EXHIBIT 10.7
SELLER WARRANT AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER THE
SECURITIES ACT AND UNDER ANY RELEVANT STATE LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Warrant No. 2
Cusip # 016275 12 5
THIS SELLER WARRANT AGREEMENT ("Agreement" or "Warrant Agreement") is
made as of this 20th day of December, 2002 (the "Effective Date"), between Alion
Science and Technology Corporation, a Delaware corporation (the "Company"),
Alion Science and Technology Corporation Employee Ownership, Savings and
Investment Trust (the "Trust") (for the purposes of Sections 6, 7, 15 and 17
through 25 of this Agreement only) and IIT Research Institute, an Illinois
not-for-profit corporation ("IITRI").
WHEREAS, the Company and IITRI have entered into that certain Fourth
Amended and Restated Asset Purchase Agreement dated November 18, 2002 (as
amended, the "Purchase Agreement"), pursuant to which IITRI has agreed to sell
to the Company and the Company has agreed to purchase, subject to the terms and
conditions set forth therein, substantially all of the assets and liabilities of
IITRI;
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company
has agreed to issue to IITRI warrants to purchase shares of the Company's $0.01
par value per share common stock ("Common Stock");
WHEREAS, the parties hereto have entered into a Rights Agreement of
even date herewith (the "Rights Agreement"), pursuant to which the parties have
agreed to certain registration and director nomination rights relating to the
warrants issued hereunder and Common Stock issued upon exercise of such
warrants; and
WHEREAS, the Company and IITRI have entered into a Seller Note
Securities Purchase Agreement of even date herewith (the "Seller Securities
Purchase Agreement"), pursuant to which the Company has issued a promissory note
to IITRI in the principal amount of Thirty-Nine Million Nine Hundred Thousand
Dollars ($39,900,000).
NOW, THEREFORE, in consideration of the premises set forth above, the
covenants, representations and warranties contained in this Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
Section 1. Grant of Warrant.
Upon the terms and subject to the conditions hereinafter set forth, the
Company hereby grants to IITRI, or its permitted registered transferees (subject
to the restrictions set forth herein), an irrevocable right (the "Warrant") to
purchase up to One Million Eighty Thousand Four Hundred Thirty-Six and
Eight-Tenths (1,080,436.8) shares of Common Stock upon exercise of the Warrant
(the "Shares") at an exercise price of $10 per share (the "Exercise Price"), and
to exercise the other rights, powers and privileges hereinafter set forth. The
Exercise Price and the number of Shares shall be subject to adjustment from time
to time as provided in Section 3 hereof.
Section 2. Duration and Exercise of Warrant. Subject to Sections 2(b),
4, 5, 6 and 7 herein, the parties hereto agree as
follows,
(a) Subject to the remaining provisions of this Agreement, the Warrant
may be exercised, in whole or in part, by IITRI and/or its permitted transferees
(IITRI and its permitted transferees are hereinafter referred to individually or
collectively as the "Holder") on any business day on or after the Effective Date
and through and including (i) the date that is thirty (30) days following the
date of the Company's delivery to the Holder of the appraisal performed by an
independent appraiser at the Company's request in connection with the Alion
Science and Technology Corporation Employee Ownership, Savings and Investment
Plan (the "ESOP") that sets forth the per share value of the Common Stock as of
September 30, 2010 (the "September 2010 Appraisal"), if the ESOP is still in
existence on September 30, 2010 and if none of clauses (a), (b) and (c) of the
definition of "Current Market Price" in Section 3(c)(ii) below are applicable;
provided that the September 2010 Appraisal shall not reflect any discount for
any lack of liquidity or absence of control, or (ii) the eighth (8th)
anniversary of the Effective Date, if the ESOP is not still in existence on
September 30, 2008 or if one of the clauses (a), (b) or (c) of the definition of
"Current Market Price" in Section 3(c)(ii) below is applicable (in each case,
the "Expiration Date"). At 5:00 P.M., Eastern Standard Time, on the Expiration
Date, the Warrant shall be and become void and of no value to the extent it has
not been exercised prior to such time.
(b) The Holder shall not be entitled to exercise any portion of the
Warrant unless it has delivered written notice in the form of the Form of
Election to Purchase attached hereto as Exhibit A (the "Exercise Notice") to the
Company in accordance with Section 15 of this Warrant Agreement ninety (90) days
prior to the proposed effective date of such exercise. Subject to the terms of
Sections 2(h), 6(b) and 7(b), the Warrant or a portion thereof, as appropriate,
shall be deemed to be exercised ninety (90) days from the date (the "Exercise
Date") the Company receives the Exercise Notice.
(c) The Holder shall make payment for the exercise of the Warrant, or a
portion thereof, as appropriate, in the form of cash, or in lieu of cash, the
Holder may elect to receive such number of Shares equal to the value (as
determined below) of the exercised Warrant, or portion thereof, by indicating in
the Exercise Notice the Holder's desire to consummate a
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cashless exercise ("Cashless Exercise Notice"), in which event the Company shall
issue to the Holder a number of Shares computed using the following formula:
Y x ( A - B )
X = ------------------
A
Where:
X = The number of Shares to be issued to the Holder;
Y = The number of Shares purchasable under the Warrant if
exercised in full, or the exercised portion thereof, as
appropriate;
A = The then current Fair Value (as determined in accordance with
Section 3(c) herein); and
B = The then current Exercise Price.
(d) Upon exercise of any portion of the Warrant and payment of the
Exercise Price therefor, the Company shall issue to the Holder stock
certificates representing the shares of Common Stock underlying such exercised
portion of the Warrant, or representing such number of Shares as computed in
accordance with Section 2(c) above, as appropriate.
(e) If this Warrant is exercised in respect of less than all of the
Shares at the time purchasable hereunder, the Holder hereof shall be entitled to
receive a new Warrant covering the number of Shares in respect of which this
Warrant shall not have been exercised and setting forth the aggregate Exercise
Price applicable to such shares, in which case the Holder shall at the same time
surrender this Warrant to the Company for cancellation.
(f) The Shares issuable upon the exercise of this Warrant by the Holder
under this Section 2 shall be deemed to have been issued to the Holder at the
Exercise Date, and the Holder shall be deemed for all purposes to have become
the record holder of such Shares at the Exercise Date.
(g) The Company shall not close its books against the transfer of this
Warrant or of any Share issued or issuable upon the exercise of this Warrant in
any manner which interferes with the timely exercise of this Warrant.
(h) Notwithstanding any other provision hereof, if an exercise of any
portion of this Warrant is to be made in connection with a public offering, a
Drag-Along Notice (as defined in Section 6), a Tag-Along Notice (as defined in
Section 7), or a sale of the Company, the exercise of any portion of this
Warrant (and the payment of the Exercise Price related thereto) shall be
conditioned upon the consummation of the public offering, the transaction which
is the subject of such Drag-Along Notice or Tag-Along Notice, or such sale of
the Company in which case such exercise shall not be deemed to be effective
until the concurrent consummation of such transaction.
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(i) The Company shall pay all reasonable expenses, taxes (excluding
transfer taxes) and other charges payable in connection with the preparation,
execution and delivery of stock certificates pursuant to this Section,
regardless of the name or names in which such stock certificates shall be
registered. Such stock certificates shall be delivered within five (5) days of
the applicable Exercise Date.
(j) The Company will at all times prior to the Expiration Date reserve
and keep available such number of authorized shares of its Common Stock, solely
for the purpose of issue upon the exercise of the rights represented by this
Warrant as may at any time be issuable upon the exercise of this Warrant and
such shares issuable upon the exercise of this Warrant shall at no time have an
aggregate par value which is in excess of the aggregate Exercise Price.
(k) The Company may at its option issue fractional Shares, or cash
representing the then current Fair Value of such fractional Shares, upon any
exercise of this Warrant, if appropriate.
Section 3. Adjustment of Number of Shares and Exercise Price.
The number of shares of Common Stock underlying the Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows in
each applicable instance. With respect to any determination of adjustments to
the number of shares of Common Stock or the Exercise Price which may be required
by this Section 3, the Company's board of directors shall make a good faith
determination regarding any adjustment; provided that the holders holding a
majority of the Warrant (the "Required Holders") shall be entitled to notify the
Company in accordance with Section 15 herein of their disagreement with the
board of directors' determination (other than the determination of Fair Value
(as defined in Section 3(c) below), which shall be determined exclusively in
accordance with the provisions of Section 3(c)) of the adjustment within fifteen
(15) days following receipt of the writing setting forth any such adjustment. If
the Company and the Required Holders cannot resolve such disagreement within ten
(10) days of the Company's receipt of the Required Holders' notice of
disagreement, such adjustment shall be determined by an independent accounting
or investment banking firm of recognized national standing selected by the
Company and reasonably acceptable to the Required Holders. The determination of
such accounting or investment banking firm so made shall be conclusive and
binding on the Company and the Holders. The Company shall pay all expenses of
such accounting or investment banking firm if the determination of such
adjustment is five percent (5%) or more greater than (i.e., more favorable to
the Required Holders than) the determination previously made by the board of
directors; otherwise the Required Holders shall pay all such expenses.
(a) In the event of any change in the outstanding Common Stock of the
Company due to stock dividends, consolidations, stock splits or reverse stock
splits, the number of shares of Common Stock underlying the Warrant and/or the
Exercise Price will be appropriately adjusted, upwards or downwards, so that the
Holder thereafter shall be entitled to purchase the number of shares of Common
Stock consistent with such change at an exercise price that is proportionate
with such change.
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(b) If the Company issues or sells any Additional Stock (as defined in
Section 3(l) below) for a consideration less than Fair Value (as defined in
Section 3(c) herein) as of the date of execution of the binding written
agreement providing for such issuance or sale, the Exercise Price for the
Warrant which was in effect immediately prior to each such issuance shall be
reduced to the "Diluted Price". The Diluted Price shall be calculated in
accordance with the following formula for any issuance of Additional Stock in a
transaction triggering the rights afforded in this Section 3(b) (the "Trigger
Transaction"). The product of the per share consideration and the number of
shares of Additional Stock issued in connection with the corresponding Trigger
Transaction shall hereinafter be referred to as the "Transaction Price".
The Diluted Price shall equal the product of (i) the Exercise Price
(subject to adjustment pursuant to this Section 3) and (ii) the quotient of (x)
the number of then outstanding shares of Common Stock on a fully diluted basis
(assuming the exercise of all outstanding options, rights (including, without
limitation, stock appreciation rights ("SARs")) and warrants and the conversion
into Common Stock of all convertible securities) plus the number of shares of
Additional Stock that would have been issued for the Transaction Price if the
per share consideration in the Trigger Transaction had been equal to the Fair
Value per Share as of the date of execution of the binding written agreement
providing for the issuance of the Additional Stock, divided by (y) the number of
then outstanding shares of Common Stock on a fully diluted basis (assuming the
exercise of all outstanding options, rights and warrants and the conversion into
Common Stock of all convertible securities) plus the number of shares of
Additional Stock issued in connection with the Trigger Transaction.
(c) Fair Value and Current Market Price.
(i) The "Fair Value", at any given time, shall mean the fair
value of the appropriate security (including, without limitation, any share of
Common Stock), property, assets, business or entity as determined in good faith
by the board of directors of the Company; provided that in connection with any
transaction which (1) has an aggregate value of One Million Dollars ($1,000,000)
or more, (2) is not based upon a determination of Fair Value set forth in an
appraisal performed by an independent appraiser at the Company's request
relating to or in connection with the ESOP that is no more than six (6) months
old, dated from the date of execution of the appraisal, and (3) is not based
upon a determination of Fair Value as set forth in a fairness opinion performed
by an independent investment banking firm of recognized national standing at the
Company's request that is no more than six (6) months old, dated from the date
of execution of the opinion (provided that with respect to clauses (2) and (3),
no event or events have occurred between the date of such appraisal or fairness
opinion (i.e., the date as of which Fair Value is measured by such appraisal or
fairness opinion) and the date of execution of the binding written agreement
providing for the transaction in question that would cause the Required Holders
to reasonably conclude that the Fair Value at such date of execution is greater
than the determination of Fair Value reflected in such appraisal or fairness
opinion), if, within fifteen (15) days following receipt of the writing setting
forth any such determination of Fair Value (a copy of which the Company shall
deliver to the Holders promptly after such determination), the Required Holders
shall notify the Company in accordance with Section 15 herein of their
disagreement with such determination (the "Challenged Determination"), then a
new determination of Fair Value shall be made as of the date of execution of the
binding written agreement providing for the transaction in question (the
"Subsequent Determination"). If clauses (2) or (3) above are applicable, the
Subsequent Determination shall be made by the same
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appraiser or investment banking firm that made the Challenged Determination;
otherwise, the Subsequent Determination shall be made by an independent
appraiser or independent investment banking firm of recognized national
standing, selected by the Company and reasonably satisfactory to the Required
Holders, and if the Company shall not have selected an investment banking firm
or appraiser within thirty (30) days after its receipt of a writing from the
Required Holders containing their disagreement with the board of directors'
determination, then the Required Holders may select such investment banking firm
or appraiser. The Subsequent Determination shall be conclusive and binding on
the Company and on the Holders. The Company shall pay all of the expenses
incurred in connection with any Subsequent Determination, including, without
limitation, the expenses of the independent investment banking firm or appraiser
engaged to make such Subsequent Determination, if the Subsequent Determination
is five percent (5%) or more greater than (i.e., more favorable to the Required
Holders than) the Challenged Determination; otherwise the Required Holders shall
pay all such expenses. Notwithstanding the foregoing, in the case of any
security, if clauses (a), (b) or (c) of the definition of Current Market Price
are applicable to such security, then the Fair Value of such security shall be
the Current Market Price of such security.
(ii) "Current Market Price" of any security (including,
without limitation, any share of Common Stock) as of any date herein specified
shall mean the average of the daily closing prices for the twenty (20)
consecutive trading days immediately prior to, but not including the day in
question (or in the event that a security has been traded for less than twenty
(20) days, each of the trading days prior to the day in question on which such
security has been traded). The closing price for each day shall be (a) if such
security is listed or admitted for trading on any domestic national securities
exchange, the closing sale price of such security, regular way, or the average
of the closing bid and asked prices thereof if no such sale occurred, in each
case as officially reported on the principal securities exchange on which such
security is listed, or (b) if not reported as described in clause (a), the
closing sale price of such security, or the average of the closing bid and asked
prices thereof if no such sale occurred, in each case as reported by the Nasdaq
National Market, or any similar system of automated dissemination of quotations
of securities prices then in common use, if so quoted, as reported by any member
firm of the New York Stock Exchange selected by the Company, or (c) if not
quoted as described in clause (b), the average of the closing bid and asked
prices for such security as reported by the National Quotation Bureau
Incorporated or any similar successor organization, as reported by any member
firm of the New York Stock Exchange selected by the Company.
(d) No adjustment of the Exercise Price shall be made in an amount less
than one cent per share, provided that any adjustments that are not required to
be made by reason of this sentence shall be carried forward and shall be taken
into account in any subsequent adjustment made after the date of the event
giving rise to the adjustment being carried forward.
(e) Reorganization, Reclassification or Recapitalization of the
Company. If and whenever subsequent to the date hereof the Company shall effect
(i) any reorganization or reclassification or recapitalization of the capital
stock of the Company (other than in the cases referred to in Section 3(a)), (ii)
any consolidation or merger of the Company with or into another Person, (iii)
the sale, transfer or other disposition of the property, assets or business of
the Company as an entirety or substantially as an entirety or (iv) any other
transaction (or any other event shall occur) as a result of which holders of
Shares become entitled to receive any Common Stock or other securities and/or
property of the Company, any of its Subsidiaries or any other
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Person (including, without limitation, cash) with respect to or in exchange for
the Shares, there shall thereafter be deliverable upon the exercise of this
Warrant or any portion thereof (in lieu of or in addition to the Shares
theretofore deliverable, as appropriate) the same number of shares of Common
Stock or other securities and/or the same amount of property (including, without
limitation, cash) to which the holder of the number of Shares which would
otherwise have been deliverable upon the exercise of this Warrant or any portion
thereof at the time would have been entitled upon such reorganization or
reclassification or recapitalization of capital stock, consolidation, merger,
sale, transfer, disposition or other transaction or upon the occurrence of such
other event, and at the same aggregate Exercise Price. The term "Person" shall
mean an individual, a corporation, an association, a joint-stock company, a
business trust or other similar organization, a partnership, a limited liability
company, a joint venture, a trust, an unincorporated organization or a
government or any agency, instrumentality or political subdivision thereof.
Prior to the consummation of any transaction or event described in the
preceding sentence, the Company shall make equitable, written adjustments in the
application of the provisions set forth herein for the benefit of the Holder, in
a manner reasonably satisfactory to the Required Holders so that all such
provisions shall thereafter be applicable, as nearly as possible, in relation to
any Shares or other securities or other property thereafter deliverable upon
exercise of the Warrants and so that the holders of the Warrants will (after
exercise) enjoy all of the rights and benefits enjoyed by any holder of Common
Stock in connection with any such transaction or event, including, without
limitation, any subsequent tender offer or redemption of any such Shares or
other securities. Any such adjustment shall be made by and set forth in a
supplemental agreement of the Company and/or the successor entity, as
applicable, for the benefit of the Holder, and in form and substance reasonably
acceptable to the Required Holders, which agreement shall bind the Company
and/or the successor entity, as applicable, and all holders of any portion of
the Warrant then outstanding and shall be accompanied by a favorable opinion of
the regular outside counsel to the Company or the successor entity, as
applicable (or such other firm as is reasonably acceptable to the Required
Holders), as to the enforceability of such agreement (with standard exceptions).
(f) Determination of Consideration. For the purposes of this Section 3,
the consideration received or receivable by the Company for the issuance, sale
or grant of shares of Common Stock, options, warrants, rights or convertible
securities, irrespective of the accounting treatment of such consideration,
shall be valued and determined as follows:
(i) Cash Payment. In the case of cash, the gross amount paid
by the purchasers without deduction of any accrued interest or dividends, any
reasonable expenses paid or incurred and any reasonable underwriting commissions
or concessions paid or allowed by the Company in connection with such issue or
sale.
(ii) Non-Cash Payment. In the case of consideration other than
cash, the Fair Value thereof (in any case as of the date immediately preceding
the issuance, sale or grant in question).
(iii) Certain Allocations. If shares of Additional Stock are
issued or sold together with other securities or other assets of the Company for
a consideration which covers more than one of the foregoing categories of
securities and assets, the consideration received or receivable (computed as
provided in Sections 3(f)(i) and 3(f)(ii)) shall be allocable to such shares
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of Additional Stock as reasonably determined in good faith by the board of
directors of the Company (provided such allocation is set forth in a written
resolution and a certified copy thereof is furnished to the Holder of this
Warrant promptly (but in any event within thirty (30) days following its
adoption).
(iv) Dividends in Securities. If the Company shall declare a
dividend or make any other distribution upon the Common Stock of the Company
payable in shares of Additional Stock, such shares of Additional Stock, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
(v) Rights and Convertible Securities. The consideration for
which each share of Additional Stock shall be deemed to be issued upon the
execution of the binding written agreement providing for the issuance or sale of
any Additional Stock shall be determined by dividing (A) the total
consideration, if any, received by the Company as consideration for the
Additional Stock, as the case may be, plus the minimum aggregate amount of
additional consideration, if any, ever payable to the Company upon the exercise
of such Additional Stock, as the case may be, but without deduction of any
accrued interest or dividends, any reasonable expenses paid or incurred and any
reasonable underwriting commissions or concessions paid or allowed by the
Company in connection with such issue or sale; by (B) the maximum number of
shares of Common Stock issuable upon the exercise of such Additional Stock or
attributable to such Additional Stock.
(vi) Merger, Consolidation or Sale of Assets. If any shares of
Additional Stock are issued in connection with any merger or consolidation of
which the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the Fair Value of such portion of the assets and
business of the non-surviving corporation as shall be attributable to such
Additional Stock, as the case may be.
(vii) Consideration for Underlying Shares.
1. The shares of Common Stock deliverable upon
exercise of options or warrants to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued for a consideration equal to the
consideration (determined in the manner provided in Section 3(f)(i) and/or
Section 3(f)(ii)) if any, received by the Company upon the issuance of such
options, warrants or rights plus the minimum exercise price provided in such
options, warrants or rights (without taking into account potential antidilution
adjustments) for the shares of Common Stock covered thereby.
2. The shares of Common Stock deliverable upon
conversion of, or in exchange for, any convertible or exchangeable securities or
upon the exercise of options or warrants to purchase or rights to subscribe for
such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued for a consideration equal
to the consideration, if any, received by the Company for any such securities
and related options, warrants or rights, plus the minimum additional
consideration, if any, to be received by the Company upon the conversion or
exchange of such securities or the exercise of any related options, warrants or
rights (the consideration in each case to be determined in the manner provided
in Section 3(f)(i) or Section 3(f)(ii)).
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(g) Shares Outstanding. The number of shares of Common Stock deemed to
be outstanding at any given time shall not include shares of Common Stock held
by the Company or any Subsidiary of the Company, but shall include shares of
Common Stock held by or in the name of the ESOP or any trust associated with the
ESOP.
(h) Maximum Exercise Price. At no time shall the Exercise Price exceed
the amount set forth in Section 1 of this Warrant except as a result of an
adjustment thereto pursuant to this Section 3.
(i) Application. All subdivisions of this Section 3 are intended to
operate independently of one another. If a transaction or an event occurs that
requires the application of more than one subdivision, all applicable
subdivisions shall be given independent effect (but without duplication of
adjustment).
(j) Certificates and Notices.
(i) Adjustments to Exercise Price. As promptly as practicable
(but in any event not later than thirty (30) days) after the occurrence of any
event requiring any adjustment under this Section 3 to the Exercise Price (or to
the number or kind of securities or other property deliverable upon the exercise
of this Warrant), the Company shall, at its expense, deliver to the Holder
either (i) an officers' certificate or (ii) a certificate signed by a firm of
independent certified public accountants of recognized national standing (which
may be the regular auditors of the Company), setting forth in reasonable detail
the events requiring the adjustment and the method by which such adjustment was
calculated and specifying the adjusted Exercise Price and the number of shares
of Common Stock (or other securities) purchasable upon exercise of this Warrant
after giving effect to such adjustment. The certificate of any such firm of
accountants shall be conclusive and binding evidence for all purposes, absent
manifest error, of the correctness of any computation made under this Section 3.
(ii) Extraordinary Corporate Events. If and whenever the
Company subsequent to the date hereof shall propose to (i) pay any dividend to
the holders of shares of Common Stock or to make any other distribution to the
holders of shares of Common Stock (other than as a regularly scheduled cash
dividend), (ii) offer to the holders of shares of Common Stock rights to
subscribe for or purchase any additional shares of any class of stock or any
other rights or options, (iii) effect any reclassification of the Common Stock
or other shares of the Company (other than a reclassification involving merely
the subdivision or combination of outstanding shares of Common Stock as provided
in Section 3(a)), (iv) engage in any reorganization or recapitalization or any
consolidation or merger, (v) consummate any sale, transfer or other disposition
of its property, assets and business as an entirety or substantially as an
entirety, (vi) effect any other transaction which requires an adjustment to the
Exercise Price (or to the number or kind of securities or other property
deliverable upon the exercise of this Warrant), or (vii) commence or effect the
liquidation, dissolution or winding up of the Company, then, in each such case,
the Company shall deliver to the Holder an officers' certificate giving notice
of such proposed action, specifying (A) the date on which the stock transfer
books of the Company shall close, or a record shall be taken, for determining
the holders of Common Stock entitled to receive such dividend or other
distribution or such rights or options, or the date on which such
reclassification, reorganization, recapitalization, consolidation, merger, sale,
transfer, other disposition, transaction, liquidation, dissolution or winding up
shall take place or
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commence, as the case may be, and (B) the date as of which it is expected that
holders of Common Stock of record shall be entitled to receive securities or
other property deliverable upon such action, if any such date is to be fixed.
Such officers' certificate shall be delivered in the case of any action covered
by clause (i) or (ii) above, at least 15 business days prior to the record date
for determining holders of Common Stock for purposes of receiving such payment
or offer, and, in any other case, at least 15 business days prior to the date
upon which such action takes place and 15 business days prior to any record date
to determine holders of Common Stock entitled to receive such securities or
other property.
(k) Effect of Failure. Failure to give any certificate or notice, or
any defect in any certificate or notice required under this Section 3 shall not
affect the legality or validity of the adjustment of the Exercise Price or the
number of Shares purchasable upon exercise of this Warrant.
(l) "Additional Stock" shall mean any shares of Common Stock, warrants
or rights (including, without limitation, SARs) to purchase Common Stock, or
securities convertible into Common Stock, issued or deemed to have been issued
by the Company, other than:
(i) SARs issued to employees, consultants, officers or
directors of the Company or any of its Subsidiaries with an exercise price no
less than Fair Value, except for such amount of SARs that, at the time of
issuance, would cause the aggregate number of SARs then outstanding (excluding
any SARs that have (x) been exercised, (y) expired, terminated unexercised, or
become unexercisable or (z) been forfeited or otherwise terminated, surrendered
or canceled) to be in excess of:
(1) two percent (2%) of the number of then
outstanding shares of Common Stock on a fully diluted basis (assuming the
exercise of all outstanding options, warrants and rights and the conversion into
Common Stock of all convertible securities) at the first anniversary of the
Effective Date;
(2) four percent (4%) of the number of then
outstanding shares of Common Stock on a fully diluted basis (assuming the
exercise of all outstanding options, warrants and rights and the conversion into
Common Stock of all convertible securities) at the second anniversary of the
Effective Date;
(3) six percent (6%) of the number of then
outstanding shares of Common Stock on a fully diluted basis (assuming the
exercise of all outstanding options, warrants and rights and the conversion into
Common Stock of all convertible securities) at the third anniversary of the
Effective Date;
(4) eight percent (8%) of the number of then
outstanding shares of Common Stock on a fully diluted basis (assuming the
exercise of all outstanding options, warrants and rights and the conversion into
Common Stock of all convertible securities) at the fourth anniversary of the
Effective Date; and
(5) ten percent (10%) of the number of then
outstanding shares of Common Stock on a fully diluted basis (assuming the
exercise of all outstanding options,
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warrants and rights and the conversion into Common Stock of all convertible
securities) at the fifth anniversary of the Effective Date.
(ii) shares of Common Stock contributed by the Company to any
Company benefit plan, including, but not limited to, the ESOP ("Company
Contributions"), except for such amount of shares that, at the time of issuance,
would cause the aggregate value of all Company Contributions (in each case the
total value of a Company Contribution is calculated by multiplying the number of
shares of Common Stock contributed by the Fair Value at the time of such
contribution) to exceed five percent (5%) of the Company's aggregate
consolidated payroll expenses (i.e., the aggregate payroll expenses of the
Company and any of the Company's Subsidiaries substantially all of whose
employees are eligible to participate in such Company benefit plans) from the
Effective Date to the date of such contributions, measured at the end of each
plan year for such Company benefit plans;
(iii) shares of Common Stock issued to the ESOP in connection
with employees' purchase of ESOP interests after the Effective Date via payroll
deductions, at a purchase price which is the lesser of (x) the Fair Value as of
the date of issuance of such Common Stock as determined by an independent
appraiser in connection with the ESOP ("Full Price Employee Contributions"), or
(y) the Fair Value resulting from the immediately preceding appraisal of the
Common Stock performed by an independent appraiser in connection with the ESOP
("Price Protected Employee Contributions"), except for such amount of shares
that, at the time of issuance, would cause the aggregate value of all Price
Protected Employee Contributions (in each case the total value of a Price
Protected Employee Contribution shall be the dollar value of the payroll
deduction made in connection with such Price Protected Employee Contribution) to
exceed three percent (3%) of the Company's aggregate consolidated payroll
expenses (i.e., the aggregate payroll expenses of the Company and any of the
Company's Subsidiaries substantially all of whose employees are eligible to
participate in the ESOP) from the Effective Date to the date of such
contributions, measured at the end of each plan year for the ESOP;
(iv) shares of Common Stock, or any other securities or
property of the Company, issued to the Holder pursuant to any of its rights or
privileges under this Agreement; and
(v) interests or rights designated as phantom stock issued or
granted by the Company to employees, consultants, officers or directors of the
Company or any of its Subsidiaries in accordance with a phantom stock plan to be
adopted by the Company's board of directors after the Effective Date, except for
such amount of phantom stock that, at the time of issuance or grant, would cause
the aggregate number of shares of phantom stock then outstanding (excluding any
shares of phantom stock that have (x) expired, terminated unexercised, or become
unexercisable, or (y) been forfeited or otherwise terminated, surrendered or
cancelled) to be in excess of 171,494 shares of phantom stock.
(m) In the case of the Company's contribution, after the Effective
Date, of any shares of Common Stock to any Company benefit plan, including but
not limited to the ESOP, the consideration for such shares shall be deemed to be
equal to the Fair Value of such shares on the date of contribution.
11
(n) "Subsidiary" means, with respect to any Person, (i) any corporation
more than fifty percent (50%) of the outstanding securities having ordinary
voting power of which shall at the time be owned or controlled, directly or
indirectly, by such Person or by one or more of its Subsidiaries or by such
Person and one or more of its Subsidiaries, or (ii) any partnership, limited
liability company, association, joint venture or similar business organization
more than fifty percent (50%) of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" means a Subsidiary
of the Company.
Section 4. Call Rights.
(a) Subject to the terms and conditions of this Section 4, the Company
shall have the following call rights with respect to the Warrant:
(i) immediately upon receipt of any Exercise Notice from the
Holder and prior to any pending Exercise Date (as determined pursuant to Section
2(b)), the Company shall have the right to purchase that portion of the Warrant
proposed to be exercised by the Holder pursuant to such Exercise Notice, and if
the Company exercises such right, the Holder shall be required to sell such
portion of the Warrant to the Company at a purchase price (the "Call Price")
determined in accordance with Section 4(b);
(ii) at any time within thirty (30) days following (a) the
date of the Company's delivery to the Holder of the appraisal performed by an
independent appraiser at the Company's request in connection with the ESOP that
sets forth the per share value of the Common Stock as of September 30, 2009 (the
"September 2009 Appraisal"), if the ESOP is still in existence on September 30,
2009 and none of clauses (a), (b) and (c) of the definition of "Current Market
Price" in Section 3(c)(ii) below are applicable, or (b) the seventh (7th)
anniversary of the Effective Date, if the conditions of clause (b) above are not
met (in either case, the "First Put/Call Date"), the Company shall have the
right to purchase up to fifty percent (50%) of the Warrant from the Holder, and
if the Company exercises such right, the Holder shall be required to sell up to
fifty percent (50%) of the Warrant to the Company at the Call Price determined
in accordance with Section 4(b) below; and
(iii) at any time within thirty (30) days prior to the
Expiration Date, the Company shall have the right to purchase up to one hundred
percent (100%) of the Warrant from the Holder, and if the Company exercises such
right, the Holder shall be required to sell the Warrant or any portion thereof,
as the case may be, to the Company at the Call Price determined in accordance
with Section 4(b) below.
(b) The "Call Price" is equal to the product of (i) the number of
shares of Common Stock underlying the Warrant or the portion thereof being
purchased pursuant to this Section 4, and (ii) the difference between the Call
Fair Value (as defined below) on the date of the Call Notice (as defined below)
and the current Exercise Price on the date of the Call Notice; provided that
notwithstanding the foregoing, in no event shall the Call Price be less than
zero (0). So long as the ESOP is still in existence, the "Call Fair Value" shall
equal (i) the per share value of the Common Stock as set forth in the then most
recent appraisal performed by an independent appraiser at the Company's request
in connection with the ESOP, for the purposes of the
12
Company's call right under Section 4(a)(i), (ii) the per share value of the
Common Stock as set forth in the September 2009 Appraisal, for the purposes of
the Company's call right under Section 4(a)(ii), and (iii) the per share value
of the Common Stock as set forth in the September 2010 Appraisal, for the
purposes of the Company's call right under Section 4(a)(iii). As of such date
that the ESOP is no longer in existence, the "Call Fair Value" shall equal the
Fair Value of the Common Stock. Notwithstanding the foregoing, whether or not
the ESOP is in existence, if clauses (a), (b) or (c) of the definition of
Current Market Price are applicable to the Common Stock but no Qualified Public
Offering (as defined below) has occurred, then the Call Fair Value shall be the
Current Market Price of the Common Stock on the date of the Call Notice.
(c) Prior to exercising its call rights under this Section 4, the
Company must deliver written notice to the Holder (the "Call Notice"), in
accordance with Section 15, of its intent to purchase the Warrant or the portion
thereof being purchased, as the case may be. The Call Notice shall be deemed to
be given and served on the date that the Company sends the Call Notice to the
Holder (the "Call Election Date") and shall be irrevocable.
(d) Payment of the Call Price shall be made in cash in immediately
available funds within thirty (30) days after the date of the Call Election
Date, but not later than the Exercise Date.
(e) If the Company has received an Exercise Notice from the Holder
prior to the Company's delivery of a Call Notice to the Holder, then such Call
Notice shall take priority over such Exercise Notice until the expiration of the
dates set forth in Section 4(d). If the Company does not purchase the portion of
the Warrant subject to the Call Notice on or prior to the appropriate date set
forth in Section 4(d), the Holder shall be entitled to immediately exercise the
portion of the Warrant it originally intended to exercise, without the delivery
of any additional Exercise Notice, subject to the expiration of the ninety-day
period following delivery of the Exercise Notice.
(f) If the Holder has received a Tag-Along Notice from the Trust in
accordance with Section 7(a) herein prior to delivery by the Company to the
Holder of a Call Notice and the Holder has responded to such Tag-Along Notice
with a Participation Notice and an Exercise Notice in accordance with Section
7(b) herein, then the Company shall not be entitled to exercise its call right
pursuant to Section 4(a)(i), Section 4(a)(ii) or Section 4(a)(iii) herein with
respect to such portion of the Warrant to be exercised by the Holder in
connection with such Participation Notice, unless (i) the Call Fair Value as of
the date of delivery by the Company of a Call Notice is greater than or equal to
the per share sale price in connection with the transaction that is the subject
of the Tag-Along Notice or the transaction that is subject of the Tag-Along
Notice has been terminated.
(g) The rights of the Company under this Section 4 shall expire on the
consummation by the Company of a Qualified Public Offering. For purposes of this
Agreement, "Qualified Public Offering" means the consummation of one or more
underwritten public offerings of the Company's Common Stock which results in
aggregate gross proceeds to the sellers in such offerings of not less than U.S.
$30,000,000 (excluding proceeds received in such offerings from "affiliates" of
the Company (other than any Holder that is an affiliate of the Company), within
the meaning of Rule 12b-2 of the Securities and Exchange Commission under the
Securities Act of 1934, as amended (the "Exchange Act") or the ESOP) and
pursuant to which the Company
13
obtains a listing for its shares on a United States national securities
exchange, the Nasdaq National Market System, or an automated quotation system of
nationally recognized standing.
Section 5. Put Right.
(a) Subject to the terms and conditions of this Section 5 and Section 6
below, the Holder shall have the following put rights with respect to the
Warrant:
(i) at any time within thirty (30) days following the First
Put/Call Date, the Holder shall have the right to sell up to fifty percent (50%)
of the Warrant to the Company, and if the Holder exercises such right, the
Company shall be required to purchase up to fifty percent (50%) of the Warrant
from the Holder for a purchase price (the "Put Price") determined in accordance
with Section 5(b) below; and
(ii) at any time within thirty (30) days prior to the
Expiration Date, the Holder shall have the right to sell up to one hundred
percent (100%) of the Warrant to the Company, and if the Holder exercises such
right, the Company shall be required to purchase the Warrant, or such portion
thereof, as the case may be, from the Holder for the Put Price.
(b) The "Put Price" is equal to the product of (i) the number of shares
of Common Stock underlying the Warrant or the portion thereof being purchased
pursuant to this Section 5, and (ii) the difference between the Put Fair Value
(as defined below) on the date of the Put Notice (as defined below) and the
Exercise Price on the date of the Put Notice; provided that notwithstanding the
foregoing, in no event shall the Put Price be less than zero (0). So long as the
ESOP is in existence, the "Put Fair Value" shall equal (i) the per share value
of the Common Stock as set forth in the September 2009 Appraisal, which such
appraisal shall not reflect any discount for any lack of liquidity or absence of
control, for the purposes of the Holder's put right under Section 5(a)(i), and
(ii) the per share value of the Common Stock as set forth in the September 2010
Appraisal, for the purposes of the Holder's put right under Section 5(a)(ii). As
of such date that the ESOP is no longer in existence, the "Put Fair Value" shall
equal the Fair Value of the Common Stock. Notwithstanding the foregoing, whether
or not the ESOP is in existence, if clauses (a), (b) or (c) of the definition of
Current Market Price are applicable to the Common Stock but no Qualified Public
Offering has occurred, then the Put Fair Value shall be the Current Market Price
of the Common Stock on the date of the Put Notice.
(c) Prior to exercising its put right under Section 5(a)(i), the Holder
must deliver written notice to the Company (the "Put Notice"), in accordance
with Section 15, by July 30, 2009, of its intention to exercise its right under
Section 5(a)(i) to sell the Warrant, or any portion thereof, to the Company, and
similarly, prior to exercising its put right under Section 5(a)(ii), the Holder
must deliver the Put Notice to the Company by June 30, 2010. The Put Notice
shall be deemed to be given and served on the date that the Company receives the
Put Notice. The date that the Holder intends to exercise its put right pursuant
to either Section 5(a)(i) or Section 5(a)(ii) as indicated in the Put Notice,
shall in each case be hereinafter referred to as the "Put Exercise Date".
14
(d) Payment of the Put Price shall be made in cash in immediately
available funds within ninety (90) days after the date of the Put Exercise Date
(the "Put Effective Date"), except as provided in Sections 5(f), 6(j)(i)(2) or
7(i)(i)(2).
(e) If the Company has received an Exercise Notice from the Holder
prior to receipt of a Put Notice from the Holder, then the Holder shall not be
entitled to exercise its put right pursuant to Section 5(a) herein with respect
to such portion of the Warrant that is the subject of the aforementioned
Exercise Notice.
(f) If the Trust has sent a Drag-Along Notice to the Holder in
accordance with Section 6(a) herein in connection with a transaction that has
not been consummated or terminated prior to delivery by the Holder of a Put
Notice to the Company, then the Holder shall not be entitled to exercise its put
right pursuant to Section 5(a) with respect to any portion of the Warrant that
is the subject of such Drag-Along Notice, unless the transaction that is the
subject of the Drag-Along Notice is terminated or not consummated within sixty
(60) days of the date of the Drag-Along Notice; provided that notwithstanding
the foregoing the Holder shall be entitled to deliver a Put Notice to the
Company (if permitted under Section 5(a) and if the Put Notice satisfies the
requirements of Section 5(c)) prior to such termination or expiration of such
sixty (60) day period which Put Notice shall (if permitted under Section 5(a)
and if the Put Notice satisfies the requirements of Section 5(c)) be given full
effect upon the occurrence of such termination or expiration, provided that the
corresponding Put Effective Date shall be delayed by adding the number of days
that is equal to the number of days that have passed from the date of delivery
to the Company of the Put Notice until the date of such termination or
expiration, as appropriate, to the 90-day waiting period under Section 5(d).
(g) The rights of the Holder under this Section 5 shall expire on the
consummation by the Company of a Qualified Public Offering.
Section 6. Drag-Along Rights.
(a) Subject to the terms and conditions of this Section 6, and
notwithstanding Section 2(b) herein, if the Trust proposes to sell seventy-five
percent (75%) or more of the shares of Common Stock it then holds (the "Drag
Sale Shares") to a bona fide unaffiliated third party or parties on an arm's
length basis in a single transaction or a series of related transactions for
either (i) cash or unrestricted marketable securities that are traded on a U.S.
stock exchange, over the counter or on a bulletin board, or (ii) any
consideration so long as the third party or parties that have proposed to
purchase the Drag Sale Shares shall not become the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of more than fifty percent (50%) of the common stock of the ultimate
parent company of the Company (assuming the execution of all outstanding stock
options, stock warrants and stock rights, and conversion of all other securities
that are convertible to shares of common stock of such ultimate parent company),
or if there is no such ultimate parent company, so long as such third party or
parties shall not become the "beneficial owner", directly or indirectly of more
than fifty percent (50%) of the total outstanding Common Stock or Voting Stock
(as defined in Section 6(j) below) of the Company (assuming the execution of all
outstanding stock options, stock warrants and stock rights, and conversion of
all other securities of the Company that are convertible to shares of Common
Stock or Voting Stock), the Trust shall be entitled to provide to the Holder, at
least
15
ten (10) days prior to the closing of such sale, written notice, in
accordance with Section 15 herein, of its good faith intention to sell the
shares of Common Stock, the name of the proposed transferee(s) (the "Proposed
Transferee"), the price and other material terms under which the sale is
proposed to be made and that it is requiring the Holder to exercise all or a
portion of the Warrant, if any portion remains outstanding and unexpired
hereunder, and to sell the Shares obtained through such exercise, if any (the
"Required Exercise Shares"), as well as a certain number of the Shares then held
by the Holder to the Proposed Transferee on the terms and conditions contained
therein ("Drag-Along Notice"), such that the total number of Shares to be sold
to the Proposed Transferee by the Holder shall be equal to:
C
(A + B) x -----
D
where: A = the number of Shares then held by the Holder,
including the Required Exercise Shares;
B = the number of shares of Common Stock subject to the
outstanding, unexpired portion of the Warrant (if
any) below, after taking into account the exercise
required with respect to the Required Exercise Shares
(but excluding any portion of the Warrant that is not
subject to drag-along rights pursuant to Section 6(f)
below);
C = the number of Drag Sale Shares; and
D = the total number of shares of Common Stock then held
by the Trust,
subject to the limitation that if the sale price to the Proposed Transferee is
less than the then current Exercise Price, (i) the Holder shall not be required
to exercise any portion of the Warrant in order to sell to the Proposed
Transferee the Shares that could be obtained by such exercise, in connection
with the proposed sale and (ii) that portion of the Warrant which the Holder
would have been required to exercise under this Section 6 in the absence of the
preceding clause (i), shall immediately expire and shall be and become void and
of no value.
The Holder shall be required to, and shall, comply with the terms of
the Drag-Along Notice as long as it is consistent with the terms of this Section
6. The Shares to be sold by the Holder to the Proposed Transferee shall be sold
to the Proposed Transferee at a purchase price equal to the product of (x) the
number of such Shares, and (y) the per share sale price of the shares of Common
Stock proposed to be sold by the Trust to the Proposed Transferee. The
Drag-Along Notice shall be deemed to be given and served on the date that the
Holder receives the Drag-Along Notice from the Company in accordance with
Section 15.
(b) Notwithstanding Section 2(b) herein and subject to Section 6(i),
the Holder shall, within five (5) days of receipt of a Drag-Along Notice,
deliver an Exercise Notice to the Company with respect to the Required Exercise
Shares provided that the Exercise Date is deemed to occur concurrently with the
consummation of the transaction which is the subject of the Drag-Along Notice.
If the Holder does not deliver the Exercise Notice within the required 5-day
period or delivers the Exercise Notice without the appropriate payment in cash
for the
16
exercise of the Warrant, or portion thereof, as appropriate, upon consummation
of the transaction which is the subject of the Drag-Along Notice the Holder will
have been deemed to have delivered a Cashless Exercise Notice to the Company in
accordance with Section 2(c) above.
The Company's call rights under Section 4(a)(i) shall not apply to the
Holder's exercise with respect to the Required Exercise Shares.
(c) Promptly after receipt of the Drag-Along Notice, the Holder shall
deliver to the Trust, to hold in escrow pending closing of the transaction that
is the subject of the Drag-Along Notice, stock certificates in its possession
(if any) representing its shares of Common Stock to be transferred, properly
endorsed for transfer to the Proposed Transferee.
(d) The Trust shall, together with the Drag-Along Notice, provide to
the Holder a fairness opinion from an independent appraiser or investment bank
selected by the Trust (reasonably satisfactory to the Required Holders)
regarding the transaction that is the subject of the Drag-Along Notice, provided
that there shall be no such requirement if the Trust has obtained such a
fairness opinion for itself with respect to the transaction that is the subject
of the Drag-Along Notice.
(e) The monetary value of any indemnity to be provided by the Holder to
the Proposed Transferee under the terms of its sale of Shares in accordance with
this Section 6 (which indemnity may also cover operational matters not the
subject of the Holder's representations and warranties described in the
following sentence) shall be in the same ratio to the monetary value of the
indemnity provided by the Trust as the ratio of the relative value of the
securities to be sold by each of the Holder and the Trust in any such sale, but
in no case shall it exceed the monetary value of the consideration it receives
pursuant to the terms of such sale. The Holder's representations and warranties
shall be limited to enforceability, the ownership of the Shares to be
transferred by such Holder, authority to transfer such Shares, that such Shares
are free of liens and encumbrances as of the transfer date and other standard
and customary non-operational representations and warranties.
(f) If the Company has received a Put Notice from the Holder in
accordance with Section 5(c) herein prior to delivery by the Trust to the Holder
of a Drag-Along Notice, then the Trust shall not be entitled to exercise its
drag-along right pursuant to Section 6(a) herein with respect to such portion of
the Warrant that is the subject of such Put Notice, unless the per share sale
price in connection with the transaction that is the subject of the Drag-Along
Notice is greater than or equal to the Put Fair Value as of the date of delivery
of such Drag-Along Notice by the Trust.
(g) If upon the Trust's delivery of a Drag-Along Notice to the Holder
there is a pending Exercise Date and/or Put Effective Date, then the
corresponding Exercise Notice and the 90-day waiting period under the last
sentence of Section 2(b) and/or the corresponding Put Notice and the 90-day
waiting period under Section 5(d)), as the case may be, shall be tolled, as of
the date of delivery of the Drag-Along Notice (the "Drag Toll Date"), even if
any such waiting period has not yet begun to run as of the date of the delivery
of the Drag-Along Notice, and the Exercise Date and/or Put Effective Date, as
applicable, shall be suspended, and shall only be rescheduled in accordance with
Section 6(j)(i) below. The suspended Exercise Date and/or Put Effective Date, as
applicable, and the corresponding Exercise Notice and/or Put Notice, as
17
appropriate, shall be cancelled if the transaction that is the subject of the
Drag-Along Notice is consummated within sixty (60) days of the date of delivery
of the Drag-Along Notice by the Trust to the Holder.
(h) If the Trust delivers a Drag-Along Notice to the Holder in
accordance with Section 6(a) following its delivery of a Tag-Along Notice to the
Holder in accordance with Section 7(a), then such Tag-Along Notice, and any
Participation Notice delivered by the Holder in connection with the Tag-Along
Notice, shall be deemed cancelled and of no effect as of the date of delivery of
the Drag-Along Notice to the Holder, and the Holder shall not be entitled to
exercise such tag-along right.
(i) Notwithstanding Section 6(b) above and subject to the limitations
of Section 2(a) above, after receiving a Drag-Along Notice, the Holder shall be
entitled to deliver to the Company an Exercise Notice relating to the portion of
the Warrant that is the subject of the Drag-Along Notice, provided that such
Exercise Notice shall only be given effect if the transaction relating to the
Drag-Along Notice is terminated or is not consummated within sixty (60) days of
the date of delivery of the Drag-Along Notice by the Trust, and further provided
that no days that have passed from the date of delivery to the Company of the
Exercise Notice until the date of such termination or expiration, as appropriate
(the "Drag Expiry Date"), shall be counted for purposes of the waiting period
under Section 2(b).
(j) If the transaction that is the subject of a Drag-Along Notice
delivered by the Trust to the Holder in accordance with Section 6(a) herein (the
"Drag Transaction") is terminated or is not consummated within sixty (60) days
of the date of delivery of the Drag-Along Notice by the Trust, then
(i) notwithstanding anything contained herein to the contrary,
any Exercise Date and/or Put Effective Date that was/were suspended pursuant to
Section 6(g) above shall each be deemed reinstated and rescheduled, subject to
the following provisions:
(1) with respect to an Exercise Date, no days that
have passed from the Drag Toll Date until the Drag Expiry Date shall be counted
for purposes of the waiting period under Section 2(b), and the corresponding
election to exercise the Warrant, or portion thereof, and the corresponding
Exercise Notice, shall be deemed reinstated and effective subject to the
rescheduled date of the Exercise Date, to reflect the provisions of this Section
6(j)(i)(1); and
(2) with respect to a Put Effective Date, the Put
Effective Date shall be delayed by adding the number of days that is equal to
the number of days that have passed from the Drag Toll Date until the Drag
Expiry Date to the 90-day waiting period under Section 5(d), and the
corresponding election to put the Warrant, or portion thereof, and the
corresponding Put Notice, shall be deemed reinstated and effective subject to
the rescheduled date of the Put Effective Date, to reflect the provisions of
this Section 6(j)(i)(2).
(ii) the Drag-Along Notice shall be deemed voided.
(j) "Voting Stock" shall mean shares of capital stock of a Person
having ordinary voting power for the election of a majority of the members of
the board of directors of such
18
person, other than shares having such power only by reason of the happening of a
contingency (prior to the occurrence of such contingency).
(k) The rights of the Trust under this Section 6 shall expire upon the
consummation by the Company of a Qualified Public Offering.
Section 7. Tag-Along Rights.
(a) Subject to the terms and conditions of this Section 7 and
notwithstanding Section 2(b) herein, if the Trust proposes to sell twenty-five
percent (25%) or more of the Shares it then holds to a bona fide unaffiliated
third party or parties on an arm's length basis in a single transaction or a
series of related transactions, and the Trust did not elect its drag-along right
pursuant to Section 6(a) above, the Trust shall provide to the Holder, at least
thirty (30) days prior to the closing of such sale, written notice, in
accordance with Section 15 herein, of its intention to sell the shares of Common
Stock, the name of the Proposed Transferee, the price and other material terms
under which the sale is proposed to be made and that the Holder is entitled to
immediately exercise a certain portion of the Warrant, if any portion thereof is
still outstanding and unexpired hereunder, and to sell the Shares obtained
through such exercise, if any (the "Optional Exercise Shares"), as well as a
certain number of the Shares then held by the Holder to the Proposed Transferee
on the terms and conditions contained therein ("Tag-Along Notice").
(b) Subject to the terms and conditions of this Section 7, upon receipt
of the Tag-Along Notice, the Holder shall have the right, exercisable upon
written notice in accordance with Section 15 herein to the Trust, sent within
twenty (20) days after the Holder's receipt of the Tag-Along Notice (the
"Participation Notice"), to exercise a portion of the Warrant, if still
outstanding and unexpired hereunder, and to sell to the Proposed Transferee the
Optional Exercise Shares, if any, and a certain number of Shares then held by
the Holder (collectively, the "Tag Shares"), such that in the aggregate the
number of Shares to be sold by the Holder to the Proposed Transferee shall be no
greater than:
( B + C )
A x --------------
D
where: A = the number of shares of Common Stock proposed to be
sold by the Trust to the Proposed Transferee (the
"Tag Sale Shares");
B = the number of Shares then held by the Holder,
including any Optional Exercise Shares;
C = the number of shares of Common Stock subject to the
outstanding, unexpired portion of the Warrant (if
any), after taking into account the exercise with
respect to any Optional Exercise Shares (but
excluding any portion of the Warrant that is not
entitled to the benefit of tag-along rights pursuant
to Section 7(e) below); and
19
D = the total number of shares of Common Stock then
outstanding (assuming the exercise of all outstanding
options, warrants and rights, and the conversion into
Common Stock of all convertible securities).
Any of the Shares sold to the Proposed Transferee shall be sold by the
Holder at the same per share price and on the same terms and conditions as
specified in the Tag-Along Notice or any modification thereof, but in no event
less favorable than the terms and conditions of Shares sold by the Trust.
Together with its delivery of the Participation Notice to the Trust, the Holder
is required to deliver an Exercise Notice to the Company with respect to the
Optional Exercise Shares. The Participation Notice shall be deemed to be given
and served on the date that the Trust receives the Participation Notice.
Notwithstanding Section 2(b) herein, the portion of the Warrant to be exercised
pursuant to the terms of this Section 7 and the Exercise Notice, shall be deemed
exercised with respect to the Optional Exercise Shares concurrently with the
consummation of the transaction which is the subject of the Tag-Along Notice as
provided in Section 2(h). If the Holder delivers the Participation Notice but
fails to deliver the appropriate payment in cash for the exercise of the
Warrant, or portion thereof, as appropriate, at the time of consummation of such
transaction, then the Holder will have been deemed to have delivered a Cashless
Exercise Notice to the Company in accordance with Section 2(c) above. The
Company's call rights under Section 4(a)(i) shall not apply to the Holder's
exercise with respect to the Optional Exercise Shares. The Holder's failure to
respond within the 20-day period noted above shall be deemed a decision by the
Holder not to participate in such sale.
(c) To the extent that the Holder exercises its right of participation
in accordance with the terms and conditions set forth in Section 7(b), the
Proposed Transferee may decide to purchase all of the Tag Shares, in addition to
all of the Tag Sale Shares. In the event the Proposed Transferee does not so
decide, then the number of Tag Sale Shares that the Trust may sell in the
transaction (on the same terms and conditions as specified in the Tag-Along
Notice or any modification thereof) will be reduced by the number of shares
necessary to permit the sale of the Tag Shares in accordance with the provisions
of Section 7(b).
(d) Promptly after delivery of the Participation Notice, the Holder
shall deliver to the Trust, to hold in escrow pending closing of the sale of
shares of Common Stock, stock certificates in its possession (if any)
representing its shares of Common Stock to be transferred, properly endorsed for
transfer to the Proposed Transferee. The Holder's failure to deliver the stock
certificates so endorsed by the closing date of the sale to the Proposed
Transferee shall be deemed a decision by the Holder not to participate in such
transaction.
(e) To the extent that the Proposed Transferee refuses to purchase any
portion of the Tag Shares from the Holder (the "Refused Shares"), the Trust
shall not sell to the Proposed Transferee any Tag Sale Shares unless and until,
simultaneously with such sale, the Trust shall purchase the Refused Shares from
the Holder for the same consideration per Share as specified in Section 7(b). In
such event, the number of Tag Sale Shares that the Trust may sell to the
Proposed Transferee will be increased by adding the number of shares of Common
Stock represented by the Refused Shares.
(f) If the Company has sent a Call Notice to the Holder in accordance
with Section 4(c) herein prior to delivery by the Trust of a Tag-Along Notice to
the Holder, then the Holder
20
shall not be entitled to exercise its tag-along right pursuant to Section 7(b)
herein with respect to such portion of the Warrant that is the subject of the
aforementioned Call Notice.
(g) If upon the Trust's delivery of a Tag-Along Notice to the Holder
there is a pending Exercise Date and/or Put Effective Date, then the
corresponding Exercise Notice and the 90-day waiting period under the last
sentence of Section 2(b) and/or the corresponding Put Notice and the 90-day
waiting periods under Section 5(d), as the case may be, shall be tolled, as of
the date of delivery of the Tag-Along Notice (the "Tag Toll Date"), even if any
such waiting period has not yet begun to run as of the date of delivery of the
Tag-Along Notice, and the Exercise Date and/or the Put Effective Date, as
applicable, shall be suspended, and shall only be rescheduled in accordance with
Section 7(i)(i) below. The suspended Exercise Date and/or Put Effective Date, as
applicable, and the corresponding Exercise Notice or Put Notice, as appropriate,
shall be cancelled if the transaction that is the subject of the Tag-Along
Notice is consummated within sixty (60) days of the date of delivery of the
Tag-Along Notice by the Trust to the Holder.
(h) Notwithstanding Section 7(b) above and subject to the limitations
of Section 2(a) above, after delivering a Participation Notice to the Trust, the
Holder shall be entitled to deliver to the Company an Exercise Notice relating
to the portion of the Warrant that is the subject of a Participation Notice,
provided that the Exercise Notice shall only be given effect if the transaction
relating to the Participation Notice is terminated or is not consummated within
sixty (60) days of the date of delivery of the corresponding Tag-Along Notice by
the Trust, and further provided that no days that have passed from the date of
delivery to the Company of the Exercise Notice until the date of such
termination or expiration, as appropriate (the "Tag Expiry Date"), shall be
counted for purposes of the waiting period under Section 2(b).
(i) If the transaction that is the subject of a Tag-Along Notice
delivered by the Trust to the Holder in accordance with Section 7(a) herein (the
"Tag Transaction") is terminated or is not consummated within sixty (60) days of
the date of delivery of the Tag-Along Notice by the Trust then
(i) notwithstanding anything contained herein to the contrary,
any Exercise Date, Put Exercise Date and/or Put Effective Date that was/were
suspended pursuant to Section 7(g) above shall each be deemed reinstated and
rescheduled, subject to the following provisions:
(1) with respect to an Exercise Date, no days that
have passed from the Tag Toll Date until the Tag Expiry Date shall be counted
for purposes of the waiting period under Section 2(b), and the corresponding
election to exercise the Warrant, or portion thereof, and the corresponding
Exercise Notice, shall be deemed reinstated and effective subject to the
rescheduled date of the Exercise Date, to reflect the provisions of this Section
7(i)(i)(1); and
(2) with respect to a Put Effective Date, the Put
Effective Date shall be delayed by adding the number of days that is equal to
the number of days that have passed from the Tag Toll Date until the Tag Expiry
Date to the 90-day waiting period under Section 5(d), and the corresponding
election to put the Warrant, or portion thereof, and the corresponding Put
Notice, shall be deemed reinstated and effective subject to the rescheduled date
of the Put Effective Date, to reflect the provisions of this Section 7(i)(i)(2).
21
(ii) the Tag-Along Notice and corresponding Participation
Notice shall be deemed voided.
(j) The rights of the Holder under this Section 7 shall expire upon the
consummation of a Qualified Public Offering.
Section 8. Rights as Stock.
Subject to the terms of the Rights Agreement, and notwithstanding any
other rights that the Holder may have that arise out of any stockholding in the
Company, the Holder shall not be entitled to vote or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Warrant, nor shall anything contained herein be
construed to confer upon the Holder, by virtue of the Warrant, the rights of a
stockholder of the Company or the right to vote upon any matter submitted to
stockholders at any meeting thereof, or give or withhold consent to any
corporate action or to receive notice of meetings or other actions affecting
stockholders (except as provided herein), or the right to receive dividends or
subscription rights or otherwise.
Section 9. Registration of Warrants and Shares.
Neither the Warrant nor the Shares have been registered under the
Securities Act, as amended (such Act, or any similar Federal statute then in
effect, being hereinafter referred to as the "Act").
Section 10. Assignment of Rights and Benefits by the Holder.
(a) Subject to the terms of Section 11 and subject to the restrictions
set out in Section 10(b), the Holder may (x) transfer the Warrant, or a portion
thereof or, (y) assign all or any portion of its rights and/or benefits under
this Agreement, except for its rights and benefits under Section 12 herein,
which shall not be assignable, either by sale, assignment, or otherwise, (each a
"Warrant Transfer"), provided that,
(i) the Company is, at least fifteen (15) days prior to such
Warrant Transfer, furnished with written notice of the name and address of the
transferee or assignee;
(ii) the transferee agrees in writing to be bound by and
subject to the terms and conditions of this Agreement pursuant to the form of
Assignment and Joinder attached hereto as Exhibit B.
(iii) the Holder shall have obtained an opinion of its legal
counsel, addressed to the Company and reasonably acceptable to the Company,
stating that such Warrant Transfer complies with all applicable federal and
state securities laws;
(iv) the transferee agrees to be bound by the terms of the
Rights Agreement, if required; and
22
(v) the Holder shall only assign such rights and benefits pro
rata with the portion of the Warrant being transferred to the transferee.
(b) So long as no "Event of Default" (as defined in Section 10(c)) has
occurred and is continuing, the Holder agrees that it may not make a Warrant
Transfer to:
(i) any person that generated at least 20% of its total
revenue (on a consolidated basis together with all entities it controls, is
controlled by, or is under common control with) from government contracts in its
last fiscal year preceding the proposed Warrant Transfer, other than any
Financial Institution (as defined below), provided this limitation shall be
waived with respect to a proposed transferee if the Company determines in its
reasonable discretion that such proposed transferee does not then compete with
the Company or any entity controlled by the Company;
(ii) any person or entity that is not a U.S. person. For this
purpose, U.S. persons shall be limited to those persons that (i) are defined as
U.S. persons in Section 7701(a)(3) of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) are U.S. citizens or entities organized under U.S.
federal or state laws which are not owned, controlled or influenced, directly or
indirectly, by a foreign person (or term of like meaning) under the National
Industrial Security Program Operating Manual (or any successor document) as
amended from time to time; or
(iii) as long as the Company maintains its status as an
S-corporation within the meaning of Section 1361, et seq., of the Internal
Revenue Code of 1986, as amended, any person or entity whose ownership of the
Warrant or any portion thereof would cause the Company to lose such status.
(c) "Event of Default" shall mean any one of the following events,
whether such event shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body, and whatever the
reason for such event:
(i) if default shall be made in the due and punctual payment
of all or any part of the principal of, or premium (if any) on, any Note (as
defined in the Seller Securities Purchase Agreement) when and as the same shall
become due and payable, whether at the stated maturity thereof, by notice of or
demand for prepayment, or otherwise;
(ii) if default shall be made in the due and punctual payment
of any interest on any Note (as defined in the Seller Securities Purchase
Agreement) when and as such interest shall become due and payable and such
default shall have continued for a period of three Business Days. "Business Day"
shall mean any day other than a Saturday, Sunday or other day which shall be in
New York, New York or Chicago, Illinois a legal holiday or a day on which
banking institutions therein are authorized by law to close;
(iii) if an involuntary case shall be commenced against the
Company and the petition shall not be dismissed, stayed, bonded or discharged
within sixty (60) days after commencement of the case, or a court having
jurisdiction in the premises shall enter a decree or
23
order for relief in respect of the Company in an involuntary case, under any
applicable bankruptcy, insolvency or other similar law now or hereinafter in
effect; or any other similar relief shall be granted under any applicable
federal, state, local or foreign law;
(iv) if a decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over the Company or
over all or a substantial part of the property of the Company shall be entered;
or an interim receiver, trustee or other custodian of the Company or of all or a
substantial part of the property of the Company shall be appointed or a warrant
of attachment, execution or similar process against any substantial part of the
property of the Company shall be issued and any such event shall not be stayed,
dismissed, bonded or discharged within sixty (60) days after entry, appointment
or issuance; or
(v) if the Company shall (i) commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (ii) consent to the entry of an order for relief in an involuntary case,
or to the conversion of an involuntary case to a voluntary case, under any such
law, (iii) consent to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its property, (iv)
make any assignment for the benefit of creditors or (v) take any corporate
action to authorize any of the foregoing.
(d) Subject to the terms of Section 11 and subject to the restrictions
set out in Section 10(e), the Holder may transfer any number of Shares it has
obtained by exercising the Warrant or a portion thereof (each a "Stock
Transfer"), provided that,
(i) the Company is, at least fifteen (15) days prior to such
Stock Transfer, furnished with written notice of the name and address of the
transferee or assignee;
(ii) the transferee agrees in writing to be bound by and
subject to the terms and conditions of this Agreement pursuant to the form of
Assignment and Joinder attached hereto as Exhibit B.
(iii) the Holder shall have obtained an opinion of its legal
counsel, addressed to the Company and reasonably acceptable to the Company,
stating that such Stock Transfer complies with all applicable federal and state
securities laws; and
(iv) the transferee agrees to be bound by the terms of the
Rights Agreement, if required; and
(v) the Holder shall only assign such rights and benefits pro
rata with the number of Shares being transferred to the transferee.
(e) So long as no "Event of Default" (as defined in Section 10(c)) has
occurred and is continuing, the Holder agrees that it may not make a Stock
Transfer to:
(i) any person that generated at least 20% of its total
revenue (on a consolidated basis together with all entities it controls, is
controlled by, or is under common control with) from government contracts in its
last fiscal year preceding the proposed Stock Transfer, other
24
than any Financial Institution (as defined below), provided this limitation
shall be waived with respect to a proposed transferee if the Company determines
in its reasonable discretion that such proposed transferee does not then compete
with the Company or any entity controlled by the Company;
(ii) any person or entity that is not a U.S. person. For this
purpose, U.S. persons shall be limited to those persons that (i) are defined as
U.S. persons in Section 7701(a)(3) of the Internal Revenue Code of 1986, as
amended (the "Code") and (ii) are U.S. citizens or entities organized under U.S.
federal or state laws which are not owned, controlled or influenced, directly or
indirectly, by a foreign person (or term of like meaning) under the National
Industrial Security Program Operating Manual (or any successor document) as
amended from time to time; or
(iii) as long as the Company maintains its status as an
S-corporation within the meaning of Section 1361, et seq., of the Internal
Revenue Code of 1986, as amended, any person or entity whose ownership of Shares
would cause the Company to lose such status.
(f) Any transfer by the Holder that is in contravention of any of the
terms of Sections 10(a), (b), (d) or (e) above shall be void ab initio and of no
force or effect, and the Company shall not be obligated to honor or recognize
any such transfer on its stock records or otherwise.
(g) "Financial Institution" shall mean any insurance company, bank,
trust company, pension fund (whether private, public or governmental), mutual
fund or any other entity whose primary business is owning and investing in the
securities of other unaffiliated entities, regardless of whether or not such
Financial Institution has an investment in a person or entity that generated at
least 20% of its total revenue from government contracts; provided that not more
than 50% of the Voting Stock of such Financial Institution is owned or
controlled, directly or indirectly, by a person or entity that generated at
least 20% of its total revenue from government contracts.
Section 11. Company Right of First Refusal.
(a) Before the Warrant, any portion thereof or any Shares may be sold
or otherwise transferred by the Holder, the Company shall have a right of first
refusal to purchase the Warrant, such portion thereof and/or any such Shares, as
the case may be, on the terms and conditions set forth in this Section 11.
(b) If the Holder proposes to sell or otherwise transfer the Warrant,
any portion thereof or any number of the Shares it holds at such time to any
third party other than one that it controls, is controlled by, or is under
common control with (each an "Affiliate") (other than in connection with a
Demand Registration or Piggy-Back Registration under the Rights Agreement), the
Holder shall deliver to the Company a written notice ("Sale Notice"), in
accordance with Section 15, stating (i) the Holder's bona fide intention to sell
or otherwise transfer the Warrant, any portion thereof or a certain number of
Shares (collectively, the "Transfer Interests"), as the case may be, (ii) the
name of the proposed purchaser or other transferee (the "Proposed Buyer"), and
(iii) the bona fide cash price or other consideration for
25
which the Holder proposes to transfer the Transfer Interests (the "Offered
Price"), and the Holder shall offer to sell the Transfer Interests to the
Company at the Offered Price.
(c) The Company may, at any time within sixty (60) days after receipt
by the Company of a Sale Notice, elect to purchase the Transfer Interests by
giving written notice to the Holder, in accordance with Section 15, at a
purchase price equal to the Offered Price (the "Purchase Price"). If the Offered
Price includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the board of directors of the
Company in good faith.
(d) Payment of the Purchase Price shall be made in cash (by check)
within sixty (60) days after the date of the Company's election to purchase the
Transfer Interests.
(e) If the Transfer Interests are not purchased by the Company as
provided herein, then the Holder may sell or otherwise transfer the Transfer
Interests to the Proposed Buyer at the Offered Price or at a higher price,
provided that such sale or other transfer (i) is consummated within six (6)
months after the date of the Sale Notice, and (ii) is in accordance with all the
terms of this Agreement and all other agreements between the Holder and the
Company. If the Transfer Interests are not transferred to the Proposed Buyer
within such six-month period in accordance with the preceding sentence, a new
Sale Notice shall be given to the Company, and the Company shall again be
offered a right of first refusal under this Section 11 before the Warrant, any
portion thereof or any Shares, as the case may be, may be sold or otherwise
transferred.
Section 12. IITRI Right of First Offer and Second Offer.
(a) First Offer.
(i) Except as otherwise provided in this Section 12 and so
long as at least twenty-five percent (25%) of the Warrant remains outstanding
and in IITRI's possession, before the Company may offer to issue and sell any
shares of Common Stock or any securities convertible or exercisable into Common
Stock, or other rights to acquire Common Stock (collectively, the "Offered
Securities"), the Company is required to first make an offer to IITRI (the
"First Offer") in writing and in accordance with Section 15 (the "Offer
Notice"), to purchase, at a per share price (the "Offer Price") and on terms
chosen by the Company, a percentage of each class or type of the Offered
Securities equal to (x) the number of Shares then held by IITRI plus the number
of shares of Common Stock underlying any outstanding and unexpired portion of
the Warrant then held by IITRI, divided by (y) the number of then outstanding
shares of Common Stock on a fully diluted basis (assuming the exercise of all
outstanding options, warrants and rights and the conversion into Common Stock of
all convertible securities) (such percentage shall hereinafter be referred to as
the "IITRI Share").
(ii) Subject to Section 12(c) below, if IITRI does not deliver
to the Company written notice of acceptance of any offer made pursuant to
Section 12(a)(i) within thirty (30) days after IITRI's receipt of the First
Offer Notice, IITRI shall be deemed to have waived its rights to purchase the
Offered Securities, which are the subject of the First Offer, and the Company
shall be entitled to issue and sell the Offered Securities at the Offer Price,
or at such
26
other price which is no less than ninety percent (90%) of the Offer Price, to
any third party that is not an Affiliate of the Company at any time during the
period of nine (9) months following the date of delivery of the Offer Notice by
the Company to IITRI, without the obligation to provide any further offers or
notices to IITRI.
(b) Second Offer.
(i) If the Company proposes to issue and sell the Offered
Securities to a third party at a price that is less than ninety percent (90%) of
the Offer Price (the "Second Offer Price") within such nine-month period, the
Company shall, prior to consummating such issuance and sale of the Offered
Securities to the third party, make a second offer to IITRI (the "Second Offer")
in writing and in accordance with Section 15 (the "Second Offer Notice"), to
purchase, at the Second Offer Price and on the same terms (the "Second Offer
Terms") proposed to be issued and sold, a percentage of each class or type of
the Offered Securities equal to the IITRI Share.
(ii) If IITRI does not deliver to the Company written notice
of acceptance of any offer made pursuant to Section 12(b)(i) within ten (10)
days after IITRI's receipt of the Second Offer Notice, IITRI shall be deemed to
have waived its rights to purchase the Offered Securities, which are the subject
of the Second Offer, and the Company shall be entitled to issue and sell the
Offered Securities on the Second Offer Terms and at the Second Offer Price,
without the obligation to provide any further offers or notices to IITRI.
(c) If the Company proposes to sell or otherwise transfer the Offered
Securities to a third party at any time after the expiry of the nine-month
period referenced in Section 12(a)(ii), then the Company shall again be required
to comply with all of the obligations and requirements contained in Sections
12(a) and 12(b).
(d) This Section 12 shall not apply to (i) any shares of Common Stock
or other securities issuable or issued to employees, consultants, officers,
directors, or any other persons pursuant to any stock option, stock warrant,
stock purchase or stock compensation arrangement approved by the board of
directors or compensation committee of the Company, (ii) SARs issued to
employees, consultants, officers or directors subject to any limitations set
forth in this Agreement and the Securities Purchase Agreement, (iii) shares of
Common Stock issued by the Company to any Company benefit plan, including, but
not limited to, the ESOP, (iv) any shares of Common Stock or other securities
issuable or issued upon exercise or conversion of any option, warrant,
convertible security, or other rights to purchase or subscribe for Common Stock,
(v) interests or rights designated as phantom stock issued or granted by the
Company to its employees, consultants, officers or directors; (vi) any shares of
Common Stock or other securities issuable or issued pursuant to any stock split,
combination of stock, stock dividend, or other similar stock recapitalization,
or (vii) any shares of Common Stock or other securities issuable or issued in a
transaction in which a third party is merged into the Company or an entity owned
by the Company, or in which the Company or such an entity purchases an operating
division or substantially all of the assets of a third party.
(e) The rights under this Section 12 shall not apply in the event of
any underwritten public offering of the Company's Common Stock pursuant to which
the Company obtains a listing for its shares on a United States national
securities exchange, the Nasdaq National Market System, or an automated
quotation system of nationally recognized standing (an "Initial Public
27
Offering"), and shall expire upon the consummation by the Company of an Initial
Public Offering.
Section 13. Representations and Warranties and Covenants of The Holder.
(a) Representations and Warranties. In order to induce the Company to
accept this Agreement, the Holder hereby represents and warrants to the Company
as follows:
(i) Purchase Entirely for Own Account. The Holder represents
that it is acquiring the Warrant and the Shares issuable upon exercise of the
Warrant (collectively the "Securities") to be issued to it for investment for
the Holder's own account, not as a nominee or agent, and not with a view to view
to the resale or the distribution thereof, and that the Holder has no present
intention of selling, granting any participation rights in, or otherwise
distributing the same. By executing this Agreement, the Holder further
represents that the Holder does not have any contract, undertaking, agreement or
arrangement with any Person to sell, transfer or grant participations to such
Person or to any third Person, with respect to any of the Securities.
(ii) Disclosure of Information. The Holder represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the sale of the Securities and the
business, properties, prospects and financial condition of the Company.
(iii) Investment Experience. The Holder acknowledges that it
can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Securities. The Holder also represents
it has not been organized for the purpose of acquiring the Securities.
(iv) Accredited Investor. The Holder is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under the
Act, as presently in effect.
(v) Restricted Securities. The Holder understands that the
Warrant and the Shares it is purchasing are characterized as "restricted
securities" under the federal securities laws and applicable blue sky laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act and
such blue sky laws only in certain limited circumstances. In this connection,
the Holder represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act and such blue sky laws.
(vi) S-Corporation Shareholder. The Holder is an entity whose
ownership of Common Stock, if it were to exercise any portion of the Warrant on
the date hereof, would not cause the Company to lose its status as an
S-corporation within the meaning of Section 1361, et seq., of the Code (a
"Permitted S-corp Shareholder"). Notwithstanding any other provision of this
Agreement, the Holder shall not be entitled to exercise any portion of the
Warrant if its ownership of Common Stock would cause the Company to lose its
status as an S-corporation within the meaning of Section 1361, et seq., of the
Code.
28
(b) Permitted S-corp Shareholder. In order to induce the Company to
accept this Agreement, the Holder covenants and agrees that it will not
intentionally or knowingly take any action to change its status from a Permitted
S-corp Shareholder (as defined above), which change of status results in the
Company losing its status as an S-corporation within the meaning of Section
1361, et seq., of the Code.
Section 14. Legends.
It is understood that the certificates evidencing the Securities may
bear the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND UNDER ANY
RELEVANT STATE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
(b) Any legend required by applicable state securities laws.
(c) A legend to reflect restrictions on transferability of Common Stock
and warrants, to be contained in the Certificate of Incorporation of the
Company, as amended and restated, and/or the By-Laws of the Company, as amended
and restated.
Section 15. Notices.
Unless otherwise provided herein, any notice required or permitted
under this Agreement shall be given in writing and shall be delivered (a) by
hand, (b) by mail, certified mail, return receipt requested, or (c) by facsimile
to the party to be notified, at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
prior written notice to the other party. Unless otherwise provided herein,
notices shall be deemed to have been given and served (a) where delivered by
hand, at time of delivery, (b) where delivered by mail, on acknowledgement of
receipt as shown by the date indicated on the return receipt as having been
received, and (c) where delivered by facsimile, 24 hours after transmission
confirmation by the transmitting machine unless within those 24 hours the
intended recipient has informed the sender that the transmission was received in
an incomplete or unreadable form, or the transmission report of the sender
indicates a faulty or incomplete transmission. If such receipt is on a day that
is not a working day or is later than 5 p.m. (local time) on a working day, the
notice shall be deemed to have been given and served on the next working day.
Section 16. Covenants. So long as the Warrant remains outstanding:
(a) The Company will provide the Holder with unaudited financial
statements (income statement, balance sheet and statement of cash flows) within
forty-five (45) days after the end of each fiscal quarter and will provide
annual audited financial statements within ninety
29
(90) days following the end of each fiscal year, and copies of all material
press releases issued by the Company.
(b) The Company will permit a representative designated by the Holder,
at the Holder's expense, during normal business hours and upon reasonable
notice, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, subject to the terms of any security arrangements then in place
between the Company or its Subsidiaries and their customers, (ii) examine the
corporate and financial records of the Company and its Subsidiaries, and (iii)
discuss the affairs, finances and accounts of any such companies with the
officers of the Company and its Subsidiaries. Provided however that no
representative of the Holder shall be given access to or have the right to
inspect or discuss any trade secrets held by or being developed by the Company
or any Subsidiaries. The Holder and its designated representative shall maintain
the confidentiality of, and shall not disclose to any other person or entity,
any confidential and proprietary information so obtained by them from the
Company or its Subsidiaries, and shall use such information solely for the
purposes of evaluating the Holder's investment in the Company.
(c) As long as none of the clauses (a), (b) or (c) of the definition of
Current Market Price in Section 3(c)(ii) is applicable to the Common Stock, all
SARs issued by the Company will be issued with an exercise price no less than
the per share value of the Common Stock as set forth in the then most recent
appraisal performed by an independent appraiser at the Company's request in
connection with the ESOP. If one of the clauses (a), (b) or (c) of the
definition of Current Market Price in Section 3(c)(ii) is applicable to the
Common Stock, all SARs issued by the Company will be issued with an exercise
price no less than the then current Current Market Price. All SARs issued by the
Company will vest in accordance with the terms of the Company's Stock
Appreciation Rights Plan, as in effect at the time of issuance. The Company will
not issue SARs that cause the aggregate number of outstanding SARs (excluding
any SARs that have been exercised, that have expired, terminated unexercised, or
become unexercisable or that have been forfeited or otherwise terminated,
surrendered or cancelled), at the time of issuance, to be in excess of:
(1) two percent (2%) of the number of then
outstanding shares of Common Stock on a fully diluted basis (assuming the
exercise of all outstanding options, warrants and rights and the conversion into
Common Stock of all convertible securities) at the first anniversary of the
Effective Date;
(2) four percent (4%) of the number of then
outstanding shares of Common Stock on a fully diluted basis (assuming the
exercise of all outstanding options, warrants and rights and the conversion into
Common Stock of all convertible securities) at the second anniversary of the
Effective Date;
(3) six percent (6%) of the number of then
outstanding shares of Common Stock on a fully diluted basis (assuming the
exercise of all outstanding options, warrants and rights and the conversion into
Common Stock of all convertible securities) at the third anniversary of the
Effective Date;
(4) eight percent (8%) of the number of then
outstanding shares of Common Stock on a fully diluted basis (assuming the
exercise of all outstanding options,
30
warrants and rights and the conversion into Common Stock of all convertible
securities) at the fourth anniversary of the Effective Date; and
(5) ten percent (10%) of the number of then
outstanding shares of Common Stock on a fully diluted basis (assuming the
exercise of all outstanding options, warrants and rights and the conversion into
Common Stock of all convertible securities) at the fifth anniversary of the
Effective Date.
(d) The Company will not issue Company Contributions that cause the
aggregate value of all Company Contributions to exceed, at the time of issuance,
five percent (5%) of the Company's aggregate consolidated payroll expenses
(i.e., the aggregate payroll expenses of the Company and of any of the Company's
Subsidiaries substantially all of whose employees are eligible to participate in
Company benefit plans) from the Effective Date to the date of such
contributions, measured at the end of each plan year for the Company benefit
plans.
(e) The Company will not issue shares of phantom stock that cause the
number of shares of outstanding phantom stock (excluding any shares of phantom
stock that have expired, terminated unexercised, or become unexercisable, or
that have been forfeited or otherwise terminated, surrendered or cancelled), at
the time of issuance, to be in excess of 171,494 shares of phantom stock.
(f) The Company will provide the Holder with a copy of the ESOP
trustee's report distributed at a meeting of the Company's Board of Directors in
connection with any ESOP valuation made at the direction of the ESOP trustee,
within 10 business days of such meeting.
Section 17. Rights and Obligations of the Trust.
Notwithstanding anything contained herein to the contrary, the parties
hereto acknowledge and agree that the Trust shall only be a party to this
Agreement with respect to the terms and conditions contained in Sections 6, 7,
15, and 17 through 25, and shall not be liable for any obligations of the
Company hereunder.
Section 18. Amendment.
This Agreement may be amended by the mutual written agreement of the
Company and the Required Holders, except that Section 1, 6, 7, 15 and 17 through
25 of this Agreement may only be amended by the mutual written consent of the
Company, the Trust and all holders of an outstanding portion of the Warrant.
Section 19. Binding Effect.
This Agreement shall be binding upon and inure to the sole and
exclusive benefit of the Company and its successor, IITRI and its successors and
the Trust and its successors.
Section 20. Governing Law.
This Agreement shall be construed in accordance with and governed by
the laws of the State of Delaware, without regard to relevant conflict of law
principles.
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Section 21. Waiver.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions of this Agreement shall not be deemed a waiver of such
terms, covenants or conditions, nor shall any waiver or relinquishment of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
Section 22. Entire Agreement.
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may be amended only by a
writing executed by all of the parties.
Section 23. Severability.
The invalidity or unenforceability of any provision of this Agreement
shall in no way affect the validity or enforceability of any other provision
hereof.
Section 24. Headings.
The headings to the sections of this Agreement are used for reference
only and are not to be construed as limiting or extending the provisions hereof.
Section 25. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be considered an original but all of which shall constitute the
Agreement by and among the parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Seller Warrant
Agreement to be executed under its corporate seal by its officers thereunto duly
authorized as of the date hereof.
ALION SCIENCE AND TECHNOLOGY CORPORATION IIT RESEARCH INSTITUTE
By:___________________ By:______________________
Name: Xxxxxx Xxxxx Name:
Title: Chief Executive Officer Title:
Address: 0000 Xxxxxx Xxxx. Xxxxxxx:
Xxxxx 0000
XxXxxx, XX 00000-0000
Fax: 000-000-0000 Fax:
ALION SCIENCE AND TECHNOLOGY CORPORATION EMPLOYEE OWNERSHIP, SAVINGS AND
INVESTMENT TRUST, FOR THE PURPOSES OF SECTIONS 6, 7, 15 AND 17 THROUGH 25 OF
THIS SELLER WARRANT AGREEMENT ONLY
BY: STATE STREET BANK & TRUST COMPANY,
NOT IN ITS INDIVIDUAL OR CORPORATE CAPACITY,
BUT SOLELY AS TRUSTEE OF THE
ALION SCIENCE AND TECHNOLOGY CORPORATION
EMPLOYEE OWNERSHIP, SAVINGS AND INVESTMENT TRUST
By:_____________________________
Name:
Title:
Address:
Fax:
EXHIBIT A
FORM OF EXERCISE NOTICE
(To be Executed by the Holder if the Holder Desires to Exercise the Warrant
Evidenced by the Foregoing Seller Warrant Agreement)
To Alion Science and Technology Corporation
The undersigned hereby irrevocably elects to purchase ______ shares of Common
Stock, issuable upon exercise of said Warrant.
The undersigned hereby elects to make payment in connection with such exercise
by:
___ delivery of $_______ (in cash) and any applicable taxes payable by the
undersigned; or.
___ cashless exercise, pursuant to Section 2(c) of the Seller Warrant Agreement.
The undersigned requests that certificates for such shares be issued in the name
of
PLEASE INSERT TAX IDENTIFICATION NUMBER
--------------------------------
-------------------------------------------
(Print Name)
-------------------------------------------
(Print Address)
-------------------------------------------
EXHIBIT B
ASSIGNMENT AND JOINDER FORM
FOR VALUE RECEIVED, the undersigned Holder hereby sells, assigns and
transfers unto the undersigned Assignee all of the rights and obligations of the
undersigned Holder under the within Warrant Agreement and the Rights Agreement,
with respect to _________ shares of Common Stock (the "Warrant Shares"), and
does hereby irrevocably constitute and appoint ________ to make such transfer on
the books of the Company maintained for the purpose, with full power of
substitution in the premises.
The Assignee hereby acknowledges and agrees that (i) it is assuming all
of the obligations, relating to the portion of the Warrant being assigned and
transferred pursuant to this instrument (the "Warrant Portion") and the Warrant
Shares, which are contained in the Warrant Agreement and the Rights Agreement,
and (ii) as of the date written below, the Assignee shall join and become a
party to the Warrant Agreement and the Rights Agreement as if it were named on
the signature page of the Warrant Agreement as a Holder and on the signature
page of the Rights Agreement as a Warrantholder and that it shall be bound, as a
Warrantholder and Holder, as the case may be, by all of the terms, conditions,
covenants and restrictions contained in the Warrant Agreement and the Rights
Agreement.
The undersigned Holder and Assignee hereby agree that this instrument
shall be construed in accordance with and governed by the laws of the State of
Delaware, without regard to relevant conflict of law principles.
Dated:
HOLDER
By: _________________________
Name:
Its:
ASSIGNEE
By: _________________________
Name:
Its:
