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
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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
6
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,
10
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
11
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.
12
"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.
13
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:
14
If to the Company:
Covol Technologies, Inc.
0000 Xxxxx Xxxxxxxx Xxxx
Xxxx, Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx Xxxxxxx
with a copy to (which shall not constitute notice to
the Company):
Xxxxxxxxx, Xxxxxxx & XxXxxxxxxx
Ten Xxxx Xxxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx Xxxxx, Esq.
If to the Purchaser:
OZ Master Fund, Ltd.
c/o Och-Ziff Management, L.L.C.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxx Xxx
with a copy to (which shall not constitute notice to
the Purchaser):
Xxxxxxx, Xxxx & Xxxxx LLP
000 Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxx Xxxxxx, Esq.
If to holders of Series E Warrants:
c/o Leeds Group Inc.
000 Xxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxx
c/o Havenwood Capital Markets, LLC
00000 Xxxx Xxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
15
Attention: Xxxxxx Xxxxxxxx
with a copy to (which shall not constitute notice to
any holder):
Xxxxxxxx & Xxxxx
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxx, 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
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/ Xxxxxx X. Xxxxxxx
--------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: CFO
OZ MASTER FUND, LTD.
By: /s/ Xxxxxx X. Och
--------------------------------
Name: Xxxxxx X. Och
Title: Managing Member
LEEDS GROUP INC.
By: /s/ Xxxxxxx X. Xxxxx
--------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President
HAVENWOOD CAPITAL MARKETS, LLC
By: /s/ Xxxxx X. Xxxxxxxx
--------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President
