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
4
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
5
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.
6
(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
7
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.
8
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:
9
"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
11
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
12
(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.
* * * * *
IN WITNESS WHEREOF, the Company has executed and delivered
this Warrant as of the date first written above.
COVOL TECHNOLOGIES, INC.
By: /s/ Xxxxx X. Xxxx
------------------------------
Name: Xxxxx X. Xxxx
Title: Chairman and Chief Executive Officer
Attest:
/s/ Xxxxxx X. Xxxxxx
----------------------------
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-____), xxxxxx 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
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
