EVLV Evolv Technologies Holdings Inc

DESCRIPTION OF SECURITIES

Our articles of incorporation provide that we may issue up to 100,000,000 shares of capital stock, par value $0.01 per share in the case of common stock, and having a par value as determined by the board of directors in the case of preferred stock. As of October 6, 2016, there were outstanding (i) 63,496,095 shares of common stock, (ii) Warrants to purchase an aggregate of 2,976,190 shares of common stock, and (iii) Options to purchase an assumed 3,632,245 shares of common stock and to purchase Option Warrants to purchase an additional assumed 1,816,123 shares of common stock (with the number of shares issuable pursuant to the Options and the Option Warrants based on the number of shares outstanding as of October 6, 2016, and therefore subject to change). In addition, as of October 6, 2016, there were 5,455,524 shares of common stock that may be issued upon the exercise of outstanding stock options (number includes both vested and non-vested stock options) issued pursuant to the Company’s 2011, 2004 and 2001 Incentive Stock Option Plans, and rights to purchase up to 400,000 shares of Series A Junior Participating Cumulative Preferred Stock.

Pursuant to the Purchase Agreement, we are required to register the shares of common stock sold in the Private Placement, as well as the shares of common stock issuable upon exercise of the Warrants, Options and Option Warrants (collectively, the “registrable securities”) for resale or other disposition. Specifically, we agreed to   (i) file with the SEC a shelf registration statement with respect to the resale of the registrable securities as soon as practicable after the closing of the Private Placement but within 30 days after the date of the Purchase Agreements; (ii) cause the shelf registration statement to be declared effective by the SEC as soon as possible after the initial filing, and in any event no later than 90 days after the closing date (or 120 days in the event of a full review of the shelf registration statement by the SEC); and (iii) keep the shelf registration statement effective until the earlier of the second anniversary of the closing, such time as all registrable securities may be sold pursuant to Rule 144 under the Securities Act of 1933 during any three-month period without the need for the Company to be in compliance with the current public information requirement of Rule 144 or such time as all registrable securities have been sold pursuant to an effective registration statement or Rule 144. If we are unable to comply with any of the above covenants, we will be required to pay liquidated damages to the selling shareholders in the amount of 1% of the selling shareholders’ purchase price for every 30 days until such non-compliance is cured (subject to a 12% cap), with such liquidated damages payable in cash.

A description of the material terms and provisions of our capital stock is set forth below. The description is intended as a summary and is qualified in its entirety by reference to our articles of incorporation and bylaws incorporated herein by reference. We have filed our articles of incorporation and bylaws as exhibits to the registration statement of which this prospectus is a part. You should read our articles of incorporation and bylaws for additional information before you buy any capital stock.

The following is a summary of the material features of our capital stock:

Common Stock

Holders of our common stock are entitled to one vote per share in the election of directors and on all other matters on which shareholders are entitled or permitted to vote. Holders of common stock are not entitled to cumulative voting rights. Subject to the terms of any outstanding series of preferred stock, the holders of common stock are entitled to dividends in amounts and at times as may be declared by the board of directors out of funds legally available therefor. Upon our liquidation or dissolution, holders of common stock are entitled to share ratably in all net assets available for distribution to shareholders after payment of any liquidation preferences to holders of preferred stock. Holders of common stock have no redemption, conversion or preemptive rights.

Pursuant to standstill agreements entered into by each selling shareholder as required by the Purchase Agreement, each of the selling shareholders agreed that for a period of 1 year from the closing date, such selling shareholder would not, individually or in concert with any group, purchase or otherwise acquire securities of the Company which would cause such selling shareholder, or the group with which such selling shareholder became associated, to beneficially own greater than 19.999% of the Company’s outstanding common stock.

Preferred Stock

Our articles of incorporation permit us to issue shares of preferred stock, from time to time, in one or more series and with such designation and preferences for each series as are stated in the resolutions providing for the designation and issue of each such series adopted by our board of directors. Our articles of incorporation authorize our board of directors to determine the number of shares, voting, dividend, redemption and liquidation preferences and limitations pertaining to such series. The board of directors, without shareholder approval, may issue preferred stock with voting rights and other rights that could adversely affect the voting power of the holders of our common stock and outstanding preferred stock could have certain anti-takeover effects. The ability of the board of directors to issue preferred stock without shareholder approval could have the effect of delaying, deferring or preventing a change in control of our company or the removal of existing management. We currently do not have shares of preferred stock outstanding; however, we have authorized up to 400,000 Series A Junior Participating Cumulative Preferred Stock,   $0.01   par value, in connection with the Shareholder Rights Plan described below, and pursuant to which we granted rights to purchase shares of the Series A Junior Participating Cumulative Preferred Stock . A description of the Series A Junior Participating Cumulative Preferred Stock can be found in our registration statement on Form 8-A filed on July 13, 2015.

Description of Warrants, Options and Option Warrants to Purchase Common Stock Pursuant to Which Common Stock May Be Issued

The Warrants entitle the holders to purchase up to an aggregate of 2,976,190 shares of common stock; provided, however, that such number is subject to adjustment due to the fact that each of the Warrants contains a limitation on the number of shares of common stock that a selling shareholder may purchase through the Private Placement. This limitation varies by selling shareholder, but the aggregate limitation, including all selling shareholders, prevents the securities offered in the Private Placement from exceeding 19.999% (including all common stock issued at the closing and the common stock issued following the exercise of all Warrants, Options and Option Warrants) of the sum of (i) the common stock outstanding prior to the Private Placement, plus (ii) the shares of common stock, and shares of common stock underlying the Warrants, purchased by all selling shareholders in the Private Placement, plus (iii) the shares of common stock underlying the Options and Option Warrants, purchased by all selling shareholders and assuming full exercise thereof.

The Warrants have an exercise price of $2.90 per share, which exercise price is subject to adjustment for stock splits, stock dividends, combinations or similar events. The Warrants will not be exercisable until March 20, 2017 and are exercisable until September 19, 2021.

The Options entitle the holders to purchase shares of common stock and to purchase Option Warrants pursuant to which shares of common stock are issuable. Such Options were not issued for a specific number of shares or Option Warrants; rather, each may be exercised for a combination, comprised of two-thirds shares of common stock and one-third Option Warrants, sufficient to increase such selling shareholder’s holdings in the Company, on a post-exercise basis, to a specific beneficial ownership percentage. This number varies by selling shareholder, but the aggregate of common stock issued at the closing and the Options and Option Warrants, if exercised in full by all selling shareholders, may not increase the holdings of all selling shareholders, collectively, to more than 19.999% of the Company’s 57,543,714shares of issued and outstanding common stock immediately prior to the Private Placement. The final number of shares of common stock each holder of an Option or an Option Warrant is entitled to purchase and the corresponding exercise price will be as described in the applicable prospectus supplement.

Each Option may only be exercised once, in whole or in part. The exercise price of an Option will be based on a per-share exercise price equal to the five-day volume weighted average price per share of the Company’s common stock as of the trading day immediately prior to exercise. For estimation purposes, assuming an exercise date of October 6, 2016, the exercise price of an Option would be $2.22 per share, subject to adjustment for stock splits, stock dividends, combinations or similar events. The term of each Option ends on March 19, 2017; provided, however, that each Option may not be exercised until October 19, 2016.

Each Option Warrant would be substantially in the form of Warrant issued in the Private Placement. The exercise price of an Option Warrant will be a price per share equal to a 50% premium to the Company’s closing stock price on the Nasdaq Global Market on the trading day most recently ended prior to the announcement of the exercise of the corresponding Option pursuant to which such Option Warrant was issued, subject to adjustment for stock splits, stock dividends, combinations or similar events. For estimation purposes, assuming that the corresponding Option exercise date was as of October 6, 2016, the exercise price of an Option Warrant would be $3.21. The term of each Option Warrant would be five years from the date of issuance and an Option Warrant may not be exercised for the first six months after issuance.

Provisions Regarding Aliens

Except as otherwise provided by law, not more than 20% of the aggregate voting power of all shares outstanding entitled to vote on any matter shall be at any time voted by or for the account of aliens as defined in the Communications Act of 1934, or their representatives, or by or for the account of a foreign government or representative thereof, or by or for the account of any corporation organized under the laws of a foreign country.

Except as otherwise provided by law, aliens, foreign governments, or corporations organized under the laws of a foreign country, or the representatives of such aliens, foreign governments, or corporations organized under the laws of a foreign country, shall not own, directly or through a third party who holds the stock for the account of such alien, foreign government, or corporation organized under the laws of a foreign country: (1) more than 20% of the number of shares of our outstanding stock, or (2) shares representing more than 20% of the aggregate voting power of all of our outstanding shares of voting stock.

Shares of stock shall not be transferable on our books to aliens, foreign governments, or corporations organized under the laws of foreign countries, or to the representatives of, or persons holding for the account of, such aliens, foreign governments, or corporations organized under the laws of foreign countries, unless, after giving effect to such transfer, the aggregate number of shares of stock owned by or for the account of aliens, foreign governments, and corporations organized under the laws of foreign countries, and any representatives thereof, will not exceed 20% of the number of shares of outstanding stock, and the aggregate voting power of such shares will not exceed twenty percent 20% of the aggregate voting power of all outstanding shares of our voting stock.

If, notwithstanding these restrictions on transfer, the aggregate number of shares of stock owned by or for the account of aliens, foreign governments, and corporations organized under the laws of foreign countries, exceed 20% of our shares of outstanding stock, or if the aggregate voting power of such shares exceed 20% of the aggregate voting power of all outstanding shares of our voting stock, we have the right to redeem shares of all classes of capital stock, at their then fair market value, on a pro rata basis, owned by or for the account of all aliens, foreign governments, and corporations organized under the laws of foreign countries, in order to reduce the number of shares and/or percentage of voting power held by or for the account of aliens, foreign governments, and corporations organized under the laws of foreign countries, and their representatives to the maximum number or percentage allowed under our articles of incorporation or as otherwise required by applicable federal law.

The board of directors shall make such rules and regulations as it deems necessary or appropriate to enforce the provisions of this section.

Anti-Takeover Provisions Contained in Our Articles of Incorporation, Shareholder Rights Plan and the Minnesota Business Corporation Act

Our shareholder rights plan, as well as certain provisions of our articles of incorporation and of Minnesota law described below could have an anti-takeover effect. These provisions are intended to provide management flexibility, to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by our board of directors and to discourage an unsolicited takeover of our company, if our board of directors determines that such a takeover is not in our best interests or the best interests of our shareholders. However, these provisions could have the effect of discouraging certain attempts to acquire us that could deprive our shareholders of opportunities to sell their shares of our stock at higher values.

Shareholder Rights Plan

During the second quarter of fiscal 2015, we adopted a shareholder rights plan to preserve the value of certain deferred tax benefits, including those generated by net operating losses. On July 10, 2015, we declared a dividend distribution of one purchase right (a “Right”) for each outstanding share of our common stock to shareholders of record as of the close of business on July 23, 2015 and issuable as of that date, and on July 13, 2015, we entered into a shareholder rights plan (the “Rights Plan”) with Wells Fargo Bank, N.A., a national banking association, with respect to the Rights. Except in certain circumstances set forth in the Rights Plan, each Right entitles the holder to purchase from us one onethousandth of a share of Series A Junior Participating Cumulative Preferred Stock, $0.01 par value, of the Company (“Preferred Stock” and each one onethousandth of a share of Preferred Stock, a “Unit”) at a price of $9.00 per Unit.

The Rights initially trade together with the common stock and are not exercisable. Subject to certain exceptions specified in the Rights Plan, the Rights will separate from the common stock and become exercisable following (i) the tenth calendar day after a public announcement or filing that a person or group has become an “Acquiring Person,” which is defined as a person who has acquired, or obtained the right to acquire, beneficial ownership of 4.99% or more of the common stock then outstanding, subject to certain exceptions, or (ii) the tenth calendar day (or such later date as may be determined by the board of directors) after any person or group commences a tender or exchange offer, the consummation of which would result in a person or group becoming an Acquiring Person. If a person or group becomes an Acquiring Person, each Right will entitle its holders (other than such Acquiring Person) to purchase one Unit at a price of $9.00 per Unit. A Unit is intended to give the shareholder approximately the same dividend, voting and liquidation rights as would one share of common stock, and should approximate the value of one share of common stock. At any time after a person becomes an Acquiring Person, the board of directors may exchange all or part of the outstanding Rights (other than those held by an Acquiring Person) for shares of common stock at an exchange rate of one share of common stock (and, in certain circumstances, a Unit) for each Right. We will promptly give public notice of any exchange (although failure to give notice will not affect the validity of the exchange).

The Rights will expire upon certain events described in the Rights Plan, including the close of business on the date of the third annual meeting of shareholders following the last annual meeting of our shareholders at which the Rights Plan was most recently approved by shareholders, unless the Rights Plan is re-approved by shareholders at that third annual meeting of shareholders. However, in no event will the Rights Plan expire later than the close of business on July 13, 2025. Until the close of business on the tenth calendar day after the day a public announcement or a filing is made indicating that a person or group has become an Acquiring Person, we may in our sole and absolute discretion amend the Rights or the Rights Plan agreement without the approval of any holders of the Rights or shares of common stock in any manner, including without limitation, amendments that increase or decrease the purchase price or redemption price or accelerate or extend the final expiration date or the period in which the Rights may be redeemed. We may also amend the Rights Plan after the close of business on the tenth calendar day after the day such public announcement or filing is made to cure ambiguities, to correct defective or inconsistent provisions, to shorten or lengthen time periods under the Rights Plan or in any other manner that does not adversely affect the interests of holders of the Rights. No amendment of the Rights Plan may extend its expiration date.

Statutory Provisions

Section 302A.671 of the Minnesota Business Corporation Act applies, with certain exceptions, to any acquisitions of our voting stock from a person other than us, and other than in connection with certain mergers and exchanges to which we are a party and certain tender offers or exchange offers approved in advance by a disinterested board committee, resulting in the beneficial ownership of 20% or more of the voting power of our then outstanding stock. Section 302A.671 requires approval of the granting of voting rights for the shares received pursuant to any such acquisitions by a vote of our shareholders holding a majority of the voting power of our outstanding shares and a majority of the voting power of our outstanding shares that are not held by the acquiring person, our officers or those non-officer employees, if any, who are also our directors. Similar voting requirements are imposed for acquisitions resulting in beneficial ownership of 33-1/3% or more or a majority of the voting power of our then outstanding stock. In general, shares acquired without this approval are denied voting rights in excess of the 20%, 33-1/3% or 50% thresholds and, to that extent, can be called for redemption at their then fair market value by us within 30 days after the acquiring person has failed to deliver a timely information statement to us or the date our shareholders voted not to grant voting rights to the acquiring person’s shares.

Section 302A.673 of the Minnesota Business Corporation Act generally prohibits any business combination by us, or any subsidiary of ours, with any shareholder that beneficially owns 10% or more of the voting power of our outstanding shares (an “interested shareholder”) within four years following the time the interested shareholder crosses the 10% stock ownership threshold, unless the business combination is approved by a committee of disinterested members of our board of directors before the time the interested shareholder crosses the 10% stock ownership threshold.

Section 302A.675 of the Minnesota Business Corporation Act generally prohibits an offeror from acquiring our shares within two years following the offeror’s last purchase of our shares pursuant to a takeover offer with respect to that class, unless our shareholders are able to sell their shares to the offeror upon substantially equivalent terms as those provided in the earlier takeover offer. This statute will not apply if the acquisition of shares is approved by a committee of disinterested members of our board of directors before the purchase of any shares by the offeror pursuant to the earlier takeover offer.

Authorized But Unissued Shares of Common Stock and Preferred Stock

Our authorized but unissued shares of common stock and preferred stock are available for our board of directors to issue without shareholder approval. We may use these additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. In addition, our articles of incorporation permit us to issue shares of preferred stock, from time to time, in one or more series and with such designation and preferences for each series as are stated in the resolutions providing for the designation and issue of each such series adopted by our board of directors. Our articles of incorporation authorize our board of directors to determine the number of shares, voting, dividend, redemption and liquidation preferences and limitations pertaining to such series. The board of directors, without shareholder approval, may issue common stock or preferred stock with voting rights and other rights that could adversely affect the voting power of the holders of our common stock could have certain anti-takeover effects. We currently do not have any shares of preferred stock outstanding and have no present plans to issue any shares of preferred stock. The ability of the board of directors to issue common stock or preferred stock without shareholder approval could have the effect of delaying, deferring or preventing a change in control of our company or the removal of existing management.