WARRANT AGREEMENT
Dated as of September 29, 2023
between
STONEFIELD LOGISTICS GROUP INC. a Delaware corporation
and
RIDGELINE MEZZANINE CAPITAL FUND III, LP a Delaware limited partnership
Issued in connection with the $120,000,000 Mezzanine Term Loan pursuant to that certain Mezzanine Credit Agreement, dated September 14, 2023
TABLE OF CONTENTS
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WARRANT AGREEMENT
This WARRANT AGREEMENT (this "Agreement") is made and entered into as of September 29, 2023, by and between Stonefield Logistics Group Inc., a Delaware corporation (the "Company"), and Ridgeline Mezzanine Capital Fund III, LP, a Delaware limited partnership (the "Holder" or "Warrantholder").
RECITALS
WHEREAS:
A. The Company is a corporation duly organized and existing under the laws of the State of Delaware, with its principal executive offices located at 4800 Commerce Parkway, Suite 1200, Fort Worth, Texas 76107, and is engaged in the business of providing national less-than-truckload ("LTL") and intermodal freight services in the transportation and logistics sector throughout the continental United States;
B. Cascade Ridge SLG Holdings, LLC, a Delaware limited liability company ("SLG Holdings"), is the direct parent of the Company and is the holder of 78.4% of the outstanding equity interests in the Company. SLG Holdings is a wholly-owned subsidiary of Cascade Ridge Capital Fund V, LP, a Delaware limited partnership managed by Cascade Ridge Capital Partners, LLC, a Delaware limited liability company;
C. Ridgeline Mezzanine Capital Fund III, LP is a Delaware limited partnership, whose general partner is Ridgeline Capital Management, LLC, a Delaware limited liability company, with principal offices located at 767 Lexington Avenue, 22nd Floor, New York, New York 10065;
D. Pursuant to that certain Mezzanine Credit Agreement, dated as of September 14, 2023 (as amended, restated, supplemented, or otherwise modified from time to time, the "Mezzanine Credit Agreement"), among the Company, the Holder as Mezzanine Lender, and the guarantors party thereto, the Holder has extended to the Company a $120,000,000 mezzanine term loan (the "Mezzanine Loan"), bearing interest at a rate of 1,100 basis points per annum (comprised of 850 basis points payable in cash and 250 basis points payable in kind), maturing on September 29, 2029;
E. As partial consideration for the extension of credit under the Mezzanine Credit Agreement, and as an inducement for the Holder to make the Mezzanine Loan available to the Company, the Company has agreed to issue to the Holder warrants to purchase shares of the Company's common stock, par value $0.01 per share, representing 3.0% of the fully-diluted equity of the Company on a post-exercise basis (the "Warrant Coverage");
F. In connection with the transactions contemplated by the Mezzanine Credit Agreement and this Agreement, the following related transaction documents have been executed and delivered: (i) the Intercreditor Agreement, dated as of September 14, 2023 (the "Intercreditor Agreement"), among Whitmore National Bank, N.A., as administrative agent for the senior lenders (the "Senior Agent"), the Holder as Mezzanine Lender, and acknowledged by the Company; (ii) the Mezzanine Pledge and Security Agreement, dated as of September 14, 2023 (the "Mezzanine Pledge and Security Agreement"), between the Company and the Holder; (iii) the Parent Equity Pledge Agreement, dated as of September 14, 2023 (the "Parent Equity Pledge Agreement"), between SLG Holdings and the Holder; and (iv) the Mezzanine Guaranty Agreement, dated as of September 14, 2023 (the "Mezzanine Guaranty Agreement"), among the guarantors named therein and the Holder; and
G. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Mezzanine Credit Agreement.
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. Without limiting the generality of the foregoing, with respect to the Company, "Affiliate" shall include Cascade Ridge Capital Partners, LLC, Cascade Ridge Capital Fund V, LP, Cascade Ridge SLG Holdings, LLC, and all other entities managed, advised, or controlled by any of the foregoing.
"Board" or "Board of Directors" means the board of directors of the Company as duly constituted from time to time.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions in New York, New York are authorized or required by law, regulation, or executive order to close.
"Cascade Ridge" means Cascade Ridge Capital Partners, LLC, a Delaware limited liability company, and its Affiliates, including Cascade Ridge Capital Fund V, LP and Cascade Ridge SLG Holdings, LLC.
"Change of Control" shall mean the occurrence of any of the following events: (a) any Person or "group" (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended), other than Cascade Ridge and its Affiliates, shall have acquired beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of more than 50% of the voting equity interests of the Company; (b) the Company ceasing to be a direct wholly-owned subsidiary of Cascade Ridge SLG Holdings, LLC (other than as a result of a transaction in which the Company becomes a direct wholly-owned subsidiary of another Affiliate of Cascade Ridge); or (c) the sale, lease, transfer, conveyance, or other disposition (other than by way of merger, consolidation, or similar transaction), in one or a series of related transactions, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to any Person other than Cascade Ridge or an Affiliate of Cascade Ridge. The definition of "Change of Control" set forth in this Agreement is intended to be consistent with, and shall be interpreted in a manner consistent with, the definition of "Change of Control" set forth in Section 1.01 of the Mezzanine Credit Agreement.
"Common Stock" means the common stock, par value $0.01 per share, of the Company, and any securities into which such shares of common stock may hereafter be reclassified, exchanged, or converted.
"Company" means Stonefield Logistics Group Inc., a Delaware corporation, and its successors and assigns.
"Competitor" means any Person that is primarily engaged in the business of providing LTL freight, truckload freight, intermodal freight, or third-party logistics services in the United States, as determined by the Board of Directors in good faith.
"Default Rate" means 1,300 basis points (13.00%) per annum, consistent with the default rate set forth in the Mezzanine Credit Agreement.
"Dilutive Issuance" has the meaning set forth in Section 4.1.
"Exercise Notice" means a notice of exercise substantially in the form of Exhibit B attached hereto.
"Exercise Price" means $0.01 per Warrant Share, subject to adjustment as provided in Article IV.
"Expiration Date" means September 29, 2033, the tenth (10th) anniversary of the Issuance Date.
"Fair Market Value" means, as of any date of determination: (a) if the Common Stock is listed on a national securities exchange, the closing sale price per share of Common Stock as reported on such exchange on the Business Day immediately preceding such date of determination (or, if no sale occurred on such Business Day, the closing sale price on the most recent prior Business Day on which a sale occurred); and (b) if the Common Stock is not listed on a national securities exchange, the fair market value per share of Common Stock as determined in good faith by the Board of Directors, subject to the objection rights and Independent Appraiser determination procedures set forth in Section 6.3.
"Fully-Diluted Basis" means, as of any date of determination, the aggregate number of shares of Common Stock that would be outstanding assuming the exercise, conversion, or exchange of all outstanding options, warrants (including the Warrants), convertible securities, and other rights (whether vested or unvested, whether or not in-the-money) to acquire shares of Common Stock, but excluding any shares issuable upon exercise or conversion of securities that are themselves subject to outstanding conversion or exercise rights.
"Holder" or "Warrantholder" means Ridgeline Mezzanine Capital Fund III, LP, a Delaware limited partnership, and its permitted successors and assigns in accordance with Article VII.
"Independent Appraiser" means a nationally recognized independent valuation firm mutually selected by the Company and the Holder within fifteen (15) Business Days of a request by either party. If the Company and the Holder are unable to agree upon an Independent Appraiser within such fifteen (15) Business Day period, then either party may request the American Arbitration Association to appoint an Independent Appraiser meeting the foregoing qualifications, and such appointment shall be final and binding on the parties. The Independent Appraiser shall not have provided material services to either the Company or the Holder (or any of their respective Affiliates) during the twelve (12) month period preceding its engagement.
"Intercreditor Agreement" means that certain Intercreditor Agreement, dated as of September 14, 2023, among Whitmore National Bank, N.A., as Senior Agent, the Holder as Mezzanine Lender, and acknowledged by the Company, as amended, restated, supplemented, or otherwise modified from time to time.
"IPO" means an underwritten initial public offering of shares of Common Stock pursuant to an effective registration statement under the Securities Act, resulting in the listing of the Common Stock on a national securities exchange (including the New York Stock Exchange or the Nasdaq Stock Market).
"Issuance Date" means September 29, 2023, the date of the initial issuance of the Warrants hereunder.
"Mezzanine Credit Agreement" means that certain Mezzanine Credit Agreement, dated as of September 14, 2023, among the Company, the Holder, and the guarantors party thereto, as amended, restated, supplemented, or otherwise modified from time to time.
"Mezzanine Guaranty Agreement" means that certain Mezzanine Guaranty Agreement, dated as of September 14, 2023, among the guarantors named therein and the Holder, as amended, restated, supplemented, or otherwise modified from time to time.
"Mezzanine Loan" means the $120,000,000 mezzanine term loan extended by the Holder to the Company pursuant to the Mezzanine Credit Agreement.
"Mezzanine Pledge and Security Agreement" means that certain Mezzanine Pledge and Security Agreement, dated as of September 14, 2023, between the Company and the Holder, as amended, restated, supplemented, or otherwise modified from time to time.
"Parent Equity Pledge Agreement" means that certain Parent Equity Pledge Agreement, dated as of September 14, 2023, between SLG Holdings and the Holder, as amended, restated, supplemented, or otherwise modified from time to time.
"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, estate, unincorporated organization, governmental authority, or any other entity of any kind or nature.
"Put Date" means the date on which the Company consummates the purchase of Warrants or Warrant Shares from the Holder pursuant to Section 6.2.
"Put Event" has the meaning set forth in Section 6.1.
"Put Notice" has the meaning set forth in Section 6.2.
"Put Price" has the meaning set forth in Section 6.3.
"Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of September 29, 2023, between the Company and the Holder, as amended, restated, supplemented, or otherwise modified from time to time.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Senior Agent" means Whitmore National Bank, N.A., in its capacity as administrative agent under the Senior Credit Agreement.
"Senior Credit Agreement" means that certain Senior Secured Credit Agreement, dated as of March 17, 2021 (as amended by Amendment No. 1, dated October 5, 2021, Amendment No. 2, dated June 15, 2022, and Amendment No. 3, dated September 14, 2023), among the Company, Whitmore National Bank, N.A., as administrative agent, and the lenders party thereto, as further amended, restated, supplemented, or otherwise modified from time to time.
"SLG Holdings" means Cascade Ridge SLG Holdings, LLC, a Delaware limited liability company.
"Transaction Documents" means, collectively, this Agreement, the Mezzanine Credit Agreement, the Intercreditor Agreement, the Registration Rights Agreement, the Mezzanine Pledge and Security Agreement, the Parent Equity Pledge Agreement, the Mezzanine Guaranty Agreement, and each other agreement, instrument, and document executed and delivered in connection with the transactions contemplated hereby and thereby.
"Warrant Certificate" means the certificate evidencing the Warrants, substantially in the form attached hereto as Exhibit A.
"Warrant Coverage" means 3.0% of the fully-diluted equity of the Company on a post-exercise, Fully-Diluted Basis.
"Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants, as adjusted from time to time in accordance with Article IV.
"Warrants" means the warrants to purchase Common Stock issued pursuant to this Agreement.
Section 1.2 Rules of Interpretation.
(a) Unless the context otherwise requires, references in this Agreement to Articles, Sections, Exhibits, and Schedules shall be deemed references to Articles, Sections, Exhibits, and Schedules of this Agreement.
(b) The table of contents and article, section, and paragraph headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.
(c) The word "including" (and correlative words such as "include" and "includes") means "including without limitation."
(d) Words in the singular shall be held to include the plural, and vice versa, and words of one gender shall be held to include the other genders, in each case as the context requires.
(e) The terms "herein," "hereof," "hereunder," "hereby," and words of similar import shall be deemed to refer to this Agreement as a whole and not to any particular provision of this Agreement.
(f) References to any statute, rule, or regulation shall be deemed to include all amendments thereto, all successor statutes, rules, and regulations, and all rules and regulations promulgated thereunder, in each case as in effect from time to time.
(g) Unless otherwise specified, all references to dollar amounts in this Agreement shall mean United States dollars.
(h) The laws of the State of New York shall govern the interpretation of all defined terms used in this Agreement, regardless of any conflict of laws principles.
ARTICLE II
ISSUANCE OF WARRANTS
Section 2.1 Issuance.
(a) The Company hereby issues to the Holder warrants (the "Warrants") to purchase that number of shares of Common Stock equal to 3.0% of the total outstanding Common Stock on a Fully-Diluted Basis (calculated on a post-exercise basis). The number of Warrant Shares as of the Issuance Date is set forth on Schedule 1 attached hereto and is based on the capitalization of the Company as of the Issuance Date.
(b) The Warrants are issued as of September 29, 2023 (the "Issuance Date"), concurrently with the closing and initial funding of the Mezzanine Loan under the Mezzanine Credit Agreement. The issuance of the Warrants is a condition precedent to the Holder's obligation to fund the Mezzanine Loan.
(c) The Warrants are detachable from the Mezzanine Credit Agreement and constitute separate securities of the Company. The Warrants are not a part of or appurtenant to the Mezzanine Loan and shall not be deemed to be evidence of indebtedness.
(d) The Warrants are immediately exercisable upon issuance and shall remain exercisable until the Expiration Date, subject to the terms and conditions of this Agreement.
(e) No additional consideration beyond the consideration provided under the Mezzanine Credit Agreement shall be required for the issuance of the Warrants. The Warrants constitute part of the agreed consideration for the Holder's commitment to extend credit under the Mezzanine Credit Agreement.
Section 2.2 Warrant Certificate.
(a) Concurrently with the issuance of the Warrants, the Company shall deliver to the Holder one or more Warrant Certificates evidencing the Warrants. Each Warrant Certificate shall be substantially in the form attached hereto as Exhibit A.
(b) Each Warrant Certificate shall specify: (i) the name of the registered Holder (Ridgeline Mezzanine Capital Fund III, LP), (ii) the number of Warrant Shares issuable upon exercise thereof, (iii) the Exercise Price ($0.01 per Warrant Share), and (iv) the Expiration Date (September 29, 2033).
(c) Each Warrant Certificate shall be executed on behalf of the Company by its Chief Executive Officer or another duly authorized officer and shall be countersigned by such additional authorized officer as the Board may designate.
Section 2.3 Detachability.
(a) The Warrants are detachable from the Mezzanine Credit Agreement and may be transferred, exercised, or otherwise dealt with independently of any outstanding obligations under the Mezzanine Loan or any other Transaction Document. The Holder shall not be required to hold any principal amount of the Mezzanine Loan as a condition to the exercise, transfer, or enforcement of the Warrants.
(b) The repayment, prepayment (whether voluntary or mandatory), acceleration, maturity, or discharge of the Mezzanine Loan shall not affect the validity, exercisability, or enforceability of the Warrants or any provision of this Agreement. The Warrants shall remain outstanding and exercisable in accordance with their terms regardless of the status of the Mezzanine Loan.
Section 2.4 Registration of Warrants.
(a) The Company shall maintain at its principal office, or at such other office as it may designate by notice to the Holder, a register (the "Warrant Register") in which the Company shall record the name and address of the registered Holder (and each permitted transferee), the number of Warrant Shares issuable under each outstanding Warrant Certificate, and any transfers of Warrants effected in accordance with Article VII.
(b) The Company shall treat the Person in whose name the Warrant Certificate is registered on the Warrant Register as the absolute owner thereof for all purposes. The initial address of the Holder for purposes of the Warrant Register and for notices hereunder shall be: Ridgeline Mezzanine Capital Fund III, LP, c/o Ridgeline Capital Management, LLC, 767 Lexington Avenue, 22nd Floor, New York, New York 10065, Attention: Katherine M. Stroud, Managing Director.
ARTICLE III
EXERCISE OF WARRANTS
Section 3.1 Exercise Period. The Warrants are exercisable at any time and from time to time, in whole or in part, commencing on the Issuance Date (September 29, 2023) and ending at 5:00 p.m. (New York City time) on the tenth (10th) anniversary of the Issuance Date (September 29, 2033) (the "Expiration Date"). Any Warrants not exercised on or prior to the Expiration Date shall automatically expire and become null and void, and the Holder shall have no further rights with respect to such expired Warrants; provided, however, that the put rights set forth in Article VI shall survive with respect to any Warrants outstanding on the Expiration Date to the extent a Put Event has occurred prior to such date and the Holder has delivered a Put Notice that remains outstanding.
Section 3.2 Exercise Price. The exercise price per Warrant Share shall be $0.01 (the "Exercise Price"), subject to adjustment from time to time as provided in Article IV. The Exercise Price is nominal and reflects the agreed consideration structure under the Mezzanine Credit Agreement, pursuant to which the primary consideration for the Warrants is the extension of credit by the Holder to the Company.
Section 3.3 Manner of Exercise.
(a) To exercise all or any portion of the Warrants, the Holder shall deliver to the Company at its principal office (or such other office as the Company may designate):
(i) a completed and duly executed Exercise Notice in the form attached hereto as Exhibit B, specifying the number of Warrant Shares to be purchased and the exercise method elected;
(ii) the applicable Warrant Certificate (or, in the event that the Warrant Certificate has been lost, stolen, or destroyed, an affidavit of loss and an indemnity agreement in form and substance reasonably satisfactory to the Company);
(iii) payment of the aggregate Exercise Price in respect of the Warrant Shares being purchased, by one of the methods described in Section 3.3(b) below (unless the Holder elects a net exercise pursuant to Section 3.4); and
(iv) such other documents, instruments, and certifications as the Company may reasonably request in connection with compliance with applicable securities laws.
(b) Payment of the aggregate Exercise Price may be made by any of the following methods, at the Holder's election: (i) delivery of cash; (ii) wire transfer of immediately available funds to an account designated by the Company; (iii) delivery of a certified or official bank check payable to the order of the Company; or (iv) net exercise (cashless exercise) pursuant to Section 3.4.
(c) Partial exercise of the Warrants is permitted. In the event of a partial exercise, the Company shall, within five (5) Business Days following such exercise, issue to the Holder a new Warrant Certificate representing the unexercised balance of the Warrants, which new Warrant Certificate shall in all other respects be identical to the surrendered Warrant Certificate.
(d) Upon receipt of all items required for a valid exercise, the Company shall, within five (5) Business Days, issue to the Holder the number of Warrant Shares specified in the Exercise Notice and deliver evidence thereof (in certificated or book-entry form) to the Holder at the address specified in the Exercise Notice.
(e) The date of exercise shall be deemed to be the date on which the Company receives all of the items described in Section 3.3(a) necessary to effect a valid exercise. In the event any item is received after 5:00 p.m. (New York City time) on a Business Day, the date of exercise shall be deemed to be the next succeeding Business Day.
Section 3.4 Net (Cashless) Exercise.
(a) In lieu of making a cash payment of the Exercise Price, the Holder may elect a net exercise (also referred to as a "cashless exercise") by so indicating on the Exercise Notice. Upon a net exercise, the Company shall issue to the Holder a number of Warrant Shares determined in accordance with the following formula:
Net Warrant Shares = (A − B) × C / A
Where:
A = the Fair Market Value per share of Common Stock on the date of exercise;
B = the Exercise Price then in effect (initially, $0.01 per share);
C = the number of Warrant Shares as to which the Warrants are being exercised.
(b) For purposes of calculating the number of Net Warrant Shares issuable upon a cashless exercise:
(i) if the Common Stock is listed on a national securities exchange, "Fair Market Value" shall mean the closing sale price per share of Common Stock on such exchange on the Business Day immediately preceding the date of exercise; and
(ii) if the Common Stock is not listed on a national securities exchange, "Fair Market Value" shall be determined in good faith by the Board of Directors; provided, however, that the Holder may object to such determination, and any dispute regarding Fair Market Value shall be resolved in accordance with the Independent Appraiser procedures set forth in Section 6.3.
(c) No fractional shares shall be issued in connection with a net exercise. Any fractional share that would otherwise be issuable shall be treated in accordance with Section 3.6.
Section 3.5 Issuance of Warrant Shares.
(a) All Warrant Shares issuable upon exercise of the Warrants shall, when issued in accordance with the terms of this Agreement, be duly authorized, validly issued, fully paid, and nonassessable, and shall be free and clear of all liens, encumbrances, security interests, charges, and claims of any kind whatsoever, other than: (i) restrictions on transfer arising under applicable federal and state securities laws; (ii) restrictions set forth in the Registration Rights Agreement; and (iii) any restrictions set forth in any stockholders' agreement or similar agreement to which the Holder becomes a party.
(b) The Company shall deliver to the Holder certificates or book-entry evidence of the Warrant Shares within five (5) Business Days following the date of exercise. Certificates, if issued, shall be registered in the name of the Holder or such nominee as the Holder may designate in the Exercise Notice.
(c) Each certificate or book-entry statement representing Warrant Shares that have not been registered under the Securities Act shall bear a legend substantially to the following effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION THEREFROM."
Section 3.6 Fractional Shares. No fractional shares of Common Stock shall be issued upon the exercise of the Warrants. If the exercise of the Warrants would result in the issuance of a fractional share, the Company shall, in lieu of issuing such fractional share, pay to the Holder an amount in cash equal to such fraction multiplied by the Fair Market Value per share of Common Stock as of the date of exercise, rounded to the nearest cent.
Section 3.7 No Rights as Stockholder Prior to Exercise. Except as otherwise expressly provided in this Agreement (including, without limitation, the anti-dilution protections set forth in Article IV, the information rights set forth in Section 5.3, the put rights set forth in Article VI, and the notice rights set forth in Section 5.4), the Holder shall not, by virtue of holding the Warrants, be entitled to any rights of a stockholder of the Company with respect to the Warrant Shares, including the right to vote, to receive dividends, or to receive notice of or attend meetings of stockholders, until the Warrants have been duly exercised and the Warrant Shares have been issued to the Holder in accordance with this Agreement.
ARTICLE IV
ANTI-DILUTION ADJUSTMENTS
Section 4.1 Weighted-Average Broad-Based Anti-Dilution.
(a) If at any time after the Issuance Date the Company issues or sells, or is deemed to issue or sell, any additional shares of Common Stock (or any securities convertible into or exchangeable or exercisable for shares of Common Stock) at a price per share (or having an effective conversion, exchange, or exercise price per share) less than the Fair Market Value per share of Common Stock on the date of such issuance or sale (a "Dilutive Issuance"), then the number of Warrant Shares issuable upon exercise of the Warrants shall be adjusted using the following weighted-average broad-based formula:
Adjusted Warrant Shares = Prior Warrant Shares × (A + B) / (A + C)
Where:
A = the number of shares of Common Stock outstanding on a Fully-Diluted Basis immediately prior to the Dilutive Issuance;
B = the number of shares of Common Stock that the aggregate consideration received (or deemed received) by the Company for the total number of additional shares of Common Stock issued (or deemed issued) in the Dilutive Issuance would purchase at the then-current Fair Market Value per share;
C = the number of additional shares of Common Stock actually issued (or deemed issued) in the Dilutive Issuance.
(b) Upon any adjustment to the number of Warrant Shares pursuant to this Section 4.1, the Exercise Price shall be correspondingly adjusted so that the aggregate Exercise Price payable upon exercise of all outstanding Warrants remains constant. Accordingly:
Adjusted Exercise Price = Prior Aggregate Exercise Price / Adjusted Warrant Shares
(c) For purposes of this Section 4.1, the issuance of any securities convertible into, exchangeable for, or exercisable for shares of Common Stock shall be deemed to be an issuance of the maximum number of shares of Common Stock issuable upon conversion, exchange, or exercise thereof at the lowest possible conversion, exchange, or exercise price. If the terms of any such convertible, exchangeable, or exercisable securities change after the initial issuance date, resulting in an increase in the number of shares issuable or a decrease in the conversion, exchange, or exercise price, such change shall be treated as a new Dilutive Issuance as of the date of such change.
Section 4.2 Stock Splits, Combinations, and Dividends.
(a) If at any time after the Issuance Date the Company effects a subdivision (stock split) of the outstanding Common Stock into a greater number of shares, or a combination (reverse stock split) of the outstanding Common Stock into a smaller number of shares, or issues shares of Common Stock by way of a stock dividend or other distribution, the number of Warrant Shares issuable upon exercise of the Warrants and the Exercise Price shall be proportionally adjusted as follows:
(i) In the case of a stock split or stock dividend: the number of Warrant Shares shall be increased in proportion to the increase in the total number of outstanding shares, and the Exercise Price per Warrant Share shall be correspondingly decreased; and
(ii) In the case of a reverse stock split or combination: the number of Warrant Shares shall be decreased in proportion to the decrease in the total number of outstanding shares, and the Exercise Price per Warrant Share shall be correspondingly increased.
(b) Any adjustment under this Section 4.2 shall become effective immediately after the record date for the determination of stockholders entitled to receive such stock split, combination, dividend, or distribution, as applicable.
Section 4.3 Reorganizations, Mergers, Consolidations.
(a) In the event of any capital reorganization of the Company, or any merger, consolidation, or similar business combination transaction in which the Common Stock is exchanged for or converted into other securities, cash, or property, the Warrants shall thereafter be exercisable for the kind and number of securities, cash, or other property that the Holder would have been entitled to receive had the Holder exercised the Warrants in full immediately prior to such reorganization, merger, consolidation, or similar transaction.
(b) The Company shall not effect any such reorganization, merger, consolidation, or similar transaction unless, prior to the consummation thereof, the successor or acquiring entity (if other than the Company) assumes, by a written instrument delivered to the Holder, all of the obligations of the Company under this Agreement. Such written instrument shall provide for adjustments to the number and kind of securities, cash, or property issuable upon exercise of the Warrants that shall be as nearly equivalent as practicable to the adjustments provided for in this Article IV, taking into account the kind and amount of securities, cash, or property into which the Common Stock has been converted or exchanged.
(c) The provisions of this Section 4.3 shall similarly apply to successive reorganizations, mergers, consolidations, and similar transactions.
Section 4.4 Distributions of Assets or Securities.
(a) If at any time after the Issuance Date the Company distributes to all holders of Common Stock, as a class, any assets, securities (other than shares of Common Stock covered by Section 4.2), or evidence of indebtedness, whether by way of dividend, spin-off, split-off, or otherwise (other than cash dividends paid out of current earnings), the number of Warrant Shares shall be adjusted so that, upon exercise of the Warrants, the Holder shall receive the same benefit of such distribution as if the Holder had been a holder of Common Stock immediately prior to the record date for such distribution.
(b) Such adjustment shall be effected by increasing the number of Warrant Shares issuable upon exercise of the Warrants by a fraction, the numerator of which shall be the Fair Market Value per share of Common Stock immediately prior to the record date for such distribution and the denominator of which shall be the Fair Market Value per share of Common Stock immediately following such distribution. The Exercise Price shall be correspondingly adjusted so that the aggregate Exercise Price remains constant.
Section 4.5 Excluded Issuances. Notwithstanding anything to the contrary in Sections 4.1 through 4.4, no adjustment to the number of Warrant Shares or the Exercise Price shall be made as a result of any of the following issuances (collectively, "Excluded Issuances"):
(a) shares of Common Stock (or options, restricted stock units, or other equity awards with respect thereto) issued or issuable to employees, officers, directors, or consultants of the Company or any of its subsidiaries pursuant to equity incentive plans, stock option plans, or similar compensatory arrangements approved by the Board of Directors; provided that the aggregate number of shares reserved for issuance under all such plans does not exceed 10% of the Common Stock outstanding on the Issuance Date (on a Fully-Diluted Basis, excluding the Warrants);
(b) shares of Common Stock issued in connection with an IPO;
(c) shares of Common Stock issued upon exercise of the Warrants issued pursuant to this Agreement;
(d) shares of Common Stock issued as consideration in connection with bona fide acquisitions, mergers, joint ventures, or strategic partnerships approved by the Board of Directors; and
(e) shares of Common Stock issued upon the exercise, conversion, or exchange of securities outstanding on the Issuance Date and described on Schedule 1 hereto.
Section 4.6 Certificate of Adjustment.
(a) Upon any adjustment to the number of Warrant Shares or the Exercise Price pursuant to this Article IV, the Company shall promptly, and in any event within ten (10) Business Days following the effective date of such adjustment, deliver to the Holder a certificate executed by the Company's Chief Financial Officer (currently Janet R. Prescott, or her successor in such office) setting forth in reasonable detail: (i) the adjusted number of Warrant Shares issuable upon exercise of the Warrants; (ii) the adjusted Exercise Price; and (iii) the facts and circumstances giving rise to the adjustment, including the computation thereof.
(b) The Holder may dispute any adjustment determination set forth in any certificate delivered pursuant to this Section 4.6 by providing written notice of such dispute to the Company within thirty (30) days following receipt of such certificate. Any such dispute shall be resolved by the Independent Appraiser, whose determination shall be final and binding on the parties, absent manifest error. The costs of the Independent Appraiser in resolving any such dispute shall be borne equally by the Company and the Holder.
Section 4.7 No Impairment. The Company shall not, by amendment of its certificate of incorporation or bylaws, or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities, or any other action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company. The Company shall at all times in good faith assist in carrying out all of the provisions of this Article IV and in taking all such actions as may be necessary or appropriate in order to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company shall not increase the par value of any shares of Common Stock issuable upon the exercise of the Warrants above the Exercise Price then in effect, and shall take all such actions as may be necessary or appropriate so that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of the Warrants.
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 Reservation of Shares.
(a) The Company shall at all times while any Warrants remain outstanding reserve and keep available, out of its authorized and unissued shares of Common Stock, a number of shares of Common Stock sufficient to permit the exercise in full of all outstanding Warrants (after giving effect to all adjustments pursuant to Article IV).
(b) If at any time the number of authorized but unissued shares of Common Stock shall be insufficient to permit the exercise in full of all outstanding Warrants, the Company shall promptly take all corporate action necessary to increase the authorized number of shares of Common Stock to such number as shall be sufficient to permit such exercise, including calling a meeting of stockholders or soliciting written consents of stockholders for the purpose of approving an amendment to the Company's certificate of incorporation to increase the number of authorized shares.
(c) The Company shall use its best efforts to obtain any authorization, consent, approval, or other action by, or make any filing with, any governmental authority that may be required in connection with the issuance of the Warrant Shares upon the exercise of the Warrants.
Section 5.2 No Liens on Warrant Shares. All Warrant Shares, when issued upon the exercise of the Warrants, shall be free and clear of all taxes, liens, encumbrances, security interests, charges, and claims of any kind, other than: (a) restrictions on transfer arising under applicable federal and state securities laws; (b) restrictions set forth in the Registration Rights Agreement; and (c) any restrictions set forth in any stockholders' agreement or similar agreement to which the Holder voluntarily becomes a party. The Company shall pay all documentary, stamp, and similar taxes and charges that may be imposed with respect to the issuance, delivery, or transfer of the Warrant Shares; provided, however, that the Company shall not be required to pay any tax or charge that may be imposed with respect to any transfer involved in the issuance or delivery of Warrant Shares in a name other than that of the Holder.
Section 5.3 Information Rights. So long as any Warrants remain outstanding and unexercised, the Company shall provide to the Holder the following information:
(a) Annual Financial Statements. Within one hundred twenty (120) days after the end of each fiscal year of the Company, audited consolidated financial statements of the Company and its subsidiaries for such fiscal year, prepared in accordance with generally accepted accounting principles applied on a consistent basis, audited by Braddock & Saylor LLP or such other nationally recognized independent registered public accounting firm as may be engaged by the Company from time to time, together with the report thereon of such independent auditors;
(b) Quarterly Financial Statements. Within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Company, unaudited consolidated financial statements of the Company and its subsidiaries for such fiscal quarter and for the year-to-date period then ended, prepared in accordance with generally accepted accounting principles applied on a consistent basis (subject to normal year-end audit adjustments and the absence of footnotes), certified by the Chief Financial Officer of the Company;
(c) Monthly Management Reports. If reasonably requested by the Holder, monthly management reports or operating summaries in such form and containing such information as the Company customarily prepares for its Board of Directors;
(d) Notice of Material Events. Prompt written notice (and in any event within five (5) Business Days of the occurrence thereof) of: (i) any material adverse change in the business, operations, financial condition, or prospects of the Company and its subsidiaries, taken as a whole; (ii) any Change of Control or proposed Change of Control; and (iii) any IPO or proposed IPO; and
(e) Compliance Certificates. Copies of all compliance certificates, financial covenants calculations, and similar reports delivered by the Company to the Mezzanine Lender under the Mezzanine Credit Agreement, concurrently with such delivery.
Section 5.4 Notice of Certain Events. The Company shall give the Holder at least twenty (20) Business Days' prior written notice (or, if twenty (20) Business Days' prior notice is not practicable, the maximum prior notice that is practicable under the circumstances) of:
(a) any proposed or anticipated Change of Control;
(b) any proposed or anticipated IPO, including the expected pricing date and the terms of the offering;
(c) any Dilutive Issuance (other than an Excluded Issuance), including the number of shares proposed to be issued and the price per share;
(d) any proposed amendment to the Company's certificate of incorporation or bylaws that would adversely affect the rights of the Holder under this Agreement or the terms of the Warrants;
(e) any proposed voluntary dissolution, liquidation, or winding up of the Company; and
(f) the establishment of any record date for the determination of stockholders entitled to receive any dividend, distribution, or other right with respect to the Common Stock.
Section 5.5 Compliance with Laws. The Company shall comply in all material respects with all applicable federal and state securities laws and regulations in connection with the issuance of the Warrants, the Warrant Certificate, and the Warrant Shares, including all required filings and registrations (or exemptions therefrom) under the Securities Act, the Securities Exchange Act of 1934, as amended, and applicable state "blue sky" laws.
Section 5.6 Tax Reporting. The Company and the Holder shall cooperate in good faith with respect to all tax reporting matters arising out of or relating to the issuance of the Warrants, including (a) the allocation of the issue price of the Mezzanine Loan between the debt component and the Warrants in a manner consistent with their mutual agreement and the applicable provisions of the Internal Revenue Code of 1986, as amended (including, without limitation, Sections 1271 through 1275 thereof relating to original issue discount), and (b) the preparation and filing of all tax returns and information statements reflecting such allocation. Any such allocation shall be consistent with the original issue discount analysis prepared in connection with the Mezzanine Credit Agreement. Neither party shall take a position on any tax return or in any tax proceeding that is inconsistent with such allocation unless required to do so by applicable law or a "determination" within the meaning of Section 1313 of the Internal Revenue Code of 1986, as amended.
ARTICLE VI
PUT RIGHTS
Section 6.1 Put Right Triggers. The Holder shall have the right to require the Company to purchase all or any portion of the Warrants (whether exercised or unexercised) and, if the Warrants have been exercised, the Warrant Shares, at the Put Price upon the occurrence of any of the following events (each, a "Put Event"):
(a) a Change of Control, as defined in Section 1.1, including any of the following: (i) any Person or group (other than Cascade Ridge and its Affiliates) acquiring beneficial ownership of more than 50% of the voting equity interests of the Company; (ii) the Company ceasing to be a direct wholly-owned subsidiary of Cascade Ridge SLG Holdings, LLC (other than as a result of a permitted reorganization under which the Company becomes a direct wholly-owned subsidiary of another Affiliate of Cascade Ridge); or (iii) a sale of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to any Person other than Cascade Ridge or an Affiliate of Cascade Ridge;
(b) an IPO; or
(c) the seventh (7th) anniversary of the Issuance Date (i.e., September 29, 2030) (the "Anniversary Put Date").
Section 6.2 Exercise of Put Right.
(a) The Holder may exercise its put right under this Article VI by delivering to the Company a written notice (a "Put Notice") specifying: (i) the number of Warrants (or Warrant Shares) being put to the Company; (ii) the Put Event giving rise to the put right; and (iii) the Holder's calculation of the Put Price. The Put Notice must be delivered within sixty (60) days following the occurrence of a Put Event described in Section 6.1(a) or Section 6.1(b), or at any time on or after September 29, 2030 in the case of the anniversary trigger described in Section 6.1(c).
(b) The Company shall consummate the purchase of the Warrants (or Warrant Shares, as applicable) within thirty (30) Business Days following its receipt of the Put Notice (the "Put Date"). On the Put Date, the Holder shall deliver to the Company the Warrant Certificates (or stock certificates or book-entry evidence, as applicable) representing the Warrants or Warrant Shares being purchased, and the Company shall pay the Put Price to the Holder in accordance with Section 6.4.
(c) If a Change of Control constitutes both a mandatory prepayment event under the Mezzanine Credit Agreement (requiring prepayment at 103% of the outstanding principal amount plus all accrued and unpaid interest, including payment-in-kind interest) and a Put Event under this Agreement, the Holder may exercise both the mandatory prepayment right under the Mezzanine Credit Agreement and the put right under this Agreement simultaneously, and the Company shall satisfy both obligations concurrently upon consummation of the Change of Control.
Section 6.3 Put Price.
(a) The "Put Price" shall equal the Fair Market Value of the Warrant Shares (calculated on an as-exercised basis with respect to any unexercised Warrants) as of the date of the Put Notice, less the aggregate Exercise Price that would be payable upon exercise (in the case of unexercised Warrants).
(b) Fair Market Value shall be determined as follows:
(i) If the Common Stock is publicly traded on a national securities exchange as of the date of the Put Notice, the Fair Market Value per share shall be the volume-weighted average closing sale price per share of Common Stock on such exchange for the twenty (20) consecutive trading days ending on the trading day immediately preceding the date of the Put Notice.
(ii) If the Common Stock is not publicly traded as of the date of the Put Notice, the Fair Market Value per share shall be determined by an Independent Appraiser mutually selected by the Company and the Holder. The Independent Appraiser shall determine the fair market value of the Common Stock as a going concern, without any minority discount or discount for lack of marketability, and shall consider all relevant factors, including the Company's historical and projected financial performance, comparable company valuations, comparable transaction multiples, discounted cash flow analysis, and the value of the Company's tangible and intangible assets.
(iii) If the Company and the Holder are unable to agree upon the selection of an Independent Appraiser within fifteen (15) Business Days following the date of the Put Notice, either party may request the American Arbitration Association to appoint an Independent Appraiser meeting the qualifications set forth in Section 1.1, and such appointment shall be final and binding on the parties.
(iv) The cost and expense of the Independent Appraiser shall be borne equally by the Company and the Holder.
(v) The determination of the Independent Appraiser shall be final and binding on the parties hereto, absent manifest error. The Independent Appraiser shall deliver its written determination of Fair Market Value within forty-five (45) days following its engagement.
Section 6.4 Payment of Put Price.
(a) The Put Price shall be payable in cash by wire transfer of immediately available funds to an account designated by the Holder on or before the Put Date.
(b) If the Company is unable to pay the Put Price in full on the Put Date due to contractual restrictions contained in the Senior Credit Agreement, the Intercreditor Agreement, or any refinancing or replacement thereof, or due to restrictions arising under applicable law, the unpaid portion of the Put Price shall constitute an obligation of the Company and shall bear interest from the Put Date until paid in full at the Default Rate (1,300 basis points per annum), which is the rate applicable under the Mezzanine Credit Agreement. Such unpaid Put Price and accrued interest thereon shall be payable promptly upon the earliest of: (i) the date on which such contractual or legal restrictions no longer apply; (ii) the maturity, refinancing, or repayment of the indebtedness giving rise to such restrictions; and (iii) the occurrence of a Change of Control or an IPO.
(c) Any payment of the Put Price shall be made without set-off, deduction, or counterclaim by the Company, except to the extent of any undisputed claims for indemnification under Article X.