Document:

Exhibit 10.1

 

FIRST AMENDMENT AGREEMENT

 

This FIRST AMENDMENT AGREEMENT (this “Amendment”) is made as of the 13th day of December, 2010 among:

 

(a)                                  KRATOS DEFENSE & SECURITY SOLUTIONS, INC., a Delaware corporation (“Borrower”);

 

(b)                                 the Lenders, as defined in the Credit Agreement, as hereinafter defined; and

 

(c)                                  KEYBANK NATIONAL ASSOCIATION, as the lead arranger, sole book runner and administrative agent for the Lenders under the Credit Agreement (“Agent”).

 

WHEREAS, Borrower, Agent and the Lenders are parties to that certain Credit and Security Agreement, dated as of May 19, 2010, that provides, among other things, for loans and letters of credit aggregating Twenty-Five Million Dollars ($25,000,000), all upon certain terms and conditions (as the same may from time to time be amended, restated or otherwise modified, the “Credit Agreement”);

 

WHEREAS, Borrower, Agent and the Lenders desire to amend the Credit Agreement to modify certain provisions thereof and add certain provisions thereto;

 

WHEREAS, each capitalized term used herein and defined in the Credit Agreement, but not otherwise defined herein, shall have the meaning given such term in the Credit Agreement; and

 

WHEREAS, unless otherwise specifically provided herein, the provisions of the Credit Agreement revised herein are amended effective as of the date of this Amendment;

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower, Agent and the Lenders agree as follows:

 

1.                                       Amendment to Definitions in the Credit Agreement.  Section 1.1 of the Credit Agreement is hereby amended to delete the definitions of “Borrowing Base”, “Consolidated EBITDA”, “Consolidated Fixed Charges”, “Non-Transfer Effective Date”, “Revolving Amount”, “Total Commitment Amount” and “Transfer Effective Date” therefrom and to insert in place thereof, respectively, the following:

 

“Borrowing Base” means an amount equal to the total of the following:

 

(a)                                  up to eighty-five percent (85%) of the aggregate amount due and owing on Eligible Accounts Receivable of the Borrowing Base Companies; plus

 

(b)                                 the lesser of (i) up to seventy percent (70%) of the aggregate amount due and owing on Eligible Unbilled Receivables of the Borrowing Base Companies; or (ii) Five Million Dollars ($5,000,000);

 

 

(c)                                  the lesser of:

 

(i)                                     the lesser of (A) up to sixty percent (60%) of the aggregate of the cost or market value (whichever is lower), as determined on an average cost method basis in accordance with GAAP, of the Eligible Inventory of the Borrowing Base Companies, or (B) up to eighty-five percent (85%) of the Appraised Inventory NOLV; or

 

(ii)                                  Ten Million Dollars ($10,000,000); minus

 

(d)                                 Reserves, if any;

 

provided that, anything herein to the contrary notwithstanding, Agent shall at all times have the right to modify or reduce such percentages or dollar amount caps from time to time, in its reasonable credit judgment.

 

“Consolidated EBITDA” means, for any period, as determined on a Consolidated basis, (a) Consolidated Net Income for such period plus, without duplication, the aggregate amounts deducted in determining such Consolidated Net Income in respect of (i) Consolidated Interest Expense, (ii) Consolidated Income Tax Expense, (iii) Consolidated Depreciation and Amortization Charges, (iv) non-cash losses or charges, (v) losses with respect to Kratos Southeast, Inc. (so long as Kratos Southeast, Inc. is held as a discontinued operation and is sold or otherwise divested on or prior to the last day of the 2010 fiscal year of Borrower) for (A) the 2009 fiscal year of Borrower, and (B) the Quarterly Reporting Periods in 2010 in an aggregate amount not to exceed Two Million Dollars ($2,000,000), and (vi) losses with respect to discontinued operations, in an aggregate amount not to exceed Two Million Dollars ($2,000,000); minus (b) to the extent included in Consolidated Net Income for such period, non-cash gains.

 

“Consolidated Fixed Charges” means, for any period, as determined on a Consolidated basis, the aggregate, without duplication, of (a) Consolidated Interest Expense, and (b) principal payments on Consolidated Funded Indebtedness (including, without limitation, performance based contingent obligations incurred in connection with one or more Acquisitions, payments on Capitalized Lease Obligations, and excluding optional prepayments of the Revolving Loans).

 

“Non-Transfer Effective Date” means a date on which either (a) a Default or an Event of Default occurs, or (b) the Revolving Credit Availability becomes less than Seven Million Five Hundred Thousand Dollars ($7,500,000); and each such subsequent date that occurs after a Transfer Effective Date.

 

“Revolving Amount” means Thirty-Five Million Dollars ($35,000,000), as such amount may be increased up to the Maximum Revolving Amount pursuant to Section 2.9(b) hereof, or decreased pursuant to Section 2.9(a) hereof.

 

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“Total Commitment Amount” means the principal amount of Thirty-Five Million Dollars ($35,000,000), as such amount may be increased pursuant to Section 2.9(b) hereof, or decreased pursuant to Section 2.9(a) hereof.

 

“Transfer Effective Date” means, after the most recent Non-Transfer Effective Date, the last day of a sixty (60) consecutive day period during which (a) the Revolving Credit Availability shall have been, at all times during such period, greater than Twelve Million Five Hundred Thousand Dollars ($12,500,000), and (b) no Default or Event of Default shall have occurred at any time during such period.

 

2.                                       Addition to Definitions in the Credit Agreement.  Section 1.1 of the Credit Agreement is hereby amended to add the following new definition thereto:

 

“Eligible Unbilled Receivable” means, for any date, an Account of a Borrowing Base Company that, (a) if it had been billed prior to the end of the immediately preceding month, would have met all of the requirements for an Eligible Account Receivable, and (b) is to be billed within ten days after the end of such immediately preceding month.

 

3.                                       Amendment to Borrowing Covenant Provisions.  Section 5.8 of the Credit Agreement is hereby amended to delete subsection (j) therefrom and to insert in place thereof the following subsection (j), and to add the following new subsection (k) at the end thereof:

 

(j)                                     other Indebtedness, in addition to the Indebtedness listed above, in an aggregate principal amount for all Companies not to exceed One Hundred Million Dollars ($100,000,000), with respect to (i) Indebtedness incurred in connection with the Senior Notes, (ii) unsecured Subordinated Indebtedness created pursuant to documentation in form and substance reasonably satisfactory to Agent and the Required Lenders, and on terms reasonably satisfactory to Agent and the Required Lenders, and (iii) other unsecured Indebtedness; so long as, in each case, as of the date such additional Indebtedness is incurred, (A) Borrower is in pro forma compliance with Section 5.7 hereof, both before and after giving effect to the incurrence of such Indebtedness, and (B) no Default or Event of Default shall then exist or immediately thereafter shall begin to exist; and

 

(k)                                  performance based contingent obligations that were incurred in connection with the Acquisition of (i) DEI Services Corporation, in an aggregate amount not to exceed Eight Million Four Hundred Thousand Dollars ($8,400,000), and (ii) SCT Acquisition, LLC (d/b/a Southside Container), in an aggregate amount not to exceed Three Million Five Hundred Thousand Dollars ($3,500,000).

 

4.                                       Amendment to Schedules to the Credit Agreement.  The Credit Agreement is hereby amended to delete Schedule 1 (Commitments of Lenders) and Schedule 2 (Guarantors of Payment) therefrom and to insert in place thereof a new Schedule 1 and Schedule 2 in the form of Schedule 1 and Schedule 2 hereto.

 

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5.                                       Closing Deliveries. Concurrently with the execution of this Amendment, Borrower shall:

 

(a)                                  deliver to Agent, for delivery to KeyBank National Association, a new Revolving Credit Note, in the amount specified in Schedule 1 to the Credit Agreement (after giving effect to this Amendment);

 

(b)                                 deliver to Agent certified copies of the resolutions of the board of directors of Borrower evidencing approval of the execution and delivery of this Amendment and the execution of any other Loan Documents and Related Writings required in connection therewith;

 

(c)                                  deliver to Agent an opinion of counsel, in form and substance satisfactory to Agent, indicating that the Obligations incurred by Borrower pursuant to the increase in the Revolving Credit Commitment are permitted to be incurred, and permitted to be secured, pursuant to the Senior Notes Documents;

 

(d)                                 execute and deliver to Agent, for its sole benefit, the First Amendment Agent Fee Letter, and pay to Agent the fees stated therein;

 

(e)                                  cause each Guarantor of Payment to execute the attached Guarantor Acknowledgement and Agreement; and

 

(f)                                    pay all legal fees and expenses of Agent in connection with this Amendment and any other Loan Documents.

 

6.                                       Representations and Warranties.  Borrower hereby represents and warrants to Agent and the Lenders that (a) Borrower has the legal power and authority to execute and deliver this Amendment; (b) the officers executing this Amendment have been duly authorized to execute and deliver the same and bind Borrower with respect to the provisions hereof; (c) the execution and delivery hereof by Borrower and the performance and observance by Borrower of the provisions hereof do not violate or conflict with the Organizational Documents of Borrower or any law applicable to Borrower or result in a breach of any provision of or constitute a default under any other agreement, instrument or document binding upon or enforceable against Borrower; (d) no Default or Event of Default exists, nor will any occur immediately after the execution and delivery of this Amendment or by the performance or observance of any provision hereof; (e) each of the representations and warranties contained in the Loan Documents is true and correct in all material respects as of the date hereof as if made on the date hereof, except to the extent that any such representation or warranty expressly states that it relates to an earlier date (in which case such representation or warranty is true and correct in all material respects as of such earlier date); (f) Borrower is not aware of any claim or offset against, or defense or counterclaim to, Borrower’s obligations or liabilities under the Credit Agreement or any Related Writing; and (g) this Amendment constitutes a valid and binding obligation of Borrower, enforceable in accordance with its terms.

 

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7.                                       Waiver and Release.  Borrower, by signing below, hereby waives and releases Agent, and each of the Lenders, and their respective directors, officers, employees, attorneys, affiliates and subsidiaries, from any and all claims, offsets, defenses and counterclaims, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.

 

8.                                       References to Credit Agreement and Ratification.  Each reference that is made in the Credit Agreement or any other Related Writing to the Credit Agreement shall hereafter be construed as a reference to the Credit Agreement as amended hereby. Except as herein otherwise specifically provided, all terms and provisions of the Credit Agreement are confirmed and ratified and shall remain in full force and effect and be unaffected hereby. This Amendment is a Loan Document.

 

9.                                       Counterparts.  This Amendment may be executed in any number of counterparts, by different parties hereto in separate counterparts and by facsimile signature, each of which, when so executed and delivered, shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.

 

10.                                 Headings.  The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.

 

11.                                 Severability.  Any term or provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the term or provision so held to be invalid or unenforceable.

 

12.                                 Governing Law.  The rights and obligations of all parties hereto shall be governed by the laws of the State of New York, without regard to principles of conflicts of laws.

 

[Remainder of page intentionally left blank.]

 

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

 

IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first set forth above.

 

 

	
 
  	
KRATOS DEFENSE & SECURITY SOLUTIONS, INC.
  
	
 
  	
 
  
	
 
  	
By:
  	
/s/ Deanna H. Lund
  
	
 
  	
 
  	
Deanna H. Lund
  
	
 
  	
 
  	
Executive Vice President & Chief Financial Officer
  
	
 
  	
 
  	
 
  
	
 
  	
KEYBANK NATIONAL ASSOCIATION,
  
	
 
  	
as Agent and as a Lender
  
	
 
  	
 
  
	
 
  	
By:
  	
/s/ John P. Dunn
  
	
 
  	
 
  	
John P. Dunn
  
	
 
  	
 
  	
Vice President
  

 

Signature Page to

First Amendment Agreement

 

 

GUARANTOR ACKNOWLEDGMENT AND AGREEMENT

 

The undersigned consent and agree to and acknowledge the terms of the foregoing First Amendment Agreement dated as of December 13, 2010.  The undersigned further agree that the obligations of the undersigned pursuant to the Guaranty of Payment executed by the undersigned are hereby ratified and shall remain in full force and effect and be unaffected hereby.

 

The undersigned hereby waive and release Agent and the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of any kind or nature, absolute and contingent, of which the undersigned are aware or should be aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.

 

JURY TRIAL WAIVER.  THE UNDERSIGNED, TO THE EXTENT PERMITTED BY LAW, HEREBY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG BORROWER, AGENT, THE LENDERS AND THE UNDERSIGNED, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AMENDMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

 

	
KRATOS PUBLIC SAFETY & SECURITY SOLUTIONS, INC. (F/K/A KRATOS COMMERCIAL SOLUTIONS, INC.)

KRATOS MID-ATLANTIC, INC.

KRATOS SOUTHEAST, INC.

KRATOS TEXAS, INC.

WFI NMC CORP.

SYS

AI METRIX, INC.

POLEXIS, INC.

REALITY BASED IT SERVICES, LTD.

SHADOW I, INC.

SHADOW II, INC.

SHADOW III, INC.

DIGITAL FUSION, INC.

DIGITAL FUSION SOLUTIONS, INC.

SUMMIT RESEARCH CORPORATION
  	
 
  	
KRATOS GOVERNMENT SOLUTIONS, INC.

DEFENSE SYSTEMS, INCORPORATED

HAVERSTICK CONSULTING, INC.

HGS HOLDINGS, INC.

DTI ASSOCIATES, INC.

HAVERSTICK GOVERNMENT SOLUTIONS, INC.

ROCKET SUPPORT SERVICES, LLC

JMA ASSOCIATES, INC.

MADISON RESEARCH CORPORATION

GICHNER SYSTEMS GROUP, INC.

GICHNER HOLDINGS, INC.

GICHNER SYSTEMS INTERNATIONAL, INC.

CHARLESTON MARINE CONTAINERS INC.

DALLASTOWN REALTY I, LLC

DALLASTOWN REALTY II, LLC

DEI SERVICES CORPORATION

SCT ACQUISITION, LLC
  
	
 
  	
 
  	
 
  
	
By:
  	
/s/ Deanna H. Lund
  	
 
  	
By:
  	
/s/ Deanna H. Lund
  
	
 
  	
Deanna H. Lund
  	
 
  	
 
  	
Deanna H. Lund
  
	
 
  	
Executive Vice President & Chief Financial Officer
  	
 
  	
 
  	
Executive Vice President & Chief Financial Officer
  

 

	
KRATOS SOUTHWEST L.P.,
  
	
by Kratos Texas, Inc., its general partner
  
	
 
  	
 
  
	
By:
  	
/s/ Deanna H. Lund
  	
 
  
	
 
  	
Deanna H. Lund
  	
 
  
	
 
  	
Executive Vice President & Chief Financial Officer
  	
 
  

 

Signature Page to

Guarantor Acknowledgment and Agreement

 

 

SCHEDULE 1

 

COMMITMENTS OF LENDERS

 

	
LENDERS
  	
 
  	
COMMITMENT
 PERCENTAGE
  	
 
  	
REVOLVING
 CREDIT
 COMMITMENT
 AMOUNT
  	
 
  	
MAXIMUM
 AMOUNT
  	
 
  
	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  
	
KeyBank National Association 
  	
 
  	
100
  	
%
  	
$
  	
35,000,000
  	
 
  	
$
  	
35,000,000
  	
 
  
	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  	
 
  
	
Total Commitment Amount
  	
 
  	
 
  	
 
  	
 
  	
 
  	
$
  	
35,000,000
  	
 
  

 

S-1

 

SCHEDULE 2

 

GUARANTORS OF PAYMENT

 

Kratos Public Safety & Security Solutions, Inc. (f/k/a Kratos Commercial Solutions, Inc.), a Delaware corporation

 

Kratos Mid-Atlantic, Inc. (f/k/a WFI Delaware Inc.), a Delaware corporation

 

Kratos Southeast, Inc. (f/k/a WFI Georgia Inc.), a Georgia corporation

 

Kratos Texas, Inc. (f/k/a WFI Texas, Inc.), a Texas corporation

 

WFI NMC Corp., a Delaware corporation

 

Kratos Southwest L.P. (f/k/a WFI Southwest LP), a Texas limited partnership

 

SYS, a California corporation

 

Ai Metrix, Inc., a Delaware corporation

 

Polexis, Inc., a California corporation

 

Reality Based IT Services, Ltd., a Maryland corporation

 

Shadow I, Inc., a California corporation

 

Shadow II, Inc., a California corporation

 

Shadow III, Inc., a California corporation

 

Digital Fusion, Inc., a Delaware corporation

 

Digital Fusion Solutions, Inc., a Florida corporation

 

Summit Research Corporation, an Alabama corporation

 

Kratos Government Solutions, Inc. (f/k/a WFI Government Services, Inc.), a Delaware corporation

 

Defense Systems, Incorporated, a Virginia corporation

 

Haverstick Consulting, Inc., an Indiana corporation

 

HGS Holdings, Inc., an Indiana corporation

 

S-2

 

DTI Associates, Inc., a Virginia corporation

 

Haverstick Government Solutions, Inc., an Ohio corporation

 

Rocket Support Services, LLC, an Indiana limited liability company

 

JMA Associates, Inc. (d/b/a TLA Associates), a Delaware corporation

 

Madison Research Corporation, an Alabama corporation

 

Gichner Holdings, Inc., a Delaware corporation

 

Gichner Systems Group, Inc., a Delaware corporation

 

Gichner Systems International, Inc., a Delaware corporation

 

Charleston Marine Containers Inc., a Delaware corporation

 

Dallastown Realty I, LLC, a Delaware limited liability company

 

Dallastown Realty II, LLC, a Delaware limited liability company

 

DEI Services Corporation, a Florida corporation

 

S-3Exhibit 10.1

 

EXECUTION COPY

 

December 15, 2010

 

David M. Malcolm
 At the address last on the records of Cowen

 

Dear Greg:

 

This letter (the “Agreement”) shall supersede any and all prior employment agreements and letters relating to your employment, including your employment letter agreement (the “Executive Letter Agreement”), dated as of June 3, 2009, as amended by letter dated July 19, 2010, with LexingtonPark Parent Corp. (n/k/a Cowen Group, Inc. (the “Company”) and you acknowledge that you shall not be entitled to any compensation or benefits under the Executive Letter Agreement, as amended.  Defined terms otherwise used in this Agreement shall have the meaning ascribed to them in the Executive Letter Agreement.  This Agreement shall constitute your agreement relating to your post-retirement employment with the Company and the BD Subsidiary, effective as of February 1, 2011, as a Senior Advisor.

 

1.                                       Transition.  It is understood that you intend to retire from your full time duties with the Company effective February 1, 2011 at which time you shall become a Senior Advisor.

 

(a)                                  Board and Committee Membership.  In order to effect the transition from full time employee to Senior Advisor, concurrently with the execution of this Agreement, you will tender to the Company your resignation from the Board of Directors of the Company, the Company’s Executive Management Committee and the Company’s Operating Committee.  In that regard, you acknowledge that your resignation from such positions will not constitute Good Reason for termination of your employment under the Executive Letter Agreement.

 

(b)                                 2010 Annual Bonus.  For the calendar year ending December 31, 2010, you shall be entitled to a cash annual bonus equal to Six Hundred and Eight Thousand Dollars ($608,000).  The 2010 Annual Bonus is subject to applicable tax and payroll deductions, and shall be payable at the same time all other Company bonuses are paid, but no later than March 15, 2011.

 

2.                                       Position.

 

(a)                                  Commencing upon February 1, 2011 (the “Effective Date”), and continuing for sixty (60) months from the Effective Date, except as otherwise specified herein (the “Term”), the Company shall employ you as a Senior Advisor.

 

 

(b)                                 During your employment as a Senior Advisor you may not be employed by, or otherwise affiliated in any way with, any “Competitor” of the Company, as defined below.  You may be affiliated with a business that is not a Competitor; provided, however, that such affiliation does not interfere with your ability to perform your duties and responsibilities set forth in this Agreement.

 

(c)                                  Other than as set forth below, during your employment you shall be subject to, and must comply with, all Company policies and procedures applicable to the BD Subsidiary’s Managing Directors, as now existing or as may be modified or supplemented by the Company in its sole discretion.  Notwithstanding the foregoing, you will not be subject to the pre-clearance policy with respect to personal trading in securities other than with respect to shares of the Company’s common stock and the stock of any company you may introduce to the Company during your employment as a Senior Advisor. You will continue to provide (or cause to be provided to) the Company with copies of statements of your brokerage accounts.  In addition, you will not be subject to the minimum holding period set forth in the Company’s Employee Investment Policy other than with respect to shares of stock of any company you may introduce to the Company during your employment as a Senior Advisor and the Company’s common stock where you will continue to be subject to the Company’s blackout periods and holding period set forth in the Company’s Employee Investment Policy as the same may be amended or changed from time to time.  You will be required to complete and submit the appropriate form related to participating in outside business activities pursuant to the Company’s Employee Investment Policy, provided, however, that you will not be subject to prior approval to engage in outside business activities unless such activity in any way relates to a “Competitor” of the Company or any company that you introduce to the Company during your employment as a Senior Advisor.  It is understood and agreed that to the extent you receive pre-approval of any outside business activity with a “Competitor” such activity shall not be deemed to be a breach of this Agreement.  It is further understood and agreed that you may not engage in any outside business activity or activities that will impair your ability to perform hereunder.

 

3.                                       Duties and Responsibilities.  Your duties and responsibilities as a Senior Advisor shall be defined by mutual agreement between you and the Board of Directors of the Company; provided, however, that your time commitment to the Company and the BD Subsidiary as a Senior Advisor shall not exceed twenty percent (20%) of the average level of bona fide services performed by you on behalf of the Company and the BD Subsidiary during the thirty-six (36) month period immediately preceding the commencement of your service as a Senior Advisor.

 

4.                                       Use of Facilities.  During your employment as a Senior Advisor to the Company and the BD Subsidiary, the Company shall provide you with reasonable use of, and access to, office space on the Company’s premises if such space is then available.  You shall also have reasonable use of the Company’s other services and facilities as necessary to carry out your duties as a Senior Advisor, the costs of which will be borne by the Company.

 

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5.                                       Compensation.

 

(a)                                  Base Salary.  Commencing from the Effective Date until the second anniversary of the Effective Date, you will be entitled to receive a base salary at the rate of Six Hundred Fifty Thousand Dollars ($650,000) per annum, less applicable tax and payroll deductions, and commencing from the second anniversary of the Effective Date until the fifth anniversary of the Effective Date, you will be entitled to receive a base salary at the rate of Four Hundred Thousand Dollars ($400,000) per annum, less applicable tax and payroll deductions (the “Base Salary”), payable in accordance with the Company’s prevailing payroll practices.  Any obligation to pay your Base Salary will commence upon the Effective Date of this Agreement and shall cease upon the termination of your employment as a Senior Advisor. You will not be entitled to any other compensation, including any bonus.

 

(b)                                 Change in Control. Provided there is a Change in Control of the Company during the Term of this Agreement (as defined in paragraph 2(a) above) and, provided further, that as of the date of such a Change in Control, you are employed as a Senior Advisor, and have not given notice of your voluntary termination or resignation, you shall be entitled to receive in one lump sum, the unpaid balance of your Base Salary for the remainder of the Term, less applicable tax and payroll deductions (the “Retirement Change in Control Payment”).  The Retirement Change in Control Payment shall be payable by the Company to you within ten (10) calendar days of any Change in Control.

 

(c)                                  Equity Vesting.  Provided that you are not employed by, or otherwise affiliated with, any Competitor (as defined below) of the Company during the Term of this Agreement or thereafter, any Company securities, stock, deferred cash or deferred compensation you received from the Company prior to the Effective Date of this Agreement, shall continue to vest in accordance with, and subject to, the terms and conditions set forth in the applicable award agreements granting you such equity or deferred compensation.

 

6.                                       Benefits.  During the Term, you, your spouse and your eligible dependents will be eligible to receive health and medical benefits, to the extent such eligibility is permissible under the health and medical benefit plans in place at the Company at that time. All such health and medical benefits shall be provided in accordance with the terms and eligibility requirements of their respective plans, but in no event on terms that are less favorable than those then existing and applied to similarly situated executives of the Company.  In the event you are not eligible to participate in the Company’s health and medical benefits, the Company shall pay to you an amount equal to the Company’s portion of the cost of such benefits for similarly situated employees under the Company’s then current health and medical benefit plan.  In addition, the Company shall continue to pay the cost associated with your existing Long Term Care policy during the Term of this Agreement after which time you shall have the right to take over the applicable policy and the cost associated with the same.

 

7.                                       Expenses.  All documented and verified, reasonable and necessary expenses which you incur in connection with the performance of your duties hereunder shall be reimbursed in accordance with the Company’s general policies.  You must submit proper

 

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documentation for each such expense within sixty (60) days after the later of (i) your incurrence of such expense or (ii) your receipt of the invoice for such expense.

 

8.                                       Termination of Employment.

 

(a)                                  Death or disability.  Your employment as a Senior Advisor shall terminate on your death. If you become disabled, the Company may terminate your employment by giving you thirty (30) days written notice of its intention to terminate this Agreement. In such event, your employment shall be terminated unless you return to full-time performance of your duties within such thirty (30) day period. “Disabled”, as used herein, shall mean “Disability,” as such term is defined in Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”).  Disputes on the issues of disability shall be determined by an impartial, reputable physician agreed upon by the parties or their respective doctors.  Upon termination under this paragraph 7(a), you or your estate shall be entitled to receive (i) the Equity Benefits and (ii) any benefits or compensation that have been earned, but unpaid, as of the date of termination.

 

(b)                                 Cause.  Nothing herein shall prevent the Company from terminating your employment for cause.  For purposes of this Agreement, “Cause” shall mean the occurrence of an event set forth in clauses (i) through (iv) below as determined by the Board of Directors of the Company in good faith:

 

(i)                                     your conviction of any crime (whether or not related to your duties at the BD Subsidiary), with the exception of minor traffic offenses;

 

(ii)                                  fraud, dishonesty, gross negligence or substantial misconduct in the performance of your duties and responsibilities;

 

(iii)                               your material violation of or failure to comply with the Company’s internal policies or the rules and regulations of any regulatory or self-regulatory organization with jurisdiction over the BD Subsidiary;

 

(iv)                              your failure to perform the material duties of your position.

 

In the case of clauses (ii) through (iv) above, to the extent your alleged breach is reasonably subject to cure, your employment shall not be terminated for Cause unless and until you have been given written notice and shall have failed to correct any such violation, failure or refusal to follow instructions within ten (10) business days of such notice.

 

Upon termination under this paragraph 7(b), you shall be entitled to receive only that Base Salary earned but unpaid as of the date of termination.

 

(c)                                  Offset.  In the event of termination, the Company may offset, to the fullest extent permitted by law, any amounts due to the Company from you, or advanced or loaned to you by the Company, from any monies owed to you or your estate by reason of your termination,

 

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except to the extent such withholding or offset is not permitted under Section 409A without the imposition of additional taxes or penalties on you.

 

9.                                       Notice of Resignation or Termination of Employment.  During the Term of this Agreement, you will not voluntarily resign or otherwise terminate your employment as a Senior Advisor without first giving the Company at least ninety (90) days prior written notice of the effective day of your resignation or other termination. Such written notice shall be sent, by certified mail, to the Company, Attn: General Counsel of the Company at the Company’s primary New York address.  The Company retains the right to waive the notice requirement in whole or in part. The Company may, but shall not be obligated to, provide you with work at any time after such notice is given pursuant to this paragraph and the Company may, in its discretion, in respect of all or part of an unexpired period of notice:  (i) require you to comply with such conditions as it may specify in relation to transitioning your duties and responsibilities, (ii) assign you other duties or (iii) withdraw any powers vested in, or duties assigned to, you. Upon termination under this paragraph 8, you shall be entitled to receive only that Base Salary earned but unpaid as of the date of termination.

 

10.                                 Non-Solicitation.

 

(a)                                  While employed by the Company as a Senior Advisor and for a period of two (2) years following the expiration of the Term of your employment or the effective date of your termination, you will not, without the Company’s prior written consent, directly or indirectly, (a) solicit or induce, or cause others to solicit or induce, any employees of the Company to leave the Company, or in any way modify their relationship with the Company, (b) hire or cause others to hire any employees of the Company, (c) encourage or assist in the hiring process of any employees of the Company or in the modification of any such employee’s relationship with the Company, or cause others to participate, encourage or assist in the hiring process of any employees of the Company.

 

(b)                                 In addition, while employed by the Company as a Senior Advisor and for a period of two (2) years following the expiration of the Term of your employment or the effective date of your termination, you agree you will not, directly or indirectly, solicit the trade or patronage of any clients or customers or any prospective clients or customers of the Company with respect to any investment banking or alternative investment products, services, trade secrets or other investment banking or alternative investment product matters in which the Company is active, which includes, but is not limited to, investment banking, hedge fund investments, sales and trading and/or research.  This paragraph 9 shall survive expiration of the Term and shall continue in full force and effect during your employment with the Company and thereafter as applicable.

 

11.                                 Non-Competition.  During your employment as a Senior Advisor and for a period of one (1) year following the expiration of the Term of your employment or the effective date of your termination, you may not, anywhere in the United States or elsewhere in the world, directly

 

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or indirectly, be employed by, assist or otherwise be affiliated with any Competitor of the Company.  For purposes of this Agreement, “Competitor” of the Company shall mean any public or private investment banking or investment banking division of a commercial banking firm, as well as any firm engaging in alternative investment strategies, including hedge fund investments, as well as any of such firms’ subsidiaries or controlled affiliates.  This paragraph 10 shall survive expiration of the Term and shall continue in full force and effect during your employment with the Company and thereafter as applicable.

 

12.                                 Non-Disclosure of Confidential Information.  You will not at any time, whether during your employment or following the termination or expiration of your employment, for any reason whatsoever, and forever hereafter, directly or indirectly disclose or furnish to any firm, corporation or person, except as otherwise required by law, any confidential or proprietary information of the Company with respect to any respect of its operations or affairs. “Confidential or proprietary information” shall mean information generally unknown to the public to which you gain access by reason of your employment by the Company and includes, but is not limited to, information relating to all present or potential customers, business and marketing plans, sales, trading and financial data and strategies, salaries and employment benefits, and operational costs.  This paragraph 11 shall survive expiration of the Term and shall continue in full force and effect during your employment with the Company and thereafter as applicable.

 

13.                                 Return of Company Property and Company Work Product.  All records, files, memoranda, reports, customer information, client lists, documents, equipment, and the like, relating to the business of the Company which you prepared or came into contact with while you were an employee of the Company, shall remain the sole property of the Company. You agree that on request by the Company, and in any event upon the termination of your employment, you shall turn over to the Company all documents, papers, or other material in your possession and under your control which may contain or be derived from confidential information, together with all documents, notes, or other work product which is connected with or derived from your services to the Company whether or not such material is in your possession. You agree you shall have no proprietary interest in any work product developed or used by you and arising out of employment by the Company.  This paragraph 12 shall survive expiration of the Term and shall continue in full force and effect during your employment with the Company and thereafter as applicable.

 

14.                                 Remedies and Rights to Injunctive Relief.  In the event of a breach by you of your obligation under this Agreement, the Company, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. You acknowledge that the Company shall suffer irreparable harm in the event of a breach or prospective breach of paragraphs 9, 10, 11 and/or 12 hereof and monetary damages would not be adequate compensation. Accordingly, the Company shall be entitled to seek injunctive relief in any federal or state court of competent jurisdiction located in New York County. You waive the defense that a remedy at law would be adequate. This

 

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paragraph 13 shall survive expiration of the Term and shall continue in full force and effect during your employment with the Company and thereafter as applicable.

 

15.                                 Arbitration; Legal Fees.

 

(a)                                  Any and all disputes arising out of or relating to your employment or the termination of your employment with the Company, including any statutory claims based on alleged discrimination, will be submitted to and resolved exclusively by the American Arbitration Association (“AAA”) pursuant to the AAA’s Employment Arbitration Rules and Mediation Procedures.  The arbitration shall be held in the City of New York. In agreeing to arbitrate your claims, you recognize that you are waiving your right to a trial in court and by a jury. The arbitration award shall be binding upon both parties, and judgment upon the award may be entered in a court of competent jurisdiction.  The cost of such proceedings, including all filing and session fees, and all attorneys’ fees, shall be assessed in accordance with the AAA Rules or as otherwise determined by the arbitrator.

 

(b)                                 The arbitrators shall not have authority to amend, alter, modify, add to or subtract from the provisions hereof. The award of the arbitrators, in addition to granting the relief prescribed above and such other relief as the arbitrators may deem proper, may contain provisions commanding or restraining acts or conduct of the parties or their representatives and may further provide for the arbitrators to retain jurisdiction over this Agreement and the enforcement thereof. If either party shall deliberately default in appearing before the arbitrators, the arbitrators are empowered, nonetheless, to take the proof of the party appearing and render an award thereon.

 

(c)                                  This paragraph 14 shall survive expiration of the Term and shall continue in full force and effect during your employment with the Company and thereafter as applicable.

 

16.                                 Severability.  Should any provision herein be rendered or declared legally invalid or unenforceable by a court of competent jurisdiction or by the decision of an authorized governmental agency, such invalidation of such part shall not invalidate the remaining portions thereof.

 

17.                                 Other Agreements.  You represent and warrant that you are not a party to any agreement or bound by an obligation which would prohibit you from accepting and agreeing hereto or fully performing the obligations hereunder.

 

18.                                 Complete Agreement.  The provisions herein contain the entire agreement and understanding of the parties and fully supersede any and all prior agreements or understandings between them pertaining to the subject matter hereof, except for those provisions of the Executive Letter Agreement that must survive in order to carry out the intentions of the parties (such as the continuing rights under paragraphs 4 and 6 of the Executive Letter Agreement and your rights in respect of your CHRP Interest). There have been no representations, inducements,

 

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promises or agreements of any kind which have been made by either party, or by any person acting on behalf of either party, which are not embodied herein. The provisions hereof may not be changed or altered except in writing duly executed by you and a duly authorized agent of the Company.

 

19.                                 Applicable Law.  The interpretation and application of the terms herein shall be governed by the laws of the State of New York without regard to principles of conflict of laws.

 

20.                                 No Waiver.  Any failure by either party to exercise its rights to terminate this Agreement or to enforce any of its provisions shall not prejudice such party’s rights of termination or enforcement for any subsequent or further violations or defaults by the other party.

 

21.                                 Counterparts.  This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

 

22.                                 Section 409A.  The Company or any of its applicable affiliates shall withhold from any amounts payable or provided under this Agreement such federal, state or local taxes as shall be required to be withheld under any applicable law or regulation and other required or applicable deductions.  Except with respect to any payments or benefits which you may be entitled to under paragraph 4 of the Executive Letter Agreement, which shall be governed by the provisions contained therein, if and to the extent any portion of any payment, compensation or other benefit provided to you in connection with your separation from service (as defined in Section 409A) is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A and you are a specified employee as defined in Section 409A(a)(2)(B)(i), as determined by the Company or any of its applicable affiliates in accordance with its procedures, by which determination you hereby agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the day that is six months plus one day after the date of separation from service (as determined under Section 409A (the “New Payment Date”), except as Section 409A may then permit.  The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to you in a lump sum on such New Payment Date, and any remaining payments will be paid on their original schedule.  If you die during the postponement period, the amounts and entitlements delayed on account of Section 409A of the Code shall be paid to the personal representative of your estate on the first to occur of the New Payment Date and thirty (30) days after the date of your death. For purposes of this Agreement, each amount to be paid or benefit to be provided shall be construed as a separate payment for purposes of Section 409A, and any payments that are due within the “short term deferral period” as defined in Section 409A shall not be treated as deferred compensation unless applicable law requires otherwise.  Neither the Company nor any of its applicable affiliates nor you shall have the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically permitted or required by Section 409A.  All reimbursements and

 

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in-kind benefits provided under this Agreement that constitute deferred compensation within the meaning of Section 409A shall be made or provided in accordance with the requirements of Section 409A, including, without limitation, that (a) in no event shall reimbursements to you under this Agreement be made later than the end of the calendar year next following the calendar year in which the applicable fees and expenses were incurred, provided, that you shall have submitted an invoice for such fees and expenses at least ten (10) days before the end of the calendar year next following the calendar year in which such fees and expenses were incurred; (b) the amount of in-kind benefits that you are entitled to receive in any given calendar year shall not affect the in-kind benefits that you are entitled to receive in any other calendar year; (c) your right to such reimbursements and in-kind benefits may not be liquidated or exchanged for any other benefit; and (d) in no event shall your entitlement to such reimbursements or such in-kind benefits apply later than your remaining lifetime (or if longer, through the twentieth (20th) anniversary of the Effective Date). This Agreement is intended to comply with the provisions of Section 409A and shall, to the extent practicable, be construed in accordance therewith.  Terms defined in the Agreement shall have the meanings given such terms under Section 409A if and to the extent required to comply with Section 409A.  In any event, neither the Company nor any of its affiliates makes any representations or warrant and shall have no liability to you or any other person if any provisions of or payments under this Agreement are determined to constitute deferred compensation subject to Section 409A but not to satisfy the conditions of Section 409A.

 

23.                                 Assignment.  The rights and obligations of the Company under this Agreement will be transferable, and all of its covenants and agreements will be binding upon and be enforceable by its successors and assigns.  You may not assign this offer of employment and the terms and conditions stated herein.

 

24.                                 Survivorship.  Upon the expiration or other termination of this Agreement or your employment, the respective rights and obligations of the parties hereto shall survive to the extent necessary to carry out the intentions of the parties under this Agreement.

 

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EXECUTION COPY

 

If you agree to the terms set forth in this Agreement please acknowledge your agreement by signing the signature line set forth below.

 

 

	
 
  	
Sincerely,
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
COWEN GROUP, INC.
  
	
 
  	
 
  
	
 
  	
 
  
	
 
  	
By:
  	
/s/ Peter A. Cohen
  
	
 
  	
Name: Peter A. Cohen
  
	
 
  	
Title:   Chairman and Chief Executive Officer
  

 

 

	
AGREED AND ACCEPTED:
  	
 
  
	
 
  	
 
  
	
 
  	
 
  
	
Signed:
  	
/s/ David M. Malcolm
  	
 
  
	
 
  	
David M. Malcolm
  	
 
  
	
 
  	
 
  
	
 
  	
 
  
	
Date:
  	
December 15, 2010
  	
 
  
				

 

[Signature Page to Malcolm Senior Advisor Agreement]

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