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FORM OF WARRANT
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT
SECURED BY THE SECURITIES.
COMPOSITE TECHNOLOGY CORPORATION
Warrant To Purchase Common Stock
Warrant
No.: [__]
Date
of Issuance: __________, 2008 (“
Issuance Date ”)
Warrant
Shares: This Warrant shall be exercisable for 1,125,000 shares
of Common Stock (as defined below)
COMPOSITE
TECHNOLOGY CORPORATION, a Nevada corporation (the
“
Company ”),
hereby certifies that, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged,
ACF CTC, L.L.C., the
registered holder hereof or its permitted assigns (the
“
Holder ”),
is entitled, subject to the terms set forth below, to purchase from
the Company, at the Exercise Price (as defined below) then in
effect, upon surrender of this Warrant to Purchase Common Stock
(including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “
Warrant ”),
at any time or times on or after the date hereof, but not after
5:00 p.m., Pacific time, on the Expiration Date (as defined below),
the number of validly issued, fully paid and nonassessable shares
of Common Stock (as defined below) determined in accordance with
Section 1(a) below
(the
“
Warrant Shares ”).
Except as otherwise defined herein, capitalized terms in this
Warrant shall have the meanings set forth in Section 12. This
Warrant is granted in connection with a Financing Agreement, dated
as of May 5, 2008 (the “
Loan Date ”),
by and between the Company and the Holder (the “
Financing Agreement ”).
1.
EXERCISE
OF WARRANT.
(a)
Warrant Shares .
This Warrant shall be exercisable for 1,125,000 shares of Common
Stock (as defined below) (the “
Warrant Shares ”).
(b)
Mechanics of Exercise .
Subject to the terms and conditions hereof (including, without
limitation, the limitations set forth in Section 1(g)), this
Warrant may be exercised by the Holder on any day on or after the
date hereof, in whole or in part, by (i) delivery of a written
notice, in the form attached hereto as
Exhibit A (the
“
Exercise Notice ”),
of the Holder’s election to exercise this Warrant and
(ii) either (A) payment to the Company of an amount equal to
the Exercise Price multiplied by the number of Warrant Shares as to
which this Warrant is being exercised (the “
Aggregate Exercise Price ”)
in cash or wire transfer of immediately available funds or (B) by
notifying the Company that this Warrant is being exercised in a
Cashless Exercise pursuant to and subject to the conditions set
forth in Section 1(d) provided however that this Warrant may not be
exercised in a Cashless Exercise during the first six months of the
Warrant. The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder. Execution and
delivery of the Exercise Notice with respect to less than all of
the Warrant Shares shall have the same effect as cancellation of
the original Warrant and issuance of a new Warrant evidencing the
right to purchase the remaining number of Warrant Shares. On or
before the first Business Day following the date on which the
Company has received each of the Exercise Notice and the Aggregate
Exercise Price (or notice of a Cashless Exercise) (the
“
Exercise Delivery Documents ”),
the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of the Exercise Delivery Documents to the
Holder and the Company’s transfer agent (the “
Transfer Agent ”).
On or before the third Business Day following the date on which the
Company has received all of the Exercise Delivery Documents (the
“
Share Delivery Date ”),
the Company shall issue and dispatch by overnight courier to the
address as specified in the Exercise Notice, a certificate,
registered in the Company’s share register in the name of the
Holder or its designee, for the number of shares of Common Stock to
which the Holder is entitled pursuant to such exercise. Upon
delivery of the Exercise Notice and Aggregate Exercise Price
referred to in clause (ii)(A) above or notification to the Company
of a Cashless Exercise referred to in Section 1(d), the Holder
shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this
Warrant has been exercised, irrespective of the date of delivery of
the certificates evidencing such Warrant Shares. If this Warrant is
submitted in connection with any exercise pursuant to this Section
1(b) and the number of Warrant Shares represented by this Warrant
submitted for exercise is greater than the number of Warrant Shares
being acquired upon an exercise, then the Company shall as soon as
practicable and in no event later than three Business Days after
any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to purchase
the number of Warrant Shares purchasable immediately prior to such
exercise under this Warrant, less the number of Warrant Shares with
respect to which this Warrant is exercised. No fractional shares of
Common Stock are to be issued upon the exercise of this Warrant,
but rather the number of shares of Common Stock to be issued shall
be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance
and delivery of Warrant Shares upon exercise of this
Warrant.
(c)
Exercise Price .
For purposes of this Warrant, “
Exercise Price ”
means $0.99 per share, subject to adjustment as provided
herein.
(d)
Cashless Exercise .
Notwithstanding
anything contained herein to the contrary, if at any time after the
Closing Date a registration statement covering the Warrant Shares
that are the subject of an Exercise Notice (the “
Unavailable Warrant Shares ”)
is not available for the resale of such Unavailable Warrant Shares
at the time of exercise, the Holder may, in its sole discretion,
exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company
upon such exercise in payment of the Aggregate Exercise Price,
elect instead to receive upon such exercise the “Net
Number” of shares of Common Stock determined according to the
following formula (a “
Cashless Exercise ”):
Net
Number =
(A x B) - (A x C)
B
For
purposes of the foregoing formula:
A=
the total number of shares with respect to which this Warrant
is then being exercised.
B=
the Closing Sale Price of the shares of Common Stock (as
reported by Bloomberg) on the date immediately preceding the
date of the Exercise Notice.
C=
the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
(e)
Disputes .
In the case of a dispute as to the determination of the Exercise
Price or the arithmetic calculation of the Warrant Shares, the
Company shall promptly issue to the Holder the number of Warrant
Shares that are not disputed and resolve such dispute in accordance
with Section 10.
(f)
Insufficient Authorized Shares .
If at any time while any of the Warrants remain outstanding the
Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to
reserve for issuance upon exercise of the Warrants at least a
number of shares of Common Stock equal to 100% (the “
Required Reserve Amount ”)
of the number of shares of Common Stock as shall from time to time
be necessary to effect the exercise of all of the Warrants then
outstanding (an
“Authorized Share Failure ”),
then the Company shall immediately take all action necessary to
increase the Company’s authorized shares of Common Stock to
an amount sufficient to allow the Company to reserve the Required
Reserve Amount for the Warrants then outstanding. Without limiting
the generality of the foregoing sentence, as soon as practicable
after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of
such Authorized Share Failure, the Company shall hold a meeting of
its stockholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting,
the Company shall provide each stockholder with a proxy statement
and shall use its best efforts to solicit its stockholders’
approval of such increase in authorized shares of Common Stock and
to cause its board of directors to recommend to the stockholders
that they approve such proposal.
2.
ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES .
The Exercise Price and the number of Warrant Shares shall be
adjusted from time to time as follows:
(a)
Weighted Average Adjustment of Exercise Price upon Issuance of
Common Stock .
If the Company issues any shares
of Common
Stock (including the issuance or sale of shares
of Common
Stock owned or held by or for the account of the Company, but
excluding shares
of Common
Stock deemed to have been issued or sold by the Company in
connection with any Excluded Securities) for a consideration per
share (the “
New Issuance Price ”)
less than the Exercise Price in effect immediately prior to such
issue or sale (the foregoing a “
Dilutive Issuance ”),
then immediately after such Dilutive Issuance, the Exercise Price
then in effect shall be reduced to an amount equal to a price
determined by multiplying such Exercise Price by a fraction, the
numerator of which shall be a sum equal to the number of shares of
Common Stock outstanding and deemed issued pursuant to Section 2(b)
immediately prior to such issuance, plus the number of shares of
Common Stock that the aggregate consideration received by this
Company for such issuance would purchase at such Exercise Price;
and the denominator of which shall be the number of shares of
Common Stock outstanding and deemed issued pursuant to Section 2(b)
immediately prior to such issuance plus the number of shares of
such Additional Stock.
(b)
Provisions Applicable to Exercise Price Adjustments
.
For purposes of determining the adjusted Exercise Price under
Section 2(a) above, the following provisions shall
apply:
(1)
Issuance of Options .
If the Company in any manner grants or sells any Options (other
than any Excluded Securities) and the lowest price per share for
which one share
of Common
Stock is issuable upon the exercise of any such Option or upon
conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option is less than the Exercise
Price, then such share
of Common
Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the granting or sale of such
Option for such price per share. For purposes of this Section
2(b)(1), the “lowest price per share for which one
share
of Common
Stock is issuable upon the exercise of any such Option or upon
conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option” shall be equal to the
sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one
share
of Common
Stock upon granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange or exercise of any
Convertible Security issuable upon exercise of such Option. No
further adjustment of the Exercise Price shall be made upon the
actual issuance of such share of 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 or exercise of such Convertible Securities.
(2)
Issuance of Convertible Securities .
If the Company in any manner issues or sells any Convertible
Securities (other than Excluded Securities) and the lowest price
per share for which one share of Common Stock is issuable upon such
conversion or exchange or exercise thereof is less than the
Exercise Price, then such share of Common Stock shall be deemed to
be outstanding and to have been issued and sold by the Company at
the time of the issuance of sale of such Convertible Securities for
such price per share. For the purposes of this Section 2(b)(2), the
“price per share for which one share of Common Stock is
issuable upon such conversion or exchange or exercise” shall
be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share
of Common Stock upon the issuance or sale of the Convertible
Security and upon the conversion or exchange or exercise of such
Convertible Security. No further adjustment of the Exercise Price
shall be made upon the actual issuance of such share of Common
Stock upon conversion or exchange or exercise of such Convertible
Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which
adjustment of the Exercise Price had been or are to be made
pursuant to other provisions of this Section 2(b), no further
adjustment of the Exercise Price shall be made by reason of such
issue or sale.
(3)
Change in Option Price or Rate of Conversion
. If the purchase price provided for in any Options (other than
Excluded Securities), the additional consideration, if any, payable
upon the issue, conversion, exchange or exercise of any Convertible
Securities, or the rate at which any Convertible Securities (other
than Excluded Securities) are convertible into or exchangeable or
exercisable for Common Stock is changed, 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 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. For purposes
of this Section 2(b)(3), if the terms of any Option or Convertible
Security that was outstanding as of the Closing Date are changed in
the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change. No
adjustment shall be made if such adjustment would result in an
increase of the Exercise Price then in effect.
(4)
Definition of Excluded Securities .
For purposes of this Agreement, “
Excluded Securities ”
shall mean:
(A)
shares
of Common Stock issued pursuant to a transaction described in
Section 2(c) hereof;
(B)
shares
of Common Stock issued or deemed issued to employees,
consultants, attorneys, officers or directors (if in
transactions with primarily non-financing purposes) of this
Company directly or pursuant to any equity compensation plan
which has been approved by the Board of Directors of the
Company, pursuant to which the Company’s securities may
be issued to any employee, officer, consultant or director for
services provided to the Company (“Approved Stock
Plan”);
(C)
shares
of Common Stock issued or issuable (1) in a bona fide,
underwritten public offering under the Act resulting in
aggregate gross proceeds of at least $10,000,000, or
(2) upon exercise of warrants or rights granted to
underwriters in connection with such a public
offering;
(D)
shares
of Common Stock issued pursuant to the conversion or exercise
of convertible or exercisable securities outstanding as of the
date hereof (including without limitation, the Warrant) or
subsequently issued, provided such securities are not amended
after the date hereof to increase the number of shares of
Common Stock issuable thereunder or to lower the exercise
price thereof;
(E)
shares
of Common Stock issued or issuable in connection with a bona
fide business acquisition of or by this Company, whether by
merger, consolidation, sale of assets, sale or exchange of
stock or otherwise, each as approved by the Board of Directors
of this Company, however, excluding shares issued or issuable
in connection with a transaction between the Company and an
Affiliate; or
(F)
shares
of Common Stock issued or issuable in connection with any
transaction where such securities so issued are deemed
included in the definition of “Excluded
Securities” by the affirmative vote or written consent
of the Required Holders.
(5)
Record Date .
If the Company takes a record of the holders of Common Stock for
the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible
Securities or (B) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be
deemed to be the date of the issue or sale of the 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.
(6)
Dividends .
In case the Company shall declare a dividend or make any other
distribution upon any stock of the Company (other than the Common
Stock) payable in Common Stock, Options or Convertible Securities,
then any Common Stock, Options or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution
shall be deem
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