Exhibit 99.4
--------------------------------------------------------------------------------
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"). THIS NOTE MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION, THE AVAILABILITY OF WHICH
MUST BE ESTABLISHED TO THE SATISFACTION OF THE ISSUER HEREOF.
--------------------------------------------------------------------------------
SUBORDINATED CONVERTIBLE NOTE
OF
MICROLOG CORPORATION
and
MICROLOG CORPORATION OF MARYLAND
$75,000.00
Number of 10 , 200
----- ------------- ---- --
Issue Date
FOR VALUE RECEIVED, MICROLOG CORPORATION, a Virginia corporation ("Parent"), and
MICROLOG CORPORATION OF MARYLAND, a Maryland corporation ("Subsidiary" and
together with Parent collectively referred to as "Borrowers" and individually as
a "Borrower"), promise to pay to TFX EQUITIES INCORPORATED ("Lender") or its
registered assigns, on or before September 25, 2003 (the "Maturity Date") the
principal sum of Seventy-Five Thousand dollars ($75,000.00), together with
interest thereon at the rate of twelve percent (12%) per annum as hereinafter
provided.
1. Credit Facility Agreement. This Note is issued pursuant to, and is
subject to the terms and conditions of, that certain Credit Facility Agreement
by and among Borrowers and Lender, dated September 25, 2001 (the "Credit
Agreement").
2. Payments of Interest. Borrowers will pay the interest accrued hereon
on the first day of each October, January, April and July and on the Maturity
Date or such other day when the outstanding balance of principal hereof shall
become due and payable in full. Interest shall be calculated on the basis of a
year of 360 days divided into 12 months of 30 days each, except that interest
for any period of less than a month shall be calculated on the basis of a year
of 365 days for the actual number of days elapsed.
3. No Optional Prepayment of Principal. Without the prior consent of
Lender, Borrowers may not prepay the principal hereof in whole or in part.
4. Place and Form of Payment. All amounts payable hereunder shall be
paid in lawful currency of the United States of America, without presentment
hereof, at the office of Lender located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Pike, Suite 450,
Plymouth Meeting, Pennsylvania 19462 or such other address as Lender may
designate. Borrowers shall pay all amounts due hereunder (except the final
payment of principal, which shall be paid only against presentment and surrender
of this Note) by certified check to the order of Lender hereof and mailed to
Lender at the address designated above, at least one business day before such
amount shall be due.
5. Default. Upon the occurrence of any one or more of the following
events (each of which will constitute an Event of Default) or at any time
thereafter while such default remains uncured, Lender may, by notice delivered
to Borrowers, declare the entire unpaid balance of principal of and interest on
this Note to be immediately due and payable:
i. The failure by Borrowers to pay the principal of or interest
on the Note when the same shall have become due;
ii. The failure by a Borrower to duly perform or observe any of
its covenants set forth in the Credit Agreement or either of the Security
Agreements (as defined herein);
iii. The failure of the Company to amend it Articles of
Incorporation as provided for in Section 4 of the warrant issued in connection
with this Note pursuant to the Credit Agreement;
iv. Any representation or warranty of a Borrower made in or
pursuant to the Credit Agreement is discovered to be untrue or misleading in any
material respect;
v. The entry of a final judgment for the payment of money
against a Borrower in an amount exceeding $50,000 which shall not have been
discharged or execution thereof stayed pending appeal or shall not have been
discharged within 45 days after the expiration of any such stay;
vi. The issue of any attachment, garnishment or any execution
process or the making of a levy or levies against any property of a Borrower
which, when aggregated, is in an amount exceeding $50,000 and within 45 days
thereafter (but prior to any sale or other disposition pursuant to such process)
such attachment, garnishment, execution process or levy shall not have been
discharged; or
vii. The entry of an order for relief against a Borrower in an
involuntary case under the Federal Bankruptcy Code or any similar order against
a Borrower entered pursuant to, or any order adjudicating a Borrower a bankrupt
or insolvent, or the entry of an order appointing a receiver or trustee for a
Borrower of substantially all of its property or approving a petition seeking
reorganization, dissolution, liquidation or other similar relief under the
bankruptcy or other similar laws of the United States or any state or other
jurisdiction, or the filing by a Borrower of a petition commencing a voluntary
proceeding under any such law or a petition, answer or other document seeking or
consenting to any of the foregoing.
-2-
viii. The occurrence of any default on the part of a Borrower,
and the expiration of any period of grace applicable thereto, under any
obligation of a Borrower under any promissory note, bond or similar instrument
or otherwise for money borrowed with in the aggregate principal sum of $20,000
or more.
6. Delay or Omission Not Waiver. No delay or omission on the part of
Lender to exercise any right upon the occurrence of any Event of Default will
impair any such right or will be construed to be a waiver of any such default or
any acquiescence therein. No waiver of any default hereunder will affect any
later default or will impair any rights hereunder of Lender. No single, partial
or other exercise of any right by Lender will preclude further or other exercise
thereof.
7. Transfer of this Note. Parent will maintain at its principal office
a register in which, subject to such reasonable regulations as it may prescribe,
Parent will register this Note and any transfer thereof as provided for in this
Article. Upon due presentment and surrender at such office of this Note for
registration of the transfer thereof, accompanied by a duly executed assignment
thereof (with signatures guaranteed as Borrowers may reasonably require),
Borrowers will issue to and register in the name of such assignee a new Note of
like form and Issue Date in the amount of the principal hereof outstanding on
the date of issue of such new Note.
8. Registered Holder. Borrowers may deem and treat the person in whose
name this Note is registered as the absolute owner hereof for all purposes and
Borrowers shall not be affected by any notice to the contrary. Each future
registered holder of this Note, if any, shall have all rights and privileges
granted to Lender hereunder.
9. Subordination of the Notes.
---------------------------
9.1. Each Borrower covenants and agrees, and Lender by acceptance of
this Note likewise covenants and agrees, that this Note, to the extent set forth
in this Article, shall be subordinated and subject in right of payment to the
prior payment in full of all indebtedness of each Borrower to Silicon Valley
Bank outstanding as of the Issue Date (the "Senior Indebtedness") except any
such indebtedness which by its terms is subordinated to this Note or which is
subordinated to all indebtedness to which this Note is subordinated in
substantially like terms as this Note.
9.2. Upon any payment or distribution of assets of a Borrower of any
kind or character, whether in cash, property or securities, to creditors upon
any dissolution or winding up or liquidation or reorganization of a Borrower,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings (an "Event of Dissolution"), all principal of, premium, if
any, and interest on all Senior Indebtedness, due or to become due, shall first
be paid in full, or provided for in money or money's worth, before any payment
is made on account of the principal or premium of or interest on the
indebtedness evidenced by this Note. Upon any such Event of Dissolution, any
payment or distribution of assets of a Borrower of any kind or character,
whether in cash, property or securities (other than (i) shares of stock of
-3-
a Borrower or (ii) other securities of a Borrower or any other corporation
provided for by a plan of reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in this Article with respect to
this Note, to the payment of all Senior Indebtedness at the time outstanding and
to any securities issued in respect of such Senior Indebtedness under any such
plan of reorganization or readjustment), to which Lender would be entitled but
for the provisions of this Article shall be paid by a Borrower or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution (the "Paying Person") directly to the holder
of the Senior Indebtedness or its representatives, or to the trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness may have been issued, to the extent necessary to pay the Senior
Indebtedness in full in money or money's worth, after giving effect to any
concurrent payment or distribution to or for the benefit of the holder of the
Senior Indebtedness, before any payment or distribution is made to Lender on
account of the indebtedness evidenced by this Note. Lender by acceptance hereof
hereby authorizes each Borrower and each such Paying Person, on behalf of Lender
and any successor holder of this Note, to make such payment or distribution to
the holder of the Senior Indebtedness.
9.3. In the event that, notwithstanding the foregoing provisions of
this Article, any payment or distribution of assets of a Borrower or securities
of a Borrower or another corporation which by the terms of Section 9.2 should
have been paid by the Paying Person making such payment to the holder of the
Senior Indebtedness or its representatives shall be received by Lender in
respect of the indebtedness evidenced by this Note before the Senior
Indebtedness is paid in full or provision is made for such payment in accordance
with its terms, such payment or distribution shall be held by Lender for the
benefit of, and shall be paid over or delivered by Lender to, the holder of the
Senior Indebtedness or its representatives, or to the trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness may have been issued, for application to the payment of the Senior
Indebtedness remaining unpaid to the extent necessary to pay the Senior
Indebtedness in full, after giving effect to any concurrent or previous payment
or distribution to or for the benefit of the holder of the Senior Indebtedness.
9.4. Subject to the payment in full of all Senior Indebtedness,
Lender shall be subrogated to the rights of the holder of the Senior
Indebtedness to receive payments or distributions of assets of a Borrower made
on or in respect of the Senior Indebtedness until the principal of and interest
on this Note shall be paid in full; and, for the purposes of such subrogation,
no payments or distributions to the holder of the Senior Indebtedness of any
cash, property or securities to which Lender would be entitled but for the
provisions of this Article (or any payment or distribution paid over by Lender
to or for the benefit of the holder of the Senior Indebtedness pursuant to
Section 9.3 shall, as between a Borrower, its creditors other than the holder of
the Senior Indebtedness and Lender, be deemed to be a payment by a Borrower to
or on account of Senior Indebtedness, and no payments or distributions to Lender
of cash, property or securities payable or distributable to the holder of the
Senior Indebtedness to which Lender shall become entitled pursuant to the
provisions of this Article shall, as between a Borrower, its creditors other
than the holder of the Senior Indebtedness and Lender, be deemed to be a payment
by a Borrower to Lender of or on account of this Note, it being understood that
the provisions of this Article are intended solely for the purpose of defining
the relative rights of Lender, on the one hand, and the holder of the Senior
Indebtedness, on the other hand.
-4-
9.5. Nothing contained in this Article or elsewhere in this Note is
intended to or shall impair, as between a Borrower, its creditors other than the
holder of the Senior Indebtedness and Lender, the obligation of a Borrower,
which is absolute and unconditional, to pay to Lender the principal of and
premium and interest on this Note, as and when the same shall become due and
payable in accordance with its terms, or to affect the relative rights of Lender
and creditors of a Borrower other than the holder of the Senior Indebtedness,
nor shall anything herein prevent Lender from exercising any remedies otherwise
permitted by applicable law upon the occurrence of an Event of Default
hereunder, subject to the rights, if any, under this Article of the holder of
the Senior Indebtedness in respect of cash, property or securities of a Borrower
received upon the exercise of any such remedy.
10. Conversion Rights.
------------------
10.1. Conversion. Subject to and upon compliance with the
provisions of this Article, Lender shall have the right, at Lender's option, at
any time before the principal of and all interest accrued on this Note shall be
paid in full, to convert all or any part of the outstanding principal amount of
this Note, plus all accrued interest thereon, into such number of whole shares
of common stock, par value $0.01 per share, of Parent ("Common Stock") as the
principal amount hereof, or the portion thereof to be converted, is a multiple
of $0.25 dollars (the "Conversion Price") by surrender of this Note in the
manner provided in Section 10.2. The number and kind of securities into which
this Note may be converted and the Conversion Price are subject to adjustment as
provided in Section 10.6.
10.2. Exercise of Conversion Privilege. To exercise the
conversion rights provided for in this Article, Lender shall surrender this
Note, duly endorsed to Parent, together with a written notice to Parent, duly
executed by Lender, stating (i) that Lender elects to convert this Note or the
portion thereof specified in such notice and (ii) the name or names (with
addresses and taxpayer identification numbers) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. Such notice shall be accompanied by such evidence of authenticity and
authority of execution as Parent may reasonably require. As promptly thereafter
as practicable (i) Parent will issue to or on the order of Lender a certificate
or certificates for the number of shares of Common Stock issuable upon such
conversion and (ii) if this Note shall have been surrendered for partial
conversion, Borrowers will issue to and register in the name of Lender a new
Note of like form and Issue Date in the principal amount of the unconverted
portion hereof. Such conversion shall be deemed to have been effected
immediately before the close of business on the day when this Note shall have
been so surrendered and such notice and other required documents, if any, shall
have been received by Parent, and each person in whose name any certificate for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become at such time on such day the holder of record of the shares
represented thereby.
-5-
10.3. Payment of Taxes. Parent shall pay any and all taxes
(including but not limited to all documentary stamp taxes, if any) attributable
to the issuance and delivery of shares of Common Stock upon conversion of this
Note.
10.4. Reservation of Shares. Parent will at all times reserve
and keep available out of its authorized and unissued capital stock, solely for
the purpose of providing for the full exercise of the conversion rights provided
herein such number of shares of Common Stock as may from time to time be
issuable upon exercise of the conversion rights provided for herein.
10.5. Shares to be Validly Issued. Parent covenants that all
shares of Common Stock issued upon any conversion of this Note will be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issuance thereof. At or before
taking any action which would cause an adjustment pursuant to Section 10.6
reducing the Conversion Price below the then par value (if any) of the shares of
Common Stock issuable upon any conversion of this Note, Parent will take such
corporate action as may be necessary in order that Parent may validly and
legally issue fully paid and nonassessable shares of Common Stock at the
Conversion Price as so adjusted.
10.6. Adjustments.
------------
a. Issue of Additional Shares or Rights; Adjustment of
Conversion Price. In case Parent shall at any time after the Issue Date issue or
sell any shares of Common Stock or any securities convertible into or
exchangeable for Common Stock ("Convertible Securities") or any option or right
to subscribe for or purchase Common Stock or Convertible Securities, in any
transaction or series of related transactions, to a third party or parties not
affiliated with Lender for a consideration per share of such Common Stock that
is less than the Conversion Price in effect immediately prior to such issue or
sale then the Conversion Price shall be adjusted forthwith upon each such issue
or sale to a price equal to such consideration per share. For the purposes of
the foregoing, the following shall apply:
(A) In case of the issue or sale of shares of Common
Stock for cash, the consideration received by Parent therefor
shall be deemed to be the cash proceeds received by Parent for
such shares before deducting any commissions or other expenses
paid or incurred by Parent for any underwriting of, or otherwise
in connection with, the issue or sale of such shares.
(B) In case of the issue or sale, otherwise than upon
conversion or exchange of Convertible Securities, of shares of
Common Stock for a consideration other than cash in whole or in
part, the amount of the consideration other than cash received
by Parent for such shares shall be the value of such
consideration as reasonably determined in good faith by the
Board of Directors of the Parent.
(C) In case Parent shall issue or sell any such
Convertible Securities or in any manner grant any such option or
right to subscribe for or to purchase Common Stock or any
Convertible Securities, the consideration per
-6-
share for which Common Stock is issuable pursuant thereto shall
be determined by dividing (i) the total amount, if any, received
or receivable by Parent as consideration for the granting or
issuing of such rights or options or Convertible Securities,
plus the minimum aggregate amount of additional consideration
payable to Parent upon the exercise of such rights or options,
plus, in the case of such Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable
upon the conversion or exchange thereof by (ii) the total
maximum number of shares of Common Stock issuable pursuant to
such rights or options or upon the conversion or exchange of the
total maximum amount of such Convertible Securities issuable
upon the exercise of such rights or options, all determined
without giving effect to any provisions of such rights, options
or Convertible Securities for adjustment of such minimum prices
or maximum amount of Convertible Securities or shares of Common
Stock in the event of contingencies. No further adjustment of
the Conversion Price shall be made upon the actual issue of
Common Stock or Convertible Securities issuable upon exercise of
such rights or options or provisions for conversion or exchange.
(D) In case of the grant of any rights or options or
the issue or sale of any Convertible Securities referred to in
the preceding paragraph (C), and no minimum price is specified
in such options, rights or Convertible Securities but shares of
Common Stock or Convertible Securities are issuable upon
exercise, conversion or exchange thereof at a price related to
the market value of such shares or Convertible Securities, the
minimum price per share for which Common Stock is issuable
pursuant to such rights or options or upon conversion or
exchange of such Convertible Securities, and the minimum amount
of consideration payable upon exercise of such rights or options
or upon conversion or exchange of such Convertible Securities,
shall be deemed, for the purposes of the preceding paragraph
(C), to be a price or amount bearing the same relation to the
market value of such shares of Common Stock or Convertible
Securities at the time such rights or options are granted or, in
the case of Convertible Securities issued otherwise than
pursuant to any such right or option, such Convertible
Securities are issued or sold; provided that such further
adjustment as shall be necessary by reason of the actual
exercise, conversion or exchange price at the time of exercise,
conversion or exchange shall be made at such time if such actual
price is less than such assumed price.
b. Stock Splits and Other Capital Changes. In case at any
time or times after the Issue Date, the holders of shares of Common Stock shall
have received, or upon the taking of any action shall have been entitled to
receive, or upon any record date occurring prior to any conversion of this Note
shall become entitled to receive other or additional (or less) shares of stock
or securities from Parent without payment therefor (whether in connection with a
stock dividend or any split-up, spin off, consolidation, reclassification,
recapitalization or otherwise) other than securities and property to which
Section 10.6(c) applies, then in each such case Lender, upon conversion of this
Note after any such event, will be entitled to receive the amount or number of
shares of stock or other securities which Lender would hold on the date of such
exercise if on the Issue Date Lender had been the holder of record of the number
of shares
-7-
of Common Stock as to which such exercise is made and had since such date to the
date of such exercise retained such shares and all such other or additional (or
less) shares of stock and other securities receivable by Lender as described
above (or the amount of securities into which the same may have been converted)
during such period.
c. Consolidation; Merger. In case of any consolidation or
merger of Parent with or into any corporation or the merger of any corporation
into Parent or any sale, lease or other conveyance to another person of all or
any substantial part of the property of Parent, Lender shall have the right to
convert this Note thereafter in the same manner as it might have been converted
to purchase shares of Common Stock immediately prior to such event and, upon any
such exercise shall receive the kind and amount of shares and other securities
and property receivable upon such consolidation, merger, sale, lease or other
conveyance by a holder of the number of shares of Common Stock (and such other
or additional (or less) shares of stock and other securities issuable upon
exercise hereof pursuant to Section 10.6 (b)) which might have been purchased by
Lender had the conversion rights hereof been exercised immediately prior to such
consolidation, merger, sale, lease or other conveyance. Parent shall take such
action in connection with such consolidation, merger or other transaction
involving the sale, lease or other conveyance of its property to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to any securities or property thereafter purchasable upon the
conversion of this Note, and Parent shall cause the surviving corporation (if
other than Parent) of such consolidation or merger to assume the obligations of
Parent hereunder.
d. Reclassification of Shares. In case Parent shall, at any
time after the Issue Date, by subdivision, consolidation, reclassification of
shares, or otherwise, change as a whole the outstanding shares of its Common
Stock into a different number or class of shares, the number and class of shares
as so changed shall replace the shares outstanding immediately prior to such
change (and the term "Common Stock" shall thereafter refer to such different
shares), and the Conversion Price in effect immediately prior to such event
shall be proportionately adjusted.
e. Notice of Adjustment. Whenever the Conversion Price or
the number or kind of shares of Common Stock or other securities or property
issuable upon exercise of the conversion rights of Lender is required to be
adjusted Parent shall deliver or mail to Lender notice of such adjustment,
setting forth such adjusted, price and number and the facts upon which such
adjustment is based.
10.7. Restrictive Legend on Share Certificates. Except as Parent
shall otherwise agree from time to time, each certificate representing shares of
Common Stock issued upon conversion of this Note may bear a legend in
substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT, HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY
NOT BE SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION, THE AVAILABILITY OF
WHICH MUST BE ESTABLISHED TO THE SATISFACTION OF THE
ISSUER HEREOF."
-8-
10.8. Rights of Holders.
-----------------
a. Determination of Record Date of Purchase of Shares.
Irrespective of the date of issue and delivery of certificates for any shares of
Common Stock issuable upon conversion of this Note, each person in whose name
any such certificate is issued shall for all purposes be deemed to have become
the holder of record of the shares of Common Stock represented thereby on the
date on which the conversion rights hereunder were duly exercised in accordance
with the terms hereof.
b. No Voting Rights. Lender shall not, by reason of
Lender's ownership or possession of this Note or by the conversion rights herein
set forth, have any right to: (i) vote at or to receive notice of any meeting of
shareholders of Parent; (ii) consent to any action or proceeding of Parent; (ii)
receive any cash dividends, stock certificates, allotments or rights or other
distributions, paid, allotted or distributable to the holders of the Common
Stock prior to or as of a record date prior to the issuance to Lender of shares
of Common Stock.
11. Security. The obligations of Borrowers evidenced by
this Note are secured by: (i) that certain Security Agreement by and between
Parent and Lender dated as of July 11, 2001; and (ii) that certain Security
Agreement by and between Subsidiary and Lender dated as of July 11, 2001 (the
"Security Agreements").
12. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered (by physical
delivery or by telefax or any other electronic means) to a party at the
following address or to such other address as such party may hereafter specify
by notice to the others:
If to Lender, to:
TFX Equities Incorporated
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Borrowers (or either Borrower), to:
Microlog Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
-9-
13. Governing Law. This Note shall be governed by and construed in
accordance with the laws of Commonwealth of Pennsylvania.
14. Headings Not Part of Note. The headings of articles, sections and
paragraphs hereof are inserted for convenience of reference only, shall not be
deemed a part of this Note and shall not affect its interpretation or
construction.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
-10-
IN WITNESS WHEREOF, Borrowers have caused this Note to be executed by
their duly authorized officers on ___________, ___, 200__.
[Corporate Seal] PARENT:
MICROLOG CORPORATION
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
ATTEST:
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
[Corporate Seal] SUBSIDIARY:
MICROLOG CORPORATION OF MARYLAND
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
ATTEST:
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
-11-
