THIS NOTE MAY NOT BE ENCUMBERED, SOLD, TRANSFERRED OR ASSIGNED, AND THE SALE,
TRANSFER, ASSIGNMENT, ENCUMBRANCE OR OTHER DISPOSITION OF THE COMMON SHARES OR
OTHER SECURITIES ISSUABLE UPON CONVERSION HEREOF IS RESTRICTED.
Registered $50.000
No. R-1
10% Convertible Subordinated Note Due March 31, 1999
FOR VALUE RECEIVED, Tel-Instrument Electronics Corp. (herein called the
"Company"), a corporation duly organized and existing under the laws of New
Jersey, hereby promises to pay to Harold K. Fletcher, or successors, the
principal sum of $50,000 on March 31, 1999, AND TO PAY interest (computed on
the basis of a 360-day year of twelve 30-day months) on the unpaid balance
thereof at the rate of 10% per annum from the date hereof, payable semi-annually
on the last day of September and March in each year, commencing with the
September 30 next succeeding the date hereof, until the principal hereof shall
have become due and payable, (whether at the stated maturity, by acceleration or
otherwise) and at the rate of 12% per annum on any overdue installment of
principal and (to the extent permitted by law) on any overdue installment of
interest until paid.
Payments of the principal of and premium, if any, on this Note will be made
at the principal office of the Company in such coin or currency of the United
States of America as at the time of payment thereof shall be legal tender for
the payment of public and private debts. Payments of the interest on this Note
will be made in such coin or currency either at said office or, at the option of
the Company, by check mailed to the person in whose name this Note is registered
at the address of such person appearing on the registry books of the Company
This Note is subject to the following terms and conditions.
1. Subordination
1.1 Agreement to Subordinate. The indebtedness evidenced by this Note,
including the principal thereof and premium, if any, and interest thereon, shall
be subordinate and subject in right of payment, to the extent and in the manner
hereinafter set forth, to the prior payment in full of all Senior Indebtedness
of the Company, whether now outstanding or hereafter incurred, and each holder
of Notes, by his acceptance thereof, agrees to and shall be bound by the
provisions of this Section 1.
1.2(a) Priority of Senior Indebtedness. No payment or prepayment shall be
made by the Company, directly or indirectly, on any Notes, whether in respect of
principal (including redemption pursuant to the provisions of Section 6),
premium, if any, or interest, and the holders of Notes shall not be entitled to
receive any such payment or prepayment, nor shall any asset of the Company or
any of its subsidiaries be applied to the purchase of any Notes, if, at the time
of such proposed payment, prepayment or purchase or immediately after giving
effect thereto, there shall have occurred and be continuing any event of default
with respect to any Senior Indebtedness entitling the holders thereof to
accelerate the maturity thereof or any default in any payment with respect to
any Senior Indebtedness.
(b) Acceleration of Senior Indebtedness; Dissolution, Liquidation, Etc.
Upon any acceleration of the principal amount due on any Senior Indebtedness or
upon any distribution of all or substantially all of the assets of the Company
or upon any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors in connection
with any dissolution, winding-up, total or partial liquidation or reorganization
of the Company, whether voluntary or involuntary and whether in bankruptcy,
insolvency, receivership, arrangement or other proceeding, or upon an assignment
for the benefit of creditors, or upon any other marshalling of the assets and
liabilities of the Company, all principal, prepayment charge, if any, and
interest due or to become due upon all Senior Indebtedness shall first be paid
in full in cash before any holder of Notes shall be entitled to receive any
payments or retain any assets so paid or distributed with respect to the Notes,
whether for principal, premium, if any, interest or otherwise; and upon any such
acceleration, distribution of assets, dissolution, winding-up, liquidation,
reorganization, assignment for the benefit of creditors, marshalling of assets,
or similar proceedings, all principal of, premium, if any, and interest on the
Notes shall forthwith become due and payable, and any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, to which the holder of Notes would, except for the provisions
hereof, be entitled with respect to the Notes (whether hereunder or under any
subordination or other agreement in favor of the holders of the Notes or
otherwise), shall be paid and/or delivered by the Company, or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other person making such
payment or distribution, directly to the holders of Senior Indebtedness pro rata
upon the basis of the respective amounts of Senior Indebtedness held by such
holders, to the extent necessary to pay all Senior Indebtedness in full in cash
(after giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness) before any payment or
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distribution is made to the holders of the Notes, and the holders of the Notes
at the time outstanding irrevocably authorize, empower and direct the Company
and all such receivers, trustees, agents and other persons to effect all such
payments and distributions.
(c) Default on Notes. In the event that the Notes are declared due and
payable because of the occurrence of an Event of Default described below (under
circumstances when the provisions of the foregoing clause (b) shall not be
applicable) the holders of the Notes shall be entitled to payment of principal,
premium, if any, and interest with respect to the Notes only after there shall
first have been paid in full, or such payment shall have been provided for, all
principal of and premium, if any, and interest on the Senior Indebtedness
outstanding at the time the Notes so become due and payable because of such
Event of Default, and the Company hereby agrees, for the benefit of the holders
of Senior Indebtedness, that if the Notes are so declared due and payable before
their expressed maturity, (i) the Company will give prompt notice in writing
thereof to such persons as may then be deemed to be the holders of Senior
Indebtedness for the purpose of giving notice in accordance with the terms
thereof and (ii) all Senior Indebtedness shall forthwith, for purposes of this
Agreement, be deemed to have become immediately due and payable upon demand,
regardless of the expressed maturity thereof.
(d) Notice. The Company shall give prompt written notice of any
dissolution, winding-up, liquidation or reorganization of the Company within the
meaning of this Section 1.2, and the holder hereof shall be entitled to assume
that no such event has occurred unless the Company has given such notice. Upon
any payment or distribution of assets of the Company referred to in this Section
1.2 the holders of the Notes shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such dissolution,
winding-up, liquidation or reorganization proceedings are pending or upon a
certificate of the trustee in bankruptcy, receiver, assignee for benefit of
creditors or other liquidating agent making such payment or distribution,
delivered to the holders of Notes, for the purpose of ascertaining the persons
entitled to participate in such distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Section 1. In case of any payment or
distribution of assets of the Company referred to in this Section 1.2 which is
not made pursuant to such an order or decree of a court or a certificate of a
trustee in bankruptcy, receiver, assignee for benefit of creditors or other
liquidating agent, the holders of the Notes shall be entitled to
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rely upon a certificate of a firm of independent certified accountants for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Section
1.
1.3 Subrogation of Holders of Notes to Rights of Holders of Senior
Indebtedness. Subject to the payment in full of all Senior Indebtedness, the
holders of the Notes shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until the principal of and premium, if
any, and interest on the Notes shall be paid in full, and for purposes of such
subrogation, no such payments or distributions to the holders of Senior
Indebtedness of cash, property or securities, which otherwise would be payable
or distributable to the holders of the Notes and no payment over pursuant to the
provisions of this Section 1 to the holders of Senior Indebtedness, and the
holders of Notes, be deemed to be a payment by the Company to or on account of
Senior Indebtedness, it being understood that the provisions of this Section 1
are and are intended solely for the purpose of defining the relative rights of
the holders of the Notes on the one hand, and the holders of Senior
Indebtedness, on the other hand.
1.4 Obligation of Company Unimpaired. Nothing contained in this Section 1
or elsewhere in the Notes is intended to or shall (a) impair, as between the
Company, its creditors other than the holders of Senior Indebtedness, and the
holders of the Notes, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Notes, the principal of and premium,
if any, and interest on the Notes as and when the same shall become due and
payable in accordance with their terms, (b) affect the relative rights of the
holders of the Notes and creditors of the Company other than the holders of
Senior Indebtedness, or (c) prevent the holder of any Note from exercising all
remedies otherwise permitted by applicable law upon an Event of Default, subject
to the rights, if any, under this Section 1 of the holders of Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of any such remedy.
1.5 Obligation To Pay Holders of Notes Unaffected. Nothing contained in
this Section 1, or elsewhere in any of the Notes, shall, except during the
pendency of any insolvency, bankruptcy, dissolution, winding-up, liquidation, or
reorganization proceedings with respect to the Company, affect the obligation of
the Company to make, or prevent the Company from making, at any
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time (except under the circumstances described in Section 1.2) payment of
principal of or premium, if any, or interest on the Notes.
1.6 When Senior Indebtedness Paid In Full. The term "holder" of any
indebtedness shall include any trustee for, or other authorized representative
of, the holders of such indebtedness. For the purpose of this Section 1, Senior
Indebtedness shall be deemed to be "paid in full in cash" when funds sufficient
to make such payment in full have been irrevocably set aside in trust for such
purpose on terms making such funds immediately available to the holders of
Senior Indebtedness on demand; provided, that, if, in any proceeding for the
reorganization of the Company under any bankruptcy or insolvency law, any
readily marketable securities shall be received by the holders of Senior
Indebtedness directly or indirectly by way of payment or distribution with
respect to such Senior Indebtedness (including any such payment or distribution
so received by reason of the subordination of the Notes to such Senior
Indebtedness) such securities shall, for the purpose of Section 1.2 be deemed to
constitute payment in cash of such Senior Indebtedness to the extent of the fair
market value of such securities at the time so received by such holders of
Senior Indebtedness.
1.7 Senior Indebtedness. Senior Indebtedness shall mean all secured
indebtedness incurred, assumed or guaranteed by the Company, outstanding on the
date this Note is issued or which is hereafter outstanding and any defaults,
renewals or extensions of any Senior Indebtedness or notes or other evidence of
indebtedness issued in exchange for Senior Indebtedness.
1.8 Other Debt. Other debt shall mean all indebtedness other than Senior
Indebtedness, and the Notes shall be equal in priority to all other debt.
2. Conversion
2.1 Subject to and upon compliance with the provisions hereof, at the
option of the holder hereof, this Note or any portion of the principal amount
hereof may, at any time on or before the close of business on March 31, 19 , or
in case this Note or a portion hereof shall have been designated for redemption
prior to such date, then in respect of this Note or the portion hereof so
designated until and including, but (unless the Company shall default in payment
due on the prepayment hereof) not after, the close of business on the day
designated for such redemption, be converted at the principal amount hereof, or
of such portion hereof, into newly issued, fully paid and nonassessable Common
Shares of the Company, at the conversion
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price in effect at the time of the conversion. The price at which Common Shares
shall be delivered upon conversion shall be initially $1.50 per share, until
March 31, 1998, and thereafter, $2.50 per share, subject to adjustment pursuant
to paragraph 2.2 hereof.
2.2. Adjustments. The conversion price and the number of Common Shares
issuable upon conversion shall be adjusted proportionately in the following
events:
(a) Adjustments for Consolidation, Merger, Sale of Assets, Reorganization,
etc. In case the Company, after the date hereof, (i) effects a capital
reorganization or reclassification of any or all of its capital stock or (ii)
shall consolidate with or merge into any other person and shall not be the
continuing or surviving corporation of such consolidation or merger, or (iii)
shall permit any other person to consolidate with or merge into the Company and
the Company shall be the continuing or surviving person but, in connection with
such consolidation or merger, the Common Stock shall be changed into or
exchanged for stock or the securities or property of any other person, or (iv)
shall transfer all or substantially all of its properties and assets to any
other person, then the Holder will have the right, but not the obligation, to
convert this Note at any time permitted pursuant to Section 2.1 above. Upon such
conversion, the Holder will have the right to receive the same kind and number
of shares of capital stock and other securities as would have been distributed
to the Holder upon such reorganization, reclassification, consolidation or
merger, had he then held the shares issuable upon conversion of this Note.
(b) Adjustments for Stock Dividends; Combinations. In the event that the
Company, at anytime or from time to time hereafter, shall (i) declare or pay any
dividend on its capital stock payable in Common Stock; (ii) effect a subdivision
of its outstanding shares into a greater number of shares of Common Stock or any
equity securities convertible into Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock); or (iii) combine or
consolidate its outstanding shares of Common Stock, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then, upon the
conversion hereof at any time after the occurrence of any event described above,
Holder shall be entitled to receive that number of shares of stock to which such
Holder would have been entitled, upon the occurrence of such event, if such
Holder had converted this Note immediately prior to the occurrence of such
event.
(c) Adjustment for Issuance of Lower Priced Shares. If the Company either
(i) authorizes and issues any additional share(s) of Common Stock, or (ii)
authorizes and sells any
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security convertible into share(s) of its Common Stock, where the net proceeds
per share (the "Per Share Selling Price") to be received by the Company are less
than the conversion price, as adjusted, in cash, then, under any such
circumstances, the conversion price hereunder shall be adjusted and shall be the
Per Share Selling Price.
(d) Notice. In the event of any occurrence under this Section 2, which
effects an adjustment of the conversion price, or the securities issuable upon
conversion, the Company will promptly notify the holder hereof in accordance
with Paragraph 8(d) hereof.
(e) Conversion. This Note may be converted in accordance with its terms,
into fully paid and non-assessable shares of Common Stock at the conversion
price set forth in this Section 2, subject to such adjustments as may be
required hereunder, upon surrender of this Note to the Company at its principal
office, accompanied by instruments of transfer, in form satisfactory to the
Company, duly executed by the holder. Interest shall not be paid on the
surrendered Note, from the immediately preceeding interest payment date to the
date of surrender and no adjustment will be made for accrued interest from such
date or for dividends on the common stock issued upon conversion. No fractional
shares will be issued upon conversion, but in lieu thereof the Company shall pay
therefor in cash at the conversion price.
3. Reservation of Stock.
The Company will at all times reserve and keep available, solely for
issuance and delivery upon the conversion of the Notes, the total number of
shares of Common Stock issuable upon the conversion of the Notes. All shares of
Common Stock issued upon the conversion of the Notes shall be duly authorized,
validly issued, fully paid and non-assessable to the extent permitted by
applicable law.
4. No Impairment.
The Company will not, by any means, avoid or seek to avoid the observance
or performance of any of the terms of this Note. Without limiting the foregoing,
the Company (i) will not permit the par value, if any, of any shares of stock
receivable upon the conversion of its Note to exceed the amount payable therefor
upon such conversion, and (ii) will take such action as may be necessary in
order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock upon the conversion of its Note.
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5. No Shareholder Rights
This Note shall not entitle the holder hereof to any voting rights or
other rights as a stockholder of the Company and no cash dividend paid out of
earnings or surplus shall be payable or accrue in respect of this Note or the
shares which may be issuable hereunder, until and unless, and except to the
extent that, the conversion rights represented by this Note shall be exercised.
6. Redemption.
The Notes may be redeemed, at the option of the Company, in whole or in
part, from time to time, on any date prior to maturity, upon mailing a notice of
such redemption, not less than 30 nor more than 60 days prior to the date fixed
for redemption, to the holders of Notes to be redeemed, at their last address as
set forth in the Company's records, at a redemption price equal to: (a) 120% of
principal, plus accrued interest if redeemed two or more years prior to the
maturity date; (b) 110% of principal, plus accrued interest, if redeemed more
than one year, but less than two years prior to maturity; and (c) the principal,
plus accrued interest, if less than one year from maturity. The redemption
notice hereunder shall specify the manner in which the called Notes will be
surrendered and payment made. No adjustment will be made for interest accrued
since the immediately prior interest payment date, and no amount will be paid
for such accrued interest.
7. Remedies on Event of Default
7.1 Events of Default. In case one or more of the following Events of
Default shall have occurred and be continuing, that is to say:
(a) default in the payment of any installment of interest upon any of
the Notes as and when the same shall become due and payable, whether or not
such payment is prohibited by the provisions of Section 2, and continuance
of such default for a period of thirty days; or
(b) default in the payment of the principal of (and premium, if any,
on) any of the Notes as and when the same shall become due and payable
either at maturity, upon redemption, by declaration or otherwise, whether
or not such payment is prohibited by the provisions of Section 2, and
continuance of such default for a period of thirty days; or
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(c) failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company in the
Notes contained, for a period of ninety days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given to the Company by registered mail; or
(d) an event of default, as defined in any indenture or instrument
evidencing or under which the Company has at the date of this Note or shall
hereafter have outstanding any indebtedness for borrowed money, shall
happen and be continuing and such indebtedness shall have been accelerated
so that the same shall be or become due and payable prior to the date on
which the same would otherwise become due and payable, and such
acceleration shall not be rescinded or annulled within ten days after
written notice thereof to the Company; provided, however, that if such
event of default under such indenture or instrument shall be remedied or
cured by the Company or be waived by the holder of such indebtedness, then
the Event of Default hereunder by reason thereof shall be deemed likewise
to have been thereupon remedied, cured or waived without further action; or
(e) a decree or order by a court having jurisdiction in the premises
shall have been entered adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization or
readjustment of the Company under the National Bankruptcy Act or any other
similar applicable Federal or State law, and such decree or order shall
have continued undischarged or unstayed for a period of sixty days; or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver or trustee or assignee in bankruptcy or
insolvency of the Company or of all or a major part of its property, or for
the winding up or liquidation of its affairs, shall have been entered, and
such decree or order shall have remained in force undischarged or unstayed
for a period of sixty days; or
(f) the Company shall institute proceedings to be adjudicated a
voluntary bankrupt, or shall consent to the institution of a bankruptcy
proceeding against it, or shall file a petition or answer or consent
seeking reorganization or readjustment under the National Bankruptcy Act,
or any other similar applicable Federal or State law, or shall consent to
the filing of any such petition, or shall consent to the appointment of a
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receiver or trustee or assignee in bankruptcy or insolvency of it or all or
a major part of its property, or shall make an assignment for the benefit
of creditors, or shall admit in writing its inability to pay its debts
generally as they become due;
Then and in each and every such case, unless the principal of all of the
Notes shall have already become due and payable, the holders of the Notes then
outstanding hereunder, by notice in writing to the Company, may declare the
principal of all the Notes to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything herein contained to the contrary not withstanding.
7.2 Payment of Notes on Default; Suit Therefor. The Company
covenants that in the case of an Event of Default, and acceleration of maturity
pursuant to 7.1, or maturity in accordance with their terms, and upon demand,
the Company will pay to the holders of the Notes, the whole amount that then
shall have become due and payable for principal (and premium, if any) or
interest, or both, as the case may be, with interest upon the overdue principal
(and premium, if any) and (to the extent that payment of such interest is
legally enforceable) upon the overdue installments of interest at the rate per
annum expressed above, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including reasonable
compensation for agents, attorneys and counsel.
7.3 Remedies Cumulative and Continuing. All powers and remedies
given by this Section 7, shall to the extent permitted by law, be deemed
cumulative and not exclusive of any thereof or of any other powers and remedies
available to the holders by judicial proceedings or otherwise to enforce the
performance or observance of the covenants and agreements contained in this
Note, and no delay or omission of any holder to exercise any right or power
accruing upon any default occurring and continuing as aforesaid shall impair
such right or power, or shall be construed to be a waiver of any such default or
an acquiescence therein.
8. Miscellaneous
(a) This note shall be governed by the domestic laws of the
State of New Jersey.
(b) This Note is one of an issue of Notes aggregating
$350,000, identical in all respects, except as to
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maturity date and principal amount, and all issued by the Company on March 31,
1997.
(c) No recourse for the payment of the principal of or any
premium or interest on this Note, or for any claim based hereon or otherwise in
respect hereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in any Note, or because of the creation of any
indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
(d) All notices shall be sufficient if sent by registered or
certified mail to the Company, at its principal office and to the holder, at his
address set forth in the Company records.
IN WITNESS WHEREOF, Tel-Instrument Electronics Corp. has caused this
Note to be executed in its corporate name by the signature of its President, or
Vice President or Treasurer.
Dated: March 31, 1997
Tel-Instrument Electronics Corp.
By /s/ Richard J. Wixson
-----------------------------------------------
Richard J. Wixson, Vice President Manufacturing
(Office)
WITNESS:
/s/ Dolores McGuire
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Dolores McGuire
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