WARRANT AGREEMENT

Exhibit 10.2

WARRANT AGREEMENT

DATED AS OF AUGUST 20, 2008

AMONG

GSI GROUP INC.

AND

THE INITIAL HOLDERS

LISTED ON SCHEDULE I HERETO

TABLE OF CONTENTS

 

 

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This WARRANT AGREEMENT (this “ Agreement ”), dated as of August 20, 2008, between the Initial Holders listed on Schedule I hereto (the “ Initial Holders ”) and GSI Group Inc., a company continued and existing under the laws of the Province of New Brunswick, Canada (the “ Issuer ”)

WHEREAS, the Issuer, GSI Group Corporation, a Michigan corporation (“ U.S. Sub ”) and the Initial Holders have entered into a Purchase Agreement dated July 9, 2008 (the “ Purchase Agreement ”), pursuant to which (i) U.S. Sub is issuing and selling to the Initial Holders $210,000,000 aggregate principal amount of U.S. Sub’s 11% Senior Notes due 2013 (the “ Notes ”), the obligations of which shall be fully and unconditionally guaranteed by the Issuer, and (ii) the Issuer is issuing and selling to the Initial Holders Warrants (as defined below) to purchase up to 5,882,520 Common Shares (as defined below); and

WHEREAS, this Agreement sets forth terms and conditions applicable to the Warrants.

NOW, THEREFORE, the parties to this Agreement hereby agree as set forth below.

ARTICLE I

DEFINITIONS

 

1.1	DEFINITIONS .

(a) Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Purchase Agreement.

(b) The following terms shall have the meanings set forth below.

“ Affiliate ” of any Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with such Person. The term “control” (including the terms “controlled by” and “under common control with”) as used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“ Agreement ” shall mean this Agreement, together with all schedules and exhibits attached hereto, as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof.

“ Assignment Form ” means the assignment form attached as Annex C to a Warrant.

“ Authorized Share Failure ” has the meaning given to such term in Section 2.2.

“ Bloomberg ” means Bloomberg Financial Markets.

“ Board ” means the board of directors of the Issuer or any duly authorized committee thereof.

“ Business Day ” means a day other than a Saturday, Sunday or other day on which banking institutions in New York are authorized or required by law to close. “ Buy-In ” has the meaning given to such term in Section 4.4(g).

“ Buy-In Price ” has the meaning given to such term in Section 4.4(g).

“ Cash ” means money, currency or a credit balance in a demand deposit account.

“ Closing Bid Price ” means, for any security as of any date, the last closing bid price, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price, then the last bid price of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the average of the bid prices, of any market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid of such security on such date shall be the fair market value as mutually determined by the Issuer and the Holder. All such determinations are to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

“ Common Shares ” means the common shares of the Issuer, no par value.

“ Company Distribution ” has the meaning given to such term in Section 5.4(b).

 

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“ Convertible Securities ” means any Share Capital, evidence of Indebtedness or other Securities or rights convertible into or exchangeable for Common Shares (including the Warrants).

“ Delivery Date ” has the meaning given to such term in Section 4.4(a).

“ Distribution ” means, in respect of any Person, (a) the payment or making of any dividend or other distribution of Property in respect of Share Capital of such Person or (b) the redemption or other acquisition of any Share Capital of such Person.

“ DTC ” means The Depository Trust Company.

“ Effective Time ” has the meaning given to such term in Section 4.3.

“ Eligible Market ” means the Principal Market, the American Stock Exchange, The New York Stock Exchange, Inc., The NASDAQ Global Market or The NASDAQ Capital Market.

“ Encumbrance ” means any mortgage, pledge, hypothecation, claim, charge, security interest, encumbrance, option, lien, put or call right, right of first offer or refusal, proxy, voting right or other restrictions or limitations of any nature whatsoever, whether or not filed, recorded or otherwise perfected under applicable law, other than (a) those resulting from taxes which have not yet become delinquent or (b) minor liens and encumbrances that do not materially detract from the value of the property or materially impair the operations of a Person or materially interfere with the use of such property or asset.

“ Exchange Form ” means the exchange form attached as Annex B to a Warrant.

“ Exercise Form ” means the exercise form attached as Annex A to a Warrant.

“ Exercise Number ” has the meaning given to such term in Section 4.2.

“ Exercise Price ” means $0.01 per Warrant Share, subject to change from time to time in the manner provided in Article V.

“ Expiration Time ” means, with respect to any Holder, the earlier of (i) 5:00 p.m., Eastern daylight time, on the day immediately preceding the fifth anniversary of the date of this Agreement, or August 19, 2013, and (ii) the Effective Time.

 

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“ Fair Market Value ” means the fair market value of such Property or Security as determined by the Board in the good faith exercise of its reasonable business judgment; provided, however, that if Holders of at least two-thirds of the then outstanding Warrants object to such determination by the Board by delivery of written notice to the Issuer within thirty days of the date of determination, the Issuer and such Holders shall, within the thirty days after the delivery of such notice, attempt in good faith to resolve the objection. If the Issuer and such Holders are unable to resolve the objection within the foregoing time period provided, the matter shall be arbitrated by an investment bank of nationally recognized standing to be agreed upon by the Issuer and the Holders (the “ Independent Auditor ”). The determination of the fair market value of such Property or Security by the Independent Auditor shall be final, binding and non-appealable. The Issuer and the Holders shall instruct the Independent Auditor to render its decision within thirty days of its selection. The fees and expenses of the Independent Auditor shall be borne by the party whose position was the farthest to the final resolution as determined by the Independent Auditor. Notwithstanding the foregoing, if such Security is Publicly Traded or quoted at the time of determination, the Fair Market Value of such Security shall be the (x) in the case of calculations identified herein as “ single-day Fair Market Value ,” the closing trading price of such security as of the trading day immediately prior to the date of determination, and (y) in all other cases, the volume weighted average trading price of such Security for the prior ten trading days immediately prior to the date of determination.

“ Fundamental Transaction ” has the meaning given to such term in Section 5.3(a).

“ Governing Documents ” means as to any Person, its articles or certificate of incorporation and by-laws, its partnership agreement, its certificate of formation and operating agreement and/or the other organizational or governing documents of such Person.

“ Governmental Authority ” means (a) the government of the United States of America or any state or other political subdivision thereof, (b) the government of Canada or any province or other political subdivisions thereof, (c) any government or political subdivision of any other jurisdiction in which the Issuer or any of the Subsidiaries conducts business, or which properly asserts jurisdiction over any and all real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by the Issuer or the Subsidiaries, (d) any entity properly exercising executive, legislative, judicial, regulatory or administrative functions of any such government or (e) any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

“ Holder ” means with respect to any Warrant, the holder of such Warrant as set forth in the Warrant Register.

“ Indenture ” means that certain indenture, dated as of the date hereof, by and among the Issuer, as the guarantor of the Notes (as defined in the Purchase Agreement), U.S. Sub, certain subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A. as trustee, in substantially the form attached to the Purchase Agreement as Exhibit A.

 

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“ Initial Holders ” has the meaning set forth in the preamble to this Agreement.

“ Issuer ” has the meaning set forth in the preamble to this Agreement.

“ Notes ” has the meaning given to such term in the preamble to this Agreement.

“ Options ” means any warrants, options or other rights to subscribe for or to purchase (a) Common Shares or (b) Convertible Securities.

“ Other Equity Documents ” means the (a) the Warrant, (b) the Purchase Agreement, and (c) the Registration Rights Agreement.

“ Other Equity Securities ” means any Share Capital, other than the Common Shares, Convertible Securities or Options.

“ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.

“ Principal Market ” means The NASDAQ Global Select Market.

“ Property ” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

“ Publicly Traded ” means, with respect to any Security, that such Security is (a) listed on a U.S. securities exchange or (b) traded in the U.S. over-the-counter market, which trades are reported by the National Quotation Bureau, Incorporated or a similar successor organization.

“ Purchase Agreement ” has the meaning given to such term in the preamble to this Agreement.

“ Purchase Rights ” has the meaning given to such term in Section 5.4(a).

 

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“ Registration Rights Agreement ” means that certain registration rights agreement, dated as of the date hereof, by and among the Issuer and the Initial Holders.

“ Required Reserve Amount ” has the meaning given to such term in Section 2.2.

“ Requisite Holders ” means, as of any date of determination, Holders holding Warrants representing at least a majority of the Warrant Shares that are issuable upon exercise of Warrants then outstanding; provided that any Warrants held by the Issuer or its Affiliates shall not be counted in either the numerator or the denominator of the calculation of Requisite Holders.

“ Security ” or “ Securities ” has the meaning set forth in Section 2(l) of the Securities Act.

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

“ Share Capital ” means any and all shares, interests, participations or other equivalents (however designated) of share capital of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights, or options to purchase or other arrangements or rights to acquire any of the foregoing.

“ Taxes ” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax, penalties and any similar liabilities with respect thereto.

“ Total Amount ” has the meaning given to such term in Section 4.1(b).

“ Trading Day ” means any day on which the Common Shares are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Shares, then on the principal securities exchange or securities market on which the Common Shares are then traded; provided that “Trading Day” shall not include any day on which the Common Shares are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Shares are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).

“ Transfer ” means any sale, transfer, assignment, or other disposition of any interest in, with or without consideration, any security, including any disposition of any security or of any interest therein which would constitute a sale thereof within the meaning of the Securities Act.

 

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“ Warrant ” has the meaning given to such term in Section 3.1(a).

“ Warrant Register ” has the meaning given to such term in Section 3.1(b).

“ Warrant Shares ” has the meaning set forth in a Warrant.

 

1.2	RULES OF CONSTRUCTION .

The definitions in Section 1.1 shall apply equally to the singular and plural forms of the terms defined. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from time to time be amended, restated, supplemented or otherwise modified, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement. All references to sections, schedules and exhibits mean the sections of this Agreement and the schedules and exhibits attached to this Agreement, except where otherwise stated. The title of and the section and paragraph headings in this Agreement are for convenience of reference only and shall not govern or affect the interpretation of any of the terms or provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. Any reference to any term contained in any other agreement or other document shall be deemed to be a reference to such term in the applicable agreement or document as in effect as of the date hereof, unless the Requisite Holders have consented to any amendment of such applicable agreement since the date hereof, in which case such reference shall be deemed to be a reference to such term in the applicable agreement or document, as amended through the date of the most recent consent by the Requisite Holders. The language used in this Agreement has been chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party.

ARTICLE II

ISSUANCE OF WARRANTS AND RESERVATION OF WARRANT SHARES

 

2.1	ISSUANCE OF WARRANTS TO INITIAL HOLDERS; WARRANT AGREEMENT .

The Issuer shall issue, sell and deliver the Warrants to the Initial Holders in accordance with the Purchase Agreement. The provisions of this Agreement shall apply to all Warrants (and, to the extent applicable, Warrant Shares), and each Holder that is not a party to this Agreement, by its acceptance of a Warrant, agrees to be bound by the applicable provisions hereof.

 

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2.2	RESERVATION OF WARRANT SHARES .

From and after the date hereof, the Issuer shall at all times have authorized, and reserve and keep available, free from preemptive or similar rights, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon the exercise or exchange of each Warrant, the number of authorized but unissued Warrant Shares issuable upon exercise or exchange of all outstanding Warrants. The Issuer shall take all actions reasonably necessary to ensure that Warrant Shares shall be duly authorized and, when issued upon exercise or exchange of any Warrant in accordance with the terms hereof, shall be validly issued, fully paid and non-assessable, free and clear of all Encumbrances (other than those created by the Holder thereof) and preemptive or similar rights. If at any time while any Warrants remain outstanding the Issuer does not have a sufficient number of authorized and unreserved Common Shares to satisfy its obligation to reserve for issuance upon exercise of all outstanding Warrants (the “ Required Reserve Amount ”) at least a number of Common Shares equal to the number of Common Shares as shall from time to time be necessary to effect the exercise of all Warrants then outstanding (an “ Authorized Share Failure ”), then the Issuer shall promptly take all action reasonably necessary to increase the Issuer’s authorized Common Shares to an amount sufficient to allow the Issuer to reserve the Required Reserve Amount for all Warrants then outstanding. Without limiting the generality of the foregoing sentence, as soon as reasonably practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than seventy-five (75) days after the occurrence of such Authorized Share Failure, the Issuer shall hold a meeting of its shareholders for the approval of an increase in the number of authorized Common Shares. In connection with such meeting, the Issuer shall provide each shareholder with a proxy statement and shall use its reasonably best efforts to solicit its shareholders’ approval of such increase in authorized Common Shares and shall cause its Board to recommend to the shareholders that they approve such proposal.

ARTICLE III

CERTAIN ADMINISTRATIVE PROVISIONS

 

3.1	FORM OF WARRANT; REGISTER .

(a) Each Warrant issued hereunder in accordance with the Purchase Agreement shall be in the form of Exhibit A attached hereto (each, a “ Warrant ”) and shall be executed on behalf of the Issuer by the Chief Executive Officer, Chief Financial Officer, President, any Vice President or the Chief Operating Officer of the Issuer. Upon initial issuance, each Warrant shall be dated as of the date of signature thereof by the Issuer. Irrespective of any adjustments in the Exercise Price or the number or kind of Share Capital or other Property issuable upon the exercise of the Warrants, any Warrants theretofore or thereafter issued may, as a matter of form, continue to express the same Exercise Price and the same number of Warrant Shares issuable upon the exercise of such Warrants as were stated in the Warrants initially issued pursuant the Purchase Agreement.

 

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(b) Each Warrant issued, exchanged or transferred hereunder shall be registered in a warrant register (the “ Warrant Register ”). The Warrant Register shall set forth (i) the number of each Warrant, (ii) the name and address of the Holder thereof, (iii) the original number of Warrant Shares purchasable upon the exercise thereof, (iv) the number of Warrant Shares purchasable upon the exercise thereof, as adjusted from time to time in accordance with this Agreement and (v) the Exercise Price for each Warrant Share, as adjusted from time to time in accordance with this Agreement. The Warrant Register will be maintained by the Issuer and will be available for inspection by any Holder at the principal office of the Issuer or such other location as the Issuer may designate to the Holders in the manner set forth in Section 7.1. The Issuer shall be entitled to treat the Holder of any Warrant as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other Person.

(c) Each Holder understands that the certificates or other instruments representing the Warrants and, until such time as the resale of the Warrant Shares have been registered under the Securities Act as contemplated by the Registration Rights Agreement and sold pursuant to such registration statement, the certificates representing the Warrant Shares, except as set forth below, shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) A VALID EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SAID ACT, WHICH MAY REQUIRE AN OPINION OF COUNSEL AT THE OPTION OF THE ISSUER, OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

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In addition to the foregoing legend, the Warrants shall bear the following legend:

ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN (I) THE PURCHASE AGREEMENT, DATED JULY 9, 2008, AMONG THE ISSUER, GSI GROUP CORPORATION AND THE PURCHASERS LISTED ON THE SIGNATURE PAGES THERETO, AND (II) THE WARRANT AGREEMENT, DATED AS OF AUGUST 20, 2008, AMONG THE ISSUER AND THE INITIAL HOLDERS LISTED ON THE SIGNATURE PAGES THERETO. COPIES OF SUCH AGREEMENTS MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER HEREOF.

The first legend set forth above shall be removed and the Issuer shall issue a stock certificate without such legend to a requesting holder of the Warrant Shares upon which it is stamped or at the Issuer’s discretion issue to such holder by electronic delivery at the applicable balance account at The Depository Trust Company (“DTC”), if, unless otherwise required by state securities laws, (i) such Warrant Shares are registered for resale pursuant to an effective registration statement under the Securities Act, (ii) in connection with a sale, assignment or other transfer, such holder provides the Issuer with an opinion of counsel, in a form reasonably acceptable to the Issuer, to the effect that such sale, assignment or transfer of the Warrant Shares may be made without registration under the applicable requirements of the Securities Act, or (iii) such holder provides the Issuer with assurances reasonably acceptable to the Issuer that the holder it is not an affiliate of the Issuer and has not been an affiliate for the prior 90 days that the Warrant Shares can be sold, assigned or transferred pursuant to Rule 144. The Issuer shall be responsible for the fees of its transfer agent and all DTC fees associated with the issuance. Any request by a holder for the removal of the legend will be deemed to include a representation by such holder that the holder will only resell such Warrant Shares pursuant to an effective registration statement or pursuant to a valid exemption from registration.

 

3.2	EXCHANGE OF WARRANTS FOR WARRANTS .

(a) The Holder may exchange any Warrant issued hereunder for another Warrant of like kind and tenor representing in the aggregate the right to purchase the same number and class or series of Warrant Shares that could be purchased pursuant to the Warrant being so exchanged. In order to effect an exchange permitted by this Section 3.2, the Holder shall deliver to the Issuer such Warrant accompanied by a written request signed by the Holder thereof specifying the number and denominations of Warrants to be issued in such exchange and, subject to the transfer restrictions contained in the Other Equity Documents, the names in which such Warrants are to be issued. As promptly as practicable but in any event within five Business Days of receipt of such a request, the Issuer shall, without charge, issue, register and deliver to the Holder thereof each Warrant to be issued in such exchange and make any necessary changes to the Warrant Register.

(b) Upon receipt of evidence reasonably satisfactory to the Issuer (an affidavit of the Holder being satisfactory) of the ownership and the loss, theft, destruction or mutilation of any Warrant, and in the case of any such loss, theft or destruction, upon receipt of an indemnity bond reasonably satisfactory to the Issuer or, in the case of any such mutilation, upon surrender

 

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of such Warrant, the Issuer shall, without charge, issue, register and deliver in lieu of such Warrant a new Warrant of like kind representing the same rights represented by, and dated the date of, such lost, stolen, destroyed or mutilated Warrant. Any such new Warrant shall constitute an original contractual obligation of the Issuer, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by any Person.

(c) The Issuer shall pay all expenses and Taxes (other than any applicable income or income-based, capital gains or similar Taxes payable by a Holder of a Warrant) attributable to an exchange of a Warrant pursuant to this Section 3.2; provided, however, that the Issuer shall not be required to pay any Tax that may be payable in respect of any Transfer involved in the issuance of any Warrant in a name other than that of the Holder of the Warrant being exchanged.

 

3.3	MECHANICS OF TRANSFER OF WARRANTS .

(a) Subject to the further provisions of this Agreement and the Other Equity Documents, each Warrant may be Transferred, in whole or in part, by the Holder thereof by delivering to the Issuer such Warrant accompanied by a properly completed, duly executed, Assignment Form. As promptly as practicable but in any event within five (5) Business Days of receipt of such Assignment Form, the Issuer shall, without charge, issue, register and deliver to the Holder thereof a new Warrant of like kind and tenor representing in the aggregate the right to purchase the same number of Warrant Shares that could be purchased pursuant to the Warrant being Transferred.

(b) At the request of the Issuer, any Person to whom a Warrant is Transferred in accordance with this Article III shall execute and deliver to the Issuer a joinder in the form of Annex C to the Warrant pursuant to which such Person agrees to become a party to, and to be bound by the terms of and entitled to the benefits under this Agreement.

ARTICLE IV

EXERCISE OF WARRANT; EXCHANGE FOR WARRANT SHARES

 

4.1	EXERCISE OF WARRANTS; EXPIRATION .

(a) On any Business Day between 9 a.m. and 5 p.m. New York time on or prior to the Expiration Time, a Holder may exercise a Warrant, in whole or in part, by delivering to the Issuer such Warrant accompanied by a properly completed Exercise Form and consideration in the form set forth in Section 4.1(b) in an aggregate amount equal to the product of (x) the Exercise Price and (y) the number of Warrant Shares being purchased. Any partial exercise of a Warrant shall be for a whole number of Warrant Shares only.

 

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(b) Upon exercise of a Warrant, i