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EX - 99.3
CORPORATE GOVERNANCE AND SHAREHOLDER AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of November 30, 1998
among COMPUDYNE CORPORATION, a Nevada corporation (the "Company"), XXXXXXX XXXXX
MEZZANINE CAPITAL FUND II, L.P., an Illinois limited partnership ("Xxxxx") and
XXXXXX X. XXXXXXX (the "Shareholder"). Capitalized terms used without
definition shall have the meanings specified in section 3.
RECITALS
A. Concurrently herewith, the Company is issuing to Xxxxx a
senior subordinated note (the "Senior Subordinated Note"), common stock and a
warrant (such common stock, warrant and any common stock issued upon exercise of
the warrant, are referred to as the "Equity Instruments") pursuant to a
Subordinated Loan and Investment Agreement between Xxxxx and the Company dated
the date hereof (the "Subordinated Loan Agreement").
B. The execution and delivery of this Agreement is a condition to
Xxxxx'x purchase of the Senior Subordinated Note and the Equity Instruments
pursuant to the Subordinated Loan Agreement.
C. The Shareholder owns in the aggregate 1,695,345 of the issued
and outstanding Common Stock of the Company (the "Common Stock") and options to
acquire an additional 200,000 shares of Common Stock.
AGREEMENTS
In consideration of the recitals and the mutual covenants contained
in this Agreement, the parties agree:
1. Board of Directors.
(a) Subject to the provisions of section 1(c), the
Shareholder shall vote all of the shares of Common Stock now or hereafter
acquired by him and any other voting securities of the Company over which the
Shareholder has voting control and the Shareholder shall take all other
necessary or desirable actions within his control, and the Company shall take
all necessary and desirable actions within its control, in order:
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(i) to cause the authorized number of directors on the
Company's Board of Directors (the "Board") to be maintained at seven directors;
(ii) to cause the election to the Board of one
representative designated by Xxxxx at the Company's next meeting of directors
and no later than March 31, , 1999 (the "Xxxxx Director");
(iii) to cause the Xxxxx Director to be elected to the
audit committee of the Board as promptly as possible following the election of
the Xxxxx Director;
(iv) to cause the Xxxxx Director to be elected to the
compensation and stock option committee of the Board as promptly as possible
following the election of the Xxxxx Director;
(v) to cause the removal from the Board of the Xxxxx
Director only upon the written request of Xxxxx; and
(vi) if the Xxxxx Director ceases for any reason to
serve as a member of the Board during his or her term of office, to cause the
resulting vacancy on the Board to be filled by a representative designated by
Xxxxx.
(b) In addition to the Xxxxx Director, Xxxxx shall be
entitled to have another representative of Xxxxx (the "Xxxxx Observer") present
as a non-voting observer at all meetings of the Board and any committees
thereof. The Company shall pay all reasonable expenses incurred by the Xxxxx
Director and the Xxxxx Observer in connection with attending meetings of the
Board, and any committee thereof and, with respect to the Xxxxx Director, in
connection with performing the functions and duties of a director.
(c) The rights of Xxxxx under this Agreement shall terminate
automatically as of the date on which none of the following is true: (i) any of
the Senior Subordinated Note or the indebtedness evidenced thereby remains
outstanding and held by Xxxxx; or (ii) Xxxxx (or any "Successor" to Xxxxx, as
that term is defined below) is the holder of 10% or more of the Common Stock
Deemed Outstanding. "Successor" shall mean any entity which purchases or
otherwise acquires Xxxxx'x entire then-outstanding interest in the Company from
Xxxxx. The date on which Xxxxx'x rights under this section 1 terminate as
provided in this section 1(c) is referred to herein as the "Lapse Date."
2. Restrictions on Transfer of Shares.
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(a) Transfer of Shares of Common Stock. Notwithstanding the
provisions of this section 2, the Shareholder may sell up to 500,000 shares of
Common Stock in the aggregate prior to December 31, 2003 and thereafter he may
sell up to 100,000 shares of Common Stock in each subsequent fiscal year while
this Agreement is in effect. All such sales shall be through ordinary broker
transactions. The Shareholder may also pledge shares of Common Stock but any
such pledged shares shall be treated as shares sold by the Shareholder for
purposes of the sales limit set forth in this section 2. Except as provided in
this section 2(a), the Shareholder shall not sell, transfer, assign, pledge or
otherwise dispose of (a "Transfer") any interest in any shares of Common Stock
except pursuant to the provisions of this section 2.
(b) Permitted Transfers. Provided that the same does not
cause a default to occur under the Subordinated Loan Agreement, a Permitted
Transfer may be consummated without compliance with the requirements of section
2(c) through (f); provided, however, that the restrictions contained in this
section 2 shall continue to be applicable to all such shares after any such
Transfer and the transferee of such shares shall agree in writing to be bound by
the provisions of this Agreement with respect to the shares so Transferred. The
following are "Permitted Transfers":
(i) a Transfer of Common Stock to Permitted
Beneficiaries resulting from the death of the holder thereof and occurring by
operation of law or by bequest; and
(ii) in the case of Common Stock held by a trust or
custodianship, [a] a Transfer pursuant to the terms of the governing instrument
as in effect when the Transferred shares were acquired by that trust or
custodianship, or [b] a Transfer to another trust or custodianship which was
established by the same settlor or by a Permitted Beneficiary of that settlor or
one or more of the Permitted Beneficiaries of that settlor; and
(iii) a Transfer of Common Stock by a holder who is a
natural Person and who is an original party to this Agreement, and not a
transferee of any such party, to: [a] a Permitted Beneficiary of such holder or
to a trust or custodianship which has as its Primary Beneficiaries one or more
Permitted Beneficiaries of such holder; or [b] a trust having one or more
organizations described in section 170(c)(2) of the Internal Revenue Code (or
any successor provision thereto) as an income beneficiary for a fixed period of
years and having as its other Primary Beneficiaries one or more Permitted
Beneficiaries of such holder.
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(c) Transfer Notice. If the Shareholder shall propose to
Transfer shares of Common Stock (other than a Permitted Transfer), the
Shareholder shall deliver a written notice (the "Transfer Notice") to the
Company and Xxxxx. The Transfer Notice shall specify in reasonable detail the
identity of the prospective transferee and the terms and conditions of the
Transfer, including the number of shares proposed to be Transferred and the full
consideration to be paid for such shares. The delivery of a Transfer Notice
shall constitute an irrevocable offer to sell, all but not less than all, of the
shares specified in the Transfer Notice on the terms and conditions set forth
therein in accordance with the procedures set forth in this Agreement. If Xxxxx
proposes to transfer shares of Common Stock, Xxxxx shall deliver a written
notice thereof to the Company at least ten days prior to completing such
transfer.
(d) Purchase by the Company. Within ten (10) days after
delivery of a Transfer Notice, the Company may deliver a Notice (an "Exercise
Notice") to the Shareholder, which Exercise Notice shall constitute an
irrevocable acceptance to purchase all the shares subject to the Transfer Notice
for the consideration set forth in the Transfer Notice. If the Company delivers
a Exercise Notice, then the sale shall be held on the sixtieth (60th) day after
delivery of the Transfer Notice, at a mutually agreeable time and place. The
Company may elect to assign a portion of its purchase right under this section
2(d) to Xxxxx provided that collectively such parties purchase all of the shares
subject to the Transfer Notice.
(e) Purchase by Xxxxx. If the Company does not give an
Exercise Notice to the Shareholder pursuant to section 2(d), then Xxxxx shall be
entitled, during the period commencing on the eleventh (11th) day after delivery
of the Transfer Notice and ending on the twentieth (20th) day after delivery of
the Transfer Notice, to give an Exercise Notice to the Shareholder. The
Shareholder shall sell the shares which are the subject of an Exercise Notice
given pursuant to this section 2(e) at a Closing to be held at the principal
office of the Company on a date which is sixty (60) days after delivery of the
Transfer Notice. At the Closing, the party who delivered the Exercise Notice
shall deliver to the Shareholder the consideration specified in the Transfer
Notice, and the Shareholder shall deliver to such party certificates
representing the relevant shares purchased by such party, duly endorsed in
blank.
(f) Sale to Third Party. In the event that an Exercise
Notice is not given to the Shareholder, then the Shareholder may sell the number
of shares specified in the Transfer Notice to the prospective transferee
identified in the Transfer Notice, on the terms and conditions specified in the
Transfer Notice,
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provided that such sale is consummated within one hundred twenty (120) days
after delivery of the Transfer Notice and subject to the participation rights
described in section 2(g).
(g) Participation Rights. If the Shareholder desires at any
time to make a bona fide transfer (other than a transfer to a Permitted
Transferee) of all or any part of his Common Stock to any third-party purchaser
in a single transaction or a series of transactions and such Common Stock is not
purchased pursuant to section 2(d) or 2(e), Xxxxx shall have the right to sell a
proportionate number of shares of its Common Stock (or a portion of its Warrants
exercisable for that number of shares of Common Stock) to the third-party
purchaser at the same price and on the same terms and conditions as those
contained in the third-party offer. A "proportionate number of shares" means
that the percentage of shares Xxxxx may sell out of the total number of shares
of Common Stock Deemed Outstanding owned by Xxxxx shall equal the percentage of
shares to be sold by the Shareholder out of the total number of shares of Common
Stock Deemed Outstanding owned by the Shareholder. Xxxxx may exercise its
option under this section 2(g) by written notice to the Shareholder given within
15 days after the expiration of the period described in section 2(e). No
Shareholder shall accept any third-party offer which does not contain a
provision requiring the third party to comply with the terms of this paragraph.
3. Definitions. In addition to the terms defined elsewhere in
this Agreement, the following terms shall have the meanings set forth below:
"Affiliate" shall have the meaning set forth in the
Subordinated Loan Agreement.
"Common Stock" means the shares of common stock, par value
$.75 per share, of the Company.
"Common Stock Deemed Outstanding" shall mean, at any date as
to which the number of shares is to be determined, (a) all of the shares of the
Common Stock issued at such date, excluding shares then owned or held by or for
the account of the Company, and (b) all shares of Common Stock issuable upon the
exercise, exchange or conversion of any unexpired and then exercisable right or
option to subscribe for, purchase or receive Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock.
"Holder" shall mean each holder of the Equity Instruments.
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"Permitted Beneficiary" shall mean, as to any Person who is an
original party to this Agreement (and not a transferee of such party): (a) that
Person; (b) that Person's spouse; (c) that Person's issue; (d) a spouse of that
Person's issue; (e) that Person's siblings; (f) the issue of that Person's
siblings; and (g) any Person of which that Person is the issue.
"Person" shall mean and include an individual, partnership,
corporation, trust, incorporated organization and a government or any department
or agency thereof.
"Primary Beneficiaries" shall mean beneficiaries of a trust or
a custodianship who have, in the aggregate, a beneficial interest in at least
80% of the income and principal of the trust or custodianship.
4. Covenants of the Company.
(a) Prior to the Lapse Date, unless consented to in writing
by Xxxxx, the Company shall not permit to be made any amendment, modification,
supplement or repeal of any provision of its articles of incorporation or bylaws
which would adversely affect the rights of the Holders.
(b) Except as permitted under the Subordinated Loan
Agreement, the Company shall not, prior to the earlier of December 31, 2003 or
the Lapse Date, except with the approval of a majority of the members of the
Board, (i) enter into a sale of the Company to any party or parties pursuant to
which such party or parties acquire [a] a majority of the then outstanding
shares of capital stock of the Company (whether by merger, consolidation, sale
or transfer of common stock, reorganization, recapitalization or otherwise) or
[b] substantially all of the assets of the Company and its subsidiaries,
determined on a consolidated basis; (ii) issue any capital stock or any right to
acquire capital stock in any form; or (iii) make any distribution (whether by
way of dividend or repurchase) with respect to the Common Stock.
(c) Except as permitted under the Subordinated Loan
Agreement, the Company shall not, except with the approval of a majority of the
members of the Board: (i) undertake any material acquisition or divestiture of
assets,(ii) modify or alter in any material respects the terms of any existing
agreement regarding the responsibilities of, or compensation or other payments
to, any Shareholder or Affiliate thereof or enter into any new such agreement or
agreements, (iii) hire or terminate the employment of any officer of the
Company; (iv) adopt any operating or capital expenditure budget; (v)
significantly alter the Company's business, including but not limited to
material changes in product line,
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customer base or distribution channels; (vi) redeem or repurchase any shares of
the Company's stock, of any class,; (vii) enter into any transaction, agreement,
or arrangement (or alter or amend in any respect the terms of any existing
agreement or arrangement) for the incurrence of indebtedness for borrowed money;
or (viii) mortgage, pledge, hypothecate or grant a security interest in or lien
against any assets and properties of the Company (or enter into any agreement,
commitment or arrangement to do so), except for purchase money security
interests securing indebtedness representing (and not in excess of) the purchase
price of assets purchased in the ordinary course of business.
(d) The Company shall amend its by-laws to specify that:
(i) the Company shall not, without the unanimous vote
of the members of the Board institute or cause to be instituted proceedings to
be adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it or file (or cause to be filed) a
petition seeking, or consent to (or cause to be consented to) the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company, or a substantial part of its property, or make (or
cause to be made) any assignment for the benefit of the creditors of the
Company, or admit (or cause to be admitted) in writing its inability to pay its
debts generally as they become due, or take corporate action in furtherance of
any such action;
(ii) the Company shall not, without the prior written
consent of a majority of the members of the Board, amend, alter, change or
repeal the above provision of its By-Laws.
(e) As long as Xxxxx is entitled to designate the Xxxxx
Director, the Company (i) shall not remove, delete or amend Article VII of the
Company's By-Laws in any manner which would provide less indemnification
protection to directors of the Company; and (ii) shall maintain a standard
Directors' errors and omissions policy of insurance, covering all directors.
(f) Except as permitted by the Subordinated Loan Agreement,
prior to the Lapse Date, without the prior written consent of Xxxxx, the Company
shall not issue any equity securities (or any right or option to purchase any
equity securities) unless Xxxxx has been provided with a reasonable opportunity
to exercise Xxxxx'x preemptive right to purchase, on the same terms and
conditions as the other purchasers in such offering, such portion of the
securities to be issued as would allow Xxxxx to maintain its percentage
ownership of the Company's equity.
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5. Legend. Each certificate evidencing a share of Common Stock
owned by the Shareholder, so long as such shares are restricted by this
Agreement, shall bear a legend in substantially the following form:
"The securities represented by this certificate are subject to a
Corporate Governance and Shareholder Agreement dated as of November
30, 1998 among the issuer of such securities (the "Company") and
certain other parties. A copy of such Agreement will be furnished
without charge by the Company to the holder hereof upon written
request."
With respect to the shares permitted to be sold pursuant to section 2(a), such
legend shall be removed immediately prior to the sale of such shares by the
Shareholder.
6. Disguised Purchase Price Components. The Shareholder hereby
agrees to pay to Xxxxx the Xxxxx Percentage of any Disguised Purchase Price
Components received by the Shareholder. "Disguised Purchase Price Components"
shall mean any amounts payable pursuant to an employment agreement, consulting
agreement, noncompete agreement or similar agreement entered into by or on
behalf of the Shareholder in connection with a transaction of the nature
described in section 4(b)(i) of this Agreement, however such transaction is
structured. The "Xxxxx Percentage" shall be the percentage equal to the number
of shares of Common Stock which would be held by Xxxxx, giving effect to the
exercise of all options or warrants then held by Xxxxx, divided by the number of
shares of Common Stock Deemed Outstanding as of the event of the transaction
constituting a sale of the Company or change of control, as applicable.
7. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company, Xxxxx or the Shareholder unless such
modification, amendment or waiver is approved in writing by the Company, Xxxxx
and the Shareholder. The failure of any party to enforce any of the provisions
of this Agreement shall not be construed as a waiver of such provisions and
shall not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
8. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law in any jurisdiction, such provision shall be
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ineffective only to the extent of such prohibition or invalidity, without
invalidating any other provision of this Agreement.
9. Entire Agreement. Except as otherwise expressly set forth
herein, this Agreement embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes any
and all prior understandings, agreements or representations by or among the
parties, or any of them, written or oral, relating to the subject matter hereof.
10. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Except for a Successor (as
defined in section 1(c)) to Xxxxx, Xxxxx'x assigns will not be entitled to
exercise the rights granted Xxxxx in sections 1 and 4 of this Agreement.
11. Remedies. Each Holder and each party hereto shall be entitled
to enforce its rights hereunder specifically to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other available
rights. The parties agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
such party may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance or injunctive relief, without
posting a bond or other security, in order to enforce or prevent any violation
of the provisions of this Agreement.
12. Notices. Any notice provided for in this Agreement shall be
in writing and shall be either personally delivered or mailed first class mail,
postage prepaid, or sent by prepaid overnight courier service, to the parties
hereto at the address listed on the signature page hereto or in the Company's
stock records and to any other Holder at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notice shall be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and on the next
day after deposit with an overnight courier service.
13. Governing Law; Captions; Counterparts. This Agreement shall
be governed by and construed in accordance with the internal laws of the State
of Illinois, without giving effect to any choice of law or conflict of law
provision or rule. The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement. This Agreement
may be executed in multiple counterparts, each of which shall be deemed an
original and all of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
XXXXXXX XXXXX MEZZANINE CAPITAL FUND
II, L.P.
BY XXXXXXX XXXXX MEZZANINE CAPITAL
PARTNERS II, L.L.C., its General
Partner
BY_________________________
Xxxxx X. Xxxxx, Director
Address: 000 Xxxx Xxxxx Xxxxxx
Xxxxxxx, XX 00000
COMPUDYNE CORPORATION
BY______________________________
Its___________________________
Address: 000 Xxxxx Xxxxxx
Xxxxxxxxxxx Xx 00000
_________________________________
Xxxxxx X. Xxxxxxx
Address: 000 Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
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SPOUSAL AGREEMENT
I acknowledge that I have read the foregoing Corporate Governance
and Shareholder Agreement and that I know its contents. I am aware that by its
provisions my spouse, _________________________, agrees to subject our shares of
Common Stock of CompuDyne Corporation, including our community or marital
property interest therein, if any, to a restriction on transfer should my spouse
decide to transfer such shares in certain events. I hereby approve of and agree
to the provisions of the above Agreement, and agree that I will subject any
shares of Common Stock which I may acquire through my community or marital
property interest or otherwise to the provisions of such Agreement.
November __, 1998 ______________________________
Signature
______________________________
(Print Name)
