<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- ----------------
Commission File Number 0-3704
NAI TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
New York 11-1798773
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1000 Woodbury Road, Woodbury, New York 11797-2530
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (516) 364-4433
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
--- ---
As of October 25, 1995, 7,459,437 shares of NAI Technologies, Inc.'s $.10 par
value Common Stock were outstanding.
Exhibit Index on Page 16
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Page 2
NAI TECHNOLOGIES, INC.
----------------------
INDEX
-----
<TABLE>
<CAPTION>
PAGE
<S> <C>
Facing Sheet 1
Index 2
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - 3
September 30, 1995 and December 31, 1994
Consolidated Statements of Operations - 4
Three months ended September 30, 1995 and
October 1, 1994
Consolidated Statements of Operations - 5
Nine months ended September 30, 1995 and
October 1, 1994
Consolidated Statements of Cash Flows - 6
Nine months ended September 30, 1995 and
October 1, 1994
Other financial information 7
Item 2. Management's Discussion and Analysis of 8-13
Financial Condition and Results of Operations
PART II. Other Information 14
Signatures 15
Exhibits 16
</TABLE>
<PAGE>
Page 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Sept. 30, Dec. 31,
1995 1994
(Unaudited)
- --------------------------------------------------------------------------------------------
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,436 $ 1,658
Accounts receivables, net 14,043 12,508
Income taxes receivable - 4,732
Inventories, net 10,983 14,052
Deferred tax asset 372 378
Other current assets 1,242 871
- --------------------------------------------------------------------------------------------
Total current assets 28,076 34,199
- --------------------------------------------------------------------------------------------
Property, plant and equipment, net 5,252 7,657
Excess of cost over fair value of assets acquired, net 10,497 10,865
Long-term notes receivable 1,190 -
Other assets 666 999
- --------------------------------------------------------------------------------------------
Total assets $45,681 $53,720
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Notes payable $ - $ 127
Current installments of long-term debt 15,437 2,179
Accounts payable 9,489 7,484
Accrued payroll and commissions 369 535
Other accrued expenses 5,290 6,435
Income taxes payable 238 774
- --------------------------------------------------------------------------------------------
Total current liabilities 30,823 17,534
- --------------------------------------------------------------------------------------------
Notes payable - 6,000
Long-term debt 249 7,990
Other accrued expenses 2,588 1,522
Deferred income taxes 378 378
- --------------------------------------------------------------------------------------------
Total liabilities 34,038 33,424
- --------------------------------------------------------------------------------------------
Shareholders' Equity:
Capital Stock:
Preferred stock, no par value, 2,000,000
shares authorized and unissued - -
Common stock, $.10 par value, 10,000,000
shares authorized; shares issued: 7,459,437
in 1995 and 7,174,592 in 1994 746 717
Capital in excess of par value 15,249 14,718
Foreign currency translation adjustment 89 107
Retained earnings (4,441) 4,754
- --------------------------------------------------------------------------------------------
Total shareholders' equity 11,643 20,296
- --------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $45,681 $53,720
============================================================================================
</TABLE>
<PAGE>
Page 4
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For the Three Months Ended
--------------------------
Sept. 30, Oct. 1,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Net sales $15,887 $12,093
- --------------------------------------------------------------------------------
Cost of sales 14,097 9,427
- --------------------------------------------------------------------------------
Gross margin 1,790 2,666
- --------------------------------------------------------------------------------
Selling expense 1,269 1,644
General and administrative expense 1,413 1,200
Research and development 425 657
Other 170 55
- --------------------------------------------------------------------------------
Total expenses 3,277 3,556
- --------------------------------------------------------------------------------
Operating loss (1,487) (890)
- --------------------------------------------------------------------------------
Non-operating income (expense)
Deferred debt expense (300) -
Interest income 48 39
Interest expense (446) (397)
- --------------------------------------------------------------------------------
(698) (358)
- --------------------------------------------------------------------------------
Loss before income taxes (2,185) (1,248)
Provision for (recovery of) income taxes 111 (417)
- --------------------------------------------------------------------------------
Net loss $(2,296) $ (831)
================================================================================
Loss per common share $( 0.31) $ (0.12)
================================================================================
Average shares outstanding 7,459 6,808
================================================================================
</TABLE>
<PAGE>
Page 5
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
For the Nine Months Ended
-------------------------
Sept. 30, Oct. 1,
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Net sales $42,658 $42,518
- -------------------------------------------------------------------------------
Cost of sales 40,177 34,039
- -------------------------------------------------------------------------------
Gross margin 2,481 8,479
- -------------------------------------------------------------------------------
Selling expense 3,775 5,966
General and administrative expense 4,172 4,293
Research and development 1,451 2,673
Restructuring Expense - 7,321
Other 396 336
- -------------------------------------------------------------------------------
Total expenses 9,794 20,589
- -------------------------------------------------------------------------------
Operating loss (7,313) (12,110)
- -------------------------------------------------------------------------------
Non-operating income (expense)
Deferred debt expense (600) -
Interest income 136 62
Interest expense (1,197) (1,072)
- -------------------------------------------------------------------------------
(1,661) (1,010)
- -------------------------------------------------------------------------------
Loss before income taxes (8,974) (13,120)
Provision for (recovery of) income taxes 221 (4,575)
- -------------------------------------------------------------------------------
Net loss $(9,195) $(8,545)
===============================================================================
Loss per common share $( 1.25) $( 1.26)
===============================================================================
Average shares outstanding 7,356 6,794
===============================================================================
</TABLE>
<PAGE>
Page 6
NAI TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
Sept. 30, Oct. 1,
1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(9,195) $(8,545)
Adjustments to reconcile net loss
to cash provided by operating activities:
Depreciation and amortization 2,190 1,865
(Gain) loss on disposal of property, plant & equipment (2) 2,298
Change in assets and liabilities, excluding effects from
acquisitions and foreign currency adjustments:
Accounts receivable (1,535) 2,465
Inventories 3,069 1,360
Accounts payable and other accrued expenses 1,859 3,128
Income taxes 4,202 (3,968)
Other, net 252 752
- -----------------------------------------------------------------------------------------------
Net cash flow provided by (used in) operating activities 840 (645)
- -----------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Contingent payment on purchase of KMS Advanced Products (103) (149)
Purchase of property, plant and equipment (439) (804)
Proceeds from sale of property, plant and equipment 440 28
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (102) (925)
- -----------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Issuances of notes payable 6 8,422
Payments of notes payable (133) (5,117)
Payments of long-term debt (533) (3,067)
Receipts of notes receivable - 223
Payments for debt restructuring (340) -
Proceeds from exercise of stock options
and stock purchase plan 60 108
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (940) 569
- -----------------------------------------------------------------------------------------------
Effect of foreign currency exchange rates on cash (20) 157
- -----------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (222) (844)
Cash and cash equivalents at beginning of year 1,658 1,717
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,436 $ 873
===============================================================================================
Supplemental disclosure of cash flow information:
Cash paid (refunded) for:
Interest $ 1,049 $ 1,057
Income taxes $(4,725) $ (606)
Non-cash investing and financing activities
Notes receivable from sale of property $ 1,190 -
Common stock issued in debt restructuring $ 500 -
===============================================================================================
</TABLE>
<PAGE>
Page 7
OTHER FINANCIAL INFORMATION
---------------------------
UNAUDITED FINANCIAL STATEMENTS
- ------------------------------
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission ('SEC') and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position, results of operations and cash flows for the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the SEC. The Company believes that the disclosures contained
herein are adequate to make the information presented not misleading. The
consolidated statements of operations for the nine months ended September 30,
1995 are not necessarily indicative of the results to be expected for the full
year. These unaudited financial statements should be read in conjunction with
the audited financial statements and accompanying notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Sept. 30, Dec. 31,
1995 1994
(Unaudited)
- ---------------------------------------------------------------------------
(In thousands of dollars)
<S> <C> <C>
Raw materials and components $ 6,554 $ 9,698
Work-in-process 4,599 3,849
Finished goods 469 662
Unliquidated progress payments (639) (157)
- ---------------------------------------------------------------------------
Inventories, net $10,983 $14,052
===========================================================================
</TABLE>
<PAGE>
Page 8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Third Quarter 1995 Compared with Third Quarter 1994
- ---------------------------------------------------
The nature of the Company's business is such that year to year changes in sales
levels are predominantly due to changes in shipping volume or product mix rather
than changing sales prices. Net sales for the third quarter of 1995 were $15.9
million, a 31% increase when compared with $12.1 million for the same period in
1994.
The following chart provides the sales breakdown by product line for the third
quarter:
<TABLE>
<CAPTION>
In thousands of dollars 1995 1994 % Change
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Electronic Systems Segment
Systems $ 8,824 $ 4,172 112%
Component 3,105 4,027 (23%)
Service 1,411 2,180 (35%)
----------------------------------
Total Electronic Systems Segment 13,340 10,379 29%
Telecommunications Segment
Line treatment 1,859 1,215 53%
Test equipment 672 499 35%
Data comm 16 - 100%
---------------------------------
Total Telecommunications Segment 2,547 1,714 49%
---------------------------------
TOTAL $15,887 $12,093 31%
=================================
</TABLE>
Sales in the Electronic Systems segment (net of intercompany eliminations)
increased 29% to $13.3 million from $10.4 million for the same period in 1994.
The sales increase was primarily attributable to higher systems integration
revenue, partially offset by lower component revenue and service revenue. The
increase in systems integration revenue was principally attributable to higher
systems integration revenue from NAI's Systems and Lynwood Divisions. The
decrease in service and component revenue is primarily attributable to the lower
revenue from Codar Technology and the closing of the Military Products Division
which was consolidated into Codar in September 1994.
The 1994 third quarter had approximately $1.7 million of revenue produced at the
Hauppauge facility which was subsequently closed in September 1994 when the
Military Products Division was consolidated into one location at Codar. The
merging of the two businesses has placed significant strain on Codar which has
resulted in delayed shipments, significant cost overruns on long-term contracts,
large losses and significant cash constraints.
Sales in the Telecommunications segment increased 49% to $2.5 million as
compared to $1.7 million for the same period in 1994. The increase in sales was
attributable to higher line treatment revenue which increased 53% due to initial
deliveries of Wilcom's new Enhanced Line Powered Amplifier products. The test
equipment revenue increased as a result of increased orders from the regional
Bell operating companies.
The consolidated gross margin percentage for the third quarter of 1995 was 11.3%
as compared with 22.0% for the same period in 1994. The gross margin percentage
was adversely affected by a $1.4 million charge to operations and an unfavorable
mix of high and low margin product deliveries. The $1.4 million charge to
operations was attributable to cost growth on certain long-term contracts due to
engineering design changes, greater than anticipated
<PAGE>
Page 9
labor and material costs and under absorbed overhead expense. Although margins
are expected to improve, low margins are expected to continue at least during
the fourth quarter of 1995 principally at Codar due to a disproportionate level
of low margin revenue as a result of past cost overruns on certain long-term
contracts for which the Company continues to provide products.
Selling expense for the third quarter of 1995 was $1.3 million as compared with
$1.6 million for the same period in 1994. This decrease is attributable to
savings associated with the consolidation of the Military Products Division in
the third quarter of 1994.
General and administrative expenses for the third quarter of 1995 were $1.4
million as compared with $1.2 million for the same period in 1994. This increase
is primarily attributable to higher general and administrative expenses at the
Codar subsidiary as a result of increased management resources, partially offset
by the savings associated with the previously mentioned consolidation in 1994.
The 1994 third quarter was favorably impacted by the reversal of certain
over-accruals.
Company-sponsored research and development expenditures for the third quarter of
1995 were $0.4 million as compared with $0.7 million for the same period in
1994. This decrease is attributable to savings associated with the previously
mentioned consolidation and the change in mix between Company-sponsored research
and development and customer-funded research and development. A key component to
the Electronic Systems segment's strategy is to focus on its systems integration
business. Although systems integration work by its nature will require
significant engineering content, such costs must be classified as contract costs
and charged to cost of sales as opposed to Company-sponsored research and
development (IR&D).
For the third quarter of 1995 the Company had an operating loss of $1.5 million
as compared with a loss of $0.9 million for the same period in 1994. The
operating loss was primarily attributable to the $1.4 million charge previously
noted.
Interest expense, net of interest income, was $0.7 million in the third quarter
of 1995, as compared with $0.4 million in the comparable quarter of 1994. The
second quarter of 1995 also included a $0.3 million charge for debt
restructuring expense related to the April 7, 1995 agreement reached with the
Company's two lending institutions.
The Company was unable to recognize a tax benefit for its loss in the third
quarter of 1995 due to uncertainties as to whether or not a future benefit will
be realized. Any earnings in 1995 will not be taxed at the statutory rate. The
small tax provision is associated with Lynwood Scientific Developments Ltd., the
Company's U.K. subsidiary.
For the third quarter of 1995 the Company had a net loss of $2.3 million as
compared with a net loss of $0.8 million in the third quarter of 1994. Loss per
share was $(0.31) as compared with $(0.12) for the same period in 1994, based on
a weighted average of 7.5 million and 6.8 million shares outstanding,
respectively.
<PAGE>
Page 10
First Nine Months 1995 Compared with First Nine Months 1994
- -----------------------------------------------------------
The nature of the Company's business is such that year to year changes in sales
levels are predominantly due to changes in shipping volume or product mix rather
than changing sales prices. Net sales for the first nine months of 1995 were
$42.7 million, basically unchanged when compared with $42.5 million for the same
period in 1994.
The following chart provides the sales breakdown by product line for the first
nine months:
<TABLE>
<CAPTION>
In thousands of dollars 1995 1994 % Change
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Electronic Systems Segment
Systems $21,754 $14,035 55%
Component 9,714 13,658 (29%)
Service 5,123 8,807 (42%)
----------------------------------
Total Electronic Systems Segment 36,591 36,500 0%
Telecommunications Segment
Line treatment 4,081 3,947 3%
Test equipment 1,948 2,071 ( 6%)
Data comm 38 - 100%
---------------------------------
Total Telecommunications Segment 6,067 6,018 1%
---------------------------------
TOTAL $42,658 $42,518 0%
=================================
</TABLE>
The sales increase was primarily attributable to higher systems integration
revenue, partially offset by lower component and service revenues. The increase
in systems revenue was principally attributable to higher systems integration
revenue from NAI's Systems Division. The decrease in service and component
revenue is primarily attributable to lower revenue from Codar Technology and the
closing of the Military Products Division which was consolidated into Codar in
September 1994.
The Company expects a significant amount of 1995 sales to be directly to the
military or through prime contractors to the military. The Company is not aware
of any programs in which it participates that are specifically targeted for
termination or curtailment. The Company's products are utilized on many
different U.S. Government programs which reduces the adverse impact of
cancelling a single specific program. However, changes in future U.S. defense
spending levels could impact the Company's future sales volume.
Sales in the Telecommunications segment increased 1% to $6.1 million as compared
to $6.0 million for the same period in 1994. The increase in sales was
attributable to higher line treatment revenue due to deliveries of Wilcom's new
Enhanced Line Powered Amplifier products. Test equipment revenue decreased due
to lower orders from the regional Bell operating companies and foreign
telecommunications companies primarily due to their cost cutting measures.
The consolidated gross margin percentage for the first nine months of 1995 was
5.8% as compared with 19.9% for the same period in 1994. The gross margin
percentage was adversely affected by a $6.1 million charge to operations and an
unfavorable mix of high and low margin product deliveries. The $6.1 million
charge to operations was attributable to cost growth on certain long-term
contracts due to engineering design changes, greater than anticipated labor and
material and overhead costs and increased provisions for slow moving, excess and
obsolete inventory. Low margins are expected to continue at least during the
fourth quarter of 1995 principally at Codar due to a disproportionate level of
low margin revenue as a result of past cost overruns on certain long-term
contracts for which the Company continues to provide products.
<PAGE>
Page 11
Selling expense for the first nine months of 1995 was $3.8 million as compared
with $6.0 million for the same period in 1994. This decrease is attributable to
savings associated with the consolidation of the military products division in
the third quarter of 1994.
General and administrative expenses for the first nine months of 1995 were $4.2
million as compared with $4.3 million for the same period in 1994. This decrease
is primarily attributable to savings associated with the previously mentioned
consolidation in 1994, partially offset by higher general and administrative
expenses at the Codar subsidiary as a result of increased management resources.
Company-sponsored research and development expenditures for the first nine
months of 1995 were $1.5 million as compared with $2.7 million for the same
period in 1994. This decrease is attributable to savings associated with the
previously mentioned consolidation and the change in mix between Company-
sponsored research and development and customer-funded research and development.
A key component to the Electronic Systems segment's strategy is to focus on its
systems integration business. Although systems integration work by its nature
will require significant engineering content, such costs must be classified as
contract costs and charged to cost of sales as opposed to Company-sponsored
research and development (IR&D).
For the first nine months of 1995 the Company had an operating loss of $7.3
million as compared with a loss of $12.1 million for the same period in 1994.
The operating loss in 1995 was primarily due to the $6.1 million charge
previously noted and lower sales volume. The 1994 operating loss included a $7.3
million restructuring expense.
Interest expense, net of interest income, was $1.7 million in the first nine
months of 1995, as compared to $1.0 million for the same period in 1994. The
first nine months of 1995 also included a $0.6 million charge for debt
restructuring expense related to the April 7, 1995 agreement reached with the
Company's two lending institutions.
The effective income tax expense rate is below the combined statutory federal
and state rates for the first nine months of 1995. The Company was unable to
recognize a tax benefit for its loss in the first nine months of 1995 due to
uncertainties as to whether or not a future benefit will be realized. Any
earnings in 1995 will not be taxed at the statutory rate.
For the first nine months of 1995 the Company had a net loss of $9.2 million as
compared with a net loss of $8.5 million in the first nine months of 1994. Loss
per share was $(1.25) as compared with $(1.26) for the same period in 1994,
based on a weighted average of 7.4 million and 6.8 million shares outstanding,
respectively. The 1994 loss per share includes a pre-tax restructuring charge of
$7.3 million.
Liquidity and Capital Resources
- -------------------------------
Although the Company reported a net loss of $9.2 million in the first nine
months of 1995, it still generated a positive cash flow of $0.8 million from
operations due to the receipt in January of a Federal tax refund of $4.0 million
attributable to the 1994 tax loss carryback. Company operations have
historically provided a positive cash flow. However, the Company is currently
experiencing financial difficulties due to lower shipping volumes and cost
overruns on certain long-term contracts.
Although the third quarter revenue level was up approximately 13% over the
second quarter revenue level, the lower than normal gross margins resulted in
continuing losses and the Company must continue to increase its shipment rate to
improve its operating margin. However, its ability to do so is constrained by a
shortage of working capital.
The restructuring actions taken in 1994 have significantly reduced the expense
<PAGE>
Page 12
structure of the Company. However, it is not certain that the Company will be
able to achieve the revenue level necessary to return to profitability. The
Company is taking action to minimize its cash outlays by deferring or
eliminating discretionary expenses and capital asset purchases. The Company must
increase its shipment rate to an acceptable level within the near future, or
obtain additional financing, in order to meet its cash flow requirements during
1995.
On April 7, 1995 the Company entered into an amended and restated credit
agreement with its two primary lending institutions. Under the terms of the new
agreement, the existing term debt and lines of credit were converted into a
revolving credit line in exchange for a cash payment of $100,000 and the
issuance of 250,000 shares of the Company's Common Stock. The new agreement
required quarterly principal payments, commencing in September 1995, of $875,000
with a balloon payment of $13,425,000 due on January 15, 1996. At July 1, 1995
the Company was in violation of certain debt covenants of this new agreement.
The defaults have been waived and the agreement has been amended to establish
new covenants. In addition, payment of a fee of $50,000 and the quarterly
principal payments which were scheduled to begin in September 1995 were deferred
and added to the balloon payment due on January 15, 1996. On October 13, 1995,
the Company received a limited waiver for certain financial covenant defaults.
The payment of the $15,175,000 principal obligation in January 1996 will be
dependent upon the Company's ability either to obtain alternate financing or to
restructure the remaining balance due. The Company is considering several
alternatives to achieve this, including the sale of common or preferred stock,
the issuance of convertible debt, a business combination, the sale of all or a
portion of the Company and the establishment of a borrowing relationship with
new lending institutions.
On October 16, 1995 the Company announced that a private investor had made a
subordinated loan to the Company of $1,000,000 due January 15, 1996. The loan is
exchangeable for the Company's 12% Convertible Subordinated Promissory Notes due
in 2000, convertible into 500,000 shares of Common Stock at a conversion rate of
$2.00 per share, and warrants representing the right to acquire 850,000 shares
of Common Stock at an exercise price of $2.50, subject to adjustment. Charles S.
Holmes, a representative of the Long Island based investor, became a director of
NAI. The Company is also discussing with other private investors the investment
of up to an additional $7 million in the 12% Convertible Subordinated Notes and
Warrants to purchase shares of Common Stock at $2.50 per share. Such discussions
are preliminary. If all transactions are consummated, following the exercise of
the warrants and the conversion of the notes, an aggregate of 8,000,000 shares
of Common Stock, or approximately 49.6% of the then outstanding fully diluted
Common Stock of the Company, will have been issued for an aggregate
consideration of $18,000,000. Approval of the Company's shareholders will be
required for the consummation of the transaction.
The restructuring of the timing of repayment of the outstanding principal under
the Company's bank credit facilities is a condition to the consummation of the
proposed new investment. The Company anticipates that, if it is successful in
raising the additional funds, it will be able to restructure its credit
facilities to permit repayment over a longer period.
At September 30, 1995 the Company's long-term secured debt totaled $15.7 million
of which current installments were $15.4 million. This compares to $16.2 million
at December 31, 1994 of which current installments were $2.2 million. The
Company's long-term borrowings, secured by plant and equipment, bear interest at
rates ranging from 70% of prime (8.75% at September 30, 1995) to 12.43%.
Cash and cash equivalents totaled $1.4 million at September 30, 1995 as compared
to $1.7 million at December 31, 1994. Cash provided by operating activities
amounted to $0.8 million in the first nine months of 1995 as
<PAGE>
Page 13
compared to cash used in operating activities of $0.6 million in the first nine
months of 1994. In January 1995, the Company received a Federal tax refund of
$4.0 million.
For the first nine months of 1995 the Company used cash of $0.4 million for the
purchase of property, plant and equipment. In May 1995, the Company sold its
vacated manufacturing facility located in Hauppauge, NY, and received cash of
$0.4 million with a note for the balance payable in two years in the amount of
$1.2 million.
For the first nine months of 1995, the Company made debt principal payments of
$0.5 million and payments against notes payable of $0.1 million.
Inflation
- ---------
The Company's financial statements are prepared in accordance with historical
accounting systems, and therefore do not reflect the effect of inflation. The
impact of changing prices on the financial statements is not considered to be
significant.
Backlog
- -------
The backlog of unfilled orders at September 30, 1995 stood at $49.2 million
compared to $39.3 million at October 1, 1994. Approximately 80% of the backlog
is scheduled for delivery over the next twelve months.
<PAGE>
Page 14
PART II. OTHER INFORMATION
Item 5. Other Information
- ------- -----------------
On October 16, 1995 the Company announced that a private
investor had made a subordinated loan to the Company of
$1,000,000 due January 15, 1996. The loan is exchangeable for
the Company's 12% Convertible Subordinated Promissory Notes
due in 2000, convertible into 500,000 shares of Common Stock
at a conversion rate of $2.00 per share, and warrants
representing the right to acquire 850,000 shares of Common
Stock at an exercise price of $2.50, subject to adjustment.
Charles S. Holmes, a representative of the Long Island based
investor, has become a director of NAI. The Company is also
discussing with other private investors the investment of up
to an additional $7 million in 12% Convertible Subordinated
Notes and Warrants to purchase shares of Common Stock at $2.50
per share. Such discussions are preliminary. If all
transactions are consummated, following the exercise of the
warrants and the conversion of the notes, an aggregate of
8,000,000 shares of Common Stock, or approximately 49.6% of
the then outstanding fully diluted Common Stock of the
Company, will have been issued for an aggregate consideration
of approximately $18,000,000. Approval of the Company's
shareholders and consent from the Company's banks will be
required for the consummation of the transaction.
The Company also announced the relocation of the executive and
administrative offices of the Company from Woodbury, New York
to Longmont, Colorado in December 1995.
The Company stated that the new loan will provide needed
working capital. The Company is currently required to repay
the outstanding principal amount of $15,225,000 under its bank
credit facilities on January 15, 1996. The restructuring of
the timing of repayment is a condition to the consummation of
the proposed new investment. The Company anticipates that, if
it is successful in raising the additional funds, it will be
able to restructure its credit facilities to permit repayment
over a longer period.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
a) Exhibits
10.1 - Securities Purchase Agreement, dated as of October 13,
1995, by and between NAI Technologies, Inc. and
Charles S. Holmes.
10.2 - 12% Subordinated Promissory Note due 1996 of NAI
Technologies, Inc.
10.3 - Employment Agreement, dated as of October 16, 1995,
between NAI Technologies, Inc. and Robert A. Carlson.
10.4 - Employment Agreement, dated as of October 16, 1995,
between NAI Technologies, Inc. and Richard A.
Schneider.
10.5 - First Amendment, dated as of August 14, 1995, to
the Amended and Restated Credit Agreement, dated
as of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
10.6 - Second Amendment, dated as of October 13, 1995, to
the Amended and Restated Credit Agreement, dated as
of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
10.7 - Third Amendment, dated as of November 6, 1995, to
the Amended and Restated Credit Agreement, dated as
of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
27 - Financial Data Schedule (Edgar Filing Only).
b) Reports on Form 8-K
None.
<PAGE>
Page 15
S I G N A T U R E S
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NAI TECHNOLOGIES, INC.
(Registrant)
<TABLE>
<S> <C>
DATE November 6, 1995 By:\s\Richard A. Schneider
--------------------------- -----------------------------------
Richard A. Schneider
Executive Vice President
(On behalf of the registrant and as
Principal Financial Officer)
</TABLE>
<PAGE>
Page 16
NAI TECHNOLOGIES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
-------
<S> <C>
10.1 - Securities Purchase Agreement, dated as of October 13,
1995, by and between NAI Technologies, Inc. and Charles S.
Holmes.
10.2 - 12% Subordinated Promissory Note due 1996 of NAI
Technologies, Inc.
10.3 - Employment Agreement, dated as of October 16, 1995, between
NAI Technologies, Inc. and Robert A. Carlson.
10.4 - Employment Agreement, dated as of October 16, 1995, between
NAI Technologies, Inc. and Richard A. Schneider.
10.5 - First Amendment, dated as of August 14, 1995, to
the Amended and Restated Credit Agreement, dated
as of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
10.6 - Second Amendment, dated as of October 13, 1995, to
the Amended and Restated Credit Agreement, dated as
of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
10.7 - Third Amendment, dated as of November 6, 1995, to
the Amended and Restated Credit Agreement, dated as
of April 12, 1995, among NAI Technologies,
Inc., Chemical Bank and The Bank of New York.
27 - Financial Data Schedule (Edgar filing only).
</TABLE>
<PAGE>
Exhibit 10.1
NAI TECHNOLOGIES, INC.
------------------------------
SECURITIES PURCHASE AGREEMENT
Dated as of October 13, 1995
------------------------------
$1,000,000
12% Subordinated
Promissory Note due 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1 THE NOTE; THE CLOSING; ETC............................................ 1
1.1 Issuance of the Note....................................... 1
1.2 Sale and Purchase of the Note.............................. 1
1.3 Closing.................................................... 1
2 CONDITIONS TO CLOSING................................................. 2
2.1 Conditions to Purchaser's Obligations...................... 2
2.2 Conditions to Company's Obligations........................ 3
3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... 3
3.1 Organization and Authority of the Company................... 3
3.2 Capitalization............................................. 3
3.3 Subsidiaries............................................... 4
3.4 Qualification.............................................. 4
3.5 Compliance with Laws, Other Instruments;
No Conflicts, etc.......................................... 4
3.6 Consents and Approvals..................................... 5
3.7 Litigation................................................. 5
3.8 Private Offering........................................... 5
3.9 No Defaults; Debt, etc; Authorization...................... 5
3.10 SEC Documents.............................................. 6
3.11 Changes, etc............................................... 6
3.12 Solvency; Regulation G..................................... 6
4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER....................... 7
4.1 Investment Representations................................. 7
4.2 Organization and Authority; Default; Etc................... 9
5 AGREEMENTS OF THE COMPANY............................................. 9
5.1 Business Plan Targets...................................... 9
5.2 Board Representation....................................... 9
5.3 Private Placement.......................................... 9
5.4 Employment Agreements...................................... 10
6 DEFINITIONS........................................................... 11
7 MISCELLANEOUS......................................................... 12
7.1 Expenses................................................... 12
7.2 Reliance on and Survival of Representations;
Termination................................................ 13
7.3 Amendment and Waiver....................................... 13
7.4 Directly or Indirectly..................................... 13
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION> PAGE
----
<S> <C> <C>
7.5 Successors and Assigns..................................... 13
7.6 Notices.................................................... 13
7.7 Law Governing.............................................. 13
7.8 Submission to Jurisdiction................................. 14
7.9 Headings, etc.............................................. 14
7.10 Entire Agreement........................................... 14
7.11 Indemnification............................................ 14
7.12 Interpretive Provision..................................... 14
7.13 Severability............................................... 14
7.14 Counterparts............................................... 14
</TABLE>
SCHEDULES:
Schedule 3.6 - Required Consents
Schedule 3.7 - Litigation
Schedule 5.1 - Business Plan Targets
EXHIBITS:
Exhibit A - Form of Note
Exhibit B - Form of Opinion of Company Counsel
Exhibit C - Form of Cross Receipt and Acknowledgement
Exhibit D - Form of Exchange Note
Exhibit E - Form of Exchange Warrant
Exhibit F - Form of Registration Rights Agreement
-ii-
<PAGE>
NAI TECHNOLOGIES, INC.
$1,000,000
12% Subordinated
Promissory Note due 1996
Dated as of October 13, 1995
Mr. Charles S. Holmes
P.O. Box 2850
Southampton, New York 11969
Dear Mr. Holmes:
NAI Technologies, Inc., a New York corporation, agrees with
you as follows:
1 THE NOTE; THE CLOSING; ETC.
1.1 Issuance of the Note. The Company has duly authorized the issuance
and sale of its 12% Subordinated Promissory Note due January 15, 1996 in the
principal amount of $1,000,000 (the 'Note'). The Note shall be in substantially
the form attached as Exhibit A. Except as the context may otherwise require,
capitalized terms used and not otherwise defined herein shall have the
respective meanings assigned thereto in Section 6. Unless otherwise specified,
any reference in this Agreement to a particular Section, paragraph or clause, or
to particular Schedule or Exhibit, shall be considered a reference to that
Section, paragraph or clause of, or to that Schedule or Exhibit to, this
Agreement.
1.2 Sale and Purchase of the Note. The Company will issue and sell to
the Purchaser, and Purchaser will purchase from the Company, in each case,
subject to the terms and conditions of this Agreement and in reliance on the
respective representations, warranties and covenants of the Company and the
Purchaser contained herein, the Note at a purchase price equal to 100% of the
principal amount thereof.
1.3 Closing. The closing of the sale and purchase of the Note shall
take place on the date hereof (the 'Closing') at the offices of Whitman Breed
Abbott & Morgan, 200 Park Avenue, New York, New York 10166. At the Closing the
Company will deliver to the Purchaser the Note, dated the date hereof and
registered in the name of the Purchaser, against Purchaser's delivery of the
purchase price therefor by wire transfer of such purchase price to the Company's
account No.
<PAGE>
0419004828 maintained at The Bank of New York, 670 Old Willetts Path, Hauppauge,
NY, For the Account of NAI Technologies, Inc., ABA No. 021000018. If at the
Closing the Company shall fail to tender the Note to Purchaser as provided
herein, or if at the Closing any of the conditions specified in Section 2.1
shall not have been fulfilled to Purchaser's satisfaction, Purchaser shall, at
Purchaser's election, be relieved of all further obligations under this
Agreement, without thereby waiving any other rights Purchaser may have by reason
of such failure or such nonfulfillment.
2 CONDITIONS TO CLOSING.
2.1 Conditions to Purchaser's Obligations. Purchaser's
obligations to purchase and pay for the Note to be purchased by Purchaser are
subject to satisfaction, prior to or simultaneously with the Closing, of the
following conditions:
(a) The Company shall have delivered a certificate of the President or
any Vice President of the Company, dated the date hereof, certifying that the
representations and warranties of the Company contained in this Agreement are
true and correct in all material respects and that the Company has performed in
all material respects all agreements and complied with all conditions contained
in this Agreement, the Note and in the other Exhibits to which it is or is to be
a party.
(b) The Company shall have delivered a certificate of the Secretary or
Assistant Secretary of the Company, dated the date hereof, certifying as to (i)
the certificate of incorporation of the Company and any amendments thereto, (ii)
the by-laws of the Company, and (iii) resolutions of the Board of Directors of
the Company authorizing the execution and delivery of this Agreement, the Note
and the other Exhibits to which it is or is to be a party.
(c) The Purchaser shall have received an opinion, dated the date
hereof, addressed and in satisfactory form, scope and substance to the
Purchaser, from Whitman Breed Abbott & Morgan, special counsel to the Company,
in substantially the form attached as Exhibit B, covering such matters as
Purchaser may reasonably request.
(d) The Company and the Purchaser shall have executed and delivered and
delivered a Cross Receipt and Acknowledgement in substantially the form attached
as Exhibit C.
(e) No litigation or proceeding shall be threatened or pending which
would have the probable effect of preventing the consummation of any of the
transactions contemplated by this Agreement.
(f) All Required Consents shall have been given or obtained, as the
case may be, and shall not be subject to any conditions subsequent not approved
by Purchaser.
-2-
<PAGE>
(g) All proceedings taken in connection with the authorization,
issuance and sale of the Note and the consummation of the transactions
contemplated hereby to occur on or prior to the Closing and all documents and
papers relating thereto shall be satisfactory in form, scope and substance to
the Purchaser and Purchaser's special counsel, and Purchaser and Purchaser's
special counsel shall have received copies (executed or certified as may be
appropriate) of such documents and papers as each may reasonably request in
connection therewith.
2.2 Conditions to Company's Obligations. Company's obligations to issue
and sell the Note to be purchased by Purchaser are subject to satisfaction,
prior to or simultaneously with the Closing, of the following condition: the
representations and warranties of the Purchaser contained in this Agreement
shall be true and correct in all material respects and the Purchaser shall have
performed in all material respects all agreements and complied with all
conditions contained in this Agreement.
3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants as follows:
3.1 Organization and Authority of the Company. The Company is a
corporation organized, validly existing and in good standing under the laws of
the State of New York and has all requisite corporate power and authority to own
or hold under lease the property it purports to own or hold under lease, to
carry on its business as now conducted, to enter into this Agreement, to issue
and sell the Note, to perform its obligations under this Agreement, the Note and
the other Exhibits to which it is or is to be a party and to consummate the
transactions contemplated hereby and thereby. The Company has, by all necessary
corporate action (no action of shareholders of the Company being required by
law, by its charter or by-laws, or otherwise in connection therewith), duly
authorized the execution and delivery of this Agreement and the Exhibits to
which it is or is to be a party, the issuance of the Note and the Exchange
Securities, the performance of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby.
3.2 Capitalization. The authorized capital stock of the Company
consists of: (i) 10,000,000 shares of Common Stock, and (ii) 2,000,000 shares of
Preferred Stock, $0.10 par value, none of which Preferred Stock is issued and
outstanding. At the close of business on September 27, 1995, 7,195,567 shares of
Common Stock were issued and outstanding, and 974,301 shares of Common Stock
were reserved and authorized for issuance pursuant to the Company's stock option
plans. As of September 27, 1995, the Company had outstanding options to purchase
an aggregate of 624,389 shares of Common Stock granted pursuant to the Company's
stock option plans and warrants to purchase an aggregate of 40,560 shares of
Common Stock granted pursuant to the agreement relating to the sale and purchase
of the whole of the issued share capital of Lynwood Scientific Developments
Limited ('Lynwood'). In addition, certain employees of the Company have agreed
to purchase an aggregate
-3-
<PAGE>
of 31,410 shares of Common Stock pursuant to the Company's employee stock
purchase plan. All the issued and outstanding shares of Common Stock have been
duly authorized and validly issued, are fully paid and nonassessable, are not
subject to any right of rescission, and have been offered, issued, sold and
delivered by the Company in compliance with all applicable federal and state
securities laws. Except for the foregoing, there are no outstanding options,
warrants, conversion privileges or other contractual rights or agreements for
the purchase or acquisition from the Company of any shares of its capital stock.
There are no existing voting trusts, voting agreements or similar agreements
between the Company and any of its stockholders, nor, to the best knowledge of
the Company (after reasonable inquiry), are there any such agreements among any
of the Company's officers, directors or stockholders holding in excess of 5% of
the Company's outstanding voting securities. The Company's securities are not
subject to any preemptive or other preferential rights under the Restated
Certificate of Incorporation of the Company or under any agreement to which the
Company is a party.
3.3 Subsidiaries. Each of the Subsidiaries is a corporation, trust,
partnership or other entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, has all requisite
power and authority to own or hold under lease the property it purports to hold
or hold under lease, and to carry on its business as conducted by each such
Subsidiary.
3.4 Qualification. Each of the Company and each Subsidiary is duly
qualified or licensed and in good standing and is duly authorized to do business
in each jurisdiction (other than, in the case of a corporation, the jurisdiction
of incorporation) in which the nature of the activities or the character of the
properties owned or leased makes such qualification or licensing necessary
except for jurisdictions in which the failure to be so qualified would not have
a Material Adverse Effect.
3.5 Compliance with Laws, Other Instruments; No Conflicts, etc. Neither
the Company nor any Subsidiary is (a) in violation of any term or provision of
its corporate charter or by-laws or other organizational documents, or, to the
Company's knowledge, (b) in violation of or in default under any term or
provision of any agreement, indenture, mortgage, instrument, permit or license
to which it is a party or by which it or any of its properties may be bound or
affected, or any existing statute, law, governmental rule, regulation or
ordinance, or any order of any court, arbitrator or Governmental Body applicable
to it or its properties, the consequences of which violation or default, either
in any one case or taken together with all other such violations or defaults,
(x) could have a Material Adverse Effect or (y) could materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, the Note or any other Exhibit to which the Company is or is to be a
party.
-4-
<PAGE>
3.6 Consents and Approvals. Except for the Required Consents set forth
in Schedule 3.6, no approval by, from or with, and no other action in respect
of, any Governmental Body or any other Person (including any trustee or holder
of any indebtedness, securities or other obligations of the Company or any
Subsidiary) is required (a) for or in connection with the valid execution and
delivery by the Company of, or the performance by the Company of any obligation
under, this Agreement, the Note or any other Exhibit to which it is or is to be
a party or the consummation by the Company of the transactions contemplated
hereby and thereby or (b) as a condition to the legality, validity or
enforceability as against the Company of this Agreement, the Note or any other
Exhibit to which it is or is to be a party.
3.7 Litigation. Except as set forth on Schedule 3.7, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, or affecting any of their
respective properties in any court or before any arbitrator of any kind or
before or by any Governmental Body, which (i) question the validity or legality
of this Agreement, the Note or any other Exhibit to which it is or is to be a
party or any action taken or to be taken pursuant hereto or thereto or (ii)
might result, either in any one case or in the aggregate, in (A) a material
impairment of the ability of the Company to perform its obligations under this
Agreement, the Note or any other Exhibit to which it is or is to be a party, or
(B) a Material Adverse Effect.
3.8 Private Offering. Neither the Company not any Person acting on
behalf of the Company has taken, or will take, any action which would subject
the issuance or sale of the Note to Section 5 of the Securities Act or to the
registration or qualification requirements of any securities or Blue Sky law of
any applicable jurisdiction.
3.9 No Defaults; Debt, etc; Authorization. (a) Upon receipt of any
Required Consent, no default or event of default, after giving effect to the
issuance and sale of the Note and the consummation of the transactions
contemplated by this Agreement and the Exhibits, will exist (or, but for the
waiver thereof, would exist), to the Company's knowledge, under any instrument
or agreement evidencing, providing for the issuance or securing of, or otherwise
relating to, any secured or unsecured funded indebtedness of the Company.
(b) Upon issuance thereof by the Company and payment therefor
in accordance with the terms of this Agreement, the Note will be duly
authorized, validly issued, fully-paid and nonassessable and will constitute a
legal, valid and binding obligation of the Company enforceable in accordance
with its terms subject to applicable bankruptcy, insolvency, moratorium or
similar laws relating to or affecting creditors' rights generally and the
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity). The Company further covenants that (i) upon
issuance thereof by the Company in accordance with the terms of this Agreement,
the Exchange Securities will be duly authorized, validly issued,
-5-
<PAGE>
fully-paid and nonassessable and will constitute legal, valid and binding
obligations of the Company enforceable in accordance with their respective terms
subject, in the case of the Exchange Note, to applicable bankruptcy, insolvency,
moratorium or similar laws relating to or affecting creditors' rights generally
and the general principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity); and (ii) upon issuance and delivery
of the Underlying Shares and payment of the exercise price or the conversion
price therefor, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable outstanding shares of Common Stock of the Company.
3.10 SEC Documents. The Company has furnished Purchaser with true and
complete copies of all documents that the Company has filed with the Commission
since January 1, 1995 (the 'SEC Documents'). As of their respective filing
dates, except as amended by filings with the Commission, the SEC Documents
complied in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), as applicable, were
complete and correct in all material respects as of the dates at which the
information was furnished, and contained (as of such dates) no untrue statement
of a material fact nor omitted to state a material fact necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The financial statements of the Company included in
the SEC Documents (the 'Financial Statements') comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the Commission with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as permitted by the rules and
regulations of the Commission) and fairly present the consolidated financial
position of the Company as of the dates thereof and the consolidated results of
its operations and changes in its financial position for the periods then ended
(subject, in the case of unaudited statements, to normal recurring audit
adjustments, provided that the notes and accounts receivable are collectible in
the amounts shown less any reserve shown thereon and inventories are not subject
to write-down, except in either case in an amount not material). The information
contained in this Agreement and the SEC Documents is true, complete and correct
in all material respects and does not contain any untrue statement of a material
fact or omit to state any material fact required to be stated herein or therein
or necessary to make the statements herein or therein not misleading.
3.11 Changes, etc. Except as set forth in the SEC Documents or as
previously disclosed to Purchaser, there has been no occurrence or development,
whether or not insured against, which has had or could reasonably be expected to
have a Material Adverse Effect since January 1, 1995.
3.12 Solvency; Regulation G. (a) The Company's assets currently exceed
its liabilities.
-6-
<PAGE>
(b) The Company does not own any 'margin stock' as such term
is defined in Regulation G, as amended (12 C.F. R. Part 207), of the Board of
Governors of the Federal Reserve System. The purchase price of the Note will be
used by the Company only for the purposes contemplated hereunder and under the
Note. None of the purchase price will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin stock or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin stock or for any other purpose which might cause any portion
of the purchase price to be considered a 'purpose credit' within the meaning of
Regulation G, as amended, of the Board of Governors of the Federal Reserve
System.
4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser represents
and warrants as follows:
4.1 Investment Representations. (a) Purchaser hereby acknowledges that
the Note is not being registered (i) under the Securities Act or (ii) under any
applicable state securities law; and that the Company's reliance on the
exemption provided by Section 4(2) of the Securities Act and under applicable
state securities laws is predicated in part on the representations hereby made
to the Company in this Agreement.
(b) Purchaser will not sell or transfer all or any part of the Note
unless and until it shall first have given notice to the Company describing such
sale or transfer and furnished to the Company either (a) an opinion, reasonably
satisfactory to counsel for the Company, of counsel (skilled in securities
matters, selected by the Purchaser and reasonably satisfactory to the Company)
to the effect that the proposed sale or transfer may be made without
registration under the Securities Act and without registration or qualification
under any state law, or (b) an interpretive letter from the Commission to the
effect that no enforcement action will be recommended if the proposed sale or
transfer is made without registration under the Securities Act; provided that,
on or before October 31, 1995, Purchaser may transfer all or any part of the
Note to a general partnership the partners of which include Purchaser, a trust
for the benefit of members of the family of Purchaser and not more than three
employees of the Purchaser or any Subsidiary thereof without complying with the
foregoing provisions of this Section 4.1(b).
The Purchaser further understands that the Note, unless otherwise
agreed by the Company, bear a legend substantially to the following effect:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR
OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL SECURITIES LAWS OR
APPLICABLE EXEMPTIONS THEREFROM.
-7-
<PAGE>
The Company may refuse to recognize a transfer of the Note on its books
should a holder attempt to transfer such Note otherwise than in compliance with
this Section 4.1.
(c) Purchaser has adequate means of providing for Purchaser's current
needs and possible contingencies, Purchaser anticipates no need now or in the
foreseeable future to sell the Note which Purchaser is purchasing and Purchaser
can afford the loss of Purchaser's entire investment in the Company.
(d) Purchaser is an 'accredited investor' as defined in Regulation D
under the Securities Act.
(e) Purchaser has such knowledge and experience in financial and
business matters that Purchaser is capable of evaluating the merits and risks of
investment in the Company and of making an informed investment decision.
(f) Purchaser will be the only owner, beneficial or otherwise, of the
Note being purchased by the Purchaser hereunder.
(g) The Purchaser is aware that no federal or state agency has passed
upon the Note or made any finding or determination concerning the fairness of
the investment represented thereby.
(h) Purchaser had an opportunity to ask questions of and receive
answers from representatives of the Company concerning the terms and conditions
of this investment, and all such questions have been answered to the full
satisfaction of the Purchaser. The Company has not rendered any investment or
tax advice to the Purchaser with respect to the suitability of an investment in
the Note or the tax consequences thereof. The Company has urged Purchaser to
consult its own tax adviser concerning any tax matters relating to this
investment.
(i) The Note which Purchaser is acquiring will be acquired for
Purchaser's own account for investment (subject to the proviso in Section 4.1(b)
hereof). The Purchaser intends to hold the Note indefinitely (subject to the
proviso in Section 4.1(b) hereof) and Purchaser is not purchasing such
securities with a view toward distribution in a manner which would require
registration under the Securities Act, and Purchaser does not presently have any
reasons to anticipate any change in Purchaser's circumstances or other
particular occasion or event which would cause Purchaser to sell the Note which
Purchaser is purchasing hereunder, provided, nevertheless, that the disposition
of Purchaser's property shall at all times be within Purchaser's control.
(j) Purchaser acknowledges that it has been called to Purchaser's
attention by those individuals with whom Purchaser has dealt in connection with
Purchaser's
-8-
<PAGE>
investment in the Company that Purchaser's investment in the Company involves
a high degree of risk.
(k) Purchaser has received no representations or warranties from the
Company other than those set forth herein.
4.2 Organization and Authority; Default; Etc. Purchaser is authorized
and otherwise duly qualified to purchase and hold the Note and to enter into
this Agreement and the Exhibits hereto to which it is a signatory; represents
that the purchase of the Note will not result in a breach of or violation of the
terms or provisions of, or constitute a default under, any indenture or other
agreement or instrument by which it or its property is bound, or violate any
applicable law, administrative regulation, or court decree; and represents that
it has its principal place of business as set forth in Section 7.6. Purchaser
shall supply any additional written information that may be required by the
Company.
5 AGREEMENTS OF THE COMPANY. The Company agrees with the
Purchaser as follows:
5.1 Business Plan Targets. Schedule 5.1 sets forth certain business
plan targets established for the Company by the Purchaser. The Company
acknowledges that such targets are goals for the Company and its operations and
shall, subject to the determination of its Board of Directors, use it best
efforts to achieve such targets as promptly as practicable.
5.2 Board Representation. The Company shall use its best efforts
to cause Mr. Charles S. Holmes or another individual designated by Purchaser
to be appointed to the Board of Directors of the Company as promptly after the
Closing as practicable.
5.3 Private Placement. (a) The Company is currently negotiating the
sale of the Company's 12% Convertible Subordinated Promissory Notes due 2000, in
an aggregate principal amount of $8,000,000 (the 'Convertible Notes'), together
with warrants representing the right to acquire Common Stock (the 'Private
Placement'). The Company shall provide the Purchaser with written notice of the
consummation or abandonment of the Private Placement. The Company shall, upon
the written request of the Purchaser on or before December 31, 1995, exchange
this Note, in its entirety, for an identical principal amount of the notes
issued and sold by the Company in connection with the Private Placement and, in
connection with such exchange, issue to the Purchaser a detachable warrant
representing the right to acquire 850,000 shares of Common Stock, upon
substantially the same terms and conditions as the warrants issued and sold by
the Company in connection with the Private Placement.
(b) In the event that the Private Placement is abandoned, or is not
consummated, on or before December 31, 1995, then:
-9-
<PAGE>
(i) the Company shall upon, the written request of the
Purchaser, (A) exchange the Note, in its entirety, for an identical
principal amount of a note in substantially the form attached as
Exhibit D (the 'Exchange Note') and, in connection with such exchange,
(B) issue to the Purchaser a detachable warrant, in substantially the
form of the warrant attached as Exhibit E, exercisable at $2.50 per
share for six years and representing the right to acquire 850,000
shares of Common Stock, subject to adjustment (the 'Exchange Warrant'),
and (C) enter into a Registration Rights Agreement with the Purchaser
in substantially the form attached hereto as Exhibit F; and
(ii) the Purchaser or its designee shall be entitled, on or
before January 12, 1996, to purchase, upon written notice to the
Company, (i) an additional note, in the principal amount of $2,000,000
(the 'Additional Note') and (ii) warrants representing the right to
purchase an additional 2,150,000 shares of Common Stock (the
'Additional Warrant' and, together with the Additional Note, the
'Additional Securities'), in each case, upon substantially the same
terms and conditions as the respective securities attached hereto as
Exhibit D and Exhibit E;
provided, however, if at the time that Purchaser requests that the Company
exchange the Note for the Exchange Note and the Exchange Warrant or issue the
Additional Securities, the Company is not permitted to do so pursuant to
provisions of the Bank Credit Agreement (as such term is defined in the Note),
then any time period otherwise applicable pursuant to the provisions of this
Section 5.3(b) to the exercise of rights by the Purchaser or its designee shall
be tolled and the Company shall take no action that would frustrate the
Purchaser's exchange or purchase rights under this Section 5.3(b), including
retirement of the Note, until the Company is permitted to do so under the
Bank Credit Agreement or pursuant to a waiver of the provisions thereof; and
provided further, however, that if at the time that Purchaser exercises his
right that the Company issue the Additional Notes and Additional Warrants the
Common Stock is not authorized to accommodate such issuance, in such instance
the Additional Note and Additional Warrants will not be issued, then any time
period otherwise applicable pursuant to the provisions of this Section 5.3(b) to
the exercise of rights by the Purchaser or its designee shall be tolled and the
Company shall take no action that would frustrate the Purchaser's exchange or
purchase rights under this Section 5.3(b), including retirement of the Note,
until such time as sufficient shares are available for reservation for issuance.
In the event that the Purchaser, or a designee of Purchaser, purchases all of
the Additional Securities, the Company shall, upon written notice from the
Purchaser, (i) promptly retain the services of an investment bank, mutually
selected by the Company and the Purchaser, to advise the Company on the sale of
Lynwood and offer Lynwood for sale through such investment bank and (ii) use its
best efforts to promptly cause the resignation of two then-current members of
the Board of Directors of the Company and to cause the vacancies resulting
thereby to be filled by individuals designated by the Purchaser.
-10-
<PAGE>
5.4 Employment Agreements. Purchaser has reviewed the terms and
conditions of the Employment Agreements between the Company and Richard A.
Schneider and the Company and Robert A. Carlson presented to the Board of
Directors of the Company on October 3, 1995 and the Company shall enter into
such employment agreements, substantially in the form presented to the Board of
Directors, as promptly practicable.
6 DEFINITIONS. Except as otherwise specified or as the context may otherwise
require, the following terms have the respective meanings set forth below
whenever used in this Agreement (terms used in the singular to have a
correlative meaning when used in the plural and vice versa):
'Additional Note' has the meaning set forth in Section 5.3.
'Additional Securities' has the meaning set forth in Section 5.3.
'Additional Warrant' has the meaning set forth in Section 5.3.
'Agreement' means this agreement, as it may be amended from time to
time, including all schedules and exhibits thereto.
'Closing' has the meaning set forth in Section 1.3.
'Commission' means the Securities and Exchange Commission or any other
United States agency at the time administering the Securities Act.
'Common Stock' means common stock of the Company having a par value of
$.10 per share.
'Company' means NAI Technologies, Inc., a New York corporation.
'Convertible Notes' has the meaning set forth in Section 5.3.
'Exchange Act' has the meaning set forth in Section 3.10.
'Exchange Note' has the meaning set forth in Section 5.3.
'Exchange Securities' means, collectively, the Exchange Note and the
Exchange Warrant.
'Exchange Warrant' has the meaning set forth in Section 5.3.
'Exhibit' means any of the exhibits to this Agreement, including such
exhibits as executed and delivered pursuant to the terms of this Agreement.
-11-
<PAGE>
'Financial Statements' has the meaning set forth in Section 3.10.
'Governmental Body' means any Federal, state, municipal, local or other
governmental department, commission, board, bureau, agency, instrumentality,
political subdivision or taxing authority of any country.
'Indemnified Party' has the meaning set forth in Section 7.11.
'Lynwood' has the meaning set forth in Section 3.2.
'Material Adverse Effect' means any circumstance or event which is
material and adverse to the financial condition or business operations of the
Company and its Subsidiaries, taken as a whole, or which may reasonably be
expected to result in or cause an Event of Default, as defined in this Note.
'Note' has the meaning set forth in Section 1.1.
'Person' means a corporation, a partnership, an organization or
business, an individual, a government or political subdivision thereof or
governmental agency.
'Private Placement' has the meaning set forth in Section 5.3.
'Purchaser' means Charles S. Holmes, an individual resident of the
State of New York.
'Required Consents' means the approvals, consents and agreements
set forth on Schedule 3.5.
'SEC Documents' has the meaning set forth in Section 3.10.
'Securities Act' means the Securities Act of 1933, as amended, or any
similar United States statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
'Subsidiary' means, with respect to any Person, any corporation,
association or other business entity (whether now existing or hereafter
organized) of which at least a majority of the securities or other ownership
interests having ordinary voting power for the election of directors is, at the
time as of which any determination is being made, owned or controlled by such
Person or one or more subsidiaries of such Person.
'Underlying Shares' means the shares of Common Stock issuable upon (i)
the conversion of the Exchange Note or (ii) the exercise of the Exchange
Warrant.
-12-
<PAGE>
7 MISCELLANEOUS.
7.1 Expenses. Whether or not the transactions contemplated by Section 1
hereof are consummated, the Company shall pay all reasonable expenses incurred
by Purchaser (including without limitation the reasonable fees, expenses and
disbursements of Purchaser's special counsel) in connection with such
transactions, provided, however, that the Company's obligations with respect to
the payment of any and all such expenses shall be limited in the aggregate to
$25,000.
7.2 Reliance on and Survival of Representations; Termination. All
agreements, representations and warranties of the Company herein or of (or on
behalf of) the Company in any certificate or other instrument delivered pursuant
hereto or thereto shall: (a) be deemed to be material and to have been relied
upon by Purchaser, notwithstanding any investigation heretofore or hereafter
made by Purchaser or on Purchaser's behalf, (b) survive the execution and
delivery of this Agreement and the delivery of the Note to Purchaser and any
investigation made at any time by Purchaser or on Purchaser's behalf or any
disposition of the Note and (c) shall expire and terminate upon payment in full
of the Note (or any note issued pursuant to Section 5.3(b)) including all
accrued interest thereon.
7.3 Amendment and Waiver. Any term, provision, agreement or condition
of this Agreement may be amended or modified, or compliance therewith may be
waived (either generally or in a particular instance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
signed by the Company and the Purchaser.
7.4 Directly or Indirectly. Where any provision of this Agreement
refers to actions to be taken by any Person, or which such Person is prohibited
from taking, such provision shall be applicable whether the action in question
is taken directly or indirectly by such Person.
7.5 Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of the respective parties hereto shall bind and inure
to the benefit of their respective successors and assigns.
7.6 Notices. Unless otherwise expressly provided in this Agreement, all
notices, opinions and other communications provided for in this Agreement shall
be in writing and delivered by hand or mailed, first class postage prepaid,
return receipt requested or sent by overnight courier, or by confirmed telefax
transmission (confirmed by hand-delivered, mailed or overnight courier copy)
addressed (a) if to the Company, to the Company at 1000 Woodbury Road, Suite
412, Woodbury, N.Y. 11767-2530 Attn: President, or at such other address as the
Company may hereafter designate by notice to the Purchaser, or (b) if to the
Purchaser, to the Purchaser at P.O. Box 2850, Southampton, New York 11969, or at
such other address as such Purchaser may hereafter designate by notice to the
Company.
-13-
<PAGE>
7.7 Law Governing. THIS AGREEMENT AND ALL AMENDMENTS, SUPPLEMENTS,
MODIFICATIONS, WAIVERS AND CONSENTS RELATING HERETO SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
7.8 Submission to Jurisdiction. THE COMPANY HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK, AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS
RELATING TO THIS AGREEMENT OR ANY EXHIBIT MAY BE LITIGATED IN SUCH COURTS, AND
THE COMPANY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR
FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT.
7.9 Headings, etc. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning or
construction of any of the terms hereof.
7.10 Entire Agreement. This Agreement (together with the Exhibits
hereto) embodies the entire agreement and understanding among the Purchaser and
the Company and supersedes all prior agreements and understandings relating to
the subject matter hereof.
7.11 Indemnification. The Company agrees to indemnify and hold harmless
Purchaser and Purchaser's directors, officers, employees and agents (each an
'Indemnified Party') from and against any and all expenses, losses, claims,
damages and liabilities incurred by such Indemnified Party arising out of claims
made by any Person in any way relating to this Agreement and the agreements,
representations and warranties contained herein, but excluding therefrom all
expenses, losses, claims, damages and liabilities arising out of or resulting
from the gross negligence or willful misconduct of such Indemnified Party.
7.12 Interpretive Provision. Wherever any representation, warranty or
other statement made by the Company in this Agreement is limited to the
Company's knowledge, such limitation shall mean the actual knowledge or
awareness of any person who, on the date hereof, is an executive officer of the
Company after due inquiry of the circumstances thereof.
7.13 Severability. Any provision of this Agreement which shall be
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
-14-
<PAGE>
7.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
-15-
<PAGE>
If you are in agreement with the foregoing, please sign the
form of acceptance provided below, whereupon this Agreement shall become a
binding agreement between the Purchaser and the Company.
Very truly yours,
NAI TECHNOLOGIES, INC.
By: /s/ Robert A. Carlson
---------------------------------
Name: Robert A. Carlson
Title: President and Chief Executive Officer
The foregoing Agreement is hereby
accepted and agreed to as of the
date hereof.
/s/ Charles S. Holmes
- ---------------------------
Charles S. Holmes
<PAGE>
Schedule 3.6
REQUIRED CONSENTS
Amended and Restated Credit Agreement
Pursuant to the Amended and Restated Credit Agreement, dated
as of April 12, 1995, among the Company, Bank of New York ('BNY'), as Bank and
Administrative Agent, and Chemical Bank ('Chemical'; BNY and Chemical being
collectively referred to as the 'Banks'), as Bank and Collateral Agent, as
amended by First Amendment, dated as of August 14, 19954, and by the Second
Amended, dated as of October 13, 1995, the Company is required to obtain the
written consent of the Banks before it issues the Exchange Note or the
Additional Securities.
Shareholder Approval
Pursuant to the Restated Certificate of Incorporation of the
Company, the shareholders of the Company must authorize additional shares of
Common Stock before the Company can issue additional shares of Common Stock
pursuant to the conversion rights applicable to the Additional Notes or the
rights to purchase applicable to the Additional Warrants.
<PAGE>
Schedule 3.7
LITIGATION
TDA Trading Corp. v. Carlson, et. al.
On or about June 28, 1994, TDA Trading Corp. ('TDA'),
individually and on behalf of a class of persons similarly situated, commenced a
securities fraud class action in the United States District Court for the
Eastern District of New York (the 'Court') against Robert A. Carlson, Richard A.
Schneider and NAI Technologies, Inc. ('NAI'). TDA commenced its action, entitled
TDA Trading Corp. v. Carlson, et. al., by filing a complaint (the 'Complaint')
with the Court.
TDA's Complaint principally alleges that the defendants
knowingly and/or recklessly misrepresented to the public that they expected
NAI's 1993 fourth quarter and fiscal year sales and earnings results to continue
to increase at levels substantially above those of prior years at a time when
they supposedly knew but failed to disclose that NAI's fourth quarter 1993 sales
of its Navy Standard Teleprinter ('NST') and other products would decrease
precipitously. The Complaint further alleges that, as a result of defendants'
alleged failure to disclose these developments, TDA and other purchasers of NAI
common stock were damaged because, it is alleged, at the time of purchase the
price of NAI common stock had been artificially inflated. Additionally, the
Complaint asserts that at the time that these adverse business developments
allegedly became known to defendants and prior to their dissemination to the
public, defendants Carlson, Schneider and other directors of NAI allegedly sold
shares of NAI stock owned by them personally at price levels described above
which TDA claims were higher than the true value of these shares.
As relief, TDA essentially seeks damages in an amount to be
proven at trial, together with costs and expenses, including reasonable
attorneys', accountants' and experts' fees. TDA's Complaint also requests that
the Court declare its action against NAI and the individual defendants to be a
proper class action and certify it as class representative and plaintiff's
counsel as counsel for the class. On March 24, 1995, the Court granted TDA's
motion for class certification. Discovery has commenced and depositions of NAI
officers and directors have been taken.
Evans Arbitration
On or about August 14, 1995, Michael W. Evans ('Evans'), a
former employee of CODAR Technologies, Inc. ('CODAR'), a wholly owned subsidiary
of NAI, instituted a breach of contract and breach of employment proceeding
against NAI. Evans commenced this action by filing a Demand for Arbitration
('Claim') with the American Arbitration Association office in Denver, Colorado
('AAA'), the
<PAGE>
remedy provided in the Employment Agreement between Evans and CODAR dated
October 14, 1993 ('Agreement').
Evan's Claim principally alleges that NAI violated the
Agreement by failing to compensate Evans, upon his involuntary termination,
vacation pay which he allegedly accrued during his employment pursuant to the
Agreement. Evans further alleges that, at the time of his involuntary
termination, he was denied the severance pay specified by CODAR's employee
policies. Additionally, Evans asserts a failure by NAI to compensate Evans under
a short term incentive provision and to pay bonus, all as allegedly required by
the Agreement.
As relief, Evans seeks damages in the amount of $248,000, and
reserves the right to seek additional damages.
Discrimination Complaint
In June of 1993, an ex-employee of the Company's Wilcom Division in New
Hampshire filed a discrimination complaint with the New Hampshire Commission for
Human Rights and the Equal Employment Opportunity Commission (EEOC). The Company
submitted a written response denying that it engaged in any unlawful
discrimination. The Company is vigorously contesting the complaint. The matter
is now pending before the Boston office of the EEOC. If the claimant prevails,
she would be entitled to reinstatement and backpay from the date of her
employment ended (August 24, 1992) to the date of reinstatement, plus
compensatory damages. Under Title VII of the Civil Rights Act, amended, punitive
damages are also a possibility. The Company believes that it has a strong
defense to the complaint.
Post Award Audit
The Company is currently involved in discussions with the Defense
Contract Audit Agency in connection with Contract No. DAAH01-91-C-0162,
modifications P00013 and PZ0005, Audit Report Nos. 3121-94G42040017 and
3121-95G42030002.
-2-
<PAGE>
Schedule 5.1
NAI 1996 BUSINESS PLAN TARGETS
($000's)
<TABLE>
<CAPTION>
CODAR SYSTEMS WILCOM LYNWOOD TOTALS
----------------------------------------------------------------------------------------------------
LINE TREATMENT LINE TEST
----------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES 40,000 10,000 10,000 3,000 Sold 63,000
GROSS MARGIN 10,000 (25%) 2,500 (25%) 2,500 (25%) 1,500 (50%) -- 16,500 (27%)
S G & A
(INCLUDING R&D) (4,000)(10%)(1) (1,500)(15%)(2) (2,000)(20%)(3) (600)(20%)(4) -- (8,100)(13%)
CORPORATE (1995 was $2,300,000) (600) (1,700)(2.5%)
Savings: Severance &
Restructuring Costs (400)
Westbury Office Closing (120)
Salary Reductions (130) Potential Margin
Ins./Legal/Misc. (170) Erosion (900)(1.5%)
Personnel Relocations
(3-4) (180) Anticipated EBIT 5,400
-----
Total (600)
</TABLE>
- ------------------
(1) Reduction from 1996 Plan of $1,000,000 including: $500,000 from selling;
$200,000 from bid & proposal; and $400,000 from R&D (1995 total was
$3,338,000).
(2) $474,000 less than 1996 Plan; set bid and proposal at $200,000, reduce
selling expenses for Navy & CIA sales.
(3) Includes $400,000 for SB-21-K2 Development ($250,000) spent in 1995).
(4) S G & A for Wilcom in 1995 was $2,780,000.
<PAGE>
Exhibit A
to
Securities Purchase Agreement
No. 1 1,000,000
NAI TECHNOLOGIES, INC.
12% Subordinated Promissory Note
due January 15, 1996
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED
WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF
APPLICABLE FEDERAL SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
FOR VALUE RECEIVED, NAI Technologies, Inc., a New York
corporation (the 'Company'), promises to pay to CHARLES S. HOLMES, the
registered holder or registered assigns hereof (the 'Holder'), the principal
amount of ONE MILLION DOLLARS ($1,000,000) payable on the fifteenth day of
January, 1996 (the 'Maturity Date'), together with interest on the outstanding
principal amount of this Note at the rate of twelve (12%) percent per annum
calculated on the basis of a 360 day year, such interest to be payable on the
Maturity Date. If the Company shall default in the payment of the principal of
or interest on this Note, whether upon maturity, by acceleration, or otherwise,
the Company shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount up to (but not including) the date of
actual payment (whether before or after judgment) at a rate per annum (computed
on the basis of the actual number of days elapsed over a year of 360 days) equal
to two (2%) percent. The Holder of this Note shall also, in addition to any
other amount payable hereon, be entitled, as hereinafter provided, to receive a
placement fee in an amount equal to three percent (3%) of the outstanding
principal amount of this Note (the 'Placement Fee'). Capitalized terms used and
not otherwise defined herein shall have the respective meanings attributed
thereto in Section 11.
1. Payments and Prepayments.
1.1 Payments of principal, Placement Fee and interest on this
Note shall be made at the principal office of the Company, currently located at
1000 Woodbury Road, Suite 412, Woodbury, New York 11797, or such other place or
places within the United States as may be specified by the Holder of this Note
in a written notice to the Company at least 10 business days before a given
payment date.
<PAGE>
1.2 Payments of principal, Placement Fee and interest on this
Note shall be made in lawful money of the United States of America by mailing
the Company's good check in the proper amount to the Holder at least three days
prior to the due date of each payment or otherwise transferring funds so as to
be received by the Holder on the due date of each such payment, provided,
however, that the Company shall make payment by wire transfer to an account such
Holder may specify in writing to the Company at least three days prior to the
due date of each payment.
1.3 If any payment on this Note becomes due and payable on a
Saturday, Sunday or other day on which commercial banks in New York, New York
are authorized or required by law to close, the maturity thereof shall be
extended to the next succeeding business day, and, with respect to payments of
principal, interest thereon shall be payable during such extension at the then
applicable rate.
1.4 This Note is subject to exchange in accordance with the
terms of that certain Securities Purchase Agreement, dated as of the date
hereof, between the Company and Charles S. Holmes and upon any such exchange,
the Company shall, subject to the provisions of Sections 5 and 6 below, pay the
Holder all interest on this Note accrued and unpaid through such exchange date.
1.5 Subject to the provisions of Sections 5 and 6 below, the
Company shall, within thirty (30) business days of the occurrence of a Change in
Control, offer, by written notice to the Holder, to prepay this Note, in whole
and not in part, without premium or penalty. Holder may accept the offer to
prepay made pursuant to this Section 1.5 by causing notice of such acceptance to
be delivered to the Company at least ten (10) days prior to the proposed
prepayment date (or such longer period as may be required by law). A failure by
Holder to respond to an offer to prepay pursuant to this Section 1.5 within the
requisite time period shall be deemed to constitute a rejection of such offer.
1.6 The Company shall not be entitled to prepay this Note in
whole or in part prior to the Maturity Date.
2. Placement Fee. Simultaneously with the initial issuance of
this Note, the Company shall pay to the Holder the Placement Fee, as a one time
fee for services rendered, which Placement Fee the Holder may deduct from the
funds remitted to the Company by the Holder in exchange for the issuance of this
Note.
3. Obligation Absolute. The obligations under this Note are
absolute and unconditional obligations of the Company and no modification,
release, consent, waiver, removal, rearrangement or amendment shall impair the
obligations of the Company hereunder.
4. Security. The payment of this Note is not secured by any
collateral.
-2-
<PAGE>
5. Subordination. (a) The Company for itself, its successors
and assigns, covenants and agrees, and each Holder of this Note by its
acceptance of this Note likewise covenants and agrees, that to the extent
provided below the payment of the principal of and interest on this Note is
hereby expressly subordinated and junior in right of payment, to the extent and
in the manner hereinafter set forth, to all Senior Indebtedness. For purposes
hereof, Senior Indebtedness is defined as:
(i) the principal of, premium, if any, any interest (including
without limitation any interest on interest and post-petition interest)
on, and all obligations of the Company for any costs and expenses with
respect to, all liabilities of the Company, direct or contingent,
joint, several or independent, now or hereafter existing, due or to
become due, whether created directly or acquired by assignment or
otherwise, under or in respect of that certain Amended and Restated
Credit Agreement, dated as of April 12, 1995, among, the Company, The
Bank of New York, Chemical Bank and the other parties referred to
therein (as heretofore and as hereafter amended, modified and
supplemented from time to time, the 'Bank Credit Agreement') and any of
the other Loan Documents (as defined in the Bank Credit Agreement); and
(ii) all extensions, renewals and refundings of any of
the foregoing.
(b) Upon the acceleration of any Senior Indebtedness or upon
the maturity of the entire principal amount of any Senior Indebtedness by lapse
of time, acceleration or otherwise, all such Senior Indebtedness which has been
so accelerated or matured shall first indefeasibly be paid in full in cash
before any payment is made by the Company or any Person acting on behalf of the
Company on account of any obligations evidenced by this Note.
(c) The Company shall not pay any obligations evidenced by
this Note if there exists a Default or Event of Default (as such terms are
defined in the instruments evidencing Senior Indebtedness including, without
limitation, the Bank Credit Agreement) with respect to any Senior Indebtedness
(hereinafter referred to as a 'Blockage Event').
The Company shall resume payment of this Note and a Blockage
Event shall be deemed to have terminated:
(i) when such Default or Event of Default on Senior
Indebtedness, as applicable, is cured or waived; or
(ii) when the Holder hereof shall have cured any such Default
or Event of Default on Senior Indebtedness to the extent such Default
or Event of Default can be cured by payment of money, which amount
shall be added to the principal amount owing to the Holder pursuant to
this Note; or
-3-
<PAGE>
(iii) 180 days after the occurrence of such Default or Event
of Default, provided, that at the end of such 180 days, if any of the
following events occurs, the Blockage Event shall continue: (A) a
Default in payment of any amount with respect to the Senior
Indebtedness; (B) an acceleration of the Senior Indebtedness; or (C)
the occurrence of an event of the type described in Section 6 hereof,
provided further, that a Blockage Event may be deemed to occur, with
respect to any single specified Default or Event of Default, only once
for each 360 day period.
(d) At any time there exists a Blockage Event, (i) the Company
shall not, directly or indirectly, make any payment of any part of this Note,
(ii) the Holder hereof shall not demand or accept from the Company or any other
Person any such payment or cancel, set off or otherwise discharge any part of
the indebtedness represented by this Note, and (iii) neither the Company nor the
Holder hereof shall otherwise take or permit any action prejudicial to or
inconsistent with the priority position of any holder of Senior Indebtedness
over the Holder of this Note.
(e) Any holder of Senior Indebtedness is hereby authorized to
demand specific performance of this Note, whether or not the Company shall have
complied with the provisions hereof applicable to it, at any time when the
Holder hereof shall have failed to comply with any provision hereof applicable
to him. The Holder hereby irrevocably waives any defense based on the adequacy
of a remedy at law which might be asserted as a bar to the remedy of specific
performance hereof in any action brought therefor by any holder of Senior
Indebtedness. The Holder further (i) waives presentment, demand, notice and
protest in connection with all negotiable instruments evidencing Senior
Indebtedness, notice of any loan made, extension granted or other action taken
in reliance hereon and all demands and notices of every kind in connection with
this Note or Senior Indebtedness; and (ii) assents to any renewal, extension or
postponement of the time of payment of Senior Indebtedness or any other
indulgence with respect thereto, to any substitution, exchange or release of
collateral therefor and to the addition or release of any Person primarily or
secondarily liable thereon.
(f) The Company and the Holder shall execute and deliver to
any holder of Senior Indebtedness such further instruments and shall take such
further action as such holder of Senior Indebtedness may at any time or times
reasonably request in order to evidence the subordination of the obligations
hereunder and to otherwise carry out the provisions and intent of this Note.
(g) No right of any holder of Senior Indebtedness to enforce
the subordination of the obligations shall be impaired by any act or failure to
act by the Company or the Holder or by their failure to comply with this Note or
any other agreement or document evidencing, related to or securing the
obligations hereunder. Without in any way limiting the generality of the
preceding sentence, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Holder, without incurring
responsibility to the Holder and without impairing or releasing the
subordination provided in this Note or the obligations of the holder hereof to
the holders of
-4-
<PAGE>
Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment of, or renew or alter, any Senior
Indebtedness, or otherwise amend or supplement in any manner, any Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing any Senior
Indebtedness; (iii) release any Person or entity liable in any manner for the
collection of any Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company or any other Person or entity.
(h) In the event that the Company shall make any payment or
prepayment to the Holder on account of the obligations under this Note which is
prohibited by this Section 5, such payment shall be held by the Holder, in trust
for the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Indebtedness (pro rata as to each of such holders on the basis
of the respective amounts and priorities of Senior Indebtedness held by them) to
the extent necessary to pay all Senior Indebtedness due to such holders in full
in accordance with its terms (whether or not such Senior Indebtedness is due and
owing), after giving effect to any concurrent payment or distribution to or for
the holders of such Senior Indebtedness.
(i) After all Senior Indebtedness indefeasibly is paid in full
and until the obligations under this Note are paid in full, the Holder shall be
subrogated to the rights of holders of Senior Indebtedness to the extent that
distributions otherwise payable to the Holder have been applied to the payment
of Senior Indebtedness. For purposes of such subrogation, no payments or
distributions to holders of such Senior Indebtedness of any cash, property or
securities to which the Holder would be entitled except for the provisions of
this Section 5 and no payment over pursuant to the provisions of this Section 5
to holders of such Senior Indebtedness by the Holder, shall, as between the
Company, its creditors, other than holders of such Senior Indebtedness, and the
Holder, be deemed to be a payment by the Company to or on account of such Senior
Indebtedness, it being understood that the provisions of this Section 5 are
solely for the purpose of defining the relative rights of the holders of such
Senior Indebtedness, on the one hand, and the Holder hereof, on the other hand.
6. Primacy of Senior Indebtedness Claims as Against the
Holder. In any insolvency, receivership, bankruptcy, dissolution, liquidation or
reorganization proceeding, or in any other proceeding, whether voluntary or
involuntary, by or against the Company under any bankruptcy or insolvency law or
laws relating to relief of debtors, to compositions, extensions, or
readjustments of indebtedness:
(a) the claims of any holders of Senior Indebtedness against
the Company shall be paid indefeasibly in full in cash before any
payment is made to the Holder of this Note;
(b) until all Senior Indebtedness is indefeasibly paid in full
any distribution to which the Holder would be entitled but for this
Section 6 shall be made to holders of Senior Indebtedness; and
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<PAGE>
(c) the holders of Senior Indebtedness shall have the right
to enforce, collect and receive every such payment or distribution and give
acquittance therefor. In furtherance of the foregoing, in the event that the
Company shall file or have filed against it a petition under any chapter of
Title 11 of the United States Code or any comparable statute, with the result
that the Company is excused from the obligation to pay all or any part of the
amount otherwise payable in respect of the Senior Indebtedness during the period
subsequent to the commencement of such proceedings, the Holder agrees that all
or such part of such amount shall be payable out of, and to that extent diminish
and be at the expense of, the Holder's reorganization dividends or other
distributions in respect of any claim filed by it as a creditor or interest
holder. In the event the holders of Senior Indebtedness receive amounts in
excess of payment in full (in cash) of amounts outstanding in respect of Senior
Indebtedness (without giving effect to whether claims in respect of the Senior
Indebtedness are allowed in any insolvency proceeding), the holders of the
Senior Indebtedness shall pay such excess amounts to the Holder.
7. Covenants. The Company covenants, so long as this Note
shall be outstanding and unless the Holder shall otherwise consent in writing,
that:
(a) Financial Statements, Reports, etc. So long as this
Convertible Note shall remain outstanding and the Company is subject to the
filing requirements of Section 13(a), 13(c) or 15(d) of the Securities Exchange
Act of 1934, as amended (the 'Exchange Act'), the Company will transmit or cause
to be transmitted to Holder, promptly after the same are sent or become publicly
available, copies of any and all financial statements and reports which are made
available to its stockholders and all periodic and other reports, proxy
statements, registration statements and other materials filed by it with the
Securities and Exchange Commission, or any other governmental authority
succeeding to any or all of the functions of said commission, or any national
securities exchange, as the case may be. If the Company is not subject to filing
requirements, the Company will transmit or cause to be transmitted to the Holder
annual and quarterly reports containing audited annual financial statements and
related notes thereto and unaudited quarterly financial statements.
(b) Corporate Existence. The Company shall, and shall cause
its Subsidiaries to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its corporate existence, material
rights, licenses, permits and franchises and comply in all material respects
with all laws and regulations applicable to it.
(c) Taxes and Assessments. The Company shall, and shall cause
its Subsidiaries to, pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or in respect of
its property, before the same shall become in default (which, for purposes of
this Note, shall mean the earlier of ninety (90) days from its due date or
invoice date, as the case may be, or the date upon which such obligee commences
and action or proceeding to recover such amount), provided, however, that the
Company shall not be required to pay and discharge or to cause to be paid and
discharged any such tax, assessment, charge, levy or claim so long as the
validity or amount
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<PAGE>
thereof shall be contested in good faith by appropriate proceedings (if the
Company shall have set aside on its books adequate reserves therefor).
(d) Liens. The Company shall not, and shall not permit any of
its Subsidiaries to, incur, create, assume or suffer to exist any Lien on any
property or assets, income or profits of the Company, now owned or hereafter
acquired, other than Permitted Liens.
(e) Indebtedness. The Company shall not, and shall not permit
any of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except for (i) Senior Indebtedness; (ii) Indebtedness under
this Note, (iii) Indebtedness under the Convertible Notes in an aggregate
principal amount not to exceed $7,000,000; (iv) Indebtedness between
Subsidiaries and between any Subsidiary and the Company; (v) Indebtedness
existing on the date hereof;(vi) Indebtedness of Lynwood Scientific Developments
Limited, a corporation organized under the laws of the United Kingdom, to
Midland Bank plc. in an aggregate amount not to exceed $2,000,000 or the U.S.
dollar equivalent in English pounds; (vii) Indebtedness of Codar Technology,
Inc., a Colorado corporation, to MetLife Capital Corp. and Colorado National
Leasing, Inc. in an aggregate amount not to exceed $1,200,000; and (viii) all
extensions, renewals and refundings of any of the foregoing.
(f) Investments. The Company shall not, and shall not permit
any of its Subsidiaries to, purchase, hold or acquire any capital stock,
evidence of indebtedness or other securities of, make or permit to exist any
loans or advances to, or make or permit to exist any investment (by way of
transfers of property, contributions to capital, acquisitions of businesses or
acquisitions of assets other than in the ordinary course of business, or
otherwise) or any other interest in, any other Person, except for Permitted
Investments.
(g) Payments. The Company shall not, and shall not permit any
of its Subsidiaries to, declare or pay, directly or indirectly, any dividends or
make any other distribution or payment, whether in cash, property, securities or
a combination thereof, with respect to (whether by reduction of capital or
otherwise) any shares of capital stock (or any options, warrants, rights or
other equity securities or agreements relating to any capital stock) now or
hereafter outstanding, or purchase, redeem, retire or otherwise acquire for
value any shares of its capital stock or warrants or options therefor now or
hereafter outstanding, or set apart any sum for the aforesaid purposes, in any
fiscal year, except that the Company may declare stock splits and pay dividends
payable solely in shares of any class of its capital stock.
(h) Disposition of Assets. The Company shall not, and shall
not permit any of its Subsidiaries to, sell or otherwise dispose of any assets
except for (i) sales of inventory, fixtures and equipment in the ordinary course
of business and (ii) sales of assets having a book value not exceeding $100,000
in the aggregate.
(i) Affiliate Transactions. Subsequent to the date hereof, the
Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, enter into or permit to
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exist any transaction or series of related transactions (including, but not
limited to, the purchase, sale or exchange of property, the making of any
investment, the giving of any guarantee or the rendering of any service) with
any Affiliate of the Company (other than transactions among the Company and any
wholly-owned Subsidiary) unless (i) such transaction or series of related
transactions is on terms no less favorable to the Company or such Subsidiary
than those that could be obtained in a comparable arm's length transaction with
a Person that is not an Affiliate, and (ii) such transaction or series of
related transactions is approved by a majority of the Board of Directors of the
Company (including a majority of the disinterested directors), which approval is
set forth in a board resolution of the Company certifying that such transaction
or series of transactions complies with the immediately preceding clause (i).
(j) Merger, Consolidation, etc. The Company shall not
consolidate or merge with, or convey, transfer or lease substantially all of its
assets in a single transaction or series of transactions to, any other Person
unless (i) the successor formed by such consolidation or the survivor of such
merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Company as an entirety, as the case may
be (the 'Successor'), shall have executed and delivered to Holder its assumption
of the due and punctual performance of all the obligations under this Note, (ii)
such Successor shall be a corporation organized and existing under the laws of
the United States of America, any state thereof or the District of Columbia, and
(iii) no event referred to in Section 8 shall have occurred and be continuing.
(k) Maintenance of Properties. The Company shall keep all
properties useful in the business of the Company in good working order and
condition except to the extent that discontinuing the operation or maintenance
of any such properties is, in the judgement of the Company, desirable in the
conduct its business.
8. Events of Default. In the event that:
(i) the Company defaults in making any payment of principal of
or interest on this Note required to be made on this Note; or
(ii) any obligation of the Company for the payment of borrowed
money in excess of $500,000 becomes or is declared to be due and
payable prior to its expressed maturity, unless the validity of any
such indebtedness or obligation is being contested in good faith by
appropriate proceedings; or
(iii) any warrant of attachment, execution or other writ is
levied upon any property or assets of the Company in excess of $500,000
and is not discharged or stayed (including stays resulting from the
filing of an appeal) within 30 days; or
(iv) all or any substantial part of the assets or properties
of the Company are condemned, seized or appropriated by any government
or governmental authority;
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<PAGE>
or any order is entered in any proceeding directing winding up,
dissolution or split-up of the Company; or
(v) the Company hereafter makes an assignment for the benefit
of creditors, or files a petition in bankruptcy as to itself, is
adjudicated insolvent or bankrupt, petitions receiver of or any trustee
for the Company or any substantial part of the property of the Company
under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction,
whether or not hereafter in effect; or if there is hereafter commenced
against the Company any such proceeding and an order approving the
petition is entered or such proceeding remains undismissed for a period
of 60 days, or the Company by any act or omission to act indicates its
consent to or approval of or acquiescence in any such proceeding or the
appointment of any receiver of, or trustee for, the Company or any
substantial part of its properties, or suffers any such receivership or
trusteeship to continue undischarged for a period of 60 days; or
(vi) the Company defaults in the due observance or
performance, in any material respect, of any covenant, condition or
agreement to be observed or performed pursuant to the terms of this
Note (other than a default which is specifically provided for elsewhere
in this Section 8) and such default continues unremedied for more than
thirty (30) days after the Company first has knowledge of such default,
through notice or otherwise;
then, and in any such event, and at any time thereafter, if such event shall
then be continuing, the Holder of this Note may, by written notice to the
Company, declare this Note due and payable, whereupon the same shall be due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived, provided, however, that if an event specified
in Section 8(iv) or 8(v) occurs and is continuing, this Note shall ipso facto be
and become immediately due and payable without any declaration or other act on
the part of the Holder.
9. [This Section intentionally omitted]
10. Investment Representation.
10.1 Holder hereby acknowledges that this Note is not being
registered (i) under the Act on the ground that the issuance of the Note is
exempt from registration under Section 4(2) of the Act as not involving any
public offering or (ii) under any applicable state securities law because the
issuance of this Note does not involve any public offering; and that the
Company's reliance on the Section 4(2) exemption of the Act and under applicable
state securities laws is predicated in part on the representations hereby made
to the Company by the Holder that it is acquiring this Note for investment for
its own account, with no present intention of dividing its participation with
others or reselling or otherwise distributing the
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<PAGE>
same, provided, nevertheless, that the disposition of its property shall at
all times be within its control.
10.2 Holder hereby agrees that it will not sell or transfer
all or any part of this Note unless and until it shall first have given notice
to the Company describing such sale or transfer and furnished to the Company
either (a) an opinion, reasonably satisfactory to counsel for the Company, of
counsel (skilled in securities matters, selected by the Holder and
reasonably satisfactory to the Company) to the effect that the proposed sale or
transfer may be made without registration under the Act or (b) an interpretive
letter from the Securities and Exchange Commission to the effect that no
enforcement action will be recommended if the proposed sale or transfer is made
without registration under the Act.
10.3 The Company may refuse to recognize a transfer of this
Note on its books should a holder attempt to transfer this Note otherwise than
in compliance with this Section 10.
11. Definitions. As used herein, unless the context otherwise
requires, the following terms have the respective meanings:
'Affiliate': with respect to any Person, the following: (i)
any other Person that at such time directly or indirectly through one or more
intermediaries controls, or is controlled by or is under common control with
such first Person or (ii) any Person beneficially owning or holding, directly or
indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% of more of any class of voting or equity interests. As used in such
definition, 'controls', 'controlled by' and 'under common control', as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
'Change in Control': any of the following events or
circumstances: (i) individuals who, at the beginning of any period of
twenty-four (24) consecutive months, constitute the Company's board of directors
(together with any new director whose election by the Company's board of
directors or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason (other
than death or disability) to constitute a majority of the Company's board of
directors then in office; (ii) any person or related persons constituting a
group (as such terms are used the Exchange Act) become the 'beneficial owners'
(as such term is used under the Exchange Act), directly or indirectly of more
than fifty percent (50%) of the total voting power of all classes then
outstanding of the Company's voting stock; or (iii) the acquisition after the
date hereof by any person or related persons constituting a group of the power
to elect, appoint or cause the election or appointment of at least a majority of
the members of the board of directors of the Company, or (iv) the acquisition
after the date hereof by any person or related persons constituting a
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<PAGE>
group of all or substantially all of the properties and assets of the Company
and its Subsidiaries, on a consolidated basis; provided, however, that no
Change in Control shall be deemed to have occurred in connection with, or
pursuant to, the initial issuance and sale of the Convertible Notes.
'Convertible Notes': the Company's 12% Convertible
Subordinated Promissory Notes due 2000, in the aggregate principal amount of up
to $8,000,000.
'GAAP': United States generally accepted accounting
principles, consistently applied.
'Indebtedness': at any time and with respect to any Person,
(i) all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services (other than
property, including inventory, and services purchased, and expense accruals and
deferred compensation items arising, in the ordinary course of business,
provided that the same shall not be overdue (i.e., the earlier of ninety (90)
days from the invoice date or the date the obligee commences an action to
recover such amounts), or if overdue, are being contested in good faith and by
appropriate proceedings), (iii) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments (other than performance,
surety and appeal bonds arising in the ordinary course of business), (iv) all
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(event though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (v) all obligations of such Person under leases which have been or
should be, in accordance with GAAP, recorded as capital leases, to the extent
required to be so recorded, (vi) all reimbursement, payment or similar
obligations of such Person, contingent or otherwise, under acceptance, letter of
credit or similar facilities, (vii) all Indebtedness referred to in clauses (i)
through (vi) above guaranteed directly or indirectly by such Person including
without limitation through any agreement (A) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or purchase of such
Indebtedness, (B) to purchase, sell or lease (as lessee or lessor) property, or
to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss in respect of such Indebtedness, (C) to supply funds
to or in any other manner invest in the debtor (including any agreement to pay
for property or services irrespective of whether such property is received or
such services are rendered) or (D) otherwise to assure a creditor against loss
in respect of such Indebtedness, and (viii) all Indebtedness referred to in
clauses (i) through (vii) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon in property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness.
'Lien': any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever.
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'Permitted Investments': any of the following:
(i) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United State of America
(or by any agency thereof to the extent such obligations are backed by the full
faith and credit of the United States of America), in each case maturing within
twelve months from the date of acquisition thereof;
(ii) without limiting the provisions of clause (iv) below,
investments in commercial paper maturing within one year from the date of
acquisition thereof and having, at such date of acquisition, the highest credit
rating obtainable from Standard & Poor's Corporation (or a similar rating by any
similar organization which rates commercial paper);
(iii) investments in certificates of deposits or banker's
acceptances and time deposits maturing within twelve months from the date of
acquisition thereof issued or guaranteed by or placed with (a) any domestic
office of the bank with whom the Company maintains its cash management system or
(b) any domestic office of any other commercial bank of recognized standing
organized under the laws of the United States of America or any state thereof
that has a combined capital and surplus and undivided profits of not less than
$100,000,000 and is the principal banking subsidiary of a bank holding company
having a long-term unsecured debt rating of at least 'A' or the equivalent
thereof from the Standard & Poor's Corporation or at least 'A2' or the
equivalent thereof from Moody's Investors Service, Inc.;
(iv) investments in commercial paper maturing within six
months from the date of acquisition and issued by the holding company of any
commercial bank of recognized standing organized under the laws of the United
States of America of any state thereof that has (A) a combined capital and
surplus in excess of $250,000,000 and (B) commercial paper rated at least 'A' or
the equivalent thereof from the Standard & Poor's Corporation or at least 'A2'
or the equivalent thereof from Moody's Investors Service, Inc. (or has a similar
rating by any similar organization that rates commercial paper); or
(v) investments in money market funds substantially all the
assets of which are comprised of securities of the types described in clauses
(i) through (iv) above.
'Permitted Lien': mean (i) Liens in existence on the date
hereof, (ii) Liens created for the benefit of the holders of Senior
Indebtedness, (iii) Liens imposed by law for taxes, assessments or charges of
any governmental authority for claims not yet due or which are being contested
in good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance with
GAAP; (iv) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law created in the ordinary
course of business for amounts not yet due, which are not overdue by more than
60 days or which are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with GAAP; (v) Liens incurred or deposits made in
the ordinary course of business in connection with
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<PAGE>
workers' compensation, unemployment insurance and other types of social security
benefits or to secure the performance of tenders, bids, leases, contracts (other
than for the repayment of indebtedness), statutory obligations and other similar
obligations or arising as a result of progress payments under government
contracts; (vi) easements (including without limitation, reciprocal easement
agreements and utility agreements), rights-of-way, covenants, consents,
reservations, encroachments, variations and zoning and other restrictions,
charges or encumbrances (whether or not recorded), which in the aggregate, are
not substantial in amount, and which do not interfere materially with the
ordinary conduct of the business of the Company and which do not materially
detract from the property to which they attach or materially impair the use
thereof to the Company; (vii) Liens covering real property or Personal property
in existence at the time of acquisition thereof by the Company and purchase
money Liens upon or in any property acquired or held in the ordinary course of
business to secure the purchase price of such property or to secure indebtedness
permitted by this Section 7 solely for the purpose of financing the acquisition
of such property and no such Lien covers, or is extended to cover, any other
property owned by the Company; and (viii) extensions, renewals or replacements
of any Lien referred to in paragraphs (i) through (vii) above.
'Person': any natural person, corporation, division of a
corporation, partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.
'Senior Indebtedness': the meaning specified in Section 5(a).
'Subsidiaries': with respect to any Person, any corporation,
association or other business entity (whether now existing or hereafter
organized) of which at least a majority of the securities or other ownership
interests having ordinary voting power for the election of directors is, at the
time as of which any determination is being made, owned or controlled by such
Person or one or more subsidiaries of such Person.
12. Miscellaneous.
12.1 This Note is the obligation of the Company only, and no
recourse shall be had for the payment thereof or interest thereon against any
stockholder, officer or director of the Company, whether by virtue of any
constitution, statute, rule or law or otherwise, all such liability, by the
acceptance hereof, and as part of the consideration hereof, being expressly
waived.
12.2 Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and of a
letter of indemnity reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender or cancellation of this Note, if mutilated, the Company will make
and deliver a new Note of like tenor in lieu of such lost, stolen, destroyed or
mutilated Note.
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<PAGE>
12.3 THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
COMPANY AND THE HOLDER HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS AND
INSTRUMENTS MADE AND TO BE PERFORMED IN NEW YORK AND CANNOT BE MODIFIED OR
CHANGED ORALLY.
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<PAGE>
IN WITNESS WHEREOF, the Company originally signed this Note on
the day of October, 1995.
NAI TECHNOLOGIES, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
Exhibit C
to
Securities Purchase Agreement
CROSS-RECEIPT
AND ACKNOWLEDGEMENT
Reference is made to the Securities Purchase Agreement, dated
as of October , 1995 (the 'Purchase Agreement'), between NAI Technologies,
Inc., a New York corporation (the 'Company'), and Charles S. Holmes (the
'Purchaser'), providing for the issuance and sale by the Company to the
Purchaser of a 12% Subordinated Promissory Note due 1996 in the aggregate
principal amount of $1,000,000 (the 'Note'). Terms used in this Cross-Receipt
and Acknowledgement with initial capital letters shall, unless otherwise defined
herein, have the respective meanings assigned thereto in the Purchase Agreement.
The Purchaser hereby acknowledges receipt from the Company of
the Note, each registered in the Purchaser's name.
The Company hereby acknowledges receipt from the Purchaser of
a wire transfer of immediately available funds in the amount of $1,000,000
representing full and final payment of the aggregate purchase price for the Note
pursuant to the Purchase Agreement.
NAI TECHNOLOGIES, INC.
_____________________________ By:________________________
Charles S. Holmes Name: Richard A. Schneider
Title: Executive Vice
President, Treasurer
and Secretary
Dated: October , 1995 Dated: October , 1995
<PAGE>
Exhibit D
to
Securities Purchase Agreement
No. 1 $1,000,000
NAI TECHNOLOGIES, INC.
12% Convertible Subordinated Promissory Note
due , 2000
THIS NOTE AND THE COMMON STOCK THAT MAY BE ISSUABLE TO THE HOLDER HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE
WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL
SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
FOR VALUE RECEIVED, NAI Technologies, Inc., a New York
corporation (the 'Company'), promises to pay to CHARLES S. HOLMES, the
registered holder or registered assigns hereof (the 'Holder'), the principal
amount of ONE MILLION DOLLARS ($1,000,000) payable on the fifteenth day of ,
2000 (the 'Maturity Date'), together with interest on the outstanding principal
amount of this Convertible Note at the rate of twelve (12%) percent per annum
calculated on the basis of a 360 day year, such interest to be payable in
arrears on a semi-annual basis on the fifteenth day of April and October of each
year, commencing April 15, 1996. If the Company shall default in the payment of
the principal of or interest on this Convertible Note, whether upon maturity, by
acceleration, or otherwise, the Company shall on demand from time to time pay
interest, to the extent permitted by law, on such defaulted amount up to (but
not including) the date of actual payment (whether before or after judgment) at
a rate per annum (computed on the basis of the actual number of days elapsed
over a year of 360 days) equal to two (2%) percent. Capitalized terms used and
not otherwise defined herein shall have the respective meanings attributed
thereto in Section 12.
1. Payments and Prepayments.
1.1 Payments of principal of and interest on this Convertible
Note shall be made at the principal office of the Company, currently located at
1000 Woodbury Road, Suite 412, Woodbury, New York 11797, or such other place or
places within the United States as may be specified by the Holder of this
Convertible Note in a written notice to the Company at least 10 business days
before a given payment date.
<PAGE>
1.2 Payments of principal of and interest on this Convertible
Note shall be made in lawful money of the United States of America by mailing
the Company's good check in the proper amount to the Holder at least three days
prior to the due date of each payment or otherwise transferring funds so as to
be received by the Holder on the due date of each such payment, provided,
however, that, in the event that the principal amount of this Convertible Note
is at least $1,000,000, the Company shall make payment by wire transfer to an
account such Holder may specify in writing to the Company at least three days
prior to the due date of each payment.
1.3 If any payment on this Convertible Note becomes due and
payable on a Saturday, Sunday or other day on which commercial banks in New
York, New York are authorized or required by law to close, the maturity thereof
shall be extended to the next succeeding business day, and, with respect to
payments of principal, interest thereon shall be payable during such extension
at the then applicable rate.
1.4 Subject to the provisions of Sections 4 and 5 below, this
Convertible Note is subject to prepayment, in whole but not in part, at the
option of the Company, at any time, without premium or penalty, subject only to
the provision of notice in accordance with Section 1.6.
1.5 Subject to the provisions of Sections 4 and 5 below, the
Company shall, within thirty (30) business days of the occurrence of a Change in
Control, offer, by written notice to the Holder in accordance with Section 1.6,
to prepay this Convertible Note, in whole and not in part, without premium or
penalty. Holder may accept the offer to prepay made pursuant to this Section 1.5
by causing notice of such acceptance to be delivered to the Company at least ten
(10) days prior to the proposed prepayment date (or such longer period as may be
required by law). A failure by Holder to respond to an offer to prepay pursuant
to this Section 1.5 within the requisite time period shall be deemed to
constitute a rejection of such offer.
1.6 The Company will give Holder written notice indicating the
amount of any prepayment and the proposed date thereof not more than sixty (60)
days and not less than thirty (30) days prior to any such prepayment of this
Note.
2. Obligation Absolute. The obligations under this Convertible
Note are absolute and unconditional obligations of the Company and no
modification, release, consent, waiver, removal, rearrangement or amendment
shall impair the obligations of the Company hereunder.
3. Security. The payment of this Convertible Note is not
secured by any collateral.
4. Subordination. (a) The Company for itself, its successors
and assigns, covenants and agrees, and each Holder of this Convertible Note by
its acceptance of this Convertible Note likewise covenants and agrees, that to
the extent provided below the
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payment of the principal of and interest on this Convertible Note is hereby
expressly subordinated and junior in right of payment, to the extent and in the
manner hereinafter set forth, to all Senior Indebtedness. For purposes hereof,
Senior Indebtedness is defined as:
(i) the principal of, premium, if any, and any interest
(including without limitation any interest on interest and
post-petition interest) on, all liabilities of the Company (including
without limitation all liabilities of the Company with respect to any
costs and expenses), direct or contingent, joint, several or
independent, now or hereafter existing, due or to become due, whether
created directly or acquired by assignment or otherwise, under or in
respect of that certain Amended and Restated Credit Agreement, dated
as of April 12, 1995, among, the Company, The Bank of New York,
Chemical Bank and the other parties referred to therein (as heretofore
and as hereafter amended, modified and supplemented from time to time,
the 'Bank Credit Agreement') and any of the other Loan Documents (as
defined in the Bank Credit Agreement); and
(ii) all extensions, renewals and refundings of any of the
foregoing.
(b) Upon the acceleration of any Senior Indebtedness or upon
the maturity of the entire principal amount of any Senior Indebtedness by lapse
of time, acceleration or otherwise, all such Senior Indebtedness which has been
so accelerated or matured shall first indefeasibly be paid in full in cash
before any payment is made by the Company or any Person acting on behalf of the
Company on account of any obligations evidenced by this Convertible Note.
(c) The Company shall not pay any obligations evidenced by
this Convertible Note if there exists a Default or Event of Default (as such
terms are defined in the instruments evidencing Senior Indebtedness including,
without limitation, the Bank Credit Agreement) with respect to any Senior
Indebtedness (hereinafter referred to as a 'Blockage Event').
The Company shall resume payment of this Convertible Note and
a Blockage Event shall be deemed to have terminated:
(i) when such Default or Event of Default on Senior
Indebtedness, as applicable, is cured or waived; or
(ii) when the Holder hereof shall have cured any such Default
or Event of Default on Senior Indebtedness to the extent such Default
or Event of Default can be cured by payment of money, which amount
shall be added to the principal amount owing to the Holder pursuant to
this Convertible Note; or
(iii) 180 days after the occurrence of such Default or Event
of Default, provided, that at the end of such 180 days, if any of the
following events occurs, the Blockage Event shall continue: (A) a
Default in the payment of any amount with
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respect to the Senior Indebtedness; (B) an acceleration of the Senior
Indebtedness; or (C) the occurrence of an event of the type described
in Section 5 hereof, provided further, that a Blockage Event may be
deemed to occur only once for each 360 day period.
(d) At any time there exists a Blockage Event, (i) the Company
shall not, directly or indirectly, make any payment of any part of this
Convertible Note, (ii) the Holder hereof shall not demand or accept from the
Company or any other Person any such payment or cancel, set off or otherwise
discharge any part of the indebtedness represented by this Convertible Note, and
(iii) neither the Company nor the Holder hereof shall otherwise take or permit
any action prejudicial to or inconsistent with the priority position of any
holder of Senior Indebtedness over the Holder of this Convertible Note.
Notwithstanding the foregoing, or any other provision of this Convertible Note
to the contrary, the occurrence and continuance of a Blockage Event shall not
limit or in any other manner affect the exercise of the Holder's conversion
rights pursuant to Section 6.
(e) Any holder of Senior Indebtedness is hereby authorized to
demand specific performance of this Convertible Note, whether or not the Company
shall have complied with the provisions hereof applicable to it, at any time
when the Holder hereof shall have failed to comply with any provision hereof
applicable to him. The Holder hereby irrevocably waives any defense based on the
adequacy of a remedy at law which might be asserted as a bar to the remedy of
specific performance hereof in any action brought therefor by any holder of
Senior Indebtedness. The Holder further (i) waives presentment, demand, notice
and protest in connection with all negotiable instruments evidencing Senior
Indebtedness, notice of any loan made, extension granted or other action taken
in reliance hereon and all demands and notices of every kind in connection with
this Convertible Note or Senior Indebtedness; and (ii) assents to any renewal,
extension or postponement of the time of payment of Senior Indebtedness or any
other indulgence with respect thereto, to any substitution, exchange or release
of collateral therefor and to the addition or release of any Person primarily or
secondarily liable thereon.
(f) The Company and the Holder shall execute and deliver to
any holder of Senior Indebtedness such further instruments and shall take such
further action as such holder of Senior Indebtedness may at any time or times
reasonably request in order to evidence the subordination of the obligations
hereunder and to otherwise carry out the provisions and intent of this
Convertible Note.
(g) No right of any holder of Senior Indebtedness to enforce
the subordination of the obligations shall be impaired by any act or failure to
act by the Company or the Holder or by their failure to comply with this
Convertible Note or any other agreement or document evidencing, related to or
securing the obligations hereunder. Without in any way limiting the generality
of the preceding sentence, the holders of Senior Indebtedness may, at any time
and from time to time, without the consent of or notice to the Holder, without
incurring responsibility to the Holder and without impairing or releasing the
subordination provided in this Convertible Note or the obligations of the holder
hereof to the
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holders of Senior Indebtedness, do any one or more of the following: (i)
change the manner, place or terms of payment of, or renew or alter, any Senior
Indebtedness, or otherwise amend or supplement in any manner, any Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing any Senior
Indebtedness; (iii) release any Person or entity liable in any manner for the
collection of any Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company or any other Person or entity.
(h) In the event that the Company shall make any payment or
prepayment to the Holder on account of the obligations under this Convertible
Note which is prohibited by this Section 4, such payment shall be held by the
Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered to, the holders of Senior Indebtedness (pro rata as to each of such
holders on the basis of the respective amounts and priorities of Senior
Indebtedness held by them) to the extent necessary to pay all Senior
Indebtedness due to such holders in full in accordance with its terms (whether
or not such Senior Indebtedness is due and owing), after giving effect to any
concurrent payment or distribution to or for the holders of such Senior
Indebtedness.
(i) After all Senior Indebtedness indefeasibly is paid in full
and until the obligations under this Convertible Note are paid in full, the
Holder shall be subrogated to the rights of holders of Senior Indebtedness to
the extent that distributions otherwise payable to the Holder have been applied
to the payment of Senior Indebtedness. For purposes of such subrogation, no
payments or distributions to holders of such Senior Indebtedness of any cash,
property or securities to which the Holder would be entitled except for the
provisions of this Section 4 and no payment over pursuant to the provisions of
this Section 4 to holders of such Senior Indebtedness by the Holder, shall, as
between the Company, its creditors, other than holders of such Senior
Indebtedness, and the Holder, be deemed to be a payment by the Company to or on
account of such Senior Indebtedness, it being understood that the provisions of
this Section 4 are solely for the purpose of defining the relative rights of the
holders of such Senior Indebtedness, on the one hand, and the Holder hereof, on
the other hand.
5. Primacy of Senior Indebtedness Claims as Against the
Holder. In any insolvency, receivership, bankruptcy, dissolution, liquidation or
reorganization proceeding, or in any other proceeding, whether voluntary or
involuntary, by or against the Company under any bankruptcy or insolvency law or
laws relating to relief of debtors, to compositions, extensions, or
readjustments of indebtedness:
(a) the claims of any holders of Senior Indebtedness against
the Company shall be paid indefeasibly in full in cash before any
payment is made to the Holder of this Convertible Note;
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(b) until all Senior Indebtedness is indefeasibly paid in full
any distribution to which the Holder would be entitled but for this
Section 5 shall be made to holders of Senior Indebtedness; and
(c) the holders of Senior Indebtedness shall have the right to
enforce, collect and receive every such payment or distribution and give
acquittance therefor. In furtherance of the foregoing, in the event that the
Company shall file or have filed against it a petition under any chapter of
Title 11 of the United States Code or any comparable statute, with the result
that the Company is excused from the obligation to pay all or any part of the
amount otherwise payable in respect of the Senior Indebtedness during the period
subsequent to the commencement of such proceedings, the Holder agrees that all
or such part of such amount shall be payable out of, and to that extent diminish
and be at the expense of, the Holder's reorganization dividends or other
distributions in respect of any claim filed by it as a creditor or interest
holder. In the event the holders of Senior Indebtedness receive amounts in
excess of payment in full (in cash) of amounts outstanding in respect of Senior
Indebtedness (without giving effect to whether claims in respect of the Senior
Indebtedness are allowed in any insolvency proceeding), the holders of the
Senior Indebtedness shall pay such excess amounts to the Holder.
6. Conversion. The Holder of this Convertible Note will have
the right, exercisable at any time on or before the Maturity Date, by notice to
the Company at its principal office, at his option to convert this Convertible
Note at the principal amount hereof (or any portion hereof that is an integral
multiple of $1,000) into 500 shares of the common stock, par value $.10 per
share, of the Company (the 'Common Stock') for each $1,000 face amount of this
Convertible Note, representing a conversion price equal to $2.00 per share,
subject to adjustment as set forth below (the 'Conversion Price'). The Company
may at any time, by notice to the Holder, require the conversion of this
Convertible Note in accordance with this Section 6, and the Holder shall
promptly surrender this Convertible Note for conversion following such notice,
provided that the Closing Price for the Common Stock for thirty (30) consecutive
trading days prior to such notice is equal to or greater than $6.00 per share,
subject to adjustment proportionately with any adjustment of the Conversion
Price pursuant to this Section 6.
Subject to the right of the Holder on the conversion date to
receive all interest on such Convertible Note accrued through such date of
conversion, no adjustment for interest or dividends will be made upon the
conversion of this Convertible Note. No fractional shares will be issued upon
conversion, but if the conversion results in a fraction, an appropriate amount
will be paid by the Company in cash. This right of conversion shall cease upon
payment in full of all principal and interest and other amounts due in respect
of this Note.
The occurrence of any of the following events shall trigger an
adjustment to the Conversion Price and/or the number of shares of Common Stock
into which this Convertible Note shall be converted (the 'Conversion Shares'):
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(a) Recapitalization, Reclassification and Succession. If any
recapitalization of the Company or reclassification of its Common Stock or any
merger or consolidation of the Company into or with a corporation or other
business entity, or the sale or transfer of all or substantially all of the
Company's assets or of any successor corporation's assets to any other
corporation or business entity (any such corporation or other business entity
being included within the meaning of the term 'successor corporation') shall be
effected, at any time while this Convertible Note remains outstanding, then, as
a condition of such recapitalization, reclassification, merger, consolidation,
sale or transfer, lawful and adequate provision shall be made whereby the Holder
of this Convertible Note thereafter shall have the right to receive upon the
conversion hereof as provided in this Section 6 and in lieu of the shares of
Common Stock immediately theretofore issuable upon the conversion of this
Convertible Note, such shares of capital stock, securities or other property as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of Common Stock
immediately theretofore issuable upon the conversion of this Convertible Note
had such recapitalization, reclassification, merger, consolidation, sale or
transfer not taken place, and in each such case, the terms of this Convertible
Note shall be applicable to the shares of stock or other securities or property
receivable upon the conversion of this Convertible Note after such consummation.
(b) Subdivision or Combination of Shares. If the Company at
any time while this Convertible Note remains outstanding shall subdivide or
combine its Common Stock, the Conversion Price and the Conversion Shares shall
be proportionately adjusted.
(c) Stock Dividends and Distributions. If the Company at any
time while this Convertible Note is outstanding shall issue or pay the holders
of its Common Stock, or take a record of the holders of its Common Stock for the
purpose of entitling them to receive, a dividend payable in, or other
distribution of, Common Stock, then (i) the Conversion Price shall be adjusted
in accordance with Section 6(e) and (ii) the number of Conversion Shares shall
be adjusted to the number of shares of Common Stock that Holder would have owned
immediately following such action had this Convertible Note been converted
immediately prior thereto.
(d) Certain Stock Issuances. If at any time after the date
of issuance of this Convertible Note, the Company shall issue or sell, or fix
a record date for the purposes of entitling holders of its Common Stock to
receive, (i) Common Stock or (ii) rights, options or warrants entitling
the holders thereof to subscribe for or purchase Common Stock (or securities
convertible or exchangeable into or exercisable for Common Stock), in any such
case, at a price per share (or having a conversion, exchange or exercise price
per share) that is less than the lowest Closing Price during the twenty (20)
trading days immediately preceding the date of such issuance or sale or such
record date then, immediately after the date of such issuance or sale or on such
record date, (A) the Conversion Price shall be adjusted in accordance with
Section 6(e) and (B) the number of Conversion Shares shall be adjusted to that
number determined by multiplying the number of Conversion Shares immediately
before the date of such issuance or sale or such record date
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<PAGE>
by a fraction, the denominator of which will be the number of shares of Common
Stock outstanding on such date plus the number of shares of Common Stock that
the aggregate offering price of the total number of shares so offered for
subscription or purchase (or the aggregate initial conversion price, exchange
price or exercise price of the convertible securities or exchangeable securities
or rights, options or warrants, as the case may be, so offered) would purchase
at such Closing Price, and the numerator of which will be the number of shares
of Common Stock outstanding on such date plus the number of additional shares of
Common Stock offered for subscription or purchase (or into which the convertible
or exchangeable securities or rights, options or warrants so offered are
initially convertible or exchangeable or exercisable, as the case may be).
If the Company shall, at any time after the date of issuance
of this Convertible Note distribute to all holders of its Common Stock any
shares of capital stock of the Company (other than Common Stock) or evidences of
its indebtedness or assets (excluding cash dividends or distributions paid from
retained earnings or current year's or prior year's earnings of the Company) or
rights or warrants to subscribe for or purchase any of its securities (excluding
those referred to in the immediately preceding paragraph)(any of the foregoing
being hereinafter in this paragraph called the 'Distributed Interests'), then in
each such case, the Company shall reserve shares or other units of such
Distributed Interests for distribution to the Holder upon conversion of this
Convertible Note so that, in addition to the shares of the Common Stock to which
such Holder is entitled, such Holder will receive upon such exercise the amount
and kind of such Distributed Interests which such Holder would have received
if the Holder had, immediately prior to the record date for the distribution of
the Distributed Interests, converted this Convertible Note.
(e) Conversion Price Adjustment. Whenever the number of
Conversion Shares is adjusted, as herein provided, the Conversion Price payable
upon the conversion of this Convertible Note shall be adjusted to that price
determined by multiplying the Conversion Price immediately prior to such
adjustment by a fraction (i) the numerator of which shall be the number of
Conversion Shares immediately prior to such adjustment, and (ii) the denominator
of which shall be the number of Conversion Shares immediately thereafter.
(f) Certain Shares Excluded. The number of shares of Common
Stock outstanding at any given time for purposes of the adjustments set forth in
this Section 6 shall exclude any shares then directly or indirectly held in the
treasury of the Company.
(g) Deferral and Cumulation of De Minimis Adjustments. The
Company shall not be required to make any adjustment pursuant to this Section 6
if the amount of such adjustment should be less than one percent (1%) of the
Conversion Price in effect immediately before the event that would otherwise
have given rise to such adjustment. In such case, however, any adjustment that
would otherwise have been required to be made shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
or adjustments so carried forward, shall amount to not less than
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one percent (1%) of the Conversion Price in effect immediately before the event
giving rise to such next subsequent adjustment.
(h) Duration of Adjustment. Following each computation or
readjustment provided in this Section 6, the new adjusted Conversion Price and
number of Conversion Shares shall remain in effect until a further computation
or readjustment thereof is required.
The Company shall deliver a certificate or certificates for
shares of its Common Stock issuable on conversion of this Convertible Note as
soon as practicable after surrender of this Convertible Note for conversion, but
the Person or Persons to whom such certificates are issuable shall be considered
the holder of record of the shares of Common Stock from the time this
Convertible Note is surrendered. Except as described above, this Convertible
Note is not otherwise convertible into shares of Common Stock.
7. Notices to Holders.
(a) Notice of Record Date. In case:
(i) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon
the conversion of this Convertible Note) for the purpose of entitling
them to receive any dividend or other distribution, or any right to
subscribe for or purchase any shares of stock of any class or any
other securities, or to receive any other right; or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation with or merger of the Company into another corporation,
or any conveyance of all or substantially all of the assets of the
Company to another corporation; or
(iii) of any voluntary dissolution, liquidation or winding-up
of the Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Holder hereof at the time outstanding a notice specifying, as the case may be,
(i) the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any, is to be fixed, as of which
the holders of record of Common Stock (or such stock or securities at the time
receivable upon the conversion of this Convertible Note) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 30 days prior to the record
date therein specified, or if no record date shall have been specified therein,
at least 30 days prior to such other specified date.
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(b) Notice of Adjustments. Whenever the Conversion Price or
the number of Conversion Shares shall be adjusted pursuant to Section 6 hereof,
the Company shall promptly make a certificate signed by its President or a Vice
President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the number of Conversion Shares and the Conversion Price
after giving effect to such adjustment, and shall promptly cause copies of such
certificates to be mailed (by first class mail postage prepaid) to the Holder of
this Convertible Note.
8. Covenants. The Company covenants, so long as this
Convertible Note shall be outstanding and unless the Holder shall otherwise
consent in writing, that:
(a) Financial Statements, Reports, etc. So long as this
Convertible Note shall remain outstanding and the Company is subject to the
filing requirements of Section 13(a), 13(c) or 15(d) of the Securities Exchange
Act of 1934, as amended (the 'Exchange Act'), the Company will transmit or cause
to be transmitted to Holder, promptly after the same are sent or become publicly
available, copies of any and all financial statements and reports which are made
available to its stockholders and all periodic and other reports, proxy
statements, registration statements and other materials filed by it with the
Securities and Exchange Commission, or any other governmental authority
succeeding to any or all of the functions of said commission, or any national
securities exchange, as the case may be. If the Company is not subject to filing
requirements, the Company will transmit or cause to be transmitted to the Holder
annual and quarterly reports containing audited annual financial statements and
related notes thereto and unaudited quarterly financial statements.
(b) Registration of Shares. The Company shall file a
registration statement with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the 'Act'), with respect to the shares of
the Company's common stock, par value $.10 per shares, issuable pursuant hereto
and upon the exercise of the Warrant referred to in Section 13.1 on or prior to
the later of ninety (90) days after the Company's receipt of the net proceeds
from the initial sale of the entire maximum principal amount of the Convertible
Notes to institutional and other investors or March 31, 1996, pursuant to a
registration rights agreement of even date herewith between the Holder and the
Company.
(c) 1996 EBITDA. The Company shall achieve 1996 EBITDA, as
reflected in the consolidated financial statements delivered in accordance with
this Section 8 for such period, in an amount equal to or greater than
$4,000,000.
(d) Corporate Existence. The Company shall, and shall cause
its Subsidiaries to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its corporate existence, material
rights, licenses, permits and franchises and comply in all material respects
with all laws and regulations applicable to it.
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(e) Taxes and Assessments. The Company shall, and shall cause
its Subsidiaries to, pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or in respect of
its property, before the same shall become in default (which, for purposes of
this Convertible Note, shall mean the earlier of ninety (90) days from its due
date or invoice date, as the case may be, or the date upon which such obligee
commences and action or proceeding to recover such amount), provided, however,
that the Company shall not be required to pay and discharge or to cause to be
paid and discharged any such tax, assessment, charge, levy or claim so long as
the validity or amount thereof shall be contested in good faith by appropriate
proceedings (if the Company shall have set aside on its books adequate reserves
therefor).
(f) Liens. The Company shall not, and shall not permit any of
its Subsidiaries to, incur, create, assume or suffer to exist any Lien on any
property or assets, income or profits of the Company, now owned or hereafter
acquired, other than Permitted Liens.
(g) Indebtedness. The Company shall not, and shall not permit
any of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except for (i) Senior Indebtedness; (ii) Indebtedness under
this Note; (iii) Indebtedness under the Convertible Notes in an aggregate
principal amount not to exceed $7,000,000; (iv) Indebtedness between
Subsidiaries and between any Subsidiary and the Company; (v) Indebtedness
existing on the date hereof;(vi) Indebtedness of Lynwood Scientific Developments
Limited, a corporation organized under the laws of the United Kingdom, to
Midland Bank plc. in an aggregate amount not to exceed $2,000,000 or the U.S.
dollar equivalent in English pounds; (vii) Indebtedness of Codar Technology,
Inc., a Colorado corporation, to MetLife Capital Corp. and Colorado National
Leasing, Inc. in an aggregate amount not to exceed $1,200,000; and (viii) all
extensions, renewals and refundings of any of the foregoing.
(h) Investments. The Company shall not, and shall not permit
any of its Subsidiaries to, purchase, hold or acquire any capital stock,
evidence of indebtedness or other securities of, make or permit to exist any
loans or advances to, or make or permit to exist any investment (by way of
transfers of property, contributions to capital, acquisitions of businesses or
acquisitions of assets other than in the ordinary course of business, or
otherwise) or any other interest in, any other Person, except for Permitted
Investments.
(i) Payments. The Company shall not, and shall not permit any
of its Subsidiaries to, declare or pay, directly or indirectly, any dividends or
make any other distribution or payment, whether in cash, property, securities or
a combination thereof, with respect to (whether by reduction of capital or
otherwise) any shares of capital stock (or any options, warrants, rights or
other equity securities or agreements relating to any capital stock) now or
hereafter outstanding, or purchase, redeem, retire or otherwise acquire for
value any shares of its capital stock or warrants or options therefor now or
hereafter outstanding, or set apart any sum for the aforesaid purposes, in any
fiscal year, except that the Company may declare stock splits and pay dividends
payable solely in shares of any class of its capital stock.
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(j) Disposition of Assets. The Company shall not, and shall
not permit any of its Subsidiaries to, sell or otherwise dispose of any assets
except for (i) sales of inventory, fixtures and equipment in the ordinary course
of business and (ii) sales of assets having a book value not exceeding $100,000
in the aggregate.
(k) Affiliate Transactions. Subsequent to the date hereof, the
Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, enter into or permit to exist any transaction or series of related
transactions (including, but not limited to, the purchase, sale or exchange of
property, the making of any investment, the giving of any guarantee or the
rendering of any service) with any Affiliate of the Company (other than
transactions among the Company and any wholly-owned Subsidiary) unless (i) such
transaction or series of related transactions is on terms no less favorable to
the Company or such Subsidiary than those that could be obtained in a comparable
arm's length transaction with a Person that is not an Affiliate, and (ii) such
transaction or series of related transactions is approved by a majority of the
Board of Directors of the Company (including a majority of the disinterested
directors), which approval is set forth in a board resolution of the Company
certifying that such transaction or series of transactions complies with the
immediately preceding clause (i).
(l) Merger, Consolidation, etc. The Company shall not
consolidate or merge with, or convey, transfer or lease substantially all of its
assets in a single transaction or series of transactions to, any other Person
unless (i) the successor formed by such consolidation or the survivor of such
merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Company as an entirety, as the case may
be (the 'Successor'), shall have executed and delivered to Holder its assumption
of the due and punctual performance of all the obligations under this
Convertible Note, (ii) such Successor shall be a corporation organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia, and (iii) no event referred to in Section 9 shall have
occurred and be continuing.
(m) Maintenance of Properties. The Company shall keep all
properties useful in the business of the Company in good working order and
condition except to the extent that discontinuing the operation or maintenance
of any such properties is, in the judgement of the Company, desirable in the
conduct its business.
9. Events of Default. In the event that:
(i) the Company defaults in the payment of any installment of
interest payment required to be made on this Convertible Note and such
default shall continue for a period of ten (10) days; or
(ii) the Company defaults in making any payment of principal
of this Convertible Note required to be made on this Convertible Note;
or
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(iii) any obligation of the Company for the payment of
borrowed money in excess of $500,000 becomes or is declared to be due
and payable prior to its expressed maturity, unless the validity of
any such indebtedness or obligation is being contested in good faith
by appropriate proceedings; or
(iv) any warrant of attachment, execution or other writ is
levied upon any property or assets of the Company in excess of
$500,000 and is not discharged or stayed (including stays resulting
from the filing of an appeal) within 30 days; or
(v) all or any substantial part of the assets or properties of
the Company are condemned, seized or appropriated by any government or
governmental authority; or any order is entered in any proceeding
directing winding up, dissolution or split-up of the Company; or
(vi) the Company hereafter makes an assignment for the benefit
of creditors, or files a petition in bankruptcy as to itself, is
adjudicated insolvent or bankrupt, petitions receiver of or any
trustee for the Company or any substantial part of the property of the
Company under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether or not hereafter in effect; or if there is
hereafter commenced against the Company any such proceeding and an
order approving the petition is entered or such proceeding remains
undismissed for a period of 60 days, or the Company by any act or
omission to act indicates its consent to or approval of or
acquiescence in any such proceeding or the appointment of any receiver
of, or trustee for, the Company or any substantial part of its
properties, or suffers any such receivership or trusteeship to
continue undischarged for a period of 60 days; or
(vii) the Company defaults in the due observance or
performance, in any material respect, of any covenant, condition or
agreement to be observed or performed pursuant to the terms of this
Convertible Note (other than a default which is specifically provided
for elsewhere in this Section 9) and such default continues unremedied
for more than thirty (30) days after the Company first has knowledge
of such default, through notice or otherwise;
then, and in any such event, and at any time thereafter, if such event shall
then be continuing, the Holder of this Convertible Note may, by written notice
to the Company, declare this Convertible Note due and payable, whereupon the
same shall be due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived, provided, however,
that if an event specified in Section 9(v) or 9(vi) occurs and is continuing,
this Convertible Note shall ipso facto be and become immediately due and payable
without any declaration or other act on the part of the Holder.
10. [This Section intentionally omitted.]
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<PAGE>
11. Investment Representation.
11.1 Holder hereby acknowledges that this Convertible Note and
the Conversion Shares are not being registered (i) under the Act on the ground
that the issuance of the Convertible Note is exempt from registration under
Section 4(2) of the Act as not involving any public offering or (ii) under any
applicable state securities law because the issuance of this Convertible Note
does not involve any public offering; and that the Company's reliance on the
Section 4(2) exemption of the Act and under applicable state securities laws is
predicated in part on the representations hereby made to the Company by the
Holder that it is acquiring this Convertible Note for investment for its own
account, with no present intention of dividing its participation with others or
reselling or otherwise distributing the same, provided, nevertheless, that the
disposition of its property shall at all times be within its control.
11.2 Holder hereby agrees that it will not sell or transfer
all or any part of this Convertible Note and/or Conversion Shares unless and
until it shall first have given notice to the Company describing such sale or
transfer and furnished to the Company either (a) an opinion, reasonably
satisfactory to counsel for the Company, of counsel (skilled in securities
matters, selected by the Holder and reasonably satisfactory to the Company) to
the effect that the proposed sale or transfer may be made without registration
under the Act or (b) an interpretive letter from the Securities and Exchange
Commission to the effect that no enforcement action will be recommended if the
proposed sale or transfer is made without registration under the Act.
11.3 If, at the time of issuance of the Conversion Shares, no
registration statement is in effect with respect to such shares under applicable
provisions of the Act, the Company may at its election require that Holder
provide the Company with written reconfirmation of the Holder's investment
intent and that any stock certificate delivered to the Holder upon conversion of
this Convertible Note shall bear legends reading substantially as follows:
'TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE CONVERTIBLE
NOTE PURSUANT TO WHICH THESE SHARES WERE ISSUED BY THE
COMPANY. COPIES OF THOSE RESTRICTIONS ARE ON FILE AT THE
PRINCIPAL OFFICES OF THE COMPANY, AND NO TRANSFER OF SUCH
SHARES OR OF THIS CERTIFICATE, OR OF ANY SHARES OR OTHER
SECURITIES (OR CERTIFICATES THEREFOR) ISSUED IN EXCHANGE FOR
OR IN RESPECT OF SUCH SHARES, SHALL BE EFFECTIVE UNLESS AND
UNTIL THE TERMS AND CONDITIONS THEREIN SET FORTH SHALL HAVE
BEEN COMPLIED WITH.'
'THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE
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<PAGE>
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT.'
11.4 The Company may refuse to recognize a transfer of this
Convertible Note or any Conversion Shares on its books should a holder attempt
to transfer this Convertible Note or any Conversion Shares otherwise than in
compliance with this Section 11.
12. Definitions. As used herein, unless the context otherwise
requires, the following terms have the respective meanings:
'Affiliate': with respect to any Person, the following: (i)
any other Person that at such time directly or indirectly through one or more
intermediaries controls, or is controlled by or is under common control with
such first Person or (ii) any Person beneficially owning or holding, directly or
indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% of more of any class of voting or equity interests. As used in such
definition, 'controls', 'controlled by' and 'under common control', as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
'Change in Control': any of the following events or
circumstances: (i) individuals who, at the beginning of any period of
twenty-four (24) consecutive months, constitute the Company's board of directors
(together with any new director whose election by the Company's board of
directors or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason (other
than death or disability) to constitute a majority of the Company's board of
directors then in office; (ii) any person or related persons constituting a
group (as such terms are used the Exchange Act) become the 'beneficial owners'
(as such term is used under the Exchange Act), directly or indirectly of more
than fifty percent (50%) of the total voting power of all classes then
outstanding of the Company's voting stock; or (iii) the acquisition after the
date hereof by any person or related persons constituting a group of the power
to elect, appoint or cause the election or appointment of at least a majority of
the members of the board of directors of the Company, or (iv) the acquisition
after the date hereof by any person or related persons constituting a group of
all or substantially all of the properties and assets of the Company and its
Subsidiaries, on a consolidated basis; provided, however, that no Change in
Control shall be deemed to have occurred in connection with, or pursuant to, the
initial issuance and sale of the Convertible Notes.
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<PAGE>
'Closing Price': the closing price per share of the Company's
Common Stock on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if not listed or traded on any such
exchange, on the National Market System (the 'National Market System') of the
National Association of Securities Dealers Automated Quotations System
('NASDAQ'), or if not listed or traded on any such exchange or system, the
average of the bid and asked price per share on NASDAQ or, if such quotations
are not available, the fair market value per share of the Company's Common Stock
as reasonably determined by the Board of Directors of the Company.
'Consolidated Net Income': the net income (or deficit) of the
Company and its Subsidiaries for any period (taken as a cumulative whole) after
deducting, without duplication, all operating expenses, provisions for all taxes
and reserves (including reserves for deferred income taxes) and all other proper
deductions, all determined in accordance with GAAP on a consolidated basis,
after eliminating all intercompany items and after deducting portions of income
properly attributable to outside minority interests, if any, in any
Subsidiaries, provided, however, that there shall be excluded (i) any income or
deficit of any other Person accrued prior to the date it becomes a Subsidiary or
merges into or consolidates with the Company or another Subsidiary of the
Company, (ii) the income (or deficit) of any other Person (other than a
Subsidiary of the Company) in which the Company or any Subsidiary has any
ownership interest, except to the extent that any such income has been actually
received by the Company or such Subsidiary in the form of cash dividends or
similar distributions, (iii) any deferred credit or amortization thereof from
the acquisition of any properties of assets of any other Person, (iv) any
aggregate net income (but not any aggregate net loss) during such period arising
from the sale, exchange or other distribution of capital assets (such term to
include all fixed assets, whether tangible or intangible, all inventory sold in
conjunction with the disposition of fixed assets and all securities), (v) any
income resulting from the write-up of assets after the date hereof, (vi) any
gains properly classified as extraordinary in accordance with GAAP, (vii)
proceeds of life insurance policies to the extent such proceeds exceed premiums
paid to maintain such life insurance policies, (viii) any income of a Subsidiary
which is unavailable for the payment of dividends, and (ix) any gain arising
from the acquisition of securities, or the extinguishment of any indebtedness of
the Company or any of its Subsidiaries or the termination of an employee benefit
plan.
'Convertible Notes': the meaning specified in Section 13.2.
'GAAP': United States generally accepted accounting
principles, consistently applied.
'Indebtedness': at any time and with respect to any Person,
(i) all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services (other than
property, including inventory, and services purchased, and expense accruals and
deferred compensation items arising, in the ordinary course of business,
provided that the same shall not be overdue (i.e., the earlier of ninety (90)
days from the invoice date or the date the obligee commences an action to
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<PAGE>
recover such amounts), or if overdue, are being contested in good faith and by
appropriate proceedings), (iii) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments (other than performance,
surety and appeal bonds arising in the ordinary course of business), (iv) all
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(event though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (v) all obligations of such Person under leases which have been or
should be, in accordance with GAAP, recorded as capital leases, to the extent
required to be so recorded, (vi) all reimbursement, payment or similar
obligations of such Person, contingent or otherwise, under acceptance, letter of
credit or similar facilities, (vii) all Indebtedness referred to in clauses (i)
through (vi) above guaranteed directly or indirectly by such Person including
without limitation through any agreement (A) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or purchase of such
Indebtedness, (B) to purchase, sell or lease (as lessee or lessor) property, or
to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss in respect of such Indebtedness, (C) to supply funds
to or in any other manner invest in the debtor (including any agreement to pay
for property or services irrespective of whether such property is received or
such services are rendered) or (D) otherwise to assure a creditor against loss
in respect of such Indebtedness, and (viii) all Indebtedness referred to in
clauses (i) through (vii) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon in property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness.
'Lien': any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever.
'1996 EBITDA': Consolidated Net Income of the Company and its
Subsidiaries, for the fiscal year ended December 31, 1996, plus, to the extent
deducted in determining such Consolidated Net Income and without duplication,
(i) the sum for such period, of (a) the aggregate amount of all interest
(including capitalized interest) accrued or to accrue (whether or not actually
paid) during such period in respect of any Indebtedness of the Company and its
Subsidiaries, (b) any amortized discount in respect of any such Indebtedness
issued at discount, and (c) any fees or commissions payable in connection with
any letters of credit; (ii) current and deferred taxes on income and profit;
(iii) depreciation and (iv) amortization.
'Permitted Investments': any of the following:
(i) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America), in each case
maturing within twelve months from the date of acquisition thereof;
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<PAGE>
(ii) without limiting the provisions of clause (iv) below,
investments in commercial paper maturing within one year from the date of
acquisition thereof and having, at such date of acquisition, the highest credit
rating obtainable from Standard & Poor's Corporation (or a similar rating by any
similar organization which rates commercial paper);
(iii) investments in certificates of deposits or banker's
acceptances and time deposits maturing within twelve months from the date of
acquisition thereof issued or guaranteed by or placed with (a) any domestic
office of the bank with whom the Company maintains its cash management system or
(b) any domestic office of any other commercial bank of recognized standing
organized under the laws of the United States of America or any state thereof
that has a combined capital and surplus and undivided profits of not less than
$100,000,000 and is the principal banking subsidiary of a bank holding company
having a long-term unsecured debt rating of at least 'A' or the equivalent
thereof from the Standard & Poor's Corporation or at least 'A2' or the
equivalent thereof from Moody's Investors Service, Inc.;
(iv) investments in commercial paper maturing within six
months from the date of acquisition and issued by the holding company of any
commercial bank of recognized standing organized under the laws of the United
States of America of any state thereof that has (A) a combined capital and
surplus in excess of $250,000,000 and (B) commercial paper rated at least 'A' or
the equivalent thereof from the Standard & Poor's Corporation or at least 'A2'
or the equivalent thereof from Moody's Investors Service, Inc. (or has a similar
rating by any similar organization that rates commercial paper); or
(v) investments in money market funds substantially all the
assets of which are comprised of securities of the types described in clauses
(i) through (iv) above.
'Permitted Lien': mean (i) Liens in existence on the date
hereof, (ii) Liens created for the benefit of the holders of Senior
Indebtedness, (iii) Liens imposed by law for taxes, assessments or charges of
any governmental authority for claims not yet due or which are being contested
in good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance with
GAAP; (iv) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law created in the ordinary
course of business for amounts not yet due, which are not overdue by more than
60 days or which are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with GAAP; (v) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, leases, contracts (other than for the
repayment of indebtedness), statutory obligations and other similar obligations
or arising as a result of progress payments under government contracts; (vi)
easements (including without limitation, reciprocal easement agreements and
utility agreements), rights-of-way, covenants, consents, reservations,
encroachments, variations and zoning and other restrictions, charges or
encumbrances (whether or not recorded), which in the aggregate, are not
substantial in
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<PAGE>
amount, and which do not interfere materially with the ordinary conduct of the
business of the Company and which do not materially detract from the property to
which they attach or materially impair the use thereof to the Company; (vii)
Liens covering real property or Personal property in existence at the time of
acquisition thereof by the Company and purchase money Liens upon or in any
property acquired or held in the ordinary course of business to secure the
purchase price of such property or to secure indebtedness permitted by Section 8
solely for the purpose of financing the acquisition of such property and no such
Lien covers, or is extended to cover, any other property owned by the Company;
and (viii) extensions, renewals or replacements of any Lien referred to in
paragraphs (i) through (vii) above.
'Person': any natural person, corporation, division of a
corporation, partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.
'Senior Indebtedness': the meaning specified in Section 4(a).
'Subsidiaries': with respect to any Person, any corporation,
association or other business entity (whether now existing or hereafter
organized) of which at least a majority of the securities or other ownership
interests having ordinary voting power for the election of directors is, at the
time as of which any determination is being made, owned or controlled by such
Person or one or more subsidiaries of such Person.
13. Miscellaneous.
13.1 Contemporaneously with the execution and delivery hereof,
the Company has issued to the Holder a detachable warrant representing the right
to acquire 850,000 shares of Common Stock at a exercise price equal to $2.50 per
share of Common Stock (the 'Warrant').
13.2 This Convertible Note is intended to be one of the
Company's 12% Convertible Subordinated Promissory Notes due 2000, in the
aggregate principal amount of up to $8,000,000 (collectively, the 'Convertible
Notes'). The Company is not, however, obligated, in any manner, to issue any
minimal principal amount of Convertible Notes and, notwithstanding any other
provision of this Convertible Note to the contrary, the failure to issue any
such minimal principal amount of Convertible Notes shall not entitle Holder to
exercise any rights or remedies with respect to this Convertible Note.
13.3 This Convertible Note is the obligation of the Company
only, and no recourse shall be had for the payment thereof or interest thereon
against any stockholder, officer or director of the Company, whether by virtue
of any constitution, statute, rule or law or otherwise, all such liability, by
the acceptance hereof, and as part of the consideration hereof, being expressly
waived.
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<PAGE>
13.4 Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Convertible Note
and of a letter of indemnity reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender or cancellation of this Convertible Note, if mutilated, the
Company will make and deliver a new Convertible Note of like tenor in lieu of
such lost, stolen, destroyed or mutilated Convertible Note.
13.5 THIS CONVERTIBLE NOTE AND THE RIGHTS AND OBLIGATIONS OF
EACH OF THE COMPANY AND THE HOLDER HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE
WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS AND INSTRUMENTS MADE AND TO BE PERFORMED IN NEW YORK AND CANNOT BE
MODIFIED OR CHANGED ORALLY.
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<PAGE>
IN WITNESS WHEREOF, the Company originally signed this
Convertible Note on the day of , 199 .
NAI TECHNOLOGIES, INC.
By:__________________________
Name:
Title:
<PAGE>
Exhibit E
to
Securities Purchase Agreement
WARRANT TO PURCHASE COMMON STOCK OF
NAI TECHNOLOGIES, INC.
VOID AFTER 5:30 P.M. NEW YORK CITY
TIME ON THE EXPIRATION DATE
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
NAI TECHNOLOGIES, INC. (the 'Company'), a New York corporation, for
value received, hereby agrees to sell upon the terms and on the conditions
hereinafter set forth, but no later than 5:30 p.m., New York City Time, on the
Expiration Date (as hereinafter defined) to CHARLES S. HOLMES or registered
assigns (the 'Holder'), under the terms as hereinafter set forth, EIGHT HUNDRED
AND FIFTY THOUSAND (850,000) fully paid and non-assessable shares of the
Company's Common Stock, par value $.10 per share (the 'Warrant Stock'), at a
purchase price per share of Two and 50/100 Dollars ($2.50) (the 'Warrant Price')
pursuant to this warrant (this 'Warrant'). The number of shares of Warrant Stock
to be so issued and the Warrant Price are subject to adjustment as hereinafter
set forth. The term 'Common Stock' shall mean, when used herein, unless the
context otherwise requires, the stock and other securities and property at the
time receivable upon the exercise of this Warrant.
1. Exercise of Warrant.
(a) The Holder may exercise this Warrant according to its terms by
surrendering this Warrant to the Company at the address set forth in Section 8,
the subscription form attached hereto having then been duly executed by the
Holder, accompanied by cash, certified check or bank draft in payment of the
purchase price, in lawful money of the United States of America, for the number
of shares of the Warrant Stock specified in the subscription form, or as
otherwise provided in this Warrant prior to 5:30 p.m., local New York City time,
on , 2001 (the 'Expiration Date').
<PAGE>
(b) This Warrant may be exercised in whole or in part so long as any
exercise in part hereof would not involve the issuance of fractional shares of
Warrant Stock. If exercised in part, the Company shall deliver to the Holder a
new Warrant, identical in form, in the name of the Holder, evidencing the right
to purchase the number of shares of Warrant Stock as to which this Warrant has
not been exercised, which new Warrant shall be signed by the Chairman and CEO or
the President and the Secretary or the Assistant Secretary of the Company. The
term Warrant as used herein shall include any subsequent Warrant issued as
provided herein.
(c) No fractional share or scrip representing fractional shares shall be
given upon the exercise of this Warrant. The Company shall pay cash in lieu of
fractions with respect to the Warrants based upon the Warrant Price at the time
of exercise of this Warrant.
(d) In the event of any exercise of the rights represented by this Warrant,
a certificate or certificates for the Warrant Stock so purchased, registered in
the name of the Holder, shall be delivered to the Holder within a reasonable
time after such rights shall have been so exercised. The person or entity in
whose name any certificate for the Warrant Stock is issued upon exercise of the
rights represented by this Warrant shall for all purposes be deemed to have
become the holder of record of such shares immediately prior to the close of
business on the date on which the Warrant was surrendered and payment of the
Warrant Price and any applicable taxes was made, irrespective of the date of
delivery of such certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are closed, such
person shall be deemed to have become the holder of such shares at the opening
of business on the next succeeding date on which the stock transfer books are
open.
2. Disposition of Warrant Stock and Warrant.
(a) Holder hereby acknowledges that this Warrant and any Warrant Stock
purchased hereto are not being registered (i) under the Act on the ground that
the issuance of this Warrant is exempt from registration under Section 4(2) of
the Act as not involving any public offering or (ii) under any applicable state
securities law because the issuance of this Warrant does not involve any public
offering; and that the Company's reliance on the Section 4(2) exemption of the
Act and under applicable state securities laws is predicated in part on the
representations hereby made to the Company by the Holder that it is acquiring
this Warrant for investment for its own account, with no present intention of
dividing its participation with others or reselling or otherwise
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<PAGE>
distributing the same, subject, nevertheless, to any requirement of law that the
disposition of its property shall at all times be within its control.
Holder hereby agrees that it will not sell or transfer all or any part of
this Warrant and/or Warrant Stock unless and until it shall first have given
notice to the Company describing such sale or transfer and furnished to the
Company either (i) an opinion, reasonably satisfactory to counsel for the
Company, of counsel (skilled in securities matters, selected by the Holder and
reasonably satisfactory to the Company) to the effect that the proposed sale or
transfer may be made without registration under the Act, or (ii) an interpretive
letter from the Securities and Exchange Commission to the effect that no
enforcement action will be recommended if the proposed sale or transfer is made
without registration under the Act.
(b) If, at the time of issuance of the shares issuable upon exercise of
this Warrant, no registration statement is in effect with respect to such shares
under applicable provisions of the Act, the Company may at its election require
that the Holder provide the Company with written reconfirmation of the Holder's
investment intent and that any stock certificate delivered to the Holder of a
surrendered Warrant shall bear legends reading substantially as follows:
'TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
CERTAIN RESTRICTIONS SET FORTH IN THE WARRANT PURSUANT TO WHICH THESE
SHARES WERE PURCHASED FROM THE COMPANY. COPIES OF THOSE RESTRICTIONS ARE ON
FILE AT THE PRINCIPAL OFFICES OF THE COMPANY, AND NO TRANSFER OF SUCH
SHARES OR OF THIS CERTIFICATE, OR OF ANY SHARES OR OTHER SECURITIES (OR
CERTIFICATES THEREFOR) ISSUED IN EXCHANGE FOR OR IN RESPECT OF SUCH SHARES,
SHALL BE EFFECTIVE UNLESS AND UNTIL THE TERMS AND CONDITIONS THEREIN SET
FORTH SHALL HAVE BEEN COMPLIED WITH.'
'THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT.'
In addition, so long as the foregoing legend may remain on any stock certificate
delivered to the Holder, the Company may maintain appropriate 'stop transfer'
orders with respect
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to such certificates and the shares represented thereby on its books and records
and with those to whom it may delegate registrar and transfer functions.
3. Reservation of Shares.
The Company hereby agrees that at all times there shall be reserved for
issuance upon the exercise of this Warrant such number of shares of its Common
Stock as shall be required for issuance upon exercise of this Warrant. The
Company further agrees that all shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly issued,
fully paid and non-assessable, free from all taxes, liens and charges with
respect to the issuance thereof other than taxes, if any, in respect of any
transfer occurring contemporaneously with such issuance and other than transfer
restrictions imposed by federal and state securities laws.
4. Capital Adjustments.
This Warrant is subject to the following further provisions:
(a) Recapitalization, Reclassification and Succession. If any
recapitalization of the Company or reclassification of its Common Stock or any
merger or consolidation of the Company into or with a corporation or other
business entity, or the sale or transfer of all or substantially all of the
Company's assets or of any successor corporation's assets to any other
corporation or business entity (any such corporation or other business entity
being included within the meaning of the term 'successor corporation') shall be
effected, at any time while this Warrant remains outstanding and unexpired,
then, as a condition of such recapitalization, reclassification, merger,
consolidation, sale or transfer, lawful and adequate provision shall be made
whereby the Holder of this Warrant thereafter shall have the right to receive
upon the exercise hereof as provided in Section 1 and in lieu of the shares of
Common Stock immediately theretofore issuable upon the exercise of this Warrant,
such shares of capital stock, securities or other property as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of Common Stock immediately
theretofore issuable upon the exercise of this Warrant had such
recapitalization, reclassification, merger, consolidation, sale or transfer not
taken place, and in each such case, the terms of this Warrant shall be
applicable to the shares of stock or other securities or property receivable
upon the exercise of this Warrant after such consummation.
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<PAGE>
(b) Subdivision or Combination of Shares. If the Company at any time while
this Warrant remains outstanding and unexpired shall subdivide or combine its
Common Stock, the number of shares of Warrant Stock purchasable upon exercise of
this Warrant and the Warrant Price shall be proportionately adjusted.
(c) Stock Dividends and Distributions. If the Company at any time while
this Warrant is outstanding and unexpired shall issue or pay the holders of its
Common Stock, or take a record of the holders of its Common Stock for the
purpose of entitling them to receive, a dividend payable in, or other
distribution of, Common Stock, then (i) the Warrant Price shall be adjusted in
accordance with Section 4(e) and (ii) the number of shares of Warrant Stock
purchasable upon exercise of this Warrant shall be adjusted to the number of
shares of Common Stock that Holder would have owned immediately following such
action had this Warrant been exercised immediately prior thereto.
(d) Stock and Rights Offering to Stockholders. If at any time after the
date of issuance of this Warrant, the Company shall issue or sell, or fix a
record date for the purposes of entitling holders of its Common Stock to
receive, (i) Common Stock or (ii) rights, options or warrants entitling the
holders thereof to subscribe for or purchase Common Stock (or securities
convertible or exchangeable into or exercisable for Common Stock), in any such
case, at a price per share (or having a conversion, exchange or exercise price
per share) that is less than the closing price per share of the Company's Common
Stock on the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if not listed or traded on any such exchange,
on the National Market System (the 'National Market System') of the National
Association of Securities Dealers Automated Quotations System ('NASDAQ'), or if
not listed or traded on any such exchange or system, the average of the bid and
asked price per share on NASDAQ or, if such quotations are not available, the
fair market value per share of the Company's Common Stock as reasonably
determined by the Board of Directors of the Company (the 'Closing Price') on the
date of such issuance or sale or on such record date then, immediately after the
date of such issuance or sale or on such record date, (x) the Warrant Price
shall be adjusted in accordance with Section 4(e) and (y) the number of shares
of Warrant Stock purchasable upon exercise of this Warrant shall be adjusted to
that number determined by multiplying the number of shares of Warrant Stock
purchasable upon exercise of this Warrant immediately before the date of such
issuance or sale or such record date by a fraction, the denominator of which
will be the number of shares of Common Stock outstanding on such date plus the
number of shares of Common Stock that the
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<PAGE>
aggregate offering price of the total number of shares so offered for
subscription or purchase (or the aggregate initial conversion price, exchange
price or exercise price of the convertible securities or exchangeable securities
or rights, options or warrants, as the case may be, so offered) would purchase
at such Closing Price, and the numerator of which will be the number of shares
of Common Stock outstanding on such date plus the number of additional shares of
Common Stock offered for subscription or purchase (or into which the convertible
or exchangeable securities or rights, options or warrants so offered are
initially convertible or exchangeable or exercisable, as the case may be).
If the Company shall, at any time after the date of issuance of this
Warrant, distribute to all holders of its Common Stock any shares of capital
stock of the Company (other than Common Stock) or evidences of its indebtedness
or assets (excluding cash dividends or distributions paid from retained earnings
or current year's or prior year's earnings of the Company) or rights or warrants
to subscribe for or purchase any of its securities (excluding those referred to
in the immediately preceding paragraph)(any of the foregoing being hereinafter
in this paragraph called the 'Securities'), then in each such case, the Company
shall reserve shares or other units of such securities for distribution to the
Holder upon exercise of this Warrant so that, in addition to the shares of the
Common Stock to which such Holder is entitled, such Holder will receive upon
such exercise the amount and kind of such Securities which such Holder would
have received if the Holder had, immediately prior to the record date for the
distribution of the Securities, exercised this Warrant.
(e) Warrant Price Adjustment. Whenever the number of shares of Warrant
Stock purchasable upon exercise of this Warrant is adjusted, as herein provided,
the Warrant Price payable upon the exercise of this Warrant shall be adjusted to
that price determined by multiplying the Warrant Price immediately prior to such
adjustment by a fraction (i) the numerator of which shall be the number of
shares of Warrant Stock purchasable upon exercise of this Warrant immediately
prior to such adjustment, and (ii) the denominator of which shall be the number
of shares of Warrant Stock purchasable upon exercise of this Warrant immediately
thereafter.
(f) Certain Shares Excluded. The number of shares of Common Stock
outstanding at any given time for purposes of the adjustments set forth in this
Section 4 shall exclude any shares then directly or indirectly held in the
treasury of the Company.
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<PAGE>
(g) Deferral and Cumulation of De Minimis Adjustments. The Company shall
not be required to make any adjustment pursuant to this Section 4 if the amount
of such adjustment would be less than one percent (1%) of the Warrant Price in
effect immediately before the event that would otherwise have given rise to such
adjustment. In such case, however, any adjustment that would otherwise have been
required to be made shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment or adjustments so
carried forward, shall amount to not less than one percent (1%) of the Warrant
Price in effect immediately before the event giving rise to such next subsequent
adjustment.
(h) Duration of Adjustment. Following each computation or readjustment as
provided in this Section 4, the new adjusted Warrant Price and number of shares
of Warrant Stock purchasable upon exercise of this Warrant shall remain in
effect until a further computation or readjustment thereof is required.
5. Notices to Holders.
(a) Notice of Record Date. In case:
(i) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time receivable upon the exercisable
of this Warrant) for the purpose of entitling them to receive any dividend
or other distribution, or any right to subscribe for or purchase any shares
of stock of any class or any other securities, or to receive any other
right; or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
with or merger of the Company into another corporation, or any conveyance
of all or substantially all of the assets of the Company to another
corporation; or
(iii) of any voluntary dissolution, liquidation or winding-up of the
Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Holder hereof at the time outstanding a notice specifying, as the case may be,
(i) the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any, is to be fixed, as
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<PAGE>
of which the holders of record of Common Stock (or such stock or securities at
the time receivable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 30 days prior to the record
date therein specified, or if no record date shall have been specified therein,
at least 30 days prior to such other specified date.
(b) Notice of Adjustment. Whenever any adjustment shall be made pursuant to
Section 4 hereof, the Company shall promptly make a certificate signed by its
Chairman and CEO, its President or a Vice President and by its Treasurer or
Assistant Treasurer or its Secretary or Assistant Secretary, setting forth in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the Warrant
Price and number of shares of Warrant Stock purchasable upon exercise of this
Warrant after giving effect to such adjustment, and shall promptly cause copies
of such certificates to be mailed (by first class mail, postage prepaid) to the
Holder of this Warrant.
6. Loss, Theft, Destruction or Mutilation.
Upon receipt by the Company of evidence satisfactory to it, in the exercise
of its reasonable discretion, of the ownership and the loss, theft, destruction
or mutilation of this Warrant and, in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Company and, in the case of mutilation,
upon surrender and cancellation thereof, the Company will execute and deliver in
lieu thereof, without expense to the Holder, a new Warrant of like tenor dated
the date hereof.
7. Warrant Holder Not a Stockholder.
The Holder of this Warrant, as such, shall not be entitled by reason of
this Warrant to any rights whatsoever as a stockholder of the Company.
8. Notices.
Any notice required or contemplated by this Warrant shall be deemed to have
been duly given if transmitted by registered or certified mail, return receipt
requested, to the Company at 1000 Woodbury Road, Suite 412, Woodbury, New York
11797 Attention: President, or to the Holder at the name and address set forth
in the Warrant Register maintained by the Company.
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<PAGE>
9. Choice of Law.
THIS WARRANT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has duly signed this Warrant as of this
day of , 199 .
NAI TECHNOLOGIES, INC.
By:
---------------------------------
- ------------ Name: Robert A. Carlson
Title: President and Chief
Executive Officer
<PAGE>
SUBSCRIPTION FORM
The Undersigned, the Holder of the attached Warrant, hereby irrevocably
elects to exercise purchase rights represented by such Warrant for, and to
purchase thereunder, the following number of shares of Common Stock of NAI
TECHNOLOGIES, INC.:
Number of Shares Purchase Price Per Share
---------------- ------------------------
The undersigned herewith makes payment of $ therefor, and requests
that certificates for such shares (and any warrants or other property issuable
upon such exercise) be issued in the name of and delivered to
whose address is
and, if such shares shall not include all of the shares issuable under such
warrant, that a new warrant of like tenor and date for the balance of the shares
issuable thereunder be delivered to the undersigned.
HOLDER:
------------------------------------
Name:
<PAGE>
Exhibit F
to
Securities Purchase Agreement
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of , between
NAI TECHNOLOGIES, INC., a New York corporation (the 'Company'), and CHARLES
S. HOLMES ('Holder').
RECITALS:
Contemporaneously with the execution and delivery of this
Agreement, the Company has issued to Holder (i) the Company's 12% Convertible
Subordinated Promissory Note (the 'Note'), which Notes are convertible into
shares of the Company's Common Stock, par value $.10 per share ('Common Stock'),
upon the terms and conditions, and subject to the adjustments, set forth in such
Note, and (ii) warrants (collectively, the 'Warrants') representing the right to
acquire Common Stock upon the terms and conditions, and subject to the
adjustments, set forth in such Warrants.
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Certain Definitions. For the purposes of this Agreement,
the following terms shall have the following meanings:
'Agreement' shall mean this Registration Rights Agreement, as
the same may be amended, modified or supplemented from time to time.
'Commission' shall mean the United States Securities and
Exchange Commission, or any other federal agency then administering the
Securities Act and the Exchange Act.
'Exchange Act' shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
'Expiration Date' shall mean December 31, 2005.
'Person' shall mean any natural person, corporation, limited
liability company, business trust, joint venture, association, company,
partnership or government, or agency or political subdivision thereof.
'Prospectus' shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
with respect to
<PAGE>
the terms of the offering of any portion of the Registrable Securities covered
by the Registration Statement and all other amendments and supplements to the
prospectus, including any post-effective amendments and all materials
incorporated by reference in the prospectus.
'Registrable Securities' shall mean (i) the Warrants, (ii) the
500,000 shares of Common Stock issuable upon conversion of the Note, (iii) the
850,000 shares of Common Stock issuable upon exercise of the Warrants and (iv)
any securities issued in exchange for or substitution of any thereof or as a
result of a stock split or combination or as a dividend or other distribution in
respect of any thereof. As to any particular Registrable Securities, once
issued, such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) they shall have
been disposed of pursuant to Rule 144 (or any successor provision) under the
Securities Act, (iii) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act or any
similar state law then in force (and the Holder thereof shall have received an
opinion of independent counsel for the Company reasonably satisfactory to the
Holder to the foregoing effects), or (iv) they shall have ceased to be
outstanding.
'Registration Expenses' shall mean all of the costs and
expenses of each Registration hereunder, and filing fees, fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), rating agency fees, National Association of Securities
Dealers (NASD) fees for review of underwriting agreements, printing expenses
(including expenses of printing the Prospectus), messenger and delivery
expenses, the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which the Shares are
then listed or proposed to be listed, and fees and disbursements of counsel for
the Company and its independent certified public accountants (including the
expenses of any special audit or cold comfort letters required by or incidental
to such performance), Securities Act liabilities insurance (if the Company
elects to obtain such insurance), the fees and expenses of any special experts
retained by the Company in connection with such Registration, reasonable fees
and expenses of one counsel (who shall be selected by the Holder) for the Holder
incurred in connection with each Registration hereunder and any reasonable
out-of-pocket expenses of the Holder (or the agents who manage Holder's
accounts) excluding any travel costs and counsel fees except as set forth above
(but not including any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities).
'Registration Statement' shall have the meaning assigned to
such term in Section 4(a) of this Agreement.
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'Securities Act' shall mean the Securities Act of 1933, as
amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
'Shares' shall mean shares of the Company's Common Stock, as
constituted on the date hereof, and any securities into which such shares may
thereafter be changed.
2. Piggyback Registration Rights.
(a) Right to Piggyback. Subject to the last sentence of this
subsection (a), whenever the Company proposes to register any Shares
(or securities convertible into or exchangeable or exercisable for
Shares) under the Securities Act, at any time on or before the
Expiration Date, for its own account or for the account of Persons
exercising demand registration rights other than pursuant to Section 3
below, other than under a Registration Statement on Form S-4, Form S-8
or any successor form or filed in connection with an exchange offer or
an offering of securities solely to the Company's existing employees or
securityholders (a 'Piggyback Registration'), the Company will give
prompt written notice to Holder of its intention to effect such a
Registration and will use its best efforts, subject to Section 2(b)
below, to include in such Piggyback Registration all Registrable
Securities with respect to which the Company has received written
requests for inclusion therein within 15 Business Days after the
receipt of the Company's notice. Except as may otherwise be provided in
this Agreement, Registrable Securities with respect to which such
request for Registration has been received will be registered by the
Company and offered to the public on the same terms and subject to the
same conditions applicable to the Piggyback Registration to be sold by
the Company or by the other Persons selling under such Piggyback
Registration. Notwithstanding the foregoing, the Company shall have the
right to postpone or withdraw any Registration effected pursuant to
this Section 2(a).
(b) Priority on Piggyback Registrations. If a Piggyback
Registration relates to an underwritten offering and the managing
underwriter or underwriters advise the Company in writing that in its
or their opinion the number of securities proposed to be sold in a
Piggyback Registration exceeds the number which can be sold in such
offering within a price range acceptable to the Company or the other
Persons exercising demand registration rights, the Company will include
in such Piggyback Registration the number of securities which, in the
opinion of such underwriter or underwriters, can be sold within such
price range, which securities shall be allocated as follows: (x) first,
the securities proposed to be sold by other Persons exercising demand
registration rights granted on or prior to the date hereof, (y) second,
Registrable Securities held by Holder and requested to be included in
such Piggyback Registration, together with any other
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<PAGE>
securities requested to be included in such Piggyback Registration by
other holders, pro rata among Holder and the other holders of
Registrable Securities requested to be included in such Piggyback
Registration, and (z) third, the securities the Company proposes to
sell.
(c) Underwriting. If a Piggyback Registration for which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise Holder in the notice given
pursuant to Section 2(a), which notice shall include the name of the
managing underwriter or underwriters. In such event, the right of
Holder to Piggyback Registration pursuant to this Section 2 shall be
conditional upon Holder's participation in such underwriting with
respect to all of its securities included in such Piggyback
Registration.
3. Demand Registration Rights.
(a) Right to Demand. At any time on or before the Expiration
Date, Holder may make up to two written requests (provided in each case
Holder has not registered Registrable Securities pursuant to Section 2
above within 120 days prior to such request) to the Company for
registration with the Commission under and in accordance with the
provisions of the Securities Act of not less than $1,000,000 of the
Registrable Securities (a 'Demand Registration'). Unless expressly
agreed to by the Holder, no securities of the Company or of any other
Person other than Registrable Securities shall be included in a Demand
Registration except pursuant to the exercise of any piggyback
registration rights granted on or prior to the date hereof.
(b) Priority on Demand Registrations. If the managing
underwriter or underwriters of a Demand Registration (or in the case of
a Demand Registration not being underwritten, the Holder) advise the
Company in writing that in its or their opinion the number of
securities proposed to be sold in such Demand Registration exceeds the
number which can be sold in such offering, the Company will include in
such Demand Registration only the number of securities which, in the
opinion of such underwriter or underwriters (or the Holder, as the case
may be), can be sold in such offering which securities shall be
allocated on a pro rata basis among the Registrable Securities and such
other securities requested to be included in such Demand Registration
pursuant to the exercise of any piggyback registration rights granted
on or prior to the date hereof.
(c) Selection of Underwriters. If any Demand Registration is
an underwritten offering, the Holder will select a managing underwriter
or underwriters to administer the offering which managing underwriter
or underwriters shall be of nationally recognized standing and shall be
reasonably acceptable to the Company.
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<PAGE>
4. Registration Procedures. With respect to any Registration
pursuant to the exercise of rights provided by Sections 2 and 3 of this
Agreement, the Company will (subject to Section 11 below) promptly:
(a) prepare and file with the Commission a Registration
Statement (a 'Registration Statement') which includes the Registrable
Securities and use its best efforts to cause such Registration
Statement to become effective as promptly as practicable; provided that
before filing a Registration Statement or any amendments thereto of any
Prospectus, the Company will furnish to one counsel selected by the
Holder and the underwriters, if any, draft copies of all such documents
proposed to be filed at least 5 business days prior thereto, which
documents will be subject to the reasonable review of such counsel and
underwriters, and the Company will not file any Registration Statement
or amendment thereto or any Prospectus to which Holder shall reasonably
object (provided that nothing herein shall prevent the Company from
making a timely filing of any report required to be filed by it
pursuant to the Exchange Act in such form as it determines is
appropriate) and will notify Holder of any stop order issued or
threatened by the Commission in connection therewith and take all
reasonable actions required to prevent the entry of such stop order or
to remove it if entered;
(b) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for a period of
not less than four months (or such shorter period which will terminate
when all Registrable Securities covered by such Registration Statement
have been sold or withdrawn, but not prior to the expiration of any
applicable period referred to in Section 4(3) of the Securities Act and
Rule 174 thereunder, if applicable); cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act;
and comply with the provisions of the Securities Act applicable to it
with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth in
such Registration Statement or Prospectus supplement;
(c) furnish to Holder and the underwriter or underwriters, if
any, at least one signed copy of the Registration Statement and any
post-effective amendment thereto, upon request, and such number of
conformed copies thereof and such number of copies of the Prospectus
(including each preliminary Prospectus), and any documents incorporated
by reference therein, as Holder or underwriter may reasonably request
in order to facilitate the disposition of the Registrable Securities
being sold by Holder (it being understood that the Company consents to
the use of the Prospectus by Holder and the underwriter or
underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by the Prospectus);
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<PAGE>
(d) notify Holder at any time when a Prospectus relating to
Registrable Securities is required to be delivered under the Securities
Act, when the Company becomes aware of the happening of any event as a
result of which the Prospectus included in such Registration Statement
(as then in effect) contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein
(in the case of the Prospectus or any preliminary Prospectus, in light
of the circumstances under which they were made) not misleading and, as
promptly as practicable thereafter, prepare and file with the
Commission and make available a supplement or amendment to such
Prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(e) use its best efforts to cause all Registrable Securities
to be listed, by the date such Registrable Securities cease to be
Registrable Securities as a result of Registration or otherwise, on
each securities exchange or national quotation system on which the
Shares are then listed or proposed to be listed, if any;
(f) make generally available to its security holders an
earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than 45 days after the end of the 12-month
period beginning with the first day of the Company's first fiscal
quarter commencing after the effective date of the Registration
Statement, which earnings statement shall cover said 12-month period;
provided, however, that in the event that the first day of the
Company's first fiscal quarter commencing after the effective date of
the Registration Statement shall also be the first day of the Company's
fiscal year, such earnings statement shall be made generally available
no later than 90 days after the end of such 12-month period;
(g) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the
earliest possible moment;
(h) if requested by the managing underwriter or underwriters
or Holder promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the managing underwriter
or underwriters or Holder requests to be included therein with respect
to the number of Registrable Securities being sold by Holder to such
underwriter or underwriters, the purchase price being paid therefor by
such underwriter or underwriters and with respect to any other terms of
the underwritten offering of the Registrable Securities to be sold in
such offering; and promptly make all required filings of such
Prospectus supplement or post-effective amendment;
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<PAGE>
(i) as promptly as practicable after filing with the
Commission of any document which is incorporated by reference into a
Registration Statement, deliver a copy of such document to Holder;
(j) on or prior to the date on which the Registration
Statement is declared effective, use its best efforts to register or
qualify, and cooperate with the Holder, the underwriter or
underwriters, if any, and their counsel, in connection with the
registration or qualification of the Registrable Securities covered by
the Registration Statement for offer and sale under the securities or
blue sky laws of each state and other jurisdiction of the United States
as Holder or underwriter reasonably requests in writing, to use its
best efforts to keep each such registration or qualification effective,
including through new filings, or amendments or renewals, during the
period such Registration Statement is required to be kept effective
pursuant to Section 4(b) hereof and to do any and all other acts or
things necessary or advisable to permit the disposition in all such
jurisdictions of the Registrable Securities covered by the applicable
Registration Statement;
(k) cooperate with Holder and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legends) representing
Registrable Securities to be sold under the Registration Statement and
enable such securities to be in such denominations and registered in
such names as the managing underwriter or underwriters, if any, or
Holder may request;
(l) use its best efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved
by such other governmental agencies or authorities within the United
States as may be necessary to enable Holder thereof or the underwriter
or underwriters, if any, to consummate the disposition of such
Registrable Securities;
(m) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other
actions as Holder or the underwriters retained by Holder, if any,
reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities;
(n) make available for inspection by Holder, any underwriter
participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by any
such seller or underwriter (collectively, the 'Inspectors'), all
financial and other records, pertinent corporate documents and
properties of the Company and its direct and indirect subsidiaries
(collectively, the 'Records') as shall be reasonably necessary to
enable them to exercise their due diligence reasonably, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Inspectors in connection with such
Registration Statement; provided, that the
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<PAGE>
Records which the Company determines, in good faith, to be confidential
and which it notifies the Inspectors are confidential shall not be
disclosed to the Inspectors unless (x) the disclosure of such Records
is necessary to avoid or correct a misstatement or omission in the
Registration Statement or (y) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction; provided, however, that any decision not to disclose
information pursuant to clause (x) shall be made after consultation
with counsel for the Company, and Holder agrees that it will, upon
learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the
Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential; and
(o) use its best efforts to obtain a cold comfort letter from
the Company's independent public accountants and an opinion of outside
counsel to the Company, each in customary form and covering such
matters of the type customarily covered by cold comfort letters or
opinions of counsel, as the case may be, as the Holder reasonably
requests.
Holder, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(d), will forthwith
discontinue disposition of the Registrable Securities until Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
4(d) or until it is advised in writing (the 'Advice') by the Company that the
use of the Prospectus may be resumed, and has received copies of any additional
or supplemental filings which are incorporated by reference in the Prospectus,
and, if so directed by the Company, Holder will, or will request the managing
underwriter or underwriters, if any, to deliver to the Company all copies, other
than permanent file copies then in Holder's possession, of the Prospectus
covering such Registrable Securities at the time of receipt of such notice. In
the event the Company shall give any such notice, the time period mentioned in
Section 4(b) shall be extended by the number of business days during the period
from and including the date of the giving of such notice to and including the
date when Holder shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 4(d) or the Advice.
Holder shall furnish to the Company such information regarding
the Registrable Securities held by it and the intended method of disposition
thereof and other information concerning the Holder as the Company shall
reasonably request and as shall be required in connection with the Registration
Statement to be filed by the Company.
5. Holdback Arrangements.
(a) Restrictions on Public Sale by Holder of Registrable
Securities. To the extent not inconsistent with applicable law, Holder
agrees not to effect any public sale or distribution of the securities
being registered or a similar security of the Company, or any
securities convertible into or exchangeable or exercisable
-8-
<PAGE>
for such securities, including a sale pursuant to Rule 144 or Rule 144A
under the Securities Act, during the 14 days prior to, and during and
not exceeding 180 days after the effective date of a Registration
Statement relating to an underwritten Registration, as may be
reasonably requested by the managing underwriter or underwriters,
except as part of such Registration Statement.
(b) Restrictions on Public Sale by the Company. The Company
agrees (x) not to effect any public sale or distribution of any
securities similar to those being registered, or any securities
convertible into or exchangeable or exercisable for such securities
(other than any such sale or distribution of such securities in
connection with any merger or consolidation involving the Company or a
subsidiary thereof or the acquisition by the Company or a subsidiary
thereof of the capital equity or substantially all of the assets of any
other Person or with respect to any employee benefit or stock plan),
during the 14 days prior to, and during such period not exceeding 180
days after the effective date of any Registration Statement except as
part of such Registration Statement; and (y) that any agreement entered
into after the date of this Agreement pursuant to which the Company
issues or agrees to issue any privately placed securities (which
securities shall be subject to the provisions of Section 2(b)) shall
contain a provision under which holders of such securities agree not to
effect any public sale or distribution of any such securities during
the period described in (x) above, in each case including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act (except as
part of any such registration, if permitted); provided, however, that
the provision of this Section 5(b) shall not prevent the conversion or
exchange of any securities pursuant to their terms as in effect prior
to the commencement of such period into or for other securities.
(c) Other Registrations. If the Company has previously filed a
Registration Statement with respect to Registrable Securities, and if
such previous registration has not been withdrawn or abandoned, the
Company will not file or cause to be effective any other registration
of any of the Shares (or securities convertible into or exchangeable or
exercisable for the Shares) under the Securities Act (except on Form
S-4 or S-8 or any successor forms or filed in connection with an
exchange offer or an offering of securities solely to the Company's
existing employees or security holders), whether on its own or at the
request of any holder or holders of the Shares (or securities
convertible into or exchangeable or exercisable for the Shares), until
a period of at least 120 days has elapsed from the effective date of
such previous registration (provided that in the case of a Demand
Registration such period shall commence on the date the Company is
first served the notice of demand registration and shall continue until
at least 180 days have elapsed from the effective date of such Demand
Registration).
6. Indemnification; Contribution.
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<PAGE>
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless Holder, its officers, directors and agents
and each Person, if any, who controls Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act
(each an 'Indemnitee') from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees
and costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in
any Registration Statement or Prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of or are based upon information with
respect to such Indemnitee furnished in writing to the Company by such
Indemnitee expressly for use therein. It is agreed that the
indemnification agreement contained in this Section 6(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage or
liability if such settlement is effected without the consent of the
Company (which consent has not been unreasonably withheld). The Company
also agrees to indemnify any underwriters on substantially the same
basis as that of the indemnification of Holder provided in this Section
6(a).
(b) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought
or asserted against Holder (or its officers, directors or agents) or
any Person controlling Holder in respect of which indemnity may be
sought from the Company, the Company shall be permitted to assume the
defense of such claim, unless in the reasonable judgment of such
Indemnitee a conflict of interest may exist between such Indemnitee and
the Company with respect to such claim or differing or additional
defenses may be available to such Indemnitee. If defense of a claim is
assumed by the Company, Indemnitees shall not be liable for any
settlement of such action or proceedings effected without their prior
written consent. The Company will not consent to entry of any judgment
or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnitee
of a release from all liability in respect of such claim or litigation.
If the Company is not entitled to, or elects not to, assume the defense
of a claim, it will not be obligated to pay the fees and expenses of
more than one counsel for the Indemnitees as a group with respect to
such claim in each jurisdiction in which a claim is brought, unless in
the reasonable judgment of any Indemnitee a conflict of interest may
exist between such Indemnitee and any other Indemnitee with respect to
such claim or differing or additional defense may be available to such
Indemnitee, in which event the Company shall be obligated to pay the
fees and expenses of such additional counsel. Holder agrees to give
prompt written notice to the Company after its receipt of any written
notice of the commencement of any action, suit, proceedings or
investigation or threat thereof made in writing for which Holder may
claim indemnification or contribution pursuant to this Agreement;
provided,
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<PAGE>
however, that failure to give such notice shall not limit the
Indemnitee's right to indemnification or contribution hereunder unless
and to the extent that the Company did not otherwise learn of such
action and such failure results in the forfeiture by it of substantial
rights and defenses.
(c) Indemnification by Holder. Holder agrees to indemnify and
hold harmless the Company, and its directors, officers and agents and
each Person, if any, who controls the Company within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange
Act to the same extent as the foregoing indemnity from the Company to
Holder but only with respect to information furnished in writing by
Holder with respect to Holder which contained a material misstatement
of fact or omission of a material fact expressly for use in any
Registration Statement or any amendment thereto or any Prospectus, or
any preliminary Prospectus relating to the Registrable Securities. In
case any action or proceeding shall be brought against the Company,
Holder or any of its respective directors, officers or agents, or any
such controlling Person, in respect of which indemnity may be sought
against Holder, Holder shall have the rights and duties given to the
Company, and the Company, or its directors, officers or agents or such
controlling Person, shall have the rights and duties given to Holder by
Section 6(b).
(d) Contribution. If the indemnification provided for in this
Section 6 is unavailable to the Company, Holder or the underwriters in
respect to any losses, claims, damages, liabilities or judgments
referred to herein, then each such indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities and judgments in such proportion as is
appropriate to reflect the relative fault of the indemnifying parties
and indemnified parties in connection with such statements or omissions
which resulted in the losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall
be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Holder agree that it would not be just and
equitable if contribution pursuant to this Section 6(d) were determined
by pro rata allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages,
liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitation set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in
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<PAGE>
connection with investigating or defending any such action or claim. No
Person guilty of fraudulent misrepresentations (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of such fraudulent
misrepresentations. For the purposes of this Section 6(d), each
director of the Company, each officer who signed the Registration
Statement and each Person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act shall have the same rights
to contribution as the Company.
7. Participation in Underwritten Registrations. Holder may not
participate in any underwritten Registration hereunder (which shall be conducted
in accordance with the provisions of Section 2(b) or 3) unless Holder (i) agrees
to sell Holder's Registrable Securities on the basis provided in any
underwriting arrangements (approved by Holder as provided herein) and (ii)
completes and executes all questionnaires, powers of attorney, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements and these registration rights; provided, however, that
Holder shall not be required to make representations or give indemnifications
except with respect to information provided in writing by Holder concerning
Holder and its plan of distribution.
8. Rule 144. The Company covenants that it will file any
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of
Holder, make publicly available other information so long as necessary to permit
sales under Rule 144 under the Securities Act), that it will take such further
action as Holder may reasonably request, all to the extent required from time to
time to enable Holder to sell Registrable Securities without registration under
the Securities Act within the limitations of the exemptions provided by (i) Rule
144 under the Securities Act, as such rule may be amended from time to time, or
(ii) any similar rule or regulation hereafter adopted by the Commission. Upon
the request of Holder, the Company will deliver to Holder a written statement as
to whether it has complied with the requirements of this Section 8.
9. Registration Expenses. The Registration Expenses related to
the first Demand Registration or any Piggyback Registration shall be borne
solely by the Company.
10. Stand-Off and Special Audit.
(a) Stand-Off. If at the time of any request for a Demand
Registration pursuant to Section 3, the Company (i) is engaged or has
fixed plans to engage, within 30 days of the time of the request, in a
registered public offering as to which Holder may, pursuant to Section
2, include all Registrable Securities proposed to be sold by them, and
which in fact becomes effective within 90 days after the request, or
(ii) is engaged in any other activity which, in the good faith
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<PAGE>
determination of the Company's board of directors, would be adversely
affected by the Demand Registration to the material detriment of the
Company, then the Company may at its option direct that such request be
delayed for a period not to exceed six months from the effective date
of such offering or the date of commencement of such other material
activity, as the case may be, provided that Holder has had no other
request delayed during the six months prior to such request.
(b) Provisions for Special Audit. In the event that a special
audit of the Company's financial statements would be required to effect
a Registration pursuant to Section 3, the Company shall promptly notify
Holder that a special audit is required. In such event, Holder shall
have the right to either (i) withdraw such request for Registration, in
which case the request shall not count as a Demand Registration to
which Holder is entitled under this Agreement or (ii) pay the expenses
of conducting the special audit.
11. Public Trading Market. Until the earlier of (a) three
years after the date hereof or (b) the date on which there are no Registrable
Securities, the Company shall use its best efforts to maintain a public trading
market for its Shares.
12. Miscellaneous.
(a) Amendments and Waivers. This Agreement may not be amended
without the written consent of the parties hereto.
(b) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. No other person shall
acquire or have any rights under or by virtue of this Agreement.
(c) Notices. All notices and other communications provided for
hereunder shall be given and shall be effective as provided in the
warrant.
(d) Descriptive Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise
affect the meaning of terms contained herein.
(e) Severability. In the event that any one or more of the
provisions, paragraphs, words, clauses, phrases or sentences contained
herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of such provision, paragraph,
word, clause, phrase or sentence in every other respect and of the
remaining provisions, paragraphs, words, clauses, phrases or sentences
hereof shall not be in any way impaired, it being intended that all
rights, powers
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<PAGE>
and privileges of the parties hereto shall be enforceable to the
fullest extent permitted by law.
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument, and it shall not
be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
(h) Remedies. The Company acknowledges that monetary damages
will not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions hereof and agrees, to the fullest extent
permitted by law, to waive the defense of adequacy of legal remedies in
any action for specific performance hereof.
(i) Merger, etc. If, directly or indirectly, (i) the Company
shall merge with and into, or consolidate with, any other Person, (ii)
any Person shall merge with and into, or consolidate with, the Company
and the Company shall be the surviving corporation of such merger or
consolidation and, in connection with such merger or consolidation, all
or part of the Registrable Securities shall be changed into or
exchanged for stock or other securities of any other Person, then, in
each such case, proper provision shall be made so that such Person
shall be bound by the provisions of this Agreement and the term
'Company' shall thereafter be deemed to refer to such Person.
(j) Other Agreements. The Company shall not enter into any
agreement inconsistent with any of the provisions hereof.
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IN WITNESS WHEREOF, each of the undersigned has caused this
Agreement to be executed on its behalf as of the date first written above.
NAI TECHNOLOGIES, INC.
By:________________________________
Name: Robert A. Carlson
Title: President and Chief
Executive Officer
_____________________________
Charles S. Holmes
<PAGE>
Exhibit 10.2
No. 1 $1,000,000
NAI TECHNOLOGIES, INC.
12% Subordinated Promissory Note
due January 15, 1996
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED
WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF
APPLICABLE FEDERAL SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
FOR VALUE RECEIVED, NAI Technologies, Inc., a New York
corporation (the 'Company'), promises to pay to CHARLES S. HOLMES, the
registered holder or registered assigns hereof (the 'Holder'), the principal
amount of ONE MILLION DOLLARS ($1,000,000) payable on the fifteenth day of
January, 1996 (the 'Maturity Date'), together with interest on the outstanding
principal amount of this Note at the rate of twelve (12%) percent per annum
calculated on the basis of a 360 day year, such interest to be payable on the
Maturity Date. If the Company shall default in the payment of the principal of
or interest on this Note, whether upon maturity, by acceleration, or otherwise,
the Company shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount up to (but not including) the date of
actual payment (whether before or after judgment) at a rate per annum (computed
on the basis of the actual number of days elapsed over a year of 360 days) equal
to two (2%) percent. The Holder of this Note shall also, in addition to any
other amount payable hereon, be entitled, as hereinafter provided, to receive a
placement fee in an amount equal to three percent (3%) of the outstanding
principal amount of this Note (the 'Placement Fee'). Capitalized terms used and
not otherwise defined herein shall have the respective meanings attributed
thereto in Section 11.
1. Payments and Prepayments.
1.1 Payments of principal, Placement Fee and interest on this
Note shall be made at the principal office of the Company, currently located at
1000 Woodbury Road, Suite 412, Woodbury, New York 11797, or such other place or
places within the United States as may be specified by the Holder of this Note
in a written notice to the Company at least 10 business days before a given
payment date.
1.2 Payments of principal, Placement Fee and interest on this
Note shall be made in lawful money of the United States of America by mailing
the Company's good check in the proper amount to the Holder at least three days
prior to the due date of each payment or otherwise transferring funds so as to
be received by the Holder on the due date of each such payment, provided,
however, that the Company shall make payment by wire
<PAGE>
transfer to an account such Holder may specify in writing to the Company at
least three days prior to the due date of each payment.
1.3 If any payment on this Note becomes due and payable on a
Saturday, Sunday or other day on which commercial banks in New York, New York
are authorized or required by law to close, the maturity thereof shall be
extended to the next succeeding business day, and, with respect to payments of
principal, interest thereon shall be payable during such extension at the then
applicable rate.
1.4 This Note is subject to exchange in accordance with the
terms of that certain Securities Purchase Agreement, dated as of the date
hereof, between the Company and Charles S. Holmes and upon any such exchange,
the Company shall, subject to the provisions of Sections 5 and 6 below, pay the
Holder all interest on this Note accrued and unpaid through such exchange date.
1.5 Subject to the provisions of Sections 5 and 6 below, the
Company shall, within thirty (30) business days of the occurrence of a Change in
Control, offer, by written notice to the Holder, to prepay this Note, in whole
and not in part, without premium or penalty. Holder may accept the offer to
prepay made pursuant to this Section 1.5 by causing notice of such acceptance to
be delivered to the Company at least ten (10) days prior to the proposed
prepayment date (or such longer period as may be required by law). A failure by
Holder to respond to an offer to prepay pursuant to this Section 1.5 within the
requisite time period shall be deemed to constitute a rejection of such offer.
1.6 The Company shall not be entitled to prepay this Note in
whole or in part prior to the Maturity Date.
2. Placement Fee. Simultaneously with the initial issuance of
this Note, the Company shall pay to the Holder the Placement Fee, as a one time
fee for services rendered, which Placement Fee the Holder may deduct from the
funds remitted to the Company by the Holder in exchange for the issuance of this
Note.
3. Obligation Absolute. The obligations under this Note are
absolute and unconditional obligations of the Company and no modification,
release, consent, waiver, removal, rearrangement or amendment shall impair the
obligations of the Company hereunder.
4. Security. The payment of this Note is not secured by any
collateral.
5. Subordination. (a) The Company for itself, its successors
and assigns, covenants and agrees, and each Holder of this Note by its
acceptance of this Note likewise covenants and agrees, that to the extent
provided below the payment of the principal of and interest on this Note is
hereby expressly subordinated and junior in right of payment, to the extent and
in the manner hereinafter set forth, to all Senior Indebtedness. For purposes
hereof, Senior Indebtedness is defined as:
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(i) the principal of, premium, if any, any interest (including
without limitation any interest on interest and post-petition interest)
on, and all obligations of the Company for any costs and expenses with
respect to, all liabilities of the Company, direct or contingent,
joint, several or independent, now or hereafter existing, due or to
become due, whether created directly or acquired by assignment or
otherwise, under or in respect of that certain Amended and Restated
Credit Agreement, dated as of April 12, 1995, among, the Company, The
Bank of New York, Chemical Bank and the other parties referred to
therein (as heretofore and as hereafter amended, modified and
supplemented from time to time, the 'Bank Credit Agreement') and any of
the other Loan Documents (as defined in the Bank Credit Agreement); and
(ii) all extensions, renewals and refundings of any of the
foregoing.
(b) Upon the acceleration of any Senior Indebtedness or upon
the maturity of the entire principal amount of any Senior Indebtedness by lapse
of time, acceleration or otherwise, all such Senior Indebtedness which has been
so accelerated or matured shall first indefeasibly be paid in full in cash
before any payment is made by the Company or any Person acting on behalf of the
Company on account of any obligations evidenced by this Note.
(c) The Company shall not pay any obligations evidenced by
this Note if there exists a Default or Event of Default (as such terms are
defined in the instruments evidencing Senior Indebtedness including, without
limitation, the Bank Credit Agreement) with respect to any Senior Indebtedness
(hereinafter referred to as a 'Blockage Event').
The Company shall resume payment of this Note and a Blockage
Event shall be deemed to have terminated:
(i) when such Default or Event of Default on Senior
Indebtedness, as applicable, is cured or waived; or
(ii) when the Holder hereof shall have cured any such Default
or Event of Default on Senior Indebtedness to the extent such Default
or Event of Default can be cured by payment of money, which amount
shall be added to the principal amount owing to the Holder pursuant to
this Note; or
(iii) 180 days after the occurrence of such Default or Event
of Default, provided, that at the end of such 180 days, if any of the
following events occurs, the Blockage Event shall continue: (A) a
Default in payment of any amount with respect to the Senior
Indebtedness; (B) an acceleration of the Senior Indebtedness; or (C)
the occurrence of an event of the type described in Section 6 hereof,
provided further, that a Blockage Event may be deemed to occur, with
respect to any single specified Default or Event of Default, only once
for each 360 day period.
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(d) At any time there exists a Blockage Event, (i) the Company
shall not, directly or indirectly, make any payment of any part of this Note,
(ii) the Holder hereof shall not demand or accept from the Company or any other
Person any such payment or cancel, set off or otherwise discharge any part of
the indebtedness represented by this Note, and (iii) neither the Company nor the
Holder hereof shall otherwise take or permit any action prejudicial to or
inconsistent with the priority position of any holder of Senior Indebtedness
over the Holder of this Note.
(e) Any holder of Senior Indebtedness is hereby authorized to
demand specific performance of this Note, whether or not the Company shall have
complied with the provisions hereof applicable to it, at any time when the
Holder hereof shall have failed to comply with any provision hereof applicable
to him. The Holder hereby irrevocably waives any defense based on the adequacy
of a remedy at law which might be asserted as a bar to the remedy of specific
performance hereof in any action brought therefor by any holder of Senior
Indebtedness. The Holder further (i) waives presentment, demand, notice and
protest in connection with all negotiable instruments evidencing Senior
Indebtedness, notice of any loan made, extension granted or other action taken
in reliance hereon and all demands and notices of every kind in connection with
this Note or Senior Indebtedness; and (ii) assents to any renewal, extension or
postponement of the time of payment of Senior Indebtedness or any other
indulgence with respect thereto, to any substitution, exchange or release of
collateral therefor and to the addition or release of any Person primarily or
secondarily liable thereon.
(f) The Company and the Holder shall execute and deliver to
any holder of Senior Indebtedness such further instruments and shall take such
further action as such holder of Senior Indebtedness may at any time or times
reasonably request in order to evidence the subordination of the obligations
hereunder and to otherwise carry out the provisions and intent of this Note.
(g) No right of any holder of Senior Indebtedness to enforce
the subordination of the obligations shall be impaired by any act or failure to
act by the Company or the Holder or by their failure to comply with this Note or
any other agreement or document evidencing, related to or securing the
obligations hereunder. Without in any way limiting the generality of the
preceding sentence, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Holder, without incurring
responsibility to the Holder and without impairing or releasing the
subordination provided in this Note or the obligations of the holder hereof to
the holders of Senior Indebtedness, do any one or more of the following: (i)
change the manner, place or terms of payment of, or renew or alter, any Senior
Indebtedness, or otherwise amend or supplement in any manner, any Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing any Senior
Indebtedness; (iii) release any Person or entity liable in any manner for the
collection of any Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company or any other Person or entity.
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(h) In the event that the Company shall make any payment or
prepayment to the Holder on account of the obligations under this Note which is
prohibited by this Section 5, such payment shall be held by the Holder, in trust
for the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Indebtedness (pro rata as to each of such holders on the basis
of the respective amounts and priorities of Senior Indebtedness held by them) to
the extent necessary to pay all Senior Indebtedness due to such holders in full
in accordance with its terms (whether or not such Senior Indebtedness is due and
owing), after giving effect to any concurrent payment or distribution to or for
the holders of such Senior Indebtedness.
(i) After all Senior Indebtedness indefeasibly is paid in full
and until the obligations under this Note are paid in full, the Holder shall be
subrogated to the rights of holders of Senior Indebtedness to the extent that
distributions otherwise payable to the Holder have been applied to the payment
of Senior Indebtedness. For purposes of such subrogation, no payments or
distributions to holders of such Senior Indebtedness of any cash, property or
securities to which the Holder would be entitled except for the provisions of
this Section 5 and no payment over pursuant to the provisions of this Section 5
to holders of such Senior Indebtedness by the Holder, shall, as between the
Company, its creditors, other than holders of such Senior Indebtedness, and the
Holder, be deemed to be a payment by the Company to or on account of such Senior
Indebtedness, it being understood that the provisions of this Section 5 are
solely for the purpose of defining the relative rights of the holders of such
Senior Indebtedness, on the one hand, and the Holder hereof, on the other hand.
6. Primacy of Senior Indebtedness Claims as Against the
Holder. In any insolvency, receivership, bankruptcy, dissolution, liquidation or
reorganization proceeding, or in any other proceeding, whether voluntary or
involuntary, by or against the Company under any bankruptcy or insolvency law or
laws relating to relief of debtors, to compositions, extensions, or
readjustments of indebtedness:
(a) the claims of any holders of Senior Indebtedness against
the Company shall be paid indefeasibly in full in cash before any
payment is made to the Holder of this Note;
(b) until all Senior Indebtedness is indefeasibly paid in full
any distribution to which the Holder would be entitled but for this
Section 6 shall be made to holders of Senior Indebtedness; and
(c) the holders of Senior Indebtedness shall have the right to
enforce, collect and receive every such payment or distribution and give
acquittance therefor. In furtherance of the foregoing, in the event that the
Company shall file or have filed against it a petition under any chapter of
Title 11 of the United States Code or any comparable statute, with the result
that the Company is excused from the obligation to pay all or any part of the
amount otherwise payable in respect of the Senior Indebtedness during the period
subsequent to the commencement of such proceedings, the Holder agrees that all
or such part of such amount shall be payable out of, and to that extent diminish
and be at the expense of, the
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Holder's reorganization dividends or other distributions in respect of any claim
filed by it as a creditor or interest holder. In the event the holders of Senior
Indebtedness receive amounts in excess of payment in full (in cash) of amounts
outstanding in respect of Senior Indebtedness (without giving effect to whether
claims in respect of the Senior Indebtedness are allowed in any insolvency
proceeding), the holders of the Senior Indebtedness shall pay such excess
amounts to the Holder.
7. Covenants. The Company covenants, so long as this Note
shall be outstanding and unless the Holder shall otherwise consent in writing,
that:
(a) Financial Statements, Reports, etc. So long as this
Convertible Note shall remain outstanding and the Company is subject to the
filing requirements of Section 13(a), 13(c) or 15(d) of the Securities Exchange
Act of 1934, as amended (the 'Exchange Act'), the Company will transmit or cause
to be transmitted to Holder, promptly after the same are sent or become publicly
available, copies of any and all financial statements and reports which are made
available to its stockholders and all periodic and other reports, proxy
statements, registration statements and other materials filed by it with the
Securities and Exchange Commission, or any other governmental authority
succeeding to any or all of the functions of said commission, or any national
securities exchange, as the case may be. If the Company is not subject to filing
requirements, the Company will transmit or cause to be transmitted to the Holder
annual and quarterly reports containing audited annual financial statements and
related notes thereto and unaudited quarterly financial statements.
(b) Corporate Existence. The Company shall, and shall cause
its Subsidiaries to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its corporate existence, material
rights, licenses, permits and franchises and comply in all material respects
with all laws and regulations applicable to it.
(c) Taxes and Assessments. The Company shall, and shall cause
its Subsidiaries to, pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or in respect of
its property, before the same shall become in default (which, for purposes of
this Note, shall mean the earlier of ninety (90) days from its due date or
invoice date, as the case may be, or the date upon which such obligee commences
and action or proceeding to recover such amount), provided, however, that the
Company shall not be required to pay and discharge or to cause to be paid and
discharged any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings (if the Company shall have set aside on its books adequate reserves
therefor).
(d) Liens. The Company shall not, and shall not permit any of
its Subsidiaries to, incur, create, assume or suffer to exist any Lien on any
property or assets, income or profits of the Company, now owned or hereafter
acquired, other than Permitted Liens.
(e) Indebtedness. The Company shall not, and shall not permit
any of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except for
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(i) Senior Indebtedness; (ii) Indebtedness under this Note, (iii) Indebtedness
under the Convertible Notes in an aggregate principal amount not to exceed
$7,000,000; (iv) Indebtedness between Subsidiaries and between any Subsidiary
and the Company; (v) Indebtedness existing on the date hereof;(vi) Indebtedness
of Lynwood Scientific Developments Limited, a corporation organized under the
laws of the United Kingdom, to Midland Bank plc. in an aggregate amount not to
exceed $2,000,000 or the U.S. dollar equivalent in English pounds; (vii)
Indebtedness of Codar Technology, Inc., a Colorado corporation, to MetLife
Capital Corp. and Colorado National Leasing, Inc. in an aggregate amount not to
exceed $1,200,000; and (viii) all extensions, renewals and refundings of any of
the foregoing.
(f) Investments. The Company shall not, and shall not permit
any of its Subsidiaries to, purchase, hold or acquire any capital stock,
evidence of indebtedness or other securities of, make or permit to exist any
loans or advances to, or make or permit to exist any investment (by way of
transfers of property, contributions to capital, acquisitions of businesses or
acquisitions of assets other than in the ordinary course of business, or
otherwise) or any other interest in, any other Person, except for Permitted
Investments.
(g) Payments. The Company shall not, and shall not permit any
of its Subsidiaries to, declare or pay, directly or indirectly, any dividends or
make any other distribution or payment, whether in cash, property, securities or
a combination thereof, with respect to (whether by reduction of capital or
otherwise) any shares of capital stock (or any options, warrants, rights or
other equity securities or agreements relating to any capital stock) now or
hereafter outstanding, or purchase, redeem, retire or otherwise acquire for
value any shares of its capital stock or warrants or options therefor now or
hereafter outstanding, or set apart any sum for the aforesaid purposes, in any
fiscal year, except that the Company may declare stock splits and pay dividends
payable solely in shares of any class of its capital stock.
(h) Disposition of Assets. The Company shall not, and shall
not permit any of its Subsidiaries to, sell or otherwise dispose of any assets
except for (i) sales of inventory, fixtures and equipment in the ordinary course
of business and (ii) sales of assets having a book value not exceeding $100,000
in the aggregate.
(i) Affiliate Transactions. Subsequent to the date hereof, the
Company shall not, and shall not permit any Subsidiary to, directly or
indirectly, enter into or permit to exist any transaction or series of related
transactions (including, but not limited to, the purchase, sale or exchange of
property, the making of any investment, the giving of any guarantee or the
rendering of any service) with any Affiliate of the Company (other than
transactions among the Company and any wholly-owned Subsidiary) unless (i) such
transaction or series of related transactions is on terms no less favorable to
the Company or such Subsidiary than those that could be obtained in a comparable
arm's length transaction with a Person that is not an Affiliate, and (ii) such
transaction or series of related transactions is approved by a majority of the
Board of Directors of the Company (including a majority of the disinterested
directors), which approval is set forth in a board resolution of
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<PAGE>
the Company certifying that such transaction or series of transactions complies
with the immediately preceding clause (i).
(j) Merger, Consolidation, etc. The Company shall not
consolidate or merge with, or convey, transfer or lease substantially all of its
assets in a single transaction or series of transactions to, any other Person
unless (i) the successor formed by such consolidation or the survivor of such
merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Company as an entirety, as the case may
be (the 'Successor'), shall have executed and delivered to Holder its assumption
of the due and punctual performance of all the obligations under this Note, (ii)
such Successor shall be a corporation organized and existing under the laws of
the United States of America, any state thereof or the District of Columbia, and
(iii) no event referred to in Section 8 shall have occurred and be continuing.
(k) Maintenance of Properties. The Company shall keep all
properties useful in the business of the Company in good working order and
condition except to the extent that discontinuing the operation or maintenance
of any such properties is, in the judgement of the Company, desirable in the
conduct its business.
8. Events of Default. In the event that:
(i) the Company defaults in making any payment of principal of
or interest on this Note required to be made on this Note; or
(ii) any obligation of the Company for the payment of borrowed
money in excess of $500,000 becomes or is declared to be due and
payable prior to its expressed maturity, unless the validity of any
such indebtedness or obligation is being contested in good faith by
appropriate proceedings; or
(iii) any warrant of attachment, execution or other writ is
levied upon any property or assets of the Company in excess of $500,000
and is not discharged or stayed (including stays resulting from the
filing of an appeal) within 30 days; or
(iv) all or any substantial part of the assets or properties
of the Company are condemned, seized or appropriated by any government
or governmental authority; or any order is entered in any proceeding
directing winding up, dissolution or split-up of the Company; or
(v) the Company hereafter makes an assignment for the benefit
of creditors, or files a petition in bankruptcy as to itself, is
adjudicated insolvent or bankrupt, petitions receiver of or any trustee
for the Company or any substantial part of the property of the Company
under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction,
whether or not hereafter in effect; or if there is hereafter commenced
against the Company any such proceeding and an order approving the
petition is entered or such
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<PAGE>
proceeding remains undismissed for a period of 60 days, or the Company
by any act or omission to act indicates its consent to or approval of
or acquiescence in any such proceeding or the appointment of any
receiver of, or trustee for, the Company or any substantial part of its
properties, or suffers any such receivership or trusteeship to continue
undischarged for a period of 60 days; or
(vi) the Company defaults in the due observance or
performance, in any material respect, of any covenant, condition or
agreement to be observed or performed pursuant to the terms of this
Note (other than a default which is specifically provided for elsewhere
in this Section 8) and such default continues unremedied for more than
thirty (30) days after the Company first has knowledge of such default,
through notice or otherwise;
then, and in any such event, and at any time thereafter, if such event shall
then be continuing, the Holder of this Note may, by written notice to the
Company, declare this Note due and payable, whereupon the same shall be due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived, provided, however, that if an event specified
in Section 8(iv) or 8(v) occurs and is continuing, this Note shall ipso facto be
and become immediately due and payable without any declaration or other act on
the part of the Holder.
9. [This Section intentionally omitted]
10. Investment Representation.
10.1 Holder hereby acknowledges that this Note is not being
registered (i) under the Act on the ground that the issuance of the Note is
exempt from registration under Section 4(2) of the Act as not involving any
public offering or (ii) under any applicable state securities law because the
issuance of this Note does not involve any public offering; and that the
Company's reliance on the Section 4(2) exemption of the Act and under applicable
state securities laws is predicated in part on the representations hereby made
to the Company by the Holder that it is acquiring this Note for investment for
its own account, with no present intention of dividing its participation with
others or reselling or otherwise distributing the same, provided, nevertheless,
that the disposition of its property shall at all times be within its control.
10.2 Holder hereby agrees that it will not sell or transfer
all or any part of this Note unless and until it shall first have given notice
to the Company describing such sale or transfer and furnished to the Company
either (a) an opinion, reasonably satisfactory to counsel for the Company, of
counsel (skilled in securities matters, selected by the Holder and reasonably
satisfactory to the Company) to the effect that the proposed sale or transfer
may be made without registration under the Act or (b) an interpretive letter
from the Securities and Exchange Commission to the effect that no enforcement
action will be recommended if the proposed sale or transfer is made without
registration under the Act.
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<PAGE>
10.3 The Company may refuse to recognize a transfer of this
Note on its books should a holder attempt to transfer this Note otherwise than
in compliance with this Section 10.
11. Definitions. As used herein, unless the context otherwise
requires, the following terms have the respective meanings:
'Affiliate': with respect to any Person, the following: (i)
any other Person that at such time directly or indirectly through one or more
intermediaries controls, or is controlled by or is under common control with
such first Person or (ii) any Person beneficially owning or holding, directly or
indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% of more of any class of voting or equity interests. As used in such
definition, 'controls', 'controlled by' and 'under common control', as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
'Change in Control': any of the following events or
circumstances: (i) individuals who, at the beginning of any period of
twenty-four (24) consecutive months, constitute the Company's board of directors
(together with any new director whose election by the Company's board of
directors or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason (other
than death or disability) to constitute a majority of the Company's board of
directors then in office; (ii) any person or related persons constituting a
group (as such terms are used the Exchange Act) become the 'beneficial owners'
(as such term is used under the Exchange Act), directly or indirectly of more
than fifty percent (50%) of the total voting power of all classes then
outstanding of the Company's voting stock; or (iii) the acquisition after the
date hereof by any person or related persons constituting a group of the power
to elect, appoint or cause the election or appointment of at least a majority of
the members of the board of directors of the Company, or (iv) the acquisition
after the date hereof by any person or related persons constituting a group of
all or substantially all of the properties and assets of the Company and its
Subsidiaries, on a consolidated basis; provided, however, that no Change in
Control shall be deemed to have occurred in connection with, or pursuant to, the
initial issuance and sale of the Convertible Notes.
'Convertible Notes': the Company's 12% Convertible
Subordinated Promissory Notes due 2000, in the aggregate principal amount of up
to $8,000,000.
'GAAP': United States generally accepted accounting
principles, consistently applied.
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<PAGE>
'Indebtedness': at any time and with respect to any Person,
(i) all indebtedness of such Person for borrowed money, (ii) all indebtedness of
such Person for the deferred purchase price of property or services (other than
property, including inventory, and services purchased, and expense accruals and
deferred compensation items arising, in the ordinary course of business,
provided that the same shall not be overdue (i.e., the earlier of ninety (90)
days from the invoice date or the date the obligee commences an action to
recover such amounts), or if overdue, are being contested in good faith and by
appropriate proceedings), (iii) all obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments (other than performance,
surety and appeal bonds arising in the ordinary course of business), (iv) all
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(event though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (v) all obligations of such Person under leases which have been or
should be, in accordance with GAAP, recorded as capital leases, to the extent
required to be so recorded, (vi) all reimbursement, payment or similar
obligations of such Person, contingent or otherwise, under acceptance, letter of
credit or similar facilities, (vii) all Indebtedness referred to in clauses (i)
through (vi) above guaranteed directly or indirectly by such Person including
without limitation through any agreement (A) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or purchase of such
Indebtedness, (B) to purchase, sell or lease (as lessee or lessor) property, or
to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss in respect of such Indebtedness, (C) to supply funds
to or in any other manner invest in the debtor (including any agreement to pay
for property or services irrespective of whether such property is received or
such services are rendered) or (D) otherwise to assure a creditor against loss
in respect of such Indebtedness, and (viii) all Indebtedness referred to in
clauses (i) through (vii) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon in property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness.
'Lien': any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever.
'Permitted Investments': any of the following:
(i) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United State of America
(or by any agency thereof to the extent such obligations are backed by the full
faith and credit of the United States of America), in each case maturing within
twelve months from the date of acquisition thereof;
(ii) without limiting the provisions of clause (iv) below,
investments in commercial paper maturing within one year from the date of
acquisition thereof and having,
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<PAGE>
at such date of acquisition, the highest credit rating obtainable from Standard
& Poor's Corporation (or a similar rating by any similar organization which
rates commercial paper);
(iii) investments in certificates of deposits or banker's
acceptances and time deposits maturing within twelve months from the date of
acquisition thereof issued or guaranteed by or placed with (a) any domestic
office of the bank with whom the Company maintains its cash management system or
(b) any domestic office of any other commercial bank of recognized standing
organized under the laws of the United States of America or any state thereof
that has a combined capital and surplus and undivided profits of not less than
$100,000,000 and is the principal banking subsidiary of a bank holding company
having a long-term unsecured debt rating of at least 'A' or the equivalent
thereof from the Standard & Poor's Corporation or at least 'A2' or the
equivalent thereof from Moody's Investors Service, Inc.;
(iv) investments in commercial paper maturing within six
months from the date of acquisition and issued by the holding company of any
commercial bank of recognized standing organized under the laws of the United
States of America of any state thereof that has (A) a combined capital and
surplus in excess of $250,000,000 and (B) commercial paper rated at least 'A' or
the equivalent thereof from the Standard & Poor's Corporation or at least 'A2'
or the equivalent thereof from Moody's Investors Service, Inc. (or has a similar
rating by any similar organization that rates commercial paper); or
(v) investments in money market funds substantially all the
assets of which are comprised of securities of the types described in clauses
(i) through (iv) above.
'Permitted Lien': mean (i) Liens in existence on the date
hereof, (ii) Liens created for the benefit of the holders of Senior
Indebtedness, (iii) Liens imposed by law for taxes, assessments or charges of
any governmental authority for claims not yet due or which are being contested
in good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance with
GAAP; (iv) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law created in the ordinary
course of business for amounts not yet due, which are not overdue by more than
60 days or which are being contested in good faith by appropriate proceedings
and with respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with GAAP; (v) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, leases, contracts (other than for the
repayment of indebtedness), statutory obligations and other similar obligations
or arising as a result of progress payments under government contracts; (vi)
easements (including without limitation, reciprocal easement agreements and
utility agreements), rights-of-way, covenants, consents, reservations,
encroachments, variations and zoning and other restrictions, charges or
encumbrances (whether or not recorded), which in the aggregate, are not
substantial in amount, and which do not interfere materially with the ordinary
conduct of the business of the Company and which do not materially detract from
the property to which they attach or
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<PAGE>
materially impair the use thereof to the Company; (vii) Liens covering real
property or Personal property in existence at the time of acquisition thereof by
the Company and purchase money Liens upon or in any property acquired or held in
the ordinary course of business to secure the purchase price of such property or
to secure indebtedness permitted by this Section 7 solely for the purpose of
financing the acquisition of such property and no such Lien covers, or is
extended to cover, any other property owned by the Company; and (viii)
extensions, renewals or replacements of any Lien referred to in paragraphs (i)
through (vii) above.
'Person': any natural person, corporation, division of a
corporation, partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.
'Senior Indebtedness': the meaning specified in Section 5(a).
'Subsidiaries': with respect to any Person, any corporation,
association or other business entity (whether now existing or hereafter
organized) of which at least a majority of the securities or other ownership
interests having ordinary voting power for the election of directors is, at the
time as of which any determination is being made, owned or controlled by such
Person or one or more subsidiaries of such Person.
12. Miscellaneous.
12.1 This Note is the obligation of the Company only, and no
recourse shall be had for the payment thereof or interest thereon against any
stockholder, officer or director of the Company, whether by virtue of any
constitution, statute, rule or law or otherwise, all such liability, by the
acceptance hereof, and as part of the consideration hereof, being expressly
waived.
12.2 Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and of a
letter of indemnity reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender or cancellation of this Note, if mutilated, the Company will make
and deliver a new Note of like tenor in lieu of such lost, stolen, destroyed or
mutilated Note.
12.3 THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
COMPANY AND THE HOLDER HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS AND
INSTRUMENTS MADE AND TO BE PERFORMED IN NEW YORK AND CANNOT BE MODIFIED OR
CHANGED ORALLY.
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<PAGE>
IN WITNESS WHEREOF, the Company originally signed this Note on
the day of October, 1995.
NAI TECHNOLOGIES, INC.
By: /s/ Richard A. Schneider
__________________________
Name: Richard A. Schneider
Title: Executive Vice President
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement, entered into as of the 16th day of
October, 1995 by and between NAI Technologies, Inc., a New York corporation (the
'Company'), and Robert A. Carlson (the 'Executive').
1. Termination of Prior Agreement. Upon the execution of this
Agreement, the prior agreement entered into by and between the Executive and the
Company, dated as of February 5, 1995, shall be terminated in all respects and
be superseded by this Agreement.
2. Employment and Duties.
2.1. Duties. Upon the terms and conditions herein set forth,
the Company employs the Executive, and the Executive hereby agrees to serve as
Chairman and Chief Executive Officer ('CEO'), effective October 16, 1995 (the
'Effective Date'). The Executive shall devote his best efforts to such duties
with the Company as the Board of Directors may direct.
2.2. Term. The term of the Executive's employment under this
Agreement (the 'Term') shall commence on the Effective Date and shall continue
until November 30, 1997. Thereafter, the Term may be extended by mutual consent
of the Company and the Executive. Nothing in this Section 2.2, however, shall
limit the right of the Company or the Executive to terminate the Executive's
employment hereunder on the terms and conditions set forth in Section 5.
3. Compensation and Other Benefits. Subject to the provisions of
this Agreement, the Company shall pay and provide the following compensation and
other benefits for services rendered during the Term:
3.1. Salary. During the Term, the Executive shall be paid
salary at a rate of $214,500 per annum ('Salary'), payable in substantially
equal installments (not less frequently than monthly) in accordance with the
Company's regular payroll practices.
3.2. Incentive Compensation. In addition to Salary, and
subject to attaining the targets set forth annually by the Board of Directors,
the Company shall pay to Executive an annual bonus (the 'Bonus') equal to one
hundred percent (100%) of Salary in a lump sum not later than March
<PAGE>
31 of the year following the applicable year. This Bonus shall be paid in
accordance with the terms of the Company's short-term incentive bonus program.
3.3. Additional Benefits. At all times during the Term,
Executive shall be eligible and participate in all employee benefit programs or
plans now or hereafter provided for by the Company for its executive officers in
accordance with the provisions, terms and any limitations thereof, including,
without limitation, life insurance, health, disability and other fringe benefit
plans. Any benefits that are vested as of the Effective Date, including any
pension benefits described in Section 3.5, Executive's rights to retiree medical
benefits, and Executive's rights to the continution of the split dollar
insurance plan with respect to Executive, shall not be affected by this
Agreement.
3.4. Vacation. Executive shall be entitled to four (4) weeks
of paid vacation for each twelve-month period of employment during the Term.
3.5. Pension. The Executive shall continue to participate in
the Company's basic and supplemental retirement plans, and shall be credited
with all prior service for purposes of vesting and determining the Executive's
benefit under such plans.
3.6. Automobile Allowance. The Company shall provide Executive
with the use of a Company car and shall pay or reimburse Executive for all
reasonable expenses incurred in connection with such car for repairs, fuel,
maintenance and insurance, in accordance with the Company's automobile use
policy as established by the Board of Directors.
4. Stock Options. Effective October 16, 1995, the Executive shall be
granted options to purchase two hundred and fifty thousand (250,000) shares of
Common Stock of the Company at a per share exercise price of two dollars and
fifty cents ($2.50) (the 'Stock Options'). All prior options granted to the
Executive by the Company are hereby canceled and are no longer of any force or
effect. The Stock Options shall vest during the periods of the Executive's
continued employment with the Company as follows:
On or after twelve (12)
months from the Effective Date: 125,000 shares
On or after twenty (24)
months from the Effective Date: 125,000 shares
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The right of exercise shall be cumulative. All such options, to the extent
exercisable, must be exercised within six (6) years of the date hereof, and
shall be in the form of the Company's standard stock option agreements.
Notwithstanding anything contained herein to the contrary, if: (a) the
Executive's employment is terminated by the Company without Cause, or he resigns
for Good Reason, all Stock Options will be 100% vested and will extend for one
year after such termination or resignation; and (b) the Executive's employment
is terminated by the Company for Cause, or he resigns without Good Reason, all
Stock Options will terminate thirty (30) days after such termination or
resignation.
5. Termination of Employment.
5.1. Cause. 'Cause' shall mean fraud, negligence, conflict of
interest, willful malfeasance or willful misfeasance in office.
5.2. Good Reason. 'Good Reason' shall mean:
(a) without the express prior written consent of the
Executive, a material diminution or limitation of the Executive's
position, duties or responsibilities with the Company from those in
existence on the Effective Date (or, if greater, the highest
permanent-assignment level in effect thereafter) or the assignment to
the Executive of duties inconsistent with the position, duties,
responsibilities or status of the Executive as of the Effective Date
(or, if greater, the highest permanent-assignment level in effect
thereafter); or
(b) any failure by the Company to pay, or any reduction by the
Company of, the base Salary of the Executive as in effect on the
Effective Date or as the same may be increased from time to time
thereafter; or
(c) the failure of the Company to provide the Executive with
the opportunity to participate, on terms no less favorable than those
existing on the Effective Date, in any incentive benefit, bonus or
compensation, insurance, pension or other employee benefit plan of the
Company in effect on the Effective Date (or plans and benefits which
are, in the aggregate, no less favorable to the Executive than those
the Executive enjoyed on the Effective Date) unless such failure
results from the Company's termination or amendment of any such plan in
response to a change in applicable statute
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<PAGE>
or regulation, including any termination or amendment resulting from a
materially adverse alteration of the tax treatment of any such plan to
the Company or to plan participants; provided, however, that Good
Reason shall not include any reduction in such benefit by the Company
on a Company-wide basis.
5.3. Notice of Good Reason.
Unless the Executive provides written notification of his
intention to resign within twenty (20) business days after the Executive knows
or has reason to know of the occurrence of any such event constituting Good
Reason, the Executive shall be deemed to have consented thereto and such event
shall no longer constitute Good Reason for purposes of this Agreement. If the
Executive provides such written notice to the Company, the Company shall have
twenty (20) business days from the date of receipt of such notice to effect a
cure of the event described therein and, upon cure thereof by the Company to the
reasonable satisfaction of the Executive, such event shall no longer constitute
Good Reason for purposes of this Agreement.
5.4. Termination For Cause; Resignation
Without Good Reason.
(a) Rights on Termination. If, prior to the expiration of the
Term, the Executive's employment is terminated by the Company for Cause
or the Executive resigns from this employment without Good Reason, the
Executive shall be entitled to payment of his Salary accrued through
the date of such termination or resignation, plus any accrued but
unpaid vacation benefits. Except as may be provided by law or expressly
provided under the term of any plan or arrangement applicable to the
Executive, the Executive shall have no right under this Agreement or
otherwise to receive any other compensation or benefits, or to
participate in any other plan, arrangement or benefit, with respect to
future periods after such termination or resignation of Effective.
(b) Notice of Termination for Cause. Termination of the
Executive's employment for Cause shall be communicated by delivery to
the Executive of a copy of a resolution duly adopted by the Board
finding that in the good faith opinion of the Board an event
constituting Cause for termination in accordance with Section 5.1 has
occurred and specifying the particulars thereof (a 'Notice of
Termination'). In the event of termination for Cause as a consequence
of the events described in Section 5.1 or any other event described
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<PAGE>
in Section 5.1 that the Board determines in good faith is not
susceptible of cure, the effective date of termination shall be the
date of the Notice of Termination or such later date as may be
specified in such notice. In the event the Executive's employment is
terminated for Cause (unless the Board has determined in good faith
that the relevant giving rise to Cause is not susceptible of cure), the
Executive shall have twenty (20) business days from the date of receipt
of such Notice of Termination to effect a cure of the event described
therein and, upon cure thereof by the Executive to the reasonable
satisfaction of the Board, such event shall no longer constitute Cause
for purposes of this Agreement. The effective date of termination for
Cause that has been subject to a cure period as described in the
immediately preceding sentence which did not result in a cure to the
reasonable satisfaction of the Board shall be the date immediately
succeeding the last date of the twenty (20) business day cure period.
(c) Notice of Resignation Without Good Reason.
The date of resignation by the Executive without Good Reason
shall be the date specified in a written notice of resignation from the
Executive to the Company. The Executive shall provide at least sixty
(60) days' advance written notice of resignation.
5.5. Notice of Termination Without Cause.
The date of termination of employment without Cause shall be
the date specified in a written notice of termination to the Executive, provided
that the Company shall provide at least twenty (20) business days' written
notice of such termination.
5.6. Notice of Resignation for Good Reason.
The date of resignation for Good Reason shall be the date
specified in a written notice of resignation from the Executive to the Company,
provided, however, that no such written notice shall be effective unless the
twenty (20) business day cure period specified in Section 5.3 has expired
without the Company having corrected, to the reasonable satisfaction of the
Executive, the event or events.
5.7. Termination Without Cause;
Resignation For Good Reason.
(a) Severance Amount. If, prior to the expiration
of the Term, the Executive's employment is
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<PAGE>
terminated by the Company without Cause, or the Executive resigns from
his employment for Good Reason, the Company shall pay to the Executive
his Salary accrued up to and including the effective date of such
termination or resignation, plus a pro rata share of unused vacation
for the full year plus a pro rata bonus under the Company Bonus Plan,
if the Board in its sole discretion so determines, all in a lump sum.
In addition, the Company shall pay to the Executive a severance payment
equal to the greater of (A) his salary, at the rate in effect at time
of such termination or resignation, for the remainder of the Term and
(B) one year's salary, at the rate in effect at the time of such
termination or resignation, in a lump sum (the 'Severance Amount').
(b) Other Benefits. In the event of the Executive's
termination without Cause or his resignation for Good Reason, the
Executive shall continue to participate on the same terms and
conditions as in effect immediately prior to such termination or
resignation in each pension, life insurance, health, disability and
other fringe benefit plan or program provided to the Executive pursuant
to Sections 3.3, 3.5 and 3.6 at the time of such termination or
resignation until the earlier of (A) six (6) months following the date
of such termination or resignation or, if the Executive is required to
elect such benefits immediately following such termination or
resignation, twelve (12) months following the date of such termination
or resignation and (B) such time as the Executive is eligible to be
covered by a comparable program of a subsequent employer. The Executive
agrees to notify the Company promptly if he becomes eligible to
participate in any pension or other benefit plans, programs or
arrangements of another employer. Notwithstanding anything contained
herein to the contrary, the Company shall have no obligation to
continue to maintain any plan or program solely as a result of the
provisions of this Agreement nor provide any level of benefits if
applicable law either prevents the Executive from participating in any
such plan or program or would cause the Company to suffer any loss of
tax benefits as a consequence of the Executive's continued
participation during the Term.
(c) Automobile: If the Company has provided the Executive with
the use of an automobile on a continuous basis prior to the termination
without Cause or resignation for Good Reason, the Executive shall be
given the option to purchase such automobile on the terms outlined in
the Company policy with respect thereto at the value
-6-
<PAGE>
in effect two years after the date of the termination without Cause or
resignation for Good Reason.
5.8. Termination Due to Death or Disability.
(a) In the event of the Executive's disability, as hereinafter
defined, or death, the Company shall be entitled to terminate his
employment. If the Executive's employment shall terminate due to
disability or death, any Salary earned by the Executive up to the date
of such termination and any pro rata bonus to that date shall be paid
to the Executive or his estate, as appropriate.
(b) As used herein, the term 'disability' shall mean physical
or mental disability as a result of which the Executive is unable to
perform his duties hereunder on substantially a full-time basis for any
period of four (4) consecutive months. Any dispute as to whether or not
the Executive is so disabled shall be resolved by a physician,
reasonably acceptable to the Executive and the Board, whose
determination shall be final and binding upon both the Executive and
the Company.
6. Nondisclosure of Confidential Information. The Executive shall be
bound by the confidentiality policy of the Company. The Executive shall not,
except as may be necessary in the discharge of duties with the Company or as may
be required by applicable law or regulations, disclose any confidential
information, knowledge or data obtained by the Executive prior to the date of
this Agreement or during the Executive's employment concerning the Company or
the business of the Company so long as such information is not publicly
available.
7. Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the breach of this Agreement that cannot be resolved by the
Executive and the Company shall, at the instance of either the Executive or the
Company, be submitted to arbitration in accordance with New York law and the
procedures of the American Arbitration Association, with all hearings to be
conducted in Colorado. The determination of the arbitrator shall be conclusive
and binding on the Company and the Executive and judgment may be entered on the
arbitrator's award in any court having jurisdiction.
8. Legal Expenses. The Company shall pay all reasonable costs and
expenses, including attorneys' fees and disbursements, of the Company and, at
least monthly, the Executive in connection with any legal proceedings (in the
case of the Executive any legal proceedings brought or
-7-
<PAGE>
maintained in good faith) (including, but not limited to, arbitration), whether
or not instituted by the Company or the Executive, relating to the
interpretation or enforcement of any provision of this Agreement.
9. Assignability. The respective rights and obligations of the
Executive and the Company under this Agreement shall inure to the benefit of and
be binding upon the heirs and legal representatives of the Executive and the
successors and assigns of the Company. The Executive's rights and obligations
under this Agreement may not be assigned or alienated and any attempt to do so
by the Executive shall be void. Any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company, shall assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. The provisions of
this Section 9 shall continue to apply to each subsequent employer of the
Executive hereunder in the event of any subsequent merger, consolidation or
transfer of assets of such subsequent employer.
10. Severability. If any provision of this Agreement is deemed to be
invalid or unenforceable or is prohibited by the laws of the state or place
where it is to be performed, this Agreement shall be considered to be divisible
as to such provision and such provision shall be inoperative in such state or
place and shall not be part of the consideration moving from either of the
parties to the other. The remaining provisions of the Agreement, however, shall
be valid and binding and of like effect as though such provision were not
included.
11. Miscellaneous. This Agreement is to be construed and enforced in
accordance with the internal substantive laws of the State of New York,
irrespective of the principles of conflicts of law. The waiver of any breach of
this Agreement by any party shall not be construed as a waiver of any subsequent
breach by any party. This Agreement may not be changed orally, but only by an
agreement in writing signed by the parties to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have
executed this Agreement as of the day and year first above written.
NAI TECHNOLOGIES, INC. ROBERT A. CARLSON
By: /s/ Richard A. Schneider /s/ Robert A. Carlson
----------------------------- ---------------------------
Title: Executive Vice President
--------------------------
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<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement, entered into as of the 16th day of
October, 1995 by and between NAI Technologies, Inc., a New York corporation (the
'Company'), and Richard A. Schneider (the 'Executive').
1. Termination of Prior Agreement. Upon the execution of this
Agreement, the prior agreement entered into by and between the Executive and the
Company, dated as of February 5, 1995, shall be terminated in all respects and
be superseded by this Agreement.
2. Employment and Duties.
2.1. Duties. Upon the terms and conditions herein set forth,
the Company employs the Executive, and the Executive hereby agrees to serve as
Executive Vice President, Chief Financial Officer, Secretary and Treasurer,
effective October 16, 1995 (the 'Effective Date'). The Executive shall devote
his best efforts to such duties with the Company as the Board of Directors may
direct.
2.2. Term. The term of the Executive's employment under this
Agreement (the 'Term') shall commence on the Effective Date and shall continue
until the second anniversary of such date. Thereafter, the Term may be extended
by mutual consent of the Company and the Executive. Nothing in this Section 2.2,
however, shall limit the right of the Company or the Executive to terminate the
Executive's employment hereunder on the terms and conditions set forth in
Section 5.
3. Compensation and Other Benefits. Subject to the provisions of
this Agreement, the Company shall pay and provide the following compensation and
other benefits for services rendered during the Term:
3.1. Salary. During the Term, the Executive shall be paid
salary at a rate of $135,000 per annum ('Salary'), payable in substantially
equal installments (not less frequently than monthly) in accordance with the
Company's regular payroll practices.
<PAGE>
3.2. Incentive Compensation.
(a) In addition to Salary, and subject to attaining the
targets set forth annually by the Board of Directors, the Company shall
pay to Executive an annual bonus (the 'Bonus') equal to eighty-seven
percent (87%) of Salary in a lump sum not later than March 31 of the
year following the applicable year. This Bonus shall be paid in
accordance with the terms of the Company's short-term incentive bonus
program.
(b) Pursuant to the Agreement the Company will loan to
Executive the equivalent of the difference between his net Salary and
the net salary he was receiving immediately prior to the execution of
this Agreement ($550.00 per week). This loan shall be repayable out of
any Bonus paid to Executive on account of work performed during the
prior year; provided, however, that upon a resignation for Good Reason
or termination without Cause the full amount outstanding under such
loans shall be discharged in full.
3.3. Additional Benefits. At all times during the Term,
Executive shall be eligible and participate in all employee benefit programs or
plans now or hereafter provided for by the Company for its executive officers in
accordance with the provisions, terms and any limitations thereof, including,
without limitation, life insurance, health, disability and other fringe benefit
plans. Any benefits that are vested as of the Effective Date, including any
pension benefits described in Section 3.5, shall not be affected by this
Agreement.
3.4. Vacation. Executive shall be entitled to three (3) weeks
of paid vacation for each twelve-month period of employment during the Term.
3.5. Pension. The Executive shall continue to participate in
the Company's basic and supplemental retirement plans, and shall be credited
with all prior service for purposes of vesting and determining the Executive's
benefit under such plans.
3.6. Automobile Allowance. The Company shall provide Executive
with the use of a Company car and shall pay or reimburse Executive for all
reasonable expenses incurred in connection with such car for repairs, fuel,
maintenance and insurance, in accordance with the Company's automobile use
policy.
4. Stock Options. Effective October 16, 1995, the Executive
shall be granted options to purchase one hundred
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<PAGE>
and twenty-five thousand (125,000) shares of Common Stock of the Company at a
per share exercise price of two dollars and fifty cents ($2.50) (the 'Stock
Options'). All prior options granted to the Executive by the Company are hereby
canceled and are no longer of any force or effect. The Stock Options shall vest
during the periods of the Executive's continued employment with the Company as
follows:
On or after twelve (12)
months from the Effective Date: 62,500 shares
On or after twenty (24)
months from the Effective Date: 62,500 shares
The right of exercise shall be cumulative. All such options, to the extent
exercisable, must be exercised within six (6) years of the date hereof, and
shall be in the form of the Company's standard stock option agreements.
Notwithstanding anything contained herein to the contrary, if: (a) the
Executive's employment is terminated by the Company without Cause or he resigns
for Good Reason, all Stock Options will be 100% vested and will extend for one
year after such termination or resignation; and (b) the Executive's employment
is terminated by the Company for Cause or he resigns his employment with the
Company without Good Reason, all Stock Options will terminate thirty (30) days
after such termination or resignation.
5. Termination of Employment.
5.1. Cause. 'Cause' shall mean fraud, negligence, conflict of
interest, willful malfeasance or willful misfeasance in office.
5.2. Good Reason. 'Good Reason' shall mean:
(a) without the express prior written consent of the
Executive, a material diminution or limitation of the Executive's
position, duties or responsibilities with the Company from those in
existence on the Effective Date (or, if greater, the highest
permanent-assignment level in effect thereafter) or the assignment to
the Executive of duties inconsistent with the position, duties,
responsibilities or status of the Executive as of the Effective Date
(or, if greater, the highest permanent-assignment level in effect
thereafter); or
(b) any failure by the Company to pay, or any reduction by the
Company of, the base Salary of the Executive as in effect on the
Effective
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<PAGE>
Date or as the same may be increased from time to time thereafter; or
(c) the failure of the Company to provide the Executive with
the opportunity to participate, on terms no less favorable than those
existing on the Effective Date, in any incentive benefit, bonus or
compensation, insurance, pension or other employee benefit plan of the
Company in effect on the Effective Date (or plans and benefits which
are, in the aggregate, no less favorable to the Executive than those
the Executive enjoyed on the Effective Date) unless such failure
results from the Company's termination or amendment of any such plan in
response to a change in applicable statute or regulation, including any
termination or amendment resulting from a materially adverse alteration
of the tax treatment of any such plan to the Company or to plan
participants; provided, however, that Good Reason shall not include any
reduction in such benefit by the Company on a Company-wide basis.
5.3. Notice of Good Reason.
Unless the Executive provides written notification of his
intention to resign within twenty (20) business days after the Executive knows
or has reason to know of the occurrence of any such event constituting Good
Reason, the Executive shall be deemed to have consented thereto and such event
shall no longer constitute Good Reason for purposes of this Agreement. If the
Executive provides such written notice to the Company, the Company shall have
twenty (20) business days from the date of receipt of such notice to effect a
cure of the event described therein and, upon cure thereof by the Company to the
reasonable satisfaction of the Executive, such event shall no longer constitute
Good Reason for purposes of this Agreement.
5.4. Termination For Cause; Resignation
Without Good Reason.
(a) Rights on Termination. If, prior to the expiration of the
Term, the Executive's employment is terminated by the Company for Cause
or the Executive resigns from this employment without Good Reason, the
Executive shall be entitled to payment of his Salary accrued through
the date of such termination or resignation, plus any accrued but
unpaid vacation benefits. Except as may be provided by law or expressly
provided under the term of any plan or arrangement applicable to the
Executive, the Executive shall have no right under this Agreement or
otherwise
-4-
<PAGE>
to receive any other compensation or benefits, or to participate in any
other plan, arrangement or benefit, with respect to future periods
after such termination or resignation of Employment.
(b) Notice of Termination for Cause. Termination of the
Executive's employment for Cause shall be communicated by delivery to
the Executive of a copy of a resolution duly adopted by the Board
finding that in the good faith opinion of the Board an event
constituting Cause for termination in accordance with Section 5.1 has
occurred and specifying the particulars thereof (a 'Notice of
Termination'). In the event of termination for Cause as a consequence
of the events described in Section 5.1 or any other event described in
Section 5.1 that the Board determines in good faith is not susceptible
of cure, the effective date of termination shall be the date of the
Notice of Termination or such later date as may be specified in such
notice. In the event the Executive's employment is terminated for Cause
(unless the Board has determined in good faith that the relevant giving
rise to Cause is not susceptible of cure), the Executive shall have
twenty (20) business days from the date of receipt of such Notice of
Termination to effect a cure of the event described therein and, upon
cure thereof by the Executive to the reasonable satisfaction of the
Board, such event shall no longer constitute Cause for purposes of this
Agreement. The effective date of termination for Cause that has been
subject to a cure period as described in the immediately preceding
sentence which did not result in a cure to the reasonable satisfaction
of the Board shall be the date immediately succeeding the last date of
the twenty (20) business day cure period.
(c) Notice of Resignation Without Good Reason.
The date of resignation by the Executive without Good Reason
shall be the date specified in a written notice of resignation from the
Executive to the Company. The Executive shall provide at least sixty
(60) days' advance written notice of resignation.
5.5. Notice of Termination Without Cause.
The date of termination of employment without Cause shall be
the date specified in a written notice of termination to the Executive, provided
that the Company shall provide at least twenty (20) business days' written
notice of such termination.
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<PAGE>
5.6. Notice of Resignation for Good Reason.
The date of resignation for Good Reason shall be the date
specified in a written notice of resignation from the Executive to the Company,
provided, however, that no such written notice shall be effective unless the
twenty (20) business day cure period specified in Section 5.3 has expired
without the Company having corrected, to the reasonable satisfaction of the
Executive, the event or events.
5.7. Termination Without Cause;
Resignation For Good Reason.
(a) Severance Amount. If, prior to the expiration of the Term,
the Executive's employment is terminated by the Company without Cause,
or the Executive resigns from his employment for Good Reason, the
Company shall pay to the Executive his Salary accrued up to and
including the effective date of such termination or resignation, plus a
pro rata share of unused vacation for the full year plus a pro rata
bonus under the Company Bonus Plan, if the Board in its sole discretion
so determines. In addition, the Company shall pay to the Executive a
severance payment equal to the greater of (A) his salary, at the rate
in effect at time of such termination or resignation, for the remainder
of the Term and (B) one year's salary, at the rate in effect at the
time of such termination or resignation, in a lump sum ('Severance
Amount').
(b) Other Benefits. In the event of the Executive's
termination without Cause or his resignation for Good Reason, the
Executive shall continue to participate on the same terms and
conditions as in effect immediately prior to such termination or
resignation in each pension, life insurance, health, disability and
other fringe benefit plan or program provided to the Executive pursuant
to Sections 3.3, 3.5 and 3.6 at the time of such termination or
resignation until the earlier of (A) six (6) months following the date
of such termination or resignation or, if the Executive is required to
elect such benefits immediately following such termination or
resignation, twelve (12) months following the date of such termination
or resignation, and (B) such time as the Executive is eligible to be
covered by a comparable program of a subsequent employer. The Executive
agrees to notify the Company promptly if he becomes eligible to
participate in any pension or other benefit plans, programs or
arrangements of another employer. Notwithstanding anything contained
herein to the contrary, the Company shall have no obligation to
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<PAGE>
continue to maintain any plan or program solely as a result of the
provisions of this Agreement nor provide any level of benefits if
applicable law either prevents the Executive from participating in any
such plan or program or would cause the Company to suffer any loss of
tax benefits as a consequence of the Executive's continued
participation during the Term.
(c) Automobile: If the Company has provided the Executive with
the use of an automobile on a continuous basis prior to the termination
without Cause or resignation for Good Reason, the Executive shall be
given the option to purchase such automobile on the terms outlined in
the Company policy with respect thereto at the value in effect two
years after the date of the termination without Cause or resignation
for Good Reason.
5.8. Termination Due to Death or Disability.
(a) In the event of the Executive's disability, as hereinafter
defined, or death, the Company shall be entitled to terminate his
employment. If the Executive's employment shall terminate due to
disability or death, any Salary earned by the Executive up to the date
of such termination and any pro rata bonus to that date shall be paid
to the Executive or his estate, as appropriate.
(b) As used herein, the term 'disability' shall mean physical
or mental disability as a result of which the Executive is unable to
perform his duties hereunder on substantially a full-time basis for any
period of four (4) consecutive months. Any dispute as to whether or not
the Executive is so disabled shall be resolved by a physician,
reasonably acceptable to the Executive and the Board, whose
determination shall be final and binding upon both the Executive and
the Company.
6. Nondisclosure of Confidential Information. The Executive
shall be bound by the confidentiality policy of the Company. The Executive shall
not, except as may be necessary in the discharge of duties with the Company or
as may be required by applicable law or regulations, disclose any confidential
information, knowledge or data obtained by the Executive prior to the date of
this Agreement or during the Executive's employment concerning the Company or
the business of the Company so long as such information is not publicly
available.
7. Arbitration. Any controversy or claim arising out of or
relating to this Agreement or the breach
-7-
<PAGE>
of this Agreement that cannot be resolved by the Executive and the Company
shall, at the instance of either the Executive or the Company, be submitted to
arbitration in accordance with New York law and the procedures of the American
Arbitration Association, with all hearings to be conducted in Colorado. The
determination of the arbitrator shall be conclusive and binding on the Company
and the Executive and judgment may be entered on the arbitrator's award in any
court having jurisdiction.
8. Legal Expenses. The Company shall pay all reasonable costs
and expenses, including attorneys' fees and disbursements, of the Company and,
at least monthly, the Executive in connection with any legal proceedings (in the
case of the Executive any legal proceedings brought or maintained in good faith)
(including, but not limited to, arbitration), whether or not instituted by the
Company or the Executive, relating to the interpretation or enforcement of any
provision of this Agreement.
9. Assignability. The respective rights and obligations of the
Executive and the Company under this Agreement shall inure to the benefit of and
be binding upon the heirs and legal representatives of the Executive and the
successors and assigns of the Company. The Executive's rights and obligations
under this Agreement may not be assigned or alienated and any attempt to do so
by the Executive shall be void. Any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company, shall assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. The provisions of
this Section 9 shall continue to apply to each subsequent employer of the
Executive hereunder in the event of any subsequent merger, consolidation or
transfer of assets of such subsequent employer.
10. Severability. If any provision of this Agreement is deemed
to be invalid or unenforceable or is prohibited by the laws of the state or
place where it is to be performed, this Agreement shall be considered to be
divisible as to such provision and such provision shall be inoperative in such
state or place and shall not be part of the consideration moving from either of
the parties to the other. The remaining provisions of the Agreement, however,
shall be valid and binding and of like effect as though such provision were not
included.
11. Miscellaneous. This Agreement is to be construed and
enforced in accordance with the internal substantive laws of the State of New
York, irrespective of
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<PAGE>
the principles of conflicts of law. The waiver of any breach of this Agreement
by any party shall not be construed as a waiver of any subsequent breach by any
party. This Agreement may not be changed orally, but only by an agreement in
writing signed by the parties to this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have
executed this Agreement as of the day and year first above written.
NAI TECHNOLOGIES, INC. RICHARD A. SCHNEIDER
By: /s/ Robert A. Carlson /s/ Richard A. Schneider
-------------------------- ------------------------
Title: President
-----------------------
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<PAGE>
EXHIBIT 10.5
FIRST AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
FIRST AMENDMENT, dated as of August 14, 1995 (the
'Amendment'), to the Amended and Restated Credit Agreement, dated as of April
12, 1995, among NAI Technologies, Inc., a New York corporation (the 'Company'),
Chemical Bank, a New York banking corporation ('Chemical'), The Bank of New
York, a New York banking corporation ('BNY'), and each of the other financial
institutions which from time to time becomes party thereto (together with
Chemical and BNY, the 'Banks'), BNY, as administrative agent (in such capacity,
the 'Administrative Agent') and Chemical, as collateral agent (in such capacity,
the 'Collateral Agent').
W I T N E S S E T H :
WHEREAS, the Company, the Banks, the Administrative Agent and
the Collateral Agent are parties to that certain Amended and Restated Credit
Agreement, dated as of April 12, 1995 (as may hereafter be amended, modified,
supplemented or restated, the 'Credit Agreement');
WHEREAS, unless otherwise defined herein, terms defined in the
Credit Agreement and used herein are used herein as therein defined; and
WHEREAS, the Company has requested and the Banks have agreed
to, among other things, waive compliance with certain financial covenants and to
defer the payment of certain principal amounts due under the Credit Agreement as
hereinafter set forth.
Accordingly, the parties hereto hereby agree as follows:
Section 1. Deferral. The Banks hereby agree to defer each of
the principal payments in the amount of $875,000 which are scheduled to be made
on each of September 30, 1995 and December 31, 1995 pursuant to the terms of
Section 2.08(b) of the Credit Agreement to the Maturity Date.
Section 2. Confirmation of Inapplicability of Extended
Maturity Date. The Company hereby confirms that the right to unilaterally extend
the maturity of the Loans to the Extended Maturity Date has expired, and further
confirms that the Loans shall mature on the Maturity Date or earlier as provided
in the Credit Agreement.
<PAGE>
Section 3. Limited Waiver of Financial Covenants. The Banks
hereby agree to waive compliance with certain provisions of the Credit Agreement
as follows:
(a) Compliance with the financial covenant set forth
in Section 6.14 is hereby waived for the fiscal quarter ended June 30,
1995; provided that the Consolidated Current Ratio for such period
shall not be less than .95 to 1.
(b) Compliance with the financial covenant set forth
in Section 6.15 is hereby waived for the fiscal quarter ended June 30,
1995; provided that the Consolidated Quick Ratio for such period shall
not be less than .48 to 1.
(c) Compliance with the financial covenant set forth
in Section 6.16 is hereby waived for each of the one month periods
ending March 31, 1995, April 30, 1995 and May 31, 1995, provided that
Consolidated Tangible Net Worth for such periods shall not be less than
$3,600,000 at any time during such periods.
Section 4. Amendments to Article VI. Article VI of the Credit
Agreement is hereby amended as follows:
a. Section 6.14 is hereby amended in its entirety to
read as follows:
SECTION 6.14. Maintenance of Consolidated Current
Ratio. Permit the Consolidated Current Ratio to fall below 1.00 to 1.00
at the end of any fiscal quarter during the period from the Closing
Date to June 30, 1995 and .91 to 1.00 at the end of any fiscal quarter
during the period from July 1, 1995 to December 31, 1995.
b. Section 6.15 is hereby amended in its entirety to
read as follows:
SECTION 6.15. Maintenance of Consolidated Quick
Ratio. Permit the Consolidated Quick Ratio to fall below (i) 0.45 to
1.00 at the end of any fiscal quarter during the period from the
Closing Date to June 30, 1995 or (ii) 0.42 to 1.00 at the end of any
fiscal quarter ending during the period from July 1, 1995 to December
31, 1995.
c. Section 6.16 is hereby amended in its entirety to
read as follows:
SECTION 6.16. Maintenance of Consolidated Tangible
Net Worth. Permit Consolidated Tangible Net Worth for the
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<PAGE>
following periods to fall below the amount set forth opposite such
period at any time during such periods:
<TABLE>
<CAPTION>
Period Amounts
------ -------
<S> <C>
March 1, 1995 $7,400,000
through March 31, 1995
April 1, 1995 7,000,000
through April 30, 1995
May 1, 1995 6,900,000
through May 31, 1995
June 1, 1995 through 2,250,000
November 30, 1995
December 1, 1995 through 2,600,000
the Maturity Date
</TABLE>
Section 5. Further Obligations. The Company shall furnish to
the Banks on or before October 31, 1995 a liquidation analysis with respect
to the assets of the Company and its Subsidiaries, which report shall be
reviewed by, and prepared in consultation with, Policano and Manzo. Failure of
the Company to furnish such report to the Bank when due shall constitute an
immediate Event of Default.
Section 6. Amendment Fee. In order to induce each of the Banks
to execute and deliver this Amendment, the Company hereby agrees that it shall
pay to the Collateral Agent for the account of the Banks a fee equal to $50,000
(the 'Amendment Fee') on or before the Maturity Date.
Section 7. Representations and Warranties. The representations
and warranties set forth in Section 3 of the Credit Agreement are true and
correct in all material respects on and as of the date hereof, except to the
extent that such representations and warranties expressly relate to an earlier
date. As of the Effective Date, and after giving effect to this Amendment, no
Event of Default, or an event with which the giving of notice or the passage of
time, or both, would constitute an Event of Default, exists.
Section 8. Counterparts. This Amendment may be executed in
any number of counterparts, each of which shall constitute an original and
all of which when taken together shall constitute one and the same instrument.
Section 9. Conditions to Effectiveness. This Amendment shall
become effective upon the execution of this Amendment by the Company, the
Administrative Agent, the Collateral Agent and the
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<PAGE>
Banks (and the receipt by the Collateral Agent of evidence satisfactory to it of
such execution) (the 'Effective Date').
Section 10. Ratification. Except to the extent hereby amended,
the Credit Agreement remains in full force and effect and is hereby ratified and
affirmed. References in the Loan Documents to the Credit Agreement shall mean
such document as amended by this Amendment, as the same may be further amended,
supplemented or otherwise modified from time to time.
Section 11. Costs and Expenses. All out-of-pocket expenses
incurred by the Banks, including the reasonable fees and disbursements of
Zalkin, Rodin & Goodman LLP, counsel to the Banks, incurred in connection with
the negotiation and preparation of this Amendment shall be paid by the Company
as provided in Subsection 9.05 of the Credit Agreement.
Section 12. References. This Amendment shall be limited
precisely as written and shall not be deemed (a) to be a consent granted
pursuant to, or a waiver or modification of, any other term or condition of the
Credit Agreement or any of the instruments or agreements referred to therein or
(b) to prejudice any right or rights which the Administrative Agent, Collateral
Agent or the Banks may now have or have in the future under or in connection
with the Credit Agreement or the Loan Documents or any of the instruments or
agreements referred to therein.
Section 13. Applicable Law. THIS AMENDMENT SHALL IN ALL
RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE.
Section 14. Headings. Section headings in this Amendment are
included herein for convenience of reference only and are not to affect the
construction of, or to be taken into consideration in interpreting, this
Amendment.
Section 15. Integration. This Amendment represents the entire
agreement of the parties hereto with respect to the amendment of the Credit
Agreement and the terms of any letters and other documentation entered into
among the Company and any Bank or the Administrative Agent or the Collateral
Agent prior to the execution of this Amendment which relate to the amendment of
the Credit Agreement shall be replaced by the terms of this Amendment.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
NAI TECHNOLOGIES, INC.
By___________________________
Title:
THE BANK OF NEW YORK
as Administrative Agent and as a Bank
By:___________________________
Vice President
CHEMICAL BANK
as Collateral Agent and as a Bank
By:___________________________
Vice President
Consented to as of this
14th day of August, 1995
NAI TECHNOLOGIES - SYSTEMS DIVISION CORPORATION
By:_______________________
Title:
WILCOM, INC.
By:_______________________
Title:
ARATHON, V.I., INC.
By:_______________________
Title:
CODAR TECHNOLOGY, INC.
By:_______________________
Title:
5
<PAGE>
EXHIBIT 10.6
SECOND AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
SECOND AMENDMENT, dated as of October 13, 1995 (the
'Amendment'), to the Amended and Restated Credit Agreement, dated as of April
12, 1995, among NAI Technologies, Inc., a New York corporation (the 'Borrower'),
Chemical Bank, a New York banking corporation ('Chemical'), The Bank of New
York, a New York banking corporation ('BNY'), and each of the other financial
institutions which from time to time becomes party thereto (together with
Chemical and BNY, the 'Banks'), BNY, as administrative agent (in such capacity,
the 'Administrative Agent') and Chemical, as collateral agent (in such capacity,
the 'Collateral Agent').
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Administrative Agent and
the Collateral Agent are parties to that certain Amended and Restated Credit
Agreement, dated as of April 12, 1995 (as amended by that certain First
Amendment to Amended and Restated Credit Agreement, dated as of August 14, 1995,
the 'Credit Agreement');
WHEREAS, unless otherwise defined herein, terms defined in the
Credit Agreement and used herein are used herein as therein defined;
WHEREAS, the Borrower and Charles Holmes ('Holmes') have
reached an agreement whereby Holmes will make a $1,000,000 subordinated
unsecured loan to the Borrower in exchange for certain consideration;
WHEREAS, the Borrower has requested a limited waiver of the
financial covenant set forth in Section 6.16 of the Credit Agreement for the
periods provided herein; and
WHEREAS, the Borrower has requested and the Banks have agreed
to consent to the incurrence of such subordinated indebtedness and to waive
compliance with the financial covenant referred to above on the terms
hereinafter set forth.
Accordingly, the parties hereto hereby agree as follows:
Section 1. Amendment to Article I. Article I of the Credit
Agreement is hereby amended by adding the following defined term to Section 1.01
thereof:
'Second Amendment' shall mean the Second Amendment dated as of October
13, 1995 to the Agreement.
Section 2. Amendments to Article V. Article V of the Credit
Agreement is hereby amended by adding the following sections at the end thereof:
<PAGE>
Section 5.16. Delivery of Certificate. Within five days after the end
of each month, furnish each of the Banks with a certificate of a
Financial Officer certifying that neither the Borrower nor any of the
Guarantors have sold any Inventory, fixtures or equipment for amounts
less than 90% of the book value of such assets during the preceding
month.
Section 5.17. Additional Subordinated Note. In the event that the
Borrower seeks to obtain $2,000,000 of the Subordinated Indebtedness
permitted by Section 6.03(vi) hereof, cause the promissory note
delivered to the Subordinated Lender thereof to be in substantially the
form of note annexed as Exhibit A to the Second Amendment.
Section 3. Clarification of Section 6.02. For purposes of
clarifying the provisions of Section 6.02, it is understood and agreed among the
parties hereto that the sale of Inventory, fixtures and equipment for amounts
equal to or in excess of 90% of the book value of such assets would constitute a
sale in the ordinary course of business, and that a sale of such assets for
amounts below 90% of the book value of such assets would not constitute a sale
in the ordinary course of business.
Section 4. Amendments to Article VI. Article VI of the Credit
Agreement is hereby amended by (a) amending Section 6.03 thereof to delete the
word 'and' prior to clause (v) and to add the following language at the
conclusion of such Section just prior to the period:
; and (vi) Indebtedness of the Borrower to Charles Holmes or any of his
Affiliates (the 'Subordinated Lender') in an aggregate amount not to
exceed $3,000,000 (the 'Subordinated Indebtedness'), which Indebtedness
shall be subordinate in right of payment to the Indebtedness owed to
the Bank under this Agreement.
and (b) to add the following section at the end thereof:
Section 6.18. Use of Proceeds of Subordinated Indebtedness. The
Borrower will not, and will not permit its Subsidiaries to, use
proceeds of the Subordinated Indebtedness for purposes of mergers,
acquisitions, joint ventures or other business combinations. Any such
use of the proceeds of the Subordinated Indebtedness shall constitute
an Event of Default under the Agreement.
Section 5. Limited Waiver of Section 6.16; Consolidated
Tangible Net Worth. Compliance with the financial covenant set forth in Section
6.16 of the Credit Agreement is hereby waived for the period August 1, 1995
through December 15, 1995; provided, that the Consolidated Tangible Net Worth
shall not be less than $1,000,000.
2
<PAGE>
Section 6. Confirmation of Liens. The Borrower hereby confirms
that, pursuant to the terms of the Credit Agreement and the Security Documents,
the Borrower and the Guarantors have granted Liens on all of their assets to the
Collateral Agent for the benefit of the Banks. The Borrower hereby further
confirms that it will not and will not permit its Subsidiaries to incur, create,
assume or suffer to exist any Lien on any property or assets, income or profits
of the Borrower or any of its Subsidiaries other than those permitted by Section
6.01 of the Credit Agreement, and any such granting of any such Lien in favor of
any third person, including the holders of the Subordinated Indebtedness (as
hereinafter defined) shall constitute an Event of Default under the Credit
Agreement. Nothing contained herein (including the provisions of Section 2
hereof) shall constitute a release or modification of any Lien in favor of the
Collateral Agent and the Banks in any Collateral which constitutes security for
any of the Obligations.
Section 7. Representations and Warranties. The representations
and warranties set forth in Section 3 of the Credit Agreement are true and
correct in all material respects on and as of the date hereof, except to the
extent that such representations and warranties expressly relate to an earlier
date. As of the Effective Date, and after giving effect to this Amendment, no
Event of Default, or an event with which the giving of notice or the passage of
time, or both, would constitute an Event of Default, exists.
Section 8. Counterparts. This Amendment may be executed
in any number of counterparts, each of which shall constitute an
original and all of which when taken together shall constitute one
and the same instrument.
Section 9. Conditions to Effectiveness. This Amendment shall
become effective as of the date hereof (the 'Effective Date') when all of the
following shall have occurred:
(a) The Banks shall have each received
counterparts of this Amendment, duly executed by the Borrower;
(b) The Borrower shall have received $1,000,000
in cash in respect of Subordinated Indebtedness; and
(c) The Banks shall have received a copy of the fully
executed promissory note of the Borrower to the Subordinated Lender in
the form of Exhibit A hereto.
Section 10. Ratification. Except to the extent hereby amended,
the Credit Agreement remains in full force and effect and is hereby ratified and
affirmed. References in the Loan Documents to the Credit Agreement shall mean
such document as amended by this Amendment, as the same may be further amended,
supplemented or otherwise modified from time to time.
3
<PAGE>
Section 11. Costs and Expenses. All out-of-pocket expenses
incurred by the Banks, including the reasonable fees and disbursements of
Zalkin, Rodin & Goodman LLP, counsel to the Banks, incurred in connection with
the negotiation and preparation of this Amendment shall be paid by the Borrower
as provided in Subsection 9.05 of the Credit Agreement. The Borrower hereby
confirms that the Borrower shall be obligated to reimburse the Banks' reasonable
expenses incurred in the retention of a financial advisor to the Banks in
connection with the administration of the Loans or the protection or enforcement
of the Banks' rights in connection therewith.
Section 12. References. This Amendment shall be limited
precisely as written and shall not be deemed (a) to be a consent granted
pursuant to, or a waiver or modification of, any other term or condition of the
Credit Agreement or any of the instruments or agreements referred to therein or
(b) to prejudice any right or rights which the Administrative Agent, Collateral
Agent or the Banks may now have or have in the future under or in connection
with the Credit Agreement or the Loan Documents or any of the instruments or
agreements referred to therein.
Section 13. Applicable Law. THIS AMENDMENT SHALL IN ALL
RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE.
Section 14. Headings. Section headings in this Amendment are
included herein for convenience of reference only and are not to affect the
construction of, or to be taken into consideration in interpreting, this
Amendment.
Section 15. Integration. This Amendment represents the entire
agreement of the parties hereto with respect to the amendment of the Credit
Agreement and the terms of any letters and other documentation entered into
among the Borrower and any Bank or the Administrative Agent or the Collateral
Agent prior to the execution of this Amendment which relate to the amendment of
the Credit Agreement shall be replaced by the terms of this Amendment.
Section 16. Execution in Counterparts. This Second Amendment
may be executed in any number of counterparts, each of which shall constitute an
original, but all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
NAI TECHNOLOGIES, INC.
By___________________________
Title:
4
<PAGE>
THE BANK OF NEW YORK
as Administrative Agent and as a Bank
By:___________________________
Vice President
CHEMICAL BANK
as Collateral Agent and as a Bank
By:___________________________
Vice President
Consented to as of this
13th day of October, 1995
NAI TECHNOLOGIES - SYSTEMS DIVISION CORPORATION
By:_______________________
Title:
WILCOM, INC.
By:_______________________
Title:
ARATHON, V.I., INC.
By:_______________________
Title:
CODAR TECHNOLOGY, INC.
By:_______________________
Title:
5
<PAGE>
EXHIBIT 10.7
THIRD AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIRD AMENDMENT, dated as of November 6, 1995 (the
'Amendment'), to the Amended and Restated Credit Agreement, dated as of April
12, 1995, among NAI Technologies, Inc., a New York corporation (the 'Borrower'),
Chemical Bank, a New York banking corporation ('Chemical'), The Bank of New
York, a New York banking corporation ('BNY'), and each of the other financial
institutions which from time to time becomes party thereto (together with
Chemical and BNY, the 'Banks'), BNY, as administrative agent (in such capacity,
the 'Administrative Agent'), and Chemical, as collateral agent (in such
capacity, the 'Collateral Agent').
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Administrative Agent and
the Collateral Agent are parties to that certain Amended and Restated Credit
Agreement, dated as of April 12, 1995 (as amended by that certain First
Amendment, dated as of August 14, 1995, and that certain Second Amendment, dated
as of October 13, 1995, the 'Credit Agreement');
WHEREAS, unless otherwise defined herein, terms defined in the
Credit Agreement and used herein are used herein as therein defined;
WHEREAS, in connection with the Borrower's incurrence of
Subordinated Indebtedness, the Borrower has executed a promissory note in favor
of Charles Holmes in the principal amount of $1,000,000, which note provides for
certain covenants and defaults which differ from those set forth in the Credit
Agreement;
WHEREAS, by letter dated October 13, 1995, the Borrower has
agreed to amend the Credit Agreement as hereinafter provided; and
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. Amendments to Article V. Article V of the Credit
Agreement is hereby amended by (a) amending Section 5.01(f) to add the words ',
registration statements,' after the words 'proxy statements' and (b) adding the
following section to the end of such Article:
Section 5.18. Maintenance of Properties. Keep all
properties useful in the business of the Borrower in good
working order and condition except to the extent that
discontinuing the operation or maintenance of any such
properties is, in the judgment of the Borrower, desirable in
the conduct of its business.
<PAGE>
Section 2. Amendments to Article VI. Article VI of the Credit
Agreement is hereby amended by (a) amending Section 6.07 in its entirety as
follows:
Section 6.07. Transactions with Affiliates. Directly
or indirectly enter into or permit to exist any transaction or
series of related transactions (including, but not limited to,
the purchase, sale or exchange of property, the making of any
investment, the giving of any guarantee or the rendering of
any service) with any Affiliate of the Borrower unless (i)
such transaction or series of related transactions is on terms
no less favorable to the Borrower or such Subsidiary than
those that could be obtained in a comparable arm's length
transaction with a Person that is not an Affiliate, and (ii)
such transaction or series of related transactions is approved
by a majority of the Board of Directors of the Borrower
(including a majority of the disinterested directors), which
approval is set forth in a board resolution of the Borrower
certifying that such transaction or series of transactions
complies with the immediately preceding clause (i).
and (b) amending Section 6.08 thereof to delete both clauses (a) and (b) after
the words 'except for' and to substitute the words 'Permitted Investments'.
Section 3. Amendments to Article VII. Article VII of the
Credit Agreement is hereby amended by (a) amending Section 7.01(f)(ii)(y) to
substitute '30 days' for '60 days'; (b) amending Section 7.01(j)(ii) to
substitute '30 consecutive days' for '45 consecutive days'; (c) moving the word
'or' from the end of Section 7.01(o) to the end of Section 7.01(p); and (d)
adding the following subsection to the end of Section 7.01(p):
(q) all or any substantial part of the assets
or property of the Borrower are condemned, seized
or appropriated by any Governmental Authority;
Section 4. Representations and Warranties. The representations
and warranties set forth in Section 3 of the Credit Agreement are true and
correct in all material respects on and as of the date hereof, except to the
extent that such representations and warranties expressly relate to an earlier
date. As of the Effective Date (as hereinafter defined), and after giving effect
to this Amendment, no Event of Default, or an event which with the giving of
notice or the passage of time, or both, would constitute an Event of Default,
exists.
Section 5. Conditions to Effectiveness. This Amendment
shall become effective as of the date hereof (the 'Effective Date')
2
<PAGE>
when the Banks shall have each received counterparts of this Amendment, duly
executed by the Borrower.
Section 6. Ratification. Except to the extent hereby amended,
the Credit Agreement remains in full force and effect and is hereby ratified and
affirmed. References in the Loan Documents to the Credit Agreement shall mean
such document as amended by this Amendment, as the same may be further amended,
supplemented or otherwise modified from time to time.
Section 7. Costs and Expenses. All out-of-pocket expenses
incurred by the Banks, including the reasonable fees and disbursements of
Zalkin, Rodin & Goodman LLP, counsel to the Banks, incurred in connection with
the negotiation and preparation of this Amendment shall be paid by the Borrower
as provided in Section 9.05 of the Credit Agreement. The Borrower hereby
confirms that the Borrower shall be obligated to reimburse the Banks' reasonable
expenses incurred in the retention of a financial advisor to the Banks in
connection with the administration of the Loans or the protection or enforcement
of the Banks' rights in connection therewith.
Section 8. References. This Amendment shall be limited
precisely as written and shall not be deemed (a) to be a consent granted
pursuant to, or a waiver or modification of, any other term or condition of the
Credit Agreement or any of the instruments or agreements referred to therein or
(b) to prejudice any right or rights which the Administrative Agent, Collateral
Agent or the Banks may now have or have in the future under or in connection
with the Credit Agreement or the Loan Documents or any of the instruments or
agreements referred to therein.
Section 9. Applicable Law. THIS AMENDMENT SHALL IN ALL
RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE.
Section 10. Headings. Section headings in this Amendment are
included herein for convenience of reference only and are not to affect the
construction of, or to be taken into consideration in interpreting, this
Amendment.
Section 11. Integration. This Amendment represents the entire
agreement of the parties hereto with respect to the amendment of the Credit
Agreement, and the terms of any letters and other documentation entered into
among the Borrower and any Bank or the Administrative Agent or the Collateral
Agent prior to the execution of this Amendment which relate to the amendment of
the Credit Agreement shall be replaced by the terms of this Amendment.
Section 12. Execution in Counterparts. This Amendment may be
executed in any number of counterparts, each of which shall constitute an
original, but all of which taken together shall constitute one and the same
instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
NAI TECHNOLOGIES, INC.
By___________________________
Title:
THE BANK OF NEW YORK
as Administrative Agent and as a Bank
By:___________________________
Vice President
CHEMICAL BANK
as Collateral Agent and as a Bank
By:___________________________
Vice President
Consented to as of this
____ day of November, 1995
NAI TECHNOLOGIES - SYSTEMS DIVISION CORPORATION
By:_______________________
Title:
WILCOM, INC.
By:_______________________
Title:
ARATHON, V.I., INC.
By:_______________________
Title:
CODAR TECHNOLOGY, INC.
By:_______________________
Title:
4
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