EXHIBIT 10.6
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. __________
Cusip # __________
THIS 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 IIT Research Institute, an Illinois
not-for-profit corporation ("IITRI").
WHEREAS, the Company and IITRI have entered into that certain Third
Amended and Restated Asset Purchase Agreement on October __, 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 $0.01
par value per share common stock ("Common Stock");
WHEREAS, the parties hereto have entered into a Rights Agreement of even
date herewith (the "Rights Agreement"), pursuant to which the parties have
agreed to certain registration and director nomination rights relating to the
warrants issued hereunder and Common Stock issued upon exercise of such
warrants;
WHEREAS, the Company and IITRI have entered into a Securities Purchase
Agreement of even date herewith (the "Securities Purchase Agreement"), pursuant
to which the Company has issued a promissory note to IITRI in the principal
amount of [$____________]; 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 IITRI, or its 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 (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)
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
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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;
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
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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.
(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
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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; 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
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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 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. Each determination
of Fair Value shall be made without applying a discount for any lack of
liquidity or absence of control. 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
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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.
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).
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(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.
(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.
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(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 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.
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(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, 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;
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(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.
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
11
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 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
12
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.
(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 Rule13d-5
13
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".
(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).
14
(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 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
15
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 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 (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
16
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 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
17
(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 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");
18
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 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.
19
(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 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
20
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.
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) and Section 12(f), 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;
21
(iv) the transferee agrees to be bound by the terms of the
Rights Agreement; and
(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 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.
(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 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 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 or any Material Subsidiary (as defined below) 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 order for relief in respect of the Company or any Material
22
Subsidiary 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; or
(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 any
Subsidiary or over all or a substantial part of the property of the Company or
any Subsidiary shall be entered; or an interim receiver, trustee or other
custodian of the Company or any Subsidiary or of all or a substantial part of
the property of the Company or any Subsidiary shall be appointed or a warrant of
attachment, execution or similar process against any substantial part of the
property of the Company or any Subsidiary shall be issued and any such event
shall not be stayed, dismissed, bonded or discharged within sixty (60) days
after entry, appointment or issuance; provided that such Event of Default shall
not arise in respect of any Subsidiary of the Company that is not a Material
Subsidiary and for which a waiver of any Event of Default (or similar term
within the meaning of the Credit Agreement) arising from the foregoing
events has been granted to the Company by the requisite percentage of Banks
pursuant to the Credit Agreement prior to the expiry of the preceding sixty (60)
day period;
(v) if the Company or any Subsidiary 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; provided that
such Event of Default shall not arise in respect of any Subsidiary of the
Company that is not a Material Subsidiary and for which a waiver of any Event of
Default (or similar term within the meaning of the Credit Agreement)
arising from the foregoing events has been granted to the Company by the
requisite percentage of Banks pursuant to the Credit Agreement prior
to taking any of the foregoing actions; or
(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;
23
(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;
(iv) the transferee agrees to be bound by the terms of the
Rights Agreement; 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 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 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
24
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.
(i) "Material Subsidiary" shall mean, in respect of the Company, any
Subsidiary of the Company that (i) has total assets (determined as of the last
day of the most recently completed fiscal quarter in accordance with Agreement
Accounting Principles (as defined below)) which constitute [__%] or more of the
total assets of the Company and its consolidated Subsidiaries as of such date of
determination, or (ii) has revenue (determined as of the last day of the most
recently completed fiscal quarter for the four-quarter period then ending in
accordance with Agreement Accounting Principles) which constitutes [__%] or more
of the revenue of the Company and its consolidated Subsidiaries for such period,
or (iii) has EBITDAE (as defined below and determined as of the last day of the
most recently completed fiscal quarter for the four-quarter period then ending
in accordance with Agreement Accounting Principles) which constitutes [__%] or
more of EBITDAE of the Company and its consolidated Subsidiaries for such
period; provided that if (a) a Material Subsidiary no longer satisfies any
condition set forth above and (b) the Board of Directors of the Company
determines that such Subsidiary is not material to the consolidated financial
condition or operations of the Company and its Subsidiaries and the Holders
shall have received written notice of such determination from the Company, and
(c) no Event of Default be continuing, then for so long as such Subsidiary
satisfies none of the conditions in clauses (i) through (iii) above, such
Subsidiary shall not be a Material Subsidiary.
(j) "Agreement Accounting Principles" means generally accepted
accounting principles as in effect in the United States from time to time,
applied in a manner consistent with that used in preparing the financial
statements of the Company referred to in Section __ of the Securities Purchase
Agreement, as the same may be adjusted from time to time in accordance with the
provisions of Section __ of the Securities Purchase Agreement.
(k) "EBITDAE" means, for any period, on a consolidated basis for the
Company and its Subsidiaries, the sum of the amounts for such period, without
duplication, calculated in each case in accordance with Agreement Accounting
Principles, of (i) Net Income (as defined below), plus (ii) Interest Expense (as
defined below) to the extent deducted in computing Net Income, plus (iii)
charges against income for foreign, federal, state and local taxes to the extent
deducted in computing Net Income, plus (iv) depreciation expense to the extent
deducted in computing Net Income, plus (v) amortization expense, including,
without limitation, amortization of goodwill and other intangible assets to the
extent deducted in computing Net Income, plus (vi) cash contributions to the
ESOP in respect of the repurchase liability of the Company under the ESOP Plan
Documents (as defined below) to the extent deducted in computing Net Income,
plus (vii) non-cash ESOP Compensation Expense (as defined below) to the extent
deducted in computing Net Income, plus (viii) other extraordinary and
nonrecurring non-cash charges to the extent deducted in computing Net Income up
to an amount not to exceed $1,000,000, minus (ix) other extraordinary and
nonrecurring non-cash credits to the extent added in computing Net Income up to
an amount not to exceed $1,000,000, plus (x) non-cash charges classified as
25
minority interest to the extent deducted in computing Net Income, plus (xi)
other nonrecurring adjustments and charges to the extent deducted in computing
Net Income for periods prior to the Effecetive Date.
(l) "Net Income" means, for any period, an amount equal to the net
earnings (or loss) after taxes of the Company and its Subsidiaries on a
consolidated basis for such period taken as a single accounting period
determined in conformity with Agreement Accounting Principles.
(m) "Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Subsidiaries, whether paid or
accrued (including the interest component of Capitalized Leases (as defined
below), commitment and letter of credit fees and the discount or implied
interest component (or other fees or charges in securitization transactions) of
Off-Balance Sheet Liabilities (as defined below)), and net payments (if any)
pursuant to Hedging Arrangements (as defined below) relating to interest rate
protection, all as determined in conformity with Agreement Accounting
Principles.
(n) "ESOP Plan Documents" means, collectively, the documents
identified in Schedule 10(j) to this Agreement, each as may be amended,
supplemented or modified.
(o) "ESOP Compensation Expense" means, for any period, expenses
charged with respect to the ESOP to Net Income for such period in accordance
with Agreement Accounting Principles.
(p) "Capitalized Leases" means, with respect to any Person, any lease
of property by such Person as lessee which would be capitalized on a balance
sheer of such Person prepared in accordance with Agreement Accounting
Principles.
(q) "Off-Balance Sheet Liabilities" means, with respect to any
Person, (i) any repurchase obligation or liability of such Person or any of its
Subsidiaries with respect to Receivables (as defined below) sold by such Person
or any of its Subsidiaries, (ii) any liability of such Person or any of its
Subsidiaries under any sale and leaseback transaction which does not create a
liability on the consolidated balance sheet of such Person (iii) any liability
of such Person or any of its Subsidiaries under any financing lease or so-called
"synthetic lease" or "tax ownership operating lease" transaction, or (iv) any
obligations of such Person or any of its Subsidiaries arising with respect to
any other transaction which is the functional equivalent of or takes the place
of borrowing but which does not constitute a liability on the consolidated
balance sheet of such Person and its Subsidiaries.
(r) "Hedging Arrangements" is defined in the definition of Hedging
Obligations below.
(s) "Hedging Obligations" means, with respect to any Person, any and
all obligations of such Person, whether absolute or contingent and howsoever and
whensoever created, arising, evidenced or acquired (including all renewals,
extensions and modifications thereof and substitutions therefor), under (i) any
and all agreements, devices or arrangements designed to protect at least one of
the parties thereto from the fluctuations of interest rates, commodity prices,
exchange rates or forward rates applicable to such party's assets, liabilities
or exchange
26
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap, swap, or collar protection agreements, forward
rate currency or interest rate options, puts and warrants or any similar
derivative transactions ("Hedging Arrangements"), and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
(t) "Receivables" means and includes all of the Company's or the
Subsidiary Guarantors' presently existing and hereafter arising or acquired
accounts, accounts receivable, and all present and future rights of the Company
or any Subsidiary Guarantor to payment for goods sold or leased or for services
rendered (except those evidenced by instruments or chattel paper), whether or
not they have been earned by performance, and all rights in any merchandise or
goods which any of the same may represent, and all rights, title, security and
guaranties with respect to each of the foregoing, including, without limitation,
any right of stoppage in transit.
(u) "Subsidiary Guarantors" shall have the same meaning as in the
Securities Purchase Agreement, except that the term Material Subsidiaries used
therein shall be deemed to refer to the term Material Subsidiaries as defined in
Section 10(i) of this Agreement for the purposes of this Agreement.
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") (other than in connection with a Demand Registration or Piggy-Back
Registration under the Rights Agreement), 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.
27
(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. Holder 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,
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 Holder (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 Holder plus the number of shares of Common Stock underlying any
outstanding and unexpired portion of the Warrant then held by Holder, 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 "Holder Share").
(ii) Subject to Section 12(c) below, if Holder 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 Holder's receipt of the First
Offer Notice, Holder shall be deemed to have waived its
28
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 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 Holder,
without the obligation to provide any further offers or notices to Holder.
(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 Holder (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 Holder Share.
(ii) If Holder 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 Holder's receipt of the Second Offer Notice, Holder 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 Holder.
(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 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
29
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 Offering"), and shall expire upon the
consummation by the Company of an Initial Public Offering.
(f) The rights under this Section 12 may be transferred or assigned
only if (i) all of the requirements of Section 10(a) are satisfied with respect
to such transfer or assignment, and (ii) the proposed transferee or assignee is
simultaneously obtaining at least one-third of the Warrant as issued on the date
hereof.
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.
30
(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."
(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
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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 (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;
32
(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.
(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.
33
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.
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]
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IN WITNESS WHEREOF, the parties hereto have caused this 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 IIT RESEARCH INSTITUTE
By:___________________ By:______________________
Name: Bahman Atefi Name:
Title: Chief Executive Officer Title:
Address: 1750 Tysons Blvd. Address:
Suite 1300
McLean, VA 22102-4213
Fax: 703-714-6508 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:
35
EXHIBIT A
FORM OF EXERCISE NOTICE
(To be Executed by the Holder if the Holder Desires to Exercise the Warrant
Evidenced by the Foregoing 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 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)
- -----------------------------
36
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:
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