NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT ("Agreement") dated November 25, 1998 between
DUALSTAR TECHNOLOGIES CORPORATION, a Delaware corporation having its principal
office at 00-00 00xx Xxxxxx, Xxxx Xxxxxx Xxxx, Xxx Xxxx 00000 (the
"Corporation"); and TECHNOLOGY INVESTORS GROUP, LLC, a Delaware limited
liability company having its address at 00 Xxxxxxx Xxxxxx, Xxx Xxxxxxxx, Xxx
Xxxx 00000 ("TIG").
1. Sale and Purchase of Convertible Note. At the Closing (as
hereinafter set forth), the Corporation shall sell and deliver to TIG, and TIG
shall purchase, the Corporation's Subordinated Convertible Note (the "Note") in
the principal amount of $2,500,000 at a purchase price of $2,500,000 (the
"Purchase Price"). The Note shall be in the form attached hereto as Exhibit A.
2. Closing. The Closing of the sale and purchase of the Note shall
take place at 10:00 a.m. on November 25, 1998 at the offices of Xxxxx & Xxxxxx,
Xxx Xxxxx Xxxxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000. At the Closing, (a) the
Corporation shall deliver to TIG the Note; (b) TIG shall deliver to the
Corporation the Purchase Price by bank wire in immediately available funds; (c)
the Corporation and TIG shall deliver to each other an executed copy of a
stockholders agreement in the form attached hereto as Exhibit B (the
"Stockholders Agreement"); (d) the Corporation and TIG shall deliver to each
other an executed copy of a registration rights agreement in the form attached
hereto as Exhibit C (the "Registration Rights Agreement"); and (e) the
Corporation and certain stockholders of the Corporation, and TIG and its
members shall deliver to each other an executed copy of a letter agreement
regarding restrictions on the sale or purchase of the stock of the Corporation
in the form attached hereto as Exhibit D. All deliveries and payments at the
Closing shall be made simultaneously.
3. Representations, Warranties and Agreements of TIG. TIG represents,
warrants, covenants, and agrees as follows:
3.1 TIG is a limited liability company duly organized, validly
existing, and in good standing under the laws of the State of Delaware. This
Agreement has been duly authorized, executed and delivered by TIG and is the
legal, valid and binding obligation of TIG enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy and other
laws of general application relating to creditor's rights or general principles
of equity.
3.2 TIG is an "Accredited Investor" within the meaning of Rule 501(a),
promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), and, together with its financial advisors, if any, has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks involved in the investment in the Note, and the shares of
Common Stock of the Corporation issuable upon conversion thereof (the
"Shares").
3.3 TIG has received and reviewed, and is familiar with, the terms and
conditions of this Agreement, and TIG confirms that all documents, records and
books pertaining to the investment in the Corporation and requested by it,
including but not limited to the Corporation's Quarterly Report on Form 10-Q
for the three months ended September 30, 1998; the Annual Report on Form 10-K,
for the fiscal year ended June 30, 1998; the Quarterly Report on Form 10-Q for
the nine months ended March 31, 1998; the Quarterly Report on Form 10-Q for the
six months ended December 31, 1997; the Quarterly Report on Form 10-Q for the
three months ended September 30, 1997; and the Notice of Meeting and Proxy
Statement relating to the 1998 Annual Meeting of Stockholders and all similar
filings (including any and all amendments thereto) made by the Corporation
since January 1, 1996 (the "Filings"), have been made available or delivered to
TIG.
3.4 TIG has had an opportunity to ask of the Corporation, or a person
or persons acting on its behalf, any and all relevant questions of and received
answers from the Corporation which TIG considers to be responsive to such
questions, and has received copies of all documents requested by TIG, in
connection with any aspect of the Corporation and the terms and conditions of
this investment. TIG acknowledges that it has made its own investigation
concerning the business and affairs of the Corporation.
3.5 The Note purchased by TIG, including the Shares, are being
acquired solely for TIG's own account for investment and are not being
purchased with a view to or for the resale, distribution, transfer,
fractionalization or other disposition thereof, and TIG has no present plans to
enter into any such contract, undertaking, agreement or arrangement with
respect thereto.
3.6 TIG acknowledges and is aware of the following:
(i) the Note is non-negotiable and non-transferable, and there will be
substantial restrictions on the transferability of any Shares.
(ii) the Note will be subordinated to the rights of any bank,
commercial lender, or other financial institution of the Corporation lending
money to the Corporation as set forth in the Note.
(iii) no representation, guarantee or warranty has been made to TIG by
the Corporation, its officers, directors, agents, or employees or any other
person, expressly or by implication, as to the profitability of the Corporation
or with respect to the Note or the Shares, except for those representations and
warranties set forth herein and in that certain Security Agreement between TIG
and the Corporation, dated July 24, 1998.
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3.7 TIG further acknowledges that:
(i) it has been advised that the Note being purchased hereunder and
any Shares subsequently issued upon conversion of the Note, have not been and
will not be registered under the Securities Act in reliance upon an exemption
from registration provided in Section 4(2) of the Securities Act and Regulation
D thereunder.
(ii) the Note and the Shares may not be sold, pledged, assigned or
otherwise transferred by TIG in absence of registration under the Securities
Act or exemption from registration. In particular, TIG is aware that the Note
and the Shares will be "restricted securities", as such term is defined in Rule
144 promulgated under the Securities Act ("Rule 144"), and that they may not be
sold pursuant to Rule 144 until the conditions thereof are met.
(iii) the following legend shall be placed on the Note and any
certificate(s) evidencing the Shares:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (the "ACT"), OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (2) THE CORPORATION RECEIVES AN OPINION
OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO THE CORPORATION,
THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED
OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE
STATE SECURITIES LAWS.
(iv) the following legend shall be placed on any certificate(s)
evidencing the Shares:
THE SALE, PLEDGE OR TRANSFER OF THE SHARES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT
DATED NOVEMBER __, 1998 AMONG THE CORPORATION AND CERTAIN
STOCKHOLDERS OF THE CORPORATION.
(v) the Corporation may place a stop transfer order on its transfer
books against the Shares.
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3.8 TIG is making the foregoing representations and warranties with
the intent that they may be relied upon by the Corporation in determining the
suitability of the sale of the Note to TIG for purposes of federal and state
securities laws.
4. Representations, Warranties and Agreements of the Corporation. The
Corporation represents, warrants, covenants, and agrees as follows:
4.1. Existence and Corporate Authority. The Corporation is a
corporation duly organized and validly existing under the laws of the State of
Delaware. The Corporation has the corporate power and authority to make, sign,
deliver and perform its obligations hereunder, and this Agreement has been
authorized and approved by all required action of the Corporation. This
Agreement has been duly executed and delivered by the Corporation and is a
legal, valid and binding obligation of the Corporation, enforceable in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy and other laws of general application relating to creditors' rights
or general principles of equity.
4.2. Certificate of Incorporation; By-Laws. Attached hereto as
Exhibits E-1 and E-2, respectively, are true and correct copies of the
Certificate of Incorporation and By-Laws of the Corporation as amended to date.
4.3. Capital Stock. The Corporation has an authorized capitalization
consisting of 25,000,000 shares of common stock, $.01 par value, of which
9,000,000 shares are issued and outstanding. All such outstanding shares have
been duly authorized and validly issued and are fully paid and non-assessable.
The Shares issued upon conversion of the Note will be duly authorized, validly
issued, fully paid and non-assessable shares. No options, warrants or other
rights to purchase common stock of the Corporation granted to employees,
officers or directors, or consultants or advisors to the Corporation or any
subsidiary thereof, pursuant to the 1994 Stock Option Plan, have an exercise
price that is less than fair market value of the Corporation's common stock on
the date of grant, and no shares of such common stock of the Corporation sold
to eligible participants under the 1994 Plan have been sold for less than fair
market value.
4.4. Governmental Authorizations. To the best of the Corporation's
knowledge, after reasonable investigation, no authorization, approval, or other
action by, and no notice to or filing with, any governmental or regulatory body
(except the Securities and Exchange Commission and the Nasdaq Stock Market) is
required for the execution, delivery or performance of this Agreement by the
Corporation.
4.5. No Conflicts or Defaults. To the best of the Corporation's
knowledge, after reasonable investigation, the execution by the Corporation of
this Agreement will not violate or create a default under any material
agreement to which it is a party.
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4.6. Compliance with Laws. To the best of the Corporation's knowledge,
after reasonable investigation, the execution, delivery and performance of this
Agreement by the Corporation do not materially violate any law or any order of
any court, governmental authority or arbitrator.
4.7. Securities Laws. The Filings do not, as of the date made, contain
any untrue statement of a material fact or omit to state a material fact,
pursuant to the requirements of such Filings under the Securities Act and the
Securities Exchange Act of 1934, as amended, necessary in order to make the
statement made, in light of the circumstances under which they were made, not
misleading. Except for certain demand registration rights granted at the time
of the initial public offering of the Corporation dated February 13, 1995, the
Corporation has granted no other demand registration rights.
4.8 Financial Information. The financial information contained in the
Filings are complete, accurate and correct in all material respects, at the
respective dates thereof.
5. Covenants of the Corporation. So long as the principal amount of
the Note remains outstanding, without the consent of TIG:
(i) The Corporation will not alter, amend or modify in any respect the
rights, preferences or privileges of the Note.
(ii) The Corporation will not incur any indebtedness for consideration
other than cash or incur in excess of an aggregate of $5,000,000 of additional
indebtedness outstanding at any time beyond indebtedness shown or reflected on
the Corporation's balance sheet at June 30, 1998 and the principal amount of
the Note. (For the purposes hereof, "indebtedness" shall not include accounts
payable to trade creditors created or assumed in the ordinary course of
business in connection with obtaining materials or services or amounts owed to
employees of the Corporation in the ordinary course of business.)
(iii) Except as set forth in the Corporation's Annual Report on Form
10-K for the fiscal year ended June 30, 1998 and the Notice of Meeting and
Proxy Statement relating to the 1998 Annual Meeting of Stockholders, the
Corporation is not currently engaged in and shall not enter into any
transaction with a related party, whether or not reportable pursuant to
Regulation S-K promulgated by the Securities and Exchange Commission; provided
that, TIG shall not unreasonably withhold or delay its consent to any such
transaction.
(iv) The Corporation shall not sell, transfer or otherwise dispose of
intellectual property of the Corporation for consideration received in excess
of $500,000, singly or in the aggregate; provided that, TIG shall not
unreasonably withhold or delay its consent to any such disposition. (For the
purposes hereof, "intellectual property" means rights in any patent, copyright,
trademark, trade dress and trade name, including any such rights related to
applications in the online, interactive or multimedia environments.)
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(v) The Corporation shall not sell, transfer or otherwise dispose of
any assets of the Corporation, other than in the ordinary course of business,
if such disposition, together with any and all other such dispositions after
the Closing, constitute more than $2,000,000 of the Corporation's assets (i) as
shown or reflected in the Corporation's most recent balance sheet, or (ii)
valued at fair market value at the time of disposition, whichever is greater.
(vi) The Corporation will not issue options to purchase stock of the
Corporation or restricted stock to directors, officers, or employees of the
Corporation in consideration of services rendered, except for grants or awards
pursuant to the 1994 Stock Option Plan as proposed to be amended at the 1998
Annual Meeting of Shareholders. The Corporation will provide a copy to TIG of
any proposed amendments to the 1994 Plan prior to disclosure of such amendments
to the Corporation's shareholders.
(vii) The Corporation will not make any distribution of stock or stock
rights of the Corporation to shareholders, if made at the election of any of
the shareholders of the Corporation and such distribution would result in
taxable income to TIG pursuant to Section 305 of the Internal Revenue Code, as
amended.
(viii) The Corporation will not redeem or repurchase any of the
outstanding Common Stock of the Corporation, except as provided in the Note and
the Stockholders Agreement.
(ix) The Corporation will not merge or consolidate with, or acquire
the stock or assets of, any other entity, or otherwise effect a reorganization
of the Corporation, in which (in any such transaction) the outstanding Common
Stock of the Corporation is issued; provided that, the foregoing shall not
apply to any merger, consolidation or reorganization among any of the
Corporation's subsidiaries or between the Corporation and any subsidiary,
unless such consent is required pursuant to another subparagraph of this
Section 5.
(x) The Corporation will not expand the size of the Board of Directors
to more than eight directors.
6. Covenants of the Parties.
6.1 Restrictions. TIG and the Corporation shall not, and will not
cause or induce any of their Affiliates to, directly or indirectly during the
twenty (20) trading days immediately preceding each Reset Date (as such term is
defined in the Note), sell, or enter an order to sell, assign, transfer,
pledge, encumber, or purchase or enter orders to buy for the Common Stock of
the Corporation. For purposes of this Agreement, an "Affiliate" of, or person
affiliated with a specified person is a person that (i) directly or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the person specified; or (ii) is related by blood or
marriage, and any entity in which such person and/or other Affiliates own, in
the aggregate, ten percent (10%) or more of the voting power or equity interest
in such entity.
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6.2 Board Representation. Within 90 days after the Closing, the
Corporation shall cause to be held a special meeting of the Board of Directors
for the purpose of (i) increasing the total number of directors to eight (8)
directors, and (ii) filling the newly created directorship resulting from such
increase, pursuant to the By-Laws of the corporation. TIG shall have the right
to designate, and the Corporation will use its best efforts to cause the
election of, a person reasonably acceptable to the Board of Directors to fill
such newly created directorship, to hold office until the next annual meeting
of Stockholders and until his successor, if any, is elected and qualified.
6.3 Confidentiality. Except to the extent required by law, each party
to this Agreement will not disclose to any third party any material
confidential information concerning the other party. The obligations of the
parties hereunder shall not apply to any confidential information of the other
party which was in the public domain at the time it was disclosed, or to
confidential information which subsequently enters the public domain, other
than due to a breach of this Agreement by either party. This obligation will
survive termination of this Agreement.
7. Miscellaneous.
7.1. Amendment. This Agreement, the Exhibits and Schedule hereto may
not be amended except by an instrument in writing signed by or on behalf of
each of the parties hereto.
7.2. Waiver. Any agreement on the part of a party hereto to any
extension or waiver shall be valid only if set forth in an instrument in
writing signed by or on behalf of such party.
7.3. Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of
the State of New York.
7.4. Captions. The Section captions used herein are for reference
purposes only, and shall not in any way affect the meaning or interpretation of
this Agreement.
7.5. Publicity. The parties hereto agree to use good faith efforts to
coordinate any disclosure relating to, connected with, or arising out of this
Agreement or the matters contained herein. Each party will provide a copy to or
inform the other party of any press release or the making of a public statement
prior to publication of any such press release or the making of any such public
statement.
7.6. Notices. Any notice required hereunder shall be in writing and
shall be sufficiently given if delivered or sent by reputable overnight courier
or facsimile transmission (in each case with evidence of receipt), addressed to
the Corporation at its principal office and to TIG at the address first set
forth above. Any party may change such address by like notice. If sent by
courier, such notice shall be deemed to have been given as of the next business
day after it was deposited with the courier service and if sent by facsimile
such notice shall be deemed to have been given when transmitted.
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7.7. Parties in Interest. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
7.8. Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
7.9. Entire Agreement. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
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IN WITNESS WHEREOF, each of the Corporation and TIG has
caused this Agreement to be executed by its officer thereunto duly authorized,
all as of the day and year first above written.
TECHNOLOGY INVESTORS
GROUP, LLC DUALSTAR TECHNOLOGIES CORPORATION
By: /s/ Xxxx Xxxxxx By: /s/ Elven X. Xxxxxx
---------------------- ----------------------------
Name: Xxxx Xxxxxx Name: Elven X. Xxxxxx
Title: Manager Title: Chairman
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EXHIBIT A
SUBORDINATED CONVERTIBLE NOTE
SEE ATTACHED.
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EXHIBIT B
STOCKHOLDERS AGREEMENT
SEE ATTACHED.
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EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
SEE ATTACHED.
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EXHIBIT D
LETTER AGREEMENT
SEE ATTACHED.
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EXHIBIT E-1
CERTIFICATE OF INCORPORATION
SEE ATTACHED.
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EXHIBIT E-2
BY-LAWS OF THE CORPORATION
SEE ATTACHED.
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