EXHIBIT 4.1
LOAN AGREEMENT
This Loan Agreement (this "Agreement") is dated as of November 30,
2004, among Integrated Security Systems, Inc., a Delaware corporation (the
"Company"), and the lenders identified on the signature pages hereto (each an
"Investor" and, collectively, the "Investors").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to borrow certain sums from each of the Investors
and, in consideration thereof issue certain convertible promissory notes to each
of the Investors, and each Investor, severally and not jointly, desires to make
a loan to the Company and accept such notes from the Company, all pursuant to
the terms set forth herein.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms shall have
the meanings indicated in this Section 1.1:
"Action" means any action, suit, notice of violation or
proceeding (including any partial proceeding such as a deposition) pending or
threatened in writing against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency, regulatory authority (federal, state, county, local or
foreign), stock market, stock exchange or trading facility.
"Affiliate" means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with a Person, as such terms are used in and construed under Rule
144.
"Bankruptcy Event" means any of the following events: (a) the
Company or any Subsidiary commences a proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction relating to the
Company or any Subsidiary thereof; (b) there is commenced against the Company or
any Subsidiary any such case or proceeding that is not dismissed within 90 days
after commencement; (c) the Company or any Subsidiary is adjudicated by a court
of competent jurisdiction insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company or any
Subsidiary suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 90
days; (e) under applicable law the Company or any Subsidiary makes a general
assignment for the benefit of creditors; (f) the Company or any Subsidiary fails
to pay, or states that it is unable to pay or is unable to pay, its debts
generally as they become due; or (g) the Company or any Subsidiary, by any act
or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action for
the purpose of effecting any of the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
that is a federal legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.
"Closings" means the closings of the purchase and sale of the
Securities pursuant to Article II.
"Closing Date" means the Business Day immediately following the
date on which all of the conditions set forth in Sections 5.1 and 5.2 hereof are
satisfied, or such other date as the parties may agree.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.01 per share, and any securities into which such common stock may hereafter
be reclassified.
"Common Stock Equivalents" means any securities of the Company
or any Subsidiary which entitle the holder thereof to acquire Common Stock at
any time, including without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock or other securities that entitle the holder to receive, directly or
indirectly, Common Stock.
"Company Counsel" means Xxxxxx and Xxxxx, LLP.
"Company Deliverables" has the meaning set forth in Section
2.2(a).
"Debt" of any Person means at any date, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others guaranteed by such Person.
"Disclosure Materials" has the meaning set forth in Section
3.1(h).
"Effective Date" means the date that the Registration Statement
required by Section 2(a) of the Registration Rights Agreement is first declared
effective by the Commission.
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"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means U.S. generally accepted accounting principles.
"Intellectual Property Rights" has the meaning set forth in
Section 3.1(o).
"Investor Deliverables" has the meaning set forth in Section
2.2(b).
"Investor Party" has the meaning set forth in Section 4.11.
"Lien" means any lien, charge, encumbrance, security interest,
right of first refusal or other restrictions of any kind.
"Loan Amount" means, with respect to each Investor, the loan
amount indicated below such Investor's signature page to this Agreement.
"Losses" has the meaning set forth in Section 4.11.
"Material Adverse Effect" means any of (i) a material and
adverse effect on the legality, validity or enforceability of any Transaction
Document, or (ii) a material and adverse effect on the results of operations,
assets, prospects, business or condition (financial or otherwise) of the Company
and the Subsidiaries, taken as a whole.
"New York Courts" means the state and federal courts sitting in
the City of New York, Borough of Manhattan.
"Notes" means the convertible promissory notes issuable by the
Company to the Investors pursuant to terms hereof, in the Form of Exhibit A, in
the aggregate principal amount of up to $6 million due on the five year
anniversary of the Closing Date which, among other things, give the Holders
thereof the right to acquire shares of Common Stock on the terms thereof.
"Outside Date" means November 30, 2004.
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
"Proceeding" means an action, suit or proceeding (including,
without limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
"Registration Statement" means a registration statement meeting
the requirements set forth in the Registration Rights Agreement and covering the
resale by the Investors of the Underlying Shares.
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"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Agreement, among the Company and the
Investors, in the form of Exhibit B hereto.
"Required Minimum" means, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in the
future pursuant to the Transaction Documents that the Company is obligated to
issue, whether contingently or otherwise, including, without limitation, any
Underlying Shares issuable upon conversion in full of all Notes (assuming for
such purpose that the Conversion Price (as defined in the Notes) equals 50% of
the Conversion Price in effect on the Closing Date).
"Rule 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" has the meaning set forth in Section 3.1(h).
"Securities" means the Notes and the Underlying Shares issuable
under the Notes.
"Securities Act" means the Securities Act of 1933, as amended.
"Short Sales" means "short sales" as defined in Rule 3b-3 of the
Exchange Act or any successor thereto promulgated by the Commission, and
includes forward sale contracts, options, puts, calls, short sales, swaps and
similar arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers.
"Subsidiary" means any subsidiary of the Company included in the
SEC Reports.
"Trading Day" means (i) a day on which the Common Stock is
traded on a Trading Market (other than the OTC Bulletin Board), or (ii) if the
Common Stock is not listed on a Trading Market (other than the OTC Bulletin
Board), a day on which the Common Stock is traded in the over-the-counter
market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is
not quoted on any Trading Market, a day on which the Common Stock is quoted in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices); provided, that in the event that the Common Stock is not
listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day
shall mean a Business Day.
"Trading Market" means whichever of the New York Stock Exchange,
the American Stock Exchange, the NASDAQ National Market, the NASDAQ SmallCap
Market or OTC Bulletin Board on which the Common Stock is listed or quoted for
trading on the date in question.
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"Transaction Documents" means this Agreement, the Notes and the
Registration Rights Agreement.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of the Notes.
ARTICLE II.
PURCHASE AND SALE
2.1 Closings. Subject to the terms and conditions set forth in this
Agreement, at the Closings the Company shall issue and sell to each Investor,
and each Investor shall, severally and not jointly, purchase from the Company,
the Notes representing such Investor's Loan Amount. The Company shall be allowed
to hold multiple Closings so long as each issuance and sale of the Notes are
under identical terms and conditions. The Company shall not be allowed to hold
any additional Closings pursuant to the terms of this Agreement following the
earlier to occur of (i) the fifteenth (15th) day following the date this
Agreement is first executed by an Investor and the Company or (ii) the Company
receiving subscriptions for an aggregate purchase price of $6,000,000 in Notes
from all of the Closings that have occurred (the "Final Closing Date"). The
Closings shall take place at the offices of Xxxxx Xxxx LLP, 0000 Xxxxxx xx xxx
Xxxxxxxx, Xxx Xxxx, XX 00000 on the Closing Date or at such other location or
time as the parties may agree.
2.2 Closing Deliveries.
(a) At each Closing, the Company shall deliver or cause to be
delivered to each Investor the following (the "Company Deliverables"):
(i) Notes in the aggregate principal amount of the Loan
Amount indicated below such Investor's name on its signature page of this
Agreement, registered in the name of such Investor;
(ii) the legal opinion of Company Counsel, in agreed
form, addressed to the Investors;
(iii) the Registration Rights Agreement, duly executed by
the Company; and
(iv) any other documents reasonably requested by such
Investor.
(b) At each Closing, each Investor shall deliver or cause to
be delivered to the Company the following (the "Investor Deliverables"):
(i) its Loan Amount indicated below such Investor's
name on the signature page of this Agreement, in United States dollars and in
immediately available funds, by wire transfer to an account designated in
writing by the Company for such purpose or by certified or cashier's check; and
(ii) the Registration Rights Agreement, duly executed by
such Investor.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company
hereby represents and warrants to each Investor that, except as set forth in the
SEC Reports (as defined below):
(a) Subsidiaries. The Company has no direct or indirect
Subsidiaries other than as specified in the SEC Reports. Except as disclosed in
Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital
stock of each Subsidiary free and clear of any and all Liens (other than
pursuant to the Second Amended and Restated Pledge Agreement), and all the
issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, non-assessable and free of preemptive and similar
rights.
(b) Organization and Qualification. The Company and each
Subsidiary are duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. The Company and each Subsidiary are
duly qualified to conduct its respective businesses and are in good standing as
a foreign corporation or other entity in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith. Each Transaction Document has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with
the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
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(d) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
or (ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company or a Subsidiary is subject (including federal and state
securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect. Payments
of cash on account of principal of or interest under the Notes, upon any Event
of Default under the Notes, as a result of liquidated damages under any
Transaction Document will not require the consent of, any payment to, or the
springing of any Lien in favor of any lender to or creditor of the Company or
any Subsidiary (under a credit facility, loan agreement or otherwise) and will
not result in a default under any such credit facilities, loans or other
agreements.
(e) Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other federal,
state, local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the filing with the Commission of one or more
Registration Statements in accordance with the requirements Registration Rights
Agreement, (ii) filings required by state securities laws, (iii) the filing of a
Notice of Sale of Securities on Form D with the Commission under Regulation D of
the Securities Act (iv) the filings required in accordance with Section 4.8, and
(iv) those that have been made or obtained prior to the date of this Agreement.
(f) Issuance of the Securities. The Securities have been duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens. The Company has reserved from its duly authorized
capital stock a number of shares of Common Stock issuable upon conversion of the
Notes which number of reserved shares is not less than the Required Minimum
calculated as of the date hereof.
(g) Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company, and all shares
of Common Stock reserved for issuance under the Company's various option and
incentive plans, is specified in the SEC Reports. Except as specified in the SEC
Reports or on Schedule 3.1(g), no securities of the Company are entitled to
preemptive or similar rights, and no Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by the Transaction Documents. Except as specified
in the SEC Reports, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares of
Common Stock. The issue and sale of the Securities or issuance of the Collateral
Shares will not, immediately or with the passage of time, obligate the Company
to issue shares of Common Stock or other securities to any Person (other than
the Investors) and will not result in a right of any holder of Company
securities to adjust the exercise, conversion, exchange or reset price under
such securities.
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(h) SEC Reports; Financial Statements. The Company has filed
all reports required to be filed by it under the Securities Act and the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months
preceding the date hereof (or such shorter period as the Company was required by
law to file such reports) (the foregoing materials being collectively referred
to herein as the "SEC Reports" and, together with the Schedules to this
Agreement (if any), the "Disclosure Materials") on a timely basis or has timely
filed a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
GAAP applied on a consistent basis during the periods involved, except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the Company
and its consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.
(i) Press Releases. The press releases disseminated by the
Company during the twelve months preceding the date of this Agreement taken as a
whole do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made and
when made, not misleading.
(j) Material Changes. Since the date of the latest audited
financial statements included within the SEC Reports, except as specifically
disclosed in the SEC Reports, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables, accrued expenses and
other liabilities incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock, and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any
request for confidential treatment of information.
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(k) Litigation. There is no Action which (i) adversely
affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) except as specifically disclosed
in the SEC Reports, would, if there were an unfavorable decision, individually
or in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof (in his or her capacity as such), is or has been the subject of
any Action involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty, except as specifically
disclosed in the SEC Reports. There has not been, and to the knowledge of the
Company, there is not pending any investigation by the Commission involving the
Company or any current or former director or officer of the Company (in his or
her capacity as such). The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.
(l) Labor Relations. No material labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the employees
of the Company.
(m) Compliance. Neither the Company nor any Subsidiary (i) is
in default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is or has been in violation of any statute, rule or regulation of any
governmental authority, including without limitation all foreign, federal, state
and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except
in each case as could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect. The Company is in compliance
with all effective requirements of the Xxxxxxxx-Xxxxx Act of 2002, as amended,
and the rules and regulations thereunder, that are applicable to it, except
where such noncompliance could not have or reasonably be expected to result in a
Material Adverse Effect.
(n) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state, local or foreign regulatory authorities necessary to conduct
their respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect, and
neither the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such permits.
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(o) Patents and Trademarks. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
other similar rights that are necessary or material for use in connection with
their respective businesses as described in the SEC Reports and which the
failure to so have could, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect (collectively, the
"Intellectual Property Rights"). Neither the Company nor any Subsidiary has
received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
Except as set forth in the SEC Reports, to the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(p) Insurance. The Company and the Subsidiaries are insured
against such losses and risks and in such amounts as are prudent and customary
in the businesses in which the Company and the Subsidiaries are engaged. The
Company has no reason to believe that it will not be able to renew its and the
Subsidiaries' existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to continue
its business on terms consistent with market for the Company's and such
Subsidiaries' respective lines of business.
(q) Transactions With Affiliates and Employees. Except as set
forth in the SEC Reports or on Schedule 3.1(q), none of the officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
(r) Internal Accounting Controls. Except as set forth on
Schedule 3.1(r), the Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. Except as set forth on Schedule 3.1(r), the Company
has established disclosure controls and procedures (as defined in Exchange Act
rules 13a-14 and 15d-14) for the Company and designed such disclosure controls
and procedures to ensure that material information relating to the Company,
including its Subsidiaries, is made known to the certifying officers by others
within those entities, particularly during the period in which the Company's
Form 10-KSB or 10-QSB, as the case may be, is being prepared. The Company's
certifying officers have evaluated the effectiveness of the Company's controls
and procedures in accordance with Item 307 of Regulation S-K under the Exchange
Act for the Company's most recently ended fiscal quarter or fiscal year-end
(such date, the "Evaluation Date"). The Company presented in its most recently
filed Form 10-KSB or Form 10-QSB the conclusions of the certifying officers
about the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the Company's internal controls that would be required to be
disclosed pursuant to Item 308(c) of Regulation S-K under the Exchange Act or,
to the Company's knowledge, in other factors that could reasonably be expected
to have a Material Adverse Effect on the Company's internal controls.
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(s) Solvency. Based on the financial condition of the Company
as of each Closing Date (and assuming that each Closing shall have occurred),
(i) the Company's fair saleable value of its assets exceeds the amount that will
be required to be paid on or in respect of the Company's existing debts and
other liabilities (including known contingent liabilities) as they mature; (ii)
the Company's assets do not constitute unreasonably small capital to carry on
its business for the current fiscal year as now conducted and as proposed to be
conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, and projected capital
requirements and capital availability thereof; and (iii) the current cash flow
of the Company, together with the proceeds the Company would receive, were it to
liquidate all of its assets, after taking into account all anticipated uses of
the cash, would be sufficient to pay all amounts on or in respect of its debt
when such amounts are required to be paid. The Company has no current intention
to incur debts beyond its ability to pay such debts as they mature (taking into
account the timing and amounts of cash to be payable on or in respect of its
debt).
(t) Certain Fees. Except as specified in Schedule 3.1(t), no
brokerage or finder's fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Investors shall have no obligation with
respect to any fees or with respect to any claims (other than such fees or
commissions owed by a Investor pursuant to written agreements executed by such
Investor which fees or commissions shall be the sole responsibility of such
Investor) made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement.
(u) Certain Registration Matters. Assuming the accuracy of
the Investors' representations and warranties set forth in Section 3.2, no
registration under the Securities Act is required for the offer and sale of the
Notes by the Company to the Investors under the Transaction Documents. The
Company is eligible to register the resale of its Common Stock for resale by the
Investors under Form SB-2 promulgated under the Securities Act. Except as
specified in Schedule 3.1(u), the Company has not granted or agreed to grant to
any Person any rights (including "piggy-back" registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied.
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(v) Listing and Maintenance Requirements. Except as specified
in the SEC Reports, the Company has not, in the two years preceding the date
hereof, received notice from any Trading Market to the effect that the Company
is not in compliance with the listing or maintenance requirements thereof. The
Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with the listing and maintenance
requirements for continued listing of the Common Stock on the Trading Market on
which the Common Stock is currently listed or quoted. The issuance and sale of
the Securities under the Transaction Documents does not contravene the rules and
regulations of the Trading Market on which the Common Stock is currently listed
or quoted, and no approval of the shareholders of the Company thereunder is
required for the Company to issue and deliver to the Investors the Securities
contemplated by Transaction Documents.
(w) Investment Company. The Company is not, and is not an
Affiliate of, and immediately following each Closing will not have become, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(x) No Additional Agreements. The Company does not have any
agreement or understanding with any Investor with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.
(y) Disclosure. The Company confirms that neither it nor any
Person acting on its behalf has provided any Investor or its respective agents
or counsel with any information that the Company believes constitutes material,
non-public information except insofar as the existence and terms of the proposed
transactions hereunder may constitute such information. The Company understands
and confirms that the Investors will rely on the foregoing representations and
covenants in effecting transactions in securities of the Company. No disclosure
provided to the Investors regarding the Company, its business and the
transactions contemplated hereby, furnished by or on behalf of the Company
(including the Company's representations and warranties set forth in this
Agreement) contains any untrue statement of a material fact.
3.2 Representations and Warranties of the Investors. Each Investor
hereby, for itself and for no other Investor, represents and warrants to the
Company as follows:
(a) Organization; Authority. Such Investor is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations thereunder. The execution, delivery and performance by such
Investor of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or, if such Investor is not a corporation,
such partnership, limited liability company or other applicable like action, on
the part of such Investor. Each of this Agreement and the Registration Rights
Agreement has been duly executed by such Investor, and when delivered by such
Investor in accordance with terms hereof, will constitute the valid and legally
binding obligation of such Investor, enforceable against it in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
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(b) Investment Intent. Such Investor is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Investor's right at all times to
sell or otherwise dispose of all or any part of such Securities in compliance
with applicable federal and state securities laws. Subject to the immediately
preceding sentence, nothing contained herein shall be deemed a representation or
warranty by such Investor to hold the Securities for any period of time. Such
Investor is acquiring the Securities hereunder in the ordinary course of its
business. Such Investor does not have any agreement or understanding, directly
or indirectly, with any Person to distribute any of the Securities.
(c) Investor Status. At the time such Investor was offered
the Securities, it was, and at the date hereof it is, an "accredited investor"
as defined in Rule 501(a) under the Securities Act. Such Investor is not a
registered broker-dealer under Section 15 of the Exchange Act. Such Investor was
not formed for the purpose of purchasing the Securities.
(d) General Solicitation. Such Investor is not purchasing the
Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
(e) Access to Information. Such Investor acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Subsidiaries
and their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information that
the Company possesses or can acquire without unreasonable effort or expense that
is necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Investor or its representatives or counsel shall modify, amend
or affect such Investor's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(f) Certain Trading Activities. Such Investor has not nor has
any Person acting on behalf of or pursuant to any understanding with such
Investor, directly or indirectly engaged in any transactions in the securities
of the Company (including, without limitations, any Short Sales involving the
Company's securities) since the earlier to occur of (1) the time that such
Investor was first contacted by the Company, Xxxx Capital Partners, LLC or any
other Person regarding an investment in the Company and (2) the 30th day prior
to the date of this Agreement. Such Investor covenants that neither it nor any
Person acting on its behalf or pursuant to any understanding with it will engage
in any transactions in the securities of the Company (including Short Sales)
prior to the time that the transactions contemplated by this Agreement are
publicly disclosed.
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(g) Independent Investment Decision. Such Investor has
independently evaluated the merits of its decision to purchase Securities
pursuant to the Transaction Documents, and such Investor confirms that it has
not relied on the advice of any other Investor's business and/or legal counsel
in making such decision. Such Investor has not relied on the business or legal
advice of Xxxx Capital Partners, LLC or any of its agents, counsel or Affiliates
in making its investment decision hereunder, and confirms that none of such
Persons has made any representations or warranties to such Investor in
connection with the transactions contemplated by the Transaction Documents.
The Company acknowledges and agrees that no Investor has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 (a) The Securities may only be disposed of in compliance with
state and federal securities laws. In connection with any transfer of the
Securities other than pursuant to an effective registration statement, to the
Company, to an Affiliate of an Investor or in connection with a pledge as
contemplated in Section 4.1(b), the Company may require the transferor thereof
to provide to the Company an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act.
(b) Certificates evidencing the Securities will contain the
following legend, until such time as they are not required under Section 4.1(c):
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
CONVERSION OF THESE SECURITIES HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE
SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY
SUCH SECURITIES.
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The Company acknowledges and agrees that an Investor may from
time to time pledge, and/or grant a security interest in some or all of the
Securities pursuant to a bona fide margin agreement in connection with a bona
fide margin account and, if required under the terms of such agreement or
account, such Investor may transfer pledged or secured Securities to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval or consent of the Company and no legal opinion of legal counsel to the
pledgee, secured party or pledgor shall be required in connection with the
pledge, but such legal opinion may be required in connection with a subsequent
transfer following default by the Investor transferee of the pledge. No notice
shall be required of such pledge. At the appropriate Investor's expense, the
Company will execute and deliver such reasonable documentation as a pledgee or
secured party of Securities may reasonably request in connection with a pledge
or transfer of the Securities including the preparation and filing of any
required prospectus supplement under Rule 424(b)(3) of the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of Selling Stockholders thereunder.
(c) Certificates evidencing Underlying Shares shall not
contain any legend (including the legend set forth in Section 4.1(b)): (i)
following a sale or transfer of such Securities pursuant to an effective
registration statement (including the Registration Statement), or (ii) following
a sale or transfer of such Shares or Warrant Shares pursuant to Rule 144
(assuming the transferor is not an Affiliate of the Company), or (iii) while
such Shares or Warrant Shares are eligible for sale under Rule 144(k). The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company that enlarge the restrictions on transfer set
forth in this Section.
4.2 Furnishing of Information. As long as any Investor owns the
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Investor owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Investors and make publicly available in accordance with Rule 144(c) such
information as is required for the Investors to sell the Underlying Shares under
Rule 144. The Company further covenants that it will take such further action as
any holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell the Underlying Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
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4.3 Acknowledgment of Dilution. The Company acknowledges that the
issuance of Underlying Shares upon conversion of Notes will result in dilution
of the outstanding shares of Common Stock, which dilution may be substantial.
The Company further acknowledges that its obligation to honor conversions under
the Notes is unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim that the Company may have against any Investor.
4.4 Integration. The Company shall not, and shall use its best
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Investors, or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of any Trading Market in a manner that would require
stockholder approval of the sale of the securities to the Investors.
4.5 Reservation of Shares. The Company shall maintain a reserve from
its duly authorized shares of Common Stock to comply with its conversion
obligations under the Notes. If on any date the Company would be, if notice of
conversion were to be delivered on such date, precluded from issuing the number
of Underlying Shares, as the case may be, issuable upon conversion in full of
the Notes, then the Board of Directors of the Company shall promptly prepare and
mail to the stockholders of the Company proxy materials or other applicable
materials requesting authorization to amend the Company's certificate of
incorporation or other organizational document to increase the number of shares
of Common Stock which the Company is authorized to issue so as to provide enough
shares for issuance of the Underlying Shares. In connection therewith, the Board
of Directors shall (a) adopt proper resolutions authorizing such increase, (b)
recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders as soon as practicable, but in any event not later than the
60th day after delivery of the proxy or other applicable materials relating to
such meeting) and (c) within five Business Days of obtaining such stockholder
authorization, file an appropriate amendment to the Company's certificate of
incorporation or other organizational document to evidence such increase.
4.6 Conversion Procedures. The form of Conversion Notice included in
and as defined in the Notes sets forth the totality of the procedures required
by the Investors in order to convert the Notes. The Company shall honor
conversions of the Notes and shall deliver Underlying Shares in accordance with
the terms, conditions and time periods set forth in the Transaction Documents.
4.7 Subsequent Registrations. Other than pursuant to the
Registration Statement, prior to the Effective Date (plus one day for each day
following the Effective Date when a Registration Statement shall not be
effective and available to the Holders for the resale of Underlying Shares), the
Company may not file any registration statement with the Commission with respect
to any securities of the Company other than registration statements on Form S-8
promulgated by the Commission.
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4.8 Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York
time) on the Trading Day following the execution of this Agreement, and by 9:00
a.m. (New York time) on the Trading Day following each Closing Date, the Company
shall issue press releases disclosing the transactions contemplated hereby and
each Closing. On the Trading Day following the execution of this Agreement the
Company will file a Current Report on Form 8-K disclosing the material terms of
the Transaction Documents (and attach as exhibits thereto the Transaction
Documents), and on each Closing Date the Company will file an additional Current
Report on Form 8-K to disclose each Closing. In addition, the Company will make
such other filings and notices in the manner and time required by the Commission
and the Trading Market on which the Common Stock is listed. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Investor, or
include the name of any Investor in any filing with the Commission (other than
the Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange
Act) or any regulatory agency or Trading Market, without the prior written
consent of such Investor, except to the extent such disclosure is required by
law or Trading Market regulations.
4.9 Limitation on Issuance of Future Priced Securities. During the
six months following the Final Closing Date, the Company shall not issue any
"Future Priced Securities" as such term is described by NASD IM-4350-1.
4.10 Indemnification of Investors. In addition to the indemnity
provided in the Registration Rights Agreement, the Company will indemnify and
hold the Investors and their directors, officers, shareholders, partners,
employees and agents (each, an "Investor Party") harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation (collectively, "Losses")
that any such Investor Party may suffer or incur as a result of or relating to
any misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any Transaction Document. In
addition to the indemnity contained herein, the Company will reimburse each
Investor Party for its reasonable legal and other expenses (including the cost
of any investigation, preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred.
4.11 Non-Public Information. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Investor
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Investor
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Investor shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.
4.12 Listing of Securities. The Company agrees, (i) if the Company
applies to have the Common Stock traded on any other Trading Market, it will
include in such application the Underlying Shares and will take such other
action as is necessary or desirable to cause the Underlying Shares to be listed
on such other Trading Market as promptly as possible, and (ii) it will take all
action reasonably necessary to continue the listing and trading of its Common
Stock on a Trading Market and will comply in all material respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Trading Market.
17
4.13 Use of Proceeds. The Company will use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables and accrued expenses in the ordinary course of the Company's business
and consistent with prior practices and to repay exisiting indebtedness not to
exceed $500,000), or to redeem any Common Stock or Common Stock Equivalents.
4.14 Payment of Cash Dividend. The Company agrees that for so long as
any of the Notes are outstanding it will not declare, pay or make any provision
for any cash dividend or distribution with respect to the Common Stock of the
Company, without first obtaining the approval of the Required Investors, which,
for purposes of this Agreement, shall mean Investors holding at least 66 ?% of
the aggregate principal amount of the Notes.
ARTICLE V.
CONDITIONS PRECEDENT TO CLOSINGS
5.1 Conditions Precedent to the Obligations of an Investor to
Purchase Securities. The obligation of each Investor to acquire Securities and
make loans at each Closing is subject to the satisfaction or waiver by such
Investor, at or before the Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained herein shall be true and correct as of the
date when made and as of the Closing as though made on and as of such date;
(b) Performance. The Company shall have performed, satisfied
and complied with all covenants, agreements and conditions required by the
Transaction Documents to be performed, satisfied or complied with by it at or
prior to the Closing;
(c) Officer's Certificate. A certificate executed by a duly
authorized officer of the Company certifying that all representations and
warranties made by the Company and information furnished by the Company in any
schedules to this Agreement, are true and correct in all material respects as of
the Closing Date, and all covenants, agreements and obligations required by this
Agreement to be performed or complied with by the Company, prior to or at the
Closing, have been performed or complied with in all material respects;
(d) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
18
(e) Adverse Changes. Since the date of execution of this
Agreement, no event or series of events shall have occurred that has had or
would reasonably be expected to result in a Material Adverse Effect;
(f) No Suspensions of Trading in Common Stock; Listing.
Trading in the Common Stock shall not have been suspended by the Commission or
any Trading Market (except for any suspensions of trading of not more than one
Trading Day solely to permit dissemination of material information regarding the
Company) at any time since the date of execution of this Agreement, and the
Common Stock shall have been at all times since such date listed for trading on
a Trading Market; and
(g) Company Deliverables. The Company shall have delivered
the Company Deliverables in accordance with Section 2.2(a).
5.2 Conditions Precedent to the Obligations of the Company to sell
Securities. The obligation of the Company to sell Securities at the Closing is
subject to the satisfaction or waiver by the Company, at or before the Closing,
of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of each Investor contained herein shall be true and correct as of the
date when made and as of the Closing Date as though made on and as of such date;
(b) Performance. Each Investor shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by such Investor at or prior to the Closing;
(c) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents; and
(d) Investors Deliverables. Each Investor shall have
delivered its Investors Deliverables in accordance with Section 2.2(b).
ARTICLE VI.
MISCELLANEOUS
6.1 Fees and Expenses. At the first Closing to occur, the Company
shall pay to Xxxxx Xxxx LLP $25,000 (less previously delivered amounts) as
partial reimbursement of Xxxx Capital Partners legal fees in connection with the
Transaction Documents, it being understood that Xxxxx Xxxx LLP has only rendered
legal advice to Xxxx Capital Partners, and not to the Company or any other
Investor in connection with the transactions contemplated hereby, and that each
of the Company and the other Investors has relied for such matters on the advice
of its own respective counsel. Except as specified in the immediately preceding
sentence, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of the Transaction Documents. The Company shall pay all stamp and
other taxes and duties levied in connection with the sale of the Notes.
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6.2 Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
6.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile
(provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this Section prior to 6:30
p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number specified in this Section on a day that is not a Trading
Day or later than 6:30 p.m. (New York City time) on any Trading Day, (c) the
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as follows:
If to the Company: Integrated Security Systems, Inc.
0000 Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Facsimile:
Attention:
With a copy to: Xxxxxx and Xxxxx, LLP
0000 X. Xxxxx Xxxx, Xxxxx 0000
Xxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxx, Esq.
If to an Investor: To the address set forth under such Investor's
name on the signature pages hereof;
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
6.4 Amendments; Waivers; No Additional Consideration. No provision
of this Agreement may be waived or amended except in a written instrument signed
by the Company and the Required Investors. No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
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6.5 Termination. This Agreement may be terminated prior to each
Closing:
(a) by written agreement of the Investors and the Company; or
(b) by the Company or the Investors upon written notice to
the other, if the initial Closing shall not have taken place by 6:30 p.m.
Eastern time on the Outside Date; provided, that the right to terminate this
Agreement under this Section 7.5(b) shall not be available to any Person whose
failure to comply with its obligations under this Agreement has been the cause
of or resulted in the failure of the Closing to occur on or before such time.
The failure of the Company to satisfy the condition precedent contained in
Section 5.1(g) by the Outside Date shall not be grounds for the Company to
terminate this Agreement.
In the event of a termination pursuant to this Section, the
Company shall promptly notify all non-terminating Investors. Upon a termination
in accordance with this Section 7.5, the Company and the terminating Investor(s)
shall not have any further obligation or liability (including as arising from
such termination) to the other and no Investor will have any liability to any
other under the Transaction Documents Investor as a result therefrom.
6.6 Construction. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party. This
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement or any of the
Transaction Documents.
6.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign any
or all of its rights under this Agreement to any Person to whom such Investor
assigns or transfers any Notes, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the "Investors."
6.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.11 (as to each
Investor Party).
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6.9 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its reasonable attorneys' fees and other costs and expenses incurred with
the investigation, preparation and prosecution of such Proceeding.
6.10 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery of the
Securities.
6.11 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
6.12 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
6.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Investor exercises a right, election, demand
or option under a Transaction Document and the Company does not timely perform
its related obligations within the periods therein provided, then such Investor
may rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
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6.14 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities. If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
6.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Investors and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
6.16 Payment Set Aside. To the extent that the Company makes a
payment or payments to any Investor pursuant to any Transaction Document or an
Investor enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
6.17 Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are several and not
joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. The decision of each Investor to
purchase Securities pursuant to the Transaction Documents has been made by such
Investor independently of any other Investor. Nothing contained herein or in any
Transaction Document, and no action taken by any Investor pursuant thereto,
shall be deemed to constitute the Investors as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Investors are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Documents. Each
Investor acknowledges that no other Investor has acted as agent for such
Investor in connection with making its investment hereunder and that no Investor
will be acting as agent of such Investor in connection with monitoring its
investment in the Securities or enforcing its rights under the Transaction
Documents. Each Investor shall be entitled to independently protect and enforce
its rights, including without limitation the rights arising out of this
Agreement or out of the other Transaction Documents, and it shall not be
necessary for any other Investor to be joined as an additional party in any
proceeding for such purpose. The Company acknowledges that each of the Investors
has been provided with the same Transaction Documents for the purpose of closing
a transaction with multiple Investors and not because it was required or
requested to do so by any Investor.
23
6.18 Limitation of Liability. Notwithstanding anything herein to the
contrary, the Company acknowledges and agrees that the liability of an Investor
arising directly or indirectly, under any Transaction Document of any and every
nature whatsoever shall be satisfied solely out of the assets of such Investor,
and that no trustee, officer, other investment vehicle or any other Affiliate of
such Investor or any investor, shareholder or holder of shares of beneficial
interest of such a Investor shall be personally liable for any liabilities of
such Investor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
24
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
INTEGRATED SECURITY SYSTEMS, INC.
By: /S/ C. A. Xxxxxxx, Jr.
------------------------
Name: C. A. Xxxxxxx, Jr.
Title: Chairman
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOR INVESTORS FOLLOW]
25
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.
NAME OF INVESTOR
By: SCHEDULE 1
_______________________________________
Name:
Title:
Loan Amount: $_____________________________
Tax ID No.:________________________________
ADDRESS FOR NOTICE
c/o:_______________________________________
Street:____________________________________
City/State/Zip:____________________________
Attention:_________________________________
Tel:_______________________________________
Fax:_______________________________________
DELIVERY INSTRUCTIONS
(if different from above)
c/o:_______________________________________
Street:____________________________________
City/State/Zip:____________________________
Attention:_________________________________
Tel:_______________________________________
26
Schedule of Exceptions
This Schedule of Exceptions is attached to the Loan Agreement, dated as
of November 30, 2004, (the "Loan Agreement"). The section numbers in this
Schedule of Exceptions correspond to the section numbers in the Loan Agreement;
however, any information disclosed herein under any section number shall be
deemed to be disclosed and incorporated by reference into any other section
number under the Loan Agreement where such disclosure would be appropriate and
would reasonably be apparent to the Investors. As set forth in the Loan
Agreement, any information disclosed in any SEC Reports shall be deemed to have
already been disclosed to the Investors and is hereby incorporated by reference
into this Schedule of Exceptions where such disclosure would be appropriate.
Unless otherwise defined, any capitalized terms in this Schedule of Exceptions
shall have the same meanings assigned to such terms in the Loan Agreement.
Nothing in this Schedule of Exceptions constitutes an admission of any liability
or obligation of the Company to any third party, nor an admission against the
Company's interests.
27
Schedule 3.1(a)
Subsidiaries
The Company is a party to that certain Amended and Restated Pledge Agreement,
dated as of August 5, 2004, pursuant to which the Company has pledged the equity
securities of the Subsidiaries against payment of certain indebtedness of the
Company.
28
Schedule 3.1(d)
Conflicts
The Company has certain obligations to register the equity securities of certain
of the Company's stockholders as set forth in the registration rights agreements
and other obligations described in Schedule 3.1(u) of this Disclosure Schedule.
As a result, the Company's obligations to register such securities may conflict
with the Company obligations to refrain from registering equity securities as
required by Section 4.7 of the Loan Agreement. The Company has endeavored to
secure covenants from its stockholders with registration rights which provide
that such stockholder will not demand registration of his, her or its securities
in violation of Section 4.7 of the Loan Agreement.
29
Schedule 3.1(g)
Capitalization
Nothing to disclose that is not otherwise disclosed in the SEC Reports.
30
Schedule 3.1(q)
Transactions with Affiliates and Employees
Nothing to disclose that is not otherwise disclosed in the SEC Reports.
31
Schedule 3.1(r)
Internal Accounting Controls
Nothing to disclose that is not otherwise disclosed in the SEC Reports.
32
Schedule 3.1(t)
Certain Fees
In connection with the brokerage services provided by Xxxx Capital Partners
("Xxxx") to the Company, the Company is obligated to pay to Xxxx a fee equal to
8% of the gross proceeds received from the sale of the Notes. In addition, the
Company will reimburse Xxxx for its out-of-pocket expenses, including the fees
and disbursements of Xxxx'x legal counsel, of up to $25,000.
Furthermore, upon Closing, the Company shall grant to Xxxx warrants for the
purchase of an amount equal to 5% of the Notes issued. The warrants will be
exercisable into securities similar to those Notes, have an exercise price equal
to 110% of the Company's Common Stock on the Closing Date and have a term of
five years.
33
Schedule 3.1(u)
Certain Registration Matters
1. Registration Rights Agreement, dated as of February 22, 1999, among the
Company and Renaissance Capital Growth & Income Fund III, Inc. and
Renaissance US Growth Investment Trust PLC.
2. Registration Rights Agreement, dated as of October 20, 2000, among the
Company and Renaissance Capital Growth & Income Fund III, Inc. and
Renaissance US Growth Investment Trust PLC.
3. Registration Rights Agreement, dated as of September 27, 2001, among
the Company and Renaissance Capital Growth & Income Fund III, Inc. and
Renaissance US Growth Investment Trust PLC.
4. Registration Rights Agreement, dated as of November 9, 2001, among the
Company and C.A. Xxxxxxx, Jr.
5. Registration Rights Agreement, dated as of March 11, 2003, among the
Company and BFS US Special Opportunities Trust PLC a public limited
company registered in England and Wales.
6. Registration Rights Agreement, dated as of September 5, 2003, among the
Company, Xxxx Xxxxxx and Xxx Xxxxxxxxxx.
7. Registration Rights provided to holders of the Company's Series A
Preferred Stock, as set forth in the Certificate of Designation,
Preferences and Rights of Series A $20 Convertible Preferred Stock.
34
SCHEDULE 1
Investor Amount
_____________________________________________________ ___________
BFS US Special Opportunities Trust PLC $ 1,000,000
BFS US Special Opportunities Trust PLC 500,000
Xxxxx X. X. Xxxxx, Xx. Trust UAD 12/4/95 60,000
Xxxxxxxx Family Trust UAD 5/7/98 80,000
Xxxx X. Xxxxx Irrevocable Trust UAD 3/30/90 50,000
Xxxxx Xxxxx Xxxxxxxx 1997 Trust 30,000
Xxxxxxxxx Xxxx Xxxxxxx & Xxxx X. Xxxxxxx, Xx Tenants 150,000
Xxxxxxx X. Xxxxxxxxx 30,000
Xxxxxxx X. Xxxxxx Trust 100,000
Xxxxxx X. Xxxxxx 60,000
Xxxxx X. XxXxxxxx Trust #1 60,000
Xxxx Xxxx Manulis 40,000
Xxxxxxx X. Xxxxx 30,000
Xxxxx X. Xxxxxxx Trust 30,000
Xxxxx X. Xxxx 30,000
Xxxx X. Xxxx 40,000
M. Xxxxxx Xxxxxxx & Xxxxx X. Xxxx Xx Ten 30,000
Xxxxxx X. Xxxxxxxxx 40,000
Xxxxxxx X. Xxxxxxx 50,000
Xxxxxxx X. Xxxxxxx C/F Xxxxxx X. Xxxxxxx 30,000
Xxxxx X. Xxxx, Xx. Trust #2 UAD 1-18-62 120,000
Xxxxx X. Xxxxxxxxx 401K 30,000
Xxxxx X. Xxxxxxxxx 25,000
Xxxxxxx X. Xxxxxxxxx 25,000
Xxxxx X. Xxxxxxxxx C/F Xxxx X. Xxxxxxxxx 25,000
Xxxxxx X. Xxxxxxx, Xx. 30,000
Bard Micro-Cap Value Fund, LLP 25,000
Xxxxxx X. Xxxxx XXX Rollover 30,000
Xxxxxx X. Xxxxx Xxxx XXX 30,000
Xxxx X. Xxxxxxxx 50,000
Xxxxx X. Xxxxx XXX 30,000
Xxxxxx Xxxxxxx Xxxxxx Trust of 1996 40,000
Xxxx X. Xxxxxxx 100,000
Xxxxxx & McBaine International 100,000
X. Xxxxxxxxx XxXxxxx 50,000
Xxx X. Xxxxxx - Xxxxx X. Xxxxxx 100,000
Lagunitas Partners, LP 350,000
Cordillera Fund LP 200,000
___________
Total $ 3,800,000
35
