WARRANT TO PURCHASE COMMON STOCK
THIS
WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE BEEN ACQUIRED FOR INVESTMENT
AND
NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF
1933, AS AMENDED. NEITHER THE WARRANT NOR THE SHARES MAY BE SOLD, PLEDGED,
OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
Issuer:
Material Technologies, Inc.
Class
of
Stock: Common
Issue
Date: May 30, 2006
Expiration
Date: December 31, 2007
Material
Technologies, Inc., a Delaware corporation (the “Company”) hereby grants to La
Jolla Cove Investors, Inc., a California corporation (the “Holder”) the right to
purchase up to 20,000,000 shares of the Company’s Class A Common Stock (the
“Warrant Shares”). This warrant (the "Warrant") shall expire and Holder shall no
longer be able to purchase the Warrant Shares on the Expiration
Date.
ARTICLE
1
EXERCISE
1.1 Method
of Exercise.
Holder
may exercise this Warrant by delivering a duly executed Notice of Exercise
in
substantially the form attached as Appendix
1
to the
principal office of the Company, along with a check payable to the Company
for
the aggregate Exercise Price for the Warrant Shares being purchased. Holder
agrees that, beginning on the date that a Registration Statement filed by the
Company with the Securities and Exchange Commission becomes effective that
registers the Warrant Shares, Holder will exercise the Warrant, pay the Exercise
Price to the Company, and acquire the Warrant Shares, at a rate of at least
One
Million Two Hundred Fifty Thousand (1,250,000) of the Warrant Shares per week,
to continue for sixteen (16) consecutive weeks until all of the Warrant Shares
have been purchased by Holder.
1.2 Delivery
of Certificate and New Warrant Delivery of Certificate and New
Warrant.
As
promptly as practicable after the receipt of the Notice of Exercise, but in
any
event not more than three (3) Business Days after the Company’s receipt of the
Notice of Exercise, the Company shall issue the Warrant Shares being purchased
and cause to be mailed for delivery by overnight courier, or if a Registration
Statement covering the Shares has been declared effective by the SEC, cause
to
be electronically transferred, to Holder a certificate representing the Warrant
Shares acquired and, if this Warrant has not been fully exercised and has not
expired, a new Warrant substantially in the form of this Warrant representing
the right to acquire the portion of the Warrant Shares not so
acquired.
1
1.3 Replacement
of Warrants.
On
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of loss, theft or
destruction, on delivery of an indemnity agreement reasonably satisfactory
in
form and amount to the Company or, in the case of mutilation, or surrender
and
cancellation of this warrant, the Company at its expense shall execute and
deliver, in lieu of this Warrant, a new warrant of like tenor.
1.4 Exercise
Price.
The
Exercise Price for the Warrant Shares shall be $0.01 per share, provided,
however, in no event shall the Exercise Price be lower or higher than the lowest
price at which the Company sold any Common Stock (through direct stock
issuances, conversions of debentures, etc, but not including stock issued for
services) during the thirty days prior to the exercise date. Upon the exercise
of the Warrant Shares, the Exercise Price shall be reduced pro rata to permit
the Holder to recapture the amount paid to the Company upon acquisition of
this
Warrant (the "Premium")..
ARTICLE
2
ADJUSTMENT
TO THE WARRANT SHARES
The
number of Warrant Shares purchasable upon the exercise of this Warrant and
the
Exercise Price shall be subject to adjustment form time to time upon the
occurrence of certain events, as follows:
2.1 Reclassification.
In case
of any reclassification or change of outstanding securities of the class
issuable upon exercise of this Warrant then, and in any such case, the Holder,
upon the exercise hereof at any time after the consummation of such
reclassification or change, shall be entitled to receive in lieu of each Warrant
Share theretofore issuable upon exercise of this Warrant, the kind and amount
of
shares of stock, other securities, money and/or property received upon such
reclassification or change by a holder of one share. The provisions of this
Section 2.1 shall similarly apply to successive reclassifications or
changes.
2.2 Subdivision
or Combination of Shares.
If the
Company at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its shares, the Exercise Price shall be proportionately
decreased in the case of a subdivision or increased in the case of a
combination.
2.3 Stock
Dividends.
If the
Company, at any time while this Warrant is outstanding shall pay a dividend
with
respect to its shares payable in shares, or make any other distribution of
shares with respect to shares (except any distribution provided for in Section
2.1 and Section 2.2 above), then the Exercise Price shall be adjusted, effective
from and after the date of determination of shareholders entitled to received
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such date of determination by
a
fraction, (a) the numerator of which shall be the total number of shares
outstanding immediately prior to such dividend or distribution, and (b) the
denominator of which shall be the total number of shares outstanding immediately
after such dividend or distribution.
2.4 Non-Cash
Dividends.
If the
Company at any time while this Warrant is outstanding shall pay a dividend
with
respect to shares payable in securities other than shares or other non-cash
property, or make any other distribution of such securities or property with
respect to shares (except any distribution specifically provided for in Section
2.1 and Section 2.2 above), then this Warrant shall represent the right to
acquire upon exercise of this Warrant such securities or property which a holder
of shares would have been entitled to receive upon such dividend or
distribution, without the payment by Holder of any additional consideration
for
such securities or property.
2
2.5 Effect
of Reorganization and Asset Sales.
If any
(i) reorganization or reclassification of the Common Stock (ii) consolidation
or
merger of the Company with or into another corporation, or (iii) sale or all
or
substantially all of the Company’s operating assets to another corporation
followed by a liquidation of the Company (any such transaction shall be referred
to herein as an “Event”), is effected in such a way that holders of Common Stock
are entitled to receive securities and/or assets as a result of their Common
Stock ownership, Holder, upon exercise of this Warrant, shall be entitled to
receive such shares of stock, securities or assets which Holder would have
received had it fully exercised this Warrant on or prior the record date for
such Event. The Company shall not merge into or consolidate with another
corporation or sell all of its assets to another corporation for a consideration
consisting primarily of securities or such corporation, unless the successor
or
acquiring corporation, as the case may be, shall expressly assume the due and
punctual observance and performance of each and every covenant and condition
of
this Warrant to be performed or observed by the Company and all of the
obligations and liabilities hereunder, subject to such modification as shall
be
necessary to provide for adjustments which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 2. The foregoing
provisions shall similarly apply to successive mergers, consolidations or sales
of assets.
2.6 Adjustment
of Number of Shares.
Upon
each adjustment in the Exercise Price, the number of Shares shall be adjusted,
to the nearest whole share, to the product obtained by multiplying the number
of
Shares purchasable immediately prior to such adjustment by a fraction (a) the
numerator of which shall be the Exercise Price prior to the adjustment and
(b)
the denominator of which shall be the Exercise Price immediately
thereafter.
2.7 No
Impairment.
The
Company shall not, by amendment of its charter documents or through a
reorganization, transfer of assets, consolidation, merger, dissolution, issue,
or sale of securities or any other voluntary action, avoid or seek to avoid
the
observance or performance of any of the terms to be observed or performed under
this Warrant by the Company, but shall at all times in good faith assist in
carrying out all of the provisions of this Warrant and in taking all such action
as may be reasonably necessary or appropriate to protect Holder’s rights
hereunder against impairment. If the Company takes any action affecting its
Common Stock other than as described above that adversely affects Holder’s
rights under this Warrant, the Exercise Price shall be adjusted downward and
the
number of Warrant Shares issuable upon exercise of this Warrant shall be
adjusted upward in such a manner that the aggregate Exercise Price of this
Warrant is unchanged.
2.8 Fractional
Shares.
No
fractional Warrant Shares shall be issuable upon the exercise of this Warrant,
and the number of Warrant Shares to be issued shall be rounded down to the
nearest whole share.
2.9 Certificate
as to Adjustments.
Upon
any adjustment of the Exercise Price, the Company, at its expense, shall compute
such adjustment and furnish Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such adjustment
is based. The Company shall, upon written request, furnish Holder a certificate
setting forth the Exercise Price in effect upon the date thereof and the series
of adjustments leading to such Exercise Price.
3
2.10 No
Rights of Shareholders.
This
Warrant does not entitle Holder to any voting rights or any other rights as
a
shareholder of the Company prior to the exercise of Holder’s right to purchase
Warrant Shares as provided herein.
ARTICLE
3
REPRESENTATIONS
AND COVENANTS OF THE COMPANY
3.1 Representations
and Warranties.
The
Company hereby represents and warrants to Holder that all Warrant Shares which
may be issued upon the exercise of the purchase right represented by this
Warrant, shall, upon issuance, be duly authorized, validly issued, fully paid
and nonasessable, and free of any liens and encumbrances except for restrictions
on transfer provided for herein or under applicable federal and state securities
laws.
3.2 Notice
of Certain Events.
If the
Company proposes at any time (a) to declare any dividend or distribution upon
its Common Stock, whether in cash, property, stock, or other securities and
whether or not a regular cash dividend; (b) to offer for subscription pro rata
to the holders of any class or series of its stock any additional shares of
stock of any class or series or other fights; (c) to effect any reclassification
or recapitalization of Common Stock; (d) to merge or consolidate with or into
any other corporation, or sell, lease, or convey all or substantially all of
its
assets, or to liquidate, dissolve or wind up; or (e) offer holders of
registration rights the opportunity to participate in an underwritten public
offering of the Company’s securities for cash, then, in connection with each
such event, the Company shall give Holder (1) at least 10 days prior written
notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of Common Stock will be entitled thereto) or for determining rights
to
vote, if any, in respect of the matters referred to in (c) and (d) above; (2)
in
the case of the matters referred to in (c) and (d) above at least 10 days prior
written notice of the date when the same will take place (and specifying the
date on which the holders of Common Stock will be entitled to exchange their
Common Stock for securities or other property deliverable upon the occurrence
of
such event); and (3) in the case of the matter referred to in (e) above, the
same notice as is given to the holders of such registration rights.
3.3 Information
Rights.
So long
as Holder holds this Warrant, the Company shall deliver to Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) promptly upon their availability, the annual
audited financial statements of the Company certified by independent public
accountants of recognized standing, and (c) within forty-five (45) days after
the end of each fiscal quarter, the Company’s quarterly, unaudited financial
statements.
3.4 Reservation
of Warrant Shares.
The
Company has reserved and will keep available, out of the authorized and unissued
shares of Common Stock, the full number of shares sufficient to provide for
the
exercise of the rights of purchase represented by this Warrant.
4
ARTICLE
4
REPRESENTATIONS
AND COVENANTS OF THE HOLDER
4.1 Private
Issue.
Holder
understands (i) that the Shares issuable upon exercise of Holder’s rights
contained in the Warrant are not registered under the Act or qualified under
applicable state securities laws on the ground that the issuance contemplated
by
the Warrant will be exempt from the registration and qualifications requirements
thereof, and (ii) that the Company’s reliance on such exemption is predicated on
Holder’s representations set forth in this Article 4.
4.2 Financial
Risk.
Holder
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment and has the ability
to bear the economic risks of its investment.
4.3 Accredited
Investor.
Holder
is an “accredited investor,” as such term is defined in Regulation D promulgated
pursuant to the Securities Act of 1933, as amended.
ARTICLE
5
MISCELLANEOUS
5.1 Transfer
Procedure.
Holder
shall have the right without the consent of the Company to transfer or assign
in
whole or in part this Warrant or the Warrant Shares issuable upon exercise
of
this Warrant. Holder agrees that unless there is in effect a registration
statement under the Securities Act covering the proposed transfer of all or
part
of this Warrant, prior to any such proposed transfer the Holder shall give
written notice thereof to the Company (a “Transfer Notice”). Each Transfer
Notice shall describe the manner and circumstances of the proposed transfer
in
reasonable detail and, if the company so requests, shall be accompanied by
an
opinion of legal counsel, in a form reasonably satisfactory to the Company,
to
the effect that the proposed transfer may be effected without registration
under
the Act; provided that the Company will not require opinions of counsel for
transactions involving transfers to affiliates or pursuant to Rule 144
promulgated by the Securities and Exchange Commission under the act, except
in
unusual circumstances.
5.2 Notices,
etc.
All
notices and other communications required or permitted hereunder shall be in
writing and shall be delivered personally, or sent by facsimile or by a
nationally recognized overnight courier service, and shall be deemed given
when
so delivered personally, or by facsimile or overnight courier service as
follows:
To
the
Company:
Material
Technologies, Inc.
00000
Xxx
Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxx
Xxxxxxx, XX 00000
Telephone:
000-000-0000
Facsimile:
000-000-0000
5
To
the
Holder:
La
Jolla
Cove Investors, Inc.
0000
Xxxxxxxx Xxxxxx, Xxxxx 000
Xx
Xxxxx,
XX 00000
Telephone:
000-000-0000
Facsimile:
000-000-0000
The
Company or the Holder may change the foregoing address by notice given pursuant
to this Section.
5.3 Waiver.
This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought.
5.4 Attorneys
Fees.
In the
event of any dispute between the parties concerning the terms and provisions
of
this warrant, the party prevailing in such dispute shall be entitled to collect
from the other party all costs incurred in such dispute, including reasonable
attorneys fees.
5.5 Governing
Law; Jurisdiction.
This
warrant shall be governed by and construed in accordance with the laws of the
State of California, without giving effect to its principles regarding conflicts
of law. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the City of San Diego or the state courts
of the State of California sitting in the City of San Diego in connection with
any dispute arising under this Warrant and hereby waives, to the maximum extent
permitted by law, any objection including any objection based on forum non
conveniens, to the bringing of any such proceeding in such
jurisdictions.
5.6 Remedies. The
Company acknowledges that a breach by it of its obligations hereunder will
cause
irreparable harm to the Holder, by vitiating the intent and purpose of the
transactions hereby. Accordingly, the Company acknowledges that the remedy
at
law for a breach of its obligations under this Warrant will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Warrant, that the Holder shall be entitled, in addition
to
all other available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Warrant and to enforce specifically
the
terms and provisions hereof, without the necessity of showing economic loss
and
without any bond or other security being required.
Material
Technologies, Inc. La
Jolla
Cove Investors, Inc.
By:
/s/
Xxxxxx X. Xxxxxxxxx By:
/s/
Xxxxxx Xxxx
Title:
CEO Title:
Portfolio Manager
6
APPENDIX
1
NOTICE
OF EXERCISE
1. The
undersigned hereby elects to purchase _____ shares of the Common Stock of
Material Technologies, Inc. pursuant to the terms of the Warrant to Purchase
Common Stock issued on May 30, 2006 in favor of La Jolla Cove Investors, Inc.,
and tenders herewith payment of the purchase price of such shares in
full.
2. Please
issue a certificate or certificates representing said shares in the name of
the
undersigned or in such other name as is specified below:
_________________________________
_________________________________
_________________________________
(Name
and
Address)
3. The
undersigned makes the representations and covenants set forth in Article 4
of
the Warrant to Purchase Common Stock.
___________________________________
(Signature)
___________________________
(Date)
7
