Exhibit 4.1
NEITHER THIS NOTE, NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN OR WILL BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, EXCEPT AS
EXPRESSLY PROVIDED HEREIN, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED AND THAT THE PROPOSED TRANSFER MAY BE MADE WITHOUT VIOLATION OF THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW.
$10,000,000 February 18, 2003
ENVIRONMENTAL TECTONICS CORPORATION
SENIOR SUBORDINATED CONVERTIBLE NOTE
ENVIRONMENTAL TECTONICS CORPORATION (the "Company"), a Pennsylvania
corporation, for value received, and intending to be legally bound, hereby
unconditionally promises to pay to the order of X.X. Xxxxxxx (the "Lender"), or
any assignee or holder hereof (together with the Lender, a "Holder"), the
principal sum of Ten Million Dollars ($10,000,000), as increased pursuant to
Section 3(c) hereof, plus all accrued and unpaid interest at the rates provided
herein, in lawful money of the United States of America. The obligations of the
Company under this Note are secured as set forth in the Security Agreement dated
as of the date hereof between the Company and the Lender. Capitalized terms used
herein and not defined herein shall have the meaning assigned thereto in the
Convertible Note and Warrant Purchase Agreement, of even date herewith, by and
between the Company and the Lender (as amended, restated, or otherwise modified,
the "Purchase Agreement").
Payments of principal or interest on this Note shall be made in lawful
money of the United States of America by wire transfer to a bank account
designated by the Holder.
1. Definitions. The following terms shall have the following meanings:
(a) "Conversion Amount" means the portion of the principal amount of
this Note being converted, from time to time, and/or any accrued and unpaid
interest thereon, through the Conversion Date, each as specified in the notice
of conversion in the form attached hereto (the "Notice of Conversion").
(b) "Conversion Date" means the date specified in the Notice of
Conversion so long as the copy of the Notice of Conversion is faxed (or
delivered by other means resulting in notice) to the Company at or before 11:59
p.m., Philadelphia, Pennsylvania time, on the Conversion Date indicated in the
Notice of Conversion; provided, however, that if the Notice of Conversion is not
so faxed or otherwise delivered before such time, then the Conversion Date shall
be the date the Holder faxes or otherwise delivers the Notice of Conversion to
the Company.
(c) "Conversion Price" shall mean $6.05.
(d) "Issue Date" shall mean the date of issuance by the Company of
this Note.
2. Principal Payments. The outstanding principal balance of this Note,
together with all accrued and unpaid interest thereon, shall be payable on
February 18, 2009 (the "Maturity Date"), unless such payment obligation is
accelerated pursuant to Section 6 hereof.
3. Interest.
(a) Interest Payments. Interest shall accrue on the outstanding
principal amount hereof at a rate of ten percent (10%) per annum until paid in
full. Interest shall be due and payable in arrears (i) quarterly on the last
Business Day of each calendar quarter commencing on May 31, 2003 and (ii) on the
Maturity Date (each, a "Payment Date"). Interest payable hereunder will be
computed on the basis of a year of 365 days, for the number of actual days
elapsed during which principal is outstanding.
(b) Default Rate. If an Event of Default (hereinafter defined) shall
occur and be continuing, then, and in any such event, interest shall accrue on
the unpaid principal balance from time to time outstanding hereunder at the rate
of thirteen percent (13%) per annum (the "Default Rate") until the entire
principal evidenced by this Note and all accrued interest thereon is paid in
full or the Event of Default is cured within the applicable cure period.
(c) Deferral Option. During the term of this Note, the Company may
elect to defer the payment of all or a portion of the interest due and payable
on a Payment Date (other than the Maturity Date) and instead may, at the
election of the Company, accrue and add such interest to the outstanding
principal balance from time to time outstanding hereunder (thereafter
constituting "principal"), to bear interest and become due and payable on the
Maturity Date.
4. Conversion of Note.
(a) Holder's Option. A Holder may, at any time, and from time to
time, on or after the Issue Date, convert (a "Conversion") all or any part of
the outstanding principal amount of this Note on, and/or all accrued interest
thereon through, the Conversion Date, into the number of fully paid and
nonassessable shares of Common Stock determined in accordance with the following
formula:
Shares of = Conversion Amount
Common Stock -----------------
Conversion Price
(2)
(b) Mechanics of Conversion. In order to effect a Conversion, a
Holder shall: (x) fax (or otherwise deliver) a copy of the fully completed and
executed Notice of Conversion to the Company and (y) surrender or cause to be
surrendered this Note, duly endorsed, along with a copy of the Notice of
Conversion as soon as practicable thereafter to the Company. Upon receipt by the
Company of a facsimile copy of a Notice of Conversion from a Holder, the Company
shall promptly send, via facsimile, a confirmation to such Holder stating that
the Notice of Conversion has been received, the date upon which the Company
expects to deliver the Common Stock issuable upon such conversion and the name
and telephone number of a contact person at the Company regarding the
conversion. The Company shall not be obligated to issue shares of Common Stock
upon a conversion unless either this Note is delivered to the Company as
provided above, or the Holder notifies the Company or the transfer agent that
this Note has been lost, stolen or destroyed and delivers the documentation to
the Company required by Section 7(b) hereof.
(i) Delivery of Common Stock Upon Conversion. Upon Conversion,
the Company shall, no later than the fifteenth Business Day following the
surrender of this Note accompanied by a Notice of Conversion, issue and deliver
to the Holder or its nominee (x) that number of shares of Common Stock issuable
upon conversion of the portion of this Note being converted and (y) a new Note
in the form hereof representing the balance of the principal amount hereof not
being converted, if any.
(ii) Taxes. The Company shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of the shares of
Common Stock upon the conversion of this Note.
(iii) No Fractional Shares. If any conversion of this Note would
result in the issuance of a fractional share of Common Stock, such fractional
share shall be disregarded and a cash amount equal to the same fraction of the
market price of a share of Common Stock on the Conversion Date shall be added to
the outstanding principal balance hereunder (thereafter constituting
"principal"), to bear interest and become due and payable on the Maturity Date.
(iv) Limitations on Conversion. Prior to the approval of the
stockholders of the Company, as required by Section 713 of the Listing,
Standards, Policies and Requirements of the American Stock Exchange, in favor of
the transactions contemplated by the Purchase Agreement, in no event shall a
Holder be entitled to receive shares of Common Stock upon a conversion of any
amount under this Note if the aggregate number of shares of Common Stock
received by all Holders as a result of (i) such conversion, (ii) all previous
conversions of amounts under this Note and (iii) any prior exercise of the
Warrants is more than 1,325,732 shares of Common Stock (which such amount
represents 19.99% of the issued and outstanding shares of Common Stock on the
date hereof, less 105,000 shares of Common Stock issuable to ETC Asset
Management, LLC ("EAM") upon exercise of that certain Stock Purchase Warrant of
even date herewith issued by the Company in favor of EAM).
(3)
(v) Grant of Warrants upon Conversion.
(A) Upon each conversion of this Note, Borrower shall
issue a warrant (each an "Additional Warrant"),
entitling the Purchaser to purchase shares of Common
Stock equal to ten percent (10%) of the shares of
Common Stock issued upon such conversion.
(B) The exercise price and other terms and conditions of
each Additional Warrant shall be the same as may then
apply to the Warrants including all adjustments, as
if each such Additional Warrant had been issued on
the date hereof. For all purposes each Additional
Warrant shall be deemed to be a Warrant.
THE CONVERSION OF THIS NOTE INTO SHARES OF COMMON STOCK IS EXPRESSLY CONDITIONED
UPON SUFFICIENT AUTHORIZED, UNISSUED AND UNRESERVED COMMON STOCK OF THE COMPANY
TO PERMIT SUCH CONVERSION. UNTIL THE PRINCIPAL HEREUNDER AND ALL ACCRUED AND
UNPAID INTEREST SHALL HAVE BEEN PAID IN FULL, THE COMPANY AGREES TO MAINTAIN A
SUFFICIENT NUMBER OF AUTHORIZED, UNISSUED AND UNRESERVED COMMON STOCK OF THE
COMPANY TO PERMIT SUCH CONVERSION.
5. Transfer of Securities.
(a) Restrictions on Transfer. By accepting this Note, the Holder
hereby acknowledges that, except as expressly set forth herein and in the
Registration Rights Agreement, this Note and the shares of Common Stock issuable
upon conversion of this Note will not be registered under the Securities Act of
1933, as amended (the "Securities Act"), or any state securities laws. The
Holder represents that it is acquiring this Note for its own account, for
investment purposes only and not with a view to, or for sale in connection with,
any distribution of such securities. Notwithstanding the foregoing, subject to
all applicable securities laws, the Holder may transfer this Note or any shares
of Common Stock (or any interest therein) without violation of the Securities
Act or any applicable state securities law; provided, however, that the Holder
shall not transfer this Note or any shares of Common Stock to a competitor of
the Company, or its subsidiaries or affiliates. No transfer of this Note shall
be deemed effective to the extent that such transfer conflicts with applicable
federal or state securities laws.
(b) Recording of Transfer. The transfer of the Note, or of any right
to the principal thereof, and stated interest thereon, may be effected only by
surrender of the Note to the Company and the issuance of a new note in the name
of the transferee.
6. Default. If any of the following conditions or events (each an
"Event of Default") shall occur and be continuing, then, and in any such event,
the Holder may at any time (unless such Event of Default shall theretofore have
been remedied) at its option, by written notice to the Company, declare the Note
to be due and payable, whereupon the Note shall forthwith mature and become due
and payable, without presentment, demand, protest or notice, all of which are
hereby waived. In addition, in such case the Company will pay to the Holder such
further amount as shall have been incurred by the Holder as the costs and
expenses of collection, including reasonable attorneys' fees.
(4)
(a) If the Company shall default in the payment of principal or
interest on this Note when the same becomes due and payable, whether on a
Payment Date, the Maturity Date or by declaration of acceleration or otherwise
and such default shall not have been remedied within five (5) days after the
date such payment was due.
(b) If an Event of Default shall have occurred under the Purchase
Agreement and such Event of Default shall not have been cured within the
applicable cure period.
7. Miscellaneous.
(a) All notices, requests or instructions hereunder shall be in
writing and delivered personally, sent by telecopy, sent by nationally
recognized, overnight courier service, or sent by registered or certified mail,
postage prepaid, as follows:
If to the Holder:
The Xxxxxxx Group
0000 Xxxxxxxxxx Xxxxx
Xxxx Xxxxxxx, XX 00000
Attn: X.X. Xxxxxxx
Xxxxxx X. Xxxxx, Esquire
Telecopier: (000) 000-0000
If to the Company:
Environmental Tectonics Corporation
County Line Industrial Park
000 Xxxxx Xxx
Xxxxxxxxxxx, XX 00000-0000
Attn: Chief Financial Officer
Telecopier: (000) 000-0000
with a copy to:
Xxxxx, Xxxxxxxx, Xxxxxx, Xxxxxxxxx & Xxxxxx LLP
000 X. Xxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx, Esquire
Telecopier: (000) 000-0000
(5)
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be effective on the earlier of (i) the date
of delivery to the addressee, or (ii) five business days after it has been
mailed, or (iii) three business days after delivery by a nationally recognized
courier service.
(b) Lender shall have the right, without obligation, to grant
extensions of time or indulgences without affecting the liability of the
Company, including periods when payment is not permitted under the Subordination
Agreement.
(c) Upon receipt by the Company from a Holder of (i) evidence of the
loss, theft, destruction or mutilation of any Note and (ii) (y) in the case of
loss, theft or destruction, of indemnity (without any bond or other security)
reasonably satisfactory to the Company, or (z) in the case of mutilation, upon
surrender and cancellation of any Note, the Company shall execute and deliver a
new Note of like tenor and date. However, the Company shall not be obligated to
reissue such lost or stolen Note if the Holder contemporaneously requests the
Company to convert such Note.
(d) Nothing contained in this Note shall be construed as confessing
upon the Holder or any other person the right to vote or to consent or to
receive notice as a stockholder of the Borrower.
(e) This Note shall be governed by the laws of the Commonwealth of
Pennsylvania without regard to the conflict of law provisions thereof.
(f) Notwithstanding any provision contained in this Note to the
contrary, the Company's liability for payment of interest shall not exceed the
limits imposed by applicable usury law. If any provision hereof requires
interest payments in excess of the then legally permitted maximum rate, such
provision shall automatically be deemed to require such payment at the then
legally-permitted maximum rate; provided, however, that in such event the
Conversion Price shall be adjusted to preserve the economic effects of the
transaction contemplated by the Purchase Agreement.
(g) Subject to Section 5 hereof, this Note shall be binding on the
Company, its successors and assigns, and shall inure to the benefit of the
Holder and the Holder's successors, assigns, legal representatives, heirs and
guardians.
(h) In the event of the commencement of a lawsuit or other
proceeding to enforce any of the terms of this Note, the prevailing party shall
be entitled to recover reasonable attorney's fees and related out-of-pocket
expenses.
THIS NOTE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT." FOR INFORMATION REGARDING
THE ISSUE PRICE, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE
YIELD TO MATURITY, HOLDERS SHOULD CONTACT ENVIRONMENTAL TECTONICS CORP.,
ATTENTION: CHIEF FINANCIAL OFFICER, 000 XXXXX XXX, XXXXXXXXXXX, XXXXXXXXXXXX
00000-0000, TELEPHONE NUMBER: (000) 000-0000.
(6)
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its name by its duly authorized officer as of the day and year first above
written.
ENVIRONMENTAL TECTONICS CORPORATION
By: /s/ Xxxxx Xxxxxx (Seal)
--------------------------------------
Name: Xxxxx Xxxxxx
Title: C.F.O.
(7)
SCHEDULE "A"
FORM OF CONVERSION NOTICE
TO: Environmental Tectonics Corporation
County Line Industrial Park
000 Xxxxx Xxx
Xxxxxxxxxxx, XX 00000-0000
Attn: Chief Financial Officer
Telecopier: (000) 000-0000
______________ ("Holder") is the owner and holder of the Senior
Subordinated Convertible Note dated February ___, 2003 in the original principal
amount of $10,000,000 (the "Note"), or such lesser amount advanced by X.X.
Xxxxxxx to Environmental Tectonics Corporation (the "Company") in accordance
with the terms of the Note. Holder hereby confirms that it irrevocably exercises
its right to convert $___________ (which amount shall not exceed all amounts due
and owing by the Company under the Note) into that number of shares of Common
Stock of the Company, and directs that the shares of Common Stock issuable and
deliverable upon such conversion be registered in the name of Holder and
delivered to Holder.
The undersigned hereby acknowledges that the Company has no obligation
to register the shares of Common Stock issuable upon conversion of the Note
except as otherwise provided in the Registration Rights Agreement.
Dated: __________________ , 200_
_________________________________ _________________________________
Name:
