Document:

Exhibit 10.1

 

CHANGE OF CONTROL SEVERANCE PLAN

 

As amended and restated effective December 7, 2012

 

Introduction

 

The Board of Directors of Coherent, Inc., a Delaware corporation (“Company”), has evaluated the economic and social impact of an acquisition or other change of control on its key employees.  The Board recognizes that the potential of such an acquisition or change of control can be a distraction to its key employees and can cause them to consider alternative employment opportunities.  The Board has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication and objectivity of its key employees.  The Board believes that the adoption of this amended and restated Plan will enhance the ability of the Company’s key employees to assist the Board in objectively evaluating potential acquisitions or other changes of control.

 

Furthermore, the Board believes a change of control severance plan of this kind will aid the Company in attracting and retaining the highly qualified, high performing individuals who are essential to its success.  The plan will help ensure that key employees will be able to maintain productivity, objectivity and focus during the period of significant uncertainty that is inherent in an acquisition or other change of control.

 

Accordingly, the following plan has been developed and is hereby adopted.

 

ARTICLE I

 

ESTABLISHMENT OF PLAN

 

1.1                               Establishment of Plan.  As of the Effective Date, the Company hereby establishes an amended and restated severance plan to be known as the “Change of Control Severance Plan” (the “Plan”), as set forth in this document.  The purposes of the Plan are as set forth in the Introduction.

 

1.2                               Applicability of Plan.  The benefits provided by this Plan shall be available to certain key Employees of the Company who, at or after the Effective Date, meet the eligibility requirements of Article III.

 

1.3                               Contractual Right to Benefits.  This Plan establishes and vests in each Participant a contractual right to the benefits to which he or she is entitled hereunder, enforceable by the Participant against his or her Employer or the Company, or both.

 

ARTICLE II

 

DEFINITIONS AND CONSTRUCTION

 

2.1                               Definitions.  Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the term is capitalized.

 

 

(a)                                 “Base Pay” means the rate of annual base straight time gross earnings, exclusive of incentive compensation, incentive payments, bonuses, commissions or other compensation in effect immediately prior to the Change of Control (without regard to any reduction made In Anticipation of a Change of Control) or immediately prior to the termination of employment, whichever annual rate is higher.

 

(b)                                 “Board” means Board of Directors of the Company.

 

(c)                                  “Bonus Pay” means, with respect to a Participant, the total target payments with respect to the Participant under the Company’s cash bonus and other cash incentive programs at 100% of plan for the Company fiscal year in which the Change of Control occurs (or for the immediately preceding year if the target payment with respect to the Participant for the Company fiscal year in which the Change of Control occurs has not yet been established) (without regard to any reduction made in the target payments In Anticipation of a Change of Control), or, if greater, for the Company fiscal year in which the Participant’s employment terminates.

 

(d)                                 “Change of Control” means a (i) change in ownership of the Company, (ii) change in effective control of the Company, or (iii) change in the ownership of a substantial portion of the Company’s assets (with an asset value change in ownership exceeding more than 50% of the total gross fair market value replacing the 40% default rule), all as defined under Code Section 409A and the final Treasury Regulations thereunder.

 

(e)                                  “Code” means the Internal Revenue Code of 1986, as amended.

 

(f)                                   “Company” means Coherent, Inc., a Delaware corporation, and any successor as provided in Article VII hereof.

 

(g)                                  “Effective Date” means December 7, 2012.

 

(h)                                 “Employee” means a common law employee of an Employer (other than an employee who is a party to an individual agreement with the Company which provides severance or severance-type benefits), whose customary employment as of a Change of Control is 20 hours or more per week.  For purposes of this Plan, an Employee shall be considered to continue to be employed in the case of sick leave, military leave, or any other leave of absence approved by the Company.

 

(i)                                     “Employer” means the Company or a subsidiary of the Company which has adopted the Plan pursuant to Article VI hereof.

 

(j)                                    “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

(k)                                 “Executive Officer” means an individual determined by the Company to be an executive officer of the Company subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended.

 

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(l)                                     “Good Reason” means any one or more of the following:

 

(i)                                     The Employer reduces the Participant’s Base Pay.

 

(ii)                                  Without the Participant’s express written consent, the Employer requires the Participant to change the location of his or her job or office, so that he or she will be based at a location more than twenty-five (25) miles from the location of his job or office immediately prior to the Change of Control.

 

(iii)                               The Participant’s cash and equity incentive opportunities, taken as a whole, are materially reduced.

 

(iv)                              The Participant incurs a significant reduction in duties, responsibilities or authority as determined by the Review Committee.

 

(v)                                 A successor company fails or refuses to assume the Company’s obligations under this Plan, as required by Article VII.

 

(vi)                              The Company or any successor company breaches any of the provisions of this Plan.

 

Provided, however, that such events shall not constitute grounds for a Good Reason termination unless the Participant has provided notice to the Company of the existence of the one or more of the above conditions within 90 days of its initial existence and the Company has been provided at least 30 days to remedy the condition.

 

(m)                             “In Anticipation of a Change of Control” means in anticipation of a Change of Control provided a Change of Control occurs within two months after the action.

 

(n)                                 “Just Cause” means the termination of employment of an Employee shall have taken place as a result of (i) an act or acts of dishonesty undertaken by such Employee and intended to result in substantial gain or personal enrichment of the Employee at the expense of his or her Employer, (ii) persistent failure or inability to perform the duties and obligations of such Employee’s employment which are demonstrably willful and deliberate on the Employee’s part and which are not remedied in a reasonable period of time after receipt of written notice from the Company, or (iii) Employee’s conviction of, or plea of nolo contendere to, a felony.

 

(o)                                 “Non-Executive Officer Vice-President” means a Vice-President of the Company who is not an Executive Officer.

 

(p)                                 “Participant” means an Employee who meets the eligibility requirements of Section III.

 

(q)                                 “Payment Date” means the date which occurs sixty (60) days following any Participant’s separation from service (as that term is defined in Section 409A of the Code); provided, however, if the Release becomes effective and irrevocable prior to sixty (60) days following the Participant’s separation from service, the Payment Date means the second business day after the Release becomes effective and irrevocable unless the sixty (60) day period following the Participant’s separation from service spans two calendar years in which event the Payment Date means the later of (i) the second business day after the Release becomes effective and irrevocable and (ii) the second business day of the second calendar year in such sixty (60) day period.

 

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(r)                                    “Plan” means the Coherent, Inc. Change of Control Severance Plan, as amended and restated as of the Effective Date.

 

(s)                                   “Review Committee” means a committee established by the Board, the primary functions of which shall be to determine whether Participants have incurred a significant reduction in duties, responsibilities or authority, and to establish, where necessary, the date of a Participant’s termination of employment for purposes of the Plan.  The Review Committee shall be composed solely of members of the Board serving as such immediately prior to a Change of Control.  The Review Committee shall establish such procedures as it deems appropriate to facilitate a fair and objective review process to determine whether a Participant has incurred a significant reduction in his or her duties and responsibilities

 

(t)                                    “Severance Benefits” means the aggregate of the Severance Payments and the benefits under Section 4.5 hereof.

 

(u)                                 “Severance Payment” means the payment of severance compensation as provided in Section 4.3 hereof.

 

(v)                                 “Special Cash Payment” means a monthly cash amount equal to $2,750 to be paid to Participant in lieu of monthly Company-subsidized COBRA, life insurance plan premiums and/or any other welfare benefits as provided in Section 4.5(b).

 

2.2                               Applicable Law.  To the extent not preempted by the laws of the United States, the laws of the State of California (without regard to the choice of law rules) shall be the controlling law in all matters relating to the Plan.

 

2.3                               Severability.  If a provision of this Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

 

ARTICLE III

 

ELIGIBILITY

 

3.1                               Participation in Plan.  As of the Effective Date, the Compensation and H.R. Committee of the Board has reaffirmed the Participants in the Plan as of the Effective Date.  Following the Effective Date, new Executive Officers of the Company shall automatically become Participants in the Plan; provided, however, that new Non-Executive Officer Vice-Presidents shall only become Participants in the Plan if the Compensation and H.R. Committee of the Board, in its sole discretion, affirmatively determines that they are eligible Participants.  A Participant shall cease to be a Participant in the Plan when he or she ceases to be an Employee of an Employer, unless such Participant is then entitled to payment of Severance Benefits as provided in the Plan.  A Participant entitled to Severance Benefits shall remain a Participant in the Plan until the full amount of the Severance Payment and other Severance Benefits have been paid to the Participant.

 

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ARTICLE IV

 

SEVERANCE BENEFITS

 

4.1                               Right to Severance Payment.  A Participant shall, subject to the Participant’s entering into and not revoking a Release of Claims by the Payment Date in favor of the Company or any successor company in substantially the form attached hereto as Exhibit A (the “Release”), be entitled to receive from the Company a Severance Payment in the amount provided in Section 4.3 if there has been a Change of Control of the Company and if, on (or In Anticipation of a Change of Control) or within two (2) years after the Change of Control, the Participant’s employment by an Employer shall terminate by the Employer other than for Just Cause or by the Employee for Good Reason.  A Participant shall not be entitled to a Severance Payment if termination occurs for reasons not specified in Section 4.2, including (but not limited to) death, voluntary termination other than for Good Reason, total and permanent disability, or for Just Cause.

 

4.2                               Termination of Employment.  A Participant shall be entitled to a Severance Payment and to the benefits described in Section 4.5 if his or her employment by an Employer is terminated, during the time frame and subject to the Release requirement set forth in Section 4.1, by the Employee for Good Reason or by the Employer for other than Just Cause, death or total and permanent disability.

 

4.3                               Amount of Severance Payment.  Each Participant entitled to a Severance Payment under this Plan shall receive from the Company a cash payment as follows:

 

(a)                                 Chief Executive Officer.  The Severance Payment for the Company’s Chief Executive Officer shall equal the product of 2.99 times the sum of the Chief Executive Officer’s Base Pay and Bonus Pay.

 

(b)                                 Executive Officer Vice-Presidents.  The Severance Payment for the Company’s Executive Officer Vice-Presidents shall equal the product of two times the sum of the Executive Officer Vice-President’s Base Pay and Bonus Pay.

 

(c)                                  Non-Executive Officer Vice-Presidents.  The Severance Payment for the Company’s Non-Executive Officer Vice-Presidents shall equal the product of one times the sum of the Non-Executive Officer Vice-President’s Base Pay and Bonus Pay.

 

(d)                                 Non-U.S. Participants.  In the case of a Participant who performs all or substantially all of his or her employment services outside of the United States, the Company may, in its discretion, reduce the Severance Payment otherwise calculated under Section 4.3(a), (b) or (c) by the amount of severance-type benefits to which such Participant is then entitled under the laws of the country or countries in which such services are performed.

 

4.4                               Time of Severance Payment.  Subject to section 4.5(b) and 4.5(e) hereof, the Severance Payment to which a Participant is entitled shall be paid by the Company to the Participant, in cash and in full, on the Payment Date.  If such a Participant should die before all amounts payable to him or her have been paid, such unpaid amounts shall be paid in accordance with the Participant’s will or by the laws of descent and distribution or to the personal representative of the Participant’s estate.

 

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4.5                               Other Severance Provisions.  In the event a Severance Payment obligation is triggered under this Plan for a Participant, such Participant shall also receive the following benefits:

 

(a)                                 Equity Compensation Acceleration.  Unless specifically provided otherwise by reference to this Plan in the equity award at the time of grant, one hundred percent of Participant’s outstanding unvested equity compensation awards shall automatically accelerate their vesting so as to become fully vested and, with respect to stock options and stock appreciation rights, exercisable.  Unless specifically provided otherwise by reference to this Plan in the performance-based restricted stock unit award at the time of grant, this accelerated vesting means 100% acceleration of shares subject to performance based restricted stock units as to which the performance metrics have been truncated and measured as of the date of the Change of Control, such that they are converted into a fixed number of restricted stock units scheduled to vest based on the Participant’s continued service, as with, for example, the performance-based restricted stock units granted to certain Participants in November, 2012.

 

(b)                                 Additional Cash Payments Calculated by Reference to Benefits Continuation.  Each Participant shall receive from the Company, beginning on the Payment Date, and in lieu of monthly Company-subsidized COBRA, life insurance plan premiums and/or any other welfare benefits, additional monthly cash payments in monthly amounts equal to the Special Cash Payment; provided, however that such additional monthly cash payments shall be delayed six months and one day from the date of termination (and then paid in one first installment equal to delayed amounts) to the extent required to avoid the imposition of additional tax under Code Section 409A and the final regulations and any guidance promulgated thereunder (“Section 409A”).  The Participant may, but is not obligated to, use such additional monthly cash payments toward the cost of COBRA and/or life insurance plan premiums.  Each Participant under this Plan shall receive from the Company that number of monthly Special Cash Payments as specified below:

 

(i)                                     Chief Executive Officer.  The Company’s Chief Executive Officer shall receive thirty-six (36) monthly Special Cash Payments.

 

(ii)                                  Officer Vice-Presidents.  The Company’s Executive Officer Vice-Presidents shall receive such twenty-four (24) monthly Special Cash Payments.

 

(iii)                               Non-Officer Vice-Presidents.  The Company’s Non-Executive Officer Vice-Presidents shall twelve (12) monthly Special Cash Payments.

 

(c)                                  Golden Parachute Excise Taxes.

 

(i)                                     Best Results Approach for Participants.  In the event that the severance and other benefits provided for in this Plan or otherwise payable or provided to a Participant (i) constitute “parachute payments” within the meaning of Section 280G of the Code, and (ii) but for this Section 4.5(c)(i), would be subject to the excise tax under Section 4999 of the Code (the “Excise Tax”), then the Participant’s Plan benefits shall be either (a) delivered in full,

 

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or (b) delivered as to such lesser extent which would result in no portion of such severance and other benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by the Participant on an after-tax basis, of the greatest amount of severance and other benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code.

 

(ii)                                  General 280G.  Unless the Company and Participant otherwise agree in writing, any determination required under this Section 4.5(c) will be made in writing to both the Company and Participant by a national “Big Four” accounting firm selected by the Company or such other person or entity to which the parties mutually agree (the “Accountants”).  For purposes of making the calculations required by this Section 4.5(c), the Accountants, to the extent information is not available, may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code.  The Company and the Participants shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section.  The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 4.5(c)(ii).  To the extent that any reduction in payments and/or benefits is required by this Section 4.5(c) and to the extent that an ordering of the reduction other than by the Participant is required by Section 409A or other tax requirements, the reduction shall occur in the following order: (1) reduction of cash payments; and (2) reduction of equity acceleration (full-value awards first, then stock options), and (3) other benefits paid to the Participant.  In addition to the extent required by Section 409A or other tax requirements, (i) in the event that acceleration of vesting of equity awards is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant for any Participant’s equity awards and (ii) in the event that some payments or benefits within a category are deferred compensation under Section 409A and some payments or benefits within a category are not deferred compensation under Section 409A, the payments or benefits that are not deferred compensation under Section 409A shall be reduced first.  If ordering of reductions is not required by Section 409A or other tax requirements, the Participant shall determine the order of reduction.

 

(d)                                 Section 409A.

 

(i)                                     Notwithstanding anything to the contrary in this Plan, no severance pay or benefits to be paid or provided to any Participant, if any, pursuant to this Plan that, when considered together with any other severance payments or separation benefits, are considered deferred compensation under Section 409A (together, the “Deferred Payments”) will be paid or otherwise provided until any Participant has a “separation from service” within the meaning of Section 409A.  Similarly, no severance payable to any Participant, if any, pursuant to this Plan that otherwise would be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9) will be payable until any Participant has a “separation from service” within the meaning of Section 409A.

 

(ii)                                  Any severance payments or benefits under this Plan that would be considered Deferred Payments will be paid on, or, in the case of installments, will not commence until, the Payment Date, or, if later, such time as required by Section 4.5(d)(iii).  Except as

 

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required by Section 4.5(d)(iii), any installment payments that would have been made to any Participant during the period immediately following any Participant’s separation from service and prior to the Payment Date but for the preceding sentence will be paid to the Participant on the Payment Date and the remaining payments shall be made as provided in this Plan.

 

(iii)                               Notwithstanding anything to the contrary in this Plan, if a Participant is a “specified employee” within the meaning of Section 409A at the time of such Participant’s separation from service (other than due to death), then the Deferred Payments, if any, that are payable within the first six (6) months following such Participant’s separation from service, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of such Participant’s separation from service.  All subsequent Deferred Payments, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.  Notwithstanding anything herein to the contrary, if a Participant dies following such Participant’s separation from service, but prior to the six (6) month anniversary of the separation from service, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of such Participant’s death and all other Deferred Payments will be payable in accordance with the payment schedule applicable to each payment or benefit.  Each payment, installment and benefit payable under this Plan is intended to constitute a separate payment for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

 

(iv)                              Any amount paid under this Plan that satisfies the requirements of the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not constitute Deferred Payments for purposes of Section 4.5(d)(i).

 

(v)                                 The foregoing provisions are intended to be exempt from or comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be exempt or so comply.  The Company and Participant agree to work together in good faith to consider amendments to this Plan and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Participant under Section 409A.  Notwithstanding the foregoing, the Company does not ensure that the Participant will not incur additional tax or income recognition because of Section 409A.

 

(e)                                  Release of Claims.  Notwithstanding any other provisions of this Plan, Participant’s receipt of severance payments and benefits under this Plan is conditioned upon Participant signing and not revoking the Release and subject to the Release becoming effective prior to the Payment Date.  If the Release does not become effective and irrevocable by the Payment Date, a Participant will forfeit any rights to severance or benefits under this Plan.  In no event will severance payments or benefits be paid or provided until the Release becomes effective and irrevocable.

 

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ARTICLE V

 

OTHER RIGHTS AND BENEFITS NOT AFFECTED

 

5.1                               Other Benefits.  Neither the provisions of this Plan nor the Severance Benefits provided for hereunder shall reduce any amounts otherwise payable, or in any way diminish the Participant’s rights as an Employee of an Employer, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock purchase plan, or any employment agreement or other plan or arrangement.

 

5.2                               Employment Status.  This Plan does not constitute a contract of employment or impose on the Participant or the Participant’s Employer any obligation to retain the Participant as an Employee, to change the status of the Participant’s employment, or to change the Company’s policies regarding termination of employment.

 

5.3                               Taxation of Plan Payments.  All Severance Benefits paid pursuant to this Plan shall be subject to payroll and withholding taxes to the extent required by law.

 

ARTICLE VI

 

PARTICIPATING EMPLOYERS

 

6.1                               Upon approval by the Board, this Plan may be adopted by any Subsidiary of the Company.  Upon such adoption, the Subsidiary shall become an Employer hereunder and the provisions of the Plan shall be fully applicable to the Employees of that Subsidiary.  The term “Subsidiary” means any corporation in which the Company, directly or indirectly, holds a majority of the voting power of its outstanding shares of capital stock.

 

ARTICLE VII

 

SUCCESSOR TO COMPANY

 

7.1                               The Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Company, expressly and unconditionally to assume and agree to perform the Company’s obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place.  In such event, the term “Company,” as used in this Plan, shall mean the Company as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by the terms and provisions of this Plan.

 

ARTICLE VIII

 

DURATION, AMENDMENT AND TERMINATION

 

8.1                               Duration.  If a Change of Control has not occurred, this Plan shall expire two (2) years from the Effective Date, unless sooner terminated as provided in Section 8.2, or unless extended for an additional period or periods by resolution adopted by the Board at any time prior to the expiration of the Plan.

 

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If a Change of Control occurs, this Plan shall continue in full force and effect, and shall not terminate or expire until after all Participants who become entitled to Severance Benefits hereunder shall have received such payments in full.

 

8.2                               Amendment and Termination.  The Plan may be amended in any respect by resolution adopted by a majority of the Board, unless a Change of Control has previously occurred or such amendment is In Anticipation of a Change of Control.  The Plan may be terminated by resolution adopted by a majority of the Board, provided that written notice is furnished to all Participants at least sixty (60) days prior to such termination and such termination is not In Anticipation of a Change of Control.  If a Change of Control occurs, the Plan no longer shall be subject to amendment, change, substitution, deletion, revocation or termination in any respect whatsoever.

 

8.3                               Form of Amendment.  The form of any proper amendment or termination of the Plan shall be a written instrument signed by a duly authorized officer or officers of the Company, certifying that the amendment or termination has been approved by the Board.  A proper amendment of the Plan automatically shall effect a corresponding amendment to all Participants’ rights hereunder.  A proper termination of the Plan automatically shall effect a termination of all Participants’ rights and benefits hereunder.

 

ARTICLE IX

 

LEGAL FEES AND EXPENSES

 

9.1                               The Company shall pay all legal fees, costs of litigation, and other expenses incurred in good faith by each Participant as a result of the Company’s refusal to pay the Severance Benefits to which the Participant becomes entitled under this Plan, or as a result of the Company’s contesting the validity, enforceability or interpretation of the Plan, within 30 days of the invoice date for such expenses.

 

ARTICLE X

 

PLAN ADMINISTRATION

 

10.1                        An employee or former employee of an Employer who disagrees with their allotment of benefits under this Plan may file a written appeal with the Company’s Human Resources senior executive or other person designated by the Company.

 

(a)                                 Any claim relating to this Plan shall be subject to this appeal process.  If an employee or former employee of an Employer, or their representative (the “Claimant”) submits a written claim for a benefit under the Plan and the claim is denied in whole or in part, the Employer shall provide the Claimant with a written or electronic notification that complies with Department of Labor Regulation Section 2520.104b-1(c)(1).  The denial notice will include:

 

(i)                                     specific reason(s) for the denial;

 

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(ii)                                  reference to the specific Plan provision(s) on which the denial is based;

 

(iii)                               a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why the material or information is necessary; and

 

(iv)                              an explanation of the Plan’s claims review procedure and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following a denial on review (as set forth in Section 10.1(e) below).

 

(b)                                 The denial notice shall be furnished to the Claimant no later than ninety (90)-days after receipt of the claim by the Employer, unless the Employer determines that special circumstances require an extension of time for processing the claim.  If the Employer determines that an extension of time for processing is required, then notice of the extension shall be furnished to the Claimant prior to the termination of the initial ninety (90)-day period.  In no event shall such extension exceed a period of ninety (90)-days from the end of such initial period.  The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the benefits determination.

 

(c)                                  Claim Review Procedure.  The Claimant may request review of the denial at any time within sixty (60) days following the date the Claimant received notice of the denial of his or her claim.  The Employer shall afford the Claimant a full and fair review of the decision denying the claim and, if so requested, shall:

 

(i)                                     provide the Claimant with the opportunity to submit written comments, documents, records and other information relating to the claim for benefits;

 

(ii)                                  provide that the Claimant shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information (other than documents, records and other information that is legally-privileged) relevant to the Claimant’s claim for benefits; and

 

(iii)                               provide for a review that takes into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

 

(d)                                 If the claim is subsequently also denied by the Employer, in whole or in part, then the Claimant shall be furnished with a denial notice that shall contain the following:

 

(i)                                     specific reason(s) for the denial;

 

(ii)                                  reference to the specific Plan provision(s) on which the denial is based; and

 

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(iii)                               an explanation of the Plan’s claims review procedure (including (c)(ii) above) and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following the denial on review.

 

(e)                                  The decision on review shall be issued within sixty (60) days following receipt of the request for review.  The period for decision may, however, be extended up to one hundred twenty (120) days after such receipt if the Employer determines that special circumstances require extension.  In the case of an extension, notice of the extension shall be furnished to the Claimant prior to the expiration of the initial sixty (60)-day period.  In no event shall such extension exceed a period of sixty (60) days from the end of such initial period.  The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render the benefits determination.

 

10.2                        If the appeal of an employee or former employee of an Employer is denied, such employee or former employee shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with the Plan settled by arbitration, conducted before a panel of three arbitrators sitting in a location selected by the employee within fifty (50) miles from the location of his or her job with an Employer, in accordance with rules of the American Arbitration Association then in effect.  Judgment may be entered on the award of the arbitrator in any court having jurisdiction.  All expenses of such arbitration, including the fees and expenses of the counsel for the employee, shall be borne by the Employer.

 

ARTICLE XI

 

ADMINISTRATIVE INFORMATION

 

11.1                        The Plan sponsor and administrator is:

 

Coherent, Inc.

5100 Patrick Henry Drive

Santa Clara, CA 95054

(408) 764-4000

 

11.2                        Designated agent for service of process:

 

General Counsel

Coherent, Inc.

5100 Patrick Henry Drive

Santa Clara, CA 95054

(408) 764-4000

 

11.3                        Plan records are kept on a fiscal year basis.

 

11.4                        The Plan shall be funded from the Employer’s general assets only.

 

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EXHIBIT A

 

COHERENT, INC. CHANGE OF CONTROL SEVERANCE PLAN

 

RELEASE OF CLAIMS

 

This Release of Claims (“Agreement”) is made by and between Coherent, Inc. (the “Company”), and (“Employee”).

 

WHEREAS, Employee has agreed to enter into a release of claims in favor of the Company in return for obtaining certain severance benefits specified in the Coherent, Inc. Change of Control Severance Plan (the “Plan”).

 

NOW THEREFORE, in consideration of the mutual promises made herein, the Parties hereby agree as follows:

 

1.                                      Termination Date.  Employee’s employment terminated on                     , 20    .

 

2.                                      Confidential Information.  Employee shall continue to maintain the confidentiality of all confidential and proprietary information of the Company and shall continue to comply with the terms and conditions of the Employee Confidential Information and Arbitration Agreement* between Employee and the Company.  Employee shall return all the Company property and confidential and proprietary information in his or her possession to the Company on the Effective Date (as defined below) of this Agreement.

 

3.                                      Payment of Salary.  Employee acknowledges and represents that the Company has paid all salary, wages, bonuses, accrued vacation, commissions and any and all other benefits due to Employee.

 

4.                                      Release of Claims.  Employee agrees that the payment to him or her of such foregoing severance benefits specified in the Plan represents consideration for settlement in full of all outstanding obligations owed to Employee by the Company.  Employee, on behalf of himself or herself, and his or her respective heirs, family members, executors and assigns, hereby fully and forever releases the Company and its past, present and future officers, agents, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, parents, predecessor and successor corporations, and assigns, from, and agrees not to sue or otherwise institute or cause to be instituted any legal or administrative proceedings concerning any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that he or she may possess arising from any omissions, acts or facts that have occurred up until and including the Effective Date of this Agreement including, without limitation,

 

(a)                       any and all claims relating to or arising from Employee’s employment relationship with the Company or its affiliates and the termination of that relationship;

 

*    and similar or other agreements dealing with confidential information

 

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(b)                       any and all claims relating to, or arising from, Employee’s right to purchase, or actual purchase of shares of stock of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law;

 

(c)                        any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; and conversion;

 

(d)                       any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, The Worker Adjustment and Retraining Notification Act, the California Fair Employment and Housing Act, and Labor Code section 201, et seq. and section 970, et seq. and all amendments to each such Act as well as the regulations issued thereunder;

 

(e)                        any and all claims for violation of the federal, or any state, constitution;

 

(f)                         any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and

 

(g)                        any and all claims for attorneys’ fees and costs.

 

Employee agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released.  This release does not extend to (i) any obligations due Employee under the Plan; (ii) Employee’s right to file a charge with, or participate in a charge by, the Equal Employment Opportunity Commission or comparable state agency against the Company (with the understanding that any such filing or participation does not give Employee the right to recover any monetary damages against the Company; Employee’s release of claims herein bars Employee from recovering such monetary relief from the Company); (iii) claims under Division 3, Article 2 of the California Labor Code (which includes California Labor Code section 2802 regarding indemnity for necessary expenditures or losses by Employee); (iv) claims prohibited from release as set forth in California Labor Code section 206.5 (specifically “any claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of such wages has been made”); and (v) Employee’s rights to coverage under any fiduciary insurance policy purchased or obtained by or on behalf of the Company in which Employee is insured or in connection with the Company’s Change in Control (as defined in the Plan) or to indemnification under any contract, by-law or other arrangement that would cover Employee but for this Release.

 

5.                                      [40 or Over Employees Only]  Acknowledgment of Waiver of Claims under ADEA.  Employee acknowledges that he or she is waiving and releasing any rights he or she

 

2

 

may have under the Age Discrimination in Employment Act of 1967 (“ADEA”) and that this waiver and release is knowing and voluntary.  Employee and the Company agree that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement.  Employee acknowledges that the consideration given for this waiver and release Agreement is in addition to anything of value to which Employee was already entitled.  Employee further acknowledges that he has been advised by this writing that (a) he or she should consult with an attorney prior to executing this Agreement; (b) he or she has at least twenty-one (21) days within which to consider this Agreement; (c) he or she has seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; (d) this Agreement shall not be effective until the revocation period has expired without revocation; and (e) nothing in this Agreement prevents or precludes Employee from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties or costs for doing so, unless specifically authorized by federal law.  Any revocation should be in writing and delivered to the Vice-President of Human Resources at the Company by close of business on the seventh day from the date that Employee signs this Agreement.

 

6.                                      Civil Code Section 1542.  Employee represents that he or she is not aware of any claims against the Company other than the claims that are released by this Agreement.  Nevertheless, Employee intends this release to be a general release, and to all claims he or she may have, whether known or unknown. Employee acknowledges that he has been advised by legal counsel and is familiar with the provisions of California Civil Code 1542, below, which provides as follows:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

 

Employee, being aware of said code section and in furtherance of his or her release of all claims, known and unknown, agrees to expressly waive any rights he or she may have thereunder, as well as under any statute or common law principles of similar effect.

 

7.                                      No Pending or Future Lawsuits.  Employee represents that he or she has no lawsuits, claims, or actions pending in his or her name, or on behalf of any other person or entity, against the Company or any other person or entity referred to herein.  Employee also represents that he or she does not intend to bring any claims on his or her own behalf or on behalf of any other person or entity against the Company or any other person or entity referred to herein.

 

8.                                      Application for Employment.  Employee understands and agrees that, as a condition of this Agreement, he or she shall not be entitled to any employment with the Company, its subsidiaries, or any successor, and he or she hereby waives any right, or alleged right, of employment or re-employment with the Company.

 

3

 

9.                                      No Cooperation.  Employee agrees that he or she will not counsel or assist any attorneys or their clients in the presentation or prosecution of any disputes, differences, grievances, claims, charges, or complaints by any third party against the Company or its affiliates and/or any officer, director, employee, agent, representative, shareholder or attorney of the Company or its affiliates, unless under a subpoena or other court order to do so or when required to do so in response to an investigation conducted by an administrative agency of competent jurisdiction.

 

10.                               Costs.  The Parties shall each bear their own costs, expert fees, attorneys’ fees and other fees incurred in connection with this Agreement.

 

11.                               Authority.  Employee represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind them to the terms and conditions of this Agreement.

 

12.                               No Representations.  Employee represents that he has had the opportunity to consult with an attorney, and has carefully read and understands the scope and effect of the provisions of this Agreement.  Neither party has relied upon any representations or statements made by the other party hereto which are not specifically set forth in this Agreement.

 

13.                               Severability.  In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.

 

14.                               Entire Agreement.  This Agreement, along with the Plan and the Employee Confidential Information and Arbitration Agreement,* represents the entire agreement and understanding between the Company and Employee concerning Employee’s separation from the Company.

 

15.                               No Oral Modification.  This Agreement may only be amended in writing signed by Employee and the CEO [CFO for the Agreement with the CEO] of the Company.

 

16.                               Governing Law.  This Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of the State of California.

 

17.                               Effective Date.  [40 or Over Employees Only — otherwise effective upon signing by both parties] This Agreement is effective eight (8) days after it has been signed by both Parties, and provided that Employee shall have not revoked this Agreement under paragraph 5.  Such eighth day shall be deemed the “Effective Date” of this Agreement.

 

18.                               Counterparts.  This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned.

 

19.                               Voluntary Execution of Agreement.  This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims.  The Parties acknowledge that:

 

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(a)                       They have read this Agreement;

 

(b)                       They have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel;

 

(c)                        Understand the terms and consequences of this Agreement and of the releases it contains;

 

(d)                       They are fully aware of the legal and binding effect of this Agreement.

 

IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.

 

	
 
    	
Coherent, Inc.
    	
 
    
	
 
    	
 
    	
 
    
	
Dated:                           ,   20
    	
By
    	
 
    
	
 
    	
 
    	
 
    
	
Dated:                           ,   20
    	
 
    	
 
    
				

 

5Exhibit 4.1

 

WARRANT

 

NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

 

LIME ENERGY CO.

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No.:  158

Number of Shares of Common Stock:  275,000 (subject to adjustment)

Exercise Price:  $0.51 per share (subject to adjustment) (“Exercise Price”)

Date of Issuance:  December 12, 2012 (“Issuance Date”)

 

Lime Energy Co., a Delaware corporation (the “Company”), hereby certifies that, for value received, Richard P. Kiphart, the registered holder hereof or his permitted assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, upon surrender of this Warrant (including any Warrants to purchase Common Stock issued in exchange, transfer or replacement hereof, the “Warrant”), at any time or times on or after the date hereof, but not after 11:59 p.m., New York time, on the Expiration Date (as defined below), Two Hundred Seventy Five Thousand (275,000) fully-paid nonassessable shares of Common Stock (as defined below)  (the “Warrant Shares”).  Except as otherwise defined herein, capitalized terms in this Warrant shall have the meanings set forth in Section 15.  This Warrant is being issued pursuant to the Letter of Credit Agreement, dated as of December 7, 2012, by and among the Company and Richard P. Kiphart (the “L/C Agreement”).

 

1.                                      EXERCISE OF WARRANT.

 

(a)                                 Mechanics of Exercise.  Subject to the terms and conditions hereof, this Warrant may be exercised by the Holder, in whole or in part, at any time during the Exercise Period by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased and (ii) (A) payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or by wire transfer of immediately available funds or (B) by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)), and (iii) delivery to the Company of this Warrant (or an indemnity and evidence with respect to this Warrant in the case of its loss, theft, mutilation or destruction, as provided in Section 7(c)).  Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares.  On or before the third (3rd) Business Day following the date on which the Company has received Exercise Notice, the Aggregate Exercise Price (or

 

 

notice of a Cashless Exercise) and this Warrant (or an indemnity and evidence with respect to this Warrant in the case of its loss, theft, mutilation or destruction, as provided in Section 7(c)) (the “Exercise Delivery Documents”), the Company shall transmit by facsimile an acknowledgment of confirmation of receipt of the Exercise Delivery Documents to the Holder and the Company’s transfer agent (the “Transfer Agent”).  On or before the third (3rd) Business Day following the date on which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit Withdrawal Agent Commission system, which balance account shall be specified in the Exercise Notice, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon receipt by the Company of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares.

 

(b)                                 Partial Exercise. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than ten (10) Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.

 

(c)                                  No Fractional Shares. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number.  The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

 

(d)                                 Company’s Failure to Timely Deliver Securities. Upon the Company’s receipt of an Exercise Delivery Documents or request for removal of restrictive legends on the shares of Common Stock issuable in connection therewith, the Company will deliver, or cause to be delivered, the certificates evidencing such shares of Common Stock to the Holder within three (3) Trading Days.  If the certificates have not been delivered by the fifth (5th) Trading Day after valid conversion or request for removal of legend, as the case may be, and the Holder, or any third party on behalf of Holder or for Holder’s account, has purchased (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by the Holder of Common Stock issuable upon such conversion or represented by such certificate that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Trading Days after the Holder’s request promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Common Stock and pay in cash to the Holder (for costs incurred either directly by such Holder or on behalf of a third party) the amount by which the total purchase price paid for Common Stock as a result of the Buy-In (including brokerage commissions, if any) exceeds the proceeds received by such Holder as a result of the sale to which the Buy-In relates.  The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In.

 

(e)                                  Cashless Exercise.  Notwithstanding anything provisions herein to the contrary, if at the time this Warrant is exercised, (a) there is no effective registration statement registering, or the

 

 

prospectus contained therein is not available for, the issuance of the Warrant Shares to the Holder, (ii) all of the Warrant Shares are not then registered for resale by the Holder into the market at market prices from time to time on an effective registration statement for use on a continuous basis (or the prospectus contained therein is not available or used) and (iii) the Current Market Price (as defined below) of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), then in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise by surrender of this Warrant at the principal office of the Company (or at such other address as it may designate by notice in writing to the Holder) together with the properly endorsed Notice of Exercise and the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:

 

	
 
    	
X   =
    	
Y   (B-A)
    
	
 
    	
 
    	
B
    
	
 
    	
 
    	
 
    
	
Where:
    	
X   =
    	
the   number of shares of Common Stock to be issued to the Holder.
    
	
 
    	
 
    	
 
    
	
 
    	
Y   =
    	
the   number of shares of Common Stock purchasable upon exercise of all of the   Warrant or, if only a portion of the Warrant is being exercised, the portion   of the Warrant being exercised.
    
	
 
    	
 
    	
 
    
	
 
    	
A   =
    	
the   Exercise Price.
    
	
 
    	
 
    	
 
    
	
 
    	
B   =
    	
the   Current Market Price of one share of Common Stock.
    

 

“Current Market Price” means on any particular date:

 

(a)                     if the Common Stock is traded on the NASDAQ Global Market or the NASDAQ Capital Market, the closing price of the Common Stock of the Company on such market on the Trading Day prior to the applicable date of valuation;

 

(b)                     if the Common Stock is traded on any registered national stock exchange but is not traded on the NASDAQ Global Market or the NASDAQ Capital Market, the closing price of the Common Stock of the Company on such exchange on the Trading Day prior to the applicable date of valuation;

 

(c)                      if the Common Stock is traded over-the-counter, but not on the NASDAQ Global Market, the NASDAQ Capital Market or a registered national stock exchange, the closing bid price of the Common Stock of the Company on the day prior to the applicable date of valuation; and

 

(d)                     if there is no active public market for the Common Stock, the value thereof, as determined in good faith by the Board of Directors of the Company.

 

(f)                                   Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 11.

 

(g)                                  Insufficient Authorized Shares.  If at any time while any of the Warrants remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock (an “Authorized Share Failure”) to satisfy its obligation to reserve for issuance upon exercise of the Warrants no less than the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of the Warrants then outstanding (in addition to all other convertible securities) (the “Required Reserve Amount”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Warrants then outstanding.  Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than ninety (90) days after the occurrence

 

 

of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock.  In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal.

 

(h)                                 Limitations on Conversions.  The Company shall not be obligated to issue any shares of Common Stock upon exercise of this Warrant, and no Holder shall be entitled to receive any shares of Common Stock if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue upon conversion of the Convertible Notes and exercise of the Convertible Note Warrants, this Warrant or otherwise without breaching the Company’s obligations under the rules or regulations of the Principal Market (the “Exchange Cap”), except that such limitation shall not apply in the event that the Company (i) obtains the approval of its stockholders as required by the applicable rules of the Principal Market for issuances of shares of Common Stock in excess of such amount or (ii) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders of the Convertible Notes, the Convertible Note Warrants and this Warrant.  Until such approval or written opinion is obtained, no Holder shall be issued in the aggregate, upon exercise of this Warrant, shares of Common Stock in an amount greater than the product of the Exchange Cap multiplied by a fraction, the numerator of which is the total number of shares of Common Stock underlying the Convertible Notes, the Convertible Note Warrants and this Warrant determined as of the Issuance Date and the denominator of which is the aggregate number of shares of Common Stock underlying all the outstanding Convertible Notes, the Convertible Note Warrants and this Warrant (with respect to such holder, the “Exchange Cap Allocation”).  In the event that the Holder shall sell or otherwise transfer any of this Warrant, the transferee shall be allocated a pro rata portion of the Holder’s Exchange Cap Allocation, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation allocated to such transferee.  In the event that any holder of this Warrant, or portion thereof, shall exercise this Warrant, or a portion thereof, for a number of shares of Common Stock which, in the aggregate, is less than such holder’s Exchange Cap Allocation, then the difference between such holder’s Exchange Cap Allocation and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Exchange Cap Allocations of the remaining holders of any portion of this Warrant on a pro rata basis in proportion to the total number of shares of Common Stock underlying the portion of this Warrant then held by each such holder

 

2.                                      ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.  The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:

 

(a)                                 Adjustment upon Subdivision or Combination of Common Stock.  If the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased.  If the Company combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased.  Any adjustment under this Section 2(a) shall become effective at the close of business on the date the subdivision or combination becomes effective.

 

(b)                                 Minimum Adjustment.  No adjustment in the Exercise Price and the number of Warrants shall be required unless such adjustment would require an increase or decrease of at least 1% in the Exercise Price as last adjusted; provided, however, that any adjustments which would be required to

 

 

be made but for this Section 2(b) shall be carried forward and taken into account in any subsequent adjustment.  All calculations under this Section 2 shall be made to the nearest cent, with one half cent being rounded upward.

 

(c)                                  Notification of Adjustment. Upon any adjustment of the Warrant Exercise Price or number of issuable Warrant Shares pursuant to this Section 2, the Company shall give written notification to the Holder, setting forth in reasonable detail, the calculation of such adjustment.

 

3.                                      COVENANTS OF THE COMPANY.

 

(a)                                 Covenants as to Exercise Shares.  The Company covenants and agrees that it will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant.  All Warrant Shares will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock (or other securities as provided herein) to such number of shares as shall be sufficient for such purposes.

 

(b)                                 No Impairment.  Except and to the extent as waived or consented to by the Holder, the Company will not, by amendment of its Certificate of Incorporation (as such may be amended from time to time), or through any means, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.

 

4.                                      CERTAIN ADJUSTMENTS.

 

(a)                                 Subdivisions, Combinations and Other Issuances.  In the event the Company pays a dividend in Common Stock or makes a distribution in Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock to holders of its outstanding Common Stock; subdivides its outstanding Common Stock into a greater number of shares; combines its outstanding Common Stock into a smaller number of shares; or issues any shares of its capital stock in a reclassification of the Common Stock, the number and class of shares available under this Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of this Warrant, on exercise for the same aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had this Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment.  The form of this Warrant need not be changed because of any adjustment in the number, class, and kind of shares subject to this Warrant. Upon request, the Company shall promptly provide to the Holder a certificate from its Chief Financial Officer, which certificate shall specify the Exercise Price and number, class and kind of shares under this Warrant after giving effect to such adjustment.

 

(b)                                 Pro Rata Distributions.  If the Company, at any time while this Warrant is outstanding, distributes to holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock subject to Section 4(a), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, “Distributed Property”), then in each such case the Holder shall be entitled upon exercise of this Warrant for the purchase of any or all of the Warrant Shares, to receive the amount of Distributed Property which would have been payable to the Holder had such Holder been the holder of such Warrant Shares on the record date for the determination

 

 

of stockholders entitled to such Distributed Property. The Company will at all times set aside and keep available for distribution to the Holder upon exercise of this Warrant a portion of the Distributed Property to satisfy the distribution to which such Holder is entitled pursuant to the preceding sentence.

 

(c)                                  Fundamental Transactions.  If the Company consummates (i) a merger or consolidation with or into another entity, as a result of which the holders of the Company’s outstanding voting securities as of immediately prior to such merger or consolidation hold less than a majority of the outstanding voting securities of the surviving or successor entity as of immediately after such merger or consolidation or (ii) a sale, transfer or other disposition of all or substantially all its property, assets or business to another person or entity (any such transaction being hereinafter referred to as a “Fundamental Transaction”), then the Company shall ensure that lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of this Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of this Warrant, had such Fundamental Transaction not taken place.  The provisions of this Section 4(c) shall similarly apply to successive consolidations, mergers, sales, transfers or other dispositions.

 

5.                                      FRACTIONAL SHARES.  No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto.  All Warrant Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share.  If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, at its option, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then Current Market Price of a Warrant Share by such fraction, or round up such fraction to the next whole number of Warrant Shares.

 

6.                                      NO STOCKHOLDER RIGHTS.  This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company.

 

7.                                      REGISTRATION, TRANSFER AND REISSUANCE.

 

(a)                                 Registration.  The Company shall register this Warrant, upon the records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.  The Company also shall register any transfer, exchange, reissuance or cancellation of any portion of this Warrant in the Warrant Register.

 

(b)                                 Transfer.  This Warrant may be offered for sale, sold, transferred or assigned without the consent of the Company, except as may otherwise be required by applicable securities laws. Subject to applicable securities laws, if this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, together with all applicable transfer taxes, whereupon the Company will issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred. The acceptance of the new Warrant by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations in respect of the new Warrant that the Holder has in respect of this Warrant.

 

 

(c)                                  Lost, Stolen, Mutilated or Destroyed Warrant.  If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof to the Company), cause the Company to issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed.

 

(d)                                 Issuance of New Warrants.  Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall (a) be of like tenor with this Warrant, (b) represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(b) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (c) have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date and (d) have the same rights and conditions as this Warrant.

 

8.                                      MODIFICATIONS AND WAIVER.  This Warrant and any provision hereof may be waived, modified or amended only by an instrument in writing signed by the Company and the Holder.

 

9.                                      NOTICES, ETC.  All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed email, telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, or (c) one business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at the address listed on the signature page and to the Holders at the addresses on the Company records, or at such other address as the Company or Holder may designate by ten days’ advance written notice to the other party hereto.

 

10.                               ACCEPTANCE.  Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.

 

11.                               GOVERNING LAW.  This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Delaware.  The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the State of Illinois for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  In the event that any provision of this Warrant is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Warrant.  Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder.

 

 

12.                               CONSTRUCTION; HEADINGS.  This Warrant shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof.  The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.

 

13.                               SEVERABILITY.  The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect.

 

14.                               ENTIRE AGREEMENT.  This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter.

 

15.                               CERTAIN DEFINITIONS.  For purposes of this Warrant, the following terms shall have the following meanings:

 

(a)                                 “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(b)                                 “Common Stock Deemed Outstanding” means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options (including the Convertible Note Warrants)  or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon exercise of the Warrant.

 

(c)                                  “Common Stock” means (i) the Company’s shares of Common Stock, par value $0.0001 per share, and (ii) any share capital into which such Common Stock shall have been changed or any share capital resulting from a reclassification of such Common Stock.

 

(d)                                 “Convertible Notes” means all the 2012 Subordinated Secured Convertible Pay-In-Kind Notes due October 22, 2017,  issued by the Company with issuance date of October 22,2012,  and shall include all notes issued in exchange therefor or replacement thereof.

 

(e)                                  “Convertible Note Warrants” means all the Warrants granted by the Company with date of issuance of October 22, 2012, in connection with the Convertible Notes.

 

(f)                                   “Convertible Securities” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable at the option of the holder thereof for shares of Common Stock.

 

(g)                                  “Eligible Market” means the Principal Market, The New York Stock Exchange, Inc., the NASDAQ Global Market, the NASDAQ Global Select Market, the NASDAQ Capital Market or the NASD’s OTC Bulletin Board.

 

(h)                                 “Exercise Period” means the period commencing on the Issuance Date and ending at 5:00 p.m. New York time, on the Expiration Date.

 

 

(i)                                     “Expiration Date” means the date that is the third (3rd) anniversary of the Issuance Date, or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a “Holiday”), the next date that is not a Holiday.

 

(j)                                    “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities, other than those that may be issued as part of a compensation package of any employee of the Company or its Subsidiaries and which are exercisable at a price not less than the closing price of the Company’s Common Stock as reported on the Principal Market on the Trading Day immediately preceding the date of grant.

 

(k)                                 “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

(l)                                     “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

 

(m)                             “Principal Market” means the NASDAQ Stock Market LLC.

 

(n)                                 “Trading Day” means any day on which the Common Stock are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock are then traded; provided that “Trading Day” shall not include any day on which the Common Stock are scheduled to trade on such exchange or market for less than four and one-half (4.5) hours or any day that the Common Stock are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).

 

[Signature Page Follows]

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set forth above.

 

	
 
    	
LIME   ENERGY CO.  
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   
    	
/s/   Jeffrey Mistarz 
    
	
 
    	
Name:
    	
Jeffrey   Mistarz 
    
	
 
    	
Title:
    	
Chief   Financial Officer
    

 

 

EXHIBIT A

 

EXERCISE NOTICE

 

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

LIME ENERGY CO.

16810 Kenton Drive. Suite 240

Huntersville, North Carolina 28078

Attention: Chief Executive Officer

Fax No.:                    

 

The undersigned holder hereby elects to purchase                                    (              ) of the shares of Common Stock (“Warrant Shares”) of Lime Energy Co., a Delaware corporation (the “Company”), evidenced by the attached Warrant to Purchase Common Stock (the “Warrant”).  Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

 

1.  Form of Exercise Price.  The Holder intends that payment of the Exercise Price shall be made as:

 

a “Cash Exercise” with respect to                                    (            ) Warrant Shares; and/or

 

a “Cashless Exercise” with respect to                                    (            ) Warrant Shares.

 

2.  Payment of Exercise Price.  In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder hereby tenders payment of the Aggregate Exercise Price in the sum of $                                       to the Company in accordance with the terms of the Warrant, together with all applicable transfer taxes, if any.

 

3.  Accredited Investor. At the time such Holder was offered the Warrant, it was, at the date hereof, and on each date on which it exercises any Warrants, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act of 1933, as amended, or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.  Such Buyer is not required to be registered as a broker-dealer under Section 15 of the Securities Exchange Act of 1934, as amended.

 

4.  Delivery of Warrant Shares.  The undersigned requests that the certificates for the Warrant Shares be issued in the name of and delivered to the following DWAC Account Numbers or by physical delivery of a certificate to:

 

	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
whose   address is
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Federal   Tax ID or Social Security Number
    
	
 
    	
 
    	
 
    
	
Date:   
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
(Signature   must conform in all respects to the name of the Holder a specified on the   face of the Warrant)
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Registered   Owner
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    	
 
    	
 
    
	
 
    	
Federal   EIN or SSN:
    	
 
    	
 
    	
 
    
						

 

 

ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information.  Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

	
Name:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
(Please Print)
    	
 
    
	
 
    	
 
    
	
Address:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
(Please Print)
    	
 
    
	
 
    	
 
    
	
Dated:                                        ,   20
    	
 
    
	
 
    	
 
    
	
Holder’s Signature:
    	
 
    	
 
    
	
 
    	
 
    
	
Holder’s Address:
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
				

 

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing warrant.

 

 

ACKNOWLEDGMENT

 

The Company hereby acknowledges this Exercise Notice and hereby directs its transfer agent to issue the above-indicated number of shares of Common Stock.

 

 

	
 
    	
LIME   ENERGY CO.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
Title:

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