EXHIBIT 10.7
SELLER WARRANT AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER THE
SECURITIES ACT AND UNDER ANY RELEVANT STATE LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Warrant No. __________
Cusip # __________
THIS SELLER 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 dated 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; and
WHEREAS, the Company and IITRI have entered into a Seller Note
Securities Purchase Agreement of even date herewith (the "Seller Securities
Purchase Agreement"), pursuant to which the Company has issued a promissory
note to IITRI in the principal amount of Thirty-Nine Million Nine Hundred
Thousand Dollars ($39,900,000).
NOW, THEREFORE, in consideration of the premises set forth above, the
covenants, representations and warranties contained in this Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
Section 1. Grant of Warrant.
Upon the terms and subject to the conditions hereinafter set forth,
the Company hereby grants to IITRI, or its permitted registered transferees
(subject to the restrictions set forth herein), an irrevocable right (the
"Warrant") to purchase up to [_____________ (___)] shares of Common Stock upon
exercise of the Warrant (the "Shares") at an exercise price of $10 per share
(the "Exercise Price"), and to exercise the other rights, powers and
privileges hereinafter set forth. The Exercise Price and the number of Shares
shall be subject to adjustment from time to time as provided in Section 3
hereof.
Section 2. Duration and Exercise of Warrant. Subject to
Sections 2(b), 4, 5, 6 and 7 herein, the parties hereto agree as follows,
(a) Subject to the remaining provisions of this Agreement, the
Warrant may be exercised, in whole or in part, by IITRI and/or its permitted
transferees (IITRI and its permitted transferees are hereinafter referred to
individually or collectively as the "Holder") on any business day on or after
the Effective Date and through and including (i) the date that is thirty (30)
days following the date of the Company's delivery to the Holder of the
appraisal performed by an independent appraiser at the Company's request in
connection with the Alion Science and Technology Corporation Employee
Ownership, Savings and Investment Plan (the "ESOP") that sets forth the per
share value of the Common Stock as of September 30, 2010 (the "September 2010
Appraisal"), if the ESOP is still in existence on September 30, 2010 and if
none of clauses (a), (b) and (c) of the definition of "Current Market Price"
in Section 3(c)(ii) below are applicable; provided that the September 2010
Appraisal shall not reflect any discount for any lack of liquidity or absence
of control, or (ii) the eighth (8th) anniversary of the Effective Date, if the
ESOP is not still in existence on September 30, 2008 or if one of the clauses
(a), (b) or (c) of the definition of "Current Market Price" in Section
3(c)(ii) below is applicable (in each case, the "Expiration Date"). At 5:00
P.M., Eastern Standard Time, on the Expiration Date, the Warrant shall be and
become void and of no value to the extent it has not been exercised prior to
such time.
(b) The Holder shall not be entitled to exercise any portion of
the Warrant unless it has delivered written notice in the form of the Form of
Election to Purchase attached hereto as Exhibit A (the "Exercise Notice") to
the Company in accordance with Section 15 of this Warrant Agreement ninety
(90) days prior to the proposed effective date of such exercise. Subject to
the terms of Sections 2(h) and 7(b), the Warrant or a portion thereof, as
appropriate, shall be deemed to be exercised ninety (90) days from the date
(the "Exercise Date") the Company receives the Exercise Notice.
(c) The Holder shall make payment for the exercise of the
Warrant, or a portion thereof, as appropriate, in the form of cash, or in lieu
of cash, the Holder may elect to receive such number of Shares equal to the
value (as determined below) of the exercised Warrant, or portion thereof, by
indicating in the Exercise Notice the Holder's desire to consummate a cashless
exercise ("Cashless Exercise Notice"), in which event the Company shall issue
to the Holder a number of Shares computed using the following formula:
2
Y x ( A - B )
X = ------------------
A
Where:
X = The number of Shares to be issued to the Holder;
Y = The number of Shares purchasable under the Warrant if
exercised in full, or the
exercised portion thereof, as appropriate;
A = The then current Fair Value (as determined in accordance
with Section 3(c) herein); and
B = The then current Exercise Price.
(d) Upon exercise of any portion of the Warrant and payment of
the Exercise Price therefor, the Company shall issue to the Holder stock
certificates representing the shares of Common Stock underlying such exercised
portion of the Warrant, or representing such number of Shares as computed in
accordance with Section 2(c) above, as appropriate.
(e) If this Warrant is exercised in respect of less than all of
the Shares at the time purchasable hereunder, the Holder hereof shall be
entitled to receive a new Warrant covering the number of Shares in respect of
which this Warrant shall not have been exercised and setting forth the
aggregate Exercise Price applicable to such shares, in which case the Holder
shall at the same time surrender this Warrant to the Company for cancellation.
(f) The Shares issuable upon the exercise of this Warrant by the
Holder under this Section 2 shall be deemed to have been issued to the Holder
at the Exercise Date, and the Holder shall be deemed for all purposes to have
become the record holder of such Shares at the Exercise Date.
(g) The Company shall not close its books against the transfer
of this Warrant or of any Share issued or issuable upon the exercise of this
Warrant in any manner which interferes with the timely exercise of this
Warrant.
(h) Notwithstanding any other provision hereof, if an exercise
of any portion of this Warrant is to be made in connection with a public
offering, a Drag-Along Notice (as defined in Section 6), a Tag-Along Notice
(as defined in Section 7), or a sale of the Company, the exercise of any
portion of this Warrant (and the payment of the Exercise Price related
thereto) shall be conditioned upon the consummation of the public offering,
the transaction which is the subject of such Drag-Along Notice or Tag-Along
Notice, or such sale of the Company in which case such exercise shall not be
deemed to be effective until the concurrent consummation of such transaction.
(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
3
certificates pursuant to this Section, regardless of the name or names in
which such stock certificates shall be registered. Such stock certificates
shall be delivered within five (5) days of the applicable Exercise Date.
(j) The Company will at all times prior to the Expiration Date
reserve and keep available such number of authorized shares of its Common
Stock, solely for the purpose of issue upon the exercise of the rights
represented by this Warrant as may at any time be issuable upon the exercise
of this Warrant and such shares issuable upon the exercise of this Warrant
shall at no time have an aggregate par value which is in excess of the
aggregate Exercise Price.
(k) The Company may at its option issue fractional Shares, or
cash representing the then current Fair Value of such fractional Shares, upon
any exercise of this Warrant, if appropriate.
Section 3. Adjustment of Number of Shares and Exercise Price.
The number of shares of Common Stock underlying the Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows in
each applicable instance. With respect to any determination of adjustments to
the number of shares of Common Stock or the Exercise Price which may be
required by this Section 3, the Company's board of directors shall make a good
faith determination regarding any adjustment; provided that the holders
holding a majority of the Warrant (the "Required Holders") shall be entitled
to notify the Company in accordance with Section 15 herein of their
disagreement with the board of directors' determination (other than the
determination of Fair Value (as defined in Section 3(c) below), which shall be
determined exclusively in accordance with the provisions of Section 3(c)) of
the adjustment within fifteen (15) days following receipt of the writing
setting forth any such adjustment. If the Company and the Required Holders
cannot resolve such disagreement within ten (10) days of the Company's receipt
of the Required Holders' notice of disagreement, such adjustment shall be
determined by an independent accounting or investment banking firm of
recognized national standing selected by the Company and reasonably acceptable
to the Required Holders. The determination of such accounting or investment
banking firm so made shall be conclusive and binding on the Company and the
Holders. The Company shall pay all expenses of such accounting or investment
banking firm if the determination of such adjustment is five percent (5%) or
more greater than (i.e., more favorable to the Required Holders than) the
determination previously made by the board of directors; otherwise the
Required Holders shall pay all such expenses.
(a) In the event of any change in the outstanding Common Stock
of the Company due to stock dividends, consolidations, stock splits or reverse
stock splits, the number of shares of Common Stock underlying the Warrant
and/or the Exercise Price will be appropriately adjusted, upwards or
downwards, so that the Holder thereafter shall be entitled to purchase the
number of shares of Common Stock consistent with such change at an exercise
price that is proportionate with such change.
(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
4
Price for the Warrant which was in effect immediately prior to each such
issuance shall be reduced to the "Diluted Price". The Diluted Price shall be
calculated in accordance with the following formula for any issuance of
Additional Stock in a transaction triggering the rights afforded in this
Section 3(b) (the "Trigger Transaction"). The product of the per share
consideration and the number of shares of Additional Stock issued in
connection with the corresponding Trigger Transaction shall hereinafter be
referred to as the "Transaction Price".
The Diluted Price shall equal the product of (i) the Exercise Price
(subject to adjustment pursuant to this Section 3) and (ii) the quotient of
(x) the number of then outstanding shares of Common Stock on a fully diluted
basis (assuming the exercise of all outstanding options, rights (including,
without limitation, stock appreciation rights ("SARs")) and warrants and the
conversion into Common Stock of all convertible securities) plus the number of
shares of Additional Stock that would have been issued for the Transaction
Price if the per share consideration in the Trigger Transaction had been equal
to the Fair Value per Share as of the date of execution of the binding written
agreement providing for the issuance of the Additional Stock, divided by (y)
the number of then outstanding shares of Common Stock on a fully diluted basis
(assuming the exercise of all outstanding options, rights and warrants and the
conversion into Common Stock of all convertible securities) plus the number of
shares of Additional Stock issued in connection with the Trigger Transaction.
(c) Fair Value and Current Market Price.
(i) The "Fair Value", at any given time, shall mean the
fair value of the appropriate security (including, without limitation, any
share of Common Stock), property, assets, business or entity as determined in
good faith by the board of directors of the Company; provided that in
connection with any transaction which (1) has an aggregate value of One
Million Dollars ($1,000,000) or more, (2) is not based upon a determination of
Fair Value set forth in an appraisal performed by an independent appraiser at
the Company's request relating to or in connection with the ESOP that is no
more than six (6) months old, dated from the date of execution of the
appraisal, and (3) is not based upon a determination of Fair Value as set
forth in a fairness opinion performed by an independent investment banking
firm of recognized national standing at the Company's request that is no more
than six (6) months old, dated from the date of execution of the opinion
(provided that with respect to clauses (2) and (3), no event or events have
occurred between the date of such appraisal or fairness opinion (i.e., the
date as of which Fair Value is measured by such appraisal or fairness opinion)
and the date of execution of the binding written agreement providing for the
transaction in question that would cause the Required Holders to reasonably
conclude that the Fair Value at such date of execution is greater than the
determination of Fair Value reflected in such appraisal or fairness opinion),
if, within fifteen (15) days following receipt of the writing setting forth
any such determination of Fair Value (a copy of which the Company shall
deliver to the Holders promptly after such determination), the Required
Holders shall notify the Company in accordance with Section 15 herein of their
disagreement with such determination (the "Challenged Determination"), then a
new determination of Fair Value shall be made as of the date of execution of
the binding written agreement providing for the transaction in question (the
"Subsequent Determination"). If clauses (2) or (3) above are applicable, the
Subsequent Determination shall be made by the same 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
5
satisfactory to the Required Holders, and if the Company shall not have
selected an investment banking firm or appraiser within thirty (30) days after
its receipt of a writing from the Required Holders containing their
disagreement with the board of directors' determination, then the Required
Holders may select such investment banking firm or appraiser. The Subsequent
Determination shall be conclusive and binding on the Company and on the
Holders. The Company shall pay all of the expenses incurred in connection with
any Subsequent Determination, including, without limitation, the expenses of
the independent investment banking firm or appraiser engaged to make such
Subsequent Determination, if the Subsequent Determination is five percent (5%)
or more greater than (i.e., more favorable to the Required Holders than) the
Challenged Determination; otherwise the Required Holders shall pay all such
expenses. Notwithstanding the foregoing, in the case of any security, if
clauses (a), (b) or (c) of the definition of Current Market Price are
applicable to such security, then the Fair Value of such security shall be the
Current Market Price of such security.
(ii) "Current Market Price" of any security (including,
without limitation, any share of Common Stock) as of any date herein specified
shall mean the average of the daily closing prices for the twenty (20)
consecutive trading days immediately prior to, but not including the day in
question (or in the event that a security has been traded for less than twenty
(20) days, each of the trading days prior to the day in question on which such
security has been traded). The closing price for each day shall be (a) if such
security is listed or admitted for trading on any domestic national securities
exchange, the closing sale price of such security, regular way, or the average
of the closing bid and asked prices thereof if no such sale occurred, in each
case as officially reported on the principal securities exchange on which such
security is listed, or (b) if not reported as described in clause (a), the
closing sale price of such security, or the average of the closing bid and
asked prices thereof if no such sale occurred, in each case as reported by the
Nasdaq National Market, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, as reported
by any member firm of the New York Stock Exchange selected by the Company, or
(c) if not quoted as described in clause (b), the average of the closing bid
and asked prices for such security as reported by the National Quotation
Bureau Incorporated or any similar successor organization, as reported by any
member firm of the New York Stock Exchange selected by the Company.
(d) No adjustment of the Exercise Price shall be made in an
amount less than one cent per share, provided that any adjustments that are
not required to be made by reason of this sentence shall be carried forward
and shall be taken into account in any subsequent adjustment made after the
date of the event giving rise to the adjustment being carried forward.
(e) Reorganization, Reclassification or Recapitalization of the
Company. If and whenever subsequent to the date hereof the Company shall
effect (i) any reorganization or reclassification or recapitalization of the
capital stock of the Company (other than in the cases referred to in Section
3(a)), (ii) any consolidation or merger of the Company with or into another
Person, (iii) the sale, transfer or other disposition of the property, assets
or business of the Company as an entirety or substantially as an entirety or
(iv) any other transaction (or any other event shall occur) as a result of
which holders of Shares become entitled to receive any Common Stock or other
securities and/or property of the Company, any of its Subsidiaries or any
other 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
6
Common Stock or other securities and/or the same amount of property
(including, without limitation, cash) to which the holder of the number of
Shares which would otherwise have been deliverable upon the exercise of this
Warrant or any portion thereof at the time would have been entitled upon such
reorganization or reclassification or recapitalization of capital stock,
consolidation, merger, sale, transfer, disposition or other transaction or
upon the occurrence of such other event, and at the same aggregate Exercise
Price. The term "Person" shall mean an individual, a corporation, an
association, a joint-stock company, a business trust or other similar
organization, a partnership, a limited liability company, a joint venture, a
trust, an unincorporated organization or a government or any agency,
instrumentality or political subdivision thereof.
Prior to the consummation of any transaction or event described in
the preceding sentence, the Company shall make equitable, written adjustments
in the application of the provisions set forth herein for the benefit of the
Holder, in a manner reasonably satisfactory to the Required Holders so that
all such provisions shall thereafter be applicable, as nearly as possible, in
relation to any Shares or other securities or other property thereafter
deliverable upon exercise of the Warrants and so that the holders of the
Warrants will (after exercise) enjoy all of the rights and benefits enjoyed by
any holder of Common Stock in connection with any such transaction or event,
including, without limitation, any subsequent tender offer or redemption of
any such Shares or other securities. Any such adjustment shall be made by and
set forth in a supplemental agreement of the Company and/or the successor
entity, as applicable, for the benefit of the Holder, and in form and
substance reasonably acceptable to the Required Holders, which agreement shall
bind the Company and/or the successor entity, as applicable, and all holders
of any portion of the Warrant then outstanding and shall be accompanied by a
favorable opinion of the regular outside counsel to the Company or the
successor entity, as applicable (or such other firm as is reasonably
acceptable to the Required Holders), as to the enforceability of such
agreement (with standard exceptions).
(f) Determination of Consideration. For the purposes of this
Section 3, the consideration received or receivable by the Company for the
issuance, sale or grant of shares of Common Stock, options, warrants, rights
or convertible securities, irrespective of the accounting treatment of such
consideration, shall be valued and determined as follows:
(i) Cash Payment. In the case of cash, the gross amount
paid by the purchasers without deduction of any accrued interest or dividends,
any reasonable expenses paid or incurred and any reasonable underwriting
commissions or concessions paid or allowed by the Company in connection with
such issue or sale.
(ii) Non-Cash Payment. In the case of consideration
other than cash, the Fair Value thereof (in any case as of the date
immediately preceding the issuance, sale or grant in question).
(iii) Certain Allocations. If shares of Additional Stock
are issued or sold together with other securities or other assets of the
Company for a consideration which covers more than one of the foregoing
categories of securities and assets, the consideration received or receivable
(computed as provided in Sections 3(f)(i) and 3(f)(ii)) shall be allocable to
such shares 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
7
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.
(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
8
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.
(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
9
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;
(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
10
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.
(n) "Subsidiary" means, with respect to any Person, (i) any
corporation more than fifty percent (50%) of the outstanding securities having
ordinary voting power of which shall at the time be owned or controlled,
directly or indirectly, by such Person or by one or more of its Subsidiaries
or by such Person and one or more of its Subsidiaries, or (ii) any
partnership, limited liability company, association, joint venture or similar
business organization more than fifty percent (50%) of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled. Unless otherwise expressly provided, all references herein to a
"Subsidiary" means a Subsidiary of the Company.
Section 4. Call Rights.
(a) Subject to the terms and conditions of this Section 4, the
Company shall have the following call rights with respect to the Warrant:
(i) immediately upon receipt of any Exercise Notice
from the Holder and prior to any pending Exercise Date (as determined pursuant
to Section 2(b)), the Company shall have the right to purchase that portion of
the Warrant proposed to be exercised by the Holder pursuant to such Exercise
Notice, and if the Company exercises such right, the Holder shall be required
to sell such portion of the Warrant to the Company at a purchase price (the
"Call Price") determined in accordance with Section 4(b);
(ii) at any time within thirty (30) days following (a) the
date of the Company's delivery to the Holder of the appraisal performed by an
independent appraiser at the
11
Company's request in connection with the ESOP that sets forth the per share
value of the Common Stock as of September 30, 2009 (the "September 2009
Appraisal"), if the ESOP is still in existence on September 30, 2009 and none
of clauses (a), (b) and (c) of the definition of "Current Market Price" in
Section 3(c)(ii) below are applicable, or (b) the seventh (7th) anniversary of
the Effective Date, if the conditions of clause (b) above are not met (in
either case, the "First Put/Call Date"), the Company shall have the right to
purchase up to fifty percent (50%) of the Warrant from the Holder, and if the
Company exercises such right, the Holder shall be required to sell up to fifty
percent (50%) of the Warrant to the Company at the Call Price determined in
accordance with Section 4(b) below; and
(iii) at any time within thirty (30) days prior to the
Expiration Date, the Company shall have the right to purchase up to one
hundred percent (100%) of the Warrant from the Holder, and if the Company
exercises such right, the Holder shall be required to sell the Warrant or any
portion thereof, as the case may be, to the Company at the Call Price
determined in accordance with Section 4(b) below.
(b) The "Call Price" is equal to the product of (i) the number
of shares of Common Stock underlying the Warrant or the portion thereof being
purchased pursuant to this Section 4, and (ii) the difference between the Call
Fair Value (as defined below) on the date of the Call Notice (as defined
below) and the current Exercise Price on the date of the Call Notice; provided
that notwithstanding the foregoing, in no event shall the Call Price be less
than zero (0). So long as the ESOP is still in existence, the "Call Fair
Value" shall equal (i) the per share value of the Common Stock as set forth in
the then most recent appraisal performed by an independent appraiser at the
Company's request in connection with the ESOP, for the purposes of the
Company's call right under Section 4(a)(i), (ii) the per share value of the
Common Stock as set forth in the September 2009 Appraisal, for the purposes of
the Company's call right under Section 4(a)(ii), and (iii) the per share value
of the Common Stock as set forth in the September 2010 Appraisal, for the
purposes of the Company's call right under Section 4(a)(iii). As of such date
that the ESOP is no longer in existence, the "Call Fair Value" shall equal the
Fair Value of the Common Stock. Notwithstanding the foregoing, whether or not
the ESOP is in existence, if clauses (a), (b) or (c) of the definition of
Current Market Price are applicable to the Common Stock but no Qualified
Public Offering (as defined below) has occurred, then the Call Fair Value
shall be the Current Market Price of the Common Stock on the date of the Call
Notice.
(c) Prior to exercising its call rights under this Section 4,
the Company must deliver written notice to the Holder (the "Call Notice"), in
accordance with Section 15, of its intent to purchase the Warrant or the
portion thereof being purchased, as the case may be. The Call Notice shall be
deemed to be given and served on the date that the Company sends the Call
Notice to the Holder (the "Call Election Date") and shall be irrevocable.
(d) Payment of the Call Price shall be made in cash in
immediately available funds within thirty (30) days after the date of the Call
Election Date, but not later than the Exercise Date.
(e) If the Company has received an Exercise Notice from the
Holder prior to the Company's delivery of a Call Notice to the Holder, then
such Call Notice shall take priority over such Exercise Notice until the
expiration of the dates set forth in Section 4(d). If the Company does not
purchase the portion of the Warrant subject to the Call Notice on or prior to
the
12
appropriate date set forth in Section 4(d), the Holder shall be entitled to
immediately exercise the portion of the Warrant it originally intended to
exercise, without the delivery of any additional Exercise Notice, subject to
the expiration of the ninety-day period following delivery of the Exercise
Notice.
(f) If the Holder has received a Tag-Along Notice from the Trust
in accordance with Section 7(a) herein prior to delivery by the Company to the
Holder of a Call Notice and the Holder has responded to such Tag-Along Notice
with a Participation Notice and an Exercise Notice in accordance with Section
7(b) herein, then the Company shall not be entitled to exercise its call right
pursuant to Section 4(a)(i), Section 4(a)(ii) or Section 4(a)(iii) herein with
respect to such portion of the Warrant to be exercised by the Holder in
connection with such Participation Notice, unless (i) the Call Fair Value as
of the date of delivery by the Company of a Call Notice is greater than or
equal to the per share sale price in connection with the transaction that is
the subject of the Tag-Along Notice or the transaction that is subject of the
Tag-Along Notice has been terminated.
(g) The rights of the Company under this Section 4 shall expire
on the consummation by the Company of a Qualified Public Offering. For
purposes of this Agreement, "Qualified Public Offering" means the consummation
of one or more underwritten public offerings of the Company's Common Stock
which results in aggregate gross proceeds to the sellers in such offerings of
not less than U.S. $30,000,000 (excluding proceeds received in such offerings
from "affiliates" of the Company (other than any Holder that is an affiliate
of the Company), within the meaning of Rule 12b-2 of the Securities and
Exchange Commission under the Securities Act of 1934, as amended (the
"Exchange Act") or the ESOP) and pursuant to which the Company obtains a
listing for its shares on a United States national securities exchange, the
Nasdaq National Market System, or an automated quotation system of nationally
recognized standing.
Section 5. Put Right.
(a) Subject to the terms and conditions of this Section 5 and
Section 6 below, the Holder shall have the following put rights with respect
to the Warrant:
(i) at any time within thirty (30) days following the
First Put/Call Date, the Holder shall have the right to sell up to fifty
percent (50%) of the Warrant to the Company, and if the Holder exercises such
right, the Company shall be required to purchase up to fifty percent (50%) of
the Warrant from the Holder for a purchase price (the "Put Price") determined
in accordance with Section 5(b) below; and
(ii) at any time within thirty (30) days prior to the
Expiration Date, the Holder shall have the right to sell up to one hundred
percent (100%) of the Warrant to the Company, and if the Holder exercises such
right, the Company shall be required to purchase the Warrant, or such portion
thereof, as the case may be, from the Holder for the Put Price.
(b) The "Put Price" is equal to the product of (i) the number of
shares of Common Stock underlying the Warrant or the portion thereof being
purchased pursuant to this Section 5, and (ii) the difference between the Put
Fair Value (as defined below) on the date of the Put Notice (as defined below)
and the Exercise Price on the date of the Put Notice; provided that
13
notwithstanding the foregoing, in no event shall the Put Price be less than
zero (0). So long as the ESOP is in existence, the "Put Fair Value" shall
equal (i) the per share value of the Common Stock as set forth in the
September 2009 Appraisal, which such appraisal shall not reflect any discount
for any lack of liquidity or absence of control, for the purposes of the
Holder's put right under Section 5(a)(i), and (ii) the per share value of the
Common Stock as set forth in the September 2010 Appraisal, for the purposes of
the Holder's put right under Section 5(a)(ii). As of such date that the ESOP
is no longer in existence, the "Put Fair Value" shall equal the Fair Value of
the Common Stock. Notwithstanding the foregoing, whether or not the ESOP is in
existence, if clauses (a), (b) or (c) of the definition of Current Market
Price are applicable to the Common Stock but no Qualified Public Offering has
occurred, then the Put Fair Value shall be the Current Market Price of the
Common Stock on the date of the Put Notice.
(c) Prior to exercising its put right under Section 5(a)(i), the
Holder must deliver written notice to the Company (the "Put Notice"), in
accordance with Section 15, by July 30, 2009, of its intention to exercise its
right under Section 5(a)(i) to sell the Warrant, or any portion thereof, to
the Company, and similarly, prior to exercising its put right under Section
5(a)(ii), the Holder must deliver the Put Notice to the Company by June 30,
2010. The Put Notice shall be deemed to be given and served on the date that
the Company receives the Put Notice. The date that the Holder intends to
exercise its put right pursuant to either Section 5(a)(i) or Section 5(a)(ii)
as indicated in the Put Notice, shall in each case be hereinafter referred to
as the "Put Exercise Date".
(d) Payment of the Put Price shall be made in cash in
immediately available funds within ninety (90) days after the date of the Put
Exercise Date (the "Put Effective Date").
(e) If the Company has received an Exercise Notice from the
Holder prior to receipt of a Put Notice from the Holder, then the Holder shall
not be entitled to exercise its put right pursuant to Section 5(a) herein with
respect to such portion of the Warrant that is the subject of the
aforementioned Exercise Notice.
(f) If the Trust has sent a Drag-Along Notice to the Holder in
accordance with Section 6(a) herein in connection with a transaction that has
not been consummated or terminated prior to delivery by the Holder of a Put
Notice to the Company, then the Holder shall not be entitled to exercise its
put right pursuant to Section 5(a) with respect to any portion of the Warrant
that is the subject of such Drag-Along Notice, unless the transaction that is
the subject of the Drag-Along Notice is terminated or not consummated within
sixty (60) days of the date of the Drag-Along Notice; provided that
notwithstanding the foregoing the Holder shall be entitled to deliver a Put
Notice to the Company (if permitted under Section 5(a) 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).
(g) The rights of the Holder under this Section 5 shall expire
on the consummation by the Company of a Qualified Public Offering.
14
Section 6. Drag-Along Rights.
(a) Subject to the terms and conditions of this Section 6, and
notwithstanding Section 2(b) herein, if the Trust proposes to sell
seventy-five percent (75%) or more of the shares of Common Stock it then holds
(the "Drag Sale Shares") to a bona fide unaffiliated third party or parties on
an arm's length basis in a single transaction or a series of related
transactions for either (i) cash or unrestricted marketable securities that
are traded on a U.S. stock exchange, over the counter or on a bulletin board,
or (ii) any consideration so long as the third party or parties that have
proposed to purchase the Drag Sale Shares shall not become the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly
or indirectly, of more than fifty percent (50%) of the common stock of the
ultimate parent company of the Company (assuming the execution of all
outstanding stock options, stock warrants and stock rights, and conversion of
all other securities that are convertible to shares of common stock of such
ultimate parent company), or if there is no such ultimate parent company, so
long as such third party or parties shall not become the "beneficial owner",
directly or indirectly of more than fifty percent (50%) of the total
outstanding Common Stock or Voting Stock (as defined in Section 6(j) below) of
the Company (assuming the execution of all outstanding stock options, stock
warrants and stock rights, and conversion of all other securities of the
Company that are convertible to shares of Common Stock or Voting Stock), the
Trust shall be entitled to provide to the Holder, at least ten (10) days prior
to the closing of such sale, written notice, in accordance with Section 15
herein, of its good faith intention to sell the shares of Common Stock, the
name of the proposed transferee(s) (the "Proposed Transferee"), the price and
other material terms under which the sale is proposed to be made and that it
is requiring the Holder to exercise all or a portion of the Warrant, if any
portion remains outstanding and unexpired hereunder, and to sell the Shares
obtained through such exercise, if any (the "Required Exercise Shares"), as
well as a certain number of the Shares then held by the Holder to the Proposed
Transferee on the terms and conditions contained therein ("Drag-Along
Notice"), such that the total number of Shares to be sold to the Proposed
Transferee by the Holder shall be equal to:
C
(A + B) x -----
D
where: A = the number of Shares then held by the Holder,
including the Required Exercise Shares;
B = the number of shares of Common Stock subject to the
outstanding, unexpired portion of the Warrant (if
any) below, after taking into account the exercise
required with respect to the Required Exercise
Shares (but excluding any portion of the Warrant
that is not subject to drag-along rights pursuant
to Section 6(f) below);
C = the number of Drag Sale Shares; and
D = the total number of shares of Common Stock then
held by the Trust,
15
subject to the limitation that if the sale price to the Proposed Transferee is
less than the then current Exercise Price, (i) the Holder shall not be
required to exercise any portion of the Warrant in order to sell to the
Proposed Transferee the Shares that could be obtained by such exercise, in
connection with the proposed sale and (ii) that portion of the Warrant which
the Holder would have been required to exercise under this Section 6 in the
absence of the preceding clause (i), shall immediately expire and shall be and
become void and of no value.
The Holder shall be required to, and shall, comply with the terms of
the Drag-Along Notice as long as it is consistent with the terms of this
Section 6. The Shares to be sold by the Holder to the Proposed Transferee
shall be sold to the Proposed Transferee at a purchase price equal to the
product of (x) the number of such Shares, and (y) the per share sale price of
the shares of Common Stock proposed to be sold by the Trust to the Proposed
Transferee. The Drag-Along Notice shall be deemed to be given and served on
the date that the Holder receives the Drag-Along Notice from the Company in
accordance with Section 15.
(b) Notwithstanding Section 2(b) herein and subject to Section
6(i), the Holder shall, within five (5) days of receipt of a Drag-Along
Notice, deliver an Exercise Notice to the Company with respect to the Required
Exercise Shares provided that the Exercise Date is deemed to occur
concurrently with the consummation of the transaction which is the subject of
the Drag-Along Notice. If the Holder does not deliver the Exercise Notice
within the required 5-day period or delivers the Exercise Notice without the
appropriate payment in cash for the exercise of the Warrant, or portion
thereof, as appropriate, upon consummation of the transaction which is the
subject of the Drag-Along Notice the Holder will have been deemed to have
delivered a Cashless Exercise Notice to the Company in accordance with Section
2(c) above.
The Company's call rights under Section 4(a)(i) shall not apply to
the Holder's exercise with respect to the Required Exercise Shares.
(c) Promptly after receipt of the Drag-Along Notice, the Holder
shall deliver to the Trust, to hold in escrow pending closing of the
transaction that is the subject of the Drag-Along Notice, stock certificates
in its possession (if any) representing its shares of Common Stock to be
transferred, properly endorsed for transfer to the Proposed Transferee.
(d) The Trust shall, together with the Drag-Along Notice,
provide to the Holder a fairness opinion from an independent appraiser or
investment bank selected by the Trust (reasonably satisfactory to the Required
Holders) regarding the transaction that is the subject of the Drag-Along
Notice, provided that there shall be no such requirement if the Trust has
obtained such a fairness opinion for itself with respect to the transaction
that is the subject of the Drag-Along Notice.
(e) The monetary value of any indemnity to be provided by the
Holder to the Proposed Transferee under the terms of its sale of Shares in
accordance with this Section 6 (which indemnity may also cover operational
matters not the subject of the Holder's representations and warranties
described in the following sentence) shall be in the same ratio to the
monetary value of the indemnity provided by the Trust as the ratio of the
relative value of the securities to be sold by each of the Holder and the
Trust in any such sale, but in no case shall it exceed the monetary value of
the consideration it receives pursuant to the terms of such sale. The Holder's
representations and warranties shall be limited to enforceability, the
ownership of the Shares to be transferred by such Holder, authority to
transfer such Shares, that such Shares are
16
free of liens and encumbrances as of the transfer date and other standard and
customary non-operational representations and warranties.
(f) If the Company has received a Put Notice from the Holder in
accordance with Section 5(c) herein prior to delivery by the Trust to the
Holder of a Drag-Along Notice, then the Trust shall not be entitled to
exercise its drag-along right pursuant to Section 6(a) herein with respect to
such portion of the Warrant that is the subject of such Put Notice, unless the
per share sale price in connection with the transaction that is the subject of
the Drag-Along Notice is greater than or equal to the Put Fair Value as of the
date of delivery of such Drag-Along Notice by the Trust.
(g) If upon the Trust's delivery of a Drag-Along Notice to the
Holder there is a pending Exercise Date, 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 applicable, 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 a Drag-Along Notice,
provided that such Exercise Notice shall only be given effect if the
transaction relating to the Drag-Along Notice is terminated or is not
consummated within sixty (60) days of the date of delivery of the Drag-Along
Notice by the Trust, and further provided that no days that have passed from
the date of delivery to the Company of the Exercise Notice until the date of
such termination or expiration, as appropriate, shall be counted for purposes
of the waiting period under Section 2(b).
(j) If the transaction that is the subject of a Drag-Along
Notice delivered by the Trust to the Holder in accordance with Section 6(a)
herein (the "Drag Transaction") is terminated or is not consummated within
sixty (60) days of the date of delivery of the Drag-Along Notice by the Trust,
then
(i) notwithstanding anything contained herein to the
contrary, any Exercise Date, Put Exercise Date and/or Put Effective Date that
was/were suspended pursuant to Section 6(g) above shall each be deemed
reinstated, but no days that have passed from the Drag Toll
17
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.
(j) "Voting Stock" shall mean shares of capital stock of a
Person having ordinary voting power for the election of a majority of the
members of the board of directors of such person, other than shares having
such power only by reason of the happening of a contingency (prior to the
occurrence of such contingency).
(k) The rights of the Trust under this Section 6 shall expire
upon the consummation by the Company of a Qualified Public Offering.
Section 7. Tag-Along Rights.
(a) Subject to the terms and conditions of this Section 7 and
notwithstanding Section 2(b) herein, if the Trust proposes to sell twenty-five
percent (25%) or more of the Shares it then holds to a bona fide unaffiliated
third party or parties on an arm's length basis in a single transaction or a
series of related transactions, and the Trust did not elect its drag-along
right pursuant to Section 6(a) above, the Trust shall provide to the Holder,
at least thirty (30) days prior to the closing of such sale, written notice,
in accordance with Section 15 herein, of its intention to sell the shares of
Common Stock, the name of the Proposed Transferee, the price and other
material terms under which the sale is proposed to be made and that the Holder
is entitled to immediately exercise a certain portion of the Warrant, if any
portion thereof is still outstanding and unexpired hereunder, and to sell the
Shares obtained through such exercise, if any (the "Optional Exercise
Shares"), as well as a certain number of the Shares then held by the Holder to
the Proposed Transferee on the terms and conditions contained therein
("Tag-Along Notice").
(b) Subject to the terms and conditions of this Section 7, upon
receipt of the Tag-Along Notice, the Holder shall have the right, exercisable
upon written notice in accordance with Section 15 herein to the Trust, sent
within twenty (20) days after the Holder's receipt of the Tag-Along Notice
(the "Participation Notice"), to exercise a portion of the Warrant, if still
outstanding and unexpired hereunder, and to sell to the Proposed Transferee
the Optional Exercise Shares, if any, and a certain number of Shares then held
by the Holder (collectively, the "Tag Shares"), such that in the aggregate the
number of Shares to be sold by the Holder to the Proposed Transferee shall be
no greater than:
(B + C)
A x --------------
D
18
where: A = the number of shares of Common Stock proposed to be
sold by the Trust to the Proposed Transferee (the
"Tag Sale Shares");
B = the number of Shares then held by the Holder,
including any Optional Exercise Shares;
C = the number of shares of Common Stock subject to the
outstanding, unexpired portion of the Warrant (if
any), after taking into account the exercise with
respect to any Optional Exercise Shares (but
excluding any portion of the Warrant that is not
entitled to the benefit of tag-along rights
pursuant to Section 7(e) below); and
D = the total number of shares of Common Stock then
outstanding (assuming the exercise of all
outstanding options, warrants and rights, and the
conversion into Common Stock of all convertible
securities).
Any of the Shares sold to the Proposed Transferee shall be sold by
the Holder at the same per share price and on the same terms and conditions as
specified in the Tag-Along Notice or any modification thereof, but in no event
less favorable than the terms and conditions of Shares sold by the Trust.
Together with its delivery of the Participation Notice to the Trust, the
Holder is required to deliver an Exercise Notice to the Company with respect
to the Optional Exercise Shares. The Participation Notice shall be deemed to
be given and served on the date that the 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 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 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, 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), the Holder may (x) transfer the
Warrant, or a portion thereof or, (y) assign all or any portion of its rights
and/or benefits under this Agreement, except for its rights and benefits under
Section 12 herein, which shall not be assignable, either by sale, assignment,
or otherwise, (each a "Warrant Transfer"), provided that,
(i) the Company is, at least fifteen (15) days prior to
such Warrant Transfer, furnished with written notice of the name and address
of the transferee or assignee;
(ii) the transferee agrees in writing to be bound by and
subject to the terms and conditions of this Agreement pursuant to the form of
Assignment and Joinder attached hereto as Exhibit B.
(iii) the Holder shall have obtained an opinion of its
legal counsel, addressed to the Company and reasonably acceptable to the
Company, stating that such Warrant Transfer complies with all applicable
federal and state securities laws;
21
(iv) the transferee agrees to be bound by the terms of
the Rights Agreement, if required; and
(v) the Holder shall only assign such rights and
benefits pro rata with the portion of the Warrant being transferred to the
transferee.
(b) So long as no "Event of Default" (as defined in Section
10(c)) has occurred and is continuing, the Holder agrees that it may not make
a Warrant Transfer to:
(i) any person that generated at least 20% of its total
revenue (on a consolidated basis together with all entities it controls, is
controlled by, or is under common control with) from government contracts in
its last fiscal year preceding the proposed Warrant Transfer, other than any
Financial Institution (as defined below), provided this limitation shall be
waived with respect to a proposed transferee if the Company determines in its
reasonable discretion that such proposed transferee does not then compete with
the Company or any entity controlled by the Company;
(ii) any person or entity that is not a U.S. person.
For this purpose, U.S. persons shall be limited to those persons that (i) are
defined as U.S. persons in Section 7701(a)(3) of the Internal Revenue Code of
1986, as amended (the "Code") and (ii) are U.S. citizens or entities organized
under U.S. federal or state laws which are not owned, controlled or
influenced, directly or indirectly, by a foreign person (or term of like
meaning) under the National Industrial Security Program Operating Manual (or
any successor document) as amended from time to time; or
(iii) as long as the Company maintains its status as an
S-corporation within the meaning of Section 1361, et seq., of the Internal
Revenue Code of 1986, as amended, any person or entity whose ownership of the
Warrant or any portion thereof would cause the Company to lose such status.
(c) "Event of Default" shall mean any one of the following
events, whether such event shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body, and
whatever the reason for such event:
(i) if default shall be made in the due and punctual
payment of all or any part of the principal of, or premium (if any) on, any
Note (as defined in the Seller Securities Purchase Agreement) when and as the
same shall become due and payable, whether at the stated maturity thereof, by
notice of or demand for prepayment, or otherwise;
(ii) if default shall be made in the due and punctual
payment of any interest on any Note (as defined in the Seller Securities
Purchase Agreement) when and as such interest shall become due and payable and
such default shall have continued for a period of three Business Days.
"Business Day" shall mean any day other than a Saturday, Sunday or other day
which shall be in New York, New York or Chicago, Illinois a legal holiday or a
day on which banking institutions therein are authorized by law to close;
22
(iii) if an involuntary case shall be commenced against
the Company and the petition shall not be dismissed, stayed, bonded or
discharged within sixty (60) days after commencement of the case, or a court
having jurisdiction in the premises shall enter a decree or order for relief
in respect of the Company in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereinafter in effect; or
any other similar relief shall be granted under any applicable federal, state,
local or foreign law;
(iv) if a decree or order of a court having jurisdiction
in the premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over the Company or
over all or a substantial part of the property of the Company shall be
entered; or an interim receiver, trustee or other custodian of the Company or
of all or a substantial part of the property of the Company shall be appointed
or a warrant of attachment, execution or similar process against any
substantial part of the property of the Company shall be issued and any such
event shall not be stayed, dismissed, bonded or discharged within sixty (60)
days after entry, appointment or issuance; or
(v) if the Company shall (i) commence a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (ii) consent to the entry of an order for relief in an
involuntary case, or to the conversion of an involuntary case to a voluntary
case, under any such law, (iii) consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property, (iv) make any assignment for the benefit of creditors or
(v) take any corporate action to authorize any of the foregoing.
(d) Subject to the terms of Section 11 and subject to the
restrictions set out in Section 10(e), the Holder may transfer any number of
Shares it has obtained by exercising the Warrant or a portion thereof (each a
"Stock Transfer"), provided that,
(i) the Company is, at least fifteen (15) days prior to
such Stock Transfer, furnished with written notice of the name and address of
the transferee or assignee;
(ii) the transferee agrees in writing to be bound by and
subject to the terms and conditions of this Agreement pursuant to the form of
Assignment and Joinder attached hereto as Exhibit B.
(iii) the Holder shall have obtained an opinion of its
legal counsel, addressed to the Company and reasonably acceptable to the
Company, stating that such Stock Transfer complies with all applicable federal
and state securities laws; and
(iv) the transferee agrees to be bound by the terms of
the Rights Agreement, if required; and
(v) the Holder shall only assign such rights and
benefits pro rata with the number of Shares being transferred to the
transferee.
(e) So long as no "Event of Default" (as defined in Section
10(c)) has occurred and is continuing, the Holder agrees that it may not make
a Stock Transfer to:
23
(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 this limitation shall be
waived with respect to a proposed transferee if the Company determines in its
reasonable discretion that such proposed transferee does not then compete with
the Company or any entity controlled by the Company;
(ii) any person or entity that is not a U.S. person.
For this purpose, U.S. persons shall be limited to those persons that (i) are
defined as U.S. persons in Section 7701(a)(3) of the Internal Revenue Code of
1986, as amended (the "Code") and (ii) are U.S. citizens or entities organized
under U.S. federal or state laws which are not owned, controlled or
influenced, directly or indirectly, by a foreign person (or term of like
meaning) under the National Industrial Security Program Operating Manual (or
any successor document) as amended from time to time; or
(iii) as long as the Company maintains its status as an
S-corporation within the meaning of Section 1361, et seq., of the Internal
Revenue Code of 1986, as amended, any person or entity whose ownership of the
Warrant or any portion thereof would cause the Company to lose such status.
(f) Any transfer by the Holder that is in contravention of any
of the terms of Sections 10(a), (b), (d) or (e) above shall be void ab initio
and of no force or effect, and the Company shall not be obligated to honor or
recognize any such transfer on its stock records or otherwise.
(g) "Financial Institution" shall mean any insurance company,
bank, trust company, pension fund (whether private, public or governmental),
mutual fund or any other entity whose primary business is owning and investing
in the securities of other unaffiliated entities, regardless of whether or not
such Financial Institution has an investment in a person or entity that
generated at least 20% of its total revenue from government contracts;
provided that not more than 50% of the Voting Stock of such Financial
Institution is owned or controlled, directly or indirectly, by a person or
entity that generated at least 20% of its total revenue from government
contracts.
Section 11. Company Right of First Refusal.
(a) Before the Warrant, any portion thereof or any Shares may be
sold or otherwise transferred by the Holder, the Company shall have a right of
first refusal to purchase the Warrant, such portion thereof and/or any such
Shares, as the case may be, on the terms and conditions set forth in this
Section 11.
(b) If the Holder proposes to sell or otherwise transfer the
Warrant, any portion thereof or any number of the Shares it holds at such time
to any third party other than one that it controls, is controlled by, or is
under common control with (each an "Affiliate") (other than in connection with
a Demand Registration or Piggy-Back Registration under the Rights Agreement),
the Holder shall deliver to the Company a written notice ("Sale Notice"), in
accordance with Section 15, stating (i) the Holder's bona fide intention to
sell or otherwise
24
transfer the Warrant, any portion thereof or a certain number of Shares
(collectively, the "Transfer Interests"), as the case may be, (ii) the name of
the proposed purchaser or other transferee (the "Proposed Buyer"), and (iii)
the bona fide cash price or other consideration for which the Holder proposes
to transfer the Transfer Interests (the "Offered Price"), and the Holder shall
offer to sell the Transfer Interests to the Company at the Offered Price.
(c) The Company may, at any time within sixty (60) days after
receipt by the Company of a Sale Notice, elect to purchase the Transfer
Interests by giving written notice to the Holder, in accordance with Section
15, at a purchase price equal to the Offered Price (the "Purchase Price"). If
the Offered Price includes consideration other than cash, the cash equivalent
value of the non-cash consideration shall be determined by the board of
directors of the Company in good faith.
(d) Payment of the Purchase Price shall be made in cash (by
check) within sixty (60) days after the date of the Company's election to
purchase the Transfer Interests.
(e) If the Transfer Interests are not purchased by the Company
as provided herein, then the Holder may sell or otherwise transfer the
Transfer Interests to the Proposed Buyer at the Offered Price or at a higher
price, provided that such sale or other transfer (i) is consummated within six
(6) months after the date of the Sale Notice, and (ii) is in accordance with
all the terms of this Agreement and all other agreements between the Holder
and the Company. If the Transfer Interests are not transferred to the Proposed
Buyer within such six-month period in accordance with the preceding sentence,
a new Sale Notice shall be given to the Company, and the Company shall again
be offered a right of first refusal under this Section 11 before the Warrant,
any portion thereof or any Shares, as the case may be, may be sold or
otherwise transferred.
Section 12. IITRI Right of First Offer and Second Offer.
(a) First Offer.
(i) Except as otherwise provided in this Section 12 and
so long as at least twenty-five percent (25%) of the Warrant remains
outstanding and in IITRI's possession, before the Company may offer to issue
and sell any shares of Common Stock or any securities convertible or
exercisable into Common Stock, or other rights to acquire Common Stock
(collectively, the "Offered Securities"), the Company is required to first
make an offer to IITRI (the "First Offer") in writing and in accordance with
Section 15 (the "Offer Notice"), to purchase, at a per share price (the "Offer
Price") and on terms chosen by the Company, a percentage of each class or type
of the Offered Securities equal to (x) the number of Shares then held by IITRI
plus the number of shares of Common Stock underlying any outstanding and
unexpired portion of the Warrant then held by IITRI, divided by (y) the number
of then outstanding shares of Common Stock on a fully diluted basis (assuming
the exercise of all outstanding options, warrants and rights and the
conversion into Common Stock of all convertible securities) (such percentage
shall hereinafter be referred to as the "IITRI Share").
(ii) Subject to Section 12(c) below, if IITRI does not
deliver to the Company written notice of acceptance of any offer made pursuant
to Section 12(a)(i) within thirty (30)
25
days after IITRI's receipt of the First Offer Notice, IITRI shall be deemed to
have waived its rights to purchase the Offered Securities, which are the
subject of the First Offer, and the Company shall be entitled to issue and
sell the Offered Securities at the Offer Price, or at such other price which
is no less than ninety percent (90%) of the Offer Price, to any third party
that is not an Affiliate of the Company at any time during the period of nine
(9) months following the date of delivery of the Offer Notice by the Company
to IITRI, without the obligation to provide any further offers or notices to
IITRI.
(b) Second Offer.
(i) If the Company proposes to issue and sell the
Offered Securities to a third party at a price that is less than ninety
percent (90%) of the Offer Price (the "Second Offer Price") within such
nine-month period, the Company shall, prior to consummating such issuance and
sale of the Offered Securities to the third party, make a second offer to
IITRI (the "Second Offer") in writing and in accordance with Section 15 (the
"Second Offer Notice"), to purchase, at the Second Offer Price and on the same
terms (the "Second Offer Terms") proposed to be issued and sold, a percentage
of each class or type of the Offered Securities equal to the IITRI Share.
(ii) If IITRI does not deliver to the Company written
notice of acceptance of any offer made pursuant to Section 12(b)(i) within ten
(10) days after IITRI's receipt of the Second Offer Notice, IITRI shall be
deemed to have waived its rights to purchase the Offered Securities, which are
the subject of the Second Offer, and the Company shall be entitled to issue
and sell the Offered Securities on the Second Offer Terms and at the Second
Offer Price, without the obligation to provide any further offers or notices
to IITRI.
(c) If the Company proposes to sell or otherwise transfer the
Offered Securities to a third party at any time after the expiry of the
nine-month period referenced in Section 12(a)(ii), then the Company shall
again be required to comply with all of the obligations and requirements
contained in Sections 12(a) and 12(b).
(d) This Section 12 shall not apply to (i) any shares of Common
Stock or other securities issuable or issued to employees, consultants,
officers, directors, or any other persons pursuant to any stock option, stock
warrant, stock purchase or stock compensation arrangement approved by the
board of directors or compensation committee of the Company, (ii) SARs issued
to employees, consultants, officers or directors subject to any limitations
set forth in this Agreement and the Securities Purchase Agreement, (iii)
shares of Common Stock issued by the Company to any Company benefit plan,
including, but not limited to, the ESOP, (iv) any shares of Common Stock or
other securities issuable or issued upon exercise or conversion of any option,
warrant, convertible security, or other rights to purchase or subscribe for
Common Stock, (v) interests or rights designated as phantom stock issued or
granted by the Company to its employees, consultants, officers or directors;
(vi) any shares of Common Stock or other securities issuable or issued
pursuant to any stock split, combination of stock, stock dividend, or other
similar stock recapitalization, or (vii) any shares of Common Stock or other
securities issuable or issued in a transaction in which a third party is
merged into the Company or an entity owned by the Company, or in which the
Company or such an entity purchases an operating division or substantially all
of the assets of a third party.
26
(e) The rights under this Section 12 shall not apply in the
event of any underwritten public offering of the Company's Common Stock
pursuant to which the Company obtains a listing for its shares on a United
States national securities exchange, the Nasdaq National Market System, or an
automated quotation system of nationally recognized standing (an "Initial
Public Offering"), and shall expire upon the consummation by the Company of an
Initial Public Offering.
Section 13. Representations and Warranties and Covenants of The
Holder.
(a) Representations and Warranties. In order to induce the
Company to accept this Agreement, the Holder hereby represents and warrants to
the Company as follows:
(i) Purchase Entirely for Own Account. The Holder
represents that it is acquiring the Warrant and the Shares issuable upon
exercise of the Warrant (collectively the "Securities") to be issued to it for
investment for the Holder's own account, not as a nominee or agent, and not
with a view to view to the resale or the distribution thereof, and that the
Holder has no present intention of selling, granting any participation rights
in, or otherwise distributing the same. By executing this Agreement, the
Holder further represents that the Holder does not have any contract,
undertaking, agreement or arrangement with any Person to sell, transfer or
grant participations to such Person or to any third Person, with respect to
any of the Securities.
(ii) Disclosure of Information. The Holder represents
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the sale of the Securities and
the business, properties, prospects and financial condition of the Company.
(iii) Investment Experience. The Holder acknowledges that
it can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Securities. The Holder also
represents it has not been organized for the purpose of acquiring the
Securities.
(iv) Accredited Investor. The Holder is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under the
Act, as presently in effect.
(v) Restricted Securities. The Holder understands that
the Warrant and the Shares it is purchasing are characterized as "restricted
securities" under the federal securities laws and applicable blue sky laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable
regulations such securities may be resold without registration under the
Securities Act and such blue sky laws only in certain limited circumstances.
In this connection, the Holder represents that it is familiar with SEC Rule
144, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act and such blue sky laws.
(vi) S-Corporation Shareholder. The Holder is an entity
whose ownership of Common Stock, if it were to exercise any portion of the
Warrant on the date hereof, would not cause the Company to lose its status as
an S-corporation within the meaning of Section 1361, et seq., of the Code (a
"Permitted S-corp Shareholder"). Notwithstanding any other provision of
27
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 or knowingly take any action to change its status from a
Permitted S-corp Shareholder (as defined above), which change of status
results in the Company losing its status as an S-corporation within the
meaning of Section 1361, et seq., of the Code.
Section 14. Legends.
It is understood that the certificates evidencing the Securities may
bear the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
AND UNDER ANY RELEVANT STATE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) Any legend required by applicable state securities laws.
(c) A legend to reflect restrictions on transferability of
Common Stock and warrants, to be contained in the Certificate of Incorporation
of the Company, as amended and restated, and/or the By-Laws of the Company, as
amended and restated.
Section 15. Notices.
Unless otherwise provided herein, any notice required or permitted
under this Agreement shall be given in writing and shall be delivered (a) by
hand, (b) by mail, certified mail, return receipt requested, or (c) by
facsimile to the party to be notified, at the address indicated for such party
on the signature page hereof, or at such other address as such party may
designate by prior written notice to the other party. Unless otherwise
provided herein, notices shall be deemed to have been given and served (a)
where delivered by hand, at time of delivery, (b) where delivered by mail, on
acknowledgement of receipt as shown by the date indicated on the return
receipt as having been received, and (c) where delivered by facsimile, 24
hours after transmission confirmation by the transmitting machine unless
within those 24 hours the intended recipient has informed the sender that the
transmission was received in an incomplete or unreadable form, or the
transmission report of the sender indicates a faulty or incomplete
transmission. If such receipt is on a day that is not a working day or is
later than 5 p.m. (local time) on a working day, the notice shall be deemed to
have been given and served on the next working day.
28
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;
(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,
29
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.
30
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]
31
IN WITNESS WHEREOF, the parties hereto have caused this Seller Warrant
Agreement to be executed under its corporate seal by its officers thereunto
duly authorized as of the date hereof.
ALION SCIENCE AND TECHNOLOGY CORPORATION IIT RESEARCH INSTITUTE
By: By:
------------------- ----------------------
Name: 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 SELLER WARRANT AGREEMENT ONLY
By:
-----------------------------
Name:
Title: Trustee
Address:
Fax:
32
EXHIBIT A
FORM OF EXERCISE NOTICE
(To be Executed by the Holder if the Holder Desires to Exercise the Warrant
Evidenced by the Foregoing Seller Warrant Agreement)
To Alion Science and Technology Corporation
The undersigned hereby irrevocably elects to purchase ______ shares of Common
Stock, issuable upon exercise of said Warrant.
The undersigned hereby elects to make payment in connection with such exercise
by:
___ delivery of $_______ (in cash) and any applicable taxes payable by
the undersigned; or.
___ cashless exercise, pursuant to Section 2(c) of the Seller Warrant
Agreement.
The undersigned requests that certificates for such shares be issued in the
name of
PLEASE INSERT TAX IDENTIFICATION NUMBER
- ----------------------
- -------------------------------------------
(Print Name)
- -------------------------------------------
(Print Address)
- -------------------------------------------
33
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:
34