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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. . . . )*
Home Security International, Inc.
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(Name of Issuer)
Common Stock, $0.001 par value per share
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(Title of Class of Securities)
437333107
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(CUSIP Number)
Paul Brown
International Home Security Investments Limited
c/o Alliance Investments S.A.M
Le Panorama Bloc AB
57 Rue Grimaldi
MC 98000 MONACO
011.377.92.16.51.91
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(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
October 31, 1998
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of (S)240.13d-1(e), (S)240.13d-1(f) or (S)240.13d-1(g), check
the following box / /.
Note. Schedules filed in paper format shall include a signed original and five
copies, including all exhibits. See Rule 13d-7 for other parties to whom copies
are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of 7
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SCHEDULE 13D
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CUSIP No. 437333107
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<TABLE>
<S> <C>
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
International Home Security Investments Limited
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
AF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
British Virgin Islands
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7 SOLE VOTING POWER
760,000
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NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY
OWNED BY --------------------------------------------------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON WITH 760,000
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10 SHARED DISPOSITIVE POWER
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
760,000
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
12.9%
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14 TYPE OF REPORTING PERSON *
co
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</TABLE>
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Item 1. Security and Issuer.
This statement on Schedule 13D ("Schedule 13D") relates to the shares of
common stock, $0.001 par value per share ("Common Stock"), of Home Security
International, Inc., a Delaware corporation ("Issuer"). The principal executive
offices of the Issuer are located at Level 7, 77 Pacific Highway, North Sydney,
New South Wales 2060, Australia.
Item 2. Identity and Background.
This Schedule 13D is filed on behalf of International Home Security
Investments Limited, a British Virgin Islands corporation ("IHSI" or the
"Reporting Person"). This Schedule 13D also includes information with respect to
the executive officers, directors and control persons of IHSI (each a "Control
Person").
(a)-(c), (f)
IHSI is a holding company, organized for the limited purpose of holding the
Common Stock and the Warrant (as defined in Item 3 of the Schedule 13D). Needham
Investments Limited is a holding company, which holds 100% of the outstanding
capital stock of IHSI. Paul Brown, a chartered accountant, an employee of
Alliance Investments S.A.M., a private investor and director of IHSI is the sole
shareholder of Needham Investments Limited. Mr. Brown is a citizen of the United
Kingdom. Rebecca Mathias, an employee of Alliance Investments S.A.M., is a
director and corporate secretary of IHSI. Rebecca Mathias is a citizen of the
United Kingdom.
The address of IHSI and each of the Control Persons is:
c/o Alliance Investments S.A.M.
Le Panorama Bloc
AB 57 Rue Grimaldi
MC 98000 MONACO
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(d) During the last 5 years, neither IHSI nor any Control Person has been
convicted in a criminal proceeding (excluding traffic or similar misdemeanors).
(e) During the last 5 years, neither IHSI nor any Control Person has been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
Pursuant to a Stock Purchase Agreement, dated as of July 17, 1998, and
amended as of September 30, 1998 (the "Purchase Agreement"), between the Issuer
and Integral Investments Limited, a British Virgin Islands corporation (the
"Seller"), attached hereto as "Exhibit A" and incorporated herein by reference
as though fully set forth herein, Seller sold to Issuer all of the issued and
outstanding shares of capital stock of Integrated International Home Security
Limited, a British Virgin Islands corporation (the "Company"). As consideration
for such sale, Issuer agreed to pay aggregate consideration consisting of: (i)
400,000 shares of the Issuer's Common Stock; (ii) a five year warrant to
purchase 360,000 shares of the Issuer's Common Stock at an exercise price of
$13.00 per share (the "Warrant"), attached hereto as "Exhibit B" and
incorporated herein by reference as though fully set forth herein; (iii) cash in
the amount of U.S. $2,426,000; and (iv) a secured promissory note in the amount
of U.S. $9,098,000 (the "Note"), attached hereto as "Exhibit C" and incorporated
herein by reference as though fully set forth herein. If any portion of the
principal amount of the Note remains outstanding on October 1, 1999, the Issuer
is required to issue an additional five year warrant to purchase 200,000 shares
of Common Stock at an exercise price of $13.00 per share. Likewise, if any
portion of the principal amount of the Note remains outstanding on January 1,
2000, the Issuer is required to issue an additional five year warrant to
purchase 200,000 shares of Common Stock at an exercise price of $13.00 per
share. Seller directed the Issuer to register the 400,000 shares of Common Stock
and the Warrant in the name of IHSI.
Item 4. Purpose of the Transaction.
IHSI acquired shares of Common Stock and the Warrant pursuant to the
Purchase Agreement for investment purposes. Pursuant to the Purchase Agreement,
the Issuer agreed to cause Paul Brown to be elected to the Board of Directors of
the Issuer, and to use commercially reasonable efforts to cause Paul Brown, or
his nominee, to be re-elected to the Board of Directors until the earlier of the
fifth anniversary of the closing date, or the date on which the Seller, Paul
Brown, or another entity controlled directly or indirectly by Paul Brown
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ceases to beneficially own a number of shares equal to at least 5.0% of the
outstanding Common Stock. If the Issuer is not under such obligation but the
Note has not been paid in full, the Issuer has agreed to use commercially
reasonable efforts to cause Paul Brown or his nominee to be re-elected to its
Board of Directors until the Note is repaid in full.
IHSI from time to time intends to review its investment in the Issuer on
the basis of various factors, including the Issuer's business, financial
condition, results of operations and prospects, general economic and industry
conditions, the securities markets in general and those for the Issuer's
securities in particular, as well as other developments and other investment
opportunities. Based upon such review, IHSI will take such actions in the future
as it may deem appropriate, consistent with the securities laws, in light of the
circumstances existing from time to time. If IHSI believes that further
investment in the Issuer is attractive, whether because of the market price of
the Issuer's securities or otherwise, it may acquire Common Stock, pursuant to
the exercise of the Warrant, in the open market or in privately negotiated
transactions. Similarly, depending on market and other factors, IHSI may
determine to dispose of the Warrant, or some or all of the Common Stock it
currently owns or otherwise acquired by it, either in the open market or in
privately negotiated transactions.
Except as set forth above, IHSI has no plans or proposals to engage in any
of the activities described in items (a) through (j) of the Instructions to Item
4 of Schedule 13D.
Item 5. Interest in the Securities of the Issuer.
(a)-(b). Pursuant to the Purchase Agreement, IHSI acquired beneficial
ownership of 760,000 shares of Common Stock (12.9% of the total number of shares
of Common Stock outstanding, based on a total of 5,550,000 shares of Common
Stock outstanding on October 31, 1998). IHSI has the sole power to vote and
direct the vote and the sole power to dispose and direct the disposition of such
shares. IHSI holds direct beneficial ownership of 400,000 shares of Common Stock
and direct beneficial ownership of the 360,000 shares of Common Stock issuable
upon the exercise of the Warrant. See Item 2 for information on the Control
Persons.
(c) Except for those shares acquired and disclosed herein, neither IHSI nor
the Control Persons, have acquired beneficial ownership of any Common Stock
within the last sixty (60) days.
(d) Not applicable.
(e) Not applicable
Item 6. Contracts, Arrangements, Understandings or relationships with Respect to
Securities of the Issuer.
The terms of the Purchase Agreement, attached as Exhibit A to this Schedule
13D, are hereby incorporated herein by reference as though fully set forth
herein. The terms of the Warrant, attached as Exhibit B to this Schedule 13D,
are hereby incorporated herein by reference as though fully set forth herein.
The terms of the Note, attached as Exhibit C to this Schedule 13D, are hereby
incorporated herein by reference
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as though fully set forth herein. The terms of the Note, attached as Exhibit C
to this Schedule 13D, are hereby incorporated herein by reference as though
fully set forth herein.
Item 7. Material to be Filed as Exhibits.
1. "Exhibit A" is the Stock Purchase Agreement dated as of July 17, 1998, and
amended as of September 30, 1998, by and between Issuer and Integral
Investments Limited.
2. "Exhibit B" is the Warrant dated as of September 30, 1998, issued by the
Issuer.
3. "Exhibit C" is the Secured Promissory Note dated as of September 30, 1998,
executed by the Issuer in favor of Integral Investments Limited.
Page 6 of 7
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: November 10, 1998
International Home Security Investments Limited
By: /s/ Paul Brown
------------------------------------------
Paul Brown, Director
Page 7 of 7
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EXHIBIT A STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of July 17, 1998, between International Home
Security Investments Limited, a British Virgin Islands corporation ("Seller")
the sole stockholder of Integrated International Home Security Limited, a
British Virgin Islands corporation (the "Company"), and Home Security
International, Inc., a Delaware corporation ("Purchaser").
RECITALS
A. Seller owns all of the outstanding shares of capital stock ("Shares")
of the Company. The Company is the holder of 781,666 shares of capital stock
(each a "Ness Share") of Ness Security Products Pty Ltd., an entity incorporated
under the laws of Australia ("Ness").
B. Purchaser desires to purchase all the outstanding Shares from Seller
and Seller desires to sell such Shares to Purchaser, on the terms and subject to
the conditions contained herein.
AGREEMENTS
Therefore, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
Purchase and Sale of Shares; Closing and Manner of Payment
1.1 Agreement to Purchase and Sell Shares. On the terms and subject to the
conditions contained in this Agreement, Purchaser shall purchase from Seller,
and seller shall sell to Purchaser, all of the outstanding Shares, free and
clear of all options, proxies, voting trusts, voting agreements, judgments,
pledges, charges, escrows, rights of first refusal or first offer, mortgages,
indentures, claims, transfer restrictions, liens, equities, encumbrances,
security interests and other encumbrances of every kind and nature whatsoever,
whether arising by agreement, operation of law or otherwise (collectively,
"Claims").
1.2 Purchase Price. The aggregate purchase price of the Shares shall be
equal to twenty five million four hundred thousand Australian Dollars (Aus.
$25,400,000) (the "Purchase Price"). The Purchase Price shall be equal to the
sum of (i) eleven million one hundred eighty two thousand dollars (U.S.
$11,182,000) payable at the Closing (the "Cash Portion"); (ii) 400,000 shares
of common stock ("HSI Common Stock"), U.S. $.001 par value per share of the
Purchaser, to be issued to Seller at the Closing, including any legends
restricting the transfer of such shares under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended (the "Share
Portion"); and (iii) a warrant to purchase 360,000 shares of HSI Common Stock
(the "Warrant") substantially in the form attached hereto as Exhibit A, with
such changes thereto as may be agreed to by Seller and Purchaser. The shares to
be issued to Seller to satisfy the Share Portion, and the shares underlying the
Warrant have not been registered under
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the Securities Act of 1933, as amended (the "Securities Act"), and, therefore,
can not be resold unless they are registered under the Securities Act or unless
an exemption from registration is available.
1.3 Manner of Payment of Purchase Price. The Purchase Price shall be paid
or satisfied at the Closing (as herein defined) as follows: (i) the Cash Portion
shall be paid by Purchaser's delivery of (A) one hundred twenty six thousand
dollars (U.S. $126,000) ("Deposit") which shall be delivered by Purchaser to
Seller contemporaneous with the signing of this Agreement and shall be credited
against the Purchase Price; and (B) eleven million fifty six thousand dollars
(U.S. $11,056,000) by wire transfer of immediately available funds per the wire
transfer instructions attached hereto as Exhibit B; (ii) the Share Portion shall
be paid by Purchaser's delivery of a certificate representing 400,000 shares of
HSI Common Stock to the escrow agent (the "Escrow Agent"), as identified in the
escrow agreement (the "Escrow Agreement") substantially in the form attached
hereto as Exhibit C, with such changes thereto as may be agreed to by the
parties hereto, to be held and distributed by the Escrow Agent in accordance
with the terms of the Escrow Agreement; and (iii) Purchaser's delivery of the
Warrant. In the event that the transactions contemplated by this Agreement are
not consummated and there is no Closing, the Seller shall be entitled to keep
the Deposit.
1.4 Appointment to Board of Directors. Subject to the approval of the Board
of Directors of Purchaser, which shall not be unreasonably withheld or delayed,
Purchaser will cause Paul Brown or his nominee to be elected to the Board of
Directors of Purchaser on the Closing Date, or as soon as practicable
thereafter. Purchaser agrees to use commercially reasonable efforts to cause
Paul Brown or his nominee to be re-elected to the Board of Directors of
Purchaser until the earlier to occur of (i) the fifth anniversary of the Closing
Date or (ii) the date on which Paul Brown ceases to beneficially own (determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act")) a number of shares (including shares underlying
the Warrant) equal to at least five percent (5.0%) of the outstanding HSI Common
Stock.
1.5 Closing Deliveries. At the Closing, Seller shall deliver to Purchaser
(i) certificates evidencing the Shares (together with all rights then or
thereafter attaching thereto) duly endorsed in blank, or accompanied by valid
stock powers duly executed in blank, in proper form for transfer; and (ii)
certificates evidencing the Ness Shares. The parties shall also deliver such
other documents (including incumbency certificates, good standing certificates,
lien searches, corporate resolutions and resignations) as are reasonably
required under Australian, British Virgin Islands, U.S. laws, or the laws of any
other relevant jurisdiction, in order to effectuate the consummation of the
transaction contemplated hereby. Additionally, each party shall deliver all
documents referenced on the closing checklist (the "Closing Checklist"),
substantially in the form attached hereto as Exhibit D, with such changes
thereto as may be reasonably agreed to by the parties hereto, to the other
party; and Purchaser shall deliver to Seller
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the Purchase Price in the manner described in Section 1.3 above. All documents
to be delivered by a party shall be in form and substance reasonably
satisfactory to the other party.
1.6 Time and Place of Closing. The transaction contemplated by this
Agreement shall be consummated (the "Closing") at the offices of D'Ancona &
Pflaum, 30 N. LaSalle, Suite 2900, Chicago, Illinois, 60602, as soon as
practicable after the conditions set forth in Section 4.2 (f) are satisfied (
assuming all other conditions set forth in Article IV are met), or on such later
date that the conditions of Closing set forth in Article IV hereof are satisfied
or waived (subject to Section 7.1 (b)), or on such other date, or at such other
place, as shall be agreed upon by Seller and Purchaser. The date on which the
Closing shall occur in accordance with the preceding sentence is referred to in
this Agreement as the "Closing Date". The Closing shall be deemed to be
effective as of 12:01 a.m., prevailing time at the place of Closing on the
Closing Date.
ARTICLE II
Representations and Warranties
------------------------------
2.1 Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller as follows:
(a) Purchaser is a corporation duly organized, existing and in good
standing, under the laws of the state of Delaware.
(b) Purchaser has full corporate power and authority to enter into and
perform this Agreement. The execution and delivery by Purchaser of this
Agreement and the performance by Purchaser of its obligations hereunder have
been duly authorized and approved by all requisite corporate action. The
approval of its shareholders is not required in order to execute this Agreement,
or consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by a duly authorized officer of Purchaser.
(c) No consent, authorization, order or approval of, or filing or
registration with, any governmental commission, board or other regulatory body
of the United States or any state or political subdivision thereof is required
for or in connection with the consummation by Purchaser of the transaction
contemplated hereby.
(d) Neither the execution and delivery of this Agreement by Purchaser, nor
the consummation by Purchaser of the transaction contemplated hereby, will
conflict with or result in a breach of any of the terms, conditions or
provisions of its Certificate of Incorporation or by-laws, or of any statute or
administrative regulation, or of any order, writ, injunction, judgment or decree
of any court or governmental authority or of any arbitration award.
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(e) Purchaser is not a party to any unexpired, undischarged or unsatisfied
written or oral contract, agreement, indenture, mortgage, debenture, note or
other instrument under the terms of which performance by Purchaser according to
the terms of this Agreement will be a default or an event of acceleration, or
grounds for termination, or whereby timely performance by Purchaser according to
the terms of this Agreement may be prohibited, prevented or delayed.
(f) The authorized capital stock of Purchaser consists of (i) 20,000,000
shares of HSI Common Stock, of which 5,150,500 are issued and outstanding, as of
the date hereof; and (ii) 1,000,000 shares of preferred stock, $.001 par value
per share, of which none are issued and outstanding, as of the date hereof.
There are no shares of capital stock of Purchaser of any other class authorized,
issued or outstanding. All of the issued and outstanding shares of HSI Common
Stock have been validly issued, are fully paid and nonassessable.
(g) The issuance and delivery of the Share Portion and the Warrant have
been duly and validly authorized by all necessary corporate action. The Share
Portion and the shares to be issued in connection with the exercise of the
Warrant, when issued in accordance with the terms of this Agreement or the
Warrant, as the case may be, will be validly issued, fully paid and non-
assessable. Purchaser has reserved and will continue to reserve until the
Warrant is exercised or expires in accordance with its terms, the number of
shares of HSI Common Stock issuable upon exercise of the Warrant.
(h) Purchaser has provided Seller with the opportunity to review each
registration statement, report, proxy statement or information statement (as
defined in Regulation 14C under the Exchange Act) filed by Purchaser with the
Securities and Exchange Commission (the "SEC") since its initial public offering
in July 1997, which reports constitute all of the documents required to be filed
by Purchaser with the SEC since such date, each in the form (including exhibits
and any amendments thereto) filed with the SEC (collectively, the "HSI
Reports"). As of their respective dates, the HSI Reports (a) complied as to form
in all material respects with the applicable requirements of the Securities Act,
the Exchange Act, and the rules and regulations thereunder; and (b) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(i) Purchaser has provided Seller with the opportunity to review the
registration statement on Form S-1 (the "Registration Statement") prepared by
Purchaser in connection with this transaction. Such Registration Statement (a)
complies as to form in all material respects with the applicable requirements of
the Securities Act and the rules and regulations thereunder; and (b) as of the
date on which it is filed with the SEC and as of the date it is declared
effective by the SEC will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein not misleading.
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(j) The audited consolidated financial statements of Purchaser included in
its annual report on Form 10-K and the unaudited statements of Purchaser
included in its quarterly reports on Form 10-Q referred to in Section 2.2(h),
present fairly, in conformity with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis (except as may be indicated in
the notes thereto), the consolidated financial position of Purchaser as of the
dates thereof and its consolidated results of operations and cash flows for the
periods then ended (subject to normal year end adjustments in the case of any
interim financial statements).
2.2 Representations and Warranties of Seller. Seller represents and
warrants to Purchaser that, except as set forth in the schedule to be delivered
by Seller to Purchaser pursuant to Section 4.2 hereof and identified as the
"Disclosure Schedule":
(a) (i) (A) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the British Virgin Islands; and (B) Ness
and each of its subsidiaries are corporations duly organized, validly existing
and in good standing under the laws of their respective jurisdiction of
organization. (ii) Each of the Company and Ness has full corporate power and
authority to carry on its business as such business is now being conducted.
(iii) Except for the Foreign Investment Review Board approval, no consent,
authorization, order or approval of, or filing or registration with, any
governmental commission, board or other regulatory body of Australia or the
British Virgin Islands or any state or political subdivision thereof is required
for or in connection with the consummation by Seller of the transaction
contemplated hereby. (iv) Neither the execution and delivery of this Agreement
by Seller, nor the consummation by Seller of the transaction contemplated
hereby, will conflict with or result in a breach of any of the terms, conditions
or provisions of the Company's or Ness' respective Memorandum and Articles of
Association or by-laws, or of any statute or administrative regulation, or of
any order, writ, injunction, judgment or decree of any court or governmental
authority or of any arbitration award to which Ness, the Company or Seller is a
party or by which Ness, the Company or Seller is bound; and (v) True and
complete copies of the Memorandum and Articles of Association and all amendments
thereto, the by-laws as amended and currently in force, all stock records, and
all corporate minute books and records of each of Ness and the Company, have
been furnished for inspection by Purchaser. Said stock records accurately
reflect all share transactions and the current stock ownership of Ness and the
Company, respectively. The corporate minute books and records of each of Ness
and the Company contain true and complete copies of all resolutions adopted by
the stockholders or the board of directors of the respective entity and any
other action formally taken by them respectively as such.
(b) Seller is a corporation duly organized, existing and in good standing
under the laws of its jurisdiction of incorporation. The execution and delivery
of this Agreement by it and the performance by it of all of its obligations
under this Agreement have been duly approved prior to the date of this Agreement
by all requisite action of its board of directors. The approval of its
shareholders, for it to execute this Agreement or consummate the transaction
contemplated hereby has been duly given. This Agreement has been duly executed
and delivered by it.
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Neither the execution and delivery of this Agreement by Seller, nor the
consummation by it of the transaction contemplated hereby, will conflict with or
constitute a breach of any of the terms, conditions or provisions of its
Articles of Incorporation, by-laws, or other organizational documents.
(c) The authorized capital stock of (i) the Company consists of a single
class of ordinary shares of common stock, U.S. $1.00 par value, of which 52,557
Shares are issued and outstanding; and (ii) Ness consists of a single class of
ordinary shares of common stock, Australian $1.00 par value, of which 1,041,666
Ness Shares are issued and outstanding. There are no shares of capital stock of
the Company or Ness of any other class authorized, issued or outstanding. All of
the issued and outstanding Shares and Ness Shares have been validly issued, are
fully paid and nonassessable, and are owned beneficially and of record by Seller
or the Company, respectively. Seller has good and valid title to, and ownership
of all 52,557 outstanding Shares, and the Company has good and valid title to,
and ownership of 781,666 Ness Shares, in each case free and clear of all Claims.
There are no outstanding subscriptions, options, warrants, rights (including
preemptive rights), calls, convertible securities or other agreements or
commitments of any character relating to the issued or unissued capital stock or
other securities of the Company or Ness obligating the Company or Ness to issue
any securities of any kind.
(d) The Company has maintained its books, accounts and records in its
usual, regular and ordinary manner, in accordance with GAAP, and all
transactions to which the Company is or has been a party are properly reflected
therein.
(e) Purchaser has been previously provided complete and accurate copies of
the audited consolidated balance sheets, statements of income, retained earnings
and cash flows, notes to financial statements (together with any supplementary
information thereto) and any underlying financial statements of the
aforementioned, including financial statements for the corresponding periods of
Ness, prepared by Deloitte & Touche, of the Company as of and for the years
ended June 30, 1996, June 30, 1997 and June 30, 1998. The financial statements
described in the preceding sentence are hereinafter referred to as the
"Financial Statements". The Financial Statements present accurately and
completely the financial position of the Company as of the dates thereof and the
results of operations and cash flows of the Company for the periods covered by
said statements, in accordance with GAAP consistently applied.
(f) Each of Ness and the Company has no obligation or liability of any
nature whatsoever (direct or indirect, matured or unmatured, absolute, accrued,
contingent or otherwise), whether or not required by GAAP to be provided or
reserved against on a balance sheet (all the foregoing herein collectively being
referred to as the "Liabilities") except for: (i) Liabilities provided for or
reserved against in the Financial Statements; (ii) Liabilities which have been
incurred by the Company or Ness, respectively, subsequent to June 30, 1998, in
the ordinary course of each of Ness' and the Company's respective business and
consistent with each of their respective past practices; and (iii) Liabilities
under the executory portion of any written
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purchase order, sales order, lease, agreement or commitment of any kind by which
Ness or the Company is bound and which was entered into in the ordinary course
of Ness' or the Company's respective business and consistent with each of their
respective past practices; (iv) Liabilities under any material contract, lease,
or agreement, oral or written, which if written was previously provided to
Purchaser, and if oral a written description was previously provided to
Purchaser; and (v) Liabilities due to environmental issues affecting any
property or other asset of the Company or Ness, or use of the property or any
other asset of the Company or Ness previously disclosed to Purchaser. None of
the Liabilities described in subparagraphs (i) through (v) of this paragraph (e)
relates to or has arisen out of a breach of contract, breach of warranty, tort
or infringement by or against Ness or the Company, as the case may be, or any
claim or lawsuit involving Ness or the Company, as the case may be.
(g) (i) All contracts, leases and other instruments previously provided to
Purchaser, and all other contracts or instruments to which Ness or the Company
is a party, are in full force and binding upon the parties thereto. No default
by Ness or the Company has occurred thereunder and, to the best of Seller's
knowledge, no default by the other contracting parties has occurred thereunder.
No event, occurrence or condition exists which, with the lapse of time, the
giving of notice, or both, or the happening of any further event or condition,
would become a default by Ness or the Company thereunder. (ii) Neither the
Company nor Seller is a party to, or bound by, any unexpired, undischarged or
unsatisfied written or oral contract, agreement, indenture, mortgage, debenture,
note or other instrument under the terms of which performance by Seller
according to the terms or conditions of this Agreement will be a default or an
event of acceleration, or grounds for termination, or whereby timely performance
by Seller of this Agreement may be prohibited, prevented or delayed.
(h) Each of Ness and the Company has good and marketable title to its
assets, free and clear of any liens, claims, encumbrances and security
interests, except for liens for non-delinquent taxes. No unreleased mortgage,
trust deed, chattel mortgage, security agreement, financing statement or other
instrument encumbering any of Ness' or the Company's assets has been recorded,
filed, executed or delivered. All of the Company's assets are listed on Exhibit
E, attached hereto.
(i) Since June 30, 1998, the information included in the Financial
Statements has not been altered by: (i) the performance of any of the enumerated
actions in Section 3.1(d) of this Agreement; (ii) any casualty, damage,
destruction or loss, or interruption in use, of any asset or property (whether
or not covered by insurance), on account of fire, flood, riot, strike or other
hazard or Act of God; and (iii) without limitation by the enumeration of any of
the foregoing, the entrance into any transaction other than in the usual and
ordinary course of business in accordance with past practices (the foregoing
representation and warranty shall not be deemed to be breached by virtue of the
entry by Seller into this Agreement or its consummation of the transactions
contemplated hereby).
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(j) Neither the Company, nor to the best of Seller's knowledge, Ness, has
suffered or been threatened with any material adverse change in the business,
operations, assets, liabilities, financial condition or prospects of Ness,
including, without limiting the generality of the foregoing, the existence or
threat of a labor dispute, or any material adverse change in, or loss of, any
relationship between Ness and any of its customers, suppliers or key employees.
(k) (i) There is no litigation or proceeding, in law or in equity, and
there are no proceedings or governmental investigations before any commission or
other administrative authority, pending or to the best of Seller's knowledge
threatened against the Company, and (ii) to the best of Seller's knowledge,
there is no litigation or proceeding, in law or in equity, and there are no
proceedings or governmental investigations before any commission or other
administrative authority, pending or threatened against Ness or any of Ness' or
the Company's officers, directors or Affiliates, with respect to or affecting
Ness' or the Company's operations, business, products, sales practices or
financial condition, or related to the consummation of the transaction
contemplated hereby.
(l) Neither the Company, nor to the best of Seller's knowledge Ness, is in
violation of, or delinquent in respect to, any decree, order or arbitration
award or law, statute, or regulation of or agreement with, or permit from, any
governmental authority (or to which the property, assets, personnel or business
activities of the Company or Ness is subject or to which it, itself, is
subject), including, without limitation, laws, statutes and regulations relating
to equal employment opportunities, fair employment practices, unfair labor
practices, terms of employment, occupational health and safety, wages and hours,
discrimination, and zoning ordinances and building codes.
(m) All statutory and other licenses, leases, permissions and authorities
required for the proper and lawful carrying on of the business of the Company
and to the best of Seller's knowledge, Ness, have been duly obtained and are
valid and subsisting and have not been breached;
(n) (i) As used in this Agreement, the following terms shall have the
following meanings: (A) the term "Taxes" means all net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties or other taxes, fees, assessments or charges of any kind whatever,
together with any interest and any penalties, additions to tax or additional
amounts with respect thereto; and (B) the term "Returns" means all returns,
declarations, reports, statements and other documents required to be filed in
respect of Taxes, and the term "Return" means any one of the foregoing Returns.
(ii) There have been properly completed and filed on a timely basis and in
correct form all Returns required to be filed by the Company. The Company has
timely paid all Taxes and filed all Returns and correctly reflected the facts
regarding the income, business, assets, operations, activities, status or other
matters of the Company, or any other information required to be shown
8
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thereon. All tax deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a liability in the
Financial Statements, or are being contested and an adequate reserve therefor
has been established and is fully reflected as a liability in the Financial
Statements.
(o) Seller has disclosed to Purchaser a true and correct list showing: (i)
the name of each bank, safe deposit company or other financial institution in
which the Company has an account, lock box or safe deposit box; (ii) the names
of all persons authorized to draw thereon or to have access thereto and the
names of all persons and entities, if any, holding powers of attorney from the
Company; and (iii) all instruments or agreements to which the Company is a party
as an endorser, surety or guarantor, other than checks endorsed for collection
or deposit in the ordinary course of business.
(p) Purchaser has been previously provided with a list and description of
all benefits pursuant to any employment agreement, employee pension benefit
plan, including, without limitation, employee welfare benefit plans, bonus,
deferred compensation, stock purchase, stock option, superannuation funds,
severance plan, salary continuation, vacation, sick leave, fringe benefit,
incentive, insurance, welfare or similar plans or arrangements which the Company
maintains, administers or contributes to.
(q) Seller certifies that neither it, nor any of its directors, officers,
employees, or agents is an official, agent, or employee of any government or
governmental agency or political party or a candidate for any political office
on the date hereof. Seller has not, directly or indirectly, in the name of, on
behalf of, or for the benefit of Purchaser offered, promised or authorized to
pay, or paid any compensation, or gave anything of value to, any official,
agent, or employee of any government or governmental agency, or to any political
party or officer, employee, or agent thereof.
(r) The representations and warranties of Seller in this Agreement and any
schedule or exhibit attached hereto do not, and the representations and
warranties to be made in the Disclosure Schedule will not, omit to state a
material fact necessary in order to make the representations, warranties or
statements contained herein or therein not misleading.
(s) The copies of all documents furnished by Seller, any designee of Seller
or the Company to Purchaser pursuant to or in connection with this Agreement are
true, correct, complete and accurate.
(t) As used in this Agreement, "Seller's knowledge" and words of similar
import shall mean the actual knowledge of Paul Brown, the sole director of
Seller after due inquiry, which for purposes of this Agreement, shall mean the
same inquiry that a reasonable person who is a beneficial owner of the entire
equity interest in the Company and the beneficial owner of 75.04 % of the
outstanding capital stock of Ness would make under these circumstances.
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ARTICLE III
Conduct Prior to the Closing
----------------------------
3.1 General. Between the date hereof and the Closing Date:
-------
(a) Seller shall and shall cause the Company and Ness to give to
Purchaser's officers, employees, agents, attorneys, consultants, accountants and
lenders reasonable access during normal business hours to all of the properties,
books, contracts, documents, records and personnel of the Company and shall
furnish to Purchaser and such persons as Purchaser shall designate to Seller
such information as Purchaser or such persons may at any time and from time to
time reasonably request. Purchaser agrees not to disclose any such information
to any third party other than as set forth below; and to take all reasonable
steps as may be necessary to protect as confidential any such information. The
obligations imposed upon Purchaser shall not apply to information: (i) which at
the time of disclosure is in the public domain or to which Purchaser has prior
knowledge (which was not improperly disclosed to Purchaser); (ii) which is made
available to the general public other than as a result of a disclosure by
Purchaser; (iii) which is disclosed pursuant to a valid order of a court or
regulatory agency or other governmental body or any political subdivision
thereof; or (iv) which the Seller gives prior written consent for disclosure by
Purchaser.
(b) Seller shall use commercially reasonable efforts and make every good
faith attempt (and Purchaser shall cooperate with Seller) to cause the Company
and Ness to (i) obtain all consents specified by Purchaser to the consummation
of the transaction contemplated hereby under or with respect to, any contract,
lease, agreement, purchase order, sales order or other instrument, permit or
environmental permit, where the consummation of the transaction contemplated
hereby would be prohibited or constitute an event of default, or grounds for
acceleration or termination, in the absence of such consent; and (ii) appoint a
designee of Purchaser, on the date hereof or as soon as practicable thereafter,
as an observer to the Board of Directors of Ness, to be given at least two days
prior written notice of every Ness Board of Director meeting, and be allowed to
be present at all portions of all Ness Board of Director meetings.
(c) Seller shall cause the Company and Ness to carry on its business in the
usual and ordinary course, consistent with past practices and shall use its
commercially reasonable efforts to preserve the each of Ness' and Company's
business and the goodwill of its customers, suppliers and others having business
relations with each of the Company and Ness and to retain the business
organization of each of the Company and Ness intact, including keeping available
the services of its present employees, representatives and agents, and to
maintain all of its properties in good operating condition and repair, ordinary
wear and tear excepted.
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(d) Without the prior written consent of Purchaser, which shall not be
unreasonably withheld or unduly delayed, and without limiting the generality of
any other provision of this Agreement, Seller shall cause each of the Company
and Ness not to:
(i) amend the applicable Memorandum and Articles of Association;
(ii) make any change to the applicable authorized shares of stock,
or issue any shares of stock of any class or issue or become a party to any
subscriptions, warrants, rights, options, convertible securities or other
agreements or commitments of any character relating to the issued or
unissued capital stock of Ness or the Company, or to other equity
securities of Ness or the Company, or grant any stock appreciation or
similar rights;
(iii) increase the compensation payable to any employee;
(iv) hire any new employee who shall have, or terminate, other than
for cause, the employment of any employee who has, an annual salary in
excess of $U.S. 50,000 (In the event any employee is terminated for cause,
Seller agrees to give Purchaser written notice upon the termination);
(v) adopt or amend any Employee Benefit Plan;
(vi) sell, transfer or otherwise dispose of any asset or property,
except for sales of inventory in the usual and ordinary course of business
and except for cash applied in payment of either Ness' or the Company's, as
the case may be, liabilities in the usual and ordinary course of business;
(vii) incur or commit to incur any capital expenditures in excess of
U.S. $20,000 in the aggregate;
(viii) incur, assume or guarantee any long-term or short-term
indebtedness, other than short term indebtedness incurred in the ordinary
course of business;
(ix) directly or indirectly, enter into or assume any contract,
agreement, obligation, lease, license or commitment other than in the usual
and ordinary course of business in accordance with past practices; and
(x) pay, declare, accrue or set aside any dividends or any other
distributions, in cash, property or otherwise, on its securities of any
class or purchase, exchange or redeem any of its securities of any class.
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(e) Purchaser shall use commercially reasonable efforts to enter into an
underwriting agreement with L.H. Friend, Weinress, Frankson & Presson, Inc.
containing customary terms and conditions, have the SEC declare its S-1
Registration Statement for a public offering of its common stock ("Public
Offering") effective and close such Public Offering.
(f) No party shall intentionally perform any act which, if performed, or
omit to perform any act which, if omitted to be performed, would prevent or
excuse the performance of this Agreement by any party hereto or which would
result in any representation or warranty herein contained of said party being
untrue in any material respect as if originally made on and as of the Closing
Date.
ARTICLE IV
Conditions to Closing
---------------------
4.1 Conditions to Seller's Obligations. The obligation of Seller to close
the transaction contemplated hereby is subject to the fulfillment of all of the
following conditions on or prior to the Closing Date, upon the non-fulfillment
of any of which, this Agreement may, at Seller's option, be terminated pursuant
to and with the effect set forth in Article VII:
(a) Each and every representation and warranty made by Purchaser shall have
been true and correct when made and shall be true and correct in all material
respects as if originally made on and as of the Closing Date.
(b) All obligations of Purchaser to be performed hereunder through, and
including on, the Closing Date (including, without limitation, all obligations
which Purchaser would be required to perform at the Closing if the transaction
contemplated hereby was consummated) shall have been performed.
(c) No suit, proceeding or investigation shall have been commenced or
threatened by any governmental authority or private person on any grounds to
restrain, enjoin or hinder, or to seek material damages on account of, the
consummation of the transaction contemplated hereby.
(d) The Foreign Investment Review Board shall have approved the
transactions contemplated by this Agreement in accordance with Exhibit F
attached hereto.
4.2 Conditions to Purchaser's Obligations. The obligation of Purchaser to
close the transaction contemplated hereby is subject to the fulfillment of all
of the following conditions on or prior to the Closing Date, upon the non-
fulfillment of any of which, this Agreement may, at Purchaser's option, be
terminated pursuant to and with the effect set forth in Article VII:
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(a) Purchaser shall have thirty days from the date hereof to complete its
due diligence review of the Company and Ness to its sole satisfaction (the
"Review Period"), which review shall be conducted by officers and other
employees of Purchaser and Purchaser's attorneys, accountants and other
advisors. Seller shall deliver to Purchaser a final Disclosure Schedule not
later than five days prior to the end of the Review Period (the "Delivery
Date"). If the Disclosure Schedule is not delivered by the Delivery Date, the
Review Period shall be extended by a number of days equal to the actual number
of days after the Delivery Date that the Disclosure Schedule is delivered.
(b) Each and every representation and warranty made by Seller shall have
been true and correct when made and shall be true and correct in all material
respects as if originally made on and as of the Closing Date.
(c) All obligations of Seller to be performed hereunder through, and
including on, the Closing Date (including, without limitation, all obligations
which Seller would be required to perform at the Closing if the transaction
contemplated hereby was consummated) shall have been performed.
(d) All of the consents referred to in Section 3.1(b) shall have been
obtained (without cost to Purchaser or the Company in excess of the normal and
customary cost associated therewith) or, to the extent the permits and
environmental permits held by either the Company or Ness would terminate upon a
change of control of the Company or Ness, as the case may be, Purchaser shall
have either obtained licenses and permits on substantially the same terms as
such permits and environmental permits, or shall have obtained binding
commitments from the applicable governmental authorities to issue such licenses
and permits to the Company or Ness, as the case may be, following the Closing.
(e) No suit, proceeding or investigation shall have been commenced or
threatened by any governmental authority or private person on any grounds to
restrain, enjoin or hinder, or to seek material damages on account of, the
consummation of the transaction contemplated hereby.
(f) Seller shall have delivered to Purchaser the written opinion of counsel
to Seller, dated as of the Closing Date, in a form reasonably satisfactory to
Purchaser and Purchaser's counsel.
(g) The SEC shall have declared an S-1 Registration Statement for a Public
Offering effective, and the closing of such Public Offering shall have occurred,
resulting in net proceeds to the Company in an amount not less than the sum of
the Cash Portion plus U.S. $6,000,000.
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(h) The Foreign Investment Review Board shall have approved the
transactions contemplated by this Agreement in accordance with Exhibit F
attached hereto.
4.3 Casualty. If, prior to the Closing, any material damage to or loss of
any of the assets of or premises occupied by the Company or Ness occurs due to
fire, flood, riot, theft, Act of God or other casualty, which damage or loss
constitutes a material adverse change in the business, operations, assets,
liabilities, financial condition or prospects of the Company or Ness, and if the
parties can not agree on an amount by which to reduce the Purchase Price within
twenty business days from the date of such damage or loss, Purchaser shall, in
its sole discretion, have the right to terminate this Agreement. The adjustments
in accordance with this Section 4.3 are the exclusive adjustments to be made by
reason of such occurrence for the purposes of this Agreement.
ARTICLE V
Post-Closing Agreements
-----------------------
5.1 Post-Closing Agreements. From and after the Closing, the parties shall
have the respective rights and obligations which are set forth in the remainder
of this Article V.
5.2 Disclosure of Confidential Information. As a further inducement for
Purchaser to enter into this Agreement, Seller agrees that for the longest
period permitted by law after the Closing Date, Seller shall, and shall cause
its Affiliates to, hold in strictest confidence, and not, without the prior
written approval of Purchaser, use for its own benefit or the benefit of any
party other than Purchaser or disclose to any person, firm or corporation other
than Purchaser (other than as required by law) any information of any kind
relating to the Company's or Ness' business, except such information as was
publicly available prior to the Closing Date.
5.3 Use of Trademarks. Seller shall not use and shall not license or
permit any third party to use, any name, slogan, logo or trademark which is
similar or deceptively similar to any of the names or trademarks used in
connection with the business of the Company or Ness.
5.4 Hiring Away Employees. For a period of two (2) years from the Closing
Date, Seller shall not take any actions which are calculated to persuade any
salaried, technical or professional employees, representatives or agents of the
Company or Ness to terminate their association with the Company or Ness, as the
case may be.
5.5 Covenant Not to Compete. As an inducement for Purchaser to enter into
this Agreement, Seller agrees that:
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(a) from and after the Closing and continuing for the lesser of five (5)
years from the Closing Date or the longest time permitted by applicable law,
neither Seller nor any of its Affiliates shall do any one or more of the
following, directly or indirectly:
(i) engage or participate, anywhere in the continental United
States, New Zealand or Australia, as an owner, partner, shareholder,
consultant or (without limitation by the specific enumeration of the
foregoing) otherwise in any business which is competitive with Ness'
business, as conducted on the Closing Date or as about to be conducted on
the Closing Date; or
(ii) solicit any customer of Ness which has been a customer of Ness
or its Affiliates within the past two (2) years, to purchase from any
source other than Ness any product or service which could be supplied by
Ness;
(iii) disclosing or using to its advantage the name of any customer
of Ness or of Seller in relation to the business of the Company or Ness; or
(iv) disclosing or using to its advantage any Confidential
Information as defined herein about Ness and its businesses, for the
restraint period;
For purposes of this Agreement, "Confidential Information" means all information
in any form (written, oral, photographic, electronic, magnetic, or otherwise),
including, without limitation: technical data; sales, marketing, business and
financial information and plans, pro forma financial statements and projections;
customer lists; internal memoranda; and correspondence.
(b) in the event of any breach of paragraph (a) the time period of the
breached covenant shall be extended for the period of such breach. Seller and
its Affiliates recognize that the territorial, time and scope limitations set
forth in this Section 5.5 are reasonable and are required for the protection of
Purchaser and in the event that any such territorial, time or scope limitation
is deemed to be unreasonable by a court of competent jurisdiction, Purchaser and
Seller agree to the reduction of either or any of said territorial, time or
scope limitations to such an area, period or scope as said court shall deem
reasonable under the circumstances.
5.6 Further Assurances. The parties shall execute such further
documents, and perform such further acts, as may be necessary to transfer and
convey the Shares to Purchaser on the terms and subject to the conditions herein
contained and to otherwise comply with the terms and conditions of this
Agreement.
5.7 Injunctive Relief. Seller specifically recognizes that any breach
of Sections 5.2, 5.3, 5.4 or 5.5 will cause irreparable injury to Purchaser and
that actual damages may be difficult to ascertain, and in any event, may be
inadequate. Accordingly (and without limiting the availability of legal or
equitable, including injunctive, remedies under any other provisions of
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this Agreement), Seller agrees that in the event of any such breach, Purchaser
shall be entitled to injunctive relief in addition to such other legal and
equitable remedies that may be available. Seller and Purchaser recognize that
the absence of a time limitation in Section 5.2 is reasonable and properly
required for the protection of Purchaser and in the event that the absence of
such limitation is deemed to be unreasonable by a court of competent
jurisdiction, Seller agrees and submits to the imposition of such a limitation
as said court shall deem reasonable.
ARTICLE VI
Indemnification
---------------
6.1 General. From and after the Closing, the parties shall indemnify
each other as provided in this Article VI. No specifically enumerated
indemnification obligation with respect to a particular subject matter as set
forth below shall limit or affect the applicability of a more general
indemnification obligation as set forth below with respect to the same subject
matter.
6.2 Certain Definitions. As used in this Agreement, the following terms
shall have the indicated meanings:
(a) "Damages" shall mean all liabilities, demands, claims, actions or
causes of action, regulatory, legislative or judicial proceedings or
investigations, assessments, levies, losses, fines, penalties, damages, costs
and expenses, net of any insurance proceeds, damage recovery or tax benefits,
including, without limitation, any increased premiums, reasonable attorneys',
accountants', investigators', and experts' fees and expenses, sustained or
incurred in connection with the defense or investigation of any such claim;
(b) "Indemnified Party" shall mean a party hereto who is entitled to
indemnification from another party hereto pursuant to this Article VI;
(c) "Indemnifying Party" shall mean a party hereto who is required to
provide indemnification under this Article VI to another party hereto; and
(d) "Third Party Claims" shall mean any claims for Damages which are
asserted or threatened by a party other than the parties hereto, their
successors and permitted assigns, against any Indemnified Party or to which an
Indemnified Party is subject.
6.3 Indemnification Obligations of Seller. Seller shall indemnify, save
and keep harmless Purchaser and its successors and permitted assigns against and
from all Damages sustained or incurred by Purchaser resulting from or arising
out of or by virtue of:
(a) any inaccuracy in or breach of any representation and warranty made by
Seller in this Agreement; and
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(b) any breach by Seller of, or failure by Seller to comply with, any of
its respective covenants or obligations under this Agreement (including, without
limitation, its respective obligations under this Article VI).
6.4 Purchaser's Indemnification Covenants. Purchaser shall indemnify,
save and keep harmless Seller and its successors and permitted assigns against
and from all Damages sustained or incurred by Seller resulting from or arising
out of or by virtue of:
(a) any inaccuracy in or breach of any representation and warranty made by
Purchaser in this Agreement or in related document;
(b) any breach by Purchaser of, or failure by Purchaser to comply with,
any of its respective covenants or obligations under this Agreement (including,
without limitation, its obligations under this Article VI); and
(c) any Third Party Claims or Damages that arise out of the Registration
Statement declared effective by the SEC or the Public Offering, other than Third
Party Claims or Damages that arise out of information provided by Seller or Paul
Brown, which Seller or Paul Brown have been advised by Purchaser or otherwise
reasonably believe based on the specific nature of such information will be
relied upon by Purchaser for inclusion in the Registration Statement.
6.5 Limitation on Indemnification Obligations. (a) All representations and
warranties made by any party to this Agreement shall survive the Closing for a
period of twelve (12) months (the "Survival Period"). (b) (i) The Indemnified
Party shall only be entitled to indemnification pursuant to Article VI hereof
once such Indemnified Party's aggregate claims for indemnification exceed
seventy five thousand U.S. dollars (U.S. $75,000), but after such claims exceed
such amount, the Indemnified Party shall be entitled to seek indemnification for
all indemnification claims in excess of fifty thousand U.S. dollars (U.S.
$50,000) of Damages; and (ii) the indemnification obligations of each party
shall be limited to an amount equal to sixty-five percent (65%) of the Purchase
Price in the aggregate. No party shall be entitled to indemnification for
Damages arising from the breach of any representation or warranty if such party
had actual knowledge of such breach or inaccuracy prior to the Closing.
6.6 Cooperation. Subject to the provisions of Section 6.9, the
Indemnifying Party shall have the right, at its own expense, to participate in
the defense of any Third Party Claim, and if said right is exercised, the
parties shall cooperate in the investigation and defense of said Third Party
claim.
6.7 Subrogation. The Indemnifying Party shall not be entitled to
require that any action be brought against any other person before action is
brought against it hereunder by the Indemnified Party but shall be subrogated to
any right of action to the extent that it has paid or successfully defended
against any Third Party Claim.
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6.8 Third Party Claims Subject to Indemnification.
----------------------------------------------
(a) Promptly following the receipt of notice of a Third Party Claim, the
party receiving the notice of the Third Party Claim shall notify the other party
hereto of such Third Party Claim. The failure to give such notice shall not
relieve the Indemnifying Party of its obligations under this Agreement except to
the extent that the Indemnifying Party is prejudiced as a result of the failure
to give such notice. Within fifteen business days after receipt of the notice
by the Indemnifying Party pursuant to the preceding sentence, the Indemnifying
Party shall notify the Indemnified Party whether it elects to control the
defense of the Third Party Claim. If the Indemnifying Party elects to undertake
the defense of such Third Party Claim, it shall do so at its own expense with
counsel of its own choosing and it shall acknowledge in writing without
qualification its indemnification obligations as provided in this Agreement to
the Indemnified Party as to such Third Party Claim. If the Indemnifying Party
elects not to defend the Third Party Claim or fails to pursue such Third Party
Claim diligently, the Indemnified Party shall have the right to undertake,
conduct and control the defense of such Third Party Claim through counsel of its
own choosing. The party that litigates or contests the Third Party Claim shall
keep the other party fully advised of the progress and disposition of such
claim.
(b) In the event the Indemnifying Party elects not to undertake the
defense of the Third Party Claim or fails to pursue diligently the defense of
such a claim and the Indemnified Party litigates or otherwise contests or
settles the Third Party Claim, then, provided that a final determination has
been made that the Indemnified Party is entitled to indemnification hereunder,
the Indemnifying Party shall promptly reimburse the Indemnified Party for all
amounts paid to settle such claim or all amounts paid in satisfaction of a
judgment against the Indemnified Party in contesting such claim and in providing
its right to indemnification hereunder, all in accordance with the provisions of
this Article VI.
(c) No Third Party Claim will be settled by the Indemnifying Party without
the consent of the Indemnified Party, which consent will not be unreasonably
withheld; provided, however, that if such claim asserts that the Indemnifying
Party is jointly and severally liable and the Indemnified Party shall be fully
released from all liability relating to such Third Party Claim in connection
with such settlement, the Indemnifying Party shall not be required to obtain the
consent of the Indemnified Party. If, however, the Indemnified Party refuses to
consent to a bona fide offered settlement which the Indemnifying Party wishes to
accept, the Indemnified Party may continue to pursue such Third Party Claim free
of any participation by the Indemnifying Party, at the sole expense of the
Indemnified Party. In such event, the Indemnifying Party shall pay to the
Indemnified Party the amount of the offer of settlement which the Indemnified
Party refused to accept, plus the costs and expenses incurred by the Indemnified
Party prior to the date the Indemnifying Party notifies the Indemnified Party of
the offer of settlement, all in accordance with the terms of this Article VI,
and, upon the payment or receipt of such amount, as the case may be, the
Indemnifying Party shall have no further liability with respect to such Third
Party Claim. The Indemnifying Party shall be entitled to recover from the
Indemnified Party any
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<PAGE>
additional expenses incurred by such Indemnifying Party as a result of the
decision of the Indemnified Party to pursue the matter.
6.9 Third Party Claims Not Subject to Indemnification. Seller and
Purchaser shall cooperate with each other with respect to the defense of any
claims or litigation made or commenced by third parties subsequent to the
Closing Date which are not subject to the indemnification provisions contained
in this Article VI, provided that the party requesting cooperation shall
reimburse the other party for the other party's reasonable out-of-pocket costs
and expenses of furnishing such cooperation.
ARTICLE VII
Effect of Termination/Proceeding
--------------------------------
7.1 Right to Terminate. Anything to the contrary herein notwithstanding,
this Agreement and the transaction contemplated hereby may be terminated at any
time prior to the Closing by prompt notice given in accordance with Section 8.3:
(a) by the mutual written consent of Purchaser and Seller; or
(b) by either of such parties if the Closing shall not have occurred at or
before 11:59 p.m. on December 31, 1998; provided, however, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available to any
party whose failure to fulfill any material obligation under this Agreement has
been the cause of or resulted in the failure of the Closing to occur on or prior
to the aforesaid date; or
(c). by Purchaser in accordance with Section 4.3.
7.2 Remedies. In the event of a breach of this Agreement, the non-
breaching party shall not be limited to the remedy of termination of this
Agreement, but shall be entitled to pursue all available legal and equitable
rights and remedies, and shall be entitled to recover all of its reasonable
costs and expenses incurred in pursuing them (including, without limitation,
reasonable attorneys' fees).
ARTICLE VIII
Miscellaneous
-------------
8.1 Fees. Seller and Purchaser shall each be solely responsible for any
and all of their respective costs, fees and expenses, including, without
limitation, expenses of legal counsel, brokers, accountants, and other advisors,
incurred at any time in connection with pursuing or consummating the
transactions contemplated hereby.
19
<PAGE>
8.2 Publicity. Press releases concerning this transaction shall be made
only with the prior agreement of Seller and Purchaser, provided however that
releases otherwise required by law or applicable stock exchange rules, may be
issued by Purchaser upon granting Seller a reasonable opportunity to review and
comment on such release.
8.3 Notices. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile, or by
internationally recognized private courier. Notices delivered by hand by
facsimile, or by nationally recognized private carrier shall be deemed given on
the first business day following receipt; provided, however, that a notice
delivered by facsimile shall only be effective if such notice is also delivered
by hand, or deposited in the United States mail, postage prepaid, registered or
certified mail, on or before two (2) business days after its delivery by
facsimile. All notices shall be addressed as follows:
If to Seller:
c/o Paul Brown/International Home Security Investments Limited
c/o Alliance Investments S.A.M.
Le Panorama Bloc AB
57 Rue Grimaldi
MC 98000 MONACO
Fax: 377 93 25 25 83
With a copy to:
Neal, Gerber and Eisenberg
Two North LaSalle
Suite 2200
Chicago, Illinois 60602
Attention: William Holzman, Esq.
Fax: 312-269-1747
If to Purchaser:
Home Security International, Inc.
Level 7, 77 Pacific Highway
North Sydney, New South Wales 2060
Australia
Attention: Chief Financial Officer
Fax: 011-612-9936-2355
With a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Fernando Carranza, Esq.
Fax: (312) 580-0923
20
<PAGE>
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 8.3.
8.4 Transfer Taxes. Seller shall pay the cost of all sales, use,
excise and transfer taxes, which may be payable in connection with the
transaction contemplated hereby.
8.5 Arbitration. All disputes, differences, or questions arising out of
or relating to this Agreement, or the validity, interpretation, breach, or
violation or termination thereof, shall be finally and solely determined and
settled by arbitration in Chicago, Illinois in accordance with the rules of the
American Arbitration Association. Within twenty (20) days of Seller's and
Purchaser's failure to resolve a dispute pursuant to this Agreement, each of
Purchaser and Seller shall appoint one person to serve as an arbitrator;
provided, however, that neither Purchaser nor Seller shall appoint any person
that either Purchaser, Seller or their respective affiliates has had any
material business dealings with at any time during the previous five (5) year
period from the date of appointment. The two arbitrators so appointed shall
mutually select the third arbitrator hereunder within ten (10) days of their
respective appointment. The three (3) arbitrators shall jointly resolve the
dispute within thirty (30) days after the appointment of the third arbitrator.
If either Purchaser or Seller has not properly appointed an arbitrator within
the time period above who meets the criteria set forth above, the arbitrator
properly appointed shall serve as the sole arbitrator to resolve the dispute
pursuant to the terms of this Agreement. The Arbitrators' determination as to a
dispute shall be final and binding on the parties hereto. The party deemed to be
at fault in arbitration shall pay all fees and expenses of the arbitration.
8.6 Entire Agreement. This Agreement and the instruments to be delivered
by the parties pursuant to the provisions hereof constitute the entire agreement
between the parties and shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives, successors and
permitted assigns. Each exhibit and schedule, shall be considered incorporated
into this Agreement. Any amendments, or alternative or supplementary provisions
to this Agreement must be made in writing and duly executed by an authorized
representative or agent of each of the parties hereto.
8.7 Survival; Non-Waiver. All representations and warranties shall
survive the Closing regardless of any investigation or lack of investigation by
any of the parties hereto. The failure in any one or more instances of a party
to insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or
the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party. A breach of any
representation, warranty or covenant shall not be affected by the fact that a
more general or more specific representation, warranty or covenant was not also
breached.
21
<PAGE>
8.8 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
8.9 Severability. The invalidity of any provision of this Agreement
or portion of a provision shall not affect the validity of any other provision
of this Agreement or the remaining portion of the applicable provision.
8.10 Applicable Law. This Agreement shall be governed and controlled
as to validity, enforcement, interpretation, construction, effect and in all
other respects by the internal laws of the State of Delaware applicable to
contracts made in that State.
8.11 Binding Effect; Benefit. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, and their successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
confer on any person other than the parties hereto, and their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
8.12 Assignability. This Agreement shall not be assignable by either
party without the prior written consent of the other party, except that after
the Closing, Purchaser may assign its rights and delegate its duties under this
Agreement to any third party. No such assignment shall relieve Purchaser of any
of its liabilities under this Agreement.
8.13 Amendments. This Agreement shall not be modified or amended
except pursuant to an instrument in writing executed and delivered on behalf of
each of the parties hereto.
8.14 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
8.15 Representation. Each of the parties acknowledges that (i) each
party has had an opportunity to consult with independent legal counsel
concerning the terms of this Agreement before executing it; (ii) it fully
understands all of the terms and conditions of this Agreement; and (iii) it is
entering into this Agreement knowingly and voluntarily and without coercion,
promises or representations not expressly contained herein.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
INTERNATIONAL HOME SECURITY
INVESTMENTS LIMITED
By: /s/ Paul Brown
-------------------------------
Its: Director
------------------------------
HOME SECURITY INTERNATIONAL, INC.
By: /s/ Mark Whitaker
-------------------------------
Its: Chief Financial Officer
------------------------------
23
<PAGE>
AMENDMENT NO. 1 TO THE
STOCK PURCHASE AGREEMENT
This Amendment (the "Amendment") dated as of September 30, 1998 to the
Stock Purchase Agreement (the "Purchase Agreement") dated as of July 17, 1998,
by and between Integral Investments Limited, a British Virgin Islands
corporation ("Seller "), the sole stockholder of Integrated International Home
Security Limited, a British Virgin Islands corporation (the "Company"), and Home
Security International, Inc., a Delaware corporation ("Purchaser"), is entered
into between Seller and Purchaser.
RECITALS
--------
A. Purchaser and Seller have heretofore entered into the Purchase
Agreement, which provides, among other things, for the acquisition by Purchaser
of all the outstanding capital stock of the Company. All capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed to them
in the Purchase Agreement.
B. Purchaser and Seller wish to enter into this Amendment to amend certain
provisions of and exhibits to the Purchase Agreement.
C. As further inducement for Seller to enter into this Amendment, Purchaser
will deliver a non-refundable renegotiation fee of two hundred thousand dollars
(U.S. $200,000) to Seller contemporaneous with the signing of this Amendment.
AGREEMENTS
----------
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Status of Purchase Agreement. Except as specifically set forth herein,
the Purchase Agreement and each of the Exhibits thereto shall remain in full
force and effect and shall not be waived, modified, superseded or otherwise
affected by this Amendment. This Amendment is not to be construed as a release,
waiver or modification of any of the terms, conditions, representations,
warranties, covenants, rights or remedies set forth in the Purchase Agreement,
except as specifically set forth herein. The effective date of this Amendment
shall be 12:01 A.M., Sydney, Australia time, October 1, 1998.
2. Amendments to the Purchase Agreement.
24
<PAGE>
2.1 Section 1.2(i) of the Purchase Agreement. Section 1.2(i) of the
Purchase Agreement is hereby deleted in its entirety and replaced with the
following:
" 1.2 Purchase Price. The aggregate purchase price (the "Purchase Price")
of the Shares shall be equal to the sum of (i) eleven million three hundred
ninety eight thousand dollars (U.S. $11,398,000) (the "Cash Portion");"
2.2 Section 1.3 of the Purchase Agreement. Section 1.3 of the Purchase
Agreement is hereby deleted in its entirety and replaced with the following:
"1.3 Manner of Payment of Purchase Price. The Purchase Price shall be paid
or satisfied at the Closing (as herein defined) as follows: (i) the Cash Portion
shall be paid by Purchaser's delivery of (A) one hundred twenty six thousand
dollars (U.S. $126,000) ("Deposit") which was delivered by Purchaser to Seller
contemporaneous with the signing of the Purchase Agreement and shall be credited
against the Purchase Price; (B) two million three hundred thousand dollars (U.S.
$2,300,000) payable at the Closing, by wire transfer of immediately available
funds per the wire transfer instructions attached hereto as Exhibit B; and (C) a
secured promissory note in the amount of nine million ninety eight thousand
dollars (U.S. $9,098,000) (the "Note") in the form attached hereto as Exhibit C;
(ii) the Share Portion shall be paid by Purchaser's delivery of a certificate
representing 400,000 shares of HSI Common Stock; and (iii) Purchaser's delivery
of the Warrant. In the event that the transactions contemplated by this
Agreement are not consummated and there is no Closing, the Seller shall be
entitled to keep the Deposit."
2.3 Section 1.4 of the Purchase Agreement. Section 1.4 of the Purchase
Agreement is hereby deleted in its entirety and replaced with the following:
"1.4 Appointment to Board of Directors. Purchaser will cause Paul Brown to
be elected to the Board of Directors of Purchaser on the Closing Date, or as
soon as practicable thereafter. Purchaser agrees to use commercially reasonable
efforts to cause Paul Brown or his nominee, subject to the approval of the Board
of Directors of Purchaser, which shall not be unreasonably withheld, to be re-
elected to the Board of Directors of Purchaser until the earlier to occur of (i)
the fifth anniversary of the Closing Date; (ii) the date on which Seller, Paul
Brown or another entity controlled directly or indirectly by Paul Brown ceases
to beneficially own (determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act")) a number of
shares (including shares underlying the Warrant and the Additional Warrants, as
defined herein) equal to at least five percent (5.0%) of the outstanding HSI
Common Stock; provided however, that if Purchaser would be under no obligation
to cause Paul Brown or his nominee to be re-elected to the Board of Directors,
and the Note has not been paid in full, Purchaser agrees to use commercially
reasonable efforts to cause Paul Brown or his nominee to be re-elected to the
Board of Directors of Purchaser until the Note is repaid in full."
25
<PAGE>
2.4 Section 1.5 of the Purchase Agreement. Section 1.5 of the Purchase
Agreement is hereby deleted in its entirety and replaced with the following:
"1.5 Closing Deliveries. At the Closing, Seller shall deliver to Purchaser
(i) certificates evidencing the Shares (together with all rights then or
thereafter attaching thereto) duly endorsed in blank, or accompanied by valid
stock powers duly executed in blank, in proper form for transfer; and (ii)
certificates evidencing the Ness Shares. The parties shall also deliver (i) an
executed side letter agreement regarding a three million dollar (U.S.
$3,000,000) hold back arrangement (the "Holdback Agreement") in the event the
principal amount of the Note is reduced to less than three million dollars (U.S.
$3,000,000) prior to the end of the Survival Period (as defined herein), and
(ii) an executed side letter agreement designating a recipient on behalf of
Seller of the Share Portion, the Warrant and the warrants, if any, issued
pursuant to the Note (the "Additional Warrants"). The parties shall also deliver
such other documents (including incumbency certificates, good standing
certificates, lien searches, corporate resolutions and resignations) as are
reasonably required under Australian, British Virgin Islands, U.S. laws, or the
laws of any other relevant jurisdiction, in order to effectuate the consummation
of the transaction contemplated hereby. Additionally, each party shall deliver
all documents referenced on the closing checklist (the "Closing Checklist"),
substantially in the form attached hereto as Exhibit D, with such changes
thereto as may be reasonably agreed to by the parties hereto, to the other
party; and Purchaser shall deliver to Seller the Purchase Price in the manner
described in Section 1.3 above. All documents to be delivered by a party shall
be in form and substance reasonably satisfactory to the other party."
2.5 Section 2.1(b) of the Purchase Agreement. Section 2.1(b) of the
Purchase Agreement is hereby deleted in its entirety and replaced with the
following:
"(b) Purchaser has full corporate power and authority to enter into and
perform this Agreement and the Note. The execution and delivery by Purchaser of
this Agreement and the Note and the performance by Purchaser of its obligations
hereunder and thereunder have been duly authorized and approved by all requisite
corporate action. The approval of its shareholders is not required in order to
execute this Agreement, or consummate the transactions contemplated hereby. This
Agreement and the Note have been duly executed and delivered by a duly
authorized officer of Purchaser."
2.6 Section 2.1(e) of the Purchase Agreement. Section 2.1(e) of the
Purchase Agreement is hereby deleted in its entirety and replaced with the
following:
"(e) Purchaser is not a party to any unexpired, undischarged or unsatisfied
written or oral contract, agreement, indenture, mortgage, debenture, note or
other instrument under the terms of which performance by Purchaser according to
the terms of this Agreement, the Note, the Warrant or the Additional Warrants
will be a default or an event of acceleration, or
26
<PAGE>
grounds for termination, or whereby timely performance by Purchaser according to
the terms of this Agreement, the Note, the Warrant or the Additional Warrants
may be prohibited, prevented or delayed."
2.7 Section 2.1(g) of the Purchase Agreement. Section 2.1(g) of the
Purchase Agreement is hereby deleted in its entirety and replaced with the
following:
"(g) The issuance and delivery of the Share Portion, the Warrant and the
Additional Warrants have been duly and validly authorized by all necessary
corporate action. The Share Portion and the shares to be issued in connection
with the exercise of the Warrant and the Additional Warrants, when issued in
accordance with the terms of this Agreement, the Warrant, or the Additional
Warrants, as the case may be, will be validly issued, fully paid and non-
assessable. Purchaser has reserved and will continue to reserve until the
Warrant and the Additional Warrants are exercised or expire in accordance with
their respective terms, the number of shares of HSI Common Stock issuable upon
exercise of the Warrant, or the Additional Warrants, as the case may be."
2.8 Section 2.1(k) of the Purchase Agreement. Section 2.1(k) of the
Purchase Agreement is hereby added to the Purchase Agreement to read as follows:
"(k) As of the Closing Date, there is no indebtedness which is senior in
right of payment to the Note."
2.9 Section 3.1(e) of the Purchase Agreement. Section 3.1(e) of the
Purchase Agreement is hereby deleted in its entirety and replaced with the
following:
"(e) Intentionally omitted."
2.10 Section 4.2(g) of the Purchase Agreement. Section 4.2(g) of the
Purchase Agreement is hereby deleted in its entirety and replaced with the
following:
"(g) The Board of Directors of Purchaser shall have approved the
transactions contemplated by this Amendment."
2.11 Section 5.8 of the Purchase Agreement. A new Section 5.8 is hereby
added to the Purchase Agreement to read as follows:
"5.8 Purchaser Covenants. Purchaser expressly covenants and agrees that as
long as the Note is outstanding, (a) it will operate each of Ness and the
Company in a commercially reasonable fashion (which includes the maintenance of
adequate insurance, the maintenance of their respective property and the
maintenance of books and records), (b) it will provide Seller, or its nominee to
the Board of Directors, with copies of all reports filed with the SEC and will
27
<PAGE>
provide to such party such other information that it reasonably requests from
time to time, (c) it will provide Seller, or its nominee to the Board of
Directors, with all information provided to other members of the Board of
Directors contemporaneous with providing such information to the other members
of the Board of Directors (such monthly information shall include material Ness
financial data), (d) it will comply in all material respects with all laws, and
(e) it will not take any of the following actions without the prior written
approval of Seller: (i) the sale, lease, disposition of all or substantially all
of the assets of Ness or the Company; (ii) the merger or consolidation of Ness
or the Company with or into any other corporation, corporations or other entity,
including a sale of all or substantially all of the assets of Ness by means of a
sale of the Ness Shares or of the Company by means of a sale of the Shares;
(iii) the liquidation or winding up of the business and operations of Ness or
the Company; or (iv) the incurrence by Purchaser of any indebtedness senior in
right of payment to or pari passu with the Note or the incurrence by Ness or the
Company of any indebtedness outside the ordinary course of business, consistent
with past practice; provided however, that any transaction involving the
acquisition of the capital stock of Ness not currently owned by the Company,
including any related financing transaction shall not be a violation of this
Section 5.8."
2.12 Section 6.4(c) of the Purchase Agreement. Section 6.4(c) of the
Purchase Agreement is hereby deleted in its entirety and replaced with the
following:
"(c) Intentionally omitted."
2.13 Section 6.5(a) of the Purchase Agreement. Section 6.5(a) of the
Purchase Agreement is hereby deleted in its entirety and replaced with the
following:
"(a) All representations and warranties made by any party to this Agreement
shall survive the signing of the Agreement until July 17, 1999 (the "Survival
Period")."
2.14 Section 6.10 of the Purchase Agreement. A new Section 6.10 is hereby
added to the Purchase Agreement to read as follows:
"6.10 Purchaser's Right of Set-Off. If Purchaser claims that Seller owes
Purchaser any amount pursuant to the terms of this Agreement, including any
amounts under this Article VI, Purchaser shall deliver to Seller written notice
of such claim specifying the amount and nature of such claim (a "Set-Off
Notice"). If Seller disputes the proposed claim, Seller shall deliver written
notice of such Dispute (a "Set-Off Dispute Notice") to Purchaser within ten (10)
days after Seller's receipt of the Set-Off Notice. If Seller fails to deliver
the Set-Off Dispute Notice to Purchaser within such ten (10) day period, Seller
shall be entitled to set off such claim against any amounts due Seller under the
Note or the Holdback Agreement. If Seller delivers a Set-Off Dispute Notice to
Purchaser within such ten (10) day period, and the disputed amount to be set-off
against the Note or the Holdback Agreement would otherwise be due and payable,
the parties shall submit the matter for arbitration pursuant to Section 8.5 of
this Agreement. During
28
<PAGE>
the period of any such dispute, Purchaser shall not be deemed to be in default
under the Note for failure to pay Seller the disputed amount under the Note, the
Note shall remain outstanding and Purchaser shall continue to comply with its
covenants hereunder and thereunder. Purchaser may not deliver a Set-Off Notice
or set off any claim against the Note if an event of default has occurred and is
continuing under the Note."
2.15 Section 8.3 of the Purchase Agreement. Section 8.3 of the Purchase
Agreement is hereby deleted in its entirety and replaced with the following:
"8.3 Notices. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile, or by
internationally recognized private courier. Notices delivered by hand, by
facsimile, or by nationally recognized private carrier shall be deemed given on
the first business day following receipt; provided, however, that a notice
delivered by facsimile shall only be effective if such notice is also delivered
by hand, or deposited in the United States mail, postage prepaid, registered or
certified mail, on or before two (2) business days after its delivery by
facsimile. All notices shall be addressed as follows:
If to Seller:
c/o Paul Brown/Integral Investments Limited
c/o Alliance Investments S.A.M.
Le Panorama Bloc AB
57 Rue Grimaldi
MC 98000 MONACO
Fax: 377 93 25 25 83
With a copy to:
Neal, Gerber and Eisenberg
Two North LaSalle, Suite 2200
Chicago, Illinois 60602
Attention: William Holzman, Esq.
Fax: 312-269-1747
If to Purchaser:
Home Security International, Inc.
c/o Arthur Don, Secretary
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Fax: (312) 580-0923
29
<PAGE>
With a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Fernando Carranza, Esq.
Fax: (312) 580-0923
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 8.3."
3. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
[The remainder of this page has been left intentionally blank.]
30
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment and caused the
same to be duly delivered on their behalf on the day and year first written
above.
INTEGRAL INVESTMENTS LIMITED
By: /s/ Paul Brown
-------------------------------
Its: Director
------------------------------
HOME SECURITY INTERNATIONAL, INC.
By: /s/ Mark Whitaker
-------------------------------
Its: Chief Financial Officer
------------------------------
31
<PAGE>
Exhibit B
AT THE TIME OF THIS WARRANT CERTIFICATE, NEITHER THE RIGHTS REPRESENTED BY THIS
WARRANT CERTIFICATE NOR THE SHARES EXERCISABLE UPON THE EXERCISE HEREOF HAVE
BEEN REGISTERED FOR OFFER OR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE MAY NOT BE
SOLD, ASSIGNED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER
THE ACT OR AN APPLICABLE EXEMPTION THEREFROM, UPON THE OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
HOME SECURITY INTERNATIONAL, INC.
Warrant to Purchase Common Stock
--------------------------------
This Warrant Certificate certifies that INTERNATIONAL HOME SECURITY
INVESTMENTS LIMITED, a British Virgin Islands company ("Holder"), is the
registered holder of 360,000 warrants (the "Warrants") to purchase shares of
Common Stock, U.S. $.001 par value per share (the "Shares"), of HOME SECURITY
INTERNATIONAL, INC., a Delaware corporation (the "Company"), on the terms and
subject to the conditions set forth below. Each Warrant entitles Holder, upon
exercise, to receive from the Company one share (the "Conversion Ratio") of
fully paid, nonassessable Common Stock of the Company for U.S. $13.00 (the
"Warrant Exercise Price").
DEFINITIONS
-----------
SECTION I. Definitions. The following words and terms as used in this
Warrant Certificate shall have the following meanings:
"Affiliate" means, with respect to a Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person.
"Board" means the Board of Directors of the Company.
"Business Day" means a day other than a Saturday, a Sunday or a day on
which banking institutions in the City of New York are authorized or obligated
by law or required by executive order to be closed.
"Common Stock", when used with reference to stock of the Company,
means all shares now or hereafter authorized of any class of the common stock of
the Company.
<PAGE>
"Convertible Securities" shall mean any securities issued by the
Company after the date hereof which are convertible into, or exchangeable for,
directly or indirectly, shares of Common Stock.
"Person" means a domestic or foreign individual or corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as the same may be
amended from time to time, and the regulations thereunder.
"Trading Day" shall mean any day on which the American Stock Exchange
is open for trading on a regular basis.
SECTION II. Termination of Warrants. All of the Warrants evidenced by
this Warrant Certificate shall be fully vested and exercisable as of the date
hereof. The Warrants represented by this Warrant Certificate may not be
exercised after 5:00 p.m., Chicago, Illinois local time, on the fifth
anniversary of the date hereof (September 30, 2003) and, to the extent not
exercised on or before 5:00 p.m., Chicago, Illinois, local time, on such date,
such Warrants shall become void.
SECTION III. Exercise of Warrant. Subject to the terms and conditions
hereof, the Warrants may be exercised by Holder, at any time after the date
hereof, in blocks of not less than twenty five thousand (25,000) shares, by (i)
delivery of a written notice to the Company, in the form of the Subscription
Notice attached as Exhibit A hereto, (ii) payment by Holder to the Company of an
amount equal to the Warrant Exercise Price times the number of Warrants so
exercised (plus any applicable issue or transfer taxes) in cash or by certified
or official bank check in immediately available funds, (iii) the surrender of
this Warrant Certificate, properly endorsed, at the principal office of the
Company (or at such other agency or office of the Company as the Company may
designate by notice to Holder) and (iv) delivery to the Company by Holder of a
letter in the form of Exhibit B hereto, provided however, that Holder may not
exercise any portion of the Warrants more than twice in any calendar quarter
without the prior written consent of the Chief Executive Officer of the Company,
which shall not be unreasonably withheld. Upon the Business Day following each
exercise of Holder's rights to purchase Shares, Holder shall be deemed to be the
holder of record of the Shares issuable upon such exercise, notwithstanding that
the transfer books of the Company shall then be closed or certificates
representing such Shares shall not then have been actually delivered to Holder.
As soon as practicable after each such exercise of this Warrant, the Company
shall issue and deliver to Holder a certificate or certificates for the Shares
issuable upon such exercise, registered in the name of Holder or its designee.
If, at the time of exercise, Holder has not elected to exercise all Warrants
that have not already been previously exercised pursuant to the terms of this
Warrant Certificate, upon the Company's receipt of each of the documents
referred to in this Section
<PAGE>
III, in addition to the issuance of a stock certificate representing the Shares,
including any legends restricting the transfer of such Shares under the
Securities Act, issuable upon exercise of the Warrants, the Company shall issue
a new Warrant Certificate to Holder, on the same terms as set forth herein,
representing the number of Warrants that have not been previously exercised.
Fractional shares of Common Stock shall not be issued upon the exercise of the
Warrants. In lieu thereof, the Company shall pay Holder cash in an amount equal
to such fractional share interest multiplied by the closing price of a share of
Common Stock as of the date of exercise.
SECTION IV. Covenants as to Common Stock. The Company covenants and
agrees that all Shares which may be issued upon the exercise of any Warrant
represented by this Warrant Certificate will, upon issuance and payment of the
Warrant Exercise Price applicable to such Shares, be validly issued, fully paid
and nonassessable. The Company further covenants and agrees that during the
period within which the any portion of this Warrant Certificate may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock to provide for the exercise of the
entire outstanding portion of this Warrant Certificate and that the par value of
said Shares will at all times be less than or equal to the applicable Warrant
Exercise Price.
SECTION V. Reorganization, Reclassification, Issuance of Additional
Shares of Common Stock, Etc. (a) In case of any capital reorganization, or of
any reclassification of the capital stock, of the Company (other than a change
in par value or from par value to no par value or from no par value to par value
or as a result of a split-up or combination) or in case of the consolidation or
merger of the Company with or into any other corporation or entity (other than a
consolidation or merger in which the Company is the surviving corporation and
which does not result in the Common Stock being changed into or exchanged for
stock or other securities or property of any other person), or of the sale of
the properties and assets of the Company as, or substantially as, an entirety to
any other corporation, this Warrant Certificate shall, after such capital
reorganization, reclassification of capital stock, consolidation, merger or
sale, entitle Holder to purchase the kind and number of shares of stock or other
securities or property of the Company, or of the corporation or entity resulting
from such consolidation or surviving such merger or to which such sale shall be
made, as the case may be, to which the holder hereof would have been entitled if
it had held the Common Stock issuable upon the exercise hereof immediately prior
to such capital reorganization, reclassification of capital stock,
consolidation, merger or sale, and in any such case appropriate provision shall
be made with respect to the rights and interests of Holder hereunder to the end
that the provisions hereof (including, without limitation, provisions for
adjustment of the number or class of shares purchasable upon the exercise of
this Warrant Certificate) shall thereafter be applicable, as nearly as may be in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of the rights represented hereby. The Company shall not effect
any such consolidation, merger or sale, unless prior to or simultaneously with
the consummation thereof the successor corporation or entity (if other than the
Company) resulting from such consolidation or merger or the corporation or
entity purchasing such assets shall assume by written instrument executed and
mailed or delivered to Holder at the address of Holder appearing on the books of
the Company, the
<PAGE>
obligation to deliver to Holder such shares of stock, securities or assets as,
in accordance with the foregoing provisions, Holder may be entitled to purchase.
SECTION VI. Antidilution Provisions. (a) The Conversion Ratio shall be
subject to adjustment from time to time as provided in this Section VI. For
purposes of this Section VI, the term "Common Stock" includes the Shares and any
other class of equity interest in the Company having no preference over the
Shares as to distributions which may be authorized in the future by an amendment
to the Company's Certificate of Incorporation. (b) In case the Company shall, at
any time after the date this Warrant Certificate was first issued, with respect
to all of the holders of its outstanding Common Stock (i) declare a dividend on
the outstanding Common Stock payable in shares or rights to acquire shares of
its Common Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation but excluding the events set forth in
Section V hereof or the issuance of shares of Common Stock by the Company in
connection with a merger when the Company is the surviving corporation of the
merger and no such reclassification of the Common Stock has occurred), then, in
each case, the Conversion Ratio and the number of Shares issuable upon exercise
of this Warrant Certificate in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination, or
reclassification, shall be proportionately adjusted so that Holder after such
time shall be entitled to receive the aggregate number and kind of Shares which,
if this Warrant Certificate had been exercised immediately prior to such time,
it would have owned upon such exercise and been entitled to receive by virtue of
such dividend, sub-division, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur. (c)
Irrespective of any adjustments in the Conversion Ratio, the Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in this Warrant Certificate. (d)
Whenever the Company issues an announcement to the public, or otherwise
communicates with the Company's stockholders with respect to any event which
will result in an adjustment as provided for in Section V or VI hereof, the
Company shall promptly cause written notice thereof to be sent by
internationally recognized overnight courier to Holder, at its address as it
shall appear in the records of the Company, which notice shall be accompanied by
an officer's certificate setting forth the adjusted Conversion Ratio and the
number of Shares purchasable upon the exercise of this Warrant after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
SECTION VII. Taxes. The Company shall not be required to pay any tax
or taxes payable by Holder and attributable to the initial issuance of shares of
Common Stock upon any exercise, in whole or part, of this Warrant Certificate.
SECTION VII. Warrant Holder Not Deemed a Shareholder. No holder, as
such, of this Warrant Certificate shall be entitled to vote or receive dividends
or be deemed the
<PAGE>
holder of shares of the Company for any purpose, nor shall anything contained in
this Warrant Certificate be construed to confer upon the holder hereof, as such,
any of the rights of a shareholder of the Company or any right to vote, give or
withhold consent to any corporate action (whether any reorganization, issue of
stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance of record to the holder of this
Warrant Certificate of the Shares which he is then entitled to receive upon the
due exercise of this Warrant Certificate.
SECTION IX. No Limitation on Corporate Action. No provisions of this
Warrant and no right or option granted or conferred hereunder shall in any way
limit, affect or abridge the exercise by the Company of any of its corporate
rights or powers to recapitalize, amend its Certificate of Incorporation,
reorganize, consolidate or merge with or into another corporation, or to
transfer, all or any part of its property or assets, or the exercise or any
other of its corporate rights and powers. Notwithstanding the foregoing, the
Company agrees that until all the Shares have been registered pursuant to an
effective registration statement filed with the SEC, or sold pursuant to Rule
144 under the Securities Act or otherwise, it shall keep current in filing all
reports, statements, and other materials required to be filed with the SEC (each
an "SEC Report") to permit holders of the Shares to sell such securities under
Rule 144. For purposes of this Section IX, the Company shall be deemed to be
current if it is granted an extension to file any SEC Report by the SEC and the
Company subsequently files such SEC Report within the permitted extension
period, provided however, that the Company shall not be deemed to be current if
it is granted more than two such extensions in any twelve month period.
SECTION X. Not Transferable. This Warrant Certificate and the Warrants
represented hereby are not transferable to any other Person, without the prior
written consent of the Company, which shall not be unreasonably withheld;
provided, however, that Holder may, without the prior consent of the Company,
transfer this Warrant Certificate and the Warrants represented hereby, or any
portion thereof, to an Affiliate of Paul Brown.
SECTION XI. Lost, Stolen, Mutilated or Destroyed Warrant Certificate.
If this Warrant Certificate is lost, stolen, mutilated or destroyed, the Company
shall, on such term as to indemnity or otherwise as it may in its discretion
impose (which shall, in the case of a mutilated Warrant Certificate, include the
surrender thereof), issue a new Warrant Certificate of like denomination and
tenor as the Warrant Certificate so lost, stolen, mutilated or destroyed. Any
such new Warrant Certificate shall constitute an original contractual obligation
of the Company, whether or not the allegedly lost, stolen, mutilated or
destroyed Warrant Certificate shall be at any time enforceable by anyone.
SECTION XII Notices. All notices and other communications under this
Warrant Certificate shall (a) be in writing, (b) be sent by (i) registered or
certified mail, postage prepaid, return receipt requested, (ii) telecopier, or
(iii) delivered by hand, (c) be given at the following
<PAGE>
respective addresses and telecopier and telephone number and to the attention of
the following persons:
if to the Company at:
Home Security International, Inc.
7/77 Pacific Highway
North Sydney, NSW 2060
Australia
Attention: Mark Whitaker, CFO
Telecopier No.: 61 2 9936 2355
with a copy to:
D'Ancona & Pflaum
30 North LaSalle Street
Suite 2900
Chicago, Illinois 60602
Attention: Fernando Carranza, Esq.
Telecopier No.: (312) 580-0923
if to Holder:
International Home Security Investments Limited
c/o Alliance Investments S.A.M.
Le Panorama Bloc AB
57 Rue Grimaldi
MC 98000 MONACO
Attention: Paul Brown
Telecopier No.: 377 93 25 25 83
With a copy to:
Neal, Gerber and Eisenberg
Two North LaSalle
Suite 2200
Chicago, Illinois 60602
Attention: William Holzman, Esq.
Fax: 312-269-1747
or at such other address or telecopier or telephone number or to the attention
of such other person as the party to whom such information pertains may
hereafter specify for the purpose in a notice
<PAGE>
to the other specifically captioned "Notice of Change of Address", and (d) be
effective or deemed delivered or furnished (i) if given by mail, on the third
Business Day after such communication is deposited in the mail, addressed as
above provided, (ii) if given by telecopier, when such communication is
transmitted to the appropriate number determined as above provided in this
Section XI, (iii) if given by hand delivery, when left at the address of the
addressee addressed as above provided, except that notices of a change of
address, telecopier or telephone number, shall not be deemed furnished until
received.
SECTION XIII. Miscellaneous. (1) This Warrant Certificate and any
term hereof may be changed, waived, discharged, or terminated only by an
instrument in writing signed by the party or holder hereof against which
enforcement of such change, waiver, discharge or termination is sought.
(2) The headings in this Warrant Certificate are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof
SECTION XIV. Governing Law. This Warrant Certificate shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to its rules of conflicts of laws.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed by its duly authorized officers as of the 30th day of September,
1998.
HOME SECURITY INTERNATIONAL, INC.
By: /s/ Mark Whitaker
-------------------------------------
Name: Mark Whitaker
Title: Chief Financial Officer
ATTEST:
By: /s/ Richard Lutterbeck
------------------------------
Name: Richard Lutterbeck
Title: Financial Controller
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER IF HE DESIRES
TO EXERCISE THIS WARRANT
The undersigned hereby exercises the right to purchase __________ of
the Shares covered by this Warrant Certificate according to the conditions
thereof and herewith makes payment of the Warrant Exercise Price of such Shares,
in full.
[HOLDER]
By:
-------------------------------------
Name:
-----------------------------------
[Address]
Dated:
---------------------------
<PAGE>
EXHIBIT B
Home Security International, Inc.
Attention: Chief Executive Officer
Re: Exercise of Warrant Certificate, dated September 30, 1998
---------------------------------------------------------
To whom it may concern:
In connection with the undersigned's purchase of Common Stock of Home
Security International, Inc. upon exercise of a Warrant Certificate therefor,
the undersigned confirms and agrees as follows:
1. The undersigned has sufficient knowledge and experience in
financial and business matters that it is capable of evaluating the
merits and risks of its prospective investment in the shares of Common
Stock.
2. The undersigned understands that it is purchasing the shares
of Common Stock pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Act"), or
any state securities or Blue Sky laws.
3. The undersigned is an "accredited investor" as defined in
Rule 501(a) of Regulation D under the Act.
4. The undersigned agrees that it will not offer, sell, transfer
or exchange such shares of Common Stock, except in accordance with the
registration requirements under the Act or pursuant to an available
exemption therefrom.
If administrative or legal proceedings are commenced or threatened in
connection with which this notice is or would be relevant, the undersigned
irrevocably authorizes Home Security International, Inc. to produce this notice
or a copy thereof to any interested party in such proceedings.
Date:
----------------------------
By:
-------------------------------------
Name:
-----------------------------------
<PAGE>
Exhibit C
U.S. $9,098,000.00 September 30, 1998
SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, HOME SECURITY INTERNATIONAL, INC., a
Delaware corporation (together with its successors and permitted assigns,
"Borrower"), promises to pay to the order of Integral Investments Limited, a
British Virgin Islands corporation (together with its successors and permitted
assigns, "Holder"), c/o Alliance Investments S.A.M., Le Panorama Bloc AB, 57 Rue
Grimaldi, MC 98000 Monaco, ATTN: Mr. Paul Brown, or at such other place as
Holder may from time to time designate in writing, the principal sum of NINE
MILLION NINETY EIGHT THOUSAND AND NO/100 DOLLARS ($9,098,000.00), in lawful
money of the United States, or such lesser amount of may be payable due to
offsets, if any, as provided for herein. This Note is being issued by Holder
pursuant to the terms of that certain Stock Purchase Agreement (the "Purchase
Agreement") dated as of July 17, 1998, as amended as of the date hereof between
Borrower and Holder. Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Purchase Agreement.
The principal amount hereof shall be payable as follows: (i) a principal
payment of $400,000 shall be due and payable on June 30, 1999; (ii) a principal
payment of $400,000 shall be due and payable on December 31, 1999; and the
remaining principal amount of this Note then outstanding shall be due and
payable on June 30, 2000.
Borrower may at any time prepay, without payment of premium or penalty, in
whole or in part, all amounts due under this Note. Any prepayments received by
Holder will be applied first to costs and expenses due hereunder, second to any
principal then due, and third to any principal then outstanding. In the event
that Borrower does not repay the entire principal amount of this Note prior to
October 1, 1999, Borrower shall issue to Holder or its designee a warrant to
purchase 200,000 shares of common stock of Borrower, exercisable for a period of
five years from the date it is issued, at an exercise price of $13.00 per share
(the "1999 Warrant"). Additionally, in the event that Borrower does not repay
the entire principal amount of this Note prior to January 1, 2000, Borrower
shall issue to Holder an additional warrant to purchase 200,000 shares of common
stock of Borrower, exercisable for a period of five years from the date it is
issued, at an exercise price of $13.00 per share (the "2000 Warrant"). Each of
the 1999 Warrant and the 2000 Warrant shall be on substantially the same terms
as the Warrant issued pursuant to the Purchase Agreement.
In addition to Borrower's optional right of prepayment described in the
preceding paragraph, unless Borrower receives the prior written consent of
Holder, which consent may be given or withheld at Holder's sole discretion,
Borrower shall be required to make a mandatory prepayment of all amounts due
under this Note (or in the case of (i) below, to the extent of such financing),
without payment of premium or penalty, to Holder within five (5) business days
after the closing of any of the following events (each, a "Triggering Event"):
(i) any debt or equity
<PAGE>
financing of Borrower, or any of its direct or indirect subsidiaries; (ii) a
sale or disposition of all or substantially all of the assets of Ness Security
Products Pty Ltd. ("Ness"), Integrated International Home Security Ltd (the
"Company") or Borrower to an unaffiliated third party; (iii) a transaction or
series of related transactions pursuant to which over fifty percent (50%) of the
voting control of Borrower is acquired by any person or any group of persons
(within the meaning of the regulations promulgated under Section 13 (d) of the
Exchange Act); or (iv) any sale, transfer, issuance or repurchase of the Shares
or the Ness Shares, including a foreclosure, or any other voluntary or
involuntary, direct or indirect disposition of the Shares or the Ness Shares;
provided however, that any transaction in which Borrower, or any of its direct
or indirect subsidiaries, acquires the capital stock of Ness not currently owned
by the Company, including any related financing transaction ("Ness Transaction")
shall not be a Triggering Event.
Borrower agrees to pay on demand all costs and expenses incurred by Holder
in endeavoring to enforce this Note (including court costs and reasonable out-
of-pocket attorneys' fees and disbursements). All principal due hereunder,
together with all costs, expenses, and other amounts payable hereunder are
collectively referred to herein as the "Liabilities".
To secure the prompt payment when due of all amounts hereunder and the
performance of and observance of all obligations and agreements of Borrower
pursuant to this Note, Borrower hereby grants to Holder a continuing security
interest in all of the issued and outstanding capital stock of the Company and
the certificates representing such capital stock, and all securities, dividends,
rights and other property received or distributed to Borrower in respect of or
in exchange for, such capital stock (the "Collateral"). In the event that the
Company's ownership interest in Ness increases to an amount greater then 75.04%,
the number of shares of Company capital stock held as Collateral shall be
reduced to a number equal to 75.04% ownership of Ness.
Borrower shall deliver to Holder concurrently with the execution of this
Note, the certificates representing the Collateral, accompanied by an
appropriate instrument of assignment, duly executed in blank, and such
certificates shall otherwise be in transferable form (the "Pledge"). None-the-
less, as long as there shall exist no default hereunder, Borrower shall be
entitled to exercise any and all voting rights with respect to the Collateral.
Reference is made to the Purchase Agreement, which is incorporated in this
Note by this reference as though set forth below, for a statement of the
covenants and agreements in that document, a statement of the rights and
remedies afforded by that document, and all other matters therein.
Each of the following events or occurrences shall constitute a default
under this Note: (i) Borrower shall fail to pay any amount payable hereunder
when due (and such failure shall continue for a period of five(5) days); (ii)
Borrower shall fail to duly perform any of its obligations hereunder or shall be
in breach of any representation or covenant made hereunder or in the Purchase
Agreement, where such breach or failure is reasonably likely to affect either
(a) the value of the Collateral in any material respect, or (b) Holder's right
to payment of the amounts due hereunder, in each case, where such breach
continues for a period of five (5) days; (iii) Borrower, the Company or Ness
shall become insolvent, a receiver, trustee, or custodian
2
<PAGE>
shall be appointed for Borrower, the Company or Ness or any part of the property
of Borrower, the Company or Ness, or any proceeding shall be commenced by
Borrower, the Company or Ness under any bankruptcy, reorganization, debt
arrangement, or insolvency law; or (iv) any proceeding shall be commenced
against Borrower, the Company or Ness under any bankruptcy, reorganization, debt
arrangement, or insolvency law, where such proceeding is not dismissed within
ninety (90) days after the filing thereof.
Upon a default and during the continuance thereof, Holder shall have (A)
all rights and remedies available to it pursuant to applicable law, including,
without limitation, the right to declare all Liabilities to be immediately due
and payable, without further notice, demand, or presentment of any kind
(provided, that, all amounts due hereunder shall be immediately due and payable
upon a default under subparagraphs (iii) and (iv) above); (B) all rights of
conversion afforded to the holder of the Collateral; and (C) the right to
immediately sell, assign, or otherwise dispose of any of the Collateral, with
the costs of such disposition to be borne by Borrower, and account to Borrower
for the excess of the net proceeds received from such sale, assignment, or
disposition over all Liabilities. The net proceeds received from such sale,
assignment, or disposition will be applied first to costs and expenses due
hereunder, second to any principal then due, and third to any principal then
outstanding.
The remedies of Holder as provided herein, and in any other documents
governing or securing repayment hereof, shall be cumulative and concurrent and
may be pursued singly, successively, or together, at the sole discretion of
Holder, and may be exercised as often as occasion therefor shall arise. No act
of omission or commission of Holder, including specifically (but without
limitation) any failure to exercise any right, remedy, or recourse, shall be
effective unless set forth in a written document executed by Holder, and then
only to the extent specifically recited therein. A waiver or release with
reference to one event shall not be construed as continuing to any subsequent
event. No delay or failure on the part of Holder in the exercise of any right or
remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in
any default, nor as a novation of this Note or a waiver of the right of Holder
to insist upon strict compliance with the terms, hereof, nor shall any single or
partial exercise by Holder of any right or remedy preclude any other right or
remedy.
Notwithstanding anything to the contrary contained in this Note, subject to
the provisions of the Purchase Agreement, the principal due under this Note may
be offset by Borrower at any time or from time to time to the extent of the
amount of any Damages (as defined in the Purchase Agreement), as provided for
in, and subject to the terms and provisions of, the Purchase Agreement,
including, without limitation, the provisions of Article VI thereof. Any such
set-off right shall be applied in the order of priority set forth in the third
paragraph of this Note. Except for the set-off rights set forth in this
paragraph, Borrower shall have no set-off rights of any kind against Holder, and
Borrower hereby waives all other rights of set-off against Holder, whether
through contract or common law.
The Pledge shall continue until payment in full of all amounts due under
this Note. Upon such payment in full, Holder shall immediately deliver to
Borrower the Collateral and this Note shall terminate.
3
<PAGE>
All notices required or permitted to be given hereunder shall be in writing
and may be delivered by hand, by facsimile or by internationally recognized
private courier. Notices delivered by hand, by facsimile, by nationally
recognized private courier shall be deemed given on the first (lst) business day
following receipt; provided, however that a notice delivered by facsimile shall
only be effective if such notice is also delivered by hand , or deposited in the
United States mail, postage prepaid , registered or certified mail, on or before
two (2) business days after its delivery by facsimile. All notices shall be
addressed as set forth below (or to such other address as may be designated by
notice to the other party):
If to Holder:
c/o Paul Brown/International Home Security Investments Limited
c/o Alliance Investments S.A.M.
Le Panorama Bloc AB
57 Rue Grimaldi
MC 98000 MONACO
Fax: 377 93 25 25 83
With a copy to:
Neal, Gerber and Eisenberg
Two North LaSalle
Suite 2200
Chicago, Illinois 60602
Attention: William Holzman, Esq.
Fax: 312-269-1747
If to Borrower:
Home Security International, Inc.
c/o Arthur Don, Secretary
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Fax: 312-580-0923
With a copy to:
D'Ancona & Pflaum
30 North LaSalle, Suite 2900
Chicago, Illinois 60602
Attention: Fernando Carranza, Esq.
Fax: (312) 580-0923
4
<PAGE>
Borrower hereby irrevocably waives diligence in collection or protection,
presentment, protest, notice of protest, demand, dishonor, default, non-payment,
creation, and existence of any amounts due hereunder and any security or
collateral for any amounts due hereunder.
Wherever possible each provision of this Note shall be interpreted in such
a manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or remaining provisions of this
Note.
Whenever used in this Note, the words "Borrower" and "Holder" shall be
deemed to include Borrower and Holder named in the opening paragraph of this
Note, and their respective legal representatives, successors and permitted
assigns. The foregoing notwithstanding, Borrower shall not assign this note
without the prior written consent of Holder, and Holder shall not assign this
Note without the prior written consent of Borrower.
THE PARTIES WAIVE THE RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY SUIT,
ACTION, OR PROCEEDING SEEKING ENFORCEMENT OF ITS OBLIGATIONS UNDER THIS NOTE.
This Note shall be construed and enforced in accordance with the law of the
State of Delaware. Time shall be of the essence of this Note.
The pronouns used herein shall include, when appropriate, either gender and
both singular and plural, and the grammatical construction of sentences shall
confirm thereto.
All references herein to any document, instrument or agreement shall be
deemed to refer to such document, instrument or agreement as the same may be
amended, modified, restated, supplemented or replaced from time to time. The
foregoing notwithstanding, no provision of this Note may be waived, amended,
released, or otherwise changed, except by a writing signed by the party against
which enforcement is sought.
IN WITNESS WHEREOF, the undersigned Borrower has signed this instrument, as
of the 30th day of September, 1998.
HOME SECURITY INTERNATIONAL, INC.
By: /s/ Mark Whitaker
-------------------------------
Its: Chief Financial Officer
------------------------------
5
