Exhibit 10.2
No. 1 $1,000,000
NAI TECHNOLOGIES, INC.
12% Subordinated Promissory Note
due January 15, 1996
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED
WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF
APPLICABLE FEDERAL SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
FOR VALUE RECEIVED, NAI Technologies, Inc., a New York
corporation (the 'Company'), promises to pay to CHARLES S. HOLMES, the
registered holder or registered assigns hereof (the 'Holder'), the principal
amount of ONE MILLION DOLLARS ($1,000,000) payable on the fifteenth day of
January, 1996 (the 'Maturity Date'), together with interest on the outstanding
principal amount of this Note at the rate of twelve (12%) percent per annum
calculated on the basis of a 360 day year, such interest to be payable on the
Maturity Date. If the Company shall default in the payment of the principal of
or interest on this Note, whether upon maturity, by acceleration, or otherwise,
the Company shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount up to (but not including) the date of
actual payment (whether before or after judgment) at a rate per annum (computed
on the basis of the actual number of days elapsed over a year of 360 days) equal
to two (2%) percent. The Holder of this Note shall also, in addition to any
other amount payable hereon, be entitled, as hereinafter provided, to receive a
placement fee in an amount equal to three percent (3%) of the outstanding
principal amount of this Note (the 'Placement Fee'). Capitalized terms used and
not otherwise defined herein shall have the respective meanings attributed
thereto in Section 11.
1. Payments and Prepayments.
1.1 Payments of principal, Placement Fee and interest on this
Note shall be made at the principal office of the Company, currently located at
1000 Woodbury Road, Suite 412, Woodbury, New York 11797, or such other place or
places within the United States as may be specified by the Holder of this Note
in a written notice to the Company at least 10 business days before a given
payment date.
1.2 Payments of principal, Placement Fee and interest on this
Note shall be made in lawful money of the United States of America by mailing
the Company's good check in the proper amount to the Holder at least three days
prior to the due date of each payment or otherwise transferring funds so as to
be received by the Holder on the due date of each such payment, provided,
however, that the Company shall make payment by wire
transfer to an account such Holder may specify in writing to the Company at
least three days prior to the due date of each payment.
1.3 If any payment on this Note becomes due and payable on a
Saturday, Sunday or other day on which commercial banks in New York, New York
are authorized or required by law to close, the maturity thereof shall be
extended to the next succeeding business day, and, with respect to payments of
principal, interest thereon shall be payable during such extension at the then
applicable rate.
1.4 This Note is subject to exchange in accordance with the
terms of that certain Securities Purchase Agreement, dated as of the date
hereof, between the Company and Charles S. Holmes and upon any such exchange,
the Company shall, subject to the provisions of Sections 5 and 6 below, pay the
Holder all interest on this Note accrued and unpaid through such exchange date.
1.5 Subject to the provisions of Sections 5 and 6 below, the
Company shall, within thirty (30) business days of the occurrence of a Change in
Control, offer, by written notice to the Holder, to prepay this Note, in whole
and not in part, without premium or penalty. Holder may accept the offer to
prepay made pursuant to this Section 1.5 by causing notice of such acceptance to
be delivered to the Company at least ten (10) days prior to the proposed
prepayment date (or such longer period as may be required by law). A failure by
Holder to respond to an offer to prepay pursuant to this Section 1.5 within the
requisite time period shall be deemed to constitute a rejection of such offer.
1.6 The Company shall not be entitled to prepay this Note in
whole or in part prior to the Maturity Date.
2. Placement Fee. Simultaneously with the initial issuance of
this Note, the Company shall pay to the Holder the Placement Fee, as a one time
fee for services rendered, which Placement Fee the Holder may deduct from the
funds remitted to the Company by the Holder in exchange for the issuance of this
Note.
3. Obligation Absolute. The obligations under this Note are
absolute and unconditional obligations of the Company and no modification,
release, consent, waiver, removal, rearrangement or amendment shall impair the
obligations of the Company hereunder.
4. Security. The payment of this Note is not secured by any
collateral.
5. Subordination. (a) The Company for itself, its successors
and assigns, covenants and agrees, and each Holder of this Note by its
acceptance of this Note likewise covenants and agrees, that to the extent
provided below the payment of the principal of and interest on this Note is
hereby expressly subordinated and junior in right of payment, to the extent and
in the manner hereinafter set forth, to all Senior Indebtedness. For purposes
hereof, Senior Indebtedness is defined as:
-2-
(i) the principal of, premium, if any, any interest (including
without limitation any interest on interest and post-petition interest)
on, and all obligations of the Company for any costs and expenses with
respect to, all liabilities of the Company, direct or contingent,
joint, several or independent, now or hereafter existing, due or to
become due, whether created directly or acquired by assignment or
otherwise, under or in respect of that certain Amended and Restated
Credit Agreement, dated as of April 12, 1995, among, the Company, The
Bank of New York, Chemical Bank and the other parties referred to
therein (as heretofore and as hereafter amended, modified and
supplemented from time to time, the 'Bank Credit Agreement') and any of
the other Loan Documents (as defined in the Bank Credit Agreement); and
(ii) all extensions, renewals and refundings of any of the
foregoing.
(b) Upon the acceleration of any Senior Indebtedness or upon
the maturity of the entire principal amount of any Senior Indebtedness by lapse
of time, acceleration or otherwise, all such Senior Indebtedness which has been
so accelerated or matured shall first indefeasibly be paid in full in cash
before any payment is made by the Company or any Person acting on behalf of the
Company on account of any obligations evidenced by this Note.
(c) The Company shall not pay any obligations evidenced by
this Note if there exists a Default or Event of Default (as such terms are
defined in the instruments evidencing Senior Indebtedness including, without
limitation, the Bank Credit Agreement) with respect to any Senior Indebtedness
(hereinafter referred to as a 'Blockage Event').
The Company shall resume payment of this Note and a Blockage
Event shall be deemed to have terminated:
(i) when such Default or Event of Default on Senior
Indebtedness, as applicable, is cured or waived; or
(ii) when the Holder hereof shall have cured any such Default
or Event of Default on Senior Indebtedness to the extent such Default
or Event of Default can be cured by payment of money, which amount
shall be added to the principal amount owing to the Holder pursuant to
this Note; or
(iii) 180 days after the occurrence of such Default or Event
of Default, provided, that at the end of such 180 days, if any of the
following events occurs, the Blockage Event shall continue: (A) a
Default in payment of any amount with respect to the Senior
Indebtedness; (B) an acceleration of the Senior Indebtedness; or (C)
the occurrence of an event of the type described in Section 6 hereof,
provided further, that a Blockage Event may be deemed to occur, with
respect to any single specified Default or Event of Default, only once
for each 360 day period.
-3-
(d) At any time there exists a Blockage Event, (i) the Company
shall not, directly or indirectly, make any payment of any part of this Note,
(ii) the Holder hereof shall not demand or accept from the Company or any other
Person any such payment or cancel, set off or otherwise discharge any part of
the indebtedness represented by this Note, and (iii) neither the Company nor the
Holder hereof shall otherwise take or permit any action prejudicial to or
inconsistent with the priority position of any holder of Senior Indebtedness
over the Holder of this Note.
(e) Any holder of Senior Indebtedness is hereby authorized to
demand specific performance of this Note, whether or not the Company shall have
complied with the provisions hereof applicable to it, at any time when the
Holder hereof shall have failed to comply with any provision hereof applicable
to him. The Holder hereby irrevocably waives any defense based on the adequacy
of a remedy at law which might be asserted as a bar to the remedy of specific
performance hereof in any action brought therefor by any holder of Senior
Indebtedness. The Holder further (i) waives presentment, demand, notice and
protest in connection with all negotiable instruments evidencing Senior
Indebtedness, notice of any loan made, extension granted or other action taken
in reliance hereon and all demands and notices of every kind in connection with
this Note or Senior Indebtedness; and (ii) assents to any renewal, extension or
postponement of the time of payment of Senior Indebtedness or any other
indulgence with respect thereto, to any substitution, exchange or release of
collateral therefor and to the addition or release of any Person primarily or
secondarily liable thereon.
(f) The Company and the Holder shall execute and deliver to
any holder of Senior Indebtedness such further instruments and shall take such
further action as such holder of Senior Indebtedness may at any time or times
reasonably request in order to evidence the subordination of the obligations
hereunder and to otherwise carry out the provisions and intent of this Note.
(g) No right of any holder of Senior Indebtedness to enforce
the subordination of the obligations shall be impaired by any act or failure to
act by the Company or the Holder or by their failure to comply with this Note or
any other agreement or document evidencing, related to or securing the
obligations hereunder. Without in any way limiting the generality of the
preceding sentence, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Holder, without incurring
responsibility to the Holder and without impairing or releasing the
subordination provided in this Note or the obligations of the holder hereof to
the holders of Senior Indebtedness, do any one or more of the following: (i)
change the manner, place or terms of payment of, or renew or alter, any Senior
Indebtedness, or otherwise amend or supplement in any manner, any Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing any Senior
Indebtedness; (iii) release any Person or entity liable in any manner for the
collection of any Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company or any other Person or entity.
-4-
(h) In the event that the Company shall make any payment or
prepayment to the Holder on account of the obligations under this Note which is
prohibited by this Section 5, such payment shall be held by the Holder, in trust
for the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Indebtedness (pro rata as to each of such holders on the basis
of the respective amounts and priorities of Senior Indebtedness held by them) to
the extent necessary to pay all Senior Indebtedness due to such holders in full
in accordance with its terms (whether or not such Senior Indebtedness is due and
owing), after giving effect to any concurrent payment or distribution to or for
the holders of such Senior Indebtedness.
(i) After all Senior Indebtedness indefeasibly is paid in full
and until the obligations under this Note are paid in full, the Holder shall be
subrogated to the rights of holders of Senior Indebtedness to the extent that
distributions otherwise payable to the Holder have been applied to the payment
of Senior Indebtedness. For purposes of such subrogation, no payments or
distributions to holders of such Senior Indebtedness of any cash, property or
securities to which the Holder would be entitled except for the provisions of
this Section 5 and no payment over pursuant to the provisions of this Section 5
to holders of such Senior Indebtedness by the Holder, shall, as between the
Company, its creditors, other than holders of such Senior Indebtedness, and the
Holder, be deemed to be a payment by the Company to or on account of such Senior
Indebtedness, it being understood that the provisions of this Section 5 are
solely for the purpose of defining the relative rights of the holders of such
Senior Indebtedness, on the one hand, and the Holder hereof, on the other hand.
6. Primacy of Senior Indebtedness Claims as Against the
Holder. In any insolvency, receivership, bankruptcy, dissolution, liquidation or
reorganization proceeding, or in any other proceeding, whether voluntary or
involuntary, by or against the Company under any bankruptcy or insolvency law or
laws relating to relief of debtors, to compositions, extensions, or
readjustments of indebtedness:
(a) the claims of any holders of Senior Indebtedness against
the Company shall be paid indefeasibly in full in cash before any
payment is made to the Holder of this Note;
(b) until all Senior Indebtedness is indefeasibly paid in full
any distribution to which the Holder would be entitled but for this
Section 6 shall be made to holders of Senior Indebtedness; and
(c) the holders of Senior Indebtedness shall have the right to
enforce, collect and receive every such payment or distribution and give
acquittance therefor. In furtherance of the foregoing, in the event that the
Company shall file or have filed against it a petition under any chapter of
Title 11 of the United States Code or any comparable statute, with the result
that the Company is excused from the obligation to pay all or any part of the
amount otherwise payable in respect of the Senior Indebtedness during the period
subsequent to the commencement of such proceedings, the Holder agrees that all
or such part of such amount shall be payable out of, and to that extent diminish
and be at the expense of, the
-5-
Holder's reorganization dividends or other distributions in respect of any claim
filed by it as a creditor or interest holder. In the event the holders of Senior
Indebtedness receive amounts in excess of payment in full (in cash) of amounts
outstanding in respect of Senior Indebtedness (without giving effect to whether
claims in respect of the Senior Indebtedness are allowed in any insolvency
proceeding), the holders of the Senior Indebtedness shall pay such excess
amounts to the Holder.
7. Covenants. The Company covenants, so long as this Note
shall be outstanding and unless the Holder shall otherwise consent in writing,
that:
(a) Financial Statements, Reports, etc. So long as this
Convertible Note shall remain outstanding and the Company is subject to the
filing requirements of Section 13(a), 13(c) or 15(d) of the Securities Exchange
Act of 1934, as amended (the 'Exchange Act'), the Company will transmit or cause
to be transmitted to Holder, promptly after the same are sent or become publicly
available, copies of any and all financial statements and reports which are made
available to its stockholders and all periodic and other reports, proxy
statements, registration statements and other materials filed by it with the
Securities and Exchange Commission, or any other governmental authority
succeeding to any or all of the functions of said commission, or any national
securities exchange, as the case may be. If the Company is not subject to filing
requirements, the Company will transmit or cause to be transmitted to the Holder
annual and quarterly reports containing audited annual financial statements and
related notes thereto and unaudited quarterly financial statements.
(b) Corporate Existence. The Company shall, and shall cause
its Subsidiaries to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its corporate existence, material
rights, licenses, permits and franchises and comply in all material respects
with all laws and regulations applicable to it.
(c) Taxes and Assessments. The Company shall, and shall cause
its Subsidiaries to, pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or in respect of
its property, before the same shall become in default (which, for purposes of
this Note, shall mean the earlier of ninety (90) days from its due date or
invoice date, as the case may be, or the date upon which such obligee commences
and action or proceeding to recover such amount), provided, however, that the
Company shall not be required to pay and discharge or to cause to be paid and
discharged any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings (if the Company shall have set aside on its books adequate reserves
therefor).
(d) Liens. The Company shall not, and shall not permit any of
its Subsidiaries to, incur, create, assume or suffer to exist any Lien on any
property or assets, income or profits of the Company, now owned or hereafter
acquired, other than Permitted Liens.
(e) Indebtedness. The Company shall not, and shall not permit
any of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except for
-6-
(i) Senior Indebtedness; (ii) Indebtedness under this Note, (iii) Indebtedness
under the Convertible Notes in an aggregate principal amount not to exceed
$7,000,000; (iv) Indebtedness between Subsidiaries and between any Subsidiary
and the Company; (v) Indebtedness existing on the date hereof;(vi) Indebtedness
of Lynwood Scientific Developments Limited, a corporation organized under the
laws of the United Kingdom, to Midland Bank plc. in an aggregate amount not to
exceed $2,000,000 or the U.S. dollar equivalent in English pounds; (vii)
Indebtedness of Codar Technology, Inc., a Colorado corporation, to MetLife
Capital Corp. and Colorado National Leasing, Inc. in an aggregate amount not to
exceed $1,200,000; and (viii) all extensions, renewals and refundings of any of
the foregoing.
(f) Investments. The Company shall not, and shall not permit
any of its Subsidiaries to, purchase, hold or acquire any capital stock,
evidence of indebtedness or other securities of, make or permit to exist any
loans or advances to, or make or permit to exist any investment (by way of
transfers of property, contributions to capital, acquisitions of businesses or
acquisitions of assets other than in the ordinary course of business, or
otherwise) or any other interest in, any other Person, except for Permitted
Investments.
(g) Payments. The Company shall not, and shall not permit any
of its Subsidiaries to, declare or pay, directly or indirectly, any dividends or
make any other distribution or payment, whether in cash, property, securities or
a combination thereof, with respect to (whether by reduction of capital or
otherwise) any shares of capital stock (or any options, warrants, rights or
other equity securities or agreements relating to any capital stock) now or
hereafter outstanding, or purchase, redeem, retire or otherwise acquire for
value any shares of its capital stock or warrants or options therefor now or
hereafter outstanding, or set apart any sum for the aforesaid purposes, in any
fiscal year, except that the Company may declare stock splits and pay dividends
payable solely in shares of any class of its capital stock.
(h) Disposition of Assets. The Company shall not, and shall
not permit any of its Subsidiaries to, sell or otherwise dispose of any assets
except for (i) sales of inventory, fixtures and equipment in the ordinary course
of business and (ii) sales of assets having a book value not exceeding $100,000
in the aggregate.
(i) Affiliate Transactions. Subsequent to the date hereof, the
Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, enter into or permit to exist any transaction or series of related
transactions (including, but not limited to, the purchase, sale or exchange of
property, the making of any investment, the giving of any guarantee or the
rendering of any service) with any Affiliate of the Company (other than
transactions among the Company and any wholly-owned Subsidiary) unless (i) such
transaction or series of related transactions is on terms no less favorable to
the Company or such Subsidiary than those that could be obtained in a comparable
arm's length transaction with a Person that is not an Affiliate, and (ii) such
transaction or series of related transactions is approved by a majority of the
Board of Directors of the Company (including a majority of the disinterested
directors), which approval is set forth in a board resolution of
-7-
the Company certifying that such transaction or series of transactions complies
with the immediately preceding clause (i).
(j) Merger, Consolidation, etc. The Company shall not
consolidate or merge with, or convey, transfer or lease substantially all of its
assets in a single transaction or series of transactions to, any other Person
unless (i) the successor formed by such consolidation or the survivor of such
merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Company as an entirety, as the case may
be (the 'Successor'), shall have executed and delivered to Holder its assumption
of the due and punctual performance of all the obligations under this Note, (ii)
such Successor shall be a corporation organized and existing under the laws of
the United States of America, any state thereof or the District of Columbia, and
(iii) no event referred to in Section 8 shall have occurred and be continuing.
(k) Maintenance of Properties. The Company shall keep all
properties useful in the business of the Company in good working order and
condition except to the extent that discontinuing the operation or maintenance
of any such properties is, in the judgement of the Company, desirable in the
conduct its business.
8. Events of Default. In the event that:
(i) the Company defaults in making any payment of principal of
or interest on this Note required to be made on this Note; or
(ii) any obligation of the Company for the payment of borrowed
money in excess of $500,000 becomes or is declared to be due and
payable prior to its expressed maturity, unless the validity of any
such indebtedness or obligation is being contested in good faith by
appropriate proceedings; or
(iii) any warrant of attachment, execution or other writ is
levied upon any property or assets of the Company in excess of $500,000
and is not discharged or stayed (including stays resulting from the
filing of an appeal) within 30 days; or
(iv) all or any substantial part of the assets or properties
of the Company are condemned, seized or appropriated by any government
or governmental authority; or any order is entered in any proceeding
directing winding up, dissolution or split-up of the Company; or
(v) the Company hereafter makes an assignment for the benefit
of creditors, or files a petition in bankruptcy as to itself, is
adjudicated insolvent or bankrupt, petitions receiver of or any trustee
for the Company or any substantial part of the property of the Company
under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction,
whether or not hereafter in effect; or if there is hereafter commenced
against the Company any such proceeding and an order approving the
petition is entered or such
-8-
proceeding remains undismissed for a period of 60 days, or the Company
by any act or omission to act indicates its consent to or approval of
or acquiescence in any such proceeding or the appointment of any
receiver of, or trustee for, the Company or any substantial part of its
properties, or suffers any such receivership or trusteeship to continue
undischarged for a period of 60 days; or
(vi) the Company defaults in the due observance or
performance, in any material respect, of any covenant, condition or
agreement to be observed or performed pursuant to the terms of this
Note (other than a default which is specifically provided for elsewhere
in this Section 8) and such default continues unremedied for more than
thirty (30) days after the Company first has knowledge of such default,
through notice or otherwise;
then, and in any such event, and at any time thereafter, if such event shall
then be continuing, the Holder of this Note may, by written notice to the
Company, declare this Note due and payable, whereupon the same shall be due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived, provided, however, that if an event specified
in Section 8(iv) or 8(v) occurs and is continuing, this Note shall ipso facto be
and become immediately due and payable without any declaration or other act on
the part of the Holder.
9. [This Section intentionally omitted]
10. Investment Representation.
10.1 Holder hereby acknowledges that this Note is not being
registered (i) under the Act on the ground that the issuance of the Note is
exempt from registration under Section 4(2) of the Act as not involving any
public offering or (ii) under any applicable state securities law because the
issuance of this Note does not involve any public offering; and that the
Company's reliance on the Section 4(2) exemption of the Act and under applicable
state securities laws is predicated in part on the representations hereby made
to the Company by the Holder that it is acquiring this Note for investment for
its own account, with no present intention of dividing its participation with
others or reselling or otherwise distributing the same, provided, nevertheless,
that the disposition of its property shall at all times be within its control.
10.2 Holder hereby agrees that it will not sell or transfer
all or any part of this Note unless and until it shall first have given notice
to the Company describing such sale or transfer and furnished to the Company
either (a) an opinion, reasonably satisfactory to counsel for the Company, of
counsel (skilled in securities matters, selected by the Holder and reasonably
satisfactory to the Company) to the effect that the proposed sale or transfer
may be made without registration under the Act or (b) an interpretive letter
from the Securities and Exchange Commission to the effect that no enforcement
action will be recommended if the proposed sale or transfer is made without
registration under the Act.
-9-
10.3 The Company may refuse to recognize a transfer of this
Note on its books should a holder attempt to transfer this Note otherwise than
in compliance with this Section 10.
11. Definitions. As used herein, unless the context otherwise
requires, the following terms have the respective meanings:
'Affiliate': with respect to any Person, the following: (i)
any other Person that at such time directly or indirectly through one or more
intermediaries controls, or is controlled by or is under common control with
such first Person or (ii) any Person beneficially owning or holding, directly or
indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% of more of any class of voting or equity interests. As used in such
definition, 'controls', 'controlled by' and 'under common control', as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
'Change in Control': any of the following events or
circumstances: (i) individuals who, at the beginning of any period of
twenty-four (24) consecutive months, constitute the Company's board of directors
(together with any new director whose election by the Company's board of
directors or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason (other
than death or disability) to constitute a majority of the Company's board of
directors then in office; (ii) any person or related persons constituting a
group (as such terms are used the Exchange Act) become the 'beneficial owners'
(as such term is used under the Exchange Act), directly or indirectly of more
than fifty percent (50%) of the total voting power of all classes then
outstanding of the Company's voting stock; or (iii) the acquisition after the
date hereof by any person or related persons constituting a group of the power
to elect, appoint or cause the election or appointment of at least a majority of
the members of the board of directors of the Company, or (iv) the acquisition
after the date hereof by any person or related persons constituting a group of
all or substantially all of the properties and assets of the Company and its
Subsidiaries, on a consolidated basis; provided, however, that no Change in
Control shall be deemed to have occurred in connection with, or pursuant to, the
initial issuance and sale of the Convertible Notes.
'Convertible Notes': the Company's 12% Convertible
Subordinated Promissory Notes due 2000, in the aggregate principal amount of up
to $8,000,000.
'GAAP': United States generally accepted accounting
principles, consistently applied.
-10-
'Indebtedness': at any time and with respect to any Person,
(i) all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services (other than
property, including inventory, and services purchased, and expense accruals and
deferred compensation items arising, in the ordinary course of business,
provided that the same shall not be overdue (i.e., the earlier of ninety (90)
days from the invoice date or the date the obligee commences an action to
recover such amounts), or if overdue, are being contested in good faith and by
appropriate proceedings), (iii) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments (other than performance,
surety and appeal bonds arising in the ordinary course of business), (iv) all
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(event though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (v) all obligations of such Person under leases which have been or
should be, in accordance with GAAP, recorded as capital leases, to the extent
required to be so recorded, (vi) all reimbursement, payment or similar
obligations of such Person, contingent or otherwise, under acceptance, letter of
credit or similar facilities, (vii) all Indebtedness referred to in clauses (i)
through (vi) above guaranteed directly or indirectly by such Person including
without limitation through any agreement (A) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or purchase of such
Indebtedness, (B) to purchase, sell or lease (as lessee or lessor) property, or
to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss in respect of such Indebtedness, (C) to supply funds
to or in any other manner invest in the debtor (including any agreement to pay
for property or services irrespective of whether such property is received or
such services are rendered) or (D) otherwise to assure a creditor against loss
in respect of such Indebtedness, and (viii) all Indebtedness referred to in
clauses (i) through (vii) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon in property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness.
'Lien': any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever.
'Permitted Investments': any of the following:
(i) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United State of America
(or by any agency thereof to the extent such obligations are backed by the full
faith and credit of the United States of America), in each case maturing within
twelve months from the date of acquisition thereof;
(ii) without limiting the provisions of clause (iv) below,
investments in commercial paper maturing within one year from the date of
acquisition thereof and having,
-11-
at such date of acquisition, the highest credit rating obtainable from Standard
& Poor's Corporation (or a similar rating by any similar organization which
rates commercial paper);
(iii) investments in certificates of deposits or banker's
acceptances and time deposits maturing within twelve months from the date of
acquisition thereof issued or guaranteed by or placed with (a) any domestic
office of the bank with whom the Company maintains its cash management system or
(b) any domestic office of any other commercial bank of recognized standing
organized under the laws of the United States of America or any state thereof
that has a combined capital and surplus and undivided profits of not less than
$100,000,000 and is the principal banking subsidiary of a bank holding company
having a long-term unsecured debt rating of at least 'A' or the equivalent
thereof from the Standard & Poor's Corporation or at least 'A2' or the
equivalent thereof from Moody's Investors Service, Inc.;
(iv) investments in commercial paper maturing within six
months from the date of acquisition and issued by the holding company of any
commercial bank of recognized standing organized under the laws of the United
States of America of any state thereof that has (A) a combined capital and
surplus in excess of $250,000,000 and (B) commercial paper rated at least 'A' or
the equivalent thereof from the Standard & Poor's Corporation or at least 'A2'
or the equivalent thereof from Moody's Investors Service, Inc. (or has a similar
rating by any similar organization that rates commercial paper); or
(v) investments in money market funds substantially all the
assets of which are comprised of securities of the types described in clauses
(i) through (iv) above.
'Permitted Lien': mean (i) Liens in existence on the date
hereof, (ii) Liens created for the benefit of the holders of Senior
Indebtedness, (iii) Liens imposed by law for taxes, assessments or charges of
any governmental authority for claims not yet due or which are being contested
in good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance with
GAAP; (iv) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law created in the ordinary
course of business for amounts not yet due, which are not overdue by more than
60 days or which are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with GAAP; (v) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, leases, contracts (other than for the
repayment of indebtedness), statutory obligations and other similar obligations
or arising as a result of progress payments under government contracts; (vi)
easements (including without limitation, reciprocal easement agreements and
utility agreements), rights-of-way, covenants, consents, reservations,
encroachments, variations and zoning and other restrictions, charges or
encumbrances (whether or not recorded), which in the aggregate, are not
substantial in amount, and which do not interfere materially with the ordinary
conduct of the business of the Company and which do not materially detract from
the property to which they attach or
-12-
materially impair the use thereof to the Company; (vii) Liens covering real
property or Personal property in existence at the time of acquisition thereof by
the Company and purchase money Liens upon or in any property acquired or held in
the ordinary course of business to secure the purchase price of such property or
to secure indebtedness permitted by this Section 7 solely for the purpose of
financing the acquisition of such property and no such Lien covers, or is
extended to cover, any other property owned by the Company; and (viii)
extensions, renewals or replacements of any Lien referred to in paragraphs (i)
through (vii) above.
'Person': any natural person, corporation, division of a
corporation, partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.
'Senior Indebtedness': the meaning specified in Section 5(a).
'Subsidiaries': with respect to any Person, any corporation,
association or other business entity (whether now existing or hereafter
organized) of which at least a majority of the securities or other ownership
interests having ordinary voting power for the election of directors is, at the
time as of which any determination is being made, owned or controlled by such
Person or one or more subsidiaries of such Person.
12. Miscellaneous.
12.1 This Note is the obligation of the Company only, and no
recourse shall be had for the payment thereof or interest thereon against any
stockholder, officer or director of the Company, whether by virtue of any
constitution, statute, rule or law or otherwise, all such liability, by the
acceptance hereof, and as part of the consideration hereof, being expressly
waived.
12.2 Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and of a
letter of indemnity reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender or cancellation of this Note, if mutilated, the Company will make
and deliver a new Note of like tenor in lieu of such lost, stolen, destroyed or
mutilated Note.
12.3 THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
COMPANY AND THE HOLDER HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS AND
INSTRUMENTS MADE AND TO BE PERFORMED IN NEW YORK AND CANNOT BE MODIFIED OR
CHANGED ORALLY.
-13-
IN WITNESS WHEREOF, the Company originally signed this Note on
the day of October, 1995.
NAI TECHNOLOGIES, INC.
By: /s/ Richard A. Schneider
__________________________
Name: Richard A. Schneider
Title: Executive Vice President