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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. __)
NAI TECHNOLOGIES, INC.
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(Name of Issuer)
Common Stock, $0.10 par value
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(Title of Class of Securities)
657305 108
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(CUSIP Number)
Charles S. Holmes
P.O. Box 2850
Southampton, NY 11969
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
February 15, 1996
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(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box |_| .
Check the following box if a fee is being paid with this statement |X| .
(Continued on following page(s))
Page 1 of 66 Pages
Exhibit Index Appears on Page 7
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Page 2 of 66 Pages
CUSIP No. 657305 108
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Charles S. Holmes
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2 CHECK THE APPROPRIATE BOX IF A MEMBER (a) |_|
OF A GROUP (b) |_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS PF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS |_|
IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION U.S.A.
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NUMBER 7 SOLE VOTING POWER 2,700,000* shares
OF _________________________________________________
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED __________________________________________________
BY
EACH 9 SOLE DISPOSITIVE POWER 2,700,000* shares
REPORTING __________________________________________________
PERSON
WITH 10 SHARED DISPOSITIVE POWER
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON 2,700,000* shares
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES |_|
CERTAIN SHARES
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 26.6%*
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14 TYPE OF REPORTING PERSON IN
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* See Item 5 hereof.
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Item 1. Security and Issuer.
This Statement on Schedule 13D relates to shares of Common
Stock, par value $.10 per share (the "Common Stock"), of NAI Technologies, Inc.,
a New York corporation (the "Company"), whose principal executive offices are
located at 2405 Trade Centre Avenue, Longmont, Colorado
80503.
Item 2. Identity and Background.
(a)-(c) This Statement is filed by Charles S. Holmes, the
President and sole stockholder of Asset Management Associates of New York, Inc.,
a New York based firm specializing in acquisitions of manufacturing businesses,
whose executive office is located at P.O. Box 2850, Southampton, New York 11969.
(d)-(f) During the five years prior to the date hereof, Mr.
Holmes has not been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction, as a result of which
he was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws. Mr.
Holmes is a United States citizen.
Item 3. Source and Amount of Funds or Other Consideration.
As of the date hereof, Mr. Holmes has expended approximately
$2,000,000 in cash for the purchase of (i) $2,000,000 aggregate principal amount
of the Company's 12% Convertible Subordinated Promissory Notes due 2001 (the
"Notes"), which are convertible at the option of the holder at any time in whole
or in part into shares of Common Stock of the Company at a conversion price
equal to $2.00 per share, subject to adjustment in certain events (the
"Conversion Price"), and (ii) warrants to purchase 500,000 shares of Common
Stock of the Company, subject to adjustment in certain events (the "Warrants").
Based on the current Conversion Price, the Notes are convertible into 1,000,000
shares of Common Stock of the Company. The funds for the purchase of the Notes
and the Warrants came from Mr. Holmes' personal funds.
In addition, the Company granted to Mr. Holmes additional
warrants to purchase 1,200,000 shares of Common Stock for past advisory services
in connection with the Private Placement discussed in Item 6 and the engagement
of Commonwealth Associates as the Company's placement agent (the "Additional
Warrants").
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Item 4. Purpose of the Transaction.
Mr. Holmes purchased the Notes and the Warrants for investment
purposes. In connection with such investment, Mr. Holmes became a director of
the Company and was granted the right to designate one additional person to
serve as a director of the Company through December 31, 2001. Reference is
hereby made to Item 6 hereof for a description of certain contracts,
arrangements, understandings and relationships relating to the Company's
securities.
Although Mr. Holmes has not formulated any definitive plans
not set forth herein, he may from time to time continue to acquire, or to
dispose of, the Notes, the Warrants, Common Stock and/or other securities of the
Company if and when he deems it appropriate. He may formulate other purposes,
plans or proposals relating to any of such securities of the Company to the
extent he deems it advisable in light of market conditions, investment policies
and other factors.
Except as indicated in this Schedule 13D, Mr. Holmes currently
has no specific plans or proposals that relate to or would result in any of the
matters described in subparagraphs (a) through (j) of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
(a) Based on the Company's proxy statement, dated January 5,
1996, for its Special Meeting of Shareholders held on February 1, 1996, the
Company had a total of 7,459,437 shares of Common Stock issued and outstanding
as of December 15, 1995. As a result of his purchase of the Notes and the
Warrants and his ownership of the Additional Warrants, Mr. Holmes currently may
be deemed to own beneficially 2,700,000 shares of Common Stock of the Company,
constituting 26.6% of the Company's total outstanding shares of Common Stock, as
determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). It should be noted that, as a result of certain
provisions in the Notes and the Warrants and the Additional Warrants more fully
discussed in Item 6, the number of shares of Common Stock which Mr. Holmes may
be entitled to receive upon conversion of the Notes and/or exercise of the
Warrants and the Additional Warrants is subject to change.
Except as set forth in the immediately preceding paragraph,
Mr. Holmes does not own any shares of Common Stock of the Company and is not the
"beneficial owner" of any such shares, as such term is defined in the Exchange
Act or the rules and regulations thereunder.
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(b) Mr. Holmes does not possess the power to vote or dispose
of any shares of Common Stock of the Company unless the Notes are converted
into, and the Warrants and the Additional Warrants are exercised for, shares of
Common Stock of the Company, which Mr. Holmes has no current intention of doing.
Only in the event of such conversion and/or exercise may Mr. Holmes be deemed to
have the sole power to vote and dispose of, and to direct the voting and
disposition of, the 2,700,000 shares of Common Stock referenced above.
(c) Except as set forth herein, Mr. Holmes does not
beneficially own any shares of Common Stock of the Company and has not engaged
in any transaction in any such shares during the sixty day period immediately
preceding the date hereof.
(d) & (e) Inapplicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities
of the Issuer.
In October 1995, Mr. Holmes purchased from the Company its 12%
Subordinated Promissory Note due 1996 in the principal amount of $1,000,000 (the
"October Note") pursuant to a Securities Purchase Agreement, dated as of October
13, 1995 (the "Purchase Agreement"), between the Company and Mr. Holmes.
Pursuant to the Purchase Agreement, the Company agreed to use its best efforts
to cause Mr. Holmes or another individual designated by him to be appointed to
the Board of Directors of the Company as promptly thereafter as possible. Mr.
Holmes became a director of the Company in October 1995. In addition, pursuant
to the Purchase Agreement, the Company agreed (i) to exchange the October Note
in its entirety for an identical principal amount of notes issued and sold by
the Company in connection with its proposed private placement of its 12%
Convertible Subordinated Promissory Notes due 2001 in the aggregate principal
amount of approximately $8,000,000 together with warrants representing the right
to acquire Common Stock (the "Private Placement") and, (ii) in connection with
such exchange, to issue to Mr. Holmes warrants to purchase 850,000 shares of
Common Stock with substantially the same terms and conditions as the warrants to
be issued and sold by the Company in connection with the Private Placement.
In December 1995, Mr. Holmes purchased from the Company a
second Subordinated Promissory Note due 1996 in the principal amount of
$1,000,000 (the "December Note") pursuant to an Amendment and Supplement to
Securities Purchase Agreement, dated as of December 14, 1995 (as so amended, the
"Amended Agreement"), between the Company and
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Mr. Holmes. Pursuant to the Amended Agreement, the Company agreed (i) to
exchange the December Note in its entirety for an identical principal amount of
notes issued and sold by the Company in connection with the Private Placement
and (ii) to issue Mr. Holmes warrants to purchase an additional 850,000 shares
of Common Stock with substantially the same terms and conditions as the warrants
to be issued and sold by the Company in connection with the Private Placement.
The Private Placement was consummated on February 15, 1996
and, in connection therewith, Mr. Holmes exchanged the October Note and the
December Note for the Notes and received the Warrants and the Additional
Warrants.
Pursuant to the terms of the Notes, the Conversion Price will
be adjusted from $2.00 to $1.50 or $1.00, respectively, if earnings before
interest, taxes, depreciation and amortization of the Company fall below
$6,000,000 or $4,750,000, respectively, in 1996. Should the Company sell the
stock or assets of a subsidiary in 1996, such amounts will be reduced by certain
agreed amounts, depending on the time of sale. The Conversion Price and the
number of shares of Common Stock to be received upon conversion are also subject
to adjustment upon the occurrence of certain events. The Company may at its
option require the conversion of the Notes at any time prior to maturity,
provided that the closing bid price for the Common Stock exceeds $6.00 per share
for the 30 consecutive trading days prior to the giving of notice of conversion.
Pursuant to the terms of the Warrants and the Additional Warrants, the number of
shares of Common Stock to be received upon exercise are subject to adjustment
upon the occurrence of certain events. As a result of such provisions, the
number of shares of Common Stock which Mr. Holmes may be entitled to receive
upon conversion of the Notes and/or exercise of the Warrants and the Additional
Warrants is subject to change.
The foregoing descriptions of the Notes and the Warrants and
the Additional Warrants are summaries of certain of the provisions thereof and
reference is made to the copies of such instruments which are attached hereto as
Exhibits and incorporated herein by reference for all of their terms and
conditions.
In connection with the Private Placement, the Company entered
into a Placement Agency Agreement, dated as of December 15, 1995 (the "Placement
Agency Agreement"), with Commonwealth Associates. Pursuant to the Placement
Agency Agreement, the Company agreed to cause two members of its Board of
Directors to resign as directors on or reasonably promptly after the closing of
the offering. The Company further agreed that Mr. Holmes shall have the right
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through December 31, 2001 to designate two persons (including himself) to be
members of the Board of Directors of the Company while C. Shelton James shall
have the right to designate one person. Two directors resigned from the
Company's Board effective February 15, 1996 but Mr. Holmes has yet to designate
an individual to fill one of the two vacancies.
Except as described herein, Mr. Holmes has no other contracts,
arrangements, understandings or relationships with any persons with respect to
any securities of the Company. Mr. Holmes reserves the right to enter into any
such contracts, arrangements, understandings or relationships in the future.
<TABLE>
<CAPTION>
Item 7. Material to be Filed as Exhibits. Page
<S> <C> <C>
1 12% Convertible Subordinated Promissory
Note due 2001 in the principal amount of
$2,000,000 issued to Mr. Holmes 3
2 Warrant to Purchase Common Stock issued
to Mr. Holmes 3
3 Registration Rights Agreement between the
Company and Mr. Holmes 6
</TABLE>
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: February 23, 1996
/s/ CHARLES S. HOLMES
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Charles S. Holmes
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EXHIBIT 1
NO. A-009 $2,000,000
NAI TECHNOLOGIES, INC.
12% CONVERTIBLE SUBORDINATED PROMISSORY NOTE
MATURITY DATE: JANUARY 15, 2001
THIS NOTE AND THE COMMON STOCK THAT MAY BE ISSUABLE TO THE HOLDER HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE
WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
FOR VALUE RECEIVED, NAI TECHNOLOGIES, INC., a New York
corporation (the "Company"), promises to pay to CHARLES S. HOLMES, the
registered holder or registered assigns hereof (the "Holder"), the principal
amount of Two Million Dollars ($2,000,000) payable on the fifteenth day of
January 2001 (the "Maturity Date"), together with interest on the outstanding
principal amount of this Note at the rate of twelve percent (12%) per annum
calculated on the basis of a 360 day year, such interest to be payable in
arrears on a quarterly basis on the fifteenth day of January, April, July and
October of each year, commencing on April 15, 1996. In the event that any
payment of any principal and/or interest hereunder is not paid when due as
provided for herein, and without affecting any of the Holder's other rights and
remedies, the unpaid principal balance hereof shall thereafter accrue interest
at the defaulted rate specified in Section 11(a) of this Note.
This Note is one of a series of the Company's 12% Convertible
Subordinated Promissory Notes (collectively, the "Notes"), issued pursuant to
that certain Confidential Private Placement Memorandum, dated December 15, 1995,
as supplemented (the "Memorandum"). Capitalized terms used and not otherwise
defined herein shall have the respective meanings attributed thereto in Section
13.
1. Payments and Prepayments.
(a) Payments of principal and interest on this Note shall be made at
the principal office of the Company, located at 2405 Trade Centre Avenue,
Longmont, Colorado 80503, or such other place or places within the United
States as may be specified by the Holder of this Note in a written notice
to the Company at least ten (10) business days before a given payment date.
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(b) Payments of principal and interest on this Note shall be made in
lawful money of the United States of America by mailing the Company's good
check in the proper amount to the Holder at least three days prior to the
due date of each payment or otherwise transferring funds so as to be
received by the Holder on the due date of each such payment; provided,
however, that, in the event that the principal amount of this Note is at
least $1,000,000, the Company shall make payment by wire transfer to an
account such Holder may specify in writing to the Company at least three
days prior to the due date of each payment.
(c) If any payment on this Note becomes due and payable on a Saturday,
Sunday or other day on which commercial banks in New York, New York are
authorized or required by law to close, the maturity thereof shall be
extended to the next succeeding business day and, with respect to payments
of principal, interest thereon shall be payable during such extension at
the then applicable rate.
(d) Subject to the provisions of Section 4 and 5 below, this Note is
subject to prepayment, in whole but not in part, at the option of the
Company, at any time after the third anniversary of the date hereof,
without premium or penalty. In the event of any partial payment of
principal or accrued interest, for whatever reason, or prepayment, any such
partial payment of principal and/or interest or prepayment of principal on
the Notes shall be allocated among the respective Notes and holders thereof
so that the amount of such payments to each holder shall bear as nearly as
practicable the same ratio to the aggregate amount then to be paid as the
principal amount of the Notes then held by such holder bears to the
aggregate principal amount of Notes then outstanding.
(e) The Company will give the Holder written notice indicating the
amount of any prepayment and the proposed date thereof not more than sixty
(60) days and not less than thirty (30) days prior to any such prepayment
of this Note.
(f) Subject to the provisions of Sections 4 and 5 below, the Company
shall, within thirty (30) business days of the occurrence of a Change in
Control (as defined in Section 13 hereof), offer, by written notice to the
Holder in accordance with Section 1(e), to prepay this Note, in whole and
not in part, without premium or penalty. Holder may accept the offer to
prepay made pursuant to this Section 1(f) by causing notice of such
acceptance to be delivered to the Company at least ten (10) days prior to
the proposed prepayment date (or such longer period as may be required by
law). A failure by Holder to respond to an offer to prepay pursuant to this
Section 1(f) within the requisite time period shall be deemed to constitute
a rejection of such offer.
2. Obligation Absolute. The obligations under this Note are
absolute and unconditional obligations of the Company and no modification,
release, consent, waiver, rearrangement or amendment shall impair the
obligations of the Company hereunder.
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3. Security. The payment of this Note and the Company's
obligations hereunder, and under the Warrant and the Registration Rights
Agreement (as such terms are defined in the Memorandum) are not secured by any
collateral.
4. Subordination. (a) The Company for itself, its successors
and assigns, covenants and agrees, and each Holder of this Note, its successors
and assigns, by its acceptance of this Note likewise covenants and agrees, that
to the extent provided below the payment of the principal of and interest on
this Note is hereby expressly subordinated and junior in right of payment, to
the extent and in the manner hereinafter set forth, to all Senior Indebtedness
(as hereinafter defined). For purposes hereof, Senior Indebtedness is defined
as:
(i) the principal of, premium, if any, and any interest (including,
without limitation, any interest on interest and post-bankruptcy petition
interest) on, all liabilities of the Company (including, without
limitation, all liabilities of the Company with respect to any costs and
expenses), direct or contingent, joint, several or independent, now or
hereafter existing, due or to become due, whether created directly or
acquired by assignment or otherwise, under or in respect of that certain
Amended and Restated Credit Agreement, dated as of April 12, 1995, among
the Company, The Bank of New York, Chemical Bank and the other parties
referred to therein (as heretofore and as hereafter amended, modified and
supplemented from time to time, the "Bank Credit Agreement") and any of the
other Loan Documents (as defined in the Bank Credit Agreement); and
(ii) all extensions, renewals and refundings of any of the foregoing
(provided that the amount of any debt incurred in connection with such
extension, renewal or refunding does not exceed the amount of the
outstanding obligations of the Company under the Bank Credit Agreement at
the time of the extension, renewal or refunding (whether for interest,
principal or fees, or expenses incurred by the holders of Senior
Indebtedness for the protection of collateral and reasonable costs of
collection));
provided, however, that the term "Senior Indebtedness" shall not include any
indebtedness expressly subordinated in writing to the Notes or any indebtedness
owed to affiliates of the Company.
(b) Upon the acceleration of any Senior Indebtedness or upon
the maturity of the entire principal amount of any Senior Indebtedness by lapse
of time, acceleration or otherwise, all such Senior Indebtedness which has been
so accelerated or matured shall first indefeasibly be paid in full before any
payment is made by the Company or any person acting on behalf of the Company on
account of any obligations evidenced by this Note.
(c) Notwithstanding anything to the contrary contained herein,
the Company shall not (i) pay any principal portion of this Note so long as any
Senior Indebtedness remains outstanding or (ii) pay any interest payable under
this Note if there exists a Default or
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Event of Default (as such terms are defined in the instruments evidencing Senior
Indebtedness) with respect to any Senior Indebtedness (hereinafter referred to
as a "Blockage Event").
The Company shall resume payment of interest payable under
this Note and a Blockage Event shall be deemed to have terminated:
(i) when such Default or Event of Default on Senior Indebtedness, as
applicable, is cured or waived;
(ii) when the Holder hereof shall have cured any such Default or Event
of Default on Senior Indebtedness to the extent such Default or Event of
Default can be cured by payment of money, which amount shall be added to
the principal amount owing to the Holder pursuant to this Note; or
(iii) 180 days after the occurrence of such Default or Event of
Default, provided, that at the end of such 180 days, if any of the
following events exists or occurs, the Blockage Event shall continue: (A) a
Default in payment of any amount with respect to the Senior Indebtedness;
(B) an acceleration of the Senior Indebtedness; or (C) the occurrence of an
event of the type described in Section 5 hereof, provided, further, that a
Blockage Event with respect to a single specified Default or Event of
Default may be deemed to occur only once for each 360 day period.
(d) At any time there exists a Blockage Event, (i) the Company
shall not, directly or indirectly, make any payment of any part of this Note,
(ii) the Holder hereof shall not demand or accept from the Company or any other
person any such payment or cancel, set-off or otherwise discharge any part of
the indebtedness represented by this Note, and (iii) neither the Company nor the
Holder hereof shall otherwise take or permit any action prejudicial to or
inconsistent with the priority position of any holder of Senior Indebtedness
over the Holder of this Note. Notwithstanding the foregoing or any other
provision of this Note to the contrary, the occurrence and continuance of a
Blockage Event shall not limit or in any other manner affect the exercise of the
Holder's conversion rights pursuant to Section 6.
(e) Any holder of Senior Indebtedness is hereby authorized to
demand specific performance of this Note, whether or not the Company shall have
complied with the provisions hereof applicable to it, at any time when the
Holder hereof shall have failed to comply with any provision hereof applicable
to such Holder. The Holder hereby irrevocably waives any defense based on the
adequacy of a remedy at law which might be asserted as a bar to the remedy of
specific performance hereof in any action brought therefor by any holder of
Senior Indebtedness. The Holder further (i) waives presentment, demand, notice
and protest in connection with all negotiable instruments evidencing Senior
Indebtedness, notice of any loan made, extension granted or other action taken
in reliance hereon and all demands and notices of every kind in connection with
this Note or Senior Indebtedness; and (ii) assents to any renewal, extension or
postponement of the time of payment of Senior Indebtedness or any other
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indulgence with respect thereto, to any substitution, exchange or release of
collateral therefor and to the addition or release of any person primarily or
secondarily liable thereon.
(f) The Company and the Holder shall execute and deliver to
any holder of Senior Indebtedness such further instruments and shall take such
further action as such holder of Senior Indebtedness may at any time or times
reasonably request in order to evidence the subordination of the obligations
hereunder and to otherwise carry out the provisions and intent of this Note.
(g) No right of any holder of Senior Indebtedness to enforce
the subordination of the obligations shall be impaired by any act or failure to
act by the Company or the Holder or by their failure to comply with this Note or
any other agreement or document evidencing, related to or securing the
obligations hereunder. Without in any way limiting the generality of the
preceding sentence, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Holder, without incurring
responsibility to the Holder and without impairing or releasing the
subordination provided in this Note or the obligations of the Holder hereof to
the holders of Senior Indebtedness, do any one or more of the following: (i)
change the manner, place or terms of payment of, or renew or alter, any Senior
Indebtedness, or otherwise amend or supplement in any manner, any Senior
Indebtedness, or otherwise amend or supplement in any manner, any Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing any Senior
Indebtedness; (iii) release any Person or entity liable in any manner for the
collection of any Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company or any other Person or entity.
(h) In the event that the Company shall make any payment or
prepayment to the Holder on account of the obligations under this Note which is
prohibited by this Section 4, such payment shall be held by the Holder, in trust
for the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Indebtedness (pro rata as to each of such holders on the basis
of the respective amounts and priorities of Senior Indebtedness held by them) to
the extent necessary to pay all Senior Indebtedness due to such holders of
Senior Indebtedness in full in accordance with its terms (whether or not such
Senior Indebtedness is due and owing), after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.
(i) After all Senior Indebtedness indefeasibly is paid in full
and until the obligations under this Note are paid in full, the Holder shall be
subrogated to the rights of holders of Senior Indebtedness to the extent that
distributions otherwise payable to the Holder have been applied to the payment
of Senior Indebtedness. For purposes of such subrogation, no payments or
distributions to holders of such Senior Indebtedness of any cash, property or
securities to which the Holder would be entitled except for the provisions of
this Section 4 and no payment over pursuant to the provisions of this Section 4
to holders of such Senior Indebtedness by the Holder, shall, as between the
Company, its creditors, other than holders of
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such Senior Indebtedness, and the Holder, be deemed to be a payment by the
Company to or on account of such Senior Indebtedness, it being understood that
the provisions of this Section 4 are solely for the purpose of defining the
relative rights of the holders of such Senior Indebtedness, on the one hand, and
the Holder hereof, on the other hand.
5. Primacy of Senior Indebtedness Claims as Against the
Holder. In any insolvency, receivership, bankruptcy, dissolution, liquidation or
reorganization proceeding, or in any other proceeding, whether voluntary or
involuntary, by or against the Company under any bankruptcy or insolvency law or
laws relating to relief of debtors, to compositions, extensions or readjustments
of indebtedness:
(a) the claims of any holders of Senior Indebtedness against the
Company shall be paid indefeasibly in full in cash before any payment is
made to the Holder;
(b) until all Senior Indebtedness is indefeasibly paid in full in cash
any distribution to which the Holder would be entitled but for this Section
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 Note will have the right,
exercisable at any time on or before the Maturity Date, by notice to the Company
at its principal office, at the Holder's option, to convert the then unpaid
principal amount of this Note (or any portion hereof that is an integral
multiple of $1,000) into 500 fully paid and non-assessable shares of common
stock, par value $.10 per share, of the Company (the "Common Stock") for each
$1,000 face amount of this Note, representing a conversion price equal to $2.00
per share, subject to adjustment as set forth below (the "Conversion Price").
The Company may at any time, by notice to the Holder, require the conversion of
this Note in accordance with this Section 6, and the Holder shall promptly
surrender this Note for conversion following such notice, provided that the
Closing Price for the Common Stock for thirty (30) consecutive trading days
prior to such notice is equal to or greater than $6.00 per share.
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Subject to the right of the Holder on the date of conversion
to receive all interest on such Note accrued through such date of conversion, no
adjustment for interest or dividends will be made upon the conversion of this
Note. No fractional shares will be issued upon conversion, but if the conversion
results in a fraction, the fair market value of such fractional share of Common
Stock (which shall be the closing price of such shares on the exchange or market
on which the Common Stock is then traded) will be paid by the Company in cash.
This right of conversion shall cease upon payment in full of all principal and
interest and other amounts due in respect of this Note. Nothing contained in
this paragraph shall authorize the payment of interest to the Holder when the
terms of this Note otherwise prohibit the same.
The occurrence of any of the following events shall trigger an
adjustment from time to time to the Conversion Price and the number of shares of
Common Stock into which this Note shall be converted (the "Conversion Shares"):
(a) Recapitalization, Reclassification and Succession. If any
recapitalization of the Company or reclassification of its Common Stock or
any merger or consolidation of the Company into or with a corporation or
other business entity, or the sale or transfer of all or substantially all
of the Company's assets or of any successor corporation's assets to any
other corporation or business entity (any such corporation or other
business entity being included within the meaning of the term "successor
corporation") shall be effected, at any time while this Note remains
outstanding, then, as a condition of such recapitalization,
reclassification, merger, consolidation, sale or transfer, lawful and
adequate provision shall be made whereby the Holder of this Note thereafter
shall have the right to receive upon the conversion hereof as provided in
this Section 6 and in lieu of the shares of Common Stock immediately
theretofore issuable upon the conversion of this Note, such shares of
capital stock, securities or other property as may be issued or payable
with respect to or in exchange for a number of outstanding shares of Common
Stock equal to the number of shares of Common Stock immediately theretofore
issuable upon the conversion of this Note had such recapitalization,
reclassification, merger, consolidation, sale or transfer not taken place,
and in each such case, the terms of this Note shall be applicable to the
shares of stock or other securities or property receivable upon the
conversion of this Note after such consummation.
(b) Subdivision or Combination of Shares. If the Company at
any time while this Note remains outstanding shall subdivide or combine its
Common Stock, the Conversion Price and the Conversion Shares shall be
proportionately adjusted.
(c) Stock Dividends and Distributions. If the Company at any
time while this Note is outstanding shall issue or pay the holders of its Common
Stock, or take a record of the holders of its Common Stock for the purpose of
entitling them to receive, a dividend payable in, or other distribution of,
Common Stock, then (i) the Conversion Price shall be adjusted in accordance with
Section 6(e) and (ii) the number of Conversion Shares shall be adjusted to the
number of shares of Common Stock that the Holder would have owned immediately
following such action had this Note been converted immediately prior thereto.
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(d) Stock and Rights Offering to Shareholders. If at any time
after the date of issuance of this Note, the Company shall issue or sell, or fix
a record date for the purposes of entitling holders of its Common Stock to
receive, (i) Common Stock or (ii) rights, options or warrants entitling the
holders thereof to subscribe for or purchase Common Stock (or securities
convertible or exchangeable into or exercisable for Common Stock), in any such
case, at a price per share (or having a conversion, exchange or exercise price
per share) that is less than the lowest Closing Price during the twenty (20)
consecutive trading days immediately preceding the date of such issuance or sale
or such record date then, immediately after the date of such issuance or sale or
on such record date, (A) the Conversion Price shall be adjusted in accordance
with Section 6(e) and (B) the number of Conversion Shares shall be adjusted to
that number determined by multiplying the number of Conversion Shares
immediately before the date of such issuance or sale or such record date by a
fraction, the denominator of which will be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common Stock that the
aggregate offering price of the total number of shares so offered for
subscription or purchase (or the aggregate initial conversion price, exchange
price or exercise price of the convertible securities or exchangeable securities
or rights, options or warrants, as the case may be, so offered) would purchase
at such Closing Price, and the numerator of which will be the number of shares
of Common Stock outstanding on such date plus the number of additional shares of
Common Stock offered for subscription or purchase (or into which the convertible
or exchangeable securities or rights, options or warrants so offered are
initially convertible or exchangeable or exercisable, as the case may be).
If the Company shall at any time after the date of issuance of
this Note distribute to all holders of its Common Stock any shares of capital
stock of the Company (other than Common Stock) or evidences of its indebtedness
or assets (excluding cash dividends or distributions paid from retained earnings
or current year's or prior year's earnings of the Company) or rights or warrants
to subscribe for or purchase any of its securities (excluding those referred to
in the immediately preceding paragraph)(any of the foregoing being hereinafter
in this paragraph called the "Securities"), then in each such case, the Company
shall reserve shares or other units of such securities for distribution to the
Holder upon conversion of this Note so that, in addition to the shares of Common
Stock to which such Holder is entitled, such Holder will receive upon such
exercise the amount and kind of such Securities which such Holder would have
received if the Holder had, immediately prior to the record date for the
distribution of the Securities, converted this Note.
(e) Conversion Price Adjustment. Whenever the number of
Conversion Shares is adjusted, as herein provided, the Conversion Price payable
upon the conversion of this Note shall be adjusted to that price determined by
multiplying the Conversion Price immediately prior to such adjustment by a
fraction (i) the numerator of which shall be the number of Conversion Shares
immediately prior to such adjustment, and (ii) the denominator of which shall be
the number of Conversion Shares immediately thereafter.
(f) 1996 EBITDA Adjustment. The Conversion Price shall
additionally be adjusted in the following circumstances:
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(i) if the Company shall achieve 1996 EBITDA (as such term is defined
in Section 13(h)) in an amount of less than $6,000,000, the Conversion
Price shall be reduced to $1.50 per share; and
(ii) if the Company shall achieve 1996 EBITDA in an amount of less
than $4,750,000 (together with the $6,000,000 amount referred to above, the
"Adjusted Amounts"), the Conversion Price shall be reduced to $1.00 per
share;
provided, however, that in the event the Company sells all of the capital stock
or all or substantially all of the assets of one or more of its Subsidiaries in
1996, the Adjusted Amounts for 1996 will be reduced by the amount or amounts set
forth in Schedule A hereto in respect of the Subsidiary or Subsidiaries so
involved. In the event any such sale occurs during 1996, the applicable Adjusted
Amount will be reduced by multiplying it by a fraction, the numerator of which
is the number of days of the year remaining after any such sale and the
denominator is 365.
(g) Certain Shares Excluded. The number of shares of Common
Stock outstanding at any given time for purposes of the adjustments set forth in
this Section 6 shall exclude any shares then directly or indirectly held in the
treasury of the Company.
(h) Deferral and Cumulation of De Minimis Adjustments. The
Company shall not be required to make any adjustment pursuant to this Section 6
if the amount of such adjustment should be less than one percent (1%) of the
Conversion Price in effect immediately before the event that would otherwise
have given rise to such adjustment. In such case, however, any adjustment that
would otherwise have been required to be made shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
or adjustments so carried forward, shall amount to not less than one percent
(1%) of the Conversion Price in effect immediately before the event giving rise
to such next subsequent adjustment.
(i) Duration of Adjustment. Following each computation or
readjustment provided in this Section 6, the new adjusted Conversion Price and
number of Conversion Shares shall remain in effect until a further computation
or readjustment thereof is required.
(j) Reservation. The Company hereby agrees that at all times
there shall be reserved for issuance upon the conversion of this Note such
number of shares of its Common Stock as shall be required for issuance upon
conversion of this Note. The Company further agrees that all shares which may be
issued upon the conversion of the rights represented by this Note will be duly
authorized and will, upon issuance and against payment of the Conversion Price,
be validly issued, fully paid and non-assessable, free from all taxes, liens,
charges and preemptive rights with respect to the issuance thereof, other than
taxes, if any, in
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respect of any transfer occurring contemporaneously with such issuance and other
than transfer restrictions imposed by federal and state securities laws.
(i) Delivery of Shares and/or New Note. The Company shall
deliver a certificate or certificates for shares of its Common Stock issuable on
conversion of this Note as soon as practicable after surrender of this Note for
conversion, but the person or persons to whom such certificates are issuable
shall be considered the holder of record of the shares of Common Stock from the
time this Note is surrendered. Except as described above, this Note is not
otherwise convertible into shares of Common Stock. Upon conversion of only a
portion of this Note, the Company shall issue and deliver to, or upon the
written order of, the Holder hereof, at the expense of the Company, a new Note
covering the principal amount of this Note not converted, which new Note shall
entitle the holder thereof to interest on the principal amount thereof to the
same extent as if the unconverted portion of this Note had not been surrendered
for conversion.
7. Notices to Holders.
(a) Notice of Record Date. In case:
(i) the Company shall take a record of the holders of its Common Stock
(or other stock or securities at the time receivable upon the conversion of
this Note) for the purpose of entitling them to receive any dividend (other
than a cash dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for or purchase any shares of stock
of any class or any other securities, or to receive any other right;
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
with or merger of the Company into another corporation, or any conveyance
of all or substantially all of the assets of the Company to another
corporation; or
(iii) of any voluntary dissolution, liquidation or winding-up of the
Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Holder hereof at the time outstanding a notice specifying, as the case may be,
(i) the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any, is to be fixed, as of which
the holders of record of Common Stock (or such stock or securities at the time
receivable upon the conversion of this Note) shall be entitled to exchange their
shares of Common Stock (or such other stock or securities) for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
notice shall be mailed at least
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thirty (30) days prior to the record date therein specified, or if no record
date shall have been specified therein, at least thirty (30) days prior to such
other specified date.
(b) Certificate of Adjustment. Whenever the Conversion Price
or the number of Conversion Shares shall be adjusted pursuant to Section 6
hereof, the Company shall promptly make a certificate signed by its President or
a Vice President and by its Treasurer or Assistant Treasurer or its Secretary or
Assistant Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the number of Conversion Shares and the Conversion Price
after giving effect to such adjustment, and shall promptly cause copies of such
certificates to be mailed (by first class mail postage prepaid) to the Holder of
this Note.
8. Registration, Exchange and Transfer. The Company will keep
a register in which, subject to such reasonable regulations as it may prescribe,
it will register all Notes. No transfer of this Note shall be valid as against
the Company unless made upon the register. This Note is subject to the
restrictions on transfer of this Note and compliance with said restrictions on
transfer, the Company shall execute and deliver in the name of the transferee or
transferees a new Note or Notes for a like principal amount.
This Note may be exchanged for a like aggregate principal
amount in other denominations. To be exchanged, this Note shall be surrendered
for that purpose at the principal office of the Company, and the Company shall
execute and deliver in exchange therefor the Note or Notes which the holder
making the exchange shall be entitled to receive, bearing serial numbers not
contemporaneously outstanding.
This Note, if presented for transfer, exchange, redemption or
payment, shall (if so required by the Company) be duly endorsed by, or be
accompanied by instruments of transfer in form satisfactory to the Company duly
executed by, the registered Holder or by his duly authorized attorney.
The Company may deem and treat the registered Holder hereof as
the absolute owner hereof (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon by anyone
other than the Company), for the purpose of receiving payment of or on account
of the principal hereof and interest hereon, for the conversion hereof and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
9. Covenants. The Company covenants, so long as this Note
shall be outstanding and unless the Holders of more than seventy-five percent
(75%) of the aggregate principal amount of all Notes then outstanding shall
otherwise approve, that:
(a) Financial Statements, Reports, etc. So long as this Note shall
remain outstanding and the Company is subject to the filing requirements of
Section 13(a), 13(c) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Company
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will transmit or cause to be transmitted to the Holder, promptly after the
same are sent or become publicly available, copies of any and all financial
statements and reports which are made available to its shareholders and all
periodic and other reports, proxy statements, registration statements and
other materials filed by it with the Securities and Exchange Commission, or
any other governmental authority succeeding to any or all of the functions
of said commission, or any national securities exchange or stock market, as
the case may be. If the Company is not subject to filing requirements, the
Company will transmit or cause to be transmitted to the Holder annual and
quarterly reports containing audited annual financial statements and
related notes thereto and unaudited quarterly financial statements,
respectively.
(b) Registration of Shares. The Company shall file a registration
statement with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Act"), with respect to the Notes, the shares
of Common Stock issuable pursuant hereto, the Warrant referred to in
Section 16(a) and the shares of Common Stock issuable upon the exercise of
the Warrant on or prior to the later of (i) ninety (90) days after the
Company's receipt of the net proceeds from the initial sale of the minimum
principal amount of the Notes or (ii) March 31, 1996, pursuant to a
registration rights agreement of even date herewith between the Holder and
the Company.
(c) Corporate Existence. The Company shall, and shall cause its
Subsidiaries to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its corporate existence, material
rights, licenses, permits and franchises and comply in all material
respects with all laws and regulations applicable to it.
(d) Taxes and Assessments. The Company shall, and shall cause its
Subsidiaries to, pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or in
respect of its property, before the same shall become in default (which,
for purposes of this Note, shall mean the earlier of ninety (90) days from
its due date or invoice date, as the case may be, or the date upon which
such obligee commences an action or proceeding to recover such amount),
provided, however, that the Company shall not be required to pay and
discharge or to cause to be paid and discharged any such tax, assessment,
charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith by appropriate proceedings (if the Company shall
have set aside on its books adequate reserves therefor).
(e) Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, incur, create, assume or suffer to exist any Lien on any
property or assets, income or profits of the Company, now owned or
hereafter acquired, other than Permitted Liens.
(f) Indebtedness. The Company shall not, and shall not permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except for (i) Senior Indebtedness; (ii) Indebtedness under
this Note and the other Notes in an aggregate principal amount not to
exceed $9,500,000; (iii) Indebtedness between Subsidiaries and between
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any Subsidiary and the Company; (iv) Indebtedness existing on the date
hereof; (v) Indebtedness of Lynwood Scientific Developments Limited, a
corporation organized under the laws of the United Kingdom, to Midland Bank
plc. in an aggregate amount not to exceed $2,000,000 or the U.S. dollar
equivalent in English pounds; (vi) Indebtedness of Codar Technology, Inc.,
a Colorado corporation, to MetLife Capital Corp. and Colorado National
Leasing, Inc. in an aggregate amount not to exceed $1,200,000; and (vii)
all extensions, renewals and refundings of any of the foregoing.
(g) Investments. The Company shall not, and shall not permit any of
its Subsidiaries to, purchase, hold or acquire any capital stock, evidence
of indebtedness or other securities of, make or permit to exist any loans
or advances to, or make or permit to exist any investment (by way of
transfers of property, contributions to capital, acquisitions of businesses
or acquisitions of assets other than in the ordinary course of business, or
otherwise) or any other interest in, any other Person, except for Permitted
Investments.
(h) Payments. The Company shall not, and shall not permit any of its
Subsidiaries to, declare or pay, directly or indirectly, any dividends or
make any other distribution or payment, whether in cash, property,
securities or a combination thereof, with respect to (whether by reduction
of capital or otherwise) any shares of capital stock (or any options,
warrants, rights or other equity securities or agreements relating to any
capital stock) now or hereafter outstanding, or purchase, redeem, retire or
otherwise acquire for value any shares of its capital stock or warrants or
options therefor now or hereafter outstanding, or set apart any sum for the
aforesaid purposes, in any fiscal year, provided that the Company may
declare stock splits and pay dividends payable solely in shares of any
class of its capital stock and the Subsidiaries may make cash distributions
or payments to the Company.
(i) Disposition of Assets. The Company shall not, and shall not permit
any of its Subsidiaries to, sell or otherwise dispose of any assets,
including the capital stock of any of its Subsidiaries, except for (i)
sales of inventory, fixtures and equipment in the ordinary course of
business, (ii) sales of assets having a book value not exceeding $100,000
in the aggregate, and (iii) the sale of certain vacant property owned by
the Company located in Hauppauge, New York.
(j) Affiliate Transactions. Subsequent to the date hereof, the Company
shall not, and shall not permit any Subsidiary to, directly or indirectly,
enter into or permit to exist any transaction or series of related
transactions (including, but not limited to, the purchase, sale or exchange
of property, the making of any investment, the giving of any guarantee or
the rendering of any service) with any Affiliate of the Company (other than
transactions among the Company and any wholly-owned Subsidiary) unless (i)
such transaction or series of related transactions is on terms no less
favorable to the Company or such Subsidiary than those that could be
obtained in a comparable arm's length transaction with a Person that is not
an Affiliate, and (ii) such transaction or series of related transactions
is approved by a majority of the Board of Directors of the Company
(including a majority of the disinterested directors), which approval is
set forth in a board resolution of the Company certifying that such
transaction or series of transactions complies with the immediately
preceding clause (i).
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(k) Merger, Consolidation, etc. Neither the Company nor any Subsidiary
shall consolidate or merge with, or convey, transfer or lease substantially
all of its assets in a single transaction or series of transactions to, any
other Person unless (i) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by conveyance, transfer
or lease substantially all of the assets of the Company as an entirety, as
the case may be (the "Successor"), shall have executed and delivered to
Holder its assumption of the due and punctual performance of all the
obligations under this Note, (ii) such Successor shall be a corporation
organized and existing under the laws of the United States of America, any
state thereof or the District of Columbia, and (iii) no event referred to
in Section 8 shall have occurred and be continuing.
(l) Maintenance of Properties. The Company shall, and shall cause each
of its Subsidiaries to, keep all properties useful in the business of the
Company in good working order and condition except to the extent that
discontinuing the operation or maintenance of any such properties is, in
the judgment of the Company, desirable in the conduct of its business.
10. Events of Default. (a) In the event that:
(i) the Company defaults in the payment of any installment of interest
required to be made on this Note and such default shall continue for a
period of ten (10) days;
(ii) the Company defaults in making any payment of principal on this
Note required to be made on this Note;
(iii) any obligation of the Company or any Subsidiary for the payment
of borrowed money in excess of $500,000 becomes or is declared to be due
and payable prior to its expressed maturity, unless the validity of any
such indebtedness or obligation is being contested in good faith by
appropriate proceedings;
(iv) any warrant of attachment, execution or other writ is levied upon
any property or assets of the Company or any Subsidiary in excess of
$500,000 and is not discharged or stayed (including stays resulting from
the filing of an appeal) within thirty (30) days;
(v) all or any substantial part of the assets or properties of the
Company or any Subsidiary are condemned, seized or appropriated by any
government or governmental authority; or any order is entered in any
proceeding directing the winding-up, dissolution or split-up of the
Company;
(vi) the Company or any Subsidiary hereafter makes an assignment for
the benefit of creditors, or files a petition in bankruptcy as to itself,
is adjudicated insolvent or bankrupt, petitions any receiver of or any
trustee for the Company
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or any substantial part of the property of the Company under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute of any jurisdiction, whether or not hereafter
in effect; or if there is hereafter commenced against the Company any such
proceeding and an order approving the petition is entered or such
proceeding remains undismissed for a period of sixty (60) days, or the
Company by any act or omission to act indicates its consent to or approval
of or acquiescence in any such proceeding or the appointment of any
receiver of, or trustee for, the Company or any substantial part of its
properties, or suffers any such receivership or trusteeship to continue
undischarged for a period of sixty (60) days; or
(vii) the Company defaults in the due observance or performance, in
any material respect, of any covenant, condition or agreement to be
observed or performed pursuant to the terms of this Note (other than a
default which is specifically provided for in this Section 10) and such
default continues unremedied for more than thirty (30) days after notice
thereof to the Company;
then, and in each and every such case, the holders of not less than one-fourth
(1/4) in aggregate principal amount of outstanding Notes may declare the
principal and accrued but unpaid interest of all the Notes to be due and payable
immediately, by written notice to the Company, and upon any such declaration the
same shall become and shall be immediately due and payable, subject to the
subordination provisions of Section 4 hereof. At any time after such declaration
of acceleration has been made, and before a judgment or decree for payment of
money due has been obtained, the holders of a majority in aggregate principal
amount of the outstanding Notes may, by written notice to the Company, rescind
and annul such declaration.
(b) At any time before the date of any declaration
accelerating the maturity of this Note: (i) the holders of at least sixty-six
and two-thirds percent (66.67%) in aggregate principal amount of outstanding
Notes may waive any past Event of Default and its consequences pertaining to the
payment of interest on, or the principal of, any of the Notes; and (ii) the
holders of a majority in aggregate principal amount of Notes may waive any other
Event of Default hereunder. Such waivers shall be evidenced by written notice or
other document specifying the Event or Events of Default being waived and shall
be binding on all existing or subsequent holders of outstanding Notes.
11. Certain Consequences Upon Default.
(a) Defaulted Interest. Subject to the provisions of Section 4
and 5 hereof, if the Company shall default in the payment of the principal of or
interest on this Note, whether upon maturity, by acceleration, or otherwise,
including, without limitation, as a result of a Chapter 11 or Chapter 7
bankruptcy case commenced by or against the Company in which it is the debtor,
the Company shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount up to (but not including) the date of
actual payment (whether before or after judgment) at the rate per annum
(computed on the basis of the actual
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number of days elapsed over a year of 360 days) at the rate set forth in the
introduction of this Note, plus six percentage points (6%). It is the intention
of the Company and the holder of this Note to comply with applicable usury laws
(now or hereafter enacted); accordingly, notwithstanding any provision to the
contrary in this Note, and any other document executed in connection herewith,
in no event shall this Note or any such other document require the payment or
permit the collection of interest in excess of the maximum amount permitted by
such laws. If for any circumstances whatsoever, fulfillment of any provision of
this Note or of any such other document at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law for the collection or charging of interest, then, ipso facto,
the obligation to be fulfilled shall be reduced to the limit of such validity,
and if for any such circumstances the holder of this Note shall ever receive
anything of value as interest or deemed interest by applicable law under this
Note or any such other document or otherwise an amount that would exceed the
highest lawful rate, such amount that would be excessive interest shall be
applied to the reduction of the principal amount owing under this Note or on
account of any other indebtedness of the Company to such holder, and not to the
payment of interest, or if such excessive interest exceeds the unpaid balance of
principal of such indebtedness, such excess shall be refunded to the Company. In
determining whether or not the interest paid or payable with respect to any
indebtedness of the Company to the Holder, under any specific contingency,
exceeds the highest lawful rate, the Company and such holder shall, to the
maximum extent permitted by applicable law, (i) characterize any non-principal
payment as an expense, fee or premium rather than as interest, (ii) exclude
voluntary prepayments and the effects thereof, (iii) amortize, prorate, allocate
and spread the total amount of interest throughout the full term of such
indebtedness so that the actual rate of such interest does not exceed the
maximum amount permitted by applicable law, and/or (iv) allocate interest
between portions of such indebtedness, to the end that no such portion shall
bear interest at a rate greater than that permitted by applicable law.
(b) Additional Director Nominee. If and whenever interest
payable on this Note shall be in arrears in whole or in part, or if the Company
shall fail to pay the principal of this Note (whether or not prevented from
doing so by restrictions contained in its Restated Certificate of Incorporation,
as amended from time to time, or any other agreement or instrument), the
existing members of the Board of Directors shall cause one Director then serving
on the Board of Directors (who has not been designated by the holders of Notes,
Charles S. Holmes or C. Shelton James) to resign as a director, and the holders
of the Notes shall be entitled to immediately appoint one Director to fill such
vacancy, provided, that if such Director appointed by the holders, together with
the other directors designated by the holders of Notes and Messrs. Holmes and
James, would not exceed 50% of the total Board of Directors, then in such event
the holders of Notes shall be entitled to appoint additional Directors (upon the
resignation of other non-designated existing Directors) so as its and Messrs.
Holmes' and James' designees constitute a majority of the total Board of
Directors. Whenever all arrears in interest on the Notes then outstanding shall
have been paid and all principal amounts required to be made with respect to any
Notes shall have been made or funds therefor set apart for payment, then the
right of the holders of Notes to designate one Director (or two or more
Directors, as the case may be) shall cease (but subject always to the same
provisions for the vesting of such rights in
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the case of any similar future arrearages in interest or failures to satisfy
principal obligations), and the terms of office of all persons elected as
Directors by the holders of Notes shall forthwith terminate and the number of
members on the Board of Directors appointed by the holders of the Notes shall be
reduced accordingly. At any time after such power shall have been so vested in
the Notes, the Secretary of the Corporation may, and upon the written request of
any holder of Notes (addressed to the Secretary at the principal office of the
Company) shall, call a special meeting of the holders of Notes for the election
of the Director (or two or more Directors, as the case may be) to be designated
by them as herein provided, such call to be made by notice similar to that
provided in the By-laws for a special meeting of the shareholders or as required
by law. If any such special meeting required to be called as above provided
shall not be called by the Secretary within fifteen (15) days after receipt of
any such request, then any holder of Notes may call such meeting, upon the
notice above provided, and for that purpose shall have access to the register of
holders of the Notes of the Company. The Director(s) designated at any such
special meeting shall hold office until the next annual meeting of the
shareholders or special meeting held in place thereof and be re-elected
successively thereafter, if such office shall not have previously terminated as
above provided. In case any vacancy shall occur among the Directors designated
by the holders of Notes, a successor shall be elected by the Board of Directors
to serve until the next annual meeting of the shareholders or special meeting
held in place thereof upon the nomination of the then remaining Directors
designated by the holders of Notes and Messrs. Holmes and James.
(c) Additional Warrants. In the event there occurs an Event of
Default pertaining to the payment of interest on, or the principal of, any of
the Notes, the Company shall issue to the holders of the Notes additional
warrants to purchase 2,000,000 shares of Common Stock, each holder to receive
his pro rata share.
12. Investment Representations.
(a) The Holder hereby acknowledges that this Note and the
Conversion Shares are not being registered (i) under the Act on the ground that
the issuance of the Note is exempt from registration under Section 4(2) of the
Act as not involving any public offering or (ii) under any applicable state
securities law because the issuance of this Note does not involve any public
offering; and that the Company's reliance on the Section 4(2) exemption of the
Act and under applicable state securities laws is predicated in part on the
representations hereby made to the Company by the Holder that it is acquiring
this Note for investment for its own account, with no present intention of
dividing its participation with others or reselling or otherwise distributing
the same, provided, nevertheless, subject to any requirement of law that the
disposition of its property shall at all time be within its control.
(b) The Holder hereby agrees that it will not sell or transfer
all or any part of this Note and/or Conversion Shares unless and until, and so
long as such securities are not covered by an effective registration statement
under the Act, it shall first have given notice to the Company describing such
sale or transfer and furnished to the Company either (i) an opinion, reasonably
satisfactory to counsel for the Company, of counsel (skilled in securities
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matters, selected by the Holder and reasonably satisfactory to the Company) to
the effect that the proposed sale or transfer may be made without registration
under the Act and without registration or qualification under any state law, or
(ii) an interpretive letter from the Securities and Exchange Commission to the
effect that no enforcement action will be recommended if the proposed sale or
transfer is made without registration under the Act.
(c) If, at the time of issuance of the Conversion Shares, no
registration statement is in effect with respect to such shares under applicable
provisions of the Act, the Company may at its election require that Holder
provide the Company with written reconfirmation of the Holder's investment
intent and that any stock certificate delivered to the Holder upon conversion of
this Note shall bear legends reading substantially as follows:
"TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
CERTAIN RESTRICTIONS SET FORTH IN THE NOTE PURSUANT TO WHICH THESE SHARES
WERE ISSUED BY THE COMPANY. COPIES OF THOSE RESTRICTIONS ARE ON FILE AT THE
PRINCIPAL OFFICES OF THE COMPANY, AND NO TRANSFER OF SUCH SHARES OR OF THIS
CERTIFICATE, OR OF ANY SHARES OR OTHER SECURITIES (OR CERTIFICATES
THEREFOR) ISSUED IN EXCHANGE FOR OR IN RESPECT OF SUCH SHARES, SHALL BE
EFFECTIVE UNLESS AND UNTIL THE TERMS AND CONDITIONS THEREIN SET FORTH SHALL
HAVE BEEN COMPLIED WITH."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT."
In addition, so long as the foregoing legend may remain on any stock certificate
delivered to the Holder, the Company may maintain appropriate "stop transfer"
orders with respect to such certificates and the shares represented thereby on
its books and records and with those to whom it may delegate registrar and
transfer functions.
(d) The Company may refuse to recognize a transfer of this
Note or any Conversion Shares on its books should a holder attempt to transfer
this Note or any Conversion Shares otherwise than in compliance with this
Section 12.
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13. Definitions. As used herein, unless the context otherwise
requires, the following terms have the respective meanings:
(a) "Affiliate": with respect to any Person, the following:
(i) any other Person that at such time directly or indirectly through one
or more intermediaries controls, or is controlled by or is under common
control with such first Person or (ii) any Person beneficially owning or
holding, directly or indirectly, 10% or more of any class of voting or
equity interests of the Company or any Subsidiary or any corporation of
which the Company and its Subsidiaries beneficially own or hold, in the
aggregate, directly or indirectly, 10% of more of any class of voting or
equity interests. As used in such definition, "controls", "controlled by"
and "under common control", as used with respect to an Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
(b) "Change in Control": any of the following events or
circumstances: (i) individuals who, at the beginning of any period of
twenty-four (24) consecutive months, constitute the Company's board of directors
(together with any new director whose election by the Company's board of
directors or whose nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason (other
than death or disability) to constitute a majority of the Company's board of
directors then in office; (ii) any person or related persons constituting a
group (as such terms are used the Exchange Act) become the "beneficial owners"
(as such term is used under the Exchange Act), directly or indirectly of more
than fifty percent (50%) of the total voting power of all classes then
outstanding of the Company's voting stock; or (iii) the acquisition after the
date hereof by any person or related persons constituting a group of the power
to elect, appoint or cause the election or appointment of at least a majority of
the members of the board of directors of the Company, or (iv) the acquisition
after the date hereof by any person or related persons constituting a group of
all or substantially all of the properties and assets of the Company and its
Subsidiaries, on a consolidated basis; provided, however, that no Change in
Control shall be deemed to have occurred in connection with, or pursuant to, the
initial issuance and sale of the Notes.
(c) "Closing Price": the closing price per share of the
Company's Common Stock on the principal national securities exchange on which
the Common Stock is listed or admitted to trading or, if not listed or traded on
any such exchange, on the National Market System of the National Association of
Securities Dealers Automated Quotations System ("Nasdaq"), or if not listed or
traded on any such exchange or system, the average of the bid and asked price
per share on Nasdaq or, if such quotations are not available, the fair market
value per share of Common Stock as reasonably determined by the Board of
Directors of the Company.
(d) "Consolidated Net Income": the net income (or deficit) of
the Company and its Subsidiaries for any period (taken as a cumulative whole)
after deducting,
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without duplication, all operating expenses, provisions for all taxes and
reserves (including reserves for deferred income taxes) and all other proper
deductions, all determined in accordance with GAAP on a consolidated basis,
after eliminating all intercompany items and after deducting portions of income
properly attributable to outside minority interests, if any, in any
Subsidiaries; provided, however, that there shall be excluded (i) any income or
deficit of any other Person accrued prior to the date it becomes a Subsidiary or
merges into or consolidates with the Company or another Subsidiary of the
Company, (ii) the income (or deficit) of any other Person (other than a
Subsidiary of the Company) in which the Company or any Subsidiary has any
ownership interest, except to the extent that any such income has been actually
received by the Company or such Subsidiary in the form of cash dividends or
similar distributions, (iii) any deferred credit or amortization thereof from
the acquisition of any properties of assets of any other Person, (iv) any
aggregate net income (but not any aggregate net loss) during such period arising
from the sale, exchange or other distribution of capital assets (such term to
include all fixed assets, whether tangible or intangible, all inventory sold in
conjunction with the disposition of fixed assets and all securities), (v) any
income resulting from the write-up of assets after the date hereof, (vi) any
gains properly classified as extraordinary in accordance with GAAP, (vii)
proceeds of life insurance policies to the extent such proceeds exceed premiums
paid to maintain such life insurance policies, (viii) any income of a Subsidiary
which is unavailable for the payment of dividends, and (ix) any gain arising
from the acquisition of securities, or the extinguishment of any indebtedness of
the Company or any of its Subsidiaries or the termination of an employee benefit
plan.
(e) "GAAP": United States generally accepted accounting
principles, consistently applied.
(f) "Indebtedness": at any time and with any respect to any
Person, (i) all indebtedness of such Person for borrowed money, (ii) all
indebtedness of such Person for the deferred purchase price of property or
services (other than property, including inventory, and services purchased, and
expense accruals and deferred compensation items arising, in the ordinary course
of business, provided that the same shall not be overdue (i.e., the earlier of
ninety (90) days from the invoice date or the date the obligee commences an
action to recover such amounts), or if overdue, are being contested in good
faith and by appropriate proceedings), (iii) all obligations of such Person
evidenced by notes, bonds, debentures or other similar instruments (other than
performance, surety and appeal bonds arising in the ordinary course of
business), (iv) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (v) all obligations of such Person under leases which
have been or should be, in accordance with GAAP, recorded as capital leases, to
the extent required to be so recorded, (vi) all reimbursement, payment or
similar obligations of such Person, contingent or otherwise, under acceptance,
letter of credit or similar facilities (vii) all Indebtedness referred to in
clauses (i) through (vi) above guaranteed directly or indirectly by such Person
including without limitation through any agreement (A) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or purchase of such
Indebtedness,
20
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(B) to purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against loss
in respect of such Indebtedness, (C) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property or services
irrespective of whether such property is received or such services are rendered)
or (D) otherwise to assure a creditor against loss in respect of such
Indebtedness, and (viii) all Indebtedness referred to in clauses (i) through
(vii) above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness.
(g) "Lien": any mortgage, deed of trust, pledge, security
interest, encumbrance, lien or charge of any kind whatsoever.
(h) "1996 EBITDA": Consolidated Net Income for the fiscal year
ended December 31, 1996, plus, to the extent deducted in determining such
Consolidated Net Income and without duplication, (i) the sum for such period, of
(a) the aggregate amount of all interest (including capitalized interest)
accrued or to accrue (whether or not actually paid) during such period in
respect of any Indebtedness of the Company and its Subsidiaries, (b) any
amortized discount in respect of any such Indebtedness issued at discount, and
(c) any fees or commissions payable in connection with any letters of credit;
(ii) current and deferred taxes on income and profit; (iii) depreciation; and
(iv) amortization.
(i) "Notes": the meaning specified in the introduction of this
Note.
(j) "Permitted Investments": any of the following:
(i) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (of by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within twelve months from the date of acquisition thereof;
(ii) without limiting the provisions of clause (iv) below, investments
in commercial paper maturing within one year from the date of acquisition
thereof and having, at such date of acquisition, the highest credit rating
obtainable from Standard & Poor's Corporation (or a similar rating by any
similar organization which rates commercial papers);
(iii) investments in certificates of deposits or banker's acceptances
and time deposits maturing within twelve months from the date of
acquisition thereof issued or guaranteed by or placed with (a) any domestic
office of the bank with whom the Company maintains its cash management
system or (b) any domestic office of any other commercial bank of
recognized standing organized under the laws of the United States of
America or any state thereof that has a combined capital and surplus and
undivided profits of not less than
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$100,000,000 and is the principal banking subsidiary of a bank holding
company having a long-term unsecured debt rating of at least "A" or the
equivalent thereof from the Standard & Poor's Corporation or at least "A2"
or the equivalent thereof from Moody's Investors Service, Inc.;
(iv) investments in commercial paper maturing within six months from
the date of acquisition and issued by the holding company of any commercial
bank of recognized standing organized under the laws of the United States
of America or any state thereof that has (A) a combined capital and surplus
in excess of $250,000,000 and (B) commercial paper rated at least "A" or
the equivalent thereof from the Standard & Poor's Corporation or at least
"A2" or the equivalent thereof from Moody's Investors Service, Inc. (or has
a similar rating by any similar organization that rates commercial paper);
or
(v) investments in money market funds substantially all the assets of
which are comprised of securities of the types described in clauses (i)
through (vi) above.
(k) "Permitted Lien": means (i) Liens in existence on the date
hereof, (ii) Liens created for the benefit of the holders of Senior
Indebtedness, (iii) Liens imposed by law for taxes, assessments or charges of
any governmental authority for claims not yet due or which are being contested
in good faith by appropriate proceedings and with respect to which adequate
reserves or other appropriate provisions are being maintained in accordance with
GAAP; (iv) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens imposed by law created in the ordinary
course of business for amounts not yet due, which are not overdue by more than
sixty (60) days or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with GAAP; (v) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security benefits
or to secure the performance of tenders, bids, leases, contracts (other than for
the repayment of indebtedness), statutory obligations and other similar
obligations or arising as a result of progress payments under government
contracts; (vi) easements (including, without limitation, reciprocal easement
agreements and utility agreements), rights-of-way, covenants, consents,
reservations, encroachments, variations and zoning and other restrictions,
charges or encumbrances (whether or not recorded), which in the aggregate are
not substantial in amount, and which do not interfere materially with the
ordinary conduct of the business of the Company and which do not materially
detract from the property to which they attach or materially impair the use
thereof to the Company; (vii) Liens covering real property or personal property
in existence at the time of acquisition thereof by the Company and purchase
money Liens upon or in any property acquired or held in the ordinary course of
business to secure the purchase price of such property or to secure indebtedness
permitted by Section 9(g) hereof solely for the purpose of financing the
acquisition of such property and no such Lien covers, or is extended to cover,
any other property owned by the Company; and (viii) extensions, renewals or
replacements of any Lien referred to in clauses (i) through (vii) above.
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(l) "Person": any natural person, corporation, division of a
corporation, partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.
(m) "Senior Indebtedness": the meaning specified in Section
4(a) hereof.
(n) "Subsidiaries": with respect to any Person, any
corporation, association or other business entity (whether now existing or
hereafter organized) of which at least a majority of the securities or other
ownership interests having ordinary voting power for the election of directors
is, at the time as of which any determination is being made, owned or controlled
by such Person or one or more subsidiaries of such Person.
14. Notices.
(a) Notices to Holder of Notes. Any notice required by the
provisions of this Note to be given to the holders of Notes shall be in writing
and may be delivered by personal service or sent by telegraph or cable or sent
by registered or certified mail, return receipt requested, with postage thereon
fully prepaid. All such communications shall be addressed to the Holder of
record at its address appearing on the books of the Company. If sent by
telegraph or cable, a confirmed copy of such telegraphic or cabled notice shall
promptly be sent by mail (in the manner provided above) to the Holder. Service
of any such communication made only by mail shall be deemed complete on the date
of actual delivery as shown by the addressee's registry or certification receipt
or at the expiration of the third (3rd) business day after the date of mailing,
whichever is earlier in time.
(b) Notices to the Company. Whenever any provision of this
agreement requires a notice to be given to the Company by the holder of any
Note, the holder of Common Stock obtained upon the conversion of a Note or the
holder of any other security of the Company obtained in connection with a
recapitalization, merger, dividend or other event affecting a Note, then and in
each case, such notice shall be in writing and shall be sent by registered or
certified mail, return receipt requested with postage thereon fully prepaid to
the Company at its principal place of business.
No notice under this Section 14 shall be valid unless signed by the holder of
the Note, Common Stock or other security giving the notice or in the case of a
notice by holders of a specified percent in aggregate principal amount of
outstanding Notes unless signed by each holder of a Note whose Note has been
counted in constituting the requisite percentage of Notes required to give such
Notice.
15. Amendment. With the consent of the holders of a majority
in aggregate principal amount of outstanding Notes, the Company may amend the
Notes to cure any ambiguity, to correct or supplement any provision therein
which may be inconsistent with any other provision therein, or to make any other
provisions with respect to matters or questions
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arising under the Notes which shall not be inconsistent with the provisions of
the Notes; provided such action shall not adversely affect the interests of the
holders of the Notes.
With the consent of the holders of not less than fifty percent
(50%) in aggregate principal amount of the outstanding Notes, the Company may
amend the Notes for the purpose of adding any provisions to, or changing in any
manner or eliminating any of the provisions of, the Notes; provided, however,
that no such amendment shall, without the consent of the holders of Senior
Indebtedness, change the subordination provisions of Sections 4 and 5 hereof or
the provisions referred to in subsection (a) below; and provided, further, that
no amendment shall, without the consent of the holder of each outstanding Note
affected thereby,
(a) change: (i) the maturity of the principal of, or any installment
of interest on, any Note; or (ii) the coin or currency in which the
principal of or interest on any Note is payable;
(b) reduce the principal amount thereof or the interest rate thereon;
(c) increase the Conversion Price thereof; or
(d) reduce the percentage in principal amount of the outstanding Notes
the consent of whose holders is required for any amendment or waiver as
provided for in the Notes.
Prompt written notice that this Note has been amended or
interpreted in accordance with the terms of this Section 15 shall be given to
each holder of a Note. Upon such amendment or interpretation, the Notes shall be
deemed modified in accordance therewith, such amendment or interpretation shall
form a part of this Note for all purposes, and every subsequent holder of Notes
shall be bound thereby.
16. Miscellaneous.
(a) Contemporaneously with the execution and delivery hereof,
the Company has issued to the Holder a detachable warrant representing the right
to purchase 250 shares of Common Stock at a exercise price equal to $2.50 per
share of Common Stock, subject to adjustment in certain events.
(b) This Note and the shares of Common Stock or other
securities issuable upon conversion of this Note will be accorded the
registration rights under the Act set forth in that certain Registration Rights
Agreement between the Company and the Holders, a form of which agreement is
being furnished concurrently herewith.
(c) This Note is the obligation of the Company only, and no
recourse shall be had for the payment thereof or interest thereon against any
shareholder, officer or director of the Company, whether by virtue of any
constitution, statute, rule or law or otherwise,
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<PAGE>
all such liability, by the acceptance hereof, and as part of the consideration
hereof, being expressly waived.
(d) Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and of a
letter of indemnity reasonably satisfactory to the Company, and upon
reimbursement to the Company of all reasonable expenses incident thereto, and
upon surrender or cancellation of this Note, if mutilated, the Company will make
and deliver a new Note of like tenor in lieu of such lost, stolen, destroyed or
mutilated Note.
(e) THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
COMPANY AND THE HOLDER HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS AND
INSTRUMENTS MADE AND TO BE PERFORMED IN NEW YORK AND CANNOT BE MODIFIED OR
CHANGED ORALLY.
IN WITNESS WHEREOF, the Company has duly caused this Note to be signed
on its behalf, in its corporate name and by its duly authorized officer, as of
this 15th day of February 1996.
NAI TECHNOLOGIES, INC.
By: RICHARD A. SCHNEIDER
--------------------------
Richard A. Schneider
Executive Vice President,
Treasurer and Secretary
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<PAGE>
Schedule A
Section 6(f) Adjusted Amounts
<TABLE>
<S> <C>
Wilcom, Inc............................................................................$ 838,000
Codar Technology, Inc..................................................................$2,805,000
NAI Technologies - Systems Division Corporation........................................$ 607,000
Lynwood Scientific Developments Limited................................................$1,833,000
26
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</TABLE>
<PAGE>
<PAGE>
EXHIBIT 2
NO. B-009 1,700,000 SHARES
NAI TECHNOLOGIES, INC.
WARRANT TO PURCHASE COMMON STOCK
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 REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
FOR VALUE RECEIVED, NAI TECHNOLOGIES, INC., a New York
corporation (the "Company"), 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, One
Million Seven Hundred Thousand (1,700,000) 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 in
certain events 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.
This Warrant is one of a series of the Company's Warrants to
purchase Common Stock (collectively, the "Warrants"), issued pursuant to that
certain Confidential Private Placement Memorandum, dated December 15, 1995, as
supplemented (the "Memorandum"). Capitalized terms used and not otherwise
defined herein shall have the respective meanings attributed thereto in Section
10.
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 11, 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
<PAGE>
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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., New York City time, on February 15, 2002 (the "Expiration Date").
(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 Chief Executive Officer 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 shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant. The Company shall pay
cash in lieu of fractions with respect to the Warrants based upon the fair
market value of such fractional shares of Common Stock (which shall be the
closing price of such shares on the exchange or market on which the Common Stock
is then traded) 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. Except as provided in Section 4 hereof, the Company shall pay
any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares of Common Stock on exercise of this
Warrant.
2. Disposition of Warrant Stock and Warrant.
(a) The Holder hereby acknowledges that this Warrant and any
Warrant Stock purchased pursuant 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 and will acquire the Warrant Stock for
investment for its own account, with no present
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intention of dividing its participation with others or reselling or otherwise
distributing the same, subject, nevertheless, to any requirement of law that the
disposition of its property shall at all times be within its control.
The 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 and without registration
or qualification under any state law, or (ii) an interpretative 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."
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In addition, so long as the foregoing legend may remain on any stock certificate
delivered to the Holder, the Company may maintain appropriate "stop transfer"
orders with respect to such certificates and the shares represented thereby on
its books and records and with those to whom it may delegate registrar and
transfer functions.
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 be
duly authorized and will, upon issuance and against payment of the exercise
price, be validly issued, fully paid and non-assessable, free from all taxes,
liens, charges and preemptive rights with respect to the issuance thereof, other
than taxes, if any, in respect of any transfer occurring contemporaneously with
such issuance and other than transfer restrictions imposed by federal and state
securities laws.
4. Exchange, Transfer, Assignment or Loss of Warrant. This
Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other Warrants of different denominations, entitling
the Holder or Holders thereof to purchase in the aggregate the same number of
shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to
the Company or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof.
5. 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
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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.
(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 5(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 Shareholders. 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 5(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 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
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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) 1996 EBITDA Adjustment. The Warrant Price shall additionally be
adjusted in the following circumstances:
(i) if the Company shall achieve 1996 EBITDA (as such term is
defined in Section 10) in an amount of less than $6,000,000, the
Warrant Price shall be reduced to $2.00 per share; and
(ii) if the Company shall achieve 1996 EBITDA in an amount of
less than $4,750,000 (together with the $6,000,000 amount referred to
above, the "Adjusted Amounts"), the Warrant Price shall be reduced to
$1.50 per share;
provided, however, that in the event the Company sells all of the capital
stock or all or substantially all of the assets of one or more of its
Subsidiaries in 1996, the Adjusted Amounts for 1996 will be reduced by the
amount or amounts set forth in Schedule A hereto in respect of the
Subsidiary or Subsidiaries so involved. In the event any such sale occurs
during 1996, the applicable Adjusted Amount will be reduced by multiplying
it by a fraction, the numerator of
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which is the number of days of the year remaining after any such sale and
the denomination is 365.
(g) Certain Shares Excluded. The number of shares of Common
Stock outstanding at any given time for purposes of the adjustments set forth in
this Section 5 shall exclude any shares then directly or indirectly held in the
treasury of the Company.
(h) Deferral and Cumulation of De Minimis Adjustments. The
Company shall not be required to make any adjustment pursuant to this Section 5
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.
(i) Duration of Adjustment. Following each computation or
readjustment as provided in this Section 5, 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.
6. Notice 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 exercise of
this Warrant) for the purpose of entitling them to receive any dividend
(other than a cash dividend payable out of earned surplus of the Company)
or other distribution, or any right to subscribe for or purchase any shares
of stock of any class or any other securities, or to receive any other
right;
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
with or merger of the Company into another corporation, or any conveyance
of all or substantially all of the assets of the Company to another
corporation; or
(iii) of any voluntary dissolution, liquidation or winding-up of the
Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Holder hereof at the time outstanding a notice specifying, as the case may be,
(i) the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and
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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 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
or winding-up. Such notice shall be mailed at least thirty (30) days prior to
the record date therein specified, or if no record date shall have been
specified therein, at least thirty (30) days prior to such specified date.
(b) Certificate of Adjustment. Whenever any adjustment shall
be made pursuant to Section 5 hereof, the Company shall promptly make a
certificate signed by its Chairman and Chief Executive Officer, 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.
7. 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.
8. Warrant Holder Not a Shareholder. The Holder of this
Warrant, as such, shall not be entitled by reason of this Warrant to any rights
whatsoever as a shareholder of the Company.
9. Registration Rights. This Warrant and the shares of Common
Stock issuable upon exercise of this Warrant will be accorded the registration
rights under the Act set forth in that certain Registration Rights Agreement
between the Company and the Holders, a form of which agreement is being
furnished concurrently herewith.
10. Definitions. As used herein, unless the context otherwise
requires, the following terms have the respective meanings:
(a) "Affiliate": with respect to any Person, the following: (i) any
other Person that at such time directly or indirectly through one or more
intermediaries controls, or is controlled by or is under common control
with such first Person or (ii) any Person beneficially owning or holding,
directly or indirectly, 10% or more of any class of voting or equity
interests of the Company or any Subsidiary or any corporation of which the
Company and
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its Subsidiaries beneficially own or hold, in the aggregate, directly or
indirectly, 10% of more of any class of voting or equity interests. As used
in such definition, "controls", "controlled by" and "under common control",
as used with respect to an Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise.
(b) "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 form 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.
(c) "GAAP": United States generally accepted accounting principles,
consistently applied.
(d) "Indebtedness": at any time and with any respect to any Person,
(i) all indebtedness of such Person for borrowed money, (ii) all
indebtedness of such Person for the deferred purchase price of property or
services (other than property, including inventory, and services purchased,
and expense accruals and deferred compensation items arising, in the
ordinary course of business, provided that the same shall not be overdue
(i.e., the earlier of ninety (90) days from the invoice date or the date
the obligee commences an action to recover such amounts), or if overdue,
are being contested in good faith and by appropriate proceedings), (iii)
all obligations of such Person evidenced by notes, bonds, debentures or
other similar instruments (other than performance, surety and appeal bonds
arising in the ordinary course of business), (iv) all indebtedness of such
Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though
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the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), (v)
all obligations of such Person under leases which have been or should be,
in accordance with GAAP, recorded as capital leases, to the extent required
to be so recorded, (vi) all reimbursement, payment or similar obligations
of such Person, contingent or otherwise, under acceptance, letter of credit
or similar facilities (vii) all Indebtedness referred to in clauses (i)
through (vi) above guaranteed directly or indirectly by such Person
including without limitation through any agreement (A) to pay or purchase
such Indebtedness or to advance or supply funds for the payment or purchase
of such Indebtedness, (B) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the
holder of such Indebtedness against loss in respect of such Indebtedness,
(C) to supply funds to or in any other manner invest in the debtor
(including any agreement to pay for property or services irrespective of
whether such property is received or such services are rendered) or (D)
otherwise to assure a creditor against loss in respect of such
Indebtedness, and (viii) all Indebtedness referred to in clauses (i)
through (vii) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien upon property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness.
(e) "Lien": any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind whatsoever.
(f) "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.
(g) "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.
(h) "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.
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11. 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 2405 Trade Centre
Avenue, Longmont, Colorado 80503, Attention: President, or to the Holder at the
name and address set forth in the Warrant Register maintained by the Company.
12. Choice of Law. THIS WARRANT IS ISSUED UNDER AND SHALL FOR
ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
IN WITNESS WHEREOF, the Company has duly caused this Warrant
to be signed on its behalf, in its corporate name and by its duly authorized
officer, as of this 15th day of February 1996.
NAI TECHNOLOGIES, INC.
By: /s/ Richard A. Schneider
----------------------------
Richard A. Schneider
Executive Vice President,
Treasurer and Secretary
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Schedule A
Section 5(f) Adjusted Amounts
<TABLE>
<S> <C>
Wilcom, Inc............................................................................$ 838,000
Codar Technology, Inc..................................................................$2,805,000
NAI Technologies - Systems Division Corporation........................................$ 607,000
Lynwood Scientific Developments Limited................................................$1,833,000
</TABLE>
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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
_____________________________________________________________(social security or
taxpayer identification number_____________________) 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:
---------------------------------------
Signature
---------------------------------------
Signature, if jointly held
---------------------------------------
Date
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ASSIGNMENT FORM
FOR VALUE RECEIVED,___________________________________________________________
hereby sells, assigns and transfers unto
Name__________________________________________________________________________
(Please typewrite or print in block letters)
Social Security or Taxpayer Identification Number_____________________________
the right to purchase shares of Common Stock of NAI TECHNOLOGIES, INC., a New
York corporation, represented by this Warrant to the extent of shares as to
which such right is exercisable and does hereby irrevocably constitute and
appoint ___________________________, Attorney, to transfer the same on the books
of the Company with full power of substitution in the premises.
DATED:_____________________
---------------------------------------
Signature
---------------------------------------
Signature, if jointly held
Witness:
- ---------------------------------------
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EXHIBIT 3
NAI TECHNOLOGIES, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is between NAI
TECHNOLOGIES, INC., a New York corporation (the "Company"), and the person or
persons executing this Agreement.
RECITALS:
In consideration of the purchase by you on the date hereof of
certain securities of the Company to be offered in units (the "Units"), which
Units include (i) $1,000 principal amount of the Company's 12% Convertible
Subordinated Promissory Notes due 2001 (the "Notes"), convertible at the option
of the holder at any time into 500 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 Notes, and (ii) a warrant (the
"Warrant") entitling the holder to purchase 250 shares of Common Stock upon the
terms and conditions, and subject to the adjustments, set forth in such
Warrants, pursuant to a Confidential Private Placement Memorandum, dated
December 15, 1995, as supplemented (the "Memorandum"), and as an inducement to
you to consummate the transactions contemplated by the Memorandum, the Company
hereby covenants and agrees with you, and with each subsequent holder of
Registrable Securities (as such term is defined below), as follows:
1. Certain Definitions. For the purposes of this Agreement,
the following terms shall have the meanings ascribed to them:
(a) "Additional Interest" shall have the meaning set forth in
Section 2(c) hereof.
(b) "Agreement" shall mean this Registration Rights Agreement,
as the same may be amended, modified or supplemented from time to time.
(c) "Commission" shall mean the United States Securities and
Exchange Commission, or any other federal agency then administering the
Securities Act and the Exchange Act.
(d) "Effectiveness Period" shall have meaning set forth in
Section 2(a) hereof.
(e) "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.
(f) "Expiration Date" shall mean December 31, 2005.
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(g) "Holder" shall mean the Holder, for so long as it owns any
Registrable Securities, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Securities.
(h) "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.
(i) "Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
with respect to 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.
(j) "Registrable Securities" shall mean (i) the Notes, (ii)
the Warrants, (iii) the shares of Common Stock issuable upon conversion of the
Notes, (iv) the shares of Common Stock issuable upon exercise of the Warrants
and (v) 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 (A) 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, (B) they shall have been disposed of pursuant to Rule 144 (or any
successor provision) under the Securities Act, (C) 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
holders of Registrable Securities shall have received an opinion of independent
counsel for the Company reasonably satisfactory to such holders to the foregoing
effects), or (D) they shall have ceased to be outstanding. Subject to this
Section 1(g), Registrable Securities, if transferred, will remain Registrable
Securities for the purposes of this Agreement.
(k) "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
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with such Registration, reasonable fees and expenses of one counsel (who shall
be selected by a majority of the holders of Registrable Securities) for the
holders of Registrable Securities incurred in connection with each Registration
hereunder and any reasonable out-of-pocket expenses of such holders (or the
agents who manage any such 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 the Registrable
Securities).
(l) "Registration Statement" shall have the meaning assigned
to such term in Section 5(a) of this Agreement.
(m) "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.
(n) "Shares" shall mean shares of Common Stock, as constituted
on the date hereof, and any securities into which such shares may thereafter be
changed.
(o) "Shelf Registration" shall mean a registration effected
pursuant to Section 2(a) hereof.
(p) "Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of Section 2(a)
of this Agreement which covers all of the Registrable Securities on an
appropriate form under Rule 415 under the Securities Act, or any similar rule
that may be adopted by the Commission, and all amendments and supplements to
such registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
2. Required Registration Under the Securities Act.
(a) The Company shall, for the benefit of the holders of
Registrable Securities, at the Company's cost, file with the Commission on or
prior to the later of (i) ninety (90) days after the initial closing of the
private placement in which the Units are sold in accordance with the Memorandum
(the "Closing") or (ii) March 31, 1996, a Shelf Registration Statement providing
for the sale by the holders of all the Registrable Securities, and shall use its
best efforts to have such Shelf Registration Statement declared effective by the
Commission as soon as practicable and, in any event, within 60 days thereafter.
The Company agrees to use its best efforts to keep the Shelf Registration
Statement continuously effective for a period of three years after the date of
effectiveness (the "Effectiveness Period"). The Company shall not permit any
securities other than Registrable Securities to be included in the Shelf
Registration, except for up to 250,000 shares of Common Stock held by the Bank
Lenders (as such term is defined in the Memorandum) and up to 363,636 shares of
Common Stock held by Active Investors II, Ltd. The Company further agrees, if
necessary or appropriate, to supplement or
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amend the Shelf Registration Statement, if required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the Securities Act or by any other rules and
regulations thereunder for shelf registrations, and the Company agrees to
furnish to the holders of Registrable Securities copies of any such supplement
or amendment promptly after its being used or filed with the Commission.
(b) Effective Registration Statement. A Shelf Registration
Statement pursuant to Section 2(a) above will not be deemed to have become
effective unless it has been declared effective by the Commission; provided that
if, after it has been declared effective, the offering of Registrable Securities
pursuant to a Shelf Registration Statement is interfered with by any stop order,
injunction or other order or requirement of the Commission or any other
governmental agency or court, such Registration Statement will be deemed not to
have been effective during the period of such interference, until the offering
of Registrable Securities pursuant to such Registration Statement may legally
resume. The Company will be deemed not to have used its reasonable efforts to
cause the Shelf Registration Statement to become, or to remain, effective during
the requisite period if it voluntarily takes any action that would result in any
such Registration Statement not being effective or in the holders of Registrable
Securities covered thereby not being able to offer and sell such Registrable
Securities during that period.
(c) Additional Interest. In the event that either (i) a Shelf
Registration Statement is not filed with the Commission on or prior to the later
of the 90th day after the Closing or March 31, 1996 (the "Filing Date"), or (ii)
a Shelf Registration Statement is not declared effective on or prior to the 60th
day after the Filing Date, the interest rate borne by the Notes shall be
increased (the "Additional Interest") by one percent per annum from and
including the 91st day after the Closing in the case of clause (i) above and
from and including the 61st day after the Filing Date in the case of clause (ii)
above and shall increase by an additional one percent per annum for each 90-day
period (or portion thereof) that any Additional Interest continues to accrue
pursuant to this Section 2(c); provided that the aggregate increase in such
interest rate pursuant to this Section 2(c) will in no event (other than as
stated in the succeeding proviso) exceed five percent (5%) per annum, and
provided, further, that the interest rate shall increase to eighteen percent
(18%) in the event the Shelf Registration Statement is not effective nine months
after the Closing. Upon (x) the filing of a Shelf Registration Statement in the
case of clause (i) above or (y) the effectiveness of a Shelf Registration
Statement in the case of clause (ii) above, and provided that none of the
conditions set forth in clauses (i) or (ii) above continues to exist, the
interest rate borne by the Notes from the date of such filing or effectiveness,
as the case may be, will be reduced to the original interest rate.
In the event that the Shelf Registration Statement has been
declared effective and subsequently ceases to be effective prior to the end of
the Effectiveness Period, for a period in excess of 10 days, whether or not
consecutive, in any given year, then, the interest rate borne by the Notes shall
be increased by an additional one percent per annum on the 11th day in the
applicable year such Shelf Registration Statement ceases to be effective and
thereafter by an additional one percent per annum for each additional 90 days
that such Shelf Registration Statement is not effective, subject to the same
provisions with respect to the increase in the
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interest rate referred to above; provided that the interest rate borne by the
Notes will not be increased if the Registrable Securities are otherwise freely
tradeable pursuant to Rule 144 under the Securities Act. Upon the effectiveness
of a Shelf Registration Statement, the interest rate borne by the Notes shall be
reduced to their original interest rate unless and until increased as described
in this paragraph.
The Company shall notify Commonwealth Associates within three
business days after each and every date on which an event occurs in respect of
which Additional Interest is required to be paid (an "Event Date"). The
Additional Interest due shall be payable on each interest payment date to the
record holder of Notes entitled to receive the interest payment to be paid on
such date as set forth in the Notes. Each obligation to pay Additional Interest
shall be deemed to accrue from and including the day following the applicable
Event Date.
(d) Specific Enforcement. Without limiting the remedies
available to the holders of Registrable Securities, the Company acknowledges
that any failure by the Company to comply with its obligations under Section
2(a) hereof may result in material irreparable injury to such holders for which
there is no adequate remedy at law, that it would not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
any such holder of Registrable Securities may obtain such relief as may be
required to specifically enforce the Company's obligations under Section 2(a)
hereof.
3. Piggyback Registration Rights.
(a) Right to Piggyback. 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 other Persons
exercising demand registration rights other than (i) pursuant to Section 4 below
or (ii) under a Registration Statement on Form S-4, Form S-8 or any successor
form filed in connection with an exchange offer or an offering of securities
solely to the Company's existing employees or security holders (a "Piggyback
Registration"), the Company will give prompt written notice to all holders of
Registrable Securities of its intention to effect such a Registration and will
use its best efforts, subject to Section 3(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 thirty (30)
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.
(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
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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: (w) first, the securities proposed to be sold by other Persons
exercising demand registration rights granted on or prior to the date hereof,
(x) second, so long as the Senior Indebtedness (as defined in the Memorandum)
remains outstanding, up to an aggregate of 250,000 shares of Common Stock held
by the Bank Lenders, provided, that such priority shall be effective for up to
only two such Piggyback Registration opportunities, (y) third, Registrable
Securities held by the Holder and requested to be included in such Piggyback
Registration, together with any other securities requested to be included in
such Piggyback Registration by other holders, pro rata among the Holder and the
other holders of Registrable Securities (on the basis of the amount of
Registrable Securities then owned by each such holder) requested to be included
in such Piggyback Registration, and (z) fourth, 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 the Holder in the notice given
pursuant to Section 3(a), which notice shall include the name of the managing
underwriter or underwriters.
4. Demand Registration Rights.
(a) Right to Demand. At any time on or before the Expiration
Date, the holders of not less than a majority of the Registrable Securities then
outstanding may make up to two written requests (provided in each case such
holders have not registered Registrable Securities pursuant to Section 2 or 3
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 $250,000 of the Registrable Securities (a
"Demand Registration"). Within ten (10) days after receipt of such request, the
Company shall give written notice of such requested registration to all other
holders of Registrable Securities, and, subject to the priority provisions set
forth in Section 4(b) below, will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion within thirty (30) days after the Company gives such notice. 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. Except as otherwise provided
herein, a registration will not count as a Demand Registration until it has
become effective and the holders of the Registrable Securities included in such
registration are legally permitted to sell all of their Registrable Securities
that are requested to be so included unless the holders of Registrable
Securities included in such Demand Registration fail to take such actions as are
required on their part to cause the registration to become effective, in which
case such registration shall count as a Demand Registration.
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(b) Priority on Demand Registrations. If the managing
underwriter or underwriters of a Demand Registration 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, 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, a majority in interest of the Holders 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; provided, however, that the holders of
Registrable Securities acknowledge that Commonwealth Associates has a right of
first refusal to act as underwriter in connection with any offering of Common
Stock if the terms offered by Commonwealth Associates are comparable to those
being offered by other investment banking firms to similarly-situated companies,
and hereby consent to the use of Commonwealth Associates as underwriter in
connection with any Demand Registration.
5. Registration Procedures. With respect to any Registration
pursuant to the exercise of rights provided by Sections 2, 3 and 4 of this
Agreement, the Company will (subject to Sections 2(a) and 12 hereof) 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 or any Prospectus, the Company will
furnish to one counsel selected by the holders of a majority of the
Registrable Securities to be included and the underwriters, if any, draft
copies of all such documents proposed to be filed at least five (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 a majority of such holders 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 the holders of Registrable
Securities 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 (4) 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
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4(3) of the Securities Act and Rule 174 thereunder, if applicable, or such
longer period pursuant to Section 2(a) hereof); 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 each seller of Registrable Securities 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 such seller or underwriter
may reasonably request in order to facilitate the disposition of the
Registrable Securities being sold by such seller (it being understood that
the Company consents to the use of the Prospectus by such seller and the
underwriter or underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by the Prospectus);
(d) notify each seller of Registrable Securities 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;
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(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 any
holder of Registrable Securities, promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the managing
underwriter or underwriters or such holder requests to be included therein
with respect to the number of Registrable Securities being sold by such
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;
(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 each holder of Registrable Securities;
(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 holders of a majority of the Registrable Securities, 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 a
majority of the such holders 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 5(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 the holders of Registrable Securities 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 any such 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 such holder of Registrable Securities 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 the holders
of a majority of the Registrable
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Securities being sold or the underwriters retained by such holders, if any,
reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities;
(n) make available for inspection by a representative of the sellers
of Registrable Securities, 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 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 such representative of the
sellers 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;
(o) use its best efforts to obtain a cold comfort letter from the
Company's independent public accountants in customary form and covering
such matters of the type customarily covered by cold comfort letters as a
representative of the sellers of Registrable Securities reasonably request;
and
(p) furnish each seller of Registrable Securities with an opinion of
its counsel (reasonably acceptable to such seller) to the effect that (i)
such registration statement has become effective under the Securities Act
and no order suspending the effectiveness of such registration statement,
preventing or suspending the use of such registration statement, any
preliminary prospectus, any final prospectus, or any amendment or
supplement thereto has been issued, nor has the SEC instituted or
threatened to institute any proceedings with respect to such an order, (ii)
such registration statement and each prospectus forming a part thereof
(including each preliminary prospectus), and any amendment or supplement
thereto, complies as to form with the Securities Act and the rules and
regulations thereunder, and (iii) such counsel has no knowledge of any
material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented except no opinion need be expressed
as to the financial statements and related schedules, and counsel shall be
entitled to rely on opinions of other counsel reasonably satisfactory to
such sellers regarding matters of foreign law and intellectual property.
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The Holder, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(d), will forthwith
discontinue disposition of the Registrable Securities until the Holder's receipt
of the copies of the supplemented or amended Prospectus contemplated by Section
5(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, the 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 the 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 5(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 the Holder shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 5(d) or the Advice.
The 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.
6. Holdback Arrangements.
(a) Restrictions on Public Sale by Holder of Registrable
Securities. To the extent not inconsistent with applicable law, the 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 for such securities, including a sale
pursuant to Rule 144 or Rule 144A under the Securities Act, during and not
exceeding 180 days after the effective date of a Registration Statement relating
to an underwritten Registration of Registrable Securities, 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 fourteen (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 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
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as part of any such registration, if permitted); provided, however, that the
provision of this Section 6(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).
7. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each holder of Registrable Securities and each of
such holder's officers, directors and agents and each Person, if any, who
controls a holder of Registrable Securities 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 7(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 the holders of Registrable Securities provided in this
Section 7(a).
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(b) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against the holders of Registrable Securities (or its officers,
directors or agents) or any Person controlling any such 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 defenses may be available to such Indemnitee, in which event the
Company shall be obligated to pay the fees and expenses of such additional
counsel. Each holder of Registrable Securities 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 such holder may claim indemnification or contribution
pursuant to this Agreement; provided, 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 the Holders. Each holder of Registrable
Securities 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 such
holder but only with respect to information furnished in writing by such holder
with respect to such 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, each holder of Registrable Securities or any of such
holder's respective directors, officers or agents, or any such controlling
Person, in respect of which indemnity may be sought against such holder, such
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 such holder by Section 7(b).
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(d) Contribution. If the indemnification provided for in this
Section 7 is unavailable to the Company, the holders of Registrable Securities
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 holders of Registrable Securities agree
that it would not be just and equitable if contribution pursuant to this Section
7(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 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 7(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.
8. Participation in Underwritten Registrations. No holder of
Registrable Securities may participate in any underwritten Registration
hereunder (which shall be conducted in accordance with the provisions of Section
2, 3 or 4) unless such holder (i) agrees to sell such holder's Registrable
Securities on the basis provided in any customary underwriting arrangements
(approved by the holders of Registrable Securities 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, such
holder shall not be required to make representations or give indemnifications
except with respect to information provided in writing by the holder of
Registrable Securities concerning such holder and its plan of distribution.
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9. 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 the
holders of Registrable Securities, 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 the holders of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holders 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 the holders of Registrable Securities, the Company will deliver to each such
holder a written statement as to whether it has complied with the requirements
of this Section 9.
10. Registration Expenses. The Registration Expenses related
to the Shelf Registration, first Demand Registration and any Piggyback
Registration shall be borne solely by the Company.
11. Stand-Off and Special Audit.
(a) Stand-Off. If at the time of any request for a Demand
Registration pursuant to Section 4, the Company (i) is engaged or has fixed
plans to engage, within thirty (30) days of the time of the request, in a
registered public offering as to which the holders of Registrable Securities
may, pursuant to Section 4, 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
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 (6) 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
each holder of Registrable Securities 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 4, the Company shall promptly notify each
holder of Registrable Securities that a special audit is required. In such
event, such holders 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 such holders are entitled under this Agreement or (ii) pay the expenses
of conducting the special audit.
12. Public Trading Market. Until the earlier of (a) three (3)
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.
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13. Representations and Warranties of the Company.
(a) The execution, delivery and performance of this Agreement
by the Company have been duly authorized by all requisite corporate action and
will not violate any provision of law, any order of any court or other agency of
government, the Restated Certificate of Incorporation or By-laws of the Company,
or any provision of any indenture, agreement or other instrument to which it or
any of its properties or assets is bound, or conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under any
such indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company.
(b) This Agreement has been duly executed, and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms.
14. Miscellaneous.
(a) Other Registration Rights. Except as provided in the
Memorandum, the Company does not have and shall not grant registration rights
with respect to any securities of the Company to any Person that are superior
to, or that adversely affect, the registration rights granted to the holders of
Registrable Securities pursuant to this Agreement. The Company shall not enter
into any agreement inconsistent with any of the provisions hereof.
(b) Amendments. This Agreement may not be amended without the
written consent of the Company and a majority of the holders of Registrable
Securities.
(c) Successors and Assigns. The Company may not sell, assign,
transfer or otherwise convey any of its rights or delegate any of its duties
under this Agreement, except to a corporation which has succeeded to
substantially all of the business and assets of the Company and has assumed in
writing its obligations under this Agreement, and this Agreement shall be
binding on the Company and such successor. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the Holder and its successors
and assigns. Without limiting the generality of the foregoing, any transferee of
Registrable Securities shall have the rights set forth in this Agreement, and
such rights shall be enforceable against the Company by such transferees as
third-party beneficiaries.
(d) Notices. All notices and other communications provided for
hereunder shall be given and shall be effective as provided in the Warrant.
(e) 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.
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(f) 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 and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
(g) 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.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(i) Remedies. Without affecting the rights of holders of the
Registrable Securities in any way pursuant to Section 2(d) hereof, 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.
(j) 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.
IN WITNESS WHEREOF, each of the undersigned has duly caused
this Registration Rights Agreement to be signed on its behalf as of this 15th
day of February 1996.
NAI TECHNOLOGIES, INC.
By: /s/ Richard A. Schneider
------------------------------------
Name: Richard A. Schneider
Title: Executive Vice President
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FOR INDIVIDUALS:
/s/Charles S. Holmes
------------------------------------------
Signature of Investor
Charles S. Holmes
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Name of Investor (please print)
117 Whites Lane
Southampton, N.Y. 10068
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Residence Address (please print)
FOR CORPORATIONS:
------------------------------------------
Name of Corporation
------------------------------------------
Executive Officer (please print)
By:
--------------------------------------
Signature of Executive Officer
FOR PARTNERSHIPS:
------------------------------------------
Name of Partnership
------------------------------------------
Name of partner (please print)
By:
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Signature of Partner
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