-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T5C7Hf3cgNmYsxz4YJ8JuDKS9b1awL07/bZ3Fkg3JRfubD8Y9DsI2Ymoo9b7DOcB nRBqa0erhcVQ2dZ6tCt7dA== 0000950117-96-000132.txt : 19960227 0000950117-96-000132.hdr.sgml : 19960227 ACCESSION NUMBER: 0000950117-96-000132 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19960215 ITEM INFORMATION: Other events FILED AS OF DATE: 19960223 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NAI TECHNOLOGIES INC CENTRAL INDEX KEY: 0000072575 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 111798773 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-03704 FILM NUMBER: 96525036 BUSINESS ADDRESS: STREET 1: 1000 WOODBURY RD STREET 2: SUITE 412 CITY: WOODBURY STATE: NY ZIP: 11797-2530 BUSINESS PHONE: 5163644433 MAIL ADDRESS: STREET 2: 1000 WOODBURY ROAD STE 412 CITY: WOODBURY STATE: NY ZIP: 11797-2530 FORMER COMPANY: FORMER CONFORMED NAME: NORTH ATLANTIC INDUSTRIES INC DATE OF NAME CHANGE: 19920703 8-K 1 NAI TECHNOLOGIES, INC. FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ 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 ------------------------ NAI Technologies, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) 0-3704 (Commission File Number) New York 11-1798773 -------------------------------- ---------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 2405 Trade Centre Avenue, Longmont, CO 80503 ------------------------- ---------- (Address of principal (Zip Code) executive offices)
Registrant's telephone number, including area code (303) 776-5674 ---------------- 1000 Woodbury Road, Woodbury, New York 11797-2530 --------------------------------------------------------------------- (Former name or former address, if changed since last report) Exhibit Index on Page 15 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 -2- 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, -3- 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 -4- 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. -5- 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 -6- 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 -7- 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 -8- 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 -9- 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 -10- 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 -11- 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 -12- 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. -13- 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 -------------------------------- Name: Richard A. Schneider Title: Executive Vice President and Chief Financial Officer Date: February 23, 1996 -14- EXHIBIT INDEX
Exhibit No. Description 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.
-15- EX-99 2 EXHIBIT 1 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. (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. 2 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 3 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 4 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 5 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. 6 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. 7 (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: 8 (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 9 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 10 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 11 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 12 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). 13 (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 14 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 15 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 16 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 17 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. 18 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, 19 without duplication, all operating expenses, provisions for all taxes and reserves (including reserves for deferred income taxes) and all other proper deductions, all determined in accordance with GAAP on a consolidated basis, after eliminating all intercompany items and after deducting portions of income properly attributable to outside minority interests, if any, in any Subsidiaries; provided, however, that there shall be excluded (i) any income or deficit of any other Person accrued prior to the date it becomes a Subsidiary or merges into or consolidates with the Company or another Subsidiary of the Company, (ii) the income (or deficit) of any other Person (other than a Subsidiary of the Company) in which the Company or any Subsidiary has any ownership interest, except to the extent that any such income has been actually received by the Company or such Subsidiary in the form of cash dividends or similar distributions, (iii) any deferred credit or amortization thereof from the acquisition of any properties of assets of any other Person, (iv) any aggregate net income (but not any aggregate net loss) during such period arising from the sale, exchange or other distribution of capital assets (such term to include all fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities), (v) any income resulting from the write-up of assets after the date hereof, (vi) any gains properly classified as extraordinary in accordance with GAAP, (vii) proceeds of life insurance policies to the extent such proceeds exceed premiums paid to maintain such life insurance policies, (viii) any income of a Subsidiary which is unavailable for the payment of dividends, and (ix) any gain arising from the acquisition of securities, or the extinguishment of any indebtedness of the Company or any of its Subsidiaries or the termination of an employee benefit plan. (e) "GAAP": United States generally accepted accounting principles, consistently applied. (f) "Indebtedness": at any time and with any respect to any Person, (i) all indebtedness of such Person for borrowed money, (ii) all indebtedness of such Person for the deferred purchase price of property or services (other than property, including inventory, and services purchased, and expense accruals and deferred compensation items arising, in the ordinary course of business, provided that the same shall not be overdue (i.e., the earlier of ninety (90) days from the invoice date or the date the obligee commences an action to recover such amounts), or if overdue, are being contested in good faith and by appropriate proceedings), (iii) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments (other than performance, surety and appeal bonds arising in the ordinary course of business), (iv) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (v) all obligations of such Person under leases which have been or should be, in accordance with GAAP, recorded as capital leases, to the extent required to be so recorded, (vi) all reimbursement, payment or similar obligations of such Person, contingent or otherwise, under acceptance, letter of credit or similar facilities (vii) all Indebtedness referred to in clauses (i) through (vi) above guaranteed directly or indirectly by such Person including without limitation through any agreement (A) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, 20 (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 21 $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. 22 (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 23 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 $2.50 per share of Common Stock, subject to adjustment in certain events. (b) This Note and the shares of Common Stock or other securities issuable upon conversion of this Note will be accorded the registration rights under the Act set forth in that certain Registration Rights Agreement between the Company and the Holders, a form of which agreement is being furnished concurrently herewith. (c) This Note is the obligation of the Company only, and no recourse shall be had for the payment thereof or interest thereon against any shareholder, officer or director of the Company, whether by virtue of any constitution, statute, rule or law or otherwise, 24 all such liability, by the acceptance hereof, and as part of the consideration hereof, being expressly waived. (d) Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note and of a letter of indemnity reasonably satisfactory to the Company, and upon reimbursement to the Company of all reasonable expenses incident thereto, and upon surrender or cancellation of this Note, if mutilated, the Company will make and deliver a new Note of like tenor in lieu of such lost, stolen, destroyed or mutilated Note. (e) THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE COMPANY AND THE HOLDER HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS AND INSTRUMENTS MADE AND TO BE PERFORMED IN NEW YORK AND CANNOT BE MODIFIED OR CHANGED ORALLY. IN WITNESS WHEREOF, the Company has duly caused this Note to be signed on its behalf, in its corporate name and by its duly authorized officer, as of this _____ day of February 1996. NAI TECHNOLOGIES, INC. By: _________________ Richard A. Schneider Executive Vice President, Treasurer and Secretary 25 Schedule A Section 6(f) Adjusted Amounts Wilcom, Inc............................................................................$ 838,000 Codar Technology, Inc..................................................................$2,805,000 NAI Technologies - Systems Division Corporation........................................$ 607,000 Lynwood Scientific Developments Limited................................................$1,833,000
26 EX-99 3 EXHIBIT 2 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 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 2 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." 3 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 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 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 6 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 7 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 8 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 9 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. 10 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 Schedule A Section 5(f) Adjusted Amounts Wilcom, Inc............................................................................$ 838,000 Codar Technology, Inc..................................................................$2,805,000 NAI Technologies - Systems Division Corporation........................................$ 607,000 Lynwood Scientific Developments Limited................................................$1,833,000
12 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 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 EX-99 4 EXHIBIT 3 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) 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- EX-99 5 EXHIBIT 4 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. (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 2 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 3 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 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 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. 6 (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 7 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; 8 (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 9 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. 10 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 11 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). 12 (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). 13 (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. 14 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. 15 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. 16 (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: 17 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 18 EX-99 6 EXHIBIT 5 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. 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 2 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. 3 (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 4 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 5 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 6 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 7 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: 8 (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 9 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 10 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. 11 (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. 12 (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 13 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 14 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 15 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 16 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 17 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. 18 (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. 19 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 20 EX-99 7 EXHIBIT 6 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) 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 2 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. 3 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 4 EX-99 8 EXHIBIT 7 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. "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 2 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 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:
Date Ratio ---- ----- 1996 1.30 to 1.0 1997 1.50 to 1.0 1998 1.75 to 1.0
4 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:
Date Ratio ---- ----- 1996 0.55 to 1.0 1997 0.75 to 1.0 1998 1.00 to 1.0
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:
Period Amount 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
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:
Date Ratio December 31, 1996 1.00 to 1 March 31, 1997 1.25 to 1
5 June 30, 1997 and thereafter 1.50 to 1
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; 6 (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 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 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 EX-99 9 EXHIBIT 8 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 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 ______________________ -2- EX-99 10 EXHIBIT 9 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 EX-99 11 EXHIBIT 10 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 EX-99 12 EXHIBIT 11 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 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 -2- -----END PRIVACY-ENHANCED MESSAGE-----