<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. __)
CompuDyne Corporation
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $.75 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
204795 30 6
---------------------------------------------
(CUSIP Number)
Timothy J. MacKenzie
William Blair Mezzanine Capital Partners II, L.L.C.
222 West Adams Street
Chicago, IL 60606
(312) 364-8980
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
December 3, 1998
-------------------------------------------------------
(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 Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box
[ ].
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) 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 16 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> 2
CUSIP No. 204795 30 6 13D Page 2 of 16 Pages
----------- -- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON/
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
William Blair Mezzanine Capital Fund II, L.P.
IRS No. 36-4147712
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [x]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC - See Item 3
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO [ ]
ITEMS 2(D) OR 2(E)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Illinois
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
1,373,431
--------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 0
OWNED BY --------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
1,373,431
--------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,373,431
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
25%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
PN
- --------------------------------------------------------------------------------
<PAGE> 3
CUSIP No. 204795 30 6 13D Page 3 of 16 Pages
----------- --- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON/
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
William Blair Mezzanine Capital Partners II, L.L.C.
IRS No. 36-4147714
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [x]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC - See Item 3
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO [ ]
ITEMS 2(D) OR 2(E)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Illinois
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
1,373,431
--------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 0
OWNED BY --------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
1,373,431
--------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,373,431
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
25%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
00
- --------------------------------------------------------------------------------
<PAGE> 4
CUSIP No. 204795 30 6 13D Page 4 of 16 Pages
----------- --- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON/
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Marc J. Walfish
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [x]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC - See Item 3
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO [ ]
ITEMS 2(D) OR 2(E)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
0
--------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 1,373,431
OWNED BY --------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
0
--------------------------------------------------
10 SHARED DISPOSITIVE POWER
1,373,431
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,373,431
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
25%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
<PAGE> 5
CUSIP No. 204795 30 6 13D Page 5 of 16 Pages
----------- --- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON/
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Terrance M. Shipp
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [x]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC - See Item 3
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO [ ]
ITEMS 2(D) OR 2(E)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
0
--------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 1,373,431
OWNED BY --------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
0
--------------------------------------------------
10 SHARED DISPOSITIVE POWER
1,373,431
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,373,431
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
25%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
<PAGE> 6
CUSIP No. 204795 30 6 13D Page 6 of 16 Pages
----------- --- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON/
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Timothy J. MacKenzie
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [x]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC - See Item 3
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO [ ]
ITEMS 2(D) OR 2(E)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
0
--------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 1,373,431
OWNED BY --------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
0
--------------------------------------------------
10 SHARED DISPOSITIVE POWER
1,373,431
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,373,431
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
25%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
<PAGE> 7
CUSIP No. 204795 30 6 13D Page 7 of 16 Pages
----------- --- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON/
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
E. David Coolidge
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [x]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC - See Item 3
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO [ ]
ITEMS 2(D) OR 2(E)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
0
--------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 1,373,431
OWNED BY --------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
0
--------------------------------------------------
10 SHARED DISPOSITIVE POWER
1,373,431
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,373,431
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
25%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
<PAGE> 8
CUSIP No. 204795 30 6 13D Page 8 of 16 Pages
----------- -- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON/
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
John P. Kayser
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [x]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC - See Item 3
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO [ ]
ITEMS 2(D) OR 2(E)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
0
--------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 1,373,431
OWNED BY --------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
0
--------------------------------------------------
10 SHARED DISPOSITIVE POWER
1,373,431
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,373,431
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
25%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
<PAGE> 9
CUSIP No. 204795 30 6 13D Page 9 of 16 Pages
----------- --- ---
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON/
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
William Blair & Company, L.L.C.
IRS No. 36-214610
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [x]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC - See Item 3
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO [ ]
ITEMS 2(D) OR 2(E)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Illinois
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
0
--------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 1,373,431
OWNED BY --------------------------------------------------
EACH REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
0
--------------------------------------------------
10 SHARED DISPOSITIVE POWER
1,373,431
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,373,431
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
25%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
PN
- --------------------------------------------------------------------------------
<PAGE> 10
SCHEDULE 13D
- --------------------- -----------------------
CUSIP No. 204795 30 6 Page 10 of 16 Pages
- --------------------- -----------------------
ITEM 1. SECURITY AND ISSUER
-------------------
This statement relates to common stock, par value $.75 per share
("Common Stock"), of CompuDyne Corporation (the "Company"). The principal
executive offices of the Company are located at 120 Union Street, Willimantic,
Connecticut 06226.
ITEM 2. IDENTITY AND BACKGROUND
-----------------------
(a)-(c) This Schedule 13D is filed on behalf of William Blair
Mezzanine Capital Fund II, L.P., an Illinois limited partnership (the "Fund"),
and the Fund's general partner, William Blair Mezzanine Capital Partners II,
L.L.C., an Illinois limited liability company ("Capital Partners"). The Fund is
a private investment limited partnership that provides mezzanine financing.
Capital Partners is the general partner of the Fund. The address of each of the
Fund and Capital Partners is 222 West Adams Street, Chicago, Illinois 60606.
Pursuant to Rules 13d-1(k) of Regulation 13D-G of the General Rules and
Regulations under the Securities Exchange Act of 1934 (the "Act"), this Schedule
13D is also filed on behalf of certain individuals and another entity identified
below (together with the Fund and Capital Partners, the "Reporting Persons")
who, pursuant to Rule 13d-5(b)(1), may be deemed as a group to have acquired
beneficial ownership of the Common Stock of the Company as a result of such
individuals being members of the Board of Managers of Capital Partners or having
the power to appoint persons to the Board of Managers. The Board of Managers
exercises voting and disposition power with respect to the Fund's shares of
Common Stock.
Although the Reporting Persons are making this joint filing,
neither the fact of this filing nor anything contained herein shall be deemed to
be an admission by the Reporting Persons that a group exists within the meaning
of the Act.
The names and present principal occupation or employment for the
individual Reporting Persons is described below. Each individual Reporting
Person's business address and employment address is 222 West Adams Street,
Chicago, Illinois 60606.
Marc J. Walfish. Mr. Walfish is a Managing Director of Capital
Partners and a member of the Board of Managers of Capital Partners.
Terrance M. Shipp. Mr. Shipp is a Managing Director of Capital
Partners and a member of the Board of Managers of Capital Partners.
<PAGE> 11
SCHEDULE 13D
- --------------------- -----------------------
CUSIP No. 204795 30 6 Page 11 of 16 Pages
- --------------------- -----------------------
Timothy J. MacKenzie. Mr. MacKenzie is a Managing Director of
Capital Partners and a member of the Board of Managers of Capital Partners.
E. David Coolidge. Mr. Coolidge is Chief Executive Officer of
William Blair and Company, L.L.C. ("William Blair & Company") and a member of
the Board of Managers of Capital Partners.
John P. Kayser. Mr. Kayser is Chief Financial Officer of William
Blair and Company and a member of the Board of Managers of Capital Partners.
William Blair & Company, L.L.C. William Blair & Company is an
Illinois limited liability company and a member of Capital Partners and has the
power to appoint and remove Mr. Coolidge and Mr. Kayser as members of the Board
of Managers of Capital Partners. William Blair & Company is a financial
services company with its executive offices at 222 West Adams Street, Chicago,
Illinois 6060.
(d) None of the persons identified in this Item 2 has, during the
last five years, been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors).
(e) None of the persons identified in this Item 2 has, during the
last five years, been a party to any civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of which such
person was or is subject to a judgment, decree, or final order enjoining future
violations of, or prohibiting or mandating activities with respect to, federal
or state securities laws or a finding of any violations with respect to such
laws.
(f) All of the natural persons identified in this Item 2 are
citizens of the United States of America.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
-------------------------------------------------
The Common Stock of the Company held by the Fund was acquired on
December 3, 1998 pursuant to the Subordinated Loan and Investment Agreement,
dated as of November 30, 1998 (the "Investment Agreement"), between the Company
and the Fund. Pursuant to the Investment Agreement, the Fund paid $3,000,000
for 1,075,507 shares of Common Stock and a warrant to purchase, for an exercise
price of $3.25 per share, an additional 297,924 shares of Common Stock (the
"Warrant").
<PAGE> 12
SCHEDULE 13D
- --------------------- -----------------------
CUSIP No. 204795 30 6 Page 12 of 16 Pages
- --------------------- -----------------------
The Fund was formed to make debt and equity investments in private
transactions. The funds for the acquisition of the Common Stock, the Warrant
and the Note (defined below) consisted of capital invested in the Fund by its
limited partners and general partner.
ITEM 4. PURPOSE OF TRANSACTION
----------------------
The Fund acquired the Common Stock as part of a $12 million
financing to provide the Company with the capital necessary for the acquisition
of the businesses of Norment Industries, Inc. and Norshield Corporation from
Apogee Enterprises, Inc. In addition to purchasing the shares of Common Stock
and the Warrant for aggregate consideration of $3,000,000, the Fund acquired
from the Company a $9,000,000 Senior Subordinated Note (the "Note") for a
purchase price of $9,000,000.
(a) The Note is due to be repaid in quarterly installments of
$500,000 each beginning March 31, 2004, with the balance of the Note due at
maturity on December 31, 2005. The Reporting Persons have no current plans or
proposals to otherwise dispose of the Note, the Common Stock or the Warrant.
(b) The Reporting Persons have no current plans or proposals with
respect to an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Company or any of its subsidiaries.
(c) The Reporting Persons have no current plans or proposals with
respect to a sale or transfer of a material amount of assets of the Company or
any of its subsidiaries.
(d) Pursuant to the Investment Agreement, and the Corporate
Governance and Shareholder Agreement (the "Governance Agreement") executed by
the Company and the Fund in connection therewith, the Fund is entitled to have
one representative elected to, and maintained as a member of, the Company's
Board of Directors until the Note is repaid in full and the Fund's holdings of
Common Stock represent less than 10% of the Company's issued and outstanding
Common Stock.
(e) The Investment Agreement prohibits the payment of dividends by
the Company until the Note is repaid in full and the Fund's holdings of Common
Stock represent less than 10% of the Company's issued and outstanding Common
Stock.
<PAGE> 13
SCHEDULE 13D
- --------------------- -----------------------
CUSIP No. 204795 30 6 Page 13 of 16 Pages
- --------------------- -----------------------
(f) The Reporting Persons have no current plans or proposals with
respect to any other material change in the Company's business or corporate
structure.
(g) The Investment Agreement and the Governance Agreement contain
provisions which prohibit a change in control of the Company.
(h) The Reporting Persons have no current plans or proposals to
cause a class of the Company's securities to cease to be authorized to be quoted
in an inter-dealer quotation system of a registered national securities
association.
(i) The Reporting Persons have no current plans or proposals with
respect to a class of the Company's equity securities becoming eligible for
termination of registration pursuant to section 12(g)(4) of the Act.
(j) Except as described above, the Reporting Persons have no
current plans or proposals with respect to any action similar to those
enumerated above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
------------------------------------
(a)-(b) Although each Reporting Person disclaims beneficial
ownership of any shares of Common Stock beneficially owned by each other
Reporting Person, pursuant to the Act and regulations thereunder the Reporting
Persons may be deemed as a group to have acquired beneficial ownership of
1,373,431 shares of Common Stock, representing approximately 25% of the
outstanding Common Stock as of December 3, 1998.
Each person named in response to Item 2 hereof has, as of December
3, 1998 as of such other date specified below, sole or shared power to vote or
to direct the vote and sole or shared power to dispose or to direct the
disposition of Common Stock as follows:
The Fund. William Blair Mezzanine Capital Fund II, L.P. has the
sole power to vote and dispose of 1,373,431 shares of Common Stock.
Capital Partners. As the sole general partner of the Fund, William
Blair Mezzanine Capital Partners II, L.L.C. has the sole power to direct the
vote and disposal of 1,373,431 shares of Common Stock.
Board of Managers. As the members of the Board of Managers of
Capital Partners, the following persons share the power to direct the vote and
disposal of 1,373,431 shares of Common Stock: Marc J. Walfish; Terrance M.
Shipp; Timothy J.
<PAGE> 14
SCHEDULE 13D
- --------------------- -----------------------
CUSIP No. 204795 30 6 Page 14 of 16 Pages
- --------------------- -----------------------
MacKenzie; E. David Coolidge; and John P. Kayser. William Blair & Company also
shares voting and dispositive power with respect to 1,373,431 shares by virtue
of its ability to appoint and remove members of the Board of Managers.
(c) There have been no transactions in Common Stock of the Company
by any of the Reporting Persons during the 60 days prior to December 3, 1998.
(d) No other person is known by the undersigned to have the right
to receive or the power to direct the receipt of dividends from, or the proceeds
from the sale of, the Common Stock which is owned by the Fund.
(e) It is inapplicable for the purposes herein to state the date
on which a Reporting Person ceased to be the beneficial owner of more than five
percent of the class of securities.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIP WITH RESPECT TO SECURITIES OF THE ISSUER
-----------------------------------------------------
The Governance Agreement restricts the ability of Martin A. Roenigk
to sell or pledge more than 500,000 shares of the Company's Common Stock prior
to December 31, 2003, and 100,000 shares per year thereafter, without the
consent of the Fund. The Investment Agreement contains covenants, default and
similar provisions commonly found in such loan agreements.
ITEM 7. MATERIALS TO BE FILED AS EXHIBITS
---------------------------------
(Exhibit 1) Agreement Among Reporting Persons with respect to the filing of a
single statement on Schedule 13D.
(Exhibit 2) Subordinated Loan and Investment Agreement, dated November 30,
1998.
(Exhibit 3) Corporate Governance and Shareholder Agreement dated November 30,
1998.
<PAGE> 15
SCHEDULE 13D
- --------------------- -----------------------
CUSIP No. 204795 30 6 Page 15 of 16 Pages
- --------------------- -----------------------
After reasonable inquiry and to the best of our knowledge and
belief, we certify that the information set forth in this statement is true,
complete and correct.
Dated December 9, 1998.
WILLIAM BLAIR MEZZANINE CAPITAL
FUND II, L.P.
BY WILLIAM BLAIR MEZZANINE CAPITAL
PARTNERS II, L.L.C.,
Its general partner
BY /s/ Timothy J. MacKenzie
----------------------------------
Timothy J. MacKenzie,
Managing Director
WILLIAM BLAIR MEZZANINE CAPITAL
PARTNERS II, L.L.C.
BY /s/ Timothy J. MacKenzie
----------------------------------
Timothy J. MacKenzie,
Managing Director
/s/ Marc J. Walfish
-------------------------------------
Marc J. Walfish
/s/ Terrance M. Shipp
-------------------------------------
Terrance M. Shipp
/s/ Timothy J. MacKenzie
-------------------------------------
Timothy J. MacKenzie
/s/ E. David Coolidge
-------------------------------------
E. David Coolidge
/s/ John P. Kayser
-------------------------------------
John P. Kayser
<PAGE> 16
SCHEDULE 13D
- --------------------- -----------------------
CUSIP No. 204795 30 6 Page 16 of 16 Pages
- --------------------- -----------------------
WILLIAM BLAIR & COMPANY, L.L.C.
BY /s/ E. David Coolidge
-----------------------------------------
E. David Coolidge,
Chief Executive Officer
<PAGE> 1
EX - 99.1
EXHIBIT A
AGREEMENT AMONG REPORTING PERSONS
The undersigned hereby agree to file a single statement on Schedule
13D to report their beneficial ownership of the Common Stock of CompuDyne
Corporation pursuant to Rule 13d-1(k) promulgated under the Securities Exchange
Act of 1934.
Date 12/9/98 WILLIAM BLAIR MEZZANINE CAPITAL
---------- FUND II, L.P.
BY WILLIAM BLAIR MEZZANINE CAPITAL
PARTNERS II, L.L.C., Its General
Partner
BY /s/ Timothy J. MacKenzie
------------------------------------
Timothy J. MacKenzie, Managing Director
Date 12/9/98 WILLIAM BLAIR MEZZANINE CAPITAL
---------- PARTNERS II, L.L.C.
BY Timothy J. MacKenzie
-----------------------------------------
Timothy J. MacKenzie, Managing Director
Date 12/9/98 /s/ Marc J. Walfish
---------- --------------------------------------------
Marc J. Walfish
Date 12/9/98 /s/ Terrance M. Shipp
---------- --------------------------------------------
Terrance M. Shipp
Date 12/9/98 /s/ Timothy J. MacKenzie
---------- --------------------------------------------
Timothy J. MacKenzie
Date 12/9/98 /s/ E. David Coolidge
---------- --------------------------------------------
E. David Coolidge
Date 12/9/98 /s/ John P. Kayser
---------- --------------------------------------------
John P. Kayser
Date 12/9/98 WILLIAM BLAIR & COMPANY,
---------- L.L.C.
BY /s/ E. David Coolidge
-------------------------------------------
E. David Coolidge,
Chief Executive Officer
<PAGE> 1
EX-99.2
WILLIAM BLAIR MEZZANINE CAPITAL FUND II, L.P.
SUBORDINATED LOAN AND INVESTMENT AGREEMENT
$9,000,000 SENIOR SUBORDINATED TERM NOTE DUE
DECEMBER 31, 2005
1,075,507 SHARES OF COMMON STOCK
AND A WARRANT TO PURCHASE 297,924 SHARES OF
ADDITIONAL COMMON STOCK OF
COMPUDYNE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
Page No.
--------
1. Purchase and Sale of the Note, Common Stock and Warrant....................
2. Credit Terms...............................................................
2.1 Repayment of Principal..............................................
2.2 Interest............................................................
(a) Periodic Interest Payments....................................
(b) Default Interest Rate.........................................
(c) Saving Clause.................................................
2.3 Prepayments.........................................................
(a) Prepayments From Proceeds of Lender-
Approved Transaction..........................................
(b) Other Optional Prepayments....................................
2.4 Payments
2.5 Use of Proceeds.....................................................
2.6 Certain Definitions.................................................
3. The Closing; Conditions to Closing.........................................
3.1 Opinion of Counsel..................................................
3.2 Closing Certificates................................................
3.3 Corporate Resolutions...............................................
3.4 Proceedings and Documents...........................................
3.5 Intercreditor Agreements............................................
3.6 Acquisition.........................................................
3.7 Common Stock and Warrant............................................
3.8 Corporate Governance and Shareholder Agreement......................
3.9 Bank Financing......................................................
3.10 Investment Fee......................................................
3.11 Non-Compete Agreement...............................................
3.12 Environmental Reports...............................................
3.13 Bonding Facility....................................................
3.14 Registration Rights.................................................
3.15 Regulatory Consents and Approvals...................................
3.16 Subsidiary Guaranties...............................................
4. Representations and Warranties.............................................
4.1 Existence and Rights................................................
<PAGE> 3
(a) The Company...................................................
(b) Subsidiaries..................................................
(c) Qualification.................................................
4.2 Agreement Authorized................................................
4.3 Capitalization......................................................
(a) The Company...................................................
(b) The Subsidiaries..............................................
4.4 Subsidiaries; Other Investments.....................................
4.5 Litigation..........................................................
4.6 Financial Statements and Projections................................
4.7 Personal Property...................................................
4.8 Real Estate.........................................................
4.9 Intellectual Property...............................................
4.10 Absence of Changes..................................................
4.11 No Materially Adverse or Other Contracts, Etc.......................
4.12 Employee Benefit Plans..............................................
4.13 Compliance with Laws, Instruments, Etc..............................
(a) Generally.....................................................
(b) Environmental.................................................
4.14 Securities Laws.....................................................
4.15 Brokers
4.16 Taxes...............................................................
4.17 Insurance...........................................................
4.18 Products Liability and Product Warranty.............................
4.19 Related Transactions................................................
4.20 Minute Books and Stock Record Books.................................
4.21 Employee Matters....................................................
4.22 Profit Payments.....................................................
4.23 Bank Accounts.......................................................
4.24 Investment Company..................................................
4.25 Solvency
4.26 Regulations G and X.................................................
4.27 Year 2000 Compliance................................................
4.28 Disclosure..........................................................
5. Affirmative Covenants......................................................
5.1 Payment of Note.....................................................
5.2 Taxes
5.3 Maintain Rights and Facilities......................................
5.4 Insurance; Bonds....................................................
5.5 Financial Reports...................................................
ii
<PAGE> 4
5.6 Budget
5.7 Books and Records; Inspection.......................................
5.8 Maintain Properties.................................................
5.9 Compliance with Instruments, Laws, Etc..............................
5.10 Notices.............................................................
5.11 Shareholder Agreement...............................................
5.12 Observation Rights..................................................
6. Negative Covenants.........................................................
6.1 Use of Proceeds.....................................................
6.2 Redemption; Distributions...........................................
6.3 Investments, Loans and Advances.....................................
6.4 Acquisition or Sale of Business; Merger or Consolidation............
6.5 Change Capital Structure............................................
6.6 Officers' Salaries and Loans........................................
6.7 Amendments or Changes in Charter or Agreements......................
6.8 Dealings with Affiliates............................................
6.9 Pension and Profit Sharing Plan or Arrangements.....................
6.10 Permitted Indebtedness..............................................
6.11 Liens
6.12 Capital Expenditures................................................
6.13 Changes in Business or Fiscal Year..................................
6.14 Operating Leases....................................................
6.15 Sale and Lease-Backs................................................
6.16 Sale or Discount of Receivables.....................................
6.17 Financial Covenants.................................................
6.18 Certain Definitions.................................................
7. Events of Default and Remedies.............................................
7.1 Events of Default...................................................
7.2 Notice to Holder....................................................
7.3 Acceleration........................................................
7.4 Expenses............................................................
7.5 Remedies Cumulative
8. Representations and Warranties of Lender...................................
8.1 Capacity............................................................
8.2 Accredited Lender...................................................
8.3 Investment Purpose..................................................
8.4 Disclosure..........................................................
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<PAGE> 5
9. Transfer of Note; Transfer of Equity Securities; Participation.............
9.1 Successor and Assigns in General....................................
9.2 Conditions..........................................................
10. Additional Provisions......................................................
10.1 Expenses............................................................
10.2 Survival of Representations and Warranties..........................
10.3 Notices.............................................................
10.4 No Waiver, Remedies Cumulative......................................
10.5 Amendments and Waivers..............................................
10.6 Divisibility and Replacement of Note and Equity Securities..........
10.7 Integration.........................................................
10.8 Separability........................................................
10.9 Headings............................................................
10.10 Governing Law; Waivers; Personal Jurisdiction.......................
10.11 Indemnification.....................................................
(a) General.......................................................
(b) Environmental Liabilities.....................................
iv
<PAGE> 6
SUBORDINATED LOAN AND INVESTMENT AGREEMENT
THIS SUBORDINATED LOAN AND INVESTMENT AGREEMENT (the "Agreement") is made
and entered into as of November 30, 1998 by and between COMPUDYNE CORPORATION, a
Nevada corporation (the "Company"), and WILLIAM BLAIR MEZZANINE CAPITAL FUND II,
L.P., an Illinois limited partnership (the "Lender").
RECITALS
A. The Company desires to obtain a senior subordinated loan from the Lender
and the Lender is willing to make such senior subordinated loan on the terms and
conditions provided below.
B. The Company desires to issue and sell, and the Lender is willing to
purchase, common stock and a warrant to purchase additional common stock on the
terms and conditions provided below.
AGREEMENTS
In consideration of the recitals and the mutual agreements which follow,
the parties agree:
1. Purchase and Sale of the Note, Common Stock and Warrant.
(a) Subject to the terms, covenants and conditions of this Agreement, on
the Closing Date (as defined in section 3), the Company will issue and sell, and
the Lender shall buy a $9,000,000 Senior Subordinated Note (the "Note")
evidencing a term loan in the principal amount of $9,000,000 (the "Loan"). The
Note shall be dated as of the Closing Date, shall be subject to the terms and
conditions of this Agreement, and shall be in the form of Appendix 1. The
consideration to be paid by the Lender for the Note is $9,000,000 and shall be
paid by the Lender at Closing, by wire transfer of same day funds to the
Company's account, upon receipt by the Lender of the Note, duly executed and in
proper form. The Company and the Lender agree that the value of the Note at
Closing is $9,000,000, and all tax and other reporting by either of them shall
reflect such initial value.
<PAGE> 7
(b) Subject to the terms, covenants and conditions of this Agreement, on
the Closing Date the Company will issue and sell, and the Lender shall buy, the
below-described securities (sometimes collectively referred to as the "Equity
Securities"), consisting in the aggregate of 1,075,507 shares (the "Shares") of
the Company's Common Stock (the "Common Stock") and a warrant ("Warrant") to
purchase an additional 297,924 shares of the Company's Common Stock for an
initial exercise price of $3.25 per share.
The consideration to be paid by the Lender at the Closing for the
Equity Securities issued to and purchased by it at the Closing is: (a) for the
Shares an aggregate of $2,999,000; and (b) for the Warrant an aggregate further
consideration of $1,000. The consideration to be paid by the Lender for the
Equity Securities, in the aggregate amount of $3,000,000, will be paid at the
Closing, by wire transfer of same day funds to the Company's account, upon
receipt by the Lender of a certificate or certificates for the Shares and the
Warrant, in each case duly executed and in proper form.
2. Credit Terms.
2.1 Repayment of Principal. Subject to sections 2.3 and 7.3 hereof, the
Company shall repay the principal balance of the Loan in consecutive quarterly
installments of $500,000 each on March 31, 2004, June 30, 2004, September 30,
2004, December 31, 2004, March 31, 2005, June 30, 2005, September 30, 2005, and
a final payment of all unpaid principal on December 31, 2005.
2.2 Interest. So long as no Event of Default (as defined in section 7.1)
has occurred, the Loan shall bear interest from the Closing Date until the Loan
is paid in full at a fixed annual rate of 13.15%, computed on the basis of a
360-day year and the actual number of days elapsed in the period during which
interest accrues.
(a) Periodic Interest Payments. Accrued interest on the Loan shall
be due and payable quarterly in arrears on the last day of December, March, June
and September (each, a "Quarterly Payment Date") beginning on December 31, 1998.
In addition, all accrued and unpaid interest shall be paid upon the payment in
full of the entire outstanding principal amount of the Loan and, if payment in
full is not paid when due, thereafter on demand.
(b) Default Interest Rate. After the occurrence of any Event of
Default specified in section 7.1 of this Agreement, the outstanding
2
<PAGE> 8
principal amount of the Loan, all accrued interest and all other amounts, fees
and obligations payable hereunder and under the Note shall bear interest at the
fixed rate of 15.15% per annum, computed on the basis of a 360-day year and the
actual number of days elapsed in the period during which interest accrues, and
such interest shall be payable on demand, subject to the final sentence of
section 7.3.
(c) Saving Clause. Notwithstanding any other provision contained
in this Agreement, the aggregate annual interest rate charged with respect to
the Loan (including all charges and fees deemed to be interest pursuant to
applicable law) shall not exceed the maximum annual rate permitted by applicable
law. In the event that the aggregate annual interest rate payable with respect
to the Loan (including all charges and fees deemed to be interest under
applicable laws) exceeds the maximum legal rate, the Company shall only pay the
Lender interest at the maximum permitted rate, and the Company shall continue to
make such interest payments at the maximum permitted rate until all amounts,
fees and obligations payable hereunder and under the Note have been paid in
full.
2.3 Prepayments. Except as provided in section 7 and section 2.3(a), the
Loan may not be prepaid, in whole or in part, prior to December 31, 2001.
Thereafter, the Loan may be prepaid as provided in section 2.3(b).
(a) Prepayments From Proceeds of Lender-Approved Transaction.
"Lender-Approved Transaction" shall mean any of the following transactions if
the Lender has approved such transaction in writing prior to its consummation:
(i) a sale, transfer or other disposition of all or substantially all of the
assets of the Company; (ii) a merger of the Company with or into any other
person, or any transaction or series of related transactions, that results in a
change of ownership of 50% or more of the voting power or equity of the Company.
If, at any time, the Company consummates a Lender-Approved Transaction, the
Company may, at its option, prepay the Loan, in whole but not in part. In the
event of any prepayment of the Loan in connection with a Lender-Approved
Transaction, the Company shall pay all accrued interest and all other fees,
expenses and amounts payable by the Company to the Lender, plus the Prepayment
Fee (as defined below). If the Lender notifies the Company, within 30 days after
the consummation of the Lender-Approved Transaction, that the Lender desires the
Loan to be repaid, the Company shall, within five days after such notification,
prepay the Loan in full, including all accrued interest and all other fees,
expenses and amounts payable to the Lender, including the Prepayment Fee.
3
<PAGE> 9
(b) Other Optional Prepayments. After December 31, 2001, the
Company may at its option prepay all or part of the Loan. Any partial payment of
principal shall be made only on a Quarterly Payment Date, shall be not less than
$500,000, and shall be a multiple of $500,000, and the Company shall pay
therewith all accrued interest. In addition, the Company shall pay a prepayment
fee of 3% of the amount prepaid on or prior to December 31, 2002 and 2% of the
amount prepaid on or after January 1, 2003 and on or prior to December 31, 2003
(the "Prepayment Fee"). On and after January 1, 2004, the Loan may be prepaid in
whole or in part without premium. In the event of any such prepayment, the
Company shall also pay all accrued interest and other fees, expenses and amounts
payable by the Company to the Lender. Partial prepayments will be applied to
scheduled principal payments in the order of their maturity.
2.4 Payments. All payments and prepayments to be made with respect to
principal, interest or otherwise on the Loan and other charges hereunder shall
become due at 3:00 o'clock p.m., Chicago, Illinois time. Payments shall be made
to the Lender at the Lender's account at Harris Trust & Savings Bank, 111 West
Monroe, Chicago, Illinois 60603, Account Number 448-3509, ABA Number 071000288,
Attention: Gail Guida (or at any other payment office in the United States
previously designated by the Lender to the Company in writing), on the day when
due, in lawful money of the United States of America, by wire transfer in funds
immediately available at such payment office. The Lender or any other holder of
the Note is hereby authorized to endorse on the Note an appropriate notation
evidencing each scheduled payment and each prepayment of principal and each
payment of interest. All payments hereunder and under the Note shall, except as
required by applicable law, be made without setoff, offset, deduction or
counterclaim, free and clear of all taxes (other than those based on the income
of the Lender), levies, imports, duties, fees and charges, and without any
withholding, restriction or conditions imposed by any governmental authority (it
being understood that, if any payment hereunder or thereunder is required by
applicable law to be subject to any setoff, offset, deduction or counterclaim,
tax, levy, import, duty, fee, charge or withholding (each of such items is
referred to herein as a "Deduction"), the Company shall, at such time as any
payment hereunder or thereunder is so reduced by a Deduction, pay to the Lender
an amount necessary to place the Lender in the same position the Lender would
have been had such payment not been subject to a Deduction).
2.5. Use of Proceeds. The Company shall use the entire amount of the
Loan to finance the Acquisition (as defined in section 3.6), to restructure the
Company's debt and for related fees and expenses.
4
<PAGE> 10
2.6. Certain Definitions. "Subsidiary" means, with respect to the
Company, a corporation, partnership, limited liability company or other entity
of which the Company and/or its other Subsidiaries owns, directly or indirectly,
such number of outstanding shares or other ownership interests as have more than
50% of the ordinary voting power for the election of directors or other managers
of such corporation, partnership, limited liability company or other entity.
Unless the context otherwise requires, each reference to Subsidiaries herein
shall be a reference to all of the Subsidiaries of the Company after giving
effect to the Acquisition (as defined in section 3.6). Notwithstanding the
foregoing, CompuDyne Corp. of Maryland and CompuDyne, Inc. will not be included
in the definition of "Subsidiaries."
"Material Adverse Effect" means (a) a material adverse change in,
or a material adverse effect upon, the financial condition, operations, assets,
business, properties or prospects of the Company and its Subsidiaries taken as a
whole, (b) a material impairment of the ability of the Company or any Subsidiary
(other than MicroAssembly Systems, Inc. or Sysco Security Systems, Inc.) to
perform any of its obligations under this Agreement, the Note, the Warrant, the
Shareholder Agreement, the Registration Agreement or the Senior Loan Documents
or (c) a material adverse effect upon the legality, validity, binding effect or
enforceability against (i) the Company of any of the documents listed in clause
(b) or (ii) any Subsidiary (other than MicroAssembly Systems, Inc. or Sysco
Security Systems, Inc.) of its Subsidiary Guaranty.
3. The Closing; Conditions to Closing. Subject to the conditions hereof,
the transactions described herein will be closed (the "Closing") at ____ a.m. at
the offices of Seyfarth, Shaw, Fairweather & Geraldson, 55 East Monroe Street,
Suite 4200, Chicago, Illinois or at such other place as all the parties hereto
may agree, on November 30, 1998 (the "Closing Date"). All of the obligations of
the Lender to purchase the Note and the Equity Securities described in this
Agreement are subject to the accuracy on the Closing Date of all the
representations and warranties by the Company contained herein, and to the
performance by the Company of all the terms, covenants and conditions on its
part to be performed hereunder on or prior to the Closing Date and to the
satisfaction of the following additional conditions precedent:
3.1 Opinion of Counsel. The Lender shall have received from Tyler
Cooper & Alcorn, LLP, counsel for the Company, a favorable opinion, dated the
date hereof, addressed to the Lender, in the form attached hereto as Appendix 2.
5
<PAGE> 11
3.2 Closing Certificates.
(a) The Company shall have delivered to the Lender a Certificate
signed by the Chief Executive Officer of the Company, to the effect that: (i)
all of the representations and warranties of the Company contained in this
Agreement are true, correct and complete in all material respects as of the
Closing Date; (ii) the Company has complied with and performed all of the terms,
covenants and agreements contained in the Agreement which are to be complied
with or performed by the Company on or before the Closing Date; and (iii) to the
knowledge of the Company, there does not exist any state of facts which would
constitute noncompliance under this Agreement or, with notice or lapse of time
as provided herein, or both, would constitute noncompliance.
(b) The Lender shall have received a copy of the Articles of
Incorporation of the Company and each of the Subsidiaries, as amended, certified
by the appropriate office of the jurisdiction of incorporation as of a recent
date (a true and correct photocopy shall suffice).
(c) The Lender shall have received from the Company a certificate
of good standing from the appropriate office of the jurisdiction of
incorporation, in a form acceptable to the Lender, and a certificate of good
standing from the appropriate office of each other jurisdiction where the
Company is required to qualify to do business (a true and correct photocopy
shall suffice).
(d) The Lender shall have received a true and correct copy of
the Company's By-Laws, as amended, certified by an officer of the Company.
3.3 Corporate Resolutions. A certified copy of the resolutions adopted
by the Board of Directors of the Company authorizing and approving (a) the
execution, performance and delivery of this Agreement, (b) the issuance of the
Note and the Equity Securities and (c) the other transactions contemplated
hereby, shall have been delivered to the Lender.
3.4 Proceedings and Documents. All proceedings taken or to be taken in
connection with the transactions contemplated by this Agreement to be
consummated at, or prior to, the execution and Closing hereof and all other
documents, schedules, exhibits, opinions and certificates in connection
therewith shall each be satisfactory in form and substance to the Lender, and
the Lender shall
6
<PAGE> 12
have received copies of all such documents and all other documents which the
Lender has requested in connection with the transaction contemplated by this
Agreement and of all corporate proceedings in connection therewith, in form and
substance satisfactory to the Lender.
3.5 Intercreditor Agreements. The Company, the Lender and LaSalle
National Bank ("LaSalle Bank") shall have executed and delivered an
intercreditor agreement satisfactory in form and content to the Lender. The
Company, the Lender and Liberty Bond Services shall also have executed and
delivered an intercreditor agreement satisfactory in form and content to the
Lender.
3.6 Acquisition. The Company shall furnish to the Lender evidence
that the Company has consummated (without waiving any condition precedent to the
Company's obligation to close pursuant to the Stock Purchase Agreement pursuant
to which the Acquisition is to be made) the acquisition from Apogee Enterprises,
Inc. ("Apogee") of all of the outstanding capital stock of Norment Industries,
Inc. ("Norment") and Norshield Corp. ("Norshield") for an aggregate purchase
price (subject to adjustment) of $22,500,000 (the "Acquisition"), and the
Company shall have furnished to the Lender a true and correct copy of the
documents executed and delivered in connection with the Acquisition certified by
the Chief Executive Officer of the Company.
3.7 Common Stock and Warrant. The Company shall have issued to the
Lender the Shares for an aggregate purchase price of $2,999,000. The Company
shall have issued to the Lender the warrant to purchase Common Stock (the
"Warrant"), in the form attached as Appendix 3, for an aggregate issue price of
$1,000.
3.8 Corporate Governance and Shareholder Agreement. The Lender, the
Company and the principal shareholders of the Company shall have entered into a
Corporate Governance and Shareholder Agreement in the form attached as Appendix
4 (the "Shareholder Agreement").
3.9 Bank Financing. LaSalle Bank and the Company shall have entered
into a credit agreement providing the Company with an aggregate credit facility
of $18,000,000 (including a revolving credit facility which shall have excess
availability at the Closing of at least $4,000,000) on terms and conditions
acceptable to the Lender, and a true and correct copy of the loan documents (the
"Senior Loan Documents"), certified by the Chief Executive Officer of the
Company, shall have been provided to the Lender.
7
<PAGE> 13
3.10 Investment Fee. The Company shall have paid to the Lender an
aggregate investment fee of $120,000; the Lender acknowledges receipt of $50,000
upon the signing of the Lender's Investment Proposal dated September 9, 1998.
3.11 Non-Compete Agreement. The Company and Martin Roenigk, Kevin
Robison and Jon Lucynski shall each have executed and delivered a Non-Compete
Agreement in the form attached as Appendix 5.
3.12 Environmental Reports. The Lender must have received one or more
environmental assessment reports regarding the Company, its Subsidiaries and
their properties satisfactory in form and substance to the Lender.
3.13 Bonding Facility. The Company shall have received a commitment
for a bonding facility of at least $50 million on terms acceptable to the
Lender.
3.14 Registration Rights. The Company and the Lender shall have entered
into the Registration Rights Agreement in the form attached as Appendix 6 (the
"Registration Agreement").
3.15 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any governmental or regulatory authority
necessary to consummate the Acquisition shall have been duly obtained, made or
given and shall be in full force and effect, and all terminations or expirations
of waiting periods (including the waiting period under the Hart-Scott-Rodino
Act) imposed by any governmental or regulatory authority necessary for the
consummation of the Acquisition shall have occurred.
3.16 Subsidiary Guaranties. Each Subsidiary specified by the Lender
shall have executed and delivered to the Lender a Subsidiary Guaranty in the
form of Appendix 7.
4. Representations and Warranties. In order to induce the Lender to make
the Loan and to purchase the Note and the Equity Securities, and notwithstanding
any investigation made by or on behalf of the Lender, the Company makes the
following representations and warranties, each of which is independently
material and relied upon by Lender (except where the context requires otherwise,
all representations and
8
<PAGE> 14
warranties with respect to the "Company" are intended to cover, and shall be
deemed to be representations and warranties with respect to, the Company and
each Subsidiary, giving effect to the closing of the Acquisition):
4.1 Existence and Rights.
(a) The Company. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada. The
Company has delivered to the Lender a true, complete and correct copy of its
Articles of Incorporation and By-Laws. The Company has all requisite corporate
power and authority to own and operate its properties, to carry on its business
as now conducted and proposed to be conducted, to enter into this Agreement and
each agreement, document or instrument contemplated by this Agreement to which
it is a party and to carry out the transactions contemplated hereby and thereby.
(b) Subsidiaries. Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. Each Subsidiary has delivered to the Lender a true, complete and
correct copy of its charter documents. Each Subsidiary has all requisite
corporate power and authority to own and operate its properties, to carry on its
business as now conducted and proposed to be conducted, to enter into this
Agreement and to carry out the transactions contemplated hereby and thereby.
(c) Qualification. The Company and each Subsidiary are duly
qualified and in good standing wherever the failure to so qualify would have a
Material Adverse Effect. All jurisdictions in which such parties are qualified
to do business are set forth on Schedule 4.1(c).
4.2 Agreement Authorized. The execution and performance of this
Agreement and the other agreements, documents and instruments contemplated
hereby are duly authorized and do not require the consent or approval of any
governmental body, other regulatory authority or other third party. All action
on the part of the Company and each Subsidiary, and all necessary or appropriate
approvals and consents for the due execution, delivery and performance of this
Agreement, including the creation, issuance and sale of the Note and the Equity
Securities, have been duly and validly obtained or taken. No right of the
Company or any Subsidiary is impaired or infringed upon by the execution and
performance of this Agreement. This Agreement and the Note and all other
documents, instruments and agreements of the Company or a Subsidiary, as
applicable, in connection executed herewith and therewith, constitute the valid
and binding obligations of the Company or a Subsidiary, as applicable,
enforceable
9
<PAGE> 15
against the Company or a Subsidiary, as applicable, in accordance with their
respective terms.
4.3 Capitalization.
(a) The Company. The authorized and outstanding capital stock of
the Company is set forth in Schedule 4.3(a). All of the outstanding shares of
capital stock of the Company are, and upon issuance the Shares and the Common
Stock issuable upon exercise of the Warrant will be, duly authorized, validly
issued, fully paid and nonassessable and were, and will have been, issued in
compliance with all applicable state and federal laws and regulations concerning
the issuance of securities. No shares of the Company's capital stock, other than
those described above, are issued and outstanding. Except as described in
Schedule 4.3, or as contemplated by this Agreement or the Shareholder Agreement,
there are no preemptive or other outstanding rights, options, warrants,
conversion rights or similar agreements or understandings for the purchase or
acquisition of such capital stock.
(b) The Subsidiaries. Schedule 4.3(b) sets forth the ownership of the
issued and outstanding capital stock of each Subsidiary. All of the outstanding
shares of capital stock of each Subsidiary are duly authorized, validly issued,
fully paid and nonassessable, free and clear of all Liens other than those in
favor of LaSalle Bank, and were issued in compliance with all state and federal
laws and regulations concerning the issuance of securities. There are no
preemptive or other outstanding rights, options, warrants, conversion rights or
similar agreements or understandings for the purchase or acquisition of the
capital stock of any Subsidiary.
4.4 Subsidiaries; Other Investments. Except for CompuDyne Corp. of
Maryland, CompuDyne, Inc. and the Subsidiaries, the Company has no subsidiaries,
or any investment in any other business or entity. For the purpose of this
section the term "subsidiary" or "subsidiaries" means any corporation or other
entity of which the securities having a majority of the voting power in electing
the Board of Directors are owned by the Company either directly or by another
subsidiary. The Company does not control or have any contract or commitment to
own or control any capital stock, bonds or other securities of and does not have
a proprietary interest in any corporation, partnership, proprietorship or other
business organization. Except as set forth on Schedule 4.4, CompuDyne Corp. of
Maryland and CompuDyne, Inc. are inactive corporations, neither of which, to the
Company's best knowledge, has any assets, liabilities or operations.
10
<PAGE> 16
4.5 Litigation. Except as set forth on Schedule 4.5, there is no
litigation or other proceeding (including any government proceeding or
investigation) pending or, to the knowledge of the Company, threatened against
or affecting the Company, or the assets of the Company, or which questions the
validity of this Agreement or of any action taken or to be taken pursuant to or
in connection with the provisions of this Agreement. Without limiting the
generality of the foregoing, there is no pending or, to the knowledge of the
Company, threatened action, proceeding or investigation involving the prior
employment or consultancy of any of the Company's employees or consultants or
their use of any information or techniques alleged to be proprietary to any
other person or business. To the knowledge of the Company there is no set of
presently existing facts or circumstances reasonably likely to be asserted by
any person as the basis for any of the foregoing, except as set forth on
Schedule 4.5. Except as set forth on Schedule 4.5, in connection with the
Acquisition, Apogee has assumed liability for all loss, damages, costs or
expenses that may arise with respect to the properties or operations of Norment
and Norshield relating to the period prior to the Closing Date.
4.6 Financial Statements and Projections.
(a) Schedule 4.6 contains a complete and correct copy of the
audited consolidated balance sheets of the Company as of December 31, 1995,
December 31, 1996 and December 31, 1997 and audited consolidated statements of
income and cash flow for the fiscal years then ended. Such consolidated
financial statements were prepared in accordance with generally accepted
accounting principles consistently applied from prior periods, and fairly
present in all material respects the financial condition and results of
operations of the Company as of the dates thereof and for the periods then
ended. Schedule 4.6 also contains unaudited balance sheets of Norment and
Norshield as of February 29, 1996, February 28, 1997 and February 28, 1998 and
unaudited statements of income and cash flow for the fiscal years then ended.
Such financial statements were, to the best knowledge of the Company, prepared
in accordance with generally accepted accounting principles consistently applied
from prior periods, and fairly present in all material respects the financial
condition and results of operations of Norment and Norshield, respectively, as
of the dates thereof and for the periods then ended.
(b) Schedule 4.6 also contains a complete and correct copy of the
unaudited pro forma consolidated balance sheet of the Company (including Norment
and Norshield) as of September 30, 1998 and pro forma consolidated statements of
income, cash flow and shareholders' equity for
11
<PAGE> 17
the nine-month period then ended. Such pro forma financial statements were, to
the best knowledge of the Company, prepared in accordance with generally
accepted accounting principles consistently applied from prior periods, and
fairly present in all material respects the pro forma financial condition and
pro forma results of operations of the Company (including Norment and Norshield)
as of the date thereof and for the period then ended, subject to normal year-end
adjustments and the absence of footnotes. The pro forma balance sheet as of
September 30, 1998 is referred to as the "Balance Sheet," and September 30, 1998
is referred to as the "Balance Sheet Date."
(c) Except as and to the extent reflected or reserved against on
the Balance Sheet or set forth on Schedule 4.6, the Company has no outstanding
indebtedness or any liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise, whether due or to become due, except for (i)
liabilities entered into in the ordinary course of business and (ii) liabilities
which, in the aggregate, do not result in any material adverse change in the
financial condition of the Company from that set forth on the Balance Sheet.
(d) The financial projections attached as Schedule 4.6(d) (the
"Projections") have been prepared by the Company in light of the past operations
of its business and in good faith, subject to the uncertainties inherent in
estimating the Company's future performance and the limited familiarity of the
Company with respect to Norment and Norshield. The Projections are based on
assumptions that, as of the respective dates thereof, were reasonable in light
of the information available to the Company on or prior to the date hereof.
4.7 Personal Property. Except as specifically disclosed on Schedule
4.7 and on the Balance Sheet and footnotes thereto, the Company has good,
marketable and indefeasible title to all personal property which it purports to
own, including, but not limited to, that reflected on the Balance Sheet (except
as disposed of since the Balance Sheet Date in the ordinary course of business),
free and clear of all security interests, liens and encumbrances, except for
Permitted Liens (as defined in section 6.11). Schedule 4.7 also sets forth a
list of all material property covered by each lease (requiring annual payments
in excess of $10,000 or total payments in excess of $75,000) of personal
property to which the Company is a party and a list of all such leases and
commitments relating to or affecting any interest in tangible personal property
to which the Company is a party or by which it or any of its property is in any
way bound or affected. None of the rights of the Company under any such lease or
other similar interest in tangible personal property will be impaired by the
consummation of the transactions contemplated
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by this Agreement. All tangible personal property owned or leased by the Company
is in operating condition and repair, reasonable wear and tear excepted,
sufficient to conduct the operations of the Company as presently conducted. No
material modifications or additions to such personal property are needed or
planned for the conduct of the Company's business as presently contemplated,
except as reflected in the Projections. Except for tangible personal property
covered by the leases listed in Schedule 4.7, the Company does not use any
material tangible personal property not owned by it.
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4.8 Real Estate.
(a) Schedule 4.8 hereto identifies and sets forth a complete legal
description for each parcel of owned real property or interest therein, and an
identifying description of each parcel of leased real property, in whole or part
used by the Company. Except for Permitted Liens and as set forth in Schedule
4.8, the Company has good and marketable title, free and clear of all liens,
encumbrances and imperfections of title, to the real estate and real estate
interests described in such schedule.
(b) None of the rights of the Company under any leasehold or
other interest in real property will be impaired by the consummation of the
transactions contemplated by this Agreement. The Company has adequate rights of
ingress and egress to and from such owned and leased real property. All real
property owned or leased by the Company is in condition and repair, reasonable
wear and tear excepted, sufficient to conduct the business of the Company as
presently conducted and as contemplated. Except as reflected in the Projections,
no material additions or modifications to such owned or leased real property are
needed or planned. The Company has not received notice of, nor have there
occurred, any pending or, to the knowledge of the Company, threatened
condemnation proceedings or any other matter materially and adversely affecting
the value of such owned or leased real property. The Company's operations and
the improvements on such real property comply in all material respects with all
applicable zoning laws and building codes.
(c) Each title insurance policy owned by the Company with respect
to any real estate or real estate interest described in Schedule 4.8 is
identified in Schedule 4.8 and a copy of each such title insurance policy has
previously been delivered to Lender.
(d) To the knowledge of the Company, except as disclosed in the
Environmental Reports (as defined below), there have been no acts or omissions
occurring on or with respect to the real estate or real estate interests
described in Schedule 4.8 (whether or not such acts or omissions were permitted
by the Company) which constituted or resulted, or may have constituted or
resulted in the creation of any federal, state or local common law nuisance or
which violate or have violated federal, state and local environmental laws,
including but not limited to, the Clean Water Act, the Toxic Substances Control
Act, the Comprehensive Environmental Response, Compensation and Liability Act
and/or the Resource Conservation and Recovery Act and their state and local law
counterparts, all rules and regulations promulgated thereunder and all other
legal
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requirements in connection with the ownership and use of the real estate
and real estate interests described in such schedule. The Company has no
liability with respect to the storage, treatment or disposal of any hazardous
waste or substance. Schedule 4.8 lists all reports (true and complete copies of
which have been delivered to the Lender) relating to all environmental audits or
surveys performed during the past ten years (the "Environmental Reports") on any
real property required to be described in Schedule 4.8.
4.9 Intellectual Property. Except as set forth on Schedule 4.9, the
Company owns, licenses or otherwise has authority to use, free and clear of all
liens, encumbrances, licenses, claims and other restrictions or burdens (except
Permitted Liens), all patents, trade names, trademarks, copyrights, inventions,
processes, designs, custom or proprietary computer software, works of
authorship, franchises, formulas, trade secrets, know-how and other intangible
property and proprietary rights (collectively, "Intellectual Property")
necessary for or used in the conduct of its business, and may, to the Company's
knowledge, use all such Intellectual Property in the conduct of its business
with no conflict with or infringement of the rights of others. Schedule 4.9
lists all licenses and other agreements with respect to Intellectual Property to
which the Company is a party or by which it or any of its assets are bound.
Except as set forth on Schedule 4.9, the Company has no knowledge of any
material infringement by any third party upon any Intellectual Property owned or
used by it and it has not intentionally taken or omitted to take any action
which would have the effect of waiving any of its rights thereunder. Schedule
4.9 lists all patents, trademarks, trade names, copyrights and applications for
any of the foregoing owned or used by the Company.
4.10 Absence of Changes. Except as set forth on Schedule 4.10, since the
Balance Sheet Date, the Company's business has been developed and operated in
the ordinary course thereof consistent with past practices, and the Company has
not:
(a) Undergone any material adverse change in the assets of the
Company, its condition (financial or otherwise), or, to the best of the
Company's knowledge, its prospects;
(b) Suffered any material damage, destruction or loss (whether
or not covered by insurance) affecting the assets of the Company;
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<PAGE> 21
(c) Incurred any indebtedness, including, but not limited to, any
account payable, other than indebtedness incurred in the ordinary course of
business and consistent with past practices;
(d) Paid, discharged or satisfied any claim, lien, encumbrance or
liability of the Company (whether absolute, accrued, contingent or otherwise and
whether due or to become due), other than in the ordinary course of business and
consistent with past practices;
(e) Declared, set aside or paid any dividend or other distribution
in respect of any equity security of the Company, or any direct or indirect
redemption, purchase or other acquisition of any equity security of the Company;
(f) Sold, transferred, pledged, mortgaged, or otherwise disposed
of any tangible or intangible asset of the Company, nor has the Company
subjected any of its assets to any lien (other than Permitted Liens), security
interest, charge or encumbrance, or made any sale, assignment, transfer or other
disposition of any patents, copyrights, trademarks, trade names, licenses,
franchises, know-how, proprietary processes, formulae or other intangible assets
(other than the sale of tangible assets in the ordinary course of business);
(g) Increased the compensation paid or payable to any officer,
managerial employee, consultant or agent of the Company (including, without
limitation, any increase pursuant to any bonus, pension, profit sharing or other
plan or commitment) other than in the ordinary course of business consistent
with past practices;
(h) Made any capital expenditure or commitment for additions to
property, plant or equipment in excess of $35,000;
(i) Entered into any forward purchase commitments other than in the
ordinary course of business;
(j) Made any change in the accounting methods or practices
followed by the Company, or any change in depreciation, cost recovery or
amortization policies or rates theretofore adopted;
(k) Entered into any transaction other than in the ordinary
course of business (except as described on Schedule 3.6);
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<PAGE> 22
(l) Entered into or become subject to any agreement, whether in
writing or otherwise, to take any of the actions specified above; or
(m) Received any notice or indication of termination or potential
termination of any other material contract, lease or relationship, including
relationships with customers and suppliers, which, in any case or in the
aggregate, has or may have an adverse effect upon the Company, its business or
its prospects.
4.11 No Materially Adverse or Other Contracts, Etc. The Company is not
obligated under any contract, agreement or decree which materially and adversely
affects the assets of the Company, its condition (financial or otherwise) or its
prospects. Neither the execution nor the delivery of this Agreement nor the
consummation of the transactions contemplated hereby, (including, but not
limited to, the Acquisition), nor the fulfillment of the terms hereof, will
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under, either the Articles of Incorporation or By-Laws
of the Company, or of any agreement, restriction, undertaking, instrument, law,
ordinance, regulation, governmental license, approval, tariff, any order or
decision of any court, any lien, charge or encumbrance under which the Company
or any of its properties is bound or obligated.
Except as set forth on Schedule 4.11, the Company is not a party
to, nor obligated under any:
(a) Written employment or other contracts with employees,
independent contractors, consultants or similar individuals or entities;
(b) Loans, borrowing contracts, notes, indentures, mortgages,
leases, royalty or similar agreements (except for the Senior Loan Documents);
(c) Power of attorney granted by or to the Company;
(d) Agreement which contains covenants limiting the freedom of
the Company to compete in any line of business or market or with any entity or
person;
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(e) Any license agreements, distributor, sales representative or
agency agreements to which the Company is a party, which involved the payment by
the Company of $50,000 in the past 12 months; or
(f) Contract to which the Company is a party which by its terms
involves the future payment by or to the Company of $200,000 or more or is
otherwise material to the Company, its business or prospects.
Neither the Company nor, to the Company's knowledge, any other
party to any contract material to the Company is in material default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any such contract and no such party has made any claim
of a material default by the Company. All such contracts are enforceable against
the Company and, to the knowledge of the Company, against the other parties
thereto (subject only to bankruptcy, reorganization, insolvency or other similar
laws or any applicable rules of equity). All such contracts are in full force
and effect and have been approved by all third parties whose approval is
required. The consummation of the transactions contemplated hereby (including,
but not limited to the Acquisition) will not and no state of facts exists which
with the passage of time or the giving of notice or both would constitute a
default under or breach of any of such contracts by the Company or, to the
Company's knowledge, by any other party thereto. Adequate arrangements have been
made in connection with the Acquisition to assure that the Company will receive
the full economic benefit of each of the contracts transferred or assigned to
the Company by Apogee or an affiliate of Apogee pursuant to the Acquisition.
4.12 Employee Benefit Plans.
(a) Except as set forth on Schedule 4.12, the Company does not
maintain or contribute to (i) any nonqualified deferred compensation or
retirement plans or arrangements; (ii) any defined contribution retirement plans
or arrangements; (iii) any defined benefit pension plan; (iv) any other plan,
program, agreement or arrangement under which former employees of the Company or
their beneficiaries are entitled, or under which current employees of the
Company will be entitled following termination of employment, to medical,
health, life insurance or other benefits (other than health continuation
coverage described in section 4980B of the Code, Part 6 of Title I of ERISA or
applicable state insurance law and any right of an employee to benefits
continued coverage by reason of disability or any conversion feature provided
under any insurance arrangement); (v) any other employee benefit, health,
welfare, medical, disability, life insurance or other program, agreement,
arrangement or policy; or (vi) any
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other "employee benefit plan," as such term is defined in section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and
regulations thereunder. The plans required to be described in Schedule 4.12 are
referred to as the "Plans."
(b) Except as set forth in Schedule 4.12, the Company is not part
of a Controlled Group or Affiliated Service Group. "Affiliated Service Group,"
for purposes of this section, is defined in section 414(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). "Controlled Group," for purposes
of this section, means a group of trades or businesses (whether or not
incorporated) under common control, as defined in the regulations issued
pursuant to section 414(b) or (c) of the Code, or other such regulations
prescribed by the Pension Benefit Guaranty Corporation pursuant to section 4001
of ERISA, of which the Company is a part.
(c) No Plan to which the Company contributes is a multiemployer
plan, as defined in section 4001(a)(3) of ERISA, or a defined benefit plan, as
defined in section 3(35) of ERISA.
(d) The Plans have been administered in all material respects in
compliance with the applicable requirements of ERISA, all applicable foreign
laws and the plan documents, and the Plans meet all applicable requirements for
favorable tax treatment under the Code in both form and operation except as
otherwise disclosed on Schedule 4.12. All of the Plans which constitute employee
pension benefit plans or employee welfare plans subject to ERISA and the trusts
or other funding vehicles related to the Plans have, in all material respects,
been maintained in compliance in both form and operation with the requirements
of ERISA and any applicable state law except as otherwise disclosed on Schedule
4.12. The Plans which constitute employee pension benefit plans, as defined in
section 3(2) of ERISA, comply, in all material respects, with the requirements
of the Tax Reform Act of 1986, and the Omnibus Budget Reconciliation Act of
1989, and all subsequent legislation, requirements and amendments, and the
Company has received from the Internal Revenue Service a favorable determination
letter as to each such Plan except as otherwise disclosed on Schedule 4.12. All
required contributions pursuant to the Plans for all periods prior to Closing
have been made or will be made prior to the Closing or are adequately reflected
on the Balance Sheet. There have been no nonexempt prohibited transactions, as
defined in section 406 of ERISA or section 4975 of the Code, with respect to any
of the Plans or any parties in interest or disqualified persons with respect to
the Plans or any reduction or curtailment of accrued benefits with respect to
any Plans. There are no pending or, to the knowledge of
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<PAGE> 25
the Company, threatened claims, lawsuits or arbitrations which have been
asserted or instituted against the Plans or any fiduciaries thereof with respect
to their duties to the Plans or the assets of any of the trusts under any Plans.
No representations or communications with respect to participation, eligibility
for benefits, vesting, benefit accrual or coverage under the Plans have been
made to the Company's employees other than those which are substantially in
accordance with the terms of such Plans in effect immediately prior to the
Closing.
(e) No Plan which is a "group health plan," as defined in Code
section 4980B, has failed to comply with the continuation coverage requirements
of section 4980B of the Code for all periods prior to Closing.
(f) The Company has furnished to the Lender true and complete
copies of:
(i) the Plans' summary plan descriptions;
(ii) the most recent determination letter received from the
Internal Revenue Service regarding the Plans and copies of any pending
applications, filings or notices with respect to any of the Plans with the
Internal Revenue Service, the Pension Benefit Guaranty Corporation, the
Department of Labor or any other governmental agency;
(iii) the latest financial statements and annual reports of
each of the Plans as of the end of the most recent Plan year;
(iv) the reports of the most recent actuarial valuations of
the Plans, if any; and
(v) copies of any investment management agreements
thereunder and of any fiduciary insurance policies, fidelity bonds, rules,
regulations or policies of the trustees or any committee thereunder.
4.13 Compliance with Laws, Instruments, Etc.
(a) Generally. The Company is not in violation of its Articles of
Incorporation or By-Laws, as amended, or in violation in any material respect of
any applicable law, statute or regulation of any federal, state, municipal or
other governmental or quasi-governmental agency, board, bureau or body relating
to the conduct of its business or maintenance, operation or use of the
20
<PAGE> 26
assets of the Company, or in violation or default in any material respect with
respect to any order, license, regulation or demand of any court or governmental
agency, or in default in any respect under any indenture, mortgage, lease,
agreement or other instrument under which it is bound. Except as disclosed on
Schedule 4.13, the Company holds all governmental or regulatory licenses,
qualifications and permits required or necessary to conduct its business and to
perform all contracts to which it is bound, or which were assigned to it by
Apogee (or an affiliate of Apogee) in connection with the Acquisition, in each
such jurisdiction where such licenses, qualifications or permits are required or
necessary to allow the Company to receive payment in full under such contracts.
The Company is in compliance with and has performed each and every obligation
required to be complied with and performed pursuant to each contract, lease,
license, mortgage, indenture, instrument and other agreement by which it is
bound or obligated, and there is no default by the Company, and to its
knowledge, by any other party thereto, under any such contract, lease, license,
mortgage, indenture, instrument or other agreement now existing, or which would
come into existence with the passage of time, the giving of notice, or both. The
Company and its employees, agents and representatives have not, to obtain or
retain business, directly or indirectly offered, paid, promised to pay or
authorized the payment of any money or other thing of value, directly or
indirectly, to any person who is a foreign governmental official, an official of
any foreign political party or any candidate for a foreign governmental or
political party office.
(b) Environmental. Except as disclosed in the Environmental
Reports, the Company has complied and is in compliance in all respects with all
applicable federal, state, local and foreign laws, statutes, rules, regulations,
ordinances and other requirements, including, without limitation, permits issued
thereunder, judicial and administrative orders and determinations and
contractual obligations concerning public health and safety, worker health and
environmental contamination of any type whatsoever, including, without
limitation, all such standards of conduct and obligations relating to the
presence, use, production, generation, handling, transport, treatment, storage,
disposal, sale, distribution, labeling, testing, processing, discharge, release,
threatened release, control or cleanup of any hazardous, toxic or otherwise
dangerous chemical, material, substance or waste, or mixture, pesticide,
petroleum product or byproduct, asbestos, polychlorinated biphenyls, noise or
radiation. Except as disclosed in the Environmental Reports, there are no
claims, demands, and/or governmental or third party investigations, pending or,
to the Company's knowledge, threatened, relating to any hazardous materials
(collectively called "Environmental Claims") against the Company or relating to
any real property currently or formerly owned or leased by the Company, or
operated by the
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Company. Except as disclosed in the Environmental Reports, there are no
lawsuits, judgments, consent decrees, administrative orders and/or
administrative proceedings (collectively called "Environmental Litigation")
pending, or to the Company's knowledge, threatened against the Company or any
real property presently or formerly owned by the Company, relating to any
hazardous materials treated, stored, used and/or disposed of by the Company.
Except as disclosed in the Environmental Reports, to the Company's knowledge, no
other person has caused, discharged, permitted or arranged for any hazardous
material to be used, generated, reclaimed, transported, released, treated,
stored, recycled, refined or disposed of in a manner which is likely to form the
basis for an Environmental Claim or Environmental Litigation against the
Company. Except as disclosed on Schedule 4.13, in connection with the
Acquisition, Apogee has assumed liability for all loss, damages, costs or
expenses that may arise with respect to the properties or operations of Norment
and Norshield relating to the period prior to the Closing Date. The Company has
not assumed any liability of any person for cleanup, remediation, removal,
compliance or required capital expenditures in connection with any Environmental
Claim or Environmental Litigation. Except as described in the Environmental
Reports: (i) there are no underground storage tanks or surface impoundments that
are or were located, on real property currently owned or leased by the Company
or on adjacent parcels of real property; and (ii) no part of such currently
owned, leased and operated real property, and no part of parcels adjacent to
such real property, including the groundwater located thereon, is presently
contaminated by hazardous materials in violation of any applicable environmental
law.
4.14 Securities Laws. The sale and delivery of the Note and the Equity
Securities issued to the Lender are (assuming the accuracy of the Lender's
representations in section 8), exempt from the requirement of registration under
the Securities Act of 1933, as amended ("Securities Act") and applicable state
"Blue Sky" laws.
4.15 Brokers. The Company has not incurred any liability for any
finders' fees, brokerage fees or similar fees or expenses in connection with
entering into this transaction with the Lender except as fully described on
Schedule 4.15.
4.16 Taxes. The Company has timely filed, or obtained valid extensions
of time for filing (which extensions have not expired), all federal, state,
local and other tax returns and reports required to be filed by the Company. All
such tax returns are true and correct in all material respects. No claim has
been made by any taxing authority in any jurisdiction where the Company did not
file
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tax returns that the Company is or may be subject to taxation by that
jurisdiction. Except as disclosed on Schedule 4.16, in connection with the
Acquisition, Apogee has assumed liability for all loss, damages, costs or
expenses that may arise with respect to the properties or operations of Norment
and Norshield relating to the period prior to the Closing Date. Except as
disclosed in Schedule 4.16:
(a) The Company has paid all taxes (including all deficiency
assessments, additions to taxes, penalties and interest, of which notice has
been received) to the extent that such amounts have become due or are claimed to
be due from any federal, state, local or foreign taxing authorities.
(b) Adequate provisions have been made in the balance sheet of the
Company as of December 31, 1997 and in the Balance Sheet for the payment of all
then accrued and unpaid federal, state, local and other taxes, whether or not
then due and payable and whether or not disputed.
(c) There are no tax liens (other than liens for taxes which are
not yet due and payable) on any property of the Company.
(d) There are no pending or, to the Company's knowledge,
threatened tax return examinations against the Company.
(e) There are no tax deficiencies asserted by any jurisdiction
against the Company.
(f) The Company has not granted any extensions of limitation
periods applicable to tax claims that are currently open.
4.17 Insurance. Schedule 4.17 contains a correct schedule of all
policies of insurance carried by the Company (including all policies of which
the Company is a beneficiary, is the owner or pays the premiums with respect
thereto) showing material facts as to coverage. The insurance it carries is
reasonably adequate in kind and amount to cover insurable risks normally insured
against by companies similarly situated, is subject to the deductibles and
self-insurance programs disclosed on Schedule 4.17, and all premiums thereon
have been paid as and when due. All such policies are in full force and effect.
No notice of cancellation or termination has been received with respect to any
such policy. Such policies are valid, outstanding and enforceable policies and
will not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. The liability insurance coverage to
which the Company was a party throughout the five years preceding the Closing
was
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comparable (considering inflation during such period) to the coverage currently
in effect and was adequate considering the nature of its businesses. During such
five year period the Company suffered no material insurable loss for which a
claim was not made. The Company has not been refused any insurance with respect
to any material assets or operations, nor has its coverage been limited in any
respect material to its operations, by any insurance carrier to which it has
applied for any such insurance or with which it has carried insurance during the
last five years. The bonding facility described in section 3.13 is adequate in
scope and amount for the Company's current and projected business.
4.18 Products Liability and Product Warranty. Schedule 4.18 sets forth
all cash expenses, non-cash charges and reserve activity with respect to the
Company's products liability lawsuits, claims and settlements during the past
five years. Schedule 4.18 sets forth all cash expenses and non-cash charges
related to warranties of the Company in connection with the sale of products by
the Company during the past three years. All products sold by the Company are in
all material respects manufactured in conformity with all applicable contractual
commitments and all express or implied warranties. Except as disclosed on
Schedule 4.18, in connection with the Acquisition, Apogee has assumed liability
for all loss, damages, costs or expenses that may arise with respect to the
properties or operations of Norment and Norshield relating to the period prior
to the Closing Date.
4.19 Related Transactions. "Affiliate" of any person shall mean any
other person which directly or indirectly controls, is controlled by or is under
common control with such person. For purposes hereof, "control" shall mean the
direction of management or policies (whether through ownership of securities, by
contract or otherwise), provided that any person which owns directly or
indirectly 5% or more of the securities of any other person having ordinary
voting power for the election of directors shall be deemed to control such other
person. Under no circumstances shall the Lender be deemed for purposes of this
Agreement to be an Affiliate of the Company or any of its Affiliates. Except as
disclosed on Schedule 4.19: (a) no Affiliate nor any officer, director or
stockholder of the Company or, to the Company's knowledge, to any person related
by blood or marriage to any such person or any entity in which any such person
owned or owns any beneficial interest, was or is a party to any agreement,
contract, commitment or transaction with the Company or had or has any interest
in any property used by the Company; (b) no Affiliate is the direct or indirect
owner of any interest in any corporation, firm, association or business
organization which is a competitor or supplier of the Company (except for
passive investments of less than 5% in companies whose securities are traded on
NASDAQ or a
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national stock exchange); (c) no Affiliate is the recipient of income from any
source other than the Company which should properly accrue to the Company.
4.20 Minute Books and Stock Record Books. The minute books of the
Company contain true, complete and correct records of all meetings and other
actions of the stockholders or Board of Directors of the Company. The stock
transfer record books of the Company contain true, complete and correct records
of all transactions involving the Company's capital stock.
4.21 Employee Matters.
(a) Except as disclosed on Schedule 4.21, he Company is not a
party to any collective bargaining agreement;
(b) there is no unfair labor practice complaint against the
Company pending before the National Labor Relations Board;
(c) there is no labor strike, dispute, slowdown, representation
campaign or work stoppage actually pending or threatened against or affecting
the Company;
(d) to the Company's knowledge, no officer or employee of the
Company has entered into any agreement which is now in effect with any person,
corporation, partnership or business organization other than the Company
requiring such person to assign any interest in any invention or trade secrets
or to keep confidential any trade secrets or other proprietary information or
containing any prohibition or restriction on competition or solicitation of
customers; and
(e) to the Company's knowledge, no managerial employee of the
Company or any Subsidiary intends to terminate his or her employment with the
Company within six months after the Closing.
4.22 Profit Payments. Except as set forth in the Senior Loan Documents
or on Schedule 4.11, the Company is not a party to any agreement involving
payments in excess of $50,000 to any person or entity based on profits or gross
revenues or sales.
4.23 Bank Accounts. Schedule 4.23 hereto contains a true, complete and
correct list of each bank or other depository account or safe deposit box
maintained by the Company, including the name of the bank or other
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depository and the names and titles of all persons authorized to draw thereon or
having access thereto.
4.24 Investment Company. The Company is not an "Investment Company" or
a company controlled by an "Investment Company" within the meaning of the
Investment Company Act of 1940, as amended.
4.25 Solvency. The Company, after giving effect to the transactions
contemplated by this Agreement, has not incurred, does not intend to incur, does
not believe and has no reason to believe it will incur, debts which it will be
unable to pay as they become due. The Company is not engaged in a business or a
transaction and is not about to engage in a business or a transaction for which
the property remaining with the Company is an unreasonably small capital. After
giving effect to the transactions contemplated by this Agreement (including the
Acquisition), the Company owns assets and operations whose fair saleable value,
in the aggregate, is greater than the amount required to pay all its
indebtedness.
4.26 Regulations G and X. The Company is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (as
defined, from time to time, in Regulation G promulgated by the Board of
Governors of the Federal Reserve System), and no part of the proceeds of the
Note shall be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin stock in violation
of Regulations G and X.
4.27 Year 2000 Compliance. Except as described on Schedule 4.27, the
computer programs and software used by the Company, including all such programs
and software embedded in products sold by the Company, will correctly recognize,
calculate, sort, store, display and/or process dates outside of the range
1900-1998, including the years 1999, 2000 and beyond, and to correctly recognize
that the year 2000 is a Leap Year and to correctly handle all date calculations
involving the date February 29, 2000.
4.28 Disclosure. All statements of the Company contained in any exhibit,
certificate or other instrument attached hereto or required to be delivered to
the Lender pursuant to this Agreement shall constitute representations and
warranties by the Company hereunder. Neither this Agreement nor any of the
schedules, attachments, written statements, documents, certificates or other
items required hereby contain any untrue statement of a material fact or omit a
material fact necessary to make each such statement contained herein or therein
not
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misleading. To the Company's knowledge, there is no material fact pertaining
to the Company's business which the Company has not disclosed to the Lender in
writing and which, as of the date hereof, could reasonably be anticipated to
have a material adverse effect upon the existing or expected financial
condition, operating results, assets, customer relations, employee relations or
business prospects of the Company.
5. Affirmative Covenants. From and after the Closing Date and so long as
the Company is indebted to the Lender (with respect to the Loan, interest or
otherwise pursuant to this Agreement) or the Lender owns at least 10% of the
issued and outstanding Common Stock, the Company (including for purposes of this
section 5 each Subsidiary) shall comply with each of the following actions:
5.1 Payment of Note. The Company shall duly make all principal and
interest payments on the Note, as the same become due and payable, and shall
otherwise comply with the terms and conditions thereof (including the grace
period described in section 7.1(a) provided the Company pays the default
interest required by section 7.1(a)).
5.2 Taxes. The Company shall accurately prepare all tax returns
required by law to be filed. The Company promptly shall pay and discharge all
taxes, assessments and governmental charges or levies imposed by applicable law
upon it or upon its income or profit, or upon its properties, real, personal or
mixed; provided, however, that the Company shall not be required to pay or cause
to be paid any such tax, assessment, charge or levy if the same shall not at the
time be due and payable or if the validity thereof shall be contested in good
faith by appropriate proceedings, if any, in which event it has established
adequate reserves on its books with respect to such tax, assessment, charge or
levy; provided further, however, that the Company will pay all such taxes,
assessments, charges or levies forthwith whenever, as the result of proceedings
to foreclose any lien which attached as security therefor, foreclosure on such
lien appears imminent, or will obtain a surety bond or take such other steps as
will prevent such foreclosure.
5.3 Maintain Rights and Facilities. The Company shall maintain and
preserve its corporate existence and all its rights, franchises and
qualifications adequate for the conduct of its business and the ownership of its
properties.
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5.4 Insurance; Bonds. The Company shall maintain insurance against
all such liabilities, hazards and risks, and in at least such amounts (in the
case of property casualty insurance at least replacement cost), as are usually
carried by persons engaged in the same or a similar business. All such insurance
shall be effected under valid and enforceable policies issued by insurers of
recognized responsibility, except that the Company may effect worker's
compensation or similar insurance in respect of operations in any state or other
jurisdiction through an insurance fund approved by such state or other
jurisdiction. The Company shall obtain and maintain in force such contract
payment and performance bonds as are required in connection with the Company's
business.
5.5 Financial Reports. The following financial reports shall be
provided:
(a) The Company shall provide the Lender, within 30 days after the
end of each calendar month, an unaudited financial statement of the Company
which will include a (i) balance sheet, (ii) statement of income and expense,
and (iii) statement of cash flow, all for such monthly period and for the then
current fiscal year to date together with a monthly comparison of actual
operating results to the previous fiscal year and, beginning February 1999, to
budget. Each of the foregoing financial statements shall be provided in
reasonable detail and prepared in accordance with accounting principles
consistently applied (subject to the absence of footnotes), and shall be
furnished in consolidated and consolidating form for the Company and the
Subsidiaries. Such financial statements shall be accompanied by a written
narrative describing business developments, for the month covered by the
statements, in form and detail reasonably satisfactory to the Lender. Such
financial statements shall be certified, subject to audit and normal year-end
adjustments, by the Chief Executive Officer or senior financial officer of the
Company and shall also be accompanied by the certificate of such officer to the
effect that: (i) to his knowledge, there exists no Event of Default (as defined
in section 7 hereof) or event which, with the giving of notice or passage of
time or both, would constitute an Event of Default or if any such Event of
Default exists, specifying the nature thereof, the period of existence thereof
and what action the Company proposes to take with respect thereto (provided that
the Lender shall not be subject to any liability, nor shall the Lender be deemed
to waive any right or remedy to which it may be entitled, as a result of any
action taken or not taken subsequent to receipt of such statement regarding
Events of Default); and (ii) nothing has come to the attention of the management
of the Company that caused them to believe the Company was not in compliance
with any terms, covenants, provisions or conditions of section 5 or 6 of this
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Agreement. The Company shall also furnish the Lender copies of all financial
reports furnished to any bank providing senior debt or to any bonding company.
(b) Within 90 days after the last day of each fiscal year of the
Company, the Company will provide the Lender with an audited annual report of
the Company containing a (i) balance sheet, (ii) statement of income and
expense, (iii) statement of stockholders' equity and (iv) statement of cash flow
for such year, prepared in accordance with generally accepted accounting
principles applied on a consistent basis and setting forth in each case, in
comparative form, the figures for the previous fiscal year, all in reasonable
detail and, in the case of the audited annual report, accompanied by an
unqualified (as to scope of audit and going concern) opinion of an independent
certified public accountant satisfactory to the Lender. The annual financial
statements shall be accompanied by a written statement from the Chief Executive
Officer or senior financial officer of the Company to the effect that: (i) to
the knowledge of the Company there exists no Event of Default or event which,
with the giving of notice or passage of time or both, would constitute an Event
of Default or if any such default exists, specifying the nature thereof, the
period of existence thereof and what action the Company proposes to take with
respect thereto (provided that the Lender shall not be subject to any liability,
nor shall the Lender be deemed to waive any right or remedy to which it may be
entitled, as a result of any action taken or not taken subsequent to receipt of
such statement regarding Events of Default); and (ii) nothing has come to the
attention of the management of the Company that caused them to believe the
Company was not in compliance with any terms, covenants, provisions or
conditions of section 5 or 6 of this Agreement. The annual audited financial
statements shall be furnished in consolidated and consolidating form for the
Company and the Subsidiaries. Together with each delivery of financial
statements of the Company pursuant to section 5.5(b) hereof, the Company shall
deliver a written statement by its independent certified public accountants
addressed to the Lender (i) stating that the examination has included a review
of the terms of this Agreement as they relate to accounting matters and (ii)
stating whether, in connection with the examination, any condition or event
relating to accounting matters that constitutes (or with notice, the passage of
time, or both, will constitute) an Event of Default has come to their attention
and, if such a condition or event has come to their attention, specifying the
nature and period of existence thereof.
(c) Promptly upon receipt, the Company will provide the Lender
with copies of all audit reports submitted to the Company by independent
accountants in connection with each annual audit of the books of the
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<PAGE> 35
Company and the Subsidiaries and copies of any and all management reports and
recommendations given by its independent accountants to the Company.
5.6 Budget. On or before January 31, 1999 with respect to the fiscal
year ending December 31, 1999 and on or before the last day of each fiscal year
commencing with the following fiscal years, the Company shall furnish to the
Lender an operating financial forecast for the Company (including an operating
and capital budget) for the upcoming fiscal year and projections of (i) the
balance sheet of the Company at the end of each month of such fiscal year, (ii)
statements of income and expense for each month of such fiscal year, (iii)
statements of cash flow of the Company for each month of such fiscal year, and
(iv) a budget of capital expenditures to be incurred by the Company for such
fiscal year, all of the foregoing to be furnished in consolidated and
consolidating form for the Company and the Subsidiaries and shall be in
reasonable detail and certified by the Chief Executive Officer or senior
financial officer of the Company as having been prepared in good faith and to
the best knowledge and ability of the Company. The Company shall, promptly upon
any material revision of the foregoing, provide such revisions to the Lender.
The business plan referred to above shall include management's intentions with
regard to anticipated significant business developments or objectives of the
Company.
5.7 Books and Records; Inspection. The Company shall keep proper,
complete and accurate books of record and account. The Lender shall have the
right to visit and inspect any of the properties, books and records of the
Company (and to make copies and take extracts therefrom), to discuss the
Company's affairs, finances and accounts with, and be advised of the same by,
its directors, officers, employees, consultants, and independent accountants at
such reasonable times and intervals, subject to reasonable prior notice to the
Company, as the Lender may desire.
5.8 Maintain Properties. The Company shall keep its properties in
working order and condition, ordinary wear and tear excepted, and from time to
time make all prudent, needful or proper repairs, replacements, extensions,
additional betterments and improvements thereto, so that the business carried on
by the Company may be efficiently conducted at all times in accordance with
sound business management.
5.9 Compliance with Instruments, Laws, Etc. Except where the Company's
failure to comply would not have a Material Adverse Effect, the Company shall
comply in all respects with the terms, requirements, restrictions and
limitations of any applicable law, statute or regulation of any federal, state,
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<PAGE> 36
municipal or other governmental or quasi-governmental agency, board, bureau or
body materially relating to the conduct of its business and maintenance and
operation of its respective properties (except where the Company is contesting
the applicability thereof by appropriate legal proceedings), and shall further
comply with and perform the terms, conditions and covenants contained in any
contract, lease, license, mortgage, indenture, instrument or other agreement
under which the Company is obligated.
5.10 Notices. Upon the Company's obtaining notice or knowledge of any
of the following, promptly notify in writing the Lender of the same and what
action the Company proposes to take, and shall thereafter keep the Lender fully
informed, with respect thereto:
(a) Any breach of or default, with respect to which any grace
period has expired, by the Company in the fulfillment of any of the material
terms, covenants or conditions of this Agreement or any loan agreement or
material contract or material governmental license, permit or tariff by which it
is bound or to which it is a party, or the existence or occurrence of any
condition, event, act or omission which, with the giving of notice or the
passage of time or both, would constitute an Event of Default under this
Agreement (as defined in section 7) or an event of default under any loan
agreement or material contract, or material governmental license, permit or
tariff by which it is bound or to which it is a party.
(b) Any litigation, investigation or administrative proceeding,
in which the amount in controversy exceeds $250,000 or in which a criminal
sanction or injunctive remedy is sought against the Company, or any otherwise
material determination, fine, penalty or other materially important dispute to
which the Company is a party or by which it is affected.
(c) Any change or modification in existing contracts, agreements
or commitments to which the Company is a party or is bound, which change or
modification would have a Material Adverse Effect.
(d) Any change in the laws applying in particular to the Company
or the industries in which the Company competes, which change would have a
Material Adverse Effect.
(e) Any bid for a project with respect to which the Company's
proposed contract exceeds $10,000,000.
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(f) Any warranty claim made against the Company in which the
amount claimed exceeds $250,000.
(g) Any surety loss under bonds maintained by the Company in which
such loss exceeds $250,000.
5.11 Shareholder Agreement. The Company shall enter into and comply in
all respects with the Shareholder Agreement.
5.12 Observation Rights. The Company shall permit two representatives of
the Lender to attend all meetings of the Board of Directors and any committees
thereof; one of such representatives shall be the Blair Director (as defined in
the Shareholder Agreement) once such person has been elected to the Board of
Directors.
6. Negative Covenants. From and after the Closing Date and so long as the
Company is indebted to the Lender (with respect to the Loan, interest or
otherwise pursuant to this Agreement) or the Lender owns at least 10% of the
issued and outstanding Common Stock, the Company and the Subsidiaries will not
do or take any of the following actions without the prior written consent of the
Lender:
6.1 Use of Proceeds. Use the proceeds from the Lender's purchase of the
Note or the Equity Securities for any purpose other than the Acquisition, the
refinancing of the Company's debt and the payment of fees and expenses
associated therewith.
6.2 Redemption; Distributions. Except for the transactions described on
Schedule 6.2, purchase or otherwise acquire, redeem or retire or make any
distribution or pay any dividend with respect to, the Company's capital stock or
agree or commit to do any of the foregoing. Notwithstanding the foregoing, (i)
any Subsidiary may pay dividends or make other distributions to the Company or
to a wholly-owned Subsidiary of the Company; (ii) the Company may purchase its
capital stock in the open market, in an amount not to exceed $100,000 per year,
for the purpose of making resales to employees under its stock discount plan or
matching contributions under its 401(k) plan; (iii) the Company may purchase in
the open market up to $150,000 per year of its capital stock in connection with
the performance of its obligations under the Company's employee and director
stock option plans; and (iv) the Company may purchase such shares of capital
stock as it is required to purchase to satisfy its obligations under the August
1, 1993 Stock Purchase Agreements described on Schedule 4.3(a).
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6.3 Investments, Loans and Advances. Make or have outstanding any
loans or advances to, or investments in (through the acquisition of securities
or stock or otherwise), any other person, firm, or corporation, except:
(a) Advances in the ordinary course of business to suppliers in
respect to the purchase of inventory, supplies or equipment;
(b) By endorsement of negotiable instruments for deposit or
collection in the ordinary course of business;
(c) Investments in obligations of the United States Government
and maturing within one year or deposits in or certificates of deposit issued by
a commercial bank organized under the laws of the United States having capital
and surplus in excess of $100,000,000 and maturing within one year;
(d) Travel and other advances to employees in the ordinary course
of business;
(e) Investments in commercial paper of any United States
corporation rated at least A-1 by Standard & Poor's Corporation or at least P-1
by Moody's Investors Service, Inc. and maturing within one year; or
(f) Investments in money market funds substantially all of the
assets of which are comprised of securities of the type described in sections
(c) and (e) above.
(g) Contributions by the Company to the capital of any of its
Subsidiaries, or by any such Subsidiary to the capital of any of its
Subsidiaries.
(h) In the ordinary course of business, Investments by the Company
in any Subsidiary or by any Subsidiary in the Company, by way of intercompany
loans, advances or guaranties, all to the extent permitted by the Senior Loan
Documents.
(i) suretyship liabilities permitted by the Senior Loan Documents.
(j) any acquisition by the Company or any Subsidiary where (1) the
assets acquired (in the case of an asset purchase) are for
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use, or the entity acquired (in the case of any other acquisition) is engaged,
solely in the security systems or fire alarm businesses; (2) immediately before
and after giving effect to such acquisition, no Event of Default shall exist;
(3) the aggregate consideration to be paid by the Company and its Subsidiaries
(including any Indebtedness assumed or issued in connection therewith, the
amount thereof to be calculated in accordance with GAAP) in connection with such
acquisition (or any series of related acquisitions) and any other acquisitions
consummated during the same fiscal year is less than $600,000 in aggregate; (4)
immediately after giving effect to such acquisition, the Company is in pro forma
compliance with all the financial ratios and restrictions set forth in section
6.17; (5) in the case of the acquisition of any entity, the Board of Directors
of such entity has approved such acquisition; (6) the EBITDA in respect of the
business (in the case of an asset purchase) or entity (in the case of any other
acquisition) acquired is not less than zero; and (7) the Company provides ten
days prior written notice of such acquisition to the Lender.
6.4 Acquisition or Sale of Business; Merger or Consolidation.
Except as and to the extent permitted under section 6.3, purchase or otherwise
acquire the stock, shares, or other securities, or substantially all of the
assets or business, of any person or other entity; or liquidate, dissolve,
merge, consolidate, reorganize, recapitalize or otherwise alter its legal status
or commence any proceedings therefor; or sell, lease, transfer, or dispose of,
in any way, any personal or real property assets, except assets sold or leased
in the ordinary and normal course of business; or assign or transfer any
substantial part of its intangible business rights necessary for the continuance
of its business as now conducted or planned. Notwithstanding the foregoing, this
section 6.4 shall not prohibit: (a) any merger, consolidation, sale, transfer,
conveyance, lease or assignment of or by any wholly-owned Subsidiary into the
Company or into, with or to any other wholly-owned Subsidiary; (b) any such
purchase or other acquisition by the Company or any wholly owned Subsidiary of
the assets or stock of any wholly-owned Subsidiary; or (c) sales and
dispositions of assets (including the stock of Subsidiaries) for at least fair
market value (as determined prior to such sale or disposition by the Company's
Board of Directors) so long as the net book value of all assets sold or
otherwise disposed of in any fiscal year of the Company does not exceed 10% of
the net book value of the consolidated assets of the Company and its
Subsidiaries as of the last day of the preceding fiscal year.
6.5 Change Capital Structure. Excluding the transactions listed on
Schedule 6.5, increase or decrease the number of its authorized shares, or vary
or alter the terms, par value or rights of shares of any class or type of stock,
or issue or agree to issue any capital stock or other securities of the Company,
or any
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options, warrants or other rights to acquire such capital stock or other equity
securities, or securities convertible into Common Stock or other equity
securities of the Company, or create any new class of stock of the Company;
provided, however, the Company may issue up to 555,000 shares of Common Stock to
members of the Company's management, and an additional 45,000 shares if the
Company's EBITDA for 2001 is greater than $13 million, all on terms acceptable
to the Lender pursuant to an incentive stock option program to be implemented by
the Company, subject to the Lender's approval, after Closing, and pursuant to
the directors' option plan described on Schedule 6.2.
6.6 Officers' Salaries and Loans. Pay to the persons listed on
Schedule 6.6 annual compensation in excess of the annual amounts shown on
Schedule 6.6, or as such compensation may in the future be adjusted by a
majority (including Lender's representative) of the Company's compensation and
stock option committee of the Board of Directors. The term "compensation", for
purposes of this section, shall include all remuneration for services rendered,
whether such payment be called salary, bonus, drawing account, profit sharing,
withdrawals or other form of recompense (but shall not include fringe benefits,
such as the qualified profit-sharing plan and health and life insurance,
generally available to all salaried employees and deferred compensation plans
and retirement plans approved by the Board of Directors available to certain
members of the Company's management and vehicles provided to such persons
consistent with historical practice and expense).
6.7 Amendments or Changes in Charter or Agreements. Amend, modify or
supplement in any way, or terminate, its Articles of Incorporation or By-Laws
except as contemplated by this Agreement or its Appendices; or except as
permitted by the Intercreditor Agreement, modify, alter, supplement, extend or
amend any agreement or document relating to the Senior Debt (as defined in
section 6.10) (the "Senior Loan Documents") to the extent such modification,
alteration, supplement, extension or amendment (i) increases the Senior Debt,
(ii) increases the interest rate or rates per annum or increases the fees
payable in excess of the amount of such rates of interest or fees currently in
existence thereunder, (iii) accelerates the scheduled payment dates, the
commitment reduction dates or the final maturity dates, or (iv) imposes terms
more restrictive to the Lender (with respect to the receipt of payments of
principal and interest under this Agreement) than those restrictive terms which
exist under the Senior Loan Documents as of the date hereof.
6.8 Dealings with Affiliates. Enter into any transaction (including,
without limitation, the purchase, sale or exchange of property or the
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rendering of any services) with any of the Company's directors or Affiliates
(other than the Company's Subsidiaries), or any person related by blood or
marriage to any such person or any entity in which any such person owns any
beneficial interest.
6.9 Pension and Profit Sharing Plan or Arrangements. Establish or,
except for Plans identified on Schedule 4.12 as they may be amended,
supplemented or replaced from time to time by commercially reasonable and
customary arrangements, make any contribution to any employee pension benefit
plan, or other pension or profit sharing plan or arrangement, whereby any part
of the profits or earnings of the Company (on a consolidated basis) is shared
with any person, firm or corporation.
6.10 Permitted Indebtedness. Create, incur, assume, guarantee or be or
remain liable for, contingently or otherwise, or suffer to exist any
Indebtedness (as defined below), except: (a) the Senior Debt, as defined below;
(b) the Loan; (c) purchase money indebtedness not to exceed $300,000, on a
consolidated basis, at any time, for capital expenditures permitted under
section 6.12, provided any related security interest complies with section
6.11(c); (d) Indebtedness secured by Permitted Liens; (e) Indebtedness not to
exceed $1,750,000 in connection with the IRB financing contemplated in
connection with the Norshield Expansion (as defined in section 6.12); (f) the
Company's obligations under contract payment and performance bonds entered into
in the ordinary course of business; (g) obligations under any interest rate,
currency or commodity swap agreement, cap agreement or collar agreement incurred
for bona fide hedging purposes and not for speculation; (h) Indebtedness of any
Subsidiary to the Company or of the Company to any Subsidiary; (i) Indebtedness
described on Schedule 6.10 and any extension, renewal or refinancing thereof so
long as the principal amount is not increased; and (j) other Indebtedness, in
addition to the Indebtedness listed above, in an aggregate amount not at any
time exceeding $150,000.
"Indebtedness" shall mean: (w) all indebtedness for borrowed money
(including, without limitation, that constituting all or any part of the
deferred purchase price of property or services); (x) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money; (y) all Capital Lease Obligations (as defined in
section 6.18) and (z) all indebtedness secured by any lien or security interest
on any property or asset owned or held by the Company regardless of whether the
indebtedness secured thereby shall have been assumed by the Company or is
nonrecourse to the credit of the Company.
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"Senior Debt" shall mean any and all obligations, indebtedness and
liabilities now or hereafter owing or due from the Company to LaSalle Bank under
the LaSalle Bank Credit Agreement; provided, however, that (solely for purposes
of section 6.10(a)) Senior Debt shall not include:
(i) increases in the principal amount of the indebtedness of the
Company to LaSalle Bank in excess of $3,000,000, which amount shall be reduced
in such increments and at such times as correspond to the reduction in principal
of the Company's term loan with LaSalle Bank and to the reductions in
availability under the LaSalle Bank revolving loan;
(ii) increases in the portion of interest that accrues in respect
of the indebtedness of the Company to LaSalle Bank at a rate in excess of the
otherwise applicable interest rate (or default rate) (including any adjustable
rate or rate to be reset pursuant to the terms of the LaSalle Bank Credit
Agreement) provided for under the LaSalle Bank Credit Agreement in effect on the
date hereof; and
(iii) increases in the fees, charges or expenses provided for
under the LaSalle Bank Credit Agreement in effect on the date hereof.
6.11 Liens. Create or suffer to exist, any claim, assessment, pledge,
security interest, mortgage, encumbrance or other lien (collectively, "Liens")
in favor of any person, including the Lien of a conditional seller, upon any of
its properties or assets, now owned or hereafter acquired, including treasury
shares; provided, however, that this restriction shall not be applicable to nor
prevent the following (referred to in this Agreement as "Permitted Liens"):
(a) Liens for taxes, assessments or governmental charges not
delinquent or being contested in good faith; undetermined Liens and charges
incident to construction and not resulting from any delinquent obligation for
the payment of money on account of such construction; the lessor's rights in
leasehold property, and easements, restrictions, minor title irregularities and
similar matters which have no adverse effect as a practical matter upon the
ownership and use of the properties;
(b) Liens or deposits in connection with indebtedness not in
violation of section 6.10 above, worker's compensation or other insurance or to
secure customs duties, public or statutory obligations, appeals bonds or
carrier's, warehousemen's, mechanics or materialmen's claims not more
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than 30 days delinquent or being contested by the Company in good faith and in
appropriate proceedings; or to secure performance of contracts or bids (other
than contracts for the payment of money borrowed), or deposits required by law
or governmental regulations or by a court order, decree, judgment or rule as a
condition to the transaction of business or the exercise of any right, privilege
or license or other liens of a like nature made in the ordinary course of
business;
(c) Liens securing the Senior Debt;
(d) Purchase money mortgages or Liens for capital expenditures
otherwise permitted by sections 6.10 and 6.12;
(e) Any attachment or judgment lien not constituting an Event of
Default under section 7.1 of this Agreement;
(f) Any interest or title of a lessor or sublessor under any lease
permitted by this Agreement, and any liens arising from Uniform Commercial Code
financing statements filed with respect to such leases; and
(g) Liens described on Schedule 6.11 or the replacement, extension
or renewal thereof, upon or in the same property, arising out of the extension,
renewal or replacement of the Indebtedness secured thereby (without increase in
the amount thereof).
6.12 Capital Expenditures. On a consolidated basis for the Company and
the Subsidiaries, make any Capital Expenditures or incur any Capital Lease
Obligations which, in the aggregate, will exceed the amounts set forth below for
the corresponding period set forth below.
Computation Capital
Period Expenditure Limit
------ -----------------
11/30/98 through 12/31/98 $ 110,000
Fiscal Year 1999 $ 880,000
Fiscal Year 2000 $ 968,000
Fiscal Year 2001 $1,064,800
Fiscal Year 2002 $1,171,280
Fiscal Year 2003 $1,288,408
Notwithstanding the above: (a) the Company may spend an additional $850,000 on
upgrading its computer systems during the period November 30, 1998 through
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December 31, 1999 ("ERP Upgrade") (a preliminary budget outlining various
capital expenditures falling under the ERP Upgrade is attached as Schedule
6.12); and (b) the Company may spend an additional amount, during the period of
the fiscal years 1999 and 2000, not to exceed $1,750,000 in the aggregate, on
capital expenditures related to the expansion of its Norshield manufacturing
facility located at 3224 Mobile Highway, Montgomery, Alabama ("Norshield
Expansion"). For the purposes of calculating the Fixed Charge Coverage Ratio
under section 6.17, the definition of Capital Expenditures shall exclude amounts
spent on the ERP Upgrade and Norshield Expansion.
6.13 Changes in Business or Fiscal Year. Make any significant change
in the nature of its business or enter into any agreements which would restrict
the Company's or any Subsidiary's right or ability to perform under this
Agreement, its Certificate of Incorporation or By-Laws, or change its fiscal
year.
6.14 Operating Leases. Create or assume any commitment to make any
direct or indirect payment whether as rent or otherwise under any lease, rental
or other arrangement for use of real or personal property or both having a
noncancellable term of more than three years with aggregated payments under such
arrangements, on a consolidated basis, exceeding $1,500,000 in any fiscal year
of the Company plus $500,000 in respect of all vehicle leases outstanding at any
time.
6.15 Sale and Lease-Backs. Enter into any arrangement with any lender or
investor or to which such lender or investor is a party providing for the
leasing by the Company or any Subsidiary of real or personal property which has
been or is to be sold or transferred by the Company or any Subsidiary to such
lender or investor or to any person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or rental
obligations of the Company or any Subsidiary.
6.16 Sale or Discount of Receivables. Except for discounts for prompt
payment or to settle immaterial customer disputes in the ordinary course of
business, sell with recourse, or discount or otherwise sell for less than the
face value thereof, any of its notes or accounts receivable.
6.17 Financial Covenants.
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(a) Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage
Ratio for any Computation Period to be less than the applicable ratio set forth
below for such Computation Period:
Computation Fixed Charge
Period Ending Coverage Ratio
------------- --------------
3/31/99 - 12/31/02 1.00
3/31/03 and thereafter 1.05
(b) Interest Coverage Ratio. Permit the Interest Coverage Ratio
for any Computation Period to be less than the applicable ratio set forth below
for such Computation Period:
Computation Period Ending Interest Coverage Ratio
3/31/99 - 12/31/99 1.35
3/31/00 - 12/31/00 1.80
3/31/01 - 12/31/01 2.00
3/31/02 - 12/31/02 2.50
3/31/03 and thereafter 2.70
(c) EBITDA. Permit EBITDA for any Computation Period to be less
than the applicable amount set forth below for such Computation Period:
EBITDA
Computation Period Ending
1/1/99 - 3/31/99 $1,170,000
1/1/99 - 6/30/99 2,400,000
1/1/99 - 9/30/99 3,800,000
1/1/99 - 12/31/99 5,400,000
6.18 Certain Definitions. "Asset Sale" means the sale, lease,
assignment or other transfer for value (each a "Disposition") by the Company or
any Subsidiary of any asset or right of the Company or such Subsidiary other
than (a) the Disposition of any asset which is to be replaced, and is in fact
replaced, within 30 days with another asset performing the same or similar
function, and (b) the sale or lease of inventory in the ordinary course of
business.
"Capital Expenditures" means all expenditures which, in accordance with
GAAP, would be required to be capitalized and shown on the consolidated balance
sheet of the Company, but excluding expenditures made in connection with the
replacement, substitution or restoration of assets to the extent financed (i)
from insurance proceeds (or other similar recoveries) paid on account of the
loss of or damage to the assets being replaced or restored or (ii) with awards
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<PAGE> 46
of compensation arising from the taking by eminent domain or condemnation of the
assets being replaced.
Capital Lease. The term "Capital Lease" shall mean a lease with
respect to which the lessee's obligations thereunder should, in accordance with
GAAP, be capitalized and reflected as a liability on the balance sheet of the
lessee.
Capital Lease Obligations. The term "Capital Lease Obligations"
shall mean all Indebtedness incurred as a lessee pursuant to a Capital Lease.
"Computation Period" means each of the following periods: (a) the
fiscal quarter ending March 31, 1999; (b) the period of two consecutive fiscal
quarters ending June 30, 1999; (c) the period of three consecutive fiscal
quarters ending September 30, 1999; and (d) each period of four consecutive
fiscal quarters ending on the last day of a fiscal quarter thereafter.
"Consolidated Net Income" means, with respect to the Company and
its Subsidiaries for any period, the net income (or loss) of the Company and its
Subsidiaries for such period.
"EBITDA" means, for any period, Consolidated Net Income for such
period plus, to the extent deducted in determining such Consolidated Net Income,
Interest Expense, income tax expense, depreciation and amortization for such
period, excluding any gains from Asset Sales, any noncash extraordinary gains
and any gains from discontinued operations, plus any noncash extraordinary
losses.
"Fixed Charge Coverage Ratio" means, for any Computation Period,
the ratio of (a) the total for such period of EBITDA minus the sum of all income
taxes paid by the Company and its Subsidiaries and all Capital Expenditures to
(b) the sum for such period of (i) Interest Expense plus (ii) required payments
of principal of Funded Debt (including, without limitation, the Term Loans under
the Senior Loan Documents but excluding the Revolving Loans under the Senior
Loan Documents).
"Funded Debt" means all debt that matures more than one year from
the date of its creation (or is renewable or extendable, at the option of the
Borrower, to a date more than one year from such date).
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<PAGE> 47
"Interest Coverage Ratio" means, for any Computation Period, the
ratio of (a) EBITDA for such Computation Period to (b) Interest Expense for such
Computation Period.
"Interest Expense" means for any period the consolidated interest
expense of the Company and its Subsidiaries for such period (including all
imputed interest on Capital Leases.
7. Events of Default and Remedies.
7.1 Events of Default. So long as any part of the Note remains unpaid
(including principal, interest or otherwise) any one or more of the following
shall constitute an "Event of Default" as the term is used herein:
(a) Default in the payment on the required due date of principal or
interest on the Note, provided that payment not later than three days after the
stated due date shall not be an Event of Default if the Company pays interest on
the Note at the rate specified in section 2.2(b) from and after the stated due
date;
(b) (1) Failure of the Company or any of its Subsidiaries to pay
when due or within any applicable grace period any principal or interest on
Indebtedness (other than the Note); (2) breach or default of the Company or any
of its Subsidiaries with respect to any Indebtedness (other than the Note), if
the effect of such failure to pay, default or breach is to cause, or to permit
the holder or holders then to cause, Indebtedness having an individual principal
amount in excess of $100,000 or having an aggregate principal amount in excess
of $100,000 to become or be declared due prior to their stated maturity, unless
such failure to pay, default or breach set forth in clauses (1) and (2) of this
section 7.1(b) is waived and such acceleration is annulled by such holder or
holders;
(c) Default shall occur in the observance or performance by the
Company of any term, covenant (other than the negative covenants contained in
section 6 of this Agreement) or other provision of this Agreement, or any other
Agreement executed in connection herewith and such default shall not be remedied
within 45 days after notice thereof shall have been given by the Lender to the
Company;
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<PAGE> 48
(d) Default shall occur in the observance or performance by the
Company of any negative covenant contained in section 6 of this Agreement;
(e) If any representation or warranty made by the Company in this
Agreement, or made by the Company in any exhibit, statement or certificate
attached to this Agreement or furnished to the Lender in connection with this
Agreement, proves untrue in any material respect on the date as of which made or
as of which the same is to be effective;
(f) The Company becomes bankrupt, or admits in writing its
inability to pay its debts as they mature, or makes an assignment for the
benefit of creditors, or applies for or consents to the appointment of a trustee
or receiver or for the major part of its properties;
(g) A trustee or receiver is appointed for the Company or for a
material part of its properties and the order of such appointment is not
discharged, vacated or stayed within 60 days after such appointment;
(h) Any judgment, writ or warrant of attachment or of any similar
post-judgment process in an amount in excess of $250,000 shall be entered or
filed against the Company or against any of its properties or assets and remains
unpaid, unvacated, unbonded or unstayed for a period of 60 days, unless a
reputable and financially sound insurance company has admitted in writing its
responsibility to pay such judgment;
(i) Bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or against the
Company or any Subsidiary and, if so instituted, are consented to by the Company
or any Subsidiary, or, if contested, are not dismissed by the adverse parties or
by an order, decree or judgment within 60 days after such institution; or
(j) If, at any time, Martin Roenigk shall own fewer than 940,000
shares of the Company's Common Stock or Martin Roenigk shall no longer be
serving as the Company's Chairman (except that it will not be a default if such
circumstance results from the death or total disability of Martin Roenigk).
7.2 Notice to Holder. When any condition, event or act described in
section 7.1 has occurred or exists, the Company agrees to give notice thereof to
the Lender on the next business day after the Company has knowledge
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<PAGE> 49
of such condition, event or act. The Lender agrees that the cure of any curable
default under section 7.1 also constitutes the cure of any failure to give
proper notice thereof under this section 7.2.
7.3 Acceleration. If an Event of Default specified in section 7.1(f),
(g) or (i) shall occur, the unpaid balance of the Note and interest accrued
thereon and all other liabilities of the Company under this Agreement and the
Note shall be immediately due and payable, without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived by the Company.
When any Event of Default described in the other sections of section 7.1 has
occurred and for so long as such Event of Default is continuing, the Lender, at
its option and without presentment, demand, protest or notice of any kind (all
of which the Company hereby expressly waives), may declare the Note to be due
and payable in full, and it shall thereupon become immediately due and payable.
From the date of any Event of Default specified in section 7.1(a), (f), (g), (i)
or (j), and from the date of Lender's written notice thereof to the Company
after any other Event of Default, all unpaid principal of the Note held by the
Lender shall bear interest at the rate specified in section 2.2(b) until the
Note is paid in full.
7.4 Expenses. The Company agrees to pay to the Lender all reasonable
costs and expenses incurred by the Lender (including reasonable attorneys' fees)
in connection with the collection of the Note or the enforcement or amendment of
any provisions of this Agreement.
7.5 Remedies Cumulative. The remedies provided in this section 7 are in
addition to, and not in limitation of, any other rights and remedies the Lender
may have upon an Event of Default. The Lender may exercise any or all of the
remedies provided by this section 7.
8. Representations and Warranties of Lender. The Lender represents and
warrants to the Company that the statements contained in this section 8 are
true, accurate and complete with respect to the Lender.
8.1 Capacity. The Lender has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of and
to protect its own interest in connection with the acquisition of the Note and
the Equity Securities.
8.2 Accredited Lender. The Lender is an "accredited investor" as
defined in Regulation D promulgated under the Securities Act.
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<PAGE> 50
8.3 Investment Purpose. The Lender is making this investment for its
own account and not for the account of others and not with a view to the
distribution of the Note or the Equity Securities, and has no present intention
of reselling or dividing the Note or the Equity Securities, it being understood
that neither the Note nor the Equity Securities (subject to the Lender's rights
under the Registration Agreement) will be registered under the Securities Act
and that the Note and the Equity Securities will have a legend affixed thereto
describing the restrictions on transferability.
8.4 Disclosure. The Lender has received copies of the annual reports
on Form 10-K, annual reports to shareholders, quarterly reports on Form 10-Q,
current reports on Form 8-K, and proxy statements filed by the Company with the
Securities and Exchange Commission during the past three years in compliance
with the rules under the Securities Exchange Act of 1934, as amended. In
addition, the Lender has had the opportunity to ask questions and receive
written answers concerning the Company and the Acquisition.
9. Transfer of Note; Transfer of Equity Securities; Participation.
9.1 Successor and Assigns in General. This Agreement shall be binding
upon and, subject to section 9.2 hereof, inure to the benefit of the parties
hereto and their respective successors and assigns, except that the Company may
not assign or transfer its rights hereunder or any interest herein or delegate
its duties hereunder without the prior written consent of the Lender. The Lender
shall give the Company prompt written notice of any assignment of or
participation in the Loan hereunder. Except in connection with an assignment of
its entire interest in the Note and the Equity Securities, the Lender will
continue to act as the sole agent for purposes of this Agreement on behalf of
all holders of or participants in the Note and/or Equity Securities. The Company
shall maintain a book-entry system (which shall include, without limitation, a
record of ownership that identifies each owner of an interest in the Loan or the
Note) for registration as to the rights to principal and stated interest on the
Loan and the Note, and shall promptly register any such assignment of or
participation in the Loan or the Note upon receipt of such notice.
9.2 Conditions. The Lender or any Assignee may assign all or any
portion of its interest in and rights under this Agreement, the Note and the
Equity Securities to another person (an "Assignee"), or grant a participating or
beneficial interest in this Agreement and the Loan to another person (a
"Participant"), subject to the following conditions:
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<PAGE> 51
(a) Securities Laws. Such assignment or participation shall not
be made under such circumstances as may constitute a violation of federal
securities laws or any applicable state securities laws or regulations or
(unless the transaction has been registered under the Securities Act) render the
Lender an underwriter, as defined in the Securities Act. Any proposed assignee
or participant shall be required, as a condition to such assignment or
participation, to provide the Company with written representations and
warranties substantially in the form contained in section 8.
(b) Payments; Set Off. Any payments to or recoveries by the Lender
or any Assignee or Participant under this Agreement or under any instrument or
agreement delivered in connection herewith shall be for the account of the
Lender, and all Assignees and Participants, in proportion to the amount of each
such person's interest in the Loan. Rights of setoff and banker's lien (if any)
may be exercised by each such person only after ten days' prior notice to the
Company, and amounts and property so set off or covered by such Lien may be
applied to all or any of the obligations incurred by the Company under this
Agreement, and all other amounts payable by the Company under this Agreement
which may be due or unpaid as determined by the Lender, Assignees or
Participants to the end that the property and credit balances of the Company
with each such person shall be security for, and may be applied to the payment
of, all or any of the obligation incurred by the Company under this Agreement,
and such other amounts as though such rights were exercised, and such amounts
were recovered, by the Lender.
(c) Registration. The Company shall have registered any such
assignment or grant of a participating or beneficial interest in the book-entry
system maintained by the Company pursuant to section 9.1 hereof.
(d) Further Assurance. The Company shall, from time to time at
the request of the Lender, execute and deliver to the Lender or to such party or
parties as the Lender may designate, any and all further instruments as may in
the reasonable opinion of the Lender be necessary or advisable to give full
force and effect to any transfer contemplated by this section 9.
10. Additional Provisions.
10.1 Expenses. The Company agrees upon demand to pay or reimburse the
Lender for all of its reasonable out-of-pocket expenses, including, without
limitation, all travel, legal, consulting, accounting and independent analyst
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fees and expenses, from time to time (a) arising in connection with (i) the
preparation and execution of this Agreement and all other documents, agreements,
certificates and instruments to be delivered thereunder and (ii) the legal and
financial investigation and review of the Company, (b) relating to any
amendments, waivers or consents pursuant to the provisions hereof or thereof,
(c) arising in connection with the enforcement of this Agreement and all other
agreements to be delivered hereunder or collection of the Note, and (d) relating
to the attendance of the Lender's representatives at meetings of the Company's
Board of Directors and the Lender's exercise of its inspection and visitation
rights under section 5.7. The Company agrees to pay and save the Lender harmless
from all liability for any stamp or other similar taxes which may be payable in
connection with this Agreement and the other Loan or Equity Securities documents
or the performance of any transactions contemplated hereby or thereby.
10.2 Survival of Representations and Warranties. All representations
and warranties contained herein or made by or on behalf of the Company in
writing in connection with the transactions contemplated herein shall be true
and correct as of the Closing and shall survive the consummation of the
transactions contemplated hereby for so long as the Lender (or its Assignees)
hold the Note or Equity Securities issued pursuant to this Agreement.
10.3 Notices. All notices, demands, and communications provided for
herein or made hereunder shall be delivered, or mailed first class with postage
prepaid, or telefaxed, addressed in each case as follows, until some other
address shall have been designated in a written notice given in like manner, and
shall be deemed to have been given or made when so delivered or mailed or
telefaxed:
(a) if to the Company:
CompuDyne Corporation
Attn: Martin Roenigk,
Chairman and Chief Executive Officer
120 Union Street
Willimantic, CT 06226
Telecopy: 860-456-1187
with a copy to:
Quanta SecurSystems, Inc.
Attn: William Rock
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7255 Standard Drive
Hanover, MD 21076
Telecopy: 410-712-0172
Tyler Cooper & Alcorn, LLP
Attn: Kathleen A. Maher, Esq.
205 Church Street
P.O. Box 1936
New Haven, CT 06509
Telecopy: 203-865-7865
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(b) if to the Lender:
William Blair Mezzanine Capital Fund II, L.P.
Attn: David M. Jones
222 West Adams Street
Chicago, IL 60606
Telecopy: 312-236-8075
with a copy to:
Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, s.c.
Attn: Albert S. Orr, Esq.
1000 North Water Street, Suite 2100
P.O. Box 514000
Milwaukee, WI 53203-3400
Telecopy: 414-298-8097
10.4 No Waiver, Remedies Cumulative. No delay on the part of the
Lender in exercising any right, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude other or further
exercise thereof, or the exercise of any other right, power or privilege. The
rights and remedies provided in this Agreement are cumulative and are in
addition to all rights or remedies which the Lender and such other holders
otherwise may have in law or in equity or by statute or otherwise. Without
limiting the generality of the foregoing, nothing in this Agreement shall be
deemed to preclude or be in lieu of any right or remedy which the Lender may
have in law or in equity or by statute or otherwise against the Company or any
other person based upon any fraud.
10.5 Amendments and Waivers. This Agreement may not be changed or
amended orally, and no waiver hereunder may be oral, but any change or amendment
hereto or any waiver hereunder must be in writing and signed by the Lender and
the Company.
10.6 Divisibility and Replacement of Note and Equity Securities.
Any instrument representing the Loan or any of the Equity Securities may be
divided into multiple notes or certificates in such denominations as the Lender
may request upon surrender of such instrument at the principal office of the
Company. In case any instrument evidencing the Loan or any of the Equity
Securities issued to the Lender hereunder shall be mutilated, lost, stolen, or
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destroyed, the Company shall issue and deliver in exchange and substitution for,
and upon cancellation of the mutilated instrument or in lieu of and substitution
for the instrument lost, stolen or destroyed, a new note or other document of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence satisfactory to the Company of such loss, theft or
destruction; the affidavit of the holder, without bond but with promise of
indemnity, shall be satisfactory.
10.7 Integration. This Agreement, the appendices and exhibits annexed
hereto and documents, schedules and certificates referred to herein contain the
entire agreement between the Company and the Lender with respect to the
transactions contemplated herein; and none of the parties shall be bound by nor
shall be deemed to have made any representations and/or warranties except those
contained herein and therein.
10.8 Separability. If any provision of this Agreement is held for any
reason to be unenforceable by a court of competent jurisdiction, the remainder
of this Agreement shall, nevertheless, remain in full force and effect in such
jurisdiction.
10.9 Headings. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
10.10 Governing Law; Waivers; Personal Jurisdiction.
(a) Governing Law. THIS AGREEMENT, THE NOTE AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO AND THERETO SHALL BE DEEMED TO BE CONTRACTS
UNDER THE LAWS OF THE STATE OF ILLINOIS AND FOR ALL PURPOSES SHALL BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT PROVISION OR
RULE (WHETHER OF THE STATE OF ILLINOIS OR ANY OTHER JURISDICTION) THAT WOULD
CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF
ILLINOIS.
(b) Waivers. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF ANY
AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE
MADE BY CERTIFIED MAIL--RETURN RECEIPT REQUESTED, DIRECTED TO THE COMPANY AT THE
ADDRESS INDICATED BELOW, AND
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SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED TWO BUSINESS DAYS AFTER THE SAME
SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE COMPANY HEREBY
WAIVES ITS RIGHTS TO A JURY TRIAL, ANY OBJECTION BASED ON FORUM NON CONVENIENS
AND ANY OBJECTION TO VENUE IN CONNECTION WITH ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THIS AGREEMENT, THE NOTE OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. THE COMPANY
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND KNOWINGLY AND VOLUNTARILY WAIVES
ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
(c) Exclusive Jurisdiction. EXCEPT AS PROVIDED IN SUBSECTION (d)
HEREOF, THE LENDER AND THE COMPANY AGREE THAT ALL DISPUTES AMONG OR BETWEEN THEM
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG OR BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT AND THE
NOTE, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE
RESOLVED ONLY BY STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, ILLINOIS,
UNLESS THE LENDER IN ITS SOLE JUDGMENT ELECTS TO FROM TIME TO TIME RESOLVE A
DISPUTE IN THE STATE OR FEDERAL COURTS LOCATED IN A DIFFERENT JURISDICTION, AND
THE COMPANY HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE
OR FEDERAL COURT LOCATED WITHIN SAID COUNTY AND SAID STATE, OR SUCH OTHER COUNTY
OR STATE (AS THE CASE MAY BE). THE LENDER AND THE COMPANY ACKNOWLEDGE, HOWEVER,
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF COOK COUNTY, ILLINOIS OR SUCH OTHER COUNTY (AS THE CASE MAY BE). THE
COMPANY WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT CONSIDERING THE DISPUTE. NOTHING IN THIS SECTION SHALL AFFECT THE
RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION OR
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PROCEEDING AGAINST THE COMPANY OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
(d) Other Jurisdictions. WITHOUT LIMITING THE GENERALITY OF
THE FOREGOING, THE COMPANY AGREES THAT THE LENDER SHALL HAVE THE RIGHT TO
PROCEED AGAINST THE COMPANY IN A COURT IN ANY LOCATION TO ENABLE THE LENDER TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE LENDER. THE
COMPANY WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
WHICH THE LENDER HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SECTION.
10.11 Indemnification.
(a) General. In addition to all of the Company's other
obligations under this Agreement, the Company agrees to defend, protect,
indemnify and hold harmless the Lender, its Assignees and Participants, and all
of their respective officers, directors, shareholders, partners, employees,
consultants and agents (including, without limitation, those retained in
connection with the satisfaction or attempted satisfaction of any of the
conditions set forth in this Agreement) (collectively, the "Indemnitees") from
and against any and all losses, damages, liabilities, obligations, penalties,
fees, costs and expenses (including, without limitation, reasonable attorneys'
and paralegals' fees, costs and expenses) incurred by such Indemnitees, whether
prior to or from and after the date of this Agreement, whether direct, indirect
or consequential, as a result of or arising from or relating to any suit,
investigation, action or proceeding by any person, either threatened or
initiated, asserting a claim for any legal or equitable remedy against any
person under any statute or regulation (other than suits or other actions by the
Company against an Indemnitee where the Company is successful on the merits),
regardless of whether the Indemnitee seeking indemnification is a party to the
action or proceeding for which indemnification is sought, including, without
limitation, any federal or state securities or labor laws, or under any
environmental and safety requirements or common law principles arising from or
in connection with any of the following: (A) the negotiation, preparation,
execution or performance of the documents, agreements, certificates or
instruments executed or delivered in connection with the Loan or the Equity
Securities, (B) the Lender's furnishing of funds to the Company under this
Agreement or under the Note or the Equity Securities or (C) any matter relating
to the financing transactions contemplated by this Agreement or by any document,
agreement, certificate or instrument executed or delivered in connection with
the transactions contemplated
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hereby (including, without limitation, any transaction financed or to be
financed in whole or in part, directly or indirectly, with the proceeds of the
Loan or the Equity Securities) (collectively, "Indemnified Matters"). The
Company's indemnification obligation under this section 10.11(a) shall be
reduced by the amount of any insurance proceeds actually received by the
Indemnitee, or any cash benefit actually received by Indemnitee through the
exercise by Indemnitee of any set-off rights or from the Indemnitee's assertion
of any counterclaim in connection with such suit, investigation, action or
proceeding. In no event shall the Lender be liable to the Company or any of its
affiliates for indirect, special, consequential or punitive damages. To the
extent that this undertaking to indemnify, pay and hold harmless set forth in
this section may be unenforceable for any reason, the Company shall contribute
the maximum portion which it is permitted to pay and satisfy under applicable
law, to the payment and satisfaction of all Indemnified Matters incurred by
Indemnitees.
(b) Environmental Liabilities. Without limiting the generality
of the indemnity set forth in section 10.11(a) hereof, the Company hereby
further indemnifies and agrees to hold harmless the Lender and all Indemnitees
from and against any and all losses, liabilities, damages, obligations,
penalties, injuries, costs, fees (including, without limitation, attorneys',
paralegals' and expert witnesses' fees, costs and expenses) expenses and claims
of any and every kind whatsoever paid, incurred or suffered by, or asserted
against, the Lender or any Indemnitee for, with respect to, or as a direct or
indirect result of, the past, present or future activities or operations of, or
the past, present or future condition of any property owned, operated or
otherwise used by the Company, its predecessors or successors, or any off-site
hazardous substance or waste treatment, storage or disposal facility associated
therewith (the "Properties"), including, without limitation, the presence on or
under, or the escape, seepage, leakage, spillage, discharge, emission, release,
or threatened release into, onto or from the Properties of any toxic, hazardous
or otherwise dangerous chemical, substance, material or waste, including,
without limitation, any losses, liabilities, damages, injuries, costs, expenses
or claims asserted or arising under any environmental and safety requirement
(including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act), regardless of whether caused by, or within the
control of, the Company.
(c) Survival. All obligations provided for in this section 10.11
shall survive the repayment of the Note and the termination of this Agreement.
COMPUDYNE CORPORATION
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BY________________________________
Martin A. Roenigk, Chairman
and Chief Executive Officer
WILLIAM BLAIR MEZZANINE
CAPITAL FUND II, L.P.
BY WILLIAM BLAIR MEZZANINE CAPITAL PARTNERS II,
L.L.C., its general partner
BY______________________________________
David M. Jones, Director
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EX - 99.3
CORPORATE GOVERNANCE AND SHAREHOLDER AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of November 30, 1998
among COMPUDYNE CORPORATION, a Nevada corporation (the "Company"), WILLIAM BLAIR
MEZZANINE CAPITAL FUND II, L.P., an Illinois limited partnership ("Blair") and
MARTIN A. ROENIGK (the "Shareholder"). Capitalized terms used without
definition shall have the meanings specified in section 3.
RECITALS
A. Concurrently herewith, the Company is issuing to Blair a
senior subordinated note (the "Senior Subordinated Note"), common stock and a
warrant (such common stock, warrant and any common stock issued upon exercise of
the warrant, are referred to as the "Equity Instruments") pursuant to a
Subordinated Loan and Investment Agreement between Blair and the Company dated
the date hereof (the "Subordinated Loan Agreement").
B. The execution and delivery of this Agreement is a condition to
Blair's purchase of the Senior Subordinated Note and the Equity Instruments
pursuant to the Subordinated Loan Agreement.
C. The Shareholder owns in the aggregate 1,695,345 of the issued
and outstanding Common Stock of the Company (the "Common Stock") and options to
acquire an additional 200,000 shares of Common Stock.
AGREEMENTS
In consideration of the recitals and the mutual covenants contained
in this Agreement, the parties agree:
1. Board of Directors.
(a) Subject to the provisions of section 1(c), the
Shareholder shall vote all of the shares of Common Stock now or hereafter
acquired by him and any other voting securities of the Company over which the
Shareholder has voting control and the Shareholder shall take all other
necessary or desirable actions within his control, and the Company shall take
all necessary and desirable actions within its control, in order:
<PAGE> 2
(i) to cause the authorized number of directors on the
Company's Board of Directors (the "Board") to be maintained at seven directors;
(ii) to cause the election to the Board of one
representative designated by Blair at the Company's next meeting of directors
and no later than March 31, , 1999 (the "Blair Director");
(iii) to cause the Blair Director to be elected to the
audit committee of the Board as promptly as possible following the election of
the Blair Director;
(iv) to cause the Blair Director to be elected to the
compensation and stock option committee of the Board as promptly as possible
following the election of the Blair Director;
(v) to cause the removal from the Board of the Blair
Director only upon the written request of Blair; and
(vi) if the Blair Director ceases for any reason to
serve as a member of the Board during his or her term of office, to cause the
resulting vacancy on the Board to be filled by a representative designated by
Blair.
(b) In addition to the Blair Director, Blair shall be
entitled to have another representative of Blair (the "Blair Observer") present
as a non-voting observer at all meetings of the Board and any committees
thereof. The Company shall pay all reasonable expenses incurred by the Blair
Director and the Blair Observer in connection with attending meetings of the
Board, and any committee thereof and, with respect to the Blair Director, in
connection with performing the functions and duties of a director.
(c) The rights of Blair under this Agreement shall terminate
automatically as of the date on which none of the following is true: (i) any of
the Senior Subordinated Note or the indebtedness evidenced thereby remains
outstanding and held by Blair; or (ii) Blair (or any "Successor" to Blair, as
that term is defined below) is the holder of 10% or more of the Common Stock
Deemed Outstanding. "Successor" shall mean any entity which purchases or
otherwise acquires Blair's entire then-outstanding interest in the Company from
Blair. The date on which Blair's rights under this section 1 terminate as
provided in this section 1(c) is referred to herein as the "Lapse Date."
2. Restrictions on Transfer of Shares.
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<PAGE> 3
(a) Transfer of Shares of Common Stock. Notwithstanding the
provisions of this section 2, the Shareholder may sell up to 500,000 shares of
Common Stock in the aggregate prior to December 31, 2003 and thereafter he may
sell up to 100,000 shares of Common Stock in each subsequent fiscal year while
this Agreement is in effect. All such sales shall be through ordinary broker
transactions. The Shareholder may also pledge shares of Common Stock but any
such pledged shares shall be treated as shares sold by the Shareholder for
purposes of the sales limit set forth in this section 2. Except as provided in
this section 2(a), the Shareholder shall not sell, transfer, assign, pledge or
otherwise dispose of (a "Transfer") any interest in any shares of Common Stock
except pursuant to the provisions of this section 2.
(b) Permitted Transfers. Provided that the same does not
cause a default to occur under the Subordinated Loan Agreement, a Permitted
Transfer may be consummated without compliance with the requirements of section
2(c) through (f); provided, however, that the restrictions contained in this
section 2 shall continue to be applicable to all such shares after any such
Transfer and the transferee of such shares shall agree in writing to be bound by
the provisions of this Agreement with respect to the shares so Transferred. The
following are "Permitted Transfers":
(i) a Transfer of Common Stock to Permitted
Beneficiaries resulting from the death of the holder thereof and occurring by
operation of law or by bequest; and
(ii) in the case of Common Stock held by a trust or
custodianship, [a] a Transfer pursuant to the terms of the governing instrument
as in effect when the Transferred shares were acquired by that trust or
custodianship, or [b] a Transfer to another trust or custodianship which was
established by the same settlor or by a Permitted Beneficiary of that settlor or
one or more of the Permitted Beneficiaries of that settlor; and
(iii) a Transfer of Common Stock by a holder who is a
natural Person and who is an original party to this Agreement, and not a
transferee of any such party, to: [a] a Permitted Beneficiary of such holder or
to a trust or custodianship which has as its Primary Beneficiaries one or more
Permitted Beneficiaries of such holder; or [b] a trust having one or more
organizations described in section 170(c)(2) of the Internal Revenue Code (or
any successor provision thereto) as an income beneficiary for a fixed period of
years and having as its other Primary Beneficiaries one or more Permitted
Beneficiaries of such holder.
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<PAGE> 4
(c) Transfer Notice. If the Shareholder shall propose to
Transfer shares of Common Stock (other than a Permitted Transfer), the
Shareholder shall deliver a written notice (the "Transfer Notice") to the
Company and Blair. The Transfer Notice shall specify in reasonable detail the
identity of the prospective transferee and the terms and conditions of the
Transfer, including the number of shares proposed to be Transferred and the full
consideration to be paid for such shares. The delivery of a Transfer Notice
shall constitute an irrevocable offer to sell, all but not less than all, of the
shares specified in the Transfer Notice on the terms and conditions set forth
therein in accordance with the procedures set forth in this Agreement. If Blair
proposes to transfer shares of Common Stock, Blair shall deliver a written
notice thereof to the Company at least ten days prior to completing such
transfer.
(d) Purchase by the Company. Within ten (10) days after
delivery of a Transfer Notice, the Company may deliver a Notice (an "Exercise
Notice") to the Shareholder, which Exercise Notice shall constitute an
irrevocable acceptance to purchase all the shares subject to the Transfer Notice
for the consideration set forth in the Transfer Notice. If the Company delivers
a Exercise Notice, then the sale shall be held on the sixtieth (60th) day after
delivery of the Transfer Notice, at a mutually agreeable time and place. The
Company may elect to assign a portion of its purchase right under this section
2(d) to Blair provided that collectively such parties purchase all of the shares
subject to the Transfer Notice.
(e) Purchase by Blair. If the Company does not give an
Exercise Notice to the Shareholder pursuant to section 2(d), then Blair shall be
entitled, during the period commencing on the eleventh (11th) day after delivery
of the Transfer Notice and ending on the twentieth (20th) day after delivery of
the Transfer Notice, to give an Exercise Notice to the Shareholder. The
Shareholder shall sell the shares which are the subject of an Exercise Notice
given pursuant to this section 2(e) at a Closing to be held at the principal
office of the Company on a date which is sixty (60) days after delivery of the
Transfer Notice. At the Closing, the party who delivered the Exercise Notice
shall deliver to the Shareholder the consideration specified in the Transfer
Notice, and the Shareholder shall deliver to such party certificates
representing the relevant shares purchased by such party, duly endorsed in
blank.
(f) Sale to Third Party. In the event that an Exercise
Notice is not given to the Shareholder, then the Shareholder may sell the number
of shares specified in the Transfer Notice to the prospective transferee
identified in the Transfer Notice, on the terms and conditions specified in the
Transfer Notice,
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<PAGE> 5
provided that such sale is consummated within one hundred twenty (120) days
after delivery of the Transfer Notice and subject to the participation rights
described in section 2(g).
(g) Participation Rights. If the Shareholder desires at any
time to make a bona fide transfer (other than a transfer to a Permitted
Transferee) of all or any part of his Common Stock to any third-party purchaser
in a single transaction or a series of transactions and such Common Stock is not
purchased pursuant to section 2(d) or 2(e), Blair shall have the right to sell a
proportionate number of shares of its Common Stock (or a portion of its Warrants
exercisable for that number of shares of Common Stock) to the third-party
purchaser at the same price and on the same terms and conditions as those
contained in the third-party offer. A "proportionate number of shares" means
that the percentage of shares Blair may sell out of the total number of shares
of Common Stock Deemed Outstanding owned by Blair shall equal the percentage of
shares to be sold by the Shareholder out of the total number of shares of Common
Stock Deemed Outstanding owned by the Shareholder. Blair may exercise its
option under this section 2(g) by written notice to the Shareholder given within
15 days after the expiration of the period described in section 2(e). No
Shareholder shall accept any third-party offer which does not contain a
provision requiring the third party to comply with the terms of this paragraph.
3. Definitions. In addition to the terms defined elsewhere in
this Agreement, the following terms shall have the meanings set forth below:
"Affiliate" shall have the meaning set forth in the
Subordinated Loan Agreement.
"Common Stock" means the shares of common stock, par value
$.75 per share, of the Company.
"Common Stock Deemed Outstanding" shall mean, at any date as
to which the number of shares is to be determined, (a) all of the shares of the
Common Stock issued at such date, excluding shares then owned or held by or for
the account of the Company, and (b) all shares of Common Stock issuable upon the
exercise, exchange or conversion of any unexpired and then exercisable right or
option to subscribe for, purchase or receive Common Stock or any stock or other
securities convertible into or exchangeable for Common Stock.
"Holder" shall mean each holder of the Equity Instruments.
5
<PAGE> 6
"Permitted Beneficiary" shall mean, as to any Person who is an
original party to this Agreement (and not a transferee of such party): (a) that
Person; (b) that Person's spouse; (c) that Person's issue; (d) a spouse of that
Person's issue; (e) that Person's siblings; (f) the issue of that Person's
siblings; and (g) any Person of which that Person is the issue.
"Person" shall mean and include an individual, partnership,
corporation, trust, incorporated organization and a government or any department
or agency thereof.
"Primary Beneficiaries" shall mean beneficiaries of a trust or
a custodianship who have, in the aggregate, a beneficial interest in at least
80% of the income and principal of the trust or custodianship.
4. Covenants of the Company.
(a) Prior to the Lapse Date, unless consented to in writing
by Blair, the Company shall not permit to be made any amendment, modification,
supplement or repeal of any provision of its articles of incorporation or bylaws
which would adversely affect the rights of the Holders.
(b) Except as permitted under the Subordinated Loan
Agreement, the Company shall not, prior to the earlier of December 31, 2003 or
the Lapse Date, except with the approval of a majority of the members of the
Board, (i) enter into a sale of the Company to any party or parties pursuant to
which such party or parties acquire [a] a majority of the then outstanding
shares of capital stock of the Company (whether by merger, consolidation, sale
or transfer of common stock, reorganization, recapitalization or otherwise) or
[b] substantially all of the assets of the Company and its subsidiaries,
determined on a consolidated basis; (ii) issue any capital stock or any right to
acquire capital stock in any form; or (iii) make any distribution (whether by
way of dividend or repurchase) with respect to the Common Stock.
(c) Except as permitted under the Subordinated Loan
Agreement, the Company shall not, except with the approval of a majority of the
members of the Board: (i) undertake any material acquisition or divestiture of
assets,(ii) modify or alter in any material respects the terms of any existing
agreement regarding the responsibilities of, or compensation or other payments
to, any Shareholder or Affiliate thereof or enter into any new such agreement or
agreements, (iii) hire or terminate the employment of any officer of the
Company; (iv) adopt any operating or capital expenditure budget; (v)
significantly alter the Company's business, including but not limited to
material changes in product line,
6
<PAGE> 7
customer base or distribution channels; (vi) redeem or repurchase any shares of
the Company's stock, of any class,; (vii) enter into any transaction, agreement,
or arrangement (or alter or amend in any respect the terms of any existing
agreement or arrangement) for the incurrence of indebtedness for borrowed money;
or (viii) mortgage, pledge, hypothecate or grant a security interest in or lien
against any assets and properties of the Company (or enter into any agreement,
commitment or arrangement to do so), except for purchase money security
interests securing indebtedness representing (and not in excess of) the purchase
price of assets purchased in the ordinary course of business.
(d) The Company shall amend its by-laws to specify that:
(i) the Company shall not, without the unanimous vote
of the members of the Board institute or cause to be instituted proceedings to
be adjudicated bankrupt or insolvent, or consent to the institution of
bankruptcy or insolvency proceedings against it or file (or cause to be filed) a
petition seeking, or consent to (or cause to be consented to) the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company, or a substantial part of its property, or make (or
cause to be made) any assignment for the benefit of the creditors of the
Company, or admit (or cause to be admitted) in writing its inability to pay its
debts generally as they become due, or take corporate action in furtherance of
any such action;
(ii) the Company shall not, without the prior written
consent of a majority of the members of the Board, amend, alter, change or
repeal the above provision of its By-Laws.
(e) As long as Blair is entitled to designate the Blair
Director, the Company (i) shall not remove, delete or amend Article VII of the
Company's By-Laws in any manner which would provide less indemnification
protection to directors of the Company; and (ii) shall maintain a standard
Directors' errors and omissions policy of insurance, covering all directors.
(f) Except as permitted by the Subordinated Loan Agreement,
prior to the Lapse Date, without the prior written consent of Blair, the Company
shall not issue any equity securities (or any right or option to purchase any
equity securities) unless Blair has been provided with a reasonable opportunity
to exercise Blair's preemptive right to purchase, on the same terms and
conditions as the other purchasers in such offering, such portion of the
securities to be issued as would allow Blair to maintain its percentage
ownership of the Company's equity.
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<PAGE> 8
5. Legend. Each certificate evidencing a share of Common Stock
owned by the Shareholder, so long as such shares are restricted by this
Agreement, shall bear a legend in substantially the following form:
"The securities represented by this certificate are subject to a
Corporate Governance and Shareholder Agreement dated as of November
30, 1998 among the issuer of such securities (the "Company") and
certain other parties. A copy of such Agreement will be furnished
without charge by the Company to the holder hereof upon written
request."
With respect to the shares permitted to be sold pursuant to section 2(a), such
legend shall be removed immediately prior to the sale of such shares by the
Shareholder.
6. Disguised Purchase Price Components. The Shareholder hereby
agrees to pay to Blair the Blair Percentage of any Disguised Purchase Price
Components received by the Shareholder. "Disguised Purchase Price Components"
shall mean any amounts payable pursuant to an employment agreement, consulting
agreement, noncompete agreement or similar agreement entered into by or on
behalf of the Shareholder in connection with a transaction of the nature
described in section 4(b)(i) of this Agreement, however such transaction is
structured. The "Blair Percentage" shall be the percentage equal to the number
of shares of Common Stock which would be held by Blair, giving effect to the
exercise of all options or warrants then held by Blair, divided by the number of
shares of Common Stock Deemed Outstanding as of the event of the transaction
constituting a sale of the Company or change of control, as applicable.
7. Amendment and Waiver. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company, Blair or the Shareholder unless such
modification, amendment or waiver is approved in writing by the Company, Blair
and the Shareholder. The failure of any party to enforce any of the provisions
of this Agreement shall not be construed as a waiver of such provisions and
shall not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
8. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law in any jurisdiction, such provision shall be
8
<PAGE> 9
ineffective only to the extent of such prohibition or invalidity, without
invalidating any other provision of this Agreement.
9. Entire Agreement. Except as otherwise expressly set forth
herein, this Agreement embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes any
and all prior understandings, agreements or representations by or among the
parties, or any of them, written or oral, relating to the subject matter hereof.
10. Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. Except for a Successor (as
defined in section 1(c)) to Blair, Blair's assigns will not be entitled to
exercise the rights granted Blair in sections 1 and 4 of this Agreement.
11. Remedies. Each Holder and each party hereto shall be entitled
to enforce its rights hereunder specifically to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other available
rights. The parties agree and acknowledge that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that any
such party may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance or injunctive relief, without
posting a bond or other security, in order to enforce or prevent any violation
of the provisions of this Agreement.
12. Notices. Any notice provided for in this Agreement shall be
in writing and shall be either personally delivered or mailed first class mail,
postage prepaid, or sent by prepaid overnight courier service, to the parties
hereto at the address listed on the signature page hereto or in the Company's
stock records and to any other Holder at such address or to the attention of
such other person as the recipient party has specified by prior written notice
to the sending party. Notice shall be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and on the next
day after deposit with an overnight courier service.
13. Governing Law; Captions; Counterparts. This Agreement shall
be governed by and construed in accordance with the internal laws of the State
of Illinois, without giving effect to any choice of law or conflict of law
provision or rule. The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement. This Agreement
may be executed in multiple counterparts, each of which shall be deemed an
original and all of which together shall constitute one and the same instrument.
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
WILLIAM BLAIR MEZZANINE CAPITAL FUND
II, L.P.
BY WILLIAM BLAIR MEZZANINE CAPITAL
PARTNERS II, L.L.C., its General
Partner
BY_________________________
David M. Jones, Director
Address: 222 West Adams Street
Chicago, IL 60606
COMPUDYNE CORPORATION
BY______________________________
Its___________________________
Address: 120 Union Street
Willimantic Ct 06226
_________________________________
Martin A. Roenigk
Address: 120 Union Street
Willimantic, CT 06226
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<PAGE> 11
SPOUSAL AGREEMENT
I acknowledge that I have read the foregoing Corporate Governance
and Shareholder Agreement and that I know its contents. I am aware that by its
provisions my spouse, _________________________, agrees to subject our shares of
Common Stock of CompuDyne Corporation, including our community or marital
property interest therein, if any, to a restriction on transfer should my spouse
decide to transfer such shares in certain events. I hereby approve of and agree
to the provisions of the above Agreement, and agree that I will subject any
shares of Common Stock which I may acquire through my community or marital
property interest or otherwise to the provisions of such Agreement.
November __, 1998 ______________________________
Signature
______________________________
(Print Name)
