Exhibit 10.21
ALION MEZZANINE 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.
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Cusip #
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THIS ALION MEZZANINE WARRANT AGREEMENT ("Agreement" or "Warrant
Agreement") is made as of this day of , 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 Xxxxxx Xxxxx, an individual
("Xxxxx").
WHEREAS, the Company and Xxxxx have entered into an Employment Agreement
dated , 2002 (the "Employment Agreement"), pursuant to which, the
Company has agreed to issue to Xxxxx warrants to purchase shares of the
Company's $0.01 par value per share common stock ("Common Stock"); and
WHEREAS, the Company, various financial institutions (the "Banks") and
Lasalle Bank National Association, as agent, have entered into a Credit
Agreement of even date herewith (the "Credit Agreement").
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 Xxxxx, or his permitted registered transferees (subject
to the restrictions set forth herein), an irrevocable right (the "Warrant") to
purchase up to [ ( )] shares of Common Stock upon exercise of the
Warrant, subject to adjustment pursuant to Section 1(b) below (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 Xxxxx and/or his permitted transferees
(Xxxxx and his 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) 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, 2008 (the "September 2008 Appraisal"), if the ESOP is still in
existence on September 30, 2008 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 2008 Appraisal shall not reflect any discount for
any lack of liquidity or absence of control, or (ii) the sixth (6th) 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) 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 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;
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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.
(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.
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(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.
(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.
(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.
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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 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.
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(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 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.
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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) INTENTIONALLY OMITTED.
(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;
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(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, 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
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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.
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); and
(ii) at any time within thirty (30) days prior to the Expiration
Date, the Company shall have the right to purchase the Warrant or any portion
thereof 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
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 Company's call right under Section
4(a)(i); provided that such appraisal shall not reflect any discount for any
lack of liquidity or absence of control, and (ii) the per share value of the
Common Stock as set forth in the September 2008 Appraisal, for the purposes of
the Company's call right under Section 4(a)(ii). 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
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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) or Section 4(a)(ii) 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 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
herein, at any time within (i) thirty (30) days prior to the Expiration Date or
(ii) within thirty (30) days after the date that the Company has sent notice to
the Holder that a Change of Control (as defined below) has occurred, the Holder
shall have the right to sell the Warrant or any portion thereof 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 a purchase price (the "Put Price") determined in accordance with
Section 5(b) below.
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(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 then most recent appraisal performed by
an independent appraiser at the Company's request in connection with the ESOP,
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 2008 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) "Change of Control" shall mean and shall be deemed to have occurred
if at any time for whatever reason:
(i) any Person (other than the Holder, or any of the Holder's
direct assignees or transferees), or the Trust, together with their "affiliates"
within the meaning of Rule 12b-2 of the Commission under the Exchange Act) shall
acquire beneficial ownership (including beneficial ownership resulting from the
formation of a "group" within the meaning of Rule 13d-5 of the Securities
Exchange Commission ("SEC") under the Exchange Act) of more than fifty percent
(50%) of the combined voting power of the outstanding capital stock of the
Company, ordinarily having the right to vote at any election of directors;
(ii) there is a sale of all or substantially all of the Company's
assets, directly or indirectly through one or more transactions whether or not
concurrent.
(d) INTENTIONALLY OMITTED.
(e) Prior to exercising its put right under Section 5(a)(i), the Holder
must deliver written notice to the Company, in accordance with Section 15, by
July __, 2008, of its intention to exercise its right under Section 5(a)(i) to
sell the Warrant, or any portion thereof, and prior to exercising its put right
under Section 5(a)(ii), the Holder must deliver written notice to the Company in
accordance with Section 15 within thirty (30) days after the relevant Change of
Control, of its exercise of its right under Section 5(a)(ii) to sell the Warrant
or any portion thereof. The notices referred to in the preceding sentence shall
be referred to, in either case, as the "Put Notice". 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 as indicated
in a Put Notice delivered in accordance with Section 5(e)(i), and the date that
the holder exercises its put right as indicated in a Put Notice delivered in
accordance with Section 5(e)(ii), shall in each case be hereinafter referred to
as the "Put Exercise Date".
11
(f) Payment of the Put Price in connection with the exercise by the
Holder of its put right under Section 5(a)(i) shall be made in cash in
immediately available funds within ninety (90) days after the date of the Put
Exercise Date, and payment of the put price in connection with the exercise by
the Holder of its put right under Section 5(a)(ii) shall be made in cash in
immediately available funds within one hundred eighty (180) days after the date
of the corresponding Put Exercise Date (in either case, the "Put Effective
Date").
(g) 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.
(h) 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)) prior to such termination or
expiration of such sixty (60) day period, which Put Notice shall (if permitted
under Section 5(a)) be given full effect upon the occurrence of such termination
or expiration, but no 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, shall be counted for purposes of the waiting periods under Sections
5(e) and 5(f).
(i) 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
of the Company (assuming the execution of all outstanding stock options, stock
warrants and stock rights, and conversion of all
12
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
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)
herein, 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
13
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 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 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(d) 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, Put 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) or the corresponding Put Notice and the applicable
waiting periods under Sections 5(e) and 5(f), as the case may be, shall be
tolled, as of the date of delivery of the Drag-Along Notice (the "Drag Toll
Date") and the Exercise Date, the Put 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, Put Exercise Date
and/or Put Effective Date, as appropriate, and the
14
corresponding Exercise Notice or Put Notice, as 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, 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, Put Exercise Date and/or Put Effective Date that was/were
suspended pursuant to Section 6(g) above shall each be deemed reinstated, but no
days that have passed from the Drag Toll Date until the date of termination of
the Drag Transaction or the date as of which the above noted sixty-day period
has elapsed, as appropriate, shall be counted for purposes of the waiting
periods under Sections 2(b), 5(e) and 5(f), and the corresponding election to
exercise or put the Warrant, or portion thereof, and the corresponding Exercise
Notice or Put Notice, shall be deemed reinstated and effective, subject to the
rescheduled date of the Exercise Date, the Put Exercise Date and/or Put
Effective Date, as appropriate, to reflect the provisions of this Section
6(j)(i); and
(ii) the Drag-Along Notice shall be deemed voided.
(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
15
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
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
16
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 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, Put Exercise Date and/or Put Effective Date,
then the Exercise Notice and the applicable 90-day waiting period under Section
2(b) or the corresponding Put Notice and the applicable waiting periods under
Sections 5(e) and 5(f), as the case may be, shall be tolled, as of the date of
delivery of the Tag-Along Notice (the "Tag Toll Date") and the Exercise Date,
the Put Exercise Date and/or 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, Put Exercise Date and/or Put Effective Date,
as applicable, and the corresponding Exercise Notice or Put
17
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, 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, but no
days that have passed from the Tag Toll Date until the date of termination of
the Tag Transaction or the date as of which the above noted sixty-day period has
elapsed, as appropriate, shall be counted for purposes of the waiting periods
under Sections 2(b), 5(e) and 5(f), and the corresponding election to exercise
or put the Warrant or portion thereof, and the corresponding Exercise Notice or
Put Notice, shall be deemed reinstated and effective, subject to the rescheduled
date of the Exercise Date, or the Put Exercise Date and/or Put Effective Date,
as appropriate, to reflect the provisions of this Section 7(i)(i); and
(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.
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.
18
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, (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; and
(iv) the Holder shall only assign such rights and benefits pro rata
with the portion of the Warrant being transferred to the transferee.
(b) 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 that 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 Code, any
person or entity whose ownership of the Warrant or any portion thereof would
cause the Company to lose such status.
19
(c) INTENTIONALLY OMITTED.
(d) Subject to the terms of Section 11 and subject to the restrictions
set out in Section 10(e) and Section 12(f), 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
(v) the Holder shall only assign such rights and benefits pro rata
with the number of Shares being transferred to the transferee.
(e) 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 than any Financial Institution
(as defined below), provided that 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 Code, any
person or entity whose ownership of the Warrant or any portion thereof 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
20
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.
(h) "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 11. Company Right of First Offer and Second Offer.
(a) First Offer
(i) If the Holder proposes to sell or otherwise transfer the
Warrant, any portion thereof, and/or any number of the Shares it holds at such
time (collectively, the "Transfer Interests") to any third party other than one
that it controls, is controlled by, or is under common control with (each an
"Affiliate"), the Holder is required to first notify the Company, by delivering
to the Company a written notice ("Sale Notice") in accordance with Section 15,
stating the Holder's bona fide intention to sell or otherwise transfer the
Transfer Interests. The Company shall have the exclusive right, for a period of
thirty (30) days from its receipt of the Sale Notice, to make an offer to
purchase the Transfer Interests at a price to be proposed by the Company;
provided that, in relation to a proposed sale or transfer of Transfer Interests
by the Holder in connection with a transaction that is the subject of a
Tag-Along Notice delivered to the Holder by the Trust, the Company shall have
the exclusive right, for a period of ten (10) days from its receipt of the Sale
Notice, to make an offer to purchase the Transfer Interest at a price to be
proposed by the Company.
(ii) Subject to Section 11(c) below, if either (x) the Company does
not deliver to the Holder written notice of an offer to purchase the Transfer
Interests ("Purchase Notice") within the appropriate offer period referenced in
Section 11(a)(i) above, or (y) the Holder has rejected the Company's offer, the
Holder shall be entitled to issue and sell the Transfer Interests at a price
which is no less than ninety percent (90%) of the last price offered by the
Company for the Transfer Interests (the "Last Offer Price"), to any third party
that is not an Affiliate of the Holder at any time during the period of nine (9)
months following the date of delivery of the Sale Notice by the Holder to the
Company, without the obligation to provide any further offers or notices to the
Company.
21
(b) Second Offer.
(i) If the Holder proposes to sell or otherwise transfer the
Transfer Interests to a third party that is not an Affiliate of the Holder at a
price that is less than ninety percent (90%) of the Last Offer Price (the
"Proposed Sale Price"), the Holder shall, prior to consummating such sale or
transfer of the Transfer Interests to the third party, make an offer to the
Company in writing and in accordance with Section 15 (the "Second Sale Notice"),
to sell the Transfer Interests to the Company at the Proposed Sale Price.
(ii) Subject to Section 11(c) below, if the Company does not
deliver to the Holder written notice of acceptance of any offer made pursuant to
Section 11(b)(i) within thirty (30) days after the Company's receipt of the
Second Sale Notice, the Company shall be deemed to have waived its rights to
purchase the Transfer Interests, and the Holder shall be entitled to issue and
sell or otherwise transfer the Transfer Interests at the Proposed Sale Price to
such unrelated third party within nine (9) months following the date of delivery
of the Sale Notice, without the obligation to provide any further offers or
notices to the Company.
(c) If the Holder proposes to sell or otherwise transfer the Transfer
Interests to a third party that is not an Affiliate of the Holder at any time
after the expiry of the nine-month period referenced in Section 11(a)(ii) or
Section 11(b)(ii), then the Holder shall again be required to comply with all of
the obligations and requirements contained in Sections 11(a) and 11(b).
(d) Payment of the Purchase Price shall be made in cash in immediately
available funds within sixty (60) days after the date (if any) that a purchase
price is agreed for the Company's purchase of the Transfer Interests.
Section 12. INTENTIONALLY OMITTED.
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
22
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.
(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 and 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."
23
(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) 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;
24
(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, warrants and rights and the conversion into Common Stock of
all convertible securities) at the fifth anniversary of the Effective Date.
(b) 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.
(c) 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.
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 Holder, 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, Xxxxx and its successors and the Trust
and its successors.
25
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.
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.
[SIGNATURES FOLLOW ON NEXT PAGE]
26
IN WITNESS WHEREOF, the parties hereto have caused this Alion Mezzanine
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
By:
----------------------------- ---------------------------
Name: Xxxxxx Xxxxx,
Title: an individual
Address: 0000 Xxxxxx Xxxx.
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 MEZZANINE
WARRANT AGREEMENT ONLY
By:
-----------------------------
Name:
Title: Trustee
Address:
Fax:
27
EXHIBIT A
FORM OF EXERCISE NOTICE
(To be Executed by the Holder if the Holder Desires to Exercise the Warrant
Evidenced by the Foregoing Alion Mezzanine 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 Alion Mezzanine 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)
---------------------------------------
28
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 Alion Mezzanine Warrant 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 Alion Mezzanine Warrant Agreement, and (ii)
as of the date written below, the Assignee shall join and become a party to the
Alion Mezzanine Warrant Agreement as if it were named on the signature page of
the Alion Mezzanine Warrant Agreement as a Holder and that it shall be bound as
a Holder by all of the terms, conditions, covenants and restrictions contained
in the Warrant 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:
