Exhibit 10.2
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. IT MAY NOT BE TRANSFERRED, ASSIGNED, SOLD
OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL, IN
FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED BECAUSE OF AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
No. 1 U.S.$7,500,000
Dated: June 28, 2002
ALLIED RESEARCH CORPORATION
8% CONVERTIBLE DEBENTURE SERIES A
This Debenture ("Debenture") is one of a duly authorized issue of
Debentures of ALLIED RESEARCH CORPORATION (the "Company"), a corporation duly
organized and existing under the laws of the state of Delaware, designated as
the Company's 8% Convertible Debentures Series A, in an aggregate principal
amount of SEVEN MILLION FIVE HUNDRED THOUSAND U.S. Dollars (U.S. $7,500,000)
(the "Debentures").
For Value Received, the Company promises to pay to RIVERVIEW GROUP, LLC the
initial holder hereof, or its order (including successors-in-interest, the
"Holder"), the principal sum of SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS
(U.S. $7,500,000) in the following manner: $750,000, together with all the
accrued but unpaid interest thereon, shall be due and payable on June 28, 2003
("Initial Maturity Date"). Additional repayments of principal, each in the
amount of $750,000, together with accrued but unpaid interest on each such
principal payment, shall be due and payable on each monthly anniversary of the
Initial Maturity Date (each such monthly anniversary being a Subsequent Maturity
Date). The Initial Maturity Date and any Subsequent Maturity Date may be
referred to as a "Maturity Date" (subject to paragraph (d) below). Interest on
the principal sum outstanding under this Debenture ("Outstanding Principal
Amount"), at the rate of 8% per annum, compounded annually, shall be payable in
arrears on the first day of January and July of each year and on each Maturity
Date (each an "Interest Payment Date"), with the first such payment due on
January 1, 2003. Interest shall accrue daily commencing on the date hereof and
shall continue until payment in full of all amounts due under this Debenture.
The interest so payable will be paid to the person in whose name this Debenture
is registered on the records of the Company regarding registration and transfers
of the Debenture (the "Debenture Register"). Capitalized terms used herein and
not otherwise defined shall have the meanings set forth in the Purchase
Agreement dated as of June 28, 2002 between the Company and the Holder (the
"Purchase Agreement") or the Registration Rights Agreement dated as of June 28,
2002 between the Company and the Holder (the "Registration Rights Agreement").
The interest on this Debenture is payable, at the Company's option:
(a) in such coin or currency of the United States as of the time of
payment is legal tender for payment of public and private debts, at the address
last appearing on the Debenture Register of the Company as designated in writing
by the Holder hereof from time to time;
(b) in shares of Common Stock (as hereinafter defined) at the address last
appearing on the Debenture Register of the Company designated in writing by the
Holder hereof from time to time ("Share Interest"). The Company may only elect
to pay interest as Share Interest if the shares being delivered are registered
for resale (with a currently deliverable prospectus) in accordance with the
terms of the Registration Rights Agreement, free of legend, and listed on one of
the Approved Markets (as defined in the Purchase Agreement). The number of
shares to be delivered shall be determined by dividing the cash interest that
would otherwise be due and payable by the product of (i) the average of the VWAP
(as hereinafter defined) for the five Trading Days immediately preceding the
applicable Interest Payment Date, and (ii) ninety percent.
The principal amounts due on this Debenture are payable, at the Company's
option:
(c) in such coin or currency of the United States as of the time of
payment is legal tender for payment of public and private debts, at the address
last appearing on the Debenture Register of the Company as designated in writing
by the Holder hereof from time to time;
(d) in shares of Common Stock (as hereinafter defined) at the address last
appearing on the Debenture Register of the Company designated in writing by the
Holder hereof from time to time ("Share Principal"). The Company may only elect
to pay principal as Share Principal if the shares being delivered are registered
for resale (with a currently deliverable prospectus) in accordance with the
terms of the Registration Rights Agreement, free of legend, and listed on one of
the Approved Markets (as defined in the Purchase Agreement). The number of
shares to be delivered shall be determined by dividing the cash principal amount
that would otherwise be due and payable by the product of (i) the average of the
VWAP (as hereinafter defined) for the five trading days immediately preceding
the applicable Maturity Date, and (ii) ninety percent.
The principal amount due and payable on any Maturity Date shall be reduced
by an amount equal to the principal amount submitted for conversion by the
Holder prior to such Maturity Date pursuant to the terms of this Debenture which
has not been previously applied to reduce the principal amount due on any prior
Maturity Date. Such amounts shall be applied to reduce amounts due on a Maturity
Date in chronological order, commencing with the earliest Maturity following the
conversion. If the principal amount due and payable on a Maturity Date has been
reduced to zero pursuant to the terms of this paragraph, such Maturity Date
shall no longer be deemed a "Maturity Date."
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All amounts payable under this Debenture must (unless waived by the Holder)
be paid in cash (as provided in clauses (a) and (c) above) if, at the time such
payment is due, there exists a Default (as hereinafter defined) under this
Debenture.
The Company shall exercise its options hereunder for payment of interest
and principal by delivering, on or prior to the applicable Interest Payment Date
or Maturity Date, an irrevocable statement in the form of Exhibit 1 hereto
("Payment Statement"), which shall be applicable for such Interest Payment Date
or Maturity Date only. If the Payment Statement is not timely delivered to the
Holder as provided herein, the payment with respect to such Interest Payment
Date shall be in cash. If the Company selects cash interest in the Payment
Statement and fails to deliver such cash on or before the Interest Payment Date
or Maturity Date, the Holder shall have the right to require the Company to pay
Share Interest or Share Principal in lieu thereof.
The Company shall not be permitted to exercise its options hereunder to pay
interest and/or principal in shares of Common Stock if and to the extent that
such shares, when added to other shares of Common Stock deemed beneficially
owned by the Holder, would exceed the Restricted Ownership Percentage (as
hereinafter defined) or the 20% Cap (as defined in the Purchase Agreement).
The Company will pay any principal due and all accrued and unpaid interest
due upon this Debenture to the person that is the Holder of this Debenture on
the records of the Company as of the applicable Interest Payment Date and
addressed to such Holder at the last address appearing on the Debenture
Register.
The Outstanding Principal Xxxxxx and interest due hereunder shall bear
interest, from and after the day following the occurrence and during the
continuance of an Event of Default hereunder, at the per annum rate equal to the
lowest of the Citibank Prime Rate per annum plus six (6%) percent, twelve
percent (12%), or the highest rate permitted by law. The Holder shall have the
option to receive such interest as cash interest or Share Interest and shall
exercise its option by delivering to the Company a statement in a form
substantially similar to the Payment Statement which shall be effective until
the Holder delivers an additional statement to the contrary. If the Holder
elects to receive the interest in cash, it shall be payable on demand.
Additional cash payments (referred to as "delay payments") may be required
pursuant to the Registration Rights Agreement if there occurs an "Interfering
Event" (as defined therein), or pursuant to the Purchase Agreement under the
terms set forth in Section 3.10 therein. Such delay payments, if not paid in
cash when due, may be treated by the Holder in its sole discretion as being
added to the Outstanding Principal Amount due under this Debenture.
Subject to applicable law, any interest otherwise payable that is not paid
for any applicable period because it would exceed the highest rate permitted by
law shall become payable whenever the payment thereof, together with other
interest due for any such subsequent period, would not exceed such highest legal
rate.
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The Holder of this Debenture is entitled to certain rights and remedies
pursuant to the Purchase Agreement and Registration Rights Agreement, including
without limitation provisions requiring mandatory redemption of the Debenture.
This Debenture does not provide voting rights to the Holder.
This Debenture is subject to the following additional provisions:
1. Exchange. The Debentures are exchangeable at any time and from time to
time for Debentures with different denominations of at least $500,000
representing an equal aggregate Outstanding Principal Amount of Debentures or to
reflect the actual Conversion Price pursuant to Section 5(c) below, as requested
by the Holder surrendering the same. No service charge will be made for such
registration or transfer or exchange.
2. Transfers. This Debenture may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act") and
applicable state securities laws, or applicable exemptions therefrom; provided,
that in no event may this Debenture be sold or otherwise transferred by the
Holder to any person who (i) has been convicted of, or pleaded guilty or nolo
contendere to, a felony under applicable U.S. law in a court of competent
jurisdiction, and such conviction has not been vacated or overturned, (ii) has
been barred by a federal or state regulatory agency from serving as an officer
or director of a public company, (iii) has been found by a court of competent
jurisdiction or a federal or state securities agency or self-regulatory
organization to have made a false statement or omission, been dishonest, unfair
or unethical, been in violation of bank or investment-related statutes or
regulations, or been the cause of a bank or investment-related business to have
its authorization to do business denied, suspended, revoked or restricted, (iv)
had an order entered against him in connection with an investment or securities
related activity, (v) was denied, suspended or had a registration or license
revoked or was otherwise prevented from associating with an investment or
securities related business, or whose activities were restricted via a
disciplinary action, (vi) was discharged or permitted to resign his employment
because he was accused of violating investment or securities related statutes,
regulations, rules or industry standards of conduct, or (vii) within the past
ten (10) years, has served as an officer or director of a public company that
filed for bankruptcy protection or sought legal protection from creditors
through other means. Prior to due presentment for transfer of this Debenture,
the Company may treat the person in whose name this Debenture is duly registered
on the Company's Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided, whether or not this Debenture is overdue.
Notwithstanding the above, the Company shall have a right of first refusal with
respect to any proposed sale by the Holder of this Debenture and shall have the
right to match the terms of any bona fide offer with respect thereto received
from a third party. To effect the foregoing, the Holder shall provide written
notice to the Company of the terms of such proposed sale promptly following
receipt of such offer. The Company may then exercise its right to match by
issuing a written counter-notice of its intention to do so within three (3)
Trading Days of receipt of the notice from the Holder, and the consummation of
such counteroffer shall occur at the later of (i) the time provided by the
original bona fide third party offer and (ii) ten (10) Trading Days from the
date on which the Holder received such written counter-notice. Any material
changes or modifications to the proposed transaction shall be reflected to the
Company pursuant to the procedures of this Section 2. The foregoing
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right of first refusal shall not apply to any sale of this Debenture by the
Holder to any affiliate of such Holder or if the Company is or has at any time
been in Default under the terms of this Debenture.
3. Definitions. For purposes hereof the following definitions shall apply:
-----------
"Act" shall have the meaning set forth in Section 2.
"Adjustment Date" shall have the meaning set forth in Section 7(a).
"AMEX" shall mean the American Stock Exchange.
"Change in Control Consideration" shall have the meaning set forth in
Section 4 hereof.
"Change in Control Conversion Price" shall have the meaning set forth
in Section 4 hereof.
"Change in Control Transaction" shall mean (i) any consolidation or
merger of the Company with or into any other corporation or other entity or
person (whether or not the Company is the surviving corporation) occurs, or any
other corporate reorganization or transaction or series of related transactions
in which in excess of 50% of the Company's voting power is transferred through a
merger, consolidation, tender offer or similar transaction occurs; or (ii) any
person (as defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), together with its affiliates and associates (as
such terms are defined in Rule 405 under the Act), beneficially owns or is
deemed to beneficially own (as described in Rule 13d-3 under the Exchange Act)
in excess of 50% of the Company's voting power; (iii) there is a replacement of
more than one-half of the members of the Company's Board of Directors which is
not approved by those individuals who are members of the Company's Board of
Directors on the date thereof; or (iv) in one or a series of related
transactions there is a sale or transfer of all or substantially all of the
assets of the Company, determined on a consolidated basis.
"Closing Date" shall mean the date of the original issuance of this
Debenture.
"Common Stock" shall mean the common stock, par value $.10, of the
Company.
"Company" shall have the meaning set forth in the Preamble.
"Conversion Notice" shall have the meaning set forth in Section 5(d).
"Convertible Securities "shall have the meaning set forth in Section
7(a).
"Conversion Price" shall have the meaning set forth in Section 5(c).
"Conversion Rate" shall have the meaning set forth in Section 5(b).
5
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"Debenture" shall have the meaning set forth in the Preamble.
"Debentures" shall have the meaning set forth in the Preamble.
"Debenture Register" shall have the meaning set forth in the Preamble.
"Default" shall mean an event or occurrence which, with or without the
giving a notice, and/or with or without the passage of time, would constitute an
Event of Default.
"Delay payments" shall have the meaning set forth in the Preamble.
"DTC" shall have the meaning set forth in Section 5(d).
"DWAC" shall have the meaning set forth in Section 5(d).
"Event of Default" shall have the meaning set forth in Section 17.
"FAST" shall have the meaning set forth in Section 5(d).
"Holder Conversion Date" shall have the meaning set forth in Section 5(d).
"Interest Payment Date" shall have the meaning set forth in the Preamble.
"Maturity Date" shall have the meaning set forth in the Preamble.
"Market Price for Shares of Common Stock" shall mean the price of one share
of Common Stock determined as follows:
(i) If the Common Stock is listed on NYSE or the AMEX, the closing
bid price on such exchange on the date of valuation;
(ii) If (i) does not apply and the Common Stock is approved for
trading on the NASDAQ National Market System or the Nasdaq Small-Cap Market, the
last reported "bid" price thereon on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common Stock is quoted in
the over-the-counter market, another recognized exchange, on the pink sheets or
bulletin board, (A) the last sales price on the date of valuation or, if there
is no such sales price, (B) the mean between the last reported "bid" and "asked"
prices thereof on the date of valuation; and
(iv) If neither clause (i), (ii) or (iii) above applies, the market
value as determined by a nationally recognized investment banking firm or other
nationally recognized financial advisor retained by the Company for such
purpose, taking into consideration, among other factors, the earnings history,
book value and prospects for the Company, and the prices at which shares of
Common Stock recently have been traded. Such determination shall be conclusive
and binding on all persons.
"NYSE" shall mean the New York Stock Exchange.
6
"Outstanding Principal Amount" shall have the meaning set forth in the
Preamble.
"Payment Statement" shall have the meaning set forth in the Preamble.
"Public Announcement" shall mean any public filing with the Securities and
Exchange Commission, any press release by either the Company or a third party or
any other public statement, that announces a proposed transaction which, if
consummated, would constitute a Change in Control Transaction.
"Purchase Agreement" shall have the meaning set forth in the Preamble.
"Redemption Price" shall have the meaning set forth in Section 4(a).
"Registration Statement" shall have the meaning set forth in the
Registration Rights Agreement.
"Registration Rights Agreement" shall have the meaning set forth in the
Preamble.
"Restricted Ownership Percentage" shall have the meaning set forth in
Section 12.
"Share Interest and "Share Principal" shall have the meanings set forth in
the Preamble.
"Trading Day" shall mean a day on which the Common Stock is traded on the
American Stock Exchange or principal exchange on which the Common Stock has been
listed (or any similar organization or agency succeeding such market or
exchange's functions of reporting prices).
"VWAP" shall mean the "Volume Weighted Average Price" for the Common Stock
on its principal market as reported by Bloomberg Financial L.P. using the AQR
function.
4. Change in Control, Etc.
(a) If at any time there occurs any Change in Control Transaction, Holder
shall be entitled, at its sole option, to have the Company redeem this Debenture
in whole or in part at a Redemption Price equal to the Outstanding Principal
Amount of this Debenture plus all accrued but unpaid interest and delay payments
on this Debenture (the "Redemption Price"). Such Holder shall be entitled to
make such election at any time up to five (5) Trading Days following a Public
Announcement of a pending or completed Change in Control Transaction.
(b) If at any time there occurs a Public Announcement of a pending Change
in Control Transaction in which the public shareholders of the Company are to
receive consideration, a portion of which is capital stock or any security
convertible into capital stock of another entity in exchange for shares of
Common Stock ("Change in Control
7
Consideration"), then prompt provision shall be made in a manner reasonably
acceptable to the Holders so that each Holder shall have the right (in addition
to its other rights, including conversion rights, under this Debenture):
(i) following the closing of the transaction covered by such Public
Announcement, to convert its Debentures into the Change in Control Consideration
that such Holder would have been or would be entitled to receive had it
converted all of its Debentures into Common Stock (notwithstanding any
restrictions imposed upon the Holder pursuant to this Debenture or the Purchase
Agreement in its ability to do so) immediately prior to the Change in Control
Transaction at the then-current Conversion Price, and acquired the Change in
Control Consideration as a shareholder of the Company; or
(ii) following such Public Announcement, convert its Debentures into
Common Stock at the then-current Conversion Price.
5. Conversion at the Option of the Holder. The Holder of this Debenture
shall have the following conversion rights:
(a) Xxxxxx's Right to Convert. At any time and from time to time, the
Holder may convert amounts due under this Debenture, in whole or in part, into
fully paid, validly issued and non-assessable shares of Common Stock. If this
Debenture is converted in part, the remaining portion or this Debenture not so
converted shall remain entitled to the conversion rights provided herein.
(b) Conversion Rate. The Outstanding Principal Amount, accrued interest
and delay payments of this Debenture that is converted into shares of Common
Stock at the option of the Holder shall be convertible into the number of shares
of Common Stock which results from application of the following formula:
P + I + D
------------------------------
Conversion Price
P = Outstanding Principal Amount of this Debenture submitted for
conversion as of the Holder Conversion Date
I = accrued but unpaid interest (not previously added to principal) on P
as of the Holder Conversion Date
D = delay payments (not previously added to principal) on P as of the
Holder Conversion Date
The number of shares of Common Stock into which each $1,000 principal
amount of this Debenture hereto may be converted pursuant to this paragraph
hereof is hereafter referred to as the "Conversion Rate."
(c) Conversion Price.
8
(i) Subject to adjustments pursuant to Sections 4 and 7, this
Debenture will have a conversion price (the "Conversion Price") equal to $25.00.
(ii) The Company may, from time to time, upon written notice to all
holders of Debentures, reduce the Conversion Price of the Debentures for such
period as is set forth in such notice; provided however, that such reduction in
the Conversion Price shall apply equally to all outstanding Debentures.
(d) Mechanics of Conversion. In order to convert this Debenture (in whole
or in part) into full shares of Common Stock, the Holder (i) shall give written
notice in the form of Exhibit 2 hereto (the "Conversion Notice") by facsimile to
the Company at such office that the Holder elects to convert the principal
amount (plus accrued but unpaid interest and delay payments) specified therein,
which such notice and election shall be revocable by the Holder at any time
prior to its receipt of the Common Stock upon conversion, and (ii) if the entire
Outstanding Principal Amount is being converted, as soon as practicable after
such notice, shall surrender this Debenture, duly endorsed, by either overnight
courier or 2-day courier, to the principal office of the Company; provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of the Common Stock issuable upon such conversion (where
the entire Outstanding Principal Amount is being converted) unless either the
Debenture evidencing the principal amount is delivered to the Company as
provided above, or the Holder notifies the Company that such Debenture(s) have
been lost, stolen or destroyed and promptly executes an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such lost, stolen or destroyed Debentures.
The Holder shall not be required to physically surrender this
Debenture to the Company unless the full Outstanding Principal Amount
represented by this Debenture is being converted. The Holder and the Company
shall maintain records showing the Outstanding Principal Amount so converted and
the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of this Debenture upon each such conversion. Notwithstanding the
foregoing, if this Debenture is converted as aforesaid, the Holder may not
transfer this Debenture unless the Holder first physically surrenders this
Debenture to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Debenture of like tenor, registered as the
Holder may request, representing in the aggregate the remaining Outstanding
Principal Xxxxxx represented by this Debenture. The Holder and any assignee, by
acceptance of this Debenture or a new Debenture, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of any portion
of this Debenture, the Outstanding Principal Amount represented by this
Debenture may be less than the Outstanding Principal Amount and the accrued
interest set forth on the face hereof.
The Company shall issue and deliver within three Trading Days of the
delivery to the Company of such Conversion Notice, to such Holder of
Debenture(s) at the address of the Holder, or to its designee, a certificate or
certificates for the number of shares of Common Stock to which the Holder shall
be entitled as aforesaid, together with a Debenture or Debentures for the
principal amount of Debentures not submitted for
9
conversion. The date on which the Conversion Notice is given (the "Holder
Conversion Date") shall be deemed to be the date the Company received by
facsimile the Conversion Notice, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date. In the event that such Holder or its designee has not received such
certificate or certificates within ten (10) calendar days of the Company's
receipt of the Conversion Notice, the Holder shall, in addition to any other
rights or remedies it may have be entitled to receive a cash payment at the rate
of 1% per month of the amount submitted for conversion (such cash payment due on
demand by the Holder) for each day, after the third Trading Day following the
Holder Conversion Date, that the certificates have not been received.
In lieu of delivering physical certificates representing the Common
Shares issuable upon conversion of Debentures or the Warrant Shares (as defined
in the Purchase Agreement) deliverable upon exercise of Warrants (as defined in
the Purchase Agreement), provided the Company's transfer agent is participating
in the Depository Trust Company ("DTC") Fast Automated Securities Transfer
("FAST") program, upon request of the holder, the Company shall use its best
efforts to cause its transfer agent to electronically transmit the Common Shares
and Warrant Shares issuable upon conversion or exercise to the Holder, by
crediting the account of Xxxxxx's prime broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery
described above shall apply to the electronic transmittals through the DWAC
system. The parties agree to coordinate with DTC to accomplish this objective.
The conversions pursuant to Sections 5 shall be deemed to have been made
immediately prior to the close of business on the Holder Conversion Date. The
person or persons entitled to receive the Common Shares issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Shares at the close of business on the Holder Conversion Date.
6. Holder Option to Grant Extensions. The Holder of this Debenture shall
have the right at any time and from time to time to defer for up to one (1) year
the date of any Interest Payment Date or Maturity Date. Interest on deferred
amounts shall accrue at the rate of 8% per annum, compounded annually and shall
be payable (in cash or in shares of Common Stock) as provided hereinabove in
this Debenture. Any such extension must refer to specific Interest Payment Dates
and/or Maturity Dates, and must be in writing.
7. Stock Splits; Dividends; Adjustments; Reorganizations.
(a) (1) If the Company, at any time while the Debentures are
outstanding, shall (i) pay a stock dividend or otherwise make a distribution or
distributions on any equity securities (including investments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock into a larger
number of shares, (iii) combine outstanding shares of Common Stock into a
smaller number of shares, then the Conversion Price (as defined below) shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event. Any
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adjustment made pursuant to this Section 7(a) shall become effective immediately
after the record date for the determination of shareholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of an issuance, a subdivision or a combination.
(2) In the event that the Company issues or sells any Common Stock or
securities which are convertible into or exchangeable for its Common Stock or
any convertible securities, or any warrants or other rights to subscribe for or
to purchase or any options for the purchase of its Common Stock or any such
convertible securities (other than (i) securities issued in connection with a
strategic partnership, acquisition, merger or joint venture of or by the Company
with any person in the same, related or complementary business as the Company or
any vendor or customer of the Company, entered into in each such case, with the
intent to further the business of the Company and not for the primary purpose of
providing financing, (ii) shares or options issued or which may be issued
pursuant to the Company's current or future employee or director option plans,
(iii) shares issued upon exercise of options, warrants or rights outstanding on
the date of the Purchase Agreement and listed in the Company's most recent
periodic report filed under the Exchange Act or (iv) warrants issued by the
Company in connection with non-convertible senior or subordinated indebtedness,
up to a maximum number of warrant shares in the aggregate equal to five percent
(5%) of the number of outstanding shares of Common Stock on the date of issuance
of this Debenture) at an effective selling price per share ("Per Share Selling
Price") which is less than the Conversion Price on the Trading Day next
preceding such issue or sale or, in the case of issuances to holders of Common
Stock, the date fixed for determination of stockholders entitled to receive such
warrants, rights or options (the "Adjustment Date"), then the Conversion Price
per share shall be adjusted effective concurrently with such issue or sale to an
amount determined by multiplying the Conversion Price then in effect by a
fraction, (x) the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale, plus
(2) the number of shares of Common Stock which the aggregate consideration
received by the Company for such additional shares would purchase at such
Conversion Price then in effect; and (y) the denominator of which shall be the
number of shares of Common Stock of the Company outstanding immediately after
such issue or sale.
For the purposes of the foregoing adjustment, in the case of the issuance
of any convertible securities, warrants, options or other rights to subscribe
for or to purchase or exchange for, shares of Common Stock ("Convertible
Securities"), the maximum number of shares of Common Stock issuable upon
exercise, exchange or conversion of such Convertible Securities shall be deemed
to be issued and outstanding based upon a Per Share Selling Price equal to the
lowest price at which Common Stock can be acquired pursuant to the Convertible
Securities, provided that no further adjustment shall be made upon the actual
issuance of Common Stock upon exercise, exchange or conversion of such
Convertible Securities.
(b) If the Company, at any time while the Debentures are outstanding,
shall distribute to all holders of shares of Common Stock cash, evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 7(a) above), then the
Conversion Price shall be reduced by being
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multiplied by a fraction (i) the numerator of which is equal to (A) the existing
Conversion Price minus (B) the price allocable to one share of Common Stock of
the value (as jointly determined in good faith by the board of directors of the
Company and the Holder) of any and all such evidences of indebtedness, shares of
capital stock, other securities or property, so distributed and (ii) the
denominator of which is equal to the existing Conversion Price.
(c) In the event that at any time or from time to time after the Closing
Date, the Common Stock issuable upon the conversion of the Debentures is changed
into the same or a different number of shares of any class or classes of stock,
whether by merger, consolidation, recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Section 7), then and as a
condition to each such event provision shall be made in a manner reasonably
acceptable to the Holders of Debentures so that each Holder of Debentures shall
have the right thereafter to convert such Debenture into the kind of stock
receivable upon such merger, consolidation, recapitalization, reclassification
or other change by holders of shares of Common Stock, all subject to further
adjustment as provided herein. In such event, the formulae set forth herein for
conversion and redemption shall be equitably adjusted to reflect such change in
number of shares or, if shares of a new class of stock are issued, to reflect
the market price of the class or classes of stock (applying the same factors
used in determining the Conversion Price) issued in connection with the above
described transaction.
(d) Whenever the Conversion Price is adjusted pursuant to Section 7, the
Company shall promptly mail to each Holder of the Debentures, a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(e) In the event of any taking by the Company of a record date of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, any
security or right convertible or exchangeable into or entitling the holder
thereof to receive additional shares of Common Stock, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall deliver
to each Holder of Debentures at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, security or right and the amount
and character of such dividend, distribution, security or right.
(f) If the Company, at any time while the Debentures are outstanding,
shall distribute to all holders of Shares of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 7(a) above) then the Holder
shall participate in such distribution on a pro rata basis with the holders of
shares of Common Stock entitled to receive such dividend, distribution,
issuance, subdivision or combination as if the Holder held that number of shares
of Common Stock that the Holder would have been entitled to receive hereunder
upon conversion of the Debenture (without regard to Section 12) immediately
12
prior to the record date fixed for determination of shareholders entitled to
receive such dividend, at the Conversion Price then in existence.
8. Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder. The
number of shares of Common Stock that are issuable upon any conversion shall be
rounded up to the nearest whole share.
9. Reservation of Stock Issuable Upon Conversion or Payment.
(a) Reservation Requirement. The Company covenants that it will at all
times reserve and keep available out of its authorized and unissued Common Stock
solely for the purpose of issuance upon conversion of the Debentures and/or
payment of principal or interest in shares of Common Stock as herein provided,
free from preemptive rights or any other present or contingent purchase rights
of persons other than the Holders of the Debentures, 200% of the maximum number
of shares of Common Stock as shall be issuable (taking into account the
adjustments and restrictions of Sections 5 and 7 hereof) upon the conversion of
all of the Debentures pursuant hereto. The Company covenants that all shares of
Common Stock that shall be so issuable shall upon issue, be duly and validly
authorized, issued and fully paid and nonassessable. Without in any way limiting
the foregoing, so long as any Debentures remain outstanding the Company agrees
to reserve and at all times keep available solely for purposes of conversion
and/or payment of principal or interest in shares of Common Stock of Debentures
such number of authorized but unissued shares of Common Stock that is set forth
in the Purchase Agreement.
(b) Deficiency. If the Company does not have a sufficient number of shares
of Common Stock available to satisfy the Company's obligations to a Holder of
Debentures upon receipt of a Conversion Notice or is otherwise unable to issue
such shares of Common Stock in accordance with the terms of this Agreement such
Holder shall (in addition to its rights under the Debenture) be entitled to the
rights and remedies set forth in the Registration Rights Agreement.
10. No Reissuance of the Debenture. No Debentures acquired by the Company
by reason of redemption, purchase, exchange or otherwise shall be reissued, and
all such Debentures shall be retired.
11. No Impairment. The Company shall not intentionally take any action
which would impair the rights and privileges of the Debentures set forth herein
or the Holders thereof.
12. Limitations on Holder's Right to Convert.
(a) Notwithstanding anything to the contrary contained herein, the number
of shares of Common Stock that may be acquired by the Holder upon conversion of
this Debenture pursuant to the terms hereof shall not exceed a number that, when
added to the total number of shares of Common Stock deemed beneficially owned by
such Holder (other than by virtue of the ownership of securities or rights to
acquire securities that
13
have limitations on the holder's right to convert, exercise or purchase similar
to the limitation set forth herein), together with all shares of Common Stock
deemed beneficially owned (other than by virtue of the ownership of securities
or rights to acquire securities that have limitations on the right to convert,
exercise or purchase similar to the limitation set forth herein) by the Holder's
"affiliates" (as defined in Rule 144 of the Act) ("Aggregation Parties") that
would be aggregated for purposes of determining whether a group under Section
13(d) of the Securities Exchange Act of 1934 as amended, exists, would exceed
9.99% of the total issued and outstanding shares of the Common Stock (the
"Restricted Ownership Percentage"). Each Holder shall have the right (i) at any
time and from time to time to reduce its Restricted Ownership Percentage
immediately upon notice to the Company and (ii) (subject to waiver) at any time
and from time to time, to increase its Restricted Ownership Percentage
immediately in the event of the announcement as pending or planned, of a Change
of Control Transaction.
(b) The Company's obligation to issue shares of Common Stock on conversion
which would exceed such limits referred to in this Section 12 shall be suspended
to the extent necessary until such time, if any, as shares of Common Stock may
be issued in compliance with such restrictions.
14
13. Obligations Absolute. No provision of this Debenture, the Purchase
Agreement or the Registration Rights Agreement shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest and delay payments on, this Debenture or to issue
shares of Common Stock in response to a Conversion Notice at the time, place and
rate, and in the manner, herein prescribed.
14. Waivers of Demand, Etc. The Company hereby expressly and irrevocably
waives demand and presentment for payment, notice of nonpayment, protest, notice
of protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder.
15. Replacement Debenture. In the event that any Holder notifies the
Company that its Debenture(s) have been lost, stolen or destroyed, replacement
Debenture(s) identical in all respects to the original Debenture(s) (except for
registration number and Outstanding Principal Amount, if different than that
shown on the original Debenture(s)), shall be issued to the Holder, provided
that the Holder executes and delivers to the Company an agreement reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such Debenture.
16. Payment of Expenses; Issue Taxes. The Company agrees to pay all debts
and expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Purchase Agreement, any Warrant or the
Registration Rights Agreement. The Company shall pay any and all issue and other
taxes (excluding any income, franchise or similar taxes) that maybe payable in
respect of any issue or delivery of shares of Common Stock on conversion of any
Debenture pursuant hereto.
17. Defaults. If one or more of the following described "Events of
Default" shall occur with respect to any of the Debentures:
(a) the Company shall default in the payment of (i) interest on this
Debenture or any other Debenture issued pursuant to the Purchase
Agreement (subject to the Company's option to pay Share
Interest), and such default shall continue for five (5) days
after the due date thereof, or (ii) the principal of this
Debenture or any other Debenture issued pursuant to the Purchase
Agreement and such default shall continue for five (5) days after
the due date thereof; or
(b) any of the material representations or warranties made by the
Company in any of the Debentures, in the Purchase Agreement, the
Registration Rights Agreement, any Warrant or in any certificate
or financial or other statements heretofore or hereafter
furnished by or on behalf of the Company in connection with the
execution and delivery of this Debenture or such other documents
shall be false or misleading at the time made; or
15
(c) the Company shall fail to materially perform or observe any
covenant or agreement in the Purchase Agreement, any Warrant or
the Registration Rights Agreement, or any other covenant, term,
provision, condition, agreement or obligation of the Company
under any of the Debentures and such failure shall continue
uncured for a period of ten (10) days after notice of such
failure; or
(d) the Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make an
assignment for the benefit of creditors or commence proceedings
for its dissolution; or (4) apply for or consent to the
appointment of a trustee, liquidator or receiver for it or for a
substantial part of its property or business; or
(e) a trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within forty-five
(45) days after such appointment; or
(f) any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties
or assets of the Company and shall not be dismissed within
forty-five (45) days thereafter; or
(g) bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings, or relief under any bankruptcy law or any
law for the relief of debt shall be instituted by or against the
Company and, if instituted against the Company shall not be
dismissed within forty-five (45) days after such institution, or
the Company shall by any action or answer approve of, consent to,
or acquiesce in any such proceedings or admit to any material
allegations of, or default in answering a petition filed in any
such proceeding; or
(h) the Company shall be in default of any other of its indebtedness
exceeding $500,000, and such default is not waived by the holders
of such indebtedness or cured within any applicable grace periods
set forth therefore, or any other event shall have occurred such
that as a result thereof the holders thereof shall have
accelerated or shall have the right (upon the giving of notice,
the passage of time, or both) to accelerate such indebtedness; or
(i) a "going private" transaction under Rule 13e-3 promulgated
pursuant to the Exchange Act shall have been announced; or
(j) a tender offer by the Company under Rule 13e-4 promulgated
pursuant to the Exchange Act shall have been announced;
16
(k) an event of default shall exist in any other of the Company's
indebtedness to any one or more of the Holder or other Holders of
Debentures without further cure or grace periods being available;
then, or at any time thereafter, in the case of Events of Default arising from
the events described in paragraphs (a), (b), (c), (h) (i), (j) and (k), unless
such Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may declare
the Debenture immediately due and payable and concurrently demand payment
thereof, and the Holder may immediately, and without expiration of any period of
xxxxx, enforce any and all of the Holder's rights and remedies provided herein
or any other rights or remedies afforded by law. In the event of Events of
Default arising from the events described in paragraphs (d), (e), (f) or (g)
above, this Debenture shall become immediately due and payable without further
action or notice. In the event that the Debenture is due and payable pursuant to
this provision, the Debenture shall be redeemed at the Premium Redemption Price
(as defined in the Registration Rights Agreement).
18. Savings Clause. In case any provision of this Debenture is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Debenture will not in any way
be affected or impaired thereby, and such provision shall remain effective in
all other jurisdictions.
19. Entire Agreement. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.
20. Assignment, Etc. Subject to Section 7.8 of the Purchase Agreement and
Section 2 above, the Holder (but not the Company) may without notice, transfer
or assign this Debenture or any interest herein and may mortgage, encumber or
transfer any of its rights or interest in and to this Debenture or any part
hereof and, without limitation, each assignee, transferee and mortgagee (which
may include any affiliate of the Holder) shall have the right to transfer or
assign its interest. Each such assignee, transferee and mortgagee shall have all
of the rights of the Holder under this Debenture. The Company agrees that,
subject to compliance with the Purchase Agreement, after receipt by the Company
of written notice of assignment from the Holder or from the Holder's assignee,
all principal, interest and other amounts which are then and thereafter become
due under this Debenture shall be paid to such assignee at the place of payment
designated in such notice. This Debenture shall be binding upon the Company and
its successors and affiliates and shall inure to the benefit of the Holder and
its successors and assigns.
21. No Waiver. No failure on the part of the Holder to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder
17
preclude any other or future exercise of any other right, remedy or power. Each
and every right, remedy or power hereby granted to the Holder or allowed it by
law or other agreement shall be cumulative and not exclusive of any other, and
may be exercised by the Holder from time to time.
22. Certificate. The Company shall, upon the written request at any time
of any Holder of Debentures, furnish or cause to be furnished to such Holder a
certificate prepared by the chief financial officer of Company setting forth any
adjustments or readjustments of the Conversion Price pursuant to this Debenture
and any right of the Holder to receive additional shares of Common Stock or any
other equity or debt security pursuant to Section 7.
23. Notices. The Company shall distribute to the Holders of Debentures
copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other documents distributed generally
to the holders of shares of Common Stock of the Company, at such times and by
such method as such documents are distributed to such holders of such Common
Stock, but shall not directly or indirectly provide material non-public
information to the Holder without such Holder's prior written consent.
24. Specific Enforcement. The Company agrees that irreparable damage would
occur in the event that any of the provisions of this Debenture were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the Holders of Debentures shall be entitled to swift
specific performance, injunctive relief or other equitable remedies to prevent
or cure breaches of the provisions of this Debenture and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which any of them may be entitled under agreement, at law or in equity.
25. Miscellaneous. Unless otherwise provided herein, any notice or other
communication to a party hereunder shall be sufficiently given if in writing and
personally delivered, facsimiled or mailed to said party by certified mail,
return receipt requested, at its address set forth herein or such other address
as either may designate for itself in such notice to the other and
communications shall be deemed to have been received when delivered personally
or, if sent by mail or facsimile, then when actually received by the party to
whom it is addressed. Whenever the sense of this Debenture requires, words in
the singular shall be deemed to include the plural and words in the plural shall
be deemed to include the singular. Paragraph headings are for convenience only
and shall not affect the meaning of this document.
26. GOVERNING LAW; CONSENT TO JURISDICTION. THIS DEBENTURE SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF DELAWARE APPLICABLE TO CONTRACTS TO BE EXECUTED AND PERFORMED ENTIRELY WITHIN
SUCH STATE. THE COMPANY (I) HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF DELAWARE
FOR THE PURPOSES OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO
THIS
18
DEBENTURE AND (II) HEREBY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUCH SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURT, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER. THE COMPANY CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION
OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AS PROVIDED HEREIN AND
AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS
AND NOTICE THEREOF. NOTHING IN THIS PARAGRAPH SHALL AFFECT OR LIMIT ANY RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. THE COMPANY WAIVES ALL
RIGHTS TO A TRIAL BY JURY.
Signature Page Follows
19
In Witness Whereof, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
ALLIED RESEARCH CORPORATION
By:___________________________________
Name:
Title:
Signature page to 8% Convertible Debenture Series A of ALLIED RESEARCH
CORPORATION
20
EXHIBIT 1
PAYMENT STATEMENT
Date:______________
To: [Name of Holder of Debenture] ("Holder")
Re: 8% Convertible Debenture Series A ("Debenture") of ALLIED RESEARCH
CORPORATION (the "Company"), in the Outstanding Principal Amount of US
$7,500,000.
The Company hereby irrevocably elects to pay interest on the Debenture, for
the Interest Payment Date indicated below, in the following manner (the Company
should check its selection):
____ cash interest; or
____ Share Interest.
Interest Payment Date: _________________________
The Company hereby irrevocably elects to pay principal on the Debenture,
for the Maturity Date indicated below, in the following manner (the Company
should check its selection):
____ cash principal; or
____ Share Principal.
Principal Maturity Date: _________________________
Capitalized terms used in this Payment Statement and not otherwise defined
shall have the meaning ascribed thereto in the Debenture.
IN WITNESS WHEREOF, this Payment Statement has been duly executed and
delivered on the date first written above.
ALLIED RESEARCH CORPORATION
By:____________________________
Name:
Title:
22
EXHIBIT 2
(To be Executed by Registered Holder
in order to Convert Debenture)
CONVERSION NOTICE
FOR
8% CONVERTIBLE DEBENTURE SERIES A
The undersigned, as Holder of the 8% Convertible Debenture Series A of ALLIED
RESEARCH CORPORATION (the "Company"), in the outstanding principal amount of
U.S. $7,500,000 (the "Debenture"), hereby elects to convert that portion of the
outstanding principal amount of the Debenture shown on the next page into shares
of Common Stock, $.10 par value per share (the "Common Stock"), of the Company
according to the conditions of the Debenture, as of the date written below. The
undersigned hereby requests that share certificates for the Common Stock to be
issued to the undersigned pursuant to this Conversion Notice be issued in the
name of, and delivered to, the undersigned or its designee as indicated below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto. No fee
will be charged to the Holder for any conversion, except for transfer taxes, if
any.
Conversion Information: NAME OF XXXXXX:_______________________
By:_________________________________________
Print Name:
Print Title:
Print Address of Holder:
______________________________________
______________________________________
Issue Common Stock to: _______________
at: __________________________________
Electronically transmit and credit
Common Stock to:
________________ at: _________________
______________________________________
Date of Conversion
______________________________________
Applicable Conversion Rate
THE COMPUTATION OF THE NUMBER OF COMMON SHARES TO
BE RECEIVED IS SET FORTH ON THE ATTACHED PAGE
Page 2 to Conversion Notice for: ____________________________________________
(Name of Holder)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
A. Outstanding Principal Amount converted: $_______
B. Accrued, unpaid interest on Outstanding Principal Amount converted: $_______
X. Xxxxx payments due Holder on Outstanding Principal Amount converted: $_______
------------
Total dollar amount converted (total of A + B + C) $_______
============
Exchange Price $_______
Number of Shares of Common Stock = Total dollar amount converted = $
----------------------------- --------
Conversion Price $
Number of shares of Common Stock = ___________________________
If the conversion is not being settled by DTC, please issue and deliver _____
certificate(s) for shares of Common Stock in the following amount(s):
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Please issue and deliver _____ new Debenture(s) in the following amounts:
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
