EXHIBIT 4.2
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS (A)
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING SUCH SECURITIES OR (B) COMPUDYNE CORPORATION RECEIVES
AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES ACCEPTABLE TO THE
CORPORATION (CONCURRED IN BY COUNSEL FOR THE CORPORATION) STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT, PLEDGE OR DISTRIBUTION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH STATE
LAWS AND THAT SUCH SALE, TRANSFER, ASSIGNMENT, PLEDGE OR DISTRIBUTION WILL NOT
CAUSE THE ORIGINAL ISSUANCE OF SUCH SECURITIES BY THE CORPORATION TO BE IN
VIOLATION OF THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT
OR SUCH STATE LAWS.
SENIOR CONVERTIBLE PROMISSORY NOTE
$300,000 August 21, 1995
1. FOR VALUE RECEIVED, the undersigned COMPUDYNE CORPORATION, a
Pennsylvania corporation (the "Maker"), promises to pay to the order of MARTIN
ROENIGK (the "Holder") an individual residing at 26 Barton Hill, East Hampton,
Connecticut 06424 or at such other place as the Holder hereof may designate, in
lawful money of the United States, the principal sum of THREE HUNDRED THOUSAND
DOLLARS ($300,000), together with interest on the unpaid balance of this Note,
beginning on the date hereof, before maturity, default or judgment, at two
percent (2%) above the variable annual rate equal to the rate published from
time to time in The Wall Street Journal (Eastern Edition) ("WSJ-EE") as the
"Prime Rate" (the base rate on corporate loans posted by at least seventy-five
percent (75%) of the nation's thirty (30) largest banks) (the "Prime Rate").
The interest rate will be adjusted upward or downward, as of the date of a
change in the Prime Rate; provided, however, that at no time shall the interest
rate be more than the rate permitted by applicable law. The Prime Rate is not
necessarily the lowest rate available. In the event that the "Prime Rate" is
no longer published from time to time by WSJ-EE, then the term "Prime Rate"
shall mean the variable rate of interest published or publicly promulgated from
time to time by the WSJ-EE or some other entity generally recognized in the
financial community as reputable and authoritative, determined by the Holder,
in its sole discretion, most nearly approximate to the base rate on corporate
loans posted by at least seventy-five percent (75%) of the nation's thirty (30)
largest banks. Interest under this Note shall be computed daily on the basis
of a 360-day year and the actual number of days elapsed, together with (a) all
taxes levied or assessed against the Holder of this Note or the debt evidenced
by this Note, and (b) all reasonable costs, expenses, reasonable attorneys' fees
and reasonable professional fees incurred in (i) any action to collect the
indebtedness of this Note or to foreclose any security interest granted to the
Holder or (ii) in any litigation or controversy arising from or connected with
this Note or any other agreement between Maker and Holder.
2. Interest. Accrued interest shall be payable in arrears on the first
day of each calendar quarter commencing on October 1, 1995. Any installment of
interest not paid when due shall also accrue interest at the rate set forth
herein from the due date thereof until paid. From the date of this Note until
the Maturity Date, as hereinafter defined, if any such accrued and unpaid
interest is not paid when due the amount of the accrued and unpaid interest
shall be added to the principal balance of this Note.
3. Principal. The principal amount of this Note shall be paid in a
single payment, together with all accrued and unpaid interest, on August 21,
2005 (the "Maturity Date").
4. Payments. All payments of principal and interest shall be made in
immediately available lawful money of the United States. If any payment due on,
or with respect to, this Note shall fall due on a day other than a Business Day
(as defined below), then such payment shall be made on the first Business Day
following the day on which such payment shall have so fallen due. For the
purposes of this paragraph, a "Business Day" shall mean a day other than a
Saturday, a Sunday or a legal holiday in the State of Connecticut.
5. Senior Obligation. Except as noted below, this Note shall be a senior
obligation of Maker. During the term of this Note, Maker shall not pay any
dividends on any class of its common stock or make any other distribution or
payment of its common stock or make any other distribution or payment on account
of or in redemption, retirement or purchase of such common stock or make payment
of any portion of principal or interest on any note or debt instrument held by
any officer, director or shareholder of Maker or any affiliate of Maker. This
Note shall be subordinated to any note or other debt instrument of Maker payable
to a third party unaffiliated with Maker or Maker's officers, directors or
shareholders ("Third-Party Debt") only in the event such Third-Party Debt is
secured by any assets, tangible or intangible, of Maker. In such event, Maker
shall, upon Holder's written request, grant Holder a security interest
subordinate only to such Third-Party Debt in the same assets to secure repayment
of this Note. Maker shall execute and deliver any and all agreements, documents
or instruments that Holder may deem necessary or appropriate to perfect such
subordinate security interest. In the event such Third-Party Debt is not
secured by any assets, tangible or intangible of Maker, this Note shall rank
pari passu with such Third-Party Debt.
6. Events of Default. Holder shall have the right, at its option, to
declare the unpaid principal amount of this Note and any accrued interest
immediately due and payable without presentment, demand, or protest or further
notice of any kind, all of which are hereby expressly waived by Maker, upon the
occurrence of any one of the following events (each being an "Event of
Default"):
(a) The failure to pay any interest, principal or other sum owing by
the Maker to the Holder, whether pursuant to this Note or otherwise,
within ten (10) business days of the due date.
(b) The breach by Maker of any term, provision, obligation,
covenant, representation or warranty arising under (i) this agreement,
(ii) any other present or future agreement or instrument between the Maker
and Holder or (iii) any present or future agreement or instrument for
borrowed money or other financial accommodations with any other person or
entity.
(c) Maker commences any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under the United States
Bankruptcy Code or under any similar foreign, federal, state or local
statute, or any dissolution or liquidation proceeding, or makes a general
assignment for the benefit of creditors, or takes any action for the
purpose of effecting any of the foregoing.
(d) Any bankruptcy, reorganization, debt arrangement, or other case
or proceeding under the United States Bankruptcy Code or under similar
foreign, federal, state or local statute, or any dissolution or
liquidation proceeding, is involuntarily commenced against or in respect
of Maker or an order for relief is entered in any such proceeding, and
such bankruptcy, reorganization, debt, arrangement, or other case or
proceeding or any dissolution or liquidation proceeding is not dismissed
within ninety (90) days after the commencement thereof.
(e) The appointment, or the filing of a petition seeking the
appointment, of a custodian, receiver, trustee, or liquidator for Maker or
any of its property, or the taking of possession of any part of the
property of Maker at the instance of any governmental authority, and such
appointment, filing, or taking of possession is not cured within ninety
(90) days after the commencement thereof.
(f) Maker becomes insolvent within the meaning of any applicable
law, is generally not paying its debts as they become due, or has
suspended transaction of its usual business.
(g) If Maker shall dissolve or liquidate, or be dissolved or
liquidated, or cease to legally exist, or merge into, or consolidate with,
any other corporation.
(h) If at any time, the ratio of Maker's current assets (as
determined in accordance with generally accepted accounting principles
consistently applied) to Maker's current liabilities is less than 1.25 to
1.0.
(i) If at any time, Maker's net worth (as determined in accordance
with generally accepted accounting principles consistently applied) is
less than $1,250,000.00.
(j) Maker transfers or sells all or substantially all of its assets,
without the prior written consent of the Holder.
(k) Maker shall default in the payment or performance of any
obligation for borrowed money to the Holder or to any person, firm or
corporation (excluding trade creditors in the ordinary course of
business).
(l) Maker pledges, creates or otherwise suffers the imposition of
any liens, security interests, charges or encumbrances upon any of its
fixed assets, whether now owned or hereafter acquired, except (i) pledges,
security interests, liens, charges or encumbrances existing at the date of
this Note, (ii) tax liens or other involuntary liens and encumbrances not
yet due and payable, or (iii) mechanics', materialmen's or other
involuntary liens and encumbrances which Maker diligently takes actions to
remove the same, which lien or encumbrance is removed within ninety (90)
days after the imposition thereof.
(m) "Change in Control" of the Maker. A "Change in Control" shall
be deemed to have occurred with respect to the Maker if any Person, as
defined below, acquires control of the Maker, other than (i) Persons
having control at the date of this Note, (ii) the officers and executive
officers (as defined under Rules 3b-2 and 3b-7, respectively, under the
Securities Exchange Act of 1934, as amended) of the Maker immediately
prior to the Change of Control, (iii) the Holder hereof or (iv) the holder
of a Senior Convertible Promissory Note dated the date hereof, of the
Maker in the principal amount of $100,000 . A Person has control if (w)
the Person, directly or indirectly or acting through one or more other
Persons, Associates or Affiliates, beneficially owns, controls, or has
power to vote 20% or more of the common stock, par value $.75 per share
(the "Common Stock"), of Maker; or (x) the Person, directly or indirectly
or acting through one or more other Persons, Associates or Affiliates,
acquires or agrees to acquire all or substantially all of the assets and
business of Maker; or (y) the Person, directly or indirectly or acting
through one or more other Persons, Associates or Affiliates, controls in
any manner the election of a majority of the directors of Maker; or (z)
the Board of Directors of Maker determines, in its sole discretion, that
a Person, directly or indirectly or acting through one or more other
Persons, possesses the power to direct or cause the direction of the
management and policies of the Maker, whether through the ownership of
outstanding securities, by contract, or otherwise. A "Person" shall
include a natural person, corporation, trust or other entity. When two or
more Persons act as a partnership, limited partnership, syndicate, or
other group for the purpose of acquiring, holding or disposing of Maker's
capital stock, such partnership, syndicate, or group shall be considered
a Person. Beneficial ownership shall be determined pursuant to the then
current provision for Rule 13d-3 under the Securities Exchange Act of 1934
as amended (the "1934 Act"). "Associates" and "Affiliates" shall have the
meanings provided in the then current provisions of Rule 12b-2 under the
1934 Act.
7. Conversion.
(a) This Note, or any portion of the principal amount thereof which
is $1,500 or an integral multiple of $1,500 (or such lesser amount if the
amount of principal outstanding is less than $1,500), may be converted at
the option of the Holder hereof at any time after the date of this Note
set forth above (the "Original Issuance Date") at the principal amount
thereof, or of such portion thereof, into fully paid and nonassessable
shares of Common Stock of the Maker (rounded to the nearest, or if there
shall be no nearest, then to the next lower whole share of Common Stock)
at the conversion rate of $1.50 per share of Common Stock (the "Conversion
Rate"). Upon conversion of this Note, or any portion thereof, subject to
Section 2 above, the Holder shall be entitled to the amount of any
interest accrued and unpaid with respect to this Note through the
Conversion Date (as defined in Section 7(c) hereof). Such interest shall
be payable on the Conversion Date.
(b) The Conversion Rate shall be subject to the following
adjustments:
(i) In case the Maker shall declare and pay a dividend in
shares of Common Stock, the Conversion Rate in effect immediately prior to
the time fixed for the determination of stockholders entitled to such
dividend shall be proportionately increased (adjusted to the nearest or if
there shall be no nearest, then to the next lower, one-hundredth of a
share of Common Stock), such adjustment to become effective immediately
after the time fixed for such determination.
(ii) In case the Maker shall subdivide the outstanding shares of
Common Stock into a greater number of shares of Common Stock or combine
the outstanding shares of Common Stock into a smaller number of shares of
Common Stock, the Conversion Rate in effect immediately prior to such
subdivision or combination, as the case may be, shall be proportionately
increased or decreased (adjusted to the nearest, or if there shall be no
nearest, then to the next lower, one-hundredth of a share of Common
Stock), as the case may require, such increase or decrease to become
effective when such subdivision or combination becomes effective.
(iii) In case of any reclassification or change of outstanding
shares of Common Stock, or in case of any consolidation or merger of the
Maker with or into another corporation, or in case of any sale or
conveyance to another corporation of all or substantially all of the
property of the Maker, the Holder shall have the right thereafter, so long
as his conversion right hereunder shall exist, to convert this Note, or
any portion thereof, into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock of the Maker into which this Note, or any portion
thereof, might have been converted immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance, and
shall have no other conversion rights under these provision; and,
effective provisions, if required, shall be made in an amendment to this
Note or in the Articles or Certificate of Incorporation of the resulting,
surviving or successor corporation or otherwise, so that the provisions
set forth herein for the protection of the conversion rights of the Holder
hereof shall hereafter be applicable, as nearly as reasonably may be, to
any such other shares of stock and other securities and property
deliverable upon conversion of this Note, or any portion thereof; and any
such resulting, surviving or successor corporation shall expressly assume
the obligations to deliver, upon the exercise of the conversion privilege,
such shares, securities, or property as the Holder hereof shall be
entitled to receive pursuant to the provisions hereof, and to make
provision for the protection of the conversion rights as above provided.
In case securities or property other than shares of Common Stock shall be
issuable or deliverable upon conversion as aforesaid, then all references
in this section shall be deemed to apply so far as appropriate and as
nearly as may be, to such other securities or property. The subdivision
or combination of shares of Common stock at any time outstanding into a
greater or lesser number of shares of Common Stock (whether with or
without par value) shall not be deemed to be a reclassification of the
Common Stock of the Corporation for the purposes of this subsection (iii).
(c) In order to convert this Note or any portion thereof into shares
of Common Stock, the Holder hereof shall give at least thirty (30) days'
but not more than ninety (90) days' (or, if a Notice of Redemption has
been sent or given to the Holder as provided in Section 8(b) hereof, the
Holder shall give at least one (1) days' but not more than ninety (90)
days') written notice to the Maker at the office of the Maker (or such
other place as may be designated by the Maker) that the Holder elects to
convert the same and shall state in writing therein the name or names in
which he wishes the certificate or certificates for shares of Common Stock
to be issued and shall surrender this Note, duly endorsed or assigned to
the Maker in blank, at said office of the Maker. The Maker shall, as soon
as practicable thereafter, deliver at said office to the Holder, or to his
nominee or nominees, a certificate or certificates for the number of full
shares of Common Stock to which he shall be entitled. This Note or any
portion thereof shall be deemed to have been converted as of the date of
the surrender of this Note for conversion as provided in this Section 7(c)
(the "Conversion Date"), and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be deemed for
all purposes to be the Holder of this Note on such date.
In case this Note is converted in part only, upon such conversion the
Maker shall execute and deliver to the Holder hereof, at the expense of
the Maker, a new Note in principal amount equal to the unconverted portion
of the principal amount of such Note.
A number of authorized shares of Common Stock sufficient to provide
for the conversion of this Note upon the basis of this Section 7 shall at
all times be reserved for such conversion.
8. Redemption.
(a) Commencing five years after the Original Issuance Date, this
Note may be redeemed, as a whole at any time, or in part from time to
time, at the election of the Maker ("Optional Redemption") by resolution
of its Board of Directors, out of funds legally available therefor, at a
redemption price of one hundred and twenty percent (120%) of the principal
amount of this Note, or portion thereof, together with accrued interest to
the date of redemption.
(b) Notice of any redemption, specifying the date fixed for said
redemption and the place where the amount to be paid upon redemption is
payable (the "Notice of Redemption"), shall be mailed, postage prepaid at
least ninety (90) days but not more than one hundred and twenty (120) days
prior to said redemption date to the Holder at his address as the same
shall appear on the books of the Corporation. The Notice of Redemption
shall include (i) the redemption date; (ii) the principal amount; (iii)
the redemption price; (iv) the place or places where this Note shall be
surrendered for payment of the redemption price; and (v) a statement that
interest on the principal amount to be redeemed will cease to accrue on
such redemption date.
If such Notice of Redemption shall have been so mailed, and the
Holder shall not have elected to convert this Note or any portion thereof
into Common Stock within the time periods set forth in Section 7(c)
hereof, and if on or before the redemption date specified in such notice
all funds necessary for such redemption shall have been irrevocably
deposited in trust, for the account of the Holder (and so as to be and
continue to be available therefor), with a bank or trust company named in
such notice doing business in the State of Connecticut and having a
combined capital and surplus of at least $100,000,000, thereupon and
without awaiting the redemption date, notwithstanding that this Note so
called for redemption shall not have been surrendered for cancellation,
this Note, or any portion thereof, so called for redemption shall be
deemed to be no longer outstanding and all obligations with respect to
this Note or any portion thereof shall be deemed satisfied, the right to
receive interest thereon shall cease to accrue, and all rights with
respect to this Note or any portion thereof so called for redemption shall
forthwith upon such deposit in trust cease and terminate, except only the
right of the Holder thereof to receive out of the funds so set aside in
trust, the amount payable on redemption thereof, but without interest from
the date of redemption.
In case the Holder hereof shall not within four (4) years (or any
longer period if required by law) after the redemption date claim any
amount so deposited in trust for the redemption of such shares, such bank
or trust company shall, upon demand and if permitted by applicable law,
pay over to the Maker any such unclaimed amount so deposited with it, and
shall thereupon be relieved of all responsibility in respect thereof, and
thereafter the Holder shall, subject to applicable escheat laws, look only
to the Maker for payment of the redemption price thereof but without
interest.
(c) Upon surrender of this Note for redemption, in accordance with
the Notice of Redemption, such Note, or portion thereof, shall be redeemed
by the Maker at the applicable redemption price. If this Note is redeemed
in part, a new Note shall be issued by the Maker representing the
unredeemed portion, without cost to the Holder of the Note.
10. Demand for Payment.
(a) Commencing three years after the Original Issuance Date, the
Holder may require the Maker to purchase this Note, as a whole at any
time, or in part from time to time, at the election of the Holder (the
"Demand for Payment"), out of funds legally available therefor, at a
purchase price of one hundred percent (100%) of the principal amount of
this Note, or portion thereof, together with accrued interest to the date
of purchase (the "Purchase Date").
(b) In order to make a Demand for Payment, the Holder hereof shall
give written notice to the Maker at the office of the Maker (or such other
place as may be designated by the Maker) that (i) the Holder elects to
make a Demand for Payment, (ii) the principal amount of the Note subject
to the Demand for Payment, and (iii) the date of purchase (the "Purchase
Date") which date shall be at least ninety (90) days but not more than one
hundred twenty (120) days after such notice is mailed or delivered to the
Maker. The Holder shall surrender this Note, duly endorsed to the Maker
in blank, at said office of the Maker at least ten (10) days prior to the
Purchase Date. On the Purchase Date, the Maker shall deliver to the
Holder the purchase price, together with accrued interest to the Purchase
Date, with respect to the Note or portion thereof subject to the Demand
for Payment. In case the Holder elects to make a Demand for Purchase with
respect to only a portion of this Note, the Maker shall also execute and
deliver to the Holder hereof on the Purchase Date, at the expense of the
Maker, a new Note in principal amount equal to the portion of the
principal amount not subject to the Demand for Payment.
11. Non-Waiver of Rights. The failure of the Holder to exercise its
option to accelerate the indebtedness of this Note shall not constitute a waiver
of his right to exercise the same upon the occurrence of any continued or
subsequent Event of Default. The failure by the Holder to insist upon the
strict performance by the Maker of any terms and provisions contained herein
shall not be deemed to be a waiver of any terms and provisions herein, and the
Holder shall retain the right thereafter to insist upon strict performance by
the Maker of any and all terms and provisions of this Note or any document
securing the repayment of this Note.
12. Additional Interest. The Maker agrees that upon the occurrence and
during the continuance of an Event of Default, after judgment on behalf of the
Holder, or on and after the Maturity Date, the indebtedness outstanding under
this Note shall bear interest at an annual rate of three percent (3.0%) above
the Prime Rate.
13. Maximum Rate of Interest. Notwithstanding any provision of this Note,
it is the understanding and agreement of the Maker and the Holder that the
maximum rate of interest to be paid by the Maker to the Holder shall not exceed
the highest or the maximum rate of interest permissible to be charged under the
laws of the State of Connecticut. Any amount paid in excess of such rate shall
be considered to have been payments in reduction of principal.
14. Choice of Law; Jurisdiction. To the extent not superseded by federal
law, this Note shall be governed by and construed in accordance with the laws
of the State of Connecticut without giving effect to its choice of law
principles. The Maker consents to the jurisdiction of the appropriate federal
or state courts within the State of Connecticut with respect to any claims or
disputes arising out of the enforcement of this Note.
15. Commercial Transaction. THE MAKER ACKNOWLEDGES THAT THE TRANSACTION
OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND VOLUNTARILY AND
KNOWINGLY WAIVES (A) ALL RIGHTS TO NOTICE AND PRIOR COURT HEARING OR COURT ORDER
PRIOR TO THE ISSUANCE OF ANY PREJUDGMENT REMEDY UNDER CHAPTER 903a OF THE
CONNECTICUT GENERAL STATUTES OR AS OTHERWISE ALLOWED UNDER ANY STATE OR FEDERAL
LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER MAY DESIRE TO USE
AND (B) ALL RIGHTS TO REQUEST THAT THE HOLDER HEREOF POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY THE HOLDER HEREOF BY VIRTUE OF ANY
DEFAULT OR PROVISION OF THIS NOTE OR ANY AGREEMENT SECURING THIS NOTE. THE
MAKER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT
DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS
ATTORNEYS.
16. Waiver of Right To Jury Trial. THE MAKER WAIVES TRIAL BY JURY IN ANY
COURT IN ANY SUIT, ACTION, PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH
OR IN ANY WAY RELATED TO THIS NOTE OR THE FINANCING TRANSACTION OF WHICH THIS
NOTE IS A PART, OR THE DEFENSE OR ENFORCEMENT OF ANY OF THE HOLDER'S RIGHTS AND
REMEDIES IN CONNECTION THEREWITH, THE MAKER ACKNOWLEDGES THAT IT MAKES THIS
WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF
THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
17. Headings. The descriptive headings of the several sections of this
Note are inserted for convenience only and shall not be deemed to affect the
meaning or construction of any of the provisions hereof.
18. Severability. If any provision of this Note or application thereof
to any person or circumstance shall to any extent be invalid, the remainder of
this Note or the application of such provision to persons, entities or
circumstances other than those as to which it is held invalid, shall not be
affected thereby and each provision of this Note shall be valid and enforceable
to the fullest extent permitted by law.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed and
delivered by the proper and duly authorized officer and agent as of the date and
year first above written.
COMPUDYNE CORPORATION
By /s/ Norman Silberdick
Title President
[KAM -A:COMPUDYNE/MICROASSEMBLY-
COMPUDYN.N-2]
EXHIBIT 4.2
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS (A)
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS COVERING SUCH SECURITIES OR (B) COMPUDYNE CORPORATION RECEIVES
AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES ACCEPTABLE TO THE
CORPORATION (CONCURRED IN BY COUNSEL FOR THE CORPORATION) STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT, PLEDGE OR DISTRIBUTION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH STATE
LAWS AND THAT SUCH SALE, TRANSFER, ASSIGNMENT, PLEDGE OR DISTRIBUTION WILL NOT
CAUSE THE ORIGINAL ISSUANCE OF SUCH SECURITIES BY THE CORPORATION TO BE IN
VIOLATION OF THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT
OR SUCH STATE LAWS.
SENIOR CONVERTIBLE PROMISSORY NOTE
$100,000 August 21, 1995
2. FOR VALUE RECEIVED, the undersigned COMPUDYNE CORPORATION, a
Pennsylvania corporation (the "Maker"), promises to pay to the order of ALAN
MARKOWITZ (the "Holder") an individual residing at 26 Barton Hill, East Hampton,
Connecticut 06424 or at such other place as the Holder hereof may designate, in
lawful money of the United States, the principal sum of ONE HUNDRED THOUSAND
DOLLARS ($100,000), together with interest on the unpaid balance of this Note,
beginning on the date hereof, before maturity, default or judgment, at two
percent (2%) above the variable annual rate equal to the rate published from
time to time in The Wall Street Journal (Eastern Edition) ("WSJ-EE") as the
"Prime Rate" (the base rate on corporate loans posted by at least seventy-five
percent (75%) of the nation's thirty (30) largest banks) (the "Prime Rate").
The interest rate will be adjusted upward or downward, as of the date of a
change in the Prime Rate; provided, however, that at no time shall the interest
rate be more than the rate permitted by applicable law. The Prime Rate is not
necessarily the lowest rate available. In the event that the "Prime Rate" is
no longer published from time to time by WSJ-EE, then the term "Prime Rate"
shall mean the variable rate of interest published or publicly promulgated from
time to time by the WSJ-EE or some other entity generally recognized in the
financial community as reputable and authoritative, determined by the Holder,
in its sole discretion, most nearly approximate to the base rate on corporate
loans posted by at least seventy-five percent (75%) of the nation's thirty (30)
largest banks. Interest under this Note shall be computed daily on the basis
of a 360-day year and the actual number of days elapsed, together with (a) all
taxes levied or assessed against the Holder of this Note or the debt evidenced
by this Note, and (b) all reasonable costs, expenses, reasonable attorneys' fees
and reasonable professional fees incurred in (i) any action to collect the
indebtedness of this Note or to foreclose any security interest granted to the
Holder or (ii) in any litigation or controversy arising from or connected with
this Note or any other agreement between Maker and Holder.
2. Interest. Accrued interest shall be payable in arrears on the first
day of each calendar quarter commencing on October 1, 1995. Any installment of
interest not paid when due shall also accrue interest at the rate set forth
herein from the due date thereof until paid. From the date of this Note until
the Maturity Date, as hereinafter defined, if any such accrued and unpaid
interest is not paid when due the amount of the accrued and unpaid interest
shall be added to the principal balance of this Note.
3. Principal. The principal amount of this Note shall be paid in a
single payment, together with all accrued and unpaid interest, on August 21,
2005 (the "Maturity Date").
4. Payments. All payments of principal and interest shall be made in
immediately available lawful money of the United States. If any payment due on,
or with respect to, this Note shall fall due on a day other than a Business Day
(as defined below), then such payment shall be made on the first Business Day
following the day on which such payment shall have so fallen due. For the
purposes of this paragraph, a "Business Day" shall mean a day other than a
Saturday, a Sunday or a legal holiday in the State of Connecticut.
5. Senior Obligation. Except as noted below, this Note shall be a senior
obligation of Maker. During the term of this Note, Maker shall not pay any
dividends on any class of its common stock or make any other distribution or
payment of its common stock or make any other distribution or payment on account
of or in redemption, retirement or purchase of such common stock or make payment
of any portion of principal or interest on any note or debt instrument held by
any officer, director or shareholder of Maker or any affiliate of Maker. This
Note shall be subordinated to any note or other debt instrument of Maker payable
to a third party unaffiliated with Maker or Maker's officers, directors or
shareholders ("Third-Party Debt") only in the event such Third-Party Debt is
secured by any assets, tangible or intangible, of Maker. In such event, Maker
shall, upon Holder's written request, grant Holder a security interest
subordinate only to such Third-Party Debt in the same assets to secure repayment
of this Note. Maker shall execute and deliver any and all agreements, documents
or instruments that Holder may deem necessary or appropriate to perfect such
subordinate security interest. In the event such Third-Party Debt is not
secured by any assets, tangible or intangible of Maker, this Note shall rank
pari passu with such Third-Party Debt.
6. Events of Default. Holder shall have the right, at its option, to
declare the unpaid principal amount of this Note and any accrued interest
immediately due and payable without presentment, demand, or protest or further
notice of any kind, all of which are hereby expressly waived by Maker, upon the
occurrence of any one of the following events (each being an "Event of
Default"):
(a) The failure to pay any interest, principal or other sum owing by
the Maker to the Holder, whether pursuant to this Note or otherwise,
within ten (10) business days of the due date.
(b) The breach by Maker of any term, provision, obligation,
covenant, representation or warranty arising under (i) this agreement,
(ii) any other present or future agreement or instrument between the Maker
and Holder or (iii) any present or future agreement or instrument for
borrowed money or other financial accommodations with any other person or
entity.
(c) Maker commences any bankruptcy, reorganization, debt
arrangement, or other case or proceeding under the United States
Bankruptcy Code or under any similar foreign, federal, state or local
statute, or any dissolution or liquidation proceeding, or makes a general
assignment for the benefit of creditors, or takes any action for the
purpose of effecting any of the foregoing.
(d) Any bankruptcy, reorganization, debt arrangement, or other case
or proceeding under the United States Bankruptcy Code or under similar
foreign, federal, state or local statute, or any dissolution or
liquidation proceeding, is involuntarily commenced against or in respect
of Maker or an order for relief is entered in any such proceeding, and
such bankruptcy, reorganization, debt, arrangement, or other case or
proceeding or any dissolution or liquidation proceeding is not dismissed
within ninety (90) days after the commencement thereof.
(e) The appointment, or the filing of a petition seeking the
appointment, of a custodian, receiver, trustee, or liquidator for Maker or
any of its property, or the taking of possession of any part of the
property of Maker at the instance of any governmental authority, and such
appointment, filing, or taking of possession is not cured within ninety
(90) days after the commencement thereof.
(f) Maker becomes insolvent within the meaning of any applicable
law, is generally not paying its debts as they become due, or has
suspended transaction of its usual business.
(g) If Maker shall dissolve or liquidate, or be dissolved or
liquidated, or cease to legally exist, or merge into, or consolidate with,
any other corporation.
(h) If at any time, the ratio of Maker's current assets (as
determined in accordance with generally accepted accounting principles
consistently applied) to Maker's current liabilities is less than 1.25 to
1.0.
(i) If at any time, Maker's net worth (as determined in accordance
with generally accepted accounting principles consistently applied) is
less than $1,250,000.00.
(j) Maker transfers or sells all or substantially all of its assets,
without the prior written consent of the Holder.
(k) Maker shall default in the payment or performance of any
obligation for borrowed money to the Holder or to any person, firm or
corporation (excluding trade creditors in the ordinary course of
business).
(l) Maker pledges, creates or otherwise suffers the imposition of
any liens, security interests, charges or encumbrances upon any of its
fixed assets, whether now owned or hereafter acquired, except (i) pledges,
security interests, liens, charges or encumbrances existing at the date of
this Note, (ii) tax liens or other involuntary liens and encumbrances not
yet due and payable, or (iii) mechanics', materialmen's or other
involuntary liens and encumbrances which Maker diligently takes actions to
remove the same, which lien or encumbrance is removed within ninety (90)
days after the imposition thereof.
(m) "Change in Control" of the Maker. A "Change in Control" shall
be deemed to have occurred with respect to the Maker if any Person, as
defined below, acquires control of the Maker, other than (i) Persons
having control at the date of this Note, (ii) the officers and executive
officers (as defined under Rules 3b-2 and 3b-7, respectively, under the
Securities Exchange Act of 1934, as amended) of the Maker immediately
prior to the Change of Control, (iii) the Holder hereof or (iv) the holder
of a Senior Convertible Promissory Note dated the date hereof, of the
Maker in the principal amount of $300,000 . A Person has control if (w)
the Person, directly or indirectly or acting through one or more other
Persons, Associates or Affiliates, beneficially owns, controls, or has
power to vote 20% or more of the common stock, par value $.75 per share
(the "Common Stock"), of Maker; or (x) the Person, directly or indirectly
or acting through one or more other Persons, Associates or Affiliates,
acquires or agrees to acquire all or substantially all of the assets and
business of Maker; or (y) the Person, directly or indirectly or acting
through one or more other Persons, Associates or Affiliates, controls in
any manner the election of a majority of the directors of Maker; or (z)
the Board of Directors of Maker determines, in its sole discretion, that
a Person, directly or indirectly or acting through one or more other
Persons, possesses the power to direct or cause the direction of the
management and policies of the Maker, whether through the ownership of
outstanding securities, by contract, or otherwise. A "Person" shall
include a natural person, corporation, trust or other entity. When two or
more Persons act as a partnership, limited partnership, syndicate, or
other group for the purpose of acquiring, holding or disposing of Maker's
capital stock, such partnership, syndicate, or group shall be considered
a Person. Beneficial ownership shall be determined pursuant to the then
current provision for Rule 13d-3 under the Securities Exchange Act of 1934
as amended (the "1934 Act"). "Associates" and "Affiliates" shall have the
meanings provided in the then current provisions of Rule 12b-2 under the
1934 Act.
7. Conversion.
(a) This Note, or any portion of the principal amount thereof which
is $1,500 or an integral multiple of $1,500 (or such lesser amount if the
amount of principal outstanding is less than $1,500), may be converted at
the option of the Holder hereof at any time after the date of this Note
set forth above (the "Original Issuance Date") at the principal amount
thereof, or of such portion thereof, into fully paid and nonassessable
shares of Common Stock of the Maker (rounded to the nearest, or if there
shall be no nearest, then to the next lower whole share of Common Stock)
at the conversion rate of $1.50 per share of Common Stock (the "Conversion
Rate"). Upon conversion of this Note, or any portion thereof, subject to
Section 2 above, the Holder shall be entitled to the amount of any
interest accrued and unpaid with respect to this Note through the
Conversion Date (as defined in Section 7(c) hereof). Such interest shall
be payable on the Conversion Date.
(b) The Conversion Rate shall be subject to the following
adjustments:
(i) In case the Maker shall declare and pay a dividend in
shares of Common Stock, the Conversion Rate in effect immediately prior to
the time fixed for the determination of stockholders entitled to such
dividend shall be proportionately increased (adjusted to the nearest or if
there shall be no nearest, then to the next lower, one-hundredth of a
share of Common Stock), such adjustment to become effective immediately
after the time fixed for such determination.
(ii) In case the Maker shall subdivide the outstanding shares of
Common Stock into a greater number of shares of Common Stock or combine
the outstanding shares of Common Stock into a smaller number of shares of
Common Stock, the Conversion Rate in effect immediately prior to such
subdivision or combination, as the case may be, shall be proportionately
increased or decreased (adjusted to the nearest, or if there shall be no
nearest, then to the next lower, one-hundredth of a share of Common
Stock), as the case may require, such increase or decrease to become
effective when such subdivision or combination becomes effective.
(iii) In case of any reclassification or change of outstanding
shares of Common Stock, or in case of any consolidation or merger of the
Maker with or into another corporation, or in case of any sale or
conveyance to another corporation of all or substantially all of the
property of the Maker, the Holder shall have the right thereafter, so long
as his conversion right hereunder shall exist, to convert this Note, or
any portion thereof, into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock of the Maker into which this Note, or any portion
thereof, might have been converted immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance, and
shall have no other conversion rights under these provision; and,
effective provisions, if required, shall be made in an amendment to this
Note or in the Articles or Certificate of Incorporation of the resulting,
surviving or successor corporation or otherwise, so that the provisions
set forth herein for the protection of the conversion rights of the Holder
hereof shall hereafter be applicable, as nearly as reasonably may be, to
any such other shares of stock and other securities and property
deliverable upon conversion of this Note, or any portion thereof; and any
such resulting, surviving or successor corporation shall expressly assume
the obligations to deliver, upon the exercise of the conversion privilege,
such shares, securities, or property as the Holder hereof shall be
entitled to receive pursuant to the provisions hereof, and to make
provision for the protection of the conversion rights as above provided.
In case securities or property other than shares of Common Stock shall be
issuable or deliverable upon conversion as aforesaid, then all references
in this section shall be deemed to apply so far as appropriate and as
nearly as may be, to such other securities or property. The subdivision
or combination of shares of Common stock at any time outstanding into a
greater or lesser number of shares of Common Stock (whether with or
without par value) shall not be deemed to be a reclassification of the
Common Stock of the Corporation for the purposes of this subsection (iii).
(c) In order to convert this Note or any portion thereof into shares
of Common Stock, the Holder hereof shall give at least thirty (30) days'
but not more than ninety (90) days' (or, if a Notice of Redemption has
been sent or given to the Holder as provided in Section 8(b) hereof, the
Holder shall give at least one (1) days' but not more than ninety (90)
days') written notice to the Maker at the office of the Maker (or such
other place as may be designated by the Maker) that the Holder elects to
convert the same and shall state in writing therein the name or names in
which he wishes the certificate or certificates for shares of Common Stock
to be issued and shall surrender this Note, duly endorsed or assigned to
the Maker in blank, at said office of the Maker. The Maker shall, as soon
as practicable thereafter, deliver at said office to the Holder, or to his
nominee or nominees, a certificate or certificates for the number of full
shares of Common Stock to which he shall be entitled. This Note or any
portion thereof shall be deemed to have been converted as of the date of
the surrender of this Note for conversion as provided in this Section 7(c)
(the "Conversion Date"), and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be deemed for
all purposes to be the Holder of this Note on such date.
In case this Note is converted in part only, upon such conversion the
Maker shall execute and deliver to the Holder hereof, at the expense of
the Maker, a new Note in principal amount equal to the unconverted portion
of the principal amount of such Note.
A number of authorized shares of Common Stock sufficient to provide
for the conversion of this Note upon the basis of this Section 7 shall at
all times be reserved for such conversion.
8. Redemption.
(a) Commencing five years after the Original Issuance Date, this
Note may be redeemed, as a whole at any time, or in part from time to
time, at the election of the Maker ("Optional Redemption") by resolution
of its Board of Directors, out of funds legally available therefor, at a
redemption price of one hundred and twenty percent (120%) of the principal
amount of this Note, or portion thereof, together with accrued interest to
the date of redemption.
(b) Notice of any redemption, specifying the date fixed for said
redemption and the place where the amount to be paid upon redemption is
payable (the "Notice of Redemption"), shall be mailed, postage prepaid at
least ninety (90) days but not more than one hundred and twenty (120) days
prior to said redemption date to the Holder at his address as the same
shall appear on the books of the Corporation. The Notice of Redemption
shall include (i) the redemption date; (ii) the principal amount; (iii)
the redemption price; (iv) the place or places where this Note shall be
surrendered for payment of the redemption price; and (v) a statement that
interest on the principal amount to be redeemed will cease to accrue on
such redemption date.
If such Notice of Redemption shall have been so mailed, and the
Holder shall not have elected to convert this Note or any portion thereof
into Common Stock within the time periods set forth in Section 7(c)
hereof, and if on or before the redemption date specified in such notice
all funds necessary for such redemption shall have been irrevocably
deposited in trust, for the account of the Holder (and so as to be and
continue to be available therefor), with a bank or trust company named in
such notice doing business in the State of Connecticut and having a
combined capital and surplus of at least $100,000,000, thereupon and
without awaiting the redemption date, notwithstanding that this Note so
called for redemption shall not have been surrendered for cancellation,
this Note, or any portion thereof, so called for redemption shall be
deemed to be no longer outstanding and all obligations with respect to
this Note or any portion thereof shall be deemed satisfied, the right to
receive interest thereon shall cease to accrue, and all rights with
respect to this Note or any portion thereof so called for redemption shall
forthwith upon such deposit in trust cease and terminate, except only the
right of the Holder thereof to receive out of the funds so set aside in
trust, the amount payable on redemption thereof, but without interest from
the date of redemption.
In case the Holder hereof shall not within four (4) years (or any
longer period if required by law) after the redemption date claim any
amount so deposited in trust for the redemption of such shares, such bank
or trust company shall, upon demand and if permitted by applicable law,
pay over to the Maker any such unclaimed amount so deposited with it, and
shall thereupon be relieved of all responsibility in respect thereof, and
thereafter the Holder shall, subject to applicable escheat laws, look only
to the Maker for payment of the redemption price thereof but without
interest.
(c) Upon surrender of this Note for redemption, in accordance with
the Notice of Redemption, such Note, or portion thereof, shall be redeemed
by the Maker at the applicable redemption price. If this Note is redeemed
in part, a new Note shall be issued by the Maker representing the
unredeemed portion, without cost to the Holder of the Note.
10. Demand for Payment.
(a) Commencing three years after the Original Issuance Date, the
Holder may require the Maker to purchase this Note, as a whole at any
time, or in part from time to time, at the election of the Holder (the
"Demand for Payment"), out of funds legally available therefor, at a
purchase price of one hundred percent (100%) of the principal amount of
this Note, or portion thereof, together with accrued interest to the date
of purchase (the "Purchase Date").
(b) In order to make a Demand for Payment, the Holder hereof shall
give written notice to the Maker at the office of the Maker (or such other
place as may be designated by the Maker) that (i) the Holder elects to
make a Demand for Payment, (ii) the principal amount of the Note subject
to the Demand for Payment, and (iii) the date of purchase (the "Purchase
Date") which date shall be at least ninety (90) days but not more than one
hundred twenty (120) days after such notice is mailed or delivered to the
Maker. The Holder shall surrender this Note, duly endorsed to the Maker
in blank, at said office of the Maker at least ten (10) days prior to the
Purchase Date. On the Purchase Date, the Maker shall deliver to the
Holder the purchase price, together with accrued interest to the Purchase
Date, with respect to the Note or portion thereof subject to the Demand
for Payment. In case the Holder elects to make a Demand for Purchase with
respect to only a portion of this Note, the Maker shall also execute and
deliver to the Holder hereof on the Purchase Date, at the expense of the
Maker, a new Note in principal amount equal to the portion of the
principal amount not subject to the Demand for Payment.
11. Non-Waiver of Rights. The failure of the Holder to exercise its
option to accelerate the indebtedness of this Note shall not constitute a waiver
of his right to exercise the same upon the occurrence of any continued or
subsequent Event of Default. The failure by the Holder to insist upon the
strict performance by the Maker of any terms and provisions contained herein
shall not be deemed to be a waiver of any terms and provisions herein, and the
Holder shall retain the right thereafter to insist upon strict performance by
the Maker of any and all terms and provisions of this Note or any document
securing the repayment of this Note.
12. Additional Interest. The Maker agrees that upon the occurrence and
during the continuance of an Event of Default, after judgment on behalf of the
Holder, or on and after the Maturity Date, the indebtedness outstanding under
this Note shall bear interest at an annual rate of three percent (3.0%) above
the Prime Rate.
13. Maximum Rate of Interest. Notwithstanding any provision of this Note,
it is the understanding and agreement of the Maker and the Holder that the
maximum rate of interest to be paid by the Maker to the Holder shall not exceed
the highest or the maximum rate of interest permissible to be charged under the
laws of the State of Connecticut. Any amount paid in excess of such rate shall
be considered to have been payments in reduction of principal.
14. Choice of Law; Jurisdiction. To the extent not superseded by federal
law, this Note shall be governed by and construed in accordance with the laws
of the State of Connecticut without giving effect to its choice of law
principles. The Maker consents to the jurisdiction of the appropriate federal
or state courts within the State of Connecticut with respect to any claims or
disputes arising out of the enforcement of this Note.
15. Commercial Transaction. THE MAKER ACKNOWLEDGES THAT THE TRANSACTION
OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND VOLUNTARILY AND
KNOWINGLY WAIVES (A) ALL RIGHTS TO NOTICE AND PRIOR COURT HEARING OR COURT ORDER
PRIOR TO THE ISSUANCE OF ANY PREJUDGMENT REMEDY UNDER CHAPTER 903a OF THE
CONNECTICUT GENERAL STATUTES OR AS OTHERWISE ALLOWED UNDER ANY STATE OR FEDERAL
LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER MAY DESIRE TO USE
AND (B) ALL RIGHTS TO REQUEST THAT THE HOLDER HEREOF POST A BOND, WITH OR
WITHOUT SURETY, TO PROTECT SAID MAKER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY THE HOLDER HEREOF BY VIRTUE OF ANY
DEFAULT OR PROVISION OF THIS NOTE OR ANY AGREEMENT SECURING THIS NOTE. THE
MAKER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT
DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS
ATTORNEYS.
16. Waiver of Right To Jury Trial. THE MAKER WAIVES TRIAL BY JURY IN ANY
COURT IN ANY SUIT, ACTION, PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH
OR IN ANY WAY RELATED TO THIS NOTE OR THE FINANCING TRANSACTION OF WHICH THIS
NOTE IS A PART, OR THE DEFENSE OR ENFORCEMENT OF ANY OF THE HOLDER'S RIGHTS AND
REMEDIES IN CONNECTION THEREWITH, THE MAKER ACKNOWLEDGES THAT IT MAKES THIS
WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF
THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
17. Headings. The descriptive headings of the several sections of this
Note are inserted for convenience only and shall not be deemed to affect the
meaning or construction of any of the provisions hereof.
18. Severability. If any provision of this Note or application thereof
to any person or circumstance shall to any extent be invalid, the remainder of
this Note or the application of such provision to persons, entities or
circumstances other than those as to which it is held invalid, shall not be
affected thereby and each provision of this Note shall be valid and enforceable
to the fullest extent permitted by law.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed and
delivered by the proper and duly authorized officer and agent as of the date and
year first above written.
COMPUDYNE CORPORATION
By /s/ Norman Silberdick
Title President
[KAM -A:COMPUDYNE/MICROASSEMBLY-
COMPUDYN.N-3]