Exhibit 1
NO. _______ $___________
NAI TECHNOLOGIES, INC.
FORM OF
12% CONVERTIBLE SUBORDINATED PROMISSORY NOTE
MATURITY DATE: JANUARY 15, 2001
THIS NOTE AND THE COMMON STOCK THAT MAY BE ISSUABLE TO THE HOLDER HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE
WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
FOR VALUE RECEIVED, NAI TECHNOLOGIES, INC., a New York corporation (the
"Company"), promises to pay to ______________________, the registered holder or
registered assigns hereof (the "Holder"), the principal amount of
_________________ Dollars ($_________) payable on the fifteenth day of January
2001 (the "Maturity Date"), together with interest on the outstanding principal
amount of this Note at the rate of twelve percent (12%) per annum calculated on
the basis of a 360 day year, such interest to be payable in arrears on a
quarterly basis on the fifteenth day of January, April, July and October of each
year, commencing on April 15, 1996. In the event that any payment of any
principal and/or interest hereunder is not paid when due as provided for herein,
and without affecting any of the Holder's other rights and remedies, the unpaid
principal balance hereof shall thereafter accrue interest at the defaulted rate
specified in Section 11(a) of this Note.
This Note is one of a series of the Company's 12% Convertible
Subordinated Promissory Notes (collectively, the "Notes"), issued pursuant to
that certain Confidential Private Placement Memorandum, dated December 15, 1995,
as supplemented (the "Memorandum"). Capitalized terms used and not otherwise
defined herein shall have the respective meanings attributed thereto in Section
13.
1. Payments and Prepayments.
(a) Payments of principal and interest on this Note shall be made at
the principal office of the Company, located at 2405 Trade Centre Avenue,
Longmont, Colorado 80503, 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 ten (10) business days before a given payment date.
(b) Payments of principal 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, in the event that
the principal amount of this Note is at least $1,000,000, 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.
(c) 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.
(d) Subject to the provisions of Section 4 and 5 below, this Note is
subject to prepayment, in whole but not in part, at the option of the Company,
at any time after the third anniversary of the date hereof, without premium or
penalty. In the event of any partial payment of principal or accrued interest,
for whatever reason, or prepayment, any such partial payment of principal and/or
interest or prepayment of principal on the Notes shall be allocated among the
respective Notes and holders thereof so that the amount of such payments to each
holder shall bear as nearly as practicable the same ratio to the aggregate
amount then to be paid as the principal amount of the Notes then held by such
holder bears to the aggregate principal amount of Notes then outstanding.
(e) The Company will give the Holder written notice indicating the
amount of any prepayment and the proposed date thereof not more than sixty (60)
days and not less than thirty (30) days prior to any such prepayment of this
Note.
(f) Subject to the provisions of Sections 4 and 5 below, the Company
shall, within thirty (30) business days of the occurrence of a Change in Control
(as defined in Section 13 hereof), offer, by written notice to the Holder in
accordance with Section 1(e), 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(f) 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(f) within the requisite time period
shall be deemed to constitute a rejection of such offer.
2. Obligation Absolute. The obligations under this Note are absolute
and unconditional obligations of the Company and no modification, release,
consent, waiver, rearrangement or amendment shall impair the obligations of the
Company hereunder.
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3. Security. The payment of this Note and the Company's obligations
hereunder, and under the Warrant and the Registration Rights Agreement (as such
terms are defined in the Memorandum) are not secured by any collateral.
4. Subordination. (a) The Company for itself, its successors and
assigns, covenants and agrees, and each Holder of this Note, its successors and
assigns, 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 (as
hereinafter defined). For purposes hereof, Senior Indebtedness is defined as:
(i) the principal of, premium, if any, and any
interest (including, without limitation, any interest on
interest and post-bankruptcy petition interest) on, all
liabilities of the Company (including, without limitation, all
liabilities of the Company with respect to any costs and
expenses), 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 (provided that the amount of any debt
incurred in connection with such extension, renewal or
refunding does not exceed the amount of the outstanding
obligations of the Company under the Bank Credit Agreement at
the time of the extension, renewal or refunding (whether for
interest, principal or fees, or expenses incurred by the
holders of Senior Indebtedness for the protection of
collateral and reasonable costs of collection));
provided, however, that the term "Senior Indebtedness" shall not include any
indebtedness expressly subordinated in writing to the Notes or any indebtedness
owed to affiliates of the Company.
(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 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) Notwithstanding anything to the contrary contained herein, the
Company shall not (i) pay any principal portion of this Note so long as any
Senior Indebtedness remains outstanding or (ii) pay any interest payable under
this Note if there exists a Default or
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Event of Default (as such terms are defined in the instruments evidencing Senior
Indebtedness) with respect to any Senior Indebtedness (hereinafter referred to
as a "Blockage Event").
The Company shall resume payment of interest payable under
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;
(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 exists or 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 5 hereof, provided, further, that a Blockage
Event with respect to a single specified Default or Event of
Default may be deemed to occur only once for each 360 day period.
(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. Notwithstanding the foregoing or any other
provision of this Note to the contrary, the occurrence and continuance of a
Blockage Event shall not limit or in any other manner affect the exercise of the
Holder's conversion rights pursuant to Section 6.
(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 such Holder. 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
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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 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.
(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 4, 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 of Senior
Indebtedness 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 4 and no payment over pursuant to the provisions of this Section 4
to holders of such Senior Indebtedness by the Holder, shall, as between the
Company, its creditors, other than holders of
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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 4 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.
5. 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;
(b) until all Senior Indebtedness is indefeasibly paid in full in cash
any distribution to which the Holder would be entitled but for this Section
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(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 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.
6. Conversion. The Holder of this Note will have the right, exercisable
at any time on or before the Maturity Date, by notice to the Company at its
principal office, at the Holder's option, to convert the then unpaid principal
amount of this Note (or any portion hereof that is an integral multiple of
$1,000) into 500 fully paid and non-assessable shares of common stock, par value
$.10 per share, of the Company (the "Common Stock") for each $1,000 face amount
of this Note, representing a conversion price equal to $2.00 per share, subject
to adjustment as set forth below (the "Conversion Price"). The Company may at
any time, by notice to the Holder, require the conversion of this Note in
accordance with this Section 6, and the Holder shall promptly surrender this
Note for conversion following such notice, provided that the Closing Price for
the Common Stock for thirty (30) consecutive trading days prior to such notice
is equal to or greater than $6.00 per share.
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Subject to the right of the Holder on the date of conversion to receive
all interest on such Note accrued through such date of conversion, no adjustment
for interest or dividends will be made upon the conversion of this Note. No
fractional shares will be issued upon conversion, but if the conversion results
in a fraction, the fair market value of such fractional share of Common Stock
(which shall be the closing price of such shares on the exchange or market on
which the Common Stock is then traded) will be paid by the Company in cash. This
right of conversion shall cease upon payment in full of all principal and
interest and other amounts due in respect of this Note. Nothing contained in
this paragraph shall authorize the payment of interest to the Holder when the
terms of this Note otherwise prohibit the same.
The occurrence of any of the following events shall trigger an
adjustment from time to time to the Conversion Price and the number of shares of
Common Stock into which this Note shall be converted (the "Conversion Shares"):
(a) Recapitalization, Reclassification and Succession. If any
recapitalization of the Company or reclassification of its Common Stock or
any merger or consolidation of the Company into or with a corporation or
other business entity, or the sale or transfer of all or substantially all
of the Company's assets or of any successor corporation's assets to any
other corporation or business entity (any such corporation or other
business entity being included within the meaning of the term "successor
corporation") shall be effected, at any time while this Note remains
outstanding, then, as a condition of such recapitalization,
reclassification, merger, consolidation, sale or transfer, lawful and
adequate provision shall be made whereby the Holder of this Note thereafter
shall have the right to receive upon the conversion hereof as provided in
this Section 6 and in lieu of the shares of Common Stock immediately
theretofore issuable upon the conversion of this Note, such shares of
capital stock, securities or other property as may be issued or payable
with respect to or in exchange for a number of outstanding shares of Common
Stock equal to the number of shares of Common Stock immediately theretofore
issuable upon the conversion of this Note had such recapitalization,
reclassification, merger, consolidation, sale or transfer not taken place,
and in each such case, the terms of this Note shall be applicable to the
shares of stock or other securities or property receivable upon the
conversion of this Note after such consummation.
(b) Subdivision or Combination of Shares. If the Company at any time
while this Note remains outstanding shall subdivide or combine its Common
Stock, the Conversion Price and the Conversion Shares shall be
proportionately adjusted.
(c) Stock Dividends and Distributions. If the Company at any time
while this Note is outstanding shall issue or pay the holders of its Common
Stock, or take a record of the holders of its Common Stock for the purpose
of entitling them to receive, a dividend payable in, or other distribution
of, Common Stock, then (i) the Conversion Price shall be adjusted in
accordance with Section 6(e) and (ii) the number of Conversion Shares shall
be adjusted to the number of shares of Common Stock that the Holder would
have owned immediately following such action had this Note been converted
immediately prior thereto.
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(d) Stock and Rights Offering to Shareholders. If at any time after
the date of issuance of this Note, the Company shall issue or sell, or fix
a record date for the purposes of entitling holders of its Common Stock to
receive, (i) Common Stock or (ii) rights, options or warrants entitling the
holders thereof to subscribe for or purchase Common Stock (or securities
convertible or exchangeable into or exercisable for Common Stock), in any
such case, at a price per share (or having a conversion, exchange or
exercise price per share) that is less than the lowest Closing Price during
the twenty (20) consecutive trading days immediately preceding the date of
such issuance or sale or such record date then, immediately after the date
of such issuance or sale or on such record date, (A) the Conversion Price
shall be adjusted in accordance with Section 6(e) and (B) the number of
Conversion Shares shall be adjusted to that number determined by
multiplying the number of Conversion Shares immediately before the date of
such issuance or sale or such record date by a fraction, the denominator of
which will be the number of shares of Common Stock outstanding on such date
plus the number of shares of Common Stock that the aggregate offering price
of the total number of shares so offered for subscription or purchase (or
the aggregate initial conversion price, exchange price or exercise price of
the convertible securities or exchangeable securities or rights, options or
warrants, as the case may be, so offered) would purchase at such Closing
Price, and the numerator of which will be the number of shares of Common
Stock outstanding on such date plus the number of additional shares of
Common Stock offered for subscription or purchase (or into which the
convertible or exchangeable securities or rights, options or warrants so
offered are initially convertible or exchangeable or exercisable, as the
case may be).
If the Company shall at any time after the date of issuance of this
Note distribute to all holders of its Common Stock any shares of capital
stock of the Company (other than Common Stock) or evidences of its
indebtedness or assets (excluding cash dividends or distributions paid from
retained earnings or current year's or prior year's earnings of the
Company) or rights or warrants to subscribe for or purchase any of its
securities (excluding those referred to in the immediately preceding
paragraph)(any of the foregoing being hereinafter in this paragraph called
the "Securities"), then in each such case, the Company shall reserve shares
or other units of such securities for distribution to the Holder upon
conversion of this Note so that, in addition to the shares of Common Stock
to which such Holder is entitled, such Holder will receive upon such
exercise the amount and kind of such Securities which such Holder would
have received if the Holder had, immediately prior to the record date for
the distribution of the Securities, converted this Note.
(e) Conversion Price Adjustment. Whenever the number of Conversion
Shares is adjusted, as herein provided, the Conversion Price payable upon
the conversion of this Note shall be adjusted to that price determined by
multiplying the Conversion Price immediately prior to such adjustment by a
fraction (i) the numerator of which shall be the number of Conversion
Shares immediately prior to such adjustment, and (ii) the denominator of
which shall be the number of Conversion Shares immediately thereafter.
(f) 1996 EBITDA Adjustment. The Conversion Price shall additionally be
adjusted in the following circumstances:
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(i) if the Company shall achieve 1996 EBITDA (as such term is
defined in Section 13(h)) in an amount of less than $6,000,000, the
Conversion Price shall be reduced to $1.50 per share; and
(ii) if the Company shall achieve 1996 EBITDA in an amount of
less than $4,750,000 (together with the $6,000,000 amount referred to
above, the "Adjusted Amounts"), the Conversion Price shall be reduced
to $1.00 per share;
provided, however, that in the event the Company sells all of the capital
stock or all or substantially all of the assets of one or more of its
Subsidiaries in 1996, the Adjusted Amounts for 1996 will be reduced by the
amount or amounts set forth in Schedule A hereto in respect of the
Subsidiary or Subsidiaries so involved. In the event any such sale occurs
during 1996, the applicable Adjusted Amount will be reduced by multiplying
it by a fraction, the numerator of which is the number of days of the year
remaining after any such sale and the denominator is 365.
(g) Certain Shares Excluded. The number of shares of Common Stock
outstanding at any given time for purposes of the adjustments set forth in
this Section 6 shall exclude any shares then directly or indirectly held in
the treasury of the Company.
(h) Deferral and Cumulation of De Minimis Adjustments. The Company
shall not be required to make any adjustment pursuant to this Section 6 if
the amount of such adjustment should be less than one percent (1%) of the
Conversion Price in effect immediately before the event that would
otherwise have given rise to such adjustment. In such case, however, any
adjustment that would otherwise have been required to be made shall be made
at the time of and together with the next subsequent adjustment which,
together with any adjustment or adjustments so carried forward, shall
amount to not less than one percent (1%) of the Conversion Price in effect
immediately before the event giving rise to such next subsequent
adjustment.
(i) Duration of Adjustment. Following each computation or readjustment
provided in this Section 6, the new adjusted Conversion Price and number of
Conversion Shares shall remain in effect until a further computation or
readjustment thereof is required.
(j) Reservation. The Company hereby agrees that at all times there
shall be reserved for issuance upon the conversion of this Note such number
of shares of its Common Stock as shall be required for issuance upon
conversion of this Note. The Company further agrees that all shares which
may be issued upon the conversion of the rights represented by this Note
will be duly authorized and will, upon issuance and against payment of the
Conversion Price, be validly issued, fully paid and non-assessable, free
from all taxes, liens, charges and preemptive rights with respect to the
issuance thereof, other than taxes, if any, in
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respect of any transfer occurring contemporaneously with such issuance and
other than transfer restrictions imposed by federal and state securities
laws.
(i) Delivery of Shares and/or New Note. The Company shall deliver a
certificate or certificates for shares of its Common Stock issuable on
conversion of this Note as soon as practicable after surrender of this Note
for conversion, but the person or persons to whom such certificates are
issuable shall be considered the holder of record of the shares of Common
Stock from the time this Note is surrendered. Except as described above,
this Note is not otherwise convertible into shares of Common Stock. Upon
conversion of only a portion of this Note, the Company shall issue and
deliver to, or upon the written order of, the Holder hereof, at the expense
of the Company, a new Note covering the principal amount of this Note not
converted, which new Note shall entitle the holder thereof to interest on
the principal amount thereof to the same extent as if the unconverted
portion of this Note had not been surrendered for conversion.
7. Notices to Holders.
(a) Notice of Record Date. In case:
(i) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time receivable upon the conversion of
this Note) for the purpose of entitling them to receive any dividend (other
than a cash dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for or purchase any shares of stock
of any class or any other securities, or to receive any other right;
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
with or merger of the Company into another corporation, or any conveyance
of all or substantially all of the assets of the Company to another
corporation; or
(iii) of any voluntary dissolution, liquidation or winding-up of the
Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Holder hereof at the time outstanding a notice specifying, as the case may be,
(i) the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any, is to be fixed, as of which
the holders of record of Common Stock (or such stock or securities at the time
receivable upon the conversion of this Note) shall be entitled to exchange their
shares of Common Stock (or such other stock or securities) for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
notice shall be mailed at least
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thirty (30) days prior to the record date therein specified, or if no record
date shall have been specified therein, at least thirty (30) days prior to such
other specified date.
(b) Certificate of Adjustment. Whenever the Conversion Price or the
number of Conversion Shares shall be adjusted pursuant to Section 6 hereof, the
Company shall promptly make a certificate signed by its President or a Vice
President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the number of Conversion Shares and the Conversion Price
after giving effect to such adjustment, and shall promptly cause copies of such
certificates to be mailed (by first class mail postage prepaid) to the Holder of
this Note.
8. Registration, Exchange and Transfer. The Company will keep a
register in which, subject to such reasonable regulations as it may prescribe,
it will register all Notes. No transfer of this Note shall be valid as against
the Company unless made upon the register. This Note is subject to the
restrictions on transfer of this Note and compliance with said restrictions on
transfer, the Company shall execute and deliver in the name of the transferee or
transferees a new Note or Notes for a like principal amount.
This Note may be exchanged for a like aggregate principal amount in
other denominations. To be exchanged, this Note shall be surrendered for that
purpose at the principal office of the Company, and the Company shall execute
and deliver in exchange therefor the Note or Notes which the holder making the
exchange shall be entitled to receive, bearing serial numbers not
contemporaneously outstanding.
This Note, if presented for transfer, exchange, redemption or payment,
shall (if so required by the Company) be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Company duly executed by,
the registered Holder or by his duly authorized attorney.
The Company may deem and treat the registered Holder hereof as the
absolute owner hereof (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon by anyone
other than the Company), for the purpose of receiving payment of or on account
of the principal hereof and interest hereon, for the conversion hereof and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
9. Covenants. The Company covenants, so long as this Note shall be
outstanding and unless the Holders of more than seventy-five percent (75%) of
the aggregate principal amount of all Notes then outstanding shall otherwise
approve, that:
(a) Financial Statements, Reports, etc. So long as this 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
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will transmit or cause to be transmitted to the 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 shareholders 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 or stock market, 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,
respectively.
(b) Registration of Shares. The Company shall file a registration
statement with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Act"), with respect to the Notes, the shares
of Common Stock issuable pursuant hereto, the Warrant referred to in
Section 16(a) and the shares of Common Stock issuable upon the exercise of
the Warrant on or prior to the later of (i) ninety (90) days after the
Company's receipt of the net proceeds from the initial sale of the minimum
principal amount of the Notes or (ii) March 31, 1996, pursuant to a
registration rights agreement of even date herewith between the Holder and
the Company.
(c) 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.
(d) 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 an 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).
(e) 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.
(f) 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 (i) Senior Indebtedness; (ii) Indebtedness under
this Note and the other Notes in an aggregate principal amount not to
exceed $9,500,000; (iii) Indebtedness between Subsidiaries and between
12
any Subsidiary and the Company; (iv) Indebtedness existing on the date
hereof; (v) 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; (vi) 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 (vii)
all extensions, renewals and refundings of any of the foregoing.
(g) 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.
(h) 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, provided that the Company may
declare stock splits and pay dividends payable solely in shares of any
class of its capital stock and the Subsidiaries may make cash distributions
or payments to the Company.
(i) Disposition of Assets. The Company shall not, and shall not permit
any of its Subsidiaries to, sell or otherwise dispose of any assets,
including the capital stock of any of its Subsidiaries, except for (i)
sales of inventory, fixtures and equipment in the ordinary course of
business, (ii) sales of assets having a book value not exceeding $100,000
in the aggregate, and (iii) the sale of certain vacant property owned by
the Company located in Hauppauge, New York.
(j) 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 the Company certifying that such
transaction or series of transactions complies with the immediately
preceding clause (i).
13
(k) Merger, Consolidation, etc. Neither the Company nor any Subsidiary
shall 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.
(l) Maintenance of Properties. The Company shall, and shall cause each
of its Subsidiaries to, 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 judgment of the Company, desirable in the conduct of its business.
10. Events of Default. (a) In the event that:
(i) the Company defaults in the payment of any installment of interest
required to be made on this Note and such default shall continue for a
period of ten (10) days;
(ii) the Company defaults in making any payment of principal on this
Note required to be made on this Note;
(iii) any obligation of the Company or any Subsidiary 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;
(iv) any warrant of attachment, execution or other writ is levied upon
any property or assets of the Company or any Subsidiary in excess of
$500,000 and is not discharged or stayed (including stays resulting from
the filing of an appeal) within thirty (30) days;
(v) all or any substantial part of the assets or properties of the
Company or any Subsidiary are condemned, seized or appropriated by any
government or governmental authority; or any order is entered in any
proceeding directing the winding-up, dissolution or split-up of the
Company;
(vi) the Company or any Subsidiary hereafter makes an assignment for
the benefit of creditors, or files a petition in bankruptcy as to itself,
is adjudicated insolvent or bankrupt, petitions any receiver of or any
trustee for the Company
14
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
proceeding remains undismissed for a period of sixty (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 sixty (60) days; or
(vii) 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 in this Section 10) and such
default continues unremedied for more than thirty (30) days after notice
thereof to the Company;
then, and in each and every such case, the holders of not less than one-fourth
(1/4) in aggregate principal amount of outstanding Notes may declare the
principal and accrued but unpaid interest of all the Notes to be due and payable
immediately, by written notice to the Company, and upon any such declaration the
same shall become and shall be immediately due and payable, subject to the
subordination provisions of Section 4 hereof. At any time after such declaration
of acceleration has been made, and before a judgment or decree for payment of
money due has been obtained, the holders of a majority in aggregate principal
amount of the outstanding Notes may, by written notice to the Company, rescind
and annul such declaration.
(b) At any time before the date of any declaration accelerating the
maturity of this Note: (i) the holders of at least sixty-six and two-thirds
percent (66.67%) in aggregate principal amount of outstanding Notes may waive
any past Event of Default and its consequences pertaining to the payment of
interest on, or the principal of, any of the Notes; and (ii) the holders of a
majority in aggregate principal amount of Notes may waive any other Event of
Default hereunder. Such waivers shall be evidenced by written notice or other
document specifying the Event or Events of Default being waived and shall be
binding on all existing or subsequent holders of outstanding Notes.
11. Certain Consequences Upon Default.
(a) Defaulted Interest. Subject to the provisions of Section 4 and 5
hereof, if the Company shall default in the payment of the principal of or
interest on this Note, whether upon maturity, by acceleration, or otherwise,
including, without limitation, as a result of a Chapter 11 or Chapter 7
bankruptcy case commenced by or against the Company in which it is the debtor,
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 the rate per annum
(computed on the basis of the actual
15
number of days elapsed over a year of 360 days) at the rate set forth in the
introduction of this Note, plus six percentage points (6%). It is the intention
of the Company and the holder of this Note to comply with applicable usury laws
(now or hereafter enacted); accordingly, notwithstanding any provision to the
contrary in this Note, and any other document executed in connection herewith,
in no event shall this Note or any such other document require the payment or
permit the collection of interest in excess of the maximum amount permitted by
such laws. If for any circumstances whatsoever, fulfillment of any provision of
this Note or of any such other document at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law for the collection or charging of interest, then, ipso facto,
the obligation to be fulfilled shall be reduced to the limit of such validity,
and if for any such circumstances the holder of this Note shall ever receive
anything of value as interest or deemed interest by applicable law under this
Note or any such other document or otherwise an amount that would exceed the
highest lawful rate, such amount that would be excessive interest shall be
applied to the reduction of the principal amount owing under this Note or on
account of any other indebtedness of the Company to such holder, and not to the
payment of interest, or if such excessive interest exceeds the unpaid balance of
principal of such indebtedness, such excess shall be refunded to the Company. In
determining whether or not the interest paid or payable with respect to any
indebtedness of the Company to the Holder, under any specific contingency,
exceeds the highest lawful rate, the Company and such holder shall, to the
maximum extent permitted by applicable law, (i) characterize any non-principal
payment as an expense, fee or premium rather than as interest, (ii) exclude
voluntary prepayments and the effects thereof, (iii) amortize, prorate, allocate
and spread the total amount of interest throughout the full term of such
indebtedness so that the actual rate of such interest does not exceed the
maximum amount permitted by applicable law, and/or (iv) allocate interest
between portions of such indebtedness, to the end that no such portion shall
bear interest at a rate greater than that permitted by applicable law.
(b) Additional Director Nominee. If and whenever interest payable on
this Note shall be in arrears in whole or in part, or if the Company shall fail
to pay the principal of this Note (whether or not prevented from doing so by
restrictions contained in its Restated Certificate of Incorporation, as amended
from time to time, or any other agreement or instrument), the existing members
of the Board of Directors shall cause one Director then serving on the Board of
Directors (who has not been designated by the holders of Notes, Charles S.
Holmes or C. Shelton James) to resign as a director, and the holders of the
Notes shall be entitled to immediately appoint one Director to fill such
vacancy, provided, that if such Director appointed by the holders, together with
the other directors designated by the holders of Notes and Messrs. Holmes and
James, would not exceed 50% of the total Board of Directors, then in such event
the holders of Notes shall be entitled to appoint additional Directors (upon the
resignation of other non-designated existing Directors) so as its and Messrs.
Holmes' and James' designees constitute a majority of the total Board of
Directors. Whenever all arrears in interest on the Notes then outstanding shall
have been paid and all principal amounts required to be made with respect to any
Notes shall have been made or funds therefor set apart for payment, then the
right of the holders of Notes to designate one Director (or two or more
Directors, as the case may be) shall cease (but subject always to the same
provisions for the vesting of such rights in
16
the case of any similar future arrearages in interest or failures to satisfy
principal obligations), and the terms of office of all persons elected as
Directors by the holders of Notes shall forthwith terminate and the number of
members on the Board of Directors appointed by the holders of the Notes shall be
reduced accordingly. At any time after such power shall have been so vested in
the Notes, the Secretary of the Corporation may, and upon the written request of
any holder of Notes (addressed to the Secretary at the principal office of the
Company) shall, call a special meeting of the holders of Notes for the election
of the Director (or two or more Directors, as the case may be) to be designated
by them as herein provided, such call to be made by notice similar to that
provided in the By-laws for a special meeting of the shareholders or as required
by law. If any such special meeting required to be called as above provided
shall not be called by the Secretary within fifteen (15) days after receipt of
any such request, then any holder of Notes may call such meeting, upon the
notice above provided, and for that purpose shall have access to the register of
holders of the Notes of the Company. The Director(s) designated at any such
special meeting shall hold office until the next annual meeting of the
shareholders or special meeting held in place thereof and be re-elected
successively thereafter, if such office shall not have previously terminated as
above provided. In case any vacancy shall occur among the Directors designated
by the holders of Notes, a successor shall be elected by the Board of Directors
to serve until the next annual meeting of the shareholders or special meeting
held in place thereof upon the nomination of the then remaining Directors
designated by the holders of Notes and Messrs. Holmes and James.
(c) Additional Warrants. In the event there occurs an Event of Default
pertaining to the payment of interest on, or the principal of, any of the Notes,
the Company shall issue to the holders of the Notes additional warrants to
purchase 2,000,000 shares of Common Stock, each holder to receive his pro rata
share.
12. Investment Representations.
(a) The Holder hereby acknowledges that this Note and the Conversion
Shares are 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, subject to any requirement of law that the
disposition of its property shall at all times be within its control.
(b) The Holder hereby agrees that it will not sell or transfer all or
any part of this Note and/or Conversion Shares unless and until, and so long as
such securities are not covered by an effective registration statement under the
Act, it shall first have given notice to the Company describing such sale or
transfer and furnished to the Company either (i) an opinion, reasonably
satisfactory to counsel for the Company, of counsel (skilled in securities
17
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 and without registration or qualification under any state law, or
(ii) 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.
(c) If, at the time of issuance of the Conversion Shares, no
registration statement is in effect with respect to such shares under applicable
provisions of the Act, the Company may at its election require that Holder
provide the Company with written reconfirmation of the Holder's investment
intent and that any stock certificate delivered to the Holder upon conversion of
this Note shall bear legends reading substantially as follows:
"TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE NOTE PURSUANT
TO WHICH THESE SHARES WERE ISSUED BY THE COMPANY. COPIES OF
THOSE RESTRICTIONS ARE ON FILE AT THE PRINCIPAL OFFICES OF THE
COMPANY, AND NO TRANSFER OF SUCH SHARES OR OF THIS
CERTIFICATE, OR OF ANY SHARES OR OTHER SECURITIES (OR
CERTIFICATES THEREFOR) ISSUED IN EXCHANGE FOR OR IN RESPECT OF
SUCH SHARES, SHALL BE EFFECTIVE UNLESS AND UNTIL THE TERMS AND
CONDITIONS THEREIN SET FORTH SHALL HAVE BEEN COMPLIED WITH."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT."
In addition, so long as the foregoing legend may remain on any stock certificate
delivered to the Holder, the Company may maintain appropriate "stop transfer"
orders with respect to such certificates and the shares represented thereby on
its books and records and with those to whom it may delegate registrar and
transfer functions.
(d) The Company may refuse to recognize a transfer of this Note or any
Conversion Shares on its books should a holder attempt to transfer this Note or
any Conversion Shares otherwise than in compliance with this Section 12.
18
13. Definitions. As used herein, unless the context otherwise requires,
the following terms have the respective meanings:
(a) "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 an 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.
(b) "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 shareholders 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 Notes.
(c) "Closing Price": the closing price per share of the Company's
Common Stock on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if not listed or traded
on any such exchange, on the National Market System of the National
Association of Securities Dealers Automated Quotations System ("Nasdaq"),
or if not listed or traded on any such exchange or system, the average of
the bid and asked price per share on Nasdaq or, if such quotations are not
available, the fair market value per share of Common Stock as reasonably
determined by the Board of Directors of the Company.
(d) "Consolidated Net Income": the net income (or deficit) of the
Company and its Subsidiaries for any period (taken as a cumulative whole)
after deducting,
19
without duplication, all operating expenses, provisions for all taxes and
reserves (including reserves for deferred income taxes) and all other
proper deductions, all determined in accordance with GAAP on a consolidated
basis, after eliminating all intercompany items and after deducting
portions of income properly attributable to outside minority interests, if
any, in any Subsidiaries; provided, however, that there shall be excluded
(i) any income or deficit of any other Person accrued prior to the date it
becomes a Subsidiary or merges into or consolidates with the Company or
another Subsidiary of the Company, (ii) the income (or deficit) of any
other Person (other than a Subsidiary of the Company) in which the Company
or any Subsidiary has any ownership interest, except to the extent that any
such income has been actually received by the Company or such Subsidiary in
the form of cash dividends or similar distributions, (iii) any deferred
credit or amortization thereof from the acquisition of any properties of
assets of any other Person, (iv) any aggregate net income (but not any
aggregate net loss) during such period arising from the sale, exchange or
other distribution of capital assets (such term to include all fixed
assets, whether tangible or intangible, all inventory sold in conjunction
with the disposition of fixed assets and all securities), (v) any income
resulting from the write-up of assets after the date hereof, (vi) any gains
properly classified as extraordinary in accordance with GAAP, (vii)
proceeds of life insurance policies to the extent such proceeds exceed
premiums paid to maintain such life insurance policies, (viii) any income
of a Subsidiary which is unavailable for the payment of dividends, and (ix)
any gain arising from the acquisition of securities, or the extinguishment
of any indebtedness of the Company or any of its Subsidiaries or the
termination of an employee benefit plan.
(e) "GAAP": United States generally accepted accounting principles,
consistently applied.
(f) "Indebtedness": at any time and with any 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 (even
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,
20
(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 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.
(g) "Lien": any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind whatsoever.
(h) "1996 EBITDA": Consolidated Net Income for the fiscal year ended
December 31, 1996, plus, to the extent deducted in determining such
Consolidated Net Income and without duplication, (i) the sum for such
period, of (a) the aggregate amount of all interest (including capitalized
interest) accrued or to accrue (whether or not actually paid) during such
period in respect of any Indebtedness of the Company and its Subsidiaries,
(b) any amortized discount in respect of any such Indebtedness issued at
discount, and (c) any fees or commissions payable in connection with any
letters of credit; (ii) current and deferred taxes on income and profit;
(iii) depreciation; and (iv) amortization.
(i) "Notes": the meaning specified in the introduction of this Note.
(j) "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 States
of America (of 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, 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 papers);
(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
21
$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 or 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 (vi) above.
(k) "Permitted Lien": means (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 sixty (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 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 Section 9(g) hereof 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
clauses (i) through (vii) above.
22
(l) "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.
(m) "Senior Indebtedness": the meaning specified in Section 4(a)
hereof.
(n) "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.
14. Notices.
(a) Notices to Holder of Notes. Any notice required by the provisions
of this Note to be given to the holders of Notes shall be in writing and may be
delivered by personal service or sent by telegraph or cable or sent by
registered or certified mail, return receipt requested, with postage thereon
fully prepaid. All such communications shall be addressed to the Holder of
record at its address appearing on the books of the Company. If sent by
telegraph or cable, a confirmed copy of such telegraphic or cabled notice shall
promptly be sent by mail (in the manner provided above) to the Holder. Service
of any such communication made only by mail shall be deemed complete on the date
of actual delivery as shown by the addressee's registry or certification receipt
or at the expiration of the third (3rd) business day after the date of mailing,
whichever is earlier in time.
(b) Notices to the Company. Whenever any provision of this agreement
requires a notice to be given to the Company by the holder of any Note, the
holder of Common Stock obtained upon the conversion of a Note or the holder of
any other security of the Company obtained in connection with a
recapitalization, merger, dividend or other event affecting a Note, then and in
each case, such notice shall be in writing and shall be sent by registered or
certified mail, return receipt requested with postage thereon fully prepaid to
the Company at its principal place of business.
No notice under this Section 14 shall be valid unless signed by the holder of
the Note, Common Stock or other security giving the notice or in the case of a
notice by holders of a specified percent in aggregate principal amount of
outstanding Notes unless signed by each holder of a Note whose Note has been
counted in constituting the requisite percentage of Notes required to give such
Notice.
15. Amendment. With the consent of the holders of a majority in
aggregate principal amount of outstanding Notes, the Company may amend the Notes
to cure any ambiguity, to correct or supplement any provision therein which may
be inconsistent with any other provision therein, or to make any other
provisions with respect to matters or questions
23
arising under the Notes which shall not be inconsistent with the provisions of
the Notes; provided such action shall not adversely affect the interests of the
holders of the Notes.
With the consent of the holders of not less than fifty percent (50%) in
aggregate principal amount of the outstanding Notes, the Company may amend the
Notes for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, the Notes; provided, however, that no such
amendment shall, without the consent of the holders of Senior Indebtedness,
change the subordination provisions of Sections 4 and 5 hereof or the provisions
referred to in subsection (a) below; and provided, further, that no amendment
shall, without the consent of the holder of each outstanding Note affected
thereby,
(a) change: (i) the maturity of the principal of, or any installment
of interest on, any Note; or (ii) the coin or currency in which the
principal of or interest on any Note is payable;
(b) reduce the principal amount thereof or the interest rate thereon;
(c) increase the Conversion Price thereof; or
(d) reduce the percentage in principal amount of the outstanding Notes
the consent of whose holders is required for any amendment or waiver as
provided for in the Notes.
Prompt written notice that this Note has been amended or interpreted in
accordance with the terms of this Section 15 shall be given to each holder of a
Note. Upon such amendment or interpretation, the Notes shall be deemed modified
in accordance therewith, such amendment or interpretation shall form a part of
this Note for all purposes, and every subsequent holder of Notes shall be bound
thereby.
16. Miscellaneous.
(a) Contemporaneously with the execution and delivery hereof, the
Company has issued to the Holder a detachable warrant representing the right to
purchase 250 shares of Common Stock at a exercise price equal to $2.50 per share
of Common Stock, subject to adjustment in certain events.
(b) This Note and the shares of Common Stock or other securities
issuable upon conversion of this Note will be accorded the registration rights
under the Act set forth in that certain Registration Rights Agreement between
the Company and the Holders, a form of which agreement is being furnished
concurrently herewith.
(c) This Note is the obligation of the Company only, and no recourse
shall be had for the payment thereof or interest thereon against any
shareholder, officer or director of the Company, whether by virtue of any
constitution, statute, rule or law or otherwise,
24
all such liability, by the acceptance hereof, and as part of the consideration
hereof, being expressly waived.
(d) Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note and of a letter of
indemnity reasonably satisfactory to the Company, and upon reimbursement to the
Company of all reasonable expenses incident thereto, and upon surrender or
cancellation of this Note, if mutilated, the Company will make and deliver a new
Note of like tenor in lieu of such lost, stolen, destroyed or mutilated Note.
(e) THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE COMPANY AND
THE HOLDER HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS AND INSTRUMENTS MADE
AND TO BE PERFORMED IN NEW YORK AND CANNOT BE MODIFIED OR CHANGED ORALLY.
IN WITNESS WHEREOF, the Company has duly caused this Note to be signed
on its behalf, in its corporate name and by its duly authorized officer, as of
this _____ day of February 1996.
NAI TECHNOLOGIES, INC.
By:
_________________
Richard A. Schneider
Executive Vice President,
Treasurer and Secretary
25
Schedule A
Section 6(f) Adjusted Amounts
Wilcom, Inc............................................................................$ 838,000
Codar Technology, Inc..................................................................$2,805,000
NAI Technologies - Systems Division Corporation........................................$ 607,000
Lynwood Scientific Developments Limited................................................$1,833,000
26