THIS DEBENTURE, AND ANY SHARES ACQUIRED UPON CONVERSION HEREOF, HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(THE "ACT") OR ANY STATE SECURITIES LAWS, EXCEPT AS EXPRESSLY PROVIDED HEREIN,
AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL
ACCEPTABLE TO COUNSEL FOR THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED AND
THAT THE PROPOSED TRANSFER MAY BE MADE WITHOUT VIOLATION OF THE ACT AND ANY
APPLICABLE STATE SECURITIES LAW.
No.
$ , 1997
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EA INDUSTRIES, INC.
9% CONVERTIBLE SUBORDINATED DEBENTURE
DUE MAY 3, 1998
EA INDUSTRIES, INC. (the "Company"), a New Jersey corporation, for value
received, and intending to be legally bound, hereby promises to pay to the order
of ___________________________, or registered assigns, the principal amount of
_____________________________________ on May 3, 1998 or such earlier date as
provided in Paragraph (a) under the heading "Conversion of Debenture" below
("Maturity Date"), with interest from the date hereof (computed on the basis of
a 360-day year of twelve 30-day months) payable quarterly on the first day of
each calendar quarter, commencing July 1, 1996 on the unpaid principal balance
at the rate of 9% per annum until such unpaid principal balance shall become due
and payable (whether at maturity or by acceleration or otherwise). Overdue
principal payments and (to the extent permitted by applicable law) any overdue
interest shall accrue interest at the foregoing rate per annum until paid, which
interest shall be payable on demand.
Payments of principal and interest on this Debenture shall be made in
lawful money of the United States of America by delivery of a check payable in
New York Clearing House funds to the address provided by the payee as shown on
the Debenture Register. The Company may treat the person in whose name this
Debenture is registered (the "Holder") on the Debenture Register kept by the
Company as the owner of this Debenture for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary. This Debenture is transferable only (i) in accordance with the
terms hereof and (ii) by surrender thereof at an office or agency of the Company
where this Debenture is payable, duly endorsed or accompanied by a written
instrument duly executed by the Holder of this Debenture or his attorney duly
authorized in writing.
Conversion Of Debenture. This Debenture may be converted into shares of
Common Stock of the Company, as follows:
(a) Conversion. Subject to and upon compliance with the provisions of
this section captioned "Conversion of Debenture", at the option of the Holder,
at any time following the date hereof and prior to the close of business on the
Maturity Date, the unpaid principal balance of the Debenture may be converted in
whole, or from time to time in part, into fully-paid and non-assessable shares
of Common Stock, of the Company (the "Shares"), at a conversion price per Share
equal to the lesser of (i) eighty percent (80%) of the average closing price of
the Common Stock of the Company as traded on the New York Stock Exchange for the
five days immediately preceding the date of Holder's notice to Company of
Holder's intention to exercise its right of conversion as set forth herein, or
(ii) $4.00 per share (the "Conversion Price"), provided that in no event shall
Holder convert less than $100,000 unpaid principal balance of the Debenture at
any one time. The conversion as set forth herein shall be subject to such
adjustment or adjustments, if any, of such Conversion Price and of the
securities or other property issuable upon such conversion as set forth below,
upon delivery of the Debenture to the offices of the Company, together with the
form of conversion notice attached thereto (the "Conversion Notice"), duly
executed by the Holder thereof. The Conversion Notice shall state the principal
amount thereof to be so converted and shall include or be accompanied by
representations as to the Holder's investment intent substantially similar to
those contained in this Debenture. Shares issuable upon conversion of the
Debenture shall be issued in the name of the Holder and shall be transferable
only in accordance with all of the terms and restrictions contained herein and
in the Subscription Agreement of even date hereof to which the original Holder
hereof is a party. Upon such conversion, Company shall pay, in cash, all accrued
and unpaid interest through the conversion date on the Debenture or such part
thereof delivered for conversion. No fractional Shares shall be issued or
delivered upon conversion of the Debenture. In case the Debenture shall be
surrendered for the conversion of only a portion of the principal amount
thereof, the Company shall, at the time of issuing the Shares of Common Stock
issuable upon the conversion of such portion, execute and deliver to the Holder
of the Debenture so surrendered a new note equal in principal amount to the
unconverted portion of the surrendered Debenture, dated the most recent date to
which interest shall have been paid on the surrendered Debenture. The Company
shall use its best efforts to file, within six months of the date hereof, and
cause to be declared effective, within eight months of the date hereof, a
registration statement under the Securities Act of 1933, as amended, covering
the shares of Common Stock underlying this Debenture (the "Registration"). In
addition, Holder shall have such piggyback registration rights as Holder and
Company shall reasonably agree upon. NOTWITHSTANDING THE FOREGOING, THE
CONVERSION OF THE DEBENTURE INTO SHARES OF COMMON STOCK IS EXPRESSLY CONDITIONED
UPON (i) THE LISTING OF THE SHARES INTO WHICH THE DEBENTURE IS CONVERTIBLE ON
THE NEW YORK STOCK EXCHANGE ("LISTING"), AND (ii) IF CONVERSION RESULTS IN THE
ISSUANCE OF SHARES IN AN AMOUNT EQUAL TO OR EXCEEDING 20% OF THE HOLDER'S THEN
ISSUED AND OUTSTANDING SHARES, APPROVAL OF A MAJORITY OF THE HOLDER'S
STOCKHOLDERS. IN THE EVENT THE LISTING OR STOCKHOLDER APPROVAL DOES NOT OCCUR,
THIS DEBENTURE SHALL NOT BE CONVERTIBLE AS AFORESAID. THE COMPANY SHALL USE ITS
BEST EFFORTS TO AFFECT THE LISTING AND THE SHAREHOLDER APPROVAL, IF NECESSARY,
WITHIN SIX MONTHS AFTER THE DATE HEREOF. FURTHER, IN THE EVENT THAT EITHER
LISTING, SHAREHOLDER APPROVAL, IF NECESSARY, OR REGISTRATION HAS NOT OCCURRED
WITHIN EIGHT MONTHS FROM THE DATE HEREOF, THEN AN AMOUNT EQUAL TO TEN PERCENT
(10%) OF THE OUTSTANDING PRINCIPAL DUE HEREUNDER SHALL IMMEDIATELY BE DUE AND
PAYABLE TO HOLDER. IN ADDITION, IN SUCH EVENT HOLDER MAY AT ITS OPTION (i)
DECLARE ALL UNPAID PRINCIPAL AND ACCRUED INTEREST HEREUNDER IMMEDIATELY DUE AND
PAYABLE OR (ii) WAIVE ITS RIGHTS TO SUCH ACCELERATION AND CONTINUE TO HOLD THE
DEBENTURES, WHICH SHALL THEN CONTINUE TO BE CONVERTIBLE IN ACCORDANCE WITH THEIR
TERMS. IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS BEST EFFORTS TO AFFECT
SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF NECESSARY AND HOLDER
SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS. FURTHER, IN THE EVENT
THAT THE LISTING OR SHAREHOLDER APPROVAL HAS NOT OCCURRED OR THE REGISTRATION IS
NOT EFFECTIVE WITHIN NINE MONTHS FROM THE DATE HEREOF, THEN AN ADDITIONAL AMOUNT
EQUAL TO FIFTEEN PERCENT (15%) OF THE OUTSTANDING PRINCIPAL DUE HEREUNDER SHALL
IMMEDIATELY BE DUE AND PAYABLE TO HOLDER. IN ADDITION, IN SUCH EVENT HOLDER MAY
AT ITS OPTION (i) DECLARE ALL UNPAID PRINCIPAL AND ACCRUED INTEREST HEREUNDER
IMMEDIATELY DUE AND PAYABLE OR (ii) WAIVE ITS RIGHTS TO SUCH ACCELERATION AND
CONTINUE TO HOLD THE DEBENTURES, WHICH SHALL THEN CONTINUE TO BE CONVERTIBLE IN
ACCORDANCE WITH THEIR TERMS. IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS
BEST EFFORTS TO AFFECT SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF
NECESSARY, AND HOLDER SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS.
IN THE EVENT THAT (i) A COURT WITH JURISDICTION OVER THE MATTER RENDERS A
JUDGMENT THAT, OR (ii) THE HOLDER PRESENTS THE COMPANY WITH A WRITTEN OPINION OF
COUNSEL DEMONSTRATING TO THE REASONABLE SATISFACTION OF THE COMPANY THAT,
ADDITIONAL PAYMENTS OF TEN PERCENT AND 15% ARE UNENFORCEABLE, SUCH PROVISIONS
SHALL BE INAPPLICABLE AND THE CONVERSION PRICE SHALL BE REDUCED BY FIFTY PERCENT
(2)
(50%). IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS BEST EFFORTS TO AFFECT
SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF NECESSARY, AND HOLDER
SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS.
(b) Adjustments.
(i) Shares Included in Computation. The number of shares of Common
Stock at any time outstanding for any purpose hereunder shall not include any
shares of Common Stock then owned or held by or for the account of the Company.
(ii) Subdivision or Combination. Whenever the Company shall
subdivide or combine the outstanding shares of Common Stock issuable upon
conversion of this Debenture, including stock dividends and stock splits, the
Conversion Price in effect immediately prior to such subdivision or combination
shall be proportionately decreased in the case of subdivision or increased in
the case of combination effective at the time of such subdivision or
combination.
(iii) Reclassification or Change. Whenever any reclassification or
change of the outstanding shares of Common Stock shall occur (other than a
change in par value, or from par value to no par, or from no par to par value,
or as a result of a subdivision or combination) effective provision shall be
made whereby the Holder shall have the right, at any time thereafter, to receive
upon conversion of this Debenture the kind of stock, other securities or
property receivable upon such reclassification or change by a holder of the
number of shares of Common Stock issuable upon conversion of this Debenture
immediately prior to such reclassification or change. Thereafter, the rights of
the Holder with respect to the adjustment of the amount of securities or other
property obtainable upon conversion of this Debenture shall be appropriately
continued and preserved, so as to afford as nearly as may be possible protection
of the nature afforded by this paragraph (b). The provisions of this clause
(iii) shall apply to successive transactions of the nature to which it relates.
(c) Notices of Record Date. In case
(i) the Company shall declare a dividend (or make any other
distribution) on its shares of Common Stock payable otherwise than in cash out
of its earned surplus; or
(ii) the Company shall grant the holders of its Common Stock the
right to subscribe for or purchase any shares of its capital stock of any class;
or
(iii) the Company shall make any distribution on or in respect of
the Common Stock in connection with the dissolution, liquidation or winding up
of the Company; or
(iv) there is to be a reclassification or change of the Common
Stock of the Company (other than the subdivision or combination of its
outstanding shares of Common Stock), a consolidation or merger to which the
Company is a party and in connection with which approval of any class of
stockholders of the Company is required, or a sale or conveyance of the property
of the Company as an entirety or substantially as an entirety,
then and in each such event, the Company shall mail or cause to be mailed to the
Holder a notice specifying the date on which any record is to be taken for the
purpose of such dividend, distribution or granting of rights, or the date on
which such reclassification, consolidation or merger is expected to become
effective, and the time, if any, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization or reclassification. Such
notice shall be mailed at least 30 days prior to the record or effective date
therein specified.
(d) Notice of Adjustment of Conversion Price, etc. If there shall be
any adjustment as provided in (b) hereof, or if securities or property other
than shares of Common Stock of the Company shall become issuable or deliverable
(3)
in lieu of shares of such Common Stock upon the conversion of this Debenture,
the Company shall forthwith cause written notice thereof to be sent by
registered or certified mail, postage prepaid, to the Holder, which notice shall
be accompanied by a certificate of the principal financial officer of the
Company setting forth in reasonable detail the facts requiring any such
adjustment and the Conversion Price and number of shares issuable upon the
conversion of this Debenture after such adjustment, or the kind and amount of
any such securities or property so issuable or deliverable upon the conversion
of this Debenture, as the case may be.
Subordination.
Senior Debt. As used in this Debenture, the term "Senior Debt" shall
mean all amounts due and owing by the Company to banks and other financial
institutions regardless of whether such amounts were incurred on, before or
after the date of this Debenture and any renewals or extensions of any such
debt.
Subordination. The Company covenants and agrees and the Holder, by
acceptance hereof, covenants, expressly for the benefit of the present and
future holders of Senior Debt, that the payment of the principal and interest on
this Debenture is expressly subordinated in right of payment to the payment in
full of principal and interest of the Senior Debt of the Company in accordance
with the provisions of this Section. There are no restrictions on the Company's
ability to issue additional Senior Debt. Accordingly, all present and future
Senior Debt of the Company will be superior to this Debenture and may be
incurred without the consent of Holder. In addition, the Company may issue
additional subordinated debt which is senior to the debentures under this
Debenture without the prior written consent of the holders of the principal
amount of such debentures.
Upon any default by the Company in the payment of all or any portion of
principal or of interest on any Senior Debt when due and payable, no payment may
be made on or in respect of this Debenture unless or until such default has been
cured or is waived. Upon any insolvency proceedings, receivership,
conservatorship, reorganization, readjustment of debt, marshaling or assets and
liabilities or similar proceedings or any liquidation or winding-up of the
Company, whether voluntary or involuntary, the Holder of this Debenture shall
not be entitled to receive thereafter, any amount in respect of the principal
and interest of this Debenture unless and until the above Senior Debt shall have
been paid or otherwise discharged. In the event of such proceeding, and after
payment in full of all sums owing with respect to such Senior Debt, Holder shall
be entitled to be paid from the remaining assets of the Company the unpaid
principal of, and the unpaid interest due on, this Debenture. Such payment will
be made before any payment or other distribution, whether in cash, property or
otherwise shall be made on account of any capital stock of any obligations of
the Company ranking junior to this Debenture.
Rights Against the Company and Others. It is understood that the
provisions of this Section captioned "Subordination" are, and are intended to be
solely for the purpose of defining the relative rights of the Holder of this
Debenture on the one hand and the holder of the Senior Debt of the Company on
the other hand. Nothing contained in this Section or elsewhere in this Debenture
shall or is intended to impair, as between the Company, its creditors other than
the holder of the Senior Debt, and the Holder of this Debenture, the
unconditional and absolute obligation of the Company to pay the Holder of the
Debenture the principal of and interest on the Debenture as and when the same
shall become due and payable in accordance with its terms or affect the relative
rights of the holder of the Debenture and the creditors of the Company, other
than the holder of such Senior Debt nor shall anything herein prevent the Holder
of this Debenture from exercising all remedies otherwise permitted by applicable
law upon default under this Debenture, subject to the rights, if any, of the
holder of Senior Debt in respect to cash, property or securities of the Company
received upon the exercise of any such remedy. The subordination herein provided
applies to payments or distributions by the Company only and shall not affect
the right of the Holder to collect and retain payment from any co-obligor,
guarantor or surety. Upon any payment or distribution of assets of the Company
referred to in this Section captioned "Subordination," the Holder of this
Debenture 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 liquidating
(4)
trustee or agent or other person making any distribution to the Holder of this
Debenture, for the purpose of ascertaining the persons entitled to participate
in such distributions, the holders of Senior Debt and other debt of the Company,
the amounts thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Section.
By accepting this Debenture, the Holder hereby acknowledges that,
except as expressly set forth herein, neither this Debenture nor any shares
issuable upon conversion hereof have been, or will be at the time of acquisition
of any shares upon conversion hereof, registered under the Securities Act of
1933, as amended, or any state securities laws and represents for himself and
his legal representative that he is acquiring this Debenture, and will acquire
any shares issued upon conversion hereof, for his own account, for investment
purposes only and not with a view to, or for sale in connection with, any
distribution of such securities, and agrees to reaffirm in writing this
investment representation at the time of exercise of the conversion right set
forth above.
If any of the following conditions or events ("Events of Default")
shall occur and be continuing:
(a) if the Company shall default in the payment of principal of this
Debenture when the same becomes due and payable, whether at maturity or by
declaration of acceleration or otherwise; or
(b) if the Company shall default in the payment of any interest on this
Debenture and shall fail to cure such default within ten days after written
notice thereof from the Holder to the Company; or
(c) if the Company shall materially default in the performance of or
compliance with any term contained herein and such default shall not have been
remedied within thirty days after written notice thereof from the Holder to the
Company; or
(d) if the Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or a voluntary petition for reorganization under Title 11 of the
United States Code ("Title 11") shall be filed by the Company or an order shall
be entered granting relief to the Company under Title 11 or a petition shall be
filed by the Company in bankruptcy, or the Company shall be adjudicated a
bankrupt or insolvent, or shall file any petition or answer seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, or shall file any answer admitting or not contesting the material
allegations of a petition filed against the Company in any such proceeding, or
shall seek or consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company or if the Company or its directors or majority
shareholders shall take any action looking to the dissolution or liquidation of
the Company; or
(e) if within 120 days after the commencement of an action against the
Company seeking a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such action shall not have been dismissed or nullified or all
orders or proceedings thereunder affecting the operations or the business of the
Company stayed, or if the stay of any such order or proceeding shall thereafter
be set aside, or if, within 120 days after the appointment without the consent
or acquiescence of the Company of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company such
appointment shall not have been vacated;
then, and in any such event, the Holder may at any time (unless such Event of
Default shall theretofore have been remedied) at its option, by written notice
to the Company, declare the Debenture to be due and payable, whereupon the
Debenture shall forthwith mature and become due and payable, together with
interest accrued thereon, and thereafter interest shall be due, at the rate per
annum hereinabove provided, on the entire principal balance until the same is
fully paid, and on any overdue interest (but only to the extent permitted by
law), without presentment, demand, protest or notice, all of which are hereby
waived.
(5)
In case of a default in the payment of any principal of or interest on
the Debenture, the Company will pay to the Holder such further amount as shall
be sufficient to cover the cost and expenses of collection, including, without
limitation, reasonable attorneys' fees, expenses and disbursements. No course of
dealing and no delay on the part of Holder in exercising any right shall operate
as a waiver thereof or otherwise prejudice such Holder's rights, powers or
remedies. No right, power or remedy conferred by this Debenture upon Holder
shall be exclusive of any other right, power or remedy referred to herein or now
or hereafter available at law, in equity, by statute or otherwise.
Notwithstanding any provision contained in this Debenture to the
contrary, the Company's liability for payment of interest shall not exceed the
limits imposed by applicable usury law. If any provision hereof requires
interest payments in excess of the then legally permitted maximum rate, such
provision shall automatically be deemed to require such payment at the then
legally-permitted maximum rate.
All notices required or permitted to be given under this Debenture
shall be in writing (delivered by hand or sent certified or registered mail,
return receipt requested) addressed to the following addresses:
If to Holder: At its address on the Debenture
Register of the Company
If to Company: 185 Monmouth Parkway
West Long Branch, NJ 07764-9989
Attn: Stanley O. Jester
All notices shall be deemed given upon personal delivery or upon deposit of such
notice in the United States mails, with all postage affixed.
(6)
This Debenture has been made and delivered in West Long Branch, New
Jersey and shall be governed by the laws of the State of New Jersey.
EA INDUSTRIES, INC.
ATTEST:
By:
- --------------------------------- ------------------------------------
Assistant Secretary
(SEAL)
(7)
CONVERSION NOTICE
TO: EA INDUSTRIES, INC.
185 Monmouth Parkway
West Long Branch, NJ 07764-9989
The undersigned Holder of this Debenture hereby irrevocably exercises his
right to convert [all] [or $___________] of this Debenture into ___________
shares of Common Stock of EA INDUSTRIES, INC. at the Conversion Price of
$_________________ per share in accordance with the terms of this Debenture, and
directs that the Shares issuable and deliverable upon such conversion be
registered in the name of the undersigned and delivered to the undersigned,
together with a Debenture for the balance of the principal amount of this
Debenture, if any.
The undersigned hereby acknowledges that the Shares (i) have not been and
will not be at the time of acquisition by the undersigned registered under the
Securities Act of 1933, as amended, or under any state securities laws, except
as set forth in this Debenture, and hereby represents and warrants to the
Company that he is acquiring the Shares for his own account, for investment, and
not with a view to, or for sale in connection with, any distribution of such
Shares; and (ii) are transferable only in accordance with all the terms and
restrictions contained in the Debenture and in the Subscription Agreement
pursuant to which the Holder purchased this Debenture and to which the Holder
is, or hereby agrees to become, a party.
Dated: 19
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- -------------------------------- -----------------------------
Witness Signature of Holder
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(Print Name of Holder)
Social Security Number or
Taxpayer ID Number:
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Address