WARRANT AGREEMENT

WARRANT AGREEMENT
Dated as of April 22, 2021
by and between
CRESTLINE PACKAGING SOLUTIONS LLC an Ohio limited liability company
and
IRONWOOD CAPITAL FINANCE LLC a Delaware limited liability company
WARRANT AGREEMENT
April 22, 2021
THIS WARRANT AGREEMENT (this "Agreement") is entered into as of April 22, 2021 (the "Effective Date"), by and between CRESTLINE PACKAGING SOLUTIONS LLC, an Ohio limited liability company (the "Company" or the "Issuer"), and IRONWOOD CAPITAL FINANCE LLC, a Delaware limited liability company (the "Holder" or the "Warrantholder"). The Company and the Holder are each referred to herein individually as a "Party" and collectively as the "Parties."
This Agreement is entered into in connection with that certain Mezzanine Credit Agreement dated as of April 22, 2021, by and between the Company and the Holder (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement").
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RECITALS
WHEREAS:
A. The Company is an Ohio limited liability company duly organized and validly existing under the laws of the State of Ohio, engaged in the business of specialty packaging and industrial chemical coatings for the food and beverage sector, with its principal executive offices located at 4510 Harshman Road, Dayton, OH 45424;
B. The Company is seventy-eight percent (78%) owned by Ridgeway Capital Partners Fund III, L.P., a Delaware limited partnership ("Ridgeway"), and twenty-two percent (22%) owned by certain members of the Company's management team and founders, as more particularly described in Schedule I hereto;
C. Pursuant to the Credit Agreement, the Holder has agreed to extend a twenty million dollar ($20,000,000) subordinated secured mezzanine term loan facility (the "Mezzanine Loan") to the Company, subject to the terms and conditions set forth therein;
D. As additional consideration for the Holder making the Mezzanine Loan available to the Company, and as an inducement for the Holder to enter into the Credit Agreement and to fund the Mezzanine Loan, the Company has agreed to issue to the Holder detachable warrants to purchase membership units in the Company equal to two and one-half percent (2.5%) of the fully diluted equity of the Company at an exercise price of one dollar ($1.00) per unit, on the terms and subject to the conditions set forth in this Agreement;
E. This Warrant Agreement constitutes one of the "Loan Documents" as such term is defined in the Credit Agreement, and the rights and obligations of the Parties hereunder are intended to supplement and complement the rights and obligations of the Parties under the Credit Agreement and the other Loan Documents; and
F. The warrants evidenced by this Agreement are detachable from the Credit Agreement and the Mezzanine Promissory Note dated as of April 22, 2021, and shall remain outstanding and exercisable regardless of (i) the repayment, prepayment, acceleration, or satisfaction in full of any obligations arising under the Credit Agreement, (ii) the termination of the Credit Agreement, or (iii) any release or discharge of any lien, security interest, or other encumbrance granted in connection with the Mezzanine Loan.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby 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 defined in this Agreement shall have the meanings ascribed to them in the 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 ownership of voting securities, by contract, or otherwise.
"Board" or "Board of Managers" means the board of managers or equivalent governing body of the Company, as constituted from time to time in accordance with the Operating Agreement.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which commercial banks in New York, New York are authorized or required by law, regulation, or executive order to close.
"Change of Control" means any transaction or series of related transactions resulting in: (a) any Person or "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), other than Ridgeway Capital Partners Fund III, L.P. and its Affiliates, acquiring direct or indirect beneficial ownership of more than fifty percent (50%) of the voting interests or economic interests of the Company; (b) a merger, consolidation, recapitalization, or similar business combination transaction involving the Company in which the Company is not the surviving entity, or in which the holders of the Company's equity securities immediately prior to such transaction hold less than fifty percent (50%) of the voting power of the surviving or resulting entity immediately following such transaction; or (c) a sale, transfer, exclusive license, or other disposition of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, whether in a single transaction or a series of related transactions.
"Company" means Crestline Packaging Solutions LLC, an Ohio limited liability company, and its successors and permitted assigns.
"Credit Agreement" means that certain Mezzanine Credit Agreement dated as of April 22, 2021, by and between the Company and the Holder, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
"Equity Securities" means all membership units, membership interests, and other equity securities of the Company, of whatever class or series, whether now existing or hereafter created, including all options, warrants (including this Warrant), convertible instruments, exchangeable securities, and other rights to acquire or receive any membership units or membership interests in the Company, whether vested or unvested, exercised or unexercised.
"Exercise Date" means the date on which a valid Exercise Notice is delivered by the Holder to the Company in accordance with the terms of this Agreement.
"Exercise Notice" means a written notice from the Holder to the Company substantially in the form attached hereto as Exhibit A, delivered in accordance with Section 3.1 hereof.
"Exercise Period" means the period commencing on April 22, 2021 and ending at 5:00 p.m. (New York City time) on the Expiration Date.
"Exercise Price" means one dollar ($1.00) per Warrant Unit, subject to adjustment as provided in Article IV hereof.
"Excluded Issuances" means: (a) membership units issued upon exercise of the Warrant; (b) membership units or other Equity Securities issued to employees, directors, managers, officers, or consultants of the Company or any Subsidiary pursuant to an equity incentive plan, stock option plan, restricted unit plan, or similar compensatory arrangement that has been duly approved by the Board; (c) membership units or other Equity Securities issued in connection with bona fide acquisitions, mergers, or strategic transactions approved by the Board; and (d) membership units or other Equity Securities issued upon the exercise, conversion, or exchange of options, warrants, convertible securities, or other rights that are outstanding as of the date hereof and are described on Schedule I.
"Expiration Date" means the tenth (10th) anniversary of the date of this Agreement, which is April 22, 2031.
"Fair Market Value" means the fair market value of the Warrant Units (or, as applicable, the Warrant), as determined in accordance with Section 3.3 hereof.
"Fully Diluted Basis" means, as of any date of determination, the total number of membership units of the Company that would be outstanding if all outstanding options, warrants (including this Warrant), convertible securities, exchangeable securities, and other rights to acquire or receive membership units in the Company were exercised, converted, or exchanged in full, regardless of whether such options, warrants, or other rights are then vested, exercisable, or in-the-money.
"Holder" means Ironwood Capital Finance LLC, a Delaware limited liability company, and its permitted successors and assigns in accordance with this Agreement.
"Intercreditor Agreement" means that certain Intercreditor Agreement dated as of April 22, 2021, by and among Pinnacle Commercial Bank, N.A., as senior lender, Ironwood Capital Finance LLC, as mezzanine lender, and acknowledged and agreed to by the Company, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"IPO" means an initial public offering of equity securities of the Company (or any successor entity) pursuant to a registration statement declared effective under the Securities Act.
"Liquidity Event" means (a) a Change of Control, (b) an IPO, or (c) any other transaction or series of related transactions resulting in substantially all holders of Equity Securities of the Company receiving cash, publicly traded securities, or a combination thereof in exchange for their Equity Securities.
"Mezzanine Promissory Note" means that certain Mezzanine Promissory Note dated as of April 22, 2021, in the original principal amount of $20,000,000, made by the Company in favor of the Holder, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Operating Agreement" means the Amended and Restated Operating Agreement of Crestline Packaging Solutions LLC, dated as of January 8, 2018, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
"Permitted Transferee" has the meaning set forth in Section 6.2.
"Person" means any individual, corporation, limited liability company, partnership, limited partnership, joint venture, trust, estate, unincorporated organization, governmental authority, or other entity of any kind.
"Pledge Agreement" means that certain Pledge Agreement dated as of April 22, 2021, by and between the Company and the Holder, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Put Event" has the meaning set forth in Section 5.1.
"Ridgeway" means Ridgeway Capital Partners Fund III, L.P., a Delaware limited partnership.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Security Agreement" means that certain Security Agreement dated as of April 22, 2021, by and between the Company and the Holder, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Senior Credit Agreement" means that certain Credit Agreement dated as of September 12, 2019, by and between the Company and Pinnacle Commercial Bank, N.A., as amended, restated, supplemented, or otherwise modified from time to time.
"Subsidiary" means Crestline Coatings Inc., an Ohio corporation (Ohio Secretary of State Filing No. 4389201), and any other entity of which the Company, directly or indirectly, owns more than fifty percent (50%) of the outstanding equity interests or has the power to elect or appoint a majority of the board of directors or equivalent governing body.
"Warrant" means the warrant to purchase membership units of the Company evidenced by this Agreement, including any amendments, supplements, or modifications hereto.
"Warrant Units" means the membership units of the Company issuable upon exercise of the Warrant, representing two and one-half percent (2.5%) of the Fully Diluted equity of the Company as of the date hereof, subject to anti-dilution adjustment in accordance with Article IV hereof.
Section 1.2 — Interpretation
The following rules of interpretation shall apply to this Agreement:
(a) The headings and captions contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.
(b) Unless the context otherwise requires, all references in this Agreement to "Sections," "Articles," "Exhibits," and "Schedules" shall be deemed to refer to the corresponding Sections, Articles, Exhibits, and Schedules of this Agreement.
(c) Defined terms shall include the singular and the plural, and reference to any gender shall include each other gender.
(d) The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation" regardless of whether such phrase appears therewith.
(e) The words "hereof," "herein," "hereunder," and words of similar import shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(f) References to any agreement, document, or instrument shall mean such agreement, document, or instrument as amended, restated, supplemented, modified, or replaced from time to time in accordance with its terms.
(g) References to any law, statute, regulation, or rule shall mean such law, statute, regulation, or rule as amended, supplemented, or replaced from time to time, and shall include all rules and regulations promulgated thereunder.
(h) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted.
(i) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, as more particularly set forth in Section 12.1 hereof.
Section 1.3 — Relationship to Credit Agreement and Other Loan Documents
(a) This Agreement is one of the "Loan Documents" as such term is defined in the Credit Agreement. To the extent any provision of this Agreement is inconsistent with or contrary to any provision of the Credit Agreement with respect to the rights and obligations of the Parties relating to the Warrant and the Warrant Units, the provisions of this Agreement shall control.
(b) Notwithstanding the foregoing, the Warrant is detachable from the Credit Agreement, the Mezzanine Promissory Note, and the other Loan Documents, and shall survive and remain outstanding and exercisable in accordance with its terms regardless of: (i) the repayment, prepayment, acceleration, or satisfaction in full of the Mezzanine Loan or any other obligations arising under the Credit Agreement or any other Loan Document; (ii) the termination of the Credit Agreement; (iii) any release, discharge, or termination of any lien, security interest, pledge, or other encumbrance granted in connection with the Mezzanine Loan; or (iv) the occurrence of any event of default, waiver, amendment, or modification under the Credit Agreement or any other Loan Document.
(c) The Parties acknowledge and agree that the Intercreditor Agreement dated as of April 22, 2021, among Pinnacle Commercial Bank, N.A., as senior lender, Ironwood Capital Finance LLC, as mezzanine lender, and acknowledged by the Company, governs the relative priorities and rights of the senior lender and the mezzanine lender with respect to the collateral securing the Mezzanine Loan and the senior credit facility. The Parties further acknowledge and agree that the Warrant and any Warrant Units issued upon exercise thereof are equity interests in the Company and are not subject to the lien subordination, payment subordination, or standstill provisions of the Intercreditor Agreement, and nothing in the Intercreditor Agreement shall restrict, limit, or otherwise impair the rights of the Holder with respect to the Warrant or the Warrant Units under this Agreement.
ARTICLE II — ISSUANCE OF WARRANT
Section 2.1 — Issuance
(a) Subject to the terms and conditions of this Agreement, the Company hereby issues to the Holder, and the Holder hereby accepts from the Company, a Warrant to purchase membership units of the Company equal to two and one-half percent (2.5%) of the Fully Diluted equity of the Company, calculated on a Fully Diluted Basis as of the date hereof.
(b) The number of Warrant Units issuable upon exercise of the Warrant shall be determined by dividing (i) two and one-half percent (2.5%) of the total number of membership units of the Company outstanding on a Fully Diluted Basis as of April 22, 2021, by (ii) the Exercise Price of one dollar ($1.00) per unit. For the avoidance of doubt, the specific number of Warrant Units is set forth on Schedule I hereto, and such number shall be subject to adjustment as provided in Article IV hereof.
(c) The Company shall deliver to the Holder, on or promptly following the date hereof (and in any event within five (5) Business Days of the date hereof), a certificate or other written evidence of the Warrant in form reasonably satisfactory to the Holder, registered in the name of the Holder.
Section 2.2 — Consideration
The Warrant is issued as additional consideration for the Holder's commitment to extend, and the Holder's actual funding of, the twenty million dollar ($20,000,000) Mezzanine Loan pursuant to the Credit Agreement. The Parties acknowledge and agree that the Warrant constitutes a material inducement for the Holder to enter into the Credit Agreement and to fund the Mezzanine Loan, and that the Company has received adequate and sufficient consideration for the issuance of the Warrant. The Warrant is detachable from the Credit Agreement and the Mezzanine Promissory Note dated as of April 22, 2021, and shall not be deemed to be a part of, or an accessory to, the Credit Agreement or the Mezzanine Promissory Note for any purpose.
Section 2.3 — No Fractional Units
No fractional membership units shall be issued upon exercise of the Warrant. If the exercise of the Warrant would otherwise result in the issuance of a fractional membership unit, the number of membership units issuable shall be rounded to the nearest whole unit (with fractions of 0.5 or greater rounded up and fractions of less than 0.5 rounded down), or, at the Company's sole election, the Company shall pay to the Holder, in lieu of such fractional unit, an amount in cash equal to the product of (a) such fractional unit and (b) the Fair Market Value per membership unit as of the applicable Exercise Date. Any such cash payment shall be made within five (5) Business Days of the applicable Exercise Date.
ARTICLE III — EXERCISE OF WARRANT
Section 3.1 — Exercise Period and Method
(a) The Warrant shall be exercisable, in whole or in part, at any time and from time to time during the Exercise Period, which shall commence on April 22, 2021 and shall terminate at 5:00 p.m. (New York City time) on April 22, 2031 (the Expiration Date).
(b) To exercise the Warrant (in whole or in part), the Holder shall deliver to the Company at its principal office at 4510 Harshman Road, Dayton, OH 45424, Attention: Raymond Cho, General Counsel, all of the following:
(i) An Exercise Notice, duly executed by an authorized officer or representative of the Holder, substantially in the form attached hereto as Exhibit A, specifying the number of Warrant Units to be purchased and the method of payment of the Exercise Price;
(ii) Payment of the aggregate Exercise Price for the number of Warrant Units being purchased, which payment may be made by any of the following methods, as elected by the Holder in the Exercise Notice:
(A) wire transfer of immediately available funds to an account designated by the Company in writing;
(B) certified check or official bank check payable to the order of the Company; or
(C) cashless exercise (net exercise) in accordance with Section 3.2 hereof.
(c) An Exercise Notice shall be irrevocable once delivered, except that the Holder may revoke an Exercise Notice if the Company fails to issue the applicable Warrant Units within the time period specified in Section 3.4 hereof.
(d) For purposes of determining the Exercise Date, the Exercise Notice shall be deemed delivered on the Business Day on which it is actually received by the Company (or, if received after 5:00 p.m. New York City time, on the next succeeding Business Day).
Section 3.2 — Cashless Exercise (Net Exercise)
(a) In lieu of making a cash payment of the aggregate Exercise Price, the Holder may elect, by so indicating in the Exercise Notice, to exercise the Warrant (in whole or in part) on a cashless basis (a "Net Exercise"), in which case the Company shall issue to the Holder a net number of Warrant Units computed in accordance with the following formula:
Net Warrant Units = (A − B) × C ÷ A
where:
A = the Fair Market Value per membership unit on the Exercise Date, determined in accordance with Section 3.3 hereof;
B = the Exercise Price then in effect (initially $1.00 per unit, subject to adjustment pursuant to Article IV);
C = the total number of Warrant Units with respect to which the Holder is exercising the Warrant.
(b) Illustrative Example. By way of illustration only, and not by way of limitation, if the Fair Market Value per membership unit on the Exercise Date is $10.00 (A = $10.00), the Exercise Price is $1.00 (B = $1.00), and the Holder elects to exercise the Warrant with respect to 100,000 Warrant Units (C = 100,000), the number of Net Warrant Units issuable to the Holder pursuant to the Net Exercise would be:
Net Warrant Units = ($10.00 − $1.00) × 100,000 ÷ $10.00 = 90,000 Warrant Units
(c) The Net Exercise right shall be available to the Holder at any time during the Exercise Period, regardless of whether the Warrant is exercisable for cash. No cash payment shall be required from the Holder in connection with a Net Exercise.
(d) In the event that the Fair Market Value per membership unit on the Exercise Date is equal to or less than the Exercise Price (such that A ≤ B), the Holder shall not be entitled to receive any Warrant Units upon a Net Exercise, and the Warrant (to the extent of the Warrant Units as to which the Holder sought to exercise) shall remain outstanding and exercisable for the remainder of the Exercise Period as if no Exercise Notice had been delivered.
Section 3.3 — Fair Market Value Determination
(a) Publicly Traded Securities. If the Company's equity securities are listed or admitted to trading on a national securities exchange or quoted on any established over-the-counter market at the time of determination, the Fair Market Value per membership unit (or equivalent equity security) shall be the volume-weighted average closing price per unit (or equivalent equity security) for the twenty (20) consecutive trading days immediately preceding the Exercise Date (or, in the case of a determination for purposes of Article V, the twenty (20) consecutive trading days immediately preceding the applicable Put Event or call notice, as the case may be), as reported by Westmark Services Inc., L.P. (or, if not available, another nationally recognized quotation service).
(b) Non-Publicly Traded Securities. If the Company's equity securities are not publicly traded (which is the case as of the date hereof), the Fair Market Value per membership unit shall be determined as follows:
(i) The Company and the Holder shall first attempt to determine the Fair Market Value by mutual written agreement. For purposes of this Section 3.3(b), "Fair Market Value" shall mean the price that a willing buyer would pay a willing seller for such membership unit in an arm's-length transaction, without any discount for lack of marketability or minority interest, taking into account all relevant factors, including (without limitation) the Company's financial condition, results of operations, prospects, comparable company valuations, and comparable transaction multiples.
(ii) If the Company and the Holder are unable to agree on the Fair Market Value within fifteen (15) Business Days after the date on which the determination of Fair Market Value becomes necessary (the "Negotiation Period"), the Fair Market Value shall be determined by an independent nationally recognized valuation firm (the "Independent Appraiser") mutually selected by the Company and the Holder within ten (10) Business Days following the expiration of the Negotiation Period. If the Company and the Holder are unable to agree on the selection of an Independent Appraiser within such ten (10) Business Day period, each Party shall select one nationally recognized valuation firm within five (5) Business Days, and the two firms so selected shall jointly select a third nationally recognized valuation firm, which shall serve as the Independent Appraiser.
(iii) The Independent Appraiser shall determine the Fair Market Value per membership unit within thirty (30) days of its engagement, and such determination shall be final and binding upon the Parties absent manifest error or fraud. The costs and expenses of the Independent Appraiser shall be shared equally by the Company and the Holder.
(iv) For the avoidance of doubt, the Fair Market Value determination under this Section 3.3(b) shall be made on a going-concern basis, assuming no discount for lack of marketability or minority interest, and assuming a hypothetical sale of one hundred percent (100%) of the equity of the Company to a willing buyer.
Section 3.4 — Issuance of Warrant Units Upon Exercise
(a) Within five (5) Business Days following receipt of a valid Exercise Notice and, if applicable, payment of the aggregate Exercise Price (or, in the case of a Net Exercise, the valid election thereof), the Company shall:
(i) issue to the Holder the applicable number of Warrant Units;
(ii) update the Company's membership register, books, and records to reflect the Holder (or its designee) as the holder of record of such Warrant Units; and
(iii) take all actions necessary or appropriate to amend or supplement the Operating Agreement to reflect the Holder (or its designee) as a member of the Company, including without limitation the execution and delivery of any joinder agreement, schedule update, or amendment to the Operating Agreement.
(b) The Warrant Units, once issued to the Holder upon exercise of the Warrant, shall be fully paid and nonassessable membership units of the Company and shall have all rights, privileges, preferences, and obligations of membership units under the Operating Agreement, including without limitation all economic rights (including the right to receive distributions, allocations of profits and losses, and liquidation proceeds) and all voting and governance rights, in each case proportionate to the Holder's ownership interest in the Company on a Fully Diluted Basis.
(c) The Company shall not be required to issue any Warrant Units until the Holder has complied in all material respects with the requirements of this Article III, including without limitation the delivery of a duly executed Exercise Notice and the payment of the aggregate Exercise Price (or valid election of Net Exercise).
Section 3.5 — Partial Exercise
(a) The Warrant may be exercised in part from time to time during the Exercise Period. In the event of a partial exercise, the Company shall record the number of Warrant Units so exercised and the remaining number of Warrant Units available for exercise under the Warrant.
(b) The unexercised portion of the Warrant shall remain outstanding and exercisable for the remainder of the Exercise Period, and shall continue to be subject to all of the terms and conditions of this Agreement (including, without limitation, the anti-dilution adjustment provisions of Article IV).
(c) If the Holder exercises the Warrant in part, the Company shall, if requested by the Holder, issue to the Holder a replacement warrant certificate or other written evidence of the Warrant reflecting the remaining unexercised Warrant Units.
Section 3.6 — Expiration
If the Warrant is not exercised in full on or before April 22, 2031 (the Expiration Date), the Warrant shall automatically expire and terminate at 5:00 p.m. (New York City time) on such date, and shall thereafter be void and of no further force or effect. Upon such expiration, neither the Company nor the Holder shall have any further rights or obligations under this Agreement with respect to the expired portion of the Warrant, except as otherwise expressly provided in this Agreement with respect to surviving provisions.
ARTICLE IV — ANTI-DILUTION ADJUSTMENTS
Section 4.1 — Unit Subdivisions and Combinations (Splits and Reverse Splits)
(a) If the Company at any time after the date hereof subdivides (by unit split, unit distribution, reclassification, or otherwise) its outstanding membership units into a greater number of units, the number of Warrant Units issuable upon exercise of the Warrant shall be proportionally increased, and the Exercise Price shall be proportionally decreased, so that the aggregate Exercise Price payable for the total number of Warrant Units issuable upon exercise of the Warrant shall remain unchanged.
(b) If the Company at any time after the date hereof combines (by reverse unit split, reclassification, or otherwise) its outstanding membership units into a lesser number of units, the number of Warrant Units issuable upon exercise of the Warrant shall be proportionally decreased, and the Exercise Price shall be proportionally increased, so that the aggregate Exercise Price payable for the total number of Warrant Units issuable upon exercise of the Warrant shall remain unchanged.
(c) Any adjustment under this Section 4.1 shall become effective immediately after the effective date of such subdivision or combination. For the avoidance of doubt, any such adjustment is intended to preserve the Holder's economic interest in the Company at the same percentage level as existed immediately prior to such subdivision or combination.
Section 4.2 — Distributions and Dividends
If the Company at any time after the date hereof declares or makes a distribution of additional membership units to all holders of outstanding membership units as a dividend or otherwise (other than a subdivision or combination covered by Section 4.1), the number of Warrant Units issuable upon exercise of the Warrant shall be increased by the number of additional membership units that the Holder would have received if the Warrant had been exercised in full immediately prior to the record date for such distribution, and the Exercise Price shall be proportionally decreased so that the aggregate Exercise Price payable for the total number of Warrant Units issuable upon exercise of the Warrant shall remain unchanged. Any such adjustment shall become effective immediately after the record date for such distribution.
Section 4.3 — Issuance Below Exercise Price (Weighted-Average Anti-Dilution)
(a) If the Company at any time after the date hereof issues or sells additional Equity Securities (other than Excluded Issuances) at a price per unit that is less than the Exercise Price then in effect (a "Dilutive Issuance"), the Exercise Price shall be adjusted downward to a new Exercise Price determined by the following broad-based weighted-average formula:
New Exercise Price = EP₁ × (A + B) ÷ (A + C)
where:
EP₁ = the Exercise Price in effect immediately prior to the Dilutive Issuance;
A = the total number of membership units of the Company outstanding on a Fully Diluted Basis immediately prior to the Dilutive Issuance;
B = the total number of membership units that the aggregate consideration received by the Company in the Dilutive Issuance would purchase at the Exercise Price in effect immediately prior to the Dilutive Issuance (i.e., aggregate consideration received ÷ EP₁); and
C = the total number of additional membership units actually issued or sold in the Dilutive Issuance.
(b) Upon any adjustment of the Exercise Price pursuant to this Section 4.3, the number of Warrant Units issuable upon exercise of the Warrant shall be simultaneously adjusted so that the aggregate Exercise Price payable for the total number of Warrant Units issuable upon exercise of the Warrant immediately after such adjustment equals the aggregate Exercise Price payable for the total number of Warrant Units issuable upon exercise of the Warrant immediately prior to such adjustment. In other words, the product of the Exercise Price and the number of Warrant Units shall remain constant before and after the adjustment.
(c) For purposes of this Section 4.3, the following issuances shall constitute "Excluded Issuances" and shall not trigger any anti-dilution adjustment:
(i) membership units issued upon exercise of this Warrant;
(ii) membership units or other Equity Securities issued to employees, directors, managers, officers, or consultants of the Company or any Subsidiary pursuant to an equity incentive plan, stock option plan, restricted unit plan, or similar compensatory arrangement that has been duly approved by the Board (provided that the aggregate number of membership units issuable under all such plans does not exceed ten percent (10%) of the Fully Diluted equity of the Company as of the date hereof, unless the Holder has provided prior written consent);
(iii) membership units or other Equity Securities issued in connection with bona fide acquisitions, mergers, joint ventures, or strategic transactions approved by the Board; and
(iv) membership units or other Equity Securities issued upon the exercise, conversion, or exchange of options, warrants, convertible securities, or other rights that are outstanding as of the date hereof and are described on Schedule I hereto.
(d) If the Company issues Equity Securities for consideration other than cash, the price per unit for purposes of this Section 4.3 shall be determined by the Board in good faith, subject to the Holder's right to dispute such determination through the Independent Appraiser process set forth in Section 3.3(b).
Section 4.4 — Reclassifications, Mergers, Consolidations
(a) If the Company effects a reclassification, recapitalization, reorganization, merger, consolidation, or similar transaction (other than a subdivision, combination, or distribution covered by Sections 4.1 or 4.2), as a result of which the membership units of the Company are converted into, or exchanged for, other securities, cash, or other property, the Holder shall be entitled, upon exercise of the Warrant at any time after the consummation of such transaction, to receive the kind and amount of securities, cash, or other property that the Holder would have been entitled to receive if the Holder had exercised the Warrant in full immediately prior to such transaction.
(b) The Company (or any successor or surviving entity) shall make appropriate provision, in form and substance reasonably satisfactory to the Holder, to ensure that the Holder's rights under this Agreement are preserved following any such transaction, including without limitation by providing that the Warrant shall be exercisable for the kind and amount of securities, cash, or other property receivable upon such transaction in respect of the number of Warrant Units for which the Warrant was exercisable immediately prior to such transaction.
(c) For the avoidance of doubt, a Change of Control transaction that triggers put rights under Article V hereof shall also be subject to this Section 4.4 to the extent the Holder does not exercise its put right and instead elects to retain the Warrant.
Section 4.5 — Notice of Adjustments
The Company shall provide written notice to the Holder within ten (10) Business Days of the occurrence of any event that triggers an adjustment to the Exercise Price or the number of Warrant Units pursuant to this Article IV. Such notice shall specify in reasonable detail:
(a) the nature of the event giving rise to the adjustment;
(b) the adjusted Exercise Price, showing the computation thereof;
(c) the adjusted number of Warrant Units issuable upon exercise of the Warrant; and
(d) the effective date of such adjustment.
The Company shall, upon the reasonable written request of the Holder, provide such additional information and documentation as may be reasonably necessary for the Holder to verify the accuracy of any such adjustment.
Section 4.6 — No Impairment
The Company shall not, by amendment of its Operating Agreement, articles of organization, or other organizational documents, or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Agreement or take any action that would impair, diminish, or adversely affect the rights of the Holder under this Agreement. Without limiting the generality of the foregoing, the Company shall take all actions as may be necessary or appropriate to ensure that the Holder may exercise the Warrant for the full number of Warrant Units at the Exercise Price, as adjusted in accordance with this Article IV.
ARTICLE V — PUT AND CALL MECHANICS
Section 5.1 — Put Right of Holder
(a) Put Events. Each of the following shall constitute a "Put Event":
(i) the occurrence of a Change of Control;
(ii) the fifth (5th) anniversary of the date hereof, which is April 22, 2026 (which the Parties acknowledge coincides with the approximate maturity of the Mezzanine Loan, the stated maturity date under the Mezzanine Promissory Note being May 7, 2026); and
(iii) the consummation of an IPO.
(b) Exercise of Put Right. Upon the occurrence of a Put Event, the Holder shall have the right (but not the obligation) to require the Company (or, in the case of a Change of Control, the successor entity, surviving entity, or acquiring party, as applicable) to purchase all or any portion of the Warrant (whether or not the Warrant has been exercised) and/or any Warrant Units then held by the Holder, at Fair Market Value, by delivering written notice to the Company (a "Put Notice") at any time during the one hundred eighty (180) day period following the occurrence of the applicable Put Event (the "Put Exercise Period"). The Put Notice shall specify:
(i) the Put Event giving rise to the put right;
(ii) the number of Warrant Units (or portion of the Warrant) with respect to which the Holder is exercising the put right; and
(iii) wire transfer instructions for payment of the put price.
(c) Put Price. The purchase price payable by the Company (or successor entity) upon exercise of the put right shall be determined as follows:
(i) With respect to any unexercised portion of the Warrant, the put price shall equal the Fair Market Value of the Warrant Units underlying such unexercised portion of the Warrant, minus the aggregate Exercise Price that would have been payable upon exercise of such portion of the Warrant (but in no event less than zero); and
(ii) With respect to any Warrant Units that have been previously issued upon exercise of the Warrant, the put price shall equal the Fair Market Value of such Warrant Units as of the date of the Put Notice.
(d) Payment. The Company (or successor entity) shall pay the put price to the Holder within thirty (30) days following the determination of Fair Market Value in accordance with Section 3.3, by wire transfer of immediately available funds to the account designated by the Holder in the Put Notice.
(e) Obligation Binding on Successors. In the event of a Change of Control, the Company shall, as a condition to the consummation of the Change of Control transaction, cause the successor entity, surviving entity, or acquiring party (as applicable) to assume the Company's obligations under this Section 5.1 and to agree in writing to be bound by the terms hereof.
Section 5.2 — Call Right of Company
(a) Call Right. The Company (or Ridgeway Capital Partners Fund III, L.P. as designee of the Company) shall have the right (but not the obligation) to purchase all (but not less than all) of the Warrant and/or Warrant Units from the Holder upon the occurrence of a Change of Control or an IPO.
(b) Call Notice. To exercise the call right, the Company (or Ridgeway) shall deliver written notice to the Holder (a "Call Notice") at least thirty (30) days prior to the anticipated closing date of the Change of Control transaction or IPO, as applicable. The Call Notice shall specify:
(i) the transaction giving rise to the call right;
(ii) the anticipated closing date of such transaction;
(iii) the proposed call price, determined in accordance with Section 5.2(c); and
(iv) the proposed date and method of payment.
(c) Call Price. The purchase price payable upon exercise of the call right (the "Call Price") shall equal the Fair Market Value of the Warrant Units (minus the aggregate Exercise Price if the Warrant has not been exercised), determined in accordance with Section 3.3 hereof. For the avoidance of doubt, if the Holder and the Company (or Ridgeway) cannot agree on the Fair Market Value, the independent appraisal process set forth in Section 3.3(b) shall apply, and the costs and expenses of the Independent Appraiser shall be shared equally.
(d) Payment. The Call Price shall be paid to the Holder on or prior to the closing date of the applicable Change of Control transaction or IPO, by wire transfer of immediately available funds to an account designated by the Holder. The Company's (or Ridgeway's) failure to pay the Call Price on or prior to such closing date shall render the Call Notice void and of no further force or effect, and the Holder shall retain all of its rights under this Agreement.
(e) Interaction with Put Right. If both the Company (or Ridgeway) exercises a call right under this Section 5.2 and the Holder exercises a put right under Section 5.1 with respect to the same Put Event, the call right shall take priority, provided that the Call Price equals or exceeds the put price that would have been payable under Section 5.1. If the Call Price is less than the put price, the Holder's put right shall take priority.
Section 5.3 — Tag-Along Right
(a) If Ridgeway or any holder of more than fifty percent (50%) of the outstanding equity of the Company (a "Selling Member") proposes to sell, transfer, or otherwise dispose of all or substantially all of its membership interests in the Company to a third party (a "Tag-Along Sale"), the Selling Member shall provide written notice to the Holder (a "Tag-Along Notice") at least thirty (30) days prior to the anticipated closing of such Tag-Along Sale. The Tag-Along Notice shall include the material terms and conditions of the proposed Tag-Along Sale, including the identity of the proposed purchaser, the purchase price per unit, and the anticipated closing date.
(b) The Holder shall have the right, exercisable by written notice to the Selling Member and the Company within twenty (20) days of receipt of the Tag-Along Notice, to participate in such Tag-Along Sale on the same terms and conditions as the Selling Member, on a pro rata basis based on the Holder's fully diluted ownership percentage.
(c) To participate in a Tag-Along Sale, the Holder may exercise the Warrant (in whole or in part, and including by means of a cashless exercise pursuant to Section 3.2) immediately prior to the closing of such Tag-Along Sale and sell the resulting Warrant Units in the Tag-Along Sale. Alternatively, the Holder may sell the unexercised Warrant in the Tag-Along Sale, provided the purchaser agrees to assume the Company's obligations under this Agreement.
(d) If the Holder elects to participate in a Tag-Along Sale, the Selling Member shall not consummate the Tag-Along Sale unless the proposed purchaser agrees to purchase the Holder's Warrant Units (or Warrant, as applicable) on the same terms and conditions applicable to the Selling Member.
Section 5.4 — Drag-Along Obligation
(a) If holders of at least sixty-six and two-thirds percent (66⅔%) of the outstanding equity of the Company on a Fully Diluted Basis (the "Dragging Members") approve a Change of Control transaction (a "Drag-Along Sale"), the Holder shall be obligated to sell, transfer, and deliver its Warrant and/or Warrant Units in such Drag-Along Sale on the same terms and conditions as the Dragging Members; provided, however, that the Holder shall receive, as consideration for its Warrant and/or Warrant Units, an amount not less than the Fair Market Value of such Warrant Units (minus the aggregate Exercise Price, if the Warrant is unexercised), determined in accordance with Section 3.3 hereof.
(b) The Dragging Members shall provide the Holder with at least thirty (30) days' prior written notice of a Drag-Along Sale, specifying the material terms and conditions thereof, including the identity of the proposed purchaser, the consideration to be received, and the anticipated closing date.
(c) In connection with a Drag-Along Sale, the Holder shall execute and deliver all agreements, instruments, and documents reasonably required to consummate the transaction, including customary representations, warranties, indemnities, and escrow arrangements applicable to equity holders participating in such transaction; provided, however, that the Holder's representations and warranties shall be limited to the Holder's authority, title to its Warrant and/or Warrant Units, and absence of conflicting agreements, and shall not include representations and warranties regarding the Company's business, operations, or financial condition.
(d) The Holder's liability for indemnification obligations in connection with a Drag-Along Sale shall be limited to the Holder's pro rata share (based on the Holder's percentage ownership on a Fully Diluted Basis) of any aggregate indemnification obligations, and in no event shall the Holder's aggregate indemnification liability exceed the total consideration received by the Holder in the Drag-Along Sale.
ARTICLE VI — TRANSFER RESTRICTIONS
Section 6.1 — Restrictions on Transfer
(a) The Warrant and any Warrant Units issued upon exercise thereof have not been registered under the Securities Act or under any state securities laws and may not be offered, sold, transferred, assigned, pledged, hypothecated, or otherwise disposed of (collectively, "Transferred") except (i) in compliance with applicable federal and state securities laws, (ii) in accordance with the terms and conditions of this Article VI, and (iii) subject to the Operating Agreement.
(b) Each certificate or other instrument evidencing the Warrant and/or the Warrant Units shall bear a restrictive legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE ACT AND APPLICABLE STATE SECURITIES LAWS AND PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) AN EXEMPTION FROM REGISTRATION UNDER THE ACT, OR (III) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THESE SECURITIES ARE ALSO SUBJECT TO THE TRANSFER RESTRICTIONS, TAG-ALONG RIGHTS, DRAG-ALONG OBLIGATIONS, AND OTHER RESTRICTIONS SET FORTH IN THAT CERTAIN WARRANT AGREEMENT DATED AS OF APRIL 22, 2021, BY AND BETWEEN THE COMPANY AND IRONWOOD CAPITAL FINANCE LLC, AND THE AMENDED AND RESTATED OPERATING AGREEMENT OF THE COMPANY, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
Section 6.2 — Permitted Transfers
(a) Notwithstanding the restrictions set forth in Section 6.1, the Holder may Transfer the Warrant and/or any Warrant Units, without the prior consent of the Company or the Board, to any of the following (each, a "Permitted Transferee"):
(i) any Affiliate of Ironwood Capital Finance LLC;
(ii) any successor fund or parallel fund managed by the same investment adviser, general partner, or managing member (or an Affiliate thereof) as Ironwood Capital Finance LLC; or
(iii) any entity that acquires all or substantially all of the assets of the Holder, or that survives a merger, consolidation, or similar business combination with the Holder.
(b) All Transfers other than to a Permitted Transferee shall require the prior written consent of the Company and the Board, which consent shall not be unreasonably withheld, conditioned, or delayed. In determining whether to grant consent, the Company and the Board may consider, among other factors, the identity and financial resources of the proposed transferee, the potential impact on the Company's business, and compliance with applicable securities laws.
Section 6.3 — Right of First Refusal
(a) If the Holder proposes to Transfer all or any portion of the Warrant or Warrant Units to any Person other than a Permitted Transferee (a "Proposed Transfer"), the Holder shall first deliver written notice to the Company (a "Transfer Notice") specifying the number of Warrant Units or portion of the Warrant proposed to be Transferred, the identity of the proposed transferee, the proposed purchase price, and all other material terms and conditions of the Proposed Transfer. The Transfer Notice shall constitute an irrevocable offer by the Holder to sell such Warrant or Warrant Units to the Company (and, secondarily, to Ridgeway) on the same terms set forth in the Transfer Notice.
(b) The Company shall have thirty (30) days following receipt of the Transfer Notice (the "Company ROFR Period") to elect, by written notice to the Holder, to purchase all (but not less than all) of the Warrant or Warrant Units that are the subject of the Proposed Transfer, on the same terms and conditions set forth in the Transfer Notice.
(c) If the Company does not exercise its right of first refusal within the Company ROFR Period (or delivers written notice that it declines to exercise such right), Ridgeway shall have an additional fifteen (15) days following the expiration of the Company ROFR Period (the "Ridgeway ROFR Period") to elect, by written notice to the Holder, to purchase all (but not less than all) of such Warrant or Warrant Units on the same terms and conditions set forth in the Transfer Notice.
(d) If neither the Company nor Ridgeway exercises its respective right of first refusal within the applicable periods, the Holder may consummate the Proposed Transfer to the proposed transferee named in the Transfer Notice, on terms and conditions no more favorable to the proposed transferee than those set forth in the Transfer Notice, within ninety (90) days following the expiration of the Ridgeway ROFR Period. If the Proposed Transfer is not consummated within such ninety (90) day period, the Holder must comply again with the provisions of this Section 6.3 before effecting any Transfer.
Section 6.4 — Conditions to Transfer
(a) As a condition to any Transfer of the Warrant or Warrant Units (whether to a Permitted Transferee or otherwise), the proposed transferee shall execute and deliver:
(i) a written joinder agreement, in form and substance reasonably satisfactory to the Company, pursuant to which the transferee agrees to be bound by all of the terms and conditions of this Agreement as if such transferee were the original Holder hereunder; and
(ii) a written joinder agreement to the Operating Agreement, in form and substance required by the Operating Agreement, pursuant to which the transferee agrees to be bound by all of the terms and conditions of the Operating Agreement as a member of the Company.
(b) The Company may, in connection with any proposed Transfer, require the Holder and/or the proposed transferee to deliver to the Company an opinion of counsel reasonably satisfactory to the Company (which counsel shall be reasonably satisfactory to the Company) to the effect that such Transfer may be effected without registration under the Securities Act and in compliance with applicable state securities laws.
(c) No Transfer shall be effective until the conditions set forth in this Section 6.4 have been satisfied, and the Company shall not be required to recognize any Transfer or update its membership register until such conditions have been met.
ARTICLE VII — REGISTRATION RIGHTS
Section 7.1 — Piggyback Registration Rights
(a) If the Company proposes at any time after the date hereof to register any of its Equity Securities under the Securities Act (whether for the Company's own account or for the account of any other holder of Equity Securities), on a form that would permit the inclusion of the Warrant Units (or membership units issuable upon exercise of the Warrant), the Company shall give written notice to the Holder of such proposed registration (a "Registration Notice") at least thirty (30) days prior to the anticipated filing date of the registration statement relating thereto. The Registration Notice shall describe the proposed registration, including the anticipated filing date, the form of registration statement, the underwriter (if any), and the number and type of securities proposed to be registered.
(b) The Holder shall have the right, exercisable by written notice to the Company delivered within fifteen (15) days of receipt of the Registration Notice, to include in such registration all or any portion of the Warrant Units (or membership units issuable upon exercise of the Warrant) held by the Holder (collectively, the "Registrable Securities").
(c) Cutback. If the managing underwriter for the proposed offering advises the Company in writing that, in its reasonable opinion, the total number of securities proposed to be included in such registration exceeds the maximum number that can be sold in the offering without adversely affecting the price, timing, or distribution of the securities to be offered, then the securities to be included in such registration shall be reduced in the following order of priority:
(i) first, securities being sold by the Company for its own account;
(ii) second, securities of other holders of Equity Securities who have contractual demand registration rights (including Ridgeway and any other holder with demand registration rights), allocated pro rata among such holders based on the number of securities each such holder has requested to be included in such registration; and
(iii) third, Registrable Securities of the Holder and securities of other holders exercising piggyback registration rights, allocated pro rata among such holders based on the number of securities each such holder has requested to be included in such registration.
(d) The Holder's piggyback registration rights under this Section 7.1 shall not apply to (i) a registration on Form S-4, Form S-8, or any successor form thereto, (ii) a registration relating solely to an employee benefit plan, or (iii) a registration relating solely to a business combination or similar transaction.
Section 7.2 — Registration Expenses
The Company shall bear all expenses incurred in connection with any registration in which the Holder participates pursuant to Section 7.1, including without limitation all registration and filing fees, fees and expenses of compliance with federal and state securities laws, printing expenses, fees and disbursements of the Company's counsel and accountants, and fees and expenses of any qualifications under applicable state securities or "blue sky" laws (collectively, "Registration Expenses"); provided, however, that the Holder shall bear (a) all underwriting discounts and commissions attributable to the sale of the Holder's Registrable Securities, and (b) all fees and disbursements of the Holder's own counsel in connection with such registration.
Section 7.3 — Indemnification
(a) Indemnification by the Company. The Company shall indemnify and hold harmless the Holder, its Affiliates, and each of their respective officers, directors, managers, members, partners, employees, agents, and controlling persons (within the meaning of the Securities Act) from and against any and all losses, claims, damages, liabilities, and expenses (including reasonable attorneys' fees and costs of investigation and litigation) arising out of or based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement (or any amendment or supplement thereto), prospectus (or any amendment or supplement thereto), or any preliminary prospectus, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company shall not be liable to the extent that any such loss, claim, damage, liability, or expense arises out of or is based upon an untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Holder specifically for use therein.
(b) Indemnification by the Holder. The Holder shall indemnify and hold harmless the Company, its Affiliates, and each of their respective officers, directors, managers, members, partners, employees, agents, and controlling persons from and against any and all losses, claims, damages, liabilities, and expenses (including reasonable attorneys' fees and costs of investigation and litigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact, or any omission or alleged omission to state a material fact, in each case to the extent that such untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Holder specifically for use in such registration statement, prospectus, or preliminary prospectus; provided, however, that the Holder's aggregate liability under this Section 7.3(b) shall not exceed the net proceeds actually received by the Holder from the sale of Registrable Securities pursuant to the applicable registration.
(c) Contribution. If the indemnification provided for in this Section 7.3 is unavailable or insufficient to hold harmless an indemnified party, the indemnifying party shall contribute to the amounts paid or payable by the indemnified party as a result of such losses, claims, damages, liabilities, or expenses in such proportion as is appropriate to reflect the relative fault of the Company, on the one hand, and the Holder, on the other hand, in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities, or expenses.
Section 7.4 — Cooperation
(a) The Company shall use commercially reasonable efforts to maintain the effectiveness of any registration statement in which the Holder's Registrable Securities are included for a period of not less than one hundred eighty (180) days following the effective date thereof (or such shorter period as is necessary for the Holder to sell all of its Registrable Securities included in such registration).
(b) In connection with any registration in which the Holder participates, the Company shall:
(i) furnish to the Holder such number of copies of the registration statement, each amendment and supplement thereto, and the related prospectus (including each preliminary prospectus and any amendments or supplements thereto) as the Holder may reasonably request;
(ii) use commercially reasonable efforts to register or qualify the Registrable Securities under such state securities or "blue sky" laws as the Holder may reasonably request and do any and all other acts and things which may be reasonably necessary or advisable to enable the Holder to consummate