Execution Copy
DUAL STAR TECHNOLOGIES CORPORATION
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made as of March
28, 2000, by and among DualStar Technologies Corporation, a Delaware corporation
located at Xxx Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (the "Company"), Cerberus
Capital Management, L.P., a Delaware limited partnership, on behalf of certain
funds and accounts managed by it ("CP"), and Blackacre Capital Management
L.L.C., a Delaware limited liability company, on behalf of certain funds and
accounts managed by it ("Blackacre"), each located at 000 Xxxx Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 (CP and Blackacre and such funds and accounts
are collectively referred to as the "Purchaser").
WHEREAS, the Purchaser desires to purchase from the Company, and the
Company desires to sell and issue to the Purchaser, at Purchaser's election,
either (A) (x) $30,000,000 aggregate principal amount of a convertible
promissory note ("the Note") of the Company, convertible into shares of the
Common Stock, par value $0.01 per share, of the Company (the "Common Stock") at
an initial conversion price of $4.00 per share and (y) 4,050,000 shares of
Common Stock at a purchase price of $4.00 per share or (B) 11,550,000 shares of
Common Stock at a purchase price of $4.00 per share
WHEREAS, in connection with the aforementioned documents, the Purchaser and
the Company are also entering into Strategic Alliance Agreement (the "Strategic
Alliance Agreement") granting the Company certain rights to sell services with
respect to certain properties owned by the Purchaser or in which the Purchaser
holds an indirect interest;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants and agreements contained herein, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Common Stock. Upon the terms and subject to the conditions hereof, at
the Closing (as defined below), the Company will issue and sell to the Purchaser
and the Purchaser will purchase from the Company, at the Purchaser's election,
either (A) (x) the Note, in the form attached hereto as Exhibit A, bearing
interest at the rate of three percent (3%) per annum at a purchase price of
$30,000,000 and (y) 4,050,000 the number of shares of Common Stock at a purchase
price of $4.00 per share or (B) 11,550,000 shares of Common Stock at a purchase
price of $4.00 per share. (The Common Stock to be purchased by Purchaser
hereunder shall hereinafter be referred to as the "Shares;" the Note and the
Shares purchased hereunder shall hereinafter
collectively be referred to as the "Securities"). Under either clause "A" or "B"
above, the aggregate purchase price shall be $46,200,000 (the "Purchase Price").
ARTICLE II
THE CLOSING
2.1 Closing. The closing of the purchase and sale of the Securities shall
be held at the offices of the Company in Long Island City, New York at 10:00
a.m., local time, on the first business day after which all conditions to
closing, identified in Article VII hereof have been satisfied or waived by the
party entitled to grant such waiver, or on such other date thereafter upon which
the Company and the Purchaser shall agree (the "Closing").
2.2 Payment and Delivery. At the Closing, (A) the Purchaser shall pay to
the Company the Purchase Price by wire transfer of immediately available funds
pursuant to the Company's instructions; (B) the Company shall deliver to the
Purchaser a certificate or certificates, registered in Purchaser's name,
representing the Securities and, in the event Purchaser elects to purchase the
Note identified in Section 1.1(A) of this Agreement, the guaranties, pledge and
security agreements and related Uniform Commercial Code financing statements,
identified on Schedule 2.2 hereto (collectively, the "Collateral Agreements");
(C) the Company, certain of its officers identified therein and the Purchaser
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
Company, the officers of the Company identified therein and the Purchaser shall
deliver to each other an executed copy of a Registration Rights Agreement in the
form attached hereto as Exhibit D (the "New Registration Rights Agreement"); (E)
the Company shall deliver to the officers identified therein an executed copy of
the Class C Warrant Agreement in the form attached hereto as Exhibit F, together
with Class C Warrant registered in the names of such officer or designated
entity owned or controlled by them, and (F) the Company and the Purchaser shall
deliver to each other an executed copy of the Strategic Alliance Agreement among
the Company and Purchaser in the form attached hereto as Exhibit G (the
"Strategic Alliance Agreement", and, together with this Agreement, the Note, the
Stockholders' Agreement, the New Registration Rights Agreement, the Class C
Warrant Agreement the Class C Warrant and the Collateral Agreements being
collectively referred to herein as the "Transaction Documents").
All deliveries and payments at the Closing shall be made simultaneously.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as of the date hereof
and as of the Closing Date as follows:
3.1 Organization and Standing; Certificate of Incorporation and Bylaws. The
Company and each of its subsidiaries are duly organized and existing under, and
by virtue of, the laws of the state of their respective organization and are in
good standing under such laws. The Company and each of its subsidiaries have the
requisite corporate power and authority to own and operate their respective
properties and assets, and to carry on their respective business as now
conducted and as proposed to be conducted. The Company and each of its
subsidiaries are qualified to do business as foreign corporations in each
jurisdiction in which such qualification is required, except to the extent that
the failure to so qualify would not have a material adverse effect on the
assets, liabilities, condition (financial or otherwise), operating results or
business of the Company and its subsidiaries (taken as a whole), as now
conducted or as now proposed to be conducted (a "Company Material Adverse
Effect"). The Company has furnished the Purchaser with true, correct and
complete copies of its Restated Certificate of Incorporation and Bylaws, as
amended, certified by the Delaware Secretary of State and by the Secretary of
the Company, respectively, and the corresponding organizational documents and
certifications for each of its subsidiaries.
3.2 Corporate Power. The Company has all requisite legal and corporate
power and authority to execute and deliver this Agreement, to sell and issue the
Securities hereunder and to carry out and perform its obligations under the
terms of this Agreement, the Note and the other Transaction Documents.
3.3 Subsidiaries. Except as set forth in the Company's SEC Reports (as
hereinafter defined), the Company has no subsidiaries or affiliated companies
and does not otherwise own or control, directly or indirectly, any equity
interest in any corporation, association, partnership or business entity, nor
has the Company made any commitment or subscribed for the purchase of any such
equity interest. The Company owns all of the outstanding voting securities and
other equity interests, if any, and all rights to acquire such securities, of
those subsidiaries which are set forth in Schedule 3.3.
3.4 Capitalization. (a) The authorized capital stock of the Company
consists of 25,000,000 shares of Common Stock, of which 15,701,571 shares are
issued and outstanding.
(b) The authorized capital stock of each of the subsidiaries of the Company
and the number of issued and outstanding shares of capital stock and other
equity interest, if any, including rights to acquire securities of such
subsidiaries are identified in the Company's draft proxy statement in respect of
the Agreement and related matter, dated March 28, 2000 (the "Proxy Statement").
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(c) Other than as contemplated herein and except as set forth in Schedule
3.4, the Company's SEC Reports filed prior to the date hereof (as hereinafter
defined), or as reflected in the Proxy Statement, there are no options, warrants
or other rights outstanding to purchase or acquire, or any securities
convertible into, nor has the Company or its subsidiaries agreed to issue or
reissue, other than pursuant to this Agreement, any of the Company's authorized
and unissued capital stock of the Company or its subsidiaries. Except as set
forth in the Company's SEC Reports and the Proxy Statement, to the Company's
best knowledge, there are no voting agreements concerning any of the outstanding
securities of the Company or its subsidiaries; and except as set forth in the
Company's SEC Reports, (i) other than as contemplated in the New Registration
Rights Agreement, (ii) as set forth in the Registration Rights Agreement dated,
November 25, 1998, as amended, by and between the Company and certain holders of
the Company's outstanding Common Stock (the "Existing Registration Rights
Agreement") and (iii) as set forth in the Registration Rights Agreement, dated
as of December 1, 1999, by and between the Company and Xxxxxxxxx L.L.C. (the
"Xxxxxxxxx Registration Rights Agreement"), there are no agreements to register
any of the Company's securities. No person is entitled to any preemptive right
with respect to the issuance of the Shares or the Common Stock reserved for
issuance upon conversion of the Note (the "Conversion Shares").
3.5 Authorization. Except for the required approval by the stockholders of
the Company, all corporate action on the part of the Company necessary for the
authorization, execution, delivery and performance of this Agreement and the
other Transaction Documents by the Company, the authorization, sale, issuance
and delivery of the Securities and the Conversion Shares, and the performance of
all of the Company's obligations under this Agreement and the other Transaction
Documents have been taken. This Agreement and the other Transaction Documents
constitute valid and binding obligations of the Company, enforceable in
accordance with their respective terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
The Shares, the Note and the Conversion Shares have been duly authorized and,
when issued in compliance with the provisions of this Agreement and the other
Transaction Documents, will be validly issued, fully paid and nonassessable, and
the Shares and the Conversion Shares will have the rights, preferences, and
privileges described with respect thereto in the Company's Restated Certificate
of Incorporation, as amended. The Shares and the Conversion Shares shall be free
of any liens or encumbrances, in all cases, subject to restrictions on transfer
pursuant to the Stockholders' Agreement and under state and/or federal
securities laws.
3.6 Compliance with Other Instruments. Neither the Company nor any of its
subsidiaries is in violation or default of any provision of its organizational
documents or of any mortgage, indenture, contract, agreement, instrument,
judgment or decree to which the Company or any of its subsidiaries is a party or
by which any of them is bound, except as would not individually or in the
aggregate have a Company Material Adverse Effect. The execution, delivery and
performance by the Company of this Agreement, the other Transaction Documents
and the consummation of the transactions contemplated hereby and thereby, will
not result in any violation of or conflict with the Company's Restated
Certificate of Incorporation or By-Laws, and will not result in any violation of
or conflict with, or constitute a default under, any mortgage, indenture,
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contract, agreement, instrument, judgment or decree to which the Company or any
of its material subsidiaries is a party or by which any of them is bound or in
the creation of any material mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company or any of its subsidiaries.
3.7 No Governmental Consent. Other than matters relating to the
satisfaction of the Closing condition set forth in Section 7.1(i) of this
Agreement, no consent, approval or authorization of or registration,
qualification, designation, declaration or filing with any governmental
authority on the part of the Company or its subsidiaries is required in
connection with the valid execution and delivery of this Agreement, or the
offer, sale or issuance of the Shares, the Note and the Conversion Shares except
for such filings as may be required in connection with the exemption under the
Securities Act of 1933, as amended (the "Securities Act"), or the qualification
(or the exemption from qualification, if available) under applicable blue sky
laws of the offer and sale of the Shares, which filings and qualifications, if
required, will be accomplished in a timely manner.
3.8 Offering. Subject to the accuracy of the Purchaser's representations in
Section 4 hereof, the offer, sale and issuance of the Shares and the Note
pursuant to this Agreement, constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act.
3.9 Brokers or Finders. Neither the Company nor any of its subsidiaries has
retained any investment banker, broker or finder in connection with the
transactions contemplated by this Agreement, and there are no brokerage
commissions, finder's fees or similar items of compensation payable in
connection therewith based on any arrangement or agreement made by or on behalf
of the Company.
3.10 SEC Reports. The Company has filed with the Securities and Exchange
Commission (the "Commission") and provided to the Purchaser all forms, reports
and documents required to be filed by the Company since January 1, 1997 and
prior to the date hereof (collectively, the "Company's SEC Reports") pursuant to
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated by the Commission thereunder (the "Exchange Act"), all of which,
when filed, complied in all material respects with all applicable requirements
of the Exchange Act. As of their respective dates, the Company's SEC Reports
(not including any exhibits and schedules thereto and documents incorporated by
reference therein) did not contain any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim consolidated financial statements of the Company and its
subsidiaries included in the Company's SEC Reports filed prior to the date
hereof or incorporated by reference therein were prepared in accordance with
generally accepted accounting principles ("GAAP") (subject, in the case of such
unaudited financial statements, to the absence of complete footnotes) applied on
a consistent basis (except as indicated therein or in the notes thereto) and
fairly present in all material respects the consolidated financial position of
the Company and its subsidiaries at the dates thereof and the results of its
consolidated
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operations and cash flows for the periods then ended (subject in the case of the
unaudited interim financial statements, to normal year-end audit adjustments,
which shall not be material in amount or nature).
3.11 Absence of Certain Developments. Since December 31, 1999 there has
been no change in the consolidated assets, liabilities, condition (financial or
otherwise), operating results, or business of the Company and its subsidiaries
from that reflected in the Company's SEC Reports filed prior to the date hereof
that would have resulted in, individually or in the aggregate, a Company
Material Adverse Effect. Since December 31, 1999, the Company has not (i)
directly or indirectly declared or paid any dividend or ordered or made any
other distribution on account of any shares of any class of the capital stock of
the Company, (ii) directly or indirectly redeemed, purchased or otherwise
acquired any such shares or agreed to do so or set aside any sum or property for
any such purpose, (iii) made any capital expenditures exceeding $100,000 other
than in the ordinary course of business or (iv) incurred any indebtedness
exceeding $100,000 other than in the ordinary course of business.
3.12 Absence of Undisclosed Liabilities. Neither the Company nor any of its
subsidiaries has any liability or obligation, absolute or contingent, that is
not reflected in the consolidated financial statements included in the Company's
SEC Reports filed prior to the date hereof, other than obligations and
liabilities which taken individually or in the aggregate would not have a
Company Material Adverse Effect.
3.13 Taxes. Except as set forth in Schedule 3.13, the Company and each of
its subsidiaries have filed all tax returns and reports required by law to be
filed (or have sought appropriate extensions therefor), and have paid, or
otherwise fully reserved for in accordance with GAAP, all taxes, assessments and
other governmental charges that are due and payable, except (x) for those
matters being contested in good faith and by appropriate proceedings by the
Company or the affected subsidiaries and for which adequate reserves have been
established in accordance with GAAP or (y) for those matters for which the
charges, accruals and reserves on the books of the Company and its subsidiaries
in respect of taxes are adequate, and the Company knows of no assessment for
additional taxes or any basis therefor.
3.14 Title to Properties; Liens and Encumbrances. The Company and each of
its subsidiaries have good title to all of their respective properties and
assets, both real and personal, tangible and intangible, reflected on the
balance sheet included in the consolidated financial statements included in the
Company's SEC Reports filed prior to the date hereof or acquired after the date
thereof (except inventory or other personal property disposed of in the ordinary
course of business subsequent to the date thereof), and such properties and
assets are not subject to any mortgage, pledge, lien, security interest,
encumbrance or charge other than (i) liens for current taxes not yet due and
payable, (ii) liens and encumbrances that do not materially detract from the
value of the property subject thereto or materially impair the operations of the
Company, (iii) liens securing obligations reflected in such financial statements
or (iv) the current mortgage on the Company's building located at 00-00 00xx
Xxxxxx, Xxxx Xxxxxx Xxxx, Xxx Xxxx. With respect to properties or
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assets it leases, the Company or the applicable subsidiary is in compliance with
such leases (except for such defaults or breaches that would not have a Company
Material Adverse Effect) and holds valid leasehold interests free of any liens,
claims or encumbrances except for those described in clauses (i) through (iii)
of the preceding sentence.
3.15 Litigation, etc. Except as described in the Company's SEC Reports
filed prior to the date hereof, there are no actions, suits, proceedings or
investigations (i) pending or, to the Company's knowledge, threatened against
the Company or any of its subsidiaries or which otherwise involve the Company's
or any of its subsidiaries' business or operations, or (ii) to the Company's
knowledge, pending or threatened against any of the officers, directors or
principal stockholders in their capacities as officers, directors or
stockholders of the Company or any of its subsidiaries, except in each case
where an adverse outcome would not individually or in the aggregate have a
Company Material Adverse Effect.
3.16 Employees, Pension and Benefit Plans.
(a) To the Company's knowledge, no employee of the Company or any of its
subsidiaries is in violation of any term of any employment contract or any other
contract or agreement between such employee and the Company or any of its
subsidiaries, and there is no strike or other labor dispute pending or, to the
knowledge of the Company, threatened, with respect to the Company or any of its
subsidiaries.
(b) Schedule 3.16 identifies each retirement, pension, savings, bonus,
stock purchase, profit sharing, stock option, deferred compensation, severance
or termination pay, insurance, death, medical, hospital, dental, vision care,
drug, sick leave, disability, salary continuation, vacation, incentive or other
compensation plan or arrangement or other employee benefit that the Company or
any of its subsidiaries currently maintains or to which any such entity
currently contributes for the benefit of any of its employees or former
employees (or dependents or beneficiaries thereof) (or as to which the Company,
any subsidiary thereof or any person that, together with the Company or such
subsidiary, is treated as a single employer under Section 414(b), (c), (m) or
(o) of the Code (each such person, including the Company or such subsidiary, a
"Commonly Controlled Entity") may otherwise have any liability), including, but
not limited to, any pension plan (each a "Pension Plan") as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and any welfare plan as defined in Section 3(1) of ERISA (a "Welfare
Plan"), whether funded, insured or self-founded or whether written or oral (each
of the foregoing contained in this Section 3.16(b) (a "Plan").
(c) Each Plan has been administered in all material respects in accordance
with its terms. The Company, the subsidiaries thereof and all Plans are in
compliance in all material respects with the applicable provisions of ERISA, the
Code, all other applicable laws and each such Plan which is intended to meet the
requirements of a "qualified plan" under Code ss. 401(a) has been determined by
the IRS to be a qualified plan (in form) by the issuance of a favorable
determination letter by the IRS. There is no pending or, to the knowledge of the
Company, threatened legal action,
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suit, investigation or claim relating to the Plans (other than routine claims
for benefits). Neither the Company or any subsidiary thereof has engaged in a
transaction in connection with which such entity would be subject to either a
civil penalty pursuant to Section 502(i) or ERISA or tax pursuant to Section
4975 of the Code. All contributions and other payments required to be made by
the Company or any subsidiary thereof to any Plan as of the Closing Date, or
with respect to any period ending prior to the Closing Date, have (or will have)
been made, on or prior to the Closing Date.
(d) To the knowledge of the Company, there has not occurred, and the
transactions contemplated by this Agreement will not result in the occurrence
of, a "reportable event" within the meaning of Section 4043 of ERISA. To the
knowledge of the Company, neither the Company nor any Commonly Controlled Entity
has, within the 5 year period preceding the Closing Date, entered into any
transaction the principal purpose of which was to evade liability to which the
Company or any Commonly Controlled Entity would otherwise be subject under Title
IV of ERISA. The principal purpose of the Company entering into the transactions
contemplated by this Agreement is not to evade liability to which the Company or
any Commonly Controlled Entity would otherwise be subject under Title IV of
ERISA.
(e) No benefits under any Plan set forth in Schedule 3.16 shall become
accelerated as a result of the transactions contemplated by this Agreement.
(f) Except as required under Section 4908B of the Code, neither the Company
or any subsidiary thereof has an obligation to provide post-retirement health or
life benefits.
(g) WARN. Neither the Company nor any of its subsidiaries has incurred any
liability or obligation under the Worker Adjustment and Retraining Notification
Act or similar state laws which remains unpaid or unsatisfied.
3.17 Compliance With Law. The Company and its subsidiaries are conducting
and have conducted their respective businesses and operations in compliance with
all governmental rules and regulations applicable thereto, including without
limitation those relating to occupational safety, environmental, health and
employment practices, and are not in violation or default in any respect under
any statute, law, ordinance, rule, regulation, judgment, order, decree,
concession, grant, franchise, license or other governmental authorization or
approval applicable to it or any of its properties, except in each case where an
adverse outcome would not individually or in the aggregate have a Company
Material Adverse Effect.
3.18 Permits. The Company and its subsidiaries have all material permits,
licenses, orders and approvals of any federal, state, local or foreign
governmental or regulatory body (collectively, the "Permits") that are necessary
in the conduct of their respective businesses substantially in the manner as now
conducted; all such Permits are in full force and effect; no material violations
have been recorded in respect of any such Permits; and no proceeding is pending
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or, to the knowledge of the Company, threatened to revoke or limit in any
material respect any such Permits.
3.19 Fairness Opinion. The Board of Directors of the Company has received
the opinion of Xxxxxx & Co., financial advisers of the Company, dated as of the
date hereof, to the effect that the Transactions contemplated hereby are fair to
the Company and its stockholders, from a financial point of view (the "Fairness
Opinion"), and the Fairness Opinion has not been withdrawn, altered or amended
in any material respect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
CP and Blackacre hereby jointly and severally represent and warrant to the
Company as follows:
4.1 Organization and Standing. CP is a limited partnership duly organized
and existing under and by virtue of the laws of Delaware and is in good standing
under such laws. Blackacre is a limited liability company duly organized and
existing under and by virtue of the laws of Delaware and is in good standing
under such laws.
4.2 Corporate Power. Each entity that constitutes the Purchaser has all
requisite legal power and authority to execute and deliver this Agreement and to
carry out and perform its obligations under the terms of this Agreement and the
other Transaction Documents.
4.3 Authorization. All legal action on the part of each entity that
constitutes the Purchaser and their respective directors, managers, partners,
owners and members necessary for the authorization, execution, delivery and
performance of this Agreement and the other Transaction Documents by each entity
that constitutes the Purchaser, the purchase of the Securities and the
performance of all of the Purchaser's obligations under this Agreement and the
other Transaction Documents has been taken. This Agreement and the other
Transaction Documents when executed and delivered by the Purchaser, shall
constitute the valid and binding obligation of each entity that constitutes the
Purchaser, enforceable against both entities that constitute the Purchaser in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules governing specific
performance, injunctive relief or other equitable remedies.
4.4 Experience. Each entity that constitutes the Purchaser is an accredited
investor within the meaning of Regulation D promulgated under the Securities Act
and, by virtue of its experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company, it is
capable of evaluating the merits and risks of its investment in the Securities
and has the capacity to protect its own interests.
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4.5 Investment. No entity that constitutes the Purchaser has been formed
solely for the purpose of making this investment. [CP and Blackacre are
acquiring the Securities on behalf of certain funds and accounts managed by CP,
Blackacre or their affiliates, and each of such funds or accounts]* is acquiring
the Securities for investment for its own account, not as a nominee or agent,
and not with the view to, or for resale in connection with, any distribution of
any part thereof. Neither CP, Blackacre nor any of such funds or accounts, has
any present intention of selling, granting any participation in or otherwise
distributing the Securities either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or non-occurrence of any
predetermined event or circumstance in violation of the Securities Act. Each
entity that constitutes the Purchaser understands that the Securities have not
been registered under the Securities Act or applicable state and other
securities laws by reason of a specific exemption from the registration
provisions of the Securities Act and applicable state and other securities laws,
the availability of which depends upon, among other things, the bona fide nature
of the investment intent and the accuracy of the Purchaser's representations as
expressed herein. Each entity that constitutes the Purchaser acknowledges and is
aware of the following:
(i) the Note is non-negotiable and non-transferable, except as
provided pursuant to Article VI hereto, and there will be substantial
restrictions on the transferability of the Shares or any Conversion Shares;
(ii) no representation, guarantee or warranty has been made to the
Purchaser by the Company, its officers, directors, agents, or employees or
any other person, expressly or by implication, as to the profitability of
the Company or with respect to the Note or the Conversion Shares, except
for those representations and warranties set forth in this Agreement and
the other Transaction Documents; and
(iii) the Note will be subordinated to the rights of any surety
company providing any surety bond for the benefit of the Company or its
subsidiaries.
4.6 Restricted Securities. No entity that constitutes the Purchaser will
sell or otherwise transfer the Shares, the Note, or the Conversion Shares,
without registration under the Securities Act of 1933, as amended (the
"Securities Act") or applicable state securities laws or an exemption therefrom.
None of the Shares, the Note, or the Conversion Shares have been registered
under the Securities Act or under the securities laws of certain states.
Purchaser is aware that an exemption from the registration requirements of the
Securities Act pursuant to Rule 144 promulgated thereunder is not presently
available; and, except as provided in the New Registration Rights Agreement, the
Company has no obligation to register the Shares, the Note or the Conversion
Shares, or to make available an exemption from the registration requirements
pursuant to such Rule 144 or any successor rule for resale of the Shares or the
Conversion Shares.
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* Not needed if fund(s) purchase the securities directly and are the
"Purchaser(s)."
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4.7 Risk Factors. Each entity that constitutes the Purchaser recognizes
that investment in the Shares and the Note involves substantial risks, including
loss of the entire amount of such investment. Further, it has carefully read and
considered the matters set forth under the caption "Risk Factors" in the
Company's SEC Reports filed prior to the date hereof, and has taken full
cognizance of and understands all of the risks related to the purchase of the
Shares.
4.8 Legend. Each entity that constitutes the Purchaser acknowledges that
the Note and the certificate(s) representing the Shares or the Conversion
Shares, shall be stamped or otherwise imprinted with a legend substantially in
the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS, WHICH, IN THE
OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE."
The following legend shall be placed on any certificate(s) evidencing the
Shares and the Conversion Shares:
THE SALE, PLEDGE OR TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS SET FORTH IN (1) A STOCKHOLDERS AGREEMENT DATED
__________, 2000 AMONG THE CORPORATION AND CERTAIN STOCKHOLDERS OF THE
CORPORATION AND (2) THE PROVISIONS OF A CERTAIN SECURITIES PURCHASE
AGREEMENT, DATED MARCH 28, 2000, AMONG THE CORPORATION, CERBERUS CAPITAL
MANAGEMENT, L.P. AND BLACKACRE CAPITAL MANAGEMENT, L.L.C.
The Company may place a stop transfer order on its transfer books against
the Shares and the Conversion Shares to enforce the foregoing restrictions.
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4.9 Access to Data. Each entity that constitutes the Purchaser has had an
opportunity to discuss the Company's and its subsidiaries' business, management,
financial affairs and prospects with its management, the opportunity to review
the Company's and its subsidiaries' facilities and Company's SEC Reports and the
opportunity to ask questions of officers and directors of the Company, including
the Officers. Each entity that constitutes the Purchaser has carefully
considered and has, to the extent it believes such discussion necessary,
discussed with its professional legal, tax, accounting and financial advisors
the suitability of an investment in the Shares and the Note for its particular
tax and financial situation and has determined that the Shares and the Note are
a suitable investment for it. Each entity that constitutes the Purchaser
acknowledges that (i) it has had the right to request copies of any documents,
records, and books pertaining to this investment and (ii) any such documents,
records and books which it requested have been made available for inspection by
it, its attorney, accountant or adviser(s).
4.10 Brokers or Finders. Neither entity that constitutes the Purchaser has
retained any investment banker, broker or finder. Each entity that constitutes
the Purchaser will severally indemnify and hold the Company harmless against any
liability, settlement or expense arising out of, or in connection with, any such
claim.
4.11 Intent of Representations and Warranties. Each entity that constitutes
the Purchaser acknowledges and represents to the Company that it is making the
foregoing representations and warranties with the intent that they may be relied
upon by the Company in determining the suitability of the sale of the Shares and
the Note to the Purchaser for purposes of the federal and state securities laws.
ARTICLE V
COVENANTS OF THE COMPANY
5.1 Shareholder Approval.
(a) The Company will call a meeting of its stockholders and use
commercially reasonable efforts to solicit the approval of its stockholders of
the transactions contemplated hereby.
(b) The Company's Board of Directors has recommended (and will continue to
recommend subject to its fiduciary duties under applicable law) approval of the
transactions contemplated hereby by the Company's stockholders and the Company
shall take all reasonable, lawful action to solicit such approval by its
stockholders.
(c) The Company agrees, as promptly as practicable, to prepare and file
with the Commission a proxy statement and other proxy solicitation materials of
the Company (the "Proxy Statement") seeking stockholder approval of the
transactions contemplated hereby. Each of the parties hereto agrees to cooperate
with the other, its counsel and its accountants, in preparation of the Proxy
Statement. The Purchaser agrees to furnish to the Company all information
concerning
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the Purchaser as may be reasonably requested in connection with the foregoing.
The Company shall comply with all applicable laws and regulations in
distributing the Proxy Statement to its stockholders.
(d) Each of the Purchaser and the Company agrees that none of the
information supplied or to be supplied by it for inclusion or incorporation by
reference in the Proxy Statement or any amendment or supplement thereto will, at
the date of mailing to stockholders and at the time of the Company's
stockholders' meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading or any statement which, in light of the
circumstances under which such statement is made, will be false or misleading
with respect to any material fact, or which will omit to state any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier statement in the Proxy
Statement or any amendment or supplement thereto. Each of the Purchaser and the
Company further agrees that if it shall become aware of any information
furnished by it that would cause any of the statements in the Proxy to be false
or misleading with respect to any material fact, or to omit to state any
material fact necessary to make the statements therein not false or misleading,
to promptly inform the other party thereof and to take the necessary steps to
correct the Proxy Statement.
5.2 Certain Distributions. The Company will not make any distribution of
stock or stock rights of the Company to stockholders, if made at the election of
any of the stockholders of the Company if such distribution would result in
taxable income to the Purchaser pursuant to Section 305 of the Internal Revenue
Code, as amended.
5.3 Covenant with respect to the Note. So long as any principal amount of
the Note remains outstanding, without the prior written consent of the Purchaser
or a majority of the members of the Board of Directors designated by the
Purchaser, the Company shall comply with all of the covenants set forth in
Section 8 of the Note.
5.4 Operations of the Company.
(a) From the date hereof through the Closing Date, the Company and its
subsidiaries shall conduct their respective businesses in the ordinary course,
in a manner consistent with past practice, shall maintain in all material
respects their business organizations and assets, shall not take any action
reasonably likely to have a Company Material Adverse Effect, and shall not,
without the prior written consent of the Purchaser:
(i) amend its Certificate of Incorporation or By-Laws or merge with or
into or consolidate with any other person, subdivide or in any way
reclassify any shares of its capital stock or change or agree to change in
any manner the rights of its outstanding capital stock or the character of
its business;
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(ii) issue, sell, purchase or redeem, or enter into any contracts or
other agreements to issue, sell, purchase or redeem, any shares of its
capital stock or any options, warrants, convertible or exchangeable
securities, subscriptions, rights, (including preemptive rights), stock
appreciation rights, calls or commitments of any character whatsoever
relating to its capital stock, other than upon the exercise of options
outstanding on the date hereof granted pursuant to existing employee
incentive stock option plans;
(iii) enter into or amend any employment agreement other than in the
ordinary course of business; enter into any contract or other agreement
with any labor union or association representing any employee; or adopt,
enter into or amend any Compensation and Benefit Plan, Pension Plan or
similar plan or arrangement, or make any change in the actuarial methods or
assumptions used in funding any defined benefit pension plan, or make any
change in the assumptions or factors used in determining benefit
equivalencies thereunder;
(iv) declare, set aside or pay any dividends or declare, set aside or
make any distributions of any kind to its shareholders, or make any direct
or indirect redemption, retirement, purchase or other acquisition of any
shares of its capital stock;
(v) adopt a plan of liquidation or resolutions providing for the
liquidation, dissolution, merger, consolidation or other reorganization of
the Company or any of its subsidiaries;
(vi) make any change in its accounting methods, principles or
practices or made any change in depreciation or amortization policies or
rates adopted by it, except insofar as may have been required by a change
in generally accepted accounting principles;
(vii) make any wage or salary increase or bonus, or increase in any
other direct or indirect compensation, for or to any of its officers,
directors, employees, consultants or agents or any accrual for or contract
or other agreement to make or pay the same, except to persons other than
its officers, directors or shareholders made in the ordinary course of
business in a manner consistent with past practice;
(viii) make any loan to any of its officers or directors, consultants,
agents or other representatives;
(ix) make any payment or commitment to pay severance or termination
pay to any of its officers, directors, employees, consultants, agents or
other representatives except in accordance with existing contractual
obligations;
(x) except in the ordinary course of business: sell, abandon or make
any other disposition of any of its assets, properties or businesses,
individually or in the aggregate, material to the business of the Company
and its subsidiaries (taken as a whole),
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other than sales of inventory in the ordinary course of business; or grant
or suffer any lien on any of its assets, properties or businesses other
than in the ordinary course of business or other than those in favor of the
Purchaser or its affiliates;
(xi) make any capital expenditures in excess of $500,000 in any one
(1) case or $5,000,000 in the aggregate;
(xii) except with respect to he endorsement of negotiable instruments
in the ordinary course of business incur or assume any debt, obligation or
liability, or issue any debt securities or assume, guarantee, endorse or
otherwise as an accommodation because responsible for, liabilities of any
other person;
(xiii) except for tangible property acquired in the ordinary course of
business in a manner consistent with past practice, make any acquisition of
all or any part of the assets, properties, capital stock or business of any
other person;
(xiv) agree to do any of the foregoing.
(b) The Company shall give prompt notice to the Purchaser of any fact,
event or circumstance known to it that (i) is reasonably likely, individually or
together with other such matters, to result in any Company Material Adverse
Effect, or (ii) would cause or constitute a material breach of any of its
representations, warranties, covenants or agreements hereunder.
ARTICLE VI
LOCKUP AGREEMENT
6.1 Lock-up Agreement. Purchaser agrees that, for a period of eighteen (18)
months from the Closing, it will not sell, assign, transfer, pledge, encumber or
in any way dispose of (i) any of the Shares purchased from the Company pursuant
to this Agreement or (ii) any Conversion Shares acquired pursuant to this
Agreement and the Note, except as provided in Section 6.2 of this Agreement.
6.2 Exceptions. The Lock-up Agreement set forth in Section 6.1 shall not
apply if there has been a default by the Company in any payment due to the
Purchaser under the Note. Notwithstanding the foregoing, CP, Blackacre or any
other entity comprising the Purchaser may assign any rights relating to the
Shares, Notes or the Conversion Shares to any fund, account or entity managed or
controlled by Xxxxxxx X. Xxxxxxxx; provided, however, that any such fund,
account or entity shall be subject to the restrictions, covenants and agreements
contained in this Agreement and the Note (and any other agreement executed in
connection herewith); and provided further, that each such fund, account or
entity shall make the representations and warranties to the Company set forth in
Article IV of this Agreement. Consent to any other transfer by Purchaser of its
rights hereunder relating to the Shares or the Conversion Shares to any other
person shall require the approval of a
15
majority of the Board of Directors of the Company, excluding members designated
by or affiliated with the Purchaser.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Purchaser's Obligations. The obligations of the Purchaser
to consummate the transactions contemplated by this Agreement are subject to the
following conditions:
(i) The transactions contemplated by this Agreement (including the
election of directors designated by the Purchaser constituting a simple
majority of the Company's Board of Directors and the increase of the number
of the Company's authorized shares) shall have received the approval of the
shareholders of the Company (and related SEC and NASDAQ approvals);
(ii) The representations and warranties of the Company herein
contained shall be true and correct in all material respects as of the
Closing as if made on and as of the Closing Date;
(iii) The Company shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed in or complied with by the Company on or prior to the Closing
Date;
(iv) The Company shall have delivered to the Purchaser a certificate,
dated the Closing Date, to the foregoing effect and stating that all
conditions to the Purchaser's obligations hereunder have been satisfied in
all material respects;
(v) All approvals and authorizations of, filings and registrations
with, and notifications to, all governmental authorities required for the
consummation of the transactions contemplated by this Agreement shall have
been obtained or made and shall be in full force and effect and all waiting
periods required by law shall have expired;
(vi) No governmental authority of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (either temporary,
preliminary or permanent) which is in effect and prohibits consummation of
the transactions contemplated by this Agreement.
(vii) There shall not have been and be continuing any change that has
had or could reasonably be expected to have a Company Material Adverse
Effect between the date hereof and the Closing as if made on the Closing
Date; and
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(viii) All documents and instruments identified in Section 2.2 of this
Agreement shall have been executed and delivered by the parties thereto
(other than the Purchaser).
7.2 Conditions to Company's Obligations. The obligations of the Company to
consummate the transactions contemplated by this Agreement are subject to the
following conditions:
(i) The transactions contemplated by this Agreement (including the
increase of the number of the Company's authorized shares) shall have
received the approval of the shareholders of the Company (and related SEC
and NASDAQ approvals);
(ii) The representations and warranties of the Purchaser herein
contained shall be true and correct in all material respects as of the
Closing as if made on and as of the Closing Date;
(iii) All documents and instruments identified in Section 2.2 of this
Agreement shall have been executed and delivered by the parties thereto
(other than the Company);
(iv) The Fairness Opinion has not been withdrawn, altered or amended
in any material respect.
ARTICLE VIII
MISCELLANEOUS
8.1 Governing Law. This agreement shall be governed in all respects by the
internal laws of the State of New York without regard to its conflicts of laws
provisions; provided however, that the General Corporation Law of the State of
Delaware shall apply to any matter relating to corporate governance of the
Company or the Common Stock.
8.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby.
8.3 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, permitted assigns, heirs, executors and administrators of the
parties hereto.
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8.4 Entire Agreement; Amendment. This Agreement, its attachments and the
other documents delivered pursuant hereto at the Closing constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and thereof; provided, however, that the Company's obligations
under the Amended and Restated Promissory Note, dated as of December 16, 1999,
the Class B Warrant Agreement, the Xxxxxxxxx Registration Rights Agreement, and
the letter from the Company to the Purchaser regarding the Break-Up Fee, each
dated as of December 16, 1999, shall not be affected hereby. Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written agreement of the
Company and the Purchaser.
8.5 Notices. All notices and other communications required or permitted
hereunder to a party shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger
including Federal Express or similar courier services, addressed to such party
at the address set forth in the introductory paragraph of this Agreement, or at
such other address as each party shall have last furnished to the other in
writing. Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail or courier, at the earlier of its
receipt or seventy-two (72) hours after the same has been deposited with an
airborne courier service, addressed and mailed as aforesaid.
8.6 Delays or Omissions. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any party to this
Agreement, shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character of any breach or default under this
Agreement, or any waiver of any provisions or conditions of this Agreement, must
be in writing and shall be effective only to the extent specifically set forth
in such writing. All remedies, either under this Agreement or by law or
otherwise afforded to any party to this Agreement, shall be cumulative and not
alternative.
8.7 Expenses. The Company and the Purchaser shall bear their own expenses
and legal fees incurred on their behalf with respect to this Agreement and the
transactions contemplated hereby.
8.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the party actually
executing such counterparts, and all of which together shall constitute one
instrument.
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8.9 Severability. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision.
8.10 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY
DUALSTAR TECHNOLOGIES
CORPORATION
By: /s/ Xxxxxxx Xxxxx
---------------------------------------------
Xxxxxxx Xxxxx
President and Chief Executive Officer
PURCHASER
CERBERUS CAPITAL MANAGEMENT,
L.P., on behalf of various funds and
accounts
By: /s/ Xxxx X. Neporent
---------------------------------------------
BLACKACRE CAPITAL MANAGEMENT
L.L.C., on behalf of various funds and
accounts
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------------------
Name: Xxxxxx X. Xxxxxx
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