered to the Company), notwithstanding any other provision contained
herein, (1) the immediate conversion of all or any shares of such holder's or
holders' Preferred Stock at the applicable Conversion Price as of the date of
such holder's notice or (2) the immediate redemption of all or any portion of
the Preferred Stock owned by such holder or holders at a price per share equal
to the Redemption Price as of the date of such holder's notice (plus all accrued
and unpaid dividends thereon) and (b) the dividend rate on the Preferred Stock
(including any Preferred Stock not redeemed or converted pursuant to (1) and (2)
above) shall increase immediately by an increment of two percentage points.
Thereafter, during the continuance of an Event of Noncompliance and until such
time as no Event of Noncompliance exists, the dividend rate shall increase
automatically at the end of each succeeding 90-day period by an additional
increment of two percentage points (but in no event shall the dividend rate
exceed 15%). Any increase of the dividend rate resulting from the operation of
this subparagraph shall terminate as of the close of business on the date on
which no Event of Noncompliance exists, subject to subsequent increases pursuant
to this paragraph. The Company shall give prompt written notice of any holder's
election for immediate conversion or redemption to the other holders of
Preferred Stock (but in any event within five days after receipt of the initial
demand for conversion or redemption), and each such other holder may demand
immediate conversion or redemption of all or any portion of such holder's
Preferred Stock by giving written notice thereof to the Company within seven
days after receipt of the Company's notice. The Company shall convert or redeem
all Preferred Stock as to which rights under this paragraph have been exercised
within 5 days after receipt of the initial demand for conversion or redemption.
(ii) If an Event of Noncompliance of the type described in
subparagraph 9A(v) has occurred, all of the Preferred Stock then outstanding
shall be subject to immediate redemption by the Company (without any action on
the part of the holders of the Preferred Stock) at a price per Share equal to
the Redemption Price (plus all accrued and unpaid dividends thereon). The
Company shall immediately redeem all Preferred Stock upon the occurrence of such
Event of Noncompliance.
(iii) If any Event of Noncompliance of the type described in
subparagraph 9A(i) occurs, for each such occurrence of the failure to pay on any
Dividend Payment Date the full amount of dividends then accrued on the Preferred
Stock, whether or
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not such payments are legally permissible or are prohibited by any agreement to
which the Company is subject, the Conversion Price calculated at the time of
conversion shall be reduced by $0.50 per share. In no event shall any Conversion
Price adjustment hereunder be rescinded.
(iv) If any Event of Noncompliance of the type described in
subparagraph 9A(ii) occurs the Conversion Price calculated at the time of
conversion shall be reduced to 75% of the applicable Conversion Price in effect
at the time of conversion immediately prior to such adjustment. Thereafter, for
each succeeding 90-day period that the Event of Noncompliance continues
following the initial Event of Noncompliance referred to above, the Conversion
Price calculated at the time of conversion shall be reduced to 75% of the
Conversion Price in effect at the time of conversion immediately prior to such
adjustment. In no event shall any Conversion Price adjustment hereunder be
rescinded.
For example, assume that an Event of Noncompliance of the type
described in subparagraph 9A(ii) has occurred and the Preferred Stock
becomes immediately convertible. Then assume that one year prior to
such Event of Noncompliance there had been a two-for-one stock split by
the Company. Finally, assume that, pursuant to Section 6B(i), the
Conversion Price prior to the stock split was $5.00. In this case, the
Conversion Price of $5.00 would first be decreased pursuant to Section
6D from $5.00 to $2.50. Then the Conversion Price calculated at the
time of conversion would be reduced to 75% of $2.50, or $1.875. If the
Event of Noncompliance had existed for an additional 90 days following
the initial Event of Noncompliance the Conversion Price at the time of
conversion would be reduced to 75% of $1.875, or $1.40625. If the Event
of Noncompliance had existed for an additional 90 days following the
initial Event of Noncompliance the Conversion Price at the time of
conversion would be further reduced to 75% of $1.40625, or $1.05469.
(v) If any Event of Noncompliance of the type described in
subpara graph 9A(vi) occurs, for each such occurrence the Conversion Price
calculated at the time of conversion shall be reduced by an amount equal to the
quotient of (a) the amount of the judgment referred to in subparagraph 9A(vi)
divided by (b) the number of shares of Common Stock Deemed Outstanding at the
time of the Event of Noncompliance.
(vi) If any Event of Noncompliance exists, each holder of
Preferred Stock shall also have any other rights which such holder is entitled
to under the Purchase Agreement or any other contract or agreement and any other
rights which such holder may have pursuant to applicable law.
(vii) Neither the Company nor holders of the Preferred Stock
shall file any Tax Return (as defined in the Purchase Agreement) or take any
position with any taxing authority treating a reduction in the Conversion Price
pursuant to paragraph (iii), (iv) or (v) of this Section 9B as a deemed
dividend.
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Section 10. Registration of Transfer.
The Company shall keep at its principal office a register for
the registration of Preferred Stock. Upon the surrender of any certificate
representing Preferred Stock at such place, the Company shall, at the request of
the record holder of such certificate, execute and deliver (at the Company's
expense) a new certificate or certificates in exchange therefor representing in
the aggregate the number of Shares represented by the surrendered certificate.
Each such new certificate shall be registered in such name and shall represent
such number of Shares as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate, and dividends shall accrue on the Preferred Stock represented by
such new certificate from the date to which dividends have been fully paid on
such Preferred Stock represented by the surrendered certificate.
Section 11. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Company of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing Preferred Stock, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Company shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the number of Shares of such class represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on
the Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or mutilated
certificate.
Section 12. Definitions.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Board of Directors" means the board of directors of the
Company.
"Change of Control" has the meaning set forth in paragraph 4H
hereof.
"Change of Control Conversion Price" has the meaning set forth
in paragraph 4H hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, collectively, the Company's Common
Stock, $.001 par value per share, and any capital stock of any class of the
Company hereafter authorized which is not limited to a fixed sum or percentage
of par or stated value in respect to the rights of
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the holders thereof to participate in dividends or in the distribution of assets
upon any liquidation, dissolution or winding up of the Company.
"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
subparagraphs 6C(i) and 6C(ii) hereof whether or not the Options or Convertible
Securities are actually exercisable at such time.
"Conversion Price" has the meaning set forth in paragraph 6B
hereof.
"Conversion Stock" means shares of the Company's Common Stock,
par value $.001 per share; provided, that if there is a change such that the
securities issuable upon conversion of Preferred Stock are issued by an entity
other than the Company or there is a change in the type or class of securities
so issuable, then the term "Conversion Stock" shall mean one share of the
security issuable upon conversion of Preferred Stock if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Convertible Securities" means any stock or securities
directly or indirectly convertible into or exchangeable for Common Stock.
"Dividend Payment Dates" has the meaning set forth in
paragraph 1B hereof.
"Event of Noncompliance" has the meaning set forth in
paragraph 9A hereof.
"Junior Securities" means all capital stock or other equity
securities (including, without limitation, the Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock of the Company) of the Company,
except for the Preferred Stock.
"Liquidating Dividend" has the meaning set forth in paragraph
7 hereof.
"Liquidation Value" of any Share as of any particular date
shall be equal to $100.
"Market Price" of any security means the average closing bid
prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid prices on all such exchanges
at the end of such day, or, if on any day such security is not so listed, the
average of the representative bid prices quoted on the Nasdaq Stock Market as of
4:00 P.M., New York time, or, if on any day such security is not quoted on the
Nasdaq Stock Market, the average of the highest bid prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaging
the three lowest bid prices over the period of the 20 Business Days immediately
preceding the day on which "Market Price" is being determined.
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<PAGE>
If at any time such security is not listed on any securities exchange or quoted
on the Nasdaq Stock Market or the over-the-counter market, the "Market Price"
shall be the fair value thereof determined jointly by the Company and the
holders of two-thirds of the Preferred Stock. If such parties are unable to
reach agreement within a reasonable period of time, such fair value shall be
determined by an independent appraiser experienced in valuing securities jointly
selected by the Company and the holders of two-thirds of the Preferred Stock.
The determination of such appraiser shall be final and binding upon the parties,
and the Company shall pay the fees and expenses of such appraiser.
"Maximum Conversion Price" has the meaning set forth in
paragraph 6B.
"Notes" has the meaning set forth in paragraph 5B(ii) hereof.
"Options" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a corporation, a
limited liability company, a limited liability partnership, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency or political subdivision
thereof or other entity.
"Preferred Stock" means the Series D Cumulative Convertible
Preferred, par value $.001 per share, of the Company.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of March 17, 1999, by and among the Company and the investors named
therein, as such agreement may from time to time be amended in accordance with
its terms.
"Purchase Rights" has the meaning set forth in paragraph 8
hereof.
"Recent Market Price" of any security means the average
closing bid prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid prices quoted on the Nasdaq Stock
Market as of 4:00 P.M., New York time, or, if on any day such security is not
quoted on the Nasdaq Stock Market, the average of the highest bid prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case over the period of the 5 Business Days immediately preceding the day
on which "Recent Market Price" is being determined. If at any time such security
is not listed on any securities exchange or quoted on the Nasdaq Stock Market or
the over-the-counter market, the "Recent Market Price" shall be the fair value
thereof determined jointly by the Company and the holders of two-thirds of the
Preferred Stock. If such parties are unable to reach agreement within a
reasonable period of time, such fair value
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<PAGE>
shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the Company and the holders of two-thirds of the
Preferred Stock. The determination of such appraiser shall be final and binding
upon the parties, and the Company shall pay the fees and expenses of such
appraiser.
"Redemption Date" as to any Share means the date specified in
the notice of any redemption at the Company's option or at the holder's option
or the applicable date specified herein in the case of any other redemption.
"Redemption Price" of any Share as of any particular date
shall be equal to the greater of (a) $125 and (b) the quotient obtained by
dividing (i) the product obtained by multiplying $100 by the Recent Market Price
of a share of Common Stock on the date of redemption, by (ii) $5.25.
"Share" has the meaning set forth in paragraph 1A hereof.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control the managing general partner of such
limited liability company, partnership, association or other business entity.
Section 13. Amendment and Waiver.
No amendment, modification or waiver shall be binding or
effective with respect to any provision of this Agreement without the prior
written consent of the holders of at least two-thirds of the Preferred Stock
outstanding at the time such action is taken; provided that no such action shall
change (a) the rate at which or the manner in which dividends on the Preferred
Stock accrue or the times at which
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such dividends become payable or the amount payable on redemption of the
Preferred Stock or the times at which redemption of Preferred Stock is to occur,
without the prior written consent of the holders of 100% of the Preferred Stock
then outstanding, (b) the Conversion Price of the Preferred Stock or the number
of shares or class of stock into which the Preferred Stock is convertible,
without the prior written consent of the holders of 100% of the Preferred Stock
then outstanding, or (c) the percentage required to approve any change described
in clauses (a) and (b) above, without the prior written consent of the holders
of 100% of the Preferred Stock then outstanding; and provided further that no
change in the terms hereof may be accomplished by merger or consolidation of the
Company with another corporation or entity unless the Company has obtained the
prior written consent of the holders of the applicable percentage of the
Preferred Stock then outstanding.
Section 14. Notices.
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be (i) delivered in person,
(ii) transmitted by telecopy, (iii) sent by registered or certified mail,
postage prepaid with return receipt requested, or (iv) sent by reputable
overnight courier service, fees prepaid, to (x) the Company, at its principal
executive offices and (y) to any holder of Shares, at such holder's address as
it appears in the Purchase Agreement (unless otherwise indicated by any such
holder). Notices shall be deemed given upon personal delivery, upon receipt of a
return receipt in the case of delivery by mail, upon acknowledgment by the
receiving telecopier or one day following deposit with an overnight courier
service.
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Exhibit A
FORM OF NOTICE OF CONVERSION
____________________, 199_
BY FACSIMILE: or ______________ (alternate)
[Company Name and Address]
cc: [Name of Transfer Agent]
Re: Series D Cumulative Convertible Preferred Stock
The undersigned hereby elects to convert the number of shares of Series
D Cumulative Convertible Preferred Stock indicated below, into shares of Common
Stock, par value $.01 per share of the Company, as of the following date:
Date to Effect Conversion:
Number of shares of
Series D Preferred Stock being Converted:
Conversion Price (calculated as follows):
The number of shares of Common Stock to be received on conversion of ______
Shares of Series D Preferred Stock is _______ shares.
A-1
<PAGE>
Delivery Instructions:
Certificates to be
issued in the name of:
Certificates to be
delivered to:
Date: --------------------------------------------
Authorized signature of Registered Holder
CONFIRMATION OF RECEIPT
OF NOTICE OF CONVERSION
AND CONVERSION CALCULATION:
Acknowledged:
[Company]
By: --------------------------------------------
Name: --------------------------------------------
Title: --------------------------------------------
A-2
COVOL TECHNOLOGIES, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of March 17, 1999
<PAGE>
TABLE OF CONTENTS
Page
Article I
DEFINITIONS........................................................1
1.1 Definitions; Interpretation........................................1
Article II
ISSUANCE AND SALE OF THE SECURITIES................................9
2.1 Authorization of the Securities. .................................9
2.2 Issuance and Sale of the Securities. .............................9
Article III
CLOSING; CLOSING DELIVERIES.......................................10
3.1 Closing...........................................................10
3.2 Payment for and Delivery of the Securities........................10
Article IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................10
4.1 Existence; Qualification; Subsidiaries............................10
4.2 Authorization and Enforceability; Issuance of the
Securities, the Conversion Shares and the Warrant Shares..........10
4.3 Capitalization....................................................11
4.4 Private Sale......................................................12
4.5 Financial Statements; Disclosure..................................12
4.6 Absence of Certain Changes........................................13
4.7 Litigation........................................................14
4.8 Licenses, Compliance with Law, Other Agreements, Etc..............15
4.9 Third-Party Approvals.............................................15
4.10 No Undisclosed Liabilities........................................15
4.11 Tangible Assets...................................................15
4.12 Inventory.........................................................15
4.13 Owned Real Property...............................................16
4.14 Real Property Leases..............................................16
4.15 Agreements........................................................16
4.16 Intellectual Property.............................................16
4.17 Employees.........................................................17
4.18 ERISA; Employee Benefits..........................................17
4.19 Environmental Laws................................................18
4.20 Transactions With Affiliates......................................19
4.21 Taxes.............................................................19
4.22 Other Investors...................................................20
4.23 Year 2000 Representations.........................................20
(i)
<PAGE>
TABLE OF CONTENTS
(continued)
4.24 Seniority.........................................................20
4.25 Investment Company................................................21
4.26 Certain Fees......................................................21
4.27 Solicitation Materials............................................21
4.28 Form S-3 Eligibility..............................................21
4.29 Listing and Maintenance Requirements Compliance...................21
4.30 Registration Rights; Rights of Participation......................21
4.31 Synthetic Fuel Facilities.........................................22
5.1 Authorization and Enforceability..................................22
5.2 Government Approvals..............................................23
Article VI
COMPLIANCE WITH SECURITIES LAWS...................................23
6.1 Investment Intent of .............................................23
6.2 Status of Securities..............................................23
6.3 Accredited Investor Status........................................23
6.4 Access to Information.............................................23
6.5 Transfer of Securities, Conversion Shares and Warrant Shares......23
Article VII
CONDITIONS PRECEDENT..............................................24
7.1 Conditions Precedent..............................................24
7.2 Closing Deliveries to the Company.................................27
Article VIII
COVENANTS OF THE COMPANY..........................................27
8.1 Restricted Actions................................................27
8.2 Required Actions..................................................31
8.3 Reservation of Common Stock.......................................34
8.4 Payments Free of Withholding......................................34
Article IX
SURVIVAL..........................................................34
9.1 Survival..........................................................34
Article X
INDEMNIFICATION...................................................34
10.1 Indemnification...................................................34
(ii)
<PAGE>
TABLE OF CONTENTS
(continued)
Article XI
GENERAL PROVISIONS................................................35
11.1 Successors and Assigns............................................35
11.2 Entire Agreement..................................................35
11.3 Notices...........................................................35
11.4 Purchaser Fees and Expenses.......................................36
11.5 Amendment and Waiver..............................................37
11.6 Counterparts......................................................37
11.7 Headings..........................................................37
11.8 Specific Performance..............................................37
11.9 Remedies Cumulative...............................................38
11.10 GOVERNING LAW.....................................................38
11.11 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE.............38
11.12 WAIVER OF JURY TRIAL..............................................39
11.13 No Third Party Beneficiaries......................................39
11.14 Severability......................................................39
11.15 Right of First Refusal............................................39
Exhibit A Certificate of Designations
Exhibit B Financial Statements
Exhibit C Registration Rights Agreement
Exhibit D Security Agreement
Exhibit E Side Agreements
Exhibit F Termination and Release Agreement
Exhibit G Form of Warrant
Exhibit H Form of Convertible Secured Note
Exhibit I Opinion of Counsel
(iii)
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March 17,
1999, by and among Covol Technologies, Inc., a Delaware corporation (the
"Company") and OZ Master Fund, Ltd. (the "Purchaser").
The Purchaser desires to purchase from the Company, and the Company
desires to issue to the Purchaser, upon the terms and subject to the conditions
set forth herein (i) shares of the Preferred Stock, (ii) the Convertible Secured
Notes of the Company and (iii) the Warrants (other than the Series E Warrants).
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties hereto agree
as follows:
Article I
DEFINITIONS
1.1 Definitions; Interpretation.
(a) For purposes of this Agreement, the following terms have
the indicated meanings:
"Affiliate" of a Person means any officer, director or
employee of the Company and any other Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with such Person. For purposes of this definition, "control" of a
Person means the power, directly or indirectly, either to (i) vote 20% or more
of the Capital Stock havingordinary voting power for the election of directors
of such Person or (ii) direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Board of Directors" means the board of directors of the
Company.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Capital Expenditures" means, with respect to any Person for
any period, the sum, without duplication, of the aggregate amount of all
expenditures of such Person during such period which, in accordance with GAAP,
is required to be included in, or is properly included by such Person as
additions to property, plant or equipment or other similar fixed asset accounts
of such Person. For purposes of the definition, the purchase price of equipment
which is purchased simultaneously with the trade-in of existing equipment owned
by such Person or with insurance proceeds shall be included in Capital
Expenditures only to the extent that the gross amount of such purchase price
exceeds the amount of the trade-in credit or insurance proceeds applied to such
purchase, as the case may be.
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"Capital Stock" of any Person shall mean any and all shares,
interests (including membership and economic interests in a limited liability
company), rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity prior to such conversion.
"Capitalized Lease" means any lease which is required under
GAAP to be capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means obligations for the
payment of rent for any Capitalized Lease; for purposes hereof, the amount of
any such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"CERCLA" shall mean the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
"Certificate of Designations" means the Certificate of
Designations, Number, Voting Powers, Preferences and Rights of the series of the
Preferred Stock of the Company to be designated Series D Cumulative Convertible
Preferred Stock, set forth as Exhibit A hereto, as the same may be amended from
time to time with the requisite consent of the holders of Preferred Stock.
"Closing" has the meaning set forth in Section 3.1.
"Closing Date" has the meaning set forth in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, collectively, the Company's Common
Stock, $.001 par value per share, and any capital stock of any class of the
Company hereafter authorized which is not limited to a fixed sum or percentage
of par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
"Company" has the meaning set forth in the recitals hereof.
"Confidential Information" means any proprietary information
concerning the Company's business other than information that (i) was already
known to the Person having a duty tokeep confidential such information on a
nonconfidential basis prior to the time of disclosure, (ii) is or becomes
generally available to the public through no act or omission of such Person or
(iii) becomes available to such Person on a nonconfidential basis from a source
other than any party hereto (or any agent or representative thereof) if such
source was not under a prohibition against disclosing the information or
otherwise bound by a confidentiality agreement with respect thereto.
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"Conversion Shares" means shares of Common Stock issued or
issuable upon conversion of shares of the Preferred Stock and the Notes;
provided, that if there is a change such that the securities issuable upon
conversion of the Preferred Stock and the Notes are issued by an entity other
than the Company or there is a change in the securities so issuable, then the
term "Conversion Shares" shall mean shares or the security issuable upon
conversion of the Preferred Stock and the Notes if such securities are issuable
in shares, or shall mean the equivalent units in which such security is issuable
if such security is not issuable in shares.
"Current Balance Sheet" means the audited balance sheet of the
Company as at September 30, 1998.
"Dividend Shares" means shares of Preferred Stock issued
pursuant to Section 1D of the Certificate of Designations.
"Employee Plan" means an employee benefit plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and maintained (or was
maintained at any time during the six (6) calendar years preceding the Closing
Date) for employees of the Company, any Subsidiary or any ERISA Affiliate.
"Environmental Actions" refers to any complaint, summons,
citation, notice, directive, order, claim, litigation, investigation, judicial
or administrative proceeding, judgment, letter or other communication from any
governmental agency, department, bureau, office or other authority, or any third
party involving violations of Environmental Laws or Releases of Hazardous
Materials (i) from any assets, properties or businesses of the Company or any of
its Subsidiaries, licensees or predecessors in interest; (ii) from adjoining
properties or business; or (iii) from or onto any facilities which received
Hazardous Materials generated by the Company or any of its Subsidiaries,
licensees or predecessors in interest.
"Environmental Law" means the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. ss. 9601, et seq.), the
Hazardous Materials Transpiration Act (49 U.S.C. 42 ss. 1801, et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. ss. 6901, et seq.), the
Federal Water Pollution Control Act (33 U.S.C. ss. 1251, et seq.), the Clean Air
Act (42 U.S.C. ss. 7401, et seq.), the Toxic Substances Control Act (15 U.S.C.
ss. 2601, et seq.) and the Occupational Safety and Health Act (29 U.S.C. ss. 651
et seq.), as such laws may be amended or supplemented from time to time, and any
other present or future federal (United States or Canada), state, provincial,
local or foreign statute, ordinance, rule, regulation, order, judgment, decree,
permit, license or other binding determination of any Governmental Agency
imposing liability or establishing standards of conduct for protection of the
environment.
"Environmental Liabilities and Costs" means all liabilities
(including strict liabilities), monetary obligations, Remedial Actions, losses,
damages, punitive damages, consequential damages, treble damages, costs and
expenses (including all reasonable out-of-pocket fees, disbursements and
expenses of counsel, out-of-pocket expert and consulting fees, and out-of-pocket
costs for environmental site assessments, remedial investigations and
feasibility studies),
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fines, penalties, sanctions and interest incurred as a result of any
Environmental Action filed by any Governmental Agency or any third party, which
relate to any violations of Environmental Laws, Remedial Actions, Releases or
threatened Releases of Hazardous Materials from or onto (i) any property
presently or formerly owned by the Company or any of its Subsidiaries, licensees
or predecessors in interest or (ii) any facility which received Hazardous
Materials generated by the Company or any of its Subsidiaries, licensees or
predecessors in interest.
"Environmental Lien" means any Lien in favor of any
Governmental Agency for Environmental Liabilities and Costs.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, and regulations
thereunder in each case as in effect from time to time. References to sections
of ERISA shall be construed also to refer to any successor sections.
"ERISA Affiliate" means, with respect to any Person, any trade
or business (whether or not incorporated) which is a member of a group of which
such Person is a member and which would be deemed to be a "controlled group"
within the meaning of Sections 414(b), (c), (m) and (o) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Indebtedness" has the meaning set forth in Section
4.2.
"Facilities" has the meaning set forth in Section 4.31.
"Family Group" means, with respect to an individual Purchaser,
such Purchaser, such Purchaser's spouse, siblings, descendants and/or ancestors
(whether natural, by marriage or adopted) and any trust solely for the benefit
of such Purchaser and/or such Purchaser's spouse, siblings, their respective
ancestors and/or descendants (whether natural, by marriage or adopted).
"Financial Statements" means (i) the unaudited balance sheets
of the Company as at December 31, 1998 and 1997, and the related unaudited
statements of income and consolidated cash flow for the quarterly periods then
ended, and (ii) the audited balance sheets of the Company as at September 30,
1998 and 1997, and the related audited statements of income and consolidated
cash flow for the fiscal year periods then ended, all of which are attached as
Exhibit B hereto.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time, consistently
applied.
"Governmental Agency" means any federal, state, local, foreign
or other governmental agency, instrumentality, commission, authority, board or
body and the National Association of Securities Dealers.
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"Hazardous Materials" includes (a) any element, compound or
chemical that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous
substance or chemical, hazardous waste, special waste, or solid waste under
Environmental Laws; (b) petroleum and its refined products; (c) polychlorinated
biphenyls; (d) any substance exhibiting a hazardous waste characteristic,
including but not limited to corrosivity, ignitability, toxicity or reactivity
as well as any radioactive or explosive materials; and (e) any raw materials,
building components, including but not limited to asbestos-containing materials
and manufactured products containing hazardous substances.
"Hedging Agreement" means any interest rate swap, collar, cap,
floor or forward rate agreement or other agreement regarding the hedging of
interest rate risk exposure executed in connection with hedging the interest
rate exposure of the Company, and any confirming letter executed pursuant to
such agreement, all as amended, supplemented, restated or otherwise modified
from time to time.
"includes" and "including" mean includes and including,
without limitation.
"Indebtedness" means, without duplication, as to any Person
(i) indebtedness for borrowed money; (ii) indebtedness for the deferred purchase
price of property or services (other than current trade payables incurred in the
Ordinary Course of Business and payable in accordance with customary practices);
(iii) indebtedness evidenced by bonds, debentures, notes or other similar
instruments (other than performance, surety and appeal or other similar bonds
arising in the Ordinary Course of Business); (iv) obligations and liabilities
secured by a Lien upon property owned by such Person, whether or not owing by
such Person and even though such Person has not assumed or become liable for the
payment thereof; (v) obligations and liabilities directly or indirectly
guaranteed by such Person; (vi) obligations or liabilities created or arising
under any conditional sales contract or other title retention agreement with
respect to property used and/or acquired by such Person, even though the rights
and remedies of the lessor, seller and/or lender thereunder are limited to
repossession of such property; (vii) Capitalized Lease Obligations; (viii) all
liabilities in respect of letters of credit, acceptances and similar obligations
created for the account of such Person; (ix) net liabilities of such Person
under Hedging Agreements and foreign currency exchange agreements, as calculated
on a basis satisfactory to the Purchaser and in accordance with accepted
practice; and (x) the Notes issued hereunder valued at the Optional Redemption
Price (as defined in the Notes) for purposes hereof.
"Intellectual Property" means all domestic and foreign
patents, patent applications, disclosures, industrial designs, discoveries and
inventions; trademarks, service marks, trade dress, trade names, d/b/a's,
Internet domain names and corporate names and all goodwill associated therewith;
published and unpublished works of authorship, copyrights; registrations,
applications andrenewals for any of the foregoing; trade secrets, Confidential
Information, know-how, technical and computer data, databases, proprietary
information, documentation and software, financial, business and marketing
plans, customer and supplier lists and all other intellectual property and
proprietary rights; and all copies and tangible embodiments of the foregoing.
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"IRS" means the Internal Revenue Service.
"knowledge" or "know" when used with respect to the Company
means the knowledge of the senior management (vice president or senior) of the
Company, or any other management personnel that has had significant involvement
in the business and affairs of the Company.
"Liability" means any liability or obligation (whether
absolute or contingent, liquidated or unliquidated or due or to become due).
"Lien" means any mortgage, deed of trust, pledge, lien,
security interest, charge, encumbrance, security arrangement, restriction,
covenant, encroachment or other title imperfection of any nature whatsoever,
including but not limited to any conditional sale or title retention
arrangement, and any assignment, deposit arrangement or lease intended as, or
having the effect of security.
"Material Adverse Change" means any material adverse change in
the business, condition (financial or otherwise), prospects or results of
operations of the Company and its Subsidiaries taken as a whole.
"Material Adverse Effect" means any material adverse effect on
(i) the business, condition (financial or otherwise), prospects or results of
operations of the Company and its Subsidiaries taken as a whole, or (ii) any of
the transactions contemplated hereby or by the Related Documents.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA of which the Company or any ERISA Affiliate has
contributed to, or has been obligated to contribute to, at any time during the
six (6) years preceding the Closing Date.
"Notes" has the meaning set forth in Section 2.1.
"ordinary course of business" means the ordinary course of
business of the Company consistent with past practice (including with respect to
quantity, quality and frequency).
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"Permitted Liens" has the meaning set forth in Section 8.1(l).
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other entity.
"Plan" means any employee benefit plan (as defined in Section
3(3) of ERISA), maintained or contributed to by the Company, or any predecessor
or Subsidiary at any time during the 5-calendar years immediately preceding the
date of this Agreement.
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"Preferred Shares" has the meaning set forth in Section 2.1.
"Preferred Stock" means the Series D Cumulative Convertible
Preferred Stock, $.001 par value per share, of the
Company.
"RCRA" shall mean the federal Resource Conservation and
Recovery Act, as amended.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company and the Purchaser substantially in the form of
Exhibit C hereto.
"Related Documents" means all documents and instruments to be
executed or adopted by the Company in connection herewith, including without
limitation the Certificate of Designations, the Preferred Shares, the Side
Agreements, the Termination and Release Agreement, each of the Notes, the
Security Agreement, the Registration Rights Agreement, the Warrants and all
other documents and instruments to be executed or adopted by the Company
pursuant thereto.
"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, seeping,
migrating, dumping or disposing of any Hazardous Material (including the
abandonment or discarding of barrels, containers and other closed receptacles
containing Hazardous Materials) into the indoor or outdoor environment,
including ambient air, soil, surface or ground water.
"Remedial Action" means all actions taken to (i) clean up,
remove, remediate, contain, treat, monitor, assess, evaluate or in any other way
address Hazardous Materials in the indoor or outdoor environment; (ii) prevent
or minimize a Release or threatened Release of Hazardous Materials so they do
not migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations and post-remedial operation and maintenance activities; or (iv)
any other actions authorized by 42 U.S.C. 9601.
"Reportable Event" means any of the events set forth in
Section 4043 of ERISA.
"SEC" means the Securities and Exchange Commission.
"Securities" has the meaning given that term in Section 2.1.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement by and among
the Company, the Purchaser, PC Virginia Synthetic Fuel #1, L.L.C., a Delaware
limited liability company, PC West Virginia Synthetic Fuel #1, L.L.C., a
Delaware limited liability company, PC West Virginia Synthetic Fuel #2, L.L.C.,
a Delaware limited liability company, and PC West Virginia Synthetic Fuel #3,
L.L.C., a Delaware limited liability company, substantially in the form attached
as Exhibit D hereto.
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"Series E Warrants" has the meaning given that term in the
definition of "Warrants" in this Section 1.1(a).
"Side Agreements" means each of the Agreements, dated as of
the Closing Date, by and between the Company and each of (i) PC Virginia
Synthetic Fuel #1, L.L.C., a Delaware limited liability company, (ii) PC West
Virginia Synthetic Fuel #1, L.L.C., a Delaware limited liability company, (iii)
PC West Virginia Synthetic Fuel #2, L.L.C., a Delaware limited liability
company, and (iv) the PC West Virginia Synthetic Fuel #3, L.L.C., a Delaware
limited liability company, substantially in the form of Exhibit E hereto.
"Subsidiary" means any corporation, partnership, association
or other business entity of which (i) if a corporation, a majority of the total
voting power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by the
Company or (ii) if a partnership, association or other business entity, a
majority of the partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by the Company. For
purposes hereof, the Company shall be deemed to have a majority ownership
interest in a partnership, association or other business entity if the Company,
directly or indirectly, is allocated a majority of partnership, association or
other business entity gains or losses, or is or controls the managing director
or general partner of such partnership, association or other business entity.
"Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
ss.59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Returns" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Termination and Release Agreement" means the Termination and
Release Agreement, dated as of the Closing Date, by and between the Company and
Trans Pacific Stores, LTD., a Hawaiian corporation, substantially in the form of
Exhibit F hereto.
"Termination Event" means (i) a Reportable Event with respect
to any Employee Plan, (ii) any event that causes the Company or any of its ERISA
Affiliates to incur liability under Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201 or 4212 of ERISA or Section 4971 or 4975 of the Code,
(iii) the filing of a notice of intent to terminate an Employee Plan or the
treatment of an Employee Plan amendment as a termination under Section 4041 of
ERISA, (iv) the institution of proceedings by the PBGC to terminate an Employee
Plan, or (v) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer any Employee Plan.
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"Warrants" means, collectively (i) the Series A Stock Purchase
Warrants of the Company initially exercisable for 200,000 shares of Common
Stock, (ii) the Series B Stock Purchase Warrants of the Company initially
exercisable for 200,000 shares of Common Stock, (iii) the Series C Stock
Purchase Warrants initially exercisable for 228,572 shares of Common Stock and
(iv) the Series D Stock Purchase Warrants initially exercisable for 342,858
shares of Common Stock, to be issued by the Company on the Closing Date and (v)
the Series E Stock Purchase Warrants (the "Series E Warrants") of the Company
initially exercisable for 312,196 shares of Common Stock, to be issued by the
Company on the Closing Date, each of (i) through (v) substantially in the form
of Exhibit G hereto.
"Warrant Shares" means shares of the Common Stock obtained or
obtainable upon exercise of the Warrants; provided, that if there is a change
such that the securities issuable upon exercise of the Warrants are issued by an
entity other than the Company or there is a change in the class of securities so
issuable, then the term "Warrant Shares" shall mean shares of the security
issuable upon exercise of the Warrants if such security is issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
(b) The words "herein," "hereof" and "hereunder"
refer to this Agreement as a whole and not to any particular article, section or
other subdivision of this Agreement.
Article II
ISSUANCE AND SALE OF THE SECURITIES
2.1 Authorization of the Securities. The Company has authorized the
issuance and sale to the Purchaser of (a) 60,000 shares of Preferred Stock (the
"Preferred Shares"), (b) the Warrants (other than the Series E Warrants) and (c)
its Convertible Secured Notes in an aggregate principal amount of $20,000,000
and containing the terms and conditions and in the form of the Note set forth in
Exhibit H attached hereto (the "Notes" and, together with the Preferred Shares,
the Warrants and the Dividend Shares, the "Securities"). The Preferred Shares
and the Notes are convertible into and the Warrants are exercisable for shares
of the Company's Common Stock and the Notes are secured by a first priority
security interest in the collateral described in the Security Agreement.
2.2 Issuance and Sale of the Securities. At the Closing, on the terms
and subject to the conditions of this Agreement, the Company shall issue to the
Purchaser (a) 60,000 Preferred Shares, (b) Warrants (other than the Series E
Warrants) initially exercisable for an aggregate of 971,430 Warrant Shares, and
(c) a Note in the aggregate principal amount of $20,000,000, for an aggregate
purchase price of $16,000,000. For federal income tax purposes, the Company and
the Purchaser agree that the aggregate amount paid by the Purchaser for (i) the
Preferred Shares is $6,000,000, (ii) the Warrants (other than the Series E
Warrants) is $0, and (iii) the Notes is $10,000,000. Neither the Company nor the
Purchaser shall file any Tax Return or take any position with any taxing
authority inconsistent with the preceding sentence.
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Article III
CLOSING; CLOSING DELIVERIES
3.1 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place at 10:00 a.m. on March 17, 1999, at the offices of
Kirkland & Ellis, New York, New York or at such other time, place and/or date as
shall be agreed upon by the parties hereto. The date upon which the Closing
occurs is referred to herein as the "Closing Date".
3.2 Payment for and Delivery of the Securities. At the Closing, the
Company shall issue and deliver to the Purchaser, (a) stock certificates for
60,000 Preferred Shares duly registered in the name of the Purchaser, (b) duly
issued Warrants of the relevant series and initially exercisable for an
aggregate of 971,430 Warrant Shares and (c) a Note in the aggregate principal
amount of $20,000,000, against payment by the Purchaser, by wire transfer of
immediately-available funds to the account designated by the Company not less
than two (2) days prior to the Closing Date, of $16,000,000.
Article IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser as
follows:
4.1 Existence; Qualification; Subsidiaries. Each of the Company and its
Subsidiaries is a corporation, partnership or limited liability company, as the
case may be, duly organized, validly existing and in good standing under the
laws of the state of its incorporation or formation and has full corporate or
partnership power and authority, as the case may be, to conduct its business and
own and operate its properties as now conducted, owned and operated. The copies
of the Certificate of Incorporation, as amended, and By-Laws of the Company and
all amendments thereto previously delivered to the Purchaser are true, correct
and complete copies of such documents. The Company and each Subsidiary is
licensed or qualified as a foreign corporation, partnership or limited liability
company and is in good standing in all jurisdictions where such person is
required to be so licensed or qualified, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse
Effect. Except as set forth on Schedule 4.1, the Company has no Subsidiaries and
owns no capital stock or other securities of, and has not made any other
investment in, any other entity. All of the issued shares of capital stock,
partnership interests or membership interests, as the case may be, of each
Subsidiary have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or adverse claims.
4.2 Authorization and Enforceability; Issuance of the Securities, the
Conversion Shares and the Warrant Shares.
(a) The Company has full power and authority and has taken all
required corporate and other action necessary to permit it to execute and
deliver this Agreement and the Related
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Documents and to carry out the terms hereof and thereof and to issue and deliver
the Securities, the Conversion Shares and the Warrant Shares (including adoption
and filing in Delaware of the Certificate of Designations for the Preferred
Stock), and none of such actions will violate any provision of the Certificate
of Incorporation of the Company, the By-Laws of the Company or of any applicable
law, regulation, order, judgment or decree or rule of any stock exchange where
the Company's Common Stock is listed, or result in the breach of or constitute a
default (or an event which, with notice or lapse of time or both would
constitute a default) under any material agreement (including the Company's
current secured debt instruments set forth on Schedule 4.2 (the "Existing
Indebtedness")), instrument or understanding to which the Company is a party or
by which it is bound or by which it will become bound as a result of the
transactions contemplated by this Agreement. This Agreement, each of the Related
Documents and all other agreements and instruments contemplated hereby to which
the Company is a party, have been duly executed and delivered by the Company and
each constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws of general application
related to the enforcement of creditor's rights generally and (ii) general
principles of equity.
(b) The Preferred Stock has been duly and validly authorized
and, when issued and delivered in accordance with this Agreement and, in the
case of Dividend Shares, the Certificate of Designations, will be validly
issued, fully paid, nonassessable, and outstanding. The execution, delivery and
performance of this Agreement, each of the Related Documents and all other
agreements and instruments contemplated hereby to which the Company is a party
have been duly authorized by the Company. The Preferred Shares and, when issued,
the Dividend Shares, Conversion Shares and the Warrant Shares, will be fully
paid and nonassessable. The Dividend Shares have been duly reserved for issuance
and when issued in accordance with the Certificate of Designations will be duly
authorized, validly issued and outstanding, fully paid and nonassessable shares
of Preferred Stock. The Conversion Shares and the Warrant Shares have been duly
reserved for issuance upon conversion of the Preferred Stock and the Notes and
exercise of the Warrants, as the case may be, and, when so issued, will be duly
authorized, validly issued and outstanding, fully paid and nonassessable shares
of Preferred Stock or Common Stock, as the case may be. Neither the issuance and
delivery of the Preferred Shares nor the issuance and delivery of Dividend
Shares, nor the issuance and delivery of any Conversion Shares upon conversion
of any Preferred Stock or Notes or the issuance and delivery of any Warrant
Shares upon exercise of the Warrants is subject to any preemptive right of any
stockholder of the Company or to any right of first refusal or other similar
right in favor of any Person.
4.3 Capitalization. The authorized capital stock of the Company
consists of (a) 25,000,000 shares of Common Stock, par value $.001 per share, of
which, as of March 8, 1999, 12,494,029 shares were outstanding, 4,142,858 shares
are reserved for issuance upon conversion of the Preferred Stock and the Notes,
1,283,626 shares are reserved for issuance upon exercise of the Warrants, and
5,363,917 shares are reserved for issuance upon the exercise of certain stock
options
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and warrants, and (b) 10,000,000 shares of preferred stock, par value $.001 per
share, of which (i) 3,000 shares have been designated Series A Preferred Stock,
of which 3,000 shares are issued and outstanding, (ii) 312,882 shares have been
designated Series B Preferred Stock, of which 27,168 shares are issued and
outstanding, (iii) 1,500 shares have been designated Series C Preferred Stock,
of which 1,000 shares are issued and outstanding, and (iv) 80,000 shares have
been designated Series D Preferred Stock. Upon the purchase and sale of the
shares of the Preferred Stock to the Purchaser pursuant to this Agreement, all
of such shares will be duly and validly issued and outstanding. All of the
outstanding capital stock has been validly issued and is fully paid and
nonassessable and has been issued in compliance with all applicable securities
laws (including the provisions of the Securities Act and the rules and
regulations promulgated thereunder) and (ii) no outstanding capital stock or
other equity securities of the Company ranks senior or pari passu with the
Preferred Stock in right of payment of dividends, or rights upon liquidation or
redemption. There are no options, convertible securities, warrants, calls,
pledges, transfer restrictions (except restrictions imposed by federal and state
securities laws), voting restrictions, liens, rights of first offer, rights of
first refusal, antidilution provisions or commitments of any character relating
to any issued or unissued shares of capital stock of the Company other than as
contemplated in the Related Documents. Except as contemplated by this Agreement
and the Related Documents or as set forth inSchedule 4.3, there are no
preemptive or other preferential rights applicable to the issuance and sale of
securities of the Company, including the Securities, the Dividend Shares, the
Conversion Shares and the Warrant Shares.
4.4 Private Sale. Assuming the accuracy of the representations and
warranties made by recipients of the Company's capital stock in connection with
the acquisition of such capital stock, the Company has not violated any
applicable federal or state securities laws in connection with the offer, sale
and issuance of any of its capital stock. Subject to the accuracy of the
Purchaser's representations contained herein, neither the offer, sale and
issuance of the Securities hereunder nor the issuance and delivery of any
Dividend Shares, Conversion Shares upon conversion of any shares of Preferred
Stock or Notes or any Warrant Shares upon exercise of any Warrants requires
registration under the Securities Act or any state securities laws.
4.5 Financial Statements; Disclosure.
(a) The Financial Statements (together with the notes thereto,
as applicable), (i) are true, correct and complete in all material respects,
(ii) are in accordance with the books and records of the Company and (iii)
fairly present the financial condition and results of operations of the Company
as of the dates and for the periods indicated in accordance with GAAP, except
that the unaudited balance sheets and related financial statements do not
contain an auditors' opinion and do not contain footnotes and are subject to
normal, recurring year-end audit adjustments which are not material.
(b) This Agreement together with the schedules, attachments,
exhibits, written statements and certificates supplied to the Purchaser by or on
behalf of the Company with respect to the transactions contemplated hereby does
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained herein
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or therein, in light of the circumstances in which they were made, not
misleading. There is no fact which has not been disclosed to the Purchaser in
writing of which the Company has knowledge, and which has had or could
reasonably be anticipated to have a Material Adverse Effect.
(c) As of its filing date, each document filed with the SEC by
the Company, as amended or supplemented prior to the Closing Date, if
applicable, pursuant to the Securities Act and/or the Exchange Act, true and
correct copies of which have been given to the Purchaser (i) complied in all
material respects with the applicable requirements of the Securities Act and/or
Exchange Act and (ii) did not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Each final registration statement filed with the SEC by the Company
pursuant to the Securities Act, as of the date such statement became effective
(i) complied in all material respects with the applicable requirements of the
Securities Act and (ii) did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading (in the case of any prospectus, in
light of the circumstances under which they were made).
4.6 Absence of Certain Changes.
(a) Except as set forth on Schedule 4.6(a) since the date of
the Current Balance Sheet, neither the Company nor any Subsidiary has:
(i) incurred any Liabilities other than current
Liabilities incurred, or obligations under contracts entered into, in the
ordinary course of business and for individual amounts not greater than
$250,000;
(ii) paid, discharged or satisfied any claim, Lien or
Liability, other than any claim, Lien or Liability (A) reflected or reserved
against on the Current Balance Sheet and paid, discharged or satisfied in the
ordinary course of business since the date of the Current Balance Sheet or (B)
incurred and paid, discharged or satisfied since the date of the Current Balance
Sheet, in each case in the ordinary course of business;
(iii) sold, leased, assigned or otherwise transferred
any of its assets, tangible or intangible (other than sales of inventory in the
ordinary course of business and use of supplies in the ordinary course of
business);
(iv) permitted any of its assets, tangible or
intangible, to become subject to any Lien (other than any Permitted Lien);
(v) written off as uncollectible any accounts
receivable other than (A) in the ordinary course of business or (B) for amounts
not greater than $50,000 in the aggregate;
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(vi) terminated or amended or suffered the
termination or amendment of, or other than in the ordinary course of business,
failed to perform in all material respects all of its obligations or suffered or
permitted any material default to exist under, any material agreement, license
or permit;
(vii) suffered any damage, destruction or loss of
tangible property (whether or not covered by insurance) which in the aggregate
exceeds $100,000;
(viii) made any loan (other than intercompany
advances) to any other Person (other than advances to employees in the ordinary
course of business which do not exceed $5,000 individually or $25,000 in the
aggregate);
(ix) canceled, waived or released any debt, claim or
right in an amount or having a value exceeding $100,000;
(x) paid any amount to or entered into any agreement,
arrangement or transaction with, or any series of agreements, arrangements or
transactions with, any Affiliate (including its officers, directors and
employees) having a value of in excess of $5,000 in the aggregate (other than as
Company-wide employee benefits paid in the ordinary course of business);
(xi) declared, set aside, or paid any dividend or
distribution with respect to its capital stock or redeemed, purchased or
otherwise acquired any of its capital stock;
(xii) other than in the ordinary course of business,
granted any increase in the compensation of any officer or employee or made any
other change in employment terms of any officer or employee;
(xiii) made any change in any method of accounting or
accounting practice;
(xiv) suffered or caused any other occurrence, event
or transaction outside the ordinary course of business or which could have a
Material Adverse Effect; or
(xv) agreed, in writing or otherwise, to any of the
foregoing.
(b) Since the date of the Current Balance Sheet, there has
been no Material Adverse Change.
(c) Schedule 4.6(c) hereto sets forth a complete and accurate
list as of the date hereof of (i) each place of business of the Company and each
of its Subsidiaries and (ii) the chief executive office of the Company and each
of its Subsidiaries.
4.7 Litigation. No claim, suit, proceeding or investigation is pending
or, to the knowledge of the Company, threatened against or affecting the
Company, any Subsidiary or any
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licensee or any officer or director thereof or the Company's, the Subsidiaries'
or the licensee's business which if decided adversely to any such person could
have a Material Adverse Effect. Schedule 4.7 hereto sets forth all litigation to
which the Company is currently a party.
4.8 Licenses, Compliance with Law, Other Agreements, Etc. Each of the
Company, its Subsidiaries and, to the knowledge of the Company, its licensees
has all material franchises, permits, licenses and other rights to allow it to
conduct its business and is not in violation, in any material respects of any
order or decree of any court, or of any law, order or regulation of any
Governmental Agency, or of the provisions of any contract or agreement to which
it is a party or by which it is bound, and neither this Agreement nor the
Related Documents nor the transactions contemplated hereby or thereby will
result in any such violation. Each of the Company's, its Subsidiary's and, to
the knowledge of the Company, its licensee's business has been conducted in
compliance with all federal, state and local laws, ordinances, rules and
regulations, in all material respects.
4.9 Third-Party Approvals. Assuming the accuracy of the representations
and warranties of each Purchaser contained in this Agreement, the Company is not
required to obtain any order, consent, approval or authorization of, or to make
any declaration or filing with, any Governmental Agency or other third party
(including under any state securities or "blue sky" laws) inconnection with the
execution and delivery of this Agreement or the Related Documents, or the
consummation of the transactions contemplated hereby or thereby to occur on the
Closing Date, except for any consents, approvals or authorizations set forth on
Schedule 4.9, all of which have been obtained.
4.10 No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any Liabilities (other than contingent Liabilities) except (i)
as and to the extent of the amounts reflected or reserved against on the Current
Balance Sheet (excluding the footnotes thereto) and (ii) liabilities and
obligations incurred in the ordinary course of business since the date thereof
that in the aggregate could not result in a Material Adverse Effect. To the
Company's knowledge, there are no contingent Liabilities.
4.11 Tangible Assets. Each of the Company and its Subsidiaries has good
and marketable title to, or valid leasehold interests in, all material tangible
assets used or reasonably necessary in connection with the conduct of its
business. All material tangible assets are free from any Liens (other than
Permitted Liens) and, to the knowledge of the Company, are free from any
material defects, have been maintained in accordance with normal industry
practice and any regulatory standard or procedure to which such assets are
subject, are in good operating condition and repair (subject to normal wear and
tear) and are suitable for the purposes for which such assets are used or
proposed to be used, other than defects and wear and tear which in the aggregate
could not be expected to have a Material Adverse Effect.
4.12 Inventory. All inventory of each of the Company and its
Subsidiaries, whether reflected on the Current Balance Sheet or otherwise,
consists of a quality and quantity usable or
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salable in the ordinary course of business, subject to normal rates of defect or
obsolescence consistent with the Company's historical experience.
4.13 Owned Real Property. Set forth on Schedule 4.13 is a true and
correct description of all real property owned by the Company and its
Subsidiaries. The Company and each of its Subsidiaries has good and marketable
title in fee simple, free and clear of all Liens (other than any Permitted
Lien), to all of the real property owned by the Company and each of its
Subsidiaries.
4.14 Real Property Leases. Except as set forth on Schedule 4.14, there
exists no event of default (nor any event which with notice or lapse of time
would constitute an event of default) with respect to the Company, any
Subsidiary and, to the Company's knowledge, with respect to any other party
thereto under any agreement pursuant to which the Company is the lessee or
lessor of any real property, except for such defaults and defects in
enforceability as could not in the aggregate be expected to have a Material
Adverse Effect, and all such agreements are in full force and effect and
enforceable against the lessor or lessee in accordance with their terms except
for such defaults and defects in enforceability as could not in the aggregate be
expected to have a Material Adverse Effect.
4.15 Agreements. Except as set forth on Schedule 4.15, none of the
Company, any Subsidiary or, to the knowledge of the Company, any licensee is in
default, nor to the knowledge of the Company is there any basis for a valid
claim of default, and to the Company's knowledge no event has occurred which,
with notice or lapse of time, would constitute a default, under any agreement,
arrangement or understanding to which the Company, any Subsidiary or any
licensee is aparty, and to the knowledge of the Company, no Person other than
the Company is in default under any such agreement, in each case other than
defaults which in the aggregate could not be expected to have a Material Adverse
Effect. Additionally, none of the Company, any Subsidiary or, to the knowledge
of the Company, any licensee is party to any agreement the performance of which
in accordance with its terms (including any termination provision thereof) could
be expected to have a Material Adverse Effect.
4.16 Intellectual Property. Schedule 4.16 sets forth a complete list of
(i) all patented, registered, applied for or otherwise material Intellectual
Property owned, filed or used by the Company; and (ii) all trade names and
material unregistered trademarks and other designations used by the Company in
connection with its business. The Company owns and possesses all right, title
and interest in and to, or has a valid and enforceable license to use, all
Intellectual Property used by the Company in its business as currently conducted
and as currently proposed to be conducted. No claim by any third party
contesting the validity, enforceability, use or ownership of Intellectual
Property owned, held or used by the Company has been made or, to the knowledge
of the Company, is threatened. To the knowledge of the Company, neither it nor
its indemnitees has violated or misappropriated the Intellectual Property of any
third party and no third party has violated or misappropriated Intellectual
Property owned, held or used by the Company. No claim by any third party has
been asserted, or to the knowledge of the Company threatened, that the Company
or its indemnitees is violating or misappropriating Intellectual Property. To
the knowledge of the Company, all Intellectual Property owned or held by the
Company is valid, subsisting and
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enforceable, and all such Intellectual Property is free of all Liens, and,
except as set forth on Schedule 4.16, is fully assignable by the Company to any
Person, without payment, consent of any Person or other condition or
restriction. The Company has taken all reasonable measures to protect the
secrecy, confidentiality and value of all Confidential Information, proprietary
information and trade secrets owned, held or used by the Company (including,
without limitation, entering into appropriate confidentiality agreements with
all officers, directors, employees, and other Persons with access to such
information and trade secrets). To the knowledge of the Company, such
information and trade secrets have not been disclosed to any Persons other than
Company employees or Company contractors who had a need to know and use such
information and trade secrets in the ordinary course of employment or contract
performance and who executed appropriate confidentiality agreements.
4.17 Employees. Except as set forth on Schedule 4.17, since the date of
the Current Balance Sheet, no key employees and no group of employees has
terminated, or to the knowledge of the Company plans to terminate, employment
with the Company or any Subsidiary, as applicable. Except as set forth on
Schedule 4.17, the Company is not a party to or bound by any collective
bargaining agreement, nor has it experienced any strike, material grievance,
material claim of unfair labor practice or other collective bargaining dispute.
Except as set forth on Schedule 4.17, to the knowledge of the Company there is
no organizational effort being made or threatened by or on behalf of any labor
union with respect to its employees. To the knowledge of the Company, it has not
committed any unfair labor practice or violated any federal, state or local law
or regulation regulating employers or the terms and conditions of its employees'
employment, including laws regulating employee wages and hours, employment
discrimination, employee civil rights, equal employment opportunity and
employment of foreign nationals, except for such violations as could not be
expected to have a Material Adverse Effect.
4.18 ERISA; Employee Benefits. Each Plan (other than a Plan which is a
Multiemployer Plan) that is intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue
Service or has timely filed for a favorable determination letter from the
Internal Revenue Service and no event has occurred since the date of the last
determination letter that could reasonably be expected to materially adversely
affect the qualified status of such Plan. Each Plan (other than a Plan which is
a Multiemployer Plan) is in full force and effect and has been administered in
all material respects in accordance with its terms and is and has been, and each
plan administrator and fiduciary of a Plan is acting and has been acting, in
compliance in all material respects with all applicable requirements of the Code
and ERISA (including the funding, reporting and disclosure and prohibited
transaction provisions thereof) and other applicable laws, regulations and
rulings in connection with each such Plan. No Plan has been terminated or
partially terminated. With respect to each Plan which is a Multiemployer Plan,
no complete or partial withdrawal (within the meaning of Sections 4203 and 4205
of ERISA) has occurred, no such Plan is in reorganization or insolvency (within
the meaning of Title IV of ERISA) and no material withdrawal liability has been
or could be assessed against the Company. The Company or one of its Subsidiaries
has made, accrued or provided for all contributions required under each Plan. To
the knowledge of the Company, no event has occurred or is reasonably expected to
occur with respect to any employee pension benefit plan of the Company or any
member
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of the Company's controlled group (within the meaning of Section 414 of the
Code), which could reasonably be expected to directly or indirectly result in
any material liability (other than liability arising in the ordinary course) to
the Company or any member of its controlled group pursuant to Title IV of ERISA
or Section 412 of the Code. No Plan (other than a Plan which is a Multiemployer
Plan) has incurred an "accumulated funding deficiency" within the meaning of
Section 412 of the Code or Section 302 of ERISA.
4.19 Environmental Laws. Except as set forth on Schedule 4.19:
(a) Each of the Company (as used in this Section 4.19, Company
shall include any predecessor and the Company's Subsidiaries) and, to the
knowledge of the Company, its licensees has complied and is in compliance with
all Environmental Laws.
(b) The Company and, to the knowledge of the Company, its
licensees have obtained and complied with, and are in compliance with, all
permits, licenses and other authorizations that are required pursuant to
Environmental Laws to operate its facilities, assets, and its businesses.
(c) No Environmental Actions have been asserted against the
Company or, to the knowledge of the Company, against any licensee or facility
that may have received Hazardous Materials generated by the Company or any
licensee, regarding any actual, threatened, or alleged violation of
Environmental Laws, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated, or otherwise), including any
investigatory, remedial, or corrective obligations, relating to it or its
operations under Environmental Laws.
(d) To the knowledge of the Company, none of the following
exists at any property or facility currently or formerly owned or operated by
either the Company or, to the knowledge of the Company, any licensee: (i)
underground storage tanks, (ii) asbestos-containing material in any form or
condition, (iii) materials or equipment containing polychlorinated biphenyls, or
(iv) landfills, surface impoundments, or waste disposal areas, except for
feed-stock properties for Company facilities.
(e) Except as disclosed on Schedule 4.19, neither the Company
nor, to the knowledge of the Company, any licensee has treated, stored, disposed
of, arranged for or permitted the disposal of, transported, handled, or Released
any substance, including without limitation any Hazardous Material, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to Environmental Liabilities and Costs. There has been no Release at any of
the properties owned or operated by the Company or, to the knowledge of the
Company, at any of the properties owned or operated by its licensees or, to the
knowledge of the Company, at any disposal treatment facility which received
Hazardous Materials generated by the Company or any licensee which is reasonably
likely to result in Environmental Liabilities and Costs.
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(f) Except as disclosed on Schedule 4.19, neither this
Agreement nor the consummation of the transactions that are contemplated by this
Agreement will result in any obligations for site investigation, cleanup or
notification pursuant to any so-called "transaction-triggered" or "responsible
property transfer" Environmental Laws.
(g) Neither the Company nor, to the knowledge of the Company,
any licensee has, either expressly or by operation of law, assumed or undertaken
any liability, including without limitation any obligation for corrective or
Remedial Action, of any other Person relating to Environmental Laws.
(h) The Company has provided to the Purchaser copies of all of
the following in the Company's possession: (i) the environmental compliance
audits or any so-called "Phase I" or "PhaseII" environmental assessments, all of
which are listed on Schedule 4.19; (ii) notices of Environmental Actions, CERCLA
information requests and responses, and similar documents, relating to
violations of Environmental Laws, or Environmental Liabilities and Costs,
relating to the Company or its licensees; (iii) correspondence alleging
nuisance, injury or property damage arising from odors, noise, pollution or
contamination associated with the Company's business; (iv) reports prepared in
connection with any Remedial Action, RCRA corrective actions, or other site
investigations or cleanups required or undertaken pursuant to Environmental Laws
and associated with properties owned, leased, used or operated by the Company
and its licensees; (v) documents describing or explaining cost estimates for
closure and post-closure care of the Company's and its licensees' facilities
involved in the treatment, storage or disposal of hazardous wastes; (vi) and
documents alleging, describing or explaining the Company's liability or
potential liability pursuant to Environmental Laws.
4.20 Transactions With Affiliates. Except as set forth on Schedule
4.20, neither the Company nor any Subsidiary is party to any agreement,
arrangement or transaction or series of agreements, arrangements or transactions
with any Affiliate which agreements, arrangements, transactions and series of
transactions in the aggregate have a value over $5,000 (other than as
Company-wide employee benefits paid in the ordinary course of business).
4.21 Taxes.
(a) Except as disclosed on Schedule 4.21, each of the Company
and its Subsidiaries has filed all Tax Returns that it was required to file, and
has paid all Taxes due with respect to the periods covered by such Tax Returns.
(b)None of the Company and its Subsidiaries (i) has been a
member of an affiliated group filing a consolidated federal Tax Return (other
than a group the common parent of which was the Company) or (ii) has any
Liability for the Taxes of any Person (other than any of the Company and its
Subsidiaries) under Treas. Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.
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(c) Each of the Company and its Subsidiaries has withheld and
paid all taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(d) Except as set forth on Schedule 4.21, there is no dispute
or claim concerning any Tax Liability of any of the Company and its Subsidiaries
either (i) claimed or raised by any authority in writing or (ii) as to which any
of the directors and officers (and employees responsible for Tax matters) of the
Company and its Subsidiaries has knowledge based upon personal contact with any
agent of such authority.
4.22 Other Investors. Set forth on Schedule 4.22 is a list of all
shareholders (including option and convertible securityholders) of the Company
who as of the date hereof, based on SEC filings of such shareholders, after
giving effect to the terms hereof, own more than 5% of the fully diluted common
equity of the Company and sets forth such percentage ownership.
4.23 Year 2000 Representations. The Company represents and warrants
that:
(a) The Company does not have any computer applications that
it believes are mission critical to the operation of synthetic fuel facilities
that it operates. While the Company has not formally verified Year 2000
compliance with licensees that utilize the Company's technology in their
synthetic fuel facilities, the Company believes that the computer applications
used in the operations of these facilities are not mission critical.
Accordingly, the Company believes that Year 2000 issues will not be significant
to these computer applications and accordingly, upgrading or modifications to
these applications to make them Year 2000 compliant will not be significant.
(b) During 1998 the Company upgraded its network operating
system and believes that system is Year 2000 compliant and that any additional
upgrading to that system will not be significant. The Company utilizes computer
applications in the finance and accounting departments and in the corporate
office that utilize a two-digit date that will need to be upgraded in order to
be Year 2000 compliant. The Company has contacted the providers of this software
and they have indicated that Year 2000 compliant software will be available in
early 1999. The Company believes the cost to purchase this upgraded software and
to convert the applicable applications to this new software will be less than
$50,000. The Company anticipates that this conversion will be completed by June
30, 1999. The costs incurred during 1998 to upgrade the network operating
systems was approximately $25,000 and is included in selling, general and
administrative expenses.
4.24 Seniority. No Capital Stock of the Company whether or not
currently outstanding is senior to or pari passu with the Preferred Stock in
right of payment, whether with respect to dividends or redemption or upon
liquidation, dissolution or otherwise.
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4.25 Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
4.26 Certain Fees. Other than fees and expenses due and payable to the
Purchaser (pursuant to Sections 8.2(l) and 11.4), Havenwood Capital Markets, LLC
and Leeds Group Inc., no fees or commissions will be payable by the Company to
any broker, financial advisor, finder, investment banker, or bank with respect
to the transactions contemplated by this Agreement. The Purchaser shall not have
any obligation with respect to any fees or with respect to any claims made by or
on behalf of Havenwood Capital Markets, LLC or other Persons (other than any
fees that may be payable to the Leeds Group Inc. by the Purchaser pursuant to a
separate written agreement between the Purchaser and the Leeds Group Inc.) for
fees of a type contemplated in this section that may be due in connection with
the transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchaser, its employees, officers, directors, agents and
partners,and their respective Affiliates from and against all claims, losses,
damages, costs (including attorney's fees) and expenses suffered in respect to
any such claimed or existing fees.
4.27 Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Securities
other than the disclosure materials delivered to the Purchaser (the "Disclosure
Materials") or (ii) solicited any offer to buy or sell the Securities by means
of any form of general solicitation or general advertising within the meaning of
Regulation D under the Securities Act. None of the Disclosure Materials or any
other information provided to the Purchaser by or on behalf of the Company
contain any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
4.28 Form S-3 Eligibility. The Company is eligible to register
securities for resale with the SEC on Form S-3 promulgated under the Securities
Act.
4.29 Listing and Maintenance Requirements Compliance. (a) The Company
has not received notice (written or oral) from the National Association of
Securities Dealers that the Company is not in compliance with its listing or
maintenance requirements.
(b) Upon conversion of shares of the Preferred Stock or the
Notes into Conversion Shares or the exercise of the Warrants for the Warrant
Shares, all such Conversion Shares and Warrant Shares shall be listed on the
Nasdaq National Market System.
4.30 Registration Rights; Rights of Participation. Except as described
on Schedule 4.30 hereto, (a) the Company has not granted or agreed to grant to
any Person any rights (including "piggy-back" registration rights) to have any
securities of the Company registered with the SEC or any other Governmental
Agency which has not expired or been satisfied in full and (b) no Person,
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers or agents, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or any other
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related document which has not been waived. None of the rights granted to the
Purchaser hereunder and under the Related Documents conflicts with or would
cause a default under any of the agreements or arrangements listed on Schedule
4.30 hereto.
4.31 Synthetic Fuel Facilities.
(a) The Company shall take all reasonably necessary action to
ensure that the credit for producing fuel from a nonconventional source provided
under Section 29 of the Code is available and is maintained with respect to each
of the Company's and its licensee's facilities for producing synthetic fuels
("Facilities") including, without limitation, ensuring that the Facilities
produce "qualified fuels" (as defined in Section 29(c) of the Code) and such
qualified fuels are sold to persons that are not "related persons" (as defined
in Section 29(d)(7) of the Code). Each of the Facilities was placed in service
before July 1, 1998, in each case pursuant to a binding written contract in
effect on or before December 31, 1996. For purposes of this Section 4.31, each
representation made regarding licensees of the Company is made to the knowledge
of the Company.
(b) Each of the representations and warranties made by any of
the Company, its Subsidiaries or its licensees in obtaining any private letter
ruling from the Internal Revenue Service was true and correct in all material
respects when made and as of the date the ruling was issued.
(c) Set forth on Schedule 4.31 is each private letter ruling
obtained from the Internal Revenue Service regarding the Facilities which is
addressed to the Company or any of its licensees or is otherwise able to be
relied upon by the Company. To the Company's Knowledge, (i) no private letter
ruling listed on Schedule 4.31 has been amended, rescinded or revoked since the
date of issuance, and (ii) there exists no reason that the Internal Revenue
Service would deny a request by the Company or any owner of the Facilities for a
private letter ruling with regard to the Facilities owned by the Company or any
of its licensees.
Article V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
5.1 Authorization and Enforceability. The Purchaser has full power and
authority and has taken all action necessary to permit him/it to execute and
deliver this Agreement and the other documents and instruments to be executed by
it pursuant hereto and to carry out the terms hereof and thereof. This Agreement
and each such other document and instrument, when duly executed and delivered by
the Purchaser, will constitute a valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except to the
extent limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application related to the enforcement of
creditors' rights generally and (ii) general principles of equity.
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5.2 Government Approvals. To the knowledge of Purchaser, the Purchaser
is not required to obtain any order, consent, approval or authorization of, or
to make any declaration or filing with, any Governmental Agency in connection
with the execution and delivery of this Agreement and the other documents and
instruments to be executed by it pursuant hereto or the consummation of the
transactions contemplated hereby and thereby, except for any such order,
consent, approval, authorization, declaration or filing which (i) has been or
will be obtained or made, or (ii) is related to the nature of the business in
which the Company is engaged.
Article VI
COMPLIANCE WITH SECURITIES LAWS
6.1 Investment Intent of the Purchaser. The Purchaser represents and
warrants to the Company that it is acquiring the Securities for its own account,
with no present intention of selling or otherwise distributing the same in
violation of the Securities Act.
6.2 Status of Securities. The Purchaser has been informed by the
Company that the Securities have not been and will not be registered under the
Securities Act or under any state securities laws and are being offered and sold
in reliance upon federal and state exemptions for transactions not involving any
public offering.
6.3 Accredited Investor Status. The Purchaser represents and warrants
to the Company that it is an "Accredited Investor" as defined in Regulation D
under the Securities Act.
6.4 Access to Information. The Purchaser has had access to management
of the Company and has been able to ask questions of management related to the
Company and has reviewed the Company's filings pursuant to the Exchange Act.
Notwithstanding any due diligence investigations conducted by or on behalf of
the Purchaser, it is understood and agreed by each of the parties hereto that
the Purchaser is entitled to rely, and is relying, on the representations and
warranties made by the Company herein and in the Related Documents.
6.5 Transfer of Securities, Conversion Shares and Warrant Shares.
(a) Securities, Conversion Shares and Warrant Shares may be
transferred (i) pursuant to public offerings registered under the Securities
Act, (ii) pursuant to Rule 144 of the SEC (orany similar rule then in force),
(iii) to an Affiliate or member of the Family Group of the transferor (provided
that the subsequent transfer of the Securities, Conversion Shares or Warrant
Shares is restricted), or (iv) subject to the conditions set forth in Section
6.5(b), any other legally-available means of transfer.
(b) In connection with any transfer of any Securities,
Conversion Shares or Warrant Shares (other than a transfer described in Section
6.5(a)(i), (ii) or (iii)), the holder of such shares shall deliver written
notice to the Company describing in reasonable detail the proposed transfer,
together with an opinion of counsel (which, to the Company's reasonable
satisfaction,
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is knowledgeable in securities law matters), to the effect that such transfer
may be effected without registration of such shares under the Securities Act.
(c) Until transferred pursuant to clauses (a)(i) or (ii)
above, each Note, Warrant and each certificate for Preferred Shares, Conversion
Shares and Warrant Shares shall be imprinted with a legend substantially in the
following form:
THE SECURITIES REPRESENTED BY THIS [NOTE/CERTIFICATE/
WARRANT] WERE ORIGINALLY ISSUED ON MARCH 17, 1999
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE
SECURITIES LAW. THE TRANSFER OF THE SECURITIES
REPRESENTED BY THIS [NOTE/CERTIFICATE/WARRANT] IS
SUBJECT TO THE CONDITIONS SET FORTH IN THE SECURITIES
PURCHASE AGREEMENT, DATED AS OF MARCH 17, 1999,
BETWEEN THE ISSUER (THE "COMPANY") AND THE PURCHASER
NAMED THEREIN. THE COMPANY RESERVES THE RIGHT TO
REFUSE ANY TRANSFER OF SUCH SECURITIES UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE
FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON
WRITTEN REQUEST TO THE COMPANY.
Article VII
CONDITIONS PRECEDENT
7.1 Conditions Precedent. The obligation of the Purchaser to purchase
the Securities hereunder is subject to the satisfaction of each of the following
conditions precedent:
(a) The issuance and sale of the Securities shall not
contravene any law, rule or regulation applicable to the Purchaser or the
Company or any of its Subsidiaries;
(b) The following conditions have been satisfied as of the
Closing Date,
(i) The representations and warranties of the Company
contained herein and in any Related Document and in any writing delivered
pursuant hereto or thereto shall be true and correct when made and materially
true and correct as of the time of the Closing;
(ii) No action, suit, investigation or proceeding
shall be pending or threatened before any court or Governmental Agency to
restrain, prohibit, collect damages as a result of or otherwise challenge this
Agreement or any Related Document or any transaction contemplated hereby or
thereby;
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(iii) All acts or covenants required hereunder to be
performed by the Company prior to the Closing shall have been fully performed by
it; and
(iv)No Material Adverse Change shall have occurred
between the date of the Current Balance Sheet and the Closing Date and no event
or occurrence shall have occurred that could have a Material Adverse Effect.
(c) The following documents and items shall be delivered to
the Purchaser at or prior to the Closing:
(i) Stock Certificates for the Preferred Shares duly
registered in the name of the Purchaser and evidence acceptable to the Purchaser
of adoption and filing with the Secretary of State of the State of Delaware by
the Company of the Certificate of Designations;
(ii) Fully executed Notes and a fully executed
counterpart of this Agreement, the Security Agreement and the UCC-1 financing
statements related thereto, the Registration Rights Agreement, the Side
Agreements, the Termination and Release Agreement and the Warrants;
(iii) The written opinion of Callister, Nebeker &
McCullough, counsel for the Company, in the form of Exhibit I hereto;
(iv) Certificates of a duly authorized officer of the
Company dated as of the Closing Date:
(A) Stating that the following conditions have
been satisfied as of the Closing Date,
(1) The representations and warranties of
the Company contained herein and in any writing delivered
pursuant hereto were true and correct when made and are
materially true and correct as of the time of the Closing;
(2) No action, suit, investigation or
proceeding is pending or threatened before any court or
Governmental Agency to restrain, prohibit, collect damages as
a result of or otherwise challenge this Agreement or any
Related Document or any transaction contemplated hereby or
thereby;
(3)All acts or covenants required hereunder
to be performed by the Company prior to the Closing have been
fully performed by it; and
(4) No Material Adverse Change shall have
occurred between the date of the Current Balance Sheet and the
Closing Date and there shall have
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been no event or occurrence that could result in a Material
Adverse Effect; and
(B) Setting forth the resolutions of the Board of Directors
authorizing (i) the execution and delivery of this Agreement
and the Related Documents (including the Certificate of
Designations) and the consummation of the transactions
contemplated hereby and thereby, (ii) the increase of the
Board of Directors to eight (8) members and (iii) the
appointment of an individual designated by the Purchaser to
the Board of Directors, and certifying that such resolutions
were duly adopted and have not been rescinded or amended;
(v)The Company shall have paid fees payable pursuant to
Section 11.4 hereof and a fee of $400,000 and Series E Warrants to purchase
156,098 shares of Common Stock payable to Leeds Group Inc.;
(vi) An executed Termination and Release Agreement and
evidence satisfactory to the Purchaser in its sole discretion that Trans Pacific
Stores Ltd., a Hawaiian corporation, has no lien on any of the Company's, any of
its Subsidiaries' or its licensee's property or assets with respect to its loan
to the Company pursuant to the Secured Draw Down Promissory Note, dated as of
March 17, 1998;
(vii) Lien search results satisfactory to the Purchaser in its
sole discretion;
(viii)A certificate of an authorized officer of the Company,
certifying the names and true signature of the representatives of such Person
authorized to sign this Agreement and the Related Documents to which such Person
is or will be a party and the other documents to be executed and delivered by
such Person in connection herewith, together with evidence of the incumbency of
such authorized officers;
(ix) A certificate of the appropriate official(s) of the state
of organization and each state of foreign qualification of the Company and each
of its Subsidiaries certifying asto the subsistence in good standing of, and the
payment of taxes by, such Person in such states, together with confirmation by
telephone, facsimile or telegram on the Closing Date as to such matters from
such official(s) or from a recognized service company specializing in the
verification of organizational good standing;
(x) A true and complete copy of the Certificate of
Incorporation, as amended, of the Company, certified as of a date not more than
30 days prior to the Closing Date by an appropriate official of the state of
organization of each such Person and a true and complete copy of the Bylaws of
the Company, certified as of the Closing Date by the Secretary of the Company;
and
(xi) Such other documents relating to the transactions
contemplated hereby as the Purchaser may reasonably
request.
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(d) The Company shall have executed and delivered to
the Purchaser the Certificates (in such denominations as the Purchaser shall
request) for the Preferred Stock and the Warrants being purchased by such
Purchaser at the Closing.
7.2 Closing Deliveries to the Company. The Purchaser will deliver to
the Company the aggregate purchase price for the Securities to be acquired by
the Purchaser.
Article VIII
COVENANTS OF THE COMPANY
8.1 Restricted Actions. Without the prior written consent of the
holders of (i) two-thirds (2/3) (or such higher percentage of holders as may
then be required by law) of the then outstanding shares of Preferred Stock and
(ii) two-thirds (2/3) of the then outstanding aggregate principal amount of the
Notes, and for so long as any of the Preferred Stock or Notes remain
outstanding, the Company shall not, and shall not permit any Subsidiary to:
(a) become subject to any agreement or instrument which by its
terms would (under any circumstances) restrict or impair the Company's right to
comply with or fulfill its obligations under the terms of this Agreement or any
of the Related Documents;
(b) use the proceeds from the sale of the Securities other
than for repayment of indebtedness, working capital and other general corporate
purposes; provided, that the Company will in no event use the proceeds to invest
in any securities other than short-term, interest-bearing government securities;
(c) enter into any transaction or series of transactions with
any stockholder, director, officer, employee or Affiliate, including, without
limitation, the purchase, sale, lease orexchange of any property, the rendering
of any service or any investment, loan or advance, unless such transaction (i)
is consummated by the Company in good faith on an arm's-length basis, (ii) is
less than $100,000 per occurrence or $250,000 in the aggregate, and (iii) is
approved by the Board of Directors, including by a majority of the Company's
disinterested directors;
(d) expand the Board of Directors to greater than eight (8)
members;
(e) except with respect to the sale of the synthetic fuel
facilities of the Company set forth on Schedule 8.1(e), sell all or any material
portion of its assets, determined on a consolidated basis;
(f) declare or pay any dividends, purchase or otherwise
acquire for value any of its membership interests or other Capital Stock now or
hereafter outstanding, return any capital to its members as such, or make any
other payment or distribution of assets to its stockholders as such, or permit
any of its Subsidiaries to do any of the foregoing or to
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purchase or otherwise acquire for value any Capital Stock of the Company or its
Subsidiaries, or make any payment or prepayment of principal of, premium, if
any, or interest on, or redeem, decrease or otherwise retire, any Indebtedness
before its scheduled due date;
(g) materially alter or change the business of the Company;
(h) issue any stock option at less than the fair market value
at the time of grant;
(i) create, incur or suffer to exist, or permit any
of its Subsidiaries to create, incur or suffer to exist, any Indebtedness, other
than:
(i) Indebtedness created hereunder and under the
Notes;
(ii) Indebtedness existing on the date hereof, as set
forth in Schedule 8.1(i) hereto, and any extension of maturity, refinancing or
modification of the terms thereof; provided, however, that such extension,
refinancing or modification (A) is pursuant to terms that are not materially
less favorable to the Purchaser than the terms of the Indebtedness being
extended, refinanced or modified and (B) after giving effect to the extension,
refinancing or modification, such Indebtedness is not greater than the amount of
Indebtedness outstanding immediately prior to such extension, refinancing or
modification;
(iii) Indebtedness under Capitalized Leases permitted
by subparagraph (p) of this Section 8.1; and
(iv) additional Indebtedness at any one time outstanding
not to exceed $4,000,000.
(j) enter into any merger, combination, consolidation,
reorganization, recapitalization, liquidation or other similar transaction of
the Company or any agreement with respect to any of the foregoing, other than a
transaction for the purpose of changing the Company's domicile;
(k) amend the Certificate of Incorporation or Bylaws, or alter
the rights, preferences and privileges of the Securities, the Conversion Shares
or the Warrant Shares;
(l) create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of its properties, rights or other assets, whether now owned or hereafter
acquired, or assign or otherwise transfer, or permit any of its Subsidiaries to
assign or otherwise transfer, any right to receive income, other than the
following ("Permitted Liens"):
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(i) Liens existing on the date hereof, as set forth
in Schedule 8.1(l) hereto, but not the extension of coverage thereof to other
property or the extension of maturity, refinancing or other modification of the
terms thereof or of the Indebtedness secured thereby;
(ii) Liens created by operation of law (other than
Environmental Liens), such as materialmen's liens, mechanics' liens and other
similar Liens arising in the ordinary course of business;
(iii) deposits, pledges or Liens (other than Liens
arising under ERISA or the Code) securing (A) obligations incurred in respect of
workers' compensation, unemployment insurance or other forms of governmental
insurance or benefits, (B) the performance of bids, tenders, leases, contracts
(other than for the payment of money) and statutory obligations, or (C)
obligations on surety or appeal bonds, but only to the extent such deposits,
pledges or Liens are incurred or otherwise arise in the ordinary course of
business and secure obligations which are not past due;
(iv) restrictions or covenants on the use of real
property and minor irregularities in the title thereto which do not (A) secure
obligations for the payment of money or (B) materially adversely impair the
value or marketability of such property or its use by the Company or any of its
Subsidiaries in the normal conduct of such Person's business; provided, that in
all such cases the Company or relevant Subsidiary complies in all material
respects with all of its obligations under such title restrictions or covenants;
(v) Liens securing Capitalized Leases permitted by
subparagraph (p) of this Section 8.1; and
(vi) non-consensual Liens, but only if the Company
has posted a bond or other financial assurance sufficient to satisfy the
Indebtedness secured by such Lien.
(m) assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in the debtor or otherwise to assure the creditor
against loss), in connection with any Indebtedness of any other Person (other
than, in the case of the Company, guaranties of Indebtedness of any
Subsidiaries), other than
(i) guaranties by endorsement of negotiable
instruments for deposit or collection in the ordinary course of business; and
(ii) guaranties existing on the date hereof, as set
forth in Schedule 8.1(m) hereto, but not any renewal or other modification
thereof;
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(n) make, or permit any of its Subsidiaries to make, any loan
or advance to any Person or purchase or otherwise acquire or permit any of its
Subsidiaries to purchase or otherwise acquire, any capital stock, properties,
assets or obligations of, or any interest in, any Person, other than (i) raw
material purchased in the ordinary course of business and (ii) trade credit
extended in the ordinary course of business;
(o) create, incur or suffer to exist, or permit any of its
Subsidiaries to create, incur or suffer to exist, any obligations as lessee (i)
for the payment of rent for any real or personal property in connection with any
sale and leaseback transaction, or (ii) for the payment of rent for any real or
personal property under Capitalized Leases which would cause the aggregate
amount of all obligations under Capitalized Leases entered into after the
Closing Date owing by the Company in any fiscal year to exceed the amounts set
forth in subsection (p) of this Section 8.1;
(p) except as set forth on Schedule 8.1(p), make or be
committed to make, or permit any of its Subsidiaries to make or be committed to
make, any Capital Expenditure (by purchase or capitalized lease) other than
Capital Expenditures (including obligations under Capitalized Leases) which
would not cause the aggregate amount of all such Capital Expenditures to exceed
the greater of (i) $300,000 and (ii) 15% of the greater of (A) Consolidated
EBITDA (as defined in the Notes) for the prior fiscal year of the Company and
(B) Consolidated EBITDA for the current fiscal year of the Company, in any
fiscal year of the Company;
(q) allow the use, handling, generation, storage, treatment,
release or disposal of Hazardous Materials at any property owned or leased by
the Company or any of its Subsidiaries except in compliance with Environmental
Laws and so long as such use, handling, generation, storage, treatment, release
or disposal of Hazardous Materials does not result in a violation of
Environmental Law which would result in a Material Adverse Change;
(r) (A) engage or permit any ERISA Affiliate to engage in any
transaction described in Section 4069 of ERISA; (B) engage, or permit any ERISA
Affiliate to engage, in any prohibited transaction described in Section 406 of
ERISA or 4975 of the Code for which a statutory or class exemption is not
available or a private exemption has not previously been obtained from the
Department of Labor; (C) adopt or permit any ERISA Affiliate to adopt any
employee welfare benefit plan within the meaning of Section 3(1) of ERISA which
provides benefits to employees after termination of employment other than as
required by Section 601 of ERISA or applicable law; (D) fail to make any
contribution or payment to any Multiemployer Plan which the Company or any
Subsidiary or any ERISA Affiliate may be required to make under any agreement
relating to such Multiemployer Plan, or any law pertaining thereof; (E) fail, or
permit any ERISA Affiliate to fail, to pay any required installment or any other
payment required under Section 412 of the Code on or before the due date for
such installment or other payment; and
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(s) grant any rights of registration under the Securities Act
relating to any of its shares of capital stock or other securities to any Person
other than pursuant to this Agreement, unless (i) the rights so granted to
another Person do not limit, restrict or impair the rights of the Purchaser
under this Agreement and under the Related Documents and (ii) such rights so
granted to another Person do not grant priority in registration rights to such
other Person over rights granted to Purchaser under this Agreement and under the
Related Documents.
8.2 Required Actions. For so long as any shares of Preferred Stock or
the Notes remain outstanding, the Company shall, and shall cause each Subsidiary
to:
(a) cause all properties owned by the Company or any of its
Subsidiaries or used or held for use in the conduct of its business or the
business of any of its Subsidiaries to be maintained and kept in good condition,
repair and working order (reasonable wear and tear excepted) and supplied with
all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Board of Directors may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times; provided, however, that the foregoing shall not prevent the Company from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the judgment of the management of the Company, desirable in the conduct
of its business or the business of any of its Subsidiaries and is not
disadvantageous in any material respect to the holders of the Securities;
(b) preserve and keep in full force and effect the corporate
existence, rights (charter and statutory), licenses and franchises of the
Company and each of its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries as a whole
and that the loss thereof is not disadvantageous in any material respect to the
holders of Securities;
(c) maintain the books, accounts and records of the Company
and its Subsidiaries in accordance with past custom and practice as used in the
preparation of the Financial Statements except to the extent permitted or
required by GAAP;
(d) keep all of its and its Subsidiaries' properties which are
of an insurable nature insured with insurers, believed by the Company in good
faith to be financially sound and responsible, against loss or damage to the
extent that property of similar character is usually so insured by corporations
similarly situated and owning like properties (which may include self-insurance,
if reasonable and in comparable form to that maintained by companies similarly
situated);
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(e) comply with all material legal requirements and material
contractual obligations applicable to the operations and business of the Company
and its Subsidiaries and pay all applicable Taxes as they become due and
payable;
(f) permit representatives of any holder of the Securities and
its agents (including their counsel, accountants and consultants) to have
reasonable access upon reasonable notice during business hours to the Company's
books, records, facilities, key personnel, officers, directors, customers,
independent accountants and legal counsel so long as such access does not
violate any applicable Federal or state law or cause the loss of the
attorney-client privilege;
(g) at all times (i) file all reports (including annual
reports, quarterly reports and the information, documentation and other reports)
required to be filed by the Company under the Exchange Act and Sections 13 and
15 of the rules and regulations adopted by the SEC thereunder, and the Company
shall use its best efforts to file each of such reports on a timely basis, and
take such further action as any holder or holders of the Securities, the
Conversion Shares or the Warrant Shares may reasonably request (including
providing copies of such reports to the holders of the Securities, the
Conversion Shares or the Warrant Shares), all to the extent required to enable
such holders to sell Securities pursuant to Rule 144 adopted by the SEC under
the Securities Act (as such rule may be amended from time to time) or any
similar rule or regulation hereafter adopted by the SEC and to enable the
Company to register securities with the SEC on Form S-3 or any similar
short-form registration statement and upon the filing of each such report
deliver a copy thereof to each holder of the Securities, the Conversion Shares
or the Warrant Shares, (ii) if the Company is no longer subject to the
requirements of the Exchange Act, provide reports to the holders of the
Securities, the Conversion Shares or the Warrant Shares in substantially the
same form and at the same times as would be required if the Company were subject
to the Exchange Act, and (iii) provide to each initial holder of the Securities,
the Conversion Shares or the Warrant Shares and each other holder who has
entered into a confidentiality agreement with the Company, pursuant to mutually
agreeable terms, any material information distributed to the Board of
Directors);
(h) maintain at all times a valid listing for the Common Stock
on a national securities exchange, the Nasdaq National Market System or the
Nasdaq SmallCap Market;
(i) maintain all material Intellectual Property
Rights necessary to the conduct of its business and own or have a valid license
to use all right, title and interest in and to, such material Intellectual
Property Rights;
(j) on the Closing Date and at each subsequent election of
directors, to elect to the Board of Directors an individual designated by OZ
Master Fund, Ltd., as long as any Preferred Stock or Notes are outstanding;
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(k) deliver Dividend Shares and Conversion Shares in
accordance with the terms and conditions, and time periods, set forth in the
Certificate of Designation and the Notes;
(l) on the earlier to occur of (i) a redemption pursuant to
either Section 4 of the Certificate of Designations or paragraph 3 of the Notes
and (ii) the third anniversary of the Closing Date, pay to the Purchaser a
financing fee of $100,000;
(m) by March 31, 2000, obtain the vote of the shareholders of
the Company approving the sale and issuance of Securities and Conversion Shares,
Warrant Shares and Dividend Shares upon conversion and exercise of the
Securities to the extent the issuance thereof equals 20% or more of the Common
Stock as required by the Nasdaq Stock Market or any other national securities
exchange on which the Common Stock shall at the time be listed; provided, that
the Company shall file a proxy statement with the SEC related thereto no later
than June 30, 1999 and use its good faith efforts to obtain such approval by
June 30, 1999 or as soon thereafter as is possible. The proxy statement shall
comply in all material respects with federal and state securities laws and the
rules and regulations promulgated thereunder and the Company agrees that it will
recommend to its shareholders that the approval of the issuance of such shares
to the Purchaser is in the best interests of the Company and its shareholders;
(n) (i) Keep any property either owned or operated by it or
any of its Subsidiaries free of any Environmental Liens or post bonds or other
financial assurances sufficient to satisfy the obligations or liability
evidenced by such Environmental Liens; (ii) comply, and cause its Subsidiaries
to comply, in all material respects with Environmental Laws and shall provide to
the Purchaser documentation of such compliance which the Purchaser reasonably
requests; (iii) promptly notify the Purchaser of any Release of a Hazardous
Material in excess of any reportable quantity from or onto property owned or
operated by the Company, any of its Subsidiaries or, to the knowledge of the
Company, any of its licensees and take any Remedial Actions required to abate
said Release or otherwise to come into compliance with applicable Environmental
Law; and (iv) promptly provide the Purchaser with written notice within ten (10)
days of the receipt of any of the following: (a) notice that an Environmental
Lien has been filed against any of the real or personal property of the Company,
any of its Subsidiaries or, to the knowledge of the Company, any of its
licensees; (b) commencement of any Environmental Action or notice that an
Environmental Action will be filed against the Company or any Subsidiary; and
(c) notice of a violation, citation or other administrative order which would
reasonably be expected to cause a Material Adverse Effect; and
(o) Take such actions and execute, acknowledge and deliver,
and cause each of the Subsidiaries to take such actions and execute, acknowledge
and deliver, at its sole cost and expenses such agreements, instruments or other
documents as the Purchaser may reasonably require from time to time in order to
(i) carry out more effectively the purposes of this Agreement and the Related
Documents, (ii) maintain the validity and effectiveness of any of the Related
Documents, and (iii) to better assure, convey, grant, assign, transfer and
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confirm unto the Purchaser the rights now or hereafter intended to be granted to
the Purchaser under this Agreement or any Related Document.
8.3 Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purposes of issuance upon conversion of the Preferred Shares, any
Dividend Shares and the Notes and the exercise of the Warrants, such number of
shares of Common Stock as are issuable upon the conversion or exercise of all
outstanding shares of Preferred Stock, Notes and Warrants. All shares of Common
Stock which are so issuable shall, when issued, be duly and validly issued,
fully paid and nonassessable and free from all Taxes, liens and charges. The
Company shall take all such actions as may be necessary to assure that all such
shares of Common Stock may be so issued without violation of any applicable law
or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance which shall be immediately transmitted by the Company upon
issuance).
8.4 Payments Free of Withholding. All payments by the Company hereunder
or under the Preferred Stock, the Notes, or the Warrants shall be made free and
clear of, and without any deduction for, any Tax imposed by any taxing
jurisdiction, domestic or foreign.
Article IX
SURVIVAL
9.1 Survival. The representations, warranties, covenants and agreements
of the parties hereto contained herein, or in any writing delivered pursuant
hereto, shall survive the Closing of the transactions contemplated hereby and by
the Related Documents notwithstanding any due diligence investigation conducted
by or on behalf of Purchaser.
Article X
INDEMNIFICATION
10.1 Indemnification. In consideration of the Purchaser's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless, on an after-tax
basis, the Purchaser and each other holder of the Securities and each of their
respective officers, directors, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, Environmental Actions, losses, costs,
penalties, fees, liabilities, Environmental Liabilities and Costs and damages,
and expenses (including, without limitation, costs of suit and attorneys' fees
and expenses) in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought) (the "Indemnified Liabilities"), incurred by the Indemnitees or any of
them as a result of, or arising out of, or relating to (a) the breach or
inaccuracy of any
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representation or warranty contained in this Agreement or any Related Document
or any other instrument, agreement or document delivered to the Purchaser in
accordance herewith or therewith, (b) the execution, delivery, performance or
enforcement of this Agreement, any Related Document and any other instrument,
document or agreement executed pursuant hereto or thereto by any of the
Indemnitees or (c) resulting from any breach or inaccuracy of any
representation, warranty, covenant or agreement made by the Company herein or in
any Related Document. The Company shall reimburse the Indemnitees for the
Indemnified Liabilities as such Indemnified Liabilities are incurred. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
Article XI
GENERAL PROVISIONS
11.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns,
including each subsequent holder of Securities, Conversion Shares or Warrant
Shares. Except as otherwise specifically provided herein, this Agreement shall
not be assignable by the Company without the prior written consent of the
Purchaser.
11.2 Entire Agreement. This Agreement and the other writings referred
to herein or delivered pursuant hereto constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior oral
or written arrangements or understandings.
11.3 Notices. All notices, requests, consents and other communications
provided for herein shall be in writing and shall be (i) delivered in person,
(ii) transmitted by telecopy, (iii) sent by registered or certified mail,
postage prepaid with return receipt requested, or (iv) sent by reputable
overnight courier service, fees prepaid, to the recipient at the address or
telecopy number set forth below, or such other address or telecopy number as may
hereafter be designated in writing by such recipient. Notices shall be deemed
given upon personal delivery, upon receipt of return receipt in the case of
delivery by mail, upon acknowledgment by the receiving telecopier or one day
following deposit with an overnight courier service.
(a) If to the Company:
Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Telecopy: (801) 768-4483
Attention: Steven Stewart
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with a copy to (which shall not constitute notice to the Company):
Callister, Nebeker & McCullough
Ten East South Temple
Salt Lake City, Utah 84133
Telecopy: (801) 364-9127
Attention: Richard Beard, Esq.
(b) If to the Purchaser:
OZ Master Fund, Ltd.
c/o Och-Ziff Management, L.L.C.
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 292-5999
Attention: Dan Och
with a copy to (which shall not constitute notice to the Purchaser):
Schulte Roth & Zabel LLP
900 Third Avenue
19th Floor
New York, New York 10022
Telecopy: (212) 593-5955
Attention: Mark Broude, Esq.
11.4 Purchaser Fees and Expenses.
(a) The Company shall reimburse the Purchaser upon demand for
(i) the reasonable fees and expenses of counsel(s) to the Purchaser incurred in
connection with the documentation, negotiation and consummation of the
transactions contemplated by this Agreement and the Related Documents and (ii)
reasonable due diligence expenses incurred by the Purchaser. The Company shall
reimburse the Purchaser for the reasonable fees and expenses of counsel(s) to
the Purchaser incurred in connection with any future amendment or waiver to this
Agreement or any of the Related Documents.
(b) The Company also agrees to pay or cause to be paid, on
demand, and to save the Purchaser harmless against liability for the payment of
all reasonable out-of-pocket expenses incurred by the Company from time to time
arising from or relating to: (i) the preservation and protection of any of the
Company's rights under this Agreement or the Related Documents, (ii) the defense
of any claim or action asserted or brought against the Purchaser by any Person
that arises from or relates to this Agreement, any Related Document, the
Purchaser's claims against the Company, or any and all matters in connection
therewith, (iii) the commencement or defense of, or intervention in, any court
proceeding arising from or related to this Agreement or any Related Document,
(iv) the filing of any petition, complaint, answer, motion or other pleading by
the Purchaser in connection with
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<PAGE>
this Agreement or any Related Document, (v) any attempt to collect from the
Company, (vi) the receipt of any advice with respect to any of the foregoing,
(vii) all liabilities and costs arising from or in connection with the past,
present or future operations of the Company or any Subsidiary involving any
damage to real or personal property or natural resources or harm or injury
alleged to have resulted from any Release of Hazardous Materials on, upon or
into such property, (viii) any Environmental Liabilities and Costs incurred in
connection with the investigation, removal, cleanup and/or remediation of any
Hazardous Materials present or arising out of the operations of any facility of
the Company or any Subsidiary, or (ix) any Environmental Liabilities and Costs
incurred in connection with any Environmental Lien. Without limitation of the
foregoing or any other provision of any Related Document: (A) the Company agrees
to pay all stamp, document, transfer, recording or filing taxes or fees and
similar impositions now or hereafter determined by the Purchaser to be payable
in connection with this Agreement or any Related Document, and the Company
agrees to save the Purchaser harmless from and against any and all present or
future claims, liabilities or losses with respect to or resulting form any
omission to pay or delay in paying any such taxes, fees or impositions, and (B)
if the Company fails to perform any covenant or agreement contained herein or in
any Related Document, the Purchaser may itself perform or cause performance of
such covenant or agreement, and the expenses of the Purchaser incurred in
connection therewith shall be reimbursed on demand by the Company.
11.5 Amendment and Waiver. No amendment of any provision of this
Agreement shall be effective, unless the same shall be in writing and signed by
the Company and the holders of at least 662/3% of the shares of Preferred Stock
and at least 662/3% of the aggregate principal amount of the Notes then
outstanding, in each case, voting separately as one class. Any failure of the
Company to comply with any provision hereof may only be waived in writing by the
holders of at least 662/3% of the shares of Preferred Stock and at least 662/3%
of the aggregate principal amount of the Notes outstanding, in each case, voting
separately as one class, and any failure of any holder of the Securities, the
Conversion Shares or the Warrant Shares to comply with any provision hereof may
only be waived in writing by the Company. No such waiver shall operate as a
waiver of, or estoppel with respect to, any subsequent or other failure. No
failure by any party to take any action against any breach of this Agreement or
default by any other party shall constitute a waiver of such party's right to
enforce any provision hereof or to take any such action.
11.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one agreement.
11.7 Headings. The headings of the various sections of this Agreement
have been inserted for reference only and shall not be deemed to be a part of
this Agreement.
11.8 Specific Performance. The Company, on the one hand, and the
Purchaser, on the other hand, acknowledge that money damages would not be a
sufficient remedy for any breach of this Agreement. It is accordingly agreed
that the parties shall be entitled to specific
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<PAGE>
performance and injunctive relief as remedies for any such breach, these
remedies being in addition to any of the remedies to which they may be entitled
at law or equity.
11.9 Remedies Cumulative. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
11.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
WITHOUT GIVING EFFECT TO THE LAWS OF CONFLICT OR CHOICE OF LAWS OF THE STATE OF
NEW YORK OR OF ANY OTHER JURISDICTION THAT WOULD RESULT IN THE APPLICATION OF
ANY LAWS OTHER THAN THOSE OF THE STATE OF NEW YORK.
11.11 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY RELATED DOCUMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND,
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY IRREVOCABLY
ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE COMPANY FURTHER IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY
SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS FOR NOTICES AS
SET FORTH IN SECTION 11.3, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER
SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE PURCHASER TO SERVICE
OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. THE COMPANY
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING
OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND
ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO
THE EXTENT THAT THE COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE COMPANY HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE RELATED DOCUMENTS.
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<PAGE>
11.12 WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASER HEREBY WAIVE
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR RELATED DOCUMENTS, OR UNDER ANY
AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR
WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM
ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY
SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY. THE COMPANY CERTIFIES THAT NO OFFICER, REPRESENTA TIVE, AGENT OR
ATTORNEY OF THE PURCHASER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE
PURCHASER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM,
SEEK TO ENFORCE THE FOREGOING WAIVERS. THE COMPANY HEREBY ACKNOWLEDGES THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PURCHASER ENTERING INTO THIS
AGREEMENT.
11.13 No Third Party Beneficiaries. Except as specifically set forth or
referred to herein, nothing herein is intended or shall be construed to confer
upon any person or entity other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason of this Agreement.
11.14 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
11.15 Right of First Refusal. For as long as any Preferred Stock or
Notes are outstanding, the Company shall provide the Purchaser with written
notice, prior to the execution by the Company of any binding commitment or
contract, of its intention to obtain debt or equity financing from a party other
than the Purchaser, with such notice to provide the terms of such debt or equity
financing. The Purchaser may, within five (5) Business Days of its receipt of
such notice, provide the Company with written notice of its willingness to
provide all of such debt financing or all or a portion of such equity financing,
as applicable, on such terms, in which case the Company may not consummate such
debt or equity financing on such terms except with the Purchaser. In addition
and subject to the notice provisions of this section, for so long as any of the
Preferred Stock or Notes are outstanding, the Purchaser shall have the right to
subscribe for and receive additional securities of the Company upon all
additional issuances of stock by the Company (other than issuances pursuant to
employee stock or stock option benefit plans of the Company or in connection
with any stock split or stock dividend) of any or all classes or series thereof,
or securities of the Company convertible into or exchangeable for such stock,
such that the Purchaser may, by purchasing such additional securities, maintain
the percentage interest it had immediately prior to such issuance of the voting
power of the capital stock of the Company voting together as a single class
and/or its economic interest in the Company.
* * * * *
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IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Agreement as of the date first above written.
COVOL TECHNOLOGIES, INC.
By: /s/ Steven G. Stewart
---------------------------------
Name: Steven G. Stewart
Title: CFO
OZ MASTER FUND, LTD.
By: /s/ Daniel S. Och
---------------------------------
Name: Daniel S. Och
Title: Managing Member
<PAGE>
The following schedules and exhibits have been omitted from the Securities
Purchase Agreement attached to this report as Exhibit 10.58:
Schedules
Schedule 4.1 Subsidiaries
Schedule 4.3 Capitalization
Schedule 4.6(a) Certain Changes
Schedule 4.6(e) Places of Business
Schedule 4.7 Litigation
Schedule 4.13 Owned Real Property
Schedule 4.16 Intellectual Property
Schedule 4.17 Employees
Schedule 4.19 Environmental Laws
Schedule 4.20 Transactions with Affiliates
Schedule 4.21 Taxes
Schedule 4.22 Other Investors
Schedule 4.29 Registration Rights
Schedule 4.31 Synthetic Fuel Facilities
Schedule 8.1(e) Synthetic Fuel Facilities for Sale
Schedule 8.1(i) Indebtedness
Schedule 8.1(l) Permitted Liens
Schedule 8.1(m) Guarantees
Schedule 8.1(p) Capital Expenditures
Exhibits
Exhibit A Certificate of Designations
Exhibit B Financial Statements
Exhibit C Registration Rights Agreement
Exhibit D Security Agreement
Exhibit E Side Agreements
Exhibit F Termination and Release Agreement
Exhibit G Form of Warrant
Exhibit H Form of Convertible Secured Note
Exhibit I Opinion of Counsel
The Registrant agrees to furnish supplementally a copy of any omitted schedule
or exhibit to the Securities and Exchange Commission upon request.
THE SECURITY REPRESENTED BY THIS INSTRUMENT WAS ORIGINALLY ISSUED ON
MARCH 17, 1999, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW. THE TRANSFER
OF SUCH SECURITY IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE
SECURITIES PURCHASE AGREEMENT, DATED AS OF MARCH 17, 1999 AS AMENDED
AND MODIFIED FROM TIME TO TIME, BETWEEN THE ISSUER (THE "COMPANY") AND
THE PURCHASERS NAMED THEREIN. THE COMPANY RESERVES THE RIGHT TO REFUSE
THE TRANSFER OF SUCH SECURITY UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED
WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE
FURNISHED WITHOUT CHARGE TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO
THE COMPANY.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT, AS SUCH TERM IS
DEFINED IN SECTION 1271 ET SEQ. OF THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED. UPON INQUIRY MADE BY ANY HOLDER HEREOF, ADDRESSED TO COVOL
TECHNOLOGIES, INC., 3280 NORTH FRONTAGE ROAD, UTAH 84043, ATTENTION:
STEVEN STEWART, COVOL TECHNOLOGIES, INC. WILL PROVIDE A STATEMENT
SETTING FORTH THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT,
THE ISSUE DATE AND THE YIELD TO MATURITY WITH RESPECT TO THE NOTE HELD
BY SUCH HOLDER.
----------------------------------------------
$20,000,000 New York, New York
March 17, 1999
FOR VALUE RECEIVED, the undersigned, COVOL TECHNOLOGIES, INC.,
a Delaware corporation (the "Company"), hereby promises to pay to the order of
OZ Master Fund, Ltd. on the Maturity Date the principal amount of TWENTY MILLION
DOLLARS ($20,000,000) or such lesser principal amount thereof as may remain
outstanding, together with interest thereon calculated from the date hereof in
accordance with the provisions of this Note.
This Note was issued pursuant to a Securities Purchase
Agreement, dated as of March 17, 1999 (as amended and modified from time to
time, the "Purchase Agreement"), between the Company and certain investors, and
this Note is one of the "Notes" referred to in the Purchase Agreement. The
Purchase Agreement contains terms governing the rights of the holder of this
Note, and all provisions of the Purchase Agreement are hereby incorporated
herein in full by reference.
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<PAGE>
This Note is secured by and entitled to the benefits of the Security Agreement.
Except as defined in paragraph 8 hereof or unless otherwise indicated herein,
capitalized terms used in this Note have the same meanings set forth in the
Purchase Agreement.
1. Payment of Interest. Except as otherwise expressly provided
in paragraph 4(b) hereof, interest shall accrue at the rate of two and one-half
(2.5%) per annum on the unpaid principal amount of this Note outstanding from
time to time, or (if less) at the highest rate then permitted under applicable
law. The Company shall pay to the holder of this Note all accrued interest on
January 1 and July 1 of each year, beginning July 1, 1999 (collectively, the
"Interest Payment Dates"). Unless prohibited under applicable law, any accrued
interest which is not paid on the date on which it is due and payable shall bear
interest at twice the rate at which interest is then accruing on the principal
amount of this Note until such interest is paid. Any accrued interest which for
any reason has not theretofore been paid shall be paid in full on the date on
which the final principal payment on this Note is made. Interest shall accrue on
any principal payment due under this Note and, to the extent permitted by
applicable law, on any interest which has not been paid on the date on which it
is due and payable until such time as payment therefor is actually delivered to
the holder of this Note.
2. Pro Rata Payment. Except as otherwise expressly provided in
this Note, all payments to the holders of the Notes (whether for principal,
interest or otherwise) shall be made pro rata among such holders based upon the
aggregate unpaid principal amount of the Notes held by each such holder. If any
holder of a Note obtains any payment (whether voluntary, involuntary, by
application of offset or otherwise) of principal, interest or other amount with
respect to any Note in excess of such holder's pro rata share of such payments
obtained by all holders of the Notes (other than as expressly provided herein),
by acceptance of a Note, each such holder of a Note agrees to purchase from the
other holders of the Notes a participation in the Notes held by such other
holders of the Notes as is necessary to cause such holders to share the excess
payment ratably among each of them as provided in this paragraph.
3. Redemptions.
(a) Scheduled Redemptions. (i) At any time on and after the
third anniversary of the date of issuance of this Note, at the option of the
holder of this Note, the Company shall redeem the aggregate principal amount of
such Note designated by such holder at a price equal to the Optional Redemption
Price (plus accrued and unpaid interest thereon), and (ii) at any time following
the date of issuance of this Note, and prior to the third anniversary thereof,
at the option of the Company, the Company may redeem all or a part of the
outstanding aggregate principal amount of the Notes at a price equal to the
Optional Redemption Price (plus accrued and unpaid interest thereon); provided,
that the Company must redeem (A) at least $1,000,000 aggregate principal amount
of the Notes outstanding and (B) the Notes pro rata among the holders of the
Notes based upon the aggregate principal amount of the Notes held by each such
holder to exercise its option hereunder. Notwithstanding the foregoing, if at
any time following the date of issuance of this Note, the Company fails to
perform or observe Section 8.2(j) of the Purchase Agreement, at the option of
the holder of this Note, the Company shall redeem the aggregate principal amount
of such Note designated by such holder at a price equal to the Optional
Redemption Price (plus accrued and unpaid interest thereon).
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<PAGE>
(b) Redemption Payments. For each Note which is to be redeemed
hereunder, the Company shall be obligated on the applicable Redemption Date to
pay to the holder thereof (upon surrender by such holder at the Company's
principal office of the Note) an amount in cash in immediately available funds
equal to the Optional Redemption Price of such Note (plus all accrued and unpaid
interest thereon and any premium payable with respect thereto).
(c) Notice of Redemption. The Company shall mail written
notice of each redemption of any Notes (other than a redemption at the request
of a holder or holders of the Notes) to each holder thereof not more than sixty
(60) nor less than thirty (30) days prior to the date on which such redemption
is to be made. In case less than the aggregate principal amount of this Note is
redeemed, a new Note representing the aggregate principal amount of the
unredeemed Note shall be issued to the holder thereof without cost to such
holder within five (5) Business Days after surrender of this Note.
(d) Interest After Redemption Date. This Note shall not be
entitled to any interest accruing after the date on which the Optional
Redemption Price of such Note (plus all accrued and unpaid interest thereon) is
paid to the holder of such Note. On such date, all rights of the holder of the
Note shall cease, and such Note shall no longer be deemed to be issued and
outstanding.
(e) Redeemed or Otherwise Acquired Notes. Any Notes which are
redeemed or otherwise acquired by the Company shall be canceled and shall not be
reissued, sold or transferred.
(f) Other Redemptions or Acquisitions. The Company shall not,
nor shall it permit any Subsidiary to, redeem or otherwise acquire any Notes,
except as expressly authorized herein or pursuant to a purchase offer made pro
rata to all holders of the Notes on the basis of the aggregate principal amount
of the Notes held by each such holder.
(g) Payment of Accrued Interest. The Company may not redeem
any Note, unless all interest accrued on the outstanding Notes through the
immediately preceding Interest Payment Date has been paid in full.
(h) Change of Control. If a Change of Control has occurred or
the Company obtains knowledge that a Change of Control is proposed to occur, the
Company shall give prompt written notice of such Change of Control describing in
reasonable detail the material terms and date of consummation thereof to each
holder of the Notes, but in any event such notice shall not be given later than
five (5) days after the occurrence of such Change of Control, and the Company
shall give each holder of the Notes prompt written notice of any material change
in the terms or timing of such transaction. Any holder of a Note may require the
Company to redeem all or any portion of the outstanding principal amount of such
Note held by such holder at a price equal to the Optional Redemption Price by
giving written notice to the Company of such election prior to the later of (a)
twenty-one (21) days after receipt of the Company's notice and (b) five (5) days
prior to the consummation of the Change of Control (the "Expiration Date"). The
Company shall give prompt written notice of any such election to all other
holders of the Notes within five (5) days after the receipt thereof, and each
such holder shall have until the later of (i) the Expiration Date or (ii) ten
(10) days after receipt of such second notice to request redemption hereunder
(by giving written
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<PAGE>
notice to the Company) of all or any portion of the outstanding principal amount
of such Note held by such holder.
Upon receipt of such election(s), the Company shall be
obligated to redeem the aggregate principal amount of Notes specified therein on
the occurrence of the Change of Control. If any proposed Change of Control does
not occur, all requests for redemption in connection therewith shall be
automatically rescinded, or if there has been a material change in the terms or
the timing of the transaction, any holder of the Notes may rescind such holder's
request for redemption by giving written notice of such rescission to the
Company.
The term "Change of Control" means (a) any sale, transfer or
issuance or series of sales, transfers and/or issuances of Common Stock by the
Company or any holders thereof which results in any Person or group of Persons
(as the term "group" is used under the Exchange Act), beneficially owning (as
such term is used in the Exchange Act) more than 50% of the Common Stock
outstanding at the time of such sale, transfer or issuance or series of sales,
transfers and/or issuances, (b) any sale or transfer of more than 50% of the
assets of the Company and its Subsidiar ies on a consolidated basis (measured
either by book value in accordance with generally accepted accounting principles
consistently applied or by fair market value determined in the reasonable good
faith judgment of the Board of Directors) in any transaction or series of
transactions (other than sales in the ordinary course of business and excluding
the sale of the synthetic fuel facilities set forth on Schedule 8.1(e) of the
Purchase Agreement) and (c) any merger or consolidation to which the Company is
a party, except for a merger in which the Company is the surviving Company, the
terms of the Notes or Common Stock are not changed and the Notes are not
exchanged for cash, securities or other property, and after giving effect to
such merger, the holders of the Company's outstanding capital stock possessing a
majority of the voting power (under ordinary circumstances) to elect a majority
of the Board of Directors immediately prior to the merger shall continue to own
the Company's outstanding capital stock possessing the voting power (under
ordinary circumstances) to elect a majority of the Board of Directors.
Redemptions made pursuant to this paragraph 3(h) shall not
relieve the Company of its obligations to redeem the Notes pursuant to paragraph
3(a) above.
4. Events of Default.
(a) Definition. For purposes of this Note, an Event of Default
shall be deemed to have occurred if
(i) the Company fails to pay when due and payable
(whether at maturity, upon redemption or otherwise) the full amount of interest
then accrued on any Note (and such interest remains unpaid after one (1)
Business Day's notice) or the full amount of any principal payment on any Note;
(ii) the Company fails to perform or observe any
material provision contained in the Notes, the Purchase Agreement or in the
Related Documents, and (other than with respect to Section 8.1 or 8.2(m) of the
Purchase Agreement, Section 1(f)(i) of the Registration
- 4 -
<PAGE>
Rights Agreement, or paragraph 5 hereof) such failure is not cured within
fifteen (15) days after the occurrence thereof;
(iii) any representation or warranty contained in the
Purchase Agreement or required to be furnished to any holder of the Notes
pursuant to the Purchase Agreement, or any information contained in writing
required to be furnished by the Company or any Subsidiary to any holder of the
Notes, is false or misleading in any material respect on the date made or
furnished;
(iv) the Company or any Subsidiary makes an
assignment for the benefit of creditors or admits in writing its inability to
pay its debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Company or any Subsidiary bankrupt or insolvent; or any
order for relief with respect to the Company or any Subsidiary is entered under
the Federal Bankruptcy Code; or the Company or any Subsidiary petitions or
applies to any tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Company or any Subsidiary, or of any substantial part of the
assets of the Company or any Subsidiary, or commences any proceeding (other than
a proceeding for the voluntary liquidation and dissolution of any Subsidiary)
relating to the Company or any Subsidiary under any bankruptcy reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction; or the Company or any Subsidiary takes any action to authorize
any of the foregoing, or any such petition or application is filed, or any such
proceeding is commenced, against the Company or any Subsidiary and either (A)
the Company or any such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein or (B) such petition, application or
proceeding is not dismissed within 60 days;
(v) one or more judgments in excess of $5,000,000 in
the aggregate is rendered against the Company or any Subsidiary and, such
judgment is not (A) discharged, bonded or otherwise satisfied within 30 days
from the entry thereof, (B) covered by adequate insurance, or (C) the execution
of such judgment is not stayed pending appeal, or within 30 days after the
expiration of any such stay, discharged or otherwise satisfied in full;
(vi) the Company or any Subsidiary defaults in the
performance of any obligations or agreements if the effect of such default is to
cause an amount exceeding $3,000,000 in the aggregate from the date of issuance
of the Note to become due prior to its stated maturity or the holder or holders
of any obligation or obligations cause an amount exceeding $3,000,000 to become
due prior to its stated maturity;
(vii) as determined on the date that the Company's
financial statements are available for each of its fiscal quarters, but no later
than forty-five (45) days following each such fiscal quarter, (A) beginning with
the fiscal quarter ended December 31, 1999, the Company's Consolidated EBITDA
for any fiscal quarter ending on the date set forth below is less than the
amount set forth below opposite such date, (B) beginning with the fiscal quarter
ended September 30, 2000, (x) the Company's Consolidated EBITDA for any fiscal
quarter ending on the date set forth below is less than the amount set forth
below opposite such date and (y) the Company's aggregate Consolidated EBITDA for
the four most recent fiscal quarters ending on the date set forth below is less
than the amount set forth below opposite such date:
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<PAGE>
LAST TWELVE
MONTHS
CONSOLIDATED CONSOLIDATED
- --------------------------------------------------------------------------------
December 31, 1999 $5,000,000
March 31, 2000 5,500,000
June 30, 2000 5,750,000
September 30, 2000 6,000,000 $22,250,000
December 31, 2000 6,250,000 23,500,000
March 31, 2001 6,500,000 24,500,000
June 30, 2001 6,500,000 25,250,000
September 30, 2001 6,500,000 25,750,000
December 31, 2001 and 6,500,000 26,000,000
thereafter
or (C) beginning with the fiscal quarter ended December 31, 1999, the Company's
Debt-to-EBITDA Ratio for any fiscal quarter is in excess of 8:1;
Notwithstanding anything to the contrary in this paragraph
4(a)(vii), with respect to (A) and (B)(x) above, to the extent the Company's
Consolidated EBITDA for any fiscal quarter exceeds the amount set forth above
for such fiscal quarter, 100% of such excess amount may be carried forward to
the immediately succeeding fiscal quarter in determining the Company's
Consolidated EBITDA for such succeeding fiscal quarter; provided, that no
amounts once carried forward to the immediately succeeding fiscal quarter may be
carried forward again to any fiscal quarter thereafter.
(viii) without the prior written consent of the
holders of a majority of the
aggregate principal amount of the Notes outstanding, the Company or any
Subsidiary redeems, purchases or otherwise acquires directly or indirectly any
Securities, or the Company directly or indirectly pays or declares any dividend
or makes any distribution upon any Securities or any Indebtedness subordinated
to the Notes;
(ix) the Company consummates an Organic Change;
(x) any material provision of the Purchase Agreement,
the Notes or any Related Document shall at any time for any reason be declared
to be null and void, or the validity or enforceability thereof shall be
contested by any party thereto, or a proceeding shall be commenced by the
Company or any Governmental Authority or other regulatory body having
jurisdiction over the Company, seeking to establish the invalidity or
enforceability thereof, or the Company shall deny in writing that it has any
liability or obligation purported to be created under the Purchase Agreement or
any Related Document;
(xi) the Company or any Subsidiary or any ERISA
Affiliate shall have made a complete or partial withdrawal from a Multiemployer
Plan, and, as a result of such complete or partial withdrawal, the Company or
such Subsidiary or such ERISA Affiliate incurs a withdrawal liability in an
annual amount exceeding $1,000,000; or a Multiemployer Plan enters
reorganization
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<PAGE>
status under Section 4241 of ERISA, and, as a result thereof, the Company's,
such Subsidiary's or such ERISA Affiliate's annual contribution requirement with
respect to such Multiemployer Plan increases in an annual amount exceeding
$1,000,000;
(xii) any Termination Event with respect to any
Employee Plan shall have occurred, and 30 days after notice thereof shall have
been given to the Company by the Purchasers, (i) such Termination Event (if
correctable) shall not have been corrected, and (ii) the then current value of
such Employee Plan's vested benefits exceeds the then current value of assets
allocable to such benefits in such Employee Plan by more than $1,000,000 (or, in
the case of a Termination Event involving liability under Section 409, 502(i),
515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975
of the Code, the liability is in excess of such amount);
(xiii) the Company or any Subsidiaries shall have
entered into any consent or settlement decree or agreement or similar
arrangement with a Governmental Authority or any judgment, order, decree or
similar action shall have been entered against the Company or any Subsidiary
based on or arising from the violation of or pursuant to any Environmental Law,
or the generation, storage, transportation, treatment, disposal or Release of
any Hazardous Material and, in connection with all of the foregoing, the Company
or any Subsidiaries incur Environmental Liabilities and Costs which are
unstayed, due and owing (and not otherwise covered by insurance) in an amount in
excess of $5,000,000 in the aggregate;
(xiv) any non-monetary judgment or order shall be
entered against the Company or any Subsidiary which does, or could reasonably be
expected to, result in a Material Adverse Change, and there shall be a period of
ten consecutive days during which a stay of enforcement of such judgment or
order shall not be in effect;
(xv) Section 29 of the Code is repealed, replaced or
amended and such repeal, replacement or amendment could reasonably be expected
to have a Material Adverse Effect on the Company;
(xvi) (A) any registration statement requested to be
filed pursuant to the Registration Rights Agreement (as defined in the Purchase
Agreement) which has been filed by the Company and declared effective by the
Securities and Exchange Commission shall not be filed or shall not have been
declared effective or shall cease to be effective or fail to be usable for its
intended purpose without being succeeded within two (2) business days by a
post-effective amendment to such registration statement that cures such failure
and that is itself immediately declared effective or (B) the Securities and
Exchange Commission shall issue any stop order suspending the effectiveness
under the Securities Act of any registration statement required to be filed and
declared effective by the Company pursuant to the Registration Rights Agreement
or any state securities commission suspends the qualification of the Notes for
offering or sale in any jurisdiction, or (C) any proceeding for purposes of
either (A) or (B) above is initiated;
(xvii) the occurrence of an Event of Noncompliance
under the Certificate of Designations (as defined in the Purchase Agreement); or
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<PAGE>
(xviii) the occurrence of a Material Adverse Change
(as defined in the Purchase Agreement).
The foregoing shall constitute Events of Default whatever the
reason or cause for any such Event of Default and whether it is voluntary or
involuntary or is effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body.
(b) Consequences of Events of Default.
(i) If any Event of Default has occurred and is
continuing (other than under subparagraph 4(a)(iii), (viii) or (xiii)), the
interest rate on the Notes shall increase immediately by an increment of one
percentage point to the extent permitted by law. Thereafter, until such time as
no Events of Default exist, the interest rate shall increase automatically at
the end of each succeeding 90-day period by an additional increment of one
percentage point to the extent permitted by law. Any increase of the interest
rate resulting from the operation of this subparagraph shall terminate as of the
close of business on the date on which no Events of Default exist (subject to
subsequent increases pursuant to this subparagraph).
(ii) If an Event of Default of the type described in
subparagraph 4(a)(iv) has occurred, the aggregate principal amount of the Notes
(together with all accrued interest thereon and all other amounts due and
payable with respect thereto) shall become immediately due and payable at the
Optional Redemption Price without any action on the part of the holders of the
Notes, and the Company shall immediately pay to the holders of the Notes all
amounts due and payable with respect to the Notes.
(iii) If any Event of Default (other than under
subparagraph 4(a)(iv) or (vii)) has occurred and is continuing, the holder or
holders of Notes representing a majority of the aggregate principal amount of
Notes then outstanding may declare all or any portion of the outstanding
principal amount of the Notes (together with all accrued interest thereon and
all other amounts due and payable with respect thereto) to be immediately due
and payable at the Optional Redemption Price and may demand immediate payment of
all or any portion of the outstanding principal amount of the Notes (together
with all such other amounts then due and payable) owned by such holder or
holders. The Company shall give prompt written notice of any such demand to the
other holders of Notes, each of which may demand immediate payment of all or any
portion of such holder's Note. If any holder or holders of the Notes demand
immediate payment of all or any portion of the Notes, the Company shall
immediately pay to such holder or holders all amounts due and payable with
respect to such Notes.
(iv) If any Event of Default of the type described in
subparagraph 4(a)(i) occurs, (A) notwithstanding subparagraph 5(a)(i), the Notes
shall become immediately convertible and (B) for each such occurrence, the
Minimum Conversion Price and the Conversion Price calculated at the time of
conversion shall be reduced by $1.00.
(v) If any Event of Default of the type described in
subparagraph 4(a)(v) occurs, (A) notwithstanding subparagraph 5(a)(i), the Notes
shall become immediately convertible
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<PAGE>
and (B) for each such occurrence, the Minimum Conversion Price and the
Conversion Price calculated at the time of conversion shall be reduced by an
amount equal to the quotient of (1) the amount of the judgment referred to in
subparagraph 4(a)(v) divided by (2) the number of shares of Common Stock Deemed
Outstanding at the time of the Event of Default.
(vi) If any Event of Default of the type described in
subparagraph 4(a)(i) (with respect to the failure to pay any redemption) occurs,
(A) notwithstanding Section 5(a)(i), this Note shall become immediately
convertible, (B) the Minimum Conversion Price shall be reduced to 75% of the
Minimum Conversion Price in effect immediately prior to such adjustment and (C)
the Conversion Price calculated at the time of conversion shall be reduced to
75% of the lesser of (1) the applicable Conversion Price in effect at the time
of conversion immediately prior to such adjustment and (2) the Market Price of a
share of Common Stock at the time of conversion. Thereafter, for each succeeding
90-day period that the Event of Default continues following the initial Event of
Default referred to above continues, (x) the Minimum Conversion Price shall be
reduced to 75% of the Minimum Conversion Price in effect immediately prior to
such adjustment, (y) the Conversion Price calculated at the time of conversion
shall be reduced to 75% of the lesser of (a) the Conversion Price in effect at
the time of conversion immediately prior to such adjustment and (b) the Market
Price of a share of Common Stock at the time of conversion. In no event shall
any Conversion Price adjustment hereunder be rescinded.
For example, assume that an Event of Default of the type described in
subparagraph 4(a)(i) (with respect to the failure to pay any
redemption) has occurred and this Note becomes immediately convertible.
Then assume that one year prior to such Event of Default there had been
a two-for-one stock split by the Company. Finally, assume that,
pursuant to Section 5(b)(i), the Maximum Conversion Price, the Minimum
Conversion Price and the Conversion Price at the time of conversion
would initially be $10.00, $6.67 and $10.00, respectively. In this
case, the Maximum Conversion Price, the Minimum Conversion Price and
the Conversion Price of $10.00, $6.67 and $10.00 would first be
decreased pursuant to Section 5(d) from $10.00 to $5.00, $6.67 to $3.34
and $10.00 to $5.00, respectively. Then, (i) the Minimum Conversion
Price would be reduced to 75% of $3.34, or $2.51 and (ii) if the Market
Price of a share of Common Stock at the time of conversion exceeds
$7.50, the Conversion Price calculated at the time of conversion would
be reduced to 75% of $5.00, or $3.75. If the Event of Default had
existed for an additional 90 days following the initial Event of
Default, (a) the Minimum Conversion Price at the time of conversion
would be reduced to 75% of $2.51, or $1.88 and (b) if the Market Price
of a share of Common Stock at the time of conversion exceeds $5.625,
the Conversion Price at the time of conversion would be reduced to 75%
of $3.75, or $2.8125. If the Event of Default had existed for an
additional 90 days following the initial Event of Default, (i) the
Minimum Conversion Price at the time of conversion would be further
reduced to 75% of $1.88, or $1.41 and (ii) if the Market Price of a
share of Common Stock at the time of conversion exceeds $4.21875, the
Conversion Price at the time of conversion would be further reduced to
75% of $2.8125, or $2.10938.
(vii) If any Event of Default of the type described
in subparagraph 4(a)(vii) occurs, notwithstanding Section 5(a)(i), this Note
shall become immediately convertible. Thereafter, for each succeeding fiscal
quarter that such an Event of Default occurs following the initial Event
- 9 -
<PAGE>
of Default referred to above, the holders of the Notes may require the Company
to deposit in a Blocked Account an amount in cash equal to $2,500,000 plus an
amount that would generate a 35% internal rate of return on such $2,500,000 from
the date of issuance of the Notes through the date such funds are deposited in
such Blocked Account. Any interest paid pursuant to the Notes with respect to
$2,500,000 principal amount of the Notes shall be credited towards the
calculation of such 35% internal rate of return; provided, that if the cash
deposit referred to above is not deposited by the Company into such Blocked
Account within ten (10) days following a request by the holders of the Notes to
make such a deposit, the holders of the Notes shall have the right to direct (A)
the Licensees to pay earned licensee fees and (B) the Company to pay binder
profits directly to such Blocked Account pursuant to the terms of the Security
Agreement and the Side Agreements (each as defined in the Purchase Agreement).
(viii) If any Event of Default of the type described
in subparagraph 4(a)(ix) occurs, (A) notwithstanding subparagraph 5(a)(i), the
Notes shall become immediately convertible and (B) the Conversion Price
calculated at the time of conversion shall be reduced to the lesser of (1) the
Conversion Price immediately prior to the public announcement of such Organic
Change and (2) the lowest Conversion Price that could have been determined had
conversion occurred prior to the consummation of such Organic Change.
(ix) If any Event of Default exists, each holder of
the Notes shall also have any other rights which such holder is entitled to
under the Purchase Agreement or any other contract or agreement at any time and
any other rights which such holder may have pursuant to applicable law.
(x) The Company hereby waives diligence, presentment,
protest and demand and notice of protest and demand, dishonor and nonpayment of
this Note, and expressly agrees that this Note, or any payment hereunder, may be
extended from time to time and that the holder hereof may accept security for
this Note or release security for this Note, all without in any way affecting
the liability of the Company hereunder.
5. Conversion.
(a) Conversion Procedure.
(i) At any time following the third anniversary of
the date of issuance of this Note and prior to the payment of this Note in full,
each holder of this Note may convert all or any portion of the outstanding
principal amount of this Note into a number of shares of the Conversion Stock
determined by dividing the principal amount designated by such holder to be
converted, by the Conversion Price then in effect.
(ii) The holders of this Note may convert this Note
by delivering to the Company or its agent a written notice of conversion (the
"Notice of Conversion"), duly signed by or on behalf of the holder, stating the
aggregate principal amount of such holder's Note to be converted, in the form of
Exhibit A attached hereto. Such notices may be delivered to the Company or its
agent by telephone line facsimile, and shall be delivered prior to 6 p.m., New
York time, on the day prior to the date of requested conversion. The Company
will confirm its receipt of the
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<PAGE>
Notice of Conversion, and confirm the calculations therein or indicate
alternative calculations, by return facsimile by 11:00 a.m., New York time, on
the following Business Day. Failure of the Company to send such return facsimile
shall evidence its acceptance of the calculations in the Notice of Conversion.
(iii) Except as otherwise expressly provided herein,
each conversion of this Note shall be deemed to have been effected as of the
close of business on the date on which this Note has been surrendered for
conversion at the principal office of the Company. At such time as such
conversion has been effected, the rights of the holder of this Note as such
holder to the extent of the conversion shall cease, and the Person or Persons in
whose name or names any certificate or certificates for shares of Conversion
Stock are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Conversion Stock represented
thereby.
(iv) The conversion rights of any Note subject to
redemption hereunder shall terminate on the Redemption Date for such Note unless
the Company has failed to pay to the holder thereof the Optional Redemption
Price of such Note or portion thereof (plus all accrued interest thereon and any
premium payable with respect thereto).
(v) Notwithstanding any other provision hereof, if a
conversion of any portion of this Note is to be made in connection with a Change
of Control or other transaction affecting the Company, the conversion of any
portion of this Note may, at the election of the holder hereof, be conditioned
upon the consummation of such transaction, in which case such conversion shall
not be deemed to be effective until such transaction has been consummated.
(vi) On receipt by the Company from a holder of this
Note of a Notice of Conversion by telephone line facsimile transmission, meeting
the requirements for conversion in this Note, the Company shall deliver to the
converting holder:
(A) a certificate or certificates representing the
number of shares of Conversion Stock issuable by reason of such
conversion in such name or names and such denomination or denominations
as the converting holder has specified;
(B) payment in an amount equal to the sum of all
accrued interest with respect to the principal amount converted, which
has not been paid prior thereto, plus the amount payable under
subparagraph (vii) below; and
(C) a new Note representing any portion of the
principal amount which was represented by the Note surrendered to the
Company in connection with such conversion but which was not converted.
(vii) If any fractional share of Conversion Stock
would, except for the provisions hereof, be deliverable upon conversion of this
Note, the Company, in lieu of delivering such fractional share, shall pay an
amount equal to the Market Price of such fractional share as of the date of such
conversion.
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<PAGE>
(viii) The issuance of certificates for shares of
Conversion Stock upon conversion of this Note shall be made without charge to
the holder hereof for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such conversion and the related issuance of
shares of Conversion Stock. Upon conversion of this Note, the Company shall take
all such actions as are necessary in order to insure that the Conversion Stock
issuable with respect to such conversion shall be validly issued, fully paid and
nonassessable.
(ix) The Company shall not close its books against
the transfer of Conversion Stock issued or issuable upon conversion of this Note
in any manner which interferes with the timely conversion of this Note. The
Company shall assist and cooperate with any holder of this Note required to make
any governmental filings or obtain any governmental approval prior to or in
connection with the conversion of this Note (including, without limitation,
making any filings required to be made by the Company).
(x) The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Stock, solely
for the purpose of issuance upon the conversion of the Note, such number of
shares of Conversion Stock issuable upon the conversion of all outstanding
Notes. All shares of Conversion Stock which are so issuable shall, when issued,
be duly and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges. The Company shall take all such actions as may be
necessary to assure that all such shares of Conversion Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Conversion
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance).
(xi) The Company shall declare the payment of all
interest payable under subparagraph (vi)(B) above. If the Company is not
permitted under applicable law to pay any portion of the accrued interest with
respect to the principal amount being converted, the Company shall pay such
interest to the converting holder as soon thereafter as funds of the Company are
legally available for such payment. At the request of any such converting
holder, the Company shall provide such holder with written evidence of its
obligation to such holder. If for any reason the Company is unable to pay any
portion of the accrued interest with respect to the principal amount being
converted, such interest may, at the converting holder's option, be converted
into an additional number of shares of Conversion Stock determined by dividing
the amount of the unpaid interest to be applied for such purpose, by the lesser
of (A) the Conversion Price then in effect and (B) the Market Price of a share
of Common Stock.
(xii) If the shares of Conversion Stock issuable by
reason of conversion of this Note are convertible into or exchangeable for any
other stock or securities of the Company, the Company shall, at the converting
holder's option, upon surrender of this Note as provided herein together with
any notice, statement or payment required to effect such conversion or exchange
of Conversion Stock, deliver to such holder or as otherwise specified by such
holder a certificate or certificates representing the stock or securities into
which the shares of Conversion Stock issuable by reason of such conversion are
so convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such holder has specified.
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<PAGE>
(b) Conversion Price.
(i) As used herein, the term "Conversion Price" shall
mean the quotient obtained by dividing (A) the Market Price of a share of the
Common Stock as of the date of conversion or such date for which the Conversion
Price is determined, as applicable, by (B) 1 and one-half (1.5); provided, that,
subject to Section 5(d), (1) if the Conversion Price calculated pursuant hereto
is equal to or greater than $10.00 per share of Common Stock, the Conversion
Price shall be $10.00 (the "Maximum Conversion Price") or (2) if the Conversion
Price calculated pursuant hereto is equal to or less than $6.67, the Conversion
Price shall be $6.67 (the "Minimum Conversion Price"). Notwithstanding the
foregoing, in order to prevent dilution of the conversion rights granted under
this subparagraph 5 and give effect to the Events of Default under subparagraph
4, upon each determination of the Conversion Price, the Conversion Price shall
first be calculated pursuant to this subparagraph 5(b)(i) and then shall be
subject to further adjustment pursuant to the provisions of subparagraph
5(b)(ii), 5(c), 5(e) and 5(f) and subparagraph 4(b)(iv), (v), (vi) and (viii),
as applicable.
(ii) If and whenever on or after the original date of
issuance of this Note, the Company issues or sells, or in accordance with
paragraph 5(c) is deemed to have issued or sold, any shares of Common Stock for
a consideration per share less than the Market Price in effect immediately prior
to such time of such issue or sale, then immediately upon such issue or sale or
deemed issue or sale the Minimum Conversion Price and Maximum Conversion Price
shall be reduced to the Minimum Conversion Price and Maximum Conversion Price
determined by multiplying such Minimum Conversion Price and Maximum Conversion
Price, as the case may be, by a fraction equal to the quotient obtained by
dividing (A) the sum of (1) the product derived by multiplying the Market Price
in effect immediately prior to the earlier of the date on which such issuance or
sale is made public and the date of such issue or sale by the number of shares
of Common Stock Deemed Outstanding immediately prior to such issue or sale, plus
(2) the consideration, if any, received by the Company upon such issue or sale,
by (B) the product of (1) the Market Price in effect immediately prior to the
earlier of the date on which such issuance or sale is made public and the date
of such issue or sale and (2) the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale.
(iii) Notwithstanding the foregoing, there shall be
no adjustment in the Conversion Price as a result of any issue or sale (or
deemed issue or sale) of up to an aggregate number of 1,200,000 shares of Common
Stock to directors, officers and employees of the Company and its Subsidiaries
pursuant to stock option plans and stock ownership plans approved by the Board
of Directors (as such number of shares is proportionately adjusted for
subsequent stock splits, combinations and dividends affecting the Common Stock
and as such number includes all such stock options and purchase rights
outstanding at the time of the issuance of this Note).
(c) Effect on Conversion Price of Certain Events. For purposes
of determining the adjusted Conversion Price under paragraph 5(b), the following
shall be applicable:
(i) Issuance of Rights or Options. If the Company in
any manner grants or sells any Options and the price per share for which Common
Stock is issuable upon the exercise of such Options, or upon conversion or
exchange of any Convertible Securities issuable upon
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<PAGE>
exercise of such Options, is less than the Market Price in effect immediately
prior to the time of the granting or sale of such Options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options 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 Options for such price per share. For
purposes of this paragraph, the "price per share for which Common Stock is
issuable" shall be determined by dividing (A) the total amount, if any, received
or receivable by the Company as consideration for the granting or sale of such
Options, plus the minimum aggregate amount of additional consideration payable
to the Company upon exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the issuance or
sale of such Convertible Securities and the conversion or exchange thereof, by
(B) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Conversion Price shall be made when Convertible Securities are
actually issued upon the exercise of such Options or when Common Stock is
actually issued upon the exercise of such Options or the conversion 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 price
per share for which Common Stock is issuable upon conversion or exchange thereof
is less than the Market Price in effect immediately prior to the time of such
issue or sale, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities 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 paragraph, the "price per share for which Common Stock is
issuable" shall be determined by dividing (A) the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities. No further
adjustment of the Conversion Price shall be made when Common Stock is actually
issued upon the conversion 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 adjustments of the Conversion Price had been or are to be
made pursuant to other provisions of this paragraph 5, no further adjustment of
the Conversion Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If
the purchase price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities or
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, the Conversion Price in
effect at the time of such change shall be immediately adjusted to the
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; provided that if such adjustment would
result in an increase of the Conversion Price then in effect, such adjustment
shall not be effective until
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<PAGE>
thirty (30) days after written notice thereof has been given by the Company to
all holders of the Notes. For purposes of paragraph 5(c), if the terms of any
Option or Convertible Security which was outstanding as of the date of issuance
of the Preferred Stock are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change; provided that no such
change shall at any time cause the Conversion Price hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option or the termination of
any right to convert or exchange any Convertible Security without the exercise
of any such Option or right, the Conversion Price then in effect hereunder shall
be adjusted immediately to the Conversion Price which would have been in effect
at the time of such expiration or termination had such Option or Convertible
Security, to the extent outstanding immediately prior to such expiration or
termination, never been issued; provided that if such expiration or termination
would result in an increase in the Conversion Price then in effect, such
increase shall not be effective until thirty (30) days after written notice
thereof has been given to all holders of the Notes. For purposes of paragraph
5(c), the expiration or termination of any Option or Convertible Security which
was outstanding as of the date of issuance of the Preferred Stock shall not
cause the Conversion Price hereunder to be adjusted unless, and only to the
extent that, a change in the terms of such Option or Convertible Security caused
it to be deemed to have been issued after the date of issuance of this Note.
(v) Calculation of Consideration Received. If any
Common Stock, Option or Convertible Security is issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the amount received by the Company therefor (net of discounts,
commissions and related expenses). If any Common Stock, Option or Convertible
Security is issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Company shall be the fair
value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
shall be the Market Price thereof as of the date of receipt. If any Common
Stock, Option or Convertible Security is issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Option or
Convertible Security, as the case may be. The fair value of any consideration
other than cash and securities shall be determined jointly by the Company and
the holders of a majority of the outstanding principal amount of the Notes. If
such parties are unable to reach agreement within a reasonable period of time,
the fair value of such consideration shall be determined by an independent
appraiser experienced in valuing such type of consideration jointly selected by
the Company and the holders of a majority of the outstanding principal amount of
the Notes. The determination of such appraiser shall be final and binding upon
the parties, and the fees and expenses of such appraiser shall be borne by the
Company.
(vi) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated
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<PAGE>
transaction in which no specific consideration is allocated to such Option by
the parties thereto, the Option shall be deemed to have been issued for a
consideration of $.01.
(vii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held by or
for the account of the Company or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(viii) Record Date. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date shall 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.
(d) Subdivision or Combination of Common Stock. If the Company
at any time 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, each of the Conversion Price, the Maximum Conversion
Price and the Minimum Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and if the Company at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, each of the
Conversion Price, the Maximum Conversion Price and the Minimum Conversion Price
in effect immediately prior to such combination shall be proportionately
increased.
(e) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets or other
transaction, which in each case is effected in such a manner that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as an "Organic Change." Prior to the
consummation of any Organic Change, the Company shall make appropriate
provisions (in form and substance satisfactory to the holders of a majority of
the principal amount of the Notes then outstanding) to insure that each of the
holders of the Notes shall thereafter have the right to acquire and receive, in
lieu of or addition to (as the case may be) the shares of Conversion Stock
immediately theretofore acquirable and receivable upon the conversion of such
holder's Notes, such shares of stock, securities or assets as such holder would
have received in connection with such Organic Change if such holder had
converted its Notes immediately prior to such Organic Change. In each such case,
the Company shall also make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the principal amount of the Notes
then outstanding) to insure that the provisions of this paragraph 5 and
paragraphs 6 and 7 hereof shall thereafter be applicable to the Notes
(including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Company, an immediate
adjustment of the Conversion Price to the value for the Common Stock reflected
by the terms of such consolidation, merger or sale, and a corresponding
immediate adjustment in the number of shares of Conversion Stock acquirable and
receivable upon conversion of the Notes, if the value so
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<PAGE>
reflected is less than the Conversion Price in effect immediately prior to such
consolidation, merger or sale). The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form reasonably satisfactory to the holders of a majority of the principal
amount of the Notes then outstanding), the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
(f) Certain Events. If any event occurs of the type
contemplated by the provisions of this paragraph 5 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 Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Notes;
provided that no such adjustment shall increase the Conversion Price as
otherwise determined pursuant to this paragraph 5 or decrease the number of
shares of Conversion Stock issuable upon conversion of the Notes then
outstanding.
(g) Notices.
(i) Immediately upon any adjustment of the Conversion
Price, the Company shall send written notice thereof to the holders of the
Notes, setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Company shall send written notice to the
holder of this Note at least twenty (20) days 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 Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change, dissolution or liquidation.
(iii) The Company shall also give at least twenty
(20) days prior written notice of the date on which any Organic Change,
dissolution or liquidation shall take place.
(iv) All notices, except those given pursuant to
paragraph 16, shall be delivered in accordance with paragraph 14.
(h) Conversion Limit. Notwithstanding anything herein to the
contrary, unless and until the Company shall have obtained the approval of its
stockholders for the issuance and sale of securities pursuant to the Purchase
Agreement which are convertible into and exercisable for, in the aggregate, more
than 19.9% of the common equity of the Company (calculated as provided in and
required by the rules of the Nasdaq Stock Market), to the extent the rules of
the Nasdaq Stock Market requiring a stockholder vote are applicable to such
issuance and sale, or the Company shall have obtained such other stockholder
approval as may be required to comply with the rules of such other national
securities exchange upon which the Common Stock may then be traded (such
percentage of Common Stock or other restriction, the "Conversion Limit"), the
Company will not be required to issue shares of Common Stock upon conversion of
this Note which when taken together with all other shares of Common Stock
previously issued upon conversion of the Preferred Stock and the conversion of
the Notes and exercise of the Warrants issued pursuant to the Purchase
- 17 -
<PAGE>
Agreement, exceeds the Conversion Limit. In the event that the holders of this
Note deliver a Notice of Conversion with respect to all or any portion of the
outstanding principal amount of this Note and the number of shares of Common
Stock into which such portion of this Note shall be convertible in accordance
with the terms hereof exceeds the Conversion Limit, then in lieu of issuing any
shares in excess of the Conversion Limit ("Excess Shares"), the Company shall
pay to the holder on the date set for conversion an amount equal to the
principal amount of the Note being converted into Excess Shares multiplied by
the Optional Redemption Price (together with all accrued and unpaid interest
thereon).
6. Liquidating Dividends. If the Company declares a dividend
upon the Common Stock payable otherwise than in cash out of earnings or earned
surplus (determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of Common
Stock (a "Liquidating Dividend"), then the Company shall pay to the holders of
the Notes at the time of payment thereof the Liquidating Dividend which would
have been paid on the shares of Conversion Stock had the Notes been fully
converted immediately prior to the date on which a record is taken for such
Liquidating Dividend, or, if no record is taken, the date as of which the record
holders of Common Stock entitled to such dividends are to be determined.
7. Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then each holder of the Notes
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Conversion Stock acquirable upon
conversion of such holder's Note immediately before the date on which a record
is taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
8. Definitions. For purposes of the Notes, the following
capitalized terms have the following meaning.
"Blocked Account" means a bank account designated by the
holders of the Notes over which the Company has relinquished control pursuant to
a letter in form and substance satisfactory to the holders of the Notes to the
bank at which such account is maintained.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Change of Control" has the meaning set forth in paragraph 3
hereof.
"Common Stock" means, collectively, the Company's Common
Stock, $.001 par value per share, and any capital stock of any class of the
Company hereafter authorized which is not limited to a fixed sum or percentage
of par or stated value in respect to the rights of the holders thereof to
participate in dividends or in the distribution of assets upon any liquidation,
dissolution or winding up of the Company.
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<PAGE>
"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
subparagraphs 5(c)(i) and 5(c)(ii) hereof whether or not the Options and
Convertible Securities are actually exercisable at such time.
"Consolidated EBITDA" means, for any period, the sum for such
period of (a) the consolidated net income (or deficit) of the Company and its
Subsidiaries for such period, taken as a whole, plus (b) the sum of, without
duplication, (i) income tax expense, (ii) interest expense, (iii) depreciation
expense, (iv) amortization expense and (v) any extraordinary non-cash loss less
(c) interest or investment income, less (d) any extraordinary non-cash gain, in
each case without giving effect to any net extraordinary gains or losses or
gains or losses for sales of assets other than in the ordinary course of
business, all as presented on the Company's financial statements and determined
in accordance with GAAP.
"Consolidated Net Indebtedness" means, at any time, (a) the
aggregate Indebtedness (as defined in the Purchase Agreement) of the Company and
its Subsidiaries at such time determined on a consolidated basis in accordance
with GAAP less (b) cash and cash equivalents as presented on the Company's
financial statements.
"Conversion Stock" means shares of the Company's Common Stock;
provided, that if there is a change such that the securities issuable upon
conversion of the Notes are issued by an entity other than the Company or there
is a change in the class of securities so issuable, then the term "Conversion
Stock" shall mean one share of the security issuable upon conversion of this
Note if such security is issuable in shares, or shall mean the smallest unit in
which such security is issuable if such security is not issuable in shares.
"Convertible Securities" means any stock or securities
(directly or indirectly) convertible into or exchangeable for Common Stock.
"Debt-to-EBITDA Ratio" means, for any fiscal quarter, the
ratio of (a) Consolidated Net Indebtedness as of the last day of such quarter to
(b) Consolidated EBITDA for such fiscal quarter.
"Events of Default" has the meaning set forth in paragraph 4
hereof.
"GAAP" means United States generally accepted accounting
principles in effect from time to time, consistently
applied.
"Interest Payment Dates" has the meaning set forth in
paragraph 1 hereof.
"Licensees" means each of PC Virginia Synthetic Fuel #1,
L.L.C., a Delaware limited liability company, PC West Virginia Synthetic Fuel
#1, L.L.C., a Delaware limited liability company, PC West Virginia Synthetic
Fuel #2, L.L.C., a Delaware limited liability company, and PC West Virginia
Synthetic Fuel #3, L.L.C., a Delaware limited liability company.
- 19 -
<PAGE>
"Market Price" of any security means the average of the
closing prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the Nasdaq Stock Market System as of 4:00 P.M., New York time, or, if on any day
such security is not quoted in the Nasdaq Stock Market System, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over the period of the 30 days immediately preceding the day which "Market
Price" is being determined. If at any time such security is not listed on any
securities exchange or quoted in the Nasdaq Stock Market System or the
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by the Company and the holders of a majority of the principal
amount of the Notes outstanding. If such parties are unable to reach agreement
within a reasonable period of time, such fair value shall be determined by an
independent appraiser experienced in valuing securities jointly selected by the
Company and the holders of a majority of the principal amount of the Notes
outstanding. The determination of such appraiser shall be final and binding upon
the parties, and the Company shall pay the fees and expenses of such appraiser.
"Maturity Date" means the date that is the fifth anniversary
of the date of issuance of this Note.
"Notice of Conversion" has the meaning set forth in paragraph
5(a)(ii) hereof.
"Optional Redemption Price" of any Note as of any particular
date (expressed as a percentage of the outstanding principal amount of such Note
to be redeemed) shall be equal to (i) 100% from the date of issuance of the
Notes until and including the date that is thirty (30) months from such date of
issuance and (ii) 109.85% from the date following the date that is thirty (30)
months from the date of issuance of the Notes.
"Options" means any rights or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Organic Change" has the meaning given that term in paragraph
5(e).
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof or other entity.
"Redemption Date" as to any principal amount of the Notes
means the date specified in the notice of any redemption at the Company's option
or at the holder's option or the applicable date specified herein in the case of
any other redemption.
"Securities" means any Capital Stock or other equity
securities of the Company.
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<PAGE>
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
9. Registration of Transfer. Upon the surrender of any Note at
the Company's principal office, the Company shall, at the request of the holder
of such Note, execute and deliver (at the Company's expense) a new Note or Notes
in exchange therefor representing in the aggregate the principal amount
represented by the surrendered Note. Each such new Note shall be registered in
such name and shall represent such principal amount as is requested by the
holder of the surrendered Note and shall be substantially identical in form to
the surrendered Note, and interest shall accrue on the new Note from the date to
which interest has been fully paid on such surrendered Note.
10. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
a holder's Note, and in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Company (provided that if
the holder is a financial institution or other institutional investor its own
agreement shall be satisfacto ry), or, in the case of any such mutilation upon
surrender of such Note, the Company shall (at its expense) execute and deliver
in lieu of such Note a new Note of like kind representing the aggregate
principal amount represented by such lost, stolen, destroyed or mutilated Note
and dated the date of such lost, stolen, destroyed or mutilated Note, and
interest shall accrue on the new Note from the date to which interest has been
fully paid on such lost, stolen, destroyed or mutilated Note.
11. Cancellation. After all principal and accrued interest at
any time owed on this Note has been paid in full, this Note shall be surrendered
to the Company for cancellation and shall not be reissued.
12. Payments. All payments to be made to the holders of the
Notes shall be made in the lawful money of the United States of America in
immediately available funds.
13. Amendment and Waiver. No amendment, modification or waiver
shall be binding or effective with respect to any provision of this Agreement
without the prior written
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<PAGE>
consent of the holders of at least 50.1% of the principal amount of the Notes
outstanding at the time such action is taken; provided that no such action shall
change (a) the rate at which or the manner in which interest on the Notes
accrues or the times at which such interest becomes payable or the amount
payable on redemption of the Notes or the times at which redemption of the Notes
is to occur, without the prior written consent of the holders of 100% of the
principal amount of the Notes then outstanding, (b) the Conversion Price of the
Notes or the number of shares or class of stock into which the Notes are
convertible, without the prior written consent of the holders of 100% of the
principal amount of the Notes then outstanding, or (c) the percentage required
to approve any change described in clauses (a) and (b) above, without the prior
written consent of the holders of 100% of the principal amount of the Notes then
outstanding; and provided further that no change in the terms hereof may be
accomplished by merger or consolidation of the Company with another corporation
or entity unless the Company has obtained the prior written consent of the
holders of the applicable percentage of the principal amount of the Notes then
outstanding.
14. Place of Payment and Notices. Except as otherwise
expressly provided hereunder, (a) payments of principal and interest shall be
delivered and (b) all notices referred to herein shall be (i) delivered in
person, (ii) transmitted by telecopy, (iii) sent by registered or certified
mail, postage prepaid with return receipt requested, or (iv) sent by reputable
overnight courier service, fees prepaid, to (x) the Company, at its principal
executive offices and (y) to any noteholder, at such holder's address as it
appears in the Purchase Agreement (unless otherwise indicated by any such
holder). Notices shall be deemed given upon personal delivery, upon receipt of
return receipt in the case of delivery by mail, upon acknowledgment by the
receiving telecopier or one day following deposit with an overnight courier
service.
15. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO THE LAWS OF CONFLICT OR CHOICE OF LAWS OF THE
STATE OF NEW YORK OR OF ANY OTHER JURISDICTION THAT WOULD RESULT IN THE
APPLICATION OF ANY LAWS OTHER THAN THOSE OF THE STATE OF NEW YORK.
16. CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION
AND DELIVERY OF THIS NOTE, THE COMPANY HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF
ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT
OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, SUCH SERVICE TO BECOME EFFECTIVE
TEN (10) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
HOLDERS OF THE NOTES TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR TO
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<PAGE>
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER
JURISDICTION. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS NOTE.
17. WAIVER OF JURY TRIAL. THE COMPANY HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY
RIGHTS UNDER THIS NOTE OR UNDER ANY AMENDMENT DELIVERED OR WHICH IN THE FUTURE
MAY BE DELIVERED IN CONNECTION HEREWITH, OR ARISING FROM ANY RELATIONSHIP
EXISTING IN CONNECTION WITH THIS NOTE, AND AGREES THAT ANY SUCH ACTION,
PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
THE COMPANY CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE
HOLDERS OF THIS NOTE HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE HOLDERS
OF THIS NOTE WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM,
SEEK TO ENFORCE THE FOREGOING WAIVERS. THE COMPANY HEREBY ACKNOWLEDGES THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDERS OF THIS NOTE ACCEPTING
DELIVERY HEREOF.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered
this Note as of the date first written above.
COVOL TECHNOLOGIES, INC.
Attest By /s/ Steven G. Stewart
------------------------------
/s/ Asael T. Sorensen Its CFO
- ------------------------------- ------------------------------
<PAGE>
Exhibit A
FORM OF NOTICE OF CONVERSION
____________________, 199_
BY FACSIMILE: or ______________ (alternate)
Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
cc: [Name of Transfer Agent]
Re: Convertible Secured Note
The undersigned hereby elects to convert the principal amount of the
Convertible Secured Note indicated below, into shares of Common Stock, par value
$.001 per share of the Company, as of the following date:
Date to Effect Conversion:
Principal amount of Note being Converted:
Conversion Price (calculated as follows):
The number of shares of Common Stock to be received on conversion of $______
principal amount of the Note is _______ shares.
A-1
<PAGE>
Delivery Instructions:
Certificates to be
issued in the name of:
Certificates to be
delivered to:
Date:
Authorized signature of Registered Holder
CONFIRMATION OF RECEIPT
OF NOTICE OF CONVERSION
AND CONVERSION CALCULATION:
Acknowledged:
COVOL TECHNOLOGIES, INC.
By: --------------------------------------------
Name: --------------------------------------------
Title: --------------------------------------------
A-2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of March 17,
1999, by and among Covol Technologies, Inc., a Delaware corporation (the
"Company"), OZ Master Fund, Ltd. (the "Purchaser"), Leeds Group Inc. ("Leeds")
and Havenwood Capital Markets, LLC ("Havenwood").
RECITALS:
(a) The Purchaser and the Company have entered into a
Securities Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement") (each capitalized term used herein and not otherwise defined shall
have the meaning ascribed to such term in the Purchase Agreement), pursuant to
which the Purchaser is simultaneously with the execution hereof purchasing from
the Company (i) 60,000 shares of Series D Cumulative Convertible Preferred
Stock, $.001 par value per share (the "Preferred Stock"), (ii) Convertible
Secured Notes (the "Notes") due March 17, 2004, in an initial aggregate
principal amount of $20,000,000, and (iii) the Warrants (other than the Series E
Warrants), initially exercisable for 971,430 shares of Common Stock in the
aggregate.
(b) As of the date hereof, the Preferred Stock, the Notes and
the Warrants (other than the Series E Warrants) purchased by the Purchaser
pursuant to the Purchase Agreement entitles the holder thereof to receive, upon
the conversion or exercise thereof, 5,426,484 shares of Common Stock, which
number of shares are subject to adjustment as set forth in the provisions of the
Certificate of Designations, the Notes and the Warrants, as the case may be.
(c) On the Closing Date, the Company will also issue the
Series E Warrants, initially exercisable for 312,196 shares of Common Stock in
the aggregate, to Leeds and Havenwood.
(d) The Company desires to grant the Purchaser, Leeds and
Havenwood certain registration rights with respect to the Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. Demand Registrations.
(a) Requests for Registration. Subject to paragraph 1(b)
below, (i) the holders of at least 50% of the Preferred Registrable Securities
may request, at any time following the Closing Date, registration under the
Securities Act of 1933, as amended (the "Securities Act"), of all or part of
their Registrable Securities on Form S-1 or any similar long-form registration
("Long-Form Registrations"), and each holder of Preferred Registrable Securities
may request registration under the Securities Act of all or
1
<PAGE>
part of their Registrable Securities on Form S-2 or S-3 or any similar
short-form registration ("Short-Form Registrations") if available, (ii) the
holders of at least 50% of the Note Registrable Securities may request, at any
time from and after the date on which the Notes shall have become convertible, a
Long-Form Registration of all or part of their Note Registrable Securities, and
each holder of Note Registrable Securities may request a Short-Form Registration
of all or part of their Note Registrable Securities if available, and (iii) the
holders of at least 50% of the Warrant Registrable Securities (other than the
holders of Series E Warrants who shall have no Demand Registration rights
hereunder) may request, at any time following the Closing Date, a Long-Form
Registration of all or part of their Warrant Registrable Securities, and each
holder of Warrant Registrable Securities (other than the holders of Series E
Warrants who shall have no Demand Registration rights hereunder) may request a
Short-Form Registration of all or part of their Warrant Registrable Securities
if available. Each request for a Demand Registration shall specify the
approximate number of Registrable Securities requested to be registered and the
anticipated per share price range for such offering. Holders of all Registrable
Securities may join in any Demand Registration initiated by any holder of
Registrable Securities regardless of class of securities. Notwithstanding
anything herein to the contrary, the right of a holder of Preferred Registrable
Securities, Warrant Registrable Securities or Note Registrable Securities to
join in a Demand Registration initiated by the holder of a different class of
Registrable Securities shall not count as a Demand Registration for any holders
of Registrable Securities other than the holders of the class of Registrable
Securities held by the holders initiating the Demand Registration. Within ten
days after receipt of any such request, the Company will give written notice of
such requested registration to all other holders of Registrable Securities and
will include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within
fifteen (15) days after the receipt of the Company's notice. All registrations
requested pursuant to this paragraph 1(a) are referred to herein as "Demand
Registrations".
(b) Long-Form Registrations. Subject to paragraph 1(a), the
holders of Registrable Securities will be entitled, at any time following the
Closing Date, to request Long-Form Registrations; provided, that (i) the holders
of Preferred Registrable Securities may not initiate more than four (4)
Long-Form Registrations (each a "Demand Long-Form Registration") with respect to
their Preferred Registrable Securities, such number to be reduced by the number
of previously consummated Demand Long-Form Registrations initiated by such
holders of Preferred Registrable Securities with respect to such securities,
(ii) the holders of Note Registrable Securities may not initiate more than four
(4) Demand Long-Form Registrations with respect to their Note Registrable
Securities and (iii) the holders of Warrant Registrable Securities (other than
the holders of Series E Warrants who shall have no Demand Registration rights
hereunder) may not initiate more than two (2) Demand Long-Form Registration with
respect to their Warrant Registrable Securities. A registration will not count
as one of the permitted Demand Long-Form Registrations until it has become
effective, and no Demand Long-Form Registration will count as one of the
permitted Demand Long-Form Registrations unless the holders of Registrable
Securities are able to register and sell at least 90% of the Registrable
Securities requested to be included in such registration.
(c) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to paragraph 1(b), the holders of Registrable
Securities will be entitled to request Short Form Registrations; provided, that
(i) the holders of Preferred Registrable Securities may only initiate up to four
(4) Short-Form Registrations (each a "Demand Short-Form Registration") with
respect to their Preferred
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Registrable Securities in any fiscal year of the Company, which number shall be
reduced by the number of previously consummated Demand Short-Form Registrations
by such holders of Preferred Registrable Securities with respect to such
securities in such fiscal year, (ii) the holders of the Note Registrable
Securities may only initiate four (4) Demand Short-Form Registrations with
respect to their Note Registrable Securities in any fiscal year and (iii) the
holders of the Warrant Registrable Securities (other than the holders of Series
E Warrants who shall have no Demand Registration rights hereunder) may only
initiate two (2) Demand Short-Form Registration with respect to their Warrant
Registrable Securities in any fiscal year. Demand Registrations will be
Short-Form Registrations whenever the Company is permitted to use any applicable
short form. The Company will use its best efforts to make Short-Form
Registrations on Form S-3 available for the sale of Registrable Securities. The
holders of Registrable Securities agree that they will not request a Long-Form
Registration when the Company is eligible to use a Short-Form Registration;
provided, that the Company agrees to include in the prospectus included in any
Short-Form Registration Statement, such material describing the Company and
intended to facilitate the sale of securities being so registered as is
reasonably requested for inclusion therein by any of the shareholders selling
securities pursuant to such registration statement, whether or not the form used
for such registration statement requires the inclusion of such information. The
Company will not be obligated to effect any Demand Short-Form Registration
unless the anticipated aggregate offering price, net of underwriting discounts
and commissions, of the Common Stock to be included in such Demand Short-Form
Registration exceeds one million dollars ($1,000,000).
(d) Priority on Demand Registrations. The Company will not
include in any Demand Registration any securities which are not Registrable
Securities without the prior written consent of the holders of at least 662/3%
of the Registrable Securities included in such registration. If a Demand
Registra tion is an underwritten offering and the managing underwriters advise
the Company in writing that in their opinion the number of Registrable
Securities and, if permitted hereunder, other securities requested to be
included in such offering exceeds the number of Registrable Securities and other
securities, if any, which can be sold therein without adversely affecting the
marketability of the offering, the Company will include in such registration
prior to the inclusion of any securities which are not Registrable Securities
the number of Registrable Securities requested to be included which in the
opinion of such underwriters can be sold without adversely affecting the
marketability of the offering, pro rata among the respective holders thereof on
the basis of the number of Registrable Securities owned by each holder
participating in such offering.
(e) Restrictions on Long-Form Registrations and Demand
Registrations. The Company will not be obligated to effect any Demand Long-Form
Registration during the period starting with the date thirty (30) days prior to
the Company's good faith estimate of the date of filing of, and ending on a date
ninety (90) days after the effective date of, a Company-initiated registration;
provided, that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become and remain effective. The
Company will not be obligated to effect any Demand Long-Form Registration within
six (6) months after the effective date of a previous Long-Form Registration
with respect to Registrable Securities. The Company may postpone for up to
ninety (90) days the filing or the effectiveness of a registration statement for
a Demand Registration if the Company determines in good faith and the holders of
a majority of the Registrable Securities to be covered thereby agree that such
Demand Registration would reasonably be expected to have an adverse effect on
any proposal or plan by the
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Company or any of its subsidiaries to engage in any material acquisition of
assets (other than in the ordinary course of business) or any material merger,
consolidation, tender offer or similar transaction; provided, that in such
event, the holders of Registrable Securities initially requesting such Demand
Registration will be entitled to withdraw such request and such Demand
Registration will not count as one of the permitted Demand Registrations
hereunder and the Company will pay all Registration Expenses in connection with
such registration. The Company will not be obligated to effect any Demand
Long-Form Registration unless either (i) the number of Registrable Securities
requested to be included in such offering equals at least 50% of the number of
Registrable Securities held by the holders of Registrable Securities initiating
such request or (ii) in the case of Demand Long-Form Registrations initiated by
the holders of Note Registrable Securities, the anticipated aggregate offering
price, net of underwriting discounts and commissions, of the Common Stock to be
included in such Demand Long-Form Registration exceeds five million dollars
($5,000,000).
(f) Other Registration Rights. (i) within ninety (90) days
from the Closing Date, the Company shall prepare and file with the Securities
and Exchange Commission a registration statement (which shall not count as one
of the permitted Demand Registrations granted under this Agreement) with respect
to all of the eligible Registrable Securities and cause such registration
statement to become effective, and prepare and file with the Securities and
Exchange Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement in accordance with the intended methods of disposition by
the sellers thereof set forth in such registration statement and (ii) except as
provided in this Agreement or as previously granted by the Company under any
registration rights agreement listed on Schedule 4.30 of the Purchase Agreement,
the Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of at least 66.67% of the Registrable Securities;
provided, that the Company may grant rights to employees of the Company and its
Subsidiaries to participate in Piggyback Registrations so long as such rights
are subordinate to the rights of the holders of Registrable Securities with
respect to such Piggyback Registrations as provided in paragraphs 2(c) and 2(d)
below.
(g) Selection of Underwriters. If any Demand Registration is
an underwritten offering, the selection of investment banker(s) and manager(s)
for the offering shall be made by the holders of a majority of the Registrable
Securities included in such Demand Registration, subject to approval by the
Company which approval will not be unreasonably withheld.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to
register any of its securities under the Securities Act (other than pursuant to
(i) a registration in connection with shares issued by the Company in connection
with the acquisition of any company or companies or (ii) a registration solely
of shares that have been issued pursuant to the Company's employee benefit
plans) and the registration
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form to be used may be used for the registration of Registrable Securities (a
"Piggyback Registration"), the Company will give prompt written notice to all
holders of Registrable Securities of its intention to effect such a registration
and will include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within
fifteen (15) days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the
holders of Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering without adversely
affecting the marketability of the offering, the Company will include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the Registrable Securities requested to be included in such
registration, pro rata among the holders of such Registrable Securities on the
basis of the number of Registrable Securities owned by each holder of
Registrable Securities participating in such offering, and (iii) third, other
securities requested to be included in such registration; provided, that if the
holders of Registrable Securities would be precluded from having priority in any
such Piggyback Registration over the holders of other securities requested to be
included in such registration pursuant to any registration rights agreement
listed on Schedule 4.30 of the Purchase Agreement, then the holders of
Registrable Securities requested to be included in any such registration shall
be entitled to participate in such piggyback registration pro rata with such
holders of other securities requested to be included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
without adversely affecting the marketability of the offering, the Company will
include in such registration (i) first, the Registrable Securities requested to
be included in such registration, pro rata among the holders of such Registrable
Securities on the basis of the number of Registrable Securities owned by each
holder of Registrable Securities participating in such offering, and (ii) second
other securities requested to be included in such registration; provided, that
if the holders of Registrable Securities would be precluded from having priority
in any such Piggyback Registration over the holders of other securities
requested to be included in such registration pursuant to any registration
rights agreement listed on Schedule 4.30 of the Purchase Agreement, then the
holders of Registrable Securities requested to be included in any such
registration shall be entitled to participate in such piggyback registration pro
rata with such holders of other securities (other than the shares included
because of Demand Registration Rights) requested to be included in such
registration; provided, further, however, the rights of the holders of
Registrable Securities pursuant to this paragraph 2(d) shall be subject to the
rights of PacifiCorp. Financial Services, Inc. pursuant to paragraph 2.2(b) of
the Registration Rights Agreement between the Company and PacifiCorp Financial
Services, Inc., dated March 20, 1997.
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(e) Selection of Underwriters. If any Piggyback Registration
is an underwritten offering, the selection by the Company of investment
banker(s) and manager(s) for the offering must be approved by the holders of a
majority of the Registrable Securities included in such Piggyback Registration;
provided, that such right may not be exercised if it is deemed to conflict with
paragraph 2.4(a) of the Registration Rights Agreement between the Company and
PacifiCorp. Financial Services, Inc., dated March 20, 1997. Such approval cannot
be unreasonably withheld.
3. Holdback Agreements.
(a) Each holder of Registrable Securities agrees not to effect
any public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the one
hundred and eighty (180)-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration in
which Registrable Securities are included (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the one hundred and eighty (180)-day period beginning on the
effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor form), unless the
underwriters managing the registered public offering otherwise agree, and (ii)
to cause each holder of at least 5% (on a fully-diluted basis) of its Common
Stock, or any securities convertible into or exchangeable or exercisable for
Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Agreement, the Company will use its best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof including the
registration of common stock that may be obtained upon conversion of the
Securities held by a holder of Registrable Securities requesting registration as
to which the Company has received reasonable assurances that only Registrable
Securities will be distributed to the public, and pursuant thereto the Company
will as expeditiously as possible:
(a) prepare and file (in the case of a Demand Long-Form
Registration or a Demand Short Form Registration not more than sixty (60) days
and thirty (30) days, respectively, after request therefor) with the Securities
and Exchange Commission a registration statement with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to become effective (provided that as far in advance as practicable
before filing a registration statement or prospectus or any
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amendments or supplements thereto, the Company will furnish to the counsel
selected by the holders of a majority of the Registrable Securities covered by
such registration statement copies of all such documents proposed to be filed,
which documents will be subject to the review of such counsel);
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than one hundred and
eighty (180) days (subject to paragraph (a) above) and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the National Association of
Securities Dealers automated quotation system;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities
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being sold or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities (including, without
limitation, effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) permit any holder of Registrable Securities which holder,
in its sole and exclusive judgment, might be deemed to be an underwriter or a
controlling Person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included;
(k) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will promptly notify the holders of Registrable
Securities and will use its reasonable best efforts promptly to obtain the
withdrawal of such order;
(l) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the holders of a
majority of the Registrable Securities being sold reasonably request; and
(m) in connection with an underwritten public offering, (i)
cooperate with the selling holders of Registrable Securities, the underwriters
participating in the offering and their counsel in any due diligence
investigation reasonably requested by the selling holders or the underwriters in
connection therewith and (ii) participate, to the extent reasonably requested by
the managing underwriter for the offering or the selling holder, in efforts to
sell the Registrable Securities under the offering (including, without
limitation, participating in "roadshow" meetings with prospective investors)
that would be customary for underwritten primary offerings of a comparable
amount of equity securities by the Company.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company (all such expenses
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being herein called "Registration Expenses"), will be borne as provided in this
Agreement, except that the Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance and the
expenses and fees for listing the securities to be registered on each securities
exchange on which similar securities issued by the Company are then listed or on
the National Association of Securities Dealers automated quotation system. The
Company shall not be required to pay an underwriting discount with respect to
any shares being sold by any party other than the Company in connection with an
underwritten public offering of any of the Company's securities pursuant to this
Agreement.
(b) In connection with each Demand Registration requested by
the holders of Registrable Securities hereunder, the Company shall pay all
Registration Expenses.
(c) The Company will reimburse the holders of Registrable
Securities for the reasonable fees and expenses (including the fees and expenses
of counsel chosen by the holders of a majority of the Registrable Securities)
incurred by such holders in enforcing any of their rights under this Agreement.
6. Indemnification.
(a) Indemnification of Selling Stockholders by the Company.
The Company agrees to indemnify and hold harmless each holder of Registrable
Securities (each a "Selling Stockholder") and each Person, if any, who controls
any Selling Stockholder within the meaning of Section 15 of the Securities Act
or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the registration statement (or
any amendment thereto), or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or the
prospectus (or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission; provided, that subject to Section 6(c) below any such
settlement is effected with the prior written consent of the Company; and
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(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by such Selling
Stockholder), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above; provided, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by such
Selling Stockholder expressly for use in the registration statement (or any
amendment thereto), or any preliminary prospectus or the prospectus (or any
amendment or supplement thereto).
(b) Indemnification of Company by the Selling Stockholders.
Each Selling Stockholder, severally and not jointly, agrees to indemnify and
hold harmless the Company, its directors, each of its officers who signed the
registration statement and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, against any and all loss, liability, claim, damage and expense described in
the indemnity contained in Section 6(a) above, as incurred, but only with
respect to untrue or alleged untrue statements or omissions made in the
registration statement (or any amendment thereto), or any preliminary prospectus
or any prospectus (or any amendment or supplement thereto) in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of such Selling Stockholder with respect to such Selling Stockholder expressly
for use in the registration statement (or any amendment or supplement thereto);
provided, that such Selling Stockholder's aggregate liability under this Section
6 shall be limited to an amount equal to the net proceeds (after deducting the
underwriting discount, but before deducting expenses) received by such Selling
Stockholder from the sale of Registrable Securities pursuant to a registration
statement filed pursuant to this Agreement.
(c) Actions against Parties; Notification. Each indemnified
party shall give notice as promptly as reasonably practicable to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified pursuant
to Section 6(a), counsel to the indemnified parties shall be selected by the
Selling Stockholders (by majority vote based on the number of Registrable
Securities included in a registration hereunder) and, in the case of parties
indemnified pursuant to Section 6(b), counsel to the indemnified parties shall
be selected by the Company. An indemnifying party may participate at its own
expense in the defense of any such action; provided, that counsel to the
indemnifying party shall not (except with the consent of the indemnified party)
also be counsel to the indemnified party. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to
any local counsel) separate from their own counsel for all indemnified parties
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body,
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commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
(i) such settlement is entered into more than forty-five (45) days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least thirty
(30) days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) Contribution. (i) If a claim for indemnification under
Section 6(a) or 6(b) is unavailable to an indemnified party because of a failure
or refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and the indemnified party in connection with the
actions, statements or omissions that resulted in such losses as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any losses shall be deemed to include, subject to the limitations set forth
in this Section, any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6(e) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 6(e), a holder shall
not be required to contribute, in the aggregate, any amount in excess of the
amount by which the proceeds actually received by such holder from the sale of
the Registrable Securities subject to the proceeding exceeds the amount of any
damages that the holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the
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meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(iii) The indemnity and contribution agreements contained in
this Section are in addition to any liability that the indemnifying parties may
have to the indemnified parties.
7. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
8. Definitions.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Closing Date" means March 17, 1999.
"Common Stock" means, collectively, the Company's Common
Stock, $.001 par value per share.
"Note Registrable Securities" means (i) any Common Stock
issued or issuable upon the conversion of any Note (whether held by the
Purchaser or any successor or assignee of the Purchaser) and (ii) any Common
Stock issued or issuable with respect to the securities referred to in clause
(i) by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Notes" means the Company's Convertible Secured Notes due
March 10, 2004 in the initial aggregate principal amount of $20,000,000.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other entity.
"Preferred Registrable Securities" means (i) any Common Stock
issued or issuable upon the conversion of any Preferred Stock (whether held by
the Purchaser or any successor or assignee of the Purchaser) and (ii) any Common
Stock issued or issuable with respect to the securities referred to in clause
(i) by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Preferred Stock" means the Series D Cumulative Convertible
Preferred Stock, $.001 par value per share, of the Company.
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"Registrable Securities" means the Preferred Registrable
Securities, the Note Registrable Securities and the Warrant Registrable
Securities. As to any particular Registrable Securities, such securities will
cease to be Registrable Securities when they have been distributed to the public
pursuant to an offering registered under the Securities Act or sold to the
public through a broker, dealer or market maker in compliance with Rule 144
under the Securities Act (or any similar rule then in force). For purposes of
this Agreement, a Person will be deemed to be a holder of Registrable Securities
whenever such Person has the right to acquire directly or indirectly such
Registrable Securities (upon conversion or exercise in connection with a
transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected. For purposes of calculating the percentage of
Registrable Securities for voting purposes, the Preferred Stock, the Notes and
the Warrants shall be deemed to have been converted at the then applicable
conversion price.
"Registration Expenses" has the meaning set forth in Section
5(a) hereof.
"Securities" means the Preferred Stock, the Notes and the
Warrants.
"Warrants" means, collectively (i) the Series A Warrants of
the Company initially exercisable for 200,000 shares of Common Stock (the
"Series A Warrants"), (ii) the Series B Warrants of the Company initially
exercisable for 200,000 shares of Common Stock (the "Series B Warrants") (iii)
the Series C Warrants of the Company initially exercisable for 228,572 shares of
Common Stock (the "Series C Warrants"), (iv) the Series D Warrants of the
Company initially exercisable for 342,858 shares of Common Stock (the "Series D
Warrants"), in each case issued by the Company to the Purchaser on the Closing
Date pursuant to the Purchase Agreement, and (v) the Series E Warrants of the
Company initially exercisable for 312,196 shares of Common Stock (the "Series E
Warrants") issued by the Company on the Closing Date.
"Warrant Registrable Securities" means (i) any Common Stock
issued or issuable upon the exercise of the Warrants and (ii) any Common Stock
issued or issuable with respect to the securities referred to in clause (i) by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"Warrant Shares" means shares of Common Stock obtained or
obtainable upon exercise of the Warrants; provided, that if there is a change
such that the securities issuable upon exercise of the Warrants are issued by an
entity other than the Company or there is a change in the class of securities so
issuable, then the term "Warrant Shares" shall mean shares of the security
issuable upon exercise of the Warrants if such security is issuable in shares,
or shall mean the equivalent units in which such security is issuable if such
security is not issuable in shares.
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9. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered
and will not hereafter enter into any agreement with respect to its securities
which is inconsistent with or violates or diminishes in any way, or grants
anyone superior rights than, the rights granted to the holders of Registrable
Securities in this Agreement. The parties to this Agreement hereby confirm the
rights of the holders of negotiable securities under the Registration Rights
Agreements, dated as of December 20, 1996 and January 8, 1998, by and between
the Company and AJG Financial Services, Inc. ("AJG"). The Company hereby
represents and warrants that it has granted AJG comparable rights to those given
to the holders of Registrable Securities hereunder and that the Company has
received AJG's consent with respect to the rights granted to the holders of
Registrable Securities hereunder.
(b) Adjustments Affecting Registrable Securities. The Company
will not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Securities in any such registration
(including, without limitation, effecting a stock split or a combination of
shares).
(c) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(d) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and holders of at least 66.67% of the
Registrable Securities.
(e) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the permitted respective successors and assigns of the parties
hereto whether so expressed or not.
(f) Notices. Except as otherwise expressly provided herein,
any and all notices, designations, consents, offers, acceptances or other
communications provided for herein shall be given in writing and shall be mailed
by first class registered or certified mail, postage prepaid, sent by a
nationally recognized overnight courier service or transmitted via telecopier as
follows:
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If to the Company:
Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Telecopy: (801) 768-4483
Attention: Steven Stewart
with a copy to (which shall not constitute notice to
the Company):
Callister, Nebeker & McCullough
Ten East South Temple
Salt Lake City, Utah 84133
Telecopy: (801) 364-9127
Attention: Richard Beard, Esq.
If to the Purchaser:
OZ Master Fund, Ltd.
c/o Och-Ziff Management, L.L.C.
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 292-5999
Attention: Dan Och
with a copy to (which shall not constitute notice to
the Purchaser):
Schulte, Roth & Zabel LLP
900 Third Avenue
19th Floor
New York, New York 10022
Telecopy: (212) 593-5955
Attention: Mark Broude, Esq.
If to holders of Series E Warrants:
c/o Leeds Group Inc.
660 Madison Avenue
15th Floor
New York, New York 10021
Telecopy: (212) 835-2020
Attention: Robert A. Bernstein
c/o Havenwood Capital Markets, LLC
10451 Mill Run Circle, Suite 400
Owings Mills, Maryland 21117
Telecopy: (410) 902-1885
15
<PAGE>
Attention: Howard Schwartz
with a copy to (which shall not constitute notice to
any holder):
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 446-4900
Attention: Joshua N. Korff, Esq.
Notice shall be deemed given, for all purposes, when deposited in the United
States mail as registered or certified mail, in which event the fifth day
following the date of postmark on the receipt of such registered or certified
mail shall conclusively be deemed the date of giving of such notice, on the
first Business Day following collection by the courier service or when
acknowledged by the receiving telecopier.
(g) Interpretation of Agreement; Severability. The provisions
of this Agreement shall be applied and interpreted in a manner consistent with
each other so as to carry out the purposes and intent of the parties hereto, but
if for any reason any provision hereof is determined to be unenforceable or
invalid, such provision or such part thereof as may be unenforceable or invalid
shall be deemed severed from the Agreement and the remaining provisions carried
out with the same force and effect as if the severed provision or part thereof
had not been a part of this Agreement.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS (AND NOT THE
CONFLICTS OF LAW) OF THE STATE OF NEW YORK.
(i) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same Agreement.
(j) Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes all previous agreements.
* * * * *
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement as of the date first written above.
COVOL TECHNOLOGIES, INC.
By: /s/ Steven G. Stewart
--------------------------------
Name: Steven G. Stewart
Title: CFO
OZ MASTER FUND, LTD.
By: /s/ Daniel S. Och
--------------------------------
Name: Daniel S. Och
Title: Managing Member
LEEDS GROUP INC.
By: /s/ Jeffrey T. Leeds
--------------------------------
Name: Jeffrey T. Leeds
Title: President
HAVENWOOD CAPITAL MARKETS, LLC
By: /s/ Brent M. Lockwood
--------------------------------
Name: Brent M. Lockwood
Title: President
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Agreement"), dated as of March 17,
1999, by and between COVOL TECHNOLOGIES, INC., a Delaware corporation (the
"Grantor") and OZ Master Fund, Ltd. ("OZ") (the "Lender"). The Grantor and OZ
are parties to a Convertible Secured Note, dated as of the date hereof (as the
same may be amended, modified, restated or supplemented from time to time, the
"Notes"). Capitalized terms used but not defined herein shall have the meanings
given to such terms in the Notes.
The Lender has agreed to make certain loans to the Grantor.
The obligation of the Lender to lend under the Notes is conditioned on, among
other things, the execution and delivery by the Grantor of this Agreement.
Accordingly, the Grantor and the Lender, hereby agree as
follows:
1. DEFINITIONS.
As used herein, the following terms shall have the following
meanings:
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Code" means the Uniform Commercial Code as in effect in the
State of New York.
"Collateral" means (a) all of the Grantor's right, title and
interest in and to (i) that certain Amended and Restated License and Binder
Purchase Agreement, dated as of February 3, 1998, between the Borrower and PC
Virginia Synthetic Fuel #1, L.L.C., (ii) that certain Amended and Restated
License and Binder Purchase Agreement, dated as of February 3, 1998, between the
Borrower and PC West Virginia Synthetic Fuel #1, L.L.C., (iii) that certain
Amended and Restated License and Binder Purchase Agreement, dated as of February
3, 1998, between the Borrower and PC West Virginia Synthetic Fuel #2, L.L.C.,
(iv) that certain Amended and Restated License and Binder Purchase Agreement,
dated as of February 3, 1998, between the Borrower and PC West Virginia
Synthetic Fuel #3, L.L.C., and (v) all future license agreements or similar
agreements between the Grantor and the other parties listed in (i) through (iv)
above, or the Grantor and any other party which relate to the facilities that
are the subject of (i) through (iv) above (collectively, as such agreements may
be amended, restated or modified from time to time, the "License Agreements"),
and (b) all proceeds of any and all of the foregoing Collateral and, to the
extent not otherwise included, all payments under insurance (whether or not the
Lender is the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of the
foregoing Collateral.
1.
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"Obligations" means all indebtedness, obligations and other
liabilities of the Grantor to the Lender now or hereafter arising, including,
without limitation, the indebtedness evidenced by the Note.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or other entity.
"Side Agreements" means each of the Agreements, dated as of
the Closing Date, by and between the Grantor and each of (i) PC Virginia
Synthetic Fuel #1, L.L.C., a Delaware limited liability company, (ii) PC West
Virginia Synthetic Fuel #1, L.L.C., a Delaware limited liability company, (iii)
PC West Virginia Synthetic Fuel #2, L.L.C., a Delaware limited liability
company, and (iv) the PC West Virginia Synthetic Fuel #3, L.L.C., a Delaware
limited liability company.
The foregoing definitions shall be equally applicable to both
the singular and plural forms of the defined terms. In addition, the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation."
2. GRANT OF SECURITY INTEREST.
The Grantor hereby pledges, and grants a continuing security
interest in, and a right of setoff against, all interests of the Grantor in and
to the Collateral to the Lender, to secure payment, performance and observance
of the Obligations.
3. REPRESENTATIONS AND WARRANTIES.
The Grantor makes the representations and warranties set forth
in this Section 3 to the Lender.
Section 3.1 Necessary Filings. All filings, registrations and
recordings necessary or appropriate to create, preserve, protect and perfect the
security interest granted by the Grantor to the Lender hereby in respect of the
Collateral will be accomplished within three (3) Business Days of the date
hereof.
Section 3.2 Principal Location. The Grantor's mailing address,
and the location of its chief executive office and each other place of business
is disclosed in Annex I hereto (as the same may be modified pursuant to Section
4.4); the Grantor has no other places of business except those set forth in
Annex I hereto (as the same may be modified pursuant to Section 4.4).
Section 3.3 No Other Names. The Grantor conducted business as
Enviro-Fuels Technology during 1993 and 1994, as Environmental Technologies
Group International during 1994 and 1995 and as Covol Technologies, Inc. since
1995. Except as discussed herein, the Grantor does
2.
<PAGE>
not conduct and has not conducted any trade or business under any name except
the name in which it has executed this Agreement. In 1993 and 1994, the Grantor
acquired four construction companies. These businesses were sold effective
February 1, 1996. Except as discussed herein, the Grantor has not been a party
to any merger or consolidation in the last five years.
Section 3.4 No Financing Statements. No financing statement
describing all or any portion of the Collateral which has not lapsed or been
terminated has been filed in any jurisdiction except financing statements naming
the Lender as secured party.
Section 3.5 Patents. The Grantor owns and possesses all right,
title and interest in and to, or has a valid and enforceable license to use, all
patents described in the License Agreements.
Section 3.6 License Agreements. Each of the License Agreements
constitutes a legal, valid and binding obligation of the Grantor, enforceable
against the Grantor in accordance with its terms, except to the extent limited
by (a) applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws of general application related to the enforcement of creditor's rights
generally and (b) general principles of equity. The Grantor is not in default,
nor to the knowledge of the Grantor is there any basis for a valid claim of
default, and to the Grantor's knowledge no event has occurred which, with notice
or lapse of time, would constitute a default, under any License Agreement, and
to the knowledge of the Grantor no licensee is in default under any such License
Agreement.
4. COVENANTS.
From the date of this Agreement, and thereafter until this
Agreement is terminated:
Section 4.1 Inspection and Verification. The Lender and such
Persons as the Lender may designate shall have the right, at any reasonable time
or times upon prior notice and during each Grantor's usual business hours, to
inspect the Collateral, all records related thereto (and to make extracts and
copies from such records), and the premises upon which any of the Collateral is
located, to discuss each Grantor's affairs with the officers of each Grantor and
their independent auditors to verify under reasonable procedures the validity,
amount, quality, quantity, value and condition of, or any other matter relating
to, the Collateral.
Section 4.2 Records and Reports. The Grantor will maintain
complete and accurate books and records with respect to the Collateral, and
furnish to the Lender such reports relating to the Collateral as the Lender
shall from time to time reasonably request.
Section 4.3 Financing Statements and Other Actions. The
Grantor will execute and deliver to the Lender all financing statements and
amendments thereto and other documents, and take such other actions, as are from
time to time reasonably requested by the Lender in order to perfect and to
maintain and protect a first priority perfected security interest in the
Collateral or to
3.
<PAGE>
enable the Lender to exercise and enforce its rights and remedies hereunder with
respect to the Collateral.
Section 4.4 Change in Location or Name. The Grantor will not
(a) maintain a place of business at a location other than a location specified
on Annex I hereto, (b) change its name, or (c) change its mailing address,
unless, in each case, the Grantor shall have given the Lender at least thirty
(30) days' prior written notice thereof and delivered to Lender a revised Annex
I, delivered any financing statements or other documents requested by the
Lender, including opinions of counsel, and the Lender shall have advised the
Grantor in writing of the Lender's determination that, after giving effect to
such change of name, address or location, and completion of any filings to be
made in connection therewith, the Lender shall have a continuing perfected
security interest in the Collateral, the priority of which shall not be
adversely affected by such change.
Section 4.5 Other Financing Statements. The Grantor will not
sign or authorize the signing on its behalf of any financing statement naming it
as debtor which covers all or any portion of the Collateral, except financing
statements naming the Lender as secured party.
Section 4.6. Intellectual Property Covenants. The Grantor
shall:
(a) consistent with commercially reasonable
practices, not perform or omit to perform any act whereby any patent rights of
the patents described in the License Agreements may become dedicated,
invalidated or unenforceable;
(b) consistent with commercially reasonable
practices, prosecute diligently any patent, trademark or copyright application
which is pending with respect to the License Agreements as of the date of this
Agreement or hereafter and otherwise maintain all rights in and to the patents
necessary under the License Agreements, including making all necessary filings
and recordings and pay all required fees and taxes to record and maintain its
registration and ownership of each such patent described in the License
Agreements;
(c) not impair any of the Lender's rights of
action described in Section 8.4.
Section 4.7 Grant of License to Use Patents. For the purpose
of enabling the Lender to exercise rights and remedies thereunder during the
continuation of an Event of Default, the Grantor hereby grants to the Lender an
irrevocable, nonexclusive license (exercisable without payment of royalty or
other compensation to the Grantor) to use, license or sublicense any of the
patents described in the License Agreements to the extent not inconsistent with
the terms of the License Agreements or any preexisting licenses issued by or to
the Grantor, wherever the same may be located. Except as set forth in the
preceding sentence, the Lender shall have no obligations or liabilities
regarding any or all of the patents by reason of, or arising out of, this
Agreement.
4.
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5. REMEDIES UPON DEFAULT.
Section 5.1 Remedies upon Default. If any Event of Default
shall occur and be continuing, whether or not all of the Obligations shall have
become due and payable, the Lender may, in addition to its rights under the
Notes, exercise any or all of the rights and remedies provided (i) in this
Agreement, (ii) to a secured party when a debtor is in default under a security
agreement governed by the Code or (iii) to a secured party when a debtor is in
default by any other applicable law including, without limitation, any law
governing the exercise of a bank's right of setoff or bankers' lien.
Section 5.2 Specific Performance. The Grantor agrees that, in
addition to all other rights and remedies granted to the Lender in this
Agreement and under the Notes, the Lender shall be entitled to specific
performance and injunctive and other equitable relief, and the Grantor further
agrees to waive any requirement for the securing or posting of any bond or other
security in connection with the obtaining of any such specific performance and
injunctive or other equitable relief.
Section 5.3 Grantor's Secured Liabilities Upon Event of
Default. Upon the request of the Lender after the occurrence and during the
continuance of an Event of Default, the Grantor will promptly:
(a) Assemble and make available to the Lender
the Collateral and all records relating thereto at any place or places specified
by the Lender within the continental United States of America.
(b) Permit the Lender, or the Lender's
representatives and Lenders, to enter any premises where all or any part of the
Collateral, or the books and records relating thereto, or both, are located, to
take possession of all or any part of the Collateral and to remove all or any
part of the Collateral.
Section 5.4 Remedies Cumulative. All rights, powers and
remedies contained in this Agreement or afforded by law shall be cumulative and
all shall be available to the Lender until the Obligations have been paid in
full.
6. WAIVERS, AMENDMENTS AND REMEDIES.
No delay or omission of the Lender to exercise any right,
power or remedy granted under this Agreement shall impair such right, power or
remedy or be construed to be a waiver of any Event of Default or an acquiescence
therein, and any single or partial exercise of any such right, power or remedy
shall not preclude other or further exercise thereof or the exercise of any
other right, power or remedy, and no waiver, amendment or other variation of the
terms, conditions or
5.
<PAGE>
provisions of this Agreement whatsoever shall be valid unless signed by each of
the parties hereto, and then only to the extent specifically set forth in such
writing.
7. PROCEEDS; COLLECTION OF RECEIVABLES.
Section 7.1 Collection of Receivables. The Lender may at any
time after the occurrence and during the continuance of an Event of Default, by
giving the Grantor written notice, elect to enforce collection of any proceeds
of any and all of the Collateral, including any Earned Royalty and any payment
of profits from sales of Proprietary Binder Material (each as defined in the
License Agreements) and to require that such proceeds be paid directly to the
Blocked Account. In such event, the Grantor shall, and shall permit the Lender
to, promptly notify the account debtors or obligors under the License Agreements
of the Lender's interest therein and direct such account debtors or obligors to
make payment of all amounts then or thereafter due under the License Agreements
directly to the Blocked Account pursuant to the Side Agreements. Upon receipt of
any such notice from the Lender, the Grantor shall thereafter hold in trust for
the Lender all amounts and proceeds received by it with respect to the License
Agreements or any other Collateral, shall segregate all such amounts and
proceeds from other funds of the Grantor, and shall at all times thereafter
promptly deliver to the Blocked Account all such amounts and proceeds in the
same form as so received, whether by cash, check, draft or otherwise, with any
necessary endorsements.
Section 7.2 Application of Proceeds. (a) During the
continuance of an Event of Default, the Lender shall have the continuing and
exclusive right to apply or reverse and re-apply any and all payments to any
portion of the Obligations. To the extent that the Grantor makes a payment or
payments to the Lender or the Lender receives any payment or proceeds of the
Collateral, which payment or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party under any bankruptcy law,
state or federal law, common law or equitable cause, then, to the extent of such
payment or proceeds, the Obligations or part thereof intended to be satisfied
and this Agreement shall be revived and continue in full force and effect, as if
such payment or proceeds had not been received by such party.
(b) Should the Lender withdraw money from the
Blocked Account or otherwise receive proceeds of the Collateral, the Lender
shall apply the proceeds of such amounts withdrawn as follows:
FIRST, to the payment of all costs and expenses incurred by
the Lender in connection with such collection or sale or otherwise in
connection with this Agreement or any of the Obligations, including but
not limited to all court costs and the reasonable fees and expenses of
its Lenders and legal counsel, the repayment of all advances made by
the Lender hereunder on behalf of the Grantor and any other costs or
expenses incurred in connection with the exercise of any right or
remedy hereunder.
6.
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SECOND, to the payment in full of all unpaid interest on the
Notes.
THIRD, to the payment in full of the unpaid principal amount
of the Notes, to be applied on a pro rata basis.
FOURTH, to the payment and discharge in full of the
Obligations (other than those referred to above).
FIFTH, to the Grantor, its successors or assigns, or as a
court of competent jurisdiction may otherwise direct.
The Lender shall have absolute discretion as to the time of application of any
such proceeds, moneys or balances in accordance with this Agreement.
8. GENERAL PROVISIONS.
Section 8.1 Compromises and Collection of Collateral. The
Grantor recognizes that setoffs, counterclaims, defenses and other claims may be
asserted by obligors with respect to certain of the proceeds of any and all of
the Collateral, including any Earned Royalty and any payment of profits from
sales of Proprietary Binder Material, that certain of such proceeds may be or
become uncollectible in whole or in part and that the expense and probability of
success in litigating disputed Collateral proceeds may exceed the amount that
reasonably may be expected to be recovered with respect to such Collateral
proceeds. In view of the foregoing, the Grantor agrees that the Lender may at
any time and from time to time compromise with the obligor on any Collateral
proceeds, accept in full payment of any Collateral proceeds such amount as the
Lender in its sole discretion shall determine, or abandon any Collateral
proceeds, and any such action by the Lender shall be commercially reasonable so
long as the Lender acts in good faith based on infor mation known to it at the
time it takes any such action.
Section 8.2 Secured Party Performance of Grantor Secured
Liabilities. Without having any obligation to do so, the Lender may, upon notice
to the Grantor, perform or pay any obligation which the Grantor has agreed to
perform or pay in this Agreement but has not performed or paid and the Grantor
shall reimburse the Lender for any amounts paid or incurred pursuant to this
Section 8.2. The Grantor's obligation to reimburse the Lender pursuant to the
preceding sentence shall be an Obligation payable on demand.
Section 8.3 Authorization for Secured Party To Take Certain
Action. The Grantor irrevocably authorizes the Lender at any time and from time
to time in the sole discretion of the Lender, and appoints the Lender as its
attorney-in-fact to act on behalf of the Grantor, in the name of the Grantor or
otherwise, from time to time in the Lender's discretion, to take any action and
to execute any instrument which the Lender may deem necessary or advisable to
accomplish the purposes of this Agreement, including without limitation (a) to
execute on behalf of the Grantor as debtor and to file financing statements
necessary or desirable in the Lender's sole discretion to
7.
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perfect and to maintain the perfection and priority of the Lender's security
interest in the Collateral; (b) during the continuance of an Event of Default,
to endorse, deposit and collect any cash and other proceeds of the Collateral;
(c) to file a carbon, photographic or other reproduction of this Agreement or
any financing statement with respect to the Collateral as a financing statement
in such offices as the Lender in its sole discretion deems necessary or
desirable to perfect and to maintain the perfection and priority of the Lender's
security interest in the Collateral; (d) during the continuance of an Event of
Default, to enforce payment of the Earned Royalty and the payments from sales of
Proprietary Binder Material in the name of the Lender or the Grantor; (e) to
cause the proceeds of any Collateral received by the Lender to be applied to the
Obligations; (f) during the continuance of an Event of Default, to sign the
Grantor's name on any invoice or bill of lading relating to any Collateral,
including any Earned Royalty and Proprietary Binder Material profits, on drafts
against customers, on schedules and assignments of such Collateral, on notices
of assignment, financing statements and other public records, on verifications
of accounts and on notices to licensees; (g) during the continuance of an Event
of Default, to send requests for verification of any Collateral or any proceeds
therefrom, including Earned Royalty and Proprietary Binder Material profits to
licensees or account debtors (provided that this clause (g) shall not limit the
Lender's rights under Section 4.01); (h) to do all things necessary to carry out
this Agreement; (i) during the continuance of an Event of Default, to grant or
issue any exclusive or nonexclusive license under the Collateral to any Person,
to the extent consistent with the terms of any pre-existing licenses granted by
the Grantor, and (j) during the continuance of an Event of Default, to assign,
pledge, convey or otherwise transfer title in or to or dispose of the Collateral
to anyone, including without limitation, to make assignments, recordings,
registrations and applications therefor in the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or
agency of the United States, any State thereof or any other country or political
subdivision thereof, and to execute and deliver any and all agreements,
documents, instruments of assignment or other papers necessary or advisable to
effect any of the foregoing or the recordation, registration, filing or
perfection thereof. The Grantor ratifies and approves all acts of such
attorney-in-fact. The Lender will not be liable for any acts or omissions except
those determined pursuant to a final, non-appealable order of a court of
competent jurisdiction to have resulted solely from the Lender's gross
negligence or willful misconduct. The power conferred on the Lender hereunder is
solely to protect its interests in the Collateral and shall not impose any duty
upon the Lender to exercise such power. This power, being coupled with an
interest, is irrevocable.
Section 8.4 Grantor Remains Liable. Anything contained in this
Agreement to the contrary notwithstanding, (a) the Grantor shall remain solely
liable to perform its duties and obligations under the License Agreements
included in the Collateral to the extent set forth therein to the same extent as
if this Agreement had not been executed, (b) the exercise by the Lender of any
of its rights and remedies hereunder shall not release any Grantor from any of
its duties or obligations under the License Agreements included in the
Collateral except to the extent the exercise of such rights renders the
performance of such duties or obligations by the Grantor impracticable under any
such agreement or contract, and (c) the Lender shall not have any obligation or
liability under any License Agreement included in the Collateral by reason of
this Agreement, and the Lender
8.
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shall not be obligated in any manner to perform any of the obligations or duties
of the Grantor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
9. MISCELLANEOUS
Section 9.1 Security Interest Absolute. All rights of the
Lender hereunder, the security interest granted hereby, and all obligations of
the Grantor hereunder, shall be absolute and unconditional irrespective of (a)
any lack of validity or enforceability of the Note, any agreement with respect
to any of the Obligations or any other agreement or instrument relating to any
of the foregoing, (b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Notes or any other agreement
or instrument, (c) any exchange, release or non-perfection of any other
Collateral, or any release, amendment or waiver of, or consent to or departure
from, any guaranty for all or any of the Obligations, or (d) any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations or in respect of this
Agreement.
Section 9.2 Lender's Fees and Expenses; Indemnification. (a)
The Grantor agrees to pay upon demand to the Lender the amount of any and all
expenses, including the fees and expenses of its counsel and of any experts of
the Lender, which the Lender may incur in connection with (i) the administration
of this Agreement, (ii) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Lender hereunder, or (iv)
the failure by the Grantor to perform or observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations
under the Purchase Agreement or any Related Documents (as defined in the
Purchase Agreement) the Grantor agrees to indemnify the Lender against, and hold
it harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of counsel,
incurred by or asserted against it arising out of, in any way connected with, or
as a result of, the execution, delivery or performance of this Agreement or any
claim, litigation, investigation or proceeding relating hereto or to the
Collateral, whether or not the Lender is a party thereto; provided that such
indemnity shall not, as to the Lender, be available to the extent that such
losses, claims, damages, liabilities or related expenses are determined by a
court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence or willful misconduct of the Lender.
(c) Any such amounts payable as provided hereunder shall be
additional Obligations secured by this Agreement. The provisions of this Section
9.2 shall remain operative and in full force and effect regardless of the
termination of this Agreement, the consummation of the transactions contemplated
hereby, the repayment of any of the Notes, the invalidity or unenforceability of
any term or provision of this Agreement, or any investigation made by or on
9.
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behalf of the Lender. All amounts due under this Section 9.2 shall be payable on
written demand therefor.
Section 9.3 No Amendment of License Agreement. The Grantor
hereby agrees not to amend or waive any provision of any License Agreement
without the written consent (which shall not be unreasonably withheld) of the
Lender.
Section 9.4 Binding Agreement; Assignments. This Agreement,
and the terms, covenants and conditions hereof, shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, except that the Grantor shall not be permitted to assign this
Agreement or any interest herein or in the Collateral or any part thereof, or
otherwise pledge, encumber or grant any option with respect to the Collateral or
any part thereof, or any cash or property held by the Lender as Collateral under
this Agreement, except as contemplated by this Agreement or the Notes.
Section 9.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC 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 JURISDICTION) THAT WOULD CAUSE
THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW
YORK. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN THOUGH
UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE
SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
Section 9.6 Consent to Jurisdiction and Service of Process.
With respect to jurisdiction, service of process, jury trial and all other
procedural matters the Grantor agrees that the provisions of Section 11.11 and
11.12 of the Securities Purchase Agreement, dated the date hereof, by and among
the Borrower and the Lender apply to this Agreement mutatis mutandis.
Section 9.7 Notices. All communications and notices hereunder
shall be in writing and given as provided in paragraph 14 of the Notes.
Section 9.8 Severability. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, no party hereto shall be required to comply with
such provision for so long as such provision is held to be invalid, illegal or
unenforceable and the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired. The
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal and unenforceable provisions with valid provisions, the economic effect
of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
10.
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Section 9.9 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument.
Section 9.10 Termination. (a) This Agreement and the security
interest granted hereby shall terminate when all the Obligations have been
indefeasibly paid in full and the Lender has no further commitment to lend under
the Notes, at which time the Lender shall execute and deliver to the Grantor all
Uniform Commercial Code termination statements and similar documents prepared by
the Grantor which the Grantor shall reasonably request to evidence such
termination.
(b) Notwithstanding anything to the contrary
contained in this Agreement, this Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
the Grantor for liquidation or reorganization, should the Grantor become
insolvent or make an assignment for any benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of the
Grantor's assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the obligations,
whether as a "voidable preference", "fraudulent conveyance" or otherwise, all as
though such payment, or any part thereof, is rescinded, reduced, restored or
returned.
* * * * *
11.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
COVOL TECHNOLOGIES, INC.
By: /s/ Steven G. Stewart
-------------------------
Name: Steven G. Stewart
Title: CFO
OZ MASTER FUND, LTD.
By: Daniel S. Och
-------------------------
Name: Daniel S. Och
Title: Managing Member
12.
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Annex I
The Grantor's places of business are as follows:
Principal place of business and headquarters:
3280 North Frontage Road
Lehi, UT 84043
Other places of business:
Coaltech No. 1 L.P.
Carbon Synfuel
4722 South 2000 East
Price, UT 84501
Covol Wash Plant
5193 South Farnham Road
Wellington, UT 84542
Pocahontas Synfuel
Route 17
Simpson Hollow
North Fork, WV 24868
Mountaineer Synfuel
HC-36-Box 31
Tallmansville, WV
Eastern Region Office
1821 B Roxalana Road
Dunbar, WV 25064
Commonwealth Synfuel
C/O River Hill Coal Co.
Hoffman Drive
Karthhause, PA 16845
Annex A, Page 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE RESTRICTIONS CONTAINED IN THE SECURITIES PURCHASE
AGREEMENT, DATED AS OF MARCH 17, 1999 (THE "PURCHASE
AGREEMENT"), AS SUCH AGREEMENT MAY BE AMENDED OR MODIFIED FROM
TIME TO TIME (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE ISSUER HEREOF). THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED AND
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
SERIES A STOCK PURCHASE WARRANT
Date of Issuance: March 17, 1999 Certificate No. W-A1
For value received, Covol Technologies, Inc., a Delaware
corporation (the "Company"), hereby grants to OZ Master Fund, Ltd., or its
permitted transferees and assigns, the right to purchase from the Company a
total of 200,000 Warrant Shares (as defined herein) at a price per share of
$5.00 (the "Initial Exercise Price"). The exercise price and number of Warrant
Shares (and the amount and kind of other securities) for which this Warrant is
exercisable shall be subject to adjustment as provided herein.
Certain capitalized terms used herein are defined in Section 4 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this
Warrant may be exercised, in whole or in part, at any time and from time to time
after the earlier to occur of (i) the third anniversary of the date hereof, (ii)
the date the Company declares any dividends upon the Common Stock (whether
payable in cash, securities or other property) and (iii) the occurrence of an
Event of Noncompliance (as defined in the Certificate of Designations) or an
Event of Default (as defined in the Notes), to and including 5:00 p.m., New York
time, on the fifth anniversary of the date hereof or, if such day is not a
Business Day, on the next preceding Business Day (the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been
exercised when all of the following items have been delivered to the Company
(the "Exercise Time"):
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(a) a completed Exercise Agreement, as
described in Section 1C below, executed by the Person exercising all or
part of the purchase rights represented by this Warrant (the
"Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the
Registered Holder, an Assignment or Assignments in the form set forth
in Exhibit II hereto evidencing the assignment of this Warrant to the
Purchaser; and
(d) either (x) a check payable to the
Company in an amount equal to the product of the Exercise Price (as
such term is defined in Section 2) multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (y) the surrender to the Company of securities of the Company
having a value equal to the Aggregate Exercise Price of the Warrant
Shares being purchased upon such exercise (which value in the case of
debt securities shall be the principal amount thereof and in the case
of shares of Common Stock shall be the Fair Market Value thereof), or
(z) the delivery of a notice to the Company that the Purchaser is
exercising the Warrant by authorizing the Company to reduce the number
of Warrant Shares subject to the Warrant by the number of shares having
an aggregate Fair Market Value equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five days after the date of the Exercise Time together with any cash
payable in lieu of a fraction of a share pursuant to Section 13 hereof. Unless
this Warrant has expired or all of the purchase rights represented hereby have
been exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Shares issuable upon the exercise of
this Warrant shall be deemed to have been issued to the Purchaser at the
Exercise Time, and the Purchaser shall be deemed for all purposes to have become
the Registered Holder of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates for Warrant Shares
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any taxes in respect thereof or other costs incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid. Each Warrant Share
issuable upon exercise of this Warrant shall, upon payment of the Exercise Price
therefor, be fully paid and nonassessable and free from all liens and charges
with respect to the issuance thereof.
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<PAGE>
(v) The Company shall not close its books
against the transfer of this Warrant or of any Warrant Shares issued or issuable
upon the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant. The Company shall from time to time take all such
action as may be necessary to assure that the par value per share of the
unissued Warrant Shares acquirable upon exercise of this Warrant is at all times
equal to or less than the Exercise Price then in effect. In the event that the
Company fails to comply with its obligations set forth in the foregoing
sentence, the Purchaser may (but shall not be obligated to) purchase Warrant
Shares hereunder at par value, and the Company shall be obligated to reimburse
the Purchaser for the aggregate amount of consideration paid in connection with
such exercise in excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or any Purchaser which is required
to make any governmental filings or obtain any governmental approvals prior to
or in connection with any exercise of this Warrant.
(vii) Notwithstanding any other provision hereof,
if an exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and
keep available out of its authorized but unissued Common Stock solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock or other securities constituting Warrant Shares may be
listed (except for official notice of issuance which shall be immediately
delivered by the Company upon each such issuance). The Company will use its best
efforts to cause the Warrant Shares, immediately upon such exercise, to be
listed on any domestic securities exchange upon which shares of Common Stock or
other securities constituting Warrant Shares are listed at the time of such
exercise.
(ix) If the Warrant Shares issuable by reason of
exercise of this Warrant are convertible into or exchangeable for any other
stock or securities of the Company, the Company shall, at the Purchaser's option
and upon surrender of this Warrant by such Purchaser as provided above together
with any notice, statement or payment required to effect such conversion or
exchange of Warrant Shares, deliver to such Purchaser (or as otherwise specified
by such Purchaser) a certificate or certificates representing the stock or
securities into which the Warrant Shares issuable by reason of such conversion
3
<PAGE>
are convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
(x) The Company shall not, and shall not permit
its subsidiaries to, directly or indirectly, by any action (including, without
limitation, reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Incorporation or through any Organic Change, issuance or sale of
securities or any other voluntary action) avoid or seek to avoid the observance
or performance of any of terms of this Warrant or impair or diminish its value
(except for any action which ratably affects all Warrant Shares and shares of
Common Stock), but shall at all times in good faith assist in the carrying out
of all such terms of this Warrant. Without limiting the generality of the
foregoing, the Company shall (a) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant
and (b) not undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the effect of
making this Warrant exercisable for less than one share of Common Stock for each
Registered Holder.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
Initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 2 (as so adjusted, the "Exercise Price"), and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time, each as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever, on or after the date hereof, the
Company issues or sells (or in accordance with Section 2B is deemed to have
issued or sold), other than (i) pursuant to a Permitted Issuance, (ii) as
described in Section 2C or (iii) pursuant to the Purchase Rights covered by
Section 3, any shares of Common Stock for a consideration per share less than
the Fair Market Value per share of the Common Stock determined as of the earlier
of (x) the announcement of such issuance or sale, or (y) the date of such
issuance or sale, then immediately upon such issuance or sale the Exercise Price
shall be reduced to equal the amount determined by multiplying the Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which will be the sum of (1) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issuance or sale multiplied by the
Fair Market Value per share of the Common Stock determined as of the date of
such issuance or sale, plus (2) the consideration, if any, received by the
Company upon such issuance or sale, and the denominator of which will be the
product derived by multiplying such Fair Market Value per share of the Common
4
<PAGE>
Stock by the number of shares of Common Stock Deemed Outstanding immediately
after such issuance or sale. Upon each such adjustment of the Exercise Price
hereunder, the number of Warrant Shares acquirable upon exercise of this Warrant
shall be adjusted to equal the number of shares 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 resulting
from such adjustment. For the purposes of this Section 2, the calculation of the
number of shares of Common Stock Deemed Outstanding shall exclude the Warrant
Shares.
2B. Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If the
Company in any manner grants any rights or options, whether or not immediately
exercisable, (other than the Purchase Rights covered by Section 3 hereof or a
Permitted Issuance) to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (including
without limitation convertible common stock) (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Fair Market Value per
share of the Common Stock in effect on the earlier of (x) the announcement of
such grant and (y) the date of such grant, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable upon exercise of such Options or upon conversion or exchange
of such Convertible Securities" is determined by dividing (A) the total amount,
if any, received or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price 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 or exchange of
such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible or exchangeable, and the price per share for which
Common Stock is issuable upon such conversion or exchange is less than the Fair
Market Value per share of the Common Stock in effect on the earlier of (x) the
announcement of such issuance or sale and (y) the date of issuance or sale, then
the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding
5
<PAGE>
and to have been issued and sold by the Company for such price per share. For
the purposes of this paragraph, the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by dividing (A) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Exercise Price shall be made upon the actual issue of
such Common Stock upon conversion 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 adjustments of the Exercise Price have been or
are to be made pursuant to other provisions of this Section 2B, no further
adjustment of the Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate.
If either the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change at any time, the
Exercise Price in effect at the time of such change shall be adjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of Warrant Shares
shall be correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option issued following the
date hereof or the termination of any right to convert or exchange any
Convertible Securities issued following the date hereof, in either case without
the exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor shall
be deemed to be the net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be the fair market value of such consideration,
except where such consideration consists of marketable securities, in which case
the amount of consideration received by the Company shall be the market price
thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger or other business combination in which the Company is
the surviving entity, the amount of consideration therefor shall be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or marketable securities shall be determined
jointly by the Company and the Required Holders. If such parties are unable to
reach agreement within a reasonable period of time, such
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<PAGE>
fair market value shall be determined by an appraiser jointly selected by the
Company and the Required Holders, whose determination shall be final and binding
on the Company and all Registered Holders of Warrants (as defined in Section 6
below). The fees and expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. 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 Option
shall be deemed to have been issued for no consideration; provided, if such
other securities are debt securities (such debt securities so issued are herein
referred to as the "Debt") of the Company or any of its subsidiaries, the Option
shall be deemed to have been issued for consideration equal to the excess, if
any, of (a) the aggregate face amount (the "Estimated Face Amount") of debt
securities with terms identical to the terms of the Debt (other than the
increase to face value described in this proviso) which the Company or such
subsidiary would have had to issue had no Option been issued in connection
therewith, given the prevailing market conditions at the time of the issuance of
the Debt, in order to receive the same aggregate net proceeds as is actually
received from the issuance of the Debt, over (b) the aggregate face amount of
the Debt. The Estimated Face Amount shall be as mutually agreed between the
Company and the Registered Holder or, if no such mutual agreement is reached, as
set forth in the written opinion, addressed to the Registered Holder, of an
investment bank of national recognition, retained by the Company and reasonably
acceptable to the Registered Holder; provided, that the fees and expenses of
such investment bank shall be borne by the Company.
Example: If the Company issues $20 million aggregate principal amount
of 10% subordinated debentures with a 10-year maturity (and
receives aggregate net proceeds of $20 million), and in
connection therewith issues warrants, and in accordance with
the provisions of Section 2B(vi), the Company and the
Registered Holder mutually agree or an investment bank
determines that the Estimated Face Amount of the
subordinated debentures (with terms otherwise identical to
the securities issued) would have been $21 million (i.e., to
yield aggregate net proceeds of $20 million to the Company),
had the warrants not been issued, then the warrants would be
deemed to have been issued for $1 million.
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include shares owned or held
by or for the account of the Company or any subsidiary of the Company and the
disposition of any shares so owned or held shall be considered an issue or sale
of Common Stock.
(viii) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall 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
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the making of such other distribution or the date of the granting of such right
of subscription or purchase, as the case may be.
2C. Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon exercise of this Warrant shall be proportionately increased. If the Company
at any time combines (by reverse stock split or otherwise) the Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change". Prior to
the consummation of any Organic Change, the Company shall make appropriate
provision to ensure that each Registered Holder of Warrants shall thereafter
have the right to acquire and receive upon exercise thereof, in lieu of or
addition to (as the case may be) the Warrant Shares immediately theretofore
acquirable and receivable upon exercise of such Registered Holder's Warrants,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of such Registered Holder's
Warrants had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision with respect to such Registered Holder's rights
and interests to insure that the provisions hereof (including this Section 2)
shall thereafter be applicable to the Warrants (including, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
the earlier of (x) the announcement of such Organic Change and (y) such Organic
Change). The Company shall not effect any such Organic Change unless, prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument the
obligation to deliver to each Registered Holder of Warrants such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Registered Holder may be entitled to acquire upon exercise of Warrants.
2E. Certain 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
but excluding any Permitted Issuance), then the Company's Board of Directors
shall exercise their reasonable judgment consistent with the fundamental intent
of such provisions in making an appropriate adjustment in the
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Exercise Price and the number of Warrant Shares obtainable upon exercise of this
Warrant so as to protect the rights of the Registered Holder of this Warrant.
2F. Notices.
(i) Immediately upon any adjustment of the Exercise
Price, the Company shall give written notice thereof to the Registered Holder,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Company shall give written notice to the
Registered Holder at least 30 days 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 Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock, or (C) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
2G. Exercise Limit. Notwithstanding anything herein to the
contrary, unless and until the Company shall have obtained the approval of its
stockholders for the issuance and sale of securities pursuant to the Purchase
Agreement which are convertible into and exercisable for, in the aggregate, more
than 19.9% of the common equity of the Company (calculated as provided in and
required by the rules of the Nasdaq Stock Market), to the extent the rules of
the Nasdaq Stock Market requiring a stockholder vote are applicable to such
issuance and sale, or the Company shall have obtained such other stockholder
approval as may be required to comply with the rules of such other national
securities exchange upon which the Common Stock may then be traded (such
percentage of Common Stock or other restriction, the "Exercise Limit"), the
Company will not be required to issue shares of Common Stock upon exercise of
this Warrant which when taken together with all other shares of Common Stock
previously issued upon conversion of the Preferred Stock and the conversion of
the Notes and exercise of the Warrants and all other series of warrants issued
pursuant to the Purchase Agreement, exceeds the Exercise Limit. In the event
that the holder of this Warrant delivers an Exercise Agreement seeking to
purchase shares of Common Stock in excess of the Exercise Limit, then in lieu of
issuing shares of Common Stock in excess of the Exercise Limit (the "Excess
Shares") the Company shall pay to the holder an amount equal to the product of
1.25 and the difference between the Recent Market Price and the Exercise Price
(together with all accrued and unpaid dividends thereon) for each such Excess
Share as of the Exercise Time.
SECTION 3. Purchase Rights. If at any time the Company grants,
issues or sells any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock (the "Purchase Rights"), then the Company shall grant, issue or
sell (as the case may be) to the Registered Holder the aggregate Purchase Rights
which such Registered Holder would have acquired if such Registered Holder had
held the maximum number of Warrant Shares acquirable upon complete exercise of
this Warrant immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which
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the record holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.
SECTION 4. Definitions. The following terms have the meanings
set forth below:
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Certificate of Designations" means the Certificate of
Designations, Number, Voting Powers, Preferences and Rights of the Series of the
Preferred Stock of the Company to be designated Series D Cumulative Convertible
Preferred Stock.
"Common Stock" means the common stock of the Company, par
value $.001 per share, and any securities into or for which such Common Stock is
hereafter converted or exchanged.
"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 Section
2B(i) or 2B(ii) hereof.
"Fair Market Value" of any security means the average closing
bid prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid prices on all such exchanges
at the end of such day, or, if on any day such security is not so listed, the
average of the representative bid prices quoted on the Nasdaq Stock Market as of
4:00 P.M., New York time, or, if on any day such security is not quoted on the
Nasdaq Stock Market, the average of the highest bid prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over the period of the 30 Business Days immediately preceding the day on which
"Fair Market Value" is being determined. If at any time such security is not
listed on any securities exchange or quoted on the Nasdaq Stock Market or the
over-the-counter market, the "Fair Market Value" shall be the fair value thereof
determined jointly by the Company and the Required Holders. If such parties are
unable to reach agreement within a reasonable period of time, such fair value
shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon the parties, and
the Company shall pay the fees and expenses of such appraiser.
"Notes" means the Company's Convertible Secured Notes due
March 15, 2004, in an initial aggregate principal amount of $20,000,000, issued
by the Company on the date hereof.
"Permitted Issuance" means any issuance by the Company of (a)
Common Stock on or prior to the date hereof; (b) Common Stock upon exercise of
the Warrants; (c) Common Stock upon the conversion or exchange of any shares of
any class of Common Stock into another class of Common Stock; (d) Common Stock
in connection with any dividend or distribution to the holders of the Common
Stock;
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or (e) Common Stock pursuant to an underwritten offering of Common Stock
registered under the Securities Act of 1933, as amended.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or department or
agency thereof.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of March 17, 1999, by and among the Company and the investors named
therein, as such agreement may from time to time be amended in accordance with
its terms.
"Recent Market Price" of any security means the average
closing bid prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid prices quoted on the Nasdaq Stock
Market as of 4:00 P.M., New York time, or, if on any day such security is not
quoted on the Nasdaq Stock Market, the average of the highest bid prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case over the period of the 5 Business Days immediately preceding the day
on which "Recent Market Price" is being determined. If at any time such security
is not listed on any securities exchange or quoted on the Nasdaq Stock Market or
the over-the-counter market, the "Recent Market Price" shall be the fair value
thereof determined jointly by the Company and the holders of two-thirds of the
Warrants. If such parties are unable to reach agreement within a reasonable
period of time, such fair value shall be determined by an independent appraiser
experienced in valuing securities jointly selected by the Company and the
holders of two-thirds of the Warrants. The determination of such appraiser shall
be final and binding upon the parties, and the Company shall pay the fees and
expenses of such appraiser.
"Registered Holder" means the holder of this Warrant as
reflected in the records of the Company maintained pursuant to Section 12.
"Required Holders" means the holders of 662/3% of the purchase
rights represented by the Warrants as originally issued which remain outstanding
and unexercised.
"Warrant Shares" means shares of the Common Stock issuable
upon exercise of the Warrants; provided, that if the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the class of securities so issuable, then the term "Warrant
Shares" shall mean shares of the security issuable upon exercise of the Warrants
if such security is issuable in shares, or shall mean the equivalent units in
which such security is issuable if such security is not issuable in shares.
"Warrants" means all of the Series A Stock Purchase Warrants,
issued by the Company on the date hereof, representing in the aggregate the
right to purchase from the Company a total of 200,000
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shares of Common Stock (as adjusted pursuant to the terms thereof) together with
any stock purchase warrants issued in substitution, exchange or replacement
therefor.
SECTION 5. Voting Rights; Limitations of Liability. The
holders of the Warrants shall be entitled to notice of all stockholders meetings
in accordance with the Company's bylaws, and except as otherwise required by
applicable law, the holders of the Warrants shall be entitled to vote on all
matters submitted to the stockholders for a vote together with the holders of
the Common Stock voting together as a single class with each share of Common
Stock entitled to one vote per share and each Warrant Share entitled to one vote
for each share of Common Stock issuable upon issuance of such Warrant Share as
of the record date for such vote or, if no record date is specified, as of the
date of such vote. No provision hereof, in the absence of affirmative action by
the Registered Holder to purchase Warrant Shares, and no enumeration herein of
the rights or privileges of the Registered Holder shall give rise to any
liability of such Registered Holder for the Exercise Price of Warrant Shares
acquirable by exercise hereof or as a stockholder of the Company.
SECTION 6. Restrictions. Subject to the provisions of this
Section 6, this Warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Registered Holder (subject to the provisions of
paragraph 1B(iv) hereof), upon surrender of this Warrant with a properly
executed Assignment (in the form of Exhibit II hereto) at the principal office
of the Company. The Registered Holder agrees that it will not sell, transfer or
otherwise dispose of this Warrant or any Warrant Shares of restricted Common
Stock, in whole or in part, except pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or an exemption from
registration thereunder and then only in accordance with the terms of the
Purchase Agreement.
Each certificate evidencing Warrant Shares and each Warrant
issued upon such transfer shall bear the restrictive legends required by the
Purchase Agreement.
SECTION 7. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent such portion of such rights as is designated by the
Registered Holder at the time of such surrender. At the request of the
Registered Holder (pursuant to a transfer of Warrants or otherwise), this
Warrant may be exchanged for one or more Warrants to purchase Common Stock. The
date the Company initially issues this Warrant shall be deemed to be the date of
issuance hereof regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant shall
be issued.
SECTION 8. Exchange. In the event that it becomes unlawful or,
in the reasonable judgment of any Registered Holder of this Warrant, unduly
burdensome by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting the ability of financial institutions or their
affiliates to hold equity securities, or any material change (including a
reduction in the number of shares of Common Stock outstanding) in the capital
structure of the Company, to hold any or all of the Warrants or Warrant Shares,
the Registered Holder of this Warrant shall have the right to require the
Company to use
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its best efforts to permit all or part of such Registered Holder's Warrants or
Warrant Shares to be exchanged for nonvoting stock or similar interests that
convey equivalent economic benefits to such Warrants or Warrant Shares and
include equivalent anti-dilution protection. To the extent that the Company may
lawfully do so after the exercise of its best efforts, any such exchange shall
occur as soon as practicable but in any event within 60 days after written
notice by the Registered Holder of this Warrant to the Company (or such earlier
date if required to comply with applicable law).
SECTION 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 10. Notices. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and shall be (i)
delivered in person, (ii) transmitted by telecopy, (iii) sent by registered or
certified mail, postage prepaid with return receipt requested, or (iv) sent by
reputable overnight courier service, fees prepaid, to (x) the Company, at its
principal executive offices and (y) to any Registered Holder, at such Registered
Holder's address as it appears in the records of the Company (unless otherwise
indicated by any such Registered Holder). Notices shall be deemed given upon
personal delivery, upon receipt of return receipt in the case of delivery by
mail, upon acknowledgment by the receiving telecopier or one day following
deposit with an overnight courier service.
SECTION 11. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants 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 prior written consent of
the Registered Holder.
SECTION 12. Warrant Register. The Company shall maintain at
its principal executive offices books for the registration and the registration
of transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 13. Fractions of Shares. The Company may, but shall
not be required to, issue a fraction of a Warrant Share upon the exercise of
this Warrant in whole or in part. As to any fraction of a share which the
Company elects not to issue, the Company shall make a cash payment in respect of
such fraction in an amount equal to the same fraction of the Fair Market Value
of a Warrant Share on the date of such exercise.
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SECTION 14. Descriptive Headings; Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
* * * * *
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IN WITNESS WHEREOF, the Company has executed and delivered
this Warrant as of the date first written above.
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
--------------------------
Name: Brent M. Cook
Title: Chairman and Chief Executive Officer
Attest:
/s/ Joanna E. Barnes
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EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-____), hereby agrees to subscribe for the
purchase of ______ Warrant Shares covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
Exhibit I, Page 1
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. W-_____) with respect to the number of the
Warrant Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature _______________________
_______________________
Witness _______________________
Exhibit II, Page 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE RESTRICTIONS CONTAINED IN THE SECURITIES PURCHASE
AGREEMENT, DATED AS OF MARCH 17, 1999 (THE "PURCHASE
AGREEMENT"), AS SUCH AGREEMENT MAY BE AMENDED OR MODIFIED FROM
TIME TO TIME (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE ISSUER HEREOF). THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED AND
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
SERIES B STOCK PURCHASE WARRANT
Date of Issuance: March 17, 1999 Certificate No. W-B1
For value received, Covol Technologies, Inc., a Delaware
corporation (the "Company"), hereby grants to OZ Master Fund, Ltd., or its
permitted transferees and assigns, the right to purchase from the Company a
total of 200,000 Warrant Shares (as defined herein) at a price per share of
$10.00 (the "Initial Exercise Price"). The exercise price and number of Warrant
Shares (and the amount and kind of other securities) for which this Warrant is
exercisable shall be subject to adjustment as provided herein.
Certain capitalized terms used herein are defined in Section 4 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this
Warrant may be exercised, in whole or in part, at any time and from time to time
after the earlier to occur of (i) the third anniversary of the date hereof, (ii)
the date the Company declares any dividends upon the Common Stock (whether
payable in cash, securities or other property) and (iii) the occurrence of an
Event of Noncompliance (as defined in the Certificate of Designations) or an
Event of Default (as defined in the Notes) to and including 5:00 p.m., New York
time, on the fifth anniversary of the date hereof or, if such day is not a
Business Day, on the next preceding Business Day (the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been
exercised when all of the following items have been delivered to the Company
(the "Exercise Time"):
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(a) a completed Exercise Agreement, as
described in Section 1C below, executed by the Person exercising all or
part of the purchase rights represented by this Warrant (the
"Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the
Registered Holder, an Assignment or Assignments in the form set forth
in Exhibit II hereto evidencing the assignment of this Warrant to the
Purchaser; and
(d) either (x) a check payable to the
Company in an amount equal to the product of the Exercise Price (as
such term is defined in Section 2) multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (y) the surrender to the Company of securities of the Company
having a value equal to the Aggregate Exercise Price of the Warrant
Shares being purchased upon such exercise (which value in the case of
debt securities shall be the principal amount thereof and in the case
of shares of Common Stock shall be the Fair Market Value thereof), or
(z) the delivery of a notice to the Company that the Purchaser is
exercising the Warrant by authorizing the Company to reduce the number
of Warrant Shares subject to the Warrant by the number of shares having
an aggregate Fair Market Value equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five days after the date of the Exercise Time together with any cash
payable in lieu of a fraction of a share pursuant to Section 13 hereof. Unless
this Warrant has expired or all of the purchase rights represented hereby have
been exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Shares issuable upon the exercise of
this Warrant shall be deemed to have been issued to the Purchaser at the
Exercise Time, and the Purchaser shall be deemed for all purposes to have become
the Registered Holder of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates for Warrant Shares
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any taxes in respect thereof or other costs incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid. Each Warrant Share
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issuable upon exercise of this Warrant shall, upon payment of the Exercise Price
therefor, be fully paid and nonassessable and free from all liens and charges
with respect to the issuance thereof.
(v) The Company shall not close its books against the
transfer of this Warrant or of any Warrant Shares issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Warrant
Shares acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect. In the event that the Company fails to
comply with its obligations set forth in the foregoing sentence, the Purchaser
may (but shall not be obligated to) purchase Warrant Shares hereunder at par
value, and the Company shall be obligated to reimburse the Purchaser for the
aggregate amount of consideration paid in connection with such exercise in
excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or any Purchaser which is required
to make any governmental filings or obtain any governmental approvals prior to
or in connection with any exercise of this Warrant.
(vii) Notwithstanding any other provision hereof,
if an exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and
keep available out of its authorized but unissued Common Stock solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock or other securities constituting Warrant Shares may be
listed (except for official notice of issuance which shall be immediately
delivered by the Company upon each such issuance). The Company will use its best
efforts to cause the Warrant Shares, immediately upon such exercise, to be
listed on any domestic securities exchange upon which shares of Common Stock or
other securities constituting Warrant Shares are listed at the time of such
exercise.
(ix) If the Warrant Shares issuable by reason of
exercise of this Warrant are convertible into or exchangeable for any other
stock or securities of the Company, the Company shall, at the Purchaser's option
and upon surrender of this Warrant by such Purchaser as provided above together
with any notice, statement or payment required to effect such conversion or
exchange of Warrant Shares, deliver to such Purchaser (or as otherwise specified
by such Purchaser) a certificate or certificates representing the stock or
securities into which the Warrant Shares issuable by reason of such conversion
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are convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
(x) The Company shall not, and shall not permit
its subsidiaries to, directly or indirectly, by any action (including, without
limitation, reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Incorporation or through any Organic Change, issuance or sale of
securities or any other voluntary action) avoid or seek to avoid the observance
or performance of any of terms of this Warrant or impair or diminish its value
(except for any action which ratably affects all Warrant Shares and shares of
Common Stock), but shall at all times in good faith assist in the carrying out
of all such terms of this Warrant. Without limiting the generality of the
foregoing, the Company shall (a) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant
and (b) not undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the effect of
making this Warrant exercisable for less than one share of Common Stock for each
Registered Holder.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
Initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 2 (as so adjusted, the "Exercise Price"), and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time, each as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever, on or after the date hereof, the
Company issues or sells (or in accordance with Section 2B is deemed to have
issued or sold), other than (i) pursuant to a Permitted Issuance, (ii) as
described in Section 2C or (iii) pursuant to the Purchase Rights covered by
Section 3, any shares of Common Stock for a consideration per share less than
the Fair Market Value per share of the Common Stock determined as of the earlier
of (x) the announcement of such issuance or sale, or (y) the date of such
issuance or sale, then immediately upon such issuance or sale the Exercise Price
shall be reduced to equal the amount determined by multiplying the Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which will be the sum of (1) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issuance or sale multiplied by the
Fair Market Value per share of the Common Stock determined as of the date of
such issuance or sale, plus (2) the consideration, if any, received by the
Company upon such issuance or sale, and the denominator of which will be the
product derived by multiplying such Fair Market Value per share of the Common
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Stock by the number of shares of Common Stock Deemed Outstanding immediately
after such issuance or sale. Upon each such adjustment of the Exercise Price
hereunder, the number of Warrant Shares acquirable upon exercise of this Warrant
shall be adjusted to equal the number of shares 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 resulting
from such adjustment. For the purposes of this Section 2, the calculation of the
number of shares of Common Stock Deemed Outstanding shall exclude the Warrant
Shares.
2B. Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If the
Company in any manner grants any rights or options, whether or not immediately
exercisable, (other than the Purchase Rights covered by Section 3 hereof or a
Permitted Issuance) to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (including
without limitation convertible common stock) (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Fair Market Value per
share of the Common Stock in effect on the earlier of (x) the announcement of
such grant and (y) the date of such grant, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable upon exercise of such Options or upon conversion or exchange
of such Convertible Securities" is determined by dividing (A) the total amount,
if any, received or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price 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 or exchange of
such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible or exchangeable, and the price per share for which
Common Stock is issuable upon such conversion or exchange is less than the Fair
Market Value per share of the Common Stock in effect on the earlier of (x) the
announcement of such issuance or sale and (y) the date of issuance or sale, then
the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding
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and to have been issued and sold by the Company for such price per share. For
the purposes of this paragraph, the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by dividing (A) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Exercise Price shall be made upon the actual issue of
such Common Stock upon conversion 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 adjustments of the Exercise Price have been or
are to be made pursuant to other provisions of this Section 2B, no further
adjustment of the Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate.
If either the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change at any time, the
Exercise Price in effect at the time of such change shall be adjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of Warrant Shares
shall be correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option issued following the
date hereof or the termination of any right to convert or exchange any
Convertible Securities issued following the date hereof, in either case without
the exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor shall
be deemed to be the net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be the fair market value of such consideration,
except where such consideration consists of marketable securities, in which case
the amount of consideration received by the Company shall be the market price
thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger or other business combination in which the Company is
the surviving entity, the amount of consideration therefor shall be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or marketable securities shall be determined
jointly by the Company and the Required Holders. If such parties are unable to
reach agreement within a reasonable period of time, such
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fair market value shall be determined by an appraiser jointly selected by the
Company and the Required Holders, whose determination shall be final and binding
on the Company and all Registered Holders of Warrants (as defined in Section 6
below). The fees and expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. 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 Option
shall be deemed to have been issued for no consideration; provided, if such
other securities are debt securities (such debt securities so issued are herein
referred to as the "Debt") of the Company or any of its subsidiaries, the Option
shall be deemed to have been issued for consideration equal to the excess, if
any, of (a) the aggregate face amount (the "Estimated Face Amount") of debt
securities with terms identical to the terms of the Debt (other than the
increase to face value described in this proviso) which the Company or such
subsidiary would have had to issue had no Option been issued in connection
therewith, given the prevailing market conditions at the time of the issuance of
the Debt, in order to receive the same aggregate net proceeds as is actually
received from the issuance of the Debt, over (b) the aggregate face amount of
the Debt. The Estimated Face Amount shall be as mutually agreed between the
Company and the Registered Holder or, if no such mutual agreement is reached, as
set forth in the written opinion, addressed to the Registered Holder, of an
investment bank of national recognition, retained by the Company and reasonably
acceptable to the Registered Holder; provided, that the fees and expenses of
such investment bank shall be borne by the Company.
Example: If the Company issues $20 million aggregate principal amount
of 10% subordinated debentures with a 10-year maturity (and
receives aggregate net proceeds of $20 million), and in
connection therewith issues warrants, and in accordance with
the provisions of Section 2B(vi), the Company and the
Registered Holder mutually agree or an investment bank
determines that the Estimated Face Amount of the
subordinated debentures (with terms otherwise identical to
the securities issued) would have been $21 million (i.e., to
yield aggregate net proceeds of $20 million to the Company),
had the warrants not been issued, then the warrants would be
deemed to have been issued for $1 million.
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include shares owned or held
by or for the account of the Company or any subsidiary of the Company and the
disposition of any shares so owned or held shall be considered an issue or sale
of Common Stock.
(viii) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall 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
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the making of such other distribution or the date of the granting of such right
of subscription or purchase, as the case may be.
2C. Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon exercise of this Warrant shall be proportionately increased. If the Company
at any time combines (by reverse stock split or otherwise) the Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change". Prior to
the consummation of any Organic Change, the Company shall make appropriate
provision to ensure that each Registered Holder of Warrants shall thereafter
have the right to acquire and receive upon exercise thereof, in lieu of or
addition to (as the case may be) the Warrant Shares immediately theretofore
acquirable and receivable upon exercise of such Registered Holder's Warrants,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of such Registered Holder's
Warrants had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision with respect to such Registered Holder's rights
and interests to insure that the provisions hereof (including this Section 2)
shall thereafter be applicable to the Warrants (including, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
the earlier of (x) the announcement of such Organic Change and (y) such Organic
Change). The Company shall not effect any such Organic Change unless, prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument the
obligation to deliver to each Registered Holder of Warrants such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Registered Holder may be entitled to acquire upon exercise of Warrants.
2E. Certain 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
but excluding any Permitted Issuance), then the Company's Board of Directors
shall exercise their reasonable judgment consistent with the fundamental intent
of such provisions in making an appropriate adjustment in the
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Exercise Price and the number of Warrant Shares obtainable upon exercise of this
Warrant so as to protect the rights of the Registered Holder of this Warrant.
2F. Notices.
(i) Immediately upon any adjustment of the Exercise
Price, the Company shall give written notice thereof to the Registered Holder,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Company shall give written notice to the
Registered Holder at least 30 days 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 Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock, or (C) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
2G. Exercise Limit. Notwithstanding anything herein to the
contrary, unless and until the Company shall have obtained the approval of its
stockholders for the issuance and sale of securities pursuant to the Purchase
Agreement which are convertible into and exercisable for, in the aggregate, more
than 19.9% of the common equity of the Company (calculated as provided in and
required by the rules of the Nasdaq Stock Market), to the extent the rules of
the Nasdaq Stock Market requiring a stockholder vote are applicable to such
issuance and sale, or the Company shall have obtained such other stockholder
approval as may be required to comply with the rules of such other national
securities exchange upon which the Common Stock may then be traded (such
percentage of Common Stock or other restriction, the "Exercise Limit"), the
Company will not be required to issue shares of Common Stock upon exercise of
this Warrant which when taken together with all other shares of Common Stock
previously issued upon conversion of the Preferred Stock and the conversion of
the Notes and exercise of the Warrants and all other series of warrants issued
pursuant to the Purchase Agreement, exceeds the Exercise Limit. In the event
that the holder of this Warrant delivers an Exercise Agreement seeking to
purchase shares of Common Stock in excess of the Exercise Limit, then in lieu of
issuing shares of Common Stock in excess of the Exercise Limit (the "Excess
Shares") the Company shall pay to the holder an amount equal to the product of
1.25 and the difference between the Recent Market Price and the Exercise Price
(together with all accrued and unpaid dividends thereon) for each such Excess
Share as of the Exercise Time.
SECTION 3. Purchase Rights. If at any time the Company grants,
issues or sells any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock (the "Purchase Rights"), then the Company shall grant, issue or
sell (as the case may be) to the Registered Holder the aggregate Purchase Rights
which such Registered Holder would have acquired if such Registered Holder had
held the maximum number of Warrant Shares acquirable upon complete exercise of
this Warrant immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which
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the record holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.
SECTION 4. Definitions. The following terms have the meanings
set forth below:
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Certificate of Designations" means the Certificate of
Designations Number, Voting Powers, Preferences and Rights of the Series of the
Preferred Stock of the Company to be designated Series D Cumulative Convertible
Preferred Stock.
"Common Stock" means the common stock of the Company, par
value $.001 per share, and any securities into or for which such Common Stock is
hereafter converted or exchanged.
"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 Section
2B(i) or 2B(ii) hereof.
"Fair Market Value" of any security means the average closing
bid prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid prices on all such exchanges
at the end of such day, or, if on any day such security is not so listed, the
average of the representative bid prices quoted on the Nasdaq Stock Market as of
4:00 P.M., New York time, or, if on any day such security is not quoted on the
Nasdaq Stock Market, the average of the highest bid prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over the period of the 30 Business Days immediately preceding the day on which
"Fair Market Value" is being determined. If at any time such security is not
listed on any securities exchange or quoted on the Nasdaq Stock Market or the
over-the-counter market, the "Fair Market Value" shall be the fair value thereof
determined jointly by the Company and the Required Holders. If such parties are
unable to reach agreement within a reasonable period of time, such fair value
shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon the parties, and
the Company shall pay the fees and expenses of such appraiser.
"Notes" means the Company's Convertible Secured Notes due
March 15, 2004, in an initial aggregate principal amount of $20,000,000, issued
by the Company on the date hereof.
"Permitted Issuance" means any issuance by the Company of (a)
Common Stock on or prior to the date hereof; (b) Common Stock upon exercise of
the Warrants; (c) Common Stock upon the conversion or exchange of any shares of
any class of Common Stock into another class of Common Stock; (d) Common Stock
in connection with any dividend or distribution to the holders of the Common
Stock;
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or (e) Common Stock pursuant to an underwritten offering of Common Stock
registered under the Securities Act of 1933, as amended.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or department or
agency thereof.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of March 17, 1999, by and among the Company and the investors named
therein, as such agreement may from time to time be amended in accordance with
its terms.
"Recent Market Price" of any security means the average
closing bid prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid prices quoted on the Nasdaq Stock
Market as of 4:00 P.M., New York time, or, if on any day such security is not
quoted on the Nasdaq Stock Market, the average of the highest bid prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case over the period of the 5 Business Days immediately preceding the day
on which "Recent Market Price" is being determined. If at any time such security
is not listed on any securities exchange or quoted on the Nasdaq Stock Market or
the over-the-counter market, the "Recent Market Price" shall be the fair value
thereof determined jointly by the Company and the holders of two-thirds of the
Warrants. If such parties are unable to reach agreement within a reasonable
period of time, such fair value shall be determined by an independent appraiser
experienced in valuing securities jointly selected by the Company and the
holders of two-thirds of the Warrants. The determination of such appraiser shall
be final and binding upon the parties, and the Company shall pay the fees and
expenses of such appraiser.
"Registered Holder" means the holder of this Warrant as
reflected in the records of the Company maintained pursuant to Section 12.
"Required Holders" means the holders of 662/3% of the purchase
rights represented by this Warrant as originally issued which remain outstanding
and unexercised.
"Warrant Shares" means shares of the Common Stock issuable
upon exercise of the Warrants; provided, that if the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the class of securities so issuable, then the term "Warrant
Shares" shall mean shares of the security issuable upon exercise of the Warrants
if such security is issuable in shares, or shall mean the equivalent units in
which such security is issuable if such security is not issuable in shares.
"Warrants" means all of the Series B Stock Purchase Warrants,
issued by the Company on the date hereof representing in the aggregate the right
to purchase from the Company a total of 200,000
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shares of Common Stock (as adjusted pursuant to the terms thereof) together with
any stock purchase warrants issued in substitution, exchange or replacement
therefor.
SECTION 5. Voting Rights; Limitations of Liability. The
holders of the Warrants shall be entitled to notice of all stockholders meetings
in accordance with the Company's bylaws, and except as otherwise required by
applicable law, the holders of the Warrants shall be entitled to vote on all
matters submitted to the stockholders for a vote together with the holders of
the Common Stock voting together as a single class with each share of Common
Stock entitled to one vote per share and each Warrant Share entitled to one vote
for each share of Common Stock issuable upon issuance of such Warrant Share as
of the record date for such vote or, if no record date is specified, as of the
date of such vote. No provision hereof, in the absence of affirmative action by
the Registered Holder to purchase Warrant Shares, and no enumeration herein of
the rights or privileges of the Registered Holder shall give rise to any
liability of such Registered Holder for the Exercise Price of Warrant Shares
acquirable by exercise hereof or as a stockholder of the Company.
SECTION 6. Restrictions. Subject to the provisions of this
Section 6, this Warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Registered Holder (subject to the provisions of
paragraph 1B(iv) hereof), upon surrender of this Warrant with a properly
executed Assignment (in the form of Exhibit II hereto) at the principal office
of the Company. The Registered Holder agrees that it will not sell, transfer or
otherwise dispose of this Warrant or any Warrant Shares of restricted Common
Stock, in whole or in part, except pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or an exemption from
registration thereunder and then only in accordance with the terms of the
Purchase Agreement.
Each certificate evidencing Warrant Shares and each Warrant
issued upon such transfer shall bear the restrictive legends required by the
Purchase Agreement.
SECTION 7. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent such portion of such rights as is designated by the
Registered Holder at the time of such surrender. At the request of the
Registered Holder (pursuant to a transfer of Warrants or otherwise), this
Warrant may be exchanged for one or more Warrants to purchase Common Stock. The
date the Company initially issues this Warrant shall be deemed to be the date of
issuance hereof regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant shall
be issued.
SECTION 8. Exchange. In the event that it becomes unlawful or,
in the reasonable judgment of any Registered Holder of this Warrant, unduly
burdensome by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting the ability of financial institutions or their
affiliates to hold equity securities, or any material change (including a
reduction in the number of shares of Common Stock outstanding) in the capital
structure of the Company, to hold any or all of the Warrants or Warrant Shares,
the Registered Holder of this Warrant shall have the right to require the
Company to use
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its best efforts to permit all or part of such Registered Holder's Warrants or
Warrant Shares to be exchanged for nonvoting stock or similar interests that
convey equivalent economic benefits to such Warrants or Warrant Shares and
include equivalent anti-dilution protection. To the extent that the Company may
lawfully do so after the exercise of its best efforts, any such exchange shall
occur as soon as practicable but in any event within 60 days after written
notice by the Registered Holder of this Warrant to the Company (or such earlier
date if required to comply with applicable law).
SECTION 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 10. Notices. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and shall be (i)
delivered in person, (ii) transmitted by telecopy, (iii) sent by registered or
certified mail, postage prepaid with return receipt requested, or (iv) sent by
reputable overnight courier service, fees prepaid, to (x) the Company, at its
principal executive offices and (y) to any Registered Holder, at such Registered
Holder's address as it appears in the records of the Company (unless otherwise
indicated by any such Registered Holder). Notices shall be deemed given upon
personal delivery, upon receipt of return receipt in the case of delivery by
mail, upon acknowledgment by the receiving telecopier or one day following
deposit with an overnight courier service.
SECTION 11. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants 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 prior written consent of
the Registered Holder.
SECTION 12. Warrant Register. The Company shall maintain at
its principal executive offices books for the registration and the registration
of transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 13. Fractions of Shares. The Company may, but shall
not be required to, issue a fraction of a Warrant Share upon the exercise of
this Warrant in whole or in part. As to any fraction of a share which the
Company elects not to issue, the Company shall make a cash payment in respect of
such fraction in an amount equal to the same fraction of the Fair Market Value
of a Warrant Share on the date of such exercise.
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SECTION 14. Descriptive Headings; Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
* * * * *
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IN WITNESS WHEREOF, the Company has executed and delivered
this Warrant as of the date first written above.
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
------------------------
Name: Brent M. Cook
Title: Chairman and Chief Executive Officer
Attest:
/s/ Joanna E. Barnes
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EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-____), hereby agrees to subscribe for the
purchase of ______ Warrant Shares covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
Exhibit I, Page 1
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EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. W-_____) with respect to the number of the
Warrant Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature _______________________
_______________________
Witness _______________________
Exhibit II, Page 2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE RESTRICTIONS CONTAINED IN THE SECURITIES PURCHASE
AGREEMENT, DATED AS OF MARCH 17, 1999 (THE "PURCHASE
AGREEMENT"), AS SUCH AGREEMENT MAY BE AMENDED OR MODIFIED FROM
TIME TO TIME (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE ISSUER HEREOF). THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED AND
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
SERIES C STOCK PURCHASE WARRANT
Date of Issuance: March 17, 1999 Certificate No. W-C1
Pursuant to the Purchase Agreement, for value received, Covol
Technologies, Inc., a Delaware corporation (the "Company"), hereby grants to OZ
Master Fund, Ltd. or its permitted transferees and assigns, the right to
purchase from the Company a total of 228,572 Warrant Shares (as defined herein)
at a price per share equal to $5.25 (the "Initial Exercise Price"). The exercise
price and number of Warrant Shares (and the amount and kind of other securities)
for which this Warrant is exercisable shall be subject to adjustment as provided
herein. Certain capitalized terms used herein are defined in Section 4 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this
Warrant may be exercised, in whole or in part, at any time and from time to time
after the earlier to occur of (i) 180 days following the date hereof, (ii) the
date the Company declares any dividends upon the Common Stock (whether payable
in cash, securities or other property) and (iii) the occurrence of an Event of
Noncompliance (as defined in the Certificate of Designations) or an Event of
Default (as defined in the Notes), to and including 5:00 p.m., New York time, on
the third anniversary of the date hereof or, if such day is not a Business Day,
on the next preceding Business Day (the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been
exercised when all of the following items have been delivered to the Company
(the "Exercise Time"):
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(a) a completed Exercise Agreement, as
described in Section 1C below, executed by the Person exercising all or
part of the purchase rights represented by this Warrant (the
"Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the
Registered Holder, an Assignment or Assignments in the form set forth
in Exhibit II hereto evidencing the assignment of this Warrant to the
Purchaser; and
(d) either (x) a check payable to the
Company in an amount equal to the product of the Exercise Price (as
such term is defined in Section 2) multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (y) the surrender to the Company of securities of the Company
having a value equal to the Aggregate Exercise Price of the Warrant
Shares being purchased upon such exercise (which value in the case of
debt securities shall be the principal amount thereof and in the case
of shares of Common Stock shall be the Fair Market Value thereof), or
(z) the delivery of a notice to the Company that the Purchaser is
exercising the Warrant by authorizing the Company to reduce the number
of Warrant Shares subject to the Warrant by the number of shares having
an aggregate Fair Market Value equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five days after the date of the Exercise Time together with any cash
payable in lieu of a fraction of a share pursuant to Section 13 hereof. Unless
this Warrant has expired or all of the purchase rights represented hereby have
been exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Shares issuable upon the exercise of
this Warrant shall be deemed to have been issued to the Purchaser at the
Exercise Time, and the Purchaser shall be deemed for all purposes to have become
the Registered Holder of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates for Warrant Shares
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any taxes in respect thereof or other costs incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates
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representing Warrant Shares in a name other than that of a Registered Holder,
and the Company shall not be required to issue or deliver such Warrant or
certificate for Warrant Shares unless and until the Person requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the reasonable satisfaction of the Company that such tax has
been paid. Each Warrant Share issuable upon exercise of this Warrant shall, upon
payment of the Exercise Price therefor, be fully paid and nonassessable and free
from all liens and charges with respect to the issuance thereof.
(v) The Company shall not close its books against the
transfer of this Warrant or of any Warrant Shares issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Warrant
Shares acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect. In the event that the Company fails to
comply with its obligations set forth in the foregoing sentence, the Purchaser
may (but shall not be obligated to) purchase Warrant Shares hereunder at par
value, and the Company shall be obligated to reimburse the Purchaser for the
aggregate amount of consideration paid in connection with such exercise in
excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or any Purchaser which is required
to make any governmental filings or obtain any governmental approvals prior to
or in connection with any exercise of this Warrant.
(vii) Notwithstanding any other provision hereof,
if an exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and
keep available out of its authorized but unissued Common Stock solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock or other securities constituting Warrant Shares may be
listed (except for official notice of issuance which shall be immediately
delivered by the Company upon each such issuance). The Company will use its best
efforts to cause the Warrant Shares, immediately upon such exercise, to be
listed on any domestic securities exchange upon which shares of Common Stock or
other securities constituting Warrant Shares are listed at the time of such
exercise.
(ix) If the Warrant Shares issuable by reason of
exercise of this Warrant are convertible into or exchangeable for any other
stock or securities of the Company, the Company shall, at
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the Purchaser's option and upon surrender of this Warrant by such Purchaser as
provided above together with any notice, statement or payment required to effect
such conversion or exchange of Warrant Shares, deliver to such Purchaser (or as
otherwise specified by such Purchaser) a certificate or certificates
representing the stock or securities into which the Warrant Shares issuable by
reason of such conversion are convertible or exchangeable, registered in such
name or names and in such denomination or denominations as such Purchaser has
specified.
(x) The Company shall not, and shall not permit
its subsidiaries to, directly or indirectly, by any action (including, without
limitation, reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Incorporation or through any Organic Change, issuance or sale of
securities or any other voluntary action) avoid or seek to avoid the observance
or performance of any of terms of this Warrant or impair or diminish its value
(except for any action which ratably affects all Warrant Shares and shares of
Common Stock), but shall at all times in good faith assist in the carrying out
of all such terms of this Warrant. Without limiting the generality of the
foregoing, the Company shall (a) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant
and (b) not undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the effect of
making this Warrant exercisable for less than one share of Common Stock for each
Registered Holder.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
Initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 2 (as so adjusted, the "Exercise Price"), and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time, each as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever, on or after the date hereof, the
Company issues or sells (or in accordance with Section 2B is deemed to have
issued or sold), other than (i) pursuant to a Permitted Issuance, (ii) as
described in Section 2C or (iii) pursuant to the Purchase Rights covered by
Section 3, any shares of Common Stock for a consideration per share less than
the Fair Market Value per share of the Common Stock determined as of the earlier
of (x) the announcement of such issuance or sale, or (y) the date of such
issuance or sale, then immediately upon such issuance or sale the Exercise Price
shall be reduced to equal the amount determined by multiplying the Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which will be the sum of (1) the number of shares of
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Common Stock Deemed Outstanding immediately prior to such issuance or sale
multiplied by the Fair Market Value per share of the Common Stock determined as
of the date of such issuance or sale, plus (2) the consideration, if any,
received by the Company upon such issuance or sale, and the denominator of which
will be the product derived by multiplying such Fair Market Value per share of
the Common Stock by the number of shares of Common Stock Deemed Outstanding
immediately after such issuance or sale. Upon each such adjustment of the
Exercise Price hereunder, the number of Warrant Shares acquirable upon exercise
of this Warrant shall be adjusted to equal the number of shares 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 resulting from such adjustment. For the purposes of this Section
2, the calculation of the number of shares of Common Stock Deemed Outstanding
shall exclude the Warrant Shares.
2B. Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If the
Company in any manner grants any rights or options, whether or not immediately
exercisable, (other than the Purchase Rights covered by Section 3 hereof or a
Permitted Issuance) to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (including
without limitation convertible common stock) (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Fair Market Value per
share of the Common Stock in effect on the earlier of (x) the announcement of
such grant and (y) the date of such grant, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable upon exercise of such Options or upon conversion or exchange
of such Convertible Securities" is determined by dividing (A) the total amount,
if any, received or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price 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 or exchange of
such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible or exchangeable, and the
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price per share for which Common Stock is issuable upon such conversion or
exchange is less than the Fair Market Value per share of the Common Stock in
effect on the earlier of (x) the announcement of such issuance or sale and (y)
the date of issuance or sale, then the maximum number of shares of Common Stock
issuable upon conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of this paragraph, the "price per share
for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (A) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No further adjustment of the Exercise Price shall
be made upon the actual issue of such Common Stock upon conversion 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
adjustments of the Exercise Price have been or are to be made pursuant to other
provisions of this Section 2B, no further adjustment of the Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate.
If either the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change at any time, the
Exercise Price in effect at the time of such change shall be adjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of Warrant Shares
shall be correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option issued following the
date hereof or the termination of any right to convert or exchange any
Convertible Securities issued following the date hereof, in either case without
the exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor shall
be deemed to be the net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be the fair market value of such consideration,
except where such consideration consists of marketable securities, in which case
the amount of consideration received by the Company shall be the market price
thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger or other business combination in which the Company is
the surviving entity, the amount of consideration therefor shall be deemed to be
the fair
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market value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair market value of any consideration other
than cash or marketable securities shall be determined jointly by the Company
and the Required Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair market value shall be determined by an
appraiser jointly selected by the Company and the Required Holders, whose
determination shall be final and binding on the Company and all Registered
Holders of Warrants (as defined in Section 6 below). The fees and expenses of
such appraiser shall be paid by the Company.
(vi) Integrated Transactions. 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 Option
shall be deemed to have been issued for no consideration; provided, if such
other securities are debt securities (such debt securities so issued are herein
referred to as the "Debt") of the Company or any of its subsidiaries, the Option
shall be deemed to have been issued for consideration equal to the excess, if
any, of (a) the aggregate face amount (the "Estimated Face Amount") of debt
securities with terms identical to the terms of the Debt (other than the
increase to face value described in this proviso) which the Company or such
subsidiary would have had to issue had no Option been issued in connection
therewith, given the prevailing market conditions at the time of the issuance of
the Debt, in order to receive the same aggregate net proceeds as is actually
received from the issuance of the Debt, over (b) the aggregate face amount of
the Debt. The Estimated Face Amount shall be as mutually agreed between the
Company and the Registered Holder or, if no such mutual agreement is reached, as
set forth in the written opinion, addressed to the Registered Holder, of an
investment bank of national recognition, retained by the Company and reasonably
acceptable to the Registered Holder; provided, that the fees and expenses of
such investment bank shall be borne by the Company.
Example: If the Company issues $20 million aggregate principal amount
of 10% subordinated debentures with a 10-year maturity (and
receives aggregate net proceeds of $20 million), and in
connection therewith issues warrants, and in accordance with
the provisions of Section 2B(vi), the Company and the
Registered Holder mutually agree or an investment bank
determines that the Estimated Face Amount of the
subordinated debentures (with terms otherwise identical to
the securities issued) would have been $21 million (i.e., to
yield aggregate net proceeds of $20 million to the Company),
had the warrants not been issued, then the warrants would be
deemed to have been issued for $1 million.
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include shares owned or held
by or for the account of the Company or any subsidiary of the Company and the
disposition of any shares so owned or held shall be considered an issue or sale
of Common Stock.
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(viii) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall 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.
2C. Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon exercise of this Warrant shall be proportionately increased. If the Company
at any time combines (by reverse stock split or otherwise) the Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be proportionately
decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change". Prior to
the consummation of any Organic Change, the Company shall make appropriate
provision to ensure that each Registered Holder of Warrants shall thereafter
have the right to acquire and receive upon exercise thereof, in lieu of or
addition to (as the case may be) the Warrant Shares immediately theretofore
acquirable and receivable upon exercise of such Registered Holder's Warrants,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of such Registered Holder's
Warrants had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision with respect to such Registered Holder's rights
and interests to insure that the provisions hereof (including this Section 2)
shall thereafter be applicable to the Warrants (including, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
the earlier of (x) the announcement of such Organic Change and (y) such Organic
Change). The Company shall not effect any such Organic Change unless, prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument the
obligation to deliver to each Registered Holder of Warrants such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Registered Holder may be entitled to acquire upon exercise of Warrants.
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2E. Certain 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
but excluding any Permitted Issuance), then the Company's Board of Directors
shall exercise their reasonable judgment consistent with the fundamental intent
of such provisions in making an appropriate adjustment in the Exercise Price and
the number of Warrant Shares obtainable upon exercise of this Warrant so as to
protect the rights of the Registered Holder of this Warrant.
2F. Notices.
(i) Immediately upon any adjustment of the Exercise
Price, the Company shall give written notice thereof to the Registered Holder,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Company shall give written notice to the
Registered Holder at least 30 days 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 Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock, or (C) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
2G. Exercise Limit. Notwithstanding anything herein to the
contrary, unless and until the Company shall have obtained the approval of its
stockholders for the issuance and sale of securities pursuant to the Purchase
Agreement which are convertible into and exercisable for, in the aggregate, more
than 19.9% of the common equity of the Company (calculated as provided in and
required by the rules of the Nasdaq Stock Market), to the extent the rules of
the Nasdaq Stock Market requiring a stockholder vote are applicable to such
issuance and sale, or the Company shall have obtained such other stockholder
approval as may be required to comply with the rules of such other national
securities exchange upon which the Common Stock may then be traded (such
percentage of Common Stock or other restriction, the "Exercise Limit"), the
Company will not be required to issue shares of Common Stock upon exercise of
this Warrant which when taken together with all other shares of Common Stock
previously issued upon conversion of the Preferred Stock and the conversion of
the Notes and exercise of the Warrants and all other series of warrants issued
pursuant to the Purchase Agreement, exceeds the Exercise Limit. In the event
that the holder of this Warrant delivers an Exercise Agreement seeking to
purchase shares of Common Stock in excess of the Exercise Limit, then in lieu of
issuing shares of Common Stock in excess of the Exercise Limit (the "Excess
Shares") the Company shall pay to the holder an amount equal to the product of
1.25 and the difference between the Recent Market Price and the Exercise Price
(together with all accrued and unpaid dividends thereon) for each such Excess
Share as of the Exercise Time.
SECTION 3. Purchase Rights. If at any time the Company
grants, issues or sells any options, convertible securities or rights to
purchase stock, warrants, securities or other property pro rata
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to the record holders of the Common Stock (the "Purchase Rights"), then the
Company shall grant, issue or sell (as the case may be) to the Registered Holder
the aggregate Purchase Rights which such Registered Holder would have acquired
if such Registered Holder had held the maximum number of Warrant Shares
acquirable upon complete exercise of this Warrant immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
SECTION 4. Definitions. The following terms have the meanings
set forth below:
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Certificate of Designations" means the Certificate of
Designations, Number, Voting Powers, Preferences and Rights of the Series of the
Preferred Stock of the Company to be designated Series D Cumulative Convertible
Preferred Stock.
"Common Stock" means the common stock of the Company, par
value $.001 per share, and any securities into or for which such Common Stock is
hereafter converted or exchanged.
"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 Section
2B(i) or 2B(ii) hereof.
"Fair Market Value" of any security means the average closing
bid prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid prices on all such exchanges
at the end of such day, or, if on any day such security is not so listed, the
average of the representative bid prices quoted on the Nasdaq Stock Market as of
4:00 P.M., New York time, or, if on any day such security is not quoted on the
Nasdaq Stock Market, the average of the highest bid prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over the period of the 30 Business Days immediately preceding the day on which
"Fair Market Value" is being determined. If at any time such security is not
listed on any securities exchange or quoted on the Nasdaq Stock Market or the
over-the-counter market, the "Fair Market Value" shall be the fair value thereof
determined jointly by the Company and the Required Holders. If such parties are
unable to reach agreement within a reasonable period of time, such fair value
shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon the parties, and
the Company shall pay the fees and expenses of such appraiser.
"Notes" means the Company's Convertible Secured Notes due
March 15, 2004, in an initial aggregate principal amount of $20,000,000, issued
by the Company on the date hereof.
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"Permitted Issuance" means any issuance by the Company of (a)
Common Stock on or prior to the date hereof; (b) Common Stock upon exercise of
the Warrants; (c) Common Stock upon the conversion or exchange of any shares of
any class of Common Stock into another class of Common Stock; (d) Common Stock
in connection with any dividend or distribution to the holders of the Common
Stock; or (e) Common Stock pursuant to an underwritten offering of Common Stock
registered under the Securities Act of 1933, as amended.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or department or
agency thereof.
"Purchase Agreement" means the Securities Purchase Agreement,
dated as of March 17, 1999, by and among the Company and the investors named
therein, as such agreement may from time to time be amended in accordance with
its terms.
"Recent Market Price" of any security means the average
closing bid prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid prices quoted on the Nasdaq Stock
Market as of 4:00 P.M., New York time, or, if on any day such security is not
quoted on the Nasdaq Stock Market, the average of the highest bid prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case over the period of the 5 Business Days immediately preceding the day
on which "Recent Market Price" is being determined. If at any time such security
is not listed on any securities exchange or quoted on the Nasdaq Stock Market or
the over-the-counter market, the "Recent Market Price" shall be the fair value
thereof determined jointly by the Company and the holders of two-thirds of the
Warrants. If such parties are unable to reach agreement within a reasonable
period of time, such fair value shall be determined by an independent appraiser
experienced in valuing securities jointly selected by the Company and the
holders of two-thirds of the Warrants. The determination of such appraiser shall
be final and binding upon the parties, and the Company shall pay the fees and
expenses of such appraiser.
"Registered Holder" means the holder of this Warrant as
reflected in the records of the Company maintained pursuant to Section 12.
"Required Holders" means the holders of 662/3% of the purchase
rights represented by the Warrants as originally issued which remain outstanding
and unexercised.
"Warrant Shares" means shares of the Common Stock issuable
upon exercise of the Warrant; provided, that if the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the class of securities so issuable, then the term "Warrant
Shares" shall mean shares of the security issuable upon exercise of the Warrants
if such security is issuable in shares, or shall mean the equivalent units in
which such security is issuable if such security is not issuable in shares.
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"Warrants" means all of the Series C Stock Purchase Warrants
issued by the Company on the date hereof representing in the aggregate the right
to purchase from the Company a total of 228,572 shares of Common Stock (as
adjusted pursuant to the terms thereof) together with any stock purchase
warrants issued in substitution, exchange or replacement therefor.
SECTION 5. Voting Rights; Limitations of Liability. The
holders of the Warrants shall be entitled to notice of all stockholders meetings
in accordance with the Company's bylaws, and except as otherwise required by
applicable law, the holders of the Warrants shall be entitled to vote on all
matters submitted to the stockholders for a vote together with the holders of
the Common Stock voting together as a single class with each share of Common
Stock entitled to one vote per share and each Warrant Share entitled to one vote
for each share of Common Stock issuable upon issuance of such Warrant Share as
of the record date for such vote or, if no record date is specified, as of the
date of such vote. No provision hereof, in the absence of affirmative action by
the Registered Holder to purchase Warrant Shares, and no enumeration herein of
the rights or privileges of the Registered Holder shall give rise to any
liability of such Registered Holder for the Exercise Price of Warrant Shares
acquirable by exercise hereof or as a stockholder of the Company.
SECTION 6. Restrictions. Subject to the provisions of this
Section 6, this Warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Registered Holder (subject to the provisions of
paragraph 1B(iv) hereof), upon surrender of this Warrant with a properly
executed Assignment (in the form of Exhibit II hereto) at the principal office
of the Company. The Registered Holder agrees that it will not sell, transfer or
otherwise dispose of this Warrant or any Warrant Shares of restricted Common
Stock, in whole or in part, except pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or an exemption from
registration thereunder and then only in accordance with the terms of the
Purchase Agreement.
Each certificate evidencing Warrant Shares and each Warrant
issued upon such transfer shall bear the restrictive legends required by the
Purchase Agreement.
SECTION 7. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent such portion of such rights as is designated by the
Registered Holder at the time of such surrender. At the request of the
Registered Holder (pursuant to a transfer of Warrants or otherwise), this
Warrant may be exchanged for one or more Warrants to purchase Common Stock. The
date the Company initially issues this Warrant shall be deemed to be the date of
issuance hereof regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant shall
be issued.
SECTION 8. Exchange. In the event that it becomes unlawful or,
in the reasonable judgment of any Registered Holder of this Warrant, unduly
burdensome by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting the ability of financial institutions or their
affiliates to hold equity securities, or any material change (including a
reduction in the number of shares of
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Common Stock outstanding) in the capital structure of the Company, to hold any
or all of the Warrants or Warrant Shares, the Registered Holder of this Warrant
shall have the right to require the Company to use its best efforts to permit
all or part of such Registered Holder's Warrants or Warrant Shares to be
exchanged for nonvoting stock or similar interests that convey equivalent
economic benefits to such Warrants or Warrant Shares and include equivalent
anti-dilution protection. To the extent that the Company may lawfully do so
after the exercise of its best efforts, any such exchange shall occur as soon as
practicable but in any event within 60 days after written notice by the
Registered Holder of this Warrant to the Company (or such earlier date if
required to comply with applicable law).
SECTION 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 10. Notices. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and shall be (i)
delivered in person, (ii) transmitted by telecopy, (iii) sent by registered or
certified mail, postage prepaid with return receipt requested, or (iv) sent by
reputable overnight courier service, fees prepaid, to (x) the Company, at its
principal executive offices and (y) to any Registered Holder, at such Registered
Holder's address as it appears in the records of the Company (unless otherwise
indicated by any such Registered Holder). Notices shall be deemed given upon
personal delivery, upon receipt of return receipt in the case of delivery by
mail, upon acknowledgment by the receiving telecopier or one day following
deposit with an overnight courier service.
SECTION 11. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants 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 prior written consent of
the Registered Holder.
SECTION 12. Warrant Register. The Company shall maintain at
its principal executive offices books for the registration and the registration
of transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 13. Fractions of Shares. The Company may, but shall
not be required to, issue a fraction of a Warrant Share upon the exercise of
this Warrant in whole or in part. As to any fraction of a share which the
Company elects not to issue, the Company shall make a cash payment
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in respect of such fraction in an amount equal to the same fraction of the Fair
Market Value of a Warrant Share on the date of such exercise.
SECTION 14. Descriptive Headings; Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
* * * * *
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IN WITNESS WHEREOF, the Company has executed and delivered
this Warrant as of the date first written above.
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
----------------------------
Name: Brent M. Cook
Title: Chairman and Chief Executive Officer
Attest:
/s/ Joanna E. Barnes
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EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-____), hereby agrees to subscribe for the
purchase of ______ Warrant Shares covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
Exhibit I, Page 1
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. W-_____) with respect to the number of the
Warrant Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature _______________________
_______________________
Witness _______________________
Exhibit II, Page 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE RESTRICTIONS CONTAINED IN THE SECURITIES PURCHASE
AGREEMENT, DATED AS OF MARCH 17, 1999 (THE "PURCHASE
AGREEMENT"), AS SUCH AGREEMENT MAY BE AMENDED OR MODIFIED FROM
TIME TO TIME (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE ISSUER HEREOF). THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY BE OFFERED AND
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
SERIES D STOCK PURCHASE WARRANT
Date of Issuance: March 17, 1999 Certificate No. W-D1
Pursuant to the Purchase Agreement, for value received, Covol
Technologies, Inc., a Delaware corporation (the "Company"), hereby grants to OZ
Master Fund, Ltd., or its permitted transferees and assigns, the right to
purchase from the Company a total of 342,858 Warrant Shares (as defined herein)
at a price per share equal to $6.56 (the "Initial Exercise Price"). The exercise
price and number of Warrant Shares (and the amount and kind of other securities)
for which this Warrant is exercisable shall be subject to adjustment as provided
herein. Certain capitalized terms used herein are defined in Section 4 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this
Warrant may be exercised, in whole or in part, at any time and from time to time
after the earlier to occur of (i) 180 days following the date hereof, (ii) the
date the Company declares any dividends upon the Common Stock (whether payable
in cash, securities or other property) and (iii) the occurrence of an Event of
Noncompliance (as defined in the Certificate of Designations) or an Event of
Default (as defined in the Notes), to and including 5:00 p.m., New York time, on
the third anniversary of the date hereof or, if such day is not a Business Day,
on the next preceding Business Day (the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been
exercised when all of the following items have been delivered to the Company
(the "Exercise Time"):
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(a) a completed Exercise Agreement, as
described in Section 1C below, executed by the Person exercising all or
part of the purchase rights represented by this Warrant (the
"Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the
Registered Holder, an Assignment or Assignments in the form set forth
in Exhibit II hereto evidencing the assignment of this Warrant to the
Purchaser; and
(d) either (x) a check payable to the
Company in an amount equal to the product of the Exercise Price (as
such term is defined in Section 2) multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (y) the surrender to the Company of securities of the Company
having a value equal to the Aggregate Exercise Price of the Warrant
Shares being purchased upon such exercise (which value in the case of
debt securities shall be the principal amount thereof and in the case
of shares of Common Stock shall be the Fair Market Value thereof), or
(z) the delivery of a notice to the Company that the Purchaser is
exercising the Warrant by authorizing the Company to reduce the number
of Warrant Shares subject to the Warrant by the number of shares having
an aggregate Fair Market Value equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased
upon exercise of this Warrant shall be delivered by the Company to the Purchaser
within five days after the date of the Exercise Time together with any cash
payable in lieu of a fraction of a share pursuant to Section 13 hereof. Unless
this Warrant has expired or all of the purchase rights represented hereby have
been exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Shares issuable upon the exercise of
this Warrant shall be deemed to have been issued to the Purchaser at the
Exercise Time, and the Purchaser shall be deemed for all purposes to have become
the Registered Holder of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates for Warrant Shares
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any taxes in respect thereof or other costs incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid. Each Warrant Share
issuable upon exercise of this Warrant shall, upon payment
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of the Exercise Price therefor, be fully paid and nonassessable and free from
all liens and charges with respect to the issuance thereof.
(v) The Company shall not close its books against the
transfer of this Warrant or of any Warrant Shares issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Warrant
Shares acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect. In the event that the Company fails to
comply with its obligations set forth in the foregoing sentence, the Purchaser
may (but shall not be obligated to) purchase Warrant Shares hereunder at par
value, and the Company shall be obligated to reimburse the Purchaser for the
aggregate amount of consideration paid in connection with such exercise in
excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or any Purchaser which is required
to make any governmental filings or obtain any governmental approvals prior to
or in connection with any exercise of this Warrant.
(vii) Notwithstanding any other provision hereof,
if an exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and
keep available out of its authorized but unissued Common Stock solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock or other securities constituting Warrant Shares may be
listed (except for official notice of issuance which shall be immediately
delivered by the Company upon each such issuance). The Company will use its best
efforts to cause the Warrant Shares, immediately upon such exercise, to be
listed on any domestic securities exchange upon which shares of Common Stock or
other securities constituting Warrant Shares are listed at the time of such
exercise.
(ix) If the Warrant Shares issuable by reason of
exercise of this Warrant are convertible into or exchangeable for any other
stock or securities of the Company, the Company shall, at the Purchaser's option
and upon surrender of this Warrant by such Purchaser as provided above together
with any notice, statement or payment required to effect such conversion or
exchange of Warrant Shares, deliver to such Purchaser (or as otherwise specified
by such Purchaser) a certificate or certificates representing the stock or
securities into which the Warrant Shares issuable by reason of such conversion
are convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
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(x) The Company shall not, and shall not permit
its subsidiaries to, directly or indirectly, by any action (including, without
limitation, reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Incorporation or through any Organic Change, issuance or sale of
securities or any other voluntary action) avoid or seek to avoid the observance
or performance of any of terms of this Warrant or impair or diminish its value
(except for any action which ratably affects all Warrant Shares and shares of
Common Stock), but shall at all times in good faith assist in the carrying out
of all such terms of this Warrant. Without limiting the generality of the
foregoing, the Company shall (a) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant
and (b) not undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the effect of
making this Warrant exercisable for less than one share of Common Stock for each
Registered Holder.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
Initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 2 (as so adjusted, the "Exercise Price"), and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time, each as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever, on or after the date hereof, the
Company issues or sells (or in accordance with Section 2B is deemed to have
issued or sold), other than (i) pursuant to a Permitted Issuance, (ii) as
described in Section 2C or (iii) pursuant to the Purchase Rights covered by
Section 3, any shares of Common Stock for a consideration per share less than
the Fair Market Value per share of the Common Stock determined as of the earlier
of (x) the announcement of such issuance or sale, or (y) the date of such
issuance or sale, then immediately upon such issuance or sale the Exercise Price
shall be reduced to equal the amount determined by multiplying the Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which will be the sum of (1) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issuance or sale multiplied by the
Fair Market Value per share of the Common Stock determined as of the date of
such issuance or sale, plus (2) the consideration, if any, received by the
Company upon such issuance or sale, and the denominator of which will be the
product derived by multiplying such Fair Market Value per share of the Common
Stock by the number of shares of Common Stock Deemed Outstanding immediately
after such issuance or sale. Upon each such adjustment of the Exercise Price
hereunder, the number of Warrant Shares acquirable upon exercise of this Warrant
shall be adjusted to equal the number of shares 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
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the Exercise Price resulting from such adjustment. For the purposes of this
Section 2, the calculation of the number of shares of Common Stock Deemed
Outstanding shall exclude the Warrant Shares.
2B. Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If the
Company in any manner grants any rights or options, whether or not immediately
exercisable, (other than the Purchase Rights covered by Section 3 hereof or a
Permitted Issuance) to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (including
without limitation convertible common stock) (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Fair Market Value per
share of the Common Stock in effect on the earlier of (x) the announcement of
such grant and (y) the date of such grant, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable upon exercise of such Options or upon conversion or exchange
of such Convertible Securities" is determined by dividing (A) the total amount,
if any, received or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price 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 or exchange of
such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible or exchangeable, and the price per share for which
Common Stock is issuable upon such conversion or exchange is less than the Fair
Market Value per share of the Common Stock in effect on the earlier of (x) the
announcement of such issuance or sale and (y) the date of issuance or sale, then
the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Company for such price per share. For the
purposes of this paragraph, the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by dividing (A) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
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further adjustment of the Exercise Price shall be made upon the actual issue of
such Common Stock upon conversion 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 adjustments of the Exercise Price have been or
are to be made pursuant to other provisions of this Section 2B, no further
adjustment of the Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate.
If either the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change at any time, the
Exercise Price in effect at the time of such change shall be adjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of Warrant Shares
shall be correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option issued following the
date hereof or the termination of any right to convert or exchange any
Convertible Securities issued following the date hereof, in either case without
the exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor shall
be deemed to be the net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be the fair market value of such consideration,
except where such consideration consists of marketable securities, in which case
the amount of consideration received by the Company shall be the market price
thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger or other business combination in which the Company is
the surviving entity, the amount of consideration therefor shall be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or marketable securities shall be determined
jointly by the Company and the Required Holders. If such parties are unable to
reach agreement within a reasonable period of time, such fair market value shall
be determined by an appraiser jointly selected by the Company and the Required
Holders, whose determination shall be final and binding on the Company and all
Registered Holders of Warrants (as defined in Section 6 below). The fees and
expenses of such appraiser shall be paid by the Company.
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(vi) Integrated Transactions. 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 Option
shall be deemed to have been issued for no consideration; provided, if such
other securities are debt securities (such debt securities so issued are herein
referred to as the "Debt") of the Company or any of its subsidiaries, the Option
shall be deemed to have been issued for consideration equal to the excess, if
any, of (a) the aggregate face amount (the "Estimated Face Amount") of debt
securities with terms identical to the terms of the Debt (other than the
increase to face value described in this proviso) which the Company or such
subsidiary would have had to issue had no Option been issued in connection
therewith, given the prevailing market conditions at the time of the issuance of
the Debt, in order to receive the same aggregate net proceeds as is actually
received from the issuance of the Debt, over (b) the aggregate face amount of
the Debt. The Estimated Face Amount shall be as mutually agreed between the
Company and the Registered Holder or, if no such mutual agreement is reached, as
set forth in the written opinion, addressed to the Registered Holder, of an
investment bank of national recognition, retained by the Company and reasonably
acceptable to the Registered Holder; provided, that the fees and expenses of
such investment bank shall be borne by the Company.
Example: If the Company issues $20 million aggregate principal amount
of 10% subordinated debentures with a 10-year maturity (and
receives aggregate net proceeds of $20 million), and in
connection therewith issues warrants, and in accordance with
the provisions of Section 2B(vi), the Company and the
Registered Holder mutually agree or an investment bank
determines that the Estimated Face Amount of the
subordinated debentures (with terms otherwise identical to
the securities issued) would have been $21 million (i.e., to
yield aggregate net proceeds of $20 million to the Company),
had the warrants not been issued, then the warrants would be
deemed to have been issued for $1 million.
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include shares owned or held
by or for the account of the Company or any subsidiary of the Company and the
disposition of any shares so owned or held shall be considered an issue or sale
of Common Stock.
(viii) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall 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.
2C. Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such
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subdivision shall be proportionately reduced and the number of Warrant Shares
obtainable upon exercise of this Warrant shall be proportionately increased. If
the Company at any time combines (by reverse stock split or otherwise) the
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
proportionately decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change". Prior to
the consummation of any Organic Change, the Company shall make appropriate
provision to ensure that each Registered Holder of Warrants shall thereafter
have the right to acquire and receive upon exercise thereof, in lieu of or
addition to (as the case may be) the Warrant Shares immediately theretofore
acquirable and receivable upon exercise of such Registered Holder's Warrants,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of such Registered Holder's
Warrants had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision with respect to such Registered Holder's rights
and interests to insure that the provisions hereof (including this Section 2)
shall thereafter be applicable to the Warrants (including, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
the earlier of (x) the announcement of such Organic Change and (y) such Organic
Change). The Company shall not effect any such Organic Change unless, prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument the
obligation to deliver to each Registered Holder of Warrants such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Registered Holder may be entitled to acquire upon exercise of Warrants.
2E. Certain 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
but excluding any Permitted Issuance), then the Company's Board of Directors
shall exercise their reasonable judgment consistent with the fundamental intent
of such provisions in making an appropriate adjustment in the Exercise Price and
the number of Warrant Shares obtainable upon exercise of this Warrant so as to
protect the rights of the Registered Holder of this Warrant.
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2F. Notices.
(i) Immediately upon any adjustment of the
Exercise Price, the Company shall give written notice thereof to the Registered
Holder, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Company shall give written notice to the
Registered Holder at least 30 days 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 Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock, or (C) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
2G. Exercise Limit. Notwithstanding anything herein to the
contrary, unless and until the Company shall have obtained the approval of its
stockholders for the issuance and sale of securities pursuant to the Purchase
Agreement which are convertible into and exercisable for, in the aggregate, more
than 19.9% of the common equity of the Company (calculated as provided in and
required by the rules of the Nasdaq Stock Market), to the extent the rules of
the Nasdaq Stock Market requiring a stockholder vote are applicable to such
issuance and sale, or the Company shall have obtained such other stockholder
approval as may be required to comply with the rules of such other national
securities exchange upon which the Common Stock may then be traded (such
percentage of Common Stock or other restriction, the "Exercise Limit"), the
Company will not be required to issue shares of Common Stock upon exercise of
this Warrant which when taken together with all other shares of Common Stock
previously issued upon conversion of the Preferred Stock and the conversion of
the Notes and exercise of the Warrants and all other series of warrants issued
pursuant to the Purchase Agreement, exceeds the Exercise Limit. In the event
that the holder of this Warrant delivers an Exercise Agreement seeking to
purchase shares of Common Stock in excess of the Exercise Limit, then in lieu of
issuing shares of Common Stock in excess of the Exercise Limit (the "Excess
Shares") the Company shall pay to the holder an amount equal to the product of
1.25 and the difference between the Recent Market Price and the Exerice Price
(together with all accrued and unpaid dividends thereon) for each such Excess
Share as of the Exercise Time.
SECTION 3. Purchase Rights. If at any time the Company grants,
issues or sells any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock (the "Purchase Rights"), then the Company shall grant, issue or
sell (as the case may be) to the Registered Holder the aggregate Purchase Rights
which such Registered Holder would have acquired if such Registered Holder had
held the maximum number of Warrant Shares acquirable upon complete exercise of
this Warrant immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
SECTION 4. Definitions. The following terms have the meanings
set forth below:
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"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Certificate of Designations" means the Certificate of
Designations, Number, Voting Powers, Preferences and Rights of the Series of the
Preferred Stock of the Company to be designated Series D Cumulative Convertible
Preferred Stock.
"Common Stock" means the common stock of the Company, par
value $.001 per share, and any securities into or for which such Common Stock is
hereafter converted or exchanged.
"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 Section
2B(i) or 2B(ii) hereof.
"Fair Market Value" of any security means the average closing
bid prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid prices on all such exchanges
at the end of such day, or, if on any day such security is not so listed, the
average of the representative bid prices quoted on the Nasdaq Stock Market as of
4:00 P.M., New York time, or, if on any day such security is not quoted on the
Nasdaq Stock Market, the average of the highest bid prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over the period of the 30 Business Days immediately preceding the day on which
"Fair Market Value" is being determined. If at any time such security is not
listed on any securities exchange or quoted on the Nasdaq Stock Market or the
over-the-counter market, the "Fair Market Value" shall be the fair value thereof
determined jointly by the Company and the Required Holders. If such parties are
unable to reach agreement within a reasonable period of time, such fair value
shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon the parties, and
the Company shall pay the fees and expenses of such appraiser.
"Notes" means the Company's Convertible Secured Notes due
March 15, 2004, in an initial aggregate principal amount of $20,000,000, issued
by the Company on the date hereof.
"Permitted Issuance" means any issuance by the Company of (a)
Common Stock on or prior to the date hereof; (b) Common Stock upon exercise of
the Warrants; (c) Common Stock upon the conversion or exchange of any shares of
any class of Common Stock into another class of Common Stock; (d) Common Stock
in connection with any dividend or distribution to the holders of the Common
Stock; or (e) Common Stock pursuant to an underwritten offering of Common Stock
registered under the Securities Act of 1933, as amended.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or department or
agency thereof.
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"Purchase Agreement" means the Securities Purchase Agreement,
dated as of March 17, 1999, by and among the Company and the investors named
therein, as such agreement may from time to time be amended in accordance with
its terms.
"Recent Market Price" of any security means the average
closing bid prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid prices quoted on the Nasdaq Stock
Market as of 4:00 P.M., New York time, or, if on any day such security is not
quoted on the Nasdaq Stock Market, the average of the highest bid prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case over the period of the 5 Business Days immediately preceding the day
on which "Recent Market Price" is being determined. If at any time such security
is not listed on any securities exchange or quoted on the Nasdaq Stock Market or
the over-the-counter market, the "Recent Market Price" shall be the fair value
thereof determined jointly by the Company and the holders of two-thirds of the
Warrants. If such parties are unable to reach agreement within a reasonable
period of time, such fair value shall be determined by an independent appraiser
experienced in valuing securities jointly selected by the Company and the
holders of two-thirds of the Warrants. The determination of such appraiser shall
be final and binding upon the parties, and the Company shall pay the fees and
expenses of such appraiser.
"Registered Holder" means the holder of this Warrant as
reflected in the records of the Company maintained pursuant to Section 12.
"Required Holders" means the holders of 662/3% of the purchase
rights represented by the Warrants as originally issued which remain outstanding
and unexercised.
"Warrant Shares" means shares of the Common Stock issuable
upon exercise of the Warrants; provided, that if the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the class of securities so issuable, then the term "Warrant
Shares" shall mean shares of the security issuable upon exercise of the Warrants
if such security is issuable in shares, or shall mean the equivalent units in
which such security is issuable if such security is not issuable in shares.
"Warrants" means all of the Series D Stock Purchase Warrants
issued by the Company on the date hereof representing in the aggregate the right
to purchase from the Company a total of 342,858 shares of Common Stock (as
adjusted pursuant to the terms thereof) together with any stock purchase
warrants issued in substitution, exchange or replacement therefor.
SECTION 5. Voting Rights; Limitations of Liability. The
holders of the Warrants shall be entitled to notice of all stockholders meetings
in accordance with the Company's bylaws, and except as otherwise required by
applicable law, the holders of the Warrants shall be entitled to vote on all
matters submitted to the stockholders for a vote together with the holders of
the Common Stock voting together as a single class with each share of Common
Stock entitled to one vote per share and each Warrant Share entitled to one vote
for each share of Common Stock issuable upon
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issuance of such Warrant Share as of the record date for such vote or, if no
record date is specified, as of the date of such vote. No provision hereof, in
the absence of affirmative action by the Registered Holder to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of the Registered
Holder shall give rise to any liability of such Registered Holder for the
Exercise Price of Warrant Shares acquirable by exercise hereof or as a
stockholder of the Company.
SECTION 6. Restrictions. Subject to the provisions of this
Section 6, this Warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Registered Holder (subject to the provisions of
paragraph 1B(iv) hereof), upon surrender of this Warrant with a properly
executed Assignment (in the form of Exhibit II hereto) at the principal office
of the Company. The Registered Holder agrees that it will not sell, transfer or
otherwise dispose of this Warrant or any Warrant Shares of restricted Common
Stock, in whole or in part, except pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or an exemption from
registration thereunder and then only in accordance with the terms of the
Purchase Agreement.
Each certificate evidencing Warrant Shares and each Warrant
issued upon such transfer shall bear the restrictive legends required by the
Purchase Agreement.
SECTION 7. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent such portion of such rights as is designated by the
Registered Holder at the time of such surrender. At the request of the
Registered Holder (pursuant to a transfer of Warrants or otherwise), this
Warrant may be exchanged for one or more Warrants to purchase Common Stock. The
date the Company initially issues this Warrant shall be deemed to be the date of
issuance hereof regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant shall
be issued.
SECTION 8. Exchange. In the event that it becomes unlawful or,
in the reasonable judgment of any Registered Holder of this Warrant, unduly
burdensome by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting the ability of financial institutions or their
affiliates to hold equity securities, or any material change (including a
reduction in the number of shares of Common Stock outstanding) in the capital
structure of the Company, to hold any or all of the Warrants or Warrant Shares,
the Registered Holder of this Warrant shall have the right to require the
Company to use its best efforts to permit all or part of such Registered
Holder's Warrants or Warrant Shares to be exchanged for nonvoting stock or
similar interests that convey equivalent economic benefits to such Warrants or
Warrant Shares and include equivalent anti-dilution protection. To the extent
that the Company may lawfully do so after the exercise of its best efforts, any
such exchange shall occur as soon as practicable but in any event within 60 days
after written notice by the Registered Holder of this Warrant to the Company (or
such earlier date if required to comply with applicable law).
SECTION 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
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(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 10. Notices. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and shall be (i)
delivered in person, (ii) transmitted by telecopy, (iii) sent by registered or
certified mail, postage prepaid with return receipt requested, or (iv) sent by
reputable overnight courier service, fees prepaid, to (x) the Company, at its
principal executive offices and (y) to any Registered Holder, at such Registered
Holder's address as it appears in the records of the Company (unless otherwise
indicated by any such Registered Holder). Notices shall be deemed given upon
personal delivery, upon receipt of return receipt in the case of delivery by
mail, upon acknowledgment by the receiving telecopier or one day following
deposit with an overnight courier service.
SECTION 11. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants 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 prior written consent of
the Registered Holder.
SECTION 12. Warrant Register. The Company shall maintain at
its principal executive offices books for the registration and the registration
of transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 13. Fractions of Shares. The Company may, but shall
not be required to, issue a fraction of a Warrant Share upon the exercise of
this Warrant in whole or in part. As to any fraction of a share which the
Company elects not to issue, the Company shall make a cash payment in respect of
such fraction in an amount equal to the same fraction of the Fair Market Value
of a Warrant Share on the date of such exercise.
SECTION 14. Descriptive Headings; Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
* * * * *
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IN WITNESS WHEREOF, the Company has executed and delivered
this Warrant as of the date first written above.
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
------------------------------
Name: Brent M. Cook
Title: Chairman and Chief Executive Officer
Attest:
/s/ Joanna E. Barnes
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EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-____), hereby agrees to subscribe for the
purchase of ______ Warrant Shares covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
Exhibit I, Page 1
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EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. W- _____) with respect to the number of the
Warrant Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature _______________________
_______________________
Witness _______________________
Exhibit II, Page 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
SERIES E STOCK PURCHASE WARRANT
Date of Issuance: March 17, 1999 Certificate No. W-E1
For value received, Covol Technologies, Inc., a Delaware
corporation (the "Company"), hereby grants to Leeds Group Inc., or its permitted
transferees and assigns, the right to purchase from the Company a total of
156,098 Warrant Shares (as defined herein) at a price per share equal to $6.15
(the "Initial Exercise Price"). The exercise price and number of Warrant Shares
(and the amount and kind of other securities) for which this Warrant is
exercisable shall be subject to adjustment as provided herein.
Certain capitalized terms used herein are defined in Section 4 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this
Warrant may be exercised, in whole or in part, at any time and from time to time
after the earlier to occur of (i) 180 days following the date hereof and (ii)
the date the Company declares any dividends upon the Common Stock (whether
payable in cash, securities or other property), to and including 5:00 p.m., New
York time, on the third anniversary of the date hereof or, if such day is not a
Business Day, on the next preceding Business Day (the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been
exercised when all of the following items have been delivered to the Company
(the "Exercise Time"):
(a) a completed Exercise Agreement, as
described in Section 1C below, executed by the Person exercising all or
part of the purchase rights represented by this Warrant (the
"Purchaser");
(b) this Warrant;
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(c) if the Purchaser is not the
Registered Holder, an Assignment or Assignments in the form set forth
in Exhibit II hereto evidencing the assignment of this Warrant to the
Purchaser; and
(d) either (x) a check payable to the
Company in an amount equal to the product of the Exercise Price (as
such term is defined in Section 2) multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (y) the surrender to the Company of securities of the Company
having a value equal to the Aggregate Exercise Price of the Warrant
Shares being purchased upon such exercise (which value in the case of
debt securities shall be the principal amount thereof and in the case
of shares of Common Stock shall be the Fair Market Value thereof), or
(z) the delivery of a notice to the Company that the Purchaser is
exercising the Warrant by authorizing the Company to reduce the number
of Warrant Shares subject to the Warrant by the number of shares having
an aggregate Fair Market Value equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased
upon exercise of this Warrant shall be delivered by the Company to the
Purchaser within five days after the date of the Exercise Time together
with any cash payable in lieu of a fraction of a share pursuant to
Section 13 hereof. Unless this Warrant has expired or all of the
purchase rights represented hereby have been exercised, the Company
shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period,
deliver such new Warrant to the Person designated for delivery in the
Exercise Agreement.
(iii) The Warrant Shares issuable upon the exercise of
this Warrant shall be deemed to have been issued to the Purchaser at the
Exercise Time, and the Purchaser shall be deemed for all purposes to have become
the Registered Holder of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates for Warrant Shares
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any taxes in respect thereof or other costs incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid. Each Warrant Share
issuable upon exercise of this Warrant shall, upon payment of the Exercise Price
therefor, be fully paid and nonassessable and free from all liens and charges
with respect to the issuance thereof.
(v) The Company shall not close its books against the
transfer of this Warrant or of any Warrant Shares issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Warrant
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Shares acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect. In the event that the Company fails to
comply with its obligations set forth in the foregoing sentence, the Purchaser
may (but shall not be obligated to) purchase Warrant Shares hereunder at par
value, and the Company shall be obligated to reimburse the Purchaser for the
aggregate amount of consideration paid in connection with such exercise in
excess of the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or any Purchaser which is required
to make any governmental filings or obtain any governmental approvals prior to
or in connection with any exercise of this Warrant.
(vii) Notwithstanding any other provision hereof,
if an exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and
keep available out of its authorized but unissued Common Stock solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock or other securities constituting Warrant Shares may be
listed (except for official notice of issuance which shall be immediately
delivered by the Company upon each such issuance). The Company will use its best
efforts to cause the Warrant Shares, immediately upon such exercise, to be
listed on any domestic securities exchange upon which shares of Common Stock or
other securities constituting Warrant Shares are listed at the time of such
exercise.
(ix) If the Warrant Shares issuable by reason of
exercise of this Warrant are convertible into or exchangeable for any other
stock or securities of the Company, the Company shall, at the Purchaser's option
and upon surrender of this Warrant by such Purchaser as provided above together
with any notice, statement or payment required to effect such conversion or
exchange of Warrant Shares, deliver to such Purchaser (or as otherwise specified
by such Purchaser) a certificate or certificates representing the stock or
securities into which the Warrant Shares issuable by reason of such conversion
are convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
(x) The Company shall not, and shall not permit
its subsidiaries to, directly or indirectly, by any action (including, without
limitation, reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Incorporation or through any Organic Change, issuance or sale of
securities or any other voluntary action) avoid or seek to avoid the observance
or performance of any of terms of this Warrant or impair or diminish its value
(except for any action which ratably affects all Warrant Shares and shares of
Common Stock), but shall at all times in good faith assist
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in the carrying out of all such terms of this Warrant. Without limiting the
generality of the foregoing, the Company shall (a) obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant and (b) not undertake any reverse stock split,
combination, reorganization or other reclassification of its capital stock which
would have the effect of making this Warrant exercisable for less than one share
of Common Stock for each Registered Holder.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
Initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 2 (as so adjusted, the "Exercise Price"), and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time, each as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever, on or after the date hereof, the
Company issues or sells (or in accordance with Section 2B is deemed to have
issued or sold), other than (i) pursuant to a Permitted Issuance, (ii) as
described in Section 2C or (iii) pursuant to the Purchase Rights covered by
Section 3, any shares of Common Stock for a consideration per share less than
the Fair Market Value per share of the Common Stock determined as of the earlier
of (x) the announcement of such issuance or sale, or (y) the date of such
issuance or sale, then immediately upon such issuance or sale the Exercise Price
shall be reduced to equal the amount determined by multiplying the Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which will be the sum of (1) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issuance or sale multiplied by the
Fair Market Value per share of the Common Stock determined as of the date of
such issuance or sale, plus (2) the consideration, if any, received by the
Company upon such issuance or sale, and the denominator of which will be the
product derived by multiplying such Fair Market Value per share of the Common
Stock by the number of shares of Common Stock Deemed Outstanding immediately
after such issuance or sale. Upon each such adjustment of the Exercise Price
hereunder, the number of Warrant Shares acquirable upon exercise of this Warrant
shall be adjusted to equal the number of shares 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 resulting
from such adjustment. For the purposes of this Section 2, the calculation of the
number of shares of Common Stock Deemed Outstanding shall exclude the Warrant
Shares.
2B. Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 2A, the following shall
be applicable:
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(i) Issuance of Rights or Options. If the
Company in any manner grants any rights or options, whether or not immediately
exercisable, (other than the Purchase Rights covered by Section 3 hereof or a
Permitted Issuance) to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (including
without limitation convertible common stock) (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Fair Market Value per
share of the Common Stock in effect on the earlier of (x) the announcement of
such grant and (y) the date of such grant, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable upon exercise of such Options or upon conversion or exchange
of such Convertible Securities" is determined by dividing (A) the total amount,
if any, received or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price 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 or exchange of
such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible or exchangeable, and the price per share for which
Common Stock is issuable upon such conversion or exchange is less than the Fair
Market Value per share of the Common Stock in effect on the earlier of (x) the
announcement of such issuance or sale and (y) the date of issuance or sale, then
the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Company for such price per share. For the
purposes of this paragraph, the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by dividing (A) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Exercise Price shall be made upon the actual issue of
such Common Stock upon conversion 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 adjustments of the Exercise Price have been or
are to be made pursuant to other provisions of this Section 2B, no further
adjustment of the Exercise Price shall be made by reason of such issue or sale.
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(iii) Change in Option Price or Conversion Rate.
If either the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change at any time, the
Exercise Price in effect at the time of such change shall be adjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of Warrant Shares
shall be correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option issued following the
date hereof or the termination of any right to convert or exchange any
Convertible Securities issued following the date hereof, in either case without
the exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor shall
be deemed to be the net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be the fair market value of such consideration,
except where such consideration consists of marketable securities, in which case
the amount of consideration received by the Company shall be the market price
thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger or other business combination in which the Company is
the surviving entity, the amount of consideration therefor shall be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or marketable securities shall be determined
jointly by the Company and the Required Holders. If such parties are unable to
reach agreement within a reasonable period of time, such fair market value shall
be determined by an appraiser jointly selected by the Company and the Required
Holders, whose determination shall be final and binding on the Company and all
Registered Holders of Warrants (as defined in Section 6 below). The fees and
expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. 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 Option
shall be deemed to have been issued for no consideration; provided, if such
other securities are debt securities (such debt securities so issued are herein
referred to as the "Debt") of the Company or any of its subsidiaries, the Option
shall be deemed to have been issued for consideration equal to the excess, if
any, of (a) the aggregate face amount (the "Estimated Face Amount") of debt
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securities with terms identical to the terms of the Debt (other than the
increase to face value described in this proviso) which the Company or such
subsidiary would have had to issue had no Option been issued in connection
therewith, given the prevailing market conditions at the time of the issuance of
the Debt, in order to receive the same aggregate net proceeds as is actually
received from the issuance of the Debt, over (b) the aggregate face amount of
the Debt. The Estimated Face Amount shall be as mutually agreed between the
Company and the Registered Holder or, if no such mutual agreement is reached, as
set forth in the written opinion, addressed to the Registered Holder, of an
investment bank of national recognition, retained by the Company and reasonably
acceptable to the Registered Holder; provided, that the fees and expenses of
such investment bank shall be borne by the Company.
Example: If the Company issues $20 million aggregate principal amount
of 10% subordinated debentures with a 10-year maturity (and
receives aggregate net proceeds of $20 million), and in
connection therewith issues warrants, and in accordance with
the provisions of Section 2B(vi), the Company and the
Registered Holder mutually agree or an investment bank
determines that the Estimated Face Amount of the
subordinated debentures (with terms otherwise identical to
the securities issued) would have been $21 million (i.e., to
yield aggregate net proceeds of $20 million to the Company),
had the warrants not been issued, then the warrants would be
deemed to have been issued for $1 million.
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include shares owned or held
by or for the account of the Company or any subsidiary of the Company and the
disposition of any shares so owned or held shall be considered an issue or sale
of Common Stock.
(viii) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall 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.
2C. Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon exercise of this Warrant shall be proportionately increased. If the Company
at any time combines (by reverse stock split or otherwise) the Common Stock into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be proportionately
decreased.
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2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change". Prior to
the consummation of any Organic Change, the Company shall make appropriate
provision to ensure that each Registered Holder of Warrants shall thereafter
have the right to acquire and receive upon exercise thereof, in lieu of or
addition to (as the case may be) the Warrant Shares immediately theretofore
acquirable and receivable upon exercise of such Registered Holder's Warrants,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of such Registered Holder's
Warrants had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision with respect to such Registered Holder's rights
and interests to insure that the provisions hereof (including this Section 2)
shall thereafter be applicable to the Warrants (including, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
the earlier of (x) the announcement of such Organic Change and (y) such Organic
Change). The Company shall not effect any such Organic Change unless, prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument the
obligation to deliver to each Registered Holder of Warrants such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Registered Holder may be entitled to acquire upon exercise of Warrants.
2E. Certain 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
but excluding any Permitted Issuance), then the Company's Board of Directors
shall exercise their reasonable judgment consistent with the fundamental intent
of such provisions in making an appropriate adjustment in the Exercise Price and
the number of Warrant Shares obtainable upon exercise of this Warrant so as to
protect the rights of the Registered Holder of this Warrant.
2F. Notices.
(i) Immediately upon any adjustment of the Exercise
Price, the Company shall give written notice thereof to the Registered Holder,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Company shall give written notice to the
Registered Holder at least 30 days 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 Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock, or (C) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
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(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
SECTION 3. Purchase Rights. If at any time the Company grants,
issues or sells any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock (the "Purchase Rights"), then the Company shall grant, issue or
sell (as the case may be) to the Registered Holder the aggregate Purchase Rights
which such Registered Holder would have acquired if such Registered Holder had
held the maximum number of Warrant Shares acquirable upon complete exercise of
this Warrant immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
SECTION 4. Definitions. The following terms have the meanings
set forth below:
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Common Stock" means the common stock of the Company, par
value $.001 per share, and any securities into or for which such Common Stock is
hereafter converted or exchanged.
"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 Section
2B(i) or 2B(ii) hereof.
"Fair Market Value" of any security means the average closing
bid prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid prices on all such exchanges
at the end of such day, or, if on any day such security is not so listed, the
average of the representative bid prices quoted on the Nasdaq Stock Market as of
4:00 P.M., New York time, or, if on any day such security is not quoted on the
Nasdaq Stock Market, the average of the highest bid prices on such day in the
domestic over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over the period of the 30 Business Days immediately preceding the day on which
"Fair Market Value" is being determined. If at any time such security is not
listed on any securities exchange or quoted on the Nasdaq Stock Market or the
over-the-counter market, the "Fair Market Value" shall be the fair value thereof
determined jointly by the Company and the Required Holders. If such parties are
unable to reach agreement within a reasonable period of time, such fair value
shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon the parties, and
the Company shall pay the fees and expenses of such appraiser.
"Permitted Issuance" means any issuance by the Company of (a)
Common Stock on or prior to the date hereof; (b) Common Stock upon exercise of
the Warrants; (c) Common Stock upon the conversion or exchange of any shares of
any class of Common Stock into another class of
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Common Stock; (d) Common Stock in connection with any dividend or distribution
to the holders of the Common Stock; or (e) Common Stock pursuant to an
underwritten offering of Common Stock registered under the Securities Act of
1933, as amended.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or department or
agency thereof.
"Registered Holder" means the holder of this Warrant as
reflected in the records of the Company maintained pursuant to Section 12.
"Required Holders" means the holders of 662/3% of the purchase
rights represented by the Warrants as originally issued which remain outstanding
and unexercised.
"Warrant Shares" means shares of the Common Stock issuable
upon exercise of the Warrants; provided, that if the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the class of securities so issuable, then the term "Warrant
Shares" shall mean shares of the security issuable upon exercise of the Warrants
if such security is issuable in shares, or shall mean the equivalent units in
which such security is issuable if such security is not issuable in shares.
"Warrants" means all the Series E Stock Purchase Warrants
issued by the Company on the date hereof representing in the aggregate the right
to purchase from the Company a total of 312,196 shares of Common Stock (as
adjusted pursuant to the terms thereof) together with any stock purchase
warrants issued in substitution, exchange or replacement therefor.
SECTION 5. Voting Rights; Limitations of Liability. The
holders of the Warrants shall be entitled to notice of all stockholders meetings
in accordance with the Company's bylaws, and except as otherwise required by
applicable law, the holders of the Warrants shall be entitled to vote on all
matters submitted to the stockholders for a vote together with the holders of
the Common Stock voting together as a single class with each share of Common
Stock entitled to one vote per share and each Warrant Share entitled to one vote
for each share of Common Stock issuable upon issuance of such Warrant Share as
of the record date for such vote or, if no record date is specified, as of the
date of such vote. No provision hereof, in the absence of affirmative action by
the Registered Holder to purchase Warrant Shares, and no enumeration herein of
the rights or privileges of the Registered Holder shall give rise to any
liability of such Registered Holder for the Exercise Price of Warrant Shares
acquirable by exercise hereof or as a stockholder of the Company.
SECTION 6. Restrictions. Subject to the provisions of this
Section 6, this Warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Registered Holder (subject to the provisions of
paragraph 1B(iv) hereof), upon surrender of this Warrant with a properly
executed Assignment (in the form of Exhibit II hereto) at the principal office
of the Company. The Registered Holder agrees that it will not sell, transfer or
otherwise dispose of this Warrant or any Warrant Shares of restricted Common
Stock, in whole or in part, except pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or an exemption from
registration thereunder and then only in accordance with the terms of the
Purchase Agreement.
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Each certificate evidencing Warrant Shares and each Warrant
issued upon such transfer shall bear the restrictive legends required by the
Purchase Agreement.
SECTION 7. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent such portion of such rights as is designated by the
Registered Holder at the time of such surrender. At the request of the
Registered Holder (pursuant to a transfer of Warrants or otherwise), this
Warrant may be exchanged for one or more Warrants to purchase Common Stock. The
date the Company initially issues this Warrant shall be deemed to be the date of
issuance hereof regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant shall
be issued.
SECTION 8. Exchange. In the event that it becomes unlawful or,
in the reasonable judgment of any Registered Holder of this Warrant, unduly
burdensome by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting the ability of financial institutions or their
affiliates to hold equity securities, or any material change (including a
reduction in the number of shares of Common Stock outstanding) in the capital
structure of the Company, to hold any or all of the Warrants or Warrant Shares,
the Registered Holder of this Warrant shall have the right to require the
Company to use its best efforts to permit all or part of such Registered
Holder's Warrants or Warrant Shares to be exchanged for nonvoting stock or
similar interests that convey equivalent economic benefits to such Warrants or
Warrant Shares and include equivalent anti-dilution protection. To the extent
that the Company may lawfully do so after the exercise of its best efforts, any
such exchange shall occur as soon as practicable but in any event within 60 days
after written notice by the Registered Holder of this Warrant to the Company (or
such earlier date if required to comply with applicable law).
SECTION 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Company shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 10. Notices. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and shall be (i)
delivered in person, (ii) transmitted by telecopy, (iii) sent by registered or
certified mail, postage prepaid with return receipt requested, or (iv) sent by
reputable overnight courier service, fees prepaid, to (x) the Company, at its
principal executive offices and (y) to any Registered Holder, at such Registered
Holder's address as it appears in the records of the Company (unless otherwise
indicated by any such Registered Holder). Notices shall be deemed given upon
personal delivery, upon receipt of return receipt in the case of delivery by
mail, upon acknowledgment by the receiving telecopier or one day following
deposit with an overnight courier service.
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SECTION 11. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants 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 prior written consent of
the Registered Holder.
SECTION 12. Warrant Register. The Company shall maintain at
its principal executive offices books for the registration and the registration
of transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 13. Fractions of Shares. The Company may, but shall
not be required to, issue a fraction of a Warrant Share upon the exercise of
this Warrant in whole or in part. As to any fraction of a share which the
Company elects not to issue, the Company shall make a cash payment in respect of
such fraction in an amount equal to the same fraction of the Fair Market Value
of a Warrant Share on the date of such exercise.
SECTION 14. Descriptive Headings; Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
* * * * *
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IN WITNESS WHEREOF, the Company has executed and delivered
this Warrant as of the date first written above.
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
---------------------------
Name: Brent M. Cook
Title: Chairman and Chief Executive Officer
Attest:
/s/ Joanna E. Barnes
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EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-____), hereby agrees to subscribe for the
purchase of ______ Warrant Shares covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
Exhibit I, Page 1
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. W- _____) with respect to the number of the
Warrant Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature _______________________
_______________________
Witness _______________________
Exhibit II, Page 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
SERIES E STOCK PURCHASE WARRANT
Date of Issuance: March 17, 1999 Certificate No. W-E2
For value received, Covol Technologies, Inc., a Delaware
corporation (the "Company"), hereby grants to Howard L. Schwartz, or its
permitted transferees and assigns, the right to purchase from the Company a
total of 54,634 Warrant Shares (as defined herein) at a price per share equal to
$6.15 (the "Initial Exercise Price"). The exercise price and number of Warrant
Shares (and the amount and kind of other securities) for which this Warrant is
exercisable shall be subject to adjustment as provided herein. Certain
capitalized terms used herein are defined in Section 4 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this
Warrant may be exercised, in whole or in part, at any time and from time to time
after the earlier to occur of (i) 180 days following the date hereof and (ii)
the date the Company declares any dividends upon the Common Stock (whether
payable in cash, securities or other property), to and including 5:00 p.m., New
York time, on the third anniversary of the date hereof or, if such day is not a
Business Day, on the next preceding Business Day (the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been
exercised when all of the following items have been delivered to the Company
(the "Exercise Time"):
(a) a completed Exercise Agreement, as
described in Section 1C below, executed by the Person exercising all or
part of the purchase rights represented by this Warrant (the
"Purchaser");
(b) this Warrant;
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(c) if the Purchaser is not the
Registered Holder, an Assignment or Assignments in the form set forth
in Exhibit II hereto evidencing the assignment of this Warrant to the
Purchaser; and
(d) either (x) a check payable to the
Company in an amount equal to the product of the Exercise Price (as
such term is defined in Section 2) multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (y) the surrender to the Company of securities of the Company
having a value equal to the Aggregate Exercise Price of the Warrant
Shares being purchased upon such exercise (which value in the case of
debt securities shall be the principal amount thereof and in the case
of shares of Common Stock shall be the Fair Market Value thereof), or
(z) the delivery of a notice to the Company that the Purchaser is
exercising the Warrant by authorizing the Company to reduce the number
of Warrant Shares subject to the Warrant by the number of shares having
an aggregate Fair Market Value equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased
upon exercise of this Warrant shall be delivered by the Company to the Purchaser
within five days after the date of the Exercise Time together with any cash
payable in lieu of a fraction of a share pursuant to Section 13 hereof. Unless
this Warrant has expired or all of the purchase rights represented hereby have
been exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Shares issuable upon the exercise of
this Warrant shall be deemed to have been issued to the Purchaser at the
Exercise Time, and the Purchaser shall be deemed for all purposes to have become
the Registered Holder of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates for Warrant Shares
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any taxes in respect thereof or other costs incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid. Each Warrant Share
issuable upon exercise of this Warrant shall, upon payment of the Exercise Price
therefor, be fully paid and nonassessable and free from all liens and charges
with respect to the issuance thereof.
(v) The Company shall not close its books
against the transfer of this Warrant or of any Warrant Shares issued or issuable
upon the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant. The Company shall from time to time take all such
action as may be necessary to assure that the par value per share of the
unissued Warrant Shares acquirable upon exercise of this Warrant is at all times
equal to or less than the Exercise Price
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then in effect. In the event that the Company fails to comply with its
obligations set forth in the foregoing sentence, the Purchaser may (but shall
not be obligated to) purchase Warrant Shares hereunder at par value, and the
Company shall be obligated to reimburse the Purchaser for the aggregate amount
of consideration paid in connection with such exercise in excess of the Exercise
Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or any Purchaser which is required
to make any governmental filings or obtain any governmental approvals prior to
or in connection with any exercise of this Warrant.
(vii) Notwithstanding any other provision hereof,
if an exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and
keep available out of its authorized but unissued Common Stock solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock or other securities constituting Warrant Shares may be
listed (except for official notice of issuance which shall be immediately
delivered by the Company upon each such issuance). The Company will use its best
efforts to cause the Warrant Shares, immediately upon such exercise, to be
listed on any domestic securities exchange upon which shares of Common Stock or
other securities constituting Warrant Shares are listed at the time of such
exercise.
(ix) If the Warrant Shares issuable by reason of
exercise of this Warrant are convertible into or exchangeable for any other
stock or securities of the Company, the Company shall, at the Purchaser's option
and upon surrender of this Warrant by such Purchaser as provided above together
with any notice, statement or payment required to effect such conversion or
exchange of Warrant Shares, deliver to such Purchaser (or as otherwise specified
by such Purchaser) a certificate or certificates representing the stock or
securities into which the Warrant Shares issuable by reason of such conversion
are convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
(x) The Company shall not, and shall not permit
its subsidiaries to, directly or indirectly, by any action (including, without
limitation, reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Incorporation or through any Organic Change, issuance or sale of
securities or any other voluntary action) avoid or seek to avoid the observance
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or performance of any of terms of this Warrant or impair or diminish its value
(except for any action which ratably affects all Warrant Shares and shares of
Common Stock), but shall at all times in good faith assist in the carrying out
of all such terms of this Warrant. Without limiting the generality of the
foregoing, the Company shall (a) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant
and (b) not undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the effect of
making this Warrant exercisable for less than one share of Common Stock for each
Registered Holder.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
Initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 2 (as so adjusted, the "Exercise Price"), and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time, each as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever, on or after the date hereof, the
Company issues or sells (or in accordance with Section 2B is deemed to have
issued or sold), other than (i) pursuant to a Permitted Issuance, (ii) as
described in Section 2C or (iii) pursuant to the Purchase Rights covered by
Section 3, any shares of Common Stock for a consideration per share less than
the Fair Market Value per share of the Common Stock determined as of the earlier
of (x) the announcement of such issuance or sale, or (y) the date of such
issuance or sale, then immediately upon such issuance or sale the Exercise Price
shall be reduced to equal the amount determined by multiplying the Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which will be the sum of (1) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issuance or sale multiplied by the
Fair Market Value per share of the Common Stock determined as of the date of
such issuance or sale, plus (2) the consideration, if any, received by the
Company upon such issuance or sale, and the denominator of which will be the
product derived by multiplying such Fair Market Value per share of the Common
Stock by the number of shares of Common Stock Deemed Outstanding immediately
after such issuance or sale. Upon each such adjustment of the Exercise Price
hereunder, the number of Warrant Shares acquirable upon exercise of this Warrant
shall be adjusted to equal the number of shares 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 resulting
from such adjustment. For the purposes of this Section 2, the calculation of the
number of shares of Common Stock Deemed Outstanding shall exclude the Warrant
Shares.
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2B. Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If the
Company in any manner grants any rights or options, whether or not immediately
exercisable, (other than the Purchase Rights covered by Section 3 hereof or a
Permitted Issuance) to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (including
without limitation convertible common stock) (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Fair Market Value per
share of the Common Stock in effect on the earlier of (x) the announcement of
such grant and (y) the date of such grant, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable upon exercise of such Options or upon conversion or exchange
of such Convertible Securities" is determined by dividing (A) the total amount,
if any, received or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price 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 or exchange of
such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible or exchangeable, and the price per share for which
Common Stock is issuable upon such conversion or exchange is less than the Fair
Market Value per share of the Common Stock in effect on the earlier of (x) the
announcement of such issuance or sale and (y) the date of issuance or sale, then
the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Company for such price per share. For the
purposes of this paragraph, the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by dividing (A) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Exercise Price shall be made upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such
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Convertible Securities is made upon exercise of any Options for which
adjustments of the Exercise Price have been or are to be made pursuant to other
provisions of this Section 2B, no further adjustment of the Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate.
If either the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change at any time, the
Exercise Price in effect at the time of such change shall be adjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of Warrant Shares
shall be correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option issued following the
date hereof or the termination of any right to convert or exchange any
Convertible Securities issued following the date hereof, in either case without
the exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor shall
be deemed to be the net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be the fair market value of such consideration,
except where such consideration consists of marketable securities, in which case
the amount of consideration received by the Company shall be the market price
thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger or other business combination in which the Company is
the surviving entity, the amount of consideration therefor shall be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or marketable securities shall be determined
jointly by the Company and the Required Holders. If such parties are unable to
reach agreement within a reasonable period of time, such fair market value shall
be determined by an appraiser jointly selected by the Company and the Required
Holders, whose determination shall be final and binding on the Company and all
Registered Holders of Warrants (as defined in Section 6 below). The fees and
expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated
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transaction in which no specific consideration is allocated to such Options by
the parties thereto, the Option shall be deemed to have been issued for no
consideration; provided, if such other securities are debt securities (such debt
securities so issued are herein referred to as the "Debt") of the Company or any
of its subsidiaries, the Option shall be deemed to have been issued for
consideration equal to the excess, if any, of (a) the aggregate face amount (the
"Estimated Face Amount") of debt securities with terms identical to the terms of
the Debt (other than the increase to face value described in this proviso) which
the Company or such subsidiary would have had to issue had no Option been issued
in connection therewith, given the prevailing market conditions at the time of
the issuance of the Debt, in order to receive the same aggregate net proceeds as
is actually received from the issuance of the Debt, over (b) the aggregate face
amount of the Debt. The Estimated Face Amount shall be as mutually agreed
between the Company and the Registered Holder or, if no such mutual agreement is
reached, as set forth in the written opinion, addressed to the Registered
Holder, of an investment bank of national recognition, retained by the Company
and reasonably acceptable to the Registered Holder; provided, that the fees and
expenses of such investment bank shall be borne by the Company.
Example: If the Company issues $20 million aggregate principal amount
of 10% subordinated debentures with a 10-year maturity (and
receives aggregate net proceeds of $20 million), and in
connection therewith issues warrants, and in accordance with
the provisions of Section 2B(vi), the Company and the
Registered Holder mutually agree or an investment bank
determines that the Estimated Face Amount of the
subordinated debentures (with terms otherwise identical to
the securities issued) would have been $21 million (i.e., to
yield aggregate net proceeds of $20 million to the Company),
had the warrants not been issued, then the warrants would be
deemed to have been issued for $1 million.
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include shares owned or held
by or for the account of the Company or any subsidiary of the Company and the
disposition of any shares so owned or held shall be considered an issue or sale
of Common Stock.
(viii) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall 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.
2C. Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon
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exercise of this Warrant shall be proportionately increased. If the Company at
any time combines (by reverse stock split or otherwise) the Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
obtainable upon exercise of this Warrant shall be proportionately decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change". Prior to
the consummation of any Organic Change, the Company shall make appropriate
provision to ensure that each Registered Holder of Warrants shall thereafter
have the right to acquire and receive upon exercise thereof, in lieu of or
addition to (as the case may be) the Warrant Shares immediately theretofore
acquirable and receivable upon exercise of such Registered Holder's Warrants,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of such Registered Holder's
Warrants had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision with respect to such Registered Holder's rights
and interests to insure that the provisions hereof (including this Section 2)
shall thereafter be applicable to the Warrants (including, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
the earlier of (x) the announcement of such Organic Change and (y) such Organic
Change). The Company shall not effect any such Organic Change unless, prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument the
obligation to deliver to each Registered Holder of Warrants such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Registered Holder may be entitled to acquire upon exercise of Warrants.
2E. Certain 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
but excluding any Permitted Issuance), then the Company's Board of Directors
shall exercise their reasonable judgment consistent with the fundamental intent
of such provisions in making an appropriate adjustment in the Exercise Price and
the number of Warrant Shares obtainable upon exercise of this Warrant so as to
protect the rights of the Registered Holder of this Warrant.
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2F. Notices.
(i) Immediately upon any adjustment of the
Exercise Price, the Company shall give written notice thereof to the Registered
Holder, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Company shall give written notice to the
Registered Holder at least 30 days 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 Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock, or (C) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
SECTION 3. Purchase Rights. If at any time the Company grants,
issues or sells any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock (the "Purchase Rights"), then the Company shall grant, issue or
sell (as the case may be) to the Registered Holder the aggregate Purchase Rights
which such Registered Holder would have acquired if such Registered Holder had
held the maximum number of Warrant Shares acquirable upon complete exercise of
this Warrant immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
SECTION 4. Definitions. The following terms have the meanings
set forth below:
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Common Stock" means the common stock of the Company, par
value $.001 per share, and any securities into or for which such Common Stock is
hereafter converted or exchanged.
"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 Section
2B(i) or 2B(ii) hereof.
"Fair Market Value" of any security means the average closing
bid prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid prices on all such exchanges
at the end of such day, or, if on any day such security is not so listed, the
average of the representative bid prices quoted on the Nasdaq Stock Market as of
4:00 P.M., New York time, or, if on any day such security is not quoted on the
Nasdaq Stock Market, the average of the highest bid prices on such day in the
domestic over-the-counter market as reported by the National Quotation
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Bureau, Incorporated, or any similar successor organization, in each such case
averaged over the period of the 30 Business Days immediately preceding the day
on which "Fair Market Value" is being determined. If at any time such security
is not listed on any securities exchange or quoted on the Nasdaq Stock Market or
the over-the-counter market, the "Fair Market Value" shall be the fair value
thereof determined jointly by the Company and the Required Holders. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an independent appraiser experienced in
valuing securities jointly selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon the parties, and
the Company shall pay the fees and expenses of such appraiser.
"Permitted Issuance" means any issuance by the Company of (a)
Common Stock on or prior to the date hereof; (b) Common Stock upon exercise of
the Warrants; (c) Common Stock upon the conversion or exchange of any shares of
any class of Common Stock into another class of Common Stock; (d) Common Stock
in connection with any dividend or distribution to the holders of the Common
Stock; or (e) Common Stock pursuant to an underwritten offering of Common Stock
registered under the Securities Act of 1933, as amended.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or department or
agency thereof.
"Registered Holder" means the holder of this Warrant as
reflected in the records of the Company maintained pursuant to Section 12.
"Required Holders" means the holders of 662/3% of the purchase
rights represented by the Warrants as originally issued which remain outstanding
and unexercised.
"Warrant Shares" means shares of the Common Stock issuable
upon exercise of the Warrants; provided, that if the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the class of securities so issuable, then the term "Warrant
Shares" shall mean shares of the security issuable upon exercise of the Warrants
if such security is issuable in shares, or shall mean the equivalent units in
which such security is issuable if such security is not issuable in shares.
"Warrants" means all the Series E Stock Purchase Warrants
issued by the Company on the date hereof representing in the aggregate the right
to purchase from the Company a total of 312,196 shares of Common Stock (as
adjusted pursuant to the terms thereof) together with any stock purchase
warrants issued in substitution, exchange or replacement therefor.
SECTION 5. Voting Rights; Limitations of Liability. The
holders of the Warrants shall be entitled to notice of all stockholders meetings
in accordance with the Company's bylaws, and except as otherwise required by
applicable law, the holders of the Warrants shall be entitled to vote on all
matters submitted to the stockholders for a vote together with the holders of
the Common Stock voting together as a single class with each share of Common
Stock entitled to one vote per share and each Warrant Share entitled to one vote
for each share of Common Stock issuable upon issuance of such Warrant Share as
of the record date for such vote or, if no record date is specified,
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as of the date of such vote. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such Registered Holder for the Exercise Price of Warrant Shares
acquirable by exercise hereof or as a stockholder of the Company.
SECTION 6. Restrictions. Subject to the provisions of this
Section 6, this Warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Registered Holder (subject to the provisions of
paragraph 1B(iv) hereof), upon surrender of this Warrant with a properly
executed Assignment (in the form of Exhibit II hereto) at the principal office
of the Company. The Registered Holder agrees that it will not sell, transfer or
otherwise dispose of this Warrant or any Warrant Shares of restricted Common
Stock, in whole or in part, except pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or an exemption from
registration thereunder and then only in accordance with the terms of the
Purchase Agreement.
Each certificate evidencing Warrant Shares and each Warrant
issued upon such transfer shall bear the restrictive legends required by the
Purchase Agreement.
SECTION 7. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent such portion of such rights as is designated by the
Registered Holder at the time of such surrender. At the request of the
Registered Holder (pursuant to a transfer of Warrants or otherwise), this
Warrant may be exchanged for one or more Warrants to purchase Common Stock. The
date the Company initially issues this Warrant shall be deemed to be the date of
issuance hereof regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant shall
be issued.
SECTION 8. Exchange. In the event that it becomes unlawful or,
in the reasonable judgment of any Registered Holder of this Warrant, unduly
burdensome by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting the ability of financial institutions or their
affiliates to hold equity securities, or any material change (including a
reduction in the number of shares of Common Stock outstanding) in the capital
structure of the Company, to hold any or all of the Warrants or Warrant Shares,
the Registered Holder of this Warrant shall have the right to require the
Company to use its best efforts to permit all or part of such Registered
Holder's Warrants or Warrant Shares to be exchanged for nonvoting stock or
similar interests that convey equivalent economic benefits to such Warrants or
Warrant Shares and include equivalent anti-dilution protection. To the extent
that the Company may lawfully do so after the exercise of its best efforts, any
such exchange shall occur as soon as practicable but in any event within 60 days
after written notice by the Registered Holder of this Warrant to the Company (or
such earlier date if required to comply with applicable law).
SECTION 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any
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such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Company (provided that if the Registered Holder is a
financial institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
SECTION 10. Notices. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and shall be (i)
delivered in person, (ii) transmitted by telecopy, (iii) sent by registered or
certified mail, postage prepaid with return receipt requested, or (iv) sent by
reputable overnight courier service, fees prepaid, to (x) the Company, at its
principal executive offices and (y) to any Registered Holder, at such Registered
Holder's address as it appears in the records of the Company (unless otherwise
indicated by any such Registered Holder). Notices shall be deemed given upon
personal delivery, upon receipt of return receipt in the case of delivery by
mail, upon acknowledgment by the receiving telecopier or one day following
deposit with an overnight courier service.
SECTION 11. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants 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 prior written consent of
the Registered Holder.
SECTION 12. Warrant Register. The Company shall maintain at
its principal executive offices books for the registration and the registration
of transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 13. Fractions of Shares. The Company may, but shall
not be required to, issue a fraction of a Warrant Share upon the exercise of
this Warrant in whole or in part. As to any fraction of a share which the
Company elects not to issue, the Company shall make a cash payment in respect of
such fraction in an amount equal to the same fraction of the Fair Market Value
of a Warrant Share on the date of such exercise.
SECTION 14. Descriptive Headings; Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
* * * * *
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IN WITNESS WHEREOF, the Company has executed and delivered
this Warrant as of the date first written above.
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
-------------------------
Name: Brent M. Cook
Title: Chairman and Chief Executive Officer
Attest:
/s/ Joanna E. Barnes
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EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-____), hereby agrees to subscribe for the
purchase of ______ Warrant Shares covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
Exhibit I, Page 1
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. W- _____) with respect to the number of the
Warrant Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature _______________________
_______________________
Witness _______________________
Exhibit II, Page 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
SERIES E STOCK PURCHASE WARRANT
Date of Issuance: March 17, 1999 Certificate No. W-E3
For value received, Covol Technologies, Inc., a Delaware
corporation (the "Company"), hereby grants to Jack A. Schwebel, or its permitted
transferees and assigns, the right to purchase from the Company a total of
54,634 Warrant Shares (as defined herein) at a price per share equal to $6.15
(the "Initial Exercise Price"). The exercise price and number of Warrant Shares
(and the amount and kind of other securities) for which this Warrant is
exercisable shall be subject to adjustment as provided herein. Certain
capitalized terms used herein are defined in Section 4 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this
Warrant may be exercised, in whole or in part, at any time and from time to time
after the earlier to occur of (i) 180 days following the date hereof and (ii)
the date the Company declares any dividends upon the Common Stock (whether
payable in cash, securities or other property), to and including 5:00 p.m., New
York time, on the third anniversary of the date hereof or, if such day is not a
Business Day, on the next preceding Business Day (the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been
exercised when all of the following items have been delivered to the Company
(the "Exercise Time"):
(a) a completed Exercise Agreement, as
described in Section 1C below, executed by the Person exercising all or
part of the purchase rights represented by this Warrant (the
"Purchaser");
(b) this Warrant;
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(c) if the Purchaser is not the
Registered Holder, an Assignment or Assignments in the form set forth
in Exhibit II hereto evidencing the assignment of this Warrant to the
Purchaser; and
(d) either (x) a check payable to the
Company in an amount equal to the product of the Exercise Price (as
such term is defined in Section 2) multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (y) the surrender to the Company of securities of the Company
having a value equal to the Aggregate Exercise Price of the Warrant
Shares being purchased upon such exercise (which value in the case of
debt securities shall be the principal amount thereof and in the case
of shares of Common Stock shall be the Fair Market Value thereof), or
(z) the delivery of a notice to the Company that the Purchaser is
exercising the Warrant by authorizing the Company to reduce the number
of Warrant Shares subject to the Warrant by the number of shares having
an aggregate Fair Market Value equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased
upon exercise of this Warrant shall be delivered by the Company to the Purchaser
within five days after the date of the Exercise Time together with any cash
payable in lieu of a fraction of a share pursuant to Section 13 hereof. Unless
this Warrant has expired or all of the purchase rights represented hereby have
been exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Shares issuable upon the exercise of
this Warrant shall be deemed to have been issued to the Purchaser at the
Exercise Time, and the Purchaser shall be deemed for all purposes to have become
the Registered Holder of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates for Warrant Shares
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any taxes in respect thereof or other costs incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid. Each Warrant Share
issuable upon exercise of this Warrant shall, upon payment of the Exercise Price
therefor, be fully paid and nonassessable and free from all liens and charges
with respect to the issuance thereof.
(v) The Company shall not close its books against the
transfer of this Warrant or of any Warrant Shares issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Warrant
Shares acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price
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then in effect. In the event that the Company fails to comply with its
obligations set forth in the foregoing sentence, the Purchaser may (but shall
not be obligated to) purchase Warrant Shares hereunder at par value, and the
Company shall be obligated to reimburse the Purchaser for the aggregate amount
of consideration paid in connection with such exercise in excess of the Exercise
Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or any Purchaser which is required
to make any governmental filings or obtain any governmental approvals prior to
or in connection with any exercise of this Warrant.
(vii) Notwithstanding any other provision hereof,
if an exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and
keep available out of its authorized but unissued Common Stock solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock or other securities constituting Warrant Shares may be
listed (except for official notice of issuance which shall be immediately
delivered by the Company upon each such issuance). The Company will use its best
efforts to cause the Warrant Shares, immediately upon such exercise, to be
listed on any domestic securities exchange upon which shares of Common Stock or
other securities constituting Warrant Shares are listed at the time of such
exercise.
(ix) If the Warrant Shares issuable by reason of
exercise of this Warrant are convertible into or exchangeable for any other
stock or securities of the Company, the Company shall, at the Purchaser's option
and upon surrender of this Warrant by such Purchaser as provided above together
with any notice, statement or payment required to effect such conversion or
exchange of Warrant Shares, deliver to such Purchaser (or as otherwise specified
by such Purchaser) a certificate or certificates representing the stock or
securities into which the Warrant Shares issuable by reason of such conversion
are convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
(x) The Company shall not, and shall not permit
its subsidiaries to, directly or indirectly, by any action (including, without
limitation, reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Incorporation or through any Organic Change, issuance or sale of
securities or any other voluntary action) avoid or seek to avoid the observance
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or performance of any of terms of this Warrant or impair or diminish its value
(except for any action which ratably affects all Warrant Shares and shares of
Common Stock), but shall at all times in good faith assist in the carrying out
of all such terms of this Warrant. Without limiting the generality of the
foregoing, the Company shall (a) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant
and (b) not undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the effect of
making this Warrant exercisable for less than one share of Common Stock for each
Registered Holder.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
Initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 2 (as so adjusted, the "Exercise Price"), and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time, each as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever, on or after the date hereof, the
Company issues or sells (or in accordance with Section 2B is deemed to have
issued or sold), other than (i) pursuant to a Permitted Issuance, (ii) as
described in Section 2C or (iii) pursuant to the Purchase Rights covered by
Section 3, any shares of Common Stock for a consideration per share less than
the Fair Market Value per share of the Common Stock determined as of the earlier
of (x) the announcement of such issuance or sale, or (y) the date of such
issuance or sale, then immediately upon such issuance or sale the Exercise Price
shall be reduced to equal the amount determined by multiplying the Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which will be the sum of (1) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issuance or sale multiplied by the
Fair Market Value per share of the Common Stock determined as of the date of
such issuance or sale, plus (2) the consideration, if any, received by the
Company upon such issuance or sale, and the denominator of which will be the
product derived by multiplying such Fair Market Value per share of the Common
Stock by the number of shares of Common Stock Deemed Outstanding immediately
after such issuance or sale. Upon each such adjustment of the Exercise Price
hereunder, the number of Warrant Shares acquirable upon exercise of this Warrant
shall be adjusted to equal the number of shares 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 resulting
from such adjustment. For the purposes of this Section 2, the calculation of the
number of shares of Common Stock Deemed Outstanding shall exclude the Warrant
Shares.
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2B. Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If the
Company in any manner grants any rights or options, whether or not immediately
exercisable, (other than the Purchase Rights covered by Section 3 hereof or a
Permitted Issuance) to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (including
without limitation convertible common stock) (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Fair Market Value per
share of the Common Stock in effect on the earlier of (x) the announcement of
such grant and (y) the date of such grant, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable upon exercise of such Options or upon conversion or exchange
of such Convertible Securities" is determined by dividing (A) the total amount,
if any, received or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price 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 or exchange of
such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible or exchangeable, and the price per share for which
Common Stock is issuable upon such conversion or exchange is less than the Fair
Market Value per share of the Common Stock in effect on the earlier of (x) the
announcement of such issuance or sale and (y) the date of issuance or sale, then
the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Company for such price per share. For the
purposes of this paragraph, the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by dividing (A) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Exercise Price shall be made upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such
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Convertible Securities is made upon exercise of any Options for which
adjustments of the Exercise Price have been or are to be made pursuant to other
provisions of this Section 2B, no further adjustment of the Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate.
If either the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change at any time, the
Exercise Price in effect at the time of such change shall be adjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of Warrant Shares
shall be correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option issued following the
date hereof or the termination of any right to convert or exchange any
Convertible Securities issued following the date hereof, in either case without
the exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor shall
be deemed to be the net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be the fair market value of such consideration,
except where such consideration consists of marketable securities, in which case
the amount of consideration received by the Company shall be the market price
thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger or other business combination in which the Company is
the surviving entity, the amount of consideration therefor shall be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or marketable securities shall be determined
jointly by the Company and the Required Holders. If such parties are unable to
reach agreement within a reasonable period of time, such fair market value shall
be determined by an appraiser jointly selected by the Company and the Required
Holders, whose determination shall be final and binding on the Company and all
Registered Holders of Warrants (as defined in Section 6 below). The fees and
expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated
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transaction in which no specific consideration is allocated to such Options by
the parties thereto, the Option shall be deemed to have been issued for no
consideration; provided, if such other securities are debt securities (such debt
securities so issued are herein referred to as the "Debt") of the Company or any
of its subsidiaries, the Option shall be deemed to have been issued for
consideration equal to the excess, if any, of (a) the aggregate face amount (the
"Estimated Face Amount") of debt securities with terms identical to the terms of
the Debt (other than the increase to face value described in this proviso) which
the Company or such subsidiary would have had to issue had no Option been issued
in connection therewith, given the prevailing market conditions at the time of
the issuance of the Debt, in order to receive the same aggregate net proceeds as
is actually received from the issuance of the Debt, over (b) the aggregate face
amount of the Debt. The Estimated Face Amount shall be as mutually agreed
between the Company and the Registered Holder or, if no such mutual agreement is
reached, as set forth in the written opinion, addressed to the Registered
Holder, of an investment bank of national recognition, retained by the Company
and reasonably acceptable to the Registered Holder; provided, that the fees and
expenses of such investment bank shall be borne by the Company.
Example: If the Company issues $20 million aggregate principal amount
of 10% subordinated debentures with a 10-year maturity (and
receives aggregate net proceeds of $20 million), and in
connection therewith issues warrants, and in accordance with
the provisions of Section 2B(vi), the Company and the
Registered Holder mutually agree or an investment bank
determines that the Estimated Face Amount of the
subordinated debentures (with terms otherwise identical to
the securities issued) would have been $21 million (i.e., to
yield aggregate net proceeds of $20 million to the Company),
had the warrants not been issued, then the warrants would be
deemed to have been issued for $1 million.
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include shares owned or held
by or for the account of the Company or any subsidiary of the Company and the
disposition of any shares so owned or held shall be considered an issue or sale
of Common Stock.
(viii) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall 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.
2C. Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon
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exercise of this Warrant shall be proportionately increased. If the Company at
any time combines (by reverse stock split or otherwise) the Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
obtainable upon exercise of this Warrant shall be proportionately decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change". Prior to
the consummation of any Organic Change, the Company shall make appropriate
provision to ensure that each Registered Holder of Warrants shall thereafter
have the right to acquire and receive upon exercise thereof, in lieu of or
addition to (as the case may be) the Warrant Shares immediately theretofore
acquirable and receivable upon exercise of such Registered Holder's Warrants,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of such Registered Holder's
Warrants had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision with respect to such Registered Holder's rights
and interests to insure that the provisions hereof (including this Section 2)
shall thereafter be applicable to the Warrants (including, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
the earlier of (x) the announcement of such Organic Change and (y) such Organic
Change). The Company shall not effect any such Organic Change unless, prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument the
obligation to deliver to each Registered Holder of Warrants such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Registered Holder may be entitled to acquire upon exercise of Warrants.
2E. Certain 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
but excluding any Permitted Issuance), then the Company's Board of Directors
shall exercise their reasonable judgment consistent with the fundamental intent
of such provisions in making an appropriate adjustment in the Exercise Price and
the number of Warrant Shares obtainable upon exercise of this Warrant so as to
protect the rights of the Registered Holder of this Warrant.
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2F. Notices.
(i) Immediately upon any adjustment of the
Exercise Price, the Company shall give written notice thereof to the Registered
Holder, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Company shall give written notice to the
Registered Holder at least 30 days 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 Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock, or (C) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
SECTION 3. Purchase Rights. If at any time the Company grants,
issues or sells any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock (the "Purchase Rights"), then the Company shall grant, issue or
sell (as the case may be) to the Registered Holder the aggregate Purchase Rights
which such Registered Holder would have acquired if such Registered Holder had
held the maximum number of Warrant Shares acquirable upon complete exercise of
this Warrant immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
SECTION 4. Definitions. The following terms have the meanings
set forth below:
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Common Stock" means the common stock of the Company, par
value $.001 per share, and any securities into or for which such Common Stock is
hereafter converted or exchanged.
"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 Section
2B(i) or 2B(ii) hereof.
"Fair Market Value" of any security means the average closing
bid prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid prices on all such exchanges
at the end of such day, or, if on any day such security is not so listed, the
average of the representative bid prices quoted on the Nasdaq Stock Market as of
4:00 P.M., New York time, or, if on any day such security is not quoted on the
Nasdaq Stock Market, the average of the highest bid prices on such day in the
domestic over-the-counter market as reported by the National Quotation
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Bureau, Incorporated, or any similar successor organization, in each such case
averaged over the period of the 30 Business Days immediately preceding the day
on which "Fair Market Value" is being determined. If at any time such security
is not listed on any securities exchange or quoted on the Nasdaq Stock Market or
the over-the-counter market, the "Fair Market Value" shall be the fair value
thereof determined jointly by the Company and the Required Holders. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an independent appraiser experienced in
valuing securities jointly selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon the parties, and
the Company shall pay the fees and expenses of such appraiser.
"Permitted Issuance" means any issuance by the Company of (a)
Common Stock on or prior to the date hereof; (b) Common Stock upon exercise of
the Warrants; (c) Common Stock upon the conversion or exchange of any shares of
any class of Common Stock into another class of Common Stock; (d) Common Stock
in connection with any dividend or distribution to the holders of the Common
Stock; or (e) Common Stock pursuant to an underwritten offering of Common Stock
registered under the Securities Act of 1933, as amended.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or department or
agency thereof.
"Registered Holder" means the holder of this Warrant as
reflected in the records of the Company maintained pursuant to Section 12.
"Required Holders" means the holders of 662/3% of the purchase
rights represented by the Warrants as originally issued which remain outstanding
and unexercised.
"Warrant Shares" means shares of the Common Stock issuable
upon exercise of the Warrants; provided, that if the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the class of securities so issuable, then the term "Warrant
Shares" shall mean shares of the security issuable upon exercise of the Warrants
if such security is issuable in shares, or shall mean the equivalent units in
which such security is issuable if such security is not issuable in shares.
"Warrants" means all the Series E Stock Purchase Warrants
issued by the Company on the date hereof representing in the aggregate the right
to purchase from the Company a total of 312,196 shares of Common Stock (as
adjusted pursuant to the terms thereof) together with any stock purchase
warrants issued in substitution, exchange or replacement therefor.
SECTION 5. Voting Rights; Limitations of Liability. The
holders of the Warrants shall be entitled to notice of all stockholders meetings
in accordance with the Company's bylaws, and except as otherwise required by
applicable law, the holders of the Warrants shall be entitled to vote on all
matters submitted to the stockholders for a vote together with the holders of
the Common Stock voting together as a single class with each share of Common
Stock entitled to one vote per share and each Warrant Share entitled to one vote
for each share of Common Stock issuable upon issuance of such Warrant Share as
of the record date for such vote or, if no record date is specified,
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as of the date of such vote. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such Registered Holder for the Exercise Price of Warrant Shares
acquirable by exercise hereof or as a stockholder of the Company.
SECTION 6. Restrictions. Subject to the provisions of this
Section 6, this Warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Registered Holder (subject to the provisions of
paragraph 1B(iv) hereof), upon surrender of this Warrant with a properly
executed Assignment (in the form of Exhibit II hereto) at the principal office
of the Company. The Registered Holder agrees that it will not sell, transfer or
otherwise dispose of this Warrant or any Warrant Shares of restricted Common
Stock, in whole or in part, except pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or an exemption from
registration thereunder and then only in accordance with the terms of the
Purchase Agreement.
Each certificate evidencing Warrant Shares and each Warrant
issued upon such transfer shall bear the restrictive legends required by the
Purchase Agreement.
SECTION 7. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent such portion of such rights as is designated by the
Registered Holder at the time of such surrender. At the request of the
Registered Holder (pursuant to a transfer of Warrants or otherwise), this
Warrant may be exchanged for one or more Warrants to purchase Common Stock. The
date the Company initially issues this Warrant shall be deemed to be the date of
issuance hereof regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant shall
be issued.
SECTION 8. Exchange. In the event that it becomes unlawful or,
in the reasonable judgment of any Registered Holder of this Warrant, unduly
burdensome by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting the ability of financial institutions or their
affiliates to hold equity securities, or any material change (including a
reduction in the number of shares of Common Stock outstanding) in the capital
structure of the Company, to hold any or all of the Warrants or Warrant Shares,
the Registered Holder of this Warrant shall have the right to require the
Company to use its best efforts to permit all or part of such Registered
Holder's Warrants or Warrant Shares to be exchanged for nonvoting stock or
similar interests that convey equivalent economic benefits to such Warrants or
Warrant Shares and include equivalent anti-dilution protection. To the extent
that the Company may lawfully do so after the exercise of its best efforts, any
such exchange shall occur as soon as practicable but in any event within 60 days
after written notice by the Registered Holder of this Warrant to the Company (or
such earlier date if required to comply with applicable law).
SECTION 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any
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such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Company (provided that if the Registered Holder is a
financial institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
SECTION 10. Notices. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and shall be (i)
delivered in person, (ii) transmitted by telecopy, (iii) sent by registered or
certified mail, postage prepaid with return receipt requested, or (iv) sent by
reputable overnight courier service, fees prepaid, to (x) the Company, at its
principal executive offices and (y) to any Registered Holder, at such Registered
Holder's address as it appears in the records of the Company (unless otherwise
indicated by any such Registered Holder). Notices shall be deemed given upon
personal delivery, upon receipt of return receipt in the case of delivery by
mail, upon acknowledgment by the receiving telecopier or one day following
deposit with an overnight courier service.
SECTION 11. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants 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 prior written consent of
the Registered Holder.
SECTION 12. Warrant Register. The Company shall maintain at
its principal executive offices books for the registration and the registration
of transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 13. Fractions of Shares. The Company may, but shall
not be required to, issue a fraction of a Warrant Share upon the exercise of
this Warrant in whole or in part. As to any fraction of a share which the
Company elects not to issue, the Company shall make a cash payment in respect of
such fraction in an amount equal to the same fraction of the Fair Market Value
of a Warrant Share on the date of such exercise.
SECTION 14. Descriptive Headings; Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
* * * * *
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IN WITNESS WHEREOF, the Company has executed and delivered
this Warrant as of the date first written above.
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
-------------------------
Name: Brent M. Cook
Title: Chairman and Chief Executive Officer
Attest:
/s/ Joanna E. Barnes
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EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-____), hereby agrees to subscribe for the
purchase of ______ Warrant Shares covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
Exhibit I, Page 1
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. W- _____) with respect to the number of the
Warrant Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature _______________________
_______________________
Witness _______________________
Exhibit II, Page 1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
SERIES E STOCK PURCHASE WARRANT
Date of Issuance: March 17, 1999 Certificate No. W-E4
For value received, Covol Technologies, Inc., a Delaware
corporation (the "Company"), hereby grants to Brent M. Lockwood, or its
permitted transferees and assigns, the right to purchase from the Company a
total of 46,830 Warrant Shares (as defined herein) at a price per share equal to
$6.15 (the "Initial Exercise Price"). The exercise price and number of Warrant
Shares (and the amount and kind of other securities) for which this Warrant is
exercisable shall be subject to adjustment as provided herein. Certain
capitalized terms used herein are defined in Section 4 hereof.
This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this
Warrant may be exercised, in whole or in part, at any time and from time to time
after the earlier to occur of (i) 180 days following the date hereof and (ii)
the date the Company declares any dividends upon the Common Stock (whether
payable in cash, securities or other property), to and including 5:00 p.m., New
York time, on the third anniversary of the date hereof or, if such day is not a
Business Day, on the next preceding Business Day (the "Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been
exercised when all of the following items have been delivered to the Company
(the "Exercise Time"):
(a) a completed Exercise Agreement, as
described in Section 1C below, executed by the Person exercising all or
part of the purchase rights represented by this Warrant (the
"Purchaser");
(b) this Warrant;
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(c) if the Purchaser is not the
Registered Holder, an Assignment or Assignments in the form set forth
in Exhibit II hereto evidencing the assignment of this Warrant to the
Purchaser; and
(d) either (x) a check payable to the
Company in an amount equal to the product of the Exercise Price (as
such term is defined in Section 2) multiplied by the number of Warrant
Shares being purchased upon such exercise (the "Aggregate Exercise
Price"), (y) the surrender to the Company of securities of the Company
having a value equal to the Aggregate Exercise Price of the Warrant
Shares being purchased upon such exercise (which value in the case of
debt securities shall be the principal amount thereof and in the case
of shares of Common Stock shall be the Fair Market Value thereof), or
(z) the delivery of a notice to the Company that the Purchaser is
exercising the Warrant by authorizing the Company to reduce the number
of Warrant Shares subject to the Warrant by the number of shares having
an aggregate Fair Market Value equal to the Aggregate Exercise Price.
(ii) Certificates for Warrant Shares purchased
upon exercise of this Warrant shall be delivered by the Company to the
Purchaser within five days after the date of the Exercise Time together
with any cash payable in lieu of a fraction of a share pursuant to
Section 13 hereof. Unless this Warrant has expired or all of the
purchase rights represented hereby have been exercised, the Company
shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period,
deliver such new Warrant to the Person designated for delivery in the
Exercise Agreement.
(iii) The Warrant Shares issuable upon the exercise of
this Warrant shall be deemed to have been issued to the Purchaser at the
Exercise Time, and the Purchaser shall be deemed for all purposes to have become
the Registered Holder of such Warrant Shares at the Exercise Time.
(iv) The issuance of certificates for Warrant Shares
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any taxes in respect thereof or other costs incurred
by the Company in connection with such exercise and the related issuance of
Warrant Shares; provided, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid. Each Warrant Share
issuable upon exercise of this Warrant shall, upon payment of the Exercise Price
therefor, be fully paid and nonassessable and free from all liens and charges
with respect to the issuance thereof.
(v) The Company shall not close its books against the
transfer of this Warrant or of any Warrant Shares issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Warrant
Shares acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price
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then in effect. In the event that the Company fails to comply with its
obligations set forth in the foregoing sentence, the Purchaser may (but shall
not be obligated to) purchase Warrant Shares hereunder at par value, and the
Company shall be obligated to reimburse the Purchaser for the aggregate amount
of consideration paid in connection with such exercise in excess of the Exercise
Price then in effect.
(vi) The Company shall assist and cooperate with any
reasonable request by the Registered Holder or any Purchaser which is required
to make any governmental filings or obtain any governmental approvals prior to
or in connection with any exercise of this Warrant.
(vii) Notwithstanding any other provision hereof,
if an exercise of any portion of this Warrant is to be made in connection with a
public offering or a sale of the Company (pursuant to a merger, sale of stock or
otherwise), such exercise may at the election of the Registered Holder be
conditioned upon the consummation of such transaction, in which case such
exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(viii) The Company shall at all times reserve and
keep available out of its authorized but unissued Common Stock solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of
Warrant Shares issuable upon the exercise of this Warrant. All Warrant Shares
which are so issuable shall, when issued and upon the payment of the applicable
Exercise Price, be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges. The Company shall take all such actions
as may be necessary to ensure that all such Warrant Shares may be so issued
without violation by the Company of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock or other securities constituting Warrant Shares may be
listed (except for official notice of issuance which shall be immediately
delivered by the Company upon each such issuance). The Company will use its best
efforts to cause the Warrant Shares, immediately upon such exercise, to be
listed on any domestic securities exchange upon which shares of Common Stock or
other securities constituting Warrant Shares are listed at the time of such
exercise.
(ix) If the Warrant Shares issuable by reason of
exercise of this Warrant are convertible into or exchangeable for any other
stock or securities of the Company, the Company shall, at the Purchaser's option
and upon surrender of this Warrant by such Purchaser as provided above together
with any notice, statement or payment required to effect such conversion or
exchange of Warrant Shares, deliver to such Purchaser (or as otherwise specified
by such Purchaser) a certificate or certificates representing the stock or
securities into which the Warrant Shares issuable by reason of such conversion
are convertible or exchangeable, registered in such name or names and in such
denomination or denominations as such Purchaser has specified.
(x) The Company shall not, and shall not permit
its subsidiaries to, directly or indirectly, by any action (including, without
limitation, reincorporation in a jurisdiction other than Delaware, amending its
Certificate of Incorporation or through any Organic Change, issuance or sale of
securities or any other voluntary action) avoid or seek to avoid the observance
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or performance of any of terms of this Warrant or impair or diminish its value
(except for any action which ratably affects all Warrant Shares and shares of
Common Stock), but shall at all times in good faith assist in the carrying out
of all such terms of this Warrant. Without limiting the generality of the
foregoing, the Company shall (a) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant
and (b) not undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the effect of
making this Warrant exercisable for less than one share of Common Stock for each
Registered Holder.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
Purchaser shall deliver to the Company an Exercise Agreement in substantially
the form set forth in Exhibit I hereto, except that if the Warrant Shares are
not to be issued in the name of the Registered Holder, the Exercise Agreement
shall also state the name of the Person to whom the certificates for the Warrant
Shares are to be issued, and if the number of Warrant Shares to be issued does
not include all of the Warrant Shares purchasable hereunder, it shall also state
the name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
Initial Exercise Price shall be subject to adjustment from time to time as
provided in this Section 2 (as so adjusted, the "Exercise Price"), and the
number of Warrant Shares obtainable upon exercise of this Warrant shall be
subject to adjustment from time to time, each as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. If and whenever, on or after the date hereof, the
Company issues or sells (or in accordance with Section 2B is deemed to have
issued or sold), other than (i) pursuant to a Permitted Issuance, (ii) as
described in Section 2C or (iii) pursuant to the Purchase Rights covered by
Section 3, any shares of Common Stock for a consideration per share less than
the Fair Market Value per share of the Common Stock determined as of the earlier
of (x) the announcement of such issuance or sale, or (y) the date of such
issuance or sale, then immediately upon such issuance or sale the Exercise Price
shall be reduced to equal the amount determined by multiplying the Exercise
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which will be the sum of (1) the number of shares of Common Stock
Deemed Outstanding immediately prior to such issuance or sale multiplied by the
Fair Market Value per share of the Common Stock determined as of the date of
such issuance or sale, plus (2) the consideration, if any, received by the
Company upon such issuance or sale, and the denominator of which will be the
product derived by multiplying such Fair Market Value per share of the Common
Stock by the number of shares of Common Stock Deemed Outstanding immediately
after such issuance or sale. Upon each such adjustment of the Exercise Price
hereunder, the number of Warrant Shares acquirable upon exercise of this Warrant
shall be adjusted to equal the number of shares 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 resulting
from such adjustment. For the purposes of this Section 2, the calculation of the
number of shares of Common Stock Deemed Outstanding shall exclude the Warrant
Shares.
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2B. Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If the
Company in any manner grants any rights or options, whether or not immediately
exercisable, (other than the Purchase Rights covered by Section 3 hereof or a
Permitted Issuance) to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common Stock (including
without limitation convertible common stock) (such rights or options being
herein called "Options" and such convertible or exchangeable stock or securities
being herein called "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Fair Market Value per
share of the Common Stock in effect on the earlier of (x) the announcement of
such grant and (y) the date of such grant, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable upon exercise of such Options or upon conversion or exchange
of such Convertible Securities" is determined by dividing (A) the total amount,
if any, received or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
issuance or sale of such Convertible Securities and the conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. No further
adjustment of the Exercise Price 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 or exchange of
such Convertible Securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible or exchangeable, and the price per share for which
Common Stock is issuable upon such conversion or exchange is less than the Fair
Market Value per share of the Common Stock in effect on the earlier of (x) the
announcement of such issuance or sale and (y) the date of issuance or sale, then
the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Company for such price per share. For the
purposes of this paragraph, the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by dividing (A) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Exercise Price shall be made upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such
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Convertible Securities is made upon exercise of any Options for which
adjustments of the Exercise Price have been or are to be made pursuant to other
provisions of this Section 2B, no further adjustment of the Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate.
If either the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change at any time, the
Exercise Price in effect at the time of such change shall be adjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of Warrant Shares
shall be correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option issued following the
date hereof or the termination of any right to convert or exchange any
Convertible Securities issued following the date hereof, in either case without
the exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder shall be adjusted to the Exercise
Price and the number of shares which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.
(v) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received therefor shall
be deemed to be the net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be the fair market value of such consideration,
except where such consideration consists of marketable securities, in which case
the amount of consideration received by the Company shall be the market price
thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger or other business combination in which the Company is
the surviving entity, the amount of consideration therefor shall be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or marketable securities shall be determined
jointly by the Company and the Required Holders. If such parties are unable to
reach agreement within a reasonable period of time, such fair market value shall
be determined by an appraiser jointly selected by the Company and the Required
Holders, whose determination shall be final and binding on the Company and all
Registered Holders of Warrants (as defined in Section 6 below). The fees and
expenses of such appraiser shall be paid by the Company.
(vi) Integrated Transactions. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated
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transaction in which no specific consideration is allocated to such Options by
the parties thereto, the Option shall be deemed to have been issued for no
consideration; provided, if such other securities are debt securities (such debt
securities so issued are herein referred to as the "Debt") of the Company or any
of its subsidiaries, the Option shall be deemed to have been issued for
consideration equal to the excess, if any, of (a) the aggregate face amount (the
"Estimated Face Amount") of debt securities with terms identical to the terms of
the Debt (other than the increase to face value described in this proviso) which
the Company or such subsidiary would have had to issue had no Option been issued
in connection therewith, given the prevailing market conditions at the time of
the issuance of the Debt, in order to receive the same aggregate net proceeds as
is actually received from the issuance of the Debt, over (b) the aggregate face
amount of the Debt. The Estimated Face Amount shall be as mutually agreed
between the Company and the Registered Holder or, if no such mutual agreement is
reached, as set forth in the written opinion, addressed to the Registered
Holder, of an investment bank of national recognition, retained by the Company
and reasonably acceptable to the Registered Holder; provided, that the fees and
expenses of such investment bank shall be borne by the Company.
Example: If the Company issues $20 million aggregate principal amount
of 10% subordinated debentures with a 10-year maturity (and
receives aggregate net proceeds of $20 million), and in
connection therewith issues warrants, and in accordance with
the provisions of Section 2B(vi), the Company and the
Registered Holder mutually agree or an investment bank
determines that the Estimated Face Amount of the
subordinated debentures (with terms otherwise identical to
the securities issued) would have been $21 million (i.e., to
yield aggregate net proceeds of $20 million to the Company),
had the warrants not been issued, then the warrants would be
deemed to have been issued for $1 million.
(vii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time does not include shares owned or held
by or for the account of the Company or any subsidiary of the Company and the
disposition of any shares so owned or held shall be considered an issue or sale
of Common Stock.
(viii) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall 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.
2C. Subdivision or Combination of Common Stock. If the Company
at any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced and the number of Warrant Shares obtainable
upon
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exercise of this Warrant shall be proportionately increased. If the Company at
any time combines (by reverse stock split or otherwise) the Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
obtainable upon exercise of this Warrant shall be proportionately decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change". Prior to
the consummation of any Organic Change, the Company shall make appropriate
provision to ensure that each Registered Holder of Warrants shall thereafter
have the right to acquire and receive upon exercise thereof, in lieu of or
addition to (as the case may be) the Warrant Shares immediately theretofore
acquirable and receivable upon exercise of such Registered Holder's Warrants,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of such Registered Holder's
Warrants had such Organic Change not taken place. In any such case, the Company
shall make appropriate provision with respect to such Registered Holder's rights
and interests to insure that the provisions hereof (including this Section 2)
shall thereafter be applicable to the Warrants (including, in the case of any
such Organic Change in which the successor entity or purchasing entity is other
than the Company, an immediate adjustment of the Exercise Price to the value for
the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
the earlier of (x) the announcement of such Organic Change and (y) such Organic
Change). The Company shall not effect any such Organic Change unless, prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument the
obligation to deliver to each Registered Holder of Warrants such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Registered Holder may be entitled to acquire upon exercise of Warrants.
2E. Certain 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
but excluding any Permitted Issuance), then the Company's Board of Directors
shall exercise their reasonable judgment consistent with the fundamental intent
of such provisions in making an appropriate adjustment in the Exercise Price and
the number of Warrant Shares obtainable upon exercise of this Warrant so as to
protect the rights of the Registered Holder of this Warrant.
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2F. Notices.
(i) Immediately upon any adjustment of the Exercise
Price, the Company shall give written notice thereof to the Registered Holder,
setting forth in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Company shall give written notice to the
Registered Holder at least 30 days 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 Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock, or (C) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the
Registered Holder at least 30 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
SECTION 3. Purchase Rights. If at any time the Company grants,
issues or sells any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock (the "Purchase Rights"), then the Company shall grant, issue or
sell (as the case may be) to the Registered Holder the aggregate Purchase Rights
which such Registered Holder would have acquired if such Registered Holder had
held the maximum number of Warrant Shares acquirable upon complete exercise of
this Warrant immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
SECTION 4. Definitions. The following terms have the meanings
set forth below:
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Common Stock" means the common stock of the Company, par
value $.001 per share, and any securities into or for which such Common Stock is
hereafter converted or exchanged.
"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 Section
2B(i) or 2B(ii) hereof.
"Fair Market Value" of any security means the average closing
bid prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid prices on all such exchanges
at the end of such day, or, if on any day such security is not so listed, the
average of the representative bid prices quoted on the Nasdaq Stock Market as of
4:00 P.M., New York time, or, if on any day such security is not quoted on the
Nasdaq Stock Market, the average of the highest bid prices on such day in the
domestic over-the-counter market as reported by the National Quotation
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Bureau, Incorporated, or any similar successor organization, in each such case
averaged over the period of the 30 Business Days immediately preceding the day
on which "Fair Market Value" is being determined. If at any time such security
is not listed on any securities exchange or quoted on the Nasdaq Stock Market or
the over-the-counter market, the "Fair Market Value" shall be the fair value
thereof determined jointly by the Company and the Required Holders. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an independent appraiser experienced in
valuing securities jointly selected by the Company and the Required Holders. The
determination of such appraiser shall be final and binding upon the parties, and
the Company shall pay the fees and expenses of such appraiser.
"Permitted Issuance" means any issuance by the Company of (a)
Common Stock on or prior to the date hereof; (b) Common Stock upon exercise of
the Warrants; (c) Common Stock upon the conversion or exchange of any shares of
any class of Common Stock into another class of Common Stock; (d) Common Stock
in connection with any dividend or distribution to the holders of the Common
Stock; or (e) Common Stock pursuant to an underwritten offering of Common Stock
registered under the Securities Act of 1933, as amended.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization or government or department or
agency thereof.
"Registered Holder" means the holder of this Warrant as
reflected in the records of the Company maintained pursuant to Section 12.
"Required Holders" means the holders of 662/3% of the purchase
rights represented by the Warrants as originally issued which remain outstanding
and unexercised.
"Warrant Shares" means shares of the Common Stock issuable
upon exercise of the Warrants; provided, that if the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the class of securities so issuable, then the term "Warrant
Shares" shall mean shares of the security issuable upon exercise of the Warrants
if such security is issuable in shares, or shall mean the equivalent units in
which such security is issuable if such security is not issuable in shares.
"Warrants" means all the Series E Stock Purchase Warrants
issued by the Company on the date hereof representing in the aggregate the right
to purchase from the Company a total of 312,196 shares of Common Stock (as
adjusted pursuant to the terms thereof) together with any stock purchase
warrants issued in substitution, exchange or replacement therefor.
SECTION 5. Voting Rights; Limitations of Liability. The
holders of the Warrants shall be entitled to notice of all stockholders meetings
in accordance with the Company's bylaws, and except as otherwise required by
applicable law, the holders of the Warrants shall be entitled to vote on all
matters submitted to the stockholders for a vote together with the holders of
the Common Stock voting together as a single class with each share of Common
Stock entitled to one vote per share and each Warrant Share entitled to one vote
for each share of Common Stock issuable upon issuance of such Warrant Share as
of the record date for such vote or, if no record date is specified,
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as of the date of such vote. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such Registered Holder for the Exercise Price of Warrant Shares
acquirable by exercise hereof or as a stockholder of the Company.
SECTION 6. Restrictions. Subject to the provisions of this
Section 6, this Warrant and all rights hereunder are transferable, in whole or
in part, without charge to the Registered Holder (subject to the provisions of
paragraph 1B(iv) hereof), upon surrender of this Warrant with a properly
executed Assignment (in the form of Exhibit II hereto) at the principal office
of the Company. The Registered Holder agrees that it will not sell, transfer or
otherwise dispose of this Warrant or any Warrant Shares of restricted Common
Stock, in whole or in part, except pursuant to an effective registration
statement under the Securities Act of 1933, as amended, or an exemption from
registration thereunder and then only in accordance with the terms of the
Purchase Agreement.
Each certificate evidencing Warrant Shares and each Warrant
issued upon such transfer shall bear the restrictive legends required by the
Purchase Agreement.
SECTION 7. Warrant Exchangeable for Different Denominations.
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent such portion of such rights as is designated by the
Registered Holder at the time of such surrender. At the request of the
Registered Holder (pursuant to a transfer of Warrants or otherwise), this
Warrant may be exchanged for one or more Warrants to purchase Common Stock. The
date the Company initially issues this Warrant shall be deemed to be the date of
issuance hereof regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant shall
be issued.
SECTION 8. Exchange. In the event that it becomes unlawful or,
in the reasonable judgment of any Registered Holder of this Warrant, unduly
burdensome by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting the ability of financial institutions or their
affiliates to hold equity securities, or any material change (including a
reduction in the number of shares of Common Stock outstanding) in the capital
structure of the Company, to hold any or all of the Warrants or Warrant Shares,
the Registered Holder of this Warrant shall have the right to require the
Company to use its best efforts to permit all or part of such Registered
Holder's Warrants or Warrant Shares to be exchanged for nonvoting stock or
similar interests that convey equivalent economic benefits to such Warrants or
Warrant Shares and include equivalent anti-dilution protection. To the extent
that the Company may lawfully do so after the exercise of its best efforts, any
such exchange shall occur as soon as practicable but in any event within 60 days
after written notice by the Registered Holder of this Warrant to the Company (or
such earlier date if required to comply with applicable law).
SECTION 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any
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such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Company (provided that if the Registered Holder is a
financial institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Company shall (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the same rights
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
SECTION 10. Notices. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and shall be (i)
delivered in person, (ii) transmitted by telecopy, (iii) sent by registered or
certified mail, postage prepaid with return receipt requested, or (iv) sent by
reputable overnight courier service, fees prepaid, to (x) the Company, at its
principal executive offices and (y) to any Registered Holder, at such Registered
Holder's address as it appears in the records of the Company (unless otherwise
indicated by any such Registered Holder). Notices shall be deemed given upon
personal delivery, upon receipt of return receipt in the case of delivery by
mail, upon acknowledgment by the receiving telecopier or one day following
deposit with an overnight courier service.
SECTION 11. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants 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 prior written consent of
the Registered Holder.
SECTION 12. Warrant Register. The Company shall maintain at
its principal executive offices books for the registration and the registration
of transfer of Warrants. The Company may deem and treat the Registered Holder as
the absolute owner hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 13. Fractions of Shares. The Company may, but shall
not be required to, issue a fraction of a Warrant Share upon the exercise of
this Warrant in whole or in part. As to any fraction of a share which the
Company elects not to issue, the Company shall make a cash payment in respect of
such fraction in an amount equal to the same fraction of the Fair Market Value
of a Warrant Share on the date of such exercise.
SECTION 14. Descriptive Headings; Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant. THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
* * * * *
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IN WITNESS WHEREOF, the Company has executed and delivered
this Warrant as of the date first written above.
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
---------------------------
Name: Brent M. Cook
Title: Chairman and Chief Executive Officer
Attest:
/s/ Joanna E. Barnes
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EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-____), hereby agrees to subscribe for the
purchase of ______ Warrant Shares covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
Exhibit I, Page 1
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EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, _____________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (Certificate No. W- _____) with respect to the number of the
Warrant Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Dated: Signature _______________________
_______________________
Witness _______________________
Exhibit II, Page 1
