NAI TECHNOLOGIES, INC., Issuer
-----------------------------
$6,342,000
12% Convertible Subordinated Promissory Notes
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Indenture
Dated as of July 15, 1996
FIRST TRUST NATIONAL ASSOCIATION
Trustee
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS AND INCORPORATION
BY REFERENCE.................................... 1
Section 1.1 Definitions..................................... 1
Section 1.2 Other Definitions............................... 9
Section 1.3 Incorporation by Reference of Trust
Indenture Act.......................... 9
Section 1.4 Rules of Construction........................... 9
ARTICLE 2 THE SECURITIES.................................. 10
Section 2.1 Form and Dating................................. 10
Section 2.2 Execution and Authentication.................... 10
Section 2.3 Registrar and Paying Agent...................... 11
Section 2.4 Paying Agent to Hold Money in
Trust.................................. 12
Section 2.5 Securityholder Lists............................ 13
Section 2.6 Transfer and Exchange........................... 13
Section 2.7 Replacement Securities.......................... 13
Section 2.8 Outstanding Securities.......................... 14
Section 2.9 Treasury Securities............................. 14
Section 2.10 Temporary Securities............................ 14
Section 2.11 Cancellation.................................... 15
Section 2.12 Defaulted Interest.............................. 15
Section 2.13 Home Office Payment Agreements.................. 15
ARTICLE 3 REDEMPTION...................................... 16
Section 3.1 Notices to Trustee.............................. 16
Section 3.2 Selection of Securities to Be
Redeemed............................... 16
Section 3.3 Notice of Redemption............................ 17
Section 3.4 Effect of Notice of Redemption.................. 17
Section 3.5 Deposit of Redemption Price..................... 17
Section 3.6 Securities Redeemed in Part..................... 18
ARTICLE 4 COVENANTS....................................... 18
Section 4.1 Payment of Securities........................... 18
Section 4.2 SEC Reports, Financial Reports.................. 18
Section 4.3 Compliance Certificate.......................... 19
Section 4.4 Corporate Existence............................. 20
Section 4.5 Taxes and Assessments........................... 20
Section 4.6 Liens........................................... 21
Section 4.7 Indebtedness.................................... 21
Section 4.8 Investments..................................... 21
Section 4.9 Payments........................................ 21
Section 4.10 Disposition of Assets........................... 22
Section 4.11 Affiliate Transactions.......................... 22
Section 4.12 Maintenance of Properties....................... 22
Section 4.13 Stay, Extension and Usury Laws.................. 23
ARTICLE 5 SUCCESSORS...................................... 23
Section 5.1 When Company or Its
Subsidiaries May Merge etc............. 23
Section 5.2 Successor Corporation Substituted............... 24
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ARTICLE 6 DEFAULTS AND REMEDIES........................... 24
Section 6.1 Events of Default............................... 24
Section 6.2 Acceleration.................................... 26
Section 6.3 Other Remedies.................................. 26
Section 6.4 Waiver of Past Defaults......................... 26
Section 6.5 Control by Majority............................. 27
Section 6.6 Limitation on Suits............................. 27
Section 6.7 Rights of Holders to Receive Payment............ 27
Section 6.8 Collection Suit by Trustee...................... 28
Section 6.9 Trustee May File Proofs of Claim................ 28
Section 6.10 Priorities...................................... 28
Section 6.11 Undertaking for Costs........................... 29
ARTICLE 7 TRUSTEE......................................... 29
Section 7.1 Duties of Trustee............................... 29
Section 7.2 Rights of Trustee............................... 30
Section 7.3 Individual Rights of Trustee.................... 31
Section 7.4 Trustee's Disclaimer............................ 31
Section 7.5 Notice of Defaults.............................. 31
Section 7.6 Reports by Trustee to Holders................... 32
Section 7.7 Compensation and Indemnity...................... 32
Section 7.8 Replacement of Trustee.......................... 33
Section 7.9 Successor Trustee by Merger etc................. 34
Section 7.10 Eligibility; Disqualification................... 34
Section 7.11 Preferential Collection of Claims
Against Company........................ 34
ARTICLE 8 DISCHARGE OF INDENTURE.......................... 35
Section 8.1 Termination of Company's Obligations............ 35
Section 8.2 Application of Trust Money...................... 36
Section 8.3 Repayment to Company............................ 36
Section 8.4 Reinstatement................................... 36
ARTICLE 9 AMENDMENTS...................................... 37
Section 9.1 Without Consent of Holders...................... 37
Section 9.2 With Consent of Holders......................... 37
Section 9.3 Compliance with Trust Indenture Act............. 38
Section 9.4 Revocation and Effect of Consents............... 38
Section 9.5 Notation on or Exchange of
Securities............................. 39
Section 9.6 Trustee Protected............................... 39
ARTICLE 10 SUBORDINATION................................... 39
Section 10.1 Securities Subordinated to Senior
Indebtedness........................... 39
Section 10.2 Liquidation; Dissolution; Bankruptcy............ 40
Section 10.3 Default on Senior Indebtedness.................. 42
Section 10.4 When Distribution Must Be Paid Over............. 42
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Section 10.5 Notice by Company............................... 43
Section 10.6 Subrogation..................................... 43
Section 10.7 Relative Rights................................. 43
Section 10.8 Subordination May Not Be Impaired by
Company......................................... 44
Section 10.9 Distribution or Notice to
Representatives........................ 44
Section 10.10 Rights of Trustee and Paying Agent.............. 44
Section 10.11 Trustee Entitled to Assume Payments
Not Prohibited in Absence of Notice.... 45
Section 10.12 Application by Trustee of Monies
Deposited With It...................... 45
Section 10.13 Trustee's Compensation Not
Prejudiced............................. 46
Section 10.14 Officer's Certificate........................... 46
Section 10.15 Certain Payments................................ 46
Section 10.16 Names of Representatives........................ 46
Section 10.17 Article 10 Not To Prevent Events of
Default or Limit Right To
Accelerate............................. 46
Section 10.18 Reliance by Holders of Senior
Indebtedness on Subordination
Provisions............................. 47
Section 10.19 Proof of Claim.................................. 47
Section 10.20 No Fiduciaries Duty to Holders
of Senior Indebtedness................. 47
ARTICLE 11 MISCELLANEOUS................................... 48
Section 11.1 Trust Indenture Act Controls.................... 48
Section 11.2 Notices......................................... 48
Section 11.3 Communication by Holders with Other
Holders................................ 48
Section 11.4 Certificate and Opinion as to
Conditions Precedent................... 49
Section 11.5 Statements Required in Certificate
or Opinion............................. 49
Section 11.6 Rules by Trustee and Agents..................... 49
Section 11.7 Legal Holidays.................................. 50
Section 11.8 Counterparts.................................... 50
Section 11.9 Variable Provisions............................. 50
Section 11.10 Governing Law................................... 51
Section 11.11 No Adverse Interpretation of
Other Agreements....................... 51
Section 11.12 Successors...................................... 51
Section 11.13 Severability.................................... 51
Section 11.14 Qualification of Indenture...................... 51
Section 11.15 Table of Contents, Headings, etc................ 51
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ARTICLE 12 CONVERSION ..................................... 52
Section 12.1 Conversion of the Note. ........................ 52
Section 12.2 Reservation. .................................. 56
Section 12.3 Delivery of Shares and/or New Note. ............ 56
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INDENTURE dated as of July 15, 1996 among NAI TECHNOLOGIES, INC., a New
York corporation (the "Company"), and FIRST TRUST NATIONAL ASSOCIATION, a
national association, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and for
the equal and ratable benefit of the holders of the Company's 12% Convertible
Subordinated Promissory Notes due January 15, 2001 (the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1 Definitions.
"Affiliate," with respect to any Person, means 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.
"Agent" means any Registrar, Paying Agent or co- registrar.
"Bank Credit Agreement" has the meaning set forth in Section 10.1 hereof.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"Capital Stock" means with respect to any Person any and all shares,
interests, warrants, rights, options, participations or other equivalents
(however designated) of, in or to corporate stock, including of, in or to common
stock and preferred stock (whether or not included in shareholders' equity).
"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.
"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.
"Common Stock" shall mean the common stock, par value $.10 per share, of
the Company.
"Company" means the Person named as such above until a successor replaces
it in accordance with Article 5, and thereafter means the successor.
"Consolidated Net Income" means the net income (or deficit) of the Company
and its Subsidiaries for any period (taken as a cumulative whole) after
deducting, 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
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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 (a) 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, (b) 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, (c) any deferred credit or amortization
thereof from the acquisition of any properties of assets of any other Person,
(d) 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),
(e) any income resulting from the write-up of assets after the date hereof, (f)
any gains properly classified as extraordinary in accordance with GAAP, (g)
proceeds of life insurance policies to the extent such proceeds exceed premiums
paid to maintain such life insurance policies, (h) any income of a Subsidiary
which is unavailable for the payment of dividends, and (i) 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.
"Corporation" includes corporations, associations, companies and business
trusts.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Documents" means the Indenture, the Securities and all security
agreements, mortgages, deeds of trust, financing statements, lease assignments,
guaranties and other agreements and instruments, together with any assignments,
endorsements of, exhibits, schedules or other attachments to all of the
foregoing, delivered in connection with the transactions contemplated hereby or
thereby, all as amended, supplemented or otherwise modified from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"GAAP" means United States generally accepted accounting principles,
consistently applied.
"Governmental Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
any city or other political subdivision or otherwise and whether now or
hereafter in existence, or any officer or official thereof.
"Holder" or "Securityholder" means a Person in whose name a Security is
registered from time to time.
"Indebtedness" means 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, (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
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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.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Investments" means any direct or indirect purchase or other acquisition by
a Person of, or a beneficial interest in, Capital Stock or other securities of
any other Person other than a Person that prior to the relevant time was a
subsidiary of that Person, or any direct or indirect loan, advance (other than
advances to employees for moving and travel expenses, drawing accounts and
similar expenditures in the ordinary course of business) or capital contribution
by that Person to any other Person including all Indebtedness and accounts
receivable from that other Person that are not current assets or did not arise
from sales to that other Person in the ordinary course of business and any
agreement to purchase, sell or lease assets, products, supplies, materials,
transportation or services, or to advance funds and/or guaranty such, for the
purpose of giving financial assurance to any creditors of any Person, or grant
any lien on property of such Person to secure any obligations of another Person.
"Lien" any mortgage, deed of trust, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever.
"Officer's Certificate" means a certificate signed by any duly authorized
officer, who must be the Chairman of the Board, the President, the Chief
Executive Officer, the Executive Vice President, the Chief Financial Officer,
the Treasurer or a Vice President of the Company or a Subsidiary thereof, as the
context may indicate.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"1996 EBITDA" means 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, (j) 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
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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; (k) current and deferred taxes on income
and profit; (l) depreciation; and (m) amortization.
"Notes" means the 12% Convertible Subordinated Promissory Notes due January
15, 2001.
"Permitted Investments" means 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 $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
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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.
"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) of the Notes 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.
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"Person" and "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.
"Representative" means the indenture trustee or other trustee, agent or
representative, if any, for an issue of Senior Indebtedness.
"Restricted Securities" means Securities which were acquired by the Holder
thereof other than pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or acquired in a public transaction that
complies with Rules 144 or 144A (or any successor rules) under such Act, whether
or not the exemption provided by paragraph (k) of Rule 144 (or any comparable
exemption) is available.
"SEC" means the Securities and Exchange Commission, or any successor
Governmental Authority.
"Securities" means the securities issued under this Indenture.
"Senior Indebtedness" has the meaning set forth in Section 10.1 hereof.
"Securities" means the 12% Convertible Subordinated Promissory Notes due
February 15, 2001, being issued and sold pursuant to the Confidential Private
Placement Memorandum and this Indenture.
"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.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb), as amended, as in effect on the date of this Indenture, until
such time as this Indenture is qualified under the TIA, and thereafter as in
effect on the date on which this Indenture is qualified under the TIA, except as
otherwise provided in Section 9.3.
"Trustee" means the Person named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and thereafter
means the successor.
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"Trust Officer" means the any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
Section 1.2 Other Definitions.
Defined in
Terms Section
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"Event of Default" 6.1
"Legal Holiday" 11.7
"Officer" 11.9
"Paying Agent" 2.3
"Registrar" 2.3
"U.S. Government Obligations" 8.1
Section 1.3 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Securities means the Company and any other obligor upon
the Securities.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them.
Section 1.4 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
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(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
Section 2.1 Form and Dating.
The Securities shall be substantially in the form of Exhibit A, which is
part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each Security shall
be dated the date of its authentication. After the Securities have ceased to be
Restricted Securities, the Company shall deliver to the Trustee a printed form
of Security.
The terms and provisions contained in the Securities shall constitute, and
are hereby expressly made, a part of this Indenture, and to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
Section 2.2 Execution and Authentication.
One Officer, duly authorized, shall sign the Securities for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Securities.
If an officer whose signature is on a Security no longer holds that office
at the time the Security is authenticated, the Security shall nevertheless be
valid.
A Security shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Security has
been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of up to $6,342,000 upon a written order of the
Company signed by two Officers. The aggregate principal amount of Securities
outstanding at any time may not exceed $6,342,000, except as provided in Section
2.7.
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The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate.
Section 2.3 Registrar and Paying Agent.
The Company shall maintain in the county where the principal corporate
office of the Trustee is located and in such other locations it shall determine
(i) an office or agency where Securities may be presented for registration of
transfer or for exchange ("Registrar") and (ii) an office or agency where
Securities may be presented for payment ("Paying Agent"); provided, however,
that neither the Company nor any of its Affiliates may service as Paying Agent
or Registrar. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company shall appoint one or more co-registrars and
one or more paying agents. The term "Paying Agent" includes any paying agent.
Subject to the foregoing provisions, the Company may change any Paying Agent,
Registrar or co-registrar upon notice to the Trustee. The Company shall notify
the Trustee of the name and address of any Agent not a party to this Indenture.
If the Company fails to appoint or maintain another entity as Registrar or
Paying Agent, the Trustee shall act as such.
The Company shall, if the Securities are listed on the New York Stock
Exchange, designate as authenticating agent, co-registrar and Paying Agent with
respect to the Securities a bank or trust company in good standing, organized
under the laws of the United States of America or any State, doing business in
or having a correspondent relationship with a bank or trust company doing
business in the Borough of Manhattan, City of New York, State of New York, and
having a capital and surplus (including subordinated capital notes and earned
surplus) aggregating at least $100,000,000. Whenever, pursuant to this
Indenture, the Trustee is obligated, empowered or authorized to perform any act
with respect to the authentication and issuance of the Securities, or their
transfer, other than the authentication and issuance of Securities upon original
issue or in cases of Securities mutilated, destroyed, lost or stolen, such act
may be performed by the authenticating agent and co-registrar, notwithstanding
anything in this Indenture to the contrary. Whenever, pursuant to this
Indenture, the Trustee is obligated, empowered or authorized to perform any act
with respect to payment of the principal of (and premium, if any) or interest on
the Securities, such
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acts may be performed by the Paying Agent, notwithstanding anything in this
Indenture to the contrary.
The Company covenants that whenever necessary to avoid or fill a vacancy in
the office of authenticating agent, co-registrar and Paying Agent, the Company
will appoint a successor authenticating agent, co-registrar and Paying Agent so
that there shall, at all times that the Securities are listed for trading on the
New York Stock Exchange, be one or more offices or agencies in the Borough of
Manhattan, City of New York, State of New York, acceptable to the New York Stock
Exchange, where securities may be presented or surrendered for payment and where
Securities may be surrendered for registration of transfer or exchange.
In case, at the time of the appointment of a successor to the
authenticating agent, any of the Securities shall have been authenticated but
not delivered, any such successor may adopt the certificate of authentication of
the original authenticating agent or of any successor to it as authenticating
agent hereunder, and deliver such Securities so authenticated; and in case at
any time any of the Securities shall not have been authenticated, any successor
to the authenticating agent by merger or consolidation may authenticate such
securities either in the name of its predecessor hereunder or in the name of the
successor authenticating agent; and in all such cases such certificate shall
have the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of authentication shall have.
Section 2.4 Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent will hold in trust for the benefit of
Securityholders or the Trustee all money received by the Paying Agent for the
payment of principal or interest or other amounts owed on the Securities
(whether such money has been paid to it by the Company or any other obligor on
the Securities or any other Person), and will notify the Trustee of any default
by the Company (or any other obligor on the Securities or any other Person) in
making any such payment. While any such default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the
Company or a Subsidiary) shall have no further liability for the money. The
Trustee shall not be responsible for paying interest while holding any money in
trust, unless otherwise previously agreed to in
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writing. If the Company or a Subsidiary acts as Paying Agent, it shall segregate
and hold in a separate trust fund for the benefit of the Securityholders all
money held by it as Paying Agent.
Section 2.5 Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company and any other
obligor shall furnish to the Trustee on or before each interest payment date and
at such other times as the Trustee may request in writing, but in any event at
least semi-annually, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Securityholders.
Section 2.6 Transfer and Exchange.
(a) Where Securities are presented to the Registrar or a co-registrar with
a request to register a transfer or to exchange them for an equal principal
amount of Securities of other denominations, the Registrar shall, register the
transfer or make the exchange if its requirements for such transactions are met
(including, if required by the Company for transfers with respect to which no
registration statement has been declared effective, an opinion of counsel to the
Holder requesting transfer that an exemption from registration under the
Securities Act of 1933, as amended, is available for such transfer). To permit
registrations of transfer and exchanges, the Company shall issue and the Trustee
shall authenticate Securities at the Registrar's request. No service charge
shall be required of the Holder for any registration of transfer or exchange
(except as otherwise expressly permitted herein), but the Company may require
payment of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer tax or
similar governmental charge payable upon exchanges pursuant to Section 2.10, 3.6
or 9.5).
(b) The Company shall not be required (i) to issue, register the transfer
of or exchange Securities during a period beginning at the opening of business
15 days before the day of any selection of Securities for redemption under
Section 3.2 and ending at the close of business on the day of selection or (ii)
to register the transfer or exchange of any Security so selected for redemption
in whole or in part, except the unredeemed portion of any Security being
redeemed in part.
Section 2.7 Replacement Securities.
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If the Holder of a Security claims that the Security has been lost,
damaged, destroyed or wrongfully taken, the Company shall issue and the Trustee
shall authenticate a replacement Security if the Trustee's requirements are met.
If required by the Trustee or the Company, an indemnity bond must be provided
which is sufficient in the judgment of both to protect the Company, the Trustee,
any Agent or any authenticating agent from any loss which any of them may suffer
if a Security is replaced. The Company may charge for its expenses in replacing
a Security. The Company is not required to provide a replacement Security that
is called for redemption in accordance with its terms.
Every replacement Security is an additional obligation of the Company and
shall be entitled to the benefits of this Indenture.
Section 2.8 Outstanding Securities.
The Securities outstanding at any time are all the Securities authenticated
by the Trustee except for those canceled by it, those delivered to it for
cancellation and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If Securities are considered paid under Section 4.1, they cease to be
outstanding and interest on them ceases to accrue.
Subject to Section 2.9, a Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
Section 2.9 Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, any of its Subsidiaries or any other obligor on the Securities
or an Affiliate of the Company, any of its Subsidiaries or any other obligor on
the Securities shall be considered as though they are not outstanding, except
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities which the
Trustee knows are so owned shall be so disregarded.
Section 2.10 Temporary Securities.
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Until definitive Securities are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Securities. Temporary securities
shall be substantially in the form of definitive Securities but may have
variations that the Company considers appropriate for temporary Securities
without charge to the Securityholders. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive securities in
exchange for temporary Securities without charge to the Securityholders.
Section 2.11 Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall dispose of
canceled Securities as the Company directs. The Company may not issue new
securities to replace Securities that it has paid or that have been delivered to
the Trustee for cancellation.
Section 2.12 Defaulted Interest.
If the Company fails to make a payment of interest on the Securities, it
shall pay such defaulted interest plus any interest payable on the defaulted
interest, if any, in any lawful manner. It may pay such defaulted interest, plus
any such interest payable on it, to the Persons who are Securityholders on a
subsequent special record date. The Company shall fix any such record date and
payment date. At least 15 days before any such record date, the Company shall
mail to Securityholders a notice that states the record date, payment date and
amount of such interest to be paid.
Section 2.13 Home Office Payment Agreements.
Notwithstanding any provisions of this Indenture and of the Securities to
the contrary, payments of interest on, and all or any portion of the principal
of, any Security, other than the final payment of principal on a Security, shall
be made by the Paying Agent directly to the Holder of such Security or their
designee without surrender or presentation thereof to the Paying Agent, if the
Company has so agreed with such Holder and has filed with the Trustee a copy of
an agreement between the Company and such Holder (or the Person for whom such
Holder is a nominee) providing that (i) such payment will be so made and (ii)
such Holder (or the Person for whom such Holder is a nominee) will, before
selling, transferring or otherwise disposing of any such Security, make a
notation thereon, or
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submit the same to the Trustee for notation thereon, of the date to which
interest has been paid with respect thereof and, in the event redemptions
previously have been made thereof, surrender the same to the Trustee in exchange
for a Security or Securities aggregating the same principal amount as the
unredeemed principal amount of the Securities surrendered. The Company will
indemnify and save the Trustee and Paying Agent harmless against any liability
resulting from any act or omission to act on the part of the Company in
connection with any such agreement or which the Paying Agent may incur as a
result of making any payment in accordance with any such agreement.
ARTICLE 3
REDEMPTION
Section 3.1 Notices to Trustee.
If the Company elects to redeem the Securities pursuant to the optional
redemption provisions of Paragraph 1(d) of the Securities, or is required to
redeem Securities pursuant to the mandatory redemption provisions of Paragraph
1(f) of the Securities, it shall notify the Trustee in writing of the redemption
date and the principal amount of the Securities to be redeemed.
The Company shall give each notice provided for in this Section not more
than 60 days and not less than 30 days before the redemption date (unless a
shorter notice period shall be satisfactory to the Trustee); provided, however,
that the Trustee shall have no liability to any Holder if it deems such shorter
notice period satisfactory to it.
Section 3.2 Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed on a substantially pro rata basis in
multiples of $1,000 among the Holders of Securities. The amount of remaining
Securities shall be calculated as the aggregate principal amount of Securities
originally issued hereunder less the aggregate principal amount of any
Securities previously redeemed. The Trustee shall make the selection not more
than 60 days and not less than 30 days before the redemption date from
outstanding Securities not previously called for redemption.
The Trustee shall promptly notify the Company of the Securities or portions
of Securities to be called for redemption. The Trustee may select for redemption
portions of the principal of Securities that have denominations
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larger than $1,000. Securities and portions of them it selects shall be in
amounts of $1,000 or integral multiples of $1,000. Provisions of this Indenture
that apply to Securities called for redemption also apply to portions of
Securities called for redemption.
Section 3.3 Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail by first class mail, postage prepaid a notice of redemption
to each Holder whose Securities are to be redeemed.
The notice shall identify the Securities to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Security is being redeemed in part, the portion of the principal
amount of such Security to be redeemed and that, after the redemption date, upon
surrender of such Security, a new Security or Securities in principal amount
equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(6) that interest on Securities called for redemption ceases to accrue on
and after the redemption date; and
(7) the paragraph of the Securities pursuant to which the Securities called
for redemption are being redeemed.
At the Company's written request which shall include an Officer's
Certificate setting forth the information to be stated in such notice, the
Trustee shall give the notice of redemption in the Company's name and at the
Company's expense.
Section 3.4 Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date at the price set forth in the
Security.
Section 3.5 Deposit of Redemption Price.
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On or before the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent immediately available funds sufficient to pay
the redemption price of and accrued interest on all Securities to be redeemed on
that date. The Trustee or the Paying Agent shall return to the Company any money
not required to pay the redemption price of all Securities to be redeemed.
Section 3.6 Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Company a new Security equal in principal amount to the unredeemed portion of
the Security surrendered.
ARTICLE 4
COVENANTS
Section 4.1 Payment of Securities.
The Company shall pay the principal of and interest on the Securities on
the dates and in the manner provided in the Securities. Principal and interest
shall be considered paid on the date due if the Paying Agent (other than the
Company or a Subsidiary or an Affiliate) holds on that date money designated for
and sufficient to pay all principal and interest and any other amounts then due.
To the extent lawful, the Company shall pay interest on (i) overdue
principal and (ii) installments of interest overdue, at the rates provided in
the Securities. The obligation of the Company described in the preceding
sentence is absolute and unconditional, irrespective of any tax or accounting
treatment of such obligation.
Section 4.2 SEC Reports, Financial Reports.
So long as the Securities shall remain outstanding and the Company is
subject to the filing requirements of Section 13(a), 13(c) or 15(d) of the
Exchange Act, the Company shall transmit or cause to be transmitted to the
Trustee and the Holders, 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
SEC, 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.
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If the Company is not subject to filing requirements, the Company shall
transmit or cause to be transmitted to the Trustee and the Holders annual and
quarterly reports containing audited annual financial statements and related
notes thereto and unaudited quarterly financial statements, respectively.
Subsequent to the qualification of the Indenture under the TIA, the Company
also shall comply with the provisions of TIA ss. 314(a). The Company shall
timely comply with its reporting and filing obligations under applicable federal
securities law.
The foregoing requirements do not replace or supersede and are in addition
to the requirements set forth in the Securities and in any of the Documents.
Notwithstanding anything to the contrary herein, the Trustee will have no
duty to review such documents for purposes of determining compliance with any
provision of this Indenture.
Section 4.3 Compliance Certificate.
(a) The Company shall deliver to the Trustee and Holders of at least
$1,000,000 in aggregate principal amount of Securities, within ninety (90) days
after the end of each fiscal year and within forty-five (45) days after the end
of each fiscal quarter, an Officer's Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal
period has been made under the supervision of the signing officer with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture and the Documents, as applicable, and further
stating (including all relevant calculations in reasonable detail), as to such
officer signing such certificate, that to the best of his or her knowledge the
Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and the Documents, as applicable, and is not in
default in the performance or observance of any of the terms, provisions and
conditions hereof or thereof (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Securities are prohibited, or if such
event has occurred, a description of the event.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants or to a written policy
adopted by the independent,
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public accountants of the Company and its Subsidiaries which has been previously
applied (a copy of which shall be delivered to the Trustee), the annual
financial statements delivered pursuant to Section 4.2 shall be accompanied by a
written statement of the independent public accountants of the Company that in
making the examination necessary for certification of such financial statements
nothing has come to their attention which would lead them to believe that the
Company has violated any provisions of Article 4 or 5 of this Indenture or any
of the Documents pursuant to engagement instructions directing such
determination of compliance, or, if any such violation has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation that would not be disclosed in
the course of an audit examination conducted in accordance with generally
accepted auditing standards.
(c) The Company will, so long as any of the Securities are outstanding,
deliver to the Trustee and the Securityholders, within two days of becoming
aware of (i) any Default, Event of Default or default in the performance of any
covenant, agreement or condition contained in this Indenture or any Document or
(11) any default under the Credit Agreement or (iii) any event of default under
any other mortgage, indenture, instrument or agreement as that term is used in
Section 6.1, an Officer's Certificate specifying such Default, Event of Default,
default, or event of default.
Section 4.4 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.
Section 4.5 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
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good faith by appropriate proceedings (if the Company shall have set aside on
its books adequate reserves therefor).
Section 4.6 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.
Section 4.7 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 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.
Section 4.8 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.
Section 4.9 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
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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.
Section 4.10 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.
Section 4.11 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).
Section 4.12 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.
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Section 4.13 Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture or any other Document; and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law has been enacted.
Section 4.14 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.
ARTICLE 5 SUCCESSORS
Section 5.1 When Company or Its Subsidiaries May Merge etc.
(a) 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 expressly assume by a supplemental indenture the due and punctual
performance of all the obligations under the Securities, (ii) such Successor
shall be a corporation
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organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia, and (iii) no Event of Default (and no event
that, after notice or lapse of time, or both, would become an Event of Default)
shall have occurred and be continuing.
The Company shall deliver to the Trustee prior to the consummation of the
proposed transaction an Officer's Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture.
(b) Notwithstanding any of the provisions contained in this Article 5, any
Subsidiary of the Company may consolidate or merge with or into, or sell,
convey, assign, transfer or otherwise dispose of all or substantially all of its
assets to, the Company, or any other Subsidiary of the Company so long as the
Company or a Subsidiary of the Company shall be the continuing corporation.
Section 5.2 Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, lease, conveyance or other
disposition of assets in accordance with Section 5.1, the successor corporation,
formed by such consolidation or into or with which the Company or any Subsidiary
is merged or to which such sale, lease, conveyance or other disposition is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture and the Documents with the same effect as
if such successor Person had been named as the Company herein or therein;
provided, however, that the predecessor Company, in the case of a sale, lease,
conveyance or other disposition shall not be released from the obligation to pay
the principal of and interest on the Securities or the obligations under any of
the Documents
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1 Events of Default.
An "Event of Default" occurs if:
(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;
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(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 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,
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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 6) and such default continues
unremedied for more than thirty (30) days after notice thereof to the
Company.
Section 6.2 Acceleration.
If an Event of Default occurs and is continuing, the Trustee by notice to
the Company, or the Holders of at least 25% in principal amount of the then
outstanding Securities by notice to the Company, and the Trustee, may declare
the unpaid principal of and any accrued interest on all the Securities to be due
and payable. Upon such declaration, the principal and interest shall be due and
payable immediately. The Holders of a majority in principal amount of the then
outstanding Securities by notice to the Trustee may rescind an acceleration and
its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration.
Section 6.3 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal or interest on the
Securities or to enforce the performance of any provision of the Securities,
this Indenture or the Documents.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.4 Waiver of Past Defaults.
The Holders of a majority in principal amount of the then outstanding
Securities by notice to the Trustee may waive an existing Default or Event of
Default and its consequences except a continuing Default or Event of Default in
the payment of the principal of or interest on any Security.
Section 6.5 Control by Majority.
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The Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that is unduly prejudicial to the rights
of other Securityholders, or would involve the Trustee in personal liability.
Section 6.6 Limitation on Suits.
A Securityholder may pursue a remedy with respect to this Indenture or the
Securities only if:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity satisfactory
to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in principal
amount of the then outstanding securities do not give the Trustee a
direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
Section 6.7 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder.
Section 6.8 Collection Suit by Trustee.
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If an Event of Default specified in Section 6.1(i) or (ii) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company or any other obligor on the Securities for
the whole amount of principal and interest remaining unpaid on the Securities
and interest on overdue principal and interest and such further amount as shall
be sufficient to cover the costs and, to the extent lawful, expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 6.9 Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee and the
Securityholders allowed in any judicial proceedings relative to the Company or
any other obligor or their respective creditors or property. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Securityholder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities or the rights of
any Holder thereof, or to authorize the Trustee to vote in respect of the claim
of any Securityholder in any such proceeding.
Section 6.10 Priorities.
If the Trustee collects any money pursuant to this Article or by exercise
of its remedies under the Documents, it shall pay out the money in the following
order:
First: to the Trustee for amounts due under Section 7.7 hereof;
Second: to holders of Senior Indebtedness to the extent permitted under
Article 10 hereof;
Third: to Securityholders for amounts due and unpaid on the Securities for
principal and interest and premium, if any, ratably, first to
interest, then principal and then premium, according to the amounts
due and payable on the Securities for principal and interest and
premium, if any, respectively; and
Fourth: to Securityholders for other amounts due under the Indenture, the
Securities and the other Documents; and
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Fifth: to the Company or any other obligors on the Securities, as their
interests may appear, or as a court of competent jurisdiction may
direct.
The Trustee may fix a record date and payment date for any payment to
Securityholders.
Section 6.11 Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7,
or a suit by Holders of more than 10% in principal amount of the then
outstanding Securities.
ARTICLE 7
TRUSTEE
Section 7.1 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are specifically
set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the
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certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct, except
that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section.
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
(g) Except with respect to Section 4.1, the Trustee shall have no duty to
inquire as to the performance of the Company's covenants in Article 4. In
addition, the Trustee shall not be deemed to have knowledge of any Default or
Event of Default except (i) any Event of Default occurring pursuant to Sections
6.1(a), 6.1(b) and 4.1 or (ii) any Default or Event of Default of which the
Trustee shall have received written notification or obtained actual knowledge.
Section 7.2 Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
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(b) Before the Trustee acts or refrains from acting, it may require an
Officer's Certificate or an opinion of Counsel, or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officer's Certificate or opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers.
(e) The Trustee may consult with an attorney and shall not be liable for
any action it takes or omits to take in reliance on such attorney's advice.
Section 7.3 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company or an Affiliate of
the Company with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11.
Section 7.4 Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this
Indenture, the Securities or any other Document, it shall not be accountable for
the Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement of the Company in the Indenture or any other
Document or any statement in any Security other than its authentication.
Section 7.5 Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Securityholders a notice of the
Default or Event of Default within 15 days after it occurs. Except in the case
of a Default or Event of Default in payment on any Security (including any
failure to make any mandatory redemption payment required hereunder), the
Trustee may withhold the notice if and so long as a committee of its Trust
officers in good faith determines that withholding the notice is in the
interests of Securityholders.
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Section 7.6 Reports by Trustee to Holders.
Within 60 days after the reporting date stated in Section 11.9, the Trustee
shall mail to Securityholders a brief report dated as of such reporting date
that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss.
313(b)(1) and TIA ss. 313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA ss. 313(c).
Commencing at the time this Indenture is qualified under the TIA, a copy of
each report at the time of its mailing to Securityholders shall be filed with
the SEC and each stock exchange on which the Securities are listed. The Company
shall notify the Trustee when the Securities are listed on any stock exchange.
Section 7.7 Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred by it. Such expenses shall include the reasonable compensation
and out-of-pocket expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any loss or liability
incurred by it except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel, and the Company shall pay the reasonable
fees and expenses of such counsel. The Company need not pay for any settlement
made without its consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
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When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(vi) or (vii) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8 Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Company in writing. The
Holders of a majority in principal amount of the then outstanding
Securities may remove the Trustee by so notifying the Trustee and the
Company in writing. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged as bankrupt or insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(3) a custodian or public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting or is not performing
to the satisfaction of Holders of a majority in aggregate principal
amount of the then outstanding Securities.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company and any other obligor shall promptly
appoint a successor Trustee. Within one year after the successor Trustee takes
office, the Holders of a majority in principal amount of the then outstanding
Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee (at the expense of
the Company), the Company or the Holders of at least 10% in principal amount of
the then outstanding Securities may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
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If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Securityholders. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided for in Section 7.7.
Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the
Company's obligations under Section 7.7 hereof shall continue for the benefit of
the retiring trustee with respect to expenses and liabilities incurred by it
prior to such replacement.
Section 7.9 Successor Trustee by Merger etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA ss. 310(a)(1). The Trustee shall always have a combined capital and
surplus as stated in Section 11.9. The Trustee is subject to TIA ss. 310(b),
including the optional provision permitted by the second sentence of TIA ss.
310(b)(9)
Section 7.11 Preferential Collection of Claims Against Company.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed ln TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.1 Termination of Company's Obligations.
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This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.7 and the Company's and the Trustee's
obligations under Section 8.3 shall survive) when all outstanding Securities
theretofore authenticated and issued have been delivered to the Trustee for
cancellation, and the Company has paid all sums payable hereunder and under the
other Documents. In addition, on or after February 23, 1999, the Company may
terminate all of their respective obligations under this Indenture (except the
Company's obligations under Sections 7.7 and 8.3) if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations sufficient to pay principal and interest and
premium, if any, on the Securities to maturity or redemption, as the case
may be, and to pay all other sums payable by it hereunder; and
(2) the Company shall have delivered to the Trustee an opinion of
Counsel satisfactory to the Trustee that the Holders of the Securities
should not recognize income, gain or loss for federal income tax purposes
as a result of the Company's exercise of its option under this Section 8.1
and will be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case if such
option had not been exercised.
However, the Company's obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 4.1,
7.7, 8.3 and 8.4 shall survive until the Securities are no longer outstanding.
Thereafter, only the Company's obligations in Sections 7.7 and 8.3 shall
survive.
After a deposit made pursuant to this Section 8.1, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified above.
"U.S. Government Obligations" means direct obligations of the United States
of America, or obligations unconditionally guaranteed by the United States of
America, for the payment of which the full faith and credit of the United States
of America is pledged. In order to have money available on a payment date to pay
principal or interest on the Securities, the U.S. Government Obligations shall
be payable as to principal or interest on or before such payment date in such
amounts as will provide the necessary money. U.S. Government Obligations shall
not be callable at the issuer's option.
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Section 8.2 Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.1. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and interest on the
Securities.
Section 8.3 Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon request any
money held by them for the payment of principal or interest that remains
unclaimed for two years after the date upon which such payment shall have become
due; provided, however, that the Company shall have first caused notice of such
payment to the Company to be mailed to each Securityholder entitled thereto no
less than 30 days prior to such payment. After payment to the Company,
Securityholders entitled to the money must look to the Company for payment as
general creditors unless an applicable abandoned property law designates another
Person.
Section 8.4 Reinstatement.
If (i) the Trustee or Paying Agent is unable to apply any money in
accordance with Section 8.2 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application and (ii) the Holders of at least a majority in principal amount of
the then outstanding Securities so request by written notice to the Trustee, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.1 until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.2.
ARTICLE 9
AMENDMENTS
Section 9.1 Without Consent of Holders.
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The Company and the Trustee may amend this Indenture, the Securities or the
other Documents without the consent of any Securityholder:
(1) to comply with Section 5.1;
(2) to comply with any requirements of the SEC in connection with the
qualification or requalification of this Indenture under the TIA;
(3) to cure an ambiguity; or
(4) to provide for uncertificated Securities in addition to
certificated Securities.
Within five (5) days after an amendment under this Section becomes
effective, the Company shall mail to Securityholders and the Trustee a notice
briefly describing the amendment.
Section 9.2 With Consent of Holders.
Subject to Section 6.7, the Company and the Trustee may amend this
Indenture, the Securities or any other Document with the written consent of the
Holders of at least a majority in principal amount of the then outstanding
Securities. Subject to Sections 6.4 and 6.7, the Holders of a majority in
principal amount of the Securities then outstanding may also waive compliance in
a particular instance by the Company with any provision of this Indenture or the
Securities or any other Document.
However, without the consent of each Securityholder affected, an amendment
or waiver under this Section may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment or waiver;
(2) reduce the rate of or change the time for payment of interest on
any Security;
(3) reduce the principal of or change the fixed maturity of any
Security or alter the redemption provisions with respect thereto;
(4) make any Security payable in money other than that stated in the
Security;
(5) make any change in Section 6.4, 6.7 or 9.2 (this sentence); or
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(6) waive a default in the payment of the principal of, or interest or
premium on, any Security.
To secure a consent of the Holders under this Section it shall not be
necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
Within five (5) days after an amendment or waiver under this Section
becomes effective, the Company shall mail to Securityholders and the Trustee a
notice briefly describing the amendment or waiver.
Section 9.3 Compliance with Trust Indenture Act.
From the date on which this Indenture is qualified under the TIA, every
amendment, waiver or supplement under this Indenture or the Securities shall
comply with the TIA as then in effect.
Section 9.4 Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a Holder
of a Security is a continuing consent by the Holder and every subsequent Holder
of a Security or portion of a Security that evidences the same Indebtedness as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of a Security if the Trustee receives
notice of revocation before the date on which the Trustee receives an Officer's
Certificate certifying that the Holders of the requisite principal amount of
Securities have consented to the amendment or waiver (or before such later date
as may be required by law or stock exchange rule).
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph, those Persons who were Holders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No consent shall be valid or effective for more than 90 days after
such record date unless consents from Holders of the principal amount of
Securities required hereunder for such amendment or waiver to be
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effective shall have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Securityholder, unless it is of the type described in any of clauses (1) through
(6) of Section 9.2. In such case, the amendment or waiver shall bind each Holder
of a Security who has consented to it and every subsequent Holder of a Security
that evidences the same debt as the consenting Holder's Security.
Section 9.5 Notation on or Exchange of Securities.
The Trustee may place an appropriate notation about an amendment or waiver
on any Security thereafter authenticated. The Company in exchange for all
Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
Section 9.6 Trustee Protected.
The Trustee shall sign all supplemental indentures, except that the Trustee
need not sign any supplemental indenture that adversely affects its rights. The
Trustee may request an opinion of Counsel and an Officer's Certificate stating
that such supplemental indenture is permitted hereunder and all conditions
precedent have been complied with in the form set forth in Sections 10.4, 10.5,
11.4 and 11.5.
ARTICLE 10
SUBORDINATION
Section 10.1 Securities Subordinated to Senior Indebtedness.
The Company agrees, and each Holder by accepting a Security agrees, that
the Indebtedness evidenced by the Securities, including for all purposes of this
Article 10, all repurchase and redemption obligations with respect to the
Securities, is subordinated in right of payment, to the extent and in the manner
provided in this Article 10, to the prior payment in full of all existing and
future Senior Indebtedness and that the subordination is for the benefit of and
enforceable by the holders of Senior Indebtedness, and authorizes and directs
the Trustee to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination as provided in this Article 10 and
appoints the Trustee as attorney-in-fact for any and all such purposes.
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Only Indebtedness of the Company which is Senior Indebtedness shall rank
senior to the Securities in accordance with the provisions set forth herein. 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. This Article 10 shall remain in full force
and effect as long as any Senior Indebtedness is outstanding.
Section 10.2 Liquidation; Dissolution; Bankruptcy.
Upon any payment or distribution, whether of cash, securities or other
property, to creditors of the Company in a liquidation (total or partial),
reorganization or dissolution of the Company, whether voluntary or involuntary,
or in a bankruptcy, reorganization, insolvency, receivership, assignment for the
benefit of creditors, marshalling of assets
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or similar proceeding relating to each of the Company or its properties:
(1) holders of Senior Indebtedness shall be entitled to receive
payment in full, in cash or cash equivalents, of such Senior Indebtedness
before Holders shall be entitled to receive from the Company any payment of
principal of, or interest on, or any other distribution with respect to,
the securities; and
(2) until the Senior Indebtedness is paid in full as provided in
clause (1) above, any distribution to which Holders would be entitled from
the Company but for this Article 10 shall be made to the holders of Senior
Indebtedness as their interests may appear;
in each case except that Holders may receive shares of stock and debt securities
that are subordinated to Senior Indebtedness to at least the same extent and
pursuant to the same or more stringent terms as are the Securities.
Upon any distribution of assets of the Company referred to in this
Section 10.2, the Trustee and the Holders shall be entitled to rely upon
any order or decree of a court of competent jurisdiction in which such
bankruptcy, reorganization, insolvency, receivership, assignment for the
benefit of creditors, marshalling of assets or similar proceedings are
pending, or a certificate of the liquidating trustee or agent or other such
person making any distribution to the Trustee or to the Holders, for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Indebtedness, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Section 10.2. The Trustee shall be
entitled to rely on the delivery to it of a written notice by a person
representing himself to be a holder of Senior Indebtedness or a
Representative, as the case may be, to establish that such notice has been
given by a holder of Senior Indebtedness or a Representative, as the case
may be. In the event that the Trustee determines, in good faith, that
further evidence is required with respect to the right of any person, as a
holder of Senior Indebtedness, to participate in any payment or
distribution pursuant to this Section 10.2, the Trustee may request such
person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of such Senior Indebtedness held by such person, as to the
extent to which such person is entitled to participation in such payment or
distribution and as to other facts pertinent to the rights of such person
under this Section 10.2, and, if such evidence is
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not furnished, the Trustee may defer any payment to such person (or to the
Securityholder) pending judicial determination as to the right of such person to
receive such payment.
Section 10.3 Default on Senior Indebtedness.
During the continuance of any event of default with respect to Senior
Indebtedness pursuant to which the maturity of such Senior Indebtedness may
be accelerated immediately without further notice (except such notice as
may be required to effect such acceleration), upon the occurrence of
receipt by the Trustee of written notice from the Representative with
respect to, or the holders of at least a majority in aggregate principal
amount of, such Senior Indebtedness then outstanding, no direct or indirect
payment may be made by the Company upon or in respect of the Securities for
a period (a "Payment Blockage Period") commencing on the earlier of the
date of receipt of such notice by the Trustee or the date of such
acceleration and ending 120 days thereafter (unless such Payment Blockage
Period shall be terminated by written notice to the Trustee from such
Representative or such holders). Not more than one Payment Blockage Period
in the aggregate may be commenced with respect to the Securities during any
period of 360 consecutive days, irrespective of the number of defaults with
respect to Senior Indebtedness during such period. In no event will a
Payment Blockage Period extend beyond 119 days from the date such payment
upon or in respect of the Securities was due; and there must be 180 days in
any 360-day period in which no Payment Blockage Period is in effect as to
the Company. For all purposes of this Section 10.3, no default or event of
default which existed or was continuing on the date of the commencement of
the Payment Blockage Period with respect to the Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis for
the commencement of a subsequent Payment Blockage Period by the
Representative or requisite holders of such Senior Indebtedness whether or
not within a period of 360 consecutive days unless such default or event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
Section 10.4 When Distribution Must Be Paid Over.
In the event that the Company shall make any payment to the Trustee
pursuant to the Securities at a time when such payment is prohibited by Section
10.2 or 10.3, such payment shall be held by the Trustee, 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
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the basis of the respective amounts of Senior Indebtedness held by them) or
their Representatives, as their respective interests may appear, for application
to the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in full in accordance with its terms,
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness.
If a distribution is made to Holders that because of this Article 10 should
not have been made to them, the Holders who receive the distribution shall hold
it in trust for holders of Senior Indebtedness and pay it over to them as their
interests may appear.
Section 10.5 Notice by Company.
The Company shall promptly notify the Trustee and any Paying Agent by an
appropriate Officer's Certificate of the Company delivered to a Trust Officer
and the Paying Agent of any facts known to the Company that would cause a
payment under the Securities of principal of or interest on the Securities to
violate this Article 10, but failure to give such notice shall not affect the
subordination of the Securities to the Senior Indebtedness provided in this
Article 10.
Section 10.6 Subrogation.
After all Senior Indebtedness is paid in full and all commitments to
advance Senior Indebtedness have been terminated, and until the Securities are
paid in full pursuant to the Securities and this Indenture or otherwise, Holders
shall be subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness to the extent that distributions
otherwise payable to Holders have been applied to payment of Senior
Indebtedness. A distribution made under this Article 10 to holders of Senior
Indebtedness which otherwise would have been made to Holders is not, as between
the Company and the Holders, a payment by the Company on Senior Indebtedness.
Section 10.7 Relative Rights.
This Article 10 defines the relative rights of Holders and holders of
Senior Indebtedness. Nothing in this Indenture (but subject to the provisions of
paragraph 5 of the Securities) shall:
(1) impair, as between the Company and the Holders, the obligation of
the Company, which is absolute
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and unconditional, to pay principal of and interest on the Securities in
accordance with their terms;
(2) affect the relative rights of Holders and creditors of the Company
other than such creditors as are holders of Senior Indebtedness;
(3) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default subject to the rights of
holders of Senior Indebtedness to receive distributions otherwise payable
to Holders; or
(4) create or imply the existence of any commitment on the part of the
holders of Senior Indebtedness to extend credit to the Company other than
as set forth in the terms governing such Senior Indebtedness.
Section 10.8 Subordination May Not Be Impaired by Company.
No right of any present or future holder of Senior Indebtedness to enforce
the subordination of the Indebtedness evidenced by the Securities and the
Guaranties and this Article 10 shall be impaired by any act or failure to act by
the Company or anyone in custody of its assets or property or by its failure to
comply with this Indenture.
Section 10.9 Distribution or Notice to Representatives.
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representatives, if any.
Section 10.10 Rights of Trustee and Paying Agent.
Notwithstanding Section 10.2 or 10.3, the Trustee or any Paying Agent may
continue to make payments of principal of or interest on the Securities unless,
in the case of the Trustee, a Trust Officer or, in the case of a Paying Agent
other than the Trustee, an officer of such Paying Agent, shall have received, at
least three Business Days prior to the date such payments are due and payable,
written notice of the occurrence of an event under Section 10.2 or 10.3 and that
any payment under the Securities would violate this Article 10. Only the Company
or a Representative with respect to or holders of a least a majority in
principal amount of an issue of Senior Indebtedness may give such notice.
Nothing
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contained in this Section 10.10 shall limit the right of any holder of Senior
Indebtedness to recover payments as contemplated by Section 10.4.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. The Trustee shall be entitled to all the
rights set forth in this Article 10 with respect to Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness; and nothing in Article 7 shall deprive the Trustee of any of its
rights as such holder, except as otherwise provided by the TIA.
Section 10.11 Trustee Entitled to Assume Payments Not Prohibited in Absence
of Notice.
Notwithstanding any of the provisions of this Article 10 or any other
provision of this Indenture, unless a Trust Officer has received a written
notice pursuant to Section 10.10, the Trustee shall not at any time be charged
with knowledge of the existence of any facts which would prohibit the making of
any payment to or by the Trustee, and in the absence of such written notice the
Trustee may make such payment without liability or obligation to the Senior
Indebtedness.
Section 10.12 Application by Trustee of Monies Deposited With It.
Nothing contained in this Article 10 or elsewhere in this Indenture, or in
the Securities, shall (i) affect the obligation of the Company to make, or
prevent the Company from making, at any time except as specified in Section 10.2
or 10.3 to the extent provided therein, payments at any time pursuant to the
Securities, (ii) prevent the application by the Trustee or any Paying Agent of
any monies or the proceeds of any U.S. Government Obligations received from the
Company and held by the Trustee or such Paying Agent in trust for the benefit of
the Holders of Securities as to which notice of redemption shall have been
given, to the payment of or on account of the principal of or interest on the
Securities if, at the time such notice was given, a payment by the Company under
the Securities would not have been prohibited by the foregoing provisions of
this Article 10 or (iii) prevent the application by the Trustee or any Paying
Agent of any monies or the proceeds of any U.S. Government Obligations deposited
with it by the Company under Article B hereof to the payment of or on account of
the principal of or interest on the Securities if, at the time of such deposit,
a payment by the
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Company under the Securities would not have been prohibited by the foregoing
provisions of this Article 10.
Section 10.13 Trustee's Compensation Not Prejudiced.
Nothing in this Article 10 shall apply to claims of, or payments to, the
Trustee pursuant to Section 7.7.
Section 10.14 Officer's Certificate.
If there occurs any event referred to in Section 10.2, the Company, as the
case may be, shall promptly give to the Trustee an Officer's Certificate (on
which the Trustee may conclusively rely) identifying all holders of Senior
Indebtedness and the principal amount of Senior Indebtedness then outstanding
held by each such holder and stating the reasons why such Officer's Certificate
is being delivered to the Trustee.
Section 10.15 Certain Payments.
Nothing in this Article 10 shall prevent or delay (i) the Company from or
in redeeming any Securities pursuant to Sections 4.13 or 4.28 of this Indenture
or paragraph 1(d) or (f) of the Securities or (ii) the receipt by the Holders of
payments of principal of and interest on the Securities as provided in Section
8.2.
Section 10.16 Names of Representatives.
The Company shall from time to time, upon request of the Trustee, provide
to the Trustee an Officer's Certificate setting forth the name and address of
each Representative of all outstanding Senior Indebtedness.
Section 10.17 Article 10 Not To Prevent Events of Default or Limit Right To
Accelerate.
The failure to make a payment pursuant to the Securities by reason of any
provision in this Article 10 shall not be construed as preventing the occurrence
of a Default. Nothing in this Article 10 shall have any effect on the right of
the Holders or the Trustee to accelerate the maturity of the Securities.
Section 10.18 Reliance by Holders of Senior Indebtedness on Subordination
Provisions.
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Each Holder by accepting a Security acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Indebtedness, whether such
Senior Indebtedness was created or acquired before or after the issuance of the
Securities, to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively
to have relied on such subordination provisions in acquiring and continuing to
hold, or in continuing to hold, such Senior Indebtedness. No provision in any
supplemental indenture which modifies this Article 10 in any manner adverse to
the holders of Senior Indebtedness shall be effective against the holders of
Senior Indebtedness who have not consented thereto in accordance with the
provisions of the documents governing such Senior Indebtedness.
Section 10.19 Proof of Claim.
In the event that the Company is subject to any proceeding under any
Bankruptcy Law and the Holders and the Trustee fail to file any proof of claim
permitted to be filed in such proceeding with respect to the Securities, then
any Representative of Senior Indebtedness may file such proof of claim no
earlier than the later of (i) the expiration of 15 days after such
Representative notifies the Trustee of its intention to do so and (ii) 30 days
preceding the last day permitted to file such claim.
Section 10.20 No Fiduciaries Duty to Holders of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee undertakes
to perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and, subject to the
provisions of Article 7, the Trustee shall not be liable to any holder of Senior
Indebtedness if it shall mistakenly pay over or deliver to Holders, the Company
or any other person, monies or assets to which any holder of Senior Indebtedness
shall be entitled by virtue of this Article 10 or otherwise.
ARTICLE 11
MISCELLANEOUS
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Section 11.1 Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
Section 11.2 Notices.
Any notice or communication by the Company or the Trustee to any of the
others is duly given if in writing and delivered in Person or mailed by
first-class mail to the others' addresses stated in Section 11.10. The Company
or the Trustee by notice to the others may designate additional or different
addresses for subsequent notices or communications.
Any notice or communication to a Securityholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Securityholder or any defect in
it shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives lt.
If the Company mails a notice or communication to Securityholders, it shall
mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
Section 11.3 Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
Section 11.4 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or any other obligor to the
Trustee to take any action under this Indenture, the Company or any other
obligor, as the case may be, shall furnish to the Trustee:
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(a) an Officer's Certificate stating that, in the opinion of the
signer, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 11.5 Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
Section 11.6 Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 11.7 Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in the State of New York are not required to be open. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
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Section 11.8 Counterparts.
This Indenture may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
Section 11.9 Variable Provisions.
"Officer" means the Chairman of the Board, the President, the Executive
Vice President, any Vice President, the Chief Financial Officer, the Treasurer,
the Secretary, any Assistant Treasurer or any Assistant Secretary of the Company
or a subsidiary thereof, as the context may indicate.
The Company initially appoints the Trustee as Paying Agent, Registrar and
authenticating agent.
The first certificate pursuant to Section 4.3 shall be for the first fiscal
year of each of the Company ending on or after the date of this Indenture.
The reporting date for Section 7.6 is May 15 of each year. The first
reporting date is May 15, 1997.
The Trustee shall always have a combined capital and surplus (including
subordinated capital notes) of at least $25,000,000 as set forth in its most
recent published annual report of condition.
The Company's address is:
2405 Trade Centre Avenue
Longmont, Colorado 80503
Attention: Richard A. Schneider
Executive Vice President
The Trustee's address is:
First Trust National Association
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Richard H. Prokosch
Section 11.10 Governing Law.
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THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE AND THE
SECURITIES, WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS THEREOF.
Section 11.11 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any of its subsidiaries. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
Section 11.12 Successors.
All agreements of the Company in this Indenture and the Securities shall
bind their respective successors. All agreements of the Trustee in this
Indenture shall bind its successor.
Section 11.13 Severability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.14 Qualification of Indenture.
The Company shall qualify this Indenture under the TIA in accordance with
the terms and conditions of the Securities and shall pay all costs and expenses
(including attorneys' fees for the Company, the Trustee and the Holders of the
Securities) incurred in connection therewith, including, but not limited to,
costs and expenses of qualification of the Indenture and the Securities and
printing this Indenture and the Securities. In connection with any such
qualification of this Indenture under the TIA, the Trustee shall be entitled to
receive from the Company any such Officers' Certificates, opinions of Counsel or
other documentation as it may reasonably request.
Section 11.15 Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
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ARTICLE 12
CONVERSION
Section 12.1 Conversion of the Note.
The Holder 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 for each $1,000 face amount of Notes,
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 Notes in accordance with this
Section 12, and the Holder shall promptly surrender its 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.
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 the Notes. 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 the Notes. Nothing contained in
this paragraph shall authorize the payment of interest to the Holder when the
terms of the Notes otherwise prohibit the same.
The occurrence of any of the events shall trigger an adjustment from time
to time to the Conversion Price and the number of shares of Common Stock into
which the Notes 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
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included within the meaning of the term "successor corporation") shall be
effected, at any time while the Notes remain 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 the
Notes thereafter shall have the right to receive upon the conversion of the
Notes as provided in this Section 12 and in lieu of the shares of Common Stock
immediately theretofore issuable upon the conversion of the Notes, 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 the Notes had such recapitalization, reclassification,
merger, consolidation, sale or transfer not taken place, and in each such case,
the terms of this Indenture and the Notes shall be applicable to the shares of
stock or other securities or property receivable upon the conversion of the
Notes after such consummation.
(b) Subdivision or Combination of Shares. If the Company at any time while
the Notes remain 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 the
Notes are 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 12(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 the Notes been converted immediately prior thereto.
(d) Stock and Rights Offering to Shareholders. If at any time after the
date of issuance of the Notes, 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
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date, (A) the Conversion Price shall be adjusted in accordance with Section
12(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 the Notes
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
Holders upon conversion of the Notes so that, in addition to the shares of
Common Stock to which such Holders are entitled, such Holders will receive upon
such exercise the amount and kind of such Securities which such Holders would
have received if the Holders had, immediately prior to the record date for the
distribution of the Securities, converted the Notes.
(e) Conversion Price Adjustment. Whenever the number of Conversion Shares
is adjusted, as herein provided, the Conversion Price payable upon the
conversion of the Notes 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.
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(f) 1996 EBITDA Adjustment. The Conversion Price shall additionally be
adjusted in the following circumstances:
(a) if the Company shall achieve 1996 EBITDA in an amount of less than
$6,000,000, the Conversion Price shall be reduced to $1.50 per share; and
(b) 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 to the Notes 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 12 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 12 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 12, the new adjusted Conversion Price and number of
Conversion Shares
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shall remain in effect until a further computation or readjustment thereof is
required.
Section 12.2 Reservation. The Company hereby agrees that at all times there
shall be reserved for issuance upon the conversion of the Notes such number of
shares of its Common Stock as shall be required for issuance upon conversion of
the Notes. The Company further agrees that all shares which may be issued upon
the conversion of the rights represented by the Notes 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 respect of any transfer occurring contemporaneously with such issuance
and other than transfer restrictions imposed by federal and state securities
laws.
Section 12.3 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 the Notes as soon as practicable after surrender of the Notes 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 the Notes are surrendered. Except as described above, the Notes are not
otherwise convertible into shares of Common Stock. Upon conversion of only a
portion of the Notes, the Trustee 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 the 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 the Note had not been surrendered
for conversion.
[signature page follows]
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first written above.
NAI TECHNOLOGIES, INC.
By_________________________
Attest:
___________________________ (SEAL)
FIRST TRUST NATIONAL ASSOCIATION
Trustee
By_________________________
Attest:
___________________________ (SEAL)
EXHIBIT A
CUSIP No. 62872H 11 5
No. _____ $__________
NAI TECHNOLOGIES, INC.
12% CONVERTIBLE SUBORDINATED PROMISSORY NOTE
Maturity Date: January 15, 2001
THIS NOTE AND THE COMMON STOCK THAT MAY BE ISSUABLE TO THE HOLDER HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE
WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
FOR VALUE RECEIVED, NAI TECHNOLOGIES, INC., a New York corporation (the
"Company"), promises to pay to ______________________, the registered holder or
registered assigns hereof (the "Holder"), the principal amount of _____________
Dollars ($_________) 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.
I. Payments and Prepayments.
(1) Payments of principal and interest on this Note shall be made at
the principal office of the Trustee, located at 180 East Fifth Street, St. Paul,
Minnesota 55101, 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.
(2) Payments of principal and interest on this Note shall be made in
lawful money of the United States of America by mailing the Trustee'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.
(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.
(4) 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.
(5) 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.
(6) 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.
II. 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.
III. 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.
IV. Subordination. (1) 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
2
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.
(2) 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.
(3) 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 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;
3
(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.
(4) 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.
(5) 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
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.
(6) 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.
(7) 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
4
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.
(8) 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.
(9) 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 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.
V. 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:
(1) 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;
5
(2) until all Senior Indebtedness is indefeasibly paid in full in cash
any distribution to which the Holder would be entitled but for this Section 5
shall be made to holders of Senior Indebtedness; and
(3) 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.
VI. 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.
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"):
(1) Recapitalization, Reclassification and Succession. If any
recapitalization of the Company or reclassification of its Common Stock or any
merger or
6
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.
(2) 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.
(3) 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.
(4) 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
7
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.
(5) 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.
(6) 1996 EBITDA Adjustment. The Conversion Price shall additionally be
adjusted in the following circumstances:
(a) 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
(b) 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.
(7) 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.
8
(8) 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.
(9) 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.
(10) 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 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.
VII. Notices to Holders.
(1) 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;
9
(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 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.
(2) 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.
VIII. 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.
10
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.
IX. 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:
(1) 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 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.
(2) 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.
(3) 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.
(4) 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
11
contested in good faith by appropriate proceedings (if the Company shall have
set aside on its books adequate reserves therefor).
(5) 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.
(6) 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 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.
(7) 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.
(8) 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.
(9) 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.
(10) 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
12
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).
(11) 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.
(12) 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.
X. Events of Default. (1) 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
13
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 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.
(2) At any time before the date of any declaration accelerating the
maturity of this Note: (a) 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 (b) 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
14
specifying the Event or Events of Default being waived and shall be binding on
all existing or subsequent holders of outstanding Notes.
XI. Certain Consequences Upon Default.
(1) 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 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.
(2) 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
15
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 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.
(3) 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.
XII. Investment Representations.
(1) 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
16
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 time be within its control.
(2) 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
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.
(3) 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
17
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.
(4) 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.
XIII. Definitions. As used herein, unless the context otherwise requires,
the following terms have the respective meanings:
(1) "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.
(2) "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.
18
(3) "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.
(4) "Consolidated Net Income": the net income (or deficit) of the
Company and its Subsidiaries for any period (taken as a cumulative whole) after
deducting, 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 (a) 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, (b) 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, (c) any deferred credit or amortization thereof from the
acquisition of any properties of assets of any other Person, (d) 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), (e) any income
resulting from the write-up of assets after the date hereof, (f) any gains
properly classified as extraordinary in accordance with GAAP, (g) proceeds of
life insurance policies to the extent such proceeds exceed premiums paid to
maintain such life insurance policies, (h) any income of a Subsidiary which is
unavailable for the payment of dividends, and (i) 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.
(5) "GAAP": United States generally accepted accounting principles,
consistently applied.
(6) "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
19
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, (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.
(7) "Lien": any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind whatsoever.
(8) "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, (a) 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; (b) current and
deferred taxes on income and profit; (c) depreciation; and (d) amortization.
(9) "Notes": the meaning specified in the introduction of this Note.
(10) "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;
20
(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
$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.
(11) "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
21
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.
(12) "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.
(13) "Senior Indebtedness": the meaning specified in Section 4(a)
hereof.
(14) "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.
XIV. Notices.
(1) 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.
(2) 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.
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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.
XV. 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 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,
(1) change: (a) the maturity of the principal of, or any installment
of interest on, any Note; or (b) the coin or currency in which the
principal of or interest on any Note is payable;
(2) reduce the principal amount thereof or the interest rate thereon;
(3) increase the Conversion Price thereof; or
(4) 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
XVI. Miscellaneous.
(1) Contemporaneously with the execution and delivery hereof, the
Company has issued to the Holder a detachable warrant representing the right to
purchase 250
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shares of Common Stock at a exercise price equal to $2.50 per share of Common
Stock, subject to adjustment in certain events.
(2) 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.
(3) 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, all such liability, by the
acceptance hereof, and as part of the consideration hereof, being expressly
waived.
(4) 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.
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(5) 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
15th day of February 1996.
NAI TECHNOLOGIES, INC.
By:
--------------------------------
Richard A. Schneider
Executive Vice President,
Treasurer and Secretary
Certificate of Authentication:
This is one of the 12% Convertible
Subordinated Promissory Notes due 2001
referred to in the Indenture dated as
of July 15, 1996 between NAI Technologies,
Inc. and First National Trust Association,
as Trustee.
FIRST NATIONAL TRUST ASSOCIATION, as Trustee
By:
---------------------------
Authorized Officer
Authentication Date
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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
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