FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997.
Commission File Number 0-10772
ESSEX CORPORATION
(Exact name of small business issuer as specified in its charter)
Virginia 54-0846569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9150 Guilford Road, Columbia, Maryland 21046-1891
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (301) 939-7000
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
State the number of shares outstanding of each of the issuer's class of Common
Stock as of the latest practicable date.
Outstanding
Class at June 29, 1997
Common Stock, par value $0.10 per share 3,626,098
Transitional Small Business Disclosure Format (Check One);
YES NO X
<PAGE>
ESSEX CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments for a fair presentation of results for such
period. The results of operations for any interim period are not necessarily
indicative of results for the full year. These financial statements should be
read in conjunction with the financial statements and notes thereto contained in
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
29, 1996.
2
<PAGE>
ESSEX CORPORATION
<TABLE>
BALANCE SHEETS
<CAPTION>
June 29, December 29,
1997 1996
(unaudited) (unaudited)
ASSETS
Current Assets
<S> <C> <C>
Cash $ 781,865 $ 1,507,603
Accounts receivable, net 417,763 431,870
Inventory 781,006 482,317
Prepayments and other 26,910 115,735
Net current assets of discontinued operations 42,797 60,777
2,050,341 2,598,302
Property and Equipment
Production and special equipment 1,016,458 1,014,201
Furniture, equipment and other 849,660 831,740
1,866,118 1,845,941
Accumulated depreciation and amortization (1,530,442) (1,396,475)
335,676 449,466
Other Assets
Net noncurrent assets of discontinued operations 1,176,833 1,196,111
Patents, net 176,625 169,657
Goodwill, net 114,579 144,486
Deferred debenture financing 91,863 104,880
Other 31,092 45,587
1,590,992 1,660,721
TOTAL ASSETS $ 3,977,009 $ 4,708,489
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
3
<PAGE>
ESSEX CORPORATION
<TABLE>
BALANCE SHEETS
<CAPTION>
June 29, December 29,
1997 1996
(unaudited) (unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
<S> <C> <C>
Current portion of capital leases $ 82,285 $ 82,284
Bank line of credit 406,890 900,000
8% Convertible notes payable 230,000 --
Accounts payable 611,593 278,284
Accrued wages and vacation 172,615 156,064
Deferred revenues and loss reserves 20,000 265,000
Accrued lease settlement 299,551 308,237
Refundable deposit on sale of discontinued operations 200,000 --
Other accrued expenses 630,520 495,521
2,653,454 2,485,390
Long-term Debt
10% Collateralized Convertible Debentures Due 2000 1,400,000 1,400,000
Capital leases, net of current portion 57,534 94,030
Redeemable Preferred Stock - Series A 120,000 --
Total Liabilities 4,230,988 3,979,420
Commitments and Contingencies (Note 4)
Stockholders' Equity (Deficit)
Common stock, $0.10 par value; 25 million shares
authorized; 3,626,098 and 3,625,098 shares issued
and outstanding for 1997 and 1996, respectively 362,610 362,510
Contributions in excess of par value 5,316,308 5,313,888
Retained deficit (5,932,897) (4,947,329)
(253,979) 729,069
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 3,977,009 $ 4,708,489
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
4
<PAGE>
ESSEX CORPORATION
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE TWENTY-SIX WEEK PERIODS
ENDED JUNE 29, 1997 AND JUNE 30, 1996
<CAPTION>
1997 1996
(unaudited) (unaudited)
<S> <C> <C>
Revenues $ 2,064,476 $ 2,134,280
Cost of goods sold and services provided (1,003,048) (1,416,872)
Engineering and product development expenses (389,056) (341,255)
Selling, general and administrative expenses (1,440,417) (1,836,481)
Operating Loss (768,045) (1,460,328)
Gain on settlement of lawsuit,
net of related expenses of $1,773,578 in 1996 -- 2,226,422
Lease settlement -- (250,000)
Interest expense (116,550) (85,129)
Income (Loss) from Continuing Operations
Before Income Taxes (884,595) 430,965
Provision for income taxes -- (254,300)
Income (Loss) from Continuing Operations (884,595) 176,665
Income (Loss) from Discontinued Operations (Note 8) (100,973) 377,778
Net Income (Loss) $ (985,568) $ 554,443
Weighted Average Number of Shares
Outstanding 3,626,005 3,608,628
Primary Earnings (Loss) Per Share
Continuing Operations $ (0.24) $ 0.05
Discontinued Operations (0.03) 0.10
$ (0.27) $ 0.15
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
5
<PAGE>
ESSEX CORPORATION
<TABLE>
STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEK PERIODS
ENDED JUNE 29, 1997 AND JUNE 30, 1996
<CAPTION>
1997 1996
(unaudited) (unaudited)
<S> <C> <C>
Revenues $ 890,797 $ 1,028,615
Cost of goods sold and services provided (429,184) (510,116)
Engineering and product development expenses (174,102) (183,755)
Selling, general and administrative expenses (615,938) (907,710)
Operating Loss (328,427) (572,966)
Interest expense (64,398) (39,577)
Loss from Continuing Operations
Before Income Taxes (392,825) (612,543)
Provision for income taxes -- --
Loss from Continuing Operations (392,825) (612,543)
Income (Loss) from Discontinued Operations (Note 8) (134,194) 96,343
Net Loss $ (527,019) $ (516,200)
Weighted Average Number of Shares
Outstanding 3,626,098 3,624,081
Primary Earnings (Loss) Per Share
Continuing Operations $ (0.11) $ (0.17)
Discontinued Operations (0.04) 0.03
$ (0.15) $ (0.14)
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
6
<PAGE>
ESSEX CORPORATION
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIODS
ENDED JUNE 29, 1997 AND JUNE 30, 1996
<CAPTION>
1997 1996
(unaudited) (unaudited)
Cash Flows From Operating Activities:
<S> <C> <C>
Net Income (Loss) $ (985,568) $ 554,443
Adjustments to reconcile Net Income (Loss) to Net Cash
(Used In) Provided By Operating Activities:
Depreciation and amortization 139,558 255,751
Provision for contract reserves -- 250,000
Gain on sale/retirement of fixed assets (4,554) (850)
Change in Assets and Liabilities:
Accounts receivable 14,107 179,632
Inventory (298,689) (137,564)
Prepayments and other assets 91,258 (5,224)
Goodwill -- 204,299
Accounts payable 333,309 (207,640)
Accrued lease settlement (8,686) (70,109)
Other liabilities (93,450) 71,680
Non-cash charges and working capital
changes of discontinued operations 44,661 229,023
Net Cash (Used In) Provided By Operating Activities (768,054) 1,323,441
Cash Flows From Investing Activities:
Purchases of property and equipment (4,595) (81,770)
Proceeds from sale of fixed assets 5,909 798
Net Cash Provided By (Used In) Investing Activities 1,314 (80,972)
Cash Flows From Financing Activities:
Short-term borrowings (repayments), net (493,110) (240,010)
Issuance of convertible notes payable 230,000 --
Issuance of preferred stock 120,000 --
Deposit on sale of operations 200,000 --
Issuance of convertible debentures, net of financing costs 26,134 756,614
Proceeds from exercises of stock options 2,520 100,315
Payment of capital lease obligations (44,542) (131,352)
Net Cash Provided By Financing Activities 41,002 485,567
Cash and Cash Equivalents
Net increase (decrease) (725,738) 1,728,036
Balance - beginning of period 1,507,603 822,065
Balance - end of period $ 781,865 $ 2,550,101
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
7
<PAGE>
ESSEX CORPORATION
NOTES TO INTERIM FINANCIAL INFORMATION
NOTE 1: General
Fiscal Year and Presentation
Essex Corporation (the "Company") is on a 52-week fiscal year ending the last
Sunday in December. Certain amounts for 1996 have been reclassified to conform
to the 1997 presentation.
New Accounting Pronouncements
Statements of Financial Accounting Standards No. 128, "Earnings Per Share" and
No. 129 "Disclosure of Information about Capital Structure" are effective for
periods ending after December 15, 1997. The information required will be
provided in the Company's 1997 year end financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Important Business Risk Factors
Historically the Company has been principally a supplier of technical services
under contracts or subcontracts with departments or agencies of the U.S.
Government, primarily the military services and other departments and agencies
of the Department of Defense.
Beginning in 1989, the Company has expended significant funds to transition into
the commercial marketplace, particularly the productization of its proprietary
technologies in optoelectronic processors. The long-term success of the Company
in this area is dependent on its ability to successfully develop and market
products related to its optoelectronic processors. The success of these efforts
is subject to changing technologies, availability of financing, competition, and
ultimately market acceptance.
The Company has incurred significant losses since 1989, primarily due to the
development and marketing of its optoelectronics products and services. The
Company has also experienced difficulty in sustaining and expanding revenue
volume in certain areas of the technical services business. The optoelectronics
products and services business is currently experiencing net cash expenditures
(including all general and administrative expenses) over receipts of
approximately $100,000 per month. The Company has taken steps to increase
revenue volume and reduce expenditures. If current conditions remain unchanged,
the Company would not be able to sustain its business without additional working
capital or further cost reductions.
8
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ESSEX CORPORATION
The Company has addressed the current working capital shortfall by selling the
majority of its technical services operations. In addition, the Company has
placed its Huntsville, Alabama facility for sale. However, the proceeds from the
sale of the Huntsville facility would be restricted as to the use of the funds
as the facility currently serves as a portion of the collateral on the
convertible debentures. One arrangement for the sale of certain operations was
closed in early August and another arrangement is in the process of being
definitized.
The Company continues to seek additional funds from private financing sources to
finance operations and to achieve desired product inventory levels and initial
market penetration. The Company is also seeking to establish joint ventures or
strategic partnerships with major industrial concerns to facilitate these goals.
Significant further delays in the commercialization of the Company's
optoelectronic products or failure to raise substantial additional working
capital and to commercialize such optoelectronic products would have a
significant adverse effect on the Company's future operating results and future
financial position.
The current receivable financing arrangement expires August 31, 1997 (see Note
3). While the Company believes the financing arrangement should be renewed,
terms and conditions of succeeding agreements may change. If the current
arrangement is not renewed, the Company will need to obtain financing from other
sources to finance its operations.
NOTE 2: Net Income (Loss) Per Share
Net income (loss) per share has been calculated by dividing net income (loss) by
the weighted average number of shares outstanding during each period. Common
stock equivalents were excluded from the computation of primary earnings per
share for 1997 because their effect was antidilutive or immaterial.
NOTE 3: Accounts Receivable Financing
The Company has a receivables financing arrangement with Signet Bank. This
arrangement is evidenced by a Loan Agreement, $1.0 million Promissory Note and
Commercial Security Agreement ("Agreements"). Under the Agreements, the Bank
will advance funds against certain accounts receivable. The funds advanced
($406,890 at June 29, 1997 and $900,000 at December 29, 1996) constitute
proceeds under the note which currently bears interest at an annual rate of
prime plus 4.0% (previously 1.5% over prime through May 30, 1997; total rate
approximately 12.50% at June 29, 1997 and 9.75% at December 29, 1996). The
maximum borrowings available based upon the level of accounts receivable were
approximately $412,000 at June 29, 1997 and $1,308,000 at December 29, 1996. The
Company must also pay certain administrative and commitment fees which are
expected to be less than $1,000/month. This agreement expires August 31, 1997.
This $1.0 million line of credit is secured by all accounts receivables and
certain general intangibles (excluding patents). The Company is subject to
certain restrictions, such as acquisitions or mergers; or creation or incurrence
of new debt. Such restrictions were waived by the Bank in connection with the
issuance of the Company's convertible debentures, preferred stock, 8% notes
payable and divestiture of operations.
9
<PAGE>
ESSEX CORPORATION
NOTE 4: Commitments and Contingencies
Lease Settlement
Effective July 1994, the Company settled a legal dispute with a former landlord.
Under the remaining terms of the Settlement Agreement ("Agreement"), the Company
agreed to make contingent cash payments of 25% of future earnings (as defined)
and 10-15% of the net proceeds from the sale of common stock or operating
assets, the total of such payments not to exceed $550,000. The Company also
issued an option to purchase up to 125,000 shares of the Company's stock at an
exercise price (subject to adjustment) of $2 per share. The option is
exercisable through December 31, 2004 and has certain registration rights upon
exercise of the option.
The contingent amounts due are to be paid quarterly. The period for computation
of such contingent payments ends December 2004. The $300,000 accrual as of June
29, 1997 represents the remaining contingent portion which is probable to be
paid over the applicable consideration period.
In accordance with the Agreement, the Company agreed to pay 20% (not to exceed
$250,000) from the settlement from the lawsuit described below. As this legal
proceeding was favorably concluded in 1996, the amount payable of $250,000 to
the former landlord was expensed in the first quarter of 1996 and paid in April
1996.
Legal Proceeding
In 1996, the Company and a corporate defendant reached an out-of-court
settlement of the Company's previously reported 1994 lawsuit pending in the
United States District Court in Albuquerque, New Mexico. The express terms of
the settlement, including terms regarding the confidentiality of the settlement,
were definitized and full payment was received by the Company in 1996. Under the
terms of the settlement, the Company netted in 1996 approximately $2.2 million
from this legal settlement after payment of contingent attorney's fees of
$1,525,000 and related expenses incurred in 1996 of $249,000. The Company had
expensed approximately $384,000 in legal fees and related expenses in prior
years.
NOTE 5: Common Stock Offering; Warrants Outstanding; Preferred Stock;
Convertible Notes Payable and Debentures
In July 1995, the Company successfully completed a $2.5 million Stock Offering
("Offering"). Through the Offering, the Company sold 25,000 Units consisting of
1,750,000 newly issued shares of common stock and warrants (expiring June 30,
1998 and exercisable at $75.00 for 25 shares) to obtain an additional 625,000
new shares.
In connection with the Offering, the Company entered into a Placement Agency
Agreement with a registered broker/dealer. In addition to cash compensation, the
broker/dealer received warrants for 175,000 shares of common stock. The warrants
are exercisable through December 1, 1999 at a price of $2.30 per share, subject
to adjustment under anti-dilution
10
<PAGE>
ESSEX CORPORATION
provisions of the Warrant Agreement. The warrant holders have certain
registration rights for these shares of common stock.
In connection with the issuance of the 10% Convertible Collateralized Debentures
Due 2000, the Company has reserved approximately 400,000 shares of common stock
for conversion. In addition, the Company has issued warrants to the
broker/dealer for 28,571 shares of common stock. The warrants are exercisable
through December 1, 2000 at a price of $3.50 per share, subject to adjustment
under anti-dilution provisions of the Warrant Agreement. The warrant holders
have certain registration rights for these shares of common stock. The Company
has also issued warrants for 78,400 shares to the purchasers of the Debentures
under essentially the same terms and conditions as the warrants issued to the
broker/dealer.
In connection with the issuance of 8% Convertible notes payable, the Company has
reserved 460,000 shares of common stock for conversion.
In January 1997, a class of preferred stock was approved by the shareholders.
The Company's Articles of Incorporation were amended to authorize a class of
preferred stock, 1 million shares, par value $0.01 per share, the series and
rights of which may be designated from time-to-time by the Board of Directors in
accordance with applicable state and federal law. In June 1997, the Board
designated 2,500 shares of such preferred stock as Series A with a $100 par
value and an 8% annual dividend. Such shares are redeemable after 90 days and
before 1 year from date of issuance at the option of the holder. These preferred
shares are convertible into shares of Essex common stock at $0.50 per share and
have certain other conversion protection features. There were 1,200 shares of
preferred stock issued and outstanding at June 29, 1997. The Company has
reserved 240,000 shares of common stock for conversion.
The Company has reserved approximately 2,007,000 shares of common stock in
connection with the convertible debentures, notes and preferred stock and the
possible exercise of all such warrants.
NOTE 6: Income Taxes
The Company is in a net operating loss (NOL) carryforward position for book and
tax purposes. Such NOL was utilized to reduce the provision for income taxes in
the first half of 1996 to $254,300. However, as no book or taxable income was
ultimately realized in fiscal 1996, this provision was reversed in subsequent
quarters of 1996.
NOTE 7: Statements of Cash Flows
Supplemental disclosures of cash flow information are as follows:
Capital lease obligations of $115,722 were incurred during the first half
of 1996, when the Company entered into various leases for new equipment.
There were no new capital leases entered into in the first half of 1997.
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ESSEX CORPORATION
NOTE 8: Discontinued Operations
In June 1997, the Board of Directors unanimously approved, effective June 29,
1997, the disposition of the Systems Effectiveness Division ("SED") and
operations of the Federal Systems Division ("FSD") except for the
telecommunications and government-related optoelectronics businesses which are
comprised of different customers, a separate location in Columbia, Maryland and
distinguishable operations. The operations to be discontinued comprised the
majority of the Company's Technical Services and Products business operations.
On August 4, 1997, the Company completed the sale of certain of the assets and
operations of FSD for approximately $225,000 in cash and assumption of certain
liabilities of approximately $60,000. The estimated net gain of approximately
$175,000 will be recognized in the third quarter of 1997. There is a contingent
payment of $75,000 due upon award of certain new business expected during the
1997 third quarter which could increase the net gain.
Another portion of the operations of FSD which were performed primarily in the
Company's facility in Huntsville, Alabama are being discontinued. There is one
remaining contract which is expected to be completed in August 1997. The
Huntsville facility has been placed for sale and is included in the net
noncurrent assets shown in the balance sheets.
On July 8, 1997, the Company entered into a Letter of Intent to sell SED.
Negotiations are in process to finalize the sale and are expected to conclude
during the third quarter of 1997.
Summarized results of operations for the discontinued operations are as follows:
<TABLE>
Six months ended June 29, 1997
------------------------------
<CAPTION>
Revenues Net Income (Loss)
-------- -----------------
<S> <C> <C>
SED $ 2,782,000 $ 245,000
FSD $ 1,625,000 $ (346,000)
</TABLE>
<TABLE>
Six months ended June 30, 1996
------------------------------
<CAPTION>
Revenues Net Income
-------- ----------
<S> <C> <C>
SED $ 2,550,000 $ 293,000
FSD $ 2,960,000 $ 85,000
</TABLE>
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ESSEX CORPORATION
Net current and noncurrent assets are comprised of the following:
<TABLE>
<CAPTION>
Net Current As of As of
June 29, 1997 December 29, 1996
<S> <C> <C>
Receivables, net $ 896,588 $ 1,002,676
Other assets 53,451 53,415
Accounts payable (456,155) (181,145)
Accrued wages and vacation (212,507) (194,035)
Other accrued liabilities (238,580) (245,134)
Deferred revenues and loss reserves -- (375,000)
$ 42,797 $ 60,777
Net Noncurrent
Property, plant and equipment,
net of accumulated
depreciation $ 1,316,822 $ 1,384,250
Industrial Revenue Bond (113,318) (153,319)
Other long-term liabilities (26,671) (34,820)
$ 1,176,833 $ 1,196,111
</TABLE>
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ESSEX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis or Plan of Operation and other sections
contain forward-looking statements that are based on management's expectations,
estimates, projections and assumptions. Words such as "expects", "anticipates",
"plans", "believes", "estimates", variations of such words and similar
expressions are intended to identify such forward-looking statements that
include, but are not limited to, projections of revenues, earnings, segment
performance, cash flows and contract awards. Such forward-looking statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements are not guarantees of future performance
and involve certain risks and uncertainties that are difficult to predict.
Therefore, actual future results and trends may differ materially from what is
forecast in forward-looking statements due to a variety of factors.
Historically, Essex Corporation has been a diversified, technology-based company
providing quality products and professional services to government and industry.
Essex previously determined that it operated in two business segments: Technical
Services and Products; and Optoelectronic Products and Services. The Company
allocated its operations to the following business units:
o Systems Effectiveness Division (SED)
o Federal Systems Division (FSD)
o Commercial Products Division (CPD)
SED operated in the Technical Services and Products segment; CPD operated in the
Optoelectronics Products and Services segment; and FSD operated in both
segments.
In June 1997, the Board of Directors unanimously authorized the sale of the SED
and the FSD operations (except for the telecommunications and government-related
optoelectronics businesses). The historical technical services business areas
were too diverse relative to the size of the Company. The Company intends to
concentrate all its efforts and resources in commercializing its optoelectronics
and telecommunications products and services. On August 4, 1997, the Company
sold the FSD operations (except for the telecommunications and
government-related optoelectronics businesses) for approximately $225,000 in
cash and assumption of certain liabilities of approximately $60,000. The Company
has signed a Letter of Intent to sell the SED operations and is currently
negotiating the final terms of the proposed transaction. Effective June 29,
1997, the Company has presented the results of these SED and FSD operations as
"discontinued operations". Prior years' figures have been restated to reflect
the amounts of such discontinued operations.
Continuing operations reflect the results of the Commercial Products Division
which provides optoelectronic products and services, as well as
telecommunications engineering services. Continuing operations also include
related optoelectronic products and services revenues provided to ongoing U.S.
Government customers which were previously provided through the Federal Systems
Division.
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ESSEX CORPORATION
CONTINUING OPERATIONS
Revenues were $891,000 and $1,029,000 for the second quarters of 1997 and 1996,
respectively, a decline of 13%. Revenues were $2,065,000 and $2,134,000 for the
first half periods of 1997 and 1996, respectively, a decline of 3%. The
Company's work for Motorola on its Iridium cellular satellite communication
system accounted for revenues of $914,000 and $1,196,000 of the first half
revenues for 1997 and 1996, respectively. This represented 44% and 56% of total
revenues for the first half periods of 1997 and 1996, respectively. There was a
decline in revenues from this program between the first half periods as tasks
were completed for the initial satellite system. The Company continues to
perform work on the current and successor satellite systems and has a backlog on
the Motorola program of over $950,000. The Company has a backlog of
approximately $700,000 on programs related to optoelectronic devices and
services.
The decline in revenues on the Motorola contract were partially offset by the
sale of one Imsyn(TM) unit for $250,000 during the first quarter of 1997 for
U.S. Government end use under a development and applications contract. The
Company does not have any firm orders for ImSyn(TM) units as of August 11, 1997.
There were losses from continuing operations of $328,000 and $573,000 in the
second quarters of 1997 and 1996, respectively. There were losses of $768,000
and $1,460,000 in the first half periods of 1997 and 1996, respectively. Cost of
goods sold and services provided for the first half of 1996 was 66.4% as
compared to 48.6% in 1997. In 1996, significant additional costs in excess of
amounts which could be recovered were incurred on two contracts for delivery of
initial optoelectronic processor devices.
Selling, general and administrative expenses ("SG&A") were $1.8 million in the
first half of 1996 compared to $1.4 million in the first half of 1997 on
approximately the same overall revenue volume. The $400,000 of such higher SG&A
expenses contributed to the larger loss in 1996.
Overall, SG&A expenses remain high relative to the revenue volume as the Company
seeks to commercialize its optoelectronic products and services. The Company has
reduced expenses between the 1996 and 1997 periods and expects to curtail
expenditures where possible while retaining essential technical capabilities and
personnel in the optoelectronics and telecommunications businesses.
DISCONTINUED OPERATIONS
There was a loss from discontinued operations of $134,000 and $101,000 in the
second quarter and first half periods of 1997, respectively. There was income
from such discontinued operations of $96,000 and $378,000 in the second quarter
and first half periods in 1996, respectively.
Discontinued operations are comprised of the results of the Systems
Effectiveness Division and the operations of the Federal Systems Division except
for the telecommunications and government-related optoelectronics businesses.
During 1997 and 1996, the SED operations had first half sales of approximately
$2.8 million and $2.6 million, respectively, and produced
15
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ESSEX CORPORATION
income of approximately $250,000 during each first half period. A Letter of
Intent has been signed to sell the SED operations. Negotiations are in process
to definitize the terms of the sale and are expected to be concluded during the
third quarter of 1997.
The FSD discontinued operations saw revenues decline from $3 million in the
first half of 1996 to $1.6 million in the first half of 1997. There was a loss
from operations of approximately $350,000 in the first half of 1997 compared to
income of approximately $90,000 during the first half of 1996. During the first
half of 1996, FSD was working on several programs, including a program to
produce aviation maintenance trainers (the "Trainers Program"), which were
estimated to be on budget and provided volume to recover indirect expenses. In
late 1996, the Trainers Program incurred performance difficulties which produced
losses on this program in the last quarter of 1996. Additional significant
completion problems were encountered in the first half of 1997 which produced
additional losses. FSD was unable to secure additional new business on a timely
basis resulting in the decision to close the Huntsville, Alabama production
facility concurrent with the end of the Trainers Program (rescheduled for late
August 1997). The sale of certain other FSD technical service operations located
elsewhere was completed in early August 1997 and the net gain will be reported
in the third quarter of 1997.
CORPORATE MATTERS
There was a gain in 1996 on settlement of lawsuit (approximately $1,972,000 net
of $254,000 of income taxes, or $0.55 per share). This gain triggered a payment
to the former landlord and expense of $250,000 ($0.07 per share). The income
(loss) per share results are computed on weighted average shares outstanding of
3,609,000 in 1996.
The Company and a corporate defendant reached an out-of-court settlement. Under
the terms of the Settlement Agreement, the Company recognized a gain of
approximately $2.2 million after payment of contingent attorney's fees of
$1,525,000 and related expenses of $249,000. The Company had expensed in prior
years approximately $385,000 in connection with this lawsuit. In addition, the
Company recognized an expense of $250,000 as part of the previously concluded
rent dispute with its former landlord. The Company was liable for such a payment
upon successful conclusion of the previously described lawsuit.
In 1997, the Company's interest costs increased due to the increased borrowings
under its line of credit. Total interest costs were $117,000 in the first half
of 1997 compared to $85,000 in the same period of 1996.
The Company recognized the majority of its remaining tax benefit amount
recoverable from the carryback of net operating losses prior to 1994. The
Company is in a net operating loss (NOL) carryforward position. No provision or
benefit from income taxes was recognized in the first half of 1997. In the first
half of 1996, the Company recorded a book income tax expense, although lower
than at statutory rates. However, as no book or taxable income was ultimately
realized in fiscal year 1996, this provision was reversed in subsequent quarters
of 1996.
16
<PAGE>
ESSEX CORPORATION
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company evaluates its liquidity position using various factors. The
following represents some of the more important factors:
<TABLE>
SELECTED FINANCIAL DATA ($ Thousands)
-------------------------------------
<CAPTION>
AS OF
June 29, December 29, June 30,
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Total Assets $ 3,977 $ 4,708 $ 6,237
Working Capital (Deficit) $ (603) $ 113 $ 2,037
Current Ratio 0.77:1 1.05:1 1.97:1
Current and Long-Term
Capital Leases $ 140 $ 176 $ 189
Bank Line of Credit 407 900 677
Convertible Notes Payable 230 -- --
Convertible Debentures 1,400 1,400 1,400
Total Debt/Financing $ 2,177 $ 2,476 $ 2,266
Stockholders' Equity (Deficit) $ (254) $ 729 $ 2,615
</TABLE>
The Company experienced a substantial decrease in its working capital and ratio
due primarily to the net loss of $986,000 in the first half of 1997. The net
loss was the primary factor in the $768,000 of net cash used in operations in
the first half of 1997.
At June 29, 1997, Company has negative working capital of approximately $600,000
and a stockholders' deficit of approximately $250,000. During June 1997, certain
insiders and directors invested $350,000 in convertible unsecured notes payable
and redeemable preferred stock. Such amounts are not considered equity since
they are primarily considered debt instruments. The Company should have a
positive equity after the conclusion of the sales of all discontinued operations
as discussed below.
The Company has incurred significant losses over recent years, primarily due to
the development and marketing of its optoelectronics products and services. The
Company has also experienced difficulty in sustaining and expanding revenue
volume in certain areas of the technical services and products business. The
optoelectronics products and services business is currently experiencing net
cash expenditures (including all general and administrative expenses) over
receipts of approximately $100,000 per month. The Company has taken steps to
increase revenue volume and reduce expenditures. If current conditions remain
unchanged, the Company would not be able to sustain its business without
additional working capital or further cost reductions.
As previously discussed in the Company's 1996 Form 10-KSB, the Company has
addressed the current working capital shortfall by selling the majority of its
technical services operations. One arrangement for the sale of certain FSD
operations was closed in early August and another
17
<PAGE>
ESSEX CORPORATION
arrangement for the sale of SED operations is in the process of being
definitized. The Company has also placed its Huntsville, Alabama facility for
sale. However, the proceeds from the sale of the Huntsville facility would be
restricted as to the use of the funds as the facility currently serves as a
portion of the collateral on the convertible debentures.
The Company continues to seek additional funds from private financing sources to
finance operations and to achieve desired product inventory levels and initial
market penetration. The Company is also seeking to establish joint ventures or
strategic partnerships with major industrial concerns to facilitate these goals.
Significant delays in the commercialization of the Company's optoelectronic
products, failure to commercialize such products or failure to raise substantial
additional working capital would have a significant adverse effect on the
Company's future operating results and future financial position.
The Company has approximately $780,000 of inventory in current assets. This
inventory is comprised of ImSyn(TM) optoelectronic processors and consists of
finished goods and work-in-process. Sales of such units will be necessary in
order to maintain working capital liquidity. There are no firm orders for sales
of such units as of August 11, 1997.
The current receivable financing arrangement expires August 31, 1997. While the
Company believes the financing arrangement should be renewed, terms and
conditions of succeeding agreements may change. In order to fund its operations,
the Company will be required to replace or extend such arrangement and to raise
additional working capital. There can be no assurance that the Company will be
successful in doing so.
Under the settlement agreement reached with the landlord, certain payments are
triggered only by other future cash inflows. The remaining $300,000 contingent
portion of the landlord settlement obligation (which has been accrued and
expensed in prior years), is not payable until future earnings (as defined),
operating asset sales or equity capital funding occur. When such future events
transpire, only a portion of the cash flows or proceeds generated are payable.
The sales of the discontinued operations of the Company will require that a
portion of the remaining $300,000 be paid from the proceeds from such sales.
The preceding paragraphs contain forward-looking statements and the factors
affecting the ability of the Company to meet its funding requirements and manage
its cash resources include, among other things, the magnitude and timing of
product sales and the magnitude of fixed costs.
18
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K.
(a) Exhibits
(i) Exhibit 4 - Instruments defining the Rights of Holders
4.8 Specimen of Preferred Stock - Series A
(ii) Exhibit 10 - Material Contracts
10.16 Subscription Agreement Between the Company and
Harry Letaw, Jr. and Joyce Letaw
10.17 Subscription Agreement Between the Company and
Samuel Hopkins
10.18 Subscription Agreement Between the Company and
Harold P. Hanson
10.19 8% Convertible Note Payable - Harry Letaw, Jr.
and Joyce Letaw
10.20 8% Convertible Note Payable - Samuel Hopkins
10.21 8% Convertible Note Payable - Harold P. Hanson
(iii) Exhibit 27 - Financial Data Schedule
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ESSEX CORPORATION
(Registrant)
Date: 11 August 1997 -----------------------
Joseph R. Kurry, Jr.
Vice President,
Treasurer and Chief Financial Officer
(Mr. Kurry is the Principal Financial and Accounting Officer and has been
duly authorized to sign on behalf of the Registrant.)
EXHIBIT 4.8
Specimen of Preferred Stock - Series A
<PAGE>
SPECIMEN
INCORPORATED UNDER THE LAWS OF VIRGINIA
NUMBER SHARES
-1
--------- ------------
ESSEX CORPORATION
AUTHORIZED CAPITAL STOCK: 2,500 Shares of Class A Preferred Stock,
par value $100.00
THIS CERTIFIES THAT, -------------- is the registered holder of
(N A M E)
------------------- Shares of Class A Preferred Stock, par value
(NUMBER IN WORDS) $100.00 per Share
transferable only on the books of the Corporation by the holder hereof
in person or by Attorney upon surrender of this Certificate properly
endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed this ---- day of A.D 1997.
(CORPORATE SEAL)
-------------------- ---------------------------------
Assistant Secretary Chief Financial Officer/Treasurer
SEE LEGEND ON REVERSE OF CERTIFICATE
<PAGE>
THIS SECURITIES REPRESENTED HEREBY HAVE NOT BEEN THE SUBJECT OF
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER THE FOREGOING ACT OR THE AVAILABILITY OF AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF (INCLUDING RULE
144), AS EVIDENCED BY AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
FOR VALUE RECEIVED ------------------ hereby sell, assign and transfer
unto -----------------------------------------------------------------
--------------------------------------------------------------- Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint----------------------- Attorney to transfer the said Shares on
the books of the within named Corporation with full power of substitution
in the premises.
Dated ---------------------- 19-----
In presence of----------------------------------
EXHIBIT 10.16
Subscription Agreement Between the Company and Harry Letaw, Jr. and Joyce Letaw
<PAGE>
ESSEX CORPORATION
PROMISSORY NOTE SUBSCRIPTION AGREEMENT
THE SECURITIES DESCRIBED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, NOR HAS THIS SUBSCRIPTION AGREEMENT BEEN REVIEWED,
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION SET FORTH
HEREIN. NO STATE SECURITIES LAW ADMINISTRATOR OR OTHER JURISDICTIONAL AUTHORITY
HAS PASSED UPON OR ENDORSED THE MERITS HEREOF OR THE ACCURACY OR THE ADEQUACY OF
THE INFORMATION SET FORTH HEREIN. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
THE SECURITIES DESCRIBED HEREIN HAVE BEEN OFFERED AND MADE AVAILABLE ONLY TO
INVESTORS WHO QUALIFY AS "ACCREDITED INVESTORS," AS DEFINED IN REGULATION D AND
RULE 501 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES DESCRIBED HEREIN WERE OFFERED PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS FOR NON-PUBLIC OFFERINGS. SUCH EXEMPTIONS LIMIT
THE NUMBER AND TYPES OF SUBSCRIBERS TO WHICH THE OFFERING HAS BEEN MADE AND
RESTRICT SUBSEQUENT TRANSFER OF THE SECURITIES DESCRIBED HEREIN.
THE SECURITIES DESCRIBED HEREIN SHOULD BE CONSIDERED ONLY BY A PERSON WHO OR
ENTITY THAT CAN AFFORD TO SUSTAIN THE LOSS OF ITS ENTIRE INVESTMENT. A
SUBSCRIBER WHO SUBSCRIBES TO MAKE AN INVESTMENT IN SUCH SECURITIES IS REQUIRED
TO REPRESENT THAT IT IS ABLE TO SUSTAIN SUCH A LOSS AND IS FAMILIAR WITH AND
UNDERSTANDS THE TERMS OF THE OFFERING OF THE SECURITIES DESCRIBED HEREIN.
THE SECURITIES DESCRIBED HEREIN ARE RESTRICTED WITH RESPECT TO TRANSFERABILITY
AND RESALE. THE SECURITIES MAY NOT BE RESOLD OR OTHERWISE DISPOSED OF BY THE
SUBSCRIBER UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY,
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION
REQUIREMENTS.
THE SUBSCRIBER, BY HAVING ACCEPTED DELIVERY OF THE INFORMATIONAL MATERIALS
PROVIDED BY THE COMPANY AND ALL ACCOMPANYING OR RELATED DOCUMENTS, AGREES TO
RETURN SUCH MATERIALS TO THE COMPANY UPON REQUEST IF THE SUBSCRIBER DETERMINES
NOT TO MAKE AN INVESTMENT IN ANY OF THE SECURITIES DESCRIBED HEREIN.
i
<PAGE>
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER
OR SOLICITATION IS NOT AUTHORIZED.
FOR FLORIDA RESIDENTS:
THE SECURITIES OFFERED HEREBY WILL BE SOLD, AND ACQUIRED, IN A TRANSACTION
EXEMPT UNDER SECTION 517.061(11) OF THE FLORIDA SECURITIES AND INVESTOR
PROTECTION ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE
STATE OF FLORIDA. PURSUANT TO SECTION 517.061(11) OF THE FLORIDA SECURITIES AND
INVESTOR PROTECTION ACT, WHEN SALES ARE MADE TO FIVE (5) OR MORE PERSONS
(EXCLUDING ACCREDITED INVESTORS) IN THE STATE OF FLORIDA, ANY SALE IN THE STATE
OF FLORIDA MADE PURSUANT TO SECTION 517.061(11) OF SUCH ACT IS VOIDABLE BY THE
PURCHASER IN SUCH SALE (WITHOUT INCURRING ANY LIABILITY TO THE COMPANY OR TO ANY
OTHER PERSON OR ENTITY) EITHER WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER,
OR AN ESCROW AGENT OR WITHIN THREE (3) DAYS AFTER THE AVAILABILITY OF THAT
PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER. TO VOID HIS
PURCHASE, THE PURCHASER NEED ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY AT
THE ADDRESS INDICATED HEREIN. ANY SUCH LETTER OR TELEGRAM SHOULD BE SENT AND
POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED THREE (3) DAY PERIOD. IT IS
PRUDENT TO SEND ANY SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
ASSURE THAT IT IS RECEIVED AND ALSO TO HAVE EVIDENCE OF THE TIME THAT IT WAS
MAILED. SHOULD A PURCHASER MAKE THIS REQUEST ORALLY, THAT PURCHASER MUST ASK FOR
WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED. IF NOTICE IS NOT
RECEIVED WITHIN THE TIME LIMIT SPECIFIED HEREIN, THE FOREGOING RIGHT TO VOID THE
PURCHASE SHALL BE NULL AND VOID.
ii
<PAGE>
FOR MARYLAND RESIDENTS:
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR VIRGINIA RESIDENTS:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE VIRGINIA SECURITIES ACT, BY REASON OF SPECIFIC EXEMPTIONS
THEREUNDER RELATING TO THE LIMITED AVAILABILITY OF THE OFFERING. THESE
SECURITIES CANNOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF TO ANY PERSON OR
ENTITY UNLESS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES ACT OF THIS STATE, IF SUCH REGISTRATION IS REQUIRED,
OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
iii
<PAGE>
ESSEX CORPORATION
PROMISSORY NOTE SUBSCRIPTION AGREEMENT
The undersigned, (the "Subscriber") hereby subscribes to acquire a
Non-Negotiable 8% Convertible Promissory Note (the "Note") issued by Essex
Corporation, a Virginia corporation (the "Company"), in the principal amount of
Two Hundred Thousand Dollars ($200,000.00) substantially in the form attached
hereto as Exhibit A. The unpaid principal amount of this Note and the interest
thereon, shall be convertible at the option of the Subscriber (the "Conversion
Right") prior to the Maturity Date, in the manner and on the terms hereinafter
set forth, into shares of common stock of the Company, par value ($.10) at any
time prior to the Maturity Date at a conversion price equal to the greater of
market value on the date that the election to convert is made or fifty cents
($.50) per shares, subject to adjustment pursuant to Section 4 of the Note;
provided however, that in the event the assets of the optoelectronics division
of the Company have been transferred to another business enterprise in which the
Company has a controlling shareholder interest ("Transferee"), and at the
election of the Subscriber, the unpaid principal amount of this Note and the
accrued interest thereon, shall be convertible into a percentage equity interest
of the Transferee determined pursuant to the following formula:
x/y where x is the dollar amount converted and y is the fair market
value (or mean fair market value, if more than one valuation
methodology is utilized) as determined by a third party expert in
providing such valuations retained by the Company.
The Subscriber represents and warrants that it qualifies as an
"accredited investor" under Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
The Subscriber hereby agrees to pay an aggregate of Two Hundred
Thousand Dollars ($200,000.00) as subscription for and in consideration of the
issuance of the Note being acquired pursuant hereto.
The Subscriber hereby acknowledges that it has retained its own counsel
and/or other professional advisors to review and evaluate the economic, tax and
other consequences of an investment in the Company, to the extent the Subscriber
has deemed necessary.
The Subscriber acknowledges that: (i) neither the Note nor the
securities issuable upon conversion thereof and default thereunder have been the
subject of registration under the Securities Act, the federal securities laws or
the laws of any state; (ii) absent an exemption from registration under such
laws, the issuance and sale of the Note (and the securities issuable upon
conversion thereof and default thereunder) would require registration; (iii) the
Company and NEWCO-OPTO are and will be issuing such securities in reliance upon
exemption from the registration requirements of the Securities Act; and (iv)
reliance by the Company and NEWCO-OPTO upon such exemption is based upon the
Subscriber's representation, warranties, and agreements contained in this
Subscription Agreement.
1
<PAGE>
SECTION 1. The Subscriber represents, warrants, acknowledges and
agrees as follows:
A. Subject to applicable laws, rules and regulations, the Subscriber agrees
that the subscription evidenced by this Subscription Agreement is and shall be
irrevocable.
B. The Subscriber has received and carefully read the following: (i)
certain general business information about the Company; (ii) any and all other
information deemed by the Subscriber to be necessary to verify the accuracy and
completeness of the representations, warranties and covenants made herein; and
(iii) written or verbal responses for all questions that the Subscriber has
submitted to the Company regarding an investment in the securities described
herein, all of which the Subscriber acknowledges have been provided to the
Subscriber (the "Corporate Materials"). The Subscriber has not been furnished
with any other materials or literature relating to the offer and sale of the
securities described herein, other than the Corporate Materials. The Subscriber
is fully aware of the financial condition of the Company, in particular the lack
of working capital and other financial distress being experienced by the
Company. The Subscriber has been given the opportunity to ask questions of and
to receive answers from the Company concerning the terms and conditions of the
offer and sale of the securities described herein and the Corporate Materials,
and to obtain such additional written information necessary to verify the
accuracy of same as the Subscriber desires in order to evaluate an investment in
the securities described herein. The Subscriber acknowledges and confirms that
the written and/or verbal responses provided to the Subscriber by the Company in
response to the Subscriber's questions are not contrary to or inconsistent with,
nor do they in any way conflict with the information set forth in the Corporate
Materials. The Subscriber further acknowledges that it fully understands the
information contained in Corporate Materials and has had the opportunity to
discuss any questions regarding the Corporate Materials with its counsel or
other advisor. Notwithstanding the foregoing, the only information upon which
the Subscriber has relied is that set forth in the Corporate Materials and its
own independent investigation. The Subscriber acknowledges that the Subscriber
has received no representations or warranties from the Company, or any of its
employees or agents in making an investment decision related to the acquisition
of the securities described herein, other than as set forth herein.
C. The Subscriber is aware that the acquisition of the securities described
herein is a speculative investment involving a high degree of risk and that
there is no guarantee that the Subscriber will realize any gain from an
investment in such securities. The Subscriber further understands that the
Subscriber could lose the entire amount of the Subscriber's investment in such
securities. The Subscriber acknowledges that the Subscriber has specifically
reviewed the Corporate Materials with a view toward subscribing for the
securities described herein.
D. The Subscriber understands that no federal or state agency or other
authority (within or outside of the United States) has made any finding or
determination regarding the fairness of the offer, sale and/or issuance of the
securities described herein, has made any recommendation or endorsement of the
offer and sale of the securities described herein or has passed in any way upon
this Subscription Agreement or the other Corporate Materials.
2
<PAGE>
E. The Subscriber: (i) is acquiring the securities described herein solely
for the Subscriber's own account for investment purposes only and not with a
view toward resale or distribution thereof, either in whole or in part; (ii) has
no contract, undertaking, agreement or other arrangement, in existence or
contemplated, to sell, pledge, assign or otherwise transfer the securities to
any other person or entity; and (iii) agrees not to sell or otherwise transfer
such securities unless and until they are subsequently registered under the
Securities Act and any applicable state securities laws, or unless an exemption
from any such requirement is available.
F. The Subscriber has read, is familiar with and understands Rule 501 of
Regulation D and represents that the Subscriber is an "accredited investor" as
defined in Rule 501(a) of Regulation D under the Securities Act.
G. The Subscriber is financially able to bear the economic risk of an
investment in the securities described herein, including the ability to hold
such securities indefinitely and to afford a complete loss of the Subscriber's
investment in such securities.
H. The Subscriber's overall commitment to investments which are not readily
marketable is not disproportionate to the Subscriber's net worth, and the
Subscriber's investment in the securities described herein will not cause such
overall commitment to become excessive. The Subscriber understands that the
statutory basis on which such securities are being offered, sold and/or issued
to the Subscriber would not be available if the Subscriber's present intention
were to hold such securities for a fixed period of time or until the occurrence
of a certain event. The Subscriber realizes that, in view of the Securities and
Exchange Commission (the "Commission"), a purchase of such securities now, with
a present intention to resell by reason of a foreseeable specific contingency or
any anticipated change in the market value of such securities, or in the
condition of the Company or that of the industry in which the business of the
Company is engaged or in connection with a contemplated liquidation, or
settlement of any loan obtained by the Subscriber for the acquisition of such
securities, and for which such securities may be pledged as a security or as
donations to religious or charitable institutions for the purpose of securing a
deduction on an income tax return, would, in fact, constitute a purchase with an
intention inconsistent with the Subscriber's representations to the Company and
the Commission would then regard such purchase as a purchase for which the
exemption from registration under the Securities Act relied upon by the Company
in connection herewith is not available.
I. The funds provided for the Subscriber's investment in the securities
described herein are either the separate property of the Subscriber, community
property over which the Subscriber has the right of control, or are funds as to
which the Subscriber otherwise has the sole right of control, or are funds as to
which the Subscriber otherwise has the sole right of management.
J. The Subscriber was not organized or reorganized for the specific
purposes of acquiring the securities described herein; the Subscriber has the
full power and authority to execute this Subscription Agreement on behalf of
such entity and to make the representations and warranties made herein on its
behalf; and an investment in the securities described herein has
3
<PAGE>
been affirmatively authorized, if required, by the governing body of such entity
and is not prohibited by the governing documents of the entity.
K. The following address is the Subscriber's principal business address:
c/o Essex Corporation, 9150 Guilford Road, Columbia, MD 21046.
L. The Subscriber has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the securities described herein.
M. The Note and the certificates evidencing the shares of Common Stock
described herein will contain a legend substantially as follows:
THE SECURITIES WHICH ARE REPRESENTED HEREBY HAVE NOT BEEN THE SUBJECT OF
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED AND REMAINS EFFECTIVE
UNDER SUCH ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE COMPANY
THAT AN EXEMPTION FROM REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
The Subscriber further acknowledges that: (i) any necessary stop transfer
orders will be placed upon the certificates for the securities described herein
in accordance with Securities Act; and (ii) the Company is under no obligation
to aid the Subscriber in obtaining any exemption from the registration
requirements of the Securities Act or any jurisdiction.
N. In no event will the Subscriber sell or otherwise transfer any of the
securities described herein other than in accordance with the terms thereof and
applicable law.
O. All information which the Subscriber has provided concerning the
Subscriber, the Subscriber's financial position and the Subscriber's knowledge
of financial and business matters is correct and complete as of the date hereof,
and if there should be any change in such information, the Subscriber will
immediately provide such new information.
P. In connection with the offer and sale of the securities described herein
to the Subscriber, the Company is and will be relying upon the Subscriber's
representations and warranties as contained in this Subscription Agreement.
Q. The Subscriber acknowledges that the Subscriber understands the meaning
and legal consequences of the representations and warranties which are contained
herein and hereby agrees to indemnify, save and hold the Company and the its
officers, directors, employees, agents and affiliates harmless from and against
any and all claims or actions arising out of a breach by the Subscriber of any
representation, warranty, acknowledgment, term or condition contained in this
Subscription Agreement. Such indemnification shall be deemed to include not only
the specific liabilities or obligations with respect to which such indemnity is
provided, but
4
<PAGE>
also all reasonable costs, expenses, counsel fees and expenses of
settlement relating thereto, whether or not any such liability or obligation
shall have been reduced to judgment. THE PARTIES HERETO HAVE EACH BEEN ADVISED
THAT THE INDEMNIFICATION DESCRIBED HEREIN MAY BE VOID AS AGAINST PUBLIC POLICY
AND UNENFORCEABLE IN SOME JURISDICTIONS.
SECTION 2. The Company represents, warrants, acknowledges and agrees as
follows:
A. The execution, delivery and performance of this Subscription Agreement
and consummation of the transactions contemplated hereby have been duly
authorized, adopted and approved by its board of directors. It has taken all
necessary corporate action and has all the necessary corporate power to enter
into this Subscription Agreement and to consummate the transactions contemplated
hereby. This Subscription Agreement has been duly and validly executed and
delivered by its officers on its behalf, and assuming that this Subscription
Agreement is the valid and binding obligation of the Subscriber, is the valid
and binding obligation of the Company enforceable against each in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect, or by legal or equitable principles, relating to or
limiting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
B. It is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation. It has the
corporate power and authority to own and lease its properties and assets and to
carry on its business as it is now being conducted.
C. There is no action, suit, proceeding or investigation pending against or
related to it, to the best of its knowledge, nor has it been threatened with any
such action, suit, proceeding or investigation, which would restrict its ability
to perform its obligations hereunder or which would have a material adverse
effect on its business, assets, operations, earnings, prospects or condition
(financial or otherwise). To the best of its knowledge, there are no grounds for
or facts, events or circumstances which would form the basis of any such action
that would cause or result in any such action, suit, proceeding or investigation
or which is probable of assertion. It is not in default in respect of any
judgment, order, writ, injunction or decree of any court or any national,
federal, provincial, state, local or other governmental agency, authority, body,
board, bureau, commission, department or instrumentality which could have a
material adverse effect on its business, assets, operations, earnings, prospects
or condition (financial or otherwise).
D. No statement by it as set forth herein and no statement set forth in any
certificate or other instrument or document required to be delivered by or on
behalf of it pursuant hereto or in connection with consummation of the
transactions contemplated hereby, contained, contains or will contain any untrue
statement of a material fact, or omitted, omits or will omit to state any
material fact which is necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
5
<PAGE>
E. The execution, delivery and performance by the Company of this
Subscription Agreement and the Note and the consummation by them of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance, sale and delivery of the Note, do not require the consent, waiver,
approval, license or authorization of or filing of any notice or report with any
person, entity or public authority and will not violate, result in a breach of
or the acceleration of any obligation under, or constitute a default under, any
provision of their respective organizational documents or any material
indenture, mortgage, lien, lease, agreement, contract, instrument, order,
judgment, decree, law, ordinance or regulation to which any property of the
Company is subject or by which either such party is bound or result in the
creation or imposition of any lien, claim, charge, restriction, equity or
encumbrance of any kind whatsoever upon, or give to any other person any
interest or right in or with respect to, any of the properties, assets,
business, agreements or contracts of the Company.
SECTION 3. Except as otherwise specifically provided for hereunder, no
party shall be deemed to have waived any of his, her or its rights hereunder
unless such waiver is in writing and signed by the party waiving said right.
Except as otherwise specifically provided for hereunder, no delay or omission by
any party in exercising any right with respect to the subject matter hereof
shall operate as a waiver of such right or of any such other right. A waiver on
any one occasion with respect to the subject matter hereof shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
All rights and remedies with respect to the subject matter hereof be cumulative
and may be exercised separately or concurrently.
SECTION 4. None of the parties hereto has made any representations or
warranties with respect to the subject matter hereof not set forth herein or in
the Note. This Subscription Agreement and the Note constitute the entire
agreement between the parties hereto with respect to the subject matter hereof.
All understandings and agreements which heretofore may have existed or did exist
between the parties hereto with respect to the subject matter hereof are
superseded by this Subscription Agreement and the Note.
SECTION 5. This Subscription Agreement may not be changed, modified,
extended or terminated other than by an agreement in writing, signed by the
parties hereto.
SECTION 6. The parties hereto agree to execute any and all such other
documents and to take any and all such further actions reasonably required to
effectuate the agreement evidenced by this Subscription Agreement and the intent
and purposes hereof.
SECTION 7. This Subscription Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland without regard to the
principles of conflicts of laws thereof. The Subscriber hereby consents to
the jurisdiction of the state courts of and federal courts located in the
State of Maryland.
SECTION 8. This Subscription Agreement, including the representations and
warranties contained herein, shall be binding upon the Subscriber's heirs,
executors, administrators, representatives, successors and assigns (to the
extent assignment may be permitted hereunder).
* * * * *
6
<PAGE>
IN WITNESS WHEREOF, the Subscriber has executed this Subscription
Agreement this 24th day of June, 1997.
NAME OF SUBSCRIBER
Harry Letaw Jr. and Joyce W. Letaw Ten Ent.
-------------------------------------------
In consideration of and in reliance upon the foregoing, the
subscription and purchase described herein is hereby accepted this 24th day of
June, 1997 by the undersigned.
ESSEX CORPORATION
By: Joseph R. Kurry, Jr.
--------------------
Joseph R. Kurry, Jr., Chief Financial Officer
7
EXHIBIT 10.17
Subscription Agreement Between the Company and Samuel Hopkins
<PAGE>
ESSEX CORPORATION
PROMISSORY NOTE SUBSCRIPTION AGREEMENT
THE SECURITIES DESCRIBED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, NOR HAS THIS SUBSCRIPTION AGREEMENT BEEN REVIEWED,
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION SET FORTH
HEREIN. NO STATE SECURITIES LAW ADMINISTRATOR OR OTHER JURISDICTIONAL AUTHORITY
HAS PASSED UPON OR ENDORSED THE MERITS HEREOF OR THE ACCURACY OR THE ADEQUACY OF
THE INFORMATION SET FORTH HEREIN. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
THE SECURITIES DESCRIBED HEREIN HAVE BEEN OFFERED AND MADE AVAILABLE ONLY TO
INVESTORS WHO QUALIFY AS "ACCREDITED INVESTORS," AS DEFINED IN REGULATION D AND
RULE 501 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES DESCRIBED HEREIN WERE OFFERED PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS FOR NON-PUBLIC OFFERINGS. SUCH EXEMPTIONS LIMIT
THE NUMBER AND TYPES OF SUBSCRIBERS TO WHICH THE OFFERING HAS BEEN MADE AND
RESTRICT SUBSEQUENT TRANSFER OF THE SECURITIES DESCRIBED HEREIN.
THE SECURITIES DESCRIBED HEREIN SHOULD BE CONSIDERED ONLY BY A PERSON WHO OR
ENTITY THAT CAN AFFORD TO SUSTAIN THE LOSS OF ITS ENTIRE INVESTMENT. A
SUBSCRIBER WHO SUBSCRIBES TO MAKE AN INVESTMENT IN SUCH SECURITIES IS REQUIRED
TO REPRESENT THAT IT IS ABLE TO SUSTAIN SUCH A LOSS AND IS FAMILIAR WITH AND
UNDERSTANDS THE TERMS OF THE OFFERING OF THE SECURITIES DESCRIBED HEREIN.
THE SECURITIES DESCRIBED HEREIN ARE RESTRICTED WITH RESPECT TO TRANSFERABILITY
AND RESALE. THE SECURITIES MAY NOT BE RESOLD OR OTHERWISE DISPOSED OF BY THE
SUBSCRIBER UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY,
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION
REQUIREMENTS.
THE SUBSCRIBER, BY HAVING ACCEPTED DELIVERY OF THE INFORMATIONAL MATERIALS
PROVIDED BY THE COMPANY AND ALL ACCOMPANYING OR RELATED DOCUMENTS, AGREES TO
RETURN SUCH MATERIALS TO THE COMPANY UPON REQUEST IF THE SUBSCRIBER DETERMINES
NOT TO MAKE AN INVESTMENT IN ANY OF THE SECURITIES DESCRIBED HEREIN.
i
<PAGE>
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER
OR SOLICITATION IS NOT AUTHORIZED.
FOR FLORIDA RESIDENTS:
THE SECURITIES OFFERED HEREBY WILL BE SOLD, AND ACQUIRED, IN A TRANSACTION
EXEMPT UNDER SECTION 517.061(11) OF THE FLORIDA SECURITIES AND INVESTOR
PROTECTION ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE
STATE OF FLORIDA. PURSUANT TO SECTION 517.061(11) OF THE FLORIDA SECURITIES AND
INVESTOR PROTECTION ACT, WHEN SALES ARE MADE TO FIVE (5) OR MORE PERSONS
(EXCLUDING ACCREDITED INVESTORS) IN THE STATE OF FLORIDA, ANY SALE IN THE STATE
OF FLORIDA MADE PURSUANT TO SECTION 517.061(11) OF SUCH ACT IS VOIDABLE BY THE
PURCHASER IN SUCH SALE (WITHOUT INCURRING ANY LIABILITY TO THE COMPANY OR TO ANY
OTHER PERSON OR ENTITY) EITHER WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER,
OR AN ESCROW AGENT OR WITHIN THREE (3) DAYS AFTER THE AVAILABILITY OF THAT
PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER. TO VOID HIS
PURCHASE, THE PURCHASER NEED ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY AT
THE ADDRESS INDICATED HEREIN. ANY SUCH LETTER OR TELEGRAM SHOULD BE SENT AND
POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED THREE (3) DAY PERIOD. IT IS
PRUDENT TO SEND ANY SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
ASSURE THAT IT IS RECEIVED AND ALSO TO HAVE EVIDENCE OF THE TIME THAT IT WAS
MAILED. SHOULD A PURCHASER MAKE THIS REQUEST ORALLY, THAT PURCHASER MUST ASK FOR
WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED. IF NOTICE IS NOT
RECEIVED WITHIN THE TIME LIMIT SPECIFIED HEREIN, THE FOREGOING RIGHT TO VOID THE
PURCHASE SHALL BE NULL AND VOID.
ii
<PAGE>
FOR MARYLAND RESIDENTS:
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR VIRGINIA RESIDENTS:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE VIRGINIA SECURITIES ACT, BY REASON OF SPECIFIC EXEMPTIONS
THEREUNDER RELATING TO THE LIMITED AVAILABILITY OF THE OFFERING. THESE
SECURITIES CANNOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF TO ANY PERSON OR
ENTITY UNLESS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES ACT OF THIS STATE, IF SUCH REGISTRATION IS REQUIRED,
OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
iii
<PAGE>
ESSEX CORPORATION
PROMISSORY NOTE SUBSCRIPTION AGREEMENT
The undersigned, (the "Subscriber") hereby subscribes to acquire a
Non-Negotiable 8% Convertible Promissory Note (the "Note") issued by Essex
Corporation, a Virginia corporation (the "Company"), in the principal amount of
Twenty Thousand Dollars ($20,000.00) substantially in the form attached hereto
as Exhibit A. The unpaid principal amount of this Note and the interest thereon,
shall be convertible at the option of the Subscriber (the "Conversion Right")
prior to the Maturity Date, in the manner and on the terms hereinafter set
forth, into shares of common stock of the Company, par value ($.10) at any time
prior to the Maturity Date at a conversion price equal to the greater of market
value on the date that the election to convert is made or fifty cents ($.50) per
shares, subject to adjustment pursuant to Section 4 of the Note; provided
however, that in the event the assets of the optoelectronics division of the
Company have been transferred to another business enterprise in which the
Company has a controlling shareholder interest ("Transferee"), and at the
election of the Subscriber, the unpaid principal amount of this Note and the
accrued interest thereon, shall be convertible into a percentage equity interest
of the Transferee determined pursuant to the following formula:
x/y where x is the dollar amount converted and y is the fair market
value (or mean fair market value, if more than one valuation
methodology is utilized) as determined by a third party expert in
providing such valuations retained by the Company.
The Subscriber represents and warrants that it qualifies as an
"accredited investor" under Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
The Subscriber hereby agrees to pay an aggregate of Twenty Thousand
($20,000.00) as subscription for and in consideration of the issuance of the
Note being acquired pursuant hereto.
The Subscriber hereby acknowledges that it has retained its own counsel
and/or other professional advisors to review and evaluate the economic, tax and
other consequences of an investment in the Company, to the extent the Subscriber
has deemed necessary.
The Subscriber acknowledges that: (i) neither the Note nor the
securities issuable upon conversion thereof and default thereunder have been the
subject of registration under the Securities Act, the federal securities laws or
the laws of any state; (ii) absent an exemption from registration under such
laws, the issuance and sale of the Note (and the securities issuable upon
conversion thereof and default thereunder) would require registration; (iii) the
Company and NEWCO-OPTO are and will be issuing such securities in reliance upon
exemption from the registration requirements of the Securities Act; and (iv)
reliance by the Company and NEWCO-OPTO upon such exemption is based upon the
Subscriber's representation, warranties, and agreements contained in this
Subscription Agreement.
SECTION 1. The Subscriber represents, warrants, acknowledges and
agrees as follows:
1
<PAGE>
A. Subject to applicable laws, rules and regulations, the Subscriber agrees
that the subscription evidenced by this Subscription Agreement is and shall be
irrevocable.
B. The Subscriber has received and carefully read the following: (i)
certain general business information about the Company; (ii) any and all other
information deemed by the Subscriber to be necessary to verify the accuracy and
completeness of the representations, warranties and covenants made herein; and
(iii) written or verbal responses for all questions that the Subscriber has
submitted to the Company regarding an investment in the securities described
herein, all of which the Subscriber acknowledges have been provided to the
Subscriber (the "Corporate Materials"). The Subscriber has not been furnished
with any other materials or literature relating to the offer and sale of the
securities described herein, other than the Corporate Materials. The Subscriber
is fully aware of the financial condition of the Company, in particular the lack
of working capital and other financial distress being experienced by the
Company. The Subscriber has been given the opportunity to ask questions of and
to receive answers from the Company concerning the terms and conditions of the
offer and sale of the securities described herein and the Corporate Materials,
and to obtain such additional written information necessary to verify the
accuracy of same as the Subscriber desires in order to evaluate an investment in
the securities described herein. The Subscriber acknowledges and confirms that
the written and/or verbal responses provided to the Subscriber by the Company in
response to the Subscriber's questions are not contrary to or inconsistent with,
nor do they in any way conflict with the information set forth in the Corporate
Materials. The Subscriber further acknowledges that it fully understands the
information contained in Corporate Materials and has had the opportunity to
discuss any questions regarding the Corporate Materials with its counsel or
other advisor. Notwithstanding the foregoing, the only information upon which
the Subscriber has relied is that set forth in the Corporate Materials and its
own independent investigation. The Subscriber acknowledges that the Subscriber
has received no representations or warranties from the Company, or any of its
employees or agents in making an investment decision related to the acquisition
of the securities described herein, other than as set forth herein.
C. The Subscriber is aware that the acquisition of the securities described
herein is a speculative investment involving a high degree of risk and that
there is no guarantee that the Subscriber will realize any gain from an
investment in such securities. The Subscriber further understands that the
Subscriber could lose the entire amount of the Subscriber's investment in such
securities. The Subscriber acknowledges that the Subscriber has specifically
reviewed the Corporate Materials with a view toward subscribing for the
securities described herein.
D. The Subscriber understands that no federal or state agency or other
authority (within or outside of the United States) has made any finding or
determination regarding the fairness of the offer, sale and/or issuance of the
securities described herein, has made any recommendation or endorsement of the
offer and sale of the securities described herein or has passed in any way upon
this Subscription Agreement or the other Corporate Materials.
E. The Subscriber: (i) is acquiring the securities described herein solely
for the Subscriber's own account for investment purposes only and not with a
view toward resale or distribution thereof, either in whole or in part; (ii) has
no contract, undertaking, agreement or
2
<PAGE>
other arrangement, in existence or contemplated, to sell, pledge, assign or
otherwise transfer the securities to any other person or entity; and (iii)
agrees not to sell or otherwise transfer such securities unless and until they
are subsequently registered under the Securities Act and any applicable state
securities laws, or unless an exemption from any such requirement is available.
F. The Subscriber has read, is familiar with and understands Rule 501 of
Regulation D and represents that the Subscriber is an "accredited investor" as
defined in Rule 501(a) of Regulation D under the Securities Act.
G. The Subscriber is financially able to bear the economic risk of an
investment in the securities described herein, including the ability to hold
such securities indefinitely and to afford a complete loss of the Subscriber's
investment in such securities.
H. The Subscriber's overall commitment to investments which are not readily
marketable is not disproportionate to the Subscriber's net worth, and the
Subscriber's investment in the securities described herein will not cause such
overall commitment to become excessive. The Subscriber understands that the
statutory basis on which such securities are being offered, sold and/or issued
to the Subscriber would not be available if the Subscriber's present intention
were to hold such securities for a fixed period of time or until the occurrence
of a certain event. The Subscriber realizes that, in view of the Securities and
Exchange Commission (the "Commission"), a purchase of such securities now, with
a present intention to resell by reason of a foreseeable specific contingency or
any anticipated change in the market value of such securities, or in the
condition of the Company or that of the industry in which the business of the
Company is engaged or in connection with a contemplated liquidation, or
settlement of any loan obtained by the Subscriber for the acquisition of such
securities, and for which such securities may be pledged as a security or as
donations to religious or charitable institutions for the purpose of securing a
deduction on an income tax return, would, in fact, constitute a purchase with an
intention inconsistent with the Subscriber's representations to the Company and
the Commission would then regard such purchase as a purchase for which the
exemption from registration under the Securities Act relied upon by the Company
in connection herewith is not available.
I. The funds provided for the Subscriber's investment in the securities
described herein are either the separate property of the Subscriber, community
property over which the Subscriber has the right of control, or are funds as to
which the Subscriber otherwise has the sole right of control, or are funds as to
which the Subscriber otherwise has the sole right of management.
J. The Subscriber was not organized or reorganized for the specific
purposes of acquiring the securities described herein; the Subscriber has the
full power and authority to execute this Subscription Agreement on behalf of
such entity and to make the representations and warranties made herein on its
behalf; and an investment in the securities described herein has been
affirmatively authorized, if required, by the governing body of such entity and
is not prohibited by the governing documents of the entity.
3
<PAGE>
K. The following address is the Subscriber's principal business address: 45
Warrenton Road, Baltimore, Maryland, 21210.
L. The Subscriber has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the securities described herein.
M. The Note and the certificates evidencing the shares of Common Stock
described herein will contain a legend substantially as follows:
THE SECURITIES WHICH ARE REPRESENTED HEREBY HAVE NOT BEEN THE SUBJECT OF
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED AND REMAINS EFFECTIVE
UNDER SUCH ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE COMPANY
THAT AN EXEMPTION FROM REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
The Subscriber further acknowledges that: (i) any necessary stop transfer
orders will be placed upon the certificates for the securities described herein
in accordance with Securities Act; and (ii) the Company is under no obligation
to aid the Subscriber in obtaining any exemption from the registration
requirements of the Securities Act or any jurisdiction.
N. In no event will the Subscriber sell or otherwise transfer any of the
securities described herein other than in accordance with the terms thereof and
applicable law.
O. All information which the Subscriber has provided concerning the
Subscriber, the Subscriber's financial position and the Subscriber's knowledge
of financial and business matters is correct and complete as of the date hereof,
and if there should be any change in such information, the Subscriber will
immediately provide such new information.
P. In connection with the offer and sale of the securities described herein
to the Subscriber, the Company is and will be relying upon the Subscriber's
representations and warranties as contained in this Subscription Agreement.
Q. The Subscriber acknowledges that the Subscriber understands the
meaning and legal consequences of the representations and warranties which
are contained herein and hereby agrees to indemnify, save and hold the Company
and the its officers, directors, employees, agents and affiliates harmless from
and against any and all claims or actions arising out of a breach by the
Subscriber of any representation, warranty, acknowledgment, term or condition
contained in this Subscription Agreement. Such indemnification shall be deemed
to include not only the specific liabilities or obligations with respect to
which such indemnity is provided, but also all reasonable costs, expenses,
counsel fees and expenses of settlement relating thereto, whether or not any
such liability or obligation shall have been reduced to judgment. THE PARTIES
HERETO HAVE EACH BEEN ADVISED THAT THE INDEMNIFICATION
4
<PAGE>
DESCRIBED HEREIN MAY BE VOID AS AGAINST PUBLIC POLICY AND UNENFORCEABLE IN SOME
JURISDICTIONS.
SECTION 2. The Company represents, warrants, acknowledges and agrees as
follows:
A. The execution, delivery and performance of this Subscription Agreement
and consummation of the transactions contemplated hereby have been duly
authorized, adopted and approved by its board of directors. It has taken all
necessary corporate action and has all the necessary corporate power to enter
into this Subscription Agreement and to consummate the transactions contemplated
hereby. This Subscription Agreement has been duly and validly executed and
delivered by its officers on its behalf, and assuming that this Subscription
Agreement is the valid and binding obligation of the Subscriber, is the valid
and binding obligation of the Company enforceable against each in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect, or by legal or equitable principles, relating to or
limiting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
B. It is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation. It has the
corporate power and authority to own and lease its properties and assets and to
carry on its business as it is now being conducted.
C. There is no action, suit, proceeding or investigation pending against or
related to it, to the best of its knowledge, nor has it been threatened with any
such action, suit, proceeding or investigation, which would restrict its ability
to perform its obligations hereunder or which would have a material adverse
effect on its business, assets, operations, earnings, prospects or condition
(financial or otherwise). To the best of its knowledge, there are no grounds for
or facts, events or circumstances which would form the basis of any such action
that would cause or result in any such action, suit, proceeding or investigation
or which is probable of assertion. It is not in default in respect of any
judgment, order, writ, injunction or decree of any court or any national,
federal, provincial, state, local or other governmental agency, authority, body,
board, bureau, commission, department or instrumentality which could have a
material adverse effect on its business, assets, operations, earnings, prospects
or condition (financial or otherwise).
D. No statement by it as set forth herein and no statement set forth in any
certificate or other instrument or document required to be delivered by or on
behalf of it pursuant hereto or in connection with consummation of the
transactions contemplated hereby, contained, contains or will contain any untrue
statement of a material fact, or omitted, omits or will omit to state any
material fact which is necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
E. The execution, delivery and performance by the Company of this
Subscription Agreement and the Note and the consummation by them of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance, sale and delivery of the Note, do not
5
<PAGE>
require the consent, waiver, approval, license or authorization of or filing of
any notice or report with any person, entity or public authority and will not
violate, result in a breach of or the acceleration of any obligation under, or
constitute a default under, any provision of their respective organizational
documents or any material indenture, mortgage, lien, lease, agreement, contract,
instrument, order, judgment, decree, law, ordinance or regulation to which any
property of the Company is subject or by which either such party is bound or
result in the creation or imposition of any lien, claim, charge, restriction,
equity or encumbrance of any kind whatsoever upon, or give to any other person
any interest or right in or with respect to, any of the properties, assets,
business, agreements or contracts of the Company.
SECTION 3. Except as otherwise specifically provided for hereunder, no
party shall be deemed to have waived any of his, her or its rights hereunder
unless such waiver is in writing and signed by the party waiving said right.
Except as otherwise specifically provided for hereunder, no delay or omission by
any party in exercising any right with respect to the subject matter hereof
shall operate as a waiver of such right or of any such other right. A waiver on
any one occasion with respect to the subject matter hereof shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
All rights and remedies with respect to the subject matter hereof be cumulative
and may be exercised separately or concurrently.
SECTION 4. None of the parties hereto has made any representations or
warranties with respect to the subject matter hereof not set forth herein or in
the Note. This Subscription Agreement and the Note constitute the entire
agreement between the parties hereto with respect to the subject matter hereof.
All understandings and agreements which heretofore may have existed or did exist
between the parties hereto with respect to the subject matter hereof are
superseded by this Subscription Agreement and the Note.
SECTION 5. This Subscription Agreement may not be changed, modified,
extended or terminated other than by an agreement in writing, signed by the
parties hereto.
SECTION 6. The parties hereto agree to execute any and all such other
documents and to take any and all such further actions reasonably required to
effectuate the agreement evidenced by this Subscription Agreement and the intent
and purposes hereof.
SECTION 7. This Subscription Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland without regard to the
principles of conflicts of laws thereof. The Subscriber hereby consents to the
jurisdiction of the state courts of and federal courts located in the State of
Maryland.
SECTION 8. This Subscription Agreement, including the representations and
warranties contained herein, shall be binding upon the Subscriber's heirs,
executors, administrators, representatives, successors and assigns (to the
extent assignment may be permitted hereunder).
* * * * *
6
<PAGE>
IN WITNESS WHEREOF, the Subscriber has executed this Subscription
Agreement this 24th day of June, 1997.
NAME OF SUBSCRIBER
Samuel Hopkins
--------------
In consideration of and in reliance upon the foregoing, the
subscription and purchase described herein is hereby accepted this 24th day of
June, 1997 by the undersigned.
ESSEX CORPORATION
By: Joseph R. Kurry, Jr.
-----------------------------
Joseph R. Kurry, Jr., Chief Financial Officer
7
EXHIBIT 10.18
Subscription Agreement Between the Company and Harold P. Hanson
<PAGE>
ESSEX CORPORATION
PROMISSORY NOTE SUBSCRIPTION AGREEMENT
THE SECURITIES DESCRIBED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, NOR HAS THIS SUBSCRIPTION AGREEMENT BEEN REVIEWED,
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION SET FORTH
HEREIN. NO STATE SECURITIES LAW ADMINISTRATOR OR OTHER JURISDICTIONAL AUTHORITY
HAS PASSED UPON OR ENDORSED THE MERITS HEREOF OR THE ACCURACY OR THE ADEQUACY OF
THE INFORMATION SET FORTH HEREIN. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
THE SECURITIES DESCRIBED HEREIN HAVE BEEN OFFERED AND MADE AVAILABLE ONLY TO
INVESTORS WHO QUALIFY AS "ACCREDITED INVESTORS," AS DEFINED IN REGULATION D AND
RULE 501 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES DESCRIBED HEREIN WERE OFFERED PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS FOR NON-PUBLIC OFFERINGS. SUCH EXEMPTIONS LIMIT
THE NUMBER AND TYPES OF SUBSCRIBERS TO WHICH THE OFFERING HAS BEEN MADE AND
RESTRICT SUBSEQUENT TRANSFER OF THE SECURITIES DESCRIBED HEREIN.
THE SECURITIES DESCRIBED HEREIN SHOULD BE CONSIDERED ONLY BY A PERSON WHO OR
ENTITY THAT CAN AFFORD TO SUSTAIN THE LOSS OF ITS ENTIRE INVESTMENT. A
SUBSCRIBER WHO SUBSCRIBES TO MAKE AN INVESTMENT IN SUCH SECURITIES IS REQUIRED
TO REPRESENT THAT IT IS ABLE TO SUSTAIN SUCH A LOSS AND IS FAMILIAR WITH AND
UNDERSTANDS THE TERMS OF THE OFFERING OF THE SECURITIES DESCRIBED HEREIN.
THE SECURITIES DESCRIBED HEREIN ARE RESTRICTED WITH RESPECT TO TRANSFERABILITY
AND RESALE. THE SECURITIES MAY NOT BE RESOLD OR OTHERWISE DISPOSED OF BY THE
SUBSCRIBER UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY,
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION
REQUIREMENTS.
THE SUBSCRIBER, BY HAVING ACCEPTED DELIVERY OF THE INFORMATIONAL MATERIALS
PROVIDED BY THE COMPANY AND ALL ACCOMPANYING OR RELATED DOCUMENTS, AGREES TO
RETURN SUCH MATERIALS TO THE COMPANY UPON REQUEST IF THE SUBSCRIBER DETERMINES
NOT TO MAKE AN INVESTMENT IN ANY OF THE SECURITIES DESCRIBED HEREIN.
i
<PAGE>
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER
OR SOLICITATION IS NOT AUTHORIZED.
FOR FLORIDA RESIDENTS:
THE SECURITIES OFFERED HEREBY WILL BE SOLD, AND ACQUIRED, IN A TRANSACTION
EXEMPT UNDER SECTION 517.061(11) OF THE FLORIDA SECURITIES AND INVESTOR
PROTECTION ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE
STATE OF FLORIDA. PURSUANT TO SECTION 517.061(11) OF THE FLORIDA SECURITIES AND
INVESTOR PROTECTION ACT, WHEN SALES ARE MADE TO FIVE (5) OR MORE PERSONS
(EXCLUDING ACCREDITED INVESTORS) IN THE STATE OF FLORIDA, ANY SALE IN THE STATE
OF FLORIDA MADE PURSUANT TO SECTION 517.061(11) OF SUCH ACT IS VOIDABLE BY THE
PURCHASER IN SUCH SALE (WITHOUT INCURRING ANY LIABILITY TO THE COMPANY OR TO ANY
OTHER PERSON OR ENTITY) EITHER WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER,
OR AN ESCROW AGENT OR WITHIN THREE (3) DAYS AFTER THE AVAILABILITY OF THAT
PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER. TO VOID HIS
PURCHASE, THE PURCHASER NEED ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY AT
THE ADDRESS INDICATED HEREIN. ANY SUCH LETTER OR TELEGRAM SHOULD BE SENT AND
POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED THREE (3) DAY PERIOD. IT IS
PRUDENT TO SEND ANY SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
ASSURE THAT IT IS RECEIVED AND ALSO TO HAVE EVIDENCE OF THE TIME THAT IT WAS
MAILED. SHOULD A PURCHASER MAKE THIS REQUEST ORALLY, THAT PURCHASER MUST ASK FOR
WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED. IF NOTICE IS NOT
RECEIVED WITHIN THE TIME LIMIT SPECIFIED HEREIN, THE FOREGOING RIGHT TO VOID THE
PURCHASE SHALL BE NULL AND VOID.
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FOR MARYLAND RESIDENTS:
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR VIRGINIA RESIDENTS:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE VIRGINIA SECURITIES ACT, BY REASON OF SPECIFIC EXEMPTIONS
THEREUNDER RELATING TO THE LIMITED AVAILABILITY OF THE OFFERING. THESE
SECURITIES CANNOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF TO ANY PERSON OR
ENTITY UNLESS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES ACT OF THIS STATE, IF SUCH REGISTRATION IS REQUIRED,
OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
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ESSEX CORPORATION
PROMISSORY NOTE SUBSCRIPTION AGREEMENT
The undersigned, (the "Subscriber") hereby subscribes to acquire a
Non-Negotiable 8% Convertible Promissory Note (the "Note") issued by Essex
Corporation, a Virginia corporation (the "Company"), in the principal amount of
Ten Thousand Dollars ($10,000.00) substantially in the form attached hereto as
Exhibit A. The unpaid principal amount of this Note and the interest thereon,
shall be convertible at the option of the Subscriber (the "Conversion Right")
prior to the Maturity Date, in the manner and on the terms hereinafter set
forth, into shares of common stock of the Company, par value ($.10) at any time
prior to the Maturity Date at a conversion price equal to the greater of market
value on the date that the election to convert is made or fifty cents ($.50) per
shares, subject to adjustment pursuant to Section 4 of the Note; provided
however, that in the event the assets of the optoelectronics division of the
Company have been transferred to another business enterprise in which the
Company has a controlling shareholder interest ("Transferee"), and at the
election of the Subscriber, the unpaid principal amount of this Note and the
accrued interest thereon, shall be convertible into a percentage equity interest
of the Transferee determined pursuant to the following formula:
x/y where x is the dollar amount converted and y is the fair market
value (or mean fair market value, if more than one valuation
methodology is utilized) as determined by a third party expert in
providing such valuations retained by the Company.
The Subscriber represents and warrants that it qualifies as an
"accredited investor" under Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
The Subscriber hereby agrees to pay an aggregate of Ten Thousand
Dollars ($10,000.00) as subscription for and in consideration of the issuance of
the Note being acquired pursuant hereto.
The Subscriber hereby acknowledges that it has retained its own counsel
and/or other professional advisors to review and evaluate the economic, tax and
other consequences of an investment in the Company, to the extent the Subscriber
has deemed necessary.
The Subscriber acknowledges that: (i) neither the Note nor the
securities issuable upon conversion thereof and default thereunder have been the
subject of registration under the Securities Act, the federal securities laws or
the laws of any state; (ii) absent an exemption from registration under such
laws, the issuance and sale of the Note (and the securities issuable upon
conversion thereof and default thereunder) would require registration; (iii) the
Company and NEWCO-OPTO are and will be issuing such securities in reliance upon
exemption from the registration requirements of the Securities Act; and (iv)
reliance by the Company and NEWCO-OPTO upon such exemption is based upon the
Subscriber's representation, warranties, and agreements contained in this
Subscription Agreement.
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<PAGE>
SECTION 1. The Subscriber represents, warrants, acknowledges and agrees as
follows:
A. Subject to applicable laws, rules and regulations, the Subscriber agrees
that the subscription evidenced by this Subscription Agreement is and shall be
irrevocable.
B. The Subscriber has received and carefully read the following: (i)
certain general business information about the Company; (ii) any and all other
information deemed by the Subscriber to be necessary to verify the accuracy and
completeness of the representations, warranties and covenants made herein; and
(iii) written or verbal responses for all questions that the Subscriber has
submitted to the Company regarding an investment in the securities described
herein, all of which the Subscriber acknowledges have been provided to the
Subscriber (the "Corporate Materials"). The Subscriber has not been furnished
with any other materials or literature relating to the offer and sale of the
securities described herein, other than the Corporate Materials. The Subscriber
is fully aware of the financial condition of the Company, in particular the lack
of working capital and other financial distress being experienced by the
Company. The Subscriber has been given the opportunity to ask questions of and
to receive answers from the Company concerning the terms and conditions of the
offer and sale of the securities described herein and the Corporate Materials,
and to obtain such additional written information necessary to verify the
accuracy of same as the Subscriber desires in order to evaluate an investment in
the securities described herein. The Subscriber acknowledges and confirms that
the written and/or verbal responses provided to the Subscriber by the Company in
response to the Subscriber's questions are not contrary to or inconsistent with,
nor do they in any way conflict with the information set forth in the Corporate
Materials. The Subscriber further acknowledges that it fully understands the
information contained in Corporate Materials and has had the opportunity to
discuss any questions regarding the Corporate Materials with its counsel or
other advisor. Notwithstanding the foregoing, the only information upon which
the Subscriber has relied is that set forth in the Corporate Materials and its
own independent investigation. The Subscriber acknowledges that the Subscriber
has received no representations or warranties from the Company, or any of its
employees or agents in making an investment decision related to the acquisition
of the securities described herein, other than as set forth herein.
C. The Subscriber is aware that the acquisition of the securities described
herein is a speculative investment involving a high degree of risk and that
there is no guarantee that the Subscriber will realize any gain from an
investment in such securities. The Subscriber further understands that the
Subscriber could lose the entire amount of the Subscriber's investment in such
securities. The Subscriber acknowledges that the Subscriber has specifically
reviewed the Corporate Materials with a view toward subscribing for the
securities described herein.
D. The Subscriber understands that no federal or state agency or other
authority (within or outside of the United States) has made any finding or
determination regarding the fairness of the offer, sale and/or issuance of the
securities described herein, has made any recommendation or endorsement of the
offer and sale of the securities described herein or has passed in any way upon
this Subscription Agreement or the other Corporate Materials.
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<PAGE>
E. The Subscriber: (i) is acquiring the securities described herein solely
for the Subscriber's own account for investment purposes only and not with a
view toward resale or distribution thereof, either in whole or in part; (ii) has
no contract, undertaking, agreement or other arrangement, in existence or
contemplated, to sell, pledge, assign or otherwise transfer the securities to
any other person or entity; and (iii) agrees not to sell or otherwise transfer
such securities unless and until they are subsequently registered under the
Securities Act and any applicable state securities laws, or unless an exemption
from any such requirement is available.
F. The Subscriber has read, is familiar with and understands Rule 501 of
Regulation D and represents that the Subscriber is an "accredited investor" as
defined in Rule 501(a) of Regulation D under the Securities Act.
G. The Subscriber is financially able to bear the economic risk of an
investment in the securities described herein, including the ability to hold
such securities indefinitely and to afford a complete loss of the Subscriber's
investment in such securities.
H. The Subscriber's overall commitment to investments which are not readily
marketable is not disproportionate to the Subscriber's net worth, and the
Subscriber's investment in the securities described herein will not cause such
overall commitment to become excessive. The Subscriber understands that the
statutory basis on which such securities are being offered, sold and/or issued
to the Subscriber would not be available if the Subscriber's present intention
were to hold such securities for a fixed period of time or until the occurrence
of a certain event. The Subscriber realizes that, in view of the Securities and
Exchange Commission (the "Commission"), a purchase of such securities now, with
a present intention to resell by reason of a foreseeable specific contingency or
any anticipated change in the market value of such securities, or in the
condition of the Company or that of the industry in which the business of the
Company is engaged or in connection with a contemplated liquidation, or
settlement of any loan obtained by the Subscriber for the acquisition of such
securities, and for which such securities may be pledged as a security or as
donations to religious or charitable institutions for the purpose of securing a
deduction on an income tax return, would, in fact, constitute a purchase with an
intention inconsistent with the Subscriber's representations to the Company and
the Commission would then regard such purchase as a purchase for which the
exemption from registration under the Securities Act relied upon by the Company
in connection herewith is not available.
I. The funds provided for the Subscriber's investment in the securities
described herein are either the separate property of the Subscriber, community
property over which the Subscriber has the right of control, or are funds as to
which the Subscriber otherwise has the sole right of control, or are funds as to
which the Subscriber otherwise has the sole right of management.
J. The Subscriber was not organized or reorganized for the specific
purposes of acquiring the securities described herein; the Subscriber has the
full power and authority to execute this Subscription Agreement on behalf of
such entity and to make the representations and warranties made herein on its
behalf; and an investment in the securities described herein has
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been affirmatively authorized, if required, by the governing body of such entity
and is not prohibited by the governing documents of the entity.
K. The following address is the Subscriber's principal business address:
2385 N.W. 18th Place, Gainesville, Florida 32605.
L. The Subscriber has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the securities described herein.
M. The Note and the certificates evidencing the shares of Common Stock
described herein will contain a legend substantially as follows:
THE SECURITIES WHICH ARE REPRESENTED HEREBY HAVE NOT BEEN THE SUBJECT OF
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED AND REMAINS EFFECTIVE
UNDER SUCH ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE COMPANY
THAT AN EXEMPTION FROM REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
The Subscriber further acknowledges that: (i) any necessary stop transfer
orders will be placed upon the certificates for the securities described herein
in accordance with Securities Act; and (ii) the Company is under no obligation
to aid the Subscriber in obtaining any exemption from the registration
requirements of the Securities Act or any jurisdiction.
N. In no event will the Subscriber sell or otherwise transfer any of the
securities described herein other than in accordance with the terms thereof and
applicable law.
O. All information which the Subscriber has provided concerning the Subscriber,
the Subscriber's financial position and the Subscriber's knowledge of financial
and business matters is correct and complete as of the date hereof, and if there
should be any change in such information, the Subscriber will immediately
provide such new information.
P. In connection with the offer and sale of the securities described herein
to the Subscriber, the Company is and will be relying upon the Subscriber's
representations and warranties as contained in this Subscription Agreement.
Q. The Subscriber acknowledges that the Subscriber understands the meaning
and legal consequences of the representations and warranties which are contained
herein and hereby agrees to indemnify, save and hold the Company and the its
officers, directors, employees, agents and affiliates harmless from and against
any and all claims or actions arising out of a breach by the Subscriber of any
representation, warranty, acknowledgment, term or condition contained in this
Subscription Agreement. Such indemnification shall be deemed to include not only
the specific liabilities or obligations with respect to which such indemnity is
provided, but
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<PAGE>
also all reasonable costs, expenses, counsel fees and expenses of settlement
relating thereto, whether or not any such liability or obligation shall
have been reduced to judgment. THE PARTIES HERETO HAVE EACH BEEN ADVISED
THAT THE INDEMNIFICATION DESCRIBED HEREIN MAY BE VOID AS AGAINST PUBLIC POLICY
AND UNENFORCEABLE IN SOME JURISDICTIONS.
SECTION 2. The Company represents, warrants, acknowledges and agrees as
follows:
A. The execution, delivery and performance of this Subscription Agreement
and consummation of the transactions contemplated hereby have been duly
authorized, adopted and approved by its board of directors. It has taken all
necessary corporate action and has all the necessary corporate power to enter
into this Subscription Agreement and to consummate the transactions contemplated
hereby. This Subscription Agreement has been duly and validly executed and
delivered by its officers on its behalf, and assuming that this Subscription
Agreement is the valid and binding obligation of the Subscriber, is the valid
and binding obligation of the Company enforceable against each in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect, or by legal or equitable principles, relating to or
limiting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
B. It is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation. It has the
corporate power and authority to own and lease its properties and assets and to
carry on its business as it is now being conducted.
C. There is no action, suit, proceeding or investigation pending against or
related to it, to the best of its knowledge, nor has it been threatened with any
such action, suit, proceeding or investigation, which would restrict its ability
to perform its obligations hereunder or which would have a material adverse
effect on its business, assets, operations, earnings, prospects or condition
(financial or otherwise). To the best of its knowledge, there are no grounds for
or facts, events or circumstances which would form the basis of any such action
that would cause or result in any such action, suit, proceeding or investigation
or which is probable of assertion. It is not in default in respect of any
judgment, order, writ, injunction or decree of any court or any national,
federal, provincial, state, local or other governmental agency, authority, body,
board, bureau, commission, department or instrumentality which could have a
material adverse effect on its business, assets, operations, earnings, prospects
or condition (financial or otherwise).
D. No statement by it as set forth herein and no statement set forth in any
certificate or other instrument or document required to be delivered by or on
behalf of it pursuant hereto or in connection with consummation of the
transactions contemplated hereby, contained, contains or will contain any untrue
statement of a material fact, or omitted, omits or will omit to state any
material fact which is necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
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<PAGE>
E. The execution, delivery and performance by the Company of this
Subscription Agreement and the Note and the consummation by them of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance, sale and delivery of the Note, do not require the consent, waiver,
approval, license or authorization of or filing of any notice or report with any
person, entity or public authority and will not violate, result in a breach of
or the acceleration of any obligation under, or constitute a default under, any
provision of their respective organizational documents or any material
indenture, mortgage, lien, lease, agreement, contract, instrument, order,
judgment, decree, law, ordinance or regulation to which any property of the
Company is subject or by which either such party is bound or result in the
creation or imposition of any lien, claim, charge, restriction, equity or
encumbrance of any kind whatsoever upon, or give to any other person any
interest or right in or with respect to, any of the properties, assets,
business, agreements or contracts of the Company.
SECTION 3. Except as otherwise specifically provided for hereunder, no
party shall be deemed to have waived any of his, her or its rights hereunder
unless such waiver is in writing and signed by the party waiving said right.
Except as otherwise specifically provided for hereunder, no delay or omission by
any party in exercising any right with respect to the subject matter hereof
shall operate as a waiver of such right or of any such other right. A waiver on
any one occasion with respect to the subject matter hereof shall not be
construed as a bar to or waiver of any right or remedy on any future occasion.
All rights and remedies with respect to the subject matter hereof be cumulative
and may be exercised separately or concurrently.
SECTION 4. None of the parties hereto has made any representations or
warranties with respect to the subject matter hereof not set forth herein or in
the Note. This Subscription Agreement and the Note constitute the entire
agreement between the parties hereto with respect to the subject matter hereof.
All understandings and agreements which heretofore may have existed or did exist
between the parties hereto with respect to the subject matter hereof are
superseded by this Subscription Agreement and the Note.
SECTION 5. This Subscription Agreement may not be changed, modified,
extended or terminated other than by an agreement in writing, signed by the
parties hereto.
SECTION 6. The parties hereto agree to execute any and all such other
documents and to take any and all such further actions reasonably required to
effectuate the agreement evidenced by this Subscription Agreement and the intent
and purposes hereof.
SECTION 7. This Subscription Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland without regard to the
principles of conflicts of laws thereof. The Subscriber hereby consents to the
jurisdiction of the state courts of and federal courts located in the State of
Maryland.
SECTION 8. This Subscription Agreement, including the representations and
warranties contained herein, shall be binding upon the Subscriber's heirs,
executors, administrators, representatives, successors and assigns (to the
extent assignment may be permitted hereunder).
* * * * *
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IN WITNESS WHEREOF, the Subscriber has executed this Subscription
Agreement this 24th day of June, 1997.
NAME OF SUBSCRIBER
Harold P. Hanson Trust
----------------------
In consideration of and in reliance upon the foregoing, the
subscription and purchase described herein is hereby accepted this 24th day of
June, 1997 by the undersigned.
ESSEX CORPORATION
By: Harry Letaw, Jr.
-------------------------
Harry Letaw, Jr., Chief Executive Officer
7
EXHIBIT 10.19
8% Convertible Note Payable - Harry Letaw, Jr. and Joyce Letaw
<PAGE>
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN
THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE AND THE SAME HAVE BEEN (OR WILL BE, WITH
RESPECT TO THE SECURITIES ISSUABLE UPON CONVERSION HEREOF) ISSUED IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED
UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
NON-NEGOTIABLE 8% CONVERTIBLE PROMISSORY NOTE
$ 200,000 Columbia, Maryland
June 24, 1997
FOR VALUE RECEIVED, the undersigned, Essex Corporation, a Virginia
corporation (hereinafter referred to as the "Maker" or the "Company") hereby
promises to pay Harry Letaw, Jr. and Joyce W. Letaw, Ten Ent. (the "Payee") at
440 Severnside Drive, S.W., Severna Park, MD 21146 or at such other place as the
holder hereof may from time to time designate in writing, the principal sum of
Two Hundred Thousand and 00/100 Dollars ($200,000) in one installment due upon
the earlier of: (i) one (1) year from the date of issuance of the promissory
note; or (ii) ten (10) business days after the date of consummation of stock
acquisition/sale of substantially all of the assets or the merger of the Company
by or with an unrelated entity or business enterprise (the "Acquisition"), which
transaction requires shareholder approval. Interest shall be paid by Maker to
the Payee on the Maturity Date at the simple rate of eight (8%) percent per
annum computed on the unpaid principal balance. By acceptance of this
Non-Negotiable 8% Convertible Promissory Note (the "Note"), the Payee
represents, warrants, covenants and agrees that he, she or it will abide by and
be bound by its terms.
1. Prepayment, Extension and Notices. The unpaid principal balance outstanding
under this Note may be prepaid in part or in full by the Maker without penalty,
upon fifteen (15) days notice to the Payee stating the repayment amount and
repayment date (the "Repayment Date"). The Maker must provide notice of its
intention to prepay amounts outstanding hereunder at least five (5) business
days prior to the Maturity Date to the Payee.
2. Conversion. The unpaid principal amount of this Note and the interest
thereon, shall be convertible at the option of the Payee (the "Conversion
Right") prior to the Maturity Date, in the manner and on the terms hereinafter
set forth, into shares of common stock of the Company, par value ($.10) at any
time prior to the Maturity Date at a conversion price equal to the greater of
market value on the date that the election to convert is made or fifty cents
($.50) per shares, subject to adjustment pursuant to Section 4 hereof; provided
however, that in the event the assets of the optoelectronics division of the
Company have been transferred to another business
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enterprise [in which the Company has a controlling shareholder interest]
("Transferee"), and at the election of the Payee, the unpaid principal amount of
this Note and the accrued interest thereon, shall be convertible into a
percentage equity interest of the Transferee determined pursuant to the
following formula:
x/y where x is the dollar amount converted and y is the fair
market value (or mean fair market value, if more than one
valuation methodology is utilized) as determined by a third
party expert in providing such valuations retained by the
Company..
(b) Notice of the right to convert shall be given promptly after the
date of Acquisition and Maker shall have the period of time between such Notice
date and the Maturity Date (but in no event less than ten (10) business days)
during which Payee shall have the opportunity to elect to convert the principal
and interest into Newco Common Stock, or receive cash payment.
(c) Notwithstanding any other provision of this Note to the contrary,
upon receipt of notice of the Maker's intent to prepay part or all of the
principal amount hereunder or of an Accelerated Maturity Date, the Payee may
elect to exercise the Conversion Right and convert a portion (as set forth in
subsection (a) hereof) of the amount of unpaid principal which the Maker intends
to prepay, up to the close of business on the last business day before the
stated Repayment Date.
(d) Notwithstanding any other provision hereof, the Conversion Right
may not be exercised at any time during which a registration statement under the
Securities Act of 1933 is filed but not effective absent written consent of the
Company.
3. Conversion Procedure. The Conversion Right may be exercised by the Payee by
the surrender of this Note (along with the conversion form attached hereto, duly
executed) to the Maker at the principal office of the Maker. Risk of loss prior
to surrender of this Note shall be borne by the Payee. Consequently, hand
delivery with written acknowledgement of receipt by the Maker or registered or
certified mail, return receipt requested, is the preferred mode of delivery.
Conversion shall be deemed to have been effected on the date when such delivery
of the conversion notice is actually made or, if earlier, at the expiration of
five (5) calendar days after being sent to the Maker by the Payee by registered
or certified mail, return receipt requested, with postage thereon fully prepaid
(the "Conversion Date"). As promptly as practicable thereafter, the Maker shall
issue and deliver to the Payee: (a) a new note representing the difference
between the principal amount of this Note plus interest accrued through the
Conversion Date, and the principal amount hereof which has been converted
pursuant hereto; and (b) certificates representing the number of shares of
Common Stock to which the Payee is entitled. The Maker shall not be obligated to
issue certificates representing shares of Common Stock in the name of any party
other than the Payee. The person or entity in whose name the certificates
representing the shares of Common Stock issuable upon conversion hereof shall be
deemed to have become a holder of record on the next succeeding day on which the
transfer books are open, but the Conversion Price shall be that in effect on the
Conversion Date. The Maker covenants that all securities which may be issued
upon exercise
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of the Conversion Right will, upon issuance, be fully paid and nonassessable and
free of all taxes, liens and charges caused or created by the Maker with respect
to the issuance thereof.
4. Adjustments. The Conversion Price and the number and kind of securities which
may be received upon the exercise of the Conversion Right shall be subject to
adjustment from time to time upon the happening of certain events, as follows:
(a) Stock Splits and Combinations. If the Maker shall at any time or
from time to time after the date hereof effect a subdivision of its outstanding
shares of Common Stock, the Conversion Price then in effect immediately before
such subdivision shall be proportionately decreased, and conversely, if the
Maker shall at any time or from time to time after the date hereof combine its
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before such combination shall be proportionately increased. Any
adjustment under this section shall become effective upon the close of business
on the date the subdivision or combination becomes effective.
(b) Certain Dividends and Distributions. In the event that the Maker
shall at any time or from time to time after the date hereof make or issue, or
fix a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event, the Conversion Price then
in effect shall be decreased as of the time of such issuance or, in the event
that such a record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price then in effect by a
fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(2) the denominator of which shall be the sum of the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date and the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter such Conversion
Price shall be adjusted pursuant to this subsection as of the time of actual
payment of such dividends or distributions.
(c) Other Dividends and Distributions. In the event that the Maker at
any time or from time to time after the date hereof shall make or issue, or fix
a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Maker other than shares of Common Stock, then and in each such event
provisions shall be made so that the holder of this Note shall receive, upon
conversion of this Note, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Maker which such holder
would have received had its Note been converted into shares of Common Stock on
the date of such event and had thereafter, during the period from the date of
such event to and including the Conversion Date,
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retained such securities (together with any distributions payable thereon during
such period) receivable by the holder as aforesaid during such period, giving
application to all adjustments called for during such period under this section
with respect to the rights of the holder of the Note.
(d) Reclassification, Exchange or Substitution. If the shares of Common
Stock issuable upon the conversion of this Note shall be changed into the same
or different number of shares of any class or classes of capital stock, whether
by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for in
subsection (e) below), then and in each such event, the holder of this Note
shall have the right thereafter to convert this Note into the kind and amount of
shares of capital stock and other securities and property receivable upon such
reorganization, reclassification or other change, as the holder of the number of
shares of Common Stock into which this Note might have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(e) Reorganization, Merger, Consolidation or Sale of Assets. If, at any
time or from time to time, there shall be a capital reorganization of the shares
of Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this section) or a merger or
consolidation of the Maker with or into another corporation, or the sale of all
or substantially all of the Maker's properties and assets to any other person or
entity, then as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holder of this Note shall thereafter be
entitled to receive upon conversion of this Note, the number of shares of
capital stock or other securities or property of the Maker, or of the successor
corporation resulting from such merger or consolidation or sale, to which the
holder of shares of Common Stock deliverable upon conversion would have been
entitled on such reorganization, merger, consolidation, or sale. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this section with respect to the rights of the holder of this Note after the
reorganization, merger, consolidation or sale to the end that the provisions of
this section (including adjustment of the Conversion Price then in effect and
the number of shares of Common Stock receivable upon conversion of this Note)
shall be applicable after that event as nearly equivalent hereto as may be
practicable.
(f) Material Financing. If the Corporation at an time during a twelve
(12) month period commencing on the date of issuance of the Note, enters into a
transaction with a third party which is intended to provide material financing
to the Corporation, and such transaction includes rights of conversion similar
to those granted in this Note, then the Conversion Price shall be adjusted
downward to be equal to the Conversion Price granted to such third party.
(g) Minimum Adjustment. Notwithstanding anything to the contrary set
forth herein, no adjustment of the Conversion Price shall be made in an amount
equal to less than one cent ($.01), but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to one cent ($.01) or more.
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<PAGE>
(h) Certificate of Adjustment. Upon the occurrence of each adjustment
or readjustment of the applicable Conversion Price pursuant to this section, the
Maker shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to the holder of this Note a
certificate, signed by the Chairman of the Board, the President or the Chief
Financial Officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
(i) Notices of Record Date. If and in the event that:
(1) the Maker shall set a record date for the purpose of
entitling the holders of shares of Common Stock to receive a dividend, or any
other distribution, payable otherwise than in cash;
(2) the Maker shall set a record date for the purpose of
entitling the holders of shares of Common Stock to subscribe for or purchase any
shares of any class or to receive any other rights;
(3) there shall occur any capital reorganization of the Maker,
reclassification of the shares of capital stock of the Maker (other than a
subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Maker with or into another corporation, or sale
of all or substantially all of the assets of the Maker; or
(4) there shall occur a voluntary or involuntary dissolution,
liquidation, or winding up of the Maker;
then, and in any such case, the Maker shall cause to be mailed to the holder of
record of this Note, at least [thirty (30) days] prior to the dates hereinafter
specified, a notice stating the date: (A) which has been set as the record date
for the purpose of such dividend, distribution, or rights; or (B) on which such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the record date as of which the
holder of record shall be entitled to exchange this Note for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, sale, dissolution, liquidation or winding up.
5. Reservation. The Maker covenants that, during the period within which the
Conversion Right may be exercised, the Maker will at all times have authorized
and reserved for the purpose of issuance upon exercise of the Conversion Right,
a sufficient number of shares of Common Stock (or other securities subject to
the Conversion Right) to provide for the exercise of the Conversion Right in
full.
6. Fractional Shares. No fractional shares of Common Stock shall be issued upon
conversion of this Note. In lieu of any fractional shares of Common Stock to
which the Payee would otherwise be entitled, the Maker shall pay an amount equal
to the product of such fraction multiplied by the fair value of one share of
Common Stock on the Conversion Date, as determined in good faith by the Board of
Directors of the Maker.
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<PAGE>
7. Registration Rights. The Maker hereby covenants and agrees as follows:
(a) Definitions. For purposes of this section:
(1) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of
1933, as amended (the "Securities Act"), and the declaration of
effectiveness of such registration statement or other document by the
Securities and Exchange Commission (the "SEC").
(2) The term "Registrable Securities" means: (A) the shares of
Common Stock issued or issuable upon conversion of this Note; or (B)
any other securities of the Maker issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, in
exchange for or in replacement of the shares of Common Stock referenced
in subsection (A) immediately above, excluding in all cases, however,
any Registrable Securities sold to the public pursuant to a
registration or an exemption from registration.
(3) The number of shares of "Registrable Securities then
outstanding" shall be the number of securities outstanding which are
Registrable Securities.
(4) The term "Holder" as used hereinafter in this Section 7
means any person or entity owning of record Registrable Securities.
(b) Piggy-Back Registration Rights. In the event that (but without any
obligation to do so) the Maker proposes to register any of its securities under
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration on Form S-4, Form S-8 or any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Maker shall promptly give each Holder written notice of such
registration (the "Piggy-Back Notice"); provided, however, that the Maker shall
have no obligation to so notify Holders with respect to any registration
subsequent to the first of such registrations to occur after the issuance of
this Note and shall have no obligation if such registration relates to an
underwritten offering by the Maker and the managing underwriter of the subject
proposed offering expresses its objection thereto to the Maker. Upon the written
request of each Holder given within twenty (20) days after receipt of such
Piggy-Back Notice from the Maker, the Maker shall, subject to the provisions of
Subsections 7(h) and 7(m) below, cause to be included in the registration
statement filed by the Maker under the Securities Act all of the Registrable
Securities that each such Holder has requested to be registered; provided,
however, that the Maker shall have no such obligation if such registration
statement relates to an underwritten offering by the Maker and the managing
underwriter of the subject offering has expressed its objection to the same to
the Maker. To the extent that a Holder is offered the opportunity hereunder to
include all of its Registrable Securities in a registration statement, such
Holder will be deemed to have exercised its sole piggy-back registration right
provided by this Subsection 7(c).
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<PAGE>
(c) Obligations of the Maker. Whenever the Maker shall elect to file a
registration statement to effect the registration of any Registrable Securities,
the Maker shall, as expeditiously as reasonably possible:
(1) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of at least fifty percent (50%) of the Registrable Securities registered
thereunder, keep such registration statement effective for at least four (4)
months.
(2) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus included therein
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(3) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(4) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably requested by the Holders for the
distribution of the securities covered by the registration statement, provided
that the Maker shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction.
(5) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering.
(6) Notify the Holders promptly after the Maker shall have
received notice thereof, of the time when the registration statement becomes
effective or any supplement to any prospectus forming a part of the registration
statement has been filed.
(7) Notify the Holders of any stop order suspending the
effectiveness of the registration statement and use its reasonable best efforts
to remove such stop order.
(d) Furnish Information. It shall be a condition precedent to the
obligations of the Maker to take any action pursuant hereto that any Holder
seeking to include any of its Registrable Securities in a registration statement
filed by the Maker pursuant hereto shall furnish to the Maker such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of its Registrable Securities. In that connection, each such Holder
shall be required to represent to the Maker that all such information which is
given is both complete and accurate in all material respects. Each of such
Holders shall deliver to the Maker a statement in writing from
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<PAGE>
the beneficial owners of such securities that such beneficial owners bona fide
intend to sell, transfer or otherwise dispose of such securities.
(e) Definition of Expenses.
(1) "Registration Expenses" shall mean all expenses incurred
by the Maker in complying with Sections 7(c) and 7(d) hereof, including without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Maker, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Maker which shall be
paid in any event by the Maker).
(2) "Selling Expenses" shall mean all underwriting discounts,
selling commissions and underwriters' expense allowance applicable to the sale
and all fees and disbursements of any special counsel (other than the Maker's
regular counsel) for any Holder.
(f) Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance herewith, shall be
borne by the Maker, and all Selling Expenses shall be borne by the Holders of
the securities so registered pro rata on the basis of the number of Registrable
Securities so registered.
(g) Underwriting Requirements. All Holders proposing to distribute
their securities through an underwriting pursuant hereto shall (together with
the Maker and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Maker.
Notwithstanding any other provision of this section, at the request of the
managing underwriter, the Holder shall delay the sale of Registrable Securities
which such Holder has requested be registered under this section for the ninety
(90) day period commencing with the effective date of the registration
statement. Notwithstanding anything to the contrary herein, no such delay shall
be required with respect to securities offered by holders of securities who have
requested the Maker to register such securities pursuant to a mandatory
registration obligation of the Maker if other security holders of the Maker who
have not made requests pursuant to such an obligation are not subject to a
similar delay. If any Holder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice to the Maker and the
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be withdrawn from such registration except at the
election of the Holder.
(h) Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this section.
(i) Indemnification. In the event that any Registrable Securities are
included in a registration statement pursuant hereto:
(1) To the extent permitted by law, the Maker will indemnify
and hold harmless each Holder, the officers, directors and partners of
each Holder, any
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<PAGE>
underwriter (as defined in the Securities Act) for such Holder and each
person or entity, if any, that controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), against any losses, claims,
damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a
"Violation"): (A) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto; (B) the omission or alleged omission
to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading; or (C) any
violation or alleged violation by the Maker of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state
securities law; and the Maker will reimburse each such Holder, officer,
director or partner, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in
this subsection shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Maker (which consent shall not be
unreasonably withheld), nor shall the Maker be liable in any such case
for any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such
Holder, underwriter or controlling person; and further provided,
however, that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in the definitive prospectus,
such indemnity agreement shall not inure to the benefit of the
underwriter (or the benefit of any person or entity that controls such
underwriter), if a copy of the definitive prospectus was not sent or
given to such person or entity with or prior to the confirmation of the
sale of such securities to such person or entity.
(2) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Maker, each of its directors, each of
its officers who have signed the registration statement, each person,
if any, who controls the Maker within the meaning of the Securities Act
or the Exchange Act, any underwriter (within the meaning of the
Securities Act) for the Maker, any person who (or entity that) controls
such underwriter, and any other Holder selling securities in such
registration statement or any of its directors or officers or any
person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Maker or any such director,
officer, controlling person (or entity), or underwriter or controlling
person, or other such Holder or director, officer or controlling person
may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance
9
<PAGE>
upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably
incurred by the Maker or any such director, officer, controlling person
(or entity), underwriter or controlling person (or entity), other
Holder, officer, director or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in
this subsection shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld.
(3) Promptly after receipt by an indemnified party under this
Section 7(i) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 7(i), notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly notified, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due
to actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such
proceeding. The failure to notify an indemnifying party within a
reasonable time of the commencement of any such action, to the extent
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 7(i), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 7(i).
(j) Reports Under Securities Exchange Act of 1934. With a view toward
making available to Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Maker to the public without
registration, the Maker agrees to:
(1) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at
all times;
(2) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Maker under the
Securities Act and the Exchange Act; and
(3) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request such information as may
be reasonably requested in order to allow any Holder to avail himself
of any rule or regulation of the SEC which permits the selling of any
such securities without registration.
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(k) Termination of the Maker's Obligations.
(1) The Maker shall have no obligation pursuant to Section 7
with respect to any request made by any Holder after the first anniversary of
the Maturity Date.
(2) Notwithstanding any provision hereof to the contrary, the
Maker shall not be required to effect any registration under the Securities Act
or under any state securities laws on behalf of any Holder or Holders if, in the
opinion of counsel for the Maker, the offering or transfer by such Holder or
Holders in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred and the method of offering or
transfer) is exempt from the registration requirements of the Securities Act and
the securities laws of applicable states.
(l) Lock Ups; Limitation on Rights. The Payee (and any subsequent
Holder) by acceptance hereof hereby agrees that, in the event that subsequent to
the date hereof, the Maker conducts an underwritten public offering of its
securities: (i) the right to request registration pursuant to the provisions
hereof shall be subject to the approval of the underwriter of such public
offering; and (ii) the Payee (and any subsequent Holder) shall agree to refrain
from exercising such rights or selling, transferring or otherwise disposing of
any of the Registrable Securities for a period of up to thirteen months should
the underwriter so request in writing.
8. Miscellaneous.
(a) Restricted Securities. By acceptance hereof, the Payee understands
and agrees that this Note and the shares of Common Stock issuable upon
conversion hereof are "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Maker in a transaction not
involving a public offering and have not been the subject of registration under
the Securities Act and that under such laws and applicable regulations such
securities may be resold in the absence of registration under the Securities Act
only in certain limited circumstances. The Payee hereby represents that he, she
or it is familiar with Rule 144 promulgated under the Securities Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act.
(b) Further Limitations on Disposition. This Note may not be
negotiated, assigned or transferred by Payee. The Payee further agrees not to
make any disposition of all or any portion of this Note (or of the securities
issuable upon conversion hereof) unless and until:
(1) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement;
(2) such disposition is made in accordance with Rule 144 under
the Securities Act; or
(3) the Payee shall have notified the Maker of the proposed
disposition and shall have furnished the Maker with a detailed
statement of the circumstances
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<PAGE>
surrounding the proposed disposition, and the Payee shall have
furnished the Maker with an opinion of counsel, which opinion of
counsel shall be reasonably satisfactory to the Maker, that such
disposition will not require registration under the Securities Act and
will be in compliance with applicable state securities laws.
(c) Legends. It is understood that this Note and each certificate
evidencing shares of Common Stock issuable upon conversion hereof (or evidencing
any other securities issued with respect thereto pursuant to any stock split,
stock dividend, merger or other form of reorganization or recapitalization)
shall bear the legends (in addition to any legends which may be required in the
opinion of the Maker's counsel by the securities laws of the state where the
Payee is located) substantially as set forth on the first page of this Note.
(d) Presentment. Except as set forth herein, Maker waives presentment,
demand and presentation for payment, notice of nonpayment and dishonor, protest
and notice of protest and expressly agrees that this Note or any payment
hereunder may be extended from time to time by the Payee without in any way
affecting the liability of Maker.
9. Notices.
(a) Notices to the Payee. Any notice required by the provisions of this
Note to be given to the holder hereof shall be in writing and may be delivered
by personal service, facsimile transmission or by registered or certified mail,
return receipt requested, with postage thereon fully prepaid or overnight
delivery courier. All such communications shall be addressed to the Payee of
record at its address appearing on the books of the Maker. Service of any such
communication made only by mail shall be deemed complete on the date of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of the third (3rd) business day after the date of mailing, whichever
is earlier in time.
(b) Notices to the Maker. Whenever any provision of this Note requires
a notice to be given or a request to be made to the Maker by the Payee or the
holder of any other security of the Maker obtained in connection with a
recapitalization, merger, dividend or other event affecting this Note, then and
in each such case, any such notice or request shall be in writing and shall be
sent by registered or certified mail, return receipt requested with postage
thereon fully prepaid to the Maker at its principal place of business.
No notice given or request made hereunder shall be valid unless signed
by the Payee of this Note or other holder giving such notice or request (or, in
the case of a notice or request 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 or make such request).
10. Events of Default.
(a) Each of the following shall constitute an event of default (an
"Event of Default") hereunder: (i) the failure to pay when due any principal or
interest hereunder and the continuance of such failure for a period of thirty
(30) days after written notice from the Payee
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<PAGE>
to the Maker of such failure; (ii) the violation by the Maker of any covenant or
agreement contained in this Note and the continuance of such violation for a
period of thirty (30) days after written notice from the Payee to the Maker of
such failure; (iii) any change in control of the Maker which the Board of
Directors of the Maker deems to be hostile or unfriendly; (iv) the assignment
for the benefit of creditors by the Maker; (v) the application for the
appointment of a receiver or liquidator for the Maker or for property of the
Maker; (vi) the filing of a petition in bankruptcy by or against the Maker;
(vii) the issuance of an attachment or the entry of a judgment against the Maker
in excess of $50,000; (viii) a default by the Maker with respect to any other
indebtedness due to the Payee; (ix) the making or sending of a notice of an
intended bulk sale by the Maker; or (x) the termination of existence,
dissolution or insolvency of the Maker. Upon the occurrence of any of the
foregoing Events of Default, this Note shall be considered to be in default and
the entire unpaid principal sum hereof, together with accrued interest, shall at
the option of the holder hereof become immediately due and payable in full. Upon
the occurrence of an Event of Default which remains uncured as set forth herein
and the placement of this Note in the hands of an attorney for collection, the
Maker agrees to pay reasonable collection costs and expenses, including
reasonable attorneys' fees and interest from the date of the default at the rate
of fifteen percent (15%) per annum computed on the unpaid principal balance.
(b) The Payee may waive any Event of Default hereunder. Such waiver
shall be evidenced by written notice or other document specifying the Event or
Events of Default being waived and shall be binding on all existing or
subsequent Payees under this Note.
(c) Notwithstanding anything else to the contrary set forth herein,
upon the occurrence of an Event of Default, including but not limited to the
failure to pay when due any principal or interest hereunder, the Maker shall
have six (6) months from the date of the occurrence of each such Event of
Default to cure such default, during which time, the Payee may not take any
action against the Maker with respect to collection hereunder or enforcement of
the provisions hereof.
11. Survival. In the event that all or a portion of the principal hereunder is
converted pursuant to Section 3 above, Section 7 hereof relating to registration
rights shall survive the termination of this Note upon cancellation hereof
resulting from repayment of the balance of amounts outstanding hereunder or the
issuance of a new note pursuant to Section 3 above.
12. Construction; Governing Law. The validity and construction of this Note and
all matters pertaining hereto are to be determined in accordance with the laws
of the State of Maryland without regard to the conflicts of law principles
thereof.
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IN WITNESS WHEREOF, Maker, by its appropriate officers thereunto duly
authorized, has executed this convertible promissory note and affixed its
corporate seal as of this 24th day of June, 1997.
ESSEX CORPORATION
By: Joseph R. Kurry, Jr.
--------------------------
Joseph R. Kurry, Jr., Chief Financial Officer
ATTEST:
By: Sarah E. Roberts
- -----------------------
Sarah E. Roberts, Assistant Secretary
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CONVERSION FORM
The undersigned hereby elects to convert the following principal amount
of the attached Non-Negotiable 8% Convertible Promissory Note (the "Note") (not
to exceed $______) into shares (not to exceed _______ shares) of Newco Common
Stock or Company Common Stock, in accordance with the formula set forth in
Section 2(a).
State such amount: _____________________________________ ($___________).
Date: Signature:
--------------------------------------------------
(Sign exactly as your name appears on the Note)
EXHIBIT 10.20
8% Convertible Note Payable - Samuel Hopkins
<PAGE>
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN
THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE AND THE SAME HAVE BEEN (OR WILL BE, WITH
RESPECT TO THE SECURITIES ISSUABLE UPON CONVERSION HEREOF) ISSUED IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED
UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
NON-NEGOTIABLE 8% CONVERTIBLE PROMISSORY NOTE
$ 20,000 Columbia, Maryland
June 24, 1997
FOR VALUE RECEIVED, the undersigned, Essex Corporation, a Virginia
corporation (hereinafter referred to as the "Maker" or the "Company") hereby
promises to pay Samuel Hopkins (the "Payee") at 45 Warrenton Road, Baltimore, MD
21210 or at such other place as the holder hereof may from time to time
designate in writing, the principal sum of Twenty Thousand and 00/100 Dollars
($20,000) in one installment due upon the earlier of: (i) one (1) year from the
date of issuance of the promissory note; or (ii) ten (10) business days after
the date of consummation of stock acquisition/sale of substantially all of the
assets or the merger of the Company by or with an unrelated entity or business
enterprise (the "Acquisition"), which transaction requires shareholder approval.
Interest shall be paid by Maker to the Payee on the Maturity Date at the simple
rate of eight (8%) percent per annum computed on the unpaid principal balance.
By acceptance of this Non-Negotiable 8% Convertible Promissory Note (the
"Note"), the Payee represents, warrants, covenants and agrees that he, she or it
will abide by and be bound by its terms.
1. Prepayment, Extension and Notices. The unpaid principal balance outstanding
under this Note may be prepaid in part or in full by the Maker without penalty,
upon fifteen (15) days notice to the Payee stating the repayment amount and
repayment date (the "Repayment Date"). The Maker must provide notice of its
intention to prepay amounts outstanding hereunder at least five (5) business
days prior to the Maturity Date to the Payee.
2. Conversion. The unpaid principal amount of this Note and the interest
thereon, shall be convertible at the option of the Payee (the "Conversion
Right") prior to the Maturity Date, in the manner and on the terms hereinafter
set forth, into shares of common stock of the Company, par value ($.10) at any
time prior to the Maturity Date at a conversion price equal to the greater of
market value on the date that the election to convert is made or fifty cents
($.50) per shares, subject to adjustment pursuant to Section 4 hereof; provided
however, that in the event the assets of the optoelectronics division of the
Company have been transferred to another business
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enterprise [in which the Company has a controlling shareholder interest]
("Transferee"), and at the election of the Payee, the unpaid principal amount of
this Note and the accrued interest thereon, shall be convertible into a
percentage equity interest of the Transferee determined pursuant to the
following formula:
x/y where x is the dollar amount converted and y is the fair
market value (or mean fair market value, if more than one
valuation methodology is utilized) as determined by a third
party expert in providing such valuations retained by the
Company..
(b) Notice of the right to convert shall be given promptly after the
date of Acquisition and Maker shall have the period of time between such Notice
date and the Maturity Date (but in no event less than ten (10) business days)
during which Payee shall have the opportunity to elect to convert the principal
and interest into Newco Common Stock, or receive cash payment.
(c) Notwithstanding any other provision of this Note to the contrary,
upon receipt of notice of the Maker's intent to prepay part or all of the
principal amount hereunder or of an Accelerated Maturity Date, the Payee may
elect to exercise the Conversion Right and convert a portion (as set forth in
subsection (a) hereof) of the amount of unpaid principal which the Maker intends
to prepay, up to the close of business on the last business day before the
stated Repayment Date.
(d) Notwithstanding any other provision hereof, the Conversion Right
may not be exercised at any time during which a registration statement under the
Securities Act of 1933 is filed but not effective absent written consent of the
Company.
3. Conversion Procedure. The Conversion Right may be exercised by the Payee by
the surrender of this Note (along with the conversion form attached hereto, duly
executed) to the Maker at the principal office of the Maker. Risk of loss prior
to surrender of this Note shall be borne by the Payee. Consequently, hand
delivery with written acknowledgement of receipt by the Maker or registered or
certified mail, return receipt requested, is the preferred mode of delivery.
Conversion shall be deemed to have been effected on the date when such delivery
of the conversion notice is actually made or, if earlier, at the expiration of
five (5) calendar days after being sent to the Maker by the Payee by registered
or certified mail, return receipt requested, with postage thereon fully prepaid
(the "Conversion Date"). As promptly as practicable thereafter, the Maker shall
issue and deliver to the Payee: (a) a new note representing the difference
between the principal amount of this Note plus interest accrued through the
Conversion Date, and the principal amount hereof which has been converted
pursuant hereto; and (b) certificates representing the number of shares of
Common Stock to which the Payee is entitled. The Maker shall not be obligated to
issue certificates representing shares of Common Stock in the name of any party
other than the Payee. The person or entity in whose name the certificates
representing the shares of Common Stock issuable upon conversion hereof shall be
deemed to have become a holder of record on the next succeeding day on which the
transfer books are open, but the Conversion Price shall be that in effect on the
Conversion Date. The Maker covenants that all securities which may be issued
upon exercise
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of the Conversion Right will, upon issuance, be fully paid and nonassessable and
free of all taxes, liens and charges caused or created by the Maker with respect
to the issuance thereof.
4. Adjustments. The Conversion Price and the number and kind of securities which
may be received upon the exercise of the Conversion Right shall be subject to
adjustment from time to time upon the happening of certain events, as follows:
(a) Stock Splits and Combinations. If the Maker shall at any time or
from time to time after the date hereof effect a subdivision of its outstanding
shares of Common Stock, the Conversion Price then in effect immediately before
such subdivision shall be proportionately decreased, and conversely, if the
Maker shall at any time or from time to time after the date hereof combine its
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before such combination shall be proportionately increased. Any
adjustment under this section shall become effective upon the close of business
on the date the subdivision or combination becomes effective.
(b) Certain Dividends and Distributions. In the event that the Maker
shall at any time or from time to time after the date hereof make or issue, or
fix a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event, the Conversion Price then
in effect shall be decreased as of the time of such issuance or, in the event
that such a record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price then in effect by a
fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(2) the denominator of which shall be the sum of the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date and the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter such Conversion
Price shall be adjusted pursuant to this subsection as of the time of actual
payment of such dividends or distributions.
(c) Other Dividends and Distributions. In the event that the Maker at
any time or from time to time after the date hereof shall make or issue, or fix
a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Maker other than shares of Common Stock, then and in each such event
provisions shall be made so that the holder of this Note shall receive, upon
conversion of this Note, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Maker which such holder
would have received had its Note been converted into shares of Common Stock on
the date of such event and had thereafter, during the period from the date of
such event to and including the Conversion Date,
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retained such securities (together with any distributions payable thereon during
such period) receivable by the holder as aforesaid during such period, giving
application to all adjustments called for during such period under this section
with respect to the rights of the holder of the Note.
(d) Reclassification, Exchange or Substitution. If the shares of Common
Stock issuable upon the conversion of this Note shall be changed into the same
or different number of shares of any class or classes of capital stock, whether
by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for in
subsection (e) below), then and in each such event, the holder of this Note
shall have the right thereafter to convert this Note into the kind and amount of
shares of capital stock and other securities and property receivable upon such
reorganization, reclassification or other change, as the holder of the number of
shares of Common Stock into which this Note might have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(e) Reorganization, Merger, Consolidation or Sale of Assets. If, at any
time or from time to time, there shall be a capital reorganization of the shares
of Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this section) or a merger or
consolidation of the Maker with or into another corporation, or the sale of all
or substantially all of the Maker's properties and assets to any other person or
entity, then as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holder of this Note shall thereafter be
entitled to receive upon conversion of this Note, the number of shares of
capital stock or other securities or property of the Maker, or of the successor
corporation resulting from such merger or consolidation or sale, to which the
holder of shares of Common Stock deliverable upon conversion would have been
entitled on such reorganization, merger, consolidation, or sale. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this section with respect to the rights of the holder of this Note after the
reorganization, merger, consolidation or sale to the end that the provisions of
this section (including adjustment of the Conversion Price then in effect and
the number of shares of Common Stock receivable upon conversion of this Note)
shall be applicable after that event as nearly equivalent hereto as may be
practicable.
(f) Material Financing. If the Corporation at an time during a twelve
(12) month period commencing on the date of issuance of the Note, enters into a
transaction with a third party which is intended to provide material financing
to the Corporation, and such transaction includes rights of conversion similar
to those granted in this Note, then the Conversion Price shall be adjusted
downward to be equal to the Conversion Price granted to such third party.
(g) Minimum Adjustment. Notwithstanding anything to the contrary set
forth herein, no adjustment of the Conversion Price shall be made in an amount
equal to less than one cent ($.01), but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to one cent ($.01) or more.
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(h) Certificate of Adjustment. Upon the occurrence of each adjustment
or readjustment of the applicable Conversion Price pursuant to this section, the
Maker shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to the holder of this Note a
certificate, signed by the Chairman of the Board, the President or the Chief
Financial Officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
(i) Notices of Record Date. If and in the event that:
(1) the Maker shall set a record date for the purpose of
entitling the holders of shares of Common Stock to receive a dividend, or any
other distribution, payable otherwise than in cash;
(2) the Maker shall set a record date for the purpose of
entitling the holders of shares of Common Stock to subscribe for or purchase any
shares of any class or to receive any other rights;
(3) there shall occur any capital reorganization of the Maker,
reclassification of the shares of capital stock of the Maker (other than a
subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Maker with or into another corporation, or sale
of all or substantially all of the assets of the Maker; or
(4) there shall occur a voluntary or involuntary dissolution,
liquidation, or winding up of the Maker;
then, and in any such case, the Maker shall cause to be mailed to the holder of
record of this Note, at least [thirty (30) days] prior to the dates hereinafter
specified, a notice stating the date: (A) which has been set as the record date
for the purpose of such dividend, distribution, or rights; or (B) on which such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the record date as of which the
holder of record shall be entitled to exchange this Note for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, sale, dissolution, liquidation or winding up.
5. Reservation. The Maker covenants that, during the period within which the
Conversion Right may be exercised, the Maker will at all times have authorized
and reserved for the purpose of issuance upon exercise of the Conversion Right,
a sufficient number of shares of Common Stock (or other securities subject to
the Conversion Right) to provide for the exercise of the Conversion Right in
full.
6. Fractional Shares. No fractional shares of Common Stock shall be issued upon
conversion of this Note. In lieu of any fractional shares of Common Stock to
which the Payee would otherwise be entitled, the Maker shall pay an amount equal
to the product of such fraction multiplied by the fair value of one share of
Common Stock on the Conversion Date, as determined in good faith by the Board of
Directors of the Maker.
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7. Registration Rights. The Maker hereby covenants and agrees as follows:
(a) Definitions. For purposes of this section:
(1) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of
1933, as amended (the "Securities Act"), and the declaration of
effectiveness of such registration statement or other document by the
Securities and Exchange Commission (the "SEC").
(2) The term "Registrable Securities" means: (A) the shares of
Common Stock issued or issuable upon conversion of this Note; or (B)
any other securities of the Maker issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, in
exchange for or in replacement of the shares of Common Stock referenced
in subsection (A) immediately above, excluding in all cases, however,
any Registrable Securities sold to the public pursuant to a
registration or an exemption from registration.
(3) The number of shares of "Registrable Securities then
outstanding" shall be the number of securities outstanding which are
Registrable Securities.
(4) The term "Holder" as used hereinafter in this Section 7
means any person or entity owning of record Registrable Securities.
(b) Piggy-Back Registration Rights. In the event that (but without any
obligation to do so) the Maker proposes to register any of its securities under
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration on Form S-4, Form S-8 or any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Maker shall promptly give each Holder written notice of such
registration (the "Piggy-Back Notice"); provided, however, that the Maker shall
have no obligation to so notify Holders with respect to any registration
subsequent to the first of such registrations to occur after the issuance of
this Note and shall have no obligation if such registration relates to an
underwritten offering by the Maker and the managing underwriter of the subject
proposed offering expresses its objection thereto to the Maker. Upon the written
request of each Holder given within twenty (20) days after receipt of such
Piggy-Back Notice from the Maker, the Maker shall, subject to the provisions of
Subsections 7(h) and 7(m) below, cause to be included in the registration
statement filed by the Maker under the Securities Act all of the Registrable
Securities that each such Holder has requested to be registered; provided,
however, that the Maker shall have no such obligation if such registration
statement relates to an underwritten offering by the Maker and the managing
underwriter of the subject offering has expressed its objection to the same to
the Maker. To the extent that a Holder is offered the opportunity hereunder to
include all of its Registrable Securities in a registration statement, such
Holder will be deemed to have exercised its sole piggy-back registration right
provided by this Subsection 7(c).
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<PAGE>
(c) Obligations of the Maker. Whenever the Maker shall elect to file a
registration statement to effect the registration of any Registrable Securities,
the Maker shall, as expeditiously as reasonably possible:
(1) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of at least fifty percent (50%) of the Registrable Securities registered
thereunder, keep such registration statement effective for at least four (4)
months.
(2) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus included therein
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(3) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(4) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably requested by the Holders for the
distribution of the securities covered by the registration statement, provided
that the Maker shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction.
(5) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering.
(6) Notify the Holders promptly after the Maker shall have
received notice thereof, of the time when the registration statement becomes
effective or any supplement to any prospectus forming a part of the registration
statement has been filed.
(7) Notify the Holders of any stop order suspending the
effectiveness of the registration statement and use its reasonable best efforts
to remove such stop order.
(d) Furnish Information. It shall be a condition precedent to the
obligations of the Maker to take any action pursuant hereto that any Holder
seeking to include any of its Registrable Securities in a registration statement
filed by the Maker pursuant hereto shall furnish to the Maker such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of its Registrable Securities. In that connection, each such Holder
shall be required to represent to the Maker that all such information which is
given is both complete and accurate in all material respects. Each of such
Holders shall deliver to the Maker a statement in writing from
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<PAGE>
the beneficial owners of such securities that such beneficial owners bona fide
intend to sell, transfer or otherwise dispose of such securities.
(e) Definition of Expenses.
(1) "Registration Expenses" shall mean all expenses incurred
by the Maker in complying with Sections 7(c) and 7(d) hereof, including without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Maker, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Maker which shall be
paid in any event by the Maker).
(2) "Selling Expenses" shall mean all underwriting discounts,
selling commissions and underwriters' expense allowance applicable to the sale
and all fees and disbursements of any special counsel (other than the Maker's
regular counsel) for any Holder.
(f) Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance herewith, shall be
borne by the Maker, and all Selling Expenses shall be borne by the Holders of
the securities so registered pro rata on the basis of the number of Registrable
Securities so registered.
(g) Underwriting Requirements. All Holders proposing to distribute
their securities through an underwriting pursuant hereto shall (together with
the Maker and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Maker.
Notwithstanding any other provision of this section, at the request of the
managing underwriter, the Holder shall delay the sale of Registrable Securities
which such Holder has requested be registered under this section for the ninety
(90) day period commencing with the effective date of the registration
statement. Notwithstanding anything to the contrary herein, no such delay shall
be required with respect to securities offered by holders of securities who have
requested the Maker to register such securities pursuant to a mandatory
registration obligation of the Maker if other security holders of the Maker who
have not made requests pursuant to such an obligation are not subject to a
similar delay. If any Holder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice to the Maker and the
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be withdrawn from such registration except at the
election of the Holder.
(h) Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this section.
(i) Indemnification. In the event that any Registrable Securities are
included in a registration statement pursuant hereto:
(1) To the extent permitted by law, the Maker will indemnify
and hold harmless each Holder, the officers, directors and partners of
each Holder, any
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<PAGE>
underwriter (as defined in the Securities Act) for such Holder and each
person or entity, if any, that controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), against any losses, claims,
damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a
"Violation"): (A) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto; (B) the omission or alleged omission
to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading; or (C) any
violation or alleged violation by the Maker of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state
securities law; and the Maker will reimburse each such Holder, officer,
director or partner, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in
this subsection shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Maker (which consent shall not be
unreasonably withheld), nor shall the Maker be liable in any such case
for any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such
Holder, underwriter or controlling person; and further provided,
however, that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in the definitive prospectus,
such indemnity agreement shall not inure to the benefit of the
underwriter (or the benefit of any person or entity that controls such
underwriter), if a copy of the definitive prospectus was not sent or
given to such person or entity with or prior to the confirmation of the
sale of such securities to such person or entity.
(2) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Maker, each of its directors, each of
its officers who have signed the registration statement, each person,
if any, who controls the Maker within the meaning of the Securities Act
or the Exchange Act, any underwriter (within the meaning of the
Securities Act) for the Maker, any person who (or entity that) controls
such underwriter, and any other Holder selling securities in such
registration statement or any of its directors or officers or any
person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Maker or any such director,
officer, controlling person (or entity), or underwriter or controlling
person, or other such Holder or director, officer or controlling person
may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance
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<PAGE>
upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably
incurred by the Maker or any such director, officer, controlling person
(or entity), underwriter or controlling person (or entity), other
Holder, officer, director or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in
this subsection shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld.
(3) Promptly after receipt by an indemnified party under this
Section 7(i) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 7(i), notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly notified, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due
to actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such
proceeding. The failure to notify an indemnifying party within a
reasonable time of the commencement of any such action, to the extent
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 7(i), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 7(i).
(j) Reports Under Securities Exchange Act of 1934. With a view toward
making available to Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Maker to the public without
registration, the Maker agrees to:
(1) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at
all times;
(2) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Maker under the
Securities Act and the Exchange Act; and
(3) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request such information as may
be reasonably requested in order to allow any Holder to avail himself
of any rule or regulation of the SEC which permits the selling of any
such securities without registration.
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(k) Termination of the Maker's Obligations.
(1) The Maker shall have no obligation pursuant to Section 7
with respect to any request made by any Holder after the first anniversary of
the Maturity Date.
(2) Notwithstanding any provision hereof to the contrary, the
Maker shall not be required to effect any registration under the Securities Act
or under any state securities laws on behalf of any Holder or Holders if, in the
opinion of counsel for the Maker, the offering or transfer by such Holder or
Holders in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred and the method of offering or
transfer) is exempt from the registration requirements of the Securities Act and
the securities laws of applicable states.
(l) Lock Ups; Limitation on Rights. The Payee (and any subsequent
Holder) by acceptance hereof hereby agrees that, in the event that subsequent to
the date hereof, the Maker conducts an underwritten public offering of its
securities: (i) the right to request registration pursuant to the provisions
hereof shall be subject to the approval of the underwriter of such public
offering; and (ii) the Payee (and any subsequent Holder) shall agree to refrain
from exercising such rights or selling, transferring or otherwise disposing of
any of the Registrable Securities for a period of up to thirteen months should
the underwriter so request in writing.
8. Miscellaneous.
(a) Restricted Securities. By acceptance hereof, the Payee understands
and agrees that this Note and the shares of Common Stock issuable upon
conversion hereof are "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Maker in a transaction not
involving a public offering and have not been the subject of registration under
the Securities Act and that under such laws and applicable regulations such
securities may be resold in the absence of registration under the Securities Act
only in certain limited circumstances. The Payee hereby represents that he, she
or it is familiar with Rule 144 promulgated under the Securities Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act.
(b) Further Limitations on Disposition. This Note may not be
negotiated, assigned or transferred by Payee. The Payee further agrees not to
make any disposition of all or any portion of this Note (or of the securities
issuable upon conversion hereof) unless and until:
(1) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement;
(2) such disposition is made in accordance with Rule 144 under
the Securities Act; or
(3) the Payee shall have notified the Maker of the proposed
disposition and shall have furnished the Maker with a detailed
statement of the circumstances
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surrounding the proposed disposition, and the Payee shall have
furnished the Maker with an opinion of counsel, which opinion of
counsel shall be reasonably satisfactory to the Maker, that such
disposition will not require registration under the Securities Act and
will be in compliance with applicable state securities laws.
(c) Legends. It is understood that this Note and each certificate
evidencing shares of Common Stock issuable upon conversion hereof (or evidencing
any other securities issued with respect thereto pursuant to any stock split,
stock dividend, merger or other form of reorganization or recapitalization)
shall bear the legends (in addition to any legends which may be required in the
opinion of the Maker's counsel by the securities laws of the state where the
Payee is located) substantially as set forth on the first page of this Note.
(d) Presentment. Except as set forth herein, Maker waives presentment,
demand and presentation for payment, notice of nonpayment and dishonor, protest
and notice of protest and expressly agrees that this Note or any payment
hereunder may be extended from time to time by the Payee without in any way
affecting the liability of Maker.
9. Notices.
(a) Notices to the Payee. Any notice required by the provisions of this
Note to be given to the holder hereof shall be in writing and may be delivered
by personal service, facsimile transmission or by registered or certified mail,
return receipt requested, with postage thereon fully prepaid or overnight
delivery courier. All such communications shall be addressed to the Payee of
record at its address appearing on the books of the Maker. Service of any such
communication made only by mail shall be deemed complete on the date of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of the third (3rd) business day after the date of mailing, whichever
is earlier in time.
(b) Notices to the Maker. Whenever any provision of this Note requires
a notice to be given or a request to be made to the Maker by the Payee or the
holder of any other security of the Maker obtained in connection with a
recapitalization, merger, dividend or other event affecting this Note, then and
in each such case, any such notice or request shall be in writing and shall be
sent by registered or certified mail, return receipt requested with postage
thereon fully prepaid to the Maker at its principal place of business.
No notice given or request made hereunder shall be valid unless signed
by the Payee of this Note or other holder giving such notice or request (or, in
the case of a notice or request 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 or make such request).
10. Events of Default.
(a) Each of the following shall constitute an event of default (an
"Event of Default") hereunder: (i) the failure to pay when due any principal or
interest hereunder and the continuance of such failure for a period of thirty
(30) days after written notice from the Payee
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to the Maker of such failure; (ii) the violation by the Maker of any covenant or
agreement contained in this Note and the continuance of such violation for a
period of thirty (30) days after written notice from the Payee to the Maker of
such failure; (iii) any change in control of the Maker which the Board of
Directors of the Maker deems to be hostile or unfriendly; (iv) the assignment
for the benefit of creditors by the Maker; (v) the application for the
appointment of a receiver or liquidator for the Maker or for property of the
Maker; (vi) the filing of a petition in bankruptcy by or against the Maker;
(vii) the issuance of an attachment or the entry of a judgment against the Maker
in excess of $50,000; (viii) a default by the Maker with respect to any other
indebtedness due to the Payee; (ix) the making or sending of a notice of an
intended bulk sale by the Maker; or (x) the termination of existence,
dissolution or insolvency of the Maker. Upon the occurrence of any of the
foregoing Events of Default, this Note shall be considered to be in default and
the entire unpaid principal sum hereof, together with accrued interest, shall at
the option of the holder hereof become immediately due and payable in full. Upon
the occurrence of an Event of Default which remains uncured as set forth herein
and the placement of this Note in the hands of an attorney for collection, the
Maker agrees to pay reasonable collection costs and expenses, including
reasonable attorneys' fees and interest from the date of the default at the rate
of fifteen percent (15%) per annum computed on the unpaid principal balance.
(b) The Payee may waive any Event of Default hereunder. Such waiver
shall be evidenced by written notice or other document specifying the Event or
Events of Default being waived and shall be binding on all existing or
subsequent Payees under this Note.
(c) Notwithstanding anything else to the contrary set forth herein,
upon the occurrence of an Event of Default, including but not limited to the
failure to pay when due any principal or interest hereunder, the Maker shall
have six (6) months from the date of the occurrence of each such Event of
Default to cure such default, during which time, the Payee may not take any
action against the Maker with respect to collection hereunder or enforcement of
the provisions hereof.
11. Survival. In the event that all or a portion of the principal hereunder is
converted pursuant to Section 3 above, Section 7 hereof relating to registration
rights shall survive the termination of this Note upon cancellation hereof
resulting from repayment of the balance of amounts outstanding hereunder or the
issuance of a new note pursuant to Section 3 above.
12. Construction; Governing Law. The validity and construction of this Note and
all matters pertaining hereto are to be determined in accordance with the laws
of the State of Maryland without regard to the conflicts of law principles
thereof.
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IN WITNESS WHEREOF, Maker, by its appropriate officers thereunto duly
authorized, has executed this convertible promissory note and affixed its
corporate seal as of this 24th day of June, 1997.
ESSEX CORPORATION
By: Joseph R. Kurry, Jr.
-------------------------
Joseph R. Kurry, Jr., Chief Financial Officer
ATTEST:
By: Sarah E. Roberts
- ----------------------
Sarah E. Roberts, Assistant Secretary
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CONVERSION FORM
The undersigned hereby elects to convert the following principal amount
of the attached Non-Negotiable 8% Convertible Promissory Note (the "Note") (not
to exceed $______) into shares (not to exceed _______ shares) of Newco Common
Stock or Company Common Stock, in accordance with the formula set forth in
Section 2(a).
State such amount: _____________________________________ ($___________).
Date: Signature:
-------------------------------------------------
(Sign exactly as your name appears on the Note)
EXHIBIT 10.21
8% Convertible Note Payable - Harold P. Hanson
<PAGE>
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN
THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE AND THE SAME HAVE BEEN (OR WILL BE, WITH
RESPECT TO THE SECURITIES ISSUABLE UPON CONVERSION HEREOF) ISSUED IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED
UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
NON-NEGOTIABLE 8% CONVERTIBLE PROMISSORY NOTE
$ 10,000 Columbia, Maryland
June 24, 1997
FOR VALUE RECEIVED, the undersigned, Essex Corporation, a Virginia
corporation (hereinafter referred to as the "Maker" or the "Company") hereby
promises to pay Harold P. Hanson, Trustee, Harold P. Hanson Trust (the "Payee")
at 2385 N.W. 18th Place, Gainesville, FL 32605 or at such other place as the
holder hereof may from time to time designate in writing, the principal sum of
Ten Thousand and 00/100 Dollars ($10,000) in one installment due upon the
earlier of: (i) one (1) year from the date of issuance of the promissory note;
or (ii) ten (10) business days after the date of consummation of stock
acquisition/sale of substantially all of the assets or the merger of the Company
by or with an unrelated entity or business enterprise (the "Acquisition"), which
transaction requires shareholder approval. Interest shall be paid by Maker to
the Payee on the Maturity Date at the simple rate of eight (8%) percent per
annum computed on the unpaid principal balance. By acceptance of this
Non-Negotiable 8% Convertible Promissory Note (the "Note"), the Payee
represents, warrants, covenants and agrees that he, she or it will abide by and
be bound by its terms.
1. Prepayment, Extension and Notices. The unpaid principal balance outstanding
under this Note may be prepaid in part or in full by the Maker without penalty,
upon fifteen (15) days notice to the Payee stating the repayment amount and
repayment date (the "Repayment Date"). The Maker must provide notice of its
intention to prepay amounts outstanding hereunder at least five (5) business
days prior to the Maturity Date to the Payee.
2. Conversion. The unpaid principal amount of this Note and the interest
thereon, shall be convertible at the option of the Payee (the "Conversion
Right") prior to the Maturity Date, in the manner and on the terms hereinafter
set forth, into shares of common stock of the Company, par value ($.10) at any
time prior to the Maturity Date at a conversion price equal to the greater of
market value on the date that the election to convert is made or fifty cents
($.50) per shares, subject to adjustment pursuant to Section 4 hereof; provided
however, that in the event the assets of the optoelectronics division of the
Company have been transferred to another business
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enterprise [in which the Company has a controlling shareholder interest]
("Transferee"), and at the election of the Payee, the unpaid principal amount of
this Note and the accrued interest thereon, shall be convertible into a
percentage equity interest of the Transferee determined pursuant to the
following formula:
x/y where x is the dollar amount converted and y is the fair
market value (or mean fair market value, if more than one
valuation methodology is utilized) as determined by a third
party expert in providing such valuations retained by the
Company..
(b) Notice of the right to convert shall be given promptly after the
date of Acquisition and Maker shall have the period of time between such Notice
date and the Maturity Date (but in no event less than ten (10) business days)
during which Payee shall have the opportunity to elect to convert the principal
and interest into Newco Common Stock, or receive cash payment.
(c) Notwithstanding any other provision of this Note to the contrary,
upon receipt of notice of the Maker's intent to prepay part or all of the
principal amount hereunder or of an Accelerated Maturity Date, the Payee may
elect to exercise the Conversion Right and convert a portion (as set forth in
subsection (a) hereof) of the amount of unpaid principal which the Maker intends
to prepay, up to the close of business on the last business day before the
stated Repayment Date.
(d) Notwithstanding any other provision hereof, the Conversion Right
may not be exercised at any time during which a registration statement under the
Securities Act of 1933 is filed but not effective absent written consent of the
Company.
3. Conversion Procedure. The Conversion Right may be exercised by the Payee by
the surrender of this Note (along with the conversion form attached hereto, duly
executed) to the Maker at the principal office of the Maker. Risk of loss prior
to surrender of this Note shall be borne by the Payee. Consequently, hand
delivery with written acknowledgement of receipt by the Maker or registered or
certified mail, return receipt requested, is the preferred mode of delivery.
Conversion shall be deemed to have been effected on the date when such delivery
of the conversion notice is actually made or, if earlier, at the expiration of
five (5) calendar days after being sent to the Maker by the Payee by registered
or certified mail, return receipt requested, with postage thereon fully prepaid
(the "Conversion Date"). As promptly as practicable thereafter, the Maker shall
issue and deliver to the Payee: (a) a new note representing the difference
between the principal amount of this Note plus interest accrued through the
Conversion Date, and the principal amount hereof which has been converted
pursuant hereto; and (b) certificates representing the number of shares of
Common Stock to which the Payee is entitled. The Maker shall not be obligated to
issue certificates representing shares of Common Stock in the name of any party
other than the Payee. The person or entity in whose name the certificates
representing the shares of Common Stock issuable upon conversion hereof shall be
deemed to have become a holder of record on the next succeeding day on which the
transfer books are open, but the Conversion Price shall be that in effect on the
Conversion Date. The Maker covenants that all securities which may be issued
upon exercise
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of the Conversion Right will, upon issuance, be fully paid and nonassessable and
free of all taxes, liens and charges caused or created by the Maker with respect
to the issuance thereof.
4. Adjustments. The Conversion Price and the number and kind of securities which
may be received upon the exercise of the Conversion Right shall be subject to
adjustment from time to time upon the happening of certain events, as follows:
(a) Stock Splits and Combinations. If the Maker shall at any time or
from time to time after the date hereof effect a subdivision of its outstanding
shares of Common Stock, the Conversion Price then in effect immediately before
such subdivision shall be proportionately decreased, and conversely, if the
Maker shall at any time or from time to time after the date hereof combine its
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before such combination shall be proportionately increased. Any
adjustment under this section shall become effective upon the close of business
on the date the subdivision or combination becomes effective.
(b) Certain Dividends and Distributions. In the event that the Maker
shall at any time or from time to time after the date hereof make or issue, or
fix a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event, the Conversion Price then
in effect shall be decreased as of the time of such issuance or, in the event
that such a record date shall have been fixed, as of the close of business on
such record date, by multiplying the Conversion Price then in effect by a
fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(2) the denominator of which shall be the sum of the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date and the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter such Conversion
Price shall be adjusted pursuant to this subsection as of the time of actual
payment of such dividends or distributions.
(c) Other Dividends and Distributions. In the event that the Maker at
any time or from time to time after the date hereof shall make or issue, or fix
a record date for the determination of holders of shares of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Maker other than shares of Common Stock, then and in each such event
provisions shall be made so that the holder of this Note shall receive, upon
conversion of this Note, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Maker which such holder
would have received had its Note been converted into shares of Common Stock on
the date of such event and had thereafter, during the period from the date of
such event to and including the Conversion Date,
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<PAGE>
retained such securities (together with any distributions payable thereon during
such period) receivable by the holder as aforesaid during such period, giving
application to all adjustments called for during such period under this section
with respect to the rights of the holder of the Note.
(d) Reclassification, Exchange or Substitution. If the shares of Common
Stock issuable upon the conversion of this Note shall be changed into the same
or different number of shares of any class or classes of capital stock, whether
by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for in
subsection (e) below), then and in each such event, the holder of this Note
shall have the right thereafter to convert this Note into the kind and amount of
shares of capital stock and other securities and property receivable upon such
reorganization, reclassification or other change, as the holder of the number of
shares of Common Stock into which this Note might have been converted
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(e) Reorganization, Merger, Consolidation or Sale of Assets. If, at any
time or from time to time, there shall be a capital reorganization of the shares
of Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this section) or a merger or
consolidation of the Maker with or into another corporation, or the sale of all
or substantially all of the Maker's properties and assets to any other person or
entity, then as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holder of this Note shall thereafter be
entitled to receive upon conversion of this Note, the number of shares of
capital stock or other securities or property of the Maker, or of the successor
corporation resulting from such merger or consolidation or sale, to which the
holder of shares of Common Stock deliverable upon conversion would have been
entitled on such reorganization, merger, consolidation, or sale. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this section with respect to the rights of the holder of this Note after the
reorganization, merger, consolidation or sale to the end that the provisions of
this section (including adjustment of the Conversion Price then in effect and
the number of shares of Common Stock receivable upon conversion of this Note)
shall be applicable after that event as nearly equivalent hereto as may be
practicable.
(f) Material Financing. If the Corporation at an time during a twelve
(12) month period commencing on the date of issuance of the Note, enters into a
transaction with a third party which is intended to provide material financing
to the Corporation, and such transaction includes rights of conversion similar
to those granted in this Note, then the Conversion Price shall be adjusted
downward to be equal to the Conversion Price granted to such third party.
(g) Minimum Adjustment. Notwithstanding anything to the contrary set
forth herein, no adjustment of the Conversion Price shall be made in an amount
equal to less than one cent ($.01), but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to one cent ($.01) or more.
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<PAGE>
(h) Certificate of Adjustment. Upon the occurrence of each adjustment
or readjustment of the applicable Conversion Price pursuant to this section, the
Maker shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to the holder of this Note a
certificate, signed by the Chairman of the Board, the President or the Chief
Financial Officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
(i) Notices of Record Date. If and in the event that:
(1) the Maker shall set a record date for the purpose of
entitling the holders of shares of Common Stock to receive a dividend, or any
other distribution, payable otherwise than in cash;
(2) the Maker shall set a record date for the purpose of
entitling the holders of shares of Common Stock to subscribe for or purchase any
shares of any class or to receive any other rights;
(3) there shall occur any capital reorganization of the Maker,
reclassification of the shares of capital stock of the Maker (other than a
subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Maker with or into another corporation, or sale
of all or substantially all of the assets of the Maker; or
(4) there shall occur a voluntary or involuntary dissolution,
liquidation, or winding up of the Maker;
then, and in any such case, the Maker shall cause to be mailed to the holder of
record of this Note, at least [thirty (30) days] prior to the dates hereinafter
specified, a notice stating the date: (A) which has been set as the record date
for the purpose of such dividend, distribution, or rights; or (B) on which such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the record date as of which the
holder of record shall be entitled to exchange this Note for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, sale, dissolution, liquidation or winding up.
5. Reservation. The Maker covenants that, during the period within which the
Conversion Right may be exercised, the Maker will at all times have authorized
and reserved for the purpose of issuance upon exercise of the Conversion Right,
a sufficient number of shares of Common Stock (or other securities subject to
the Conversion Right) to provide for the exercise of the Conversion Right in
full.
6. Fractional Shares. No fractional shares of Common Stock shall be issued upon
conversion of this Note. In lieu of any fractional shares of Common Stock to
which the Payee would otherwise be entitled, the Maker shall pay an amount equal
to the product of such fraction multiplied by the fair value of one share of
Common Stock on the Conversion Date, as determined in good faith by the Board of
Directors of the Maker.
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<PAGE>
7. Registration Rights. The Maker hereby covenants and agrees as follows:
(a) Definitions. For purposes of this section:
(1) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of
1933, as amended (the "Securities Act"), and the declaration of
effectiveness of such registration statement or other document by the
Securities and Exchange Commission (the "SEC").
(2) The term "Registrable Securities" means: (A) the shares of
Common Stock issued or issuable upon conversion of this Note; or (B)
any other securities of the Maker issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, in
exchange for or in replacement of the shares of Common Stock referenced
in subsection (A) immediately above, excluding in all cases, however,
any Registrable Securities sold to the public pursuant to a
registration or an exemption from registration.
(3) The number of shares of "Registrable Securities then
outstanding" shall be the number of securities outstanding which are
Registrable Securities.
(4) The term "Holder" as used hereinafter in this Section 7
means any person or entity owning of record Registrable Securities.
(b) Piggy-Back Registration Rights. In the event that (but without any
obligation to do so) the Maker proposes to register any of its securities under
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration on Form S-4, Form S-8 or any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Maker shall promptly give each Holder written notice of such
registration (the "Piggy-Back Notice"); provided, however, that the Maker shall
have no obligation to so notify Holders with respect to any registration
subsequent to the first of such registrations to occur after the issuance of
this Note and shall have no obligation if such registration relates to an
underwritten offering by the Maker and the managing underwriter of the subject
proposed offering expresses its objection thereto to the Maker. Upon the written
request of each Holder given within twenty (20) days after receipt of such
Piggy-Back Notice from the Maker, the Maker shall, subject to the provisions of
Subsections 7(h) and 7(m) below, cause to be included in the registration
statement filed by the Maker under the Securities Act all of the Registrable
Securities that each such Holder has requested to be registered; provided,
however, that the Maker shall have no such obligation if such registration
statement relates to an underwritten offering by the Maker and the managing
underwriter of the subject offering has expressed its objection to the same to
the Maker. To the extent that a Holder is offered the opportunity hereunder to
include all of its Registrable Securities in a registration statement, such
Holder will be deemed to have exercised its sole piggy-back registration right
provided by this Subsection 7(c).
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<PAGE>
(c) Obligations of the Maker. Whenever the Maker shall elect to file a
registration statement to effect the registration of any Registrable Securities,
the Maker shall, as expeditiously as reasonably possible:
(1) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of at least fifty percent (50%) of the Registrable Securities registered
thereunder, keep such registration statement effective for at least four (4)
months.
(2) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus included therein
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(3) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(4) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably requested by the Holders for the
distribution of the securities covered by the registration statement, provided
that the Maker shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction.
(5) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering.
(6) Notify the Holders promptly after the Maker shall have
received notice thereof, of the time when the registration statement becomes
effective or any supplement to any prospectus forming a part of the registration
statement has been filed.
(7) Notify the Holders of any stop order suspending the
effectiveness of the registration statement and use its reasonable best efforts
to remove such stop order.
(d) Furnish Information. It shall be a condition precedent to the
obligations of the Maker to take any action pursuant hereto that any Holder
seeking to include any of its Registrable Securities in a registration statement
filed by the Maker pursuant hereto shall furnish to the Maker such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of its Registrable Securities. In that connection, each such Holder
shall be required to represent to the Maker that all such information which is
given is both complete and accurate in all material respects. Each of such
Holders shall deliver to the Maker a statement in writing from
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<PAGE>
the beneficial owners of such securities that such beneficial owners bona fide
intend to sell, transfer or otherwise dispose of such securities.
(e) Definition of Expenses.
(1) "Registration Expenses" shall mean all expenses incurred
by the Maker in complying with Sections 7(c) and 7(d) hereof, including without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Maker, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Maker which shall be
paid in any event by the Maker).
(2) "Selling Expenses" shall mean all underwriting discounts,
selling commissions and underwriters' expense allowance applicable to the sale
and all fees and disbursements of any special counsel (other than the Maker's
regular counsel) for any Holder.
(f) Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance herewith, shall be
borne by the Maker, and all Selling Expenses shall be borne by the Holders of
the securities so registered pro rata on the basis of the number of Registrable
Securities so registered.
(g) Underwriting Requirements. All Holders proposing to distribute
their securities through an underwriting pursuant hereto shall (together with
the Maker and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Maker.
Notwithstanding any other provision of this section, at the request of the
managing underwriter, the Holder shall delay the sale of Registrable Securities
which such Holder has requested be registered under this section for the ninety
(90) day period commencing with the effective date of the registration
statement. Notwithstanding anything to the contrary herein, no such delay shall
be required with respect to securities offered by holders of securities who have
requested the Maker to register such securities pursuant to a mandatory
registration obligation of the Maker if other security holders of the Maker who
have not made requests pursuant to such an obligation are not subject to a
similar delay. If any Holder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice to the Maker and the
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be withdrawn from such registration except at the
election of the Holder.
(h) Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this section.
(i) Indemnification. In the event that any Registrable Securities are
included in a registration statement pursuant hereto:
(1) To the extent permitted by law, the Maker will indemnify
and hold harmless each Holder, the officers, directors and partners of
each Holder, any
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underwriter (as defined in the Securities Act) for such Holder and each
person or entity, if any, that controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), against any losses, claims,
damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a
"Violation"): (A) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto; (B) the omission or alleged omission
to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading; or (C) any
violation or alleged violation by the Maker of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state
securities law; and the Maker will reimburse each such Holder, officer,
director or partner, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in
this subsection shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Maker (which consent shall not be
unreasonably withheld), nor shall the Maker be liable in any such case
for any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such
Holder, underwriter or controlling person; and further provided,
however, that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in the definitive prospectus,
such indemnity agreement shall not inure to the benefit of the
underwriter (or the benefit of any person or entity that controls such
underwriter), if a copy of the definitive prospectus was not sent or
given to such person or entity with or prior to the confirmation of the
sale of such securities to such person or entity.
(2) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Maker, each of its directors, each of
its officers who have signed the registration statement, each person,
if any, who controls the Maker within the meaning of the Securities Act
or the Exchange Act, any underwriter (within the meaning of the
Securities Act) for the Maker, any person who (or entity that) controls
such underwriter, and any other Holder selling securities in such
registration statement or any of its directors or officers or any
person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Maker or any such director,
officer, controlling person (or entity), or underwriter or controlling
person, or other such Holder or director, officer or controlling person
may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance
9
<PAGE>
upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably
incurred by the Maker or any such director, officer, controlling person
(or entity), underwriter or controlling person (or entity), other
Holder, officer, director or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in
this subsection shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld.
(3) Promptly after receipt by an indemnified party under this
Section 7(i) of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section 7(i), notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly notified, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due
to actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such
proceeding. The failure to notify an indemnifying party within a
reasonable time of the commencement of any such action, to the extent
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 7(i), but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 7(i).
(j) Reports Under Securities Exchange Act of 1934. With a view toward
making available to Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Maker to the public without
registration, the Maker agrees to:
(1) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at
all times;
(2) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Maker under the
Securities Act and the Exchange Act; and
(3) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request such information as may
be reasonably requested in order to allow any Holder to avail himself
of any rule or regulation of the SEC which permits the selling of any
such securities without registration.
10
<PAGE>
(k) Termination of the Maker's Obligations.
(1) The Maker shall have no obligation pursuant to Section 7
with respect to any request made by any Holder after the first anniversary of
the Maturity Date.
(2) Notwithstanding any provision hereof to the contrary, the
Maker shall not be required to effect any registration under the Securities Act
or under any state securities laws on behalf of any Holder or Holders if, in the
opinion of counsel for the Maker, the offering or transfer by such Holder or
Holders in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred and the method of offering or
transfer) is exempt from the registration requirements of the Securities Act and
the securities laws of applicable states.
(l) Lock Ups; Limitation on Rights. The Payee (and any subsequent
Holder) by acceptance hereof hereby agrees that, in the event that subsequent to
the date hereof, the Maker conducts an underwritten public offering of its
securities: (i) the right to request registration pursuant to the provisions
hereof shall be subject to the approval of the underwriter of such public
offering; and (ii) the Payee (and any subsequent Holder) shall agree to refrain
from exercising such rights or selling, transferring or otherwise disposing of
any of the Registrable Securities for a period of up to thirteen months should
the underwriter so request in writing.
8. Miscellaneous.
(a) Restricted Securities. By acceptance hereof, the Payee understands
and agrees that this Note and the shares of Common Stock issuable upon
conversion hereof are "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Maker in a transaction not
involving a public offering and have not been the subject of registration under
the Securities Act and that under such laws and applicable regulations such
securities may be resold in the absence of registration under the Securities Act
only in certain limited circumstances. The Payee hereby represents that he, she
or it is familiar with Rule 144 promulgated under the Securities Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act.
(b) Further Limitations on Disposition. This Note may not be
negotiated, assigned or transferred by Payee. The Payee further agrees not to
make any disposition of all or any portion of this Note (or of the securities
issuable upon conversion hereof) unless and until:
(1) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement;
(2) such disposition is made in accordance with Rule 144 under
the Securities Act; or
(3) the Payee shall have notified the Maker of the proposed
disposition and shall have furnished the Maker with a detailed
statement of the circumstances
11
<PAGE>
surrounding the proposed disposition, and the Payee shall have
furnished the Maker with an opinion of counsel, which opinion of
counsel shall be reasonably satisfactory to the Maker, that such
disposition will not require registration under the Securities Act and
will be in compliance with applicable state securities laws.
(c) Legends. It is understood that this Note and each certificate
evidencing shares of Common Stock issuable upon conversion hereof (or evidencing
any other securities issued with respect thereto pursuant to any stock split,
stock dividend, merger or other form of reorganization or recapitalization)
shall bear the legends (in addition to any legends which may be required in the
opinion of the Maker's counsel by the securities laws of the state where the
Payee is located) substantially as set forth on the first page of this Note.
(d) Presentment. Except as set forth herein, Maker waives presentment,
demand and presentation for payment, notice of nonpayment and dishonor, protest
and notice of protest and expressly agrees that this Note or any payment
hereunder may be extended from time to time by the Payee without in any way
affecting the liability of Maker.
9. Notices.
(a) Notices to the Payee. Any notice required by the provisions of this
Note to be given to the holder hereof shall be in writing and may be delivered
by personal service, facsimile transmission or by registered or certified mail,
return receipt requested, with postage thereon fully prepaid or overnight
delivery courier. All such communications shall be addressed to the Payee of
record at its address appearing on the books of the Maker. Service of any such
communication made only by mail shall be deemed complete on the date of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of the third (3rd) business day after the date of mailing, whichever
is earlier in time.
(b) Notices to the Maker. Whenever any provision of this Note requires
a notice to be given or a request to be made to the Maker by the Payee or the
holder of any other security of the Maker obtained in connection with a
recapitalization, merger, dividend or other event affecting this Note, then and
in each such case, any such notice or request shall be in writing and shall be
sent by registered or certified mail, return receipt requested with postage
thereon fully prepaid to the Maker at its principal place of business.
No notice given or request made hereunder shall be valid unless signed
by the Payee of this Note or other holder giving such notice or request (or, in
the case of a notice or request 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 or make such request).
10. Events of Default.
(a) Each of the following shall constitute an event of default (an
"Event of Default") hereunder: (i) the failure to pay when due any principal or
interest hereunder and the continuance of such failure for a period of thirty
(30) days after written notice from the Payee
12
<PAGE>
to the Maker of such failure; (ii) the violation by the Maker of any covenant or
agreement contained in this Note and the continuance of such violation for a
period of thirty (30) days after written notice from the Payee to the Maker of
such failure; (iii) any change in control of the Maker which the Board of
Directors of the Maker deems to be hostile or unfriendly; (iv) the assignment
for the benefit of creditors by the Maker; (v) the application for the
appointment of a receiver or liquidator for the Maker or for property of the
Maker; (vi) the filing of a petition in bankruptcy by or against the Maker;
(vii) the issuance of an attachment or the entry of a judgment against the Maker
in excess of $50,000; (viii) a default by the Maker with respect to any other
indebtedness due to the Payee; (ix) the making or sending of a notice of an
intended bulk sale by the Maker; or (x) the termination of existence,
dissolution or insolvency of the Maker. Upon the occurrence of any of the
foregoing Events of Default, this Note shall be considered to be in default and
the entire unpaid principal sum hereof, together with accrued interest, shall at
the option of the holder hereof become immediately due and payable in full. Upon
the occurrence of an Event of Default which remains uncured as set forth herein
and the placement of this Note in the hands of an attorney for collection, the
Maker agrees to pay reasonable collection costs and expenses, including
reasonable attorneys' fees and interest from the date of the default at the rate
of fifteen percent (15%) per annum computed on the unpaid principal balance.
(b) The Payee may waive any Event of Default hereunder. Such waiver
shall be evidenced by written notice or other document specifying the Event or
Events of Default being waived and shall be binding on all existing or
subsequent Payees under this Note.
(c) Notwithstanding anything else to the contrary set forth herein,
upon the occurrence of an Event of Default, including but not limited to the
failure to pay when due any principal or interest hereunder, the Maker shall
have six (6) months from the date of the occurrence of each such Event of
Default to cure such default, during which time, the Payee may not take any
action against the Maker with respect to collection hereunder or enforcement of
the provisions hereof.
11. Survival. In the event that all or a portion of the principal hereunder is
converted pursuant to Section 3 above, Section 7 hereof relating to registration
rights shall survive the termination of this Note upon cancellation hereof
resulting from repayment of the balance of amounts outstanding hereunder or the
issuance of a new note pursuant to Section 3 above.
12. Construction; Governing Law. The validity and construction of this Note and
all matters pertaining hereto are to be determined in accordance with the laws
of the State of Maryland without regard to the conflicts of law principles
thereof.
13
<PAGE>
IN WITNESS WHEREOF, Maker, by its appropriate officers thereunto duly
authorized, has executed this convertible promissory note and affixed its
corporate seal as of this 24th day of June, 1997.
ESSEX CORPORATION
By: Joseph R. Kurry, Jr.
-------------------------
Joseph R. Kurry, Jr., Chief Financial Officer
ATTEST:
By: Sarah E. Roberts
- ----------------------
Sarah E. Roberts, Assistant Secretary
14
<PAGE>
CONVERSION FORM
The undersigned hereby elects to convert the following principal amount
of the attached Non-Negotiable 8% Convertible Promissory Note (the "Note") (not
to exceed $______) into shares (not to exceed _______ shares) of Newco Common
Stock or Company Common Stock, in accordance with the formula set forth in
Section 2(a).
State such amount: _____________________________________ ($___________).
Date: Signature:
------------------------------------------------
(Sign exactly as your name appears on the Note)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<CASH> 782
<SECURITIES> 0
<RECEIVABLES> 515
<ALLOWANCES> (98)
<INVENTORY> 781
<CURRENT-ASSETS> 2,050
<PP&E> 1,866
<DEPRECIATION> (1,530)
<TOTAL-ASSETS> 3,977
<CURRENT-LIABILITIES> 2,653
<BONDS> 1,400
120
0
<COMMON> 363
<OTHER-SE> 5,316
<TOTAL-LIABILITY-AND-EQUITY> 3,977
<SALES> 2,064
<TOTAL-REVENUES> 2,064
<CGS> 1,392
<TOTAL-COSTS> 2,832
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> (885)
<INCOME-TAX> 0
<INCOME-CONTINUING> (885)
<DISCONTINUED> (101)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (986)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
