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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 15, 1996
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NAI Technologies, Inc.
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(Exact name of registrant as specified in its charter)
0-3704
(Commission File Number)
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New York 11-1798773
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2405 Trade Centre Avenue,
Longmont, CO 80503
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(Address of principal (Zip Code)
executive offices)
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Registrant's telephone number, including area code (303) 776-5674
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1000 Woodbury Road, Woodbury, New York 11797-2530
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(Former name or former address, if changed since last report)
Exhibit Index on Page 15
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Item 5. Other Events.
On February 15, 1996 and February 23, 1996, NAI Technologies, Inc.,
a New York corporation (the "Registrant"), sold in a private offering an
aggregate of 7,995 units (the "Units"), each Unit consisting of $1,000
principal amount of the Registrant's 12% Convertible Subordinated Promissory
Notes due 2001 (the "Notes") and a detachable warrant (the "Warrant") to
purchase the Registrant's common stock, par value $.10 per share (the
"Common Stock"), at a purchase price of $1,000 per Unit, for an aggregate
purchase price of $7,995,000 to selected qualified investors (the "Investment
Transaction").
The net proceeds realized by the Registrant from the sale of the
securities, after the payment of fees and expenses associated with the offering,
including a placement fee, are estimated to be approximately $6,860,000. The
Registrant intends to use a portion of the net proceeds to pay amounts past due
to vendors primarily for raw materials and components. The balance will be used
for general corporate purposes including payments due to the Registrant's bank
lenders during 1996 pursuant to the revised credit agreement discussed below.
Assuming the conversion of all the Notes and the exercise of all the
Warrants as well as the exercise of all compensatory warrants, the Company will
have received gross proceeds of approximately $18,000,000 in exchange for the
sale of approximately 49.6% of the shares of Common Stock on a fully-diluted
basis and based on shares currently outstanding.
THE NOTES
The Notes will mature on January 15, 2001 and will bear interest from
the date of issuance at the rate per annum of 12%. Interest on the Notes will be
payable quarterly in arrears on January 15, April 15, July 15 and October 15 of
each year commencing April 15, 1996. In the event of a Chapter 11 or Chapter 7
bankruptcy case in which the Registrant is the debtor, the Notes will bear
interest from the date
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of commencement of the case at a default rate per annum equal to the lesser of
18% or the highest such rate allowable by law. The Notes will be subject to
prepayment, in whole and not in part, at the option of the Registrant, at any
time after the third anniversary of the date of issuance, without premium or
penalty. Upon the occurrence of a "change in control" of the Registrant, each
holder of the Notes will have the right to require the Registrant to repurchase
such holder's Notes in whole and not in part, without premium or penalty, at a
purchase price in cash in an amount equal to 100% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
purchase, pursuant to an offer made in accordance with the procedures described
in the Notes. The Notes may not be amended in any material respect without the
consent of the holders of at least 50% in aggregate principal amount of
outstanding Notes.
The indebtedness evidenced by the Notes, including any interest
thereon, is subordinate and subject in right of payment to the prior payment
when due in full of all Senior Indebtedness. Senior Indebtedness is defined in
the Note to include, unless the terms respecting the particular indebtedness or
obligation otherwise provide, the principal of, premium, if any, and any
interest on, all liabilities of the Registrant, 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
the Amended and Restated Credit Agreement dated as of April 12, 1995, as amended
to date (the "Credit Agreement"), among the Registrant, Chemical Bank and The
Bank of New York (collectively, the "Bank Lenders"), and all extensions,
renewals and refunding of any of the foregoing up to the original amount
(including the revised Credit Agreement discussed below). At February 15,
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1996, the amount of Senior Indebtedness outstanding was $15,975,000. There will
be no sinking fund for the Notes.
The Notes may be converted by the holders as to their principal amount
into Common Stock of the Registrant at any time at a conversion price equal to
$2.00 per share, subject to adjustment. The conversion price of the Notes will
be adjusted to $1.50 or $1.00, respectively, if earnings before interest, taxes,
depreciation and amortization of the Registrant ("EBITDA") falls below
$6,000,000 or $4,750,000 in 1996. Should the Registrant 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 subject to adjustment upon the
occurrence of any of the following events: (i) the recapitalization of the
Registrant or reclassification of the securities to be received upon conversion
or any merger or consolidation of the Registrant into or with a corporation or
other business entity, or the sale or transfer of all or substantially all of
the Registrant's assets or any successor corporation's assets to any other
corporation or business entity, (ii) the subdivision or combination of the
shares of Common Stock to be received upon conversion, (iii) the payment of
dividends or other distributions in the form of the securities to be received
upon conversion, and (iv) the issuance of shares of Common Stock at less than
the conversion price. No adjustment of the conversion price is required to be
made until cumulative adjustments otherwise required to be made amount to 1% or
more of the conversion price last adjusted. The Registrant may force conversion
of the Notes if, at any time prior to maturity, the closing bid price for the
Common Stock exceeds $6.00 per share for thirty (30) consecutive trading days
prior to the giving of notice of
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conversion. Fractional shares will not be issued upon conversion, but a cash
adjustment will be paid in lieu thereof. Interest will accrue on the Notes
through the date of conversion. No payment or adjustment will be made for
dividends on securities issued upon conversion.
The Notes contain certain negative covenants prohibiting, among other
things, the negative pledge of the Registrant's assets not otherwise encumbered
by its senior lenders.
"Events of Default" under the Notes include failure to pay principal or
interest, the failure to pay other indebtedness for borrowed money in excess of
$500,000 when due, or the acceleration of such indebtedness, the failure to pay
any judgment in excess of $500,000 when due or stayed, and voluntary or
involuntary bankruptcy of the Registrant. In the event the Registrant defaults
in making any payment of principal required to be made by the Notes, the
Registrant shall pay interest on such defaulted amount at a rate of 18%.
If an Event of Default occurs and is continuing, then and in every such
case the holders of the Notes may declare the Notes then outstanding to be
immediately due and payable by a notice in writing to the Registrant, whereupon
the same will be immediately due and payable. A payment default will result in
an increased issuance to investors of Warrants to purchase an amount of shares
of Common Stock and until the Notes are fully repaid, the right of the investors
to elect a majority of the Registrant's Board of Directors. In the event of a
Chapter 11 or Chapter 7 bankruptcy case in which the Registrant is the debtor,
the Notes will bear interest from the date of commencement of the case at a
default rate per annum equal to the lesser of 18% or the highest such rate
allowable by law.
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The foregoing description of the Notes is a summary of certain of the
provisions contained in the Notes and reference is made to a form of the Notes
which is attached hereto as Exhibit 1 and is incorporated herein by reference
for all of its terms and conditions.
THE WARRANTS
Each Warrant entitles the holder thereof to purchase specified numbers
of shares of Common Stock at an exercise price equal to $2.50 per share, subject
to adjustment (the "Exercise Price"). The Exercise Price of the Warrants will be
adjusted to $2.00 or $1.50, respectively, if the Registrant's EBITDA falls below
$6,000,000 or $4,750,000 in 1996. Should the Registrant 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 Exercise Price and the number of shares of
Common Stock to be received upon exercise are subject to adjustment upon the
occurrence of any of the following events: (i) the recapitalization of the
Registrant or reclassification of the securities to be received upon conversion
or any merger or consolidation of the Registrant into or with a corporation or
other business entity, or the sale or transfer of all or substantially all of
the Registrant's assets or any successor corporation's assets to any other
corporation or business entity, (ii) the subdivision or combination of shares of
Common Stock to be received upon exercise, (iii) the payment of dividends or
other distributions in the form of the securities to be received upon exercise,
and (iv) the issuance of shares of Common Stock at less than the Exercise Price.
No adjustment of the Exercise Price is required to be made until cumulative
adjustments otherwise required to be made amount to 1% or more of the Exercise
Price last adjusted. Warrants will be exercisable, at any time and from time
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to time, on or before 5:30 p.m., local time, on or before February 15, 2002, by
delivery of an exercise notice duly completed and tendering of the aggregate
Exercise Price.
The foregoing description of the Warrants is a summary of certain of
the provisions contained in the Warrants and reference is made to the form of
the Warrants which is attached hereto as Exhibit 2 and is incorporated herein by
reference for all of its terms and conditions.
SHAREHOLDER APPROVAL
The sale of the Units offered in the Investment Transaction was
conditioned on shareholder approval of: (i) the issuance of the Units which
would result in the potential issuance of more than 20% of the Registrant's
Common Stock and may result in a change of control of the Registrant, and (ii)
an amendment to the Registrant's Certificate of Incorporation to increase the
number of authorized shares of Common Stock from 10,000,000 to 25,000,000 (the
"Charter Amendment"). Both matters were approved by the Registrant's
shareholders at a Special Meeting of Shareholders held in Longmont, Colorado on
February 1, 1996.
The foregoing description of the Charter Amendment is a summary of
certain of the provisions contained in the Charter Amendment and reference is
made to a copy of such Charter Amendment which is attached hereto as Exhibit 3
and is incorporated herein by reference for all of its terms and conditions.
REGISTRATION RIGHTS
As part of the Investment Transaction the Registrant has agreed to file
a registration statement with the Securities and Exchange Commission (the
"Commission") with respect to the Notes, the Warrants and the shares of Common
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Stock reserved for issuance upon conversion of the Notes and exercise of the
Warrants (collectively, the "Registrable Securities") within the later of 90
days after the initial closing on February 14, 1996 or March 31, 1996 and to use
its best efforts to cause such registration statement to become effective within
60 days thereafter and to keep such registration statement effective for up to
three years thereafter in accordance with a Registration Rights Agreement (the
"Registration Rights Agreement"). In the event the registration statement is not
filed or declared effective and does not remain effective for such required time
periods, the interest rate borne by the Notes will be increased by 1% per annum
for each 90-day period (or portion thereof) that such failure continues, with
such rate to increase to 18% if such failure continues for nine months or more
after the initial closing, 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 promulgated under the Securities Act, or
otherwise. Upon the effectiveness or reeffectiveness of the registration
statement, the interest rate borne by the Notes will be reduced to the original
interest rate of the Notes.
The Registrant has also agreed to include the Registerable Securities
in any registration statement filed with the Commission, at any time prior to
December 31, 2005, with respect to any future public offerings initiated by the
Registrant or any other selling shareholders (the "Piggy-Back Rights") and
holders of a majority in interest of Registerable Securities will have the
right, which right may be exercised no more than twice, to demand, at any time
prior to December 31, 2005, that the Registrant file a registration statement
with the Commission with respect to not less than $1,000,000 of the Registrable
Securities (the "Demand Rights"). The Bank
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Lenders will have priority with respect to the sale of an aggregate of 250,000
shares of Common Stock owned by them in up to two of such registrations so long
as any Senior Indebtedness remains outstanding. The Registrant will bear all
fees and expenses incurred in the preparation and filing of any registration
statement relating to the exercise of Piggy-Back Rights and the first exercise
of Demand Rights as well as the initial registration.
The foregoing description of the Registration Rights Agreement is a
summary of certain of the provisions contained in the Registration Rights
Agreement and reference is made to the form of such agreement which is attached
hereto as Exhibit 4 and is incorporated herein by reference for all of its terms
and conditions.
PLACEMENT AGENCY AGREEMENT
Pursuant to the Investment Transaction the Registrant entered into a
Placement Agency Agreement, dated as of December 15, 1995 (the "Placement Agency
Agreement"), with Commonwealth Associates ("Commonwealth") whereby the Units
were offered on behalf of the Registrant solely by Commonwealth on a "best
efforts -- 6,000 Units or none" basis. Commonwealth has received a fee equal to
8% of the gross proceeds of the offering together with the reimbursement of
accountable expenses up to $200,000 for its services. Under the Placement Agency
Agreement, until December 31, 2000, Commonwealth has been granted a right of
first refusal to act as the Registrant's underwriter and placement agent with
respect to future public and private financing and serve as the Registrant's
investment banker with respect to any potential acquisition, merger,
divestiture, strategic planning or other activity, but only if the terms offered
by Commonwealth are comparable to those then being offered by other investment
banking firms to similarly situated companies. In
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addition, pursuant to the Placement Agency Agreement, on February 15, 1996,
Commonwealth and its designees purchased for $.001 per warrant, warrants to
purchase 723,500 shares of Common Stock, each at an exercise price of $2.50 per
share, subject to adjustment in certain events (the "Placement Agent's
Warrants"). The Placement Agent's Warrants will be exercisable for a period
of six years and are not redeemable by the Registrant under any circumstances.
The Registrant has agreed to register the Placement Agent's Warrants
and the underlying Common Stock on substantially similar terms to the investors
in the Investment Transaction. The number of shares of Common Stock deliverable
upon any exercise of the Placement Agent's Warrants and the exercise price of
such warrants are subject to adjustment to protect against any dilution upon the
occurrence of certain events.
Commonwealth and the Registrant have also agreed to indemnify each
other against certain civil liabilities, including liabilities under the
Securities Act, or to contribute to payments either may be required to make in
respect thereof.
The foregoing description of the Placement Agency Agreement is a
summary of certain of the provisions contained in the Placement Agency Agreement
and reference is made to a copy of such agreement which is attached hereto as
Exhibit 5 and is incorporated herein by reference for all of its terms and
conditions.
LEAD INVESTOR
In October 1995 and December 1995, Charles S. Holmes, a director of
the Registrant, purchased two subordinated notes of the Registrant each in the
principal
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amount of $1,000,000. In connection with such investment, the Registrant agreed
that Mr. Holmes may designate one of the two individuals to be appointed by
investors as directors of the Registrant to fill the vacancies which will be
caused by the resignation of two current members of the Board of Directors of
the Registrant as discussed below. Such notes were exchanged for 2,000 Units in
the Investment Transaction. Mr. Holmes became a director of the Registrant in
October 1995. Warrants to purchase an aggregate of 1,200,000 shares were issued
to Mr. Holmes for past advisory services in connection with the Investment
Transaction and the engagement of the Commonwealth.
In December 1995 and January 1996, Active Investors II, Ltd. purchased
subordinated notes of the Registrant in the aggregate principal amount of
$900,000. C. Shelton James, a director of the Registrant, is the President and a
director of Active Investors II, Ltd. In connection with such investment, the
Registrant agreed that Active Investors may designate one of the two individuals
to be appointed by investors as directors of the Registrant to fill the
vacancies which will be caused by the resignation of two current members of the
Board of Directors of the Registrant as discussed below. Such notes were
exchanged for 900 Units in the Investment Transaction. Active Investors II, Ltd.
indicated it would be interested in purchasing an additional 100 Units on or
about February 23, 1996. Active Investors II, Ltd. and certain affiliated
limited partnerships currently own approximately 5.57% of the Registrant's
Common Stock.
REVISED CREDIT AGREEMENT
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Effective January 5, 1996 the Registrant entered into a fourth
amendment to the Credit Agreement with its bank lenders which amended the
definition of the maturity date under the Credit Agreement to mean February 15,
1996.
Effective February 15, 1996, the Registrant entered into a fifth
amendment to the Credit Agreement (the "Fifth Amendment") with the Bank Lenders
which amended and extended the payment provisions contained therein and reset
certain financial covenants on more favorable terms for the Registrant. The
Fifth Amendment provides for principal payments of $500,000 on each of March 31,
1996, June 30, 1996, September 30, 1996 and December 31, 1996 and $750,000 on
the last day of each quarter thereafter, commencing on March 31, 1997 and ending
on December 31, 1998, together with accrued and unpaid interest through the
applicable payment date. The remaining outstanding principal amount of
$7,975,000 is due and payable on January 15, 1999. Borrowings permitted under
the revised Credit Agreement are irrevocably reduced with each quarterly
principal payment. The interest rate, bank fees, collateral, non-financial
covenants and events of default have not been modified by the revised Credit
Agreement. Concurrent with the execution of the Fifth Amendment, the Registrant
amended the terms of certain demand registration rights and piggyback
registration rights granted to the Bank Lenders pursuant to an Amendment No. 1
to Registration Rights Agreement, dated as of February 13, 1996 (the
"Registration Rights Amendment").
The foregoing description of the agreements executed in connection with
the Credit Agreement is a summary of certain of the provisions contained therein
and reference is made to a copy of such agreements which are attached hereto as
Exhibit
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6, Exhibit 7 and Exhibit 8, respectively, and are incorporated herein by
reference for all of their terms and conditions.
RESIGNATION OF DIRECTORS
Effective upon completion of the Investment Transaction on February 15,
1996, two current members of the Board of Directors of the Registrant, Robert D.
Rosenthal and John M. May, resigned from the Board. The Registrant intends to
appoint as directors one individual designated by each of Messrs. Holmes and
James who are reasonably acceptable to the Registrant to serve as directors so
long as the Notes are outstanding. No persons have yet been designated to serve
in such capacity but are expected to be designated and appointed in March 1996.
The resignation letters of Messrs. Rosenthal and May are attached
hereto as Exhibit 9 and Exhibit 10 respectively.
PRESS RELEASE
On February 15, 1996, the Registrant issued a press release (the "Press
Release") describing the closing of the Investment Transaction and the
Amendment.
The Press Release is attached hereto as Exhibit 11.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NAI TECHNOLOGIES, INC.
By: /s/ Richard A. Schneider
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Name: Richard A. Schneider
Title: Executive Vice President
and Chief Financial Officer
Date: February 23, 1996
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EXHIBIT INDEX
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Exhibit No. Description
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1. Form of 12% Convertible Subordinated Promissory Note, due January
15, 2001, of the Registrant.
2. Form of Warrant to Purchase Common Stock of the Registrant, on or
before February 15, 2002.
3. Certificate of Amendment to the Certificate of Incorporation of the
Registrant, as filed with the New York Secretary of State on February
2, 1996.
4. Registration Rights Agreement, dated as of February 13, 1996, between
the Registrant and the Investors.
5. Placement Agency Agreement, dated as of December 15, 1995,
between Commonwealth Associates and the Registrant.
6. Fourth Amendment to Amended and Restated Credit Agreement, dated
as of January 5, 1996, among the Registrant, Chemical Bank, a New
York banking corporation, ("Chemical"), The Bank of New York, a
New York banking corporation ("BNY"), and each of the other
financial institutions which from time to time becomes a party thereto
(together with Chemical and BNY, the "Banks"), BNY, as
administrative agent (the "Administrative Agent"), and Chemical as
collateral agent (the "Collateral Agent").
7. Fifth Amendment, dated as of February 13, 1995, to Amended and
Restated Credit Agreement, dated as of April 12, 1995, as
previously amended, among the Registrant, the Banks, the
Administrative Agent and the Collateral Agent.
8. Amendment No. 1 to Registration Rights Agreement, dated as of
February 13, 1996 (the "Registration Rights Amendment"), to that
certain Registration Rights Agreement, dated as of April 12, 1995, as
amended, between the Registrant, BNY and Chemical.
9. Resignation letter of Robert D. Rosenthal, dated December 13, 1995,
resigning from the Board of Directors of the Registrant.
10. Resignation letter of John M. May, dated February 13, 1996, resigning
from the Board of Directors of the Registrant.
11. Press Release, dated February 15, 1996, describing the closing of the
Investment Transaction and the Amendment.
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Exhibit 1
NO. _______ $___________
NAI TECHNOLOGIES, INC.
FORM OF
12% CONVERTIBLE SUBORDINATED PROMISSORY NOTE
MATURITY DATE: JANUARY 15, 2001
THIS NOTE AND THE COMMON STOCK THAT MAY BE ISSUABLE TO THE HOLDER HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE
WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND
STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
FOR VALUE RECEIVED, NAI TECHNOLOGIES, INC., a New York corporation (the
"Company"), promises to pay to ______________________, the registered holder or
registered assigns hereof (the "Holder"), the principal amount of
_________________ Dollars ($_________) payable on the fifteenth day of January
2001 (the "Maturity Date"), together with interest on the outstanding principal
amount of this Note at the rate of twelve percent (12%) per annum calculated on
the basis of a 360 day year, such interest to be payable in arrears on a
quarterly basis on the fifteenth day of January, April, July and October of each
year, commencing on April 15, 1996. In the event that any payment of any
principal and/or interest hereunder is not paid when due as provided for herein,
and without affecting any of the Holder's other rights and remedies, the unpaid
principal balance hereof shall thereafter accrue interest at the defaulted rate
specified in Section 11(a) of this Note.
This Note is one of a series of the Company's 12% Convertible
Subordinated Promissory Notes (collectively, the "Notes"), issued pursuant to
that certain Confidential Private Placement Memorandum, dated December 15, 1995,
as supplemented (the "Memorandum"). Capitalized terms used and not otherwise
defined herein shall have the respective meanings attributed thereto in Section
13.
1. Payments and Prepayments.
(a) Payments of principal and interest on this Note shall be made at
the principal office of the Company, located at 2405 Trade Centre Avenue,
Longmont, Colorado 80503, or such other place or places within the United States
as may be specified by the Holder of this Note in a written notice to the
Company at least ten (10) business days before a given payment date.
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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 times be within its control.
(b) The Holder hereby agrees that it will not sell or transfer all or
any part of this Note and/or Conversion Shares unless and until, and so long as
such securities are not covered by an effective registration statement under the
Act, it shall first have given notice to the Company describing such sale or
transfer and furnished to the Company either (i) an opinion, reasonably
satisfactory to counsel for the Company, of counsel (skilled in securities
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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,
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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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all such liability, by the acceptance hereof, and as part of the consideration
hereof, being expressly waived.
(d) Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note and of a letter of
indemnity reasonably satisfactory to the Company, and upon reimbursement to the
Company of all reasonable expenses incident thereto, and upon surrender or
cancellation of this Note, if mutilated, the Company will make and deliver a new
Note of like tenor in lieu of such lost, stolen, destroyed or mutilated Note.
(e) THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE COMPANY AND
THE HOLDER HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS AND INSTRUMENTS MADE
AND TO BE PERFORMED IN NEW YORK AND CANNOT BE MODIFIED OR CHANGED ORALLY.
IN WITNESS WHEREOF, the Company has duly caused this Note to be signed
on its behalf, in its corporate name and by its duly authorized officer, as of
this _____ day of February 1996.
NAI TECHNOLOGIES, INC.
By:
_________________
Richard A. Schneider
Executive Vice President,
Treasurer and Secretary
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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
</TABLE>
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EXHIBIT 2
NO. _______ ____________ SHARES
NAI TECHNOLOGIES, INC.
FORM OF
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 ______________________, or
registered assigns (the "Holder"), under the terms as hereinafter set forth,
_____________________ (__________) 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
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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
4
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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
5
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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 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 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 _____ day of February 1996.
NAI TECHNOLOGIES, INC.
By:___________________________
Richard A. Schneider
Executive Vice President,
Treasurer and Secretary
11
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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>
12
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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
13
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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:
-------------------------
14
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Exhibit 3
CERTIFICATE OF AMENDMENT
of the
CERTIFICATE OF INCORPORATION
of
NAI Technologies, Inc.
(a New York corporation)
(Under Section 805 of the Business
Corporation Law of the State of New York)
The undersigned, desiring to amend a certificate of incorporation under
the provisions of the Business Corporation Law of the State of New York
(hereinafter referred to as the "BCL"), hereby certifies as follows:
FIRST. The name of the corporation is NAI Technologies, Inc.
(hereinafter referred to as the "Corporation"). The name under which the
Corporation was originally formed is North Atlantic Industries, Inc.
SECOND. The original Certificate of Incorporation of the Corporation
was filed by the New York Department of State on July 15, 1954. The Restated
Certificate of Incorporation of the Corporation was filed with the New York
Department of State on August 19, 1991.
THIRD. Paragraph "3" of the Certificate of Incorporation of the
Corporation, which sets forth the aggregate number and designations of shares of
stock which the Corporation shall have the authority to issue, is hereby
eliminated in its entirety and the following language is substituted in lieu
thereof which has the effect of increasing from ten million (10,000,000) to
twenty-five million (25,000,000) the number of shares of Common Stock the
Corporation shall have authority to issue:
"3. The aggregate number of shares of stock which the Corporation shall
have the authority to issue is twenty-seven million (27,000,000)
shares, of which twenty-five million (25,000,000) shares shall be
designated Common Stock, each such share having a par value of $.10,
and of which two million (2,000,000)
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shares shall be designated Preferred Stock, each such
share having a par value of $.10."
FOURTH. Paragraph "4" of the Certificate of Incorporation of the
Corporation, which sets forth the terms and conditions under which the
Corporation may issue its Preferred Stock, is hereby restated in its entirety
without making any amendment to or change in the provisions thereof:
"4. The Preferred Stock may be issued in series. The Board of Directors
of the Corporation is hereby expressly authorized to establish and
designate series of Preferred Stock and to fix from time to time before
issuance the number, designation, relative rights, preferences and
limitations (including, without limitation, participating, voting,
optional or other special rights) of the shares of any series of
Preferred Stock. Except to the extent, if any, that holders of issued
and outstanding shares of Preferred Stock are entitled to vote, the
entire voting power for the election of directors and for all other
purposes shall be vested exclusively in the holders of Common Stock,
who shall be entitled to one vote for each share of Common Stock held
by them of record."
FIFTH: The aforesaid amendment to Paragraph 3 of the Certificate of
Incorporation of the Corporation have been authorized (1) by the unanimous vote
of the Board of Directors of the Corporation taken at a meeting of said Board of
Directors and (2) by the vote of the holders of a majority of all outstanding
shares of the Corporation entitled to vote thereon taken at a meeting of said
shareholders, respectively, all in accordance with Section 803(a) of the BCL.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Certificate of Incorporation to be signed and subscribed in its
name this 1st day of February, 1996, and the statements contained herein are
affirmed as true under the penalties of perjury.
NAI TECHNOLOGIES, INC.
By /s/ ROBERT A. CARLSON
Robert A. Carlson
Chairman of the Board
By /s/ RICHARD A. SCHNEIDER
Richard A. Schneider
Secretary
-2-
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EXHIBIT 4
NAI TECHNOLOGIES, INC.
FORM OF
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
4
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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
5
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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 ______
day of February 1996.
NAI TECHNOLOGIES, INC.
By:
-----------------------------
Name:
Title:
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FOR INDIVIDUALS:
---------------------------------
Signature of Investor
---------------------------------
Name of Investor (please print)
---------------------------------
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:
--------------------------
Signature of Partner
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EXHIBIT 5
NAI TECHNOLOGIES, INC.
PLACEMENT AGENCY AGREEMENT
As of December 15, 1995
Commonwealth Associates
733 Third Avenue
New York, New York 10017
Attention: Mr. Keith M. Rosenbloom
Vice President - Corporate Finance
Gentlemen:
NAI Technologies, Inc., a New York corporation (the "Company"),
proposes to offer for sale to "accredited investors," in a private placement, up
to 9,200 units (the "Units") for a purchase price of $1,000 per Unit. Each Unit
consists of (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 (the "Common Stock"), and (ii) a warrant (the "Warrant") to
purchase 250 shares of Common Stock at an exercise price of $2.50 per share
(subject to adjustment in certain events) from the date issuance until February
15, 2002. The Units will be offered pursuant to those terms and conditions
acceptable to you as reflected in the Confidential Private Placement Memorandum,
dated December 15, 1995, as supplemented (the "Memorandum"). The Units will be
offered on a "best efforts, 6,000 Units-or-none" basis and after 6,000 Units
have been sold, the remaining Units will be sold on a "best efforts" basis
pursuant to the Memorandum and related documents in accordance with Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"), and Regulation
D promulgated thereunder.
Commonwealth Associates is sometimes referred to herein as the
"Placement Agent." The Memorandum, as it may be amended or supplemented from
time to time, the form of proposed subscription agreement between the Company
and each subscriber (the "Subscription Agreement") and the other exhibits which
are part of the Memorandum and/or the Subscription Agreement are collectively
referred to herein as the "Offering Documents."
The Company will prepare and deliver to the Placement Agent a
reasonable number of copies of the Offering Documents in form and substance
satisfactory to counsel to the Placement Agent.
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Each prospective investor subscribing to purchase Units (a
"Subscriber") will be required to deliver, among other things, a Subscription
Agreement and an offeree questionnaire (a "Questionnaire") in the form to be
provided to offerees.
1. Appointment of Placement Agent.
(a) You are hereby appointed exclusive Placement Agent of the Company
during the Offering Period herein specified for the purposes of assisting the
Company in finding qualified Subscribers pursuant to the offering (the
"Offering") described in the Offering Documents. The Offering Period shall
commence on the day the Offering Documents are first made available to the
Placement Agent by the Company for delivery in connection with the Offering for
sale of the Units and shall continue until the earlier to occur of (i) the sale
of all of the Units or (ii) February 15, 1996 (unless extended until a date not
later than 30 days thereafter under the circumstances specified in the
Memorandum). The day that the Offering Period terminates is hereinafter referred
to as the "Termination Date."
(b) Subject to the performance by the Company of all of its obligations
to be performed under this Agreement and to the completeness and accuracy of all
representations and warranties of the Company contained in this Agreement, the
Placement Agent hereby accepts such agency and agrees to use its best efforts to
assist the Company in finding qualified subscribers pursuant to the Offering
described in the Offering Documents. It is understood that the Placement Agent
has no commitment to sell the Units. Your agency hereunder is not terminable by
the Company except upon termination of the Offering Period.
(c) Subscriptions for Units shall be evidenced by the execution by
Subscribers of a Subscription Agreement. No Subscription Agreement shall be
effective unless and until it is accepted by the Company. Until the Closing (as
such term is defined in Section 4(b) hereof), all subscription funds received
shall be held as described in the Subscription Agreement and in Section 4(a)
hereof. The Placement Agent shall not have any obligation to independently
verify the accuracy or completeness of any information contained in any
Subscription Agreement or the authenticity, sufficiency or validity of any check
delivered by any prospective investor in payment for Units.
2. Representations and Warranties of the Company. The Company
represents and warrants to the Placement Agent as follows:
(a) Securities Law Compliance. The Offering Documents conform in all
respects with the requirements of Section 4(2) of the Securities Act and
Regulation D promulgated thereunder and with the requirements of all other
published rules and regulations of the Securities and Exchange Commission
(the "Commission") currently in effect relating to "private offerings" to
"accredited investors." The Offering Documents, when read together as of
their respective dates, will not contain an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances in which they were made,
not misleading. If at any time prior to the Termination Date or other
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termination of this Agreement any event shall occur as a result of which it
might become necessary to amend or supplement the Offering Documents so
that they do not include any untrue statement of any material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances then existing, not misleading,
the Company will promptly notify the Placement Agent and will supply the
Placement Agent with amendments or supplements correcting such statement or
omission. The Company will also provide the Placement Agent for delivery to
all offerees and purchasers and their representatives, if any, any
information, documents and instruments which the Placement Agent deems
necessary to comply with applicable state and federal law.
(b) Organization. Each of the Company and Codar, Systems, Lynwood and
Wilcom (as such terms are defined in the Memorandum) is a corporation duly
organized, validly existing and in good standing under the laws of its
respective state or jurisdiction of incorporation and has all requisite
corporate power and authority to own and lease its properties, to carry on
its business as currently conducted and as proposed to be conducted, to
execute and deliver this Agreement and to carry out the transactions
contemplated by this Agreement, and is duly licensed or qualified to do
business as a foreign corporation in each jurisdiction in which the conduct
of its business or ownership or leasing of its properties requires it to be
so qualified, except where the failure to be so qualified would not have a
material adverse effect on the business, financial condition or prospects
of the Company.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company prior to the consummation of the transactions
contemplated hereby is as set forth in the Memorandum. All issued and
outstanding shares of the Company are validly issued, fully paid and
nonassessable and have not been issued in violation of the preemptive
rights of any shareholder of the Company. All prior sales of securities of
the Company were either registered under the Securities Act and applicable
state securities laws or exempt from such registration.
(d) Warrants, Preemptive Rights, etc. Except for the Notes, the
Warrants, the warrants to purchase shares of Common Stock to be issued to
the Placement Agent or its designees in consideration for acting as
Placement Agent hereunder (the "Agent's Warrants") and except as set forth
in the Memorandum, including the exhibits thereto, there are not, nor will
there be immediately after the Closing, any outstanding warrants, options,
agreements, convertible securities, preemptive rights to subscribe for or
other commitments pursuant to which the Company is, or may become,
obligated to issue any shares of its capital stock or other securities of
the Company and this Offering will not cause any anti-dilution adjustments
to such securities or commitments except as reflected in the Memorandum.
(e) Subsidiaries and Investments. Except as stated in the Memorandum
and for Arathon V.I., Inc., the Company has no subsidiaries and the Company
does not own, directly or indirectly, any capital stock or other equity
ownership or proprietary interests in any other corporation, association,
trust, partnership, joint venture or other entity.
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(f) Financial Statements. The financial information contained in the
Offering Documents is accurate in all material respects (such financial
statements included as part of the Offering Documents are hereinafter
referred to collectively as the "Financial Statements"). The Financial
Statements have been prepared in conformity with generally accepted
accounting principles consistently applied and show all material
liabilities, absolute or contingent, of the Company required to be recorded
thereon and present fairly the financial position and results of operations
of the Company as of the dates and for the periods indicated.
(g) SEC Documents. The Company has furnished the Placement Agent with
true and complete copies of all documents that the Company has filed with
the Commission since January 1, 1995 (the "SEC Documents"). As of their
respective filing dates, except as amended by filings with the Commission,
the SEC Documents complied in all material respects with the requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
applicable, were complete and correct in all material respects as of the
dates at which the information was furnished, and contained (as of such
dates) no untrue statement of a material fact nor omitted to state a
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents (the
"Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the Commission with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as permitted by
the rules and regulations of the Commission) and fairly present the
consolidated financial position of the Company as of the dates thereof and
the consolidated results of its operations and changes in its financial
position for the periods then ended (subject, in the case of unaudited
statements, to normal recurring audit adjustments, provided that the notes
and accounts receivable are collectible in the amounts shown less any
reserve shown thereon and inventories are not subject to write-down, except
in either case in an amount not material). The information contained in
this Agreement and the SEC Documents is true, complete and correct in all
material respects and does not contain any untrue statement of a material
fact or omit to state any material fact required to be stated herein or
therein or necessary to make the statements herein or therein not
misleading.
(h) Absence of Changes. Except as stated in the Memorandum, since
January 1, 1995, the Company has not incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of business,
or entered into any transaction not in the ordinary course of business,
which is material to the business of the Company, and there has not been
any change in the capital stock of, or any incurrence of long-term debt by,
the Company, or any issuance of options, warrants or other rights to
purchase the capital stock of the Company, or any adverse change or any
development involving, so far as the Company can now reasonably foresee, a
prospective adverse change in the condition (financial or otherwise), net
worth, results of operations, business, key personnel or properties which
would be material to the business or financial condition of the Company,
and the Company has not become a party to, and neither the business nor the
property of the Company has become the subject of, any
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litigation which if adversely determined would have a material adverse
affect, whether or not in the ordinary course of business.
(i) Title. Except as set forth in the Memorandum, the Company has good
and marketable title to all properties and assets, owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except such as
are not materially significant or important in relation to the Company's
business; all of the material leases and subleases under which the Company
is the lessor or sublessor of properties or assets or under which the
Company holds properties or assets as lessee or sublessee are in full force
and effect, and the Company is not in default in any material respect with
respect to any of the terms or provisions of any of such leases or
subleases, and no material claim has been asserted by anyone adverse to
rights of the Company as lessor, sublessor, lessee or sublessee under any
of the leases or subleases mentioned above, or affecting or questioning the
right of the Company to continued possession of the leased or subleased
premises or assets under any such lease or sublease. The Company owns or
leases all such properties as are necessary to its operations as now
conducted and to be conducted, as presently planned.
(j) Patents, Trademarks, etc. The Company owns or possesses adequate
and enforceable rights to use all patents, patent applications, trademarks,
service marks, copyrights, trade secrets, processes, formulations,
technology or know-how used or proposed to be used in the conduct of its
business as described in the Memorandum (collectively, "Proprietary
Rights"). The Company has not received any notice of any claims, nor does
it have any knowledge of any threatened claims, and knows of no facts which
could form the basis of any claim, asserted by any person to the effect
that the sale or use of any product or process now used or offered by the
Company or proposed to be used or offered by the Company infringes on any
patents or infringes upon the use of any such Proprietary Rights of another
person and, to the best of the Company's knowledge, no others have
infringed the Company's Proprietary Rights.
(k) Litigation. Except as set forth in the Memorandum under "Business
-- Legal Proceedings," there is no material action, suit, investigation,
customer complaint, claim or proceeding at law or in equity by or before
any arbitrator, governmental instrumentality or other agency now pending
or, to the knowledge of the Company, threatened against the Company (or
basis therefor known to the Company), the adverse outcome of which could
materially adversely affect the Company's business. The Company is not
subject to any judgment, order, writ, injunction or decree of any federal,
state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign which could
materially adversely affect the Company's business or prospects.
(l) Nondefaults; Noncontravention. The Company is not in violation of
or default under, nor will the execution and delivery of this Agreement or
any of the Offering Documents or consummation of the transactions
contemplated herein or therein (except for the written consent of the Bank
Lenders) result in a violation of or constitute a default in the
performance or observance of any obligation (i) under its Restated
Certificate of Incorporation
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or its By-laws, (ii) under any indenture, mortgage, deed of trust, material
contract, material purchase order or other material agreement or instrument
to which the Company is a party or by which it or its property is bound or
affected or (iii) with respect to any material order, writ, injunction or
decree of any court or any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic
or foreign, and there exists no condition, event or act which constitutes,
nor which after notice, the lapse of time or both, could constitute a
default under any of the foregoing, which in either case would have a
material adverse effect on the business of the Company.
(m) Taxes. The Company has filed all federal, state, local and foreign
tax returns which are required to be filed by it and all such returns are
true and correct in all material respects. The Company has paid all taxes
pursuant to such returns or pursuant to any assessments received by it or
which it is obligated to withhold from amounts owing to any employee,
creditor or third party. The Company has properly accrued all taxes
required to be accrued. The tax returns of the Company are not currently
being audited by any state, local or federal authorities, except for the
federal tax returns relating to NAI for the fiscal year ended December 31,
1994 and Codar Technology, Inc. (or its predecessor) for the fiscal year
ended October 14, 1993. The Company has not waived any statute of
limitations with respect to taxes or agreed to any extension of time with
respect to any tax assessment or deficiency.
(n) Compliance with Laws; Licenses, etc. The Company has not received
notice of any violation of or noncompliance with any federal, state, local
or foreign laws, ordinances, regulations and orders applicable to its
business which has not been cured, the violation of, or noncompliance with
which, would have a materially adverse effect on the business or operations
of the Company. The Company has all licenses and permits and other
governmental certificates, authorizations and approvals (collectively,
"Licenses") required by every federal, state and local government or
regulatory body for the operation of its business as currently conducted
and the use of its properties, except where the failure to be licensed
would not have a material adverse effect on the business of the Company.
The Licenses are in full force and effect and no violations are or have
been recorded in respect of any License and no proceeding is pending or, to
the knowledge of the Company, threatened to revoke or limit any thereof.
(o) Authorization of Agreement, etc. This Agreement has been duly
executed and delivered by the Company and the execution, delivery and
performance by the Company of this Agreement and the Subscription Agreement
and other Offering Documents have been duly authorized by all requisite
corporate action by the Company and constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
(p) Authorization of Units. The issuance, sale and delivery of the
Units, the Notes, the Warrants and the Agent's Warrants have been duly
authorized by all requisite corporate action of the Company and, when so
issued, paid for and delivered, the Warrants will be validly issued, fully
paid and nonassessable and, will not be subject to
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preemptive or any other similar rights of the shareholders of the Company
or others which rights shall not have been waived prior to the Closing.
(q) Authorization of Reserved Shares. The issuance, sale and delivery
by the Company of the shares of Common Stock reserved for issuance upon
conversion of the Notes and exercise of the Warrants and the Agent's
Warrants (the "Reserved Shares") have been duly authorized by all requisite
corporate action of the Company, subject to shareholder approval at the
Company's Special Meeting of Shareholders to be held on February 1, 1996,
and, subject to the foregoing and the filing of the Charter Amendment with
the Department of State of the State of New York, the Reserved Shares have
been duly reserved for issuance upon conversion of the Notes and exercise
of the Warrants and the Agent's Warrants and when so issued, sold, paid for
and delivered, the Reserved Shares will be validly issued and outstanding,
fully paid and nonassessable, and not subject to preemptive or any other
similar rights of the shareholders of the Company or others which rights
shall not have been waived prior to the Closing.
(r) Exemption from Registration. Assuming (i) the accuracy of the
information provided by the respective Subscribers in the Subscription
Documents and the other Offering Documents and (ii) that the Placement
Agent has complied in all material respects with the provisions of Rule
502(c) of Regulation D promulgated under the Securities Act, the offer and
sale of the Units pursuant to the terms of this Agreement are exempt from
the registration requirements of the Securities Act and the rules and
regulations promulgated thereunder (the "Regulations"). The Company is not
disqualified from the exemption under Regulation D by virtue of the
disqualifications contained in Rule 505(b)(2)(iii) or Rule 507 promulgated
thereunder.
(s) Registration Rights. Except with respect to holders of the Units
and the Agent's Warrants and as stated in the Memorandum, no person has any
right to cause the Company to effect the registration under the Securities
Act of any securities of the Company.
(t) Brokers. Neither the Company nor any of its officers, directors,
employees or shareholders has employed any broker or finder in connection
with the transactions contemplated by this Agreement other than the
Placement Agent.
(u) Title to Units. When certificates representing the Reserved Shares
shall have been duly delivered to the purchasers and payment shall have
been made therefor (assuming such purchasers are bona fide purchasers
within the meaning of the Uniform Commercial Code), the several purchasers
shall have marketable title to the Reserved Shares free and clear of all
liens, encumbrances and claims whatsoever (with the exception of claims
arising from or through the acts of the purchasers and except as arising
from applicable federal and state securities laws), and the Company shall
have paid all transfer taxes, if any, in respect of the original issuance
thereof.
(v) Right of First Refusal. Except for the right of first refusal to
be granted to the Placement Agent, no person, firm or other business entity
is a party to any
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agreement, contract or understanding, written or oral, entitling such party
to a right of first refusal with respect to the offer or sale of any equity
or debt securities by the Company.
(w) Solvency. The Company's assets currently exceed its liabilities.
3. Representations and Warranties of the Placement Agent. The Placement
Agent represents and warrants to the Company as follows:
(a) This Agreement has been duly authorized, executed and delivered by
the Placement Agent and is a valid and binding agreement on its part,
enforceable against the Placement Agent in accordance with its terms.
(b) The Placement Agent is duly registered pursuant to the provisions
of the Exchange Act, as a broker-dealer and is a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD") and is duly
registered as a broker-dealer in those states in which it is required to be
so registered in order to carry out the Offering contemplated by the
Memorandum.
4. Escrow; Closing; Placement and Fees.
(a) Escrow Account. Funds received from the sale of the Units will be
deposited by the Placement Agent with Citibank, N.A., as escrow agent (the
"Escrow Agent"), and held by the Escrow Agent in trust for the investors until
the Placement Agent is required to deliver the funds to the Company or return
the funds to the investors upon termination of the Offering or upon instruction
from the Company. All funds held in escrow will bear interest at 12% per annum.
(b) Closing. Provided the minimum number of Units shall have been
subscribed for in the Offering and funds representing the sale thereof shall
have cleared, a closing (the "Closing") shall take place at the offices of
counsel to the Placement Agent, Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, Citicorp Center, 153 East 53rd Street, 35th Floor, New York, New York
10022, within ten (10) days following the Termination Date (which date may be
accelerated or adjourned by agreement between the Company and the Placement
Agent). At the Closing, payment for the Units issued and sold by the Company
shall be made against delivery of the Notes and the Warrants comprising such
Units. In addition, one or more subsequent closings (if applicable) may be
scheduled at the discretion of the Company and the Placement Agent.
(c) Conditions to Placement Agent's Obligations. The obligations of the
Placement Agent hereunder will be subject to the accuracy of the representations
and warranties of the Company herein contained as of the date hereof and as of
each Closing Date, to the performance by the Company of its obligations
hereunder and to the following additional conditions:
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(i) Due Qualification or Exemption. (A) The Offering contemplated by
this Agreement will become qualified or be exempt from qualification under
the securities laws of the several states pursuant to paragraph 5(d) not
later than the Closing Date, and (B) at the Closing Date no stop order
suspending the sale of the Units shall have been issued, and no proceeding
for that purpose shall have been initiated or threatened.
(ii) No Material Misstatements. The Placement Agent will not have
notified the Company that the Blue Sky qualification materials or the
Memorandum, or any supplement thereto, contains an untrue statement of a
fact which in its opinion is material, or omits to state a fact, which in
its opinion is material and is required to be stated therein, or is
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(iii) Compliance with Agreements. The Company will have complied with
all agreements and satisfied all conditions on its part to be performed or
satisfied hereunder in all material respects at or prior to the Closing
Date.
(iv) Corporate Action. The Company will have taken all necessary
corporate action, including, without limitation, obtaining the approval of
the Company's Board of Directors, for the execution and delivery of this
Agreement, the performance by the Company of its obligations hereunder and
the Offering contemplated hereby.
(v) Opinion of Corporate Counsel. The Placement Agent shall receive
the opinion of Whitman Breed Abbott & Morgan, special counsel to the
Company, dated the Closing(s), substantially as set forth in Exhibit A
attached hereto.
(vi) Opinion of Intellectual Property Counsel. The Placement Agent
shall receive the opinion of Dilworth & Barrese, special intellectual
property counsel to the Company, dated the Closing(s), with respect to
certain intellectual property matters, in form and substance reasonably
satisfactory to the Placement Agent.
(vii) Officers' Certificate. The Placement Agent shall receive a
certificate of the Company, signed by the Chief Executive Officer and Chief
Financial Officer thereof, that the representations and warranties
contained in Section 2 hereof are true and accurate in all material
respects at such Closing with the same effect as though expressly made at
such Closing and that the Company has performed in all material respects
all agreements and covenants and complied in all material respects with all
conditions contained in this Agreement, the Notes, the Warrants and the
other Offering Documents to be so performed at such Closing.
(viii) Secretary's Certificate. The Placement Agent shall receive a
certificate of the Secretary or Assistant Secretary of the Company
certifying as to (i) the Restated Certificate of Incorporation of the
Company and any amendments thereto, (ii) the Bylaws of the Company, and
(iii) resolutions of the Board of Directors of the Company authorizing
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the execution and delivery of this Agreement, the Notes, the Warrants and
the other Offering Documents.
(ix) Comfort Letter. The Placement Agent shall be provided by the
independent auditors for the Company a letter substantially in the form
provided by such auditors on December 18, 1995 confirming such matters as
the Placement Agent may reasonably request.
(x) Bank Restructuring; Holmes Investment. The Placement Agent shall
receive evidence satisfactory to the Placement Agent that (a) the Company
has entered into an amendment to its existing bank credit agreement
substantially on the terms set forth in the term sheet previously provided
to the Placement Agent, (b) Charles S. Holmes has purchased 2,000 Units in
the Offering, and (c) C. Shelton James has purchased up to 1,000 Units in
the Offering.
(d) Placement Fee and Expenses. Simultaneously with payment for and
delivery of the Units at each Closing as provided in Section 4(b) above, the
Company shall at such Closing pay to the Placement Agent a commission equal to
eight percent (8%) of the aggregate purchase price of the Units sold. The
Company will, at each Closing, issue to the Placement Agent or the designees
warrants in the form annexed hereto as Exhibit B (the "Agent's Warrants") to
purchase such number of shares of Common Stock equal to 10% of the principal
amount of the Notes sold in the Offering (for example, 800,000 shares if 8,000
Units are sold). The Agent's Warrants will be exercisable from the date of
issuance until February 15, 2002. The Placement Agent may sell the Units through
other broker-dealers which are registered with the National Association of
Securities Dealers, Inc. and may reallow all or any part of its commission and
Placement Agent's Warrants with respect to such sales. Simultaneously with each
Closing of the Offering or on the Termination Date, the Company shall (i) pay
the Placement Agent an accountable expense allowance, not to exceed $200,000 in
the aggregate; and (ii) pay all expenses (including reasonable legal fees) in
connection with the qualification of the Units under the securities or Blue Sky
laws of the states which the Placement Agent shall designate.
(e) Bring-Down Opinions and Certificates. If there is more than one
Closing, then at each such Closing there shall be delivered to the Placement
Agent updated opinions and certificates as described in subsections (v) and (vi)
of Section 4(c) above, respectively.
(f) No Adverse Changes. There shall not have occurred, at any time
prior to the Closing or, if applicable, any additional Closing, (i) any domestic
or international event, act or occurrence which has materially disrupted, or in
the Placement Agent's reasonable opinion will in the immediate future materially
disrupt, the securities markets; (ii) a general suspension of, or a general
limitation on prices for, trading in securities on the New York Stock Exchange,
the American Stock Exchange or in the Nasdaq Stock Market; (iii) any outbreak of
major hostilities or other national or international calamity; (iv) any banking
moratorium
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declared by a state or federal authority; (v) any moratorium declared in foreign
exchange trading by major international banks or other persons; (vi) any
material interruption in the mail service or other means of communication within
the United States; (vii) any material adverse change in the business,
properties, assets, results of operations, financial condition or prospects of
the Company; or (viii) any change in the market for securities in general or in
political, financial or economic conditions which, in the Placement Agent's
reasonable judgment, makes it inadvisable to proceed with the Offering or the
sale and delivery of the Units.
(g) Right of First Refusal. During the period from the initial Closing
of this Offering through December 31, 2000, the Placement Agent shall have the
right of first refusal (the "Right of First Refusal") to purchase for its own
account or act as underwriter or placement agent for any and all public or
private offerings of the securities of the Company, or any successor to or
subsidiary of the Company (collectively referred to herein as the "Company") (a
"Subsequent Company Offering") and the Placement Agent shall also have the right
of first refusal to serve as the Company's investment banker with respect to any
potential acquisition, merger, divestiture, strategic planning or other similar
activity (a "Business Combination"), but only if the terms offered by the
Placement Agent are comparable to those then being offered by other investment
banking firms to similarly-situated companies. Accordingly, if during such
period the Company intends to make a Subsequent Company Offering or the Company
intends to engage in any Business Combination, the Company shall notify the
Placement Agent in writing of such intention of a Subsequent Company Offering or
Business Combination. The Company shall thereafter promptly furnish the
Placement Agent with such information concerning the business, condition and
prospects of the Company as the Placement Agent may reasonably request. The
Placement Agent shall within twenty (20) business days after the receipt of such
notice of intention, provide the Company with the proposed terms by which it
would serve as underwriter, placement agent or investment banker, as the case
may be, in the Subsequent Company Offering or Business Combination. In no event
shall the Company accept any proposal from any other underwriter, placement
agent or investment banker that is modified in any material respect from the
terms provided by the Placement Agent to the Company within six months after the
end of such 20 business days, and the Placement Agent's preferential right shall
be reinstated and the same procedure with respect to such modified proposal as
provided above shall be adopted with respect thereto. The failure by the
Placement Agent to exercise its Right of First Refusal in any particular
instance shall not affect in any way such right with respect to any other
Subsequent Company Offering or Business Combination.
5. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering will be used by
the Company as set forth in the Memorandum. The Company shall not use any of the
proceeds from the Offering to repay any indebtedness to any executive officers,
directors (other than the payment of interest to Charles S. Holmes and C.
Shelton James pursuant to the Company's subordinated notes held by them) or
principal shareholders of the Company.
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(b) Expenses of Offering. The Company shall be responsible for, and
shall bear all expenses directly incurred in connection with, the proposed
Offering including, but not limited to, legal fees of its counsel relating to
the costs of preparing the Offering Documents and all amendments, supplements
and exhibits thereto; preparing and delivering all Placement Agent and selling
documents, including, but not limited to, this Agreement with the Placement
Agent and the Blue Sky memorandum; the Notes, the Warrants and the Reserved
Share certificates; Blue Sky fees and filing fees and the fees and disbursements
of counsel in connection with Blue Sky matters. Such expenses shall not include
the cost of the Placement Agent's mailing, telephone, telegraph, travel, due
diligence meetings and other similar expenses and reasonable legal fees of
counsel to the Placement Agent (including work on certain of the matters
described above) which are covered by the accountable expense allowance payable
by the Company to the Placement Agent.
(c) Termination Fee. In the event that an initial Closing of this
Offering shall not be consummated, due to a breach by the Placement Agent of its
representations contained in this Agreement, prior to the later of (i) January
31, 1996 or (ii) seventy (70) days after the receipt of the Memorandum, or as
extended for an additional thirty (30) days as specified in the Memorandum, the
Company and the Placement Agent shall be released from any and all commitments
and obligations hereunder, except that the Company shall, nevertheless, promptly
upon demand reimburse the Placement Agent for its accountable expenses incurred
in connection with this Offering (such as travel expenses and expenses incurred
in due diligence investigations), including, without limitation, the reasonable
fees and disbursements of the Placement Agent's counsel for services rendered.
If this Offering shall not be consummated because the Company for any reason is
unable or unwilling to complete or otherwise determines not to proceed with this
Offering (including the failure of the Company's shareholders to authorize and
issue the appropriate number of shares of Common Stock and the possible change
in control resulting therefrom to effect the transactions contemplated herein),
or if the Company prevents the completion of this Offering prior to the initial
Closing because the Company breaches any representation, covenant or warranty
contained herein or for any other reason, the Company shall promptly upon demand
reimburse the Placement Agent for its accountable expenses incurred in
connection with this Offering (such as travel expenses and expenses incurred in
due diligence investigations), including, without limitation, the reasonable
fees and disbursements of the Placement Agent's counsel for services rendered,
together with a minimum of $250,000 to compensate the Placement Agent for the
efforts of its investment bankers and staff in connection with this Offering. In
no event, however, will the total amount due to the Placement Agent exceed
$400,000 in the aggregate. If this Offering shall not be consummated for any
reason (other than solely because the Placement Agent breached any of its
representations contained in this Agreement) and the Company at any time prior
to December 31, 1996 engages in any merger or business combination with any
other entity, or sells control or all or substantially all of the assets of the
Company, or engages in a financing other than through the Placement Agent, the
Company shall pay the Placement Agent the maximum amount set forth in the
preceding sentence.
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(d) Reservation of Capital Stock. The Company shall reserve and keep
available the maximum number of its authorized but unissued shares of Common
Stock which are issuable upon conversion of the Notes and exercise of the
Warrants and the Agent's Warrants.
(e) Representation on the Board of Directors. The investors in this
Offering shall have the right, for a period from the initial Closing through
December 31, 2001, to designate up to three (3) persons reasonably acceptable to
the Company to be members of the Board of Directors of the Company, including
two (2) persons designated by Charles S. Holmes (including himself) and one (1)
person designated by C. Shelton James. The Company shall cause such number of
directors currently serving on the Board of Directors to resign as directors on
or reasonably promptly after the initial Closing of the Offering in order for
the investors' designees to fill their vacancies. The Board of Directors shall
consist of not more than seven (7) directors, except as otherwise required by
the Restated Certificate of Incorporation of the Company. In addition, until the
earlier of December 31, 2001 or Winfield Capital Corp. ("Winfield") is no longer
a holder of any of the Company's securities, one (1) representative of Winfield,
as a non-voting "visitor," shall have the right to receive notice of and to
attend (at his or her own expense) all regular and special meetings of the Board
of Directors (whether the meeting is held in person or by means of conference
telephone or similar communications equipment), subject to such representative
entering into a non-disclosure agreement in form customary for such situations.
The Company agrees that it shall hold "in person" directors' meetings no less
frequently than quarterly. The Company agrees to indemnify and hold the
investors' designees harmless against any and all claims, actions, awards and
judgments arising solely out of the attendance and participation by them at any
such meetings described herein, in accordance with the Company's Restated
Certificate of Incorporation and By-laws or as otherwise accorded to other
directors of the Company. In the event the Company maintains a liability
insurance policy affording coverage for the acts of its officers and directors,
it agrees, if possible, to include the investors' designees as insured under
such policy.
(f) Notification. The Company shall notify the Placement Agent
immediately, and in writing, (i) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the final
Closing or the Termination Date as a result of which the Offering Documents
would include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) of the receipt of any notification with respect
to the modification, rescission, withdrawal or suspension of the qualification
or registration of the Units, or of any exemption from such registration or
qualification, in any jurisdiction. The Company will use its best efforts to
prevent the issuance of any such modification, rescission, withdrawal or
suspension and, if any such modification, rescission, withdrawal or suspension
is issued and the Placement Agent so requests, to obtain the lifting thereof as
promptly as possible.
(g) Blue Sky. The Company will use its best efforts to qualify or
register the Units for offering and sale under, or establish an exemption from
such qualification
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or registration under, the securities or "Blue Sky" laws of such jurisdictions
as the Placement Agent may reasonably request; provided, however, that the
Company will not be obligated to qualify as a dealer in securities in any
jurisdiction in which it is not so qualified; and provided, further, that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction where, but for the
requirements of this subsection (g), it would not be obligated to be so
qualified, to subject itself to taxation in any such jurisdiction, or to consent
to general service of process in any such jurisdiction (except pursuant to the
Uniform Consent to Service of Process on Form U-1 or such other similar form as
may be required in any jurisdiction). The Company will not consummate any sale
of Units in any jurisdiction in which it is not so qualified or in any manner in
which such sale may not be lawfully made.
(h) Form D Filing. The Company shall file five copies of a Notice of
Sales of Securities on Form D with the Commission no later than 15 days after
the first sale of the Units. The Company shall file promptly such amendments to
such Notices on Form D as shall become necessary and shall also comply with any
filing requirement imposed by the laws of any state or jurisdiction in which
offers and sales are made. The Company shall furnish the Placement Agent with
copies of all such filings.
(i) Press Releases, etc. The Company shall not, during the period
commencing on the date hereof and ending on the later of the final Closing and
the Termination Date, issue any press release or other communication, or hold
any press conference with respect to the Company, its financial condition,
results of operations, business, properties, assets or liabilities, or the
Offering, without the prior written consent of the Placement Agent, which
consent shall not be unreasonably withheld, or unless otherwise required by law.
(j) Restrictions on Issuance of Securities. Prior to the Closing Date,
the Company will not, without the prior written consent of the Placement Agent,
issue additional shares of capital stock or grant any warrants, options or other
securities of the Company, other than pursuant to the exercise of outstanding
stock options or to Charles S. Holmes or C. Shelton James.
(k) Introduction Fee. During the two-year period following the date of
the final Closing, the Company shall pay to the Placement Agent five percent
(5%) of the gross amount of any securities purchased of, funds loaned to or
assets transferred to, the Company by any party introduced to the Company by the
Placement Agent; and, in the event that a party introduced by the Placement
Agent receives securities in exchange for any services rendered or assets
transferred to the Company, the Company will issue to the Placement Agent the
same securities in the amount of five percent (5%) of the securities issued to
such other party. Furthermore, in the event any party introduced by the
Placement Agent purchases the shares of capital stock of or all or substantially
all of the assets of or merges with or into the Company, during the two-year
period following the date of the final Closing, the Placement Agent will receive
five percent (5%) of the gross consideration to the Company or its shareholders.
This fee excludes capital raised from the conversion of the Notes and exercise
of
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the Warrants contemplated herein. In the event that the Placement Agent is
engaged by the Company under the conditions of Section 4(h) hereof to perform
the same services as indicated in this Section 5(k), the Placement Agent will be
entitled to the greater of the two fees called for by Section 4(h) and this
Section 5(k).
6. Covenants of the Placement Agent.
(a) The Placement Agent shall offer and sell the Units only to
"accredited investors," as that term is defined in Rule 501(a) promulgated under
the Securities Act.
(b) The Placement Agent agrees not to engage in any activities in
connection with the offer of the Units in any state (i) in which the Units are
not qualified for sale or exempt from qualification under the applicable
securities or blue sky laws thereof; (ii) in which the Placement Agent may not
lawfully so engage or (iii) in which it is not a registered broker-dealer.
(c) The Placement Agent will use its best efforts to offer the Units in
compliance with the requirements of Regulation D.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Placement
Agent and its officers, directors, employees and agents, and each person, if
any, who controls the Placement Agent as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, and to reimburse the Placement Agent for reasonable legal fees
and related expenses as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Offering
Documents or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, and to reimburse the Placement Agent for reasonable legal fees
and related expenses as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Company (which consent will not be unreasonably
withheld or delayed); and
(iii) against any and all expense whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and to reimburse the Placement Agent
and its officers, directors, employees
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and agents, and each person, if any, who controls the Placement Agent, for
reasonable legal and related expenses as incurred, based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under clause (i)
or (ii) above; provided, however, that the foregoing indemnification
provided in paragraphs (i), (ii) and (iii) of this Section 7(a) shall not
apply to any loss, liability, claim, damage or expense arising out of any
information with respect to the Placement Agent or Lead Investor (as
referred to in the Memorandum) contained in the Offering Documents in
reliance upon written information furnished by the Placement Agent.
(b) The Company agrees to indemnify and hold harmless the Placement
Agent and its officers, directors, employees and agents, and each person, if
any, who controls the Placement Agent, to the same extent as the foregoing
indemnity, against any and all loss, liability, claim, damage and expense
whatsoever directly arising out of the exercise by any person of any right under
the Securities Act or the Exchange Act, or the securities or Blue Sky laws of
any state on account of a breach of any of the representations, warranties or
agreements set forth in Section 2 hereof.
(c) The Placement Agent agrees to indemnify and hold harmless the
Company, each director, officer, employee or agent of the Company, and each
other person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act to the same extent as
the foregoing indemnity from the Company to the Placement Agent in Sections 7(a)
and 7(b) above, but only with respect to statements or omissions, if any, made
in the Memorandum, or any amendment or supplement thereto, or in any
application, in reliance upon and in conformity with written information
furnished to the Company as stated in this Section 7(c) with respect to the
Placement Agent expressly for inclusion in the Memorandum, or any amendment or
supplement thereto, or in any application, as the case may be; provided,
however, that the obligation of the Placement Agent to provide indemnity under
the provisions of this Section 7(c) shall be limited to the amount which
represents the product of the number of Units sold by the Placement Agent in the
Offering and the purchase price per Unit set forth on the cover page of the
Memorandum. For all purposes of this Agreement, the statements set forth under
the headings "Investor Suitability Standards" and "Terms of the
Offering--Placement Agent's Compensation" and "--Subscription Procedures" in the
Memorandum constitute the only information furnished in writing by or on behalf
of the Placement Agent expressly for inclusion in the Memorandum, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on the Memorandum, or any amendment or supplement thereto, or
in any application, and in respect of which indemnity may be sought against the
Placement Agent pursuant to this Section 7(c), the Placement Agent shall have
the rights and duties given to the Company, and the Company and each other
person so indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of Sections 7(a) and 7(b) above.
(d) Promptly after receipt by a person entitled to indemnification
pursuant to the foregoing subsection (a), (b) or (c) (an "indemnified party")
under this Section
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7 of notice of the commencement of any action, the indemnified party will, if a
claim in respect thereof is to be made against the other party (an "indemnifying
party") under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to the indemnified party
otherwise than under this Section 7. In case any such action is brought against
an indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to the indemnified party, and after
notice from the indemnifying party to the indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to the
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such counsel shall
be at the expense of the indemnifying party if (i) the employment of such
counsel has been specifically authorized in writing by the indemnifying party or
(ii) the named parties to any such action (including any impleaded parties)
include both the indemnified party or parties and the Company and, in the
judgment of the indemnified party, it is advisable for the indemnified party or
parties to be represented by separate counsel (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the indemnified party or parties, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for the
indemnified party or parties). No settlement of any action against an
indemnified party shall be made without the consent of the indemnified party,
which shall not be unreasonably withheld in light of all factors of importance
to the indemnified party.
8. Contribution.
(a) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 7 but it
is found in a final judicial determination, not subject to further appeal, that
such indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Securities Act,
the Exchange Act, or otherwise, then the indemnifying party (including for this
purpose any contribution made by or on behalf of any officer, director, employee
or agent for the indemnifying party, or any controlling person of the
indemnifying party), on the one hand, and the indemnified party (including for
this purpose any contribution by or on behalf of an indemnified party), on the
other hand, shall contribute to the losses, liabilities, claims, damages, and
expenses whatsoever to which any of them may be subject, in such proportions as
are
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appropriate to reflect the relative benefits received by the indemnifying party,
on the one hand, and the indemnified party, on the other hand; provided,
however, that if applicable law does not permit such allocation, then other
relevant equitable considerations such as the relative fault of the indemnifying
party and the indemnified party in connection with the facts which resulted in
such losses, liabilities, claims, damages, and expenses shall also be
considered. In no case shall the indemnified party be responsible for a portion
of the contribution obligation in excess of the compensation received by it
pursuant to Section 4 hereof. No person guilty of a fraudulent misrepresentation
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls the indemnified party within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act and each officer, director,
stockholder, employee and agent of the indemnified party, shall have the same
rights to contribution as the indemnified party, and each person, if any, who
controls the indemnifying party within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act and each officer, director,
employee and agent of the indemnifying party, shall have the same rights to
contribution as the indemnifying party, subject in each case to the provisions
of this Section 8. Anything in this Section 8 to the contrary notwithstanding,
no party shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 8 is intended
to supersede any right to contribution under the Securities Act, the Exchange
Act, or otherwise.
9. Miscellaneous.
(a) Survival. Any termination of the Offering without consummation
thereof shall be without obligation on the part of any party except the payment
of certain fees and expenses pursuant to Sections 5(b) and 5(c) hereof, the
indemnification provisions provided in Section 7 hereof and the contribution
provided in Section 8 hereof shall survive any termination and that specifically
the provisions contained in Section 7 regarding indemnification and Section 8
regarding contribution shall survive the Closing for a period of five years.
(b) Representations, Warranties and Covenants to Survive Delivery. The
respective representations, warranties, indemnities, agreements, covenants and
other statements of the Company as of the date hereof shall survive execution of
this Agreement and delivery of the Units and the termination of this Agreement.
(c) No Other Beneficiaries. This Agreement is intended for the sole and
exclusive benefit of the parties hereto and their respective successors and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder. This Agreement may not be
assigned without the prior written consent of the parties hereto.
(d) Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York without regard to conflict of
law provisions.
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(e) Counterparts. This Agreement may be signed in counterparts with the
same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to be
in writing, if sent to the Placement Agent, will be mailed, delivered and
confirmed to it at Commonwealth Associates, 733 Third Avenue, New York, New York
10017, Attention: Mr. Keith M. Rosenbloom, Vice President - Corporate Finance,
with a copy to Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, Citicorp
Center, 153 East 53rd Street, New York, New York 10022, Attention: Spencer G.
Feldman, Esq., and if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at 2405 Trade Centre Avenue, Longmont, Colorado
80503, Attention: Mr. Robert A. Carlson, Chairman and Chief Executive Officer,
with a copy to Whitman Breed Abbott & Morgan, 200 Park Avenue, New York, New
York 10166, Attention: David F. Kroenlein, Esq.
(g) Entire Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the matters herein referred and supersedes all
prior letters of intent, agreements and understandings, written and oral,
between the parties with respect to the subject matter hereof. Neither this
Agreement nor any term hereof may be changed, waived or terminated orally, but
only by an instrument in writing signed by the party against which enforcement
of the change, waiver or termination is sought.
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If you find the foregoing is in accordance with our understanding,
kindly sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between us.
Very truly yours,
NAI TECHNOLOGIES, INC.
By: /s/ RICHARD A. SCHNEIDER
--------------------------------
Richard A. Schneider
Executive Vice President,
Treasurer and Secretary
AGREED:
COMMONWEALTH ASSOCIATES
By: /s/ MICHAEL R. LYALL
---------------------------------
Michael R. Lyall
Managing Director
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EXHIBIT 6
FOURTH AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
FOURTH AMENDMENT, dated as of January 5, 1996 (the "Amendment"), to the
Amended and Restated Credit Agreement, dated as of April 12, 1995, among NAI
Technologies, Inc., a New York corporation (the "Borrower"), Chemical Bank, a
New York banking corporation ("Chemical"), The Bank of New York, a New York
banking corporation ("BNY"), and each of the other financial institutions which
from time to time becomes party thereto (together with Chemical and BNY, the
"Banks"), BNY, as administrative agent (in such capacity, the "Administrative
Agent") and Chemical, as collateral agent (in such capacity, the "Collateral
Agent").
W I T N E S E T H :
WHEREAS, the Borrower, the Banks, the Administrative Agent and the
Collateral Agent are parties to that certain Amended and Restated Credit
Agreement, dated as of April 12, 1995 (as amended by certain amendments, dated
as of August 14, 1995, October 13, 1995 and November 6, 1995, the "Credit
Agreement");
WHEREAS, unless otherwise defined herein, terms defined in the Credit
Agreement and used herein are used herein as therein defined;
WHEREAS, Charles S. Holmes has purchased $2 million of 12% Convertible
Subordinated Promissory Notes issued by the Borrower, and has advised the
Borrower that he or his designee intends to purchase an additional $1 million in
12% Convertible Subordinated Notes on or before February 15, 1996; and
WHEREAS, in consideration of the proposed purchase of an additional $1
million in 12% Convertible Subordinated Notes and at the request of the
Borrower, the Banks have agreed to consent to the extension of the Maturity Date
to February 15, 1996 on the terms hereinafter set forth.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENT TO ARTICLE I. Article I of the Credit Agreement is
hereby amended (a) by amending the definition of "Maturity Date" in its entirety
as follows:
"Maturity Date" shall mean February 15, 1996.
and (b) by amending the definition of "Projections" to substitute "the Maturity
Date" for the date provided therein.
SECTION 2. AMENDMENT TO ARTICLE IX. Article IX of the Credit Agreement
is hereby amended by amending Section 9.05 thereof to add the words "or
financial advisor" (x) after the words "any other counsel" in the parenthetical
clause of such Section and (y)
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after the words "any counsel" in the last clause of the first sentence of such
Section.
SECTION 3. CONFIRMATION OF LIENS. The Borrower hereby confirms that,
pursuant to the terms of the Credit Agreement and the Security Documents, the
Borrower and the Guarantors have granted Liens on all of their assets to the
Collateral Agent for the benefit of the Banks. The Borrower hereby further
confirms that it will not and will not permit its Subsidiaries to incur, create,
assume or suffer to exist any Lien on any property or assets, income or profits
of the Borrower or any of its Subsidiaries other than those permitted by Section
6.01 of the Credit Agreement, and any such granting of any such Lien in favor of
any third person, including the holders of the Subordinated Indebtedness (as
hereinafter defined) shall constitute an Event of Default under the Credit
Agreement. Nothing contained herein shall constitute a release or modification
of any Lien in favor of the Collateral Agent and the Banks in any Collateral
which constitutes security for any of the Obligations.
SECTION 4. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective as of the date hereof (the "Effective Date") when all of the following
shall have occurred:
(a) The Banks shall have each received counterparts of this Amendment,
duly executed by the Borrower;
(b) The Borrower shall have executed and delivered amended Notes to
each of the Banks, in substantially the form of Exhibit A hereto;
(c) The Borrower shall have received an additional $1,000,000 in cash
from Charles Holmes on or before December P such that the total 12%
Convertible Subordinated Notes purchased by Holmes from the Borrower is in
the aggregate principal amount of $2,000,000;
(d) The Borrower shall be in compliance with all of the terms and
provisions set forth in the Credit Agreement to be observed and performed
and, after giving effect to this Amendment, no Event of Default or event
which with the giving of notice or the passage of time or both would
constitute an Event of Default shall have occurred and be continuing; and
(e) All representations and warranties contained in Section 3 of the
Credit Agreement and the other Loan Documents shall be true and correct in
all material respects on and as of the Effective Date, except to the extent
that such representations and warranties expressly relate to an earlier
date.
SECTION 5. RATIFICATION. Except to the extent hereby amended, the
Credit Agreement remains in full force and effect and is hereby ratified and
affirmed. References in the Loan Documents
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to the Credit Agreement shall mean such document as amended by this Amendment,
as the same may be further amended, supplemented or otherwise modified from time
to time.
SECTION 6. COSTS AND EXPENSES. All out-of-pocket expenses incurred by
the Banks, including the reasonable fees and disbursements of Zalkin, Rodin &
Goodman LLP, special counsel for the Agents and the Banks, incurred in
connection with the negotiation and preparation of this Amendment shall be paid
by the Borrower as provided in Section 9.05 of the Credit Agreement. The
Borrower hereby confirms that the Borrower shall be obligated to reimburse the
Banks' reasonable expenses incurred in the retention of a financial advisor to
the Banks in connection with the administration of the Loans or the protection
or enforcement of the Banks' rights in connection therewith.
SECTION 7. REFERENCES. This Amendment shall be limited precisely as
written and shall not be deemed (a) to be a consent granted pursuant to, or a
waiver or modification of, any other term or condition of the Credit Agreement
or any of the instruments or agreements referred to therein or (b) to prejudice
any right or rights which the Administrative Agent, Collateral Agent or the
Banks may now have or have in the future under or in connection with the Credit
Agreement or the Loan Documents or any of the instruments or agreements referred
to therein.
SECTION 8. APPLICABLE LAW. THIS AMENDMENT SHALL IN ALL RESPECTS BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 9. HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and are not to affect the construction
of, or to be taken into consideration in interpreting, this Amendment.
SECTION 10. INTEGRATION. This Amendment represents the entire agreement
of the parties hereto with respect to the amendment of the Credit Agreement and
the terms of any letters and other documentation entered into among the Borrower
and any Bank or the Administrative Agent or the Collateral Agent prior to the
execution of this Amendment which relate to the amendment of the Credit
Agreement shall be replaced by the terms of this Amendment.
SECTION 11. EXECUTION IN COUNTERPARTS. This Second Amendment may be
executed in any number of counterparts, each of which shall constitute an
original, but all of which taken together shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
NAI TECHNOLOGIES, INC.
By: /s/ Richard A. Schneider
_______________________________
Title: Executive Vice President
THE BANK OF NEW YORK
AS ADMINISTRATIVE AGENT AND AS A BANK
By: /s/ Richard Maybaum
_______________________________
Vice President
CHEMICAL BANK
AS COLLATERAL AGENT AND AS A BANK
By: /s/ Kathy A. Duncan
_______________________________
Vice President
Consented to as of this
5th day of January, 1996
NAI TECHNOLOGIES - SYSTEMS DIVISION CORPORATION
By: /s/ Richard A. Schneider
_______________________
Title: Secretary
WILCOM, INC.
By: /s/ Richard A. Schneider
_______________________
Title: Secretary
ARATHON, V.I., INC.
By: /s/ Richard A. Schneider
_______________________
Title: Secretary
CODAR TECHNOLOGY, INC.
By: /s/ Richard A. Schneider
_______________________
Title: Secretary
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EXHIBIT 7
FIFTH AMENDMENT
TO
AMENDED AND RESTATED CREDIT AGREEMENT
FIFTH AMENDMENT, dated as of February 13, 1996 (the "Amendment"), to
the Amended and Restated Credit Agreement, dated as of April 12, 1995, among NAI
Technologies, Inc., a New York corporation (the "Borrower"), Chemical Bank, a
New York banking corporation ("Chemical"), The Bank of New York, a New York
banking corporation ("BNY"), and each of the other financial institutions which
from time to time becomes party thereto (together with Chemical and BNY, the
"Banks"), BNY, as administrative agent (in such capacity, the "Administrative
Agent"), and Chemical, as collateral agent (in such capacity, the "Collateral
Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Administrative Agent and the
Collateral Agent are parties to that certain Amended and Restated Credit
Agreement, dated as of April 12, 1995 (as amended by certain amendments, dated
as of August 14, 1995, October 13, 1995, November 6, 1995 and January 5, 1996,
the "Credit Agreement");
WHEREAS, unless otherwise defined herein, terms defined in the Credit
Agreement and used herein are used herein as therein defined;
WHEREAS, the Borrower and certain investors (the "Investors") have
entered into agreements whereby the Investors have agreed to purchase up to
$9,300,000 of convertible subordinated notes of the Borrower in exchange for
certain consideration pursuant to the Subscription Agreements (as hereinafter
defined); and
WHEREAS, the Borrower has requested and the Banks have agreed to
consent to (i) the incurrence of such subordinated indebtedness and (ii) the
extension of the Maturity Date on the terms hereinafter set forth.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENT TO ARTICLE I. Article I of the Credit Agreement is
hereby amended (a) by adding the following defined terms to Section 1.01
thereof:
"Consolidated Interest Expense" shall mean, for any period, Interest
Expense net of interest income of the Borrower and its Subsidiaries for
such period, determined on a consolidated basis in accordance with
GAAP.
"Consolidated Net Income" shall mean, for any period, the consolidated
Net Income (or deficit) of the Borrower and its Subsidiaries for such
period (taken as a cumulative whole), determined in accordance with
GAAP.
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"Consolidated Net Worth" shall mean, with respect to the Borrower and
its Subsidiaries on a consolidated basis, as of any date, the amount of
common stockholders' equity shown on a consolidated balance sheet of
the Borrower and its Subsidiaries as of such date (determined in
accordance with GAAP); provided that for purposes of calculating
Consolidated Net Worth, deficits shall not be deducted from
Consolidated Net Income when calculating such amount.
"Interest Coverage Ratio" shall mean, as to any period, the ratio of
(x) the sum of (i) Consolidated Net Income for such period, (ii)
Consolidated Interest Expense for such period, (iii) federal, state and
local income taxes deducted from revenue in determining such
Consolidated Net Income and (iv) amortization of deferred debt expense
to (y) Consolidated Interest Expense for such period.
"Investors" shall mean Charles S. Holmes and such other investors who
purchase Subordinated Notes pursuant to the Subscription Agreements.
"Net Income" shall mean, with respect to the Borrower for any period,
net income computed in accordance with GAAP.
"Registration Rights Agreement" shall mean one or more of those certain
Registration Rights Agreements to be entered into by the Borrower and
the Investors which agreements shall be in the form of Exhibit C
hereto.
"Shelf Registration Agreement" shall mean that certain Shelf
Registration Agreement to be entered into by the Borrower and the
Banks, which agreement shall provide for the registration of shares of
capital stock previously issued to the Banks and shall be in form and
substance satisfactory to the Banks.
"Subordinated Indebtedness" shall mean the Indebtedness incurred by the
Borrower evidenced by the Subordinated Notes.
"Subordinated Notes" shall mean those certain notes to be executed by
the Borrower in favor of the Investors in the aggregate principal
amount of up to $9,300,000, which notes shall be in the form of Exhibit
B hereto.
"Subscription Agreements" shall mean one or more of those certain
Subscription Agreements to be entered into by the Borrower and the
Investors, in connection with the issuance of the Subordinated
Indebtedness.
(b) by amending the definitions of "Consolidated Current Ratio", "Consolidated
Quick Ratio" and "Maturity Date" in their entirety as follows:
"Consolidated Current Ratio" shall mean the ratio of (x) the sum of
consolidated current assets of the Borrower and its Subsidiaries plus
an amount equal to the difference between
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the Total Commitment in effect on the date of such determination and
the aggregate principal amount outstanding in respect of the Loans as
of such date, in each case after giving effect to any payments of
principal made, and the concurrent reduction of the Total Commitment,
on such date pursuant to Section 2.08 hereof to (y) consolidated
current liabilities of the Borrower and its Subsidiaries, each
determined by reference to the consolidated financial statements of the
Borrower and its Subsidiaries provided pursuant to Section 5.01 hereof.
"Consolidated Quick Ratio" shall mean the ratio of (x) the sum of
Consolidated Quick Assets plus an amount equal to the difference
between the Total Commitment in effect on the date of such
determination and the aggregate principal amount outstanding in respect
of the Loans as of such date, in each case after giving effect to any
payments of principal made, and the concurrent reduction of the Total
Commitment, on such date pursuant to Section 2.08 hereof to (y)
consolidated current liabilities of the Borrower and its Subsidiaries,
determined by reference to the consolidated financial statements of the
Borrower and its Subsidiaries provided pursuant to Section 5.01 hereof.
"Maturity Date" shall mean January 15, 1999.
and (c) by deleting the definitions "Extended Maturity Date" and "Consolidated
Tangible Net Worth" in their entirety.
SECTION 2. AMENDMENTS TO ARTICLE II. Article II of the Credit Agreement
is hereby amended by (a) amending Section 2.08(b) in its entirety to read as
follows:
(b) The Borrower shall make the following scheduled payments of the Loans
in the principal amount of (i) $500,000 on the last Business Day of each
quarter commencing on March 31, 1996 and ending on December 31, 1996, (ii)
$750,000 on the last Business Day of each quarter commencing on March 31,
1997 and ending on December 31, 1998 and (iii) $7,175,000, or such other
principal amount of the Loans which may be outstanding, on the Maturity
Date.
and (b) amending Section 2.08(c) in its entirety to read as
follows:
(c) Upon (x) any sale or series of related sales within any twelve month
period of assets by the Borrower or any of its Subsidiaries (other than
sales of inventory in the ordinary course of business or the sale of
equipment which is uneconomic, obsolete or no longer
3
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<PAGE>
useful and which, in the latter instance, does not have an aggregate value
in excess of $50,000) in which the amount of sale proceeds generated by
such sale or series of related sales of assets exceeds $100,000 in the
aggregate, and (y) the sale of the Hauppauge Property, the Borrower shall
prepay the Loans in an amount equal to 100% of such sale proceeds (net of
reasonable costs in connection therewith) PROVIDED that in connection with
the sale or sales described in clause (x), no such prepayment shall be
required to the extent such sale proceeds are promptly used to purchase
replacement assets for those sold.
SECTION 3. AMENDMENT TO ARTICLE V. Article V of the Credit Agreement is
hereby amended by amending Section 5.07 in its entirety to read as follows:
SECTION 5.07. MAINTENANCE OF ACCOUNTS. Maintain or cause to be
maintained at all times all operating accounts and other accounts
(including without limitation accounts for the deposit of proceeds of sales
of assets) with the Collateral Agent.
SECTION 4. AMENDMENTS TO ARTICLE VI. Article VI of the Credit Agreement
is hereby amended (a) by amending Section 6.03(vi) thereof in its entirety to
read as follows:
(vi) Subordinated Indebtedness of the Borrower to the Investors in an
aggregate amount not to exceed $9,300,000, which Indebtedness shall be
subordinate in right of payment to the Indebtedness owed to the Banks under
this Agreement on terms satisfactory to the Bank.
and (b) by amending Sections 6.04 and Sections 6.14 through 6.17 in their
entirety to read as follows:
SECTION 6.04. CAPITAL EXPENDITURES. Make or commit to make Capital
Expenditures for any fiscal year in an aggregate amount in excess of $2
million.
SECTION 6.14. MAINTENANCE OF CONSOLIDATED CURRENT RATIO. Permit the
Consolidated Current Ratio at the end of any fiscal quarter for the fiscal
years set forth below to fall below the ratios set forth opposite such
fiscal years:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
1996 1.30 to 1.0
1997 1.50 to 1.0
1998 1.75 to 1.0
</TABLE>
4
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<PAGE>
SECTION 6.15. MAINTENANCE OF CONSOLIDATED QUICK RATIO. Permit the
Consolidated Quick Ratio at the end of any fiscal quarter for the fiscal years
set forth below to fall below the ratios set forth opposite such fiscal years:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
1996 0.55 to 1.0
1997 0.75 to 1.0
1998 1.00 to 1.0
</TABLE>
SECTION 6.16. MAINTENANCE OF CONSOLIDATED NET WORTH. Permit
Consolidated Net Worth for the following periods to fall below the amounts set
forth opposite such periods at any time during such periods:
<TABLE>
<CAPTION>
Period Amount
<S> <C>
February 13 through $7,500,000
December 30, 1996
December 31, 1996 through $7,500,000 plus
December 30, 1997 an amount equal to
50% of Consolidated
Net Income for
fiscal year 1996
December 31, 1997 through $7,500,000 plus
December 30, 1998 an amount equal
to the sum of
50% of Consolidated
Net Income for
fiscal years 1996
and 1997 in the
aggregate
December 31, 1998 through $7,500,000 plus
Maturity Date an amount equal
to the sum of
50% of Consolidated
Net Income for
fiscal years 1996,
1997 and 1998 in
the aggregate
</TABLE>
SECTION 6.17. MAINTENANCE OF INTEREST COVERAGE RATIO. Permit the
Interest Coverage Ratio at each date set forth below, for the period of four
fiscal quarters ending on such date, to fall below the ratios set forth opposite
such dates:
<TABLE>
<CAPTION>
Date Ratio
<S> <C>
December 31, 1996 1.00 to 1
March 31, 1997 1.25 to 1
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
June 30, 1997 and thereafter 1.50 to 1
</TABLE>
SECTION 5. EXHIBITS. Exhibits A-1 and A-2 are hereby replaced in their
entirety by Exhibit A hereto.
SECTION 6. CONFIRMATION OF LIENS. The Borrower hereby confirms that,
pursuant to the terms of the Credit Agreement and the Security Documents, the
Borrower and the Guarantors have granted Liens on all of their assets to the
Collateral Agent for the benefit of the Banks. The Borrower hereby further
confirms that it will not and will not permit its Subsidiaries to incur, create,
assume or suffer to exist any Lien on any property or assets, income or profits
of the Borrower or any of its Subsidiaries other than those permitted by Section
6.01 of the Credit Agreement, and any such granting of any such Lien in favor of
any third person, including the holders of the Subordinated Indebtedness (as
hereinafter defined) shall constitute an Event of Default under the Credit
Agreement. Nothing contained herein shall constitute a release or modification
of any Lien in favor of the Collateral Agent and the Banks in any Collateral
which constitutes security for any of the Obligations.
SECTION 7. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, each of which shall constitute an original and all of which
when taken together shall constitute one and the same instrument.
SECTION 8. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective as of the date hereof (the "Effective Date") when all of the following
shall have occurred:
(a) The Banks shall have each received counterparts of this Amendment,
duly executed by the Borrower;
(b) The Borrower shall have executed and delivered amended Notes to
each of the Banks, in substantially the form of Exhibit A hereto;
(c) The Borrower shall have received an amount not less than
$6,800,000 in cash representing the net proceeds received in respect of
Subordinated Indebtedness;
(d) The Banks shall have received copies of the fully executed
Subordinated Notes;
(e) The Banks shall have received a copies of the fully executed
Subscription Agreements and the Registration Rights Agreements;
(f) The Banks shall have received a fully executed copy of a Shelf
Registration Agreement, in substantially the form of Exhibit D hereto;
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<PAGE>
(g) The Banks shall have received the favorable written opinion of
Whitman Breed Abbott & Morgan, counsel to the Borrower, dated the Effective
Date, in substantially the form of Exhibit E hereto;
(h) The Borrower shall be in compliance with all of the terms and
provisions set forth in the Credit Agreement to be observed and performed
and, after giving effect to this Amendment, no Event of Default or event
which upon notice or lapse of time or both would constitute an Event of
Default shall have occurred and be continuing;
(i) All representations and warranties contained in Section 3 of the
Credit Agreement and the other Loan Documents shall be true and correct in
all material respects on and as of the Effective Date, except to the extent
that such representations and warranties expressly relate to an earlier
date;
(j) The Banks shall have received the projected and consolidated
income and loss statements, budgets and cash flow statements on a monthly,
quarterly and annual basis for the period through and including December
31, 1998, which shall be in form and substance satisfactory to the Banks;
and
(k) The Collateral Agent shall confirm in writing that the Lockbox
Agreement shall be terminated upon the occurrence of the Effective Date.
SECTION 9. RATIFICATION. Except to the extent hereby amended, the
Credit Agreement remains in full force and effect and is hereby ratified and
affirmed. References in the Loan Documents to the Credit Agreement shall mean
such document as amended by this Amendment, as the same may be further amended,
supplemented or otherwise modified from time to time.
SECTION 10. COSTS AND EXPENSES. All out-of-pocket expenses incurred by
the Banks, including the reasonable fees and disbursements of Zalkin, Rodin &
Goodman LLP, special counsel for the Agents and the Banks, incurred in
connection with the negotiation and preparation of this Amendment shall be paid
by the Borrower as provided in Subsection 9.05 of the Credit Agreement. The
Borrower hereby confirms that the Borrower shall be obligated to reimburse the
Banks' reasonable expenses incurred in the retention of a financial advisor to
the Banks in connection with the administration of the Loans or the protection
or enforcement of the Banks' rights in connection therewith.
SECTION 11. REFERENCES. This Amendment shall be limited precisely as
written and shall not be deemed (a) to be a consent
7
<PAGE>
<PAGE>
granted pursuant to, or a waiver or modification of, any other term or condition
of the Credit Agreement or any of the instruments or agreements referred to
therein or (b) to prejudice any right or rights which the Administrative Agent,
Collateral Agent or the Banks may now have or have in the future under or in
connection with the Credit Agreement or the Loan Documents or any of the
instruments or agreements referred to therein.
SECTION 12. APPLICABLE LAW. THIS AMENDMENT SHALL IN ALL RESPECTS BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 13. HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and are not to affect the construction
of, or to be taken into consideration in interpreting, this Amendment.
SECTION 14. INTEGRATION. This Amendment represents the entire agreement
of the parties hereto with respect to the amendment of the Credit Agreement and
the terms of any letters and other documentation entered into among the Borrower
and any Bank or the Administrative Agent or the Collateral Agent prior to the
execution of this Amendment which relate to the amendment of the Credit
Agreement shall be replaced by the terms of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered in New York, New York by their proper and duly
authorized officers as of the day and year first above written.
NAI TECHNOLOGIES, INC.
By: /s/ Richard A. Schneider
_______________________________
Title: Executive Vice President
THE BANK OF NEW YORK
AS ADMINISTRATIVE AGENT AND AS A BANK
By: /s/ Richard Maybaum
______________________________
Vice President
CHEMICAL BANK
AS COLLATERAL AGENT AND AS A BANK
By: /s/ Kathy A. Duncan
______________________________
Vice President
8
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<PAGE>
Consented to as of this
13th day of February, 1996
NAI TECHNOLOGIES - SYSTEMS DIVISION CORPORATION
By: /s/ Richard A. Schneider
_________________________
Title: Secretary
WILCOM, INC.
By: /s/ Richard A. Schneider
_________________________
Title: Secretary
ARATHON, V.I., INC.
By: /s/ Richard A. Schneider
_________________________
Title: Secretary
CODAR TECHNOLOGY, INC.
By: /s/ Richard A. Schneider
_________________________
Title: Secretary
9
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Exhibit 8
AMENDMENT NO. 1 TO
REGISTRATION RIGHTS AGREEMENT
This AMENDMENT NO. 1, dated as of February 13, 1996 (this "Amendment"),
to that certain REGISTRATION RIGHTS AGREEMENT, dated as of April 12, 1995 (the
"Agreement"), between NAI TECHNOLOGIES, INC., a New York corporation (the
"Company"), THE BANK OF NEW YORK, a New York banking corporation ("BNY"), and
CHEMICAL BANK, a New York banking corporation.
RECITALS:
The parties hereto desire to amend the Agreement to make certain
changes to the Demand Registration Rights and the Piggyback Registration Rights
granted to BNY and Chemical thereunder.
Capitalized terms used but not defined herein shall have the same
meanings as ascribed thereto in the Agreement.
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Amendments. (a) Section 2(a) of the Agreement is amended to add at
the end of clause (x) thereof before the comma the following:
"; provided that, such Persons shall allow the Holders to have priority
with respect to the Registrable Securities for up to two piggyback
registration opportunities so long as any Loans are outstanding and any
Commitments remain in effect under the Credit Agreement (the foregoing
shall not apply to the Registration Statement being filed within 90 days of
the date hereof covering the Registrable Securities and other securities of
the Company)"
(b) Section 3(a) of the Agreement is amended to delete the words "or of
any other Person" from the last sentence thereof.
(c) Section 3(b) of the Agreement is amended to add at the end thereof
the following:
"The Registrable Securities proposed to be sold by the Holders pursuant to
a Demand Registration shall have absolute priority over securities proposed
to be sold by other Persons exercising priggyback registration rights with
respect to such Demand Registration (the foregoing shall not apply to the
Registration Statement being filed within 90 days of the date hereof
covering
<PAGE>
<PAGE>
the Registrable Securities and other securities of the Company)."
2. Waiver. Chemical and BNY hereby agree that the Company may
grant registration rights to the holders of the Company's 12% Convertible
Subordinated Promissory Notes due 2001 and the related warrants to purchase
common stock of the Company and the provisions of Section 9 of the Agreement are
waived to the extent necessary to permit such grant as well as the amendments
called for by Section 1 of this Amendment.
3. Status of Agreement. All other terms and conditions of the Agreement
shall remain in full force and effect, as amended hereby.
4. Descriptive Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise effect the
meaning of terms contained herein.
5. Counterparts. This Amendment 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 Amendment to produce or account for more than one such
counterpart.
6. Governing Law. This Amendment shall be governed by and construed and
enforced in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, each of the undersigned has caused this Agreement
to be executed on its behalf as of the date first above written.
NAI TECHNOLOGIES, INC.
By /s/ Richard A. Schneider
____________________________
Title Executive Vice President
________________________
THE BANK OF NEW YORK
By Jay B. Lifton
_________________________
Title Vice President
______________________
CHEMICAL BANK
By /s/ Kathy A. Duncan
_________________________
Title Vice President
______________________
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<PAGE>
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<PAGE>
Exhibit 9
December 13, 1995
Board of Directors
NAI Technologies, Inc.
2405 Trade Centre Avenue
Longmont, Colorado 80503
Gentlemen:
I hereby tender my resignation as a director of NAI Technologies, Inc.,
effective at such time as the first closing occurs under the Placement Agency
Agreement to be entered into by the company and Commonwealth Associates.
Sincerely,
Robert D. Rosenthal
<PAGE>
<PAGE>
<PAGE>
Exhibit 10
February 13, 1996
Mr. Robert A. Carlson
President
NAI Technologies, Inc.
2405 Trade Centre Avenue
Longmont, Colorado 80503
Dear Mr. Carlson:
This note will serve as my agreement to resign as a director of NAI
Technologies as of the date of closing of the Commonwealth financing.
Sincerely,
John M. May
<PAGE>
<PAGE>
<PAGE>
EXHIBIT 11
(BW) (NAI-TECHNOLOGIES)(NATL) NAI Technologies announces
completion of private placement of convertible notes and warrants and bank debt
extension.
LONGMONT, Colo.--(BUSINESS WIRE)--Feb. 15, 1996--NAI
Technologies, Inc. (NATL/NASDAQ) today announced the completion of a private
placement of approximately $8,000,000 of the company's 12% Convertible
Subordinated Promissory Notes due 2001 and Warrants to purchase an aggregate of
4,000,000 shares of the company's Common Stock with a group of private
investors.
The company also announced that it has executed an amendment
to its credit agreement with its bank lenders which amended and extended the
payment provisions and reset certain financial covenants on more favorable terms
for the company. The credit agreement, as revised, provides for principal
payments of $500,000 on each of March 31, 1996, June 30, 1996, September 30,
1996 and December 31, 1996 and $750,000 on the last day of each quarter
thereafter, commencing on March 31, 1997 and ending on December 31, 1998,
together with accrued and unpaid interest through the applicable payment date.
The remaining outstanding principal amount of $7,975,000 is due and payable on
January 15, 1999. The interest rate, bank fees, collateral, non-financial
covenants and events of default have not been modified by the amendment to the
credit agreement.
The Notes are convertible by the holder into shares of Common
Stock at a conversion price equal to $2.00 per share, subject to adjustment in
certain events. Interest on the Notes is payable quarterly commencing April 15,
1996. The Notes mature on January 15, 2001 and are subject to prepayment at any
time after the third anniversary of the date of issuance at the option of the
company without premium or penalty. The Notes are unsecured obligations of the
company subordinate in right of payment to all senior indebtedness of the
company. The Warrants entitle the holders thereof to purchase shares of Common
Stock at any time and from time to time on or before February 15, 2002, at an
exercise price equal to $2.50 per share of Common Stock, subject to adjustment
in certain events. The Warrants are detachable and separately transferable.
The issuance of the securities was approved by the company's
shareholders at a Special Meeting of Shareholders held in Longmont on February
1, 1996. If all of the Notes are converted and all of the Warrants are
exercised, the company will have received gross proceeds of $18,000,000
(approximately $16,860,000 net) in exchange for the sale of
<PAGE>
<PAGE>
approximately 49.6% of the shares of Common Stock on a fully-diluted basis,
based on shares currently outstanding.
Included in the group of investors were Charles S. Holmes and
C. Shelton James, both of whom are directors of the company.
The net proceeds realized by the company from the sale of the
securities, after the payment of fees and expenses associated with the offering,
including a placement fee, are estimated to be approximately $6,860,000. The
company intends to use the net proceeds to pay amounts past due to vendors
primarily for raw materials and components as well as for other corporate
purposes.
NAI Technologies is a diversified international electronics
company with strengths in both advanced computer system design and
telecommunications. It is a leading provider of rugged computers, peripherals
and integrated systems for military, government and commercial applications. In
addition, NAI Technologies also supplies transmission enhancement products and
rugged, hand-held test equipment for analog, digital and fiber-optic
communications and data-interchange networks. The company's diverse customer
base includes commercial markets requiring rugged, mobile computer and
communications systems, U.S. and foreign armed services, intelligence agencies,
the regional Bell operating companies and major worldwide independent telephone
companies.
CONTACT: ECOM Consultants
Robert Frost, 212/696-1133
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