Document:

exh_101.htm

Exhibit 10.1

 

Sterling Construction Company, Inc.

Thomas R. Wright Employment Agreement

	 

 

This Employment Agreement (this "Agreement") is made to be effective as of September 25, 2013 (the "Effective Date") by and between you, Thomas R. Wright, and Sterling Construction Company, Inc. (hereinafter referred to as the "Company.")

 

Background

 

The Company has conducted a search for a Chief Financial Officer and as a result thereof has made an offer of employment to you.  Because you wish to accept the Company's offer, this Agreement is designed to set forth the terms and conditions on which you will serve as an employee of the Company.

 

Therefore, for and in consideration of the foregoing recitals, the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed as follows:

 

	
1. 

	
Term.

 

	
1.1.  

	
The initial term of this Agreement will for one year commencing on the Effective Date and expiring at 5:00 p.m. Central Time on the day immediately preceding the first anniversary of the Effective Date.  This agreement shall thereafter be automatically renewed without any act by either party for additional, similar one-year terms unless the Company shall give you a written notice of non-renewal at least sixty days prior to the expiration of the then current term.

 

	
1.2.  

	
This Agreement shall terminate prior to the expiration of the initial or any renewal term in the event that your employment is terminated by the Company pursuant to Section 8, below, or by you pursuant to Section 9, below.

 

	
2. 

	
Title, Reporting Relationship, Responsibilities & Place of Employment. Your title, position, reporting relationship, duties and responsibilities, and place of employment so long as you are an employee of the Company under this Agreement are all set forth on Exhibit A.  You shall devote your full working time to diligently carrying out those duties and responsibilities to the best of your abilities.

 

	
3. 

	
Compensation & Benefits.  So long as you are an employee of the Company under this Agreement —

 

	
3.1. 

	
Salary.  You shall be paid the salary set forth on Exhibit A.

 

	
3.2. 

	
Incentive Compensation.  You shall be eligible to participate in the annual incentive program that is made available to Sterling’s senior management team.  Your Target Incentive Amount as that term is defined in the 2013 Incentive Compensation Plan and in subsequent incentive plans (each an “Incentive Plan”) will be 120% of your base salary. Your incentive compensation for 2013 will be based on the Incentive Plan for 2013, but will be prorated based on the period during 2013 that you are employed by the Company, and on financial and personal goals to be worked out with Sterling’s Chief Executive Officer and the Audit Committee of the Board of Directors of the Company.  A copy of the 2013 Incentive Compensation Plan has been given to you.

 

	
3.3. 

	
Benefits.  You shall be entitled to the same health, life insurance, disability and other like benefits as are made available to the Company's senior managers generally, and on the same terms and conditions, however you will be eligible to enroll in the Company’s medical plan upon the Effective Date.  You shall be entitled to the paid vacation time set forth on Exhibit A.

 

	
3.4. 

	
Relocation. You will be provided with a relocation package to cover the reasonable costs of moving you, your family and your household furnishings from Toronto, Ontario to the

 

  

  

  

 

	 	
Houston, Texas area in accordance with the Company’s relocation policy. A copy of that policy has been given to you.

 

	
3.5. 

	
Special Stock Award. Within thirty days of the Effective Date, the Company will request the Compensation Committee of the Company's Board of Directors to award you ten thousand shares of the Company’s common stock.  The sale and transfer or other disposition of the shares will be restricted pursuant to the terms and conditions of the Company’s standard form of three-year Restricted Stock Agreement.  The restrictions will lapse in three substantially equal annual installments on the first three anniversaries of the Effective Date.

 

	
3.6. 

	
Signing Bonus. Within thirty days of the Effective Date, the Company will pay you in cash $100,000 to reflect the loss of your 2013 incentive compensation at your prior employer.

 

	
4. 

	
Business Expense Reimbursement.  You shall be reimbursed in accordance with the Company's business expense reimbursement policy from time to time in effect for all reasonable business expenses incurred by you in the performance of your duties and responsibilities.

 

	
5. 

	
Indemnification.

 

	
5.1.  

	
You will be indemnified by the Company with respect to claims made against you as a director, officer and/or employee of the Company and of any affiliate of the Company (as defined in Section 16.3.3, below) to the fullest extent permitted by the Company's charter and by-laws, and by the laws of the State of Delaware.

 

	
5.2.  

	
So long as the directors of the Company are themselves covered by a directors and officers liability insurance policy, the Company will ensure that you in your capacity as an officer of the Company are similarly covered at no cost to you.

 

	
6. 

	
Confidential Information.

 

	
6.1.  

	
During your employment by the Company and thereafter, you shall not disclose to any person or entity Confidential Information (as defined below) except in the proper performance of your duties and responsibilities under this Agreement, or except as may be expressly authorized by the Board of Directors of the Company.

 

	
6.2.  

	
For purposes of this Agreement, "Confidential Information" is defined as any information of the Company or its affiliates that derives independent economic value from not being generally known or readily ascertainable by proper means, and includes, but is not limited to trade secrets, customer names and lists, vendor names and lists, employee names, titles and lists, business plans, marketing plans, non-public financial data, product specifications as well as designs, inventions, discoveries, processes, drawings, documents, records, software, and also includes any information of a third party that is held by the Company and/or its affiliates under an obligation of confidentiality.

 

	
7. 

	
Non-Compete Obligations.  For purposes of this Section 7 only, the term "the Company" shall include the Company's affiliates.  Your obligations with respect to competing with the Company and soliciting the Company's employees and customers (together the "Non-Compete Obligations") shall be as follows:

 

	
7.1.  

	
You shall not render services or advice, whether for compensation or without compensation, and whether as an employee, officer, director, principal, consultant or otherwise, to any person or organization with respect to any product or service that is competitive with a product or service of the Company with which during your employment by the Company you were actively engaged, or of which you had detailed knowledge; or with any planned business in which you had an active part in the planning or of which you had detailed knowledge.

 

	
7.2.  

	
You shall not either directly or indirectly as agent or otherwise in any manner solicit, influence or encourage any customer of the Company to take away or to divert or direct its

 

	

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business to yourself or to any person or entity by or with which you are employed, associated, affiliated or otherwise related (other than the Company.)

 

	
7.3.  

	
You shall not recruit or otherwise solicit or induce any employee of the Company to terminate his or her employment, or otherwise cease his or her relationship with the Company.

 

	
7.4.  

	
The Non-Compete Obligations shall continue so long as you are an employee of the Company.  After your employment terminates for any reason, the Non-Compete Obligations —

 

	
7.4.1.  

	
Shall continue for a period of twelve months or for the period, if any, with respect to which the Company is obligated to pay you your salary (whether or not payment is in a lump sum) whichever period is longer; and

 

	
7.4.2.  

	
Shall apply in Texas and in any other state in which the Company received more than 10% of its annual revenues in the calendar year immediately preceding the calendar year in which your employment terminated.

 

	
8. 

	
Termination by the Company.  Prior to the expiration of this Agreement, the Company may terminate your employment only pursuant to the following terms and on the following conditions:

 

	
8.1. 

	
Termination Without Cause.  The Company may terminate your employment Without Cause (as defined below) by giving you ninety days' prior written notice thereof, in which event —

 

	
8.1.1.  

	
The Company shall pay you in a lump sum your salary at the rate then in effect for a period of twelve full calendar months (the "Severance Amount;") and

 

	
8.1.2.  

	
Subject to the terms and conditions set forth in the Incentive Plan then in effect, the Company shall pay you the incentive compensation that you would have earned had you remained an employee of the Company through the end of the calendar year in which your employment terminated and on the assumption that you satisfactorily completed all of your personal goals for such year.  In addition, notwithstanding any of the provisions of the Incentive Plan then in effect to the contrary, any incentive compensation that would otherwise be payable in shares of common stock of the Company shall be paid in cash.  For the avoidance of doubt, no incentive compensation would be paid to you for any year subsequent to the year in which your employment terminated.

 

	
8.1.3.  

	
For the period with respect to which the Company is required to pay the Severance Amount, the Company shall continue to cover you under the medical and dental plans sponsored by the Company for its employees with the same coverage you had immediately prior to the termination of your employment, provided that you remit to the Company on a timely basis an amount equal to the applicable monthly COBRA premium (less the COBRA administrative surcharge) for such continued coverage; and the Company shall reimburse you for any medical premium expenses incurred by you hereunder within thirty days after the date of your payment thereof.  To the extent that any medical or dental expense or in-kind benefits provided for under this Section 8.1.3 are taxable to you in a given year, any such expense shall be your sole resposibility.

 

	
8.1.4.  

	
Definition of "Without Cause".  Your employment shall be deemed to have been terminated by the Company Without Cause unless termination is for one of the following reasons:

 

	
(a)  

	
Termination by reason of your becoming Permanently Disabled pursuant to Section 8.2, below;

 

	
(b)  

	
Termination by reason of your death pursuant to Section 8.3, below;

 

	

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(c)  

	
Termination for Cause pursuant to Section 8.4, below; or

 

	
(d)  

	
Termination by you pursuant to Section 9.1 (Voluntary Resignation), below.

 

	
8.2. 

	
Termination for Permanent Disability.  The Company may terminate your employment if you become Permanently Disabled (as defined below) in which event —

 

	
8.2.1.  

	
The Company shall pay you your salary then in effect through the date of termination of employment to the extent not already paid; and

 

	
8.2.2.  

	
Subject to the terms and conditions of the Incentive Plan then in effect, the Company shall pay you a pro-rated amount of the incentive compensation that you would have earned had you remained an employee of the Company through the end of the calendar year in which your employment terminated and on the assumption that you satisfactorily completed all of your personal goals for such year, such pro-ration to be based on the number of days during such year that you were an employee of the Company.  In addition, notwithstanding any of the provisions of the Incentive Plan then in effect to the contrary, any of such incentive compensation that would otherwise be payable in shares of common stock of the Company shall be paid in cash.  For the avoidance of doubt, no incentive compensation would be paid to you for any year subsequent to the year in which your employment terminated.

 

	
8.2.3.  

	
You shall be considered to have become Permanently Disabled if during any consecutive twelve month period, because of ill health, or physical or mental disability, you shall have been continuously unable to perform your duties and responsibilities under this Agreement, in whole or in substantial part, for one hundred eighty consecutive days.  The phrase "substantial part" means your inability to perform and devote at least eight hours per work day to the performance of your duties and responsibilities.

 

	
8.3. 

	
Upon Your Death.  In the event of your death during the term of this Agreement, your employment shall thereupon terminate and —

 

	
8.3.1.  

	
The Company shall pay your estate your salary then in effect through the date of your death to the extent not already paid; and

 

	
8.3.2.  

	
Subject to the terms and conditions of the Incentive Plan then in effect, the Company shall pay your estate a pro-rated amount of the incentive compensation that you would have earned had you remained an employee of the Company through the end of the calendar year in which your death occurred and on the assumption that you satisfactorily completed all of your personal goals for such year, such pro-ration to be based on the number of days during such year that you were an employee of the Company.  In addition, notwithstanding any of the provisions of the Incentive Plan then in effect to the contrary, any of such incentive compensation that would otherwise be payable in common stock of the Company shall be paid in cash.  For the avoidance of doubt, no incentive compensation would be paid to your estate for any year subsequent to the year in which your employment terminated.

 

	
8.4. 

	
Termination for Cause.  The Company may terminate your employment for Cause (as defined below) by giving you written notice of termination.  In the event of the termination of your employment for Cause, the Company shall pay you any of your accrued but unpaid salary through the date of termination and any other amounts required to be paid by applicable law through that date.  For the avoidance of doubt, no incentive compensation of any kind shall be payable to you that had not already been paid to you on the date your employment is terminated for Cause.

 

	
8.4.1.  

	
Definition of Cause.  For purposes of this Section 8.4.1, "Cause" for termination of your employment shall mean any one or more of the following:

 

	

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(a)  

	
Your intentional  nonperformance or willful misperformance of your duties and/or responsibilities that is not cured within thirty working days after you have been given written notice specifically identifying the reason or reasons why your performance is unsatisfactory.  If the Company believes that a cure of your unsatisfactory performance is practicable or possible, the Company shall also indicate in the notice what you can do to cure such unsatisfactory performance.

 

	
(b)  

	
Your gross neglect of your duties and/or responsibilities, gross negligence in the performance of your duties and/or responsibilities, or your refusal to perform your duties and/or responsibilities.

 

	
(c)  

	
Any act of theft or other dishonesty by you, including, but not limited to any intentional misapplication of the Company's or its affiliates' funds or other property.

 

	
(d)  

	
Your conviction of any criminal activity (other than a traffic violation or a Class C misdemeanor) not described in the immediately preceding Subsection (c), or participation in any activity involving moral turpitude that is or could reasonably be expected to be injurious to the business or reputation of the Company.

 

	
(e)  

	
Your immoderate use of alcohol and/or the use of non-prescribed narcotics that adversely and materially affects the performance of your duties and/or responsibilities.

 

	
(f)  

	
Your material breach of Section 11, below.

 

	
9. 

	
Termination by You.

 

	
9.1. 

	
Voluntary Resignation.  You may resign your employment with the Company on ninety days' prior written notice to the Company (the "90-Day Notice Period.")  Upon receipt of a notice of resignation, the Company (a) may accelerate the effective date of your resignation to any date within the 90-Day Notice Period; and/or (b) may deem your notice of resignation a resignation by you of (x) any one or more of the offices then held by you in the Company; and (y) any one or more of the directorships and offices then held by you in the Company's affiliates, in each case to be effective on any date or dates within the 90-Day Notice Period.

 

	
9.1.1.  

	
In the event you resign your employment, you will be paid your accrued but unpaid salary through the effective date of your resignation.

 

	
9.1.2.  

	
In the event your resignation becomes effective before the end of a calendar year, no incentive compensation of any kind shall be paid to you with respect to such year or any subsequent year.

 

	
9.1.3.  

	
In the event that your resignation becomes effective at or after the end of the calendar year in which you gave notice of your resignation, you shall be entitled to any earned  incentive compensation for such calendar year without regard to your having given a notice of resignation.

 

	
9.1.4.  

	
For the avoidance of doubt, no incentive compensation of any kind shall be payable to you with respect to the calendar year or years following the calendar year in which you give notice of your resignation.

 

	
9.2. 

	
Constructive Termination.  You may terminate your employment if (a) the Company commits a Breach (as defined below) of this Agreement; and (b) you give the Company detailed written notice of the Breach within thirty days after the occurrence thereof; and (c) the Company fails to cure the Breach within thirty days after the receipt of such notice or, if the nature of the Breach is such that it cannot practicably be cured in thirty days, if the 

 

	

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Company shall fail to diligently and in good faith commence a cure of the Breach within such thirty-day period.

 

	
9.2.1.  

	
In the event of your termination of your employment by reason of a Breach by the Company, the termination shall be deemed for purposes of this Agreement to be a termination by the Company Without Cause, and the Company shall be required to perform all of its obligations described in Section 8.1.1 through Section 8.1.4, above.

 

	
9.2.2.  

	
For purposes of this Section 9.2, "Breach" shall mean a material breach by the Company of any one or more of the material terms or conditions of this Agreement.  For the avoidance of doubt, it shall not be a Breach of this Agreement if all or substantially all of the Company's assets or outstanding shares of capital stock are acquired by a third party and after such acquisition, you retain substantially the same duties, responsibilities and compensation that you had prior to such event, notwithstanding that the Company's common stock is no longer publicly traded or that the Company becomes a subsidiary or division of another entity.

 

	
10. 

	
Change of Control.  In the event of a change of control of the Company, you will be entitled, under certain circumstances, to additional severance compensation according to the terms and conditions of Exhibit B.

 

	
11. 

	
Company Policies.  In addition to the terms and conditions contained in this Agreement, you shall abide by all of the Company's policies from time to time in effect, including the policies on business conduct and ethics, and its policies on hedging, and on retaining shares of the common stock of the Company.

 

	
12. 

	
Notices.  All notices required or permitted under this Agreement shall be in writing and shall be deemed given by a party when hand delivered to the other party against a receipt therefor, or when deposited with a delivery service that provides next-business-day delivery and proof of delivery, in either case, addressed as follows:

 

	
If to the Company at:

	
With a copy to:

	  	
Sterling Construction Company, Inc.

	  	
Sterling Construction Company, Inc.

	  	
20810 Fernbush Lane

	  	
20810 Fernbush Lane

	  	
Houston, Texas 77073

	  	
Houston, Texas 77073

	  	
Attention: Board of Directors

	  	
Attention:  Chief HR Officer

	  	  	  	  
	  	  	
And a copy to:

	  	  	  	
Roger M. Barzun

	  	  	  	
60 Hubbard Street

	  	  	  	
Concord, Massachusetts 01742

	  	  	  	  
	  	
If to You, at your most recent home

	  	  
	  	
address as shown in the Company's

	  	  
	  	
employment records.

	  	  

 

or to such other persons or addresses as may be designated in writing by the party to receive such notice.

 

	
13. 

	
Severability.  If any provision or part of a provision of this Agreement is finally declared to be invalid by any tribunal of competent jurisdiction, such part shall be deemed automatically adjusted, if possible, to conform to the requirements for validity, but, if such adjustment is not possible, it shall be deemed deleted from this Agreement as though it had never been included herein.  In either case, the balance of any such provision and of this Agreement shall remain in full force and effect.  Notwithstanding the foregoing, however, no provision shall be deleted if it is clearly apparent under the circumstances that either or both of the parties would not have entered into this Agreement without such provision.

 

	

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14. 

	
Survival.  Notwithstanding the expiration or earlier termination of this Agreement or of your employment for any reason, the following terms shall survive such expiration or termination:

 

	
14.1.  

	
Section 6 (Confidential Information;)

 

	
14.2.  

	
Section 7 (Non-Compete Obligations;)

 

	
14.3.  

	
Any right or obligation that accrued prior to such expiration or termination; and

 

	
14.4.  

	
Any other obligation of a party that by its terms is to be performed or is to have continued effect after expiration or termination.

 

	
15. 

	
Proration.  Any amount payable to you hereunder for a period shorter than the period for which it is provided herein shall be pro-rated on a daily basis using a 365-day year.

 

	
16. 

	
Miscellaneous.

 

	
16.1. 

	
Withholdings.  All compensation of any kind payable under this Agreement shall be subject to all legally-required withholdings and deductions as determined in good faith by the Company.

 

	
16.2. 

	
Entire Agreement.  This Agreement together with the exhibits, policies and any other documents or instruments referred to herein contains the entire understanding of the parties on the subject matter hereof; shall not be amended, except by written agreement of the parties signed by each of them; shall be binding upon, and inure to the benefit of, the parties and their personal representatives, successors and permitted assigns; and shall not be assignable by either party without the prior written consent of the other party, except that the Company may assign this Agreement to any entity acquiring substantially all of the stock, business or assets of the Company, provided that the acquiror assumes in writing all of the Company's obligations hereunder.

 

	
16.3. 

	
Construction.

 

	
16.3.1.  

	
Each party has read and understood this Agreement and each party has had an opportunity to review this Agreement with counsel.  Accordingly, each provision of this Agreement shall be interpreted and enforced without the aid of any canon, custom or rule of law requiring or suggesting construction against the party drafting or causing the drafting of such provision.

 

	
16.3.2.  

	
The words "herein," "hereof," "hereunder," "hereby," "herewith" and words of similar import when used in this Agreement shall be construed to refer to this Agreement as a whole.

 

	
16.3.3.  

	
An "affiliate" of the Company is any entity controlling, controlled by, or under common control with, the Company.

 

	
16.3.4.  

	
The words "include" "includes" "including" and words of similar import shall mean considered as part of a larger group and not limited to any one or more enumerated items.

 

	
16.4. 

	
Prior Dealings etc.  No representation, affirmation of fact, course of prior dealings, promise or condition in connection herewith or usage of trade that is not expressly incorporated herein shall be binding on the parties.

 

	
16.5. 

	
Waiver.  The failure to insist upon strict compliance with any term, covenant or condition contained herein shall not be deemed a waiver of such term, nor shall any waiver or relinquishment of any right at any one or more times be deemed a waiver or relinquishment of such right at any other time or times.  No term or condition hereof shall be waived unless in writing by the party to be bound by such waiver;

 

	
16.6. 

	
Captions.  The captions of the paragraphs herein are for convenience only and shall not be used to construe or interpret this Agreement.

 

	

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16.7. 

	
Counterparts & Execution.  This Agreement may be executed in multiple counterparts, each of which may be considered an original, but all of which together shall constitute but one and the same instrument.  This Agreement when signed by a party may be delivered by facsimile transmission with the same force and effect as if the same were an executed and delivered original, manually-signed counterpart.

 

	
16.8. 

	
No Guarantee of Tax Consequences.  You shall be solely responsible and liable for any taxes (including but not limited to any interest or penalties) as a result of any payments made to you under this Agreement, and the Company makes no commitment or guarantee that any particular federal, state or local tax treatment will apply or be available hereunder.

 

	
17. 

	
Governing Law.  This Agreement shall be governed by, and construed in accordance with, the domestic laws of Texas without giving effect to any choice of law or conflict of law provision or rule (whether of Texas or of any other jurisdiction) that would cause the application hereto of the laws of any jurisdiction other than Texas.

 

	
18. 

	
Compliance with Section 409A of the Code.

 

	
18.1.  

	
To the extent that any payment to you under this Agreement is deemed to be deferred compensation subject to the requirements of Section 409A of the Internal Revenue Code of 1986 (the "Code") this Agreement shall be operated in compliance with the applicable requirements of Section 409A of the Code ("Section 409A") and its corresponding regulations and related guidance with respect to the payment in question.  Notwithstanding anything in this Agreement to the contrary, any payment under this Agreement that is subject to the requirements of Section 409A may only be made in a manner and upon an event permitted by Section 409A.  To the extent that any provision of this Agreement would cause a conflict with the requirements of Section 409A, or would cause the administration of this Agreement to fail to satisfy the requirements of Section 409A, such provision shall be deemed null and void to the extent permitted by applicable law, and the Company may modify this Agreement in such a manner as to comply with such requirements without your consent.

 

	
18.2.  

	
If you are a key employee (as defined in Section 416(i) of the Code (without regard to paragraph 5 thereof)) except to the extent permitted under Section 409A, no benefit or payment that is subject to Section 409A (after taking into account all applicable exceptions to Section 409A, including but not limited to the exceptions for short-term deferrals and for separation pay only upon an involuntary separation from service) shall be made under this Agreement on account of your separation from service (as defined in Section 409A) with the Company until the later of —

 

	
18.2.1.  

	
The date prescribed for payment in this Agreement; and

 

	
18.2.2.  

	
The first day of the seventh calendar month that begins after the date of your separation from service (or, if earlier, the date of your death.)

 

	
18.3.  

	
All payments that were delayed by reason of the application of the date prescribed by Section 18.2.2, above (the "Section 18.2.2 Date") shall be aggregated and paid to you on the Section 18.2.2 Date in a lump sum together with interest computed from the date each such payment would have first been paid to you absent the application of the Section 18.2.2 Date until paid using the Non-LIBOR rate of interest the Company would have paid had it borrowed the amount of the payment under its revolving line of credit.  After the Section 18.2.2 Date, the Company shall pay any other amounts provided for herein to the extent and in the manner provided in this Agreement.

 

	
18.4.  

	
To the extent that any payment to you under this Agreement is payable on account of the termination of your employment with the result that the income tax under Section 409A of the Code would apply or be imposed on such payment, but where such tax would not apply 

 

	

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or be imposed if the meaning of the term "termination" included and met the requirements of a "separation from service" within the meaning of Treas. Reg. §1.409A 1(h), then the term "termination" herein shall mean, but only with respect to the income so affected, an event, circumstance or condition that constitutes both a "termination" as defined in the preceding sentence and a "separation from service" within the meaning of Treas. Reg. §1.409A-1(h).

 

In Witness Whereof, the parties hereto have executed this Agreement as of the Effective Date.

 

	
Sterling Construction Company, Inc.

	  
	 	 
	 	 
	 	 
	
By:

	
/s/ Peter E. MacKenna

	  	
 /s/ Thomas R. Wright

	  	
Peter E. MacKenna

	  	
Thomas R. Wright

	  	
President & Chief Executive Officer

	  

 

 

 

	

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Exhibit A

 

	
Title:

 

	
You shall be elected to the position of Executive Vice President & Chief Financial Officer of the Company.

 

	
Reporting Relationship:

 

	
In carrying out your duties and responsibilities, you shall report to the President & Chief Executive Officer and the Audit Committee of the Board of Directors of the Company.

 

	
Duties & Responsibilities:

 

	
You shall diligently and to the best of your abilities carry out the customary duties and responsibilities of the chief financial officer of a publicly-traded corporation and such other appropriate duties and responsibilities as the President & Chief Executive Officer and the Audit Committee of the Company’s Board of Directors shall assign to you.

 

	
Place of Employment:

 

	
Your place of employment shall be in Harris County or a contiguous county in Texas except for required travel on the Company's business.

 

	
Salary:

 

	
Your annual salary shall be $350,000, which shall be paid to you commencing on the Effective date in installments at the same time and in the same manner as other senior managers of the Company are paid their salaries.  Your salary will be subject to annual reviews to consider whether a merit increase in your salary is appropriate.

 

	
Vacation:

 

	
You shall be entitled to four weeks of paid vacation per year pursuant to the Company's vacation policies.

__________________

 

 

	

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Exhibit B

 

To the Employment Agreement of Thomas R. Wright

(the "Employment Agreement")

 

Change of Control

 

	
1. 

	
Change of Control Severance.  In the event that —

 

	
(a)  

	
Your employment is terminated by the Company Without Cause (as defined in Section 8.1.4 of the Employment Agreement) or by you by reason of a Breach by the Company in accordance with Section 9.2 (Constructive Termination) of the Employment Agreement; and

 

	
(b)  

	
The termination of your employment occurs within a period commencing ninety days prior to the effective date of a Change of Control (as defined below) and ending at 5:00 p.m. Central Time on the last day of the sixth full calendar month following of the effective date of a Change of Control, you shall be entitled to the following:

 

	
(i)  

	
Cash Payment.  A lump sum cash payment of $525,000 less the Severance Amount described in Section 8.1.1 of the Employment Agreement that is paid to you.  For the avoidance of doubt, no payment under this Exhibit B shall be made to you if the Severance Amount paid to you equals or exceeds $525,000.  All amounts payable under this Exhibit B will be paid within sixty days of the effective date of the termination of your employment.

 

	
(ii)  

	
Restricted Stock.  The restrictions on any common stock of the Company awarded to you by the Company that were imposed on such stock by the Company shall expire as of the effective date of the termination of your employment notwithstanding any conflicting or different provision in any agreement pursuant to which such stock was awarded to you, but such expiration shall be subject, nevertheless, to Section 1(c), below, of this Exhibit B.

 

	
(c) 

	
Golden Parachute Adjustment.

 

	
(i)  

	
In the event that the Company (or its successor) determines, based upon the advice of a nationally-recognized accounting firm selected by the Company that is reasonably acceptable to you (the "Tax Consultant") that part or all of the amounts to be paid to you under this Agreement or otherwise, including but not limited to accelerated vesting of any restricted stock you hold, (the "Total Payments") constitute "Parachute Payments" as defined in Section 280G(b) of the Internal Revenue Code (the "Code") then, if the aggregate present value of such Parachute Payments, singularly or together with the aggregate present value of any consideration, compensation, or benefits to be paid to you under any other plan, arrangement, or agreement which constitute "Parachute Payments" (collectively, the "Parachute Amount") exceeds 2.99 times your "base amount" as defined in Section 280G(b)(3) of the Code (the "Base Amount") the amounts constituting Parachute Payments that would otherwise be payable to or for your benefit will be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 times the Base Amount (the "Reduced Amount.")

 

	
(ii)  

	
In making any reduction of the Parachute Amount, the Company shall reduce or eliminate payments first by reducing those payments that are not payable in cash, and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments, if any, that are to be paid the farthest in time from the determination; provided, however, that no Payment that is subject to Section 409A of the Code as nonqualified deferred compensation shall be reduced or eliminated until all Payments that are not subject to Section 409A of the Code have been eliminated, and then all such Payments that are subject to Section 409A of the Code shall not be reduced in reverse order but shall be reduced proportionally.

 

	

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	Page 11 of 14

  

  

  

 

	
(iii)  

	
For the avoidance of doubt, the Tax Consultant shall perform all of the calculations required and described in this Section 1 of Exhibit B; you may require that any such calculations be made upon your written request therefor; and the Company shall bear all of the fees and expenses of the Tax Consultant.

 

	
2. 

	
Definition of a Change of Control.  A Change of Control of the Company shall be deemed to have occurred upon the occurrence of any of the following events:

 

	 	
·

	
A "Change in Ownership;"

 

	 	
·

	
A "Change in Effective Control;" or

 

	 	
·

	
A "Change in Ownership of Assets"

 

as those terms are defined below.

 

	
(a) 

	
A Change in Ownership.

 

	
(i)  

	
A Change in Ownership shall be deemed to occur on the date that any Person or Group (as those terms are defined below) acquires ownership of stock of the Company that, together with stock held by that Person or Group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company.

 

	
(ii)  

	
If any Person or Group is considered to own more than 50% of the total fair market value or total voting power of the stock of the Company, the acquisition of additional stock by the same Person or Group is not considered to cause a Change in Ownership or to cause a Change in Effective Control.

 

	
(iii)  

	
An increase in the percentage of stock owned by any Person or Group as a result of a transaction in which the Company acquires its own stock in exchange for property (but not when the Company acquires its own stock for cash) will be treated as an acquisition of stock for purposes of this Agreement.

 

	
(iv)  

	
This Section 2(a) applies only when there is a transfer of stock of the Company or issuance of stock of the Company, and stock in the Company remains outstanding after the transaction.  Section 2(c), below, describes a change in ownership of assets.

 

	
(b) 

	
A Change in Effective Control.  A Change in Effective Control shall be deemed to occur on the date on which a majority of the Company’s board of directors is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s board of directors before the appointment or election.

 

	
(c) 

	
A Change in Ownership of Assets.

 

	
(i)  

	
A Change in Ownership of Assets shall be deemed to occur on the date that any Person or Group acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such Person or Group) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions.  For purposes of this Section 2(c) —

 

	
(A)  

	
The Company means and includes its consolidated subsidiaries.

 

	
(B)  

	
Gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

 

	
(ii)  

	
There is no change in control event under this Section 2(c) when there is a transfer to an entity that is controlled by the shareholders of the Company immediately after the transfer.

 

	
(iii)  

	
A transfer of assets by the Company is not treated as a change in the ownership of such assets if the assets are transferred to —

 

	

Thomas R. Wright Employment Agreement — continued

	Page 12 of 14

  

  

  

 

	
(A)  

	
A shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock;

 

	
(B)  

	
An entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company;

 

	
(C)  

	
A Person or Group that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company; or

 

	
(D)  

	
An entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a Person or Group described in the immediately preceding Subsection (C).

 

	
(iv)  

	
Except as otherwise provided above in Section 2(c)(iii), a person's status is determined immediately after the transfer of the assets.  For example, a transfer to a corporation in which the Company has no ownership interest before the transaction, but that is a majority-owned subsidiary of the Company after the transaction, is not a Change in Ownership of Assets.

 

	
(d)  

	
"Person." The term Person has the meaning provided in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") as modified in Sections 13(d) and 14(d) of the Exchange Act.

 

	
(e)  

	
"Group."  The term Group has the meaning provided in Section 13(d)(3) or 14(d)(2) of the Exchange Act.  Persons will not be considered to be a Group solely because they purchase or own stock of the same corporation at the same time, or as a result of the same public offering.  Persons will be considered to be a Group if they are owners of an entity that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.  If a Person, including, but not limited to an entity, owns stock in both the Company and another entity that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, that Person is considered to be a Group with other shareholders only with respect to the ownership in the Company before the transaction giving rise to the change and not with respect to the ownership interest in the other entity.

 

	
3. 

	
Section 409A of the Code.

 

	
(a)  

	
Notwithstanding the foregoing, in any circumstance in which the foregoing definition of Change of Control would be operative and with respect to which the income tax under Section 409A of the Code ("Section 409A") would apply or be imposed, but where such tax would not apply or be imposed if the meaning of the term "Change of Control" met the requirements of Section 409A(a)(2)(A)(v) of the Code, then the term "Change of Control" herein shall mean, but only for the transaction so affected, a "change in control event" within the meaning of Treas. Reg. §1.409A–3(i)(5).

 

	
(b)  

	
To the extent that any payment to you under this Agreement is payable on account of the termination of your employment, with the result that the income tax under Section 409A would apply or be imposed on such payment, but where such tax would not apply or be imposed if the meaning of the term "termination" included and met the requirements of a "separation from service" within the meaning of Treas. Reg. §1.409A-1(h), then the term "termination" herein shall mean, but only with respect to the income so affected, an event, circumstance or condition that constitutes both a "termination" as defined in the preceding sentence and a "separation from service" within the meaning of Treas. Reg. §1.409A-1(h).

 

	
(c)  

	
If you are a key employee (as defined in Section 416(i) of the Code (without regard to paragraph 5 thereof)) except to the extent permitted under Section 409A, no benefit or payment that is subject to Section 409A (after taking into account all applicable exceptions to Section 409A, including, but not limited to the exceptions for short-term deferrals and for separation pay only upon an involuntary separation from service) shall be made under this Agreement on account of your separation from service (as defined in Section 409A) with the

 

	

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	Page 13 of 14

  

  

  

 

	 	
Company until the later of (i) the date prescribed for payment in this Agreement; and (ii) the first day of the seventh calendar month that begins after the date of your separation from service (or, if earlier, the date of your death). All payments that are delayed by reason of the application of this section shall be aggregated and paid to you in a lump sum together with interest computed from the date each such payment would have first been paid absent the application of this six-month delay until paid using the Non-LIBOR rate of interest the Company would have paid had it borrowed the amount of the payment under its revolving line of credit. After this date, the Company shall pay any other amounts provided for herein to the extent and in the manner provided in this Agreement.

_____________

 

 

 

 

 

	

Thomas R. Wright Employment Agreement — continued

	Page 14 of 14exh_42.htm

Exhibit 4.2

 

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.  THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.

 

Warrant No. I-1

WARRANT AGREEMENT

To Purchase Shares of the Common Stock of

Cleveland BioLabs, Inc.

Dated as of September 30, 2013 (the “Effective Date”)

WHEREAS, Cleveland BioLabs, Inc., a Delaware corporation (the “Company”), has entered into a Loan and Security Agreement of even date herewith (as amended and in effect from time to time, the “Loan Agreement”) with Hercules Technology II, L.P., a Delaware limited partnership (the “Warrantholder”);

WHEREAS, pursuant to the Loan Agreement and as additional consideration to the Warrantholder for, among other things, its agreements in the Loan Agreement, the Company has agreed to issue to the Warrantholder this Warrant Agreement, evidencing the right to purchase shares of the Company’s Common Stock (this “Warrant” or this “Agreement”);

 

NOW, THEREFORE, in consideration of the Warrantholder having executed and delivered the Loan Agreement and provided the financial accommodations contemplated therein, and in consideration of the mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows:

 

	 	
SECTION 1.

	
GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.

 

(a)           For value received, the Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from the Company, up to such number of shares of Common Stock (as defined below) as determined in Section 1(b) below, at a purchase price per share equal to the Exercise Price (as defined below).  The number and Exercise Price of such shares are subject to adjustment as provided in Section 8.  As used herein, the following terms shall have the following meanings:

 

“Act” means the Securities Act of 1933, as amended.

 

“Charter” means the Company’s Certificate of Incorporation or other constitutional document, as may be amended and in effect from time to time.

 

“Common Stock” means the Company’s common stock, $0.005 par value per share, as presently constituted under the Charter, and any class and/or series of Company capital stock for or into which such common stock may be converted or exchanged in a reorganization, recapitalization or similar transaction.

 

  

 

  

“Effective Price” shall mean the quotient determined by dividing (i) the aggregate gross cash consideration received, or deemed to have been received, by the Company, for the issuance of additional shares of Common Stock by the Company (including, without limitation, shares of Common Stock issuable upon the conversion or exercise of Convertible Securities (as defined below) issued by the Company) for cash for financing purposes in a single transaction or series of related transactions not registered under the Act (including, without limitation, a so-called PIPE transaction) after the Effective Date, by (ii) the total number of such additional shares of Common Stock issued or deemed to be issued in such transaction.  In the event the Company issues any Convertible Securities (as defined below) in such transaction, then the calculation of “Effective Price” shall be adjusted as follows: (a) the amount of cash consideration included in the numerator in clause (i) above shall include the amount determined by multiplying the conversion or exercise price, as applicable, of any shares of Common Stock issuable upon conversion or exercise of any such Convertible Securities (the “Conversion Shares”) by the number of Conversion Shares; and (b) the number of Conversion Shares shall be included in the denominator in clause (ii) above.

“Exercise Price”  means $1.60, subject to adjustment from time to time in accordance with the provisions of this Warrant; provided, that if, at any time and from time to time on or after the Effective Date and prior to the first anniversary thereof, the Company shall sell and issue shares of Common Stock, or securities, instruments or other rights exercisable for, convertible into or otherwise representing the right to acquire shares of Common Stock (collectively, “Convertible Securities”) to one or more investors for cash for financing purposes, in a single transaction or series of related transactions not registered under the Act (including, without limitation, a so-called PIPE transaction), at an Effective Price per share of Common Stock less than the Exercise Price in effect as of immediately prior to the consummation of such sale and issuance, then from and after such consummation, the Exercise Price shall equal such lower Effective Price, subject to adjustment thereafter from time to time in accordance with the provisions of this Warrant.

 

“Liquid Sale” means the closing of a Merger Event in which the consideration received by the Company and/or its stockholders, as applicable, consists solely of cash and/or Marketable Securities.

 

“Marketable Securities” in connection with a Merger Event means securities meeting all of the following requirements: (i) the issuer thereof is then subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is then current in its filing of all required reports and other information under the Act and the Exchange Act; (ii) the class and series of shares or other security of the issuer that would be received by the Warrantholder in connection with the Merger Event were the Warrantholder to exercise this Warrant on or prior to the closing thereof is then traded on a national securities exchange or over-the-counter market, and (iii) the Warrantholder would not be restricted by contract or by applicable federal and state securities laws from publicly re-selling, within six (6) months and one day following the closing of such Merger Event, all of the issuer’s shares and/or other securities that would be received by the Warrantholder in such Merger Event were the Warrantholder to exercise this Warrant in full on or prior to the closing of such Merger Event.

 

“Merger Event” means any of the following: (i) a sale, lease or other transfer of all or substantially all assets of the Company, (ii) any merger or consolidation involving the Company in which the Company is not the surviving entity or in which the outstanding shares of the Company’s capital stock are otherwise converted into or exchanged for shares of capital stock or other securities or property of another entity, or (iii) any sale by holders of the outstanding voting equity securities of the Company in a single transaction or series of related transactions of shares constituting a majority of the outstanding combined voting power of the Company.

 

  

2

  

"Purchase Price" means, with respect to any exercise of this Warrant, an amount equal to the then-effective Exercise Price multiplied by the number of shares of Common Stock as to which this Warrant is then exercised.

 

(b)           Number of Shares. This Warrant shall be exercisable for 156,250 shares of Common Stock, subject to adjustment from time to time in accordance with the provisions of this Warrant.

	 	
SECTION 2.

	
TERM OF THE AGREEMENT.

 

The term of this Agreement and the right to purchase Common Stock as granted herein shall commence on the Effective Date and, subject to Section 8(a) below, shall be exercisable for a period ending the fifth (5th) anniversary of the Effective Date.

 

	 	
SECTION 3.

	
EXERCISE OF THE PURCHASE RIGHTS.

 

(a)           Exercise.  The purchase rights set forth in this Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the “Notice of Exercise”), duly completed and executed.  Promptly upon receipt of the Notice of Exercise and the payment of the Purchase Price in accordance with the terms set forth below, and in no event later than three (3) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Common Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the “Acknowledgment of Exercise”) indicating the number of shares which remain subject to future purchases under this Warrant, if any.

The Purchase Price may be paid at the Warrantholder’s election either (i) by cash or check, or (ii) by surrender of all or a portion of the Warrant  for shares of Common Stock to be exercised under this Agreement and, if applicable, an amended Agreement setting forth the remaining number of shares purchasable hereunder, as determined below (“Net Issuance”).  If the Warrantholder elects the Net Issuance method, the Company will issue shares of Common Stock in accordance with the following formula:

X = Y(A-B)

A

	
Where:

	
X =

	
the number of shares of Common Stock to be issued to the Warrantholder.

 

	
  

	
Y =

	
the number of shares of Common Stock requested to be exercised under this Agreement.

 

	
  

	
A =

	
the then-current fair market value of one (1) share of Common Stock at the time of exercise.

 

  

3

  

B =           the then-effective Exercise Price.

 

For purposes of the above calculation, the current fair market value of shares of Common Stock shall mean with respect to each share of Common Stock:

(i)           at all times when the Common Stock shall be traded on a national securities exchange, inter-dealer quotation system or over-the-counter bulletin board service, the average of the closing prices over a five (5) day period ending three days before the day the current fair market value of the securities is being determined;

(ii)           if the exercise is in connection with a Merger Event, the fair market value of a share of Common Stock shall be deemed to be the per share value received by the holders of the outstanding shares of Common Stock pursuant to such Merger Event as determined in accordance with the definitive transaction documents executed among the parties in connection therewith; or

(iii)           in cases other than as described in the foregoing clauses (i) and (ii), the current fair market value of a share of Common Stock shall be determined in good faith by the Company’s Board of Directors.

Upon partial exercise by either cash or, upon request by the Warrantholder and surrender of all or a portion of this Warrant, Net Issuance, prior to the expiration or earlier termination hereof, the Company shall promptly issue an amended Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof.

(b)           Exercise Prior to Expiration.  To the extent this Warrant is not previously exercised as to all shares subject hereto, and if the then-current fair market value of one share of Common Stock is greater than the Exercise Price then in effect, or, in the case of a Liquid Sale, where the value per share of Common Stock (as determined as of the closing of such Liquid Sale in accordance with the definitive agreements executed by the parties in connection with such Merger Event) to be paid to the holders thereof is greater than the Exercise Price then in effect, this Agreement shall be deemed automatically exercised on a Net Issuance basis pursuant to Section 3(a) (even if not surrendered) as of immediately before its expiration determined in accordance with Section 2.  For purposes of such automatic exercise, the fair market value of one share of Common Stock upon such expiration shall be determined pursuant to Section 3(a).  To the extent this Warrant or any portion hereof is deemed automatically exercised pursuant to this Section 3(b), the Company agrees to promptly notify the Warrantholder of the number of shares of Common Stock if any, the Warrantholder is to receive by reason of such automatic exercise, and to issue a certificate to Warrantholder evidencing such shares.

	 	
SECTION 4.

	
RESERVATION OF SHARES.

 

During the term of this Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights to purchase Common Stock as provided for herein.

 

  

4

  

	 	
SECTION 5.

	
NO FRACTIONAL SHARES OR SCRIP.

 

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Agreement, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.

 

	 	
SECTION 6.

	
NO RIGHTS AS SHAREHOLDER/STOCKHOLDER.

 

Without limitation of any provision hereof, Warrantholder agrees that this Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder/stockholder of the Company prior to the exercise of any of the purchase rights set forth in this Agreement.

 

	 	
SECTION 7.

	
WARRANTHOLDER REGISTRY.

 

The Company shall maintain a registry showing the name and address of the registered holder of this Agreement.  Warrantholder's initial address, for purposes of such registry, is set forth in Section 12(g) below.  Warrantholder may change such address by giving written notice of such changed address to the Company.

 

	 	
SECTION 8.

	
ADJUSTMENT RIGHTS.

 

The Exercise Price and the number of shares of Common Stock purchasable hereunder are subject to adjustment from time to time, as follows:

 

(a)           Merger Event.  In connection with a Merger Event that is a Liquid Sale, this Warrant shall terminate upon the closing of such Liquid Sale.  In connection with a Merger Event that is not a Liquid Sale, the Company shall cause the successor or surviving entity to assume this Warrant and the obligations of the Company hereunder on the closing thereof, and thereafter this Warrant shall be exercisable for the same number and type of securities or other property as the Warrantholder would have received in consideration for the shares of Common Stock issuable hereunder had it exercised the then unexercised portion of this Warrant in full as of immediately prior to such closing, at an aggregate Exercise Price no greater than the aggregate Exercise Price in effect for such unexercised portion as of immediately prior to such closing, and subject to further adjustment from time to time in accordance with the provisions of this Warrant.  Notwithstanding the first sentence of this Section 8(a), in connection with any Liquid Sale and upon Warrantholder’s written election to the Company, the Company shall cause this Warrant to be exchanged, on and as of the closing thereof, without a requirement of formal exercise, for the consideration that Warrantholder would have received (less the Purchase Price) had Warrantholder elected to exercise the then unexercised portion of this Warrant in full as of immediately prior to the closing of such Liquid Sale. The provisions of this Section 8(a) shall similarly apply to successive Merger Events.

 

(b)           Reclassification of Shares.  Except for Merger Events subject to Section 8(a), if the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Agreement exist into the same or a different number of securities of any other class or classes of securities, this Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change. The provisions of this Section 8(b) shall similarly apply to successive combination, reclassification, exchange, subdivision or other change.

 

  

5

  

(c)           Subdivision or Combination of Shares.  If the Company at any time shall combine or subdivide its Common Stock, (i) in the case of a subdivision, the Exercise Price shall be proportionately decreased and the number of shares for which this Warrant is exercisable shall be proportionately increased, or (ii) in the case of a combination, the Exercise Price shall be proportionately increased and the number of shares for which this Warrant is exercisable shall be proportionately decreased.

 

(d)           Stock Dividends.  If the Company at any time while this Agreement is outstanding and unexpired shall:

 

(i)           pay a dividend with respect to the outstanding shares of Common Stock payable in additional shares of Common Stock, then the Exercise Price shall be adjusted, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such dividend or distribution, and the number of shares of Common Stock for which this Warrant is exercisable shall be proportionately increased; or

 

(ii)           make any other dividend or distribution on or with respect to Common Stock, except any dividend or distribution (A) in cash, or (B) specifically provided for in any other clause of this Section 8, then, in each such case, provision shall be made by the Company such that the Warrantholder shall receive upon exercise or conversion of this Warrant a proportionate share of any such distribution as though it were the holder of the Common Stock (or other stock for which the Common Stock is convertible) as of the record date fixed for the determination of the shareholders of the Company entitled to receive such distribution.

 

(e)  Notice of Certain Events.  If: (i) the Company shall declare any dividend or distribution upon its outstanding Common Stock, payable in stock, cash, property or other securities (provided that Warrantholder in its capacity as lender under the Loan Agreement consents to such dividend); (ii) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; or (iv) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall give the Warrantholder notice thereof at the same time and in the same manner as it gives notice thereof to the holders of Common Stock.

	 	
SECTION 9.

	
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

 

(a)      Reservation of Common Stock.  The Company covenants and agrees that all shares of Common Stock, if any, that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and non-assessable. The Company further covenants and agrees that the Company will, at all times during the term hereof, have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant.  If at any time during the term hereof the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant in full, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

 

  

6

  

(b)      Due Authority.  The execution and delivery by the Company of this Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Common Stock, have been duly authorized by all necessary corporate action on the part of the Company.  This Agreement: (1) does not violate the Company's Charter or current bylaws; (2) does not contravene any law or governmental rule, regulation or order applicable to it; and (3) except as could not reasonably be expected to have a Material Adverse Effect (as defined in the Loan Agreement), does not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound.  This Agreement constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors’ rights generally (including, without limitation, fraudulent conveyance laws) and by general principles of equity, regardless of whether considered in a proceeding in equity or at law.

 

(c)      Consents and Approvals.  No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Agreement, except for the filing of notices pursuant to Regulation D under the Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby.

 

(d)      [Intentionally Omitted].

 

(e)      [Intentionally Omitted].

 

(f)       Exempt Transaction.  Subject to the accuracy of the Warrantholder's representations in Section 10, the issuance of the Common Stock upon exercise of this Agreement will constitute a transaction exempt from (i) the registration requirements of Section 5 of the Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws.

 

(g)      Registration Rights.  The Company covenants and agrees with Warrantholder that if the Company, at any time and from time to time on or after the Effective Date and on or before the expiration or earlier termination of this Warrant, proposes to register under the Act any shares of Common Stock held by one or more stockholders of the Company for resale by such stockholders, whether on a Form S-3 registration statement or otherwise, the Company shall give written notice thereof to Warrantholder and permit Warrantholder to include any or all of the shares of Common Stock issuable upon exercise of this Warrant (and any or all shares previously issued to Warrantholder upon any prior exercise(s) hereof) in such registration on a pari passu basis with such other stockholder(s) and on the same terms and conditions applicable to such other stockholder(s).

 

(h)      Information Rights.  At all times (if any) prior to the earlier to occur of (x) the date on which all shares of Common Stock issued on exercise of this Warrant have been sold, or (y) the expiration or earlier termination of this Warrant, when the Company shall not be required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), Warrantholder shall be entitled to the information rights contained in Section 7.1(b) – (f) of the Loan Agreement, and in any such event Section 7.1(b) – (f) of the Loan Agreement is hereby incorporated into this Agreement by this reference as though fully set forth herein, provided, however, that the Company shall not be required to deliver a Compliance Certificate once all Indebtedness (as defined in the Loan Agreement) owed by the Company to Warrantholder has been repaid.

 

  

7

  

(i)      Rule 144 Compliance.  The Company shall, at all times prior to the earlier to occur of (x) the date of sale or other disposition by Warrantholder of this Warrant or all shares of Common Stock issued on exercise of this Warrant, (y) the registration pursuant to subsection (g) above of the shares issued on exercise of this Warrant, or (z) the expiration or earlier termination of this Warrant if the Warrant has not been exercised in full or in part on such date, use all commercially reasonable efforts to timely file all reports required under the 1934 Act and otherwise timely take all actions necessary to permit the Warrantholder to sell or otherwise dispose of this Warrant and the shares of Common Stock issued on exercise hereof pursuant to Rule 144 promulgated under the Act as amended and in effect from time to time, provided that the foregoing shall not apply in the event of a Merger Event following which the successor or surviving entity is not subject to the reporting requirements of the 1934 Act.  If the Warrantholder proposes to sell Common Stock issuable upon the exercise of this Agreement in compliance with Rule 144, then, upon Warrantholder’s written request to the Company, the Company shall furnish to the Warrantholder, within five (5) business days after receipt of such request, a written statement confirming the Company’s compliance with the filing and other requirements of such Rule.

 

	 	
SECTION 10.

	
REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.

 

This Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder:

 

(a)      Investment Purpose.  This Warrant and the shares issued on exercise hereof will be acquired for investment and not with a view to the sale or distribution of any part thereof in violation of applicable federal and state securities laws, and the Warrantholder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption.

 

(b)      Private Issue.  The Warrantholder understands (i) that the Common Stock issuable upon exercise of this Agreement is not, as of the Effective Date, registered under the Act or qualified under applicable state securities laws, and (ii) that the Company's reliance on exemption from such registration is predicated on the representations set forth in this Section 10.

 

(c)      Financial Risk.  The Warrantholder has such knowledge and experi­ence in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.

 

(d)      Accredited Investor.  Warrantholder is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Act, as presently in effect, and Warrantholder is knowledgeable, sophisticated and experienced in making, and is qualified to make decisions with respect to, investments in shares presenting an investment decision like that involved in the purchase of the Common Stock and the Warrant, including investments in securities issued by the Company and investments in comparable companies, and has requested, received, reviewed and considered all information it deemed relevant in making an informed decision to purchase the Warrant.

 

(e)      No Short Sales. Warrantholder has not at any time on or prior to the Effective Date engaged in any short sales or equivalent transactions in the Common Stock. Warrantholder agrees that at all times from and after the Effective Date and on or before the expiration or earlier termination of this Warrant, it shall not engage in any short sales or equivalent transactions in the Common Stock.

 

  

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SECTION 11.

	
TRANSFERS.

 

Subject to compliance with applicable federal and state securities laws, this Agreement and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes) upon surrender of this Agreement properly endorsed.  Each taker and holder of this Agreement, by taking or holding the same, consents and agrees that this Agreement, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Agreement shall have been so endorsed and its transfer recorded on the Company’s books, shall be treated by the Company and all other persons dealing with this Agreement as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Agreement.  The transfer of this Agreement shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer.  Until the Company receives such Transfer Notice, the Company may treat the registered owner hereof as the owner for all purposes.

	 	
SECTION 12.

	
MISCELLANEOUS.

 

(a)      Effective Date.  The provisions of this Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof.  This Agreement shall be binding upon any successors or assigns of the Company.

 

(b)      Remedies.  In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable.

 

(c)      No Impairment of Rights.  The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment.

 

(d)      [Intentionally Omitted]

 

(e)      Attorneys’ Fees.  In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Agreement.  For the purposes of this Section 12(e), attorneys’ fees shall include without limitation fees incurred in connection with the following: (i) contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other activity of any kind in connection with an insolvency proceeding; (iv) garnishment, levy, and debtor and third party examinations; and (v) post-judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment.

 

(f)      Severability.  In the event any one or more of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.

 

  

9

  

(g)      Notices.  Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication that is required, contemplated, or permitted under this Agreement or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (a) personal delivery to the party to be notified, (b) when sent by confirmed telex, electronic transmission or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt, and shall be addressed to the party to be notified as follows:

 

If to Warrantholder:

 

HERCULES TECHNOLOGY II, L.P.

Legal Department

Attention:  Chief Legal Officer and Manuel Henriquez

400 Hamilton Avenue, Suite 310

Palo Alto, CA 94301

Facsimile:  650-473-9194

Telephone:  650-289-3060

If to the Company:

 

CLEVELAND BIOLABS, INC.

Attention: Chief Financial Officer

73 High Street

Buffalo, NY 14203

Facsimile:

Telephone: 716-849-6810

 

or to such other address as each party may designate for itself by like notice.

 

(h)      Entire Agreement; Amendments.  This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, and supersedes and replaces in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof.  None of the terms of this Agreement may be amended except by an instrument executed by each of the parties hereto.

 

(i)      Headings.  The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof.

 

(j)      Advice of Counsel.  Each of the parties represents to each other party hereto that it has discussed (or had an opportunity to discuss) with its counsel this Agreement and, specifically, the provisions of Sections 12(n), 12(o), 12(p), 12(q) and 12(r).

 

(k)      No Strict Construction.  The parties hereto have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

 

  

10

  

(l)        No Waiver.  No omission or delay by Warrantholder at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Warrantholder at any time designated, shall be a waiver of any such right or remedy to which Warrantholder is entitled, nor shall it in any way affect the right of Warrantholder to enforce such provisions thereafter during the term of this Agreement.

 

(m)     Survival.  All agreements, representations and warranties contained in this Agreement or in any document delivered pursuant hereto shall be for the benefit of Warrantholder and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

 

(n)      Governing Law.  This Agreement has been negotiated and delivered to Warrantholder in the State of California, and shall be deemed to have been accepted by Warrantholder in the State of California.  Delivery of Common Stock to Warrantholder by the Company under this Agreement is due in the State of California.  This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

 

(o)      Consent to Jurisdiction and Venue.  All judicial proceedings arising in or under or related to this Agreement may be brought in any state or federal court of competent jurisdiction located in the State of California.  By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in Santa Clara County, State of California; (b) waives any objection as to jurisdiction or venue in Santa Clara County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement.  Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 12(g), and shall be deemed effective and received as set forth in Section 12(g).  Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

 

(p)      Mutual Waiver of Jury Trial.  Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes arising under or in connection with this Warrant be resolved by a judge applying such applicable laws.  EACH OF THE COMPANY AND WARRANTHOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY THE COMPANY AGAINST WARRANTHOLDER OR ITS ASSIGNEE OR BY WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY RELATING TO THIS WARRANT.  This waiver extends to all such Claims, including Claims that involve persons or entities other the Company and Warrantholder; Claims that arise out of or are in any way connected to the relationship between the Company and Warrantholder; and any Claims for damages, breach of contract, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement.

 

(q)      Arbitration.  If the Mutual Waiver of Jury Trial set forth in Section 12(p) is ineffective or unenforceable, the parties agree that all Claims shall be submitted to binding arbitration in accordance with the commercial arbitration rules of JAMS (the “Rules”), such arbitration to occur before one arbitrator, which arbitrator shall be a retired California state judge or a retired Federal court judge.  Such proceeding shall be conducted in Santa Clara County, State of California, with California rules of evidence and discovery applicable to such arbitration.  The decision of the arbitrator shall be binding on the parties, and shall be final and nonappealable to the maximum extent permitted by law.  Any judgment rendered by the arbitrator may be entered in a court of competent jurisdiction and enforced by the prevailing party as a final judgment of such court.

 

  

11

  

(r)      Pre-arbitration Relief.  In the event Claims are to be resolved by arbitration, either party may seek from a court of competent jurisdiction identified in Section 12(o), any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by binding arbitration.

 

(s)      Counterparts.  This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

 

(t)      Lost, Stolen, Mutilated or Destroyed Warrant.  If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.  Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone.

 

(u)      Legends.  To the extent required by applicable laws, this Warrant and the shares of Common Stock issuable hereunder (and the securities issuable, directly or indirectly, upon conversion of such shares of Common Stock, if any) may be imprinted with a restricted securities legend in substantially the following form:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO RULE 144 OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

 

 

[Remainder of Page Intentionally Left Blank]

  

12

  

IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date.

COMPANY:                                           CLEVELAND BIOLABS, INC.

By:           /s/ C. Neil Lyons

Name:      C. Neil Lyons

Title:        Chief Financial Officer

	
WARRANTHOLDER:

	
HERCULES TECHNOLOGY II L.P.,

a Delaware limited partnership

 

By: Hercules Technology SBIC Management, LLC,

its General Partner

 

By: Hercules Technology Growth Capital, Inc.,

its Manager

 

	
  

	
By: /s/ K. Nicholas Martitsch

	 

Name: K. Nicholas Martitsch

Title: Associate General Counsel

  

13

  

EXHIBIT  I

NOTICE  OF  EXERCISE

To:           [____________________________]

	
(1)

	
The undersigned Warrantholder hereby elects to purchase [_______] shares of the Common Stock of [_________________], pursuant to the terms of the Agreement dated the [___] day of [______, _____] (the "Agreement") between [_________________] and the Warrantholder, and tenders herewith payment of the Purchase Price in full, together with all applicable transfer taxes, if any. [NET ISSUANCE: elects pursuant to Section 3(a) of the Agreement to effect a Net Issuance.]

	
(2)

	
Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below.

_________________________________

(Name)

_________________________________

(Address)

	
WARRANTHOLDER:

	
HERCULES TECHNOLOGY II L.P.,

a Delaware limited partnership

 

By: Hercules Technology SBIC Management, LLC,

its General Partner

 

 

By: Hercules Technology Growth Capital, Inc.,

its Manager

 

By: ___________________________

Name: K. Nicholas Martitsch

Title: Associate General Counsel

  

14

  

EXHIBIT II

	
1.

	
ACKNOWLEDGMENT OF EXERCISE

 

The undersigned [____________________________________], hereby acknowledge receipt of the "Notice of Exercise" from Hercules Technology Growth Capital, Inc., to purchase [____] shares of the Common Stock of [_________________], pursuant to the terms of the Agreement, and further acknowledges that [______] shares remain subject to purchase under the terms of the Agreement.

COMPANY:                                                      [_________________]

By:           ________________________________

 

Title:           ________________________________

 

Date:           ________________________________

 

  

15

  

EXHIBIT III

TRANSFER NOTICE

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

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

_________________________________________________________________

(Please Print)

whose address is___________________________________________________

_________________________________________________________________

Dated:           ___________________________________

 

Holder's Signature:     ____________________________

 

Holder's Address:       ____________________________

 

_____________________________________________

Signature Guaranteed:        ____________________________________________

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

 

16

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