Document:

Exhibit 10.2

 

EXECUTION COPY

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT (as the same may from time to time be amended, restated or otherwise modified, this “Agreement”) is made as of the 25th day of March, 2011 by:

 

(a)                                  ACQUISITION CO. LANZA PARENT, a Delaware corporation (the “Company”);

 

(b)                                 each Subsidiary, as hereinafter defined, that is listed on Exhibit A hereto, and any other Subsidiary that hereafter becomes a party hereto (such Subsidiaries, together with the Company, each, a “Grantor” and collectively, the “Grantors”), jointly and severally, in favor of;

 

(c)                                  WILMINGTON TRUST FSB (“Wilmington”), as the collateral agent under the Indenture, as hereinafter defined (the “Collateral Agent”), for the benefit of the Secured Parties, as hereinafter defined.

 

1.                                       Recitals.

 

WHEREAS, the Company and Wilmington, as Collateral Agent and as trustee (in such capacity, the “Trustee”), have entered into an Indenture, dated as of March 25, 2011 (as amended, restated, supplemented or otherwise modified from time to time, the “Indenture”), pursuant to which the Company has issued 10% Senior Secured Notes due June 1, 2017 in a principal amount of $285,000,000 (and, together with any additional notes that may be issued by the Company from time to time thereunder or exchanged therefor or for such additional notes, the “Notes”);

 

WHEREAS, each Subsidiary of the Company, other than Herley and its Subsidiaries, which are not required to become a party hereto until the fifteenth (15th) business day following the Herley Acquisition, is required under the Indenture to (a) become a party to the Indenture and deliver a Guarantee to guarantee the payment of the Notes and the other Obligations of the Company thereunder and the other Indenture Documents to which the Company is a party and (b) become a party hereto as a Grantor and secure its Obligations under the Indenture, such Guarantee and the other Indenture Documents to which it is a party pursuant to the terms hereof;

 

WHEREAS, the Company desires to secure its Obligations under the Notes, the Indenture and each other Indenture Document to which it becomes a party and each other Grantor that becomes a party hereto desires to secure its Guarantee, the Indenture and each other Indenture Document to which it becomes a party by granting to Collateral Agent, for the benefit of itself, the Trustee and the Secured Parties, security interests in the Collateral as set forth herein; and

 

WHEREAS, to induce the Initial Purchasers to severally purchase the Notes, each Holder to hold the Notes to be held by it and Wilmington to act in its capacities as Trustee and Collateral Agent, each Grantor desires to pledge, grant, transfer, and assign to Collateral Agent, for the benefit of itself, the Holders and the Trustee, a security interest in the Collateral to secure the Obligations, as provided herein.

 

 

NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and each intending to be bound hereby, Collateral Agent and each Grantor agree as follows:

 

2.                                       Definitions.  Except as specifically defined herein, (a) capitalized terms used herein that are defined in the Indenture shall have their respective meanings ascribed to them in the Indenture, and (b) unless otherwise defined in the Indenture, terms that are defined in the U.C.C. are used herein as so defined.  As used in this Agreement, the following terms shall have the following meanings:

 

“Account” means an account, as that term is defined in the U.C.C.

 

“Account Debtor” means any Person obligated to pay all or any part of any Account in any manner and includes (without limitation) any guarantor thereof or other accommodation party therefor.

 

“Additional Documents” is defined in Section 5.1(b).

 

“Agreement” has the meaning set forth in the preamble hereto.

 

“Assigned Government Contract”  means all Government Contracts that (a) are for an amount in excess of Five Hundred Thousand Dollars ($500,000) or, (b) pursuant to the terms of Section 12 hereof, are required to be subject to an Instrument of Assignment and Notice of Assignment of Claims.

 

“Books” means, with respect to each Grantor, all of such Grantor’s now owned or hereafter acquired books and records (including all of its Records indicating, summarizing, or evidencing its assets (including the Collateral) or liabilities, all of such Grantor’s Records relating to its business operations or financial condition, and all of its goods or General Intangibles related to such information).

 

“Cash Collateral Account” means a commercial Deposit Account designated “cash collateral account” and maintained by one or more Grantors with a depository institution acceptable to the Collateral Agent, from which the Collateral Agent shall have the exclusive right to withdraw funds until all of the Obligations are paid in full.

 

“Cash Security” means all cash, instruments, Deposit Accounts, and other cash equivalents, whether matured or unmatured, whether collected or in the process of collection, upon which a Grantor presently has or may hereafter have any claim, wherever located, including but not limited to any of the foregoing that are presently or may hereafter be existing or maintained with, issued by, drawn upon, or in the possession of the Collateral Agent or any Secured Party.

 

“Collateral” means

 

(a) with respect to each Grantor, all of such Grantor’s now owned or hereafter acquired right, title, and interest in and to each of the following:

 

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(i)                                     personal property,

 

(ii)                                  Accounts, Investment Property, instruments, contract rights, chattel paper, documents, supporting obligations, letter-of-credit rights, Pledged Securities, Pledged Notes (if any), Government Contracts, Commercial Tort Claims, General Intangibles, Inventory and Equipment,

 

(iii)                               funds now or hereafter on deposit in one or more Cash Collateral Accounts, if any, and

 

(iv)                              Cash Security; and

 

(b)                                 Proceeds of any of the foregoing.   Notwithstanding the foregoing and for the avoidance of doubt, the term “Collateral” shall in no event include the Excluded Assets.

 

“Commercial Tort Claim” means a commercial tort claim, as that term is defined in the U.C.C.

 

“Commercial Tort Claim Assignment” is defined in Section 16.

 

“Control Agreement” means, with respect to the applicable Grantor, a control agreement executed and delivered by such Grantor, the Collateral Agent, and the applicable securities intermediary (with respect to a Securities Account of such Grantor) or bank (with respect to a Deposit Account of such Grantor).

 

“Default Rate” has the meaning provided in Section 4.01 of the Indenture.

 

“Defeasance” means, with respect to any obligation, the defeasance thereof pursuant to a Legal Defeasance or Covenant Defeasance as described under Section 8.01 of the Indenture.

 

“Deposit Account” means a deposit account, as that term is defined in the U.C.C.

 

“Designated Number” shall mean, with respect to any Issuer that is (1) a Domestic Subsidiary of a Grantor, all of the Capital Stock of such Issuer held by such Grantor and (2) a Foreign Subsidiary of a Grantor, with respect to its Capital Stock that is (x) not Voting Stock, all of such Capital Stock of such Issuer held by such Grantor and (y) Voting Stock, the largest whole number of shares or units, as the case may be, of Voting Stock of such Issuer held by such Grantor representing not greater than sixty- five percent (65%) of all of the fully diluted issued and outstanding Voting Stock of such Issuer (whether or not owned by such Grantor)

 

“Equipment” means equipment, as that term is defined in the U.C.C.

 

“Event of Default” means an event or condition that constitutes an Event of Default, as defined in the Indenture.

 

“Excluded Assets” means:

 

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(1)                                  vehicles and other items covered by certificates of title or ownership to the extent that a security interest cannot be perfected solely by filing a UCC-1 financing statement (or similar instrument);

 

(2)                                  leasehold interests in real property with respect to which the Company or any Guarantor is a tenant or subtenant;

 

(3)                                  any asset or property right of any nature if the grant of such security interest shall constitute or result in (A) the abandonment, invalidation or unenforceability of such asset or property right or the loss of use of such asset or property right or (B) a breach, termination or default under any lease, license, contract or agreement, other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity, to which the Company or Guarantor is party;

 

(4) any asset or property right of any nature to the extent that any applicable law or regulation prohibits the creation of a security interest thereon (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law or principles of equity);

 

(5) any applications for trademarks or service marks filed in the United States Patent and Trademark Office (the “PTO”) pursuant to 15 U.S.C. §1051 Section 1(b) unless and until evidence of use of the mark in interstate commerce is submitted to the PTO pursuant to 15 U.S.C. §1051 Section 1(c) or Section 1(d);

 

(6) the voting Capital Stock of any Foreign Subsidiary in excess of 65% of all of the outstanding voting Capital Stock of such Foreign Subsidiary;

 

(7) property and assets owned by the Company or any Guarantor that are the subject of Permitted Liens described in clause (6) or (7) of the definition thereof for so long as such Permitted Liens are in effect and the Indebtedness secured thereby otherwise prohibits any other Liens thereon;

 

(8) any Capital Stock or other securities of the Company’s Subsidiaries to the extent that the pledge of such securities results in the Company being required to file separate financial statements of such Subsidiary with the SEC, but only to the extent necessary for the Company not to be subject to such requirement and only for so long as such requirement is in existence; provided that neither the Company nor any of its Subsidiaries shall take any action in the form of a reorganization, merger or other restructuring a principal purpose of which is to provide for the release of the Lien on any securities pursuant to this clause;

 

(9) any Herley Shares until the consummation of the Herley Acquisition; and

 

(10) (i) deposit and securities accounts the balance of which consists exclusively of (a) withheld income Taxes and federal, state or local employment taxes in such amounts as are required to be paid to the Internal Revenue Service or state or local government agencies within

 

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the following two months with respect to employees of the Company or any of the Guarantors, and (b) amounts required to be paid over to an employee benefit plan pursuant to U.S. Department of Labor (“DOL”) Reg. Sec. 2510.3-102 on behalf of or for the benefit of employees of the Company or any Guarantor, and (ii) all segregated deposit accounts constituting (and the balance of which consists solely of funds set aside in connection with) tax accounts, and trust accounts.

 

“Excluded Capital Stock” means Capital Stock described in clause (6), (8) or (9) of the definition of Excluded Assets.

 

“Future Rights” is defined in Section 3.2 hereto.

 

“General Intangibles” means (a) general intangibles, as that term is defined in the U.C.C.; and (b) choses in action, causes of action, Intellectual Property, customer lists, corporate or other business records, inventions, designs, patents, patent applications, service marks, registrations, trade names, trademarks, copyrights, licenses, goodwill, computer software, rights to indemnification and tax refunds.

 

“Government Contract” means an agreement, a contract or a license to which any Grantor and the United States or any of its departments, agencies or instrumentalities is party.

 

“Insolvency or Liquidation Proceeding” means (a) any voluntary or involuntary case or proceeding under Title 11 of the United States Code and any similar Federal, state or foreign law for the relief of debtors with respect to any Person, (b) any other voluntary or involuntary insolvency, reorganization or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding with respect to any Person or with respect to any of their respective assets, (c) any liquidation, dissolution, reorganization or winding up of any Person whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (d) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Person.

 

“Instrument of Assignment” means an Instrument of Assignment, in the form of the attached Exhibit B.

 

“Intellectual Property” means, with respect to each Grantor, collectively, all of such Grantor’s existing and future right, title and interest in, to and under (a) industrial designs, patents, patent registrations, patent applications, trademarks, trademark registrations, trademark applications, service marks, trade names, and copyright registrations and other intellectual property or registrations, whether federal, state or foreign, including, but not limited to, those that are registered or pending as listed on Schedule 4.11 hereto (as such Schedule 4.11 may from time to time be amended, supplemented or otherwise modified); (b) common law trademark rights, rights in trade dress, publicity, works of authorship and other unregistered copyrightable material, improvements, and proprietary and confidential information, including, without limitation, personal, financial, and other sensitive data, plans, know-how, processes, formulae, algorithms and inventions; (c) renewals, continuations, extensions, reissues and divisions of any of the foregoing; (d) rights to sue for past, present and future infringements or any other commercial tort claims relating to any of the foregoing; (e) all licenses and all income, revenue

 

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and royalties with respect to any licenses, whether registered or unregistered and all other payments earned under contract rights relating to any of the foregoing; (f) all general intangibles and all intangible intellectual or similar property of such Grantor connected with and symbolized by any of the foregoing; (g) goodwill associated with any of the foregoing; and (h) all payments under insurance, including the returned premium upon any cancellation of insurance (whether or not the Collateral Agent or any Secured Party is the loss payee thereof) or any indemnity, warranty or guaranty payable by reason of loss or damage to or otherwise with respect to any of the foregoing.

 

“Intellectual Property Security Agreement” means an intellectual property security agreement executed and delivered by the applicable Grantor and the Collateral Agent, substantially in the form of Exhibit F hereto or such other documents or instruments as may be permitted pursuant to Section 16 thereof.

 

“Inventory” means inventory, as that term is defined in the U.C.C.

 

“Investment Property” means investment property, as that term is defined in the U.C.C., unless the Uniform Commercial Code as in effect in another jurisdiction would govern the perfection and priority of a security interest in investment property, and, in such case, “investment property” shall be defined in accordance with the law of that jurisdiction as in effect from time to time.

 

“Issuer” shall mean, with respect to each Grantor, each of the Persons identified on the attached Exhibit E (or any addendum or supplement thereto) as an Issuer, and any successors thereto, whether by merger or otherwise

 

“ITU Application” shall mean a trademark application filed with the USPTO pursuant to 15 U.S.C. § 1051(b).

 

“Notes” is defined in the first paragraph of the recitals hereto.

 

“Notice of Assignment of Claims” means a Notice of Assignment of Claims, in the form of the attached Exhibit C.

 

“Obligations” means all debts, principal, interest (including any interest that, but for the commencement of an Insolvency or Liquidation Proceeding, would have accrued), default interest, premiums, liabilities (including all amounts owed by any Grantor pursuant hereto), obligations (including indemnification obligations), fees, charges, costs, reasonable expenses (including any expenses that, but for the commencement of an Insolvency Proceeding, would have accrued), guaranties, covenants, and duties of any kind and description owing by any Grantor to the Collateral Agent or any other Secured Party pursuant to or evidenced by the Indenture Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all reasonable expenses that any Grantor is required to pay or reimburse by the Indenture Documents, by law, or otherwise.  Any reference in this Agreement to the Obligations shall include all extensions, modifications, renewals or alterations thereof, both prior and subsequent to any Insolvency Proceeding.

 

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“Pledged Interest” means, with respect to each Issuer, the Designated Number of shares of Capital Stock identified on the attached Exhibit E as Pledged Interests of such Issuer with respect to the Grantor that is a holder of the Capital Stock of such Issuer (or any addendum or supplement thereto);

 

“Pledged Notes” means the promissory notes payable to one or more Grantors, as described on Exhibit G hereto, if any, and any additional or future note that may hereafter from time to time be payable to one or more Grantors.

 

“Pledged Securities” means (i) the Pledged Interests and any Future Rights, (ii) any additional Pledged Interests and Future Rights acquired pursuant to Section 3.2  (whether by purchase, dividend, merger, consolidation, sale of assets, split, spin-off, or any other dividend or distribution of any kind or otherwise), (iii) all distributions, dividends, cash, certificates, liquidation rights and interests, options, rights, warrants, instruments or other property from time to time received, receivable or otherwise distributed in respect of or in exchange or substitution for any and all of the Pledged Interests and Future Rights (excluding any of the foregoing items in the preceding clause with respect to an Issuer to the extent and only to the extent that their inclusion would cause (i) the number of shares or units, as the case may be, of Capital Stock pledged under this Agreement to exceed, with respect to such Issuer, the Designated Number or (ii) such Pledged Interests or Future Rights to constitute Excluded Capital Stock, in each case, after giving effect to such issuances), and (iv) such Grantor’s right to vote the Pledged Interests and Future Rights.

 

“Proceeds” means (a) proceeds, as defined in the U.C.C., and any other proceeds, and (b) whatever is received upon the sale, exchange, collection or other disposition of Collateral or proceeds, whether cash or non-cash.  Cash proceeds include, without limitation, moneys, checks, and Deposit Accounts.  Proceeds include, without limitation, any Account arising when the right to payment is earned under a contract right, any insurance payable by reason of loss or damage to the Collateral, and any return or unearned premium upon any cancellation of insurance.  Except as expressly authorized in this Agreement, the right of the Collateral Agent and the Secured Parties to Proceeds specifically set forth herein, or indicated in any financing statement, shall never constitute an express or implied authorization on the part of the Collateral Agent or any Secured Party to a Grantor’s sale, exchange, collection, or other disposition of any or all of the Collateral.

 

“Record” means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.

 

“Required Holders” means with respect to any action or direction, the percentage of Secured Parties required pursuant to the Indenture to take such action or authorize such action or direction.

 

“Secured Party” refers to each of the Holders, the Trustee and the Collateral Agent.

 

“Securities Account” means a securities account, as that term is defined in the U.C.C.

 

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“Security Agreement Joinder” means a Security Agreement Joinder, substantially in the form of the attached Exhibit D, executed and delivered to the Collateral Agent by a Subsidiary for the purpose of adding an additional Grantor as a party to this Agreement.

 

“Trademark Act” shall mean the U.S. Trademark Act of 1946, as amended.

 

“Trustee” is defined in the first paragraph of the recitals hereto.

 

“U.C.C.” means the Uniform Commercial Code, as in effect from time to time in the State of New York.

 

“U.C.C. Financing Statement” means a financing statement filed or to be filed in accordance with the Uniform Commercial Code, as in effect from time to time in the relevant state or states.

 

3.                                       Security Interest.

 

3.1                                 Grant of Security Interest.                               (i) In consideration of and as security for the full and complete payment of all of the Obligations, each Grantor hereby grants to the Collateral Agent, for the benefit of the Secured Parties, a security interest in all of such Grantor’s Collateral.  Each Grantor and the Collateral Agent hereby acknowledge and agree that, with respect to any ITU Application included within the Collateral, to the extent such an ITU Application would, under the Trademark Act, be deemed to be transferred in violation of 15 U.S.C. § 1060(a) as a result of the security interest granted herein, or otherwise invalidated or made unenforceable as a result of the execution or performance of this Agreement, no security interest shall be deemed to have been granted in such ITU Application (notwithstanding the provisions of this Agreement or any other Indenture Document) until such time as the circumstances that would give rise to such violation, invalidation or unenforceability no longer exist.

 

(ii)                                  If any Pledged Securities are evidenced by certificates, then the Grantor of such Pledged Securities shall concurrently herewith deposit with the Collateral Agent, for the benefit of itself and the other Secured Parties, the Pledged Securities owned by such Grantor on the date hereof and the certificates representing the Pledged Securities endorsed in blank by such Grantor or accompanied by undated stock powers or instruments of transfer, in each case, duly executed in blank by such Grantor.   For the avoidance of doubt, if any certificate or instrument representing any Collateral also represents any Capital Stock that constitutes an Excluded Asset described in clause 6, 8 or 9 of the definition thereof, the Lien created hereunder shall only attach to the Capital Stock evidenced thereby to the extent such Capital Stock does not constitute an Excluded Asset described in clause 6, 8 or 9 of the definition thereof.

 

(iii)                               Whether or not any Pledged Securities are evidenced by certificates, the Grantor of such Pledged Securities shall, and hereby authorizes the Collateral Agent to, file a U.C.C. Financing Statement naming such Grantor as debtor and the Collateral Agent as secured party with respect to the Pledged Securities in the applicable filing office and in such form and containing such substance as may be necessary to perfect the security interest of the Pledged Securities Agent in the Collateral by the filing of a U.C.C. Financing Statement; provided, however, that no such authorization shall obligate the Collateral Agent to make any such filing.

 

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Notwithstanding anything to the contrary contained in this Agreement, the Collateral Agent shall not as a result of this Agreement be responsible or liable for any obligations or liabilities of such Grantor in such Grantor’s capacity as a holder of any Capital Stock of any Issuer, and the Collateral Agent shall not be deemed to have assumed any of such obligations or liabilities.

 

3.2           Subsequently Acquired Pledged Securities .  (i)  If at any time or from time to time after the date hereof during the term of this Agreement, any Grantor shall acquire any additional Pledged Securities, including any further stock, or equity in each Issuer (whether by purchase, dividend, merger, consolidation, sale of assets, split, spin-off, or any other dividend or distribution of any kind or otherwise) (collectively, the “Future Rights”) (provided, however, that Future Rights under this clause shall exclude any Future Rights to the extent and only to the extent that (x) their inclusion would cause the number of shares or units, as the case may be, of Capital Stock pledged hereunder to exceed the Designated Number or (y) such Future Rights would constitute Excluded Capital Stock, in each case, after giving effect to the issuance of such Future Rights and any related issuances).

 

(ii)           Such Grantor will forthwith pledge and, if applicable, deposit such additional  Pledged Securities with the Collateral Agent, for the benefit of itself and, the other Secured Parties and deliver to the Collateral Agent, for the benefit of itself and the other Secured Parties, certificates or instruments therefor, endorsed in blank by such Grantor or accompanied by undated stock powers or instruments of transfer, in each case, duly executed in blank by such Grantor, and will promptly thereafter deliver to the Collateral Agent, for the benefit of itself and the other Secured Parties, a certificate (which shall be deemed to supplement the attached Exhibit E hereto with respect to such Grantor) executed by such Grantor describing such Pledged Securities and the other Pledged Securities pledged to the Collateral Agent, and certifying that the same have been duly pledged with the Collateral Agent hereunder.   For the avoidance of doubt, if any certificate or instrument representing any such additional Pledged Securities also represents any Capital Stock that constitutes an Excluded Asset described in clause 6, 8 or 9 of the definition thereof, the Lien created hereunder shall only attach to the Capital Stock evidenced thereby to the extent such Capital Stock does not constitute an Excluded Asset described in clause 6, 8 or 9 of the definition thereof.

 

(iii)          Whether or not such additional Pledged Securities are evidenced by certificates, such Grantor shall, and hereby authorizes the Collateral Agent to, file a U.C.C. Financing Statement naming such Grantor as debtor and the Collateral Agent as secured party with respect to the additional Collateral in the applicable filing office and in such form and containing such substance as may be necessary to perfect the security interest of the Collateral Agent in the additional Pledged Securities by the filing of a U.C.C. Financing Statement; provided, however, that no such authorization shall obligate the Collateral Agent to make any such filing.

 

3.3           Uncertificated Pledged Securities.    In addition to anything contained in Sections 3.1 and 3.2 hereof, if any Collateral (whether now owned or hereafter acquired) are not certificated or becomes an uncertificated security, the applicable Grantor shall promptly notify the Collateral Agent in writing thereof and shall promptly take all actions required to perfect or improve the perfection of the security interest and pledge in favor of the Collateral Agent under applicable law (including, in any event, any action required or appropriate under this Agreement or the U.C.C.).  Such Grantor further agrees to take such actions as may be necessary  to permit the Collateral Agent to exercise any of its rights and remedies hereunder.

 

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3.4           Voting, etc.     Until the occurrence and continuance of an Event of Default, each Grantor shall be entitled to vote any and all of the Pledged Securities; provided; however, that no vote shall be cast or any action taken by such Grantor with respect to any Pledged Securities which would violate or be materially inconsistent with any of the terms of this Agreement, the Indenture, any other Indenture Document, or which would have the effect of materially impairing the position or interests of the Collateral Agent or which would authorize or effect actions prohibited under the terms of the Indenture or any Indenture Document.  All such rights of such Grantor to vote any Pledged Securities shall cease upon the occurrence and during the continuance of an Event of Default, if the Collateral Agent so directs and provides notice to such Grantor to do so; provided, however, that upon the cure or waiver of such Event of Default, all rights of the Collateral Agent to vote any and all of the Pledged Securities shall cease.

 

3.5           Payments and Other Distributions.  Until the occurrence and continuance of an Event of Default, all cash, dividends or distributions payable in respect of the Pledged Securities (to the extent such payments shall be permitted pursuant to the terms and provisions of the Indenture) shall be paid to the applicable Grantor; provided, however, upon the occurrence and during the continuance of an Event of Default, all cash dividends or distributions payable in respect of the Pledged Securities shall be paid to the Collateral Agent as security for the Obligations if the Collateral Agent so directs and provides notice to such Grantor to that effect; provided, further that upon the cure or waiver of such Event of Default, all cash dividends or distributions payable in respect of the Pledged Securities shall be paid to such Grantor.  The Collateral Agent shall be entitled to receive directly, and to retain as part of the Pledged Securities:

 

(a)           all other or additional securities or investment property, or rights to subscribe for or purchase any of the foregoing, or property (other than cash) paid or distributed by way of dividend in respect of the Pledged Securities (excluding any of the foregoing items in the preceding clause with respect to an Issuer to the extent and only to the extent that their inclusion would cause (i) the number of shares or units, as the case may be, of such other or additional securities or Investment Property pledged hereunder to exceed the Designated Number or (ii) such Pledged Securities to constitute Excluded Capital Stock, in each case, after giving effect to such issuances); and

 

(b)           all other or additional securities, investment property or property (including cash) paid or distributed in respect of the Pledged Securities by way of split, spin-off, split-up, reclassification, combination of shares or similar rearrangement (excluding any of the foregoing items in the preceding clause with respect to an Issuer to the extent and only to the extent that their inclusion would cause (i) the number of shares or units, as the case may be, of Capital Stock pledged hereunder to exceed the Designated Number or (ii) such other or additional securities or investment property to constitute Excluded Capital Stock, in each case, after giving effect to such issuances).

 

If at any time any Grantor shall obtain or possess any of the foregoing Pledged Securities described in this Section, such Grantor shall be deemed to hold such Pledged Securities in trust

 

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for the Collateral Agent for the benefit of the Collateral Agent and the other Secured Parties, and such Grantor shall promptly surrender and deliver such Pledged Securities to the Collateral Agent.4.     Representations and Warranties.  All representations and warranties made by the Company with respect to each Grantor and contained in the Indenture are incorporated herein by reference and each Grantor hereby makes such continuing representations and warranties on its own behalf.  Each Grantor hereby further represents and warrants to the Collateral Agent and each Secured Party as follows:

 

4.1.          Such Grantor is duly organized or formed, as applicable, validly existing and in good standing under the laws of its state of incorporation or formation, as applicable, and is duly qualified to do business in each state in which a failure to so qualify would have a material adverse effect on such Grantor.

 

4.2.          Such Grantor has the power, authority and legal right to pledge the Collateral of such Grantor, to execute and deliver this Agreement, and to perform and observe the provisions hereof.  The officers or members/managers acting on such Grantor’s behalf have been duly authorized to execute and deliver this Agreement.  This Agreement is valid and binding upon such Grantor in accordance with the terms hereof.

 

4.3.          Neither the execution and delivery of this Agreement, nor the performance and observance of the provisions hereof, by such Grantor will conflict with, or constitute a violation or default under, any provision of any applicable law or of any contract (including, without limitation, such Grantor’s organizational documents or of any other writing binding upon such Grantor in any manner.

 

4.4.          Each Grantor’s state of organization or formation, as applicable, is set forth on Schedule 4.4 to this Agreement.  No Grantor has changed its name during the last five years and no Grantor has conducted business under a trade or assumed name.  Each Grantor’s chief executive office is set forth on Schedule 4.4 to this Agreement.  Each Grantor has places of business or maintains Collateral at the locations set forth on Schedule 4.4 to this Agreement.

 

4.5.          At the execution and delivery hereof, except as permitted pursuant to the Indenture, (a) there is no U.C.C. Financing Statement outstanding covering the Collateral, or any part thereof; (b) none of the Collateral is subject to any security interest or Lien of any kind; (c) the Internal Revenue Service has not alleged the nonpayment or underpayment of any tax by any Grantor or threatened to make any assessment in respect thereof; (d) upon execution of this Agreement and the filing of the U.C.C. Financing Statements in connection herewith, the Collateral Agent will have, for the benefit of the Secured Parties, a valid and enforceable first security interest in the Collateral (to the extent perfection can be accomplished by such filing or action) that is the type in which a security interest may be created under the U.C.C. by the execution of a security agreement and perfected by the filing of a U.C.C. Financing Statement (other than commercial tort claims); and (e) no Grantor has entered into any contract or agreement that would prohibit the Collateral Agent from acquiring a security interest, mortgage or other Lien on, or a collateral assignment of, any of the property or assets of such Grantor.

 

4.6.          Such Grantor is the legal record and beneficial owner of, and has good and marketable title to, the Pledged Securities such Grantor purports to own, and such Pledged

 

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Securities are not subject to any pledge, lien, mortgage, hypothecation, security interest, charge, option, warrant or other encumbrance whatsoever, nor to any agreement purporting to grant to any third party a security interest in the property or assets of such Grantor that would include such Pledged Securities, except as permitted pursuant to the Indenture.

 

4.7.          All of the Pledged Securities have been duly authorized and validly issued, and are fully paid and non-assessable.

 

4.8.          The Pledged Securities are, as of the date hereof, and shall be at all times during the term of this Agreement, freely transferrable without restriction or limitation (except as limited by the terms of this Agreement).  If the Pledged Securities are “restricted securities” within the meaning of Rule 144, or any amendment thereof, promulgated under the Securities Act of 1933, as amended, as determined by counsel for such Grantor, such Grantor further represents and warrants that, as of the date hereof, (a) such Grantor has been the beneficial owner of the Pledged Securities for a period of at least one year prior to the date hereof, (b) the full purchase price or other consideration for the Pledged Securities has been paid or given at least one year prior to the date hereof, and (c) such Grantor does not have a short position in or any put or other option to dispose of any securities of the same class as the Pledged Securities or any other securities convertible into securities of such class; provided that Herley and its subsidiaries were acquired on the date hereof pursuant to the Merger Agreement.

 

4.9.          At the execution and delivery hereof, Schedule 4.9 to this Agreement sets forth a true, correct and complete list of all Assigned Government Contracts in effect.  All such Assigned Government Contracts, together with any updates, are in full force and effect and no defaults currently exist thereunder (other than as described in Schedule 4.9 to this Agreement or in such updates).  Except as set forth in Schedule 4.9 to this Agreement, no Assigned Government Contract (a) contains any provision restricting assignments of sums due thereunder to the Collateral Agent, or (c) has been assigned to any other Person pursuant to the Assignment of Claims Act of 1940.

 

4.10.        Each Pledged Note constitutes a valid obligation of the maker thereof, and is enforceable according to its tenor and free from any defense or offset of any kind.  No default has occurred under any Pledged Note.  Each Grantor has a valid, duly perfected security interest in and lien on all of the property that serves to secure its Pledged Notes.  No Grantor has any obligations to make any further or additional loans or advances to, or purchases of securities from, any maker with respect to any of the Pledged Notes of such Grantor.  No Pledged Note of any Grantor is subject to any defense, offset or counterclaim, nor have any of the foregoing been asserted or alleged against such Grantor by any Person.

 

4.11.        Each Grantor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to its Intellectual Property, free and clear of any liens, charges and encumbrances, including, without limitation, pledges, assignments, licenses, registered user agreements and covenants by such Grantor not to sue third Persons, except as permitted by the Indenture.  Each Grantor owns all of its Intellectual Property and, whether the same are registered or unregistered, no such Intellectual Property has been adjudged invalid or unenforceable.  No Grantor has knowledge of any claim that (i) the use of any of its Intellectual Property or the operation of its business does or may violate the rights of any Person, (ii)

 

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challenges the Grantor’s rights to, or the validity of, any of the Intellectual Property, nor, to the knowledge of the Grantor, is there any basis for either such claim.  Each Grantor has used, and shall continue to use, for the duration of this Agreement, proper statutory notice in connection with its use of its Intellectual Property, except where the failure to do so will not have a material adverse effect on such Grantor, and has taken all necessary and otherwise reasonable measures to maintain such Intellectual Property, including the prompt filing of all documents with applicable authorities and the timely payment of all applicable fees.  Schedule 4.11 hereto sets forth all federally registered patents, trademarks, copyrights, service marks and license agreements, if any, owned by the Company or any Subsidiary as of the date hereof.

 

4.12.        Each Grantor has received consideration that is the reasonably equivalent value of the obligations and liabilities that such Grantor has incurred to the Secured Parties.  Excluding intercompany liabilities, no Grantor is insolvent, as defined in any applicable state or federal statute, nor will any Grantor be rendered insolvent by the execution and delivery of this Agreement to the Collateral Agent or any other documents executed and delivered to the Collateral Agent or the Secured Parties in connection herewith.  No Grantor has engaged, nor is any Grantor about to engage, in any business or transaction for which the assets retained by it are or will be an unreasonably small amount of capital, taking into consideration the obligations to the Secured Parties incurred hereunder.  No Grantor intends to, nor does any Grantor believe that it will, incur debts beyond its ability to pay such debts as they mature.

 

5.             Covenants

 

5.1           Filing of Financing Statements; Delivery of Additional Documentation Required.  (a)  Each Grantor hereby authorizes the Collateral Agent to file U.C.C. Financing Statements necessary or desirable to effectuate the transactions contemplated by the Indenture Documents, and any continuation statement or amendment with respect thereto, including an “all assets” financing statement, in any appropriate filing office; provided, however, that no such authorization shall obligate the Collateral Agent to make any such filing.

 

(b)           Each Grantor shall prepare, execute and deliver to, and if applicable, file, any and all financing statements, original financing statements in lieu of continuation statements, amendments to financing statements, fixture filings, security agreements, pledges, assignments, Commercial Tort Claim Assignments, endorsements of certificates of title, and all other documents (collectively, the “Additional Documents”) as may be necessary to create, perfect, and continue the perfection of or to improve the priority the Collateral Agent’s Liens in the Collateral of such Grantor (whether now owned or hereafter arising or acquired or tangible or intangible), or to fully consummate all of the transactions contemplated hereby and under the other Indenture Documents.  Not in limitation but in furtherance of the foregoing, the Company shall comply with its obligations in the immediately preceding sentence as such obligations relate to the preparation and filing by it of a U.C.C. Financing Statement, together with any applicable filing fees, within 10 days of the date hereof in the applicable filing office, and following the filing thereof shall provide the Collateral Agent with evidence of the same.  To the maximum extent permitted by applicable law, such Grantor authorizes the Collateral Agent to execute any such Additional Documents in such Grantor’s name and authorizes the Collateral Agent to file such executed Additional Documents in any appropriate filing office; provided, however, that no such authorization shall obligate the Collateral Agent to take any such action.

 

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In addition, no less frequently than annually, each Grantor shall (i) provide the Collateral Agent with a report of all new material patents, patent applications, trademarks, trademark applications, copyrights or copyright applications acquired or generated by such Grantor during the prior period and (ii) cause to be prepared, executed, and delivered to the Collateral Agent supplemental schedules to the applicable Collateral Agreements to identify such patents, copyrights, and trademarks as being subject to the security interests created thereunder; provided, however, that no Grantor shall register or apply to register with (A) the United States Copyright Office any unregistered copyrights (whether in existence on the Issue Date or thereafter acquired, arising, or developed) unless within 30 days of any such registration or application for registration, such Grantor executes and delivers to the Collateral Agent and files with the United States Copyright Office an Intellectual Property Security Agreement, supplemental schedules to any existing Intellectual Property Security Agreement, or such other documentation as may be necessary in order to perfect and continue the perfection of or protect the Collateral Agent’s Liens on such copyrights following such registration or (B) the United States Patent and Trademark Office any unregistered patents or trademarks (whether in existence on the Issue Date or thereafter acquired, arising, or developed) unless within 30 days of any such registration or application for registration, the applicable Person executes and delivers to the Collateral Agent and files with the United States Patent and Trademark Office an Intellectual Property Security Agreement, supplemental schedules to any existing Intellectual Property Security Agreement, or such other documentation as may be necessary in order to perfect and continue the perfection of or protect the Collateral Agent’s Liens on such patents or trademarks following such registration.  If the Collateral Agent does not receive an updated report from the Grantors, the Collateral Agent may assume that no further intellectual property was created or is in the need of updating and the Collateral Agent need not undertake an investigation into any such issues.

 

5.2           Insurance.       Each Grantor covenants and agrees that such Grantor shall, at such Grantor’s expense, maintain insurance respecting its assets wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and risks and in such amounts as ordinarily are insured against by other Persons engaged in the same or similar businesses. Such Grantor also shall maintain business interruption, public liability, and product liability insurance, as well as insurance against larceny, embezzlement, and criminal misappropriation.  Such Grantor shall deliver copies of all such policies or certificates of insurance evidencing the same to the Collateral Agent with an endorsement naming the Collateral Agent as loss payee (under a satisfactory lender’s loss payable endorsement) or additional insured, as appropriate.  Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to the Collateral Agent in the event of cancellation of any such policy for any reason whatsoever;

 

5.3           Location of Inventory and Equipment.  Each Grantor covenants and agrees that such Grantor shall keep such Grantor’s Inventory and Equipment only at the locations identified on Schedule 4.4 and its chief executive offices only at the locations identified on Schedule 4.4; provided, however, that such Grantor may amend Schedule 4.4 so long as such amendment occurs by prompt written notice to the Collateral Agent, and so long as such new location is within the continental United States or Canada.

 

5.4           Property Acquired Subsequent to the Closing Date and Right to Take Additional Collateral.  Each Grantor shall provide the Collateral Agent with prompt written

 

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notice with respect to any real or personal property (other than in the ordinary course of business and excluding Accounts, Inventory, Equipment and General Intangibles and other property acquired in the ordinary course of business or any Investment Property that constitutes securities of a Foreign Subsidiary not required to be pledged pursuant to this Agreement) acquired by any Grantor subsequent to the date hereof.  In addition to any other right that the Collateral Agent and the Secured Parties may have pursuant to this Agreement or otherwise, the Company shall, and shall cause each Grantor to, grant to the Collateral Agent, for the benefit of the Secured Parties, as additional security for the Obligations, a first Lien on any real or personal property of the Company and each Grantor (other than Excluded Assets).  Each Grantor agrees to secure, within twenty (20) days after the date of such acquisition, all of the Obligations by delivering to the Collateral Agent, as applicable, security agreements, intellectual property security agreements, pledge agreements, mortgages (or deeds of trust, if applicable) or other documents, instruments or agreements with respect to any of the Grantors.  The Company shall perform and pay all recordation, legal and other expenses in connection therewith.

 

5.5           Deposit Accounts and Securities Accounts.  (a) No later than sixty (60) days after the Issue Date, the Company shall have delivered to the Collateral Agent an executed Control Agreement, for each Deposit Account maintained by a Grantor; provided that the Company shall not be required to deliver a Control Agreement with respect to any of the Deposit Accounts referenced in the next sentence, so long as the Company is in compliance with this sentence.  No later than one hundred (100) days after the Issue Date, the Company shall have closed the Deposit Accounts designated as Deposit Accounts to be closed in Schedule 5.5 hereto.

 

(b) Subject to Sections 5.5(a) and 10(c), each Grantor covenants and agrees that such Grantor will not maintain, on or after the Issue Date, any Deposit Account or Securities Account having an average closing balance in excess of (i) $100,000, individually, or (ii) $500,000, in the aggregate, in each case, for any five consecutive Business Day period unless such Grantor and the applicable securities intermediary or bank shall have entered into a Control Agreement governing such Deposit Account or Securities Account, as the case may be, in order to perfect or improve the priority of the Collateral Agent’s Liens therein.  Each Grantor agrees that it will take all commercially reasonable steps in order for the Collateral Agent to obtain control in accordance with Sections 8-106, 9-104, 9-105, 9-106, and 9-107 of the U.C.C. with respect to all of its Securities Accounts, Deposit Accounts, electronic chattel paper, Investment Property, and letter-of-credit rights (other than Deposit Accounts and Securities Accounts having an average closing balance in excess of (i) $100,000, individually, or (ii) $500,000, in the aggregate, in each case, for any five consecutive Business Day period).  Upon the occurrence and during the continuance of an Event of Default, the Collateral Agent may notify any bank or securities intermediary subject to a Control Agreement to liquidate the applicable Deposit Account or Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to the Collateral Agent.

 

5.6           Right to Inspect.  The Collateral Agent (through any of its officers, employees, or agents) shall have the right (but not the obligation) no more frequently than annually (unless an Event of Default is outstanding) to inspect the Books of any Grantor and make copies or abstracts thereof and to check, test, and appraise the Collateral, or any portion thereof, in order to verify each Grantor’s financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral at such reasonable times as the Collateral Agent may designate, and so long as no Default or Event of Default has occurred and is continuing, with reasonable prior notice.

 

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6.             Corporate Names and Location of Collateral.  No Grantor shall (a) change its name, or (b) change its jurisdiction or form of organization or extend or continue its existence in or to any other jurisdiction (other than its jurisdiction of organization at the date of this Agreement) unless such Grantor shall have provided the Collateral Agent with any and all Additional Documents necessary to maintain the perfection of the Collateral Agent’s Liens on the Collateral.  Each Grantor shall also provide the Collateral Agent with prior written notification of (i) any new locations where any of the Inventory or Equipment of such Grantor is to be maintained; (ii) the location of any new places of business or the changing or closing of any of its existing places of business; and (iii) any change in such Grantor’s chief executive office.  In the event of any of the foregoing the Grantor shall, and the Collateral Agent is hereby authorized to file new U.C.C. Financing Statements describing the Collateral and otherwise in form and substance sufficient for recordation wherever necessary, to perfect or continue perfected the security interest of the Collateral Agent, for the benefit of the Secured Parties, in the Collateral, provided, however, that no such authorization shall obligate the Collateral Agent to make any such filing.  Grantors shall pay all filing and recording fees and taxes in connection with the filing or recordation of such U.C.C. Financing Statements and shall immediately reimburse the Collateral Agent therefor if the Collateral Agent pays the same.  Such amounts not so paid or reimbursed shall be expenses secured by the Lien of this Agreement on the Collateral.

 

7.             Notice.  Grantors shall give the Collateral Agent prompt written notice if any Event of Default shall occur hereunder or if the Internal Revenue Service shall allege the nonpayment or underpayment of any tax by any Grantor or threaten to make any assessment in respect thereof.

 

8.             Financial Records.  Each Grantor shall (a) maintain at all times true and complete financial records and books of accounts in accordance with generally accepted accounting principles consistently applied and, without limiting the generality of the foregoing, prepare authentic invoices for all of the Accounts of such Grantor; (b) render to the Collateral Agent, forthwith upon each request of the Collateral Agent, such financial statements of such Grantor’s financial condition and operations, including but not limited to such Grantor’s tax returns, and such reports of the Accounts of such Grantor, as the Collateral Agent may from time to time request; and (c) during the continuance of an Event of Default, forward to the Collateral Agent, upon request of the Collateral Agent, whenever made, (i) invoices, sales journals or other documents satisfactory to the Collateral Agent, as the case may be, that summarize the Accounts of such Grantor, certified by an officer of such Grantor, (ii) within the time specified by the Collateral Agent, an aging report of the Accounts of such Grantor then outstanding setting forth, in such form and detail and with such representations and warranties as the Collateral Agent may from time to time require, the unpaid balances of all invoices billed respectively during that period and during each of the three next preceding periods, and certified by an officer of such Grantor, and (iii) with respect to the Inventory and any other Collateral of such Grantor, such reports and other documents that are satisfactory to the Collateral Agent.

 

9.             Transfers, Liens and Modifications Regarding Collateral. No Grantor shall, except to the extent not prohibited under the Indenture, sell, assign, transfer or otherwise dispose of, or

 

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grant any option with respect to, or create, incur, or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of such Grantor’s Collateral, or any interest therein, or Proceeds, except for (i) the lien and security interest provided for by this Agreement, (ii) any security agreement securing only the Collateral Agent, for the benefit of the Secured Parties, (iii) Permitted Liens, and (iv) liens over any Herley Shares until after the full and complete consummation of the Herley Acquisition.

 

10.                                 Collateral.  Each Grantor shall:

 

(a)                                  at all reasonable times during the continuance of an Event of Default, allow the Collateral Agent by or through any of  its officers, agents, employees, attorneys or accountants to (i) examine, inspect and make extracts from such Grantor’s Books, including, without limitation, the tax returns of such Grantor, (ii) arrange for verification of such Grantor’s Accounts, under reasonable procedures, directly with Account Debtors of such Grantor or by other methods, (iii) examine and inspect such Grantor’s Inventory and Equipment, wherever located, and (iv) conduct appraisals of such Grantor’s Inventory;

 

(b)                                 promptly furnish to the Collateral Agent, upon written request, (i) additional statements and information with respect to such Grantor’s Collateral, and all writings and information relating to or evidencing any of such Grantor’s Accounts (including, without limitation, computer printouts or typewritten reports listing the mailing addresses of all present Account Debtors of such Grantor), and (ii) any other writings and information as the Collateral Agent may request;

 

(c)                                  promptly notify the Collateral Agent in writing upon the creation by any Grantor of a Deposit Account or Securities Account not listed on Schedule 5.5 to this Agreement, and, within thirty (30) days after the creation of such Deposit Account or Securities Account, provide for the execution of a Control Agreement with respect thereto, if required by Section 5.5 provided that (i) no Deposit Account Control Agreement shall be required with respect to any Deposit Accounts of a Credit Party solely used to fund California payroll, (ii) all Deposit Accounts (other than as set forth in subpart (i) hereof or Section 5.5 hereof) of the Grantors shall be maintained with KeyBank National Association, and (iii) with respect to any Securities Account opened by a Grantor within sixty (60) days after the Closing Date, such Credit Party shall have thirty (30) days after the opening of such Securities Account to deliver a Securities Account Control Agreement with respect thereto;

 

(d)                                 promptly notify the Collateral Agent in writing whenever the Inventory of a Grantor, valued in excess (on an aggregate basis for all such Inventory of all Credit Parties at such location) of Five Hundred Thousand Dollars ($500,000), is located at a location of a third party (other than a Grantor that is not listed on Schedule 4.4 hereto and, except where such Inventory is located at a location of the United States government, cause to be executed and delivered to the Collateral Agent contemporaneously with any landlord’s waiver, bailee’s waiver, processor’s waiver or similar document or notice that may be executed and delivered to the Collateral Agent;

 

(e)                                  promptly notify the Collateral Agent in writing of any information that such Grantor has or may receive with respect to such Grantor’s Collateral that might reasonably be determined to materially and adversely affect the value thereof or the rights of the Collateral Agent and the other Secured Parties with respect thereto;

 

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(f)                                    maintain such Grantor’s (i) Equipment in good operating condition and repair, ordinary wear and tear excepted, making all necessary replacements thereof so that the value and operating efficiency thereof shall at all times be maintained and preserved, (ii) finished goods Inventory in saleable condition, and (iii) other items of Collateral, taken as an entirety, in such conditions as is consistent with generally accepted business practices, ordinary wear and tear excepted;

 

(g)                                 deliver to the Collateral Agent, to hold as security for the Obligations all certificated Investment Property (other than Pledged Securities) that does not constitute Excluded Assets owned by such Grantor, in suitable form for transfer by delivery, or accompanied by duly executed instruments of transfer or assignment in blank, or in the event such Investment Property is in the possession of a Securities Intermediary or credited to a Securities Account, execute with the related Securities Intermediary a Securities Account Control Agreement over such Securities Account in favor of the Collateral Agent, for the benefit of the Secured Parties;

 

(h)                                 upon request of the Collateral Agent, promptly take such action and promptly make, execute, and deliver all such additional and further items, deeds, assurances, instruments and any other writings as the Collateral Agent may from time to time deem necessary or appropriate, including, without limitation, chattel paper, to carry into effect the intention of this Agreement, or so as to completely vest in and ensure to the Collateral Agent and the Secured Parties their respective rights hereunder and in or to the Collateral.

 

11.                                 Grantors’ Obligations with Respect to Intellectual Property.

 

(a)                                  No Grantor shall sell or assign its interest in, or, except as permitted in the Indenture, grant any license or sublicense with respect to, any Intellectual Property of such Grantor.  Any attempted sale or license is null and void.  No Grantor shall use the Intellectual Property of such Grantor in any manner that would jeopardize the validity or legal status thereof.  Each Grantor shall comply with all patent marking requirements as specified in 35 U.S.C. § 287.  Each Grantor shall further conform its usage of any trademarks to standard trademark usage, including, but not limited to, using the trademark symbols ®, TM, and SM where appropriate.

 

(b)                                 Except as excused pursuant to the Indenture, each Grantor shall have the duty to prosecute diligently any patent, trademark, servicemark or copyright application pending as of the date of this Agreement or thereafter until this Agreement shall have been terminated, to file and prosecute opposition and cancellation proceedings and to do any and all acts that are necessary or desirable to preserve and maintain all rights in the Intellectual Property of such Grantor, including, but not limited to, payment of any maintenance fees.  Any expenses incurred in connection with the Intellectual Property of Grantors shall be borne by Grantors.  Grantors shall not abandon any Intellectual Property, unless the Grantor otherwise determines in its reasonable business judgment, that it no longer benefits from maintaining such Intellectual Property.

 

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12.                                 Grantors’ Obligations with Respect to Assigned Government Contracts.  Each Grantor shall, within a commercially reasonable time period, notify the Collateral Agent in writing whenever a new Assigned Government Contract comes into existence, and deliver to the Collateral Agent (a) an executed Instrument of Assignment, and (b) an executed Notice of Assignment of Claims.  With respect to any Government Contract that is not already subject to an Instrument of Assignment and a Notice of Assignment of Claim, upon the occurrence of an Event of Default, each Grantor shall promptly execute and deliver to the Collateral Agent (i) an Instrument of Assignment, and (ii) a Notice of Assignment of Claim.  The Collateral Agent is hereby authorized to file, with the appropriate Governmental Authority, all Instruments of Assignment and Notices of Assignment of Claim required to be delivered to the Collateral Agent under the terms of this Agreement.

 

13.                                 Collections and Receipt of Proceeds by Grantors.

 

Prior to exercise by the Collateral Agent of its rights under this Agreement, both (i) the lawful collection and enforcement of all of the Accounts of each Grantor, and (ii) the lawful receipt and retention by a Grantor of all Proceeds of all of the Accounts and Inventory of such Grantor shall be as the agent of the Collateral Agent for the benefit of the Secured Parties.

 

14.                                 Collections and Receipt of Proceeds by the Collateral Agent.  During the continuance of an Event of Default, the Collateral Agent shall, at all times, have the right, but not the duty, to collect and enforce any or all of the Accounts of Grantors as the Collateral Agent may deem advisable and, if the Collateral Agent shall at any time or times elect to do so in whole or in part, the Collateral Agent shall not be liable to any Grantor except for its own willful misconduct or gross negligence, if any.  Each Grantor hereby constitutes and appoints the Collateral Agent, or the Collateral Agent’s designated agent, as such Grantor’s attorney-in-fact to exercise, at any time, all or any of the following powers which, being coupled with an interest, shall be irrevocable until the Obligations are paid and performed in full (other than contingent indemnification obligations) or the Defeasance thereof shall have been consummated:

 

(a)                                  to receive, retain, acquire, take, endorse, assign, deliver, accept and deposit, in the name of the Collateral Agent or any Grantor, any and all of such Grantor’s cash, instruments, chattel paper, documents, Proceeds of Accounts, Proceeds of Inventory, collection of Accounts, and any other writings relating to any of the Collateral. Each Grantor hereby waives presentment, demand, notice of dishonor, protest, notice of protest and any and all other similar notices with respect thereto, regardless of the form of any endorsement thereof.  Neither the Collateral Agent nor any Secured Party shall be bound or obligated to take any action to preserve any rights therein against prior parties thereto;

 

(b)                                 to transmit to Account Debtors of such Grantors, on any or all of the Accounts of such Grantor, notice of assignment to the Collateral Agent, for the benefit of the Secured Parties, thereof and the security interest of the Collateral Agent, for the benefit of the Secured Parties, and to request from such Account Debtors at any time, in the name of the Collateral Agent or such Grantor, information concerning the Accounts of such Grantor and the amounts owing thereon;

 

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(c)                                  to transmit to purchasers of any or all of the Inventory of such Grantor, notice of the security interest of the Collateral Agent, for the benefit of the Secured Parties, and to request from such purchasers at any time, in the name of the Collateral Agent or such Grantor, information concerning the Inventory of such Grantor and the amounts owing thereon by such purchasers;

 

(d)                                 to notify and require Account Debtors on the Accounts of such Grantor and purchasers of the Inventory of such Grantor to make payment of their indebtedness directly to the Collateral Agent, for the benefit of the Secured Parties;

 

(e)                                  to enter into or assent to such amendment, compromise, extension, release or other modification of any kind of, or substitution for, the Accounts of such Grantor, or any thereof, as the Collateral Agent, at its election (or at the direction of the Required Holders), may deem to be advisable;

 

(f)                                    to enforce the Accounts of such Grantor or any thereof, or any other Collateral of such Grantor, by suit or otherwise, to maintain any such suit or other proceeding in the name of the Collateral Agent and to withdraw any such suit or other proceeding.  Each Grantor agrees to lend every assistance requested by the Collateral Agent in respect of the foregoing, all at no cost or expense to the Collateral Agent or the Secured Parties and including, without limitation, the furnishing of such witnesses and of such records and other writings as the Collateral Agent may require in connection with making legal proof of any Account of such Grantor.  Each Grantor agrees to reimburse the Collateral Agent and the Secured Parties in full for all court costs and attorneys’ fees and every other cost, expense or liability, if any, incurred or paid by the Collateral Agent or the Secured Parties in connection with the foregoing, which obligation of such Grantor shall constitute Obligations, shall be secured by the Collateral and shall bear interest, until paid, at the Default Rate; and

 

(g)                                 to accept all collections in any form relating to the Collateral, including remittances that may reflect deductions, and to deposit the same, into a Cash Collateral Account or, at the option of the Collateral Agent (at its election (or at the direction of the Required Holders), to apply them as a payment on the Obligations.

 

15.                                 Collateral Agent’s Authority Under Pledged Notes.  For the better protection of the Collateral Agent and the Secured Parties hereunder, each Grantor has executed (or will execute, with respect to future Pledged Notes) an appropriate endorsement on (or separate from) each Pledged Note of such Grantor and has deposited (or will deposit, with respect to future Pledged Notes) such Pledged Note with the Collateral Agent, for the benefit of the Secured Parties.  Each Grantor irrevocably authorizes and empowers the Collateral Agent, for the benefit of the Secured Parties, during the continuance of an Event of Default, to (a) ask for, demand, collect and receive all payments of principal of and interest on the Pledged Notes of such Grantor; (b) compromise and settle any dispute arising in respect of the foregoing; (c) execute and deliver vouchers, receipts and acquittances in full discharge of the foregoing; (d) exercise, in the Collateral Agent’s discretion, any right, power or privilege granted to the holder of any Pledged Note of such Grantor by the provisions thereof including, without limitation, the right to demand security or to waive any default thereunder; (e) endorse such Grantor’s name to each check or other writing received by the Collateral Agent as a payment or other proceeds of or

 

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otherwise in connection with any Pledged Note of such Grantor; (f) enforce delivery and payment of the principal and/or interest on the Pledged Notes of such Grantor, in each case by suit or otherwise as the Collateral Agent may desire; (g) enforce the security, if any, for the Pledged Notes of such Grantor by instituting foreclosure proceedings, by conducting public or other sales or otherwise, and to take all other steps as the Collateral Agent, in its discretion, may deem advisable in connection with the forgoing; provided, however, that nothing contained or implied herein or elsewhere shall obligate the Collateral Agent to institute any action, suit or proceeding or to make or do any other act or thing contemplated by this Section 16 or prohibit the Collateral Agent from settling, withdrawing or dismissing any action, suit or proceeding or require the Collateral Agent to preserve any other right of any kind in respect of the Pledged Notes and the security, if any, therefor.

 

16.                                 Commercial Tort Claims.  If any Grantor acquires any commercial tort claims after the date hereof for a claim which reasonably could be expected to exceed $1,000,000, such Grantor shall promptly (but in any event within 5 Business Days after such acquisition) (i) deliver to the Collateral Agent a written description of such commercial tort claim, (ii) execute and deliver a supplement to this Agreement, pursuant to which such Grantor shall grant a perfected security interest in all of its right, title and interest in and to such commercial tort claim to the Collateral Agent, as security for the Obligations (a “Commercial Tort Claim Assignment”) and (iii) not in limitation but in furtherance of Section 5.1, file a financing statement or amendment to a previously filed and effective financial statement describing such commercial tort claim with sufficient particularity to the extent necessary to perfect the Collateral Agent’s Lien therein.

 

17.                                 Use of Inventory and Equipment.  Until the exercise by the Collateral Agent of its rights under this Agreement, each Grantor may (a) retain possession of and use the Inventory and Equipment of such Grantor in any lawful manner not inconsistent with this Agreement or with the terms, conditions, or provisions of any policy of insurance thereon; (b) sell or lease its Inventory in the ordinary course of business; and (c) use and consume raw materials or supplies, the use and consumption of which are necessary in order to carry on such Grantor’s business.

 

18.                                 Authorization and Appointments.

 

(a)                                  Each Grantor hereby irrevocably authorizes and appoints the Company to take all such actions, and exercise all such powers, as are granted to, or contemplated to be taken by, the Company pursuant to the Indenture.

 

(b)                                 Each Grantor hereby agrees to, and hereby ratifies, all authorizations and appointments granted by such Grantor to the Collateral Agent, or contemplated to be given to the Collateral Agent by such Grantor, under the terms of the Indenture.

 

19.                                 Default and Remedies.

 

19.1.                        The occurrence of an Event of Default, as defined in the Indenture, shall constitute an Event of Default.

 

19.2.                        The Collateral Agent and the Secured Parties shall at all times have the rights and remedies of a secured party under the U.C.C. as in effect from time to time, in addition

 

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to the rights and remedies of a secured party provided elsewhere within this Agreement, in any other related document executed by any Grantor or otherwise provided in law or equity.  Upon the occurrence of an Event of Default and at all times thereafter, the Collateral Agent (at its election (or at the direction of the Required Holders)) may require each Grantor to assemble such Grantor’s Collateral, which each Grantor agrees to do, and make it available to the Collateral Agent at a reasonably convenient place to be designated by the Collateral Agent.  The Collateral Agent (at its election (or at the direction of the Required Holders)) may, with or without notice to or demand upon any Grantor and with or without the aid of legal process, make use of such force as may be necessary to enter any premises where the Collateral, or any part thereof, may be found and to take possession thereof (including anything found in or on the Collateral that is not specifically described in this Agreement, each of which findings shall be considered to be an accession to and a part of the Collateral) and for that purpose (at its election (or at the direction of the Required Holders)) may pursue the Collateral wherever the same may be found, without liability for trespass or damage caused thereby to a Grantor.  After any delivery or taking of possession of the Collateral, or any thereof, pursuant to this Agreement, then, with or without resort to any Grantor or any other Person or property, all of which each Grantor hereby waives, and upon such terms and in such manner as the Collateral Agent may deem advisable, the Collateral Agent (at its election (or at the direction of the Required Holders)) may sell, assign, transfer and deliver any of the Collateral at any time, or from time to time.  No prior notice need be given to any Grantor or to any other Person in the case of any sale of Collateral that the Collateral Agent determines to be perishable or to be declining speedily in value or that is customarily sold in any recognized market, but in any other case the Collateral Agent shall give Grantors no fewer than ten days prior notice of either the time and place of any public sale of the Collateral or of the time after which any private sale or other intended disposition thereof is to be made.  Each Grantor waives advertisement of any such sale and (except to the extent specifically required by the preceding sentence) waives notice of any kind in respect of any such sale.  At any such public sale, the Collateral Agent or any Secured Party may purchase the Collateral, or any part thereof, free from any right of redemption, all of which rights each Grantor hereby waives and releases.  After deducting all related expenses, and after paying all claims, if any, secured by liens having precedence over this Agreement, the Collateral Agent may apply the net proceeds of each such sale to or toward the payment of the Obligations, whether or not then due, in such order and by such division as the Collateral Agent (at its election (or at the direction of the Required Holders)) may deem advisable. Any excess, to the extent permitted by law, shall be paid to such Grantor, and the obligors on the Obligations shall remain liable for any deficiency.  In addition, during the continuance of an Event of Default, the Collateral Agent shall at all times have the right to obtain new appraisals of each Grantor or the Collateral, the cost of which shall be paid by such Grantor.

 

20.                                 Maximum Liability of Each Grantor and Rights of Contribution. Anything in this Agreement or any other Loan Document to the contrary notwithstanding, in no event shall the amount of the Obligations secured by this Agreement by any Grantor exceed the maximum amount that (after giving effect to the incurring of the obligations hereunder and to any rights to contribution of such Grantor from other affiliates of the Company) would not render the rights to payment of the Collateral Agent and the Secured Parties hereunder void, voidable or avoidable under any applicable fraudulent transfer law.  Grantors hereby agree as among themselves that, in connection with the payments made hereunder, each Grantor shall have a right of contribution from each other Grantor in accordance with applicable law.  Such contribution rights shall be waived until such time as the Obligations have been irrevocably paid in full, and no Grantor shall exercise any such contribution rights until the Obligations have been irrevocably paid in full.

 

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21.           Reasonable Care by Collateral Agent. The Collateral Agent shall be deemed by each Grantor to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Collateral Agent accords its own similar property.

 

22.           Indemnity. Without duplication of any amounts payable under any other similar indemnity provision set forth in the Indenture or any other Indenture Documents, each Grantor shall, jointly and severally: (i) pay all out-of-pocket costs and expenses of the Collateral Agent incurred in connection with the administration of and in connection with the preservation of rights under, and enforcement of, and any renegotiating or restructuring of this Agreement and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of counsel for the Collateral Agent); (ii) pay and hold the Collateral Agent and the other Secured Parties harmless from and against any and all present and future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to this Agreement and save the Collateral Agent and the other Secured Parties harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay any such taxes, charges or levies; and (iii) indemnify the Collateral Agent and each of the other Secured Parties, and each of their respective officers, directors, shareholders, employees, representatives and agents from and hold each of them harmless against any and all costs, losses, liabilities, claims, obligations, suits, penalties, judgments, damages or expenses incurred by or asserted against any of them (whether or not any of them is designated a party thereto) arising out of or by reason of this Agreement or any transaction contemplated hereby (including, without limitation, any investigation, litigation or other proceeding related to this Agreement), including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding.  Notwithstanding anything in this Agreement to the contrary, such Grantor shall not be responsible to the Collateral Agent or any other Secured Party for any costs, losses, damages, liabilities or expenses which result from the gross negligence or willful misconduct on the part of such Collateral Agent or any other Secured Party.  Each Grantor’s obligations under this Section shall survive any termination of this Agreement.

 

23.           Waiver of Claims. Except as otherwise provided in this Agreement or prohibited by law, EACH GRANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT’S TAKING POSSESSION OR SALE OR THE COLLATERAL AGENT’S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH GRANTOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and each Grantor hereby further waives (and releases any cause of action and claim against the Collateral Agent as a result of), to the fullest extent permitted by law: (a) all damages occasioned by such taking of possession, collection or sale except any damages which are the direct result of the Collateral Agent’s gross

 

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negligence or willful misconduct; (b) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent’s rights hereunder; (c) demand of performance or other demand, notice of intent to demand or accelerate, notice of acceleration, presentment, protest, advertisement or notice of any kind to or upon such Grantor or any other person or entity; and (d) all rights of redemption, appraisement, valuation, diligence, stay, extension or moratorium now or hereafter in force under any applicable law in order to delay the enforcement of this Agreement.

 

24.           Interpretation.  Each right, power or privilege specified or referred to in this Agreement is cumulative and in addition to and not in limitation of any other rights, powers and privileges that the Collateral Agent may otherwise have or acquire by operation of law, by contract or otherwise.  No course of dealing by the Collateral Agent in respect of, nor any omission or delay by the Collateral Agent in the exercise of, any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or of any other right, power or privilege, as the Collateral Agent may exercise each such right, power or privilege either independently or concurrently with others and as often and in such order as the Collateral Agent may deem expedient.  No waiver, consent or other agreement shall be deemed to have been made by the Collateral Agent be binding upon the Collateral Agent in any case unless specifically granted by the Collateral Agent in writing, and each such writing shall be strictly construed.  The captions to sections herein are inserted for convenience only and shall be ignored in interpreting the provisions of this Agreement.

 

25.           Notice. All notices, requests, demands and other communications provided for hereunder shall be in writing and, if to a Grantor, mailed or delivered to it, addressed to it at the address specified on the signature page of this Agreement, if to the Collateral Agent, mailed or delivered to it, addressed to the address of the Collateral Agent specified on the signature pages hereof or, as to each party, at such other address as shall be designated by such party in a written notice to each of the other parties.  All notices, statements, requests, demands and other communications provided for hereunder shall be deemed to be given or made when delivered or two Business Days after being deposited in the mail with postage prepaid by registered or certified mail, addressed as aforesaid, or sent by facsimile with telephonic confirmation of receipt, except that notices from a Grantor to the Collateral Agent pursuant to any of the provisions hereof shall not be effective until received by the Collateral Agent.

 

26.           Successors and Assigns.  This Agreement shall be binding upon each Grantor and their respective successors and assigns and shall inure to the benefit of and be enforceable and exercisable by the Collateral Agent on behalf of and for the benefit of Secured Parties and their respective successors and assigns.

 

27.           Severability.  If, at any time, one or more provisions of this Agreement is or becomes invalid, illegal or unenforceable in whole or in part, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

28.           Termination.  At such time as the Obligations are paid and performed in full (other than contingent indemnification obligations) or the Defeasance thereof shall have been consummated, the Grantors shall have the right to terminate this Agreement. Upon written

 

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request of Grantors, the Collateral Agent shall authorize the filing by the Grantors of appropriate termination statements, cancel all control agreements and return all physically pledged Collateral, and Grantors will indemnify the Collateral Agent in all respects for all costs incurred by the Collateral Agent in connection with such termination.

 

29.           Entire Agreement.  This Agreement integrates all of the terms and conditions with respect to the Collateral and supersedes all oral representations and negotiations and prior writings, if any, with respect to the subject matter hereof.

 

30.           Headings; Execution.  The headings and subheadings used herein are for convenience of reference only and shall be ignored in interpreting the provisions of this Agreement.  This Agreement may be executed by facsimile signature, which, when so executed and delivered, shall be deemed to be an original.

 

31.           Additional Grantors.  Additional Subsidiaries may become a party to this Agreement by the execution of a Security Agreement Joinder and delivery of such other supporting documentation, corporate governance and authorization documents, and an opinion of counsel, as required by Section 4.16 of the Indenture.

 

32.           Governing Law; Submission to Jurisdiction.  The provisions of this Agreement and the respective rights and duties of each Grantor, and the Collateral Agent hereunder shall be governed by and construed in accordance with New York law, without regard to principles of conflicts of laws. Each Grantor hereby irrevocably submits to the non-exclusive jurisdiction of any New York state or federal court sitting in New York county, New York, over any such action or proceeding arising out of or relating to this Agreement, any Indenture Document or any related document, and each Grantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York state or federal court.  Each Grantor hereby irrevocably waives, to the fullest extent permitted by law, any objection it may now or hereafter have to the laying of venue in any such action or proceeding in any such court as well as any right it may now or hereafter have to remove such action or proceeding, once commenced, to another court on the grounds of FORUM NON CONVENIENS or otherwise.  Each Grantor agrees that a final, nonappealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

[Remainder of page intentionally left blank.]

 

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JURY TRIAL WAIVER.  EACH GRANTOR, TO THE EXTENT PERMITTED BY LAW, HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG GRANTORS, COMPANY, COLLATERAL AGENT AND THE SECURED PARTIES, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

 

IN WITNESS WHEREOF, the undersigned has executed and delivered this Security Agreement as of the date first written above.

 

	
Address:
    	
4820   Eastgate Mall
    	
 
    	
ACQUISITION   CO. LANZA PARENT
    
	
 
    	
San   Diego, California 92121
    	
 
    	
 
    
	
 
    	
Attention:   Legal Department
    	
 
    	
By:
    	
/s/   Deanna Lund
    
	
 
    	
 
    	
 
    	
Name:
    	
Deanna   Lund
    
	
 
    	
 
    	
 
    	
Title:
    	
Executive   Vice President & Chief Financial Officer
    
	
 
    	
 
    	
 
    	
 
    
	
Address:
    	
4820   Eastgate Mall
    	
 
    	
LANZA   ACQUISITION CO.
    
	
 
    	
San   Diego, California 92121
    	
 
    	
 
    
	
 
    	
Attention:   Legal Department
    	
 
    	
By:
    	
/s/   Deanna Lund
    
	
 
    	
 
    	
 
    	
Name:
    	
Deanna   Lund
    
	
 
    	
 
    	
 
    	
Title:
    	
Executive   Vice President & Chief Financial Officer
    
	
 
    	
 
    	
 
    	
 
    
	
Address:
    	
CCS-Corporate   Capital Markets
    	
 
    	
WILMINGTON   TRUST FSB,
    
	
 
    	
50   South Sixth Street, Suite 1290
    	
 
    	
as   Collateral Agent
    
	
 
    	
Minneapolis,   MN 55402-1544
    	
 
    	
 
    
	
 
    	
Attention:   Jane Schweiger
    	
 
    	
By:
    	
/s/   Timothy P. Mowdy
    
	
 
    	
Facsimile   No: (612) 217-5651
    	
 
    	
Name:
    	
Timothy   P. Mowdy
    
	
 
    	
 
    	
 
    	
Title:
    	
Vice   PresidentExhibit 10.1

 

AMENDED AND RESTATED 
 BROADWIND ENERGY, INC.

2007 EQUITY INCENTIVE PLAN

(effective as of March 25, 2011)

 

SECTION 1
 DEFINITIONS

 

As used herein, the following terms have the meanings indicated below:

 

(a)                                  “Administrator” means the Board, or one (1) or more Committees appointed by the Board from time to time to administer the Plan, as the case may be.

 

(b)                                 “Affiliate” means a Parent or Subsidiary of the Company.

 

(c)                                  “Award” means any grant of an Option, Restricted Stock Award, Restricted Stock Unit Award, Stock Appreciation Right or Performance Award.

 

(d)                                 “Board” means the board of directors of the Company.

 

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

 

(f)                                    “Committee” means a committee of two (2) or more directors who shall be appointed by and serve at the pleasure of the Board.  Each of the members of the Committee shall be an “outside director” under Code Section 162(m) and, to the extent necessary for compliance with Rule 16b-3, a “non-employee director” under Rule 16b-3.

 

(g)                                 “Company” means Broadwind Energy, Inc., a Delaware corporation.

 

(h)                                 “Deferred Compensation” means a “deferral of compensation” as defined under Code Section 409A.

 

(i)                                     “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

 

(j)                                     “Fair Market Value” as of any date means (i) if such stock is listed on the Nasdaq Global Market, Nasdaq Capital Market, or an established stock exchange, the price of such stock at the close of the regular trading session of such market or exchange on such date, as reported by The Wall Street Journal or a comparable reporting service, or, if no sale of such stock shall have occurred on such date, on the next date on which there is a sale of stock; (ii) if such stock is not so listed on the Nasdaq Global Market, Nasdaq Capital Market, or an established stock exchange, the average of the closing “bid” and “asked” prices quoted by the OTC Bulletin Board, the National Quotation Bureau, or any comparable reporting service on such date or, if there are no quoted “bid” and “asked” prices on such date, on the next date for which there are such quotes; or (iii) if such stock is not publicly traded as of such date, the per share value as determined by the Board, or the Committee, in its sole discretion by applying principles of valuation with respect to Common Stock.

 

(k)                                  “ISO Option Agreement” has the meaning set forth in Section 9 hereof.

 

(l)                                     “NSO Option Agreement” has the meaning set forth in Section 10 hereof.

 

 

(m)                               “Option” means an incentive stock option or nonqualified stock option granted pursuant to the Plan.

 

(n)                                 “Parent” means any corporation that owns, directly or indirectly in an unbroken chain, fifty percent (50%) or more of the total voting power of the Company’s outstanding stock.

 

(o)                                 “Participant” means (i) a key employee or officer of the Company or any Affiliate to whom an incentive stock option has been granted pursuant to Section 9 hereof; (ii) a consultant or advisor to, or director, key employee or officer, of the Company or any Affiliate to whom a nonqualified stock option has been granted pursuant to Section 10 hereof; (iii) a consultant or advisor to, or director, key employee or officer, of the Company or any Affiliate to whom a Restricted Stock Award or Restricted Stock Unit Award has been granted pursuant to Section 11 hereof; (iv) a consultant or advisor to, or director, key employee or officer, of the Company or any Affiliate to whom a Performance Award has been granted pursuant to Section 12 hereof; or (v) a consultant or advisor to, or director, key employee or officer, of the Company or any Affiliate to whom a Stock Appreciation Right has been granted pursuant to Section 13 hereof.

 

(p)                                 “Performance Award” means any Performance Shares or Performance Units granted pursuant to Section 12 hereof.

 

(q)                                 “Performance Award Agreement” has the meaning set forth in Section 12 hereof.

 

(r)                                    “Performance Objective(s)” means one (1) or more performance objectives established by the Administrator, in its sole discretion, for Awards.  Performance Objectives may include, but shall not be limited to, any one (1), or a combination of, (i) revenue, (ii) net income, (iii) earnings per share, (iv) return on equity, (v) return on assets, (vi) increase in revenue, (vii) increase in share price or earnings, (viii) return on investment, or (ix) increase in market share, in all cases including, if selected by the Administrator, threshold, target and maximum levels.

 

(s)                                  “Performance Period” means the period, established at the time any Performance Award is granted or at any time thereafter, during which any Performance Objectives specified by the Administrator with respect to such Performance Award are to be measured.

 

(t)                                    “Performance Share” means any grant pursuant to Section 12 hereof of an Award, which value, if any, shall be paid to a Participant by delivery of shares of Common Stock of the Company upon achievement of such Performance Objectives during the Performance Period as the Administrator shall establish at the time of such grant or thereafter.

 

(u)                                 “Performance Unit” means any grant pursuant to Section 12 hereof of an Award, which value, if any, shall be paid to a Participant by delivery of cash upon achievement of such Performance Objectives during the Performance Period as the Administrator shall establish at the time of such grant or thereafter.

 

(v)                                 “Plan” means the Amended and Restated Broadwind Energy, Inc. 2007 Equity Incentive Plan, as amended from time to time.

 

(w)                               “Policy” has the meaning set forth in Section 20 hereof.

 

(x)                                   “Restricted Stock Agreement” has the meaning set forth in Section 11 hereof.

 

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(y)                                 “Restricted Stock Award” means any grant of restricted shares of Stock pursuant to Section 11 hereof.

 

(z)                                   “Restricted Stock Unit Agreement” has the meaning set forth in Section 11 hereof.

 

(aa)                            “Restricted Stock Unit Award” means any grant of restricted stock units pursuant to Section 11 hereof.

 

(bb)                          “Rule 16b-3” means Rule 16b-3 of the Exchange Act.

 

(cc)                            “Securities Act” means the Securities Act of 1933, as amended from time to time.

 

(dd)                          “Stock” or “Common Stock” means the common stock, $0.001 par value of the Company, reserved for Awards.

 

(ee)                            “Stock Appreciation Right” means a grant pursuant to Section 13 hereof.

 

(ff)                                “Stock Appreciation Right Agreement” has the meaning set forth in Section 13 hereof.

 

(gg)                          “Subsidiary” means any corporation of which fifty percent (50%) or more of the total voting power of the outstanding Stock is owned, directly or indirectly in an unbroken chain, by the Company.

 

SECTION 2
 PURPOSE

 

The purpose of the Plan is to promote the success of the Company and its Affiliates by facilitating the employment and retention of competent personnel and by furnishing incentive to officers, directors, employees, consultants, and advisors upon whose efforts the success of the Company and its Affiliates will depend to a large degree.

 

It is the intention of the Company to carry out the Plan through the granting of Options that will qualify as “incentive stock options” under the provisions of Code Section 422, pursuant to Section 9 hereof; through the granting of “nonqualified stock options” pursuant to Section 10 hereof; through the granting of Restricted Stock Awards or Restricted Stock Unit Awards pursuant to Section 11 hereof; through the granting of Performance Awards pursuant to Section 12 hereof; and through the granting of Stock Appreciation Rights pursuant to Section 13 hereof.  Adoption of the Plan shall be and is expressly subject to the condition of approval by the stockholders of the Company within twelve (12) months before or after the adoption of the Plan by the Board.  Any incentive stock options granted after adoption of the Plan by the Board shall be treated as nonqualified stock options if stockholder approval is not obtained within such twelve (12)-month period.

 

SECTION 3
 EFFECTIVE DATE OF PLAN

 

The Plan shall be effective as of the date of adoption by the Board, subject to approval by the stockholders of the Company as required in Section 2 hereof.

 

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SECTION 4
 ADMINISTRATION

 

The Plan shall be administered by the Administrator.  Except as otherwise provided herein, the Administrator shall have all of the powers vested in it under the provisions of the Plan, including but not limited to exclusive authority to determine, in its sole discretion, whether an Award shall be granted; the individuals to whom, and the time or times at which, Awards shall be granted; the number of shares subject to each Award; the option price, if any; and the performance criteria, if any, and any other terms and conditions of each Award.  The Administrator shall have full power and authority to administer and interpret the Plan, to make and amend rules, regulations and guidelines for administering the Plan, to prescribe the form and conditions of the respective agreements evidencing each Award (that may vary from Participant to Participant), and to make all other determinations necessary or advisable for the administration of the Plan.  The Administrator’s interpretation of the Plan, and all actions taken and determinations made by the Administrator pursuant to the power vested in it hereunder, shall be conclusive and binding on all parties concerned.

 

No member of the Board or the Committee shall be liable for any action taken or determination made in good faith in connection with the administration of the Plan.  In the event the Board appoints a Committee as provided hereunder, any action of the Committee with respect to the administration of the Plan shall be taken pursuant to a majority vote of the Committee members or pursuant to the written resolution of all Committee members.

 

SECTION 5
 PARTICIPANTS

 

The Administrator shall from time to time, at its discretion and without approval of the stockholders, designate those employees, officers, directors, consultants, and advisors of the Company or of any Affiliate to whom Awards shall be granted; provided, however, that consultants or advisors shall not be eligible to receive Awards unless such consultant or advisor renders bona fide services to the Company or any Affiliate and such services are not in connection with the offer or sale of securities in a capital raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.  The Administrator may grant additional Awards to some or all Participants then holding Awards, or may grant Awards solely or partially to new Participants.  In designating Participants, the Administrator shall also determine the number of shares to be optioned or awarded to each such Participant and the performance criteria applicable to each Performance Award.  The Administrator may from time to time designate individuals as being ineligible to participate in the Plan.

 

SECTION 6
 STOCK

 

The shares to be issued under the Plan shall consist of authorized but unissued shares of Common Stock.  Five million five hundred thousand (5,500,000) shares of Common Stock shall be reserved and available for Awards; provided, however, that the total number of shares reserved for Awards shall be subject to adjustment as provided in Section 14 hereof; and provided, further, that all shares reserved and available under the Plan shall constitute the maximum aggregate number of shares of Stock that may be issued through incentive stock options.  Subject to adjustment as provided in Section 14 hereof, the maximum number of shares of Stock with respect to which Options or Stock Appreciation Rights may be granted during a Performance Period to any Participant is five hundred thousand (500,000), to the extent such Options or Stock Appreciation Rights are intended to be “performance-based compensation” as defined under Code Section 162(m).  The shares of Stock underlying any Awards that are forfeited, canceled, reacquired by the Company, satisfied without the issuance of Stock or otherwise terminated

 

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shall not be deemed to have been delivered and shall be added back to the shares of Stock available for Awards; provided, however, that any shares (i) tendered to pay the exercise price of an Award or (ii) withheld for taxes by the Company or an Affiliate shall not be available for future Awards.

 

SECTION 7
 DURATION OF PLAN

 

Incentive stock options may be granted pursuant to the Plan from time to time during a period of ten (10) years from the effective date as described in Section 3 hereof.  Awards other than incentive stock options may be granted pursuant to the Plan from time to time after the effective date of the Plan and until the Plan is discontinued or terminated by the Administrator.

 

SECTION 8
 PAYMENT

 

Participants may pay for shares upon exercise of Options through a net exercise, or with cash, personal check, certified check or, if approved by the Administrator in its sole discretion, previously-owned shares of Common Stock, or any combination thereof, or such other method as may be determined by the Administrator from time to time.  Any Stock so tendered as part of such payment shall be valued at such Stock’s then Fair Market Value.  The Administrator may, in its sole discretion, limit the forms of payment available to the Participant and may exercise such discretion any time prior to the termination of the Option granted to the Participant or upon any exercise of the Option by the Participant.

 

With respect to payment in the form of Common Stock, the Administrator may require advance approval or adopt such rules as it deems necessary to assure compliance with Rule 16b-3, if applicable.

 

SECTION 9
 TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS

 

Each incentive stock option granted pursuant to this Section 9 shall be evidenced by a written incentive stock option agreement (the “ISO Option Agreement”).  The ISO Option Agreement shall be in such form as may be approved from time to time by the Administrator and may vary from Participant to Participant; provided, however, that each Participant and each ISO Option Agreement shall comply with and be subject to the following terms and conditions:

 

(a)                                  Number of Shares and Option Price.  The ISO Option Agreement shall state the total number of shares covered by the incentive stock option.  Except as permitted by Code Section 424(a), the option price per share shall not be less than one hundred percent (100%) of the per share Fair Market Value of the Common Stock on the date the Administrator grants the Option; provided, however, that if a Participant owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of its Parent or any Subsidiary, the option price per share of an incentive stock option granted to such Participant shall not be less than one hundred ten percent (110%) of the per share Fair Market Value of Common Stock on the date of the grant of the Option.  The Administrator shall have full authority and discretion in establishing the option price and shall be fully protected in so doing.

 

(b)                                 Term and Exercisability of Incentive Stock Option.  The term during which any incentive stock option granted under the Plan may be exercised shall be established in each case by the Administrator.  Except as permitted by Code Section 424(a), in no event shall any incentive stock option be exercisable during a term of more than ten (10) years after the date on which it is granted; provided, however, that if a Participant owns stock possessing more than ten percent (10%) of the total combined

 

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voting power of all classes of stock of the Company or of its Parent or any Subsidiary, the incentive stock option granted to such Participant shall be exercisable during a term of not more than five (5) years after the date on which it is granted.

 

The ISO Option Agreement shall state when the incentive stock option becomes exercisable and shall also state the maximum term during which the Option may be exercised.  In the event an incentive stock option is exercisable immediately, the manner of exercise of the Option in the event it is not exercised in full immediately shall be specified in the ISO Option Agreement.  The Administrator may accelerate the exercisability of any incentive stock option granted hereunder that is not immediately exercisable as of the date of grant.

 

(c)                                  Nontransferability.  No incentive stock option shall be transferable, in whole or in part, by the Participant other than by will or by the laws of descent and distribution.  During the Participant’s lifetime, the incentive stock option may be exercised only by the Participant.  If the Participant shall attempt any transfer of any incentive stock option granted under the Plan during the Participant’s lifetime, such transfer shall be void and the incentive stock option, to the extent not fully exercised, shall terminate.

 

(d)                                 No Rights as Stockholder.  A Participant (or the Participant’s successor or successors) shall have no rights as a stockholder with respect to any shares covered by an incentive stock option until the date the Participant is recorded on the stock transfer books of the Company as the owner of the Stock.  No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such transfer is actually recorded (except as otherwise provided in Section 14 hereof).

 

(e)                                  Withholding.  The Company or its Affiliate shall be entitled to withhold and deduct from future wages of the Participant all legally required amounts necessary to satisfy any and all withholding and employment-related taxes attributable to the Participant’s exercise of an incentive stock option or a “disqualifying disposition” of shares acquired through the exercise of an incentive stock option as defined in Code Section 421(b).  In the event the Participant is required under the ISO Option Agreement to pay the Company, or make arrangements satisfactory to the Company respecting payment of, such withholding or employment-related taxes, the Administrator may, in its discretion and pursuant to such rules as it may adopt, require the Participant to satisfy such obligation, in whole or in part, by delivering shares of Common Stock (by actual delivery or via attestation) or by electing to have the Company withhold Common Stock otherwise issuable to the Participant as a result of the exercise of the incentive stock option.  Such shares shall have a Fair Market Value equal to the minimum required tax withholding, based on the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to the supplemental income resulting from such exercise.  In no event may the Company or any Affiliate withhold shares having a Fair Market Value in excess of such statutory minimum required tax withholding.  The Participant’s election to deliver shares or to have shares withheld for this purpose shall be made on or before the date the incentive stock option is exercised or, if later, the date that the amount of tax to be withheld is determined under applicable tax law.  Such election shall be approved by the Administrator and otherwise comply with such rules as the Administrator may adopt to assure compliance with Rule 16b-3, if applicable.

 

(f)                                    Other Provisions.  The ISO Option Agreement authorized under this Section 9 shall contain such other provisions as the Administrator shall deem advisable.  Any such ISO Option Agreement shall contain such limitations and restrictions upon the exercise of the Option as shall be necessary to ensure that such Option will be considered an “incentive stock option” as defined in Code Section 422 or to conform to any change therein.

 

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SECTION 10
 TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS

 

Each nonqualified stock option granted pursuant to this Section 10 shall be evidenced by a written nonqualified stock option agreement (the “NSO Option Agreement”).  The NSO Option Agreement shall be in such form as may be approved from time to time by the Administrator and may vary from Participant to Participant; provided, however, that each Participant and each NSO Option Agreement shall comply with and be subject to the following terms and conditions:

 

(a)                                  Number of Shares and Option Price.  The NSO Option Agreement shall state the total number of shares covered by the nonqualified stock option.  Unless otherwise determined by the Administrator, the option price per share shall be one hundred percent (100%) of the per share Fair Market Value of Common Stock on the date the Administrator grants the Option.

 

(b)                                 Term and Exercisability of Nonqualified Stock Option.  The term during which any nonqualified stock option granted under the Plan may be exercised shall be established in each case by the Administrator; provided, however, that in no event shall any nonqualified stock option be exercisable during a term of more than ten (10) years after the date on which it is granted.  The NSO Option Agreement shall state when the nonqualified stock option becomes exercisable and shall also state the maximum term during which the Option may be exercised.  In the event a nonqualified stock option is exercisable immediately, the manner of exercise of the Option in the event it is not exercised in full immediately shall be specified in the NSO Option Agreement.  The Administrator may accelerate the exercisability of any nonqualified stock option granted hereunder that is not immediately exercisable as of the date of grant.

 

(c)                                  Transferability.  A nonqualified stock option shall be transferable, in whole or in part, by the Participant by will or by the laws of descent and distribution.  In addition, the Administrator may, in its sole discretion, permit the Participant to transfer any or all nonqualified stock options to any member of the Participant’s “immediate family” as such term is defined in Rule 16a-1(e) of the Exchange Act, or to one (1) or more trusts whose beneficiaries are members of such Participant’s “immediate family” or partnerships in which such family members are the only partners; provided, however, that the Participant shall not receive any consideration for the transfer and such transferred nonqualified stock option shall continue to be subject to the same terms and conditions as were applicable to such nonqualified stock option immediately prior to its transfer.

 

(d)                                 No Rights as Stockholder.  A Participant (or the Participant’s successor or successors) shall have no rights as a stockholder with respect to any shares covered by a nonqualified stock option until the date the Participant is recorded on the stock transfer books of the Company as the owner of the Stock.  No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such transfer is actually recorded (except as otherwise provided in Section 14 hereof).

 

(e)                                  Withholding.  The Company or its Affiliate shall be entitled to withhold and deduct from future wages of the Participant all legally required amounts necessary to satisfy any and all withholding and employment-related taxes attributable to the Participant’s exercise of a nonqualified stock option.  In the event the Participant is required under the NSO Option Agreement to pay the Company, or make arrangements satisfactory to the Company respecting payment of, such withholding or employment-related taxes, the Administrator may, in its discretion and pursuant to such rules as it may adopt, require the Participant to satisfy such obligation, in whole or in part, by delivering shares of Common Stock (by actual delivery or via attestation) or by electing to have the Company withhold Common Stock otherwise issuable to the Participant as a result of the exercise of the nonqualified stock option.  Such shares shall

 

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have a Fair Market Value equal to the minimum required tax withholding, based on the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to the supplemental income resulting from such exercise.  In no event may the Company or any Affiliate withhold shares having a Fair Market Value in excess of such statutory minimum required tax withholding.  The Participant’s election to deliver shares or to have shares withheld for this purpose shall be made on or before the date the nonqualified stock option is exercised or, if later, the date that the amount of tax to be withheld is determined under applicable tax law.  Such election shall be approved by the Administrator and otherwise comply with such rules as the Administrator may adopt to assure compliance with Rule 16b-3, if applicable.

 

(f)                                    Other Provisions.  The NSO Option Agreement authorized under this Section 10 shall contain such other provisions as the Administrator shall deem advisable.

 

SECTION 11
 RESTRICTED STOCK AWARDS AND RESTRICTED STOCK UNIT AWARDS

 

Each Restricted Stock Award or Restricted Stock Unit Award shall be evidenced by a written restricted stock or restricted stock unit agreement (the “Restricted Stock Agreement” or “Restricted Stock Unit Agreement,” as the case may be).  The Restricted Stock Agreement or Restricted Stock Unit Agreement shall be in such form as may be approved from time to time by the Administrator and may vary from Participant to Participant; provided, however, that each Participant and each Restricted Stock Agreement or Restricted Stock Unit Agreement shall comply with and be subject to the following terms and conditions:

 

(a)                                  Number of Shares.  The Restricted Stock Agreement or Restricted Stock Unit Agreement shall state the total number of shares of Stock covered by the Restricted Stock Award or Restricted Stock Unit Award.

 

(b)                                 Risks of Forfeiture.  The Restricted Stock Agreement or Restricted Stock Unit Agreement shall set forth the risks of forfeiture or vesting conditions, if any, including risks of forfeiture or vesting conditions based on Performance Objectives, that shall apply to the shares of Stock covered by the Restricted Stock Award or Restricted Stock Unit Award, and shall specify the manner in which such risks of forfeiture shall lapse or vesting conditions shall vest; provided, however, that if the right to become vested in a Restricted Stock Award or Restricted Stock Unit Award is conditioned on the completion of a specified period of service with the Company or its Affiliates, without achievement of Performance Objectives or other performance measures (whether or not related to the Performance Objectives) being required as a condition of vesting, and without it being granted in lieu of, or in exchange for, other compensation, then the required period of service for full vesting shall not be less than three (3) years unless the applicable Award is granted in substitution for stock or stock-based awards held by an employee of another corporation who concurrently becomes an employee of the Company or an Affiliate as the result of a merger or consolidation of the employing corporation with the Company or an Affiliate or the acquisition by the Company or an Affiliate of property or stock of the employing corporation (subject to acceleration of vesting, to the extent permitted by the Committee, in the event of death, disability, retirement, or involuntary termination or due to a Change in Control); provided, further, that the required period of service for full vesting with respect to stock awards granted to Directors shall not be less than one (1) year (subject to acceleration in such similar events as may be applied to employees).  The Administrator may, in its sole discretion and to the extent permitted by applicable tax and securities laws and regulations, accelerate the date on which the risks of forfeiture shall lapse or vesting conditions shall vest, but only with respect to those shares of Stock that are restricted as of the effective date of the acceleration.

 

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(c)                                  Issuance of Shares; Rights as Stockholder.

 

(i)                                     With respect to a Restricted Stock Award, the Company shall cause to be issued a stock certificate representing such shares of Stock in the Participant’s name, and shall deliver such certificate to the Participant; provided, however, that the Company shall place a legend on such certificate describing the risks of forfeiture and other transfer restrictions set forth in the Participant’s Restricted Stock Agreement and providing for the cancellation and return of such certificate if the shares of Stock subject to the Restricted Stock Award are forfeited.  Until the risks of forfeiture have lapsed or the shares subject to such Restricted Stock Award have been forfeited, the Participant shall be entitled to vote the shares of Stock represented by such stock certificate and shall receive all dividends attributable to such shares, but the Participant shall not have any other rights as a stockholder with respect to such shares.

 

(ii)                                  With respect to a Restricted Stock Unit Award, as the vesting conditions on the Restricted Stock Units are satisfied, the Administrator shall cause to be issued one (1) or more stock certificates in the Participant’s name and shall deliver such certificates to the Participant in satisfaction of such Restricted Stock Units.  A Participant (or the Participant’s successor or successors) shall have no rights as a stockholder with respect to any shares covered by a Restricted Stock Unit Award until the date the Participant is recorded on the stock transfer books of the Company as the owner of the Stock.  No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such transfer is actually recorded (except as otherwise provided in Section 14 hereof).

 

(d)                                 Withholding Taxes.  The Company or its Affiliate shall be entitled to withhold and deduct from future wages of the Participant all legally required amounts necessary to satisfy any and all withholding and employment-related taxes attributable to the Participant’s Restricted Stock Award or Restricted Stock Unit Award.  In the event the Participant is required under the Restricted Stock Agreement or Restricted Stock Unit Agreement to pay the Company or its Affiliate, or make arrangements satisfactory to the Company or its Affiliate respecting payment of, such withholding or employment-related taxes, the Administrator may, in its discretion and pursuant to such rules as it may adopt, permit the Participant to satisfy such obligations, in whole or in part, by delivering shares of Common Stock (by actual delivery or via attestation), including shares of Stock received pursuant to the Restricted Stock Award or Restricted Stock Unit Award on which the risks of forfeiture have lapsed.  Such shares shall have a Fair Market Value equal to the minimum required tax withholding, based on the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to the supplemental income resulting from the lapsing of the risks of forfeiture on such Restricted Stock or Restricted Stock Unit.  In no event may the Participant deliver shares having a Fair Market Value in excess of such statutory minimum required tax withholding.  The Participant’s election to deliver shares of Common Stock for this purpose shall be made on or before the date that the amount of tax to be withheld is determined under applicable tax law.  Such election shall be approved by the Administrator and otherwise comply with such rules as the Administrator may adopt to assure compliance with Rule 16b-3, if applicable.

 

(e)                                  Nontransferability.  No Restricted Stock Award or Restricted Stock Unit Award shall be transferable, in whole or in part, by the Participant, other than by will or by the laws of descent and distribution, prior to the date the risks of forfeiture described in the Restricted Stock Agreement or Restricted Stock Unit Agreement have lapsed.  If the Participant shall attempt any transfer of any

 

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Restricted Stock Award or Restricted Stock Unit Award prior to such date, such transfer shall be void and the Restricted Stock Award or Restricted Stock Unit Award shall terminate.

 

(f)                                    Other Provisions.  The Restricted Stock Agreement or Restricted Stock Unit Agreement authorized under this Section 11 shall contain such other provisions as the Administrator shall deem advisable.

 

SECTION 12
 PERFORMANCE AWARDS

 

Each Performance Award shall be evidenced by a written performance award agreement (the “Performance Award Agreement”).  The Performance Award Agreement shall be in such form as may be approved from time to time by the Administrator and may vary from Participant to Participant; provided, however, that each Participant and each Performance Award Agreement shall comply with and be subject to the following terms and conditions:

 

(a)                                  Awards.  Performance Awards in the form of Performance Units or Performance Shares may be granted to any Participant in the Plan.  Performance Units shall consist of monetary awards that may be earned or become vested in whole or in part if the Company or the Participant achieves certain Performance Objectives established by the Administrator over a specified Performance Period.  Performance Shares shall consist of shares of Stock or other Awards denominated in shares of Stock that may be earned or become vested in whole or in part if the Company or the Participant achieves certain Performance Objectives established by the Administrator over a specified Performance Period.

 

(b)                                 Performance Objectives, Performance Period and Payment.  The Performance Award Agreement shall set forth:

 

(i)                                     the number of Performance Units or Performance Shares subject to the Performance Award, and the dollar value of each Performance Unit;

 

(ii)                                  one (1) or more Performance Objectives established by the Administrator;

 

(iii)                               the Performance Period over which Performance Units or Performance Shares may be earned or may become vested;

 

(iv)                              the extent to which partial achievement of the Performance Objectives may result in a payment or vesting of the Performance Award, as determined by the Administrator; and

 

(v)                                 the date upon which payment of Performance Units will be made or Performance Shares will be issued, as the case may be, and the extent to which such payment or the receipt of such Performance Shares may be deferred.

 

(c)                                  Withholding Taxes.  The Company or its Affiliates shall be entitled to withhold and deduct from future wages of the Participant all legally required amounts necessary to satisfy any and all withholding and employment-related taxes attributable to the Participant’s Performance Award.  In the event the Participant is required under the Performance Award Agreement to pay the Company or its Affiliates, or make arrangements satisfactory to the Company or its Affiliates respecting payment of, such withholding or employment-related taxes, the Administrator may, in its discretion and pursuant to such rules as it may adopt, require the Participant to satisfy such obligations, in whole or in part, by delivering shares of Common Stock (by actual delivery or via attestation) or by electing to have the Company withhold shares of Common Stock otherwise issuable to the Participant as a result of the grant of

 

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Performance Shares.  Such shares shall have a Fair Market Value equal to the minimum required tax withholding, based on the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes.  In no event may the Participant deliver shares having a Fair Market Value in excess of such statutory minimum required tax withholding.  The Participant’s election to deliver shares or to have shares withheld for this purpose shall be made on or before the date that the amount of tax to be withheld is determined under applicable tax law.  Such election shall be approved by the Administrator and otherwise comply with such rules as the Administrator may adopt to assure compliance with Rule 16b-3, if applicable.

 

(d)           Nontransferability.  No Performance Award shall be transferable, in whole or in part, by the Participant, other than by will or by the laws of descent and distribution.  If the Participant shall attempt any transfer of any Performance Award, such transfer shall be void and the Performance Award shall terminate.

 

(e)           No Rights as Stockholder.  A Participant (or the Participant’s successor or successors) shall have no rights as a stockholder with respect to any shares covered by a Performance Award until the date Participant is recorded on the stock transfer books of the Company as the owners of the shares.  No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such transfer is actually recorded (except as otherwise provided in Section 14 hereof).

 

(f)            Other Provisions.  The Performance Award Agreement authorized under this Section 12 shall contain such other provisions as the Administrator shall deem advisable.

 

SECTION 13

STOCK APPRECIATION RIGHTS

 

Each Stock Appreciation Right shall be evidenced by a written stock appreciation right agreement (the “Stock Appreciation Right Agreement”).  The Stock Appreciation Right Agreement shall be in such form as may be approved from time to time by the Administrator and may vary from Participant to Participant; provided, however, that each Participant and each Stock Appreciation Right Agreement shall comply with and be subject to the following terms and conditions:

 

(a)           Awards.  A Stock Appreciation Right shall entitle the Participant to receive, upon exercise, cash in an amount equal to the excess of (i) the Fair Market Value of a specified number of shares of Stock on the date of such exercise, over (ii) a specified exercise price.  Unless otherwise determined by the Administrator, the specified exercise price shall not be less than 100% of the Fair Market Value of such shares of Stock on the date of grant of the Stock Appreciation Right.  A Stock Appreciation Right may be granted independent of or in tandem with a previously or contemporaneously granted Option.

 

(b)           Term and Exercisability.  The term during which any Stock Appreciation Right may be exercised shall be established in each case by the Administrator; provided, however, that in no event shall any Stock Appreciation Right be exercisable during a term of more than ten (10) years after the date on which it is granted.  The Stock Appreciation Right Agreement shall state when the Stock Appreciation Right becomes exercisable and shall also state the maximum term during which such Stock Appreciation Right may be exercised.  In the event a Stock Appreciation Right is exercisable immediately, the manner of exercise of such Stock Appreciation Right in the event it is not exercised in full immediately shall be specified in the Stock Appreciation Right Agreement.  The Administrator may accelerate the exercisability of any Stock Appreciation Right granted hereunder that is not immediately exercisable as of the date of grant.

 

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(c)           Withholding Taxes.  The Company or its Affiliate shall be entitled to withhold and deduct from future wages of the Participant all legally required amounts necessary to satisfy any and all withholding and employment-related taxes attributable to the Participant’s Stock Appreciation Right.  In the event the Participant is required under the Stock Appreciation Right to pay the Company or its Affiliate, or make arrangements satisfactory to the Company or its Affiliate respecting payment of, such withholding or employment-related taxes, the Administrator may, in its discretion and pursuant to such rules as it may adopt, permit the Participant to satisfy such obligations, in whole or in part, by delivering shares of Common Stock or by electing to have the Company withhold Common Stock issuable to Participant as a result of the exercise of the Stock Appreciation Right.  Such shares shall have a Fair Market Value equal to the minimum required tax withholding, based on the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes.  In no event may the Participant deliver shares having a Fair Market Value in excess of such statutory minimum required tax withholding.  The Participant’s election to deliver shares of Common Stock for this purpose shall be made on or before the date that the amount of tax to be withheld is determined under applicable tax law.  Such election shall be approved by the Administrator and otherwise comply with such rules as the Administrator may adopt to assure compliance with Rule 16b-3, if applicable.

 

(d)           Nontransferability.  No Stock Appreciation Right shall be transferable, in whole or in part, by the Participant, other than by will or by the laws of descent and distribution.  If the Participant shall attempt any transfer of any Stock Appreciation Right, such transfer shall be void and the Stock Appreciation Right shall terminate.

 

(e)           No Rights as Stockholder.  A Participant (or the Participant’s successor or successors) shall have no rights as a stockholder with respect to any shares covered by a Stock Appreciation Right until the date of the issuance of a stock certificate evidencing such shares.  No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such stock certificate is actually issued (except as otherwise provided in Section 14 hereof).

 

(f)            Other Provisions.  The Stock Appreciation Right Agreement authorized under this Section 13 shall contain such other provisions as the Administrator shall deem advisable, including but not limited to any restrictions on the exercise of the Stock Appreciation Right that may be necessary to comply with Rule 16b-3.

 

SECTION 14

RECAPITALIZATION, SALE, MERGER, EXCHANGE OR LIQUIDATION

 

In the event of an increase or decrease in the number of shares of Common Stock resulting from a stock dividend, stock split, reverse split, combination or reclassification of Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company, the Administrator shall adjust the number of shares of Stock reserved under Section 6 hereof, the number of shares of Stock covered by each outstanding Award, and, if applicable, the price per share thereof to reflect such change.  Additional shares that may become covered by the Award pursuant to such adjustment shall be subject to the same restrictions as are applicable to the shares with respect to which the adjustment relates.

 

Unless otherwise provided in the agreement evidencing an Award, in the event of an acquisition of the Company through: the sale of substantially all of the Company’s assets and the consequent discontinuance of its business; an acquisition of fifty percent (50%) or more of the total combined voting power of all classes of securities of the Company; or a merger, consolidation, exchange, reorganization, reclassification, extraordinary dividend, divestiture (including a spin-off), liquidation, recapitalization,

 

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stock split, stock dividend or otherwise (collectively referred to as a “Transaction”), the Administrator may provide for one (1) or more of the following:

 

(a)           the equitable acceleration of the exercisability of any outstanding Options or Stock Appreciation Rights, the vesting and payment of any Performance Awards, or the lapsing of the risks of forfeiture on any Restricted Stock Awards or Restricted Stock Unit Awards;

 

(b)           the complete termination of the Plan, the cancellation of outstanding Options or Stock Appreciation Rights not exercised prior to a date specified by the Board (which date shall give Participants a reasonable period of time in which to exercise such Option or Stock Appreciation Right prior to the effectiveness of such Transaction), the cancellation of any Performance Award and the cancellation of any Restricted Stock Awards or Restricted Stock Unit Awards for which the risks of forfeiture have not lapsed;

 

(c)           that Participants holding outstanding Options and Stock Appreciation Rights shall receive, with respect to each share of Stock subject to such Option or Stock Appreciation Right, as of the effective date of any such Transaction, cash in an amount equal to the excess of the Fair Market Value of such Stock on the date immediately preceding the effective date of such Transaction over the price per share of such Options or Stock Appreciation Rights; provided that the Board may, in lieu of such cash payment, distribute to such Participants shares of Common Stock or shares of stock of any corporation succeeding the Company by reason of such Transaction, such shares having a value equal to the cash payment herein;

 

(d)           that Participants holding outstanding Restricted Stock Awards, Restricted Stock Unit Awards and Performance Share Awards shall receive, with respect to each share of Stock subject to such Awards, as of the effective date of any such Transaction, cash in an amount equal to the Fair Market Value of such Stock on the date immediately preceding the effective date of such Transaction; provided that the Board may, in lieu of such cash payment, distribute to such Participants shares of Common Stock or shares of stock of any corporation succeeding the Company by reason of such Transaction, such shares having a value equal to the cash payment herein;

 

(e)           the continuance of the Plan with respect to the exercise of Options or Stock Appreciation Rights that were outstanding as of the date of adoption by the Board of such plan for such Transaction and the right to exercise such Options and Stock Appreciation Rights as to an equivalent number of shares of stock of the corporation succeeding the Company by reason of such Transaction;

 

(f)            the continuance of the Plan with respect to Restricted Stock Awards and Restricted Stock Unit Awards for which the risks of forfeiture have not lapsed as of the date of adoption by the Board of such plan for such Transaction and the right to receive an equivalent number of shares of stock of the corporation succeeding the Company by reason of such Transaction; and

 

(g)           the continuance of the Plan with respect to Performance Awards and, to the extent applicable, the right to receive an equivalent number of shares of stock of the corporation succeeding the Company by reason for such Transaction.

 

The Administrator may condition any acceleration of exercisability or other right to which the Participant is not entitled upon any additional agreements from the Participant, including but not limited to the Participant agreeing to additional restrictive covenants (e.g., confidentiality, non-competition, non-solicitation, non-circumvention, etc.) and the Participant agreeing to continue to perform services for the Company, a successor or purchaser of all or any portion of the Company’s business or related assets for substantially the same base salary for a period of up to six (6) months.

 

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The Administrator may restrict the rights of or the applicability of this Section 14 to the extent necessary to comply with Section 16(b) of the Exchange Act, the Code or any other applicable law or regulation.  The grant of an Award shall not limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

 

SECTION 15

INVESTMENT PURPOSE

 

No shares of Stock shall be issued pursuant to the Plan unless and until there has been compliance, in the opinion of Company’s counsel, with all applicable legal requirements, including but not limited to those relating to securities laws and stock exchange listing requirements.  As a condition to the issuance of Stock to the Participant, the Administrator may require the Participant to (i) represent that the shares of Stock are being acquired for investment and not resale and to make such other representations as the Administrator shall deem necessary or appropriate to qualify the issuance of the shares as exempt from the Securities Act and any other applicable securities laws, and (ii) represent that the Participant shall not dispose of the shares of Stock in violation of the Securities Act or any other applicable securities laws.

 

The Participant’s acceptance of an Option constitutes acknowledgment of and consent to the following, without further consideration or action:

 

(a)           In the event the Company advises the Participant that it plans an underwritten public offering of its Common Stock in compliance with the Securities Act, and the underwriter(s) seek to impose restrictions under which certain stockholders may not sell or contract to sell or grant any option to buy or otherwise dispose of part or all of their stock purchase rights of the Common Stock underlying Awards, the Participant shall not, for a period not to exceed one hundred eighty (180) days from the prospectus, sell or contract to sell or grant an option to buy or otherwise dispose of any Option granted to the Participant or any of the underlying shares of Common Stock without the prior written consent of the underwriter(s) or its representative(s).

 

(b)           In the event the Company makes any public offering of its securities and determines in its sole discretion that it is necessary to reduce the number of issued but unexercised stock purchase rights so as to comply with any state’s securities or Blue Sky law limitations with respect thereto, the Board shall have the right (i) to accelerate the exercisability of any Option and the date on which such Option must be exercised, provided that the Company gives the Participant prior written notice of such acceleration, and (ii) to cancel any Options or portions thereof which the Participant does not exercise prior to or contemporaneously with such public offering.

 

(c)           In the event of a Transaction, the Participant shall comply with Rule 145 of the Securities Act and any other restrictions imposed under other applicable legal or accounting principles if the Participant is an “affiliate” (as defined in such applicable legal and accounting principles) at the time of the Transaction, and the Participant shall execute any documents necessary to ensure compliance with such rules.

 

The Company reserves the right to place a legend on any stock certificate issued in connection with an Award to assure compliance with this Section 15.

 

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SECTION 16

AMENDMENT OF THE PLAN

 

The Administrator may from time to time, insofar as permitted by law, suspend or discontinue the Plan or revise or amend it in any respect; provided, however, that no such revision or amendment, except as is authorized in Section 14 hereof, shall impair the terms and conditions of any Award that is outstanding on the date of such revision or amendment to the material detriment of the Participant without the consent of the Participant.  Notwithstanding the foregoing, no such revision or amendment shall (i) materially increase the number of shares subject to the Plan except as provided in Section 14 hereof, (ii) change the designation of the class of employees eligible to receive Awards, (iii) decrease the price at which Options may be granted, or (iv) materially increase the benefits accruing to Participants without the approval of the stockholders of the Company if such approval is required for compliance with the requirements of any applicable law or regulation.  Furthermore, the Plan may not, without the approval of the stockholders, be amended in any manner that will cause incentive stock options to fail to meet the requirements of Code Section 422.

 

SECTION 17

NO OBLIGATION TO EXERCISE OPTION

 

The granting of an Option shall impose no obligation upon the Participant to exercise such Option.

 

SECTION 18

NO CONTRACTUAL RIGHT TO EMPLOYMENT OR FUTURE AWARDS

 

The Plan does not constitute a contract of employment, and selection as a Participant shall not give any participating employee the right to be retained in the employ of the Company or any Affiliate or any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan.  No individual shall have the right to be selected to receive an Award, or, having been so selected, to receive a future Award.

 

SECTION 19

SECTION 409A

 

(a)           It is the intention of the Company that the Plan and all Awards comply with or are exempt from the requirements of Code Section 409A and the Plan shall be administered and interpreted in accordance with such intent.  The Company does not guarantee that the Awards, payments or benefits that may be made or provided under the Plan will satisfy all applicable provisions of Code Section 409A or any other section of the Code.  Payments made to a Participant in error shall be returned to the Company and shall not create a legally binding right to such payments.

 

(b)           If any Award would be considered Deferred Compensation, the Administrator reserves the absolute right to unilaterally amend the Plan or the Award, without the consent of the Participant, to avoid the application of, or to maintain compliance with, Code Section 409A.  Any amendment by the Administrator to the Plan or an Award pursuant to this Section 19(b) shall maintain, to the extent practicable, the original intent of the applicable provision without violating Code Section 409A.  A Participant’s acceptance of an Award constitutes acknowledgement of and consent to such rights of the Administrator, without further consideration or action.

 

(c)           In the event that an Award constitutes Deferred Compensation, and the settlement of, or distribution of benefits under such Award is to be triggered by a Transaction, then such settlement or

 

15

 

distribution shall be subject to the event constituting the Transaction also constituting a “change in the ownership” or “change in the effective control” of the Company, as permitted under Code Section 409A.

 

SECTION 20

CLAWBACK POLICY

 

Any Award, amount or benefit received under the Plan shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of any applicable Company clawback policy, as it may be amended from time to time (the “Policy”) or any applicable law.  A Participant’s receipt of an Award constitutes the Participant’s acknowledgment of and consent to the Company’s application, implementation and enforcement of (i) the Policy or any similar policy established by the Company that may apply to the Participant and (ii) any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation, as well as the Participant’s express agreement that the Company may take such actions as are necessary to effectuate the Policy, any similar policy (as applicable to the Participant) or applicable law without further consideration or action.

 

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