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Exhibit 4.2.1
THE MONARCH MACHINE TOOL COMPANY
12% JUNIOR SUBORDINATED NOTE
$15,000,000.00 June 30, 1999
The Monarch Machine Tool Company (the "Company"), an Ohio
corporation, promises to pay to Three Cities Research, Inc., as Sellers
Representative under a Stock Purchase Agreement (the "Agreement") dated May 13,
1999 between the Company and the stockholders of Precision Industrial
Corporation (the "Holder"), at the times and in the respective amounts described
below, the total principal sum of $15,000,000.00. The Company also promises to
pay interest on the unpaid principal amount of this Note at the rate which is
12% per annum until June 30, 2000 and increases by 50 basis points on July 1,
2000 and each October 1, January 1, April 1 and July 1 after that until October
1, 2002, on and after which the rate of interest payable under this Note will be
17% per annum. Interest will be based on a year of 365/366 days. To the extent
any interest payment (other than a payment under Paragraph 4 below) is at a rate
in excess of 14% per annum, the amount above 14% per annum will be paid with a
note containing the same terms as this Note, dated the date of the interest
payment, in a principal amount equal to the amount by which the interest payment
exceeds what it would have been at 14% per annum.
1. The entire unpaid principal balance of the sum evidenced by
this Note will be due and payable on December 31, 2007. (the "Maturity Date").
If, however, at any time or times prior to the Maturity Date, the Company
completes a public offering for cash of equity securities or of debt securities
which are subordinated to some or all of the Company's Senior Indebtedness
described in Paragraph 8, other than upon exercise of options granted to
directors of the Company or officers of the Company or its subsidiaries under a
stock option plan for directors or employees, simultaneously with the sale of
the securities which are the subject of that public offering, the Company will
make a prepayment of the principal sum evidenced by this note which is equal to
at least 80% of the proceeds of the public offering, net of underwriting
discounts and commissions, or which is equal to the entire unpaid balance of
that principal sum if that is less, and the Company will pay all accrued but
unpaid interest on the principal sum which is being prepaid.
2. Interest will be payable on March 31, June 30, September 30
and December 31 of each year (each an "Interest Payment Date"), with the first
interest payment to be made on the first of those dates after interest begins to
accrue.
3. Each payment of principal or interest will be made to the
Holder by certified or bank cashier's check or wire transfer, at such address or
to such account as the Holder specifies to the Company in writing at least three
business days before the payment is to be made.
4. Any payment of principal or interest which is not made when
it is due will bear interest from the date it is due until it is paid at the
rate which is 200 basis points higher than the interest rate in effect on the
day the payment is due, or such lower rate as is the maximum rate permitted by
law.
5. The Company may at any time prepay all or any portion of
the outstanding balance of the principal sum evidenced by this Note (provided
that each prepayment must be at least $100,000, or such lesser amount as is the
entire outstanding balance of principal immediately before the
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prepayment). Each prepayment will be applied against the payments of principal
required by this Note in the reverse of the order in which they are to be made.
Each prepayment of principal will be accompanied by all accrued but unpaid
interest on the principal sum being prepaid.
6. Each of the following events will constitute an Event of
Default:
(a) The Company fails to make any payment of principal on
or before the day on which it is due; or
(b) The Company fails to make any payment of interest
within ten days after the day on which is it due; or
(c) The Company defaults in any of its obligations under
this Note other than obligations described in subparagraphs (a) and (b) and
fails to cure that default within 30 days after a written demand from the Holder
that the Company do so; or
(d) The Company or a significant subsidiary (as that term
is defined in Securities and Exchange Commission Regulation S-X) commences a
proceeding seeking relief as a debtor under the Bankruptcy Code or any state or
foreign insolvency law; or
(e) An order is entered in a proceeding under the
Bankruptcy Code or any state or foreign insolvency law declaring the Company or
a significant subsidiary to be insolvent or appointing a receiver or similar
official for substantially all the Company's or a significant subsidiary's
properties, and that order is not dismissed within 90 days; or
(f) Because of an event of default with regard to Senior
Indebtedness, a holder of Senior Indebtedness accelerates the time when the
principal of the Senior Indebtedness is due and payable.
(g) Because of events of default with regard to
indebtedness which is not Senior Indebtedness, holders of indebtedness
aggregating $500,000 which is not Senior Indebtedness accelerate the time when
that indebtedness is due and payable.
7. Upon the occurrence of an Event of Default, the Holder may,
by a notice to the Company given while the Event of Default is continuing,
declare the entire unpaid balance of the principal sum evidenced by this Note
and the accrued but unpaid interest to be due and payable, in which event that
principal balance and accrued but unpaid interest will be immediately due and
payable, except that if the Event of Default is of the type described in
subparagraph (d) or (e), the entire unpaid balance of the principal sum
evidenced by this Note and all accrued but unpaid interest will be immediately
due and payable when the Event of Default occurs, without requiring any notice
or other action by the Holder.
8. (a) The Company's obligations to make payments of principal
and interest under this Note are subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness. "Senior Indebtedness"
means all principal, premium, interest, and other sums due with regard to all
indebtedness for money borrowed (including the obligation to reimburse for
amounts drawn against letters of credit) from banks, insurance companies or
other financial institutions which the Company states, in the instrument
governing the indebtedness or a document delivered to the holder of the
indebtedness, to be Senior Indebtedness with regard to this Note, except that no
indebtedness (and no obligations with regard to the indebtedness) will be Senior
Indebtedness to the extent that incurrence of the indebtedness would cause the
entire Senior Indebtedness at the time the indebtedness is incurred to exceed
$100,000,000, plus, as to Senior Indebtedness which when it was incurred did not
cause the entire
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Senior Indebtedness to exceed that amount, additional advances totaling not more
than 10% of the maximum committed amount of that Senior Indebtedness made by the
lender to protect the Senior Indebtedness already held by the lender. In
furtherance and not in limitation of the foregoing, but subject to the foregoing
limitation on amount, "Senior Indebtedness" includes all principal, interest and
other obligations of the Company under a Credit Agreement dated as of June 30,
1999 among the Company, the lenders party thereto, and ING (U.S.) Capital LLC as
administrative agent, as amended, supplemented and otherwise modified from time
to time.
(b) No payment of principal or interest on this Note will be
made (i) unless all amounts then due for principal, premium, if any, and
interest on Senior Indebtedness have been paid in cash or provided for, or (ii)
during the period (a "Blockage Period") between the time the Company is notified
by a holder of Senior Indebtedness that an event of default with respect to that
Senior Indebtedness exists which permits the holder of that Senior Indebtedness
to accelerate its maturity (a "Blockage Event") and the earlier of (x) the time
that event of default is cured or waived or ceases to exist, and (y) 180 days
after the holder of that Senior Indebtedness became entitled to accelerate its
maturity, unless the holder of that Senior Indebtedness has accelerated its
maturity.
(c) During a Blockage Period, the Holder of this Note shall
not ask for, sue for, take, demand or set off or in any other manner, direct or
indirect, attempt to enforce any right or collect any payment or distribution on
account of this Note, nor present this Note for payment.
(d) Upon any distribution of assets of the Company as a result
of any dissolution, winding up, liquidation or reorganization (whether in a
bankruptcy or insolvency proceeding or otherwise) (an "Insolvency Event"), (i)
all Senior Indebtedness must be paid in full in cash, or provision made for its
payment, before any payment is made on account of principal or interest on this
Note, (ii) any payment or distribution of assets of the Company to which the
Holder would be entitled except for this Paragraph must be paid or delivered by
the Company or by any trustee in bankruptcy, receiver, assignee for the benefit
of creditors or other liquidating agent, directly to the holders of the Senior
Indebtedness, pro rata to the amounts of Senior Indebtedness held by each of
them (or in accordance with any subordination agreements or other agreements
among them), to the extent necessary to pay all Senior Indebtedness in full
after giving effect to any concurrent payments or distributions to the holders
of the Senior Indebtedness or provision for payment or distribution to them, and
(iii) if, notwithstanding the foregoing, the Holder receives any payment or
distribution of property of the Company before all Senior Indebtedness is paid
in full, or provision made for its payment, the Holder will receive the cash or
property paid or distributed to the Holder in trust for the holders of the
Senior Indebtedness, and, upon a request made to the Holder by a holder of
Senior Indebtedness within one year after the cash or property is paid or
distributed to the Holder, the Holder will pay or deliver that cash or property
to the holders of the Senior Indebtedness, for application to the payment of any
Senior Indebtedness remaining unpaid after giving effect to any concurrent
payment or distribution to the holders of the Senior Indebtedness or provision
for payment or distribution to them. If no claim is made by holders of Senior
Indebtedness to cash or property paid or distributed to the Holder within one
year after the payment or distribution to the Holder, after the end of the one
year period, the Holder will hold the cash or property free of any trust.
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(e) Following the occurrence and during the continuation of
any Insolvency Event:
i. the Holder of this Note shall take such action, duly
and promptly, as any holder of Senior Indebtedness may request from
time to time (A) to collect this Note for the account of the holders
of Senior indebtedness and (B) to file appropriate proofs of claim in
respect of this Note;
ii. the Holder of this Note irrevocably authorizes and
empowers each holder of Senior Indebtedness (A) to demand, sue for,
collect and receive every payment or distribution on account of this
Note payable or deliverable in connection with such event or
proceeding and give acquittance therefor, and (B) to file claims and
proofs of claim in any statutory or non-statutory proceeding and take
such other actions, in its own name, or in the name of the Holder of
this Note or otherwise, as such holders of Senior Indebtedness may
deem necessary or advisable for the enforcement of the provisions of
this Note; PROVIDED, HOWEVER, that the foregoing authorization and
empowerment imposes no obligation on the holders of Senior
Indebtedness to take any such action; and
iii. the Holder of this Note shall execute and deliver
such powers of attorney, assignments or proofs of claim or other
instruments as any holder of Senior Indebtedness may reasonably
request to enable such holder of Senior Indebtedness to enforce any
and all claims in respect of this Note and to collect and receive any
and all payments and distributions which may be payable or
deliverable at any time upon or in respect of this Note;
PROVIDED, that the holders of Senior Indebtedness shall not exercise the rights
granted under this paragraph unless the Holder of this Note has failed to take
the necessary actions referenced above on or prior to the date which is 15 days
prior to the last date on which such actions may be taken in accordance with
applicable law.
(f) The Holder of this Note consents that, without the
necessity of any reservation of rights against the Holder of this Note, and
without notice to or further assent by the Holder of this Note:
i. any demand for payment of any Senior Indebtedness made
by any holder of Senior Indebtedness may be rescinded in whole or in
part by such holder of Senior Indebtedness, and any obligations under
the Senior Indebtedness may be continued, and the Senior
Indebtedness, or the liability of the Company or any guarantor or any
other party upon or for any part thereof, or any collateral security
or guarantee therefor or right of offset with respect thereto, or any
obligation or liability of the Company or any other party under the
Senior Indebtedness or any other agreement, may, from time to time,
in whole or in part, be renewed, extended, modified, accelerated,
compromised, waived, surrendered, or released by any holder of Senior
Indebtedness; and
ii. the agreements relating to the Senior Indebtedness may
be amended, modified, supplemented or terminated, in whole or in
part, as any holder of Senior Indebtedness may deem advisable from
time to time, and any collateral security at any time held by any
holder of Senior Indebtedness for the payment of any of the Senior
Indebtedness may be sold, exchanged, waived, surrendered or released,
in each case all without notice to or further assent by the Holder of this Note,
which will remain bound under this Section 8, and all without impairing,
abridging, releasing or affecting the subordination provided for herein.
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(g) Subject to the payment in full of all Senior Indebtedness,
the Holder will be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of property of the Company
made with regard to the Senior Indebtedness until the principal and interest
with regard to this Note is paid in full. For the purpose of that subrogation,
no payment or distribution to the holders of Senior Indebtedness, which, except
for the provisions of this Paragraph 8, would be payable or distributable to the
Holder, will, as between the Company, its creditors other than holders of Senior
Indebtedness, and the Holder, be deemed to be a payment by the Company with
regard to the Senior Indebtedness, it being understood that the provisions of
this Paragraph 8, other than subparagraph (c), are intended solely for the
purpose of defining the relative rights of the Holder, on the one hand, and the
holders of the Senior Indebtedness, on the other.
(h) Nothing in this Paragraph 8 is intended to impair, as
between the Company, its creditors other than the holders of Senior
Indebtedness, and the Holder, the obligation of the Company, which is absolute
and unconditional, to pay the principal and interest on this Note when they
become due. Nothing in this Paragraph 8 prevents the Holder from exercising all
remedies otherwise permitted by law upon default under this Note, subject to the
rights of holders of Senior Indebtedness under this Paragraph 8.
(i) Any person who becomes the Holder of this Note, or an
interest in it, will be deemed to have agreed by acquiring this Note, or the
interest in it, to be bound by the provisions of this Paragraph 8.
9. No amendment of this Note, waiver of any provision of this Note, or
extension of the time by which the Company must make any payment of principal or
interest on this Note, will be effective unless it is made in writing by the
Holder. Any waiver or extension will be effective only in the instance and for
the purpose for which it is given.
10. The remedies provided in this Note are cumulative and are not
exclusive of any other remedies provided by law. The Company will pay on demand
any expenses (including reasonable attorneys fees and expenses) incurred by the
Holder in enforcing its rights under this Note.
11. Any notices or other communications required or permitted to be
given under this Note must be in writing and will be deemed given on the day
when delivered in person or sent by facsimile (with proof of receipt at the
number to which it is required to be sent), or on the third business day after
the day on which it is mailed by first class mail from within the United States
of America, addressed (i) if to the Company, to the Company's principal
executive offices and to the principal facsimile number at those executive
offices, Attention: President, or at such other address or facsimile number as
the Company may specify to the Holder in writing, and (ii) if to the Holder, at
the address or facsimile number specified by the Holder to the Company in
writing.
12. This Note will be binding upon Company and its assigns, and will
inure to the benefit of the Holder and the Holder's assigns. This Note will be
governed by, and construed under, the laws of the State of New York.
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IN WITNESS WHEREOF, the Company is executing this Note as of
the date shown on the first page.
THE MONARCH MACHINE TOOL COMPANY
By:________________________________
President
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