CONSENT AND AMENDMENT TO PREFERRED STOCK PURCHASE AGREEMENT
EXECUTION
VERSION
CONSENT
AND
AMENDMENT
TO
This
Consent and Amendment to Preferred Stock Purchase Agreement (this “Amendment”) is made effective
as of May 26, 2010 (the “Amendment Date”) and is
entered into by and among Paradigm Holdings, Inc., a Wyoming corporation (the
“Company”), ▇▇▇▇ Capital
Partners, LP, a Delaware limited partnership (“▇▇▇▇ Capital”) and EREF PARA,
LLC (“EREF PARA” and,
collectively with ▇▇▇▇ Capital, the “Purchasers”).
Capitalized
terms used in this Amendment that are not otherwise defined herein shall have
the meanings set forth in the Agreement (as defined below).
WHEREAS, the Company and the
Purchasers are parties to that certain Preferred Stock Purchase Agreement dated
February 27, 2009 (the “Agreement”);
WHEREAS, the Company desires
to sell Senior Secured Subordinated Notes (the “Notes”) and issue certain
shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), as prepaid
interest on such Notes to ▇▇▇▇ Capital and certain other purchasers (the “Note Investors”);
WHEREAS, in order to make the
required number of shares of the Common Stock available for issuance to the Note
Investors, the Purchasers have agreed that the Warrants (as defined below) shall
not be exercisable until the consummation of the Merger (as defined
below).
WHEREAS, the Note Investors
are only willing to purchase Notes if the Company and the Purchasers enter into
this Amendment;
WHEREAS, the Purchasers
believe that it is in their best interests for the Company to sell the Notes to
the Note Investors; and
WHEREAS, the Agreement may be
amended by a written instrument signed by ▇▇▇▇ Capital and the
Company.
NOW, THEREFORE, in
consideration of the mutual covenants and obligations set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Purchasers and the Company hereby agree as
follows:
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1.
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Amendment
of the Agreement.
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The
parties hereby agree to amend the terms of the Agreement as of the Amendment
Date as provided below.
1.1 Amendment of Section
1.1. Section 1.1 of the Agreement is hereby amended to add the
following definitions:
““Notes” has the meaning set
forth in the Note Purchase Agreement.”
““Note Purchase Agreement”
means that certain Securities Purchase Agreement dated May 26, 2010 among the
Company, ▇▇▇▇ Capital and each of the other purchasers identified on the
signature pages thereto.”
““Performance Bond” has the
meaning set forth in the Note Purchase Agreement.”
1.2 Further Amendment of Section
1.1. The definition of “Registrable Securities” set forth in Section 1.1
of the Agreement is hereby amended and restated in its entirety to read as
follows:
““Registrable Securities” means
(i) all Underlying Shares and (ii) all Common Shares (as defined in the Note
Purchase Agreement), together with any securities issued or issuable upon any
stock split, dividend or other distribution, recapitalization or similar event
with respect to the foregoing.”
1.3 Amendment of Section
4.5(a). Section 4.5(a) of the Agreement is hereby amended and
restated in its entirety to read as follows:
“(a) After the earlier to occur of (x) August 31, 2010 and (y) Amendment Date, the
Company shall maintain a reserve from its duly authorized shares of Common Stock
for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction
Documents.”
1.4 Amendment of Section
4.6(d). Section 4.6(d) of the Agreement is hereby amended and
restated in its entirety to read as follows:
“(d) The provisions contained in this Section
4.6 shall not apply to issuances of the Notes or Common Shares or the issuance
of Excluded Stock,
.”
1.5 Amendment of Section
4.7. Section 4.7 of the Agreement is hereby amended and
restated in its entirety to read as follows:
“4.7 Exercise Procedures. The form of
Exercise Notice included in the Warrants sets forth the totality of the
procedures required by the Purchasers in order to exercise the
Warrants. No other information or instructions shall be necessary to
enable the Purchasers to exercise the Warrants. After the earlier to
occur of (x) August
31, 2010 and (y) the Amendment Date, the Warrants shall become
exercisable and the Company shall honor exercises of the Warrants, and shall
deliver all Underlying Shares, in accordance with the terms, conditions and time
periods set forth in the Transaction Documents.”
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1.6 Amendment of Section
4.22. Section 4.22 of the Agreement is hereby amended and
restated in its entirety to read as follows:
“4.22. Certain Rights of the
Company. If at any time a Purchaser and/or any transferee(s) of that
Purchaser realizes cash proceeds with respect to the Preferred Shares, Warrants
and Common Stock received upon exercise of the Warrants (for purposes of
clarity, including pursuant to any dividends, redemptions or other payments made
thereto in respect of the Preferred Shares) held by that Purchaser and/or any
such transferee(s), in the aggregate equal to or in excess of (x) the Aggregate
Purchase Price paid by that Purchaser as set forth on Schedule A, plus (y) two
hundred percent (200%) of such Aggregate Purchase Price, then the Company shall
have the option to repurchase all outstanding Preferred Shares held by that
Purchaser and/or any such transferee(s) (other than the portion of the Excluded
Shares (as defined below) held by that Purchaser and/or any such transferee(s))
for no additional consideration by the Company. Each Purchaser shall
be required to provide the Company and, if applicable, such transferee(s), with
written notice of the occurrence of the foregoing with respect to such Purchaser
within five (5) Business Days of such occurrence and the Company shall have the
option to exercise the foregoing right by providing written notice to such
Purchaser and/or, if applicable, such transferee(s) within 30 days of its
receipt of such Purchaser’s written notice; provided that the Company may
provide notice to such Purchaser and/or, if applicable, such transferee(s) once
such Purchaser and/or, if applicable, such transferee(s) have realized cash
proceeds as set forth in clauses (x) and (y) above. For the purpose
of this Agreement, “Excluded Shares”
means (1)
the sum of (i) 600 Preferred Shares (as adjusted for stock splits,
recapitalizations and similar events) and (ii) such number of Preferred Shares
equal to the product of (x) 467.17 Preferred Shares (as adjusted for stock
splits, recapitalizations and similar events) and (y) the number of calendar
months during the period commencing on February 28, 2011 and ending on the
earlier to occur of (A) February 28, 2012, (B) the date the Performance Bond and
the Notes have been repaid in full or (C) the date the Preferred Shares have
been redeemed in full pursuant to Section 7 of the Certificate of
Designations minus (2) such number of Preferred Shares which have been
redeemed by the Company pursuant to Section 7(b)(ii) of the Certificate of
Designations; provided that such total cannot be less
than zero. The Company hereby agrees that any
redemptions pursuant to Section 7 of the Certificate of Designations shall
redeem the Preferred Shares that are not Excluded Shares prior to any redemption
of Excluded Shares. Nothing herein shall be deemed to amend or
waive the Company’s obligations to redeem Preferred Shares in accordance with the Certificate of
Designations provided however there shall be no interest penalty under section
7(d) of the Certificate of Designations for Excluded Shares prior to the
Maturity Date (as defined in the Certificate of Designations). For purposes of this
Section 4.22, references to the Certificate of Designations also refer to the
Certificate of Designations of Series A-1 Senior Preferred Stock of Paradigm
Holdings, Inc., a Nevada corporation.”
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2.
Consents. Pursuant
to the requirements of the Agreement, the Certificate of Designations (as
defined in the Agreement) and the Certificate of Designations of Series A-1
Senior Preferred Stock of Paradigm Holdings, Inc., a Nevada corporation, the
Purchasers hereby consent to the transactions contemplated by that certain
Securities Purchase Agreement dated May 26, 2010 among the Company, ▇▇▇▇ Capital
and each of the other purchasers identified on the signature pages thereto (the
“Note Purchase
Agreement”) and each of the other Transaction Documents (as defined in
the Note Purchase Agreement). The Purchasers further consent to the
agreements with respect to the issuance of the Performance Bond (as defined in
the Note Purchase Agreement), including, without limitation, the letter of
credit by Silicon Valley Bank to Zurich American Insurance Company and Fidelity
and Deposit Company of Maryland initially in the aggregate amount of $4,000,000
contemplated thereby, in the form delivered to the Purchasers on the Closing
Date. The Purchasers further consent to the incurrence of additional
Indebtedness to Silicon Valley Bank in an amount equal to the principal amount
of the Notes outstanding from time to time such that the aggregate amount of
Indebtedness that the Company and its Subsidiaries (as defined in the Agreement)
may owe to Silicon Valley Bank under the Senior Facility (as defined in the
Agreement) or otherwise as of the Closing Date shall be $8,500,000 (subject to
reduction on a dollar-for-dollar basis in connection with any decrease in the
principal amount of the Notes outstanding from time to time, whether by
redemption, exchange, acceleration or conversion of the Notes, as applicable, or
otherwise pursuant to the terms of the Notes). The Purchasers further consent to
the compliance by the Company and its Subsidiaries with the terms of such
Indebtedness in the form delivered to the Purchasers on the Closing
Date.
3.
Warrants. Each of
the parties hereto hereby agrees that, notwithstanding the terms of the Class A
Warrants dated February 27, 2009 issued to each of ▇▇▇▇ Capital and EREF PARA
(the “Class A Warrants”)
and the Class B Warrants dated February 27, 2009 issued to each of ▇▇▇▇ Capital
and EREF PARA (the “Class B
Warrants” and collectively with the Class A Warrants, the “Warrants”), the Warrants shall
not be exercisable until the earlier to occur of (x) August
31, 2010 and (y) consummation of the merger of the Company with and into
Paradigm Holdings, Inc., a Nevada corporation and wholly-owned subsidiary of the
Company (the “Merger”). Each of
the parties hereto further agree, that notwithstanding the terms of the Warrants
or the Certificate of Designations, that the Company shall be under no
obligation to reserve shares for issuance with respect to the Warrants until the
earlier to occur of (x) August
31, 2010 and (y) the consummation of the Merger.
4.
Miscellaneous.
4.1 No Other
Changes. All terms of the Agreement shall remain in full force
and effect as amended hereby.
4.2 Governing
Law. This Amendment shall be governed in all respects by
the internal laws of the State of New York as applied to agreements entered into
among New York residents to be performed entirely within New York, without
regard to principles of conflicts of law.
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4.3 Severability. If any provision of this
Amendment is held to be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Amendment shall
not in any way be affected or impaired thereby and the parties will attempt in
good faith to agree upon a valid and enforceable provision that is a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Amendment.
4.4 Counterparts. This
Amendment may be executed in any number of counterparts and signatures may be
delivered by facsimile or other electronic means, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
[Signature
Page Follows]
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EXECUTION VERSION
IN WITNESS WHEREOF,
the parties have caused this Consent and Amendment to Preferred Stock Purchase
Agreement to be executed effective as of the date first set forth
above.
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By:
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/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇
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President
and Chief Executive Officer
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▇▇▇▇
CAPITAL PARTNERS, LP
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By:
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/s/▇▇▇▇▇▇ ▇▇▇▇
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▇▇▇▇▇▇
▇▇▇▇, Jr.
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Chief
Executive Officer
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EREF
PARA, LLC
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By: ▇▇▇▇
Fund Management, LLC, its Managing
Member
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By:
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/s/▇▇▇▇▇▇ ▇▇▇▇
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▇▇▇▇▇▇
▇. ▇▇▇▇, ▇▇.
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Chief
Executive Officer
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