XXXXXXX XXXXX MEZZANINE CAPITAL FUND II, L.P.
SUBORDINATED LOAN AND INVESTMENT AGREEMENT
$9,000,000 SENIOR SUBORDINATED TERM NOTE DUE
DECEMBER 31, 2005
1,075,507 SHARES OF COMMON STOCK
AND A WARRANT TO PURCHASE 297,924 SHARES OF
ADDITIONAL COMMON STOCK OF
COMPUDYNE CORPORATION
TABLE OF CONTENTS
Page No.
1. Purchase and Sale of the Note, Common Stock and Warrant
2. Credit Terms
2.1 Repayment of Principal
2.2 Interest
(a) Periodic Interest Payments
(b) Default Interest Rate
(c) Saving Clause
2.3 Prepayments
(a) Prepayments From Proceeds of Lender-Approved Transaction
(b) Other Optional Prepayments
2.4 Payments
2.5 Use of Proceeds
2.6 Certain Definitions
3. The Closing; Conditions to Closing
3.1 Opinion of Counsel
3.2 Closing Certificates
3.3 Corporate Resolutions
3.4 Proceedings and Documents
3.5 Intercreditor Agreements
3.6 Acquisition
3.7 Common Stock and Warrant
3.8 Corporate Governance and Shareholder Agreement
3.9 Bank Financing
3.10 Investment Fee
3.11 Non-Compete Agreement
3.12 Environmental Reports
3.14 Registration Rights
3.15 Regulatory Consents and Approvals
3.16 Subsidiary Guaranties
4. Representations and Warranties
4.1 Existence and Rights
(a) The Company
(b) Subsidiaries
(c) Qualification
4.2 Agreement Authorized
4.3 Capitalization
(a) The Company
(b) The Subsidiaries
4.4 Subsidiaries; Other Investments
4.5 Litigation
4.6 Financial Statements and Projections
4.7 Personal Property
4.8 Real Estate
4.9 Intellectual Property
4.10 Absence of Changes
4.11 No Materially Adverse or Other Contracts, Etc.
4.12 Employee Benefit Plans
4.13 Compliance with Laws, Instruments, Etc.
(a) Generally
(b) Environmental
4.14 Securities Laws
4.15 Brokers
4.16 Taxes
4.17 Insurance
4.18 Products Liability and Product Warranty
4.19 Related Transactions
4.20 Minute Books and Stock Record Books
4.21 Employee Matters
4.22 Profit Payments
4.23 Bank Accounts
4.24 Investment Company
4.25 Solvency
4.26 Regulations G and X
4.27 Year 2000 Compliance
4.28 Disclosure
5. Affirmative Covenants
5.1 Payment of Note
5.2 Taxes
5.3 Maintain Rights and Facilities
5.4 Insurance; Bonds
5.5 Financial Reports
5.6 Budget
5.7 Books and Records; Inspection
5.8 Maintain Properties
5.9 Compliance with Instruments, Laws, Etc.
5.10 Notices
5.11 Shareholder Agreement
5.12 Observation Rights
6. Negative Covenants
6.1 Use of Proceeds
6.2 Redemption; Distributions
6.3 Investments, Loans and Advances
6.4 Acquisition or Sale of Business; Merger or Consolidation
6.5 Change Capital Structure
6.6 Officers' Salaries and Loans
6.7 Amendments or Changes in Charter or Agreements
6.8 Dealings with Affiliates
6.9 Pension and Profit Sharing Plan or Arrangements
6.10 Permitted Indebtedness
6.11 Liens
6.12 Capital Expenditures
6.13 Changes in Business or Fiscal Year
6.14 Operating Leases
6.15 Sale and Lease-Backs
6.16 Sale or Discount of Receivables
6.17 Financial Covenants
6.18 Certain Definitions
7. Events of Default and Remedies
7.1 Events of Default
7.2 Notice to Holder
7.3 Acceleration
7.4 Expenses
7.5 Remedies Cumulative
8. Representations and Warranties of Lender
8.1 Capacity
8.2 Accredited Lender
8.3 Investment Purpose
8.4 Disclosure
9. Transfer of Note; Transfer of Equity Securities; Participation
9.1 Successor and Assigns in General
9.2 Conditions
10. Additional Provisions
10.1 Expenses
10.2 Survival of Representations and Warranties
10.3 Notices
10.4 No Waiver, Remedies Cumulative
10.5 Amendments and Waivers
10.6 Divisibility and Replacement of Note and Equity Securities
10.7 Integration
10.8 Separability
10.9 Headings
10.10 Governing Law; Waivers; Personal Jurisdiction
10.11 Indemnification
(a) General
(b) Environmental Liabilities
SUBORDINATED LOAN AND INVESTMENT AGREEMENT
THIS SUBORDINATED LOAN AND INVESTMENT AGREEMENT (the
"Agreement") is made and entered into as of November 30, 1998 by
and between COMPUDYNE CORPORATION, a Nevada corporation (the
"Company"), and XXXXXXX XXXXX MEZZANINE CAPITAL FUND II, L.P., an
Illinois limited partnership (the "Lender").
RECITALS
A. The Company desires to obtain a senior subordinated loan
from the Lender and the Lender is willing to make such senior
subordinated loan on the terms and conditions provided below.
B. The Company desires to issue and sell, and the Lender is
willing to purchase, common stock and a warrant to purchase
additional common stock on the terms and conditions provided
below.
AGREEMENTS
In consideration of the recitals and the mutual agreements
which follow, the parties agree:
1. Purchase and Sale of the Note, Common Stock and Warrant.
(a) Subject to the terms, covenants and conditions of this
Agreement, on the Closing Date (as defined in section 3), the
Company will issue and sell, and the Lender shall buy a
$9,000,000 Senior Subordinated Note (the "Note") evidencing a
term loan in the principal amount of $9,000,000 (the "Loan").
The Note shall be dated as of the Closing Date, shall be subject
to the terms and conditions of this Agreement, and shall be in
the form of Appendix 1. The consideration to be paid by the
Lender for the Note is $9,000,000 and shall be paid by the Lender
at Closing, by wire transfer of same day funds to the Company's
account, upon receipt by the Lender of the Note, duly executed
and in proper form. The Company and the Lender agree that the
value of the Note at Closing is $9,000,000, and all tax and other
reporting by either of them shall reflect such initial value.
(b) Subject to the terms, covenants and conditions of this
Agreement, on the Closing Date the Company will issue and sell,
and the Lender shall buy, the below-described securities
(sometimes collectively referred to as the "Equity Securities"),
consisting in the aggregate of 1,075,507 shares (the "Shares") of
the Company's Common Stock (the "Common Stock") and a warrant
("Warrant") to purchase an additional 297,924 shares of the
Company's Common Stock for an initial exercise price of $3.25 per
share.
The consideration to be paid by the Lender at the Closing
for the Equity Securities issued to and purchased by it at the
Closing is: (a) for the Shares an aggregate of $2,999,000; and
(b) for the Warrant an aggregate further consideration of $1,000.
The consideration to be paid by the Lender for the Equity
Securities, in the aggregate amount of $3,000,000, will be paid
at the Closing, by wire transfer of same day funds to the
Company's account, upon receipt by the Lender of a certificate or
certificates for the Shares and the Warrant, in each case duly
executed and in proper form.
2. Credit Terms.
2.1 Repayment of Principal. Subject to sections 2.3 and 7.3
hereof, the Company shall repay the principal balance of the Loan
in consecutive quarterly installments of $500,000 each on March
31, 2004, June 30, 2004, September 30, 2004, December 31, 2004,
March 31, 2005, June 30, 2005, September 30, 2005, and a final
payment of all unpaid principal on December 31, 2005.
2.2 Interest. So long as no Event of Default (as defined in
section 7.1) has occurred, the Loan shall bear interest from the
Closing Date until the Loan is paid in full at a fixed annual
rate of 13.15%, computed on the basis of a 360-day year and the
actual number of days elapsed in the period during which interest
accrues.
(a) Periodic Interest Payments. Accrued interest on the Loan
shall be due and payable quarterly in arrears on the last day of
December, March, June and September (each, a "Quarterly Payment
Date") beginning on December 31, 1998. In addition, all accrued
and unpaid interest shall be paid upon the payment in full of the
entire outstanding principal amount of the Loan and, if payment
in full is not paid when due, thereafter on demand.
(b) Default Interest Rate. After the occurrence of any Event of
Default specified in section 7.1 of this Agreement, the
outstanding principal amount of the Loan, all accrued interest
and all other amounts, fees and obligations payable hereunder and
under the Note shall bear interest at the fixed rate of 15.15%
per annum, computed on the basis of a 360-day year and the actual
number of days elapsed in the period during which interest
accrues, and such interest shall be payable on demand, subject to
the final sentence of Section 7.3.
(c) Saving Clause. Notwithstanding any other provision
contained in this Agreement, the aggregate annual interest rate
charged with respect to the Loan (including all charges and fees
deemed to be interest pursuant to applicable law) shall not
exceed the maximum annual rate permitted by applicable law. In
the event that the aggregate annual interest rate payable with
respect to the Loan (including all charges and fees deemed to be
interest under applicable laws) exceeds the maximum legal rate,
the Company shall only pay the Lender interest at the maximum
permitted rate, and the Company shall continue to make such
interest payments at the maximum permitted rate until all
amounts, fees and obligations payable hereunder and under the
Note have been paid in full.
2.3 Prepayments. Except as provided in section 7 and section
2.3(a), the Loan may not be prepaid, in whole or in part, prior
to December 31, 2001. Thereafter, the Loan may be prepaid as
provided in section 2.3(b).
(a) Prepayments From Proceeds of Lender-Approved Transaction.
"Lender-Approved Transaction" shall mean any of the following
transactions if the Lender has approved such transaction in
writing prior to its consummation: (i) a sale, transfer or other
disposition of all or substantially all of the assets of the
Company; (ii) a merger of the Company with or into any other
person, or any transaction or series of related transactions,
that results in a change of ownership of 50% or more of the
voting power or equity of the Company. If, at any time, the
Company consummates a Lender-Approved Transaction, the Company
may, at its option, prepay the Loan, in whole but not in part.
In the event of any prepayment of the Loan in connection with a
Lender-Approved Transaction, the Company shall pay all accrued
interest and all other fees, expenses and amounts payable by
the Company to the Lender, plus the Prepayment Fee (as defined
below). If the Lender notifies the Company, within 30 days after
the consummation of the Lender-Approved Transaction, that the
Lender desires the Loan to be repaid, the Company shall, within
five days after such notification, prepay the Loan in full,
including all accrued interest and all other fees, expenses and
amounts payable to the Lender, including the Prepayment Fee.
(b) Other Optional Prepayments. After December 31, 2001, the
Company may at its option prepay all or part of the Loan. Any
partial payment of principal shall be made only on a Quarterly
Payment Date, shall be not less than $500,000, and shall be a
multiple of $500,000, and the Company shall pay therewith all
accrued interest. In addition, the Company shall pay a
prepayment fee of 3% of the amount prepaid on or prior to
December 31, 2002 and 2% of the amount prepaid on or after
January 1, 2003 and on or prior to December 31, 2003 (the
"Prepayment Fee"). On and after January 1, 2004, the Loan may be
prepaid in whole or in part without premium. In the event of any
such prepayment, the Company shall also pay all accrued interest
and other fees, expenses and amounts payable by the Company to
the Lender. Partial prepayments will be applied to scheduled
principal payments in the order of their maturity.
2.4 Payments. All payments and prepayments to be made with
respect to principal, interest or otherwise on the Loan and other
charges hereunder shall become due at 3:00 o'clock p.m., Chicago,
Illinois time. Payments shall be made to the Lender at the
Lender's account at Xxxxxx Trust & Savings Bank, 000 Xxxx Xxxxxx,
Xxxxxxx, Xxxxxxxx 00000, Account Number 448-3509, ABA Number
000000000, Attention: Xxxx Xxxxx (or at any other payment
office in the United States previously designated by the Lender
to the Company in writing), on the day when due, in lawful money
of the United States of America, by wire transfer in funds
immediately available at such payment office. The Lender or any
other holder of the Note is hereby authorized to endorse on the
Note an appropriate notation evidencing each scheduled payment
and each prepayment of principal and each payment of interest.
All payments hereunder and under the Note shall, except as
required by applicable law, be made without setoff, offset,
deduction or counterclaim, free and clear of all taxes (other
than those based on the income of the Lender), levies, imports,
duties, fees and charges, and without any withholding,
restriction or conditions imposed by any governmental authority
(it being understood that, if any payment hereunder or thereunder
is required by applicable law to be subject to any setoff,
offset, deduction or counterclaim, tax, levy, import, duty, fee,
charge or withholding (each of such items is referred to herein
as a "Deduction"), the Company shall, at such time as any payment
hereunder or thereunder is so reduced by a Deduction, pay to the
Lender an amount necessary to place the Lender in the same
position the Lender would have been had such payment not been
subject to a Deduction).
2.5. Use of Proceeds. The Company shall use the entire amount
of the Loan to finance the Acquisition (as defined in section
3.6), to restructure the Company's debt and for related fees and
expenses.
2.6. Certain Definitions. "Subsidiary" means, with respect to
the Company, a corporation, partnership, limited liability
company or other entity of which the Company and/or its other
Subsidiaries owns, directly or indirectly, such number of
outstanding shares or other ownership interests as have more than
50% of the ordinary voting power for the election of directors
or other managers of such corporation, partnership, limited
liability company or other entity. Unless the context otherwise
requires, each reference to Subsidiaries herein shall be a
reference to all of the Subsidiaries of the Company after giving
effect to the Acquisition (as defined in section 3.6).
Notwithstanding the foregoing, CompuDyne Corp. of Maryland and
CompuDyne, Inc. will not be included in the definition of
"Subsidiaries."
"Material Adverse Effect" means (a) a material adverse
change in, or a material adverse effect upon, the financial
condition, operations, assets, business, properties or prospects
of the Company and its Subsidiaries taken as a whole, (b) a
material impairment of the ability of the Company or any
Subsidiary (other than MicroAssembly Systems, Inc. or Sysco
Security Systems, Inc.) to perform any of its obligations under
this Agreement, the Note, the Warrant, the Shareholder Agreement,
the Registration Agreement or the Senior Loan Documents or (c) a
material adverse effect upon the legality, validity, binding
effect or enforceability against (i) the Company of any of
the documents listed in clause (b) or (ii) any Subsidiary (other
than MicroAssembly Systems, Inc. or Sysco Security Systems, Inc.)
of its Subsidiary Guaranty.
3. The Closing; Conditions to Closing. Subject to the
conditions hereof, the transactions described herein will be
closed (the "Closing") at ____ a.m. at the offices of Seyfarth,
Shaw, Xxxxxxxxxxx & Xxxxxxxxx, 00 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxxxxx or at such other place as all the parties
hereto may agree, on November 30, 1998 (the "Closing Date"). All
of the obligations of the Lender to purchase the Note and the
Equity Securities described in this Agreement are subject to the
accuracy on the Closing Date of all the representations and
warranties by the Company contained herein, and to the
performance by the Company of all the terms, covenants and
conditions on its part to be performed hereunder on or prior to
the Closing Date and to the satisfaction of the following
additional conditions precedent:
3.1 Opinion of Counsel. The Lender shall have received from
Xxxxx Xxxxxx & Xxxxxx, LLP, counsel for the Company, a favorable
opinion, dated the date hereof, addressed to the Lender, in the
form attached hereto as Appendix 2.
3.2 Closing Certificates.
(a) The Company shall have delivered to the Lender a Certificate
signed by the Chief Executive Officer of the Company, to the
effect that: (i) all of the representations and warranties of
the Company contained in this Agreement are true, correct and
complete in all material respects as of the Closing Date; (ii)
the Company has complied with and performed all of the terms,
covenants and agreements contained in the Agreement which are to
be complied with or performed by the Company on or before the
Closing Date; and (iii) to the knowledge of the Company, there
does not exist any state of facts which would constitute
noncompliance under this Agreement or, with notice or lapse of
time as provided herein, or both, would constitute noncompliance.
(b) The Lender shall have received a copy of the Articles of
Incorporation of the Company and each of the Subsidiaries, as
amended, certified by the appropriate office of the jurisdiction
of incorporation as of a recent date (a true and correct
photocopy shall suffice).
(c) The Lender shall have received from the Company a
certificate of good standing from the appropriate office of the
jurisdiction of incorporation, in a form acceptable to the
Lender, and a certificate of good standing from the appropriate
office of each other jurisdiction where the Company is required
to qualify to do business (a true and correct photocopy shall
suffice).
(d) The Lender shall have received a true and correct copy of
the Company's By-Laws, as amended, certified by an officer of the
Company.
3.3 Corporate Resolutions. A certified copy of the resolutions
adopted by the Board of Directors of the Company authorizing and
approving (a) the execution, performance and delivery of this
Agreement, (b) the issuance of the Note and the Equity Securities
and (c) the other transactions contemplated hereby, shall have
been delivered to the Lender.
3.4 Proceedings and Documents. All proceedings taken or to be
taken in connection with the transactions contemplated by this
Agreement to be consummated at, or prior to, the execution and
Closing hereof and all other documents, schedules, exhibits,
opinions and certificates in connection therewith shall each be
satisfactory in form and substance to the Lender, and the Lender
shall have received copies of all such documents and all other
documents which the Lender has requested in connection with the
transaction contemplated by this Agreement and of all corporate
proceedings in connection therewith, in form and substance
satisfactory to the Lender.
3.5 Intercreditor Agreements. The Company, the Lender and
LaSalle National Bank ("LaSalle Bank") shall have executed and
delivered an intercreditor agreement satisfactory in form and
content to the Lender. The Company, the Lender and Liberty Bond
Services shall also have executed and delivered an intercreditor
agreement satisfactory in form and content to the Lender.
3.6 Acquisition. The Company shall furnish to the Lender
evidence that the Company has consummated (without waiving any
condition precedent to the Company's obligation to close pursuant
to the Stock Purchase Agreement pursuant to which the Acquisition
is to be made) the acquisition from Apogee Enterprises, Inc.
("Apogee") of all of the outstanding capital stock of Xxxxxxx
Industries, Inc.("Xxxxxxx") and Norshield Corp.("Norshield") for
an aggregate purchase price (subject to adjustment) of
$22,500,000 (the "Acquisition"), and the Company shall have
furnished to the Lender a true and correct copy of the documents
executed and delivered in connection with the Acquisition
certified by the Chief Executive Officer of the Company.
3.7 Common Stock and Warrant. The Company shall have issued
to the Lender the Shares for an aggregate purchase price of
$2,999,000. The Company shall have issued to the Lender the
warrant to purchase Common Stock (the "Warrant"), in the form
attached as Appendix 3, for an aggregate issue price of $1,000.
3.8 Corporate Governance and Shareholder Agreement. The Lender,
the Company and the principal shareholders of the Company shall
have entered into a Corporate Governance and Shareholder
Agreement in the form attached as Appendix 4 (the "Shareholder
Agreement").
3.9 Bank Financing. LaSalle Bank and the Company shall have
entered into a credit agreement providing the Company with an
aggregate credit facility of $18,000,000 (including a revolving
credit facility which shall haveexcess availability at the
Closing of at least $4,000,000) on terms and conditions
acceptable to the Lender, and a true and correct copy of the loan
documents (the "Senior Loan Documents"), certified by the Chief
Executive Officer of the Company, shall have been provided to the
Lender.
3.10 Investment Fee. The Company shall have paid to the Lender
an aggregate investment fee of $120,000; the Lender acknowledges
receipt of $50,000 upon the signing of the Lender's Investment
Proposal dated September 9, 1998.
3.11 Non-Compete Agreement. The Company and Xxxxxx Xxxxxxx,
Xxxxx Xxxxxxx and Xxx Xxxxxxxx shall each have executed and
delivered a Non-Compete Agreement in the form attached as
Appendix 5.
3.12 Environmental Reports. The Lender must have received one
or more environmental assessment reports regarding the Company,
its Subsidiaries and their properties satisfactory in form and
substance to the Lender.
3.13 Bonding Facility. The Company shall have received a
commitment for a bonding facility of at least $50 million on
terms acceptable to the Lender.
3.14 Registration Rights. The Company and the Lender shall
have entered into the Registration Rights Agreement in the form
attached as Appendix 6 (the "Registration Agreement").
3.15 Regulatory Consents and Approvals. All consents, approvals
and actions of, filings with and notices to any governmental or
regulatory authority necessary to consummate the Acquisition
shall have been duly obtained, made or given and shall be in full
force and effect, and all terminations or expirations of waiting
periods (including the waiting period under the Xxxx-Xxxxx-Xxxxxx
Act) imposed by any governmental or regulatory authority
necessary for the consummation of the Acquisition shall have
occurred.
3.16 Subsidiary Guaranties. Each Subsidiary specified by the
Lender shall have executed and delivered to the Lender a
Subsidiary Guaranty in the form of Appendix 7.
4. Representations and Warranties. In order to induce the
Lender to make the Loan and to purchase the Note and the Equity
Securities, and notwithstanding any investigation made by or on
behalf of the Lender, the Company makes the following
representations and warranties, each of which is independently
material and relied upon by Lender (except where the context
requires otherwise, all representations and warranties with
respect to the "Company" are intended to cover, and shall be
deemed to be representations and warranties with respect to, the
Company and each Subsidiary, giving effect to the closing of the
Acquisition):
4.1 Existence and Rights.
(a) The Company. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Nevada. The Company has delivered to the Lender a true,
complete and correct copy of its Articles of Incorporation and
By-Laws. The Company has all requisite corporate power and
authority to own and operate its properties, to carry on its
business as now conducted and proposed to be conducted, to enter
into this Agreement and each agreement, document or instrument
contemplated by this Agreement to which it is a party and to
carry out the transactions contemplated hereby and thereby.
(b) Subsidiaries. Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation. Each Subsidiary has
delivered to the Lender a true, complete and correct copy of its
charter documents. Each Subsidiary has all requisite corporate
power and authority to own and operate its properties, to carry
on its business as now conducted and proposed to be conducted, to
enter into this Agreement and to carry out the transactions
contemplated hereby and thereby.
(c) Qualification. The Company and each Subsidiary are duly
qualified and in good standing wherever the failure to so qualify
would have a Material Adverse Effect. All jurisdictions in which
such parties are qualified to do business are set forth on
Schedule 4.1(c).
4.2 Agreement Authorized. The execution and performance of
this Agreement and the other agreements, documents and
instruments contemplated hereby are duly authorized and do not
require the consent or approval of any governmental body, other
regulatory authority or other third party. All action on the
part of the Company and each Subsidiary, and all necessary or
appropriate approvals and consents for the due execution,
delivery and performance of this Agreement, including the
creation, issuance and sale of the Note and the Equity
Securities, have been duly and validly obtained or taken. No
right of the Company or any Subsidiary is impaired or infringed
upon by the execution and performance of this Agreement. This
Agreement and the Note and all other documents, instruments and
agreements of the Company or a Subsidiary, as applicable, in
connection executed herewith and therewith, constitute the valid
and binding obligations of the Company or a Subsidiary, as
applicable, enforceable against the Company or a Subsidiary, as
applicable, in accordance with their respective terms.
4.3 Capitalization.
(a) The Company. The authorized and outstanding capital stock
of the Company is set forth in Schedule 4.3(a). All of the
outstanding shares of capital stock of the Company are, and upon
issuance the Shares and the Common Stock issuable upon exercise
of the Warrant will be, duly authorized, validly issued, fully
paid and nonassessable and were, and will have been, issued in
compliance with all applicable state and federal laws and
regulations concerning the issuance of securities. No shares of
the Company's capital stock, other than those described above,
are issued and outstanding. Except as described in Schedule 4.3,
or as contemplated by this Agreement or the Shareholder
Agreement, there are no preemptive or other outstanding rights,
options, warrants, conversion rights or similar agreements or
understandings for the purchase or acquisition of such capital
stock.
(b) The Subsidiaries. Schedule 4.3(b) sets forth the ownership
of the issued and outstanding capital stock of each Subsidiary.
All of the outstanding shares of capital stock of each Subsidiary
are duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens other than those in
favor of LaSalle Bank, and were issued in compliance with all
state and federal laws and regulations concerning the issuance of
securities. There are no preemptive or other outstanding rights,
options, warrants, conversion rights or similar agreements or
understandings for the purchase or acquisition of the capital
stock of any Subsidiary.
4.4 Subsidiaries; Other Investments. Except for CompuDyne Corp.
of Maryland, CompuDyne, Inc. and the Subsidiaries, the Company
has no subsidiaries, or any investment in any other business or
entity. For the purpose of this section the term "subsidiary" or
"subsidiaries" means any corporation or other entity of which the
securities having a majority of the voting power in electing the
Board of Directors are owned by the Company either directly or by
another subsidiary. The Company does not control or have any
contract or commitment to own or control any capital stock, bonds
or other securities of and does not have a proprietary interest
in any corporation, partnership, proprietorship or other business
organization. Except as set forth on Schedule 4.4, CompuDyne
Corp. of Maryland and CompuDyne, Inc. are inactive corporations,
neither of which, to the Company's best knowledge, has any
assets, liabilities or operations.
4.5 Litigation. Except as set forth on Schedule 4.5, there is
no litigation or other proceeding (including any government
proceeding or investigation) pending or, to the knowledge of the
Company, threatened against or affecting the Company, or the
assets of the Company, or which questions the validity of this
Agreement or of any action taken or to be taken pursuant to or
in connection with the provisions of this Agreement. Without
limiting the generality of the foregoing, there is no pending or,
to the knowledge of the Company, threatened action, proceeding or
investigation involving the prior employment or consultancy of
any of the Company's employees or consultants or their use of any
information or techniques alleged to be proprietary to any other
person or business. To the knowledge of the Company there is no
set of presently existing facts or circumstances reasonably
likely to be asserted by any person as the basis for any of the
foregoing, except as set forth on Schedule 4.5. Except as set
forth on Schedule 4.5, in connection with the Acquisition, Apogee
has assumed liability for all loss, damages, costs or expenses
that may arise with respect to the properties or operations of
Xxxxxxx and Norshield relating to the period prior to the Closing
Date.
4.6 Financial Statements and Projections.
(a) Schedule 4.6 contains a complete and correct copy of the
audited consolidated balance sheets of the Company as of December
31, 1995, December 31, 1996 and December 31, 1997 and audited
consolidated statements of income and cash flow for the fiscal
years then ended. Such consolidated financial statements were
prepared in accordance with generally accepted accounting
principles consistently applied from prior periods, and fairly
present in all material respects the financial condition and
results of operations of the Company as of the dates thereof and
for the periods then ended. Schedule 4.6 also contains unaudited
balance sheets of Xxxxxxx and Norshield as of February 29, 1996,
February 28, 1997 and February 28, 1998 and unaudited statements
of income and cash flow for the fiscal years then ended. Such
financial statements were, to the best knowledge of the Company,
prepared in accordance with generally accepted accounting
principles consistently applied from prior periods, and fairly
present in all material respects the financial condition and
results of operations of Xxxxxxx and Norshield, respectively, as
of the dates thereof and for the periods then ended.
(b) Schedule 4.6 also contains a complete and correct copy of
the unaudited pro forma consolidated balance sheet of the Company
(including Xxxxxxx and Norshield) as of September 30, 1998 and
pro forma consolidated statements of income, cash flow and
shareholders' equity for the nine-month period then ended. Such
pro forma financial statements were, to the best knowledge of the
Company, prepared in accordance with generally accepted
accounting principles consistently applied from prior periods,
and fairly present in all material respects the pro forma
financial condition and pro forma results of operations of the
Company (including Xxxxxxx and Norshield) as of the date thereof
and for the period then ended, subject to normal year-end
adjustments and the absence of footnotes. The pro forma balance
sheet as of September 30, 1998 is referred to as the "Balance
Sheet," and September 30, 1998 is referred to as the "Balance
Sheet Date."
(c) Except as and to the extent reflected or reserved against on
the Balance Sheet or set forth on Schedule 4.6, the Company has
no outstanding indebtedness or any liabilities or obligations of
any nature, whether absolute, accrued, contingent or otherwise,
whether due or to become due, except for (i) liabilities entered
into in the ordinary course of business and (ii) liabilities
which, in the aggregate, do not result in any material adverse
change in the financial condition of the Company from that set
forth on the Balance Sheet.
(d) The financial projections attached as Schedule 4.6(d) (the
"Projections") have been prepared by the Company in light of the
past operations of its business and in good faith, subject to the
uncertainties inherent in estimating the Company's future
performance and the limited familiarity of the Company with
respect to Xxxxxxx and Norshield. The Projections are based on
assumptions that, as of the respective dates thereof, were
reasonable in light of the information available to the Company
on or prior to the date hereof.
4.7 Personal Property. Except as specifically disclosed on
Schedule 4.7 and on the Balance Sheet and footnotes thereto, the
Company has good, marketable and indefeasible title to all
personal property which it purports to own, including, but not
limited to, that reflected on the Balance Sheet (except as
disposed of since the Balance Sheet Date in the ordinary course
of business), free and clear of all security interests, liens and
encumbrances, except for Permitted Liens (as defined in section
6.11). Schedule 4.7 also sets forth a list of all material
property covered by each lease (requiring annual payments in
excess of $10,000 or total payments in excess of $75,000) of
personal property to which the Company is a party and a list of
all such leases and commitments relating to or affecting any
interest in tangible personal property to which the Company is a
party or by which it or any of its property is in any way bound
or affected. None of the rights of the Company under any such
lease or other similar interest in tangible personal property
will be impaired by the consummation of the transactions
contemplated by this Agreement. All tangible personal property
owned or leased by the Company is in operating condition and
repair, reasonable wear and tear excepted, sufficient to conduct
the operations of the Company as presently conducted. No
material modifications or additions to such personal property
are needed or planned for the conduct of the Company's business
as presently contemplated, except as reflected in the
Projections. Except for tangible personal property covered by
the leases listed in Schedule 4.7, the Company does not use any
material tangible personal property not owned by it.
4.8 Real Estate.
(a) Schedule 4.8 hereto identifies and sets forth a complete
legal description for each parcel of owned real property or
interest therein, and an identifying description of each parcel
of leased real property, in whole or part used by the Company.
Except for Permitted Liens and as set forth in Schedule 4.8, the
Company has good and marketable title, free and clear of all
liens, encumbrances and imperfections of title, to the real
estate and real estate interests described in such schedule.
(b) None of the rights of the Company under any leasehold or
other interest in real property will be impaired by the
consummation of the transactions contemplated by this Agreement.
The Company has adequate rights of ingress and egress to and from
such owned and leased real property. All real property owned or
leased by the Company is in condition and repair, reasonable wear
and tear excepted, sufficient to conduct the business of the
Company as presently conducted and as contemplated. Except as
reflected in the Projections, no material additions or
modifications to such owned or leased real property are needed or
planned. The Company has not received notice of, nor have there
occurred, any pending or, to the knowledge of the Company,
threatened condemnation proceedings or any other matter
materially and adversely affecting the value of such owned or
leased real property. The Company's operations and the
improvements on such real property comply in all material
respects with all applicable zoning laws and building codes.
(c) Each title insurance policy owned by the Company with
respect to any real estate or real estate interest described in
Schedule 4.8 is identified in Schedule 4.8 and a copy of each
such title insurance policy has previously been delivered to
Lender.
(d) To the knowledge of the Company, except as disclosed in the
Environmental Reports (as defined below), there have been no acts
or omissions occurring on or with respect to the real estate or
real estate interests described in Schedule 4.8 (whether or not
such acts or omissions were permitted by the Company) which
constituted or resulted, or may have constituted or resulted in
the creation of any federal, state or local common law nuisance
or which violate or have violated federal, state and local
environmental laws, including but not limited to, the Clean Water
Act, the Toxic Substances Control Act, the Comprehensive
Environmental Response, Compensation and Liability Act and/or the
Resource Conservation and Recovery Act and their state and local
law counterparts, all rules and regulations promulgated
thereunder and all other legal requirements in connection with
the ownership and use of the real estate and real estate
interests described in such schedule. The Company has no
liability with respect to the storage, treatment or disposal of
any hazardous waste or substance. Schedule 4.8 lists all reports
(true and complete copies of which have been delivered to the
Lender) relating to all environmental audits or surveys performed
during the past ten years (the "Environmental Reports") on any
real property required to be described in Schedule 4.8.
4.9 Intellectual Property. Except as set forth on Schedule 4.9,
the Company owns, licenses or otherwise has authority to use,
free and clear of all liens, encumbrances, licenses, claims and
other restrictions or burdens (except Permitted Liens), all
patents, trade names, trademarks, copyrights, inventions,
processes, designs, custom or proprietary computer software,
works of authorship, franchises, formulas, trade secrets,
know-how and other intangible property and proprietary rights
(collectively, "Intellectual Property") necessary for or used in
the conduct of its business, and may, to the Company's knowledge,
use all such Intellectual Property in the conduct of its business
with no conflict with or infringement of the rights of others.
Schedule 4.9 lists all licenses and other agreements with respect
to Intellectual Property to which the Company is a party or by
which it or any of its assets are bound. Except as set forth on
Schedule 4.9, the Company has no knowledge of any material
infringement by any third party upon any Intellectual Property
owned or used by it and it has not intentionally taken or omitted
to take any action which would have the effect of waiving any of
its rights thereunder. Schedule 4.9 lists all patents,
trademarks, trade names, copyrights and applications for any of
the foregoing owned or used by the Company.
4.10 Absence of Changes. Except as set forth on Schedule 4.10,
since the Balance Sheet Date, the Company's business has been
developed and operated in the ordinary course thereof consistent
with past practices, and the Company has not:
(a) Undergone any material adverse change in the assets of the
Company, its condition (financial or otherwise), or, to the best
of the Company's knowledge, its prospects;
(b) Suffered any material damage, destruction or loss (whether
or not covered by insurance) affecting the assets of the Company;
(c) Incurred any indebtedness, including, but not limited to,
any account payable, other than indebtedness incurred in the
ordinary course of business and consistent with past practices;
(d) Paid, discharged or satisfied any claim, lien, encumbrance
or liability of the Company (whether absolute, accrued,
contingent or otherwise and whether due or to become due), other
than in the ordinary course of business and consistent with past
practices;
(e) Declared, set aside or paid any dividend or other
distribution in respect of any equity security of the Company, or
any direct or indirect redemption, purchase or other acquisition
of any equity security of the Company;
(f) Sold, transferred, pledged, mortgaged, or otherwise disposed
of any tangible or intangible asset of the Company, nor has the
Company subjected any of its assets to any lien (other than
Permitted Liens), security interest, charge or encumbrance, or
made any sale, assignment, transfer or other disposition of any
patents, copyrights, trademarks, trade names, licenses,
franchises, know-how, proprietary processes, formulae or other
intangible assets (other than the sale of tangible assets in the
ordinary course of business);
(g) Increased the compensation paid or payable to any officer,
managerial employee, consultant or agent of the Company
(including, without limitation, any increase pursuant to any
bonus, pension, profit sharing or other plan or commitment) other
than in the ordinary course of business consistent with past
practices;
(h) Made any capital expenditure or commitment for additions to
property, plant or equipment in excess of $35,000;
(i) Entered into any forward purchase commitments other than in
the ordinary course of business;
(j) Made any change in the accounting methods or practices
followed by the Company, or any change in depreciation, cost
recovery or amortization policies or rates theretofore adopted;
(k) Entered into any transaction other than in the ordinary
course of business (except as described on Schedule 3.6);
(l) Entered into or become subject to any agreement, whether in
writing or otherwise, to take any of the actions specified above;
or
(m) Received any notice or indication of termination or
potential termination of any other material contract, lease or
relationship, including relationships with customers and
suppliers, which, in any case or in the aggregate, has or may
have an adverse effect upon the Company, its business or its
prospects.
4.11 No Materially Adverse or Other Contracts, Etc. The Company
is not obligated under any contract, agreement or decree which
materially and adversely affects the assets of the Company, its
condition (financial or otherwise) or its prospects. Neither the
execution nor the delivery of this Agreement nor the consummation
of the transactions contemplated hereby, (including, but not
limited to, the Acquisition), nor the fulfillment of the terms
hereof, will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under,
either the Articles of Incorporation or By-Laws of the Company,
or of any agreement, restriction, undertaking, instrument, law,
ordinance, regulation, governmental license, approval, tariff,
any order or decision of any court, any lien, charge or
encumbrance under which the Company or any of its properties is
bound or obligated.
Except as set forth on Schedule 4.11, the Company is not
a party to, nor obligated under any:
(a) Written employment or other contracts with employees,
independent contractors, consultants or similar individuals or
entities;
(b) Loans, borrowing contracts, notes, indentures, mortgages,
leases, royalty or similar agreements (except for the Senior Loan
Documents);
(c) Power of attorney granted by or to the Company;
(d) Agreement which contains covenants limiting the freedom of
the Company to compete in any line of business or market or with
any entity or person;
(e) Any license agreements, distributor, sales representative or
agency agreements to which the Company is a party, which involved
the payment by the Company of $50,000 in the past 12 months; or
(f) Contract to which the Company is a party which by its terms
involves the future payment by or to the Company of $200,000 or
more or is otherwise material to the Company, its business or
prospects.
Neither the Company nor, to the Company's knowledge, any other
party to any contract material to the Company is in material
default in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any such
contract and no such party has made any claim of a material
default by the Company. All such contracts are enforceable
against the Company and, to the knowledge of the Company, against
the other parties thereto (subject only to bankruptcy,
reorganization, insolvency or other similar laws or any
applicable rules of equity). All such contracts are in full
force and effect and have been approved by all third parties
whose approval is required. The consummation of the transactions
contemplated hereby (including, but not limited to the
Acquisition) will not and no state of facts exists which with the
passage of time or the giving of notice or both would constitute
a default under or breach of any of such contracts by the Company
or, to the Company's knowledge, by any other party thereto.
Adequate arrangements have been made in connection with the
Acquisition to assure that the Company will receive the full
economic benefit of each of the contracts transferred or assigned
to the Company by Apogee or an affiliate of Apogee pursuant to
the Acquisition.
4.12 Employee Benefit Plans.
(a) Except as set forth on Schedule 4.12, the Company does not
maintain or contribute to (i) any nonqualified deferred
compensation or retirement plans or arrangements; (ii) any
defined contribution retirement plans or arrangements; (iii) any
defined benefit pension plan; (iv) any other plan, program,
agreement or arrangement under which former employees of the
Company or their beneficiaries are entitled, or under which
current employees of the Company will be entitled following
termination of employment, to medical, health, life insurance or
other benefits (other than health continuation coverage described
in section 4980B of the Code, Part 6 of Title I of ERISA or
applicable state insurance law and any right of an employee to
benefits continued coverage by reason of disability or any
conversion feature provided under any insurance arrangement); (v)
any other employee benefit, health, welfare, medical, disability,
life insurance or other program, agreement, arrangement or
policy; or (vi) any other "employee benefit plan," as such term
is defined in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and regulations
thereunder. The plans required to be described in Schedule 4.12
are referred to as the "Plans."
(b) Except as set forth in Schedule 4.12, the Company is not
part of a Controlled Group or Affiliated Service Group.
"Affiliated Service Group," for purposes of this section, is
defined in section 414(m) of the Internal Revenue Code of 1986,
as amended (the "Code"). "Controlled Group," for purposes of
this section, means a group of trades or businesses (whether or
not incorporated) under common control, as defined in the
regulations issued pursuant to section 414(b) or (c) of the Code,
or other such regulations prescribed by the Pension Benefit
Guaranty Corporation pursuant to section 4001 of ERISA, of which
the Company is a part.
(c) No Plan to which the Company contributes is a multiemployer
plan, as defined in section 4001(a)(3) of ERISA, or a defined
benefit plan, as defined in section 3(35) of ERISA.
(d) The Plans have been administered in all material respects in
compliance with the applicable requirements of ERISA, all
applicable foreign laws and the plan documents, and the Plans
meet all applicable requirements for favorable tax treatment
under the Code in both form and operation except as otherwise
disclosed on Schedule 4.12. All of the Plans which constitute
employee pension benefit plans or employee welfare plans subject
to ERISA and the trusts or other funding vehicles related to the
Plans have, in all material respects, been maintained in
compliance in both form and operation with the requirements of
ERISA and any applicable state law except as otherwise disclosed
on Schedule 4.12. The Plans which constitute employee pension
benefit plans, as defined in section 3(2) of ERISA, comply, in
all material respects, with the requirements of the Tax Reform
Act of 1986, and the Omnibus Budget Reconciliation Act of 1989,
and all subsequent legislation, requirements and amendments, and
the Company has received from the Internal Revenue Service a
favorable determination letter as to each such Plan except as
otherwise disclosed on Schedule 4.12. All required contributions
pursuant to the Plans for all periods prior to Closing have been
made or will be made prior to the Closing or are adequately
reflected on the Balance Sheet. There have been no nonexempt
prohibited transactions, as defined in section 406 of ERISA
or section 4975 of the Code, with respect to any of the Plans or
any parties in interest or disqualified persons with respect to
the Plans or any reduction or curtailment of accrued benefits
with respect to any Plans. There are no pending or, to the
knowledge of the Company, threatened claims, lawsuits or
arbitrations which have been asserted or instituted against the
Plans or any fiduciaries thereof with respect to their duties to
the Plans or the assets of any of the trusts under any Plans. No
representations or communications with respect to participation,
eligibility for benefits, vesting, benefit accrual or coverage
under the Plans have been made to the Company's employees other
than those which are substantially in accordance with the terms
of such Plans in effect immediately prior to the Closing.
(e) No Plan which is a "group health plan," as defined in Code
section 4980B, has failed to comply with the continuation
coverage requirements of section 4980B of the Code for all
periods prior to Closing.
(f) The Company has furnished to the Lender true and complete
copies of:
(i) the Plans' summary plan descriptions;
(ii) the most recent determination letter received from the
Internal Revenue Service regarding the Plans and copies of any
pending applications, filings or notices with respect to any of
the Plans with the Internal Revenue Service, the Pension Benefit
Guaranty Corporation, the Department of Labor or any other
governmental agency;
(iii) the latest financial statements and annual reports of each
of the Plans as of the end of the most recent Plan year;
(iv) the reports of the most recent actuarial valuations of the
Plans, if any; and
(v) copies of any investment management agreements thereunder
and of any fiduciary insurance policies, fidelity bonds, rules,
regulations or policies of the trustees or any committee
thereunder.
4.13 Compliance with Laws, Instruments, Etc.
(a) Generally. The Company is not in violation of its
Articles of Incorporation or By-Laws, as amended, or in violation
in any material respect of any applicable law, statute or
regulation of any federal, state, municipal or other governmental
or quasi-governmental agency, board, bureau or body relating to
the conduct of its business or maintenance, operation or use of
the assets of the Company, or in violation or default in any
material respect with respect to any order, license, regulation
or demand of any court or governmental agency, or in default in
any respect under any indenture, mortgage, lease, agreement or
other instrument under which it is bound. Except as disclosed on
Schedule 4.13, the Company holds all governmental or regulatory
licenses, qualifications and permits required or necessary to
conduct its business and to perform all contracts to which it is
bound, or which were assigned to it by Apogee (or an affiliate of
Apogee) in connection with the Acquisition, in each such
jurisdiction where such licenses, qualifications or permits are
required or necessary to allow the Company to receive payment in
full under such contracts. The Company is in compliance with and
has performed each and every obligation required to be complied
with and performed pursuant to each contract, lease, license,
mortgage, indenture, instrument and other agreement by which it
is bound or obligated, and there is no default by the Company,
and to its knowledge, by any other party thereto, under any such
contract, lease, license, mortgage, indenture, instrument or
other agreement now existing, or which would come into existence
with the passage of time, the giving of notice, or both. The
Company and its employees, agents and representatives have not,
to obtain or retain business, directly or indirectly offered,
paid, promised to pay or authorized the payment of any money or
other thing of value, directly or indirectly, to any person who
is a foreign governmental official, an official of any foreign
political party or any candidate for a foreign governmental or
political party office.
(b) Environmental. Except as disclosed in the Environmental
Reports, the Company has complied and is in compliance in all
respects with all applicable federal, state, local and foreign
laws, statutes, rules, regulations, ordinances and other
requirements, including, without limitation, permits issued
thereunder, judicial and administrative orders and determinations
and contractual obligations concerning public health and safety,
worker health and environmental contamination of any type
whatsoever, including, without limitation, all such standards of
conduct and obligations relating to the presence, use,
production, generation, handling, transport, treatment, storage,
disposal, sale, distribution, labeling, testing, processing,
discharge, release, threatened release, control or cleanup of any
hazardous, toxic or otherwise dangerous chemical, material,
substance or waste, or mixture, pesticide, petroleum product or
byproduct, asbestos, polychlorinated biphenyls, noise or
radiation. Except as disclosed in the Environmental Reports,
there are no claims, demands, and/or governmental or third party
investigations, pending or, to the Company's knowledge,
threatened, relating to any hazardous materials (collectively
called "Environmental Claims") against the Company or relating to
any real property currently or formerly owned or leased by the
Company, or operated by the Company. Except as disclosed in the
Environmental Reports, there are no lawsuits, judgments, consent
decrees, administrative orders and/or administrative proceedings
(collectively called "Environmental Litigation") pending, or to
the Company's knowledge, threatened against the Company or any
real property presently or formerly owned by the Company,
relating to any hazardous materials treated, stored, used and/or
disposed of by the Company. Except as disclosed in the
Environmental Reports, to the Company's knowledge, no other
person has caused, discharged, permitted or arranged for any
hazardous material to be used, generated, reclaimed, transported,
released, treated, stored, recycled, refined or disposed of in a
manner which is likely to form the basis for an Environmental
Claim or Environmental Litigation against the Company. Except as
disclosed on Schedule 4.13, in connection with the Acquisition,
Apogee has assumed liability for all loss, damages, costs or
expenses that may arise with respect to the properties or
operations of Xxxxxxx and Norshield relating to the period prior
to the Closing Date. The Company has not assumed any liability
of any person for cleanup, remediation, removal, compliance or
required capital expenditures in connection with any
Environmental Claim or Environmental Litigation. Except as
described in the Environmental Reports: (i) there are no
underground storage tanks or surface impoundments that are or
were located, on real property currently owned or leased by the
Company or on adjacent parcels of real property; and (ii) no part
of such currently owned, leased and operated real property, and
no part of parcels adjacent to such real property, including the
groundwater located thereon, is presently contaminated by
hazardous materials in violation of any applicable environmental
law.
4.14 Securities Laws. The sale and delivery of the Note and
the Equity Securities issued to the Lender are (assuming the
accuracy of the Lender's representations in section 8), exempt
from the requirement of registration under the Securities Act of
1933, as amended ("Securities Act") and applicable state "Blue
Sky" laws.
4.15 Brokers. The Company has not incurred any liability for
any finders' fees, brokerage fees or similar fees or expenses in
connection with entering into this transaction with the Lender
except as fully described on Schedule 4.15.
4.16 Taxes. The Company has timely filed, or obtained valid
extensions of time for filing (which extensions have not
expired), all federal, state, local and other tax returns and
reports required to be filed by the Company. All such tax
returns are true and correct in all material respects. No claim
has been made by any taxing authority in any jurisdiction where
the Company did not file tax returns that the Company is or may
be subject to taxation by that jurisdiction. Except as disclosed
on Schedule 4.16, in connection with the Acquisition, Apogee has
assumed liability for all loss, damages, costs or expenses that
may arise with respect to the properties or operations of Xxxxxxx
and Norshield relating to the period prior to the Closing
Date. Except as disclosed in Schedule 4.16:
(a) The Company has paid all taxes (including all deficiency
assessments, additions to taxes, penalties and interest, of which
notice has been received) to the extent that such amounts have
become due or are claimed to be due from any federal, state,
local or foreign taxing authorities.
(b) Adequate provisions have been made in the balance sheet of
the Company as of December 31, 1997 and in the Balance Sheet for
the payment of all then accrued and unpaid federal, state, local
and other taxes, whether or not then due and payable and whether
or not disputed.
(c) There are no tax liens (other than liens for taxes which are
not yet due and payable) on any property of the Company.
(d) There are no pending or, to the Company's knowledge,
threatened tax return examinations against the Company.
(e) There are no tax deficiencies asserted by any jurisdiction
against the Company.
(f) The Company has not granted any extensions of limitation
periods applicable to tax claims that are currently open.
4.17 Insurance. Schedule 4.17 contains a correct schedule of
all policies of insurance carried by the Company (including all
policies of which the Company is a beneficiary, is the owner or
pays the premiums with respect thereto) showing material facts as
to coverage. The insurance it carries is reasonably adequate in
kind and amount to cover insurable risks normally insured against
by companies similarly situated, is subject to the deductibles
and self-insurance programs disclosed on Schedule 4.17, and all
premiums thereon have been paid as and when due. All such
policies are in full force and effect. No notice of cancellation
or termination has been received with respect to any such policy.
Such policies are valid, outstanding and enforceable policies and
will not in any way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement. The
liability insurance coverage to which the Company was a party
throughout the five years preceding the Closing was comparable
(considering inflation during such period) to the coverage
currently in effect and was adequate considering the nature of
its businesses. During such five year period the Company
suffered no material insurable loss for which a claim was not
made. The Company has not been refused any insurance with
respect to any material assets or operations, nor has its
coverage been limited in any respect material to its operations,
by any insurance carrier to which it has applied for any such
insurance or with which it has carried insurance during the last
five years. The bonding facility described in section 3.13 is
adequate in scope and amount for the Company's current and
projected business.
4.18 Products Liability and Product Warranty. Schedule 4.18
sets forth all cash expenses, non-cash charges and reserve
activity with respect to the Company's products liability
lawsuits, claims and settlements during the past five years.
Schedule 4.18 sets forth all cash expenses and non-cash charges
related to warranties of the Company in connection with the sale
of products by the Company during the past three years. All
products sold by the Company are in all material respects
manufactured in conformity with all applicable contractual
commitments and all express or implied warranties. Except as
disclosed on Schedule 4.18, in connection with the Acquisition,
Apogee has assumed liability for all loss, damages, costs or
expenses that may arise with respect to the properties or
operations of Xxxxxxx and Norshield relating to the period prior
to the Closing Date.
4.19 Related Transactions. "Affiliate" of any person shall mean
any other person which directly or indirectly controls, is
controlled by or is under common control with such person. For
purposes hereof, "control" shall mean the direction of management
or policies (whether through ownership of securities, by contract
or otherwise), provided that any person which owns directly or
indirectly 5% or more of the securities of any other person
having ordinary voting power for the election of directors shall
be deemed to control such other person. Under no circumstances
shall the Lender be deemed for purposes of this Agreement to be
an Affiliate of the Company or any of its Affiliates. Except as
disclosed on Schedule 4.19: (a) no Affiliate nor any officer,
director or stockholder of the Company or, to the Company's
knowledge, to any person related by blood or marriage to any such
person or any entity in which any such person owned or owns any
beneficial interest, was or is a party to any agreement,
contract, commitment or transaction with the Company or had
or has any interest in any property used by the Company; (b) no
Affiliate is the direct or indirect owner of any interest in any
corporation, firm, association or business organization which is
a competitor or supplier of the Company (except for passive
investments of less than 5% in companies whose securities are
traded on NASDAQ or a national stock exchange); (c) no Affiliate
is the recipient of income from any source other than the Company
which should properly accrue to the Company.
4.20 Minute Books and Stock Record Books. The minute books of
the Company contain true, complete and correct records of all
meetings and other actions of the stockholders or Board of
Directors of the Company. The stock transfer record books of the
Company contain true, complete and correct records of all
transactions involving the Company's capital stock.
4.21 Employee Matters.
(a) Except as disclosed on Schedule 4.21, he Company is not a
party to any collective bargaining agreement;
(b) there is no unfair labor practice complaint against the
Company pending before the National Labor Relations Board;
(c) there is no labor strike, dispute, slowdown, representation
campaign or work stoppage actually pending or threatened against
or affecting the Company;
(d) to the Company's knowledge, no officer or employee of the
Company has entered into any agreement which is now in effect
with any person, corporation, partnership or business
organization other than the Company requiring such person to
assign any interest in any invention or trade secrets or to keep
confidential any trade secrets or other proprietary information
or containing any prohibition or restriction on competition or
solicitation of customers; and
(e) to the Company's knowledge, no managerial employee of the
Company or any Subsidiary intends to terminate his or her
employment with the Company within six months after the Closing.
4.22 Profit Payments. Except as set forth in the Senior Loan
Documents or on Schedule 4.11, the Company is not a party to any
agreement involving payments in excess of $50,000 to any person
or entity based on profits or gross revenues or sales.
4.23 Bank Accounts. Schedule 4.23 hereto contains a true,
complete and correct list of each bank or other depository
account or safe deposit box maintained by the Company, including
the name of the bank or other depository and the names and titles
of all persons authorized to draw thereon or having access
thereto.
4.24 Investment Company. The Company is not an "Investment
Company" or a company controlled by an "Investment Company"
within the meaning of the Investment Company Act of 1940, as
amended.
4.25 Solvency. The Company, after giving effect to the
transactions contemplated by this Agreement, has not incurred,
does not intend to incur, does not believe and has no reason to
believe it will incur, debts which it will be unable to pay as
they become due. The Company is not engaged in a business or a
transaction and is not about to engage in a business or a
transaction for which the property remaining with the Company is
an unreasonably small capital. After giving effect to the
transactions contemplated by this Agreement (including the
Acquisition), the Company owns assets and operations whose fair
saleable value, in the aggregate, is greater than the amount
required to pay all its indebtedness.
4.26 Regulations G and X. The Company is not engaged in the
business of extending credit for the purpose of purchasing or
carrying margin stock (as defined, from time to time, in
Regulation G promulgated by the Board of Governors of the Federal
Reserve System), and no part of the proceeds of the Note shall be
used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin stock
in violation of Regulations G and X.
4.27 Year 2000 Compliance. Except as described on Schedule 4.27,
the computer programs and software used by the Company, including
all such programs and software embedded in products sold by the
Company, will correctly recognize, calculate, sort, store,
display and/or process dates outside of the range 1900-1998,
including the years 1999, 2000 and beyond, and to correctly
recognize that the year 2000 is a Leap Year and to correctly
handle all date calculations involving the date February 29,
2000.
4.28 Disclosure. All statements of the Company contained in any
exhibit, certificate or other instrument attached hereto or
required to be delivered to the Lender pursuant to this Agreement
shall constitute representations and warranties by the Company
hereunder. Neither this Agreement nor any of the schedules,
attachments, written statements, documents, certificates or other
items required hereby contain any untrue statement of a material
fact or omit a material fact necessary to make each such
statement contained herein or therein not misleading. To the
Company's knowledge, there is no material fact pertaining to the
Company's business which the Company has not disclosed to the
Lender in writing and which, as of the date hereof, could
reasonably be anticipated to have a material adverse effect upon
the existing or expected financial condition, operating results,
assets, customer relations, employee relations or business
prospects of the Company.
5. Affirmative Covenants. From and after the Closing Date and
so long as the Company is indebted to the Lender (with respect to
the Loan, interest or otherwise pursuant to this Agreement) or
the Lender owns at least 10% of the issued and outstanding Common
Stock, the Company (including for purposes of this section 5 each
Subsidiary) shall comply with each of the following actions:
5.1 Payment of Note. The Company shall duly make all principal
and interest payments on the Note, as the same become due and
payable, and shall otherwise comply with the terms and conditions
thereof (including the grace period described in section 7.1(a)
provided the Company pays the default interest required by
section 7.1(a)).
5.2 Taxes. The Company shall accurately prepare all tax returns
required by law to be filed. The Company promptly shall pay and
discharge all taxes, assessments and governmental charges or
levies imposed by applicable law upon it or upon its income or
profit, or upon its properties, real, personal or mixed;
provided, however, that the Company shall not be required to pay
or cause to be paid any such tax, assessment, charge or levy if
the same shall not at the time be due and payable or if the
validity thereof shall be contested in good faith by appropriate
proceedings, if any, in which event it has established adequate
reserves on its books with respect to such tax, assessment,
charge or levy; provided further, however, that the Company
will pay all such taxes, assessments, charges or levies forthwith
whenever, as the result of proceedings to foreclose any lien
which attached as security therefor, foreclosure on such lien
appears imminent, or will obta in a surety bond or take such
other steps as will prevent such foreclosure.
5.3 Maintain Rights and Facilities. The Company shall maintain
and preserve its corporate existence and all its rights,
franchises and qualifications adequate for the conduct of its
business and the ownership of its properties.
5.4 Insurance; Bonds. The Company shall maintain insurance
against all such liabilities, hazards and risks, and in at least
such amounts (in the case of property casualty insurance at least
replacement cost), as are usually carried by persons engaged in
the same or a similar business. All such insurance shall be
effected under valid and enforceable policies issued by insurers
of recognized responsibility, except that the Company may effect
worker's compensation or similar insurance in respect of
operations in any state or other jurisdiction through an
insurance fund approved by such state or other jurisdiction. The
Company shall obtain and maintain in force such contract payment
and performance bonds as are required in connection with the
Company's business.
5.5 Financial Reports. The following financial reports shall be
provided:
(a) The Company shall provide the Lender, within 30 days after
the end of each calendar month, an unaudited financial statement
of the Company which will include a (i) balance sheet, (ii)
statement of income and expense, and (iii) statement of cash
flow, all for such monthly period and for the then current fiscal
year to date together with a monthly comparison of actual
operating results to the previous fiscal year and, beginning
February 1999, to budget. Each of the foregoing financial
statements shall be provided in reasonable detail and prepared in
accordance with accounting principles consistently applied
(subject to the absence of footnotes), and shall be furnished in
consolidated and consolidating form for the Company and the
Subsidiaries. Such financial statements shall be accompanied by
a written narrative describing business developments, for the
month covered by the statements, in form and detail reasonably
satisfactory to the Lender. Such financial statements shall be
certified, subject to audit and normal year-end adjustments, by
the Chief Executive Officer or senior financial officer of the
Company and shall also be accompanied by the certificate of such
officer to the effect that: (i) to his knowledge, there exists
no Event of Default (as defined in section 7 hereof) or event
which, with the giving of notice or passage of time or both,
would constitute an Event of Default or if any such Event of
Default exists, specifying the nature thereof, the period of
existence thereof and what action the Company proposes to take
with respect thereto (provided that the Lender shall not be
subject to any liability, nor shall the Lender be deemed to waive
any right or remedy to which it may be entitled, as a result of
any action taken or not taken subsequent to receipt of such
statement regarding Events of Default); and (ii) nothing has come
to the attention of the management of the Company that caused
them to believe the Company was not in compliance with any terms,
covenants, provisions or conditions of section 5 or 6 of this
Agreement. The Company shall also furnish the Lender copies of
all financial reports furnished to any bank providing senior debt
or to any bonding company.
(b) Within 90 days after the last day of each fiscal year of the
Company, the Company will provide the Lender with an audited
annual report of the Company containing a (i) balance sheet, (ii)
statement of income and expense, (iii) statement of stockholders'
equity and (iv) statement of cash flow for such year, prepared in
accordance with generally accepted accounting principles applied
on a consistent basis and setting forth in each case, in
comparative form, the figures for the previous fiscal year, all
in reasonable detail and, in the case of the audited annual
report, accompanied by an unqualified (as to scope of audit and
going concern) opinion of an independent certified public
accountant satisfactory to the Lender. The annual financial
statements shall be accompanied by a written statement from the
Chief Executive Officer or senior financial officer of the
Company to the effect that: (i) to the knowledge of the Company
there exists no Event of Default or event which, with the giving
of notice or passage of time or both, would constitute an Event
of Default or if any such default exists, specifying the nature
thereof, the period of existence thereof and what action the
Company proposes to take with respect thereto (provided that the
Lender shall not be subject to any liability, nor shall the
Lender be deemed to waive any right or remedy to which it may be
entitled, as a result of any action taken or not taken subsequent
to receipt of such statement regarding Events of Default); and
(ii) nothing has come to the attention of the management of the
Company that caused them to believe the Company was not in
compliance with any terms, covenants, provisions or conditions of
section 5 or 6 of this Agreement. The annual audited financial
statements shall be furnished in consolidated and consolidating
form for the Company and the Subsidiaries. Together with each
delivery of financial statements of the Company pursuant to
section 5.5(b) hereof, the Company shall deliver a written
statement by its independent certified public accountants
addressed to the Lender (i) stating that the examination has
included a review of the terms of this Agreement as they relate
to accounting matters and (ii) stating whether, in connection
with the examination, any condition or event relating to
accounting matters that constitutes (or with notice, the passage
of time, or both, will constitute) an Event of Default has come
to their attention and, if such a condition or event has come to
their attention, specifying the nature and period of existence
thereof.
(c) Promptly upon receipt, the Company will provide the Lender
with copies of all audit reports submitted to the Company by
independent accountants in connection with each annual audit of
the books of the Company and the Subsidiaries and copies of any
and all management reports and recommendations given by its
independent accountants to the Company.
5.6 Budget. On or before January 31, 1999 with respect to the
fiscal year ending December 31, 1999 and on or before the last
day of each fiscal year commencing with the following fiscal
years, the Company shall furnish to the Lender an operating
financial forecast for the Company (including an operating and
capital budget) for the upcoming fiscal year and projections of
(i) the balance sheet of the Company at the end of each month of
such fiscal year, (ii) statements of income and expense for each
month of such fiscal year, (iii) statements of cash flow of the
Company for each month of such fiscal year, and (iv) a budget of
capital expenditures to be incurred by the Company for such
fiscal year, all of the foregoing to be furnished in consolidated
and consolidating form for the Company and the Subsidiaries and
shall be in reasonable detail and certified by the Chief
Executive Officer or senior financial officer of the Company as
having been prepared in good faith and to the best knowledge and
ability of the Company. The Company shall, promptly upon any
material revision of the foregoing, provide such revisions to
the Lender. The business plan referred to above shall include
management's intentions with regard to anticipated significant
business developments or objectives of the Company.
5.7 Books and Records; Inspection. The Company shall keep
proper, complete and accurate books of record and account. The
Lender shall have the right to visit and inspect any of the
properties, books and records of the Company (and to make copies
and take extracts therefrom), to discuss the Company's affairs,
finances and accounts with, and be advised of the same by, its
directors, officers, employees, consultants, and independent
accountants at such reasonable times and intervals, subject to
reasonable prior notice to the Company, as the Lender may desire.
5.8 Maintain Properties. The Company shall keep its properties
in working order and condition, ordinary wear and tear excepted,
and from time to time make all prudent, needful or proper
repairs, replacements, extensions, additional betterments and
improvements thereto, so that the business carried on by the
Company may be efficiently conducted at all times in accordance
with sound business management.
5.9 Compliance with Instruments, Laws, Etc. Except where the
Company's failure to comply would not have a Material Adverse
Effect, the Company shall comply in all respects with the terms,
requirements, restrictions and limitations of any applicable law,
statute or regulation of any federal, state, municipal or other
governmental or quasi-governmental agency, board, bureau or body
materially relating to the conduct of its business and
maintenance and operation of its respective properties (except
where the Company is contesting the applicability thereof by
appropriate legal proceedings), and shall further comply with and
perform the terms, conditions and covenants contained in any
contract, lease, license, mortgage, indenture, instrument or
other agreement under which the Company is obligated.
5.10 Notices. Upon the Company's obtaining notice or knowledge
of any of the following, promptly notify in writing the Lender of
the same and what action the Company proposes to take, and shall
thereafter keep the Lender fully informed, with respect thereto:
(a) Any breach of or default, with respect to which any grace
period has expired, by the Company in the fulfillment of any of
the material terms, covenants or conditions of this Agreement or
any loan agreement or material contract or material governmental
license, permit or tariff by which it is bound or to which it is
a party, or the existence or occurrence of any condition, event,
act or omission which, with the giving of notice or the passage
of time or both, would constitute an Event of Default under this
Agreement (as defined in section 7) or an event of default under
any loan agreement or material contract, or material governmental
license, permit or tariff by which it is bound or to which it is
a party.
(b) Any litigation, investigation or administrative proceeding,
in which the amount in controversy exceeds $250,000 or in which a
criminal sanction or injunctive remedy is sought against the
Company, or any otherwise material determination, fine, penalty
or other materially important dispute to which the Company is a
party or by which it is affected.
(c) Any change or modification in existing contracts, agreements
or commitments to which the Company is a party or is bound, which
change or modification would have a Material Adverse Effect.
(d) Any change in the laws applying in particular to the
Company or the industries in which the Company competes, which
change would have a Material Adverse Effect.
(e) Any bid for a project with respect to which the Company's
proposed contract exceeds $10,000,000.
(f) Any warranty claim made against the Company in which the
amount claimed exceeds $250,000.
(g) Any surety loss under bonds maintained by the Company in
which such loss exceeds $250,000.
5.11 Shareholder Agreement. The Company shall enter into and
comply in all respects with the Shareholder Agreement.
5.12 Observation Rights. The Company shall permit two
representatives of the Lender to attend all meetings of the Board
of Directors and any committees thereof; one of such
representatives shall be the Xxxxx Director (as defined in the
Shareholder Agreement) once such person has been elected to the
Board of Directors.
6. Negative Covenants. From and after the Closing Date and so
long as the Company is indebted to the Lender (with respect to
the Loan, interest or otherwise pursuant to this Agreement) or
the Lender owns at least 10% of the issued and outstanding Common
Stock, the Company and the Subsidiaries will not do or take any
of the following actions without the prior written consent of the
Lender:
6.1 Use of Proceeds. Use the proceeds from the Lender's
purchase of the Note or the Equity Securities for any purpose
other than the Acquisition, the refinancing of the Company's debt
and the payment of fees and expenses associated therewith.
6.2 Redemption; Distributions. Except for the transactions
described on Schedule 6.2, purchase or otherwise acquire, redeem
or retire or make any distribution or pay any dividend with
respect to, the Company's capital stock or agree or commit to do
any of the foregoing. Notwithstanding the foregoing, (i) any
Subsidiary may pay dividends or make other distributions to the
Company or to a wholly-owned Subsidiary of the Company; (ii) the
Company may purchase its capital stock in the open market, in an
amount not to exceed $100,000 per year, for the purpose of making
resales to employees under its stock discount plan or matching
contributions under its 401(k) plan; (iii) the Company may
purchase in the open market up to $150,000 per year of its
capital stock in connection with the performance of its
obligations under the Company's employee and director stock
option plans; and (iv) the Company may purchase such shares of
capital stock as it is required to purchase to satisfy its
obligations under the August 1, 1993 Stock Purchase Agreements
described on Schedule 4.3(a).
6.3 Investments, Loans and Advances. Make or have outstanding
any loans or advances to, or investments in (through the
acquisition of securities or stock or otherwise), any other
person, firm, or corporation, except:
(a) Advances in the ordinary course of business to suppliers in
respect to the purchase of inventory, supplies or equipment;
(b) By endorsement of negotiable instruments for deposit or
collection in the ordinary course of business;
(c) Investments in obligations of the United States Government
and maturing within one year or deposits in or certificates of
deposit issued by a commercial bank organized under the laws of
the United States having capital and surplus in excess of
$100,000,000 and maturing within one year;
(d) Travel and other advances to employees in the ordinary
course of business;
(e) Investments in commercial paper of any United States
corporation rated at least A-1 by Standard & Poor's Corporation
or at least P-1 by Xxxxx'x Investors Service, Inc. and maturing
within one year; or
(f) Investments in money market funds substantially all of the
assets of which are comprised of securities of the type described
in sections (c) and (e) above.
(g) Contributions by the Company to the capital of any of its
Subsidiaries, or by any such Subsidiary to the capital of any of
its Subsidiaries.
(h) In the ordinary course of business, Investments by the
Company in any Subsidiary or by any Subsidiary in the Company, by
way of intercompany loans, advances or guaranties, all to the
extent permitted by the Senior Loan Documents.
(i) suretyship liabilities permitted by the Senior Loan
Documents.
(j) any acquisition by the Company or any Subsidiary where (1)
the assets acquired (in the case of an asset purchase) are for
use, or the entity acquired (in the case of any other
acquisition) is engaged, solely in the security systems or fire
alarm businesses; (2) immediately before and after giving effect
to such acquisition, no Event of Default shall exist; (3) the
aggregate consideration to be paid by the Company and its
Subsidiaries (including any Indebtedness assumed or issued in
connection therewith, the amount thereof to be calculated in
accordance with GAAP) in connection with such acquisition (or any
series of related acquisitions) and any other acquisitions
consummated during the same fiscal year is less than $600,000 in
aggregate; (4) immediately after giving effect to such
acquisition, the Company is in pro forma compliance with all the
financial ratios and restrictions set forth in section 6.17; (5)
in the case of the acquisition of any entity, the Board of
Directors of such entity has approved such acquisition; (6) the
EBITDA in respect of the business (in the case of an asset
purchase) or entity (in the case of any other acquisition)
acquired is not less than zero; and (7) the Company provides ten
days prior written notice of such acquisition to the Lender.
6.4 Acquisition or Sale of Business; Merger or Consolidation.
Except as and to the extent permitted under section 6.3, purchase
or otherwise acquire the stock, shares, or other securities, or
substantially all of the assets or business, of any person or
other entity; or liquidate, dissolve, merge, consolidate,
reorganize, recapitalize or otherwise alter its legal status or
commence any proceedings therefor; or sell, lease, transfer, or
dispose of, in any way, any personal or real property assets,
except assets sold or leased in the ordinary and normal course of
business; or assign or transfer any substantial part of its
intangible business rights necessary for the continuance of its
business as now conducted or planned. Notwithstanding the
foregoing, this section 6.4 shall not prohibit: (a) any merger,
consolidation, sale, transfer, conveyance, lease or assignment of
or by any wholly-owned Subsidiary into the Company or into, with
or to any other wholly-owned Subsidiary; (b) any such purchase or
other acquisition by the Company or any wholly owned Subsidiary
of the assets or stock of any wholly-owned Subsidiary; or (c)
sales and dispositions of assets (including the stock of
Subsidiaries) for at least fair market value (as determined prior
to such sale or disposition by the Company's Board of Directors)
so long as the net book value of all assets sold or otherwise
disposed of in any fiscal year of the Company does not exceed
10% of the net book value of the consolidated assets of the
Company and its Subsidiaries as of the last day of the preceding
fiscal year.
6.5 Change Capital Structure. Excluding the transactions listed
on Schedule 6.5, increase or decrease the number of its
authorized shares, or vary or alter the terms, par value or
rights of shares of any class or type of stock, or issue or agree
to issue any capital stock or other securities of the Company, or
any options, warrants or other rights to acquire such capital
stock or other equity securities, or securities convertible into
Common Stock or other equity securities of the Company, or create
any new class of stock of the Company; provided, however, the
Company may issue up to 555,000 shares of Common Stock to members
of the Company's management, and an additional 45,000 shares if
the Company's EBITDA for 2001 is greater than $13 million, all on
terms acceptable to the Lender pursuant to an incentive stock
option program to be implemented by the Company, subject to the
Lender's approval, after Closing, and pursuant to the directors'
option plan described on Schedule 6.2.
6.6 Officers' Salaries and Loans. Pay to the persons listed
on Schedule 6.6 annual compensation in excess of the annual
amounts shown on Schedule 6.6, or as such compensation may in the
future be adjusted by a majority (including Lender's
representative) of the Company's compensation and stock option
committee of the Board of Directors. The term "compensation",
for purposes of this section, shall include all remuneration for
services rendered, whether such payment be called salary, bonus,
drawing account, profit sharing, withdrawals or other form of
recompense (but shall not include fringe benefits, such as the
qualified profit-sharing plan and health and life insurance,
generally available to all salaried employees and deferred
compensation plans and retirement plans approved by the Board of
Directors available to certain members of the Company's
management and vehicles provided to such persons consistent with
historical practice and expense).
6.7 Amendments or Changes in Charter or Agreements. Amend,
modify or supplement in any way, or terminate, its Articles of
Incorporation or By-Laws except as contemplated by this Agreement
or its Appendices; or except as permitted by the Intercreditor
Agreement, modify, alter, supplement, extend or amend any
agreement or document relating to the Senior Debt (as defined in
section 6.10) (the "Senior Loan Documents") to the extent such
modification, alteration, supplement, extension or amendment (i)
increases the Senior Debt, (ii) increases the interest rate or
rates per annum or increase the fees payable in excess of the
amount of such rates of interest or fees currently in existence
thereunder, (iii) accelerates the scheduled payment dates, the
commitment reduction dates or the final maturity dates, or (iv)
imposes terms more restrictive to the Lender (with respect to the
receipt of payments of principal and interest under this
Agreement) than those restrictive terms which exist under the
Senior Loan Documents as of the date hereof.
6.8 Dealings with Affiliates. Enter into any transaction
(including, without limitation, the purchase, sale or exchange of
property or the rendering of any services) with any of the
Company's directors or Affiliates (other than the Company's
Subsidiaries), or any person related by blood or marriage to any
such person or any entity in which any such person owns any
beneficial interest.
6.9 Pension and Profit Sharing Plan or Arrangements. Establish
or, except for Plans identified on Schedule 4.12 as they may be
amended, supplemented or replaced from time to time by
commercially reasonable and customary arrangements, make any
contribution to any employee pension benefit plan, or other
pension or profit sharing plan or arrangement, whereby any part
of the profits or earnings of the Company (on a consolidated
basis) is shared with any person, firm or corporation.
6.10 Permitted Indebtedness. Create, incur, assume, guarantee
or be or remain liable for, contingently or otherwise, or suffer
to exist any Indebtedness (as defined below), except: (a) the
Senior Debt, as defined below; (b) the Loan; (c) purchase money
indebtedness not to exceed $300,000, on a consolidated basis, at
any time, for capital expenditures permitted under section 6.12,
provided any related security interest complies with section
6.11(c); (d) Indebtedness secured by Permitted Liens; (e)
Indebtedness not to exceed $1,750,000 in connection with the IRB
financing contemplated in connection with the Norshield Expansion
(as defined in section 6.12); (f) the Company's obligations under
contract payment and performance bonds entered into in the
ordinary course of business; (g) obligations under any interest
rate, currency or commodity swap agreement, cap agreement or
collar agreement incurred for bona fide hedging purposes and not
for speculation; (h) Indebtedness of any Subsidiary to the
Company or of the Company to any Subsidiary; (i) Indebtedness
described on Schedule 6.10 and any extension, renewal or
refinancing thereof so long as the principal amount is not
increased; and (j) other Indebtedness, in addition to the
Indebtedness listed above, in an aggregate amount not at any time
exceeding $150,000.
"Indebtedness" shall mean: (w) all indebtedness for borrowed
money (including, without limitation, that constituting all or
any part of the deferred purchase price of property or services);
(x) notes payable and drafts accepted representing extensions of
credit whether or not representing obligations for borrowed
money; (y) all Capital Lease Obligations (as defined in section
6.18) and (z) all indebtedness secured by any lien or security
interest on any property or asset owned or held by the Company
regardless of whether the indebtedness secured thereby shall have
been assumed by the Company or is nonrecourse to the credit of
the Company.
"Senior Debt" shall mean any and all obligations, indebtedness
and liabilities now or hereafter owing or due from the Company to
LaSalle Bank under the LaSalle Bank Credit Agreement; provided,
however, that (solely for purposes of section 6.10(a)) Senior
Debt shall not include:
(i) increases in the principal amount of the indebtedness of the
Company to LaSalle Bank in excess of $3,000,00, which amount
shall be reduced in such increments and at such times as
correspond to the reduction in principal of the Company's term
loan with LaSalle Bank and to the reductions in availability
under the LaSalle Bank revolving loan;
(ii) increases in the portion of interest that accrues in respect
of the indebtedness of the Company to LaSalle Bank at a rate in
excess of the otherwise applicable interest rate (or default
rate)(including any adjustable rate or rate to be reset pursuant
to the terms of the LaSalle Bank Credit Agreement) provided for
under the LaSalle Bank Credit Agreement in effect on the date
hereof; and
(iii)increases in the fees, charges or expenses provided for
under the LaSalle Bank Credit Agreement in effect on the date
hereof.
6.11 Liens. Create or suffer to exist, any claim, assessment,
pledge, security interest, mortgage, encumbrance or other lien
(collectively, "Liens") in favor of any person, including the
Lien of a conditional seller, upon any of its properties or
assets, now owned or hereafter acquired, including treasury
shares; provided, however, that this restriction shall not be
applicable to nor prevent the following (referred to in this
Agreement as "Permitted Liens"):
(a) Liens for taxes, assessments or governmental charges not
delinquent or being contested in good faith; undetermined Liens
and charges incident to construction and not resulting from any
delinquent obligation for the payment of money on account of such
construction; the lessor's rights in leasehold property, and
easements, restrictions, minor title irregularities and similar
matters which have no adverse effect as a practical matter upon
the ownership and use of the properties;
(b) Liens or deposits in connection with indebtedness not in
violation of section 6.10 above, worker's compensation or other
insurance or to secure customs duties, public or statutory
obligations, appeals bonds or carrier's, warehousemen's,
mechanics or materialmen's claims not more than 30 days
delinquent or being contested by the Company in good faith and in
appropriate proceedings; or to secure performance of contracts or
bids (other than contracts for the payment of money borrowed), or
deposits required by law or governmental regulations or by a
court order, decree, judgment or rule as a condition to the
transaction of business or the exercise of any right, privilege
or license or other liens of a like nature made in the ordinary
course of business;
(c) Liens securing the Senior Debt;
(d) Purchase money mortgages or Liens for capital expenditures
otherwise permitted by sections 6.10 and 6.12;
(e) Any attachment or judgment lien not constituting an Event of
Default under section 7.1 of this Agreement;
(f) Any interest or title of a lessor or sublessor under any
lease permitted by this Agreement, and any liens arising from
Uniform Commercial Code financing statements filed with respect
to such leases; and
(g) Liens described on Schedule 6.11 or the replacement,
extension or renewal thereof, upon or in the same property,
arising out of the extension, renewal or replacement of the
Indebtedness secured thereby (without increase in the amount
thereof).
6.12 Capital Expenditures. On a consolidated basis for the
Company and the Subsidiaries, make any Capital Expenditures or
incur any Capital Lease Obligations which, in the aggregate, will
exceed the amounts set forth below for the corresponding period
set forth below.
Computation Period Capital Expenditure Limit
11/30/98 through 12/31/98 $110,000
Fiscal Year 1999 $880,000
Fiscal Year 2000 $968,000
Fiscal Year 2001 $1,064,800
Fiscal Year 2002 $1,171,280
Fiscal Year 2003 $1,288,408
Notwithstanding the above: (a) the Company may spend an
additional $850,000 on upgrading its computer systems during the
period November 30, 1998 through December 31, 1999 ("ERP
Upgrade") (a preliminary budget outlining various capital
expenditures falling under the ERP Upgrade is attached as
Schedule 6.12); and (b) the Company may spend an additional
amount, during the period of the fiscal years 1999 and 2000, not
to exceed $1,750,000 in the aggregate, on capital expenditures
related to the expansion of its Norshield manufacturing facility
located at 0000 Xxxxxx Xxxxxxx, Xxxxxxxxxx, Xxxxxxx ("Norshield
Expansion"). For the purposes of calculating the Fixed Charge
Coverage Ratio under section 6.17, the definition of Capital
Expenditures shall exclude amounts spent on the ERP Upgrade and
Norshield Expansion.
6.13 Changes in Business or Fiscal Year. Make any significant
change in the nature of its business or enter into any agreements
which would restrict the Company's or any Subsidiary's right or
ability to perform under this Agreement, its Certificate of
Incorporation or By-Laws, or change its fiscal year.
6.14 Operating Leases. Create or assume any commitment to make
any direct or indirect payment whether as rent or otherwise under
any lease, rental or other arrangement for use of real or
personal property or both having a noncancellable term of more
than three years with aggregated payments under such
arrangements, on a consolidated basis, exceeding $1,500,000 in
any fiscal year of the Company plus $500,000 in respect of all
vehicle leases outstanding at any time.
6.15 Sale and Lease-Backs. Enter into any arrangement with any
lender or investor or to which such lender or investor is a party
providing for the leasing by the Company or any Subsidiary of
real or personal property which has been or is to be sold or
transferred by the Company or any Subsidiary to such lender or
investor or to any person to whom funds have been or are to be
advanced by such lender or investor on the security of such
property or rental obligations of the Company or any Subsidiary.
6.16 Sale or Discount of Receivables. Except for discounts
for prompt payment or to settle immaterial customer disputes in
the ordinary course of business, sell with recourse, or discount
or otherwise sell for less than the face value thereof, any of
its notes or accounts receivable.
6.17 Financial Covenants.
(a) Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio for any Computation Period to be less than the
applicable ratio set forth below for such Computation Period:
Computation Fixed Charge
Period Ending Coverage Ratio
3/31/99 - 12/31/02 1.00
3/31/03 and thereafter 1.05
(b) Interest Coverage Ratio. Permit the Interest Coverage Ratio
for any Computation Period to be less than the applicable ratio
set forth below for such Computation Period:
Computation Period Ending Interest Coverage Ratio
3/31/99 - 12/31/99 1.35
3/31/00 - 12/31/00 1.80
3/31/01 - 12/31/01 2.00
3/31/02 - 12/31/02 2.50
3/31/03 and thereafter 2.70
(c) EBITDA. Permit EBITDA for any Computation Period to be less
than the applicable amount set forth below for such Computation
Period:
Computation Period Ending EBITDA
1/1/99 - 3/31/99 $1,170,000
1/1/99 - 6/30/99 2,400,000
1/1/99 - 9/30/99 3,800,000
1/1/99 - 12/31/99 5,400,000
6.18 Certain Definitions. "Asset Sale" means the sale, lease,
assignment or other transfer for value (each a "Disposition") by
the Company or any Subsidiary of any asset or right of the
Company or such Subsidiary other than (a) the Disposition of any
asset which is to be replaced, and is in fact replaced, within 30
days with another asset performing the same or similar function,
and (b) the sale or lease of inventory in the ordinary course of
business.
"Capital Expenditures" means all expenditures which, in
accordance with GAAP, would be required to be capitalized and
shown on the consolidated balance sheet of the Company, but
excluding expenditures made in connection with the replacement,
substitution or restoration of assets to the extent financed (i)
from insurance proceeds (or other similar recoveries) paid
on account of the loss of or damage to the assets being replaced
or restored or (ii) with awards of compensation arising from the
taking by eminent domain or condemnation of the assets being
replaced.
Capital Lease. The term "Capital Lease" shall mean a lease with
respect to which the lessee's obligations thereunder should, in
accordance with GAAP, be capitalized and reflected as a liability
on the balance sheet of the lessee.
Capital Lease Obligations. The term "Capital Lease Obligations"
shall mean all Indebtedness incurred as a lessee pursuant to a
Capital Lease.
"Computation Period" means each of the following periods:
(a) the fiscal quarter ending March 31, 1999; (b) the period of
two consecutive fiscal quarters ending June 30, 1999; (c) the
period of three consecutive fiscal quarters ending September 30,
1999; and (d) each period of four consecutive fiscal quarters
ending on the last day of a fiscal quarter thereafter.
"Consolidated Net Income" means, with respect to the Company and
its Subsidiaries for any period, the net income (or loss) of the
Company and its Subsidiaries for such period.
"EBITDA" means, for any period, Consolidated Net Income for such
period plus, to the extent deducted in determining such
Consolidated Net Income, Interest Expense, income tax expense,
depreciation and amortization for such period, excluding any
gains from Asset Sales, any noncash extraordinary gains and any
gains from discontinued operations, plus any noncash
extraordinary losses.
"Fixed Charge Coverage Ratio" means, for any Computation Period,
the ratio of (a) the total for such period of EBITDA minus the
sum of all income taxes paid by the Company and its Subsidiaries
and all Capital Expenditures to (b) the sum for such period of
(i) Interest Expense plus (ii) required payments of principal of
Funded Debt (including, without limitation, the Term Loans under
the Senior Loan Documents but excluding the Revolving Loans under
the Senior Loan Documents).
"Funded Debt" means all debt that matures more than one year from
the date of its creation (or is renewable or extendable, at the
option of the Borrower, to a date more than one year from such
date).
"Interest Coverage Ratio" means, for any Computation Period, the
ratio of (a) EBITDA for such Computation Period to (b) Interest
Expense for such Computation Period.
"Interest Expense" means for any period the consolidated interest
expense of the Company and its Subsidiaries for such period
(including all imputed interest on Capital Leases.
7. Events of Default and Remedies.
7.1 Events of Default. So long as any part of the Note remains
unpaid (including principal, interest or otherwise) any one or
more of the following shall constitute an "Event of Default" as
the term is used herein:
(a) Default in the payment on the required due date of principal
or interest on the Note, provided that payment not later than
three days after the stated due date shall not be an Event of
Default if the Company pays interest on the Note at the rate
specified in section 2.2(b) from and after the stated due date;
(b) (1) Failure of the Company or any of its Subsidiaries to pay
when due or within any applicable grace period any principal or
interest on Indebtedness (other than the Note); (2) breach or
default of the Company or any of its Subsidiaries with respect to
any Indebtedness (other than the Note), if the effect of such
failure to pay, default or breach is to cause, or to permit the
holder or holders then to cause, Indebtedness having an
individual principal amount in excess of $100,000 or having an
aggregate principal amount in excess of $100,000 to become or be
declared due prior to their stated maturity, unless such failure
to pay, default or breach set forth in clauses (1) and (2) of
this section 7.1(b) is waived and such acceleration is annulled
by such holder or holders;
(c) Default shall occur in the observance or performance by the
Company of any term, covenant (other than the negative covenants
contained in section 6 of this Agreement) or other provision of
this Agreement, or any other Agreement executed in connection
herewith and such default shall not be remedied within 45 days
after notice thereof shall have been given by the Lender to the
Company;
(d) Default shall occur in the observance or performance by the
Company of any negative covenant contained in section 6 of this
Agreement;
(e) If any representation or warranty made by the Company in
this Agreement, or made by the Company in any exhibit, statement
or certificate attached to this Agreement or furnished to the
Lender in connection with this Agreement, proves untrue in any
material respect on the date as of which made or as of which the
same is to be effective;
(f) The Company becomes bankrupt, or admits in writing its
inability to pay its debts as they mature, or makes an assignment
for the benefit of creditors, or applies for or consents to the
appointment of a trustee or receiver or for the major part of its
properties;
(g) A trustee or receiver is appointed for the Company or for a
material part of its properties and the order of such appointment
is not discharged, vacated or stayed within 60 days after such
appointment;
(h) Any judgment, writ or warrant of attachment or of any
similar post-judgment process in an amount in excess of $250,000
shall be entered or filed against the Company or against any of
its properties or assets and remains unpaid, unvacated, unbonded
or unstayed for a period of 60 days, unless a reputable and
financially sound insurance company has admitted in writing its
responsibility to pay such judgment;
(i) Bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings, or other proceedings for relief under
any bankruptcy or similar law or laws for the relief of debtors,
are instituted by or against the Company or any Subsidiary and,
if so instituted, are consented to by the Company or any
Subsidiary, or, if contested, are not dismissed by the adverse
parties or by an order, decree or judgment within 60 days after
such institution; or
(j) If, at any time, Xxxxxx Xxxxxxx shall own fewer than 940,000
shares of the Company's Common Stock or Xxxxxx Xxxxxxx shall no
longer be serving as the Company's Chairman (except that it will
not be a default if such circumstance results from the death or
total disability of Xxxxxx Xxxxxxx).
7.2 Notice to Holder. When any condition, event or act
described in section 7.1 has occurred or exists, the Company
agrees to give notice thereof to the Lender on the next business
day after the Company has knowledge of such condition, event or
act. The Lender agrees that the cure of any curable default
under section 7.1 also constitutes the cure of any failure to
give proper notice thereof under this section 7.2.
7.3 Acceleration. If an Event of Default specified in section
7.1(f), (g) or (i) shall occur, the unpaid balance of the Note
and interest accrued thereon and all other liabilities of the
Company under this Agreement and the Note shall be immediately
due and payable, without presentment, demand, protest or notice
of any kind, all of which are hereby expressly waived by the
Company. When any Event of Default described in the other
sections of section 7.1 has occurred and for so long as such
Event of Default is continuing, the Lender, at its option and
without presentment, demand, protest or notice of any kind (all
of which the Company hereby expressly waives), may declare the
Note to be due and payable in full, and it shall thereupon become
immediately due and payable. From the date of any Event of
Default specified in section 7.1(a), (f), (g), (i) or (j), and
from the date of Lender's written notice thereof to the Company
after any other Event of Default, all unpaid principal of the
Note held by the Lender shall bear interest at the rate specified
in section 2.2(b) until the Note is paid in full.
7.4 Expenses. The Company agrees to pay to the Lender all
reasonable costs and expenses incurred by the Lender (including
reasonable attorneys' fees) in connection with the collection of
the Note or the enforcement or amendment of any provisions of
this Agreement.
7.5 Remedies Cumulative. The remedies provided in this section
7 are in addition to, and not in limitation of, any other rights
and rmedies the Lender may have upon an Event of Default. The
Lender may exercise any or all of the remedies provided by this
section 7.
8. Representations and Warranties of Lender. The Lender
represents and warrants to the Company that the statements
contained in this section 8 are true, accurate and complete with
respect to the Lender.
8.1 Capacity. The Lender has such knowledge and experience
in financial and business matters as to be capable of evaluating
the merits and risks of and to protect its own interest in
connection with the acquisition of the Note and the Equity
Securities.
8.2 Accredited Lender. The Lender is an "accredited investor"
as defined in Regulation D promulgated under the Securities Act.
8.3 Investment Purpose. The Lender is making this investment
for its own account and not for the account of others and not
with a view to the distribution of the Note or the Equity
Securities, and has no present intention of reselling or dividing
the Note or the Equity Securities, it being understood that
neither the Note nor the Equity Securities (subject to the
Lender's rights under the Registration Agreement) will be
registered under the Securities Act and that the Note and the
Equity Securities will have a legend affixed thereto describing
the restrictions on transferability.
8.4 Disclosure. The Lender has received copies of the annual
reports on Form 10-K, annual reports to shareholders, quarterly
reports on Form 10-Q, current reports on Form 8-K, and proxy
statements filed by the Company with the Securities and Exchange
Commission during the past three years in compliance with the
rules under the Securities Exchange Act of 1934, as amended. In
addition, the Lender has had the opportunity to ask questions and
receive written answers concerning the Company and the
Acquisition.
9. Transfer of Note; Transfer of Equity Securities;
Participation.
9.1 Successor and Assigns in General. This Agreement shall
be binding upon and, subject to section 9.2 hereof, inure to the
benefit of the parties hereto and their respective successors and
assigns, except that the Company may not assign or transfer its
rights hereunder or any interest herein or delegate its duties
hereunder without the prior written consent of the Lender. The
Lender shall give the Company prompt written notice of any
assignment of or participation in the Loan hereunder. Except in
connection with an assignment of its entire interest in the Note
and the Equity Securities, the Lender will continue to act as the
sole agent for purposes of this Agreement on behalf of all
holders of or participants in the Note and/or Equity Securities.
The Company shall maintain a book-entry system (which shall
include, without limitation, a record of ownership that
identifies each owner of an interest in the Loan or the Note) for
registration as to the rights to principal and stated interest on
the Loan and the Note, and shall promptly register any such
assignment of or participation in the Loan or the Note upon
receipt of such notice.
9.2 Conditions. The Lender or any Assignee may assign all or
any portion of its interest in and rights under this Agreement,
the Note and the Equity Securities to another person (an
"Assignee"), or grant a participating or beneficial interest in
this Agreement and the Loan to another person (a "Participant"),
subject to the following conditions:
(a) Securities Laws. Such assignment or participation shall not
be made under such circumstances as may constitute a violation of
federal securities laws or any applicable state securities laws
or regulations or (unless the transaction has been registered
under the Securities Act) render the Lender an underwriter, as
defined in the Securities Act. Any proposed assignee or
participant shall be required, as a condition to such assignment
or participation, to provide the Company with written
representations and warranties substantially in the form
contained in section 8.
(b) Payments; Set Off. Any payments to or recoveries by the
Lender or any Assignee or Participant under this Agreement or
under any instrument or agreement delivered in connection
herewith shall be for the account of the Lender, and all
Assignees and Participants, in proportion to the amount of each
such person's interest in the Loan. Rights of setoff and
banker's lien (if any) may be exercised by each such person only
after ten days' prior notice to the Company, and amounts and
property so set off or covered by such Lien may be applied to all
or any of the obligations incurred by the Company under this
Agreement, and all other amounts payable by the Company under
this Agreement which may be due or unpaid as determined by the
Lender, Assignees or Participants to the end that the property
and credit balances of the Company with each such person shall be
security for, and may be applied to the payment of, all or any of
the obligation incurred by the Company under this Agreement, and
such other amounts as though such rights were exercised, and such
amounts were recovered, by the Lender.
(c) Registration. The Company shall have registered any such
assignment or grant of a participating or beneficial interest in
the book-entry system maintained by the Company pursuant to
section 9.1 hereof.
(d) Further Assurance. The Company shall, from time to time at
the request of the Lender, execute and deliver to the Lender or
to such party or parties as the Lender may designate, any and all
further instruments as may in the reasonable opinion of the
Lender be necessary or advisable to give full force and effect to
any transfer contemplated by this section 9.
10. Additional Provisions.
10.1 Expenses. The Company agrees upon demand to pay or
reimburse the Lender for all of its reasonable out-of-pocket
expenses, including, without limitation, all travel, legal,
consulting, accounting and independent analyst fees and expenses,
from time to time (a) arising in connection with (i) the
preparation and execution of this Agreement and all other
documents, agreements, certificates and instruments to be
delivered thereunder and (ii) the legal and financial
investigation and review of the Company, (b) relating to any
amendments, waivers or consents pursuant to the provisions hereof
or thereof, (c) arising in connection with the enforcement of
this Agreement and all other agreements to be delivered hereunder
or collection of the Note, and (d) relating to the attendance of
the Lender's representatives at meetings of the Company's Board
of Directors and the Lender's exercise of its inspection and
visitation rights under section 5.7. The Company agrees to
pay and save the Lender harmless from all liability for any stamp
or other similar taxes which may be payable in connection with
this Agreement and the other Loan or Equity Securities documents
or the performance of any transactions contemplated hereby or
thereby.
10.2 Survival of Representations and Warranties. All
representations and warranties contained herein or made by or on
behalf of the Company in writing in connection with the
transactions contemplated herein shall be true and correct as of
the Closing and shall survive the consummation of the
transactions contemplated hereby for so long as the Lender (or
its Assignees) hold the Note or Equity Securities issued pursuant
to this Agreement.
10.3 Notices. All notices, demands, and communications provided
for herein or made hereunder shall be delivered, or mailed first
class with postage prepaid, or telefaxed, addressed in each case
as follows, until some other address shall have been designated
in a written notice given in like manner, and shall be deemed to
have been given or made when so delivered or mailed or telefaxed:
(a) if to the Company:
CompuDyne Corporation
Attn: Xxxxxx Xxxxxxx,
Chairman and Chief Executive Officer
000 Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Telecopy: 000-000-0000
with a copy to:
Quanta SecurSystems, Inc.
Attn: Xxxxxxx Rock
0000 Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Telecopy: 000-000-0000
Xxxxx Xxxxxx & Xxxxxx, LLP
Attn: Xxxxxxxx X. Xxxxx, Esq.
000 Xxxxxx Xxxxxx
X.X. Xxx 0000
Xxx Xxxxx, XX 00000
Telecopy: 000-000-0000
(b) if to the Lender:
Xxxxxxx Xxxxx Mezzanine Capital Fund II, L.P.
Attn: Xxxxx X. Xxxxx
000 Xxxx Xxxxx Xxxxxx
Xxxxxxx, XX 00000
Telecopy: 000-000-0000
with a copy to:
Reinhart, Boerner, Van Deuren,
Xxxxxx & Rieselbach, s.c.
Attn: Xxxxxx X. Xxx, Esq.
0000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000
X.X. Xxx 000000
Xxxxxxxxx, XX 00000-0000
Telecopy: 000-000-0000
10.4 No Waiver, Remedies Cumulative. No delay on the part of
the Lender in exercising any right, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, power or privilege hereunder or
thereunder preclude other or further exercise thereof, or the
exercise of any other right, power or privilege. The rights and
remedies provided in this Agreement are cumulative and are in
addition to all rights or remedies which the Lender and such
other holders otherwise may have in law or in equity or by
statute or otherwise. Without limiting the generality of the
foregoing, nothing in this Agreement shall be deemed to preclude
or be in lieu of any right or remedy which the Lender may have in
law or in equity or by statute or otherwise against the Company
or any other person based upon any fraud.
10.5 Amendments and Waivers. This Agreement may not be changed
or amended orally, and no waiver hereunder may be oral, but any
change or amendment hereto or any waiver hereunder must be in
writing and signed by the Lender and the Company.
10.6 Divisibility and Replacement of Note and Equity Securities.
Any instrument representing the Loan or any of the Equity
Securities may be divided into multiple notes or certificates in
such denominations as the Lender may request upon surrender of
such instrument at the principal office of the Company. In case
any instrument evidencing the Loan or any of the Equity
Securities issued to the Lender hereunder shall be mutilated,
lost, stolen, or destroyed, the Company shall issue and deliver
in exchange and substitution for, and upon cancellation of the
mutilated instrument or in lieu of and substitution for the
instrument lost, stolen or destroyed, a new note or other
document of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction; the affidavit of
the holder, without bond but with promise of indemnity, shall be
satisfactory.
10.7 Integration. This Agreement, the appendices and exhibits
annexed hereto and documents, schedules and certificates referred
to herein contain the entire agreement between the Company and
the Lender with respect to the transactions contemplated herein;
and none of the parties shall be bound by nor shall be deemed to
have made any representations and/or warranties except those
contained herein and therein.
10.8 Separability. If any provision of this Agreement is held
for any reason to be unenforceable by a court of competent
jurisdiction, the remainder of this Agreement shall,
nevertheless, remain in full force and effect in such
jurisdiction.
10.9 Headings. The headings in this Agreement are intended
solely for convenience of reference and shall be given no effect
in the construction or interpretation of this Agreement.
10.10 Governing Law; Waivers; Personal Jurisdiction.
(a) Governing Law. THIS AGREEMENT, THE NOTE AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO AND THERETO SHALL BE DEEMED TO
BE CONTRACTS UNDER THE LAWS OF THE STATE OF ILLINOIS AND FOR ALL
PURPOSES SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT PROVISION OR RULE
(WHETHER OF THE STATE OF ILLINOIS OR ANY OTHER JURISDICTION) THAT
WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF ILLINOIS.
(b) Waivers. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF ANY
AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE BY CERTIFIED MAIL--RETURN RECEIPT REQUESTED,
DIRECTED TO THE COMPANY AT THE ADDRESS INDICATED BELOW, AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED TWO BUSINESS DAYS
AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS,
POSTAGE PREPAID. THE COMPANY HEREBY WAIVES ITS RIGHTS TO A JURY
TRIAL, ANY OBJECTION BASED ON FORUM NON CONVENIENS AND ANY
OBJECTION TO VENUE IN CONNECTION WITH ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF ANY OF THIS AGREEMENT, THE
NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. THE COMPANY REPRESENTS THAT IT
HAS REVIEWED THIS WAIVER AND KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN
THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(c) Exclusive Jurisdiction. EXCEPT AS PROVIDED IN SUBSECTION
(d) HEREOF, THE LENDER AND THE COMPANY AGREE THAT ALL DISPUTES
AMONG OR BETWEEN THEM ARISING OUT OF, CONNECTED WITH, RELATED TO,
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG OR BETWEEN
THEM IN CONNECTION WITH THIS AGREEMENT AND THE NOTE, AND WHETHER
ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE
RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN XXXX COUNTY,
ILLINOIS, UNLESS THE LENDER IN ITS SOLE JUDGMENT ELECTS TO FROM
TIME TO TIME RESOLVE A DISPUTE IN THE STATE OR FEDERAL COURTS
LOCATED IN A DIFFERENT JURISDICTION, AND THE COMPANY HEREBY
CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN SAID COUNTY AND SAID STATE, OR SUCH
OTHER COUNTY OR STATE (AS THE CASE MAY BE). THE LENDER AND THE
COMPANY ACKNOWLEDGE, HOWEVER, THAT ANY APPEALS FROM THOSE COURTS
MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF XXXX COUNTY,
ILLINOIS OR SUCH OTHER COUNTY (AS THE CASE MAY BE). THE COMPANY
WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT CONSIDERING THE DISPUTE. NOTHING IN THIS
SECTION SHALL AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST THE COMPANY OR
ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
(d) Other Jurisdictions. WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, THE COMPANY AGREES THAT THE LENDER SHALL HAVE
THE RIGHT TO PROCEED AGAINST THE COMPANY IN A COURT IN ANY
LOCATION TO ENABLE THE LENDER TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER ENTERED IN FAVOR OF THE LENDER. THE COMPANY WAIVES
ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
WHICH THE LENDER HAS COMMENCED A PROCEEDING DESCRIBED IN THIS
SECTION.
10.11 Indemnification.
(a) General. In addition to all of the Company's other
obligations under this Agreement, the Company agrees to defend,
protect, indemnify and hold harmless the Lender, its Assignees
and Participants, and all of their respective officers,
directors, shareholders, partners, employees, consultants and
agents (including, without limitation, those retained in
connection with the satisfaction or attempted satisfaction of any
of the conditions set forth in this Agreement) (collectively, the
"Indemnitees") from and against any and all losses, damages,
liabilities, obligations, penalties, fees, costs and expenses
(including, without limitation, reasonable attorneys' and
paralegals' fees, costs and expenses) incurred by such
Indemnitees, whether prior to or from and after the date of this
Agreement, whether direct, indirect or consequential, as a result
of or arising from or relating to any suit, investigation, action
or proceeding by any person, either threatened or initiated,
asserting a claim for any legal or equitable remedy against any
person under any statute or regulation (other than suits or other
actions by the Company against an Indemnitee where the Company is
successful on the merits), regardless of whether the Indemnitee
seeking indemnification is a party to the action or proceeding
for which indemnification is sought, including, without
limitation, any federal or state securities or labor laws,
or under any environmental and safety requirements or common law
principles arising from or in connection with any of the
following: (A) the negotiation, preparation, execution or
performance of the documents, agreements, certificates or
instruments executed or delivered in connection with the Loan
or the Equity Securities, (B) the Lender's furnishing of funds to
the Company under this Agreement or under the Note or the Equity
Securities or (C) any matter relating to the financing
transactions contemplated by this Agreement or by any document,
agreement, certificate or instrument executed or delivered in
connection with the transactions contemplated hereby (including,
without limitation, any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of
the Loan or the Equity Securities) (collectively, "Indemnified
Matters"). The Company's indemnification obligation under this
section 10.11(a) shall be reduced by the amount of any insurance
proceeds actually received by the Indemnitee, or any cash benefit
actually received by Indemnitee through the exercise by
Indemnitee of any set-off rights or from the Indemnitee's
assertion of any counterclaim in connection with such suit,
investigation, action or proceeding. In no event shall the
Lender be liable to the Company or any of its affiliates for
indirect, special, consequential or punitive damages. To the
extent that this undertaking to indemnify, pay and hold harmless
set forth in this section may be unenforceable for any reason,
the Company shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law, to the payment
and satisfaction of all Indemnified Matters incurred by
Indemnitees.
(b) Environmental Liabilities. Without limiting the generality
of the indemnity set forth in section 10.11(a) hereof, the
Company hereby further indemnifies and agrees to hold harmless
the Lender and all Indemnitees from and against any and all
losses, liabilities, damages, obligations, penalties, injuries,
costs, fees (including, without limitation, attorneys',
paralegals' and expert witnesses' fees, costs and expenses)
expenses and claims of any and every kind whatsoever paid,
incurred or suffered by, or asserted against, the Lender or any
Indemnitee for, with respect to, or as a direct or indirect
result of, the past, present or future activities or operations
of, or the past, present or future condition of any property
owned, operated or otherwise used by the Company, its
predecessors or successors, or any off-site hazardous substance
or waste treatment, storage or disposal facility associated
therewith (the "Properties"), including, without limitation, the
presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission, release, or threatened release into, onto or
from the Properties of any toxic, hazardous or otherwise
dangerous chemical, substance, material or waste, including,
without limitation, any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under any
environmental and safety requirement (including, without
limitation, the Comprehensive Environmental Response,
Compensation and Liability Act), regardless of whether caused by,
or within the control of, the Company.
(c) Survival. All obligations provided for in this section
10.11 shall survive the repayment of the Note and the termination
of this Agreement.
COMPUDYNE CORPORATION
BY
Xxxxxx X. Xxxxxxx, Chairman
and Chief Executive Officer
XXXXXXX XXXXX MEZZANINE
CAPITAL FUND II, L.P.
BY XXXXXXX XXXXX MEZZANINE
CAPITAL PARTNERS II,
L.L.C., its general partner
By
Xxxxx X. Xxxxx, Director
