EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
by and among
INTEGRATED SECURITY SYSTEMS, INC.,
ISSI MERGER SUB, INC.,
ARMR SERVICES CORPORATION
and
THE OFFICERS AND SHAREHOLDERS OF
ARMR SERVICES CORPORATION
September 5, 2003
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made as of September
5, 2003, by and among Integrated Security Systems, Inc., a Delaware corporation
("Buyer"), ISSI Merger Sub, Inc., a Delaware corporation ("Merger Sub"), ARMR
Services Corporation, a Virginia corporation ("Company"), ▇▇▇▇ ▇▇▇▇▇▇, an
individual residing in Fairfax, Virginia, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, an individual
residing in Fairfax, Virginia (▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ are individually
referred to as an "Officer," and collectively as the "Officers"), ▇▇▇▇ ▇▇▇▇▇▇,
an individual residing in Fairfax, Virginia, and ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, an individual
residing in Fairfax, Virginia (▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ are individually
referred to as a "Shareholder," and collectively as the "Shareholders"). ▇▇▇▇
and ▇▇▇▇ ▇▇▇▇▇▇ are collectively sometimes referred to as the "Rolands," and
▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ are collectively sometimes referred to as the
"Rosenblooms". The Officers and Shareholders are individually referred to as a
"Seller," and collectively as the "Sellers."
WHEREAS, the Shareholders own all of the outstanding shares of capital
stock of the Company; and
WHEREAS, the Officers are currently the officers of the Company; and
WHEREAS, each Officer is a Related Person of a Shareholder; and
WHEREAS, Buyer is the sole shareholder of Merger Sub; and
WHEREAS, it is intended that the Merger shall qualify as a
"reorganization" within the meaning of Section 368(a) of the IRC; and
WHEREAS, the parties hereto desire to enter into this Agreement
pursuant to which Buyer will acquire all of the outstanding shares of the
capital stock of the Company by means of a merger of the Company with and into
Merger Sub, upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
promises, representations, warranties and covenants hereinafter set forth, the
parties, intending to be legally bound, hereto agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article 1:
"Accounts Receivable" is defined in Section 3.1.7.
"Affiliate" means any Person that, directly or indirectly, controls or
is controlled by or under common control with, another Person. For the purposes
of this definition, "control" (including the terms "controlled by" and "under
common control with"), as used with respect to any Person, means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities or by
contract or otherwise.
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"Agreement" means this Agreement and Plan of Merger.
"Applicable Contract" means any Contract between any two or more
persons (a) under which the Company has or may acquire any rights, (b) under
which the Company has or may become subject to any obligation or liability or
(c) by which the Company or any of the assets owned or used by it is or may
become bound.
"Applicable Percentage" is defined in Section 2.2.1(2)(c)(i).
"Arbitrator" is defined in Section 2.2.1(2)(c)(ii).
"Articles of Merger" is defined in Section 2.1.1.
"Benefit Plan" is defined in Section 3.1.12(1).
"Breach" means the following: a "Breach" of a representation, warranty,
covenant, obligation or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have occurred if there is
or has been any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation or other provision,
and the term "Breach" means any such inaccuracy, breach, failure, claim,
occurrence or circumstance.
"Buyer" is defined in the first paragraph of this Agreement.
"Buyer Indemnified Persons" is defined in Section 10.2
"Buyer Intellectual Property Assets" is defined in Section 4.19.
"Buyer SEC Report" is defined in Section 4.16.
"Buyer's Advisors" is defined in Section 5.1.
"Buyer Balance Sheet" is defined in Section 4.4.
"Buyer Stock" means shares of Buyer common stock, par value $0.01 per
share.
"Cash Merger Consideration" is defined in Section 2.2.1(2)(b).
"Certificate of Merger" is defined in Section 2.1.1.
"Closing" is defined in Section 2.3.
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"Closing Date" means the date and time as of which the Closing actually
takes place.
"Company" means ARMR Services Corporation.
"Company Balance Sheet" is defined in Section 3.1.4.
"Company Intellectual Property Assets" is defined in Section 3.1.21(1).
"Company Interim Balance Sheet" is defined in Section 3.1.4.
"Company Sales Revenue" is defined in Section 2.2.1(2)(c)(iii).
"Company Shares" means the Company's common stock, $1.00 par value.
"Consent" means any approval, consent, ratification, waiver or other
authorization (including any Governmental Authorization).
"Constituent Corporations" means together, Merger Sub and the Company.
"Contemplated Transactions" means all of the transactions contemplated
by this Agreement, including:
(a) the Merger;
(b) the execution, delivery and performance of the Employment
Agreements; and
(c) the performance by Buyer, Merger Sub, the Company,
Officers and Shareholders of their respective covenants and obligations
under this Agreement.
"Contingent Merger Consideration" means the sum of up to $2,147,000
calculated pursuant to the terms of Section 2.2.1(2)(c) which the Shareholders
will be paid as provided in Section 2.2.1(2)(c).
"Contract" means any agreement, contract, obligation, promise or
undertaking (whether written or oral and whether express or implied) that is
legally binding, including, without limitation, all commitments (in the form of
accepted purchase orders) to sell products and/or services, or outstanding
quotations, proposals or bids for the sale of goods and all commitments (in the
form of issued purchase orders), or outstanding quotations, proposals or bids,
to purchase or acquire raw materials, components, supplies or services.
"Damages" is defined in Section 10.2.
"Deduction" is defined in Section 10.5(1).
"Delta" is defined in Section 3.1.14
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"Delta Litigation" is defined in Section 3.1.14.
"DGCL" means the Delaware General Corporation Law, as amended.
"Disclosure Letter" means the disclosure letter delivered by the
Shareholders and Officers to Buyer, as contemplated in this Agreement.
"Earn-Out Period" is defined in Section 2.2.1(2)(c)(i).
"Effective Time" is defined in Section 2.1.2.
"Employment Agreements" is defined in Section 7.5.2.
"Encumbrance" means any charge, claim, community property interest,
equitable interest, lien, option, pledge, security interest, right of first
refusal or restriction of any kind, including any restriction on voting,
transfer, receipt of income or exercise of any other attribute of ownership.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor law and regulations and rules issued pursuant to that
Act or any successor law.
"Facilities" means any real property, leaseholds or other real property
interests currently or formerly owned or operated by the Company and any
buildings, plants, structures or equipment (including motor vehicles, tractors,
vans, trailers and roll-off containers) currently or formerly owned or operated
by the Company.
"Financial Statements" is defined in Section 4.4.
"GAAP" means generally accepted United States accounting principles,
applied on a consistent basis.
"Governmental Authorization" means any approval, consent, license,
permit, waiver or other authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" means any: (a) nation, state, county, city, town,
village, district or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature.
"Indemnified Person" is defined in Section 6.12.
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"IRC" means the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant to the Internal
Revenue Code of 1986, as amended, or any successor law.
"IRS" means the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" means, with respect to the Company or the Sellers, an
individual will be deemed to have "Knowledge" of a particular fact or other
matter if (a) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇ is actually aware of such fact or
other matter, or (b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
a reasonable investigation concerning the existence of such fact or other
matter. Knowledge means, with respect to Buyer or Merger Sub, an individual will
be deemed to have "Knowledge" of a particular fact or other matter if (a) any
officer of Buyer or Merger Sub is actually aware of such fact or other matter,
or (b) a prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a reasonable
investigation concerning the existence of such fact or other matter.
"Legal Requirement" means any federal, state, local, municipal,
foreign, international, multinational or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute or
treaty.
"Marks" is defined in Section 3.1.21(1).
"Merger" is defined in Section 2.1.1.
"Merger Consideration" means the consideration stated in Section 2.2.1,
consisting of the Cash Merger Consideration, the Stock Merger Consideration and
the Contingent Merger Consideration.
"Merger Sub" is defined in the first paragraph of this Agreement.
"Officers" is defined in the first paragraph of this Agreement.
"Order" means any award, decision, injunction, judgment, order, ruling
or verdict entered, issued, made or rendered by any court, administrative agency
or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" means the following: an action taken by
the Company will be deemed to have been taken in the "Ordinary Course of
Business" only if such action is consistent with the past practices of the
Company and is taken in the ordinary course of the normal day-to-day operations
of the Company.
"Organizational Documents" means the articles or certificate of
incorporation and the bylaws of the Company, the Buyer, or the Merger Sub, and
all amendments thereto.
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"Permitted Liens" means (a) mortgages or security interests shown on
the Company Balance Sheet, the Buyer Balance Sheet or the Company Interim
Balance Sheet as securing specified liabilities or obligations, with respect to
which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) mortgages or security interests incurred in
connection with the purchase of property or assets after the date of the Buyer
Balance Sheet or the Company Interim Balance Sheet (such mortgages and security
interests being limited to the property or assets so acquired), with respect to
which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (c) liens for current taxes not yet due and (d)
with respect to real property, (i) minor imperfections of title, if any, none of
which is substantial in amount, detracts from the value or impairs the use of
the property subject thereto or impairs the operations of the Company and (ii)
zoning laws and other land use restrictions that do not impair the present or
anticipated use of the property subject thereto.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union or other entity
or Governmental Body.
"Plan" means any Plan subject to Title IV of ERISA and maintained by
the Buyer, or any such plan to which the Buyer is required to contribute on
behalf of its employees.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or before,
or otherwise involving, any Governmental Body or arbitrator.
"Product" is defined in Section 2.2.1(2)(c)(iii).
"Registration Rights Agreement" means the Registration Rights Agreement
attached as Exhibit D hereto.
"Related Person" is defined in Section 3.1.24.
"Representative" means with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor or other representative
of such Person, including legal counsel, accountants and financial advisors.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Seller Indemnified Persons" is defined in Section 10.3.
"Sellers" is defined in the first paragraph of this Agreement.
"Sellers' Advisors" is defined in Section 6.1.
"Sellers' Closing Documents" is defined in Section 3.2.3.
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"Shareholders" is defined in the first paragraph of this Agreement.
"Stock Merger Consideration" is defined in Section 2.2.1(2)(a).
"Subsidiary" means with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries;
when used without reference to a particular Person, "Subsidiary" means a
Subsidiary of the Company.
"Surviving Corporation" is defined in Section 2.1.1.
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under IRC ss. 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty
or addition thereto, whether disputed or not.
"Tax Return" means any return (including any information return),
report, statement, schedule, notice, form or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"Threatened" means the following: a claim, Proceeding, dispute, action
or other matter will be deemed to have been "Threatened" if any demand or
statement has been made (orally or in writing) or any notice has been given
(orally or in writing).
"Trade Secret" is defined in Section 3.1.21.
"VSCA" means the means the Virginia Stock Corporation Act, as amended.
ARTICLE 2
MERGER; CLOSING
2.1 The Merger.
2.1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement and in accordance with the VSCA and the DGCL, at the
Effective Time, the Company shall be merged with and into Merger Sub (the
"Merger"), in accordance with the terms set forth in this Agreement. From and
after the Effective Time, the separate corporate existence of the Company shall
cease, and Merger Sub shall continue as the surviving corporation in the Merger
and shall continue to be governed by the laws of the State of Delaware (the
"Surviving Corporation"). The Merger shall be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware (the
"Certificate of Merger") and Articles of Merger with the State Corporation
Commission of the Commonwealth of Virginia (the "Articles of Merger"), together
with all other documents, notices and filings required by the VSCA and the DGCL.
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2.1.2. Effective Time of the Merger. The Articles of Merger
and the Certificate of Merger shall provide that the Merger shall be effective
as of the time of filing of the Certificate of Merger (the "Effective Time").
2.1.3 Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in Section 721 of the VSCA and Section 259 of
the DGCL. If at any time the Surviving Corporation shall consider or be advised
that any further assignments, assurances in law or other acts or instruments are
necessary or desirable to vest, perfect or confirm in the Surviving Corporation
the title to any property or rights of the Constituent Corporations, the
Constituent Corporations and their proper officers and directors shall and will
do all such acts and things as may be necessary or proper to vest, effect or
confirm title to such property or rights in the Surviving Corporation and
otherwise to carry out the purposes of this Agreement.
2.1.4 Certificate of Incorporation; Bylaws; Directors and
Officers. The Certificate of Incorporation and Bylaws of Merger Sub, as in
effect at the Effective Time, shall be the Certificate of Incorporation and
Bylaws of the Surviving Corporation, except as described in Section 2.1.5. At
the Effective Time, the Board of Directors and officers of the Surviving
Corporation shall be comprised of the directors and officers of Merger Sub, to
hold office until their respective successors are duly elected or appointed and
qualified.
2.1.5 Amendment to Certificate of Incorporation. At the
Effective Time, Article First of the Certificate of Incorporation of Merger Sub
shall be amended to read in its entirety as follows: "ARTICLE I. Name. The name
of the Corporation is B&B ARMR Corporation (the "Corporation")."
2.1.6 Tax Consequences. It is intended that the Merger shall
constitute a reorganization described in Section 368(a) of the IRC and that this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the IRC. It shall not be a condition to the consummation of the
Merger that any party hereto shall have received a ruling of the IRS as to the
federal income tax consequences of the Merger.
2.2 Terms of the Merger.
2.2.1 Merger Consideration.
(1) At the Effective Time, by virtue of the Merger and without
any action by the holders of the Company Shares, Buyer, Merger Sub or
the Company, all Company Shares issued and outstanding immediately
prior to the Effective Time shall be canceled and retired and converted
into and become rights to receive the Merger Consideration in the
manner described in Section 2.2.1(3).
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(2) The aggregate Merger Consideration shall be equal to the
sum of the Stock Merger Consideration, the Cash Merger Consideration
and the Contingent Merger Consideration (each as defined below). The
aggregate Merger Consideration shall be payable as follows:
(a) On the Closing Date, Buyer shall deliver to the
Sellers Ten Million (10,000,000) newly issued shares of Buyer
Stock (the "Stock Merger Consideration").
(b) On the Closing Date, Buyer shall deliver to the
Sellers Three Hundred Fifty Three Thousand dollars ($353,000)
in cash (the "Cash Merger Consideration").
(c) Certain amounts shall be paid in cash by the
Buyers to the Sellers from time to time (the "Contingent
Merger Consideration"), which shall be determined and paid as
follows:
(i) Subject to the procedures set forth in
Section 2.2.1(2)(c)(ii) below, during the Earn-Out Period, the Buyer
shall pay to the Shareholders no later than thirty (30) days after the
end of each applicable fiscal quarter an amount equal to the Applicable
Percentage of the Company Sales Revenue earned during such fiscal
quarter; provided, however, the maximum Contingent Merger Consideration
payable under this Section 2.2.1(2)(c) for all fiscal quarters combined
shall not exceed $2,147,000. The "Earn-Out Period" shall be the period
beginning on October 1, 2003 and ending on the third anniversary
thereof. The "Applicable Percentage" shall for each fiscal quarter be
five percent (5%) until the aggregate Company Sales Revenue for such
fiscal quarter equals $1,250,000, and for the remainder of such fiscal
quarter, fifteen percent (15%). In the event that the Buyer does not
pay the amount of the Contingent Merger Consideration then due for any
applicable fiscal quarter, such amounts shall accrue interest at a rate
of ten percent (10%) per annum from such date until paid in full.
(ii) Within thirty (30) days after the end of
each fiscal quarter during the Earn-Out Period, Buyer shall provide a
detailed statement of the Company Sales Revenue for such applicable
quarter. The Buyer shall provide any additional details as the
Shareholders may reasonably require. If the Shareholders have any
objections to the determination of the Company Sales Revenue or the
calculation of the Contingent Merger Consideration, the Shareholders
shall deliver a statement (or statements) describing their objections
to the Buyer prior to the first anniversary of the expiration of the
Earn-Out Period. The Buyer and the Shareholders will use commercially
reasonable efforts to resolve any such objections among themselves. If
the Buyer and the Shareholders do not finally resolve the objections
within twenty (20) business days after the Buyer has received the
statement of objections, then the parties shall jointly select an
independent arbitrator; if the parties are unable to agree upon an
arbitrator, each party will appoint an arbitrator and the two
arbitrators so appointed will select a third arbitrator (in such case
the Arbitrator shall be the panel of three) (an individual or the panel
of three, as the case may be, the "Arbitrator"). The Arbitrator shall
settle any dispute by selecting the position of the party with respect
to such dispute that the Arbitrator determines, in its sole discretion,
to be the most correct. The Arbitrator shall not be entitled to resolve
the dispute other than by selecting a position with respect to that
dispute of one of the parties to the dispute. The determination of the
Arbitrator shall be set forth in writing, delivered to each of the
Buyer and the Shareholders, and shall be conclusive and binding on the
parties and shall be non-appealable. The Buyer shall pay one-half of
the cost of such Arbitration, and the Shareholders shall collectively
pay the other one-half of such costs.
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(iii) For the purposes of calculating the
Contingent Merger Consideration, "Company Sales Revenue" shall mean,
with respect to any Earn-Out Period, the total revenues (net of
rebates, returns and allowances) generated from the sales, transfer or
services of the products identified on Exhibit A hereto, and any
modifications thereof (the "Products"). Sales shall be determined
according to generally accepted accounting principles and tangible
goods will be recognized upon shipping, and services will be recognized
when invoiced.
(3) At the Effective Time, each issued and outstanding share
of Company Shares shall be converted without any action on the part of
the holder thereof into and be exchangeable for Stock Merger
Consideration and the Cash Merger Consideration. The total Merger
Consideration shall be allocated and paid to the Shareholders in
accordance with their percentage ownership of Company Shares, as set
forth on Exhibit B attached hereto.
2.2.2 Exchange Procedure for the Shareholders. After the
Effective Time, each Shareholder shall surrender all stock certificates formerly
representing Company Shares to the Surviving Corporation, duly endorsed and
executed as the Surviving Corporation may require, to the Surviving Corporation
for cancellation, at which time the Merger Consideration shall be delivered to
such Shareholder. At the Effective Time, the holders of certificates evidencing
the Company Shares outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such stock, and their sole right shall
be to receive their respective portions of the Merger Consideration, as set
forth above. All rights to receive the Merger Consideration shall be deemed,
when paid or issued hereunder, to have been paid or issued, as the case may be,
in full satisfaction of all rights pertaining to the Company Shares.
2.2.3 Merger Sub Capital Stock. Each share of common stock of
Merger Sub issued and outstanding immediately prior to the Merger shall continue
to be issued and outstanding and evidence ownership of the same number of shares
of common stock of the Surviving Corporation, and the Merger shall effect no
change in any of such shares, and no shares of Merger Sub common stock shall be
converted in the Merger.
2.2.4 Company Treasury Shares. Any Company Shares held in the
treasury of the Company immediately prior to the Effective Time shall be
canceled as of the Effective Time, without payment of any consideration
therefor.
2.3 Closing. The closing of the Merger (the "Closing") shall take place
at the offices of ▇▇▇▇▇▇ and ▇▇▇▇▇, L.L.P., at ▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., Dallas time, on September 5, 2003, or,
if later, on the first business day on or by which the last to be fulfilled or
waived of the conditions set forth in Articles 7 and 8 hereof shall be fulfilled
or waived in accordance therewith, and the Closing shall be effective as of
September 1, 2003.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
3.1 The Rolands, jointly and severally, on the one hand, and the
Rosenblooms, jointly and severally, on the other hand, each severally represent
and warrant to Buyer and Merger Sub as follows:
3.1.1 Organization and Good Standing. Part 3.1.1 of the
Disclosure Letter contains a complete and accurate list of the Company's name,
its jurisdiction of incorporation, other jurisdictions in which it is authorized
to do business, and its capitalization (including the identity of each
stockholder and the number of shares held by each stockholder). The Company is a
corporation duly organized and validly existing under the laws of the
Commonwealth of Virginia, with corporate power and authority to conduct its
business as it is now being conducted, to own or use the properties and assets
that it purports to own or use, and to perform all its obligations under
Applicable Contracts. The Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company's business or assets. Sellers have
delivered to Buyer copies of the Organizational Documents of the Company, as
currently in effect.
3.1.2 Authority; No Conflict. This Agreement constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, the Company has the right, power,
authority and capacity to execute and deliver this Agreement and to perform its
obligations under this Agreement. Except as set forth in Part 3.1.2 of the
Disclosure Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(1) contravene, conflict with or result in a violation of (A)
any provision of the Organizational Documents of the Company or (B) any
resolution adopted by the board of directors or the stockholders of the
Company;
(2) to the Company's Knowledge, contravene, conflict with or
result in a violation of any Legal Requirement or any Order to which
the Company or any of the assets owned or used by the Company, may be
subject;
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(3) to the Company's Knowledge, contravene, conflict with or
result in a violation of any of the terms or requirements of any
Governmental Authorization that is held by the Company; or
(4) to the Company's Knowledge, result in the imposition or
creation of any Encumbrance upon or with respect to any of the assets
owned or used by the Company.
Except as set forth in Part 3.1.2 of the Disclosure Letter,
the Company is not and will not be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions, except where the failure to give such notice or obtain such
consent would not individually or in the aggregate have a material adverse
effect on the Company.
3.1.3 Capitalization. The authorized equity securities of the
Company consist of 1,000 shares of common stock, par value $1.00 per share, of
which 200 shares are issued and outstanding. The 200 shares of common stock
outstanding collectively constitute the Company Shares. There are no other
outstanding equity securities of the Company. Shareholders are and will be on
the Closing Date the record and beneficial holders of the Company Shares, in the
amounts set forth on Exhibit B, free and clear of all Encumbrances. All of the
outstanding equity securities of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. There are no Contracts
relating to the issuance, sale or transfer of any equity securities or other
securities of the Company. None of the outstanding equity securities or other
securities of the Company was issued in violation of the Securities Act or any
other Legal Requirement concerning the issuance of securities. The Company does
not own, and does not have any Contract to acquire, any equity securities or
other securities of any Person or any direct or indirect equity or ownership
interest in any other business.
3.1.4 Financial Statements. Sellers have delivered to Buyer:
(a) an audited balance sheet of the Company as of December 31, 2002 (the
"Company Balance Sheet") and the related statements of income, changes in
Shareholders' equity, and cash flow for the fiscal year then ended, and (b) an
audited balance sheet of the Company as of June 30, 2003 (the "Company Interim
Balance Sheet") and the related audited statement of income for the six months
then ended. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in shareholders' equity, and
cash flow of the Company as at the respective dates of and for the periods
referred to in such financial statements, subject, in the case of interim
financial statements, to normal recurring year-end adjustments (the effect of
which will not be material) and the absence of notes (that, if presented, would
not differ from those included in the Company Balance Sheet). The financial
statements referred to in this Section 3.1.4 reflect the consistent application
of such accounting principles throughout the periods involved, except as
disclosed in the notes to such financial statements. No financial statements of
any Person other than the Company are required by GAAP to be included in the
financial statements of the Company.
3.1.5 Books and Records. The books of account, minute books,
stock record books and other records of the Company, all of which have been made
available to Buyer, are complete and correct in all material respects and have
been maintained in accordance with reasonable business practices for similar
private companies (except where the failure to do so would not reasonably be
expected to have a material adverse effect on the Company).
12
3.1.6 Title to Tangible Properties; Encumbrances. The Company
does not own any real property. Part 3.1.6 of the Disclosure Letter contains a
complete and accurate list of all real property leased or subleased by or to, or
otherwise occupied by, the Company and all tangible personal property with a
book value or replacement cost in excess of $25,000 owned or leased by the
Company. Sellers have delivered or made available to Buyer copies of leases or
subleases listed in Part 3.1.6 of the Disclosure Letter. The Company owns
(subject to the matters permitted by the following sentence) all the tangible
personal property and assets that it purports to own located in the Facilities
operated by the Company or reflected as owned in the books and records of the
Company, including all of the properties and assets reflected in the Company
Balance Sheet and the Company Interim Balance Sheet (except for assets held
under capitalized leases disclosed or not required to be disclosed in Part 3.1.6
of the Disclosure Letter and personal property sold since the date of the
Company Balance Sheet or the Company Interim Balance Sheet, as the case may be,
in the Ordinary Course of Business) and all of the properties and assets
purchased or otherwise acquired by the Company since the date of the Company
Balance Sheet (except for personal property acquired and sold since the date of
the Company Balance Sheet in the Ordinary Course of Business and consistent with
past practice), which subsequently purchased or acquired properties and assets
(other than inventory and short-term investments) are listed in Part 3.1.6 of
the Disclosure Letter.
All tangible personal property and assets reflected in the
Company Balance Sheet and the Company Interim Balance Sheet are free and clear
of all Encumbrances and are not, in the case of real property, subject to any
rights of way, building use restrictions, exceptions, variances, reservations or
limitations of any nature except, with respect to all such personal property and
assets, the Permitted Liens.
3.1.7 Accounts Receivable. All accounts receivable of the
Company that are reflected on the Company Interim Balance Sheet or on the
accounting records of the Company as of the Closing Date (collectively, the
"Accounts Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the Ordinary Course
of Business. Unless paid prior to the Closing Date, the Accounts Receivable are
or will be as of the Closing Date current and collectible net of the respective
reserves shown on the Company Interim Balance Sheet or on the accounting records
of the Company as of the Closing Date (which reserves are adequate and
calculated consistent with past practice). Subject to such reserves, each of the
Accounts Receivable either has been or will be collected in full, without any
set-off, within 180 days after the day on which it first becomes due and payable
(except as set forth in Part 3.1.7 of the Disclosure Letter); provided that in
the event that any Accounts Receivable is not collected and Buyer seeks
indemnification therefor, all such uncollected Accounts Receivable shall be
assigned to Sellers, and will be credited back to the reserves for uncollected
Accounts Receivables. To the Company's Knowledge, there is no contest, claim or
right of set-off, other than returns in the Ordinary Course of Business, under
any Contract with any obligor of an Accounts Receivable relating to the amount
or validity of such Accounts Receivable. Part 3.1.7 of the Disclosure Letter
contains a complete and accurate list of all Accounts Receivable as of the date
of the Company Interim Balance Sheet, which list also sets forth the aging of
such Accounts Receivable.
13
3.1.8 Inventory. All material inventory of the Company
consists of a quality and quantity usable and salable in the Ordinary Course of
Business. All inventories not written off have been priced on a reasonable and
consistent basis.
3.1.9 No Undisclosed Liabilities. Except as set forth in Part
3.1.9 of the Disclosure Letter, the Company has no liabilities or obligations of
any nature except for liabilities or obligations reflected or reserved against
in the Company Interim Balance Sheet and current liabilities incurred in the
Ordinary Course of Business since June 30, 2003.
3.1.10 Taxes.
(1) The Company has filed all Tax Returns that it was
required to file. Since January 1, 2000, all such Tax Returns
were correct and complete in all respects and all positions
taken thereon have been disclosed that could give rise to an
understatement of federal income Tax within the meaning of
Sec. 6662 of the IRC. All Taxes due and owing by the Company
(whether or not shown on any Tax Return, whether known or
unknown, asserted or unasserted) have been paid other than
matters previously disclosed in writing, for which adequate
accruals or reserves have been established. The Company is not
a party to any tax sharing or other agreement that will
require any payment with respect to Taxes. The Company has not
requested any extension of time within which to file any Tax
Return. The Company has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency or the collection of
Taxes.
(2) Since January 1, 2000, no taxing authority or
other governmental unit has claimed, raised with the Company,
discussed with the Company, proposed, or to the Company's
Knowledge, Threatened any assessment, deficiency, adjustment,
dispute, or claim concerning any Tax Return or any Tax
liability of the Company. There is no asserted unpaid
assessment, deficiency or adjustment concerning any Tax Return
or Tax liability of the Company. To the Knowledge of the
Company, none of the Tax Returns of the Company have been
selected for or are now under audit or examination by any
taxing authority or other governmental unit, and there are no
suits, actions, proceedings or investigations pending or, to
the Knowledge of the Company, Threatened against the Company
with respect to any Taxes.
(3) The Company has withheld and timely deposited or
paid all Taxes required to have been withheld and deposited or
paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third
party.
(4) The Company (A) has not been a member of an
affiliated group filing a consolidated federal income Tax
Return (other than a group the common parent of which was the
Company); and (B) has no liability for the Taxes of any Person
(other than the Company) under Treas. Reg. Sec. 1.1502-6 or
any similar provision of state, local or foreign law), as
transferee or successor, by contract, or otherwise. None of
the Company nor any Seller is a Person other than a United
States person within the meaning of the IRC and payments of
purchase price made pursuant to the transaction contemplated
herein are not subject to the withholding provisions of Sec.
3406 of the IRC or subchapter A of Chapter 3 of the IRC.
14
(5) Any unpaid Taxes of the Company, including all
Taxes not yet due for any and all periods through June 30,
2003, whether known or unknown, asserted or unasserted, do not
exceed the reserve for Tax liability set forth in the
Company's latest balance sheet submitted to Buyer prior to the
date of this Agreement. Buyer will be responsible for the
preparation of all Tax returns and filings required to be
filed, and the payment of all Taxes incurred by the Company
arising as a result of the Merger or the operations of the
Company's business on and after the Closing Date.
3.1.11 No Material Adverse Change. Since the date of the
Company Interim Balance Sheet, there has not been any material adverse change in
the business, operations, properties, prospects, assets or condition of the
Company, and, to the Knowledge of the Company, no event has occurred or
circumstance exists that may result in such a material adverse change.
3.1.12 Employee Benefits
(1) Part 3.1.12(1) of the Disclosure Letter lists
each "employee welfare benefit plan" (as defined in Section
3(1) of ERISA), any other deferred compensation, bonus,
overtime, fringe benefit, insurance, welfare, medical, health,
life, company car, disability, injury, illness, accident, sick
pay, sick leave, vacation, termination, severance, retention,
executive compensation, incentive, commission or other plan,
agreement, policy, trust fund or arrangement, not otherwise
listed on any exhibit to this Agreement, maintained or to
which contributions are being made by the Company or which
provide benefits to the Company's employees (collectively, the
"Benefit Plans"). True and correct copies of each Benefit Plan
have been delivered to Buyer. To the extent applicable, for
each Benefit Plan, Sellers have provided to Buyer copies of
(i) the most recent determination letter and any outstanding
request for a determination letter; (ii) IRS Forms 5500 with
respect to the last two plan years; (iii) certified financial
statements; (iv) summary plan descriptions to employees
purporting to inform them of the Benefit Plan; (v) any related
trust agreement; (vi) all insurance contracts or other funding
arrangements; and (vii) all communications received from or
sent to the IRS or the Department of Labor within the last two
years. All contributions or premiums required to be made by
the Company as of the date of this Agreement on account of, or
under each, Benefit Plan have been paid or adequate accruals
have been made therefore on the books of the Company and,
except as disclosed on Part 3.1.12(1) of the Disclosure
Letter, no such contribution or premium is delinquent under
the terms of the applicable Benefit Plan. The Company does not
maintain any Benefit Plan that provides post-retirement or
post-termination welfare benefits for retired employees,
except for continuing benefits required by applicable state
and federal laws.
15
(2) Except as set forth on Part 3.1.12(2) of the
Disclosure Letter, the Company does not contribute to and has
not, within the five-year period ending on the date of this
Agreement, contributed to any "multi-employer plan" (as
defined in Section 4001(a)(3) of ERISA), any plan which is
subject to Section 412 of the IRC or Title IV of ERISA, or any
Benefit Plan that is an "employee pension benefit plan" as
defined in Section 3(2) of ERISA.
(3) No termination, retention, severance or similar
benefit will become payable as a result of any of the
Contemplated Transactions.
(4) Benefits under any Benefit Plan are as
represented in said documents and, except as noted in Part
3.12(4) of the Disclosure Letter or as required to comply with
applicable Legal Requirements have not been increased or
modified (whether written or not written) subsequent to the
dates of such documents. The Company has not communicated to
any employee or former employee any intention or commitment to
modify any Benefit Plan or to establish or implement any other
employee or retiree benefit or compensation arrangement.
(5) To the Knowledge of the Sellers, each Benefit
Plan has been maintained and administered in material
compliance in all respects with its terms and in all respects
with the requirements (including reporting requirements)
prescribed by any and all applicable statutes, orders, rules
and regulations, including, but not limited to, ERISA and the
IRC.
3.1.13 Compliance with Legal Requirements; Governmental
Authorizations.
(1) To the Knowledge of the Company, the Company is
and at all times since January 1, 2002 has been, in all
material respects, in full compliance with each Legal
Requirement that is or was applicable to it or to the conduct
or operation of its business or the ownership of its business
or the ownership or use of any of its material assets or its
employees.
(2) The Company has not received any notice or other
communication from any Governmental Body or any other Person
regarding any material violation of any Legal Requirement.
(3) To the Knowledge of the Company, no event has
occurred that may constitute a material violation of any term
or requirement of any Governmental Authorization listed in
Part 3.1.13 of the Disclosure Letter.
(4) To the Knowledge of the Company, all material
applications or other filings required to have been filed for
the renewal of the Governmental Authorizations listed in Part
3.1.13 of the Disclosure Letter have been filed on a timely
basis with the appropriate Governmental Bodies.
16
3.1.14 Legal Proceedings; Orders. Except as set forth in
Part 3.1.14 of the Disclosure Letter:
(1) There is no pending Proceeding: (i) that has been
commenced by or against the Company; or (ii) to the Company's
Knowledge, that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions other than the
Delta Litigation. For purposes of this Agreement, the "Delta
Litigation" shall mean the following litigation matter. On or
about October 27, 1998, Delta Scientific Corporation ("Delta")
filed a ▇▇▇▇ of Complaint against the Company, ▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in the Chancery
division of the Circuit Court of Fairfax County, Virginia
(Chancery No. 157577). Purporting to state claims for
"violation of trade secrets act", "breach of fiduciary duty",
"intentional interference with contractual relations",
"intentional interference with prospective business and
contractual relations", and "violation of VA. Code ▇▇▇. ss.
18.2-499", the Compliant alleged that Messrs ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇, former employees of the plaintiff who
left to start ARMR, had taken with them trade secrets and
confidential customer information which they were using to
compete with Delta. Both injunctive relief and damages were
plead in the ad damnum, although no effort was ever made to
seek preliminary injunctive relief. Defendants, who deny any
of the alleged wrongdoing, answered the complaint on November
17, 1998, and filed a Cross-Claim against Delta charging
plaintiff with using the judicial process to harass and stifle
legitimate competition. Delta answered the Cross-Claim, and
discovery commenced shortly thereafter and continued
sporadically until roughly August 2000, when all activity in
the matter ceased. Three years later, shortly after the
impending sale of ARMR became public, counsel for ARMR
received a letter from counsel for Delta threatening to revive
the dormant litigation at his client's instruction. Counsel
for the defendants has responded with a letter expressing
concerns about the plaintiff's motivations, and indicating
that he would speak to his clients and respond more fully at a
later date. To the Knowledge of the Company, no other
Proceeding has been Threatened.
(2) There is no Order to which the Company, or any of
the assets owned or used by the Company, is subject; none of
the Sellers are subject to any Order that relates to the
business of, or any of the assets owned or used by, the
Company; no officer or director of the Company is subject to
any Order that prohibits such officer or director from
engaging in or continuing any conduct, activity or practice
relating to the business of the Company.
3.1.15 Absence of Certain Changes and Events. Except as set
forth in Part 3.1.15 of the Disclosure Letter, since the date of the
Company Interim Balance Sheet, the Company has conducted its business
only in the Ordinary Course of Business and there has not been any:
17
(1) payment or increase by the Company of any bonuses,
salaries or other compensation to any shareholder, director, officer or
(except in the Ordinary Course of Business) employee or entry into any
employment, severance or similar Contract with any director, officer or
employee;
(2) amendment to the Organizational Documents of the Company;
(3) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement or other employee benefit plan for or
with any employees of the Company;
(4) damage to or destruction or loss of any asset or property
of the Company, whether or not covered by insurance, adversely
affecting the properties, assets, business, financial condition or
prospects of the Company that would be reasonably expected to have a
material adverse effect;
(5) entry into, termination of, or receipt of notice of
termination of, (i) any license, distributorship, dealer, sales
representative, joint venture, credit or similar agreement or (ii) any
Contract or transaction involving a total remaining commitment by or to
the Company of at least $25,000;
(6) (other than in the Ordinary Course of Business) sale,
lease or other disposition of any material asset or property of the
Company or mortgage, pledge or imposition of any lien or other
Encumbrance, other than the Permitted Liens, on any material asset or
property of the Company, including the sale, lease or other disposition
of any of the Intellectual Property Assets;
(7) cancellation or waiver of any claims or rights with a
value to the Company in excess of $25,000;
(8) change in the accounting methods used by the Company; or
(9) agreement, whether oral or written, by the Company to do
any of the foregoing.
3.1.16 Contracts; No Defaults.
(1) Part 3.1.16 of the Disclosure Letter contains a complete
and accurate list, and Sellers have delivered to Buyer true and
complete copies, of:
(a) each Applicable Contract involving expenditures
or receipts of the Company in excess of $25,000;
(b) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement and other
Applicable Contract affecting the ownership of, leasing of,
title to, use of or any leasehold or other interest in, any
real or personal property (except personal property leases and
installment and conditional sales agreements and other
applicable contracts having a value per item or aggregate
payments of less than $25,000; and with terms of less than one
year);
18
(c) each licensing agreement or other Applicable
Contract with respect to patents, trademarks, copyrights or
other intellectual property, including agreements with current
or former employees, consultants or contractors regarding the
appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(d) each joint venture, partnership and other
Applicable Contract (however named) involving a sharing of
profits, losses, costs or liabilities by the Company with any
other Person;
(e) each Applicable Contract containing covenants
that materially restricts the business activity of the Company
or any Affiliate of the Company or limit the freedom of the
Company or any Affiliate of the Company to engage in any line
of business or to compete with any Person;
(f) each Applicable Contract providing for material
payments to or by any Person based on sales, purchases or
profits, other than direct payments for goods;
(g) each power of attorney by or affecting the
Company that is currently effective and outstanding;
(h) each Applicable Contract entered into other than
in the Ordinary Course of Business that contains or provides
for an express undertaking by the Company to be responsible
for consequential damages;
(i) each written warranty, guaranty and or other
similar undertaking with respect to contractual performance
extended by the Company other than in the Ordinary Course of
Business; and
(j) each amendment, supplement and modification
(whether oral or written) in respect of any of the foregoing.
(2) Each Contract is in full force and effect and enforceable
in accordance with its terms against the Company and, to the Knowledge
of the Company, the other respective parties thereto, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, or
other laws of general application affecting enforcement of creditors'
rights generally or by general principles of equity. The Company has
not received notice of cancellation on the part of the other parties to
any Contract that constitutes or would constitute (with notice or lapse
of time or both) a breach or would cause or permit acceleration of any
obligation of the Company or any of its subsidiaries thereunder. Each
Contract was entered into in the Ordinary Course of Business,
consistent with past practice. To the Company's knowledge, no event has
occurred or circumstance exists that (with or without notice or lapse
of time) may contravene, conflict with, or result in a violation or
breach of, or give the Company or other Person the right to declare
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify, any Applicable
Contract and would be reasonably expected to have a material adverse
effect.
19
3.1.17. Insurance. All of the material insurable properties of Sellers
are insured for their benefit under valid and enforceable policies issued by
insurers of recognized responsibility in amounts and against such risks and
losses are set forth in Part 3.1.17 of the Disclosure Letter.
3.1.18 Environmental Matters. Except as set forth in Part 3.1.18 of the
Disclosure Letter, to the Company's Knowledge, all properties of the Company are
in compliance with all federal, state or local environmental protection laws,
statutes and regulations which are material to the conduct of the business of
the Company, or its properties, and, to the Company's Knowledge, the Company is
currently in compliance with all material reporting requirements, rules, and
regulations which are applicable to the Company or its properties by reason of
such governmental environmental protective agencies.
3.1.19 Employees.
(1) Part 3.1.19 of the Disclosure Letter contains a complete
and accurate list of the following information for each employee or
director of the Company, including each employee on leave of absence or
layoff status: name or current compensation paid or payable.
(2) No officer, director or key employee of the Company is a
party to, or is otherwise bound by, any agreement or arrangement,
including any confidentiality, noncompetition or proprietary rights
agreement, between such officer, director or key employee and any other
Person that in any way adversely affects or will affect (i) the
performance of his duties as an employee, director, or key employee of
the Company or (ii) the ability of the Company to conduct its business.
To the Company's Knowledge, no key employee of the Company intends to
terminate his employment with the Company.
3.1.20 Labor Relations; Compliance. The Company has not been
and is not a party to any collective bargaining or other labor Contract. There
has not been, there is not presently pending or existing, and to the Company's
Knowledge there is not Threatened, (a) any strike, slowdown, picketing, work
stoppage or employee grievance process, (b) any Proceeding against or affecting
the Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission or any comparable Governmental Body,
organizational activity or other labor or employment dispute against or
affecting any of the Company or their premises or (c) any application for
certification of a collective bargaining agent. To the Knowledge of the Company,
no event has occurred or circumstance exists that could provide the basis for
any work stoppage or other labor dispute. There is no lockout of any employees
by the Company and no such action is contemplated by the Company. The Company
has complied in all material respects with all Legal Requirements relating to
employment, equal opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and similar
taxes, occupational safety and health and plant closing.
20
3.1.21 Intellectual Property.
(1) Company Intellectual Property Assets. The term
"Company Intellectual Property Assets" includes: (i) the name
"ARMR Services Corporation," all fictional business names,
trading names, trademarks, service marks and applications
(collectively, "Marks") and (ii) all know-how, trade secrets,
confidential information, customer lists, software, technical
information, data, process technology, plans, drawings and
blue prints (collectively, "Trade Secrets"); in each case
owned, used or licensed by the Company as licensee or
licensor.
(2) Intellectual Property Agreements. Part 3.1.21 of
the Disclosure Letter contains a complete and accurate list of
all material Contracts relating to the Company Intellectual
Property Assets to which the Company is a party or by which
the Company is bound, except for any license implied by the
sale of a product and any perpetual, paid-up licenses for
commonly available software programs with an individual value
of less than $5,000 under which the Company is the licensee
and any non-exclusive licenses granted by the Company in the
Ordinary Course of Business. There are no outstanding and, to
the Company's Knowledge, no Threatened disputes or
disagreements with respect to any such agreement.
(3) Know-How Necessary for the Business. To the
Company's Knowledge, the Company Intellectual Property Assets
are all those necessary for the operation of the Company's
businesses as they are currently conducted. Except as set
forth in Part 3.1.21 of the Disclosure Letter and any
perpetual, paid-up licenses for commonly available software
programs with an individual value of less than $5,000 under
which the Company is the licensee, and any non-exclusive
licenses granted by the Company in the Ordinary Course of
Business, the Company is the owner of all right, title and
interest in and to each of the Company Intellectual Property
Assets, free and clear of all Encumbrances other than any
non-exclusive licenses granted by the Company in the Ordinary
Course of Business and other adverse claims and has the right
to use without payment to a third party all of the Company
Intellectual Property Assets.
(4) Patents. The Company does not own any registered
patents and has not filed any patent applications.
(5) Trademarks. Part 3.1.21 of Disclosure Letter
contains a complete and accurate list of all Marks. The
Company is the owner of all right, title and interest in and
to each of the Marks, free and clear of all Encumbrances other
than any non-exclusive licenses generated by the Company in
the Ordinary Course of Business. To the Company's Knowledge,
no ▇▇▇▇ (i) is infringed or (ii) has been challenged or
Threatened in any way. To the Company's Knowledge, none of the
Marks used by the Company infringes or is alleged to infringe
any trade name, trademark or service ▇▇▇▇ of any third party.
21
(6) Copyrights. The Company does not own any
registered copyrights.
(7) Trade Secrets. To the Company's Knowledge, no
Trade Secret is (i) subject to any adverse claim or (ii) has
been challenged or Threatened in any way.
(8) Government Approvals. Part 3.1.21 of the
Disclosure Letter contains a complete and accurate list of (i)
all crash barriers and related products that have passed
applicable governmental agency tests, and the respective dates
of such governmental tests, and (ii) all crash barriers and
related products that have failed to pass such governmental
agency tests, and the respective dates of such governmental
tests.
3.1.22 Certain Payments. Neither the Company nor any director,
officer, agent or employee of the Company, or any other Person associated with
or acting for or on behalf of the Company, has directly or indirectly (a) made
any contribution, gift, bribe, rebate, payoff, influence payment, kickback or
other payment to any Person, private or public, regardless of form, and whether
in money, property or services, in violation of the Foreign Corrupt Practices
Act or similar laws, or (b) established or maintained any fund or asset that has
not been recorded in the books and records of the Company.
3.1.23 Disclosure. To the Company's Knowledge, no
representation or warranty of Sellers in this Agreement and no statement in the
Disclosure Letter omits to state a material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading, except to the extent that such omission would not have a
material adverse effect on the Contemplated Transactions. No notice given
pursuant to Section 5.5 will contain any untrue statement or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, except to the extent that
it does not have a material adverse effect on the Contemplated Transaction.
3.1.24 Relationships with Related Persons. Except as set forth
in Part 3.1.24 of the Disclosure Letter, no Shareholder, officer or director of
the Company, and no member of such Person's immediate family (each, a "Related
Person") has, or since January 1, 2001 has had, any interest in any property
(whether real, personal or mixed and whether tangible or intangible), used in or
pertaining to the Company's business. Except as set forth in Part 3.1.24 of the
Disclosure Letter, no Seller or any Related Person of Sellers or of the Company
is, or since January 1, 2001 has owned, (of record or as a beneficial owner) an
equity interest or any other financial or profit interest in, a Person that has
(i) had business dealings or a financial interest in any transaction with the
Company or (ii) engaged in competition with the Company with respect to any line
of the products or services of the Company in any market presently served by the
Company except for less than one percent of the outstanding capital stock of any
such business that is publicly traded on any recognized exchange or in the
over-the-counter market. Except as set forth in Part 3.1.24 of the Disclosure
Letter, no Seller or any Related Person of Sellers or of the Company is a party
to any Contract with, or has any claim or right against, the Company.
22
3.1.25 Brokers or Finders. Sellers and their agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
3.1.26 Customers and Suppliers. Part 3.1.26 of the Disclosure
Letter sets forth (a) a list of the ten (10) largest customers of the Company in
the terms of revenue during the fiscal year ended December 31, 2002, showing the
approximate total revenue received from each such customer during such fiscal
year, (b) a list of the ten (10) largest suppliers to the Company, in terms of
purchases during the fiscal year ended December 31, 2002, showing the
approximate total purchases by the Company from each supplier during such fiscal
year. To the Knowledge of the Sellers, except as set forth in Part 3.1.26 of the
Disclosure Letter, since January 1, 2003, there has not been any adverse change
in the business relationship of the Company with any material customer or
supplier.
3.2 Additional Representations and Warranties of the Shareholders. Each
Seller represents and warrants to Buyer and Merger Sub, severally and not
jointly, solely with respect to such Seller, the following:
3.2.1 Quality of Title to Shares. There are no Contracts,
subscriptions, options, warrants, rights, conversion rights, rights of first
refusal or other agreements or commitments, other than this Agreement,
obligating such Shareholder to transfer or granting an option or right by such
Shareholder to any person or entity to purchase or acquire securities of the
Company from such Shareholder. Such Shareholder has not made or entered into any
Contract or understanding with respect to the disposition of the Company Shares
owned beneficially or of record by such Shareholder in any manner other than by
this Agreement. Such Shareholder is the record and beneficial owner of the
Company Shares, shown as held by such Shareholder on Exhibit B, and holds such
Company Shares free and clear of any Encumbrance, security interest, voting
trust or voting agreement or similar arrangement, proxy, prior purchase right,
or equitable rights or other adverse claim or other restriction on transfer.
3.2.2 Shares Acquired for Investment. Such Shareholder is
acquiring the Buyer Stock for his or her own account and not with a view to
their distribution within the meaning of Section 2(11) of the Securities Act.
Such Shareholder is an "accredited investor" as such term is defined in Rule
501(a) under the Securities Act.
3.2.3 Authority; No Conflict. This Agreement constitutes the
legal, valid and binding obligation of such Seller, enforceable against such
Seller in accordance with its terms. Upon the execution and delivery by such
Shareholder of the Shareholders' Releases and by such Officer of the Employment
Agreements (collectively, the "Sellers' Closing Documents"), the Sellers'
Closing Documents (to the extent that such Seller is a party to each of such
documents) will constitute the legal, valid and binding obligations of such
Seller, enforceable against such Seller in accordance with their respective
terms other than bankruptcy, insolvency, reorganization, moratorium or other
laws of general application affecting enforcement of creditors' rights generally
or by general principles of equity. Such Seller has the right, power, authority
and capacity to execute and deliver this Agreement and Sellers' Closing
Documents and to perform his or her obligations under this Agreement and
Sellers' Closing Documents. Except as set forth in Part 3.2.3 of the Disclosure
Letter, such Seller is not and will not be required to give any notice to or
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Contemplated
Transactions.
23
3.2.4 Receipt of Information. Without in any way limiting the
effect of the representations and warranties of Buyer or Merger Sub set forth in
Article 4 hereof, such Seller acknowledges that the Shareholders have received
and reviewed the following documents from Buyer: (i) Buyer's Annual Report on
Form 10-K for the year ended June 30, 2002, and (ii) Buyer's Quarterly Reports
on Form 10-Q for its fiscal quarters ended September 30, 2002, December 31,
2002, and March 31, 2003. Such Seller has had an opportunity to ask questions of
and receive satisfactory answers from Buyer sufficient to enable such Seller to
evaluate the merits and risks of the acquisition of the Buyer Stock pursuant to
the Merger.
3.2.5 Acknowledgment of Buyer's Authorized Capital. The
Sellers acknowledge that they have been informed that, after taking into account
the number of shares of Buyer Stock to be issued in connection with the Merger,
Buyer does not currently have sufficient authorized capital to issue shares of
Buyer Stock that would be required to be issued in connection with the
conversion of all outstanding shares of Buyer preferred stock and other
convertible securities.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF BUYER AND MERGER SUB
Buyer and Merger Sub represent and warrant to Sellers as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with corporate power and authority to conduct its business as it is now
being conducted, to own or use the properties and assets that it purports to own
and use, and to perform all its obligations under material contracts to which
Buyer is a party, except where the failure to be so qualified would not have a
material adverse effect on the Company's business or assets. Buyer is qualified
to do business as a foreign corporation and is in good standing under the laws
of each state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the Company's business or assets. Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of Delaware. Buyer owns, beneficially and of record, all of the issued
and outstanding shares of capital stock of Merger Sub.
24
4.2 Authority; No Conflict
4.2.1 Authority. This Agreement constitutes the legal, valid
and binding obligation of Buyer and Merger Sub, enforceable against Buyer and
Merger Sub in accordance with its terms. Upon the execution and delivery by
Buyer of the Employment Agreements, the Employment Agreements will constitute
the legal, valid and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms. Neither the execution and delivery of
this Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or the lapse
of time):
(1) contravene, conflict with or result in a violation of (A)
any provision of the Organizational Documents of Buyer or Merger Sub or
(B) any resolution adopted by the board of directors or the
stockholders of Buyer or Merger Sub;
(2) to Buyer's and Merger Sub's Knowledge, contravene,
conflict with or result in a violation of any Legal Requirement or any
Order to which Buyer or Merger Sub, or any of the assets owned or used
by Buyer or Merger Sub, may be subject;
(3) to Buyer's and Merger Sub's Knowledge, contravene,
conflict with or result in a violation of any of the terms or
requirements of any Governmental Authorization that is held by Buyer or
Merger Sub; or
(4) to Buyer's and Merger Sub's Knowledge, result in the
imposition or creation of any Encumbrance upon or with respect to any
of the assets owned or used by Buyer or Merger Sub.
Except as set forth in Schedule 4.2.1, neither Buyer nor
Merger Sub will be required to give any notice to or obtain any Consent from any
Person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions, except
where the failure to give such notice or obtain such consent would not
individually or in the aggregate result in a material adverse effect on Buyer or
Merger Sub.
4.3 Capitalization. Immediately prior to the Closing, the authorized
equity securities of Buyer will consist of 75,000,000 shares of Common Stock,
par value $.01 per share, of which 57,930,860 shares are issued and outstanding,
and 750,000 shares of Preferred Stock, par value $.01 per share, of which 9,500
shares of Series A Preferred Stock are issued and outstanding and convertible
into 190,000 shares of Common Stock and 91,250 shares of Series D Preferred
Stock are issued and outstanding and convertible into 2,281,250 shares of Common
Stock. The anti-dilution protection mechanisms contained in the Certificates of
Designation for any shares of preferred stock of Buyer that remain outstanding
as of the Closing, will not be triggered upon the consummation of the Merger or
the issuance of the Stock Merger Consideration. Except as set forth on Schedule
4.3, there are no options, warrants or other convertible securities exercisable,
convertible, exchangeable or otherwise issuable for equity securities of Buyer.
The Buyer has agreed to issue 8,867,173 shares of common stock to certain
individuals pursuant to the conversion of certain series of preferred stock of
the Buyer that are no longer outstanding at such time that the total authorized
number of shares of common stock are increased by an amendment to the Buyer's
Certificate of Incorporation. There are no other outstanding equity securities
of Buyer. The authorized equity securities of Merger Sub consist of 1,000 shares
of Common Stock, par value $.01 per share, of which 1,000 shares are issued and
outstanding. Buyer is and will be on the Closing Date, the record and beneficial
holders of all of the Common Stock of Merger Sub, free and clear of any
Encumbrances. All of the outstanding equity securities of Buyer and Merger Sub
have been duly authorized and validly issued and are fully paid and
nonassessable, are not subject to, nor were they issued in violation of, any
preemptive rights and were issued in compliance with the Organizational
Documents of Buyer and Merger Sub, all applicable federal and state securities
laws and regulations, any applicable judgments or Orders of any court or other
governmental body and any other relevant Legal Requirement. There are no
Applicable Contracts relating to the issuance, sale or transfer of any equity
securities or other securities of Buyer or Merger Sub. Neither Buyer nor Merger
Sub own, and neither has any Applicable Contract to acquire, any equity
securities or other securities of any Person or any direct or indirect equity or
ownership interest in any other business.
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4.4 Financial Statements. Buyer has delivered to Sellers (i) an audited
consolidated balance sheet of the Buyer as of June 30, 2002 (the "Buyer Balance
Sheet"), and the related statements of income, stockholders' equity, and cash
flow for the fiscal year then ended, and (ii) an unaudited balance sheet of
Buyer as of June 30, 2003 and the related statements of income for the fiscal
year then ended (collectively, the "Financial Statements"). Such Financial
Statements and notes fairly present the financial condition and the results of
operations, changes in stockholders' equity, and cash flow of the Buyer as at
the respective dates of and for the period referred to in such financial
statements, subject to normal recurring year-end adjustments (the effect of
which will not be material). The Financial Statements referred to in this
Section 4.4 reflect the consistent application of such accounting principles
throughout the periods involved, except as disclosed in the notes to such
financial statements. Since the date of the unaudited balance sheet of Buyer as
of June 30, 2003, no material adverse change, either in any case or in the
aggregate, has occurred in the condition, financial or otherwise, of the Buyer,
except as disclosed to Sellers in writing.
4.5 Investment Intent. Buyer is acquiring the Company Shares for its
own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.
4.6 Brokers or Finders. Buyer and its officers and agents have incurred
no obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement and will indemnify and hold Sellers harmless from any such payment
alleged to be due by or through Buyer or Merger Sub as a result of the action of
Buyer, Merger Sub or their respective officers or agents.
4.7 Certain Proceedings.
(1) There is no pending Proceeding: (i) that has been
commenced by or against Buyer or Merger Sub; or (ii) to Buyer's or
Merger Sub's Knowledge, that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions. To Buyer's or Merger Sub's
Knowledge, no such Proceeding has been Threatened.
26
(2) There is no Order to which Buyer or Merger Sub, or any of
the assets owned or used by Buyer or Merger Sub, is subject; neither
Buyer nor Merger Sub are subject to any Order that relates to the
business of, or any of the assets owned or used by, Buyer or Merger
Sub; no officer or director of Buyer or Merger Sub is subject to any
Order that prohibits such officer or director from engaging in or
continuing any conduct, activity or practice relating to the business
of Buyer or Merger Sub.
4.8 No Undisclosed Liabilities. Neither Buyer nor Merger Sub have any
liabilities or obligations of any nature except for liabilities or obligations
reflected or reserved against in the Buyer Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the date of the Buyer Balance
Sheet.
4.9 Disclosure. To Buyer's and Merger Sub's Knowledge, no
representation or warranty of Buyers or Merger Sub in this Agreement and no
statement in the Schedules attached hereto omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading, except to the extent that
such omission would not have a material adverse effect on the Contemplated
Transactions. No notice given pursuant to Section 6.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except to the extent that it does not have a material adverse effect on the
Contemplated Transaction.
4.10 Taxes.
(1) Buyer has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and
complete in all material respects and all positions taken
thereon have been disclosed that could give rise to a material
understatement of federal income Tax within the meaning of
Sec. 6662 of the IRC. All Taxes due and owing by Buyer
(whether or not shown on any Tax Return, whether known or
unknown, asserted or unasserted) have been paid other than
matters previously disclosed in writing, for which adequate
accruals or reserves have been established. Buyer is not a
party to any tax sharing or other agreement that will require
any payment with respect to Taxes. Buyer has not requested any
extension of time within which to file any Tax Return. Buyer
has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax
assessment or deficiency or the collection of Taxes.
(2) Since January 1, 1997, no taxing authority or
other governmental unit has claimed, raised with Buyer,
discussed with Buyer, proposed, or to Buyer's Knowledge,
Threatened any assessment, deficiency, adjustment, dispute, or
claim concerning any Tax Return or any Tax liability of Buyer.
There is no material asserted unpaid assessment, deficiency or
adjustment concerning any Tax Return or Tax liability of
Buyer. To the Knowledge of Buyer, none of the Tax Returns of
Buyer have been selected for or are now under audit or
examination by any taxing authority or other governmental
unit, and there are no suits, actions, proceedings or
investigations pending or, to the Knowledge of Buyer,
Threatened against Buyer with respect to any Taxes.
27
(3) Buyer has withheld and timely deposited or paid
all Taxes required to have been withheld and deposited or paid
in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third
party.
(4) Buyer (A) has not been a member of an affiliated
group filing a consolidated federal income Tax Return (other
than a group the common parent of which was Buyer); and (B)
has no liability for the Taxes of any Person (other than
Buyer) under Treas. Reg. Sec. 1.1502-6 or any similar
provision of state, local or foreign law), as transferee or
successor, by contract, or otherwise. Buyer is not a Person
other than a United States person within the meaning of the
IRC and payments of purchase price made pursuant to the
transaction contemplated herein are not subject to the
withholding provisions of Sec. 3406 of the IRC or subchapter A
of Chapter 3 of the IRC.
(5) Any unpaid Taxes of Buyer, including all Taxes
not yet due for any and all periods through June 30, 2003,
whether known or unknown, asserted or unasserted, do not
exceed the reserve for Tax liability set forth in Buyer's
latest balance sheet submitted to Buyer prior to the date of
this Agreement. Buyer will be responsible for the preparation
of all Tax returns and filings required to be filed, and the
payment of all Taxes arising as a result of the operations of
Buyer's business on and after the Closing Date.
4.11 No Material Adverse Change. Since the date of the unaudited
balance sheet of Buyer as of June 30, 2003, there has not been any material
adverse change in the business, operations, properties prospects, assets or
condition of Buyer, and, to the Knowledge of Buyer, no event has occurred or
circumstance exists that may result in such a material adverse change.
4.12 Employee Benefits.
(1) All contributions or premiums required to be made by Buyer
as of the date of this Agreement on account of, or under each, of
Buyer's Benefit Plans have been paid or adequate accruals have been
made therefore on the books of Buyer and no such contribution or
premium is delinquent under the terms of the applicable Benefit Plan.
Buyer does not maintain any Benefit Plan that provides post-retirement
or post-termination welfare benefits for retired employees, except for
continuing benefits required by applicable state and federal laws.
(2) Buyer does not contribute to and has not, within the
five-year period ending on the date of this Agreement, contributed to
any "multi-employer plan" (as defined in Section 4001(a)(3) of ERISA),
any plan which is subject to Section 412 of the IRC or Title IV of
ERISA, or any Benefit Plan that is an "employee pension benefit plan"
as defined in Section 3(2) of ERISA.
28
(3) No termination, retention, severance or similar benefit
will become payable as a result of any of the Contemplated
Transactions.
(4) Benefits under any Benefit Plan are as represented in said
documents and, except as noted in Part 3.12(4) of the Disclosure Letter
or as required to comply with applicable Legal Requirements have not
been increased or modified (whether written or not written) subsequent
to the dates of such documents. Buyer has not communicated to any
employee or former employee any intention or commitment to modify any
Benefit Plan or to establish or implement any other employee or retiree
benefit or compensation arrangement.
(5) To the Knowledge of Buyer and Merger Sub, each Benefit
Plan has been maintained and administered in material compliance in all
respects with its terms and in all respects with the requirements
(including reporting requirements) prescribed by any and all applicable
statutes, orders, rules and regulations, including, but not limited to,
ERISA and the IRC.
4.13 Compliance with Legal Requirements; Governmental Authorizations.
(1) To the Knowledge of the Buyer, the Buyer is and at all
times since 2002 has been, in all material respects, in full compliance
with all Legal Requirements that is or was applicable to it or to the
conduct or operation of its business or the ownership of its business
or the ownership or use of any of its material assets.
(2) Neither Buyer nor Merger Sub has not received any notice
or other communication from any Governmental Body or any other Person
regarding any material violation of any Legal Requirement.
(3) To the Knowledge of Buyer or Merger Sub, no event has
occurred that may constitute a material violation of any term or
requirement of any Governmental Authorization.
(4) To the Knowledge of Buyer and Merger Sub, all material
applications or other filings required to have been filed for the
renewal of the Governmental Authorizations have been filed on a timely
basis with the appropriate Governmental Bodies.
4.14 Compliance with Environmental Requirements or Environmental
Documents. To the best of Buyer's Knowledge, all properties of Buyer are in
compliance with all federal, state or local environmental protection laws,
statutes and regulations which are material to the conduct of the business of
Buyer, or its properties, and, to the best of Buyer's current, actual knowledge,
the Buyer is currently in compliance with all material reporting requirements,
rules, and regulations which are applicable to Buyer or its properties by reason
of such governmental environmental protective agencies.
29
4.15 Labor Relations; Compliance. Buyer has not been and is not a party
to any collective bargaining or other labor Contract. There has not been, there
is not presently pending or existing, and to Buyer's Knowledge there is not
Threatened, (a) any strike, slowdown, picketing, work stoppage or employee
grievance process, (b) any Proceeding against or affecting Buyer relating to the
alleged violation of any Legal Requirement pertaining to labor relations or
employment matters, including any charge or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment Opportunity
Commission or any comparable Governmental Body, organizational activity or other
labor or employment dispute against or affecting any of Buyer or their premises
or (c) any application for certification of a collective bargaining agent. To
the Knowledge of Buyer, no event has occurred or circumstance exists that could
provide the basis for any work stoppage or other labor dispute. There is no
lockout of any employees by Buyer and no such action is contemplated by Buyer.
Buyer has complied in all material respects with all Legal Requirements relating
to employment, equal opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and similar
taxes, occupational safety and health and plant closing.
4.16 SEC Requirements.
(1) Buyer has filed all forms, reports, statements and other
documents required to be filed with the SEC since June 30, 2001, and
has heretofore delivered to the Company, in the form filed with the SEC
since such date, together with any amendments thereto, all of its (i)
annual reports on Form 10-KSB, (ii) quarterly reports on Form 10-QSB,
(iii) any proxy statements relating to meetings of stockholders
(whether annual or special), (iv) reports on Form 8-K and (v) other
reports or registration statements filed by Buyer (collectively, the
"Buyer SEC Reports"). As of their respective filing dates, the Buyer
SEC Reports (i) complied as to form in all material respects with the
requirements of the Exchange Act and the Securities Act, as applicable,
and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(2) The audited consolidated financial statements and
unaudited interim financial statements of Buyer included in the Buyer
SEC Reports, including all related notes and schedules, complied in all
material respects with the applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto.
The financial statements, including all related notes and schedules,
contained in the Buyer SEC Reports (or incorporated by reference
therein) present fairly in all material respects the consolidated
financial position of Buyer and the Subsidiaries of Buyer, if any, as
at the respective dates thereof and the consolidated results of
operations and cash flows of Buyer and the Subsidiaries of Buyer for
the periods indicated, in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be noted therein)
and subject in the case of interim financial statements to normal
year-end adjustments. Since the filing of the most recent Form 10-KSB,
no other document has been required to be filed by Buyer with the SEC
which has not been filed, and no event or transaction has occurred
which will hereafter be required to be disclosed by Buyer in a Form
10-QSB, Form 8-K or similar filing.
4.17 Insurance. All of the material insurable properties of the Buyer
are insured for its benefit under valid and enforceable policies, issued by
insurers of recognized responsibility in amounts and against such risks and
losses are set forth in Schedule 4.17.
30
4.18 Certain Payments. Neither Buyer, Merger Sub, nor any director,
officer, agent or employee of Buyer or Merger Sub, or any other Person
associated with or acting for or on behalf of Buyer or Merger Sub, has directly
or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback or other payment to any Person, private or public, regardless
of form, and whether in money, property or services, in violation of the Foreign
Corrupt Practices Act or similar laws, or (b) established or maintained any fund
or asset that has not been recorded in the books and records of Buyer or Merger
Sub.
4.19 Intellectual Property.
(1) Buyer Intellectual Property Assets. The term "Buyer
Intellectual Property Assets" includes: (i) all Marks and (ii) all
Trade Secrets; in each case owned, used or licensed by Buyer as
licensee or licensor.
(2) Intellectual Property Agreements. There are no outstanding
and, to Buyer's Knowledge, no Threatened disputes or disagreements with
respect to any material Contracts relating to the Buyer Intellectual
Property Assets to which Buyer is a party or by which Buyer is bound,
except for any license implied by the sale of a product and any
perpetual, paid-up licenses for commonly available software programs
with an individual value of less than $5,000 under which Buyer is the
licensee and any non-exclusive licenses granted by Buyer in the
Ordinary Course of Business.
(3) Know-How Necessary for the Business. To Buyer's Knowledge,
the Buyer Intellectual Property Assets are all those necessary for the
operation of Buyer's businesses as they are currently conducted. Except
for any perpetual, paid-up licenses for commonly available software
programs with an individual value of less than $5,000 under which Buyer
is the licensee, and any non-exclusive licenses granted by Buyer in the
Ordinary Course of Business, Buyer is the owner of all right, title and
interest in and to each of the Buyer Intellectual Property Assets, free
and clear of all Encumbrances other than any non-exclusive licenses
granted by Buyer in the Ordinary Course of Business and other adverse
claims and has the right to use without payment to a third party all of
the Buyer Intellectual Property Assets.
(4) Trademarks. Buyer is the owner of all right, title and
interest in and to each of the Marks, free and clear of all
Encumbrances other than any non-exclusive licenses generated by Buyer
in the Ordinary Course of Business. To Buyer's Knowledge, no ▇▇▇▇ (i)
is infringed or (ii) has been challenged or Threatened in any way. To
Buyer's Knowledge, none of the Marks used by Buyer infringes or is
alleged to infringe any trade name, trademark or service ▇▇▇▇ of any
third party.
(5) Copyrights. To Buyer's Knowledge, no copyright has been
challenged or Threatened in any way.
(6) Trade Secrets. To Buyer's Knowledge, no Trade Secret is
(i) subject to any adverse claim or (ii) has been challenged or
Threatened in any way.
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ARTICLE 5
COVENANTS OF THE SHAREHOLDERS AND OFFICERS
5.1 Access and Investigation. Between the date of this Agreement and
the Closing Date, Sellers shall, and shall cause the Company and its
Representatives to, (a) afford Buyer and its Representatives (collectively,
"Buyer's Advisors") full and free access to the Company's personnel, properties
(including subsurface testing), contracts, books and records and other documents
and data, (b) furnish Buyer and Buyer's Advisors with copies of all such
contracts, books and records and other existing documents and data as Buyer may
reasonably request and (c) furnish Buyer and Buyer's Advisors with such
additional financial, operating and other data and information as Buyer may
reasonably request.
5.2 Operation of the Businesses of the Company. Between the date of
this Agreement and the Closing Date, Sellers shall, and shall cause the Company
to, (a) conduct the business of the Company only in the Ordinary Course of
Business; (b) use commercially reasonable efforts to preserve intact the current
business organization of the Company, keep available the services of the current
officers, employees and agents of the Company, and maintain the relations and
good will with suppliers, customers, landlords, creditors, employees, agents and
others having business relationships with the Company; (c) confer with Buyer and
Merger Sub concerning operational matters; and (d) otherwise report in writing
to Buyer and Merger Sub concerning the status of the business, operations and
finances of the Company.
5.3 Negative Covenant. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, Sellers
shall not, and shall cause the Company not to, without the prior consent of
Buyer and Merger Sub, take any affirmative action, or fail to take any
reasonable action within their or its control, as a result of which any of the
changes or events listed in Section 3.1.16 is likely to occur.
5.4 Required Approvals. As promptly as practicable after the date of
this Agreement, Sellers shall, and shall cause the Company to, make all filings
required by Legal Requirements to be made by them in order to consummate the
Contemplated Transactions. Between the date of this Agreement and the Closing
Date, Sellers shall, and shall cause the Company to, cooperate with Buyer and
Merger Sub with respect to all filings that Buyer and Merger Sub elect to make
or is required by Legal Requirements to make in connection with the Contemplated
Transactions.
5.5 Notification. Between the date of this Agreement and the Closing
Date, each Seller shall promptly notify Buyer in writing if such Seller or the
Company becomes aware of any fact or condition that would cause any of Sellers'
representations and warranties to not be accurate in any material respect as of
the date of this Agreement. Should any such fact or condition require any change
in the Disclosure Letter if the Disclosure Letter were dated the date of the
occurrence or discovery of any such fact or condition, Sellers shall promptly
deliver to Buyer and Merger Sub a supplement to the Disclosure Letter specifying
such change. During the same period, each Seller shall promptly notify Buyer and
Merger Sub of the occurrence of any Breach which has not been cured of any
covenant of Sellers in this Article 5 or of the occurrence of any event that
could adversely affect the satisfaction of the conditions in Article 7.
32
5.6 Payment of Indebtedness by Related Persons. Except as expressly
provided in this Agreement, Sellers shall cause all indebtedness owed to the
Company by any Seller or any Related Person of any Seller to be paid in full
prior to Closing.
5.7 Commercially Reasonable Efforts. Between the date of this Agreement
and the Closing Date, Sellers shall use commercially reasonable efforts to cause
the conditions in Articles 7 and 8 to be satisfied.
5.8 Dissenter's Rights. Each Seller hereby irrevocably waives any
rights that such Seller may have under the VSCA to dissent to the Merger.
5.9 No Shopping. Sellers shall not, and shall not permit the Company
to, directly or indirectly, through any officer, director, agent or otherwise,
(i) solicit, initiate or encourage submission of proposals or offers from any
Person (other than Buyer or Merger Sub) relating to any acquisition or purchase
(other than in the Ordinary Course of Business) of all or a material amount of
the assets of, or any equity interest in, the Company or any merger,
consolidation or business combination with the Company or (ii) participate in
any discussions or negotiations regarding, or furnish to any Person (other than
Buyer or Merger Sub) any information with respect to, any of the foregoing or
(iii) otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other Person to do or seek
any of the foregoing. Sellers shall promptly notify Buyer and Merger Sub if
Sellers or the Company receives any such proposal or offer or any inquiry or
contract with respect thereto.
5.10 Novation of Government Contracts. In the event that any and all
novations, transfer or other agreements, consents, approvals or waivers
necessary for the assignments, transfer or novation of any Applicable Contract,
or any claim, right or benefit arising thereunder or resulting therefrom, shall
not have been obtained prior to the Closing Date, then as of the Closing, this
Agreement, to the extent permitted by law, shall constitute full and equitable
assignment by the Company to Merger Sub of all of Buyer's right, title and
interest in and to, and all of the Company's obligations and liabilities under,
such Applicable Contracts. The parties shall take all necessary steps and
actions to provide Merger Sub with the benefits of such Applicable Contracts. In
the event Sellers shall be unable to make the equitable assignment described
herein, or if such attempted assignment would give rise to any right of
termination, or would otherwise adversely affect the rights of Merger Sub or
Buyer under such Applicable Contract, or would not assign all Seller's rights
thereunder at the Closing, Seller and Buyer shall continue to cooperate and use
their reasonable best efforts to provide Buyer with all such rights.
5.11 General Release of Company. Each Seller hereby knowingly,
voluntarily, irrevocably and unconditionally waives and releases the Company and
its successors, parents, subsidiaries, assigns, agents, directors, officers,
employees, stockholders, representatives, attorneys, and all persons acting by,
through, under or in concert with any of them (collectively, the "Released
Parties") from any and all claims, liabilities, obligations, promises, sums of
money, agreements, controversies, damages, actions, suits, rights, demands,
costs (including attorneys' fees), losses, debts, and expenses of any nature
whatsoever, existing on, or at any time prior to, the date of this Agreement, in
law, in equity or otherwise, whether in tort or contract, which the Releasing
Party or assigns had or have against any of the Released Parties by reason of
any fact, matter, cause or thing whatsoever, except for any claims or damages
pursuant to the provisions of Section 10.3.
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ARTICLE 6
COVENANTS OF BUYER AND MERGER SUB
6.1 Access and Investigation. Between the date of this Agreement and
the Closing Date, Buyer shall, and shall cause Merger Sub and its
Representatives to, (a) afford Sellers and their Representatives (collectively,
"Sellers' Advisors") full and free access to Buyer's personnel, properties
(including subsurface testing), contracts, books and records and other documents
and data, (b) furnish Sellers and Sellers' Advisors with copies of all such
contracts, books and records and other existing documents and data as Sellers
may reasonably request and (c) furnish Sellers and Sellers' Advisors with such
additional financial, operating and other data and information as Sellers may
reasonably request.
6.2 Operation of the Businesses of Buyer. Between the date of this
Agreement and the Closing Date, Buyer shall, and shall cause Merger Sub to, (a)
conduct the business of Buyer and Merger Sub only in the Ordinary Course of
Business; (b) use commercially reasonable efforts to preserve intact the current
business organization of Buyer and Merger Sub, keep available the services of
the current officers, employees and agents of Buyer and Merger Sub, and maintain
the relations and good will with suppliers, customers, landlords, creditors,
employees, agents and others having business relationships with Buyer or Merger
Sub; (c) confer with Sellers and the Company concerning operational matters; and
(d) otherwise report in writing to Sellers and the Company concerning the status
of the business, operations and finances of Buyer and Merger Sub.
6.3 Negative Covenant. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, Buyer shall
not, and shall cause the Merger Sub not to, without the prior consent of Sellers
and the Company take any affirmative action, or fail to take any reasonable
action within their or its control, as a result of which any of the changes or
events listed in Section 4.2 is likely to occur.
6.4 Required Approvals. As promptly as practicable after the date of
this Agreement, Buyer shall, and shall cause Merger Sub to, make all filings
required by Legal Requirements to be made by them in order to consummate the
Contemplated Transactions. Between the date of this Agreement and the Closing
Date, Buyer shall, and shall cause Merger Sub to, cooperate with Sellers and the
Company with respect to all filings that Sellers and the Company elect to make
or is required by Legal Requirements to make in connection with the Contemplated
Transactions.
6.5 Notification. Between the date of this Agreement and the Closing
Date, each of Buyer and Merger Sub shall promptly notify Sellers in writing if
the Buyer or Merger Sub becomes aware of any fact or condition that would cause
any of Buyer's or Merger Sub's representations and warranties to not be accurate
in any material respect as of the date of this Agreement. Should any such fact
or condition require any change in the Schedules hereto if such Schedules were
dated the date of the occurrence or discovery of any such fact or condition,
Buyer shall promptly deliver to Sellers a supplement to the Schedules specifying
such change. During the same period, Buyer shall promptly notify Sellers of the
occurrence of any Breach which has not been cured of any covenant of Buyers in
this Article 6 or of the occurrence of any event that could adversely affect the
satisfaction of the conditions in Article 8.
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6.6 Description of Buyer Financing. Buyer shall deliver to Sellers
prior to the Closing Date a detailed written description of the financing to be
received by Buyer in connection with this Merger and the other Contemplated
Transactions.
6.7 Renaissance Capital. Buyer shall use commercially reasonable
efforts to cause Renaissance Capital (or its affiliated funds) to, immediately
prior to the Closing, have converted such number of shares of Buyer's Series F
and Series G Preferred Stock held by Renaissance Capital so that the sum of (i)
the number of shares of Buyer Stock issued in connection with the conversion of
Buyer's Series F and Series G Preferred Stock, (ii) the Buyer Stock issued to
the Shareholders in connection with the Merger, and (iii) the number of shares
of Buyer Stock already outstanding at the Closing Date, does not exceed the
authorized number of shares of Buyer Stock reflected in the Buyer's Certificate
of Incorporation. Buyer shall use commercially reasonable efforts to cause,
prior to or concurrently with the Closing, Renaissance Capital (or its
affiliated funds) to deliver a waiver letter to Buyer providing that any of the
shares of Buyer's Series F and Series G Preferred Stock not converted at the
Closing shall be converted immediately upon approval by the stockholders of
Buyer, at the earliest practical annual or special stockholders' meeting of
Buyer, of an increase in the authorized number of shares of Buyer Stock
sufficient to allow the total conversion of all remaining Series F and Series G
shares and that Renaissance Capital shall waive any right to any dividend with
respect to the period after the Closing Date.
6.8 Board Representation. As promptly as possible after the date of
this Agreement, but no later than the first annual meeting of stockholders duly
convened after the Closing, Buyer shall cause ▇▇▇▇ ▇▇▇▇▇▇ to be elected to the
Buyer's board of directors.
6.9 Approvals of Governmental Bodies. As promptly as practicable after
the date of this Agreement, Buyer and Merger Sub shall, and shall cause each of
their respective Related Persons to, make all filings required by Legal
Requirements to be made by them to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date, Buyer and Merger Sub
shall, and shall cause each Related Person to, cooperate with Sellers with
respect to all filings that Sellers are required by Legal Requirements to make
in connection with the Contemplated Transactions and (ii) cooperate with Sellers
in obtaining all consents identified in Part 3.1.2 and Part 3.2.1 of the
Disclosure Letter; provided that this Agreement will not require Buyer or Merger
Sub to dispose of or make any change in any portion of its business or to incur
any other burden to obtain a Governmental Authorization.
6.10 Commercially Reasonable Efforts. Between the date of this
Agreement and the Closing Date, Buyer and Merger Sub shall use commercially
reasonable efforts to cause the conditions in Articles 7 and 8 to be satisfied.
6.11 Indemnification of Officers and Directors. Sellers, Buyer and the
Surviving Corporation agree that, except as may be limited by applicable law,
from and after the Closing Date, the indemnification obligations that relate to
matters that occur prior to the Closing Date and that are set forth in the
Company Organizational Documents or any agreement to which the Company is bound,
shall survive the Merger. Parent and Surviving Corporation further agree that
such obligations shall remain in existence and shall not be amended, repealed or
otherwise modified at or at any time after the Closing Date in any manner that
would adversely affect the rights of an Indemnified Person thereunder. For
purposes of this Agreement, "Indemnified Person" shall mean each Person,
including without limitation, each officer and director of the Company, who, on
or at any time prior to the Closing Date, was entitled to indemnification
benefits described in this Section 6.12. However, notwithstanding the foregoing
(and in order that Buyer's rights to indemnity as set forth in Article 10 not be
rendered meaningless), if Buyer is entitled to such indemnity against any such
Indemnified Person pursuant to Article 10 hereof, then such Indemnified Person
shall not be indemnified by the Surviving Corporation with respect to such
matter.
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6.12 Employee Matters. To the extent any employee benefit plan,
program, or policy of Buyer, the Surviving Corporation, or their affiliates is
made available to any person who is an employee of the Company immediately prior
to the Closing Date and to the extent that such plans allow: (1) service with
the Company by any such employee prior to the Closing Date shall be credited for
purposes of vesting in retirement plans, vacation, and severance benefits; and
(2) with respect to any welfare benefit plans to which such employees may become
eligible, Buyer shall cause such plans to waive all pre-existing condition
exclusions and waiting periods, other than limitations or waiting periods that
have not been satisfied under any welfare plan maintained by the Company for its
employees prior to the Closing Date. In addition, the Buyer hereby agrees to use
its reasonable best efforts to remove all guarantees made by the Shareholders
and/or officers of the Company, and release the Shareholders and/or officers of
the Company therefrom.
6.13 Tax Free Reorganization. Buyer shall use its reasonable best
efforts to cause the Merger to qualify as a reorganization under Section 368(a)
of the Code, shall take no action which it intends to be inconsistent with such
qualification, and shall characterize the Merger as such a reorganization for
purposes of all Tax Returns and other relevant filings.
ARTICLE 7
CONDITIONS PRECEDENT TO BUYER'S
AND MERGER SUB'S OBLIGATION TO CLOSE
Buyer's and Merger Sub's obligation to consummate the Merger and to
take the other actions required to be taken by Buyer and Merger Sub at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by Buyer and Merger Sub, in
whole or in part):
7.1 Accuracy of Representations. All of Sellers' and the Company's
representations and warranties in this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement,
and must be accurate in all material respects as of the Closing Date as if made
on the Closing Date (except that (i) where any statement in any representation
or warranty expressly includes a statement of materiality, such statements shall
be accurate in all respects giving effect to such statement, and (ii) any
representation or warranty that by its terms was made with reference to a
specific date was accurate as of such date), except where the failure of such
representations and warranties in this Agreement to be accurate, would not,
individually or in the aggregate, have a material adverse effect.
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7.2 Sellers' Performance. All of the covenants and obligations that
Sellers are required to perform or to comply with pursuant to this Agreement at
or prior to the Closing (considered collectively), and each of these covenants
and obligations (considered individually), must have been performed and complied
with in all material respects. Each document required to be delivered pursuant
to Section 7.6 must have been delivered, and each of the other covenants and
obligations in Section 5.4 must have been complied in all respects, except where
the Breach of such covenants made by Sellers in this Agreement would not,
individually or in the aggregate, have a material adverse effect.
7.3 Consents. Each of the Consents identified in Part 3.1.2 and Part
3.2.3 of the Disclosure Letter must have been obtained and must be in full force
and effect, except where the failure to obtain such a consent or consents in the
aggregate would not have a material adverse effect.
7.4 Merger. The State Corporation Commission of the Commonwealth of
Virginia must have accepted for filing the Articles of Merger and the Secretary
of State of Delaware must have accepted for filing the Certificate of Merger.
7.5 Deliveries. Sellers must have caused the following documents to be
delivered to Buyer and Merger Sub:
7.5.1 certificates representing the Company Shares, duly
endorsed (or accompanied by duly executed stock powers);
7.5.2 employment agreements in the form of Exhibit C attached
hereto (collectively, the "Employment Agreements");
7.5.3 a certificate executed by the Company to the effect
that, except as otherwise stated in such certificate, each of the
representations and warranties in Section 3 of this Agreement was accurate in
all material respects as of the date of this Agreement and is accurate in all
material respects as of the Closing Date as if made on the Closing Date;
7.5.4 a certificate of existence of the Company as of the most
recent practicable date, from the State Corporation Commission of the
Commonwealth of Virginia and certificates of authority and certificates of good
standing of the Company as of the most recent practicable date from the
Secretary of State of each state in which Company is qualified to do business;
and
7.5.5 certified copies of resolutions of the Board of
Directors and shareholders of the Company approving the transactions set forth
in this Agreement.
7.6 No Proceedings. Since the date of this Agreement, there must not
have been commenced against Buyer any Proceeding involving any challenge to, or
seeking damages or other relief in connection with, any of the Contemplated
Transactions in which there is a reasonable likelihood of a judgment against
Buyer providing for an award of damages or other relief that would constitute a
material adverse effect.
37
7.7 No Claim Regarding Stock Ownership or Sale Proceeds. There must not
have been made or Threatened by any Person any claim asserting that such Person
(a) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any stock of or any other voting, equity or
ownership interest in, any of the Company or (b) is entitled to all or any
portion of the Merger Consideration.
7.8 No Dissenters. None of the Shareholders shall have exercised their
dissenters' rights under the VSCA arising in connection with the Merger.
7.9 Renaissance Capital. Concurrently with Closing, Renaissance Capital
(or its affiliated funds) shall convert all of the Buyer's Series F and Series G
Preferred Stock held by it so that the sum of (i) the number of shares of Buyer
Stock issued in connection with the conversion of Buyer's Series F and Series G
Preferred Stock, (ii) the Buyer Stock issued to the Shareholders in connection
with the Merger, and (iii) the number of shares of Buyer Stock already
outstanding at the Closing Date, does not exceed the authorized number of shares
of Buyer Stock reflected in the Buyer's Certificate of Incorporation.
7.10 Tax Free Transaction. At the Closing, the sum of (a) the Cash
Merger Consideration and (b) the maximum amount of Contingent Merger
Consideration must not exceed fifty percent (50%) of the aggregate Merger
Consideration.
ARTICLE 8
CONDITIONS PRECEDENT TO
SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to cause the consummation of the Merger and to take
the other actions required to be taken by Sellers at the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by Sellers, in whole or in part):
8.1 Accuracy of Representations. All of Buyer's and Merger Sub's
representations and warranties in this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement,
and must be accurate in all material respects as of the Closing Date as if made
on the Closing Date (except that (i) where any statement in any representation
or warranty expressly includes a statement of materiality, such statements shall
be accurate in all respects giving effect to such statement, and (ii) any
representation or warranty that by its terms was made with reference to a
specific date was accurate as of such date), except where the failure of such
representations and warranties in this Agreement to be accurate, would not,
individually or in the aggregate, have a material adverse effect.
8.2 Buyer's and Merger Sub's Performance. All of the covenants and
obligations that Buyer and Merger Sub are required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered collectively),
and each of these covenants and obligations (considered individually), must have
been performed and complied with in all material respects. Each document
required to be delivered pursuant to Section 8.4 must have been delivered, and
each of the other covenants and obligations in Section 6.4 must have been
complied in all respects, except where the Breach of such covenants made by
Buyer or Merger Sub in this Agreement would not, individually or in the
aggregate, have a material adverse effect.
38
8.3 Consents. Each of the Consents identified in Schedule 8.3 must have
been obtained and must be in full force and effect, except where the failure to
obtain such a consent or consents in the aggregate would not have a material
adverse effect.
8.4 Merger. The State Corporation Commission of the Commonwealth of
Virginia must have accepted for filing the Articles of Merger and the Secretary
of State of Delaware must have accepted for filing the Certificate of Merger.
8.5 Deliveries. Buyer and Merger Sub must have caused the
following documents to be delivered to Sellers:
8.5.1 the Merger Consideration, divided among each of the
Shareholders in proportion to their ownership of the Company Shares as set forth
on Exhibit B;
8.5.2 the Employment Agreements executed by Buyer;
8.5.3 a certificate executed by Buyer and Merger Sub to the
effect that, except as otherwise stated in such certificate, each of Buyer's and
Merger Sub's representations and warranties in this Agreement was accurate in
all material respects as of the date of this Agreement and is accurate in all
material respects as of the Closing Date as if made on the Closing Date;
8.5.4 certified copies of resolutions of (i) the Board of
Directors of Buyer and (ii) the Board of Directors and sole shareholder of
Merger Sub, approving the transactions set forth in this Agreement;
8.5.5 an executed copy of the Registration Rights Agreement
among Buyer and Sellers in form and substance acceptable to Buyer and each
Seller; and
8.5.6 such other documents as Sellers may reasonably request
for the purpose of (i) evidencing the accuracy of any representation or warranty
of Buyer, (ii) evidencing the performance by Buyer and Merger Sub of, or the
compliance by Buyer and Merger Sub with, any covenant or obligation required to
be performed or complied with by Buyer and Merger Sub, (iii) evidencing the
satisfaction of any condition referred to in this Article 8 or (iv) otherwise
facilitating the consummation of any of the Contemplated Transactions.
8.6 No Injunction. There must not be in effect any Legal Requirement or
any injunction or other Order that (a) prohibits the Merger and (b) has been
adopted or issued, or has otherwise become effective, since the date of this
Agreement.
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8.7 Loan Repayments. Within ten (10) business days of Closing, ISSI
shall pay all bank loans to the Company up to $350,000, and concurrently with
Closing, all loans from the Shareholders to the Company made on or before the
date of this Agreement up to $147,000.
8.8 Renaissance Capital. Concurrently with Closing, Renaissance Capital
(or its affiliated funds) shall convert all of Buyer's Series F and Series G
Preferred Stock held by it so that the sum of (i) the number of shares of Buyer
Stock issued in connection with the conversion of Buyer's Series F and Series G
Preferred Stock, (ii) the Buyer Stock issued to the Shareholders in connection
with the Merger, and (iii) the number of shares of Buyer Stock already
outstanding at the Closing Date, does not exceed the authorized number of shares
of Buyer Stock reflected in the Buyer's Certificate of Incorporation.
ARTICLE 9
TERMINATION
9.1 Termination Events. This Agreement may, by notice given
prior to or at the Closing, be terminated:
9.1.1 by Buyer, on the one hand, or Sellers, on the other
hand, if a material Breach of any provision of this Agreement has been
committed by the other party and such Breach has not been waived;
9.1.2 (i) by Buyer if any of the conditions in Article 7 has
not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
Buyer or Merger Sub to comply with their obligations under this
Agreement) and neither Buyer nor Merger Sub has waived such condition
on or before the Closing Date; or (ii) by Sellers, if any of the
conditions in Article 8 has not been satisfied of the Closing Date or
if satisfaction of such a condition is or becomes impossible (other
than through the failure of Sellers to comply with their obligations
under this Agreement) and Sellers have not waived such condition on or
before the Closing Date;
9.1.3 by mutual consent of Buyer, Merger Sub and Sellers; or
9.1.4 by Sellers if the Sellers shall be dissatisfied, in
their sole discretion, with (i) Buyer's plan of financing in connection
with the Merger or (ii) with the amount of such financing.
9.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 9.1, all further obligations of the parties under this Agreement will
terminate and this Agreement will be void and no liability shall accrue to
either party or their respective affiliates hereunder, except that the
obligations in Sections 11.1 and 11.3 will survive; provided, however, that if
this Agreement is terminated by a party because of a willful and material breach
of a representation, warranty or covenant set forth in this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
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ARTICLE 10
INDEMNIFICATION; REMEDIES
10.1 Survival; Right to Indemnification Not Affected by Knowledge. All
representations, warranties, covenants and obligations in this Agreement, the
Disclosure Letter and any other certificate or document delivered pursuant to
this Agreement will survive the Closing for a period of one (1) year (other than
those in Section 11.1, which shall survive pursuant to their terms). The right
to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time (except with respect to items described
in the Disclosure Letter) after the execution and delivery of this Agreement or
the Closing Date, with respect to the accuracy or inaccuracy of or compliance
with, any such representation, warranty, covenant or obligation. The waiver of
any condition which was predicated upon the accuracy of any representation or
warranty or on the performance of or compliance with any covenant or obligation,
will not affect the right to indemnification, payment of Damages or other remedy
based on such representations, warranties, covenants and obligations.
10.2 Indemnification and Payment of Damages by Sellers. The Rolands,
jointly and severally, on the one hand, and the Rosenblooms, jointly and
severally, on the other hand, each severally will indemnify and hold harmless
Buyer, the Surviving Corporation (from and after the Closing) and their
respective Representatives and Affiliates (collectively, the "Buyer Indemnified
Persons") for, and will pay to the Indemnified Persons the amount of, any loss,
liability, claim, damage (including in the case of a third-party claim only,
incidental and consequential damages), expense (including costs of investigation
and defense and reasonable attorneys' fees) or diminution of value, whether
assessed by third parties (collectively, "Damages"), arising from or in
connection with:
10.2.1 any breach of any representation or warranty made by
Sellers or the Company in this Agreement, the Disclosure Letter, or any
other certificate or document delivered by Sellers or the Company
pursuant to this Agreement;
10.2.2 any breach by a Seller of any unwaived covenant or
obligation of such Seller in this Agreement;
10.2.3 any claim by any Person for brokerage or finder's fees
or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with any
Seller or the Company (or any Person acting on their behalf) in
connection with any of the Contemplated Transactions; and
10.2.4 any claim by any Person arising out of or in connection
with the Delta Litigation.
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10.3 Indemnification and Payment of Damages by Buyer. Buyer will
indemnify and hold harmless Sellers, the Company, the Surviving Corporation
(from and after the Closing) and their respective Representatives and Affiliates
(collectively, the "Seller Indemnified Persons") for, and will pay to the Buyer
Indemnified Persons the amount of, any Damages arising from or in connection
with:
10.3.1 any breach of any representation or warranty made by
Buyer or Merger Sub in this Agreement, the Schedules hereto, or any
other certificate or document delivered by Buyer or Merger Sub pursuant
to this Agreement;
10.3.2 any breach by Buyer or Merger Sub of any unwaived
covenant or obligation of Buyer or Merger Sub in this Agreement; and
10.3.3 any claim by any Person for brokerage or finder's fees
or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such Person with Buyer
or Merger Sub (or any Person acting on their behalf) in connection with
any of the Contemplated Transactions.
10.4 Time Limitations. If the Closing occurs, neither Sellers nor Buyer
will have no liability (for indemnification or otherwise) with respect to any
representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date other than those in Sections 3.1.3,
3.2.1, or 4.3, unless on or before the first anniversary of the Closing Date,
Buyer or Sellers notify the other party of a claim specifying the factual basis
of that claim in reasonable detail to the extent then known by the initiating
party A claim with respect to Sections 3.1.3, 3.2.1, or 4.3, may be made at any
time.
10.5 Limitations on Amount.
(1) Neither the Buyer nor the Sellers will have liability (for
indemnification or otherwise) with respect to the matters described in
Section 10.1, 10.2 or 10.3 until the total of all Damages (with respect
to all Sellers in the aggregate) with respect to such matters exceeds,
in the aggregate, $50,000, and then only for the amount by which such
Damages exceed, in the aggregate, $50,000 (the "Deductible"). However,
this Section 10.5 will not apply to any intentional Breach by Buyer or
any Sellers of any covenant or obligation set forth in this Agreement;
provided, however, that (i) Buyer's total aggregate liability under
Section 10.3 shall not exceed $6.5 million, and (ii) the Sellers' total
aggregate liability under Section 10.2 shall not exceed $6.5 million;
provided further, that claims made in connection with the guarantees
made by the Sellers and/or Officers of the Company and in connection
with the Delta Litigation shall not contribute toward this $6.5 million
cap or the Deductible.
(2) The amount of any indemnified amount for Damages shall be
reduced by the amount of the recovery actually received by Buyer with
respect to any applicable insurance policies or from Persons or parties
not parties to this Agreement. Further, any liability of Sellers shall
be reduced by any potential net tax benefit to Buyer resulting from an
indemnifiable claim.
(3) In the event Buyer makes any claims for indemnification by
Buyer arising in connection with the failure to collect Accounts
Receivable, the uncollected Accounts Receivable shall be assigned to
Sellers as set forth in Section 3.1.7.
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10.6 Procedure for Indemnification -- Third Party Claims.
10.6.1 Promptly after receipt by an indemnified party under
Section 10.2 or (to the extent provided in the last sentence of Section 10.3)
Section 10.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's failure to give
such notice.
10.6.2 If any Proceeding referred to in Section 10.5 is
brought against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party will,
unless the claim involves Taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is also a
party to such Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate or (ii) the indemnifying party fails
to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Article 10 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) it will be conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the indemnified
party.
10.6.3 Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its Affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise or settle such Proceeding, but
the indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
43
10.7 Procedure for Indemnification -- Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought, specify in
reasonable detail the nature of the claim, and, if known, the amount, or an
estimate of an amount, of the liability arising therefrom. The party seeking
indemnification shall provide to the indemnifying party as promptly as
practicable thereafter with information and documentation reasonably requested
by the indemnifying party to support and verify the asserted claim.
10.8 Exclusive Remedies. Buyer and Sellers acknowledge and agree that
the indemnity rights set forth in this Article 10 shall be the exclusive
remedies (i) of Buyer with respect to matters for indemnification pursuant to
Section 10.2 and (ii) of Sellers with respect to matters for indemnification
pursuant to Section 10.3.
ARTICLE 11
RESTRICTIVE COVENANTS
11.1 Restrictive Covenants. As a material inducement for Buyer to
consummate the Merger, and in order to preserve the goodwill of the Company,
each of the Officers agrees that, during his employment at the Company and for a
period of one (1) year following the termination of employment, such Officer
shall not:
(a) Engage in or perform services for a Competing Business.
For purposes of this Agreement, "Competing Business" is one which
provides the same or substantially similar products and services as
those provided by the Company during the Officer's employment. The
geographic area for purposes of this restriction is the area(s) within
a 100 mile radius of any Company office or facility;
(b) Have any indirect or direct financial interest in a
Competing Business; provided, however, that the ownership by the
Officer of any stock listed on any national securities exchange of any
corporation conducting a Competing Business shall not be deemed a
violation of this Agreement if the aggregate amount of such stock owned
by the Officer does not exceed five percent (5%) of the total
outstanding stock of such corporation;
(c) Solicit business from any person or entity that was a
customer/client of the Company during Employee's employment with the
Company and which Employee either: (1) called on, serviced, did
business with or had significant contact with during his employment; or
(2) personally received Confidential Information about during his
employment. This restriction applies only to business which is in the
scope of services or products provided by the Company during the
Employee's employment. The geographic area for purposes of this
restriction is the area where the customer/client is located and/or
does business;
44
(d) Solicit, induce or attempt to solicit or induce, on behalf
of himself or any other person or entity, any employee of the Company
to terminate his/her employment with the Company and/or to accept
employment elsewhere. This restriction applies only to Company
employees with whom the Employee personally became acquainted during
his employment with the Company; or
(e) Notwithstanding any other term of this Agreement, the
parties acknowledge and agree that the Employee's creation of,
employment by or participation in any trade organization or association
related to any products or services that are the same as or are
substantially similar to the Company's products or services shall not
be deemed competitive and shall not be deemed a violation of any term
of this Agreement, any Company policy or any law. The Employee agrees
that, in the event he creates, is employed by or participates in any
such organization or association, he shall use his best efforts to
ensure that the organization or association's activities and policies
are not adverse to the Company's interests, as compared to the members
of other such organizations or associations.
ARTICLE 12
GENERAL PROVISIONS
12.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel and accountants. The parties acknowledge the
Company will incur all out-of-pocket expenses in connection with the
Contemplated Transactions. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a Breach of this Agreement by another party.
12.2 Public Announcements. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Buyer determines. Unless consented
to by Buyer in advance or required by Legal Requirements, prior to the Closing
Sellers shall, and shall cause the Company to, keep this Agreement strictly
confidential and may not make any disclosure of this Agreement to any Person.
Sellers and Buyer will consult with each other concerning the means by which the
Company's employees, customers and suppliers and others having dealings with the
Company will be informed of the Contemplated Transactions, and Buyer will have
the right to be present for any such communication.
12.3 Confidentiality. Between the date of this Agreement and the
Closing Date, Buyer, Merger Sub and Sellers will maintain in confidence, and
will cause the directors, officers, employees, agents and advisors of Buyer and
the Company to maintain in confidence, and not use to the detriment of another
party or Buyer or the Company any written, oral or other information obtained in
confidence from another party or Buyer or the Company in connection with this
Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any filing
or obtaining any consent or approval required for the consummation of the
Contemplated Transactions, (c) the furnishing or use of such information is
required by legal proceedings or (d) the disclosure is required by Legal
Requirements.
45
12.4 Disclosure of Tax Treatment. Notwithstanding anything herein to
the contrary, any party to this Agreement (and each employee, representative, or
other agent of such party) may disclose to any and all parties, without
limitation of any kind, the tax treatment and tax structure of any transaction
contemplated by this Agreement and all materials of any kind (including opinions
and other tax analyses) that are provided to the party relating to such tax
treatment and tax structure).
12.5 Notices. All notices, consents, waivers and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
To Sellers:
▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P.
Suite 1100
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Fax: 703/▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇▇.▇▇▇
To Buyer or Merger Sub:
Integrated Security Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇
Attention: Mr. C. A. ▇▇▇▇▇▇▇, Jr.
Fax: 972/▇▇▇-▇▇▇▇
Email: ▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
with a copy to:
▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇.▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
46
12.6 Further Assurances. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
12.7 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power or privilege, and no single or partial exercise of any such right, power
or privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. To the maximum
extent permitted by applicable law, (a) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be discharged by
one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
12.8 Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter
(including the Letter of Intent between Buyer and Sellers dated July 21, 2003)
and constitutes (along with the documents referred to in this Agreement) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be amended
except by a written agreement executed by the party to be charged with the
amendment.
12.9 Disclosure Letter. In the event of any inconsistency between the
statements in the body of this Agreement and those in the Disclosure Letter
(other than an exception expressly set forth as such in the Disclosure Letter
with respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.
12.10 Assignments, Successors and No Third-party Rights. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties except that Buyer and/or Merger Sub may assign any of its
rights under this Agreement to any Subsidiary of Buyer. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give any
Person other than the parties to this Agreement, any legal or equitable right,
remedy or claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns.
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12.11 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
12.12 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
12.13 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
12.14 Governing Law. This Agreement will be governed by the laws of the
State of Delaware without regard to conflicts of laws principles.
12.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[The remainder of this page is intentionally blank.
The signature page follows.]
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
BUYER:
INTEGRATED SECURITY SYSTEMS, INC.
By: /s/ C. A. ▇▇▇▇▇▇▇, Jr.
-------------------------------------
Title: Chairman
----------------------------------
MERGER SUB:
ISSI MERGER SUB, INC.
By: /s/ C. A. ▇▇▇▇▇▇▇, Jr.
-------------------------------------
Title: Chairman
----------------------------------
THE COMPANY:
ARMR SERVICES CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
Title: President
----------------------------------
OFFICERS:
/s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
SHAREHOLDERS:
/s/ ▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇ ▇▇▇▇▇▇▇▇▇▇
49
EXHIBIT A
Description of the Products
and
Determination of Company Sales Revenue
1. ANTI RAM vehicle barriers
Plate style
Shallow mount
Wedge style
Bollards, fixed or operable variety of sizes and shape Crash
beams cable or solid Slide crash gates/custom slide gates
Portable/transportable style barriers Any new style/type of
barrier
2. Accessory items sold with barrier
Guard booths
Control devises (card readers, detectors, RF transmitters,
Access control software, traffic lights, etc.)
Parking gate (currently we resell Doorking and DC Solutions)
3. Engineering services/consulting services/design service
4. Maintenance service
Service contracts
Repair services
50
EXHIBIT B
Shareholders' Percentage Ownership
--------------------- ------------------ ------------------------------
Number of Merger
Shareholder Shares Owned Consideration Percentage
--------------------- ------------------ ------------------------------
▇▇▇▇ ▇▇▇▇▇▇ 100 50%
--------------------- ------------------ ------------------------------
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 100 50%
--------------------- ------------------ ------------------------------
51
EXHIBIT C
Employment Agreements
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is entered into as of
September 5, 2003, by and between Integrated Security Systems, Inc. (the
"Company"), and ▇▇▇▇ ▇▇▇▇▇▇ ("Employee"). In consideration of the mutual
promises and agreements contained herein, the parties hereby agree as follows:
ARTICLE I
EMPLOYMENT
1.01 Employment. The Company hereby employs Employee, and Employee
hereby accepts employment by the Company for the period and upon the terms and
conditions contained in this Agreement.
1.02 Office and Duties. Employee shall be employed by the Company in
the position of President, and shall perform such services commensurate with his
position as may, from time to time, be assigned to Employee by the Board of
Directors ("Board") of the Company. The Employee's actions shall at all times be
subject to the direction of the Board.
1.03 Performance. During the term of employment under this Agreement,
Employee shall devote his entire business time, energy, skill and best efforts
to the performance of his duties hereunder in a manner that will faithfully and
diligently further the business and interests of the Company. Employee shall
comply with the employee policies or written manuals of the Company as they
exist from time to time as applicable generally to the Company's employees.
1.04 Term. Unless otherwise terminated in accordance with paragraph
3.01 or paragraph 3.02 below, the term of employment hereunder (the "Term")
shall be for a period of three (3) years from the date of this Agreement.
1.05 Membership on Board. The Company agrees that, during Employee's
employment, the Company shall use its best efforts to ensure that the Employee
is a voting member of the Company's Board. In the event that the Employee's
membership on the Board is terminated for any reason, the Company agrees that it
will notify the Employee in advance of any and all formal or informal meetings
of the Board; the Employee shall have the right to attend such meetings during
the Term of employment, and if he chooses to attend such meetings, the Company
shall pay for all travel expenses incurred in attending. The parties agree that
this subsection 1.05 constitutes a material term of this Agreement. Other than
as stated in this paragraph 1.05, this Agreement shall not in any way affect the
Employee's membership on the Board.
1.06 Representation by Employee. Employee hereby represents and
warrants to the Company that the execution of this Agreement by Employee and
Employee's performance of his duties hereunder will not conflict with, cause a
default under, or give any party a right to damages under any other agreement to
which Employee is a party or is bound.
52
ARTICLE II
COMPENSATION FOR EMPLOYMENT
2.01 Base Salary. As compensation for Employee's employment, the
Company shall pay to Employee a base salary of $125,000 per year (the "Base
Salary"), payable in accordance with the normal payroll practices of the
Company, less required deductions for state and federal withholding tax, social
security and all other employment taxes and payroll deductions.
2.02 Performance Review. The Board will periodically review Employee's
performance on no less than an annual basis and may, in its sole discretion,
make adjustments to Employee's Base Salary or other compensation, which such
adjustments shall be solely upward.
2.03 Bonus. The Company shall pay to Employee an annual bonus (the
"Bonus") for the three periods ending June 30, 2004, 2005 and 2006 (each a
"Bonus Period" and collectively the "Bonus Periods"), based on written
performance standards mutually agreed upon by the Employee and the Company in
advance. The Bonus for each Bonus Period shall be not less than $10,000.
2.04 Vacation and Other Time Off. During each year of the Term
(beginning on Employee's hire date and each anniversary thereafter), Employee
shall be entitled to three (3) weeks of vacation in accordance with the regular
policies of the Company. Such vacation shall be taken at times consistent with
the effective discharge of Employee's duties. Employee also shall be entitled to
holidays, sick leave and other time off in accordance with the regular policies
of the Company.
2.05 Automobile. The Company will provide the Employee $900 per month
as reimbursement for automobile-related expenses.
2.06 Expenses. In addition to the reimbursement for automobile-related
expenses, the Company shall reimburse Employee for reasonable and documentable
business expenses pursuant to the Company's policies, provided that Employee
timely submits documentation of such expenses.
2.07 Life Insurance Benefits. The parties acknowledge that, at the time
of execution of this Agreement, there is in effect a life insurance policy on
the Employee's life with a coverage amount of at least one million,
two-hundred-fifty thousand dollars ($1,250,000) ("Life Insurance Policy"). The
parties agree that the Company shall take all action necessary to continue the
Life Insurance Policy during the Term of employment, including timely paying all
costs and premiums associated with the continuation of the Life Insurance
Policy.
2.08 Other Benefits. Employee shall be entitled to participate in or
receive benefits under any plan or arrangement made available by the Company to
employees generally (including any health, dental, and disability), subject to
and on a basis consistent with the terms, conditions and overall administration
of such plans and arrangements. Except for the Life Insurance Policy benefits
addressed in paragraph 2.07 above and as otherwise stated in this Agreement, any
such plan or arrangement shall be revocable and subject to termination or
amendment at any time. Notwithstanding the foregoing, this parties agree that
this Agreement shall not affect or impair Employee's rights under COBRA, as
amended, or under any other law or regulation allowing continuation or
conversion of benefits.
53
ARTICLE III
TERMINATION
3.01 Termination by Company.
a. The Company may terminate the employment of Employee for
cause. For purposes of this Agreement, "cause" includes: the death of
Employee; Employee's inability, by reason of illness or injury, to
perform his normal duties on behalf of the Company on a full-time basis
for a period of ninety (90) days, whether or not consecutive, within a
180-day period; Employee's receipt of disability benefits for permanent
and total disability under any long-term disability income policy held
by or on behalf of Employee; Employee's conviction of, or plea of nolo
contendere to any felony, or to any misdemeanor involving fraud or
illegal drugs; the Company President or Board of Directors has made a
good faith finding that the Employee has repeatedly and knowingly or
recklessly failed to properly perform the material duties of his
position, and Employee has not cured his failure within fifteen (15)
calendar days after receiving written notice specifying the grounds for
such a finding; the Company President or Board of Directors has made a
good faith finding that the Employee has acted with dishonesty, gross
negligence, willful misconduct, gross and willful misfeasance, or fraud
in the performance of his material duties or responsibilities, or that
he has willfully misappropriated Company property, and Employee has not
cured the President's or Board's concerns within fifteen (15) calendar
days after receiving written notice specifying the grounds for such a
finding; the Company President or Board of Directors has made a good
faith finding that the Employee has willfully failed to follow a lawful
directive of the Board (whether by commission or omission), and
Employee has not cured his failure within fifteen (15) calendar days
after receiving written notice specifying the grounds for such a
finding; or the breach by Employee of any material term of this
Agreement. If the Company terminates Employee's employment for cause,
then the Company's obligation to pay salary and other compensation
pursuant to Article II shall terminate, except that the Company shall
pay Employee's accrued but unpaid Base Salary and any other earned but
unpaid compensation through the date of termination.
b. The Company may terminate the employment of Employee
without cause upon thirty (30) days written notice to Employee. If the
Company terminates Employee's employment without cause, as defined in
paragraph 3.01(a) above, the Company shall provide all of the following
for the remaining duration of the Term, as if Employee remained in the
employment of the Company: (i) the Employee's Base Salary; (ii) health
insurance benefits to Employee and his eligible spouse and/or
dependents; (iii) for the continuation of the Life Insurance Policy
defined above in paragraph 2.07 by taking all action necessary,
including timely paying all costs and premiums, to continue that
Policy; and (iv) $900 per month as reimbursement for automobile-related
expenses.
54
3.02 Termination by Employee.
a. The Employee may resign his employment with good reason.
For purposes of this Agreement, "good reason" includes: the assignment
to Employee by the Company of duties that are illegal, not in
conformance with generally acceptable business ethical standards, or
are materially inconsistent with those of a President of the Company,
including a reduction or diminution in his duties as developed during
the course of employment hereunder, and the Company has not cured the
assignment of such duties within fifteen (15) calendar days after
receiving written notice specifying the impropriety of the assigned
duties; the required relocation of Employee from the Northern
Virginia-Washington, D.C. metropolitan region ("DC Metro Area") without
his consent; the Company's filing a petition for relief under any
chapter of Title 11 of the United States Code or a petition to take
advantage of any insolvency laws of the United States or any state
thereof; the Company's making an assignment for the benefit of its
creditors; the Company's consent to the appointment of a receiver of
itself or of the whole or any substantial part of its property; or the
Company's filing a petition or answer seeking reorganization under the
Federal Bankruptcy Laws or under any other applicable law or statute of
the United States or any state thereof; or the breach by the Company of
any material term of this Agreement. If the Employee resigns for good
reason, as defined in this paragraph, the Company shall provide all of
the following for the remaining duration of the Term, as if Employee
remained in the employment of the Company: (i) the Employee's Base
Salary; (ii) health insurance benefits to Employee and his eligible
spouse and/or dependents; (iii) for the continuation of the Life
Insurance Policy defined above in paragraph 2.07 by taking all action
necessary, including timely paying all costs and premiums, to continue
that Policy; and (iv) $900 per month as reimbursement for
automobile-related expenses.
b. The Employee may resign his employment without good reason
upon thirty (30) days written notice to the Company. If the Employee
resigns without good reason, as defined in paragraph 3.02(a) above,
then the Company's obligation to pay salary and other compensation
pursuant to Article II shall terminate, except that the Company shall
pay Employee's accrued but unpaid Base Salary and any other earned but
unpaid compensation through the date of termination.
ARTICLE IV
CONFIDENTIAL INFORMATION
4.01 Confidential Information. The Company will provide Employee with
specialized knowledge regarding the Company's business and confidential
information and trade secrets of the Company (hereinafter referred to as
"Confidential Information"). For purposes of this Agreement, Confidential
Information includes, but is not limited to, client lists and prospects lists
developed by the Company; information regarding the Company's clients
(including, but not limited to, client contracts, work performed for clients,
client contacts, client requirements and needs, client financial information,
and other information regarding the client or the client's business); plans,
marketing information, financial information, or other business information of
the Company; and any other information which Employee has reason to believe the
Company would not want disclosed to the public or to a third party. Employee
understands and acknowledges that such Confidential Information gives the
Company a competitive advantage over others who do not have the information, and
that the Company would be harmed if the Confidential Information were disclosed.
55
4.02 Disclosure Of Confidential Information. Employee agrees that he
will hold all Confidential Information of the Company in confidence for the
Company and will not: (a) use the information for any purpose other than the
benefit of the Company; or (b) disclose to any person or entity any Confidential
Information of the Company except as necessary during Employee's employment with
the Company to perform services on behalf of the Company. Employee will also
take reasonable steps to safeguard such Confidential Information and to prevent
its disclosure to unauthorized persons.
4.03 Return Of Information. Upon termination of employment, or at any
earlier time as directed by the Company, Employee shall immediately deliver to
the Company any and all Confidential Information in Employee's possession, any
other documents or information which Employee acquired as a result of his
employment with the Company and any copies of any such documents/information.
Employee shall not retain any originals or copies of any documents or materials
related to the Company's business, which Employee came into possession of or
created as a result of his employment with the Company. Employee acknowledges
that such information, documents and materials are the exclusive property of the
Company. In addition, upon termination of employment, or at any time earlier as
directed by the Company, Employee shall immediately deliver to the Company any
property of the Company in Employee's possession.
4.04 General Knowledge. The Company acknowledges and agrees that the
general skills, knowledge and experience gained by Employee during his
employment with the Company, and information publicly available or generally
known within the industry or trade in which the Company competes, is not
considered Company Confidential Information.
ARTICLE V
OWNERSHIP OF INFORMATION, INVENTIONS AND ORIGINAL WORK
5.01 Ownership Of Information, Inventions And Original Work. Except as
set forth on Schedule A, Employee agrees that any creative works, discoveries,
designs, software, computer programs, inventions, improvements, modifications,
enhancements, know-how, formulation, concept or idea which is conceived, created
or developed by Employee, either alone or with others (collectively referred to
as "Work Product") is the exclusive property of the Company if either:
a. It was conceived or developed in any part on Company time;
b. Any equipment, facilities, materials or Confidential
Information of the Company was used in its conception or development;
or
c. It either: (i) relates, at the time of conception or
reduction to practice, to the Company's business or to an actual or
demonstrably anticipated research or development project of the
Company, or (ii) results from any work performed by Employee for the
Company.
56
ARTICLE VI
RESTRICTIVE COVENANTS
6.01 Restrictive Covenants. Employee acknowledges that in order to
effectuate the promise to hold Confidential Information in confidence for the
Company and in order to protect the Company's legitimate business interests
(which include but are not limited to continuation of contracts and
relationships with its customers, its reputation, and its competitive
advantage), it is necessary to enter into the following restrictive covenants.
Without the prior written consent of the Company, Employee shall not, during his
employment at the Company or for a period of one (1) year following the
termination of employment:
a. Engage in or perform services for a Competing Business. For
purposes of this Agreement, "Competing Business" is one which provides
the same or substantially similar products and services as those
provided by the Company during Employee's employment. The geographic
area for purposes of this restriction is the area(s) within a 100-mile
radius of each Company office or facility;
b. Have any indirect or direct financial interest in a
Competing Business; provided, however, that the ownership by Employee
of any stock listed on any national securities exchange of any
corporation conducting a Competing Business shall not be deemed a
violation of this Agreement if the aggregate amount of such stock owned
by Employee does not exceed five percent (5%) of the total outstanding
stock of such corporation;
c. Solicit business from any person or entity that was a
customer/client of the Company during Employee's employment with the
Company and which Employee either: (1) called on, serviced, did
business with or had significant contact with during his employment; or
(2) personally received Confidential Information about during his
employment. This restriction applies only to business which is in the
scope of services or products provided by the Company during the
Employee's employment. The geographic area for purposes of this
restriction is the area where the customer/client is located and/or
does business; or
d. Solicit, induce or attempt to solicit or induce, on behalf
of himself or any other person or entity, any employee of the Company
to terminate his/her employment with the Company and/or to accept
employment elsewhere. This restriction applies only to Company
employees with whom the Employee personally became acquainted during
his employment with the Company.
57
e. Notwithstanding any other term of this Agreement, the
parties acknowledge and agree that the Employee's creation of,
employment by or participation in any trade organization or association
related to any products or services that are the same as or are
substantially similar to the Company's products or services shall not
be deemed competitive and shall not be deemed a violation of any term
of this Agreement, any Company policy or any law. The Employee agrees
that, in the event he creates, is employed by or participates in any
such organization or association, he shall use his best efforts to
ensure that the organization or association's activities and policies
are not adverse to the Company's interests.
ARTICLE VII
REMEDIES
7.01 Remedies. In the event of a breach of this Agreement by either
party, the non-breaching party shall be entitled to all appropriate equitable
and legal relief, including, but not limited to: (a) an injunction to enforce
this Agreement or prevent conduct in violation of this Agreement; (b) damages
incurred as a result of the breach; and (c) attorneys' fees and costs incurred
in enforcing the terms of this Agreement.
ARTICLE VIII
GENERAL
8.01 Notices. All notices required or permitted to be given under this
Agreement will be sufficient if furnished in writing, sent by registered or
certified mail or hand delivered, to each party at the addresses set forth
below, or to any other address provided by a party to the other party in
writing:
COMPANY:
Integrated Security Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
EMPLOYEE:
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
8.02 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Texas without regard to conflict of laws
provisions.
8.03 Headings. The paragraph headings contained in this Agreement are
for convenience only and shall in no way or manner be construed as a part of
this Agreement.
58
8.04 Severability. In the event that any court of competent
jurisdiction holds any provision in this Agreement to be invalid, illegal or
unenforceable in any respect, the remaining provisions shall not be affected or
invalidated and shall remain in full force and effect.
8.05 Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter in this Agreement and
supersedes all other prior understandings or written or oral agreements with
respect to such subject matter.
8.06 Waiver. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
8.07 Modification. Any changes to this Agreement may only be made by
written agreement between the President of the Company and Employee.
8.08 Assignment. This Agreement shall be binding upon and inure to the
benefit of the Employee and the Company and their respective successors,
assigns, heirs, executors and administrators, provided, however, that the
Employee's obligations are personal and shall not be assigned by him. The
Company may assign this Agreement: (a) to an affiliate so long as such affiliate
assumes the Company's obligations hereunder, or (b) in connection with a merger
or consolidation involving the Company or a sale of the Company's assets, so
long as the assignee assumes the Company's obligations under this Agreement.
8.09 Legal Counsel. Employee has been represented, or has had the
opportunity to be represented, by counsel in connection with the negotiation of
this Agreement. The Company is making no representations or warranties
concerning the legal or tax consequences to Employee of any provisional matter
relating to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
EMPLOYEE:
/s/ ▇▇▇▇ ▇▇▇▇▇▇
----------------
▇▇▇▇ ▇▇▇▇▇▇
INTEGRATED SECURITY SYSTEMS, INC.
By: /s/ C. A. ▇▇▇▇▇▇▇, JR.
--------------------------------------
Title: Chairman and Chief Executive Officer
59
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is entered into as of
September 5, 2003, by and between Integrated Security Systems, Inc. (the
"Company"), and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ("Employee"). In consideration of the mutual
promises and agreements contained herein, the parties hereby agree as follows:
ARTICLE I
EMPLOYMENT
1.01 Employment. The Company hereby employs Employee, and Employee
hereby accepts employment by the Company for the period and upon the terms and
conditions contained in this Agreement.
1.02 Office and Duties. Employee shall be employed by the Company in
the position of Senior Vice President, and shall perform such services
commensurate with his position as may, from time to time, be assigned to
Employee by the Board of Directors ("Board") of the Company. The Employee's
actions shall at all times be subject to the direction of the Board.
1.03 Performance. During the term of employment under this Agreement,
Employee shall devote his entire business time, energy, skill and best efforts
to the performance of his duties hereunder in a manner that will faithfully and
diligently further the business and interests of the Company. Employee shall
comply with the employee policies or written manuals of the Company as they
exist from time to time as applicable generally to the Company's employees.
1.04 Term. Unless otherwise terminated in accordance with paragraph
3.01 or paragraph 3.02 below, the term of employment hereunder (the "Term")
shall be for a period of three (3) years from the date of this Agreement.
1.05 Invitation to Board Meetings. The Company agrees that, during his
employment, the Board shall notify the Employee in advance of any and all formal
or informal meetings of the Board; the Employee shall have the right to attend
such meetings during the Term of employment, and if he chooses to attend such
meetings, the Company shall pay for all travel expenses incurred in attending.
The parties agree that this subsection 1.05 constitutes a material term of this
Agreement.
1.06 Representation by Employee. Employee hereby represents and
warrants to the Company that the execution of this Agreement by Employee and
Employee's performance of his duties hereunder will not conflict with, cause a
default under, or give any party a right to damages under any other agreement to
which Employee is a party or is bound.
ARTICLE II
COMPENSATION FOR EMPLOYMENT
2.01 Base Salary. As compensation for Employee's employment, the
Company shall pay to Employee a base salary of $125,000 per year (the "Base
Salary"), payable in accordance with the normal payroll practices of the
Company, less required deductions for state and federal withholding tax, social
security and all other employment taxes and payroll deductions.
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2.02 Performance Review. The Board will periodically review Employee's
performance on no less than an annual basis and may, in its sole discretion,
make adjustments to Employee's Base Salary or other compensation, which such
adjustments shall be solely upward.
2.03 Bonus. The Company shall pay to Employee an annual bonus (the
"Bonus") for the three periods ending June 30, 2004, 2005 and 2006 (each a
"Bonus Period" and collectively the "Bonus Periods"), based on written
performance standards mutually agreed upon by the Employee and the Company in
advance. The Bonus for each Bonus Period shall be not less than $10,000.
2.04 Vacation and Other Time Off. During each year of the Term
(beginning on Employee's hire date and each anniversary thereafter), Employee
shall be entitled to three (3) weeks of vacation in accordance with the regular
policies of the Company. Such vacation shall be taken at times consistent with
the effective discharge of Employee's duties. Employee also shall be entitled to
holidays, sick leave and other time off in accordance with the regular policies
of the Company.
2.05 Automobile. The Company will provide the Employee $900 per month
as reimbursement for automobile-related expenses.
2.06 Expenses. In addition to the reimbursement for automobile-related
expenses, the Company shall reimburse Employee for reasonable and documentable
business expenses pursuant to the Company's policies, provided that Employee
timely submits documentation of such expenses.
2.07 Life Insurance Benefits. The parties acknowledge that, at the time
of execution of this Agreement, there is in effect a life insurance policy on
the Employee's life with a coverage amount of at least one million,
two-hundred-fifty thousand dollars ($1,250,000) ("Life Insurance Policy"). The
parties agree that the Company shall take all action necessary to continue the
Life Insurance Policy during the Term of employment, including timely paying all
costs and premiums associated with the continuation of the Life Insurance
Policy.
2.08 Other Benefits. Employee shall be entitled to participate in or
receive benefits under any plan or arrangement made available by the Company to
employees generally (including any health, dental, and disability), subject to
and on a basis consistent with the terms, conditions and overall administration
of such plans and arrangements. Except for the Life Insurance Policy benefits
addressed in paragraph 2.07 above and as otherwise stated in this Agreement, any
such plan or arrangement shall be revocable and subject to termination or
amendment at any time. Notwithstanding the foregoing, this parties agree that
this Agreement shall not affect or impair Employee's rights under COBRA, as
amended, or under any other law or regulation allowing continuation or
conversion of benefits.
61
ARTICLE III
TERMINATION
3.01 Termination by Company.
a. The Company may terminate the employment of Employee for
cause. For purposes of this Agreement, "cause" includes: the death of
Employee; Employee's inability, by reason of illness or injury, to
perform his normal duties on behalf of the Company on a full-time basis
for a period of ninety (90) days, whether or not consecutive, within a
180-day period; Employee's receipt of disability benefits for permanent
and total disability under any long-term disability income policy held
by or on behalf of Employee; Employee's conviction of, or plea of nolo
contendere to any felony, or to any misdemeanor involving fraud or
illegal drugs; the Company President or Board of Directors has made a
good faith finding that the Employee has repeatedly and knowingly or
recklessly failed to properly perform the material duties of his
position, and Employee has not cured his failure within fifteen (15)
calendar days after receiving written notice specifying the grounds for
such a finding; the Company President or Board of Directors has made a
good faith finding that the Employee has acted with dishonesty, gross
negligence, willful misconduct, gross and willful misfeasance, or fraud
in the performance of his material duties or responsibilities, or that
he has willfully misappropriated Company property, and Employee has not
cured the President's or Board's concerns within fifteen (15) calendar
days after receiving written notice specifying the grounds for such a
finding; the Company President or Board of Directors has made a good
faith finding that the Employee has willfully failed to follow a lawful
directive of the Board (whether by commission or omission), and
Employee has not cured his failure within fifteen (15) calendar days
after receiving written notice specifying the grounds for such a
finding; or the breach by Employee of any material term of this
Agreement. If the Company terminates Employee's employment for cause,
then the Company's obligation to pay salary and other compensation
pursuant to Article II shall terminate, except that the Company shall
pay Employee's accrued but unpaid Base Salary and any other earned but
unpaid compensation through the date of termination.
b. The Company may terminate the employment of Employee
without cause upon thirty (30) days written notice to Employee. If the
Company terminates Employee's employment without cause, as defined in
paragraph 3.01(a) above, the Company shall provide all of the following
for the remaining duration of the Term, as if Employee remained in the
employment of the Company: (i) the Employee's Base Salary; (ii) health
insurance benefits to Employee and his eligible spouse and/or
dependents; (iii) for the continuation of the Life Insurance Policy
defined above in paragraph 2.07 by taking all action necessary,
including timely paying all costs and premiums, to continue that
Policy; and (iv) $900 per month as reimbursement for automobile-related
expenses.
62
3.02 Termination by Employee.
a. The Employee may resign his employment with good reason.
For purposes of this Agreement, "good reason" includes: the assignment
to Employee by the Company of duties that are illegal, not in
conformance with generally acceptable business ethical standards, or
are materially inconsistent with those of a Senior Vice President of
the Company, including a reduction or diminution in his duties as
developed during the course of employment hereunder, and the Company
has not cured the assignment of such duties within fifteen (15)
calendar days after receiving written notice specifying the impropriety
of the assigned duties; the required relocation of Employee from the
Northern Virginia-Washington, D.C. metropolitan region ("DC Metro
Area") without his consent; the requirement that Employee spend more
than a reasonable amount of his business time working in locations
other than the DC Metro Area, or traveling outside the DC Metro Area
(the Company acknowledges that the Employee has family
responsibilities); the Company's filing a petition for relief under any
chapter of Title 11 of the United States Code or a petition to take
advantage of any insolvency laws of the United States or any state
thereof; the Company's making an assignment for the benefit of its
creditors; the Company's consent to the appointment of a receiver of
itself or of the whole or any substantial part of its property; or the
Company's filing a petition or answer seeking reorganization under the
Federal Bankruptcy Laws or under any other applicable law or statute of
the United States or any state thereof; or the breach by the Company of
any material term of this Agreement. If the Employee resigns for good
reason, as defined in this paragraph, the Company shall provide all of
the following for the remaining duration of the Term, as if Employee
remained in the employment of the Company: (i) the Employee's Base
Salary; (ii) health insurance benefits to Employee and his eligible
spouse and/or dependents; (iii) for the continuation of the Life
Insurance Policy defined above in paragraph 2.07 by taking all action
necessary, including timely paying all costs and premiums, to continue
that Policy; and (iv) $900 per month as reimbursement for
automobile-related expenses.
b. The Employee may resign his employment without good reason
upon thirty (30) days written notice to the Company. If the Employee
resigns without good reason, as defined in paragraph 3.02(a) above,
then the Company's obligation to pay salary and other compensation
pursuant to Article II shall terminate, except that the Company shall
pay Employee's accrued but unpaid Base Salary and any other earned but
unpaid compensation through the date of termination.
ARTICLE IV
CONFIDENTIAL INFORMATION
4.01 Confidential Information. The Company will provide Employee with
specialized knowledge regarding the Company's business and confidential
information and trade secrets of the Company (hereinafter referred to as
"Confidential Information"). For purposes of this Agreement, Confidential
Information includes, but is not limited to, client lists and prospects lists
developed by the Company; information regarding the Company's clients
(including, but not limited to, client contracts, work performed for clients,
client contacts, client requirements and needs, client financial information,
and other information regarding the client or the client's business); plans,
marketing information, financial information, or other business information of
the Company; and any other information which Employee has reason to believe the
Company would not want disclosed to the public or to a third party. Employee
understands and acknowledges that such Confidential Information gives the
Company a competitive advantage over others who do not have the information, and
that the Company would be harmed if the Confidential Information were disclosed.
63
4.02 Disclosure Of Confidential Information. Employee agrees that he
will hold all Confidential Information of the Company in confidence for the
Company and will not: (a) use the information for any purpose other than the
benefit of the Company; or (b) disclose to any person or entity any Confidential
Information of the Company except as necessary during Employee's employment with
the Company to perform services on behalf of the Company. Employee will also
take reasonable steps to safeguard such Confidential Information and to prevent
its disclosure to unauthorized persons.
4.03 Return Of Information. Upon termination of employment, or at any
earlier time as directed by the Company, Employee shall immediately deliver to
the Company any and all Confidential Information in Employee's possession, any
other documents or information which Employee acquired as a result of his
employment with the Company and any copies of any such documents/information.
Employee shall not retain any originals or copies of any documents or materials
related to the Company's business, which Employee came into possession of or
created as a result of his employment with the Company. Employee acknowledges
that such information, documents and materials are the exclusive property of the
Company. In addition, upon termination of employment, or at any time earlier as
directed by the Company, Employee shall immediately deliver to the Company any
property of the Company in Employee's possession.
4.04 General Knowledge. The Company acknowledges and agrees that the
general skills, knowledge and experience gained by Employee during his
employment with the Company, and information publicly available or generally
known within the industry or trade in which the Company competes, is not
considered Company Confidential Information.
ARTICLE V
OWNERSHIP OF INFORMATION, INVENTIONS AND ORIGINAL WORK
5.01 Ownership Of Information, Inventions And Original Work. Except as
set forth on Schedule A, Employee agrees that any creative works, discoveries,
designs, software, computer programs, inventions, improvements, modifications,
enhancements, know-how, formulation, concept or idea which is conceived, created
or developed by Employee, either alone or with others (collectively referred to
as "Work Product") is the exclusive property of the Company if either:
a. It was conceived or developed in any part on Company time;
b. Any equipment, facilities, materials or Confidential
Information of the Company was used in its conception or development;
or
c. It either: (i) relates, at the time of conception or
reduction to practice, to the Company's business or to an actual or
demonstrably anticipated research or development project of the
Company, or (ii) results from any work performed by Employee for the
Company.
64
ARTICLE VI
RESTRICTIVE COVENANTS
6.01 Restrictive Covenants. Employee acknowledges that in order to
effectuate the promise to hold Confidential Information in confidence for the
Company and in order to protect the Company's legitimate business interests
(which include but are not limited to continuation of contracts and
relationships with its customers, its reputation, and its competitive
advantage), it is necessary to enter into the following restrictive covenants.
Without the prior written consent of the Company, Employee shall not, during his
employment at the Company or for a period of one (1) year following the
termination of employment:
a. Engage in or perform services for a Competing Business. For
purposes of this Agreement, "Competing Business" is one which provides
the same or substantially similar products and services as those
provided by the Company during Employee's employment. The geographic
area for purposes of this restriction is the area(s) within a 100-mile
radius of each Company office or facility;
b. Have any indirect or direct financial interest in a
Competing Business; provided, however, that the ownership by Employee
of any stock listed on any national securities exchange of any
corporation conducting a Competing Business shall not be deemed a
violation of this Agreement if the aggregate amount of such stock owned
by Employee does not exceed five percent (5%) of the total outstanding
stock of such corporation;
c. Solicit business from any person or entity that was a
customer/client of the Company during Employee's employment with the
Company and which Employee either: (1) called on, serviced, did
business with or had significant contact with during his employment; or
(2) personally received Confidential Information about during his
employment. This restriction applies only to business which is in the
scope of services or products provided by the Company during the
Employee's employment. The geographic area for purposes of this
restriction is the area where the customer/client is located and/or
does business; or
d. Solicit, induce or attempt to solicit or induce, on behalf
of himself or any other person or entity, any employee of the Company
to terminate his/her employment with the Company and/or to accept
employment elsewhere. This restriction applies only to Company
employees with whom the Employee personally became acquainted during
his employment with the Company.
e. Notwithstanding any other term of this Agreement, the
parties acknowledge and agree that the Employee's creation of,
employment by or participation in any trade organization or association
related to any products or services that are the same as or are
substantially similar to the Company's products or services shall not
be deemed competitive and shall not be deemed a violation of any term
of this Agreement, any Company policy or any law. The Employee agrees
that, in the event he creates, is employed by or participates in any
such organization or association, he shall use his best efforts to
ensure that the organization or association's activities and policies
are not adverse to the Company's interests.
65
ARTICLE VII
REMEDIES
7.01 Remedies. In the event of a breach of this Agreement by either
party, the non-breaching party shall be entitled to all appropriate equitable
and legal relief, including, but not limited to: (a) an injunction to enforce
this Agreement or prevent conduct in violation of this Agreement; (b) damages
incurred as a result of the breach; and (c) attorneys' fees and costs incurred
in enforcing the terms of this Agreement.
ARTICLE VIII
GENERAL
8.01 Notices. All notices required or permitted to be given under this
Agreement will be sufficient if furnished in writing, sent by registered or
certified mail or hand delivered, to each party at the addresses set forth
below, or to any other address provided by a party to the other party in
writing:
COMPANY:
Integrated Security Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
EMPLOYEE:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
8.02 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Texas without regard to conflict of laws
provisions.
8.03 Headings. The paragraph headings contained in this Agreement are
for convenience only and shall in no way or manner be construed as a part of
this Agreement.
8.04 Severability. In the event that any court of competent
jurisdiction holds any provision in this Agreement to be invalid, illegal or
unenforceable in any respect, the remaining provisions shall not be affected or
invalidated and shall remain in full force and effect.
8.05 Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter in this Agreement and
supersedes all other prior understandings or written or oral agreements with
respect to such subject matter.
66
8.06 Waiver. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
8.07 Modification. Any changes to this Agreement may only be made by
written agreement between the President of the Company and Employee.
8.08 Assignment. This Agreement shall be binding upon and inure to the
benefit of the Employee and the Company and their respective successors,
assigns, heirs, executors and administrators, provided, however, that the
Employee's obligations are personal and shall not be assigned by him. The
Company may assign this Agreement: (a) to an affiliate so long as such affiliate
assumes the Company's obligations hereunder, or (b) in connection with a merger
or consolidation involving the Company or a sale of the Company's assets, so
long as the assignee assumes the Company's obligations under this Agreement.
8.09 Legal Counsel. Employee has been represented, or has had the
opportunity to be represented, by counsel in connection with the negotiation of
this Agreement. The Company is making no representations or warranties
concerning the legal or tax consequences to Employee of any provisional matter
relating to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
EMPLOYEE:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
INTEGRATED SECURITY SYSTEMS, INC.
By: /s/ C. A. ▇▇▇▇▇▇▇, JR.
---------------------------------------
Title: Chairman and Chief Executive Officer
67
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated as of September
5, 2003, is by and between INTEGRATED SECURITY SYSTEMS, INC., a Delaware
corporation (the "Company"), and ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ (collectively,
"Shareholders").
WITNESSETH:
WHEREAS, the Company has issued to Shareholders ten million
(10,000,000) shares of common stock of the Company (hereinafter referred to as
the "Registrable Shares") pursuant to the Agreement and Plan of Merger dated
September 5, 2003 among the Company, ISSI Merger Sub, Inc. (the "Merger Sub"),
ARMR Services Corporation ("ARMR"), ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, and the
Shareholders (the "Merger Agreement");
WHEREAS, the Registrable Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act") and, as an inducement to
Shareholders to enter into the Merger Agreement and to consummate the merger of
ARMR with and into the Merger Sub (the "Merger"), the Company has agreed to
grant to Shareholders certain registration rights with respect to the
Registrable Shares as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. DEMAND REGISTRATION.
(a) The Company hereby agrees to use its best efforts to register all
or any portion of the Registrable Shares on one (1) occasion upon receipt of a
written request from a holder (the "Holder" or "Holders") of record of the
Registrable Shares that the Company file a registration statement under the 1933
Act covering the registration of at least twenty-five (25%) of the Registrable
Shares then outstanding; provided, however, that the Holders hereby agree not to
exercise such demand registration rights pursuant to this Section 1 for a period
of one (1) year following the date hereof unless Renaissance Capital Growth &
Income Fund III ("Renaissance Capital") and/or Renaissance US Growth & Income
Trust PLC ("Renaissance PLC") exercise any of their respective registration
rights pursuant to that certain Registration Rights Agreement among the Company,
Renaissance Capital and Renaissance PLC, or any other agreement(s) granting to
Renaissance Capital and/or Renaissance PLC registration rights. The Company
shall, within twenty (20) days of its receipt thereof, give written notice of
such request to all holders of record of Registrable Shares. The Holders of said
Registrable Shares shall then have fifteen (15) days from the date of mailing of
such notice by the Company to request that all or a portion of their respective
Registrable Shares be included in said registration.
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(b) If the Holders intend to distribute the Registrable Shares covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Agreement, and the Company
shall include such information in the written notice to the other Holders of
Registrable Shares referred to in Section 1(a) above. In such event, the right
of any Holder to include its Registrable Shares in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Shares in the underwriting (unless
otherwise mutually agreed by the Company, the underwriter, the initiating Holder
(the "Initiating Holder") and such Holder) is limited to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company as provided in Section 4(e) below)
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by mutual agreement of the Company
and the Initiating Holder, which agreement shall not be unreasonably withheld.
Notwithstanding any other provision of this Section 1, if the underwriter
advises the Initiating Holder and the Company in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holder shall so advise all Holders of Registrable Shares which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Shares that may be included in the underwriting shall be allocated
on a pro rata basis among all Holders that have requested to participate in such
registration.
(c) Each such registration shall remain effective for a period of one
hundred eighty (180) days, unless the Initiating Holder requests that such
registration be terminated prior to the expiration of such period.
Notwithstanding the foregoing, if the Holders elect not to sell all or any
portion of the Registrable Shares pursuant to a demand registration which has
become effective, such demand registration right shall nonetheless be deemed
satisfied.
(d) If, after a registration statement becomes effective, the Company
advises the Holders that the registration statement is required to be amended
under applicable federal securities laws, the Holders shall suspend any further
sales of their Registrable Shares, until the Company advises them that the
registration statement has been amended, but not more than thirty (30) days. The
one hundred eighty (180)-day time period referred to in subsection (c) during
which the registration statement must be kept current after its effective date
shall be extended for an additional number of business days equal to the number
of business days during which the right to sell the Registrable Shares was
suspended pursuant to the preceding sentence.
(e) The Company shall have the right to exclude an underwriter not
reasonably acceptable to it.
2. "PIGGY-BACK" REGISTRATION. If the Company proposes to register any of
its capital stock under the 1933 Act in connection with the public offering of
such securities for its own account or for the account of its security Holders,
other than Holders of Registrable Shares pursuant hereto (a "Piggy-Back
Registration Statement"), except for (i) a registration relating solely to the
sale of securities to participants in the Company's stock plans or employee
benefit plans or (ii) a registration relating solely to a transaction for which
Form S-4 may be used, then:
(a) The Company shall give written notice of such determination to each
Holder of Registrable Shares, and each such Holder shall have the right to
request, by written notice given to the Company within fifteen (15) days of the
date that such written notice was mailed by the Company to such Holder, that a
specific number of Registrable Shares held by such Holder be included in the
Piggy-Back Registration Statement (and related underwritten offering, if any);
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(b) If the Piggy-Back Registration Statement relates to an underwritten
offering, the notice given to each Holder shall specify the name or names of the
managing underwriter or underwriters for such offering. In addition, such notice
shall also specify the number of securities to be registered for the account of
the Company and for the account of its stockholders (other than the Holders of
Registrable Shares), if any;
(c) If the Piggy-Back Registration Statement relates to an underwritten
offering, each Holder of Registrable Shares to be included therein must agree
(i) to sell such Holder's Registrable Shares on the same basis as provided in
the underwriting arrangement approved by the Company, and (ii) to timely
complete and execute all questionnaires, powers of attorney, indemnities,
hold-back agreements, underwriting agreements and other documents required under
the terms of such underwriting arrangements or by the United States Securities
and Exchange Commission (the "SEC") or by any state securities regulatory body;
(d) If the managing underwriter or underwriters for the underwritten
offering under the Piggy-Back Registration Statement determines that inclusion
of all or any portion of the Registrable Shares in such offering would
materially adversely affect the ability of the underwriters for such offering to
sell all of the securities requested to be included for sale in such offering at
the best price obtainable therefor, the aggregate number of Registrable Shares
that may be sold by the Holders shall be limited to such number of Registrable
Shares, if any, that the managing underwriter or underwriters determine may be
included therein without such adverse effect as provided below. If the number of
securities proposed to be sold in such underwritten offering exceeds the number
of securities that may be sold in such offering, there shall be included in the
offering, first, up to the maximum number of securities to be sold by the
Company for its own account, and second, as to the balance, if any, Registrable
Shares requested to be included therein by the Holders thereof (pro rata as
between such Holders and all other holders of common stock of the Company
exercising Registration Rights based upon the number of shares proposed to be
registered by each), or in such other proportions as the managing underwriter or
underwriters for the offering may require.
(e) Holders of Registrable Shares shall have the right to withdraw
their Registrable Shares from the Piggy-Back Registration Statement, but if the
same relates to an underwritten offering, they may only do so during the time
period and on the terms agreed upon among the underwriters for such underwritten
offering and the Holders of Registrable Shares;
(f) The Holders will advise the Company at the time a registration
becomes effective whether the Registrable Shares included in the registration
will be underwritten or sold directly by the Holders;
(g) All demand and piggy-back registration rights of the Holders shall
terminate when all of the Registrable Shares then outstanding may be sold
pursuant to Rule 144(k) promulgated under the 1933 Act ("Rule 144(k)").
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3. OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Shares pursuant to this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect
to such Registrable Shares and use all reasonable efforts to cause such
registration statement to become effective, and keep such registration statement
effective until the sooner of all such Registrable Shares having been
distributed, or until one hundred twenty (120) days have elapsed since such
registration statement became effective (subject to extension of this period as
provided below);
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
1933 Act with respect to the disposition of all securities covered by such
registration statement, or one hundred twenty (120) days have elapsed since such
registration statement became effective (subject to the extension of this period
as provided below);
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Shares owned by them;
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify as a broker-dealer in any states or jurisdictions
or to do business or to file a general consent to service of process in any such
states or jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with the managing
underwriter of such offering, in usual and customary form reasonably
satisfactory to the Company and the Holders of a majority of the Registrable
Shares to be included in such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement;
(f) Notify each Holder of Registrable Shares covered by such
registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing; and
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(g) In the event of the notification provided for in Section 4(f)
above, the Company shall use its best efforts to prepare and file with the SEC
(and to provide copies thereof to the Holders) as soon as reasonably possible an
amended prospectus complying with the 1933 Act, and the period during which the
prospectus referred to in the notice provided for in Section 4(f) above cannot
be used and the time period prior to the use of the amended prospectus referred
to in this Section 4(g) shall not be counted in the one hundred twenty (120) day
period of this Section 4.
4. FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the Company
that the selling Holders shall furnish to the Company any and all information
reasonably requested by the Company, its officers, directors, employees,
counsel, agents or representatives, the underwriter or underwriters, if any, and
the SEC or any other Governmental Authority, including, but not limited to: (i)
such information regarding themselves, the Registrable Shares held by them, and
the intended method of disposition of such securities, as shall be required to
effect the registration of their Registrable Shares; and (ii) the identity of
and compensation to be paid to any proposed underwriter or broker-dealer to be
employed in connection therewith.
(b) In connection with the preparation and filing of each registration
statement registering Registrable Shares under the 1933 Act, the Company shall
give the Holders of Registrable Shares on whose behalf such Registrable Shares
are to be registered and their underwriters, if any, and their respective
counsel and accountants, at such Holders' sole cost and expense (except as
otherwise set forth herein), such access to copies of the Company's records and
documents and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be reasonably necessary in the opinion of such Holders and
such underwriters or their respective counsel, to conduct a reasonable
investigation within the meaning of the 1933 Act.
5. EXPENSES OF REGISTRATION. All expenses, other than underwriting
discounts and commissions applicable to the Registrable Shares sold by selling
Holders, incurred in connection with the registration of the Registrable Shares
pursuant to this Agreement, including, without limitation, all registration,
filing and qualification fees, printer's expenses, accounting and legal fees and
expenses of the Company and the reasonable legal fees of one (1) legal counsel
for all Holders, shall be borne by the Company.
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6. INDEMNIFICATION REGARDING REGISTRATION RIGHTS. If any Registrable
Shares are included in a registration statement pursuant to this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers and directors of each Holder, any underwriter
(as defined in the ▇▇▇▇ ▇▇▇) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, liabilities (joint or several) or any legal or other
costs and expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action to which they may
become subject under the 1933 Act, the 1934 Act or state law, insofar as such
losses, claims, damages, costs, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (each a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact with respect to the Company or its
securities contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements therein; (ii) the omission or alleged omission to state therein a
material fact with respect to the Company or its securities required to be
stated therein or necessary to make the statements therein not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any state securities law or any rule or regulation promulgated under
the 1933 Act, the 1934 Act or any state securities law. Notwithstanding the
foregoing, the indemnity agreement contained in this Section 7(a) shall not
apply and the Company shall not be liable (i) in any such case for any such
loss, claim, damage, costs, expenses, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person,
(ii) for amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld, or (iii) if the
statement or omission was corrected in a subsequent preliminary or final
prospectus or amendment or supplement thereto, and the Holder failed to deliver
such document to the purchaser of its securities.
(b) To the extent permitted by law, each Holder who participates in a
registration pursuant to the terms and conditions of this Agreement shall
indemnify and hold harmless the Company, each of its directors and officers who
have signed the registration statement, each Person, if any, who controls the
Company within the meaning of the 1933 Act, the 1934 Act, any state securities
law or any rule or regulation promulgated under the 1933 Act, the 1934 Act or
any state securities law, each of the Company's employees, agents, counsel and
representatives, any underwriter and any other Holder selling securities in such
registration statement, or any of its directors or officers, or any person who
controls such Holder, against any losses, claims, damages, costs, expenses,
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, employee, agent, representative, underwriter, or
other such Holder, or director, officer or controlling person thereof, may
become subject, under the 1933 Act, the 1934 Act or other federal or state law,
only insofar as such losses, claims, damages, costs, expenses or liabilities or
actions in respect thereto arise out of or are based upon any Violation, in each
case to the extent and only to the extent that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such. Each such Holder will indemnify any
legal or other expenses reasonably incurred by the Company or any such director,
officer, employee, agent representative, controlling person, underwriter or
other Holder, or officer, director or of any controlling person thereof, in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 7(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, costs, expenses, liability or action if such settlement is
effected without the prior written consent of the Holder, which consent shall
not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 7, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonable fees and expenses of such counsel to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve the indemnifying party of its
obligations under this Section 7, except to the extent that the failure results
in a failure of actual notice to the indemnifying party and such indemnifying
party is materially prejudiced in its ability to defend such action solely as a
result of the failure to give such notice.
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(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under this Section 7 in respect of any
losses, claims, damages, costs, expenses, liabilities or actions referred to
herein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, costs, expenses, liabilities or
actions in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand and of the Holder, on the other, in connection with
the Violation that resulted in such losses, claims, damages, costs, expenses,
liabilities or actions. The relative fault of the Company, on the one hand, and
of the Holder, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of the material fact or
the omission to state a material fact relates to information supplied by the
Company or by the Holder, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(e) The Company, on the one hand, and the Holders, on the other, agree
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by a pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of losses, claims, damages, costs, expenses, liabilities and
actions referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any reasonable legal or
other expenses incurred by such indemnified party in connection with defending
any such action or claim. Notwithstanding the provisions of this Section 7,
neither the Company nor the Holders shall be required to contribute any amount
in excess of the amount by which the total price at which the securities were
offered to the public exceeds the amount of any damages which the Company or
each such Holder has otherwise been required to pay by reason of such Violation.
No person guilty of fraudulent misrepresentations (within the meaning of Section
11(f) of the ▇▇▇▇ ▇▇▇) shall be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation.
7. REPORTS UNDER THE 1934 ACT. So long as the Company has a class of
securities registered pursuant to Section 12 of the 1934 Act, with a view to
making available to the Holders the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, if applicable, the Company agrees to use its reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act;
(c) Use its reasonable best efforts to include all Common Stock covered
by such registration statement on NASDAQ if the Common Stock is then quoted on
NASDAQ; or list all Common Stock covered by such registration statement on such
securities exchange on which any of the Common Stock is then listed; or, if the
Common Stock is not then quoted on NASDAQ or listed on any national securities
exchange, use its best efforts to have such Common Stock covered by such
registration statement quoted on NASDAQ or, at the option of the Company, listed
on a national securities exchange; and
(d) Furnish to any Holder, so long as the Holder owns any Registrable
Shares, (i) forthwith upon request a copy of the most recent annual or quarterly
report of the Company and such other SEC reports and documents so filed by the
Company, and (ii) such other information (but not any opinion of counsel) as may
be reasonably requested by any Holder seeking to avail himself of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
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8. ASSIGNMENT OF REGISTRATION RIGHTS. Subject to the terms and conditions
of this Agreement, the right to cause the Company to register Registrable Shares
pursuant to this Agreement may be assigned by Holder to any transferee or
assignee of such securities; provided that said transferee or assignee is a
transferee or assignee of at least ten percent (10%) of the Registrable Shares
and provided that the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; and provided, further, that such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act; it
being the intention that so long as Holder holds any Registrable Shares
hereunder, either Holder or its transferee or assignee of at least ten percent
may exercise the registration rights hereunder. Other than as set forth above,
the parties hereto hereby agree that the registration rights hereunder shall not
be transferable or assigned and any contemplated transfer or assignment in
contravention of this Agreement shall be deemed null and void and of no effect
whatsoever.
9. OTHER MATTERS.
(a) Each Holder of Registrable Shares hereby agrees by acquisition of
such Registrable Shares that, with respect to each offering of the Registrable
Shares, whether each Holder is offering such Registrable Shares in an
underwritten or nonunderwritten offering, such Holder will comply with
Regulation M or such other or additional anti-manipulation rules then in effect
until such offering has been completed, and in respect of any nonunderwritten
offering, in writing will inform the Company, any other Holders who are selling
shareholders, and any national securities exchange upon which the securities of
the Company are listed, that the Registrable Shares have been sold and will,
upon the Company's request, furnish the distribution list of the Registrable
Shares. In addition, upon the request of the Company, each Holder will supply
the Company with such documents and information as the Company may reasonably
request with respect to the subject matter set forth and described in this
Section 10.
(b) Each Holder of Registrable Shares hereby agrees by acquisition of
such Registrable Shares that, upon receipt of any notice from the Company of the
happening of any event which makes any statement made in the registration
statement, the prospectus or any document incorporated therein by reference,
untrue in any material respect or which requires the making of any changes in
the registration statement, the prospectus or any document incorporated therein
by reference, in order to make the statements therein not misleading in any
material respect, such Holder will forthwith discontinue disposition of
Registrable Shares under the prospectus related to the applicable registration
statement until such Holder's receipt of the copies of the supplemented or
amended prospectus, or until it is advised in writing by the Company that the
use of the prospectus may be resumed, and has received copies of any additional
or supplemental filings which are incorporated by reference in the prospectus.
10. WAIVERS AND MODIFICATIONS. All modifications, consents, amendments or
waivers (herein "Waivers") of any provision of this Agreement shall be effective
only if the same shall be in writing by Shareholders and then shall be effective
only in the specific instance and for the purpose for which given. No notice or
demand given in any case shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice or demand. No
failure to exercise, and no delay in exercising, on the part of Shareholders,
any right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right. The rights of Shareholders hereunder shall be in
addition to all other rights provided by law.
11. GOVERNING LAW. This Agreement will be governed by the laws of the State
of Delaware without regard to conflicts of law principles.
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12. ARBITRATION.
(a) Upon the demand of Shareholders or the Company (collectively the
"parties"), made before the institution of any judicial proceeding or not more
than sixty (60) days after service of a complaint, third party complaint,
cross-claim or counterclaim or any answer thereto or any amendment to any of the
above, any Dispute (as defined below) shall be resolved by binding arbitration
in accordance with the terms of this arbitration clause. A "Dispute" shall
include any action, dispute, claim, or controversy of any kind, whether founded
in contract, tort, statutory or common law, equity, or otherwise, now existing
or hereafter occurring between the parties arising out of, pertaining to or in
connection with this Agreement, or any related agreements, documents, or
instruments (the "Documents"). The parties understand that by this Agreement
they have decided that the Disputes may be submitted to arbitration rather that
being decided through litigation in court before a judge or jury and that once
decided by an arbitrator the claims involved cannot later be brought, filed, or
pursued in court.
(b) Arbitrations conducted pursuant to this Agreement, including
selection of arbitrators, shall be administered by the American Arbitration
Association ("Administrator") pursuant to the Commercial Arbitration Rules of
the Administrator. Arbitrations conducted pursuant to the terms hereof shall be
governed by the provisions of the Federal Arbitration Act (Title 9 of the United
States Code), and to the extent the foregoing are inapplicable, unenforceable or
invalid, the laws of the State of Delaware. Judgment upon any award rendered
hereunder may be entered in any court having jurisdiction; provided, however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. 91 or similar
governing state law. Any party who fails to submit to binding arbitration
following a lawful demand by the opposing party shall bear all costs and
expenses, including reasonable attorneys' fees, incurred by the opposing party
in compelling arbitration of any Dispute.
(c) No provision of, nor the exercise of any rights under, this
arbitration clause shall limit the right of any party to (i) foreclose against
any real or personal property collateral or other security, (ii) exercise
self-help remedies (including repossession and set off rights) or (iii) obtain
provisional or ancillary remedies such as injunctive relief, sequestration,
attachment, replevin, garnishment, or the appointment of a receiver from a court
having jurisdiction. Such rights can be exercised at any time except to the
extent such action is contrary to a final award or decision in any arbitration
proceeding. The institution and maintenance of an action as described above
shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the Dispute to arbitration, nor render inapplicable the
compulsory arbitration provisions hereof. Any claim or Dispute related to
exercise of any self-help, auxiliary or other exercise of rights under this
Section 13 shall be a Dispute hereunder.
(d) Arbitrator(s) shall resolve all Disputes in accordance with the
applicable substantive law of the State of Delaware. Arbitrator(s) may make an
award of attorneys' fees and expenses if permitted by law or the agreement of
the parties. All statutes of limitation applicable to any Dispute shall apply to
any proceeding in accordance with this arbitration clause. Any arbitrator
selected to act as the only arbitrator in a Dispute shall be required to be a
practicing attorney with not less than five (5) years practice in commercial law
in the State of Delaware. With respect to a Dispute in which the claims or
amounts in controversy do not exceed five hundred thousand dollars ($500,000), a
single arbitrator shall be chosen and shall resolve the Dispute. In such case
the arbitrator shall have authority to render an award up to but not to exceed
five hundred thousand dollars ($500,000), including all damages of any kind
whatsoever, costs, fees and expenses. Submission to a single arbitrator shall be
a waiver of all parties' claims to recover more than five hundred thousand
dollars ($500,000). A Dispute involving claims or amounts in controversy
exceeding five hundred thousand dollars ($500,000) shall be decided by a
majority vote of a panel of three arbitrators ("Arbitration Panel"), one of whom
must possess the qualifications to sit as a single arbitrator in a Dispute
decided by one arbitrator. The arbitrator(s) shall be empowered to resolve any
dispute regarding the terms of this Agreement or any Dispute or any claim that
all or any part (including this provision) is void or voidable but shall have no
power to change or alter the terms of this Agreement. The award of the
arbitrator(s) shall be in writing and shall specify the factual and legal basis
for the award.
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(e) To the maximum extent practicable, the Administrator, the
arbitrator(s) and the parties shall take any action reasonably necessary to
require that an arbitration proceeding hereunder be concluded within one hundred
eighty (180) days of the filing of the Dispute with the Administrator. The
arbitrator(s) shall be empowered to impose sanctions for any party's failure to
proceed within the times established herein. Arbitration proceedings hereunder
shall be conducted in the State of Delaware at a location determined by the
Administrator. In any such proceeding, a party shall state as a counterclaim any
claim which arises out of the transaction or occurrence or is in any way related
to this Agreement which does not require the presence of a third party which
could not be joined as a party in the proceeding. The provisions of this
arbitration clause shall survive any termination, amendment or expiration of
this Agreement unless the parties otherwise expressly agree in writing. Each
party agrees to keep all Disputes and arbitration proceedings strictly
confidential, except for disclosures of information required in the ordinary
course of business of the parties or as required by applicable law or
regulation.
13. INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws during the term
of this Agreement, such provision shall be fully severable; this Agreement shall
be construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part of this Agreement; and the remaining provisions of
this Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid or unenforceable provision or by its severance from this
Agreement. Furthermore, in lieu of each such illegal, invalid or unenforceable
provision shall be added as part of this Agreement a provision mutually
agreeable to the Company and Shareholders as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and be legal, valid and
enforceable. In the event the Company and Shareholders are unable to agree upon
a provision to be added to this Agreement within a period of ten (10) business
days after a provision of this Agreement is held to be illegal, invalid or
unenforceable, then a provision acceptable to independent arbitrators, such to
be selected in accordance with the provisions of the American Arbitration
Association, as similar in terms to the illegal, invalid or unenforceable
provision as is possible and be legal, valid and enforceable shall be added
automatically to this Agreement. In either case, the effective date of the added
provision shall be the date upon which the prior provision was held to be
illegal, invalid or unenforceable.
14. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Company and Shareholders and their respective successors, assigns
and legal representatives; provided, however, that the Company may not, without
the prior written consent of Shareholders, assign any rights, powers, duties or
obligations thereunder.
15. NO THIRD PARTY BENEFICIARY. The parties do not intend the benefits of
this Agreement to inure to any third party, nor shall this Agreement be
construed to make or render Shareholders liable to any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by the
Company, or for debts or claims accruing to any such persons against the
Company. Notwithstanding anything contained herein, no conduct by any or all of
the parties hereto, before or after signing this Agreement, shall be construed
as creating any right, claim or cause of action against Shareholders, or any of
its officers, directors, agents or employees, in favor of any materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property owned
by the Company, nor to any other person or entity other than the Company.
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16. ENTIRETY. This Agreement and any other documents or instruments issued
or entered into pursuant hereto and thereto contain the entire agreement between
the parties and supersede all prior agreements and understandings, written or
oral (if any), relating to the subject matter hereof and thereof.
17. HEADINGS. Section headings are for convenience of reference only and,
except as a means of identification of reference, shall in no way affect the
interpretation of this Agreement.
18. SURVIVAL. All representations and warranties made by the Company herein
shall survive the Merger.
19. MULTIPLE COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
20. NOTICES.
(a) Any notices or other communications required or permitted to be
given by this Agreement or any other documents and instruments referred to
herein must be (i) given in writing and personally delivered, mailed by prepaid
certified or registered mail or sent by overnight service, such as FedEx, or
(ii) made by telex or facsimile transmission delivered or transmitted to the
party to whom such notice or communication is directed, with confirmation
thereupon given in writing and personally delivered or mailed by prepaid
certified or registered mail.
(b) Any notice to be mailed, sent or personally delivered shall be
mailed or delivered to the principal offices of the party to whom such notice is
addressed, as that address is specified herein below. Any such notice or other
communication shall be deemed to have been given (whether actually received or
not) on the day it is mailed, postage prepaid, or sent by overnight service or
personally delivered or, if transmitted by telex or facsimile transmission, on
the day that such notice is transmitted; provided, however, that any notice by
telex or facsimile transmission, received by any the Company or Shareholders
after 4:00 p.m., Dallas, Texas time, at the recipient's address, on any day,
shall be deemed to have been given on the next succeeding business day. Any
party may change its address for purposes of this Agreement by giving notice of
such change to the other parties.
If to the Company to:
Integrated Security Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (telephone)
(▇▇▇) ▇▇▇-▇▇▇▇ (fax)
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
▇▇▇▇▇ and ▇▇▇▇▇, LLP
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (telephone)
(▇▇▇) ▇▇▇-▇▇▇▇ (fax)
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If to Shareholders to:
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
and
▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (telephone)
(▇▇▇) ▇▇▇-▇▇▇▇ (fax)
Any notice delivered personally in the manner provided herein will be
deemed given to the party to whom it is directed upon the party's (or its
agent's) actual receipt. Any notice addressed and mailed in the manner provided
here will be deemed given to the party to whom it is addressed at the close of
business, local time of the recipient, on the fourth business day after the day
it is placed in the mail, or, if earlier, the time of actual receipt.
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IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
executed and delivered, as of the date and year first above written.
COMPANY:
INTEGRATED SECURITY SYSTEMS, INC.
By: /s/ C. A. ▇▇▇▇▇▇▇, JR.
------------------------------------
Title: Chairman and Chief Executive Officer
SHAREHOLDERS:
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇▇▇▇▇▇
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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SCHEDULES
Disclosure Letter
Schedule 4.3 - Warrants and Options
Schedule 4.17 - Summary of Insurance
Buyer agrees to furnish supplementally a copy of any omitted schedule
to the Commission upon request.
81